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Claude Clarke, Contributor
It has always been assumed that CARICOM is of great economic benefit to Jamaica. Certainly, Jamaica for a long time has had a somewhat romantic fascination with the idea of Caribbean integration and many of our leaders have been passionate advocates of regionalism. However, given the fact that economic unions exist principally to advance the economic interest of each of its member nations, the case for Jamaica's participation in CARICOM bears closer examination.
Caribbean free trade began in the 1960s and Jamaica's benefit in the early years cannot be disputed. Exports grew impressively and reached US$85 million by 1982, representing 15 per cent of total exports. This gave us a trade surplus with CARICOM of US$25 million. So well did we do that in 1982, Trinidad introduced an import-licensing regime, purportedly for monitoring purposes, but which in execution, turned out to be a trade embargo directed at specific Jamaican exports.
competitive advantage
The Trinidadian manufacturers justified their government's actions with the claim that Jamaica had gained a competitive advantage by devaluing its currency. They further argued that payments for their shipments to Jamaica were being delayed by exchange-control regulations in Jamaica. It was my guess at the time that the Trinidadian producers calculated that a cessation of trade with Jamaica would be in their interest, as they would lose little from the then relatively weak Jamaican market, and gain much by keeping Jamaican goods out of Trinidad, which at the time was characterised by very strong demand for consumer products.
I well recall during meetings arranged in an effort to end the embargo, the Trinidadian manufacturers using the analogy of a funnel to demonstrate how the rest of CARICOM (substitute Jamaica) was pouring their products into Trinidad, with Trinidad having the much more difficult task of getting its goods back up the funnel to their markets.
precipitous decline
The embargo resulted in a precipitous decline in Jamaica's trade with CARICOM, with both exports and imports being cut by half. After five years, Trinidad lifted its embargo in 1988, apparently after it was satisfied that new government- policy initiatives had improved the competitiveness of its manufacturers. Jamaica's exports recovered and reached US$71 million by 1991.
However, this positive trend was dramatically reversed after the revaluation policy was introduced in Jamaica in 1992. Jamaica's exports to CARICOM again went into steep decline and are now barely US$50 million, while imports from CARICOM have surged from US$68 million in 1991, to US$1.3 billion today.
In an earlier article, I addressed the enormous damage which has been done to Jamaica's competitiveness by our revaluation policy. Nowhere is this damage more pronounced than in our trade with CARICOM. A competitive currency is essential for survival in a free-trade bloc. This is because the strategies normally used to mitigate competitive disadvantage to domestic producers, tariffs and non-tariff barriers, are not supposed to be used. Jamaica has not had a competitive currency since 1991.
However, the uncompetitiveness of our currency is not singularly responsible for our amazingly lopsided trade with CARICOM today. Perhaps even more responsible is an unbelievable naïveté in the way we have negotiated the arrangements for trade within the group. If it is true that a country's participation in a free-trade agreement can only be justified if there is economic gain for that country, then what has been Jamaica's economic gain from CARICOM over the last 15 years?
Certainly, any free-trade agreement will always present a trade-off between negative and positive outcomes, but for there to be economic gain, the positives must outweigh the negatives. In Jamaica's case they have not. These have been some of the negative outcomes:
Substantial revenues needed to finance our social services and develop-ment programmes have been sacrificed as a result of the zero-duty rating on imports from CARICOM. Revenues lost could be as much as J$20 billion for 2007.
A common external tariff (CET) allows for higher prices to be charged on goods traded within the free-trade area. That is because the protective tariff wall places goods from outside the free-trade area at a competitive disadvantage, even if they are more competitive at our port of entry. It is, therefore, likely that the prices paid for some of our imports from CARICOM are higher than prices for similar goods of comparable quality from extra-regional sources. If this were not so, the protective tariff (CET) would not be necessary. The amount overpaid in this way could amount to tens of millions of US dollars.
