Tweet
CARICOM: Government's lost opportunity
Published: Sunday | June 2, 2013
Anthony Hylton, minister of industry, investment and commerce. - File
Claude Clarke, Contributor
Almost five years ago, in an article titled 'Jamaica's costly affair with CARICOM', I called attention to the gross economic abuse Jamaica suffers in its association with CARICOM and suggested that we should withdraw from our trading relationship with the group. My hope was that with the Jamaica Labour Party (JLP), a party that was at best lukewarm to CARICOM when in office, the Government would have at the very least looked into the matter to determine whether Jamaica's interests were being helped or harmed by the common market relationship.
But after several subsequent articles from me, a change of administrations and a new series of articles by Ronnie Mason along the same lines, Government continues to suffer from the delusion that CARICOM is an asset to be cherished and preserved.
In the two most recent of my articles on the subject, 'CARICOM: mother of unwarranted waivers' and 'Forward to the past', I spelled out in stark terms the very significant direct cost of CARICOM to the Government's revenue and the national economy and suggested that fresh thinking was needed to reverse CARICOM's negative economic effect.
But apparently unmoved by economic facts, the Government has persisted in its dogged determination to act as if its mandate is to preserve CARICOM, while ignoring that institution's negative impact on the lives of the Jamaican people.
SOUND THEORY
As with all free-trade arrangements, the theory of CARICOM is sound. The aggregating of the region's markets, capital and labour should result in a regional economy greater than the sum of its individual parts. Each country should, in theory, experience an expansion of its domestic market, greater access to capital, a wider choice of production inputs and increased marketing clout in external markets. The revenue forgone on imports from the region should be dwarfed by the value of these advantages.
Jamaica entered CARICOM with a comparatively superior economic infrastructure which, together with more than half the value of the combined market, should have assured our dominance in regional trade. And that is how it began.
But inept handling of the relationship with our CARICOM partners and the failure to keep the economy competitive progressively eroded Jamaica's position. Our industrial base is now among the weakest in the region and our market today is barely two-thirds that of Trinidad, which has less than half our population.
Jamaica's declining position in CARICOM has been exacerbated by years of extraordinarily poor economic stewardship at home, which has left the economy teetering on the edge of a collapse that could not have been avoided without resorting to the International Monetary Fund (IMF). But, oddly enough, this important resort to the IMF has presented our Government with the prospect of benefit far greater than the obvious access to financial assistance and the Fund's imposition of fiscal discipline. It also provides the opportunity to confront obligations that for years have been detrimental to our economic well-being. One such obligation is CARICOM.
American economist Paul Romer's observation that "a crisis is a terrible thing to waste" has never been more apt. Jamaica's economic crisis and resulting control by the IMF should not have been wasted. Given the dire condition of Jamaica's economy and the inevitable stringent controls to be prescribed by the IMF, this would have been its best opportunity to remove the most egregious ills that have helped push the economy on its downward spiral. CARICOM is perhaps the most blatant of all those problems, and removing its most damaging consequences should have been part of the Government's IMF proposal.
Over the last five years CARICOM has cost the Jamaican taxpayer as much as J$70 billion of forgone revenue, used to subsidise regional imports. This subsidy, in the form of import-duty exemptions, has enabled CARICOM imports to be competitive, even with prices set at as much as 20% higher than similar extraregional goods. This may have added as much as US$200 million to our import bill in some years.
At the same time, scores of Jamaican factories have closed under pressure from these subsidised CARICOM imports. And because the provisions for the free movement of persons in CARICOM discriminate against shop floor manufacturing workers, the displaced Jamaican workers are denied the opportunity to follow their jobs to the CARICOM countries that took them.
BURDENING ECONOMY
Today, the most visible result of Jamaica's membership in CARICOM is the transfer of Jamaican businesses to non-Jamaican CARICOM ownership and the expatriation of the profits they earn.
All of this has burdened the Jamaican economy with unnecessary costs and added significantly to our staggering national debt. The greater tragedy is that Government's failure to stem these CARICOM-related costs has had the effect of increasing the economic sacrifice that now has to be borne by the sacrifice-weary Jamaican people - to meet the demands of the IMF.
Today, most Jamaicans seem to be aware that CARICOM has had a negative effect on their economic health. However, the lens through which the problem is viewed by our leaders is focused on action that cannot lead to a solution.
They define the problem by the rules of CARICOM: Trinidad is abusing its oil advantage; it bends the rules of origin criteria for some of its exports; and it unfairly applies quality standards to keep out some Jamaican exports.
While there is ample evidence to support these claims, the problems that underlie the abuse Jamaica suffers in CARICOM are far deeper and more fundamental. And they must be dealt with by more decisive sovereign action than pedantically proving specific breaches of the rules and seeking judicial remedies under the CARICOM treaty.
Our leaders seem willing to surrender Jamaica's rights to the rules of the very institution that has offended them, and to rely on its judgement for our remedies. They seem to have forgotten that it is the Jamaican people, and not CARICOM, that is their sovereign.
The logic in favour of changing our relationship with CARICOM is unimpeachable. The IMF has technically placed Jamaica in the position of 'debtor in possession': an owner who has lost the control of his business to the bank but is allowed to manage it at the bank's discretion and direction.