Several productive enterprises in Jamaica have suffered and thousands of jobs have been lost due to grossly unfair competition from within CARICOM. The rules of CARICOM have been allowed to operate in a manner highly injurious to Jamaica. The harmonisation of fiscal incentives is intended to ensure a level playing field for taxes and subsidies among participating countries. How can it be then that Trinidad is able to price energy going to its productive enterprises on the basis of subsidised oil and natural gas? The fact that these are Trinidad's commodities is of no relevance. Oil and natural gas are traded internationally and any price below the world-market price represents a subsidy.
However, as substantial as these negatives are, there might well have been positives to outweigh them if there was anything approaching the growth in exports to the region that there was for imports from the region. But exports, instead of growing, have contracted. Since 1991, they have declined by 25 per cent, or by 50 per cent if adjusted for inflation. As a result, much of Jamaica's wealth has been shifted to the Eastern Caribbean. Through the persistent trade deficit with CARICOM, Jamaica has transferred over US$6 billion, or over US$7 billion if adjusted for inflation, to the Eastern Caribbean since 1991. This is almost 80 per cent of our gross domestic product, and 100 per cent of our entire external debt.
betrayed
Norman Manley must be turning in his grave, as his dream of a united Caribbean which would contribute to Jamaica's development, is comprehensively betrayed. Not even the most hostile opponent of the West Indies Federation would have dreamt that Jamaica could have lost so much from its relationship with the Caribbean. The evidence of this transfer of Jamaica's wealth and power is all around us. The manufacturing industries of the Caribbean are virtually standing on the corpse of Jamaica's once-thriving manufacturing sector. Many of our largest firms are now in the ownership of Eastern Caribbean interests. The giant Wray and Nephew, Caribbean Cement Company, Life of Jamaica, Mutual Life, are just a few outstanding examples. Several everyday products like soaps and detergents previously made in Jamaica now come to us from the Eastern Caribbean. This has created the most massive export of Jamaican jobs in our history. A large portion of the over 70,000 manufacturing jobs we have lost are now in the factories of our CARICOM trading partners. The irony is that having exported these jobs, our leaders have now signed on to a free movement of labour agreement, which ensures that our displaced workers cannot follow their lost jobs to the countries which have benefited, or even seek any other employment there. Instead, we have an elitist agreement for the free movement of graduates of our universities.
The question is, therefore, even more compelling. Why is Jamaica in CARICOM? The problem is that too many of our leaders have viewed regional cooperation through a lens of romantic idealism. Trinidad, on the other hand, seemed always to have seen regional relationships as a means towards an economic end. It is time for Jamaica to apply Trinidad's 'funnel analogy' to ourselves and turn the direction of trade back in our favour.
To solve this disastrous and clearly unsustainable situation, certain actions will have to be taken with the greatest urgency.
The first is a change in attitude. Jamaica must end its expensive infatuation with CARICOM and adopt the same hard-nosed business attitude to it that Trinidad has. Balanced trade targets must become the central object of our CARICOM policy.
Our government must move to have a special high-level committee of CARICOM charged with the responsibility of creating a mechanism for achieving equity and fair trade within CARICOM in the shortest possible time.
On the table for discussion must be a CARICOM energy policy which requires that any energy-pricing arrangement provided for producers in an energy- producing country be also available to producers in the rest of CARICOM.
The CET levels on petroleum products should be adjusted to remove or reduce the tariff difference between regional and extra-regional sources. This is to ensure that we spend no more than we have to for these internationally available products.
Achieving balanced trade on non-petroleum products must also be an objective. Correcting this imbalance by itself could add meaningfully to our GDP, recover thousands of lost jobs and save and earn millions of dollars of foreign exchange.
Jamaica's monetary and fiscal policies must be reviewed to ensure that legitimate incentives available elsewhere in CARICOM are also available to Jamaican producers and that our monetary policies do not continue to disadvantage our own producers.
If these issues cannot be resolved and fairness and equity in our trade with CARICOM achieved, even as a lifelong supporter of regionalism, I would conclude that there would be no justification for Jamaica remaining a part of the common- market section of CARICOM and that we should opt for the position taken by The Bahamas and participate only in the Caribbean community section of CARICOM.
Claude Clarke is a former trade minister and manufacturer. Feedback may be sent to columns@gleanerjm.com.
Claude Clarke, Contributor
It has always been assumed that CARICOM is of great economic benefit to Jamaica. Certainly, Jamaica for a long time has had a somewhat romantic fascination with the idea of Caribbean integration and many of our leaders have been passionate advocates of regionalism. However, given the fact that economic unions exist principally to advance the economic interest of each of its member nations, the case for Jamaica's participation in CARICOM bears closer examination.
Caribbean free trade began in the 1960s and Jamaica's benefit in the early years cannot be disputed. Exports grew impressively and reached US$85 million by 1982, representing 15 per cent of total exports. This gave us a trade surplus with CARICOM of US$25 million. So well did we do that in 1982, Trinidad introduced an import-licensing regime, purportedly for monitoring purposes, but which in execution, turned out to be a trade embargo directed at specific Jamaican exports.
competitive advantage
The Trinidadian manufacturers justified their government's actions with the claim that Jamaica had gained a competitive advantage by devaluing its currency. They further argued that payments for their shipments to Jamaica were being delayed by exchange-control regulations in Jamaica. It was my guess at the time that the Trinidadian producers calculated that a cessation of trade with Jamaica would be in their interest, as they would lose little from the then relatively weak Jamaican market, and gain much by keeping Jamaican goods out of Trinidad, which at the time was characterised by very strong demand for consumer products.
I well recall during meetings arranged in an effort to end the embargo, the Trinidadian manufacturers using the analogy of a funnel to demonstrate how the rest of CARICOM (substitute Jamaica) was pouring their products into Trinidad, with Trinidad having the much more difficult task of getting its goods back up the funnel to their markets.
precipitous decline
The embargo resulted in a precipitous decline in Jamaica's trade with CARICOM, with both exports and imports being cut by half. After five years, Trinidad lifted its embargo in 1988, apparently after it was satisfied that new government- policy initiatives had improved the competitiveness of its manufacturers. Jamaica's exports recovered and reached US$71 million by 1991.
However, this positive trend was dramatically reversed after the revaluation policy was introduced in Jamaica in 1992. Jamaica's exports to CARICOM again went into steep decline and are now barely US$50 million, while imports from CARICOM have surged from US$68 million in 1991, to US$1.3 billion today.
In an earlier article, I addressed the enormous damage which has been done to Jamaica's competitiveness by our revaluation policy. Nowhere is this damage more pronounced than in our trade with CARICOM. A competitive currency is essential for survival in a free-trade bloc. This is because the strategies normally used to mitigate competitive disadvantage to domestic producers, tariffs and non-tariff barriers, are not supposed to be used. Jamaica has not had a competitive currency since 1991.
However, the uncompetitiveness of our currency is not singularly responsible for our amazingly lopsided trade with CARICOM today. Perhaps even more responsible is an unbelievable naïveté in the way we have negotiated the arrangements for trade within the group. If it is true that a country's participation in a free-trade agreement can only be justified if there is economic gain for that country, then what has been Jamaica's economic gain from CARICOM over the last 15 years?
Certainly, any free-trade agreement will always present a trade-off between negative and positive outcomes, but for there to be economic gain, the positives must outweigh the negatives. In Jamaica's case they have not. These have been some of the negative outcomes:
Substantial revenues needed to finance our social services and develop-ment programmes have been sacrificed as a result of the zero-duty rating on imports from CARICOM. Revenues lost could be as much as J$20 billion for 2007.
A common external tariff (CET) allows for higher prices to be charged on goods traded within the free-trade area. That is because the protective tariff wall places goods from outside the free-trade area at a competitive disadvantage, even if they are more competitive at our port of entry. It is, therefore, likely that the prices paid for some of our imports from CARICOM are higher than prices for similar goods of comparable quality from extra-regional sources. If this were not so, the protective tariff (CET) would not be necessary. The amount overpaid in this way could amount to tens of millions of US dollars.