Under these circumstances, Jamaica could easily demonstrate that it is unable to comply with the conditions of the CARICOM agreement and seek a suspension to run alongside the four-year IMF agreement. Our balance of payments would be improved by lower-priced imports. The import-duty revenue that would be recovered could be as much as $17 billion annually: an amount greater than the entire tax package of $15.9 billion introduced in February this year to satisfy the 'prior-action' demands of the IMF.
The effect on the cost of living would be minimal, as the more competitive extraregional goods that would replace CARICOM products would naturally be cheaper; and CARICOM suppliers might even be prepared to lower their prices to remain competitive after paying the CET.
I am committed to Jamaica's development. And I believe that free-trade agreements, suitably designed and properly coordinated with our internal economic policies, have the potential to significantly contribute to Jamaica's development. Unfortunately, our present relation-ship with CARICOM does not meet these criteria.
At the same time, Jamaica cannot give up on the advantages to be gained from participation in well-designed regional trade agreements. But we must recognise the prerequisite of properly preparing the Jamaican economy to succeed within them. We must never be deluded into believing that it is CARICOM, and not the ineptness of our governments, that has caused our economic woes. With the type of economic management we have had, our economy would have floundered with or without CARICOM.
DISCHARGING RESPONSIBILITIES
By comparison, all seven regional countries participating in the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) with the US are growing because all their economies are geared up to compete fairly and equitably with each other. Trade among the CAFTA-DR partners grew by 56% between 2005 and 2011 and aggregate exports to the US surged more than 70%, creating a positive surplus over the economic superpower. The secret lay in the governments of these small countries discharging their core responsibility to keep their economies competitive. The Jamaican Government has unquestionably not done so.
Even at this late stage, the Jamaican Government needs to address the incongruity between Jamaica's interest and that of our regional partners in CARICOM. Former Republican Governor Bob Dole recently prescribed as a cure for his floundering party that it be closed for repairs and reopen only after it is mended. This would be an even more appropriate prescription for Jamaica's ailing relationship with CARICOM.
Several solutions to our CARICOM problem have been proposed. My own view is that Jamaica's best course of action would be to take a five-year timeout from the regional trade arrangement while we reorganise our economy. In the meantime, CARICOM should correct its anomalies, such as Trinidad's misuse of its oil advantage. Only then can CARICOM be a benefit; and Jamaica be able to compete in the manner that was intended by the founding fathers of the regional movement.
Claude Clarke is a businessman and former minister of industry. Email feedback to columns@gleanerjm.com.
Published: Sunday | June 2, 2013
Anthony Hylton, minister of industry, investment and commerce. - File
Claude Clarke, Contributor
Almost five years ago, in an article titled 'Jamaica's costly affair with CARICOM', I called attention to the gross economic abuse Jamaica suffers in its association with CARICOM and suggested that we should withdraw from our trading relationship with the group. My hope was that with the Jamaica Labour Party (JLP), a party that was at best lukewarm to CARICOM when in office, the Government would have at the very least looked into the matter to determine whether Jamaica's interests were being helped or harmed by the common market relationship.
But after several subsequent articles from me, a change of administrations and a new series of articles by Ronnie Mason along the same lines, Government continues to suffer from the delusion that CARICOM is an asset to be cherished and preserved.
In the two most recent of my articles on the subject, 'CARICOM: mother of unwarranted waivers' and 'Forward to the past', I spelled out in stark terms the very significant direct cost of CARICOM to the Government's revenue and the national economy and suggested that fresh thinking was needed to reverse CARICOM's negative economic effect.
But apparently unmoved by economic facts, the Government has persisted in its dogged determination to act as if its mandate is to preserve CARICOM, while ignoring that institution's negative impact on the lives of the Jamaican people.
SOUND THEORY
As with all free-trade arrangements, the theory of CARICOM is sound. The aggregating of the region's markets, capital and labour should result in a regional economy greater than the sum of its individual parts. Each country should, in theory, experience an expansion of its domestic market, greater access to capital, a wider choice of production inputs and increased marketing clout in external markets. The revenue forgone on imports from the region should be dwarfed by the value of these advantages.
Jamaica entered CARICOM with a comparatively superior economic infrastructure which, together with more than half the value of the combined market, should have assured our dominance in regional trade. And that is how it began.
But inept handling of the relationship with our CARICOM partners and the failure to keep the economy competitive progressively eroded Jamaica's position. Our industrial base is now among the weakest in the region and our market today is barely two-thirds that of Trinidad, which has less than half our population.
Jamaica's declining position in CARICOM has been exacerbated by years of extraordinarily poor economic stewardship at home, which has left the economy teetering on the edge of a collapse that could not have been avoided without resorting to the International Monetary Fund (IMF). But, oddly enough, this important resort to the IMF has presented our Government with the prospect of benefit far greater than the obvious access to financial assistance and the Fund's imposition of fiscal discipline. It also provides the opportunity to confront obligations that for years have been detrimental to our economic well-being. One such obligation is CARICOM.