Several productive enterprises in Jamaica have suffered and thousands of jobs have been lost due to grossly unfair competition from within CARICOM. The rules of CARICOM have been allowed to operate in a manner highly injurious to Jamaica. The harmonisation of fiscal incentives is intended to ensure a level playing field for taxes and subsidies among participating countries. How can it be then that Trinidad is able to price energy going to its productive enterprises on the basis of subsidised oil and natural gas? The fact that these are Trinidad's commodities is of no relevance. Oil and natural gas are traded internationally and any price below the world-market price represents a subsidy.
However, as substantial as these negatives are, there might well have been positives to outweigh them if there was anything approaching the growth in exports to the region that there was for imports from the region. But exports, instead of growing, have contracted. Since 1991, they have declined by 25 per cent, or by 50 per cent if adjusted for inflation. As a result, much of Jamaica's wealth has been shifted to the Eastern Caribbean. Through the persistent trade deficit with CARICOM, Jamaica has transferred over US$6 billion, or over US$7 billion if adjusted for inflation, to the Eastern Caribbean since 1991. This is almost 80 per cent of our gross domestic product, and 100 per cent of our entire external debt.
betrayed
Norman Manley must be turning in his grave, as his dream of a united Caribbean which would contribute to Jamaica's development, is comprehensively betrayed. Not even the most hostile opponent of the West Indies Federation would have dreamt that Jamaica could have lost so much from its relationship with the Caribbean. The evidence of this transfer of Jamaica's wealth and power is all around us. The manufacturing industries of the Caribbean are virtually standing on the corpse of Jamaica's once-thriving manufacturing sector. Many of our largest firms are now in the ownership of Eastern Caribbean interests. The giant Wray and Nephew, Caribbean Cement Company, Life of Jamaica, Mutual Life, are just a few outstanding examples. Several everyday products like soaps and detergents previously made in Jamaica now come to us from the Eastern Caribbean. This has created the most massive export of Jamaican jobs in our history. A large portion of the over 70,000 manufacturing jobs we have lost are now in the factories of our CARICOM trading partners. The irony is that having exported these jobs, our leaders have now signed on to a free movement of labour agreement, which ensures that our displaced workers cannot follow their lost jobs to the countries which have benefited, or even seek any other employment there. Instead, we have an elitist agreement for the free movement of graduates of our universities.
The question is, therefore, even more compelling. Why is Jamaica in CARICOM? The problem is that too many of our leaders have viewed regional cooperation through a lens of romantic idealism. Trinidad, on the other hand, seemed always to have seen regional relationships as a means towards an economic end. It is time for Jamaica to apply Trinidad's 'funnel analogy' to ourselves and turn the direction of trade back in our favour.
To solve this disastrous and clearly unsustainable situation, certain actions will have to be taken with the greatest urgency.
The first is a change in attitude. Jamaica must end its expensive infatuation with CARICOM and adopt the same hard-nosed business attitude to it that Trinidad has. Balanced trade targets must become the central object of our CARICOM policy.
Our government must move to have a special high-level committee of CARICOM charged with the responsibility of creating a mechanism for achieving equity and fair trade within CARICOM in the shortest possible time.
On the table for discussion must be a CARICOM energy policy which requires that any energy-pricing arrangement provided for producers in an energy- producing country be also available to producers in the rest of CARICOM.
The CET levels on petroleum products should be adjusted to remove or reduce the tariff difference between regional and extra-regional sources. This is to ensure that we spend no more than we have to for these internationally available products.
Achieving balanced trade on non-petroleum products must also be an objective. Correcting this imbalance by itself could add meaningfully to our GDP, recover thousands of lost jobs and save and earn millions of dollars of foreign exchange.
Jamaica's monetary and fiscal policies must be reviewed to ensure that legitimate incentives available elsewhere in CARICOM are also available to Jamaican producers and that our monetary policies do not continue to disadvantage our own producers.
If these issues cannot be resolved and fairness and equity in our trade with CARICOM achieved, even as a lifelong supporter of regionalism, I would conclude that there would be no justification for Jamaica remaining a part of the common- market section of CARICOM and that we should opt for the position taken by The Bahamas and participate only in the Caribbean community section of CARICOM.
Claude Clarke is a former trade minister and manufacturer. Feedback may be sent to columns@gleanerjm.com.
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