American economist Paul Romer's observation that "a crisis is a terrible thing to waste" has never been more apt. Jamaica's economic crisis and resulting control by the IMF should not have been wasted. Given the dire condition of Jamaica's economy and the inevitable stringent controls to be prescribed by the IMF, this would have been its best opportunity to remove the most egregious ills that have helped push the economy on its downward spiral. CARICOM is perhaps the most blatant of all those problems, and removing its most damaging consequences should have been part of the Government's IMF proposal.
Over the last five years CARICOM has cost the Jamaican taxpayer as much as J$70 billion of forgone revenue, used to subsidise regional imports. This subsidy, in the form of import-duty exemptions, has enabled CARICOM imports to be competitive, even with prices set at as much as 20% higher than similar extraregional goods. This may have added as much as US$200 million to our import bill in some years.
At the same time, scores of Jamaican factories have closed under pressure from these subsidised CARICOM imports. And because the provisions for the free movement of persons in CARICOM discriminate against shop floor manufacturing workers, the displaced Jamaican workers are denied the opportunity to follow their jobs to the CARICOM countries that took them.
BURDENING ECONOMY
Today, the most visible result of Jamaica's membership in CARICOM is the transfer of Jamaican businesses to non-Jamaican CARICOM ownership and the expatriation of the profits they earn.
All of this has burdened the Jamaican economy with unnecessary costs and added significantly to our staggering national debt. The greater tragedy is that Government's failure to stem these CARICOM-related costs has had the effect of increasing the economic sacrifice that now has to be borne by the sacrifice-weary Jamaican people - to meet the demands of the IMF.
Today, most Jamaicans seem to be aware that CARICOM has had a negative effect on their economic health. However, the lens through which the problem is viewed by our leaders is focused on action that cannot lead to a solution.
They define the problem by the rules of CARICOM: Trinidad is abusing its oil advantage; it bends the rules of origin criteria for some of its exports; and it unfairly applies quality standards to keep out some Jamaican exports.
While there is ample evidence to support these claims, the problems that underlie the abuse Jamaica suffers in CARICOM are far deeper and more fundamental. And they must be dealt with by more decisive sovereign action than pedantically proving specific breaches of the rules and seeking judicial remedies under the CARICOM treaty.
Our leaders seem willing to surrender Jamaica's rights to the rules of the very institution that has offended them, and to rely on its judgement for our remedies. They seem to have forgotten that it is the Jamaican people, and not CARICOM, that is their sovereign.
The logic in favour of changing our relationship with CARICOM is unimpeachable. The IMF has technically placed Jamaica in the position of 'debtor in possession': an owner who has lost the control of his business to the bank but is allowed to manage it at the bank's discretion and direction.
Under these circumstances, Jamaica could easily demonstrate that it is unable to comply with the conditions of the CARICOM agreement and seek a suspension to run alongside the four-year IMF agreement. Our balance of payments would be improved by lower-priced imports. The import-duty revenue that would be recovered could be as much as $17 billion annually: an amount greater than the entire tax package of $15.9 billion introduced in February this year to satisfy the 'prior-action' demands of the IMF.
The effect on the cost of living would be minimal, as the more competitive extraregional goods that would replace CARICOM products would naturally be cheaper; and CARICOM suppliers might even be prepared to lower their prices to remain competitive after paying the CET.
I am committed to Jamaica's development. And I believe that free-trade agreements, suitably designed and properly coordinated with our internal economic policies, have the potential to significantly contribute to Jamaica's development. Unfortunately, our present relation-ship with CARICOM does not meet these criteria.
At the same time, Jamaica cannot give up on the advantages to be gained from participation in well-designed regional trade agreements. But we must recognise the prerequisite of properly preparing the Jamaican economy to succeed within them. We must never be deluded into believing that it is CARICOM, and not the ineptness of our governments, that has caused our economic woes. With the type of economic management we have had, our economy would have floundered with or without CARICOM.
DISCHARGING RESPONSIBILITIES
By comparison, all seven regional countries participating in the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) with the US are growing because all their economies are geared up to compete fairly and equitably with each other. Trade among the CAFTA-DR partners grew by 56% between 2005 and 2011 and aggregate exports to the US surged more than 70%, creating a positive surplus over the economic superpower. The secret lay in the governments of these small countries discharging their core responsibility to keep their economies competitive. The Jamaican Government has unquestionably not done so.
Even at this late stage, the Jamaican Government needs to address the incongruity between Jamaica's interest and that of our regional partners in CARICOM. Former Republican Governor Bob Dole recently prescribed as a cure for his floundering party that it be closed for repairs and reopen only after it is mended. This would be an even more appropriate prescription for Jamaica's ailing relationship with CARICOM.
Several solutions to our CARICOM problem have been proposed. My own view is that Jamaica's best course of action would be to take a five-year timeout from the regional trade arrangement while we reorganise our economy. In the meantime, CARICOM should correct its anomalies, such as Trinidad's misuse of its oil advantage. Only then can CARICOM be a benefit; and Jamaica be able to compete in the manner that was intended by the founding fathers of the regional movement.
Claude Clarke is a businessman and former minister of industry. Email feedback to columns@gleanerjm.com.
Comment