CARICOM: killing us softly
Published: Sunday | June 7, 2009
Claude Clarke, Contributor
The rhetoric in CARICOM has been alluring and beguiling. It has aroused the 'better angels of our nature' and evoked idealistic images of unity and cooperation. It has reminded us of our common heritage and joined us in hopes of achieving our common aspirations. Government after government in Jamaica have unquestioningly joined the quest for the Holy Grail of Caribbean integration. But, for Jamaica, this pursuit has, so far, been extremely costly, and frustratingly elusive.
In The Sunday Gleaner of August 10 last year, in an article titled "Jamaica's Costly Affair with CARICOM", I invited a re-examination of Jamaica's experience in CARICOM, and proposed that action be taken to correct the persistent and increasingly disadvantaged position in which Jamaica has found itself. I emphasised the fact that our government's revenue and our overall economy have suffered enormously in our trade with the region. The situation has worsened since then, and our trade deficit with CARICOM now stands at US$1.6 billion, and exceeds our total exports to the region 40-fold.
In the early 1960s, my young mind was greatly perplexed by the news that the then government had banned imports from Japan on the grounds that that country imported nothing from us. At the time, I could not help believing the decision was at best imprudent; a case of cutting off our nose to spite our face. After all, Japan had become an industrial superpower and was perhaps the world's best source of competitively priced, high-quality industrial goods needed for our own development and the satisfaction of our consumers' needs.
essential strategies of trade policy
But what my youthful naďvete did not grasp at the time was that, notwithstanding the obvious downside of the action, reciprocity and balanced trade were, and still are, essential strategies of trade policy. After all, the ultimate purpose of trade policy is the promotion and development of a country's productive capacity. Regrettably, in more recent times, Jamaica's trade policies have seen a diametric departure from these fundamental and incontrovertible principles; and the consequences have been disastrous.
Our present overall trade deficit is almost half of our gross domestic product and represents over three times the value of our exports. We have a negative trade balance with just about every country with which we trade. Within CARICOM - our membership, which was expected to provide a protected trade environment in which we could compete and grow our exports - imports have dwarfed exports by staggering proportions.
With 50 per cent of the population of CARICOM, Jamaica ought to have had a natural advantage and should have been able to dominate trade within the group. Instead, we have become the dumping ground of every country in the region. Just about every member state enjoys a trade surplus with Jamaica.
Recent difficulties encountered by some Jamaican companies in entering certain CARICOM markets have rightfully attracted outrage and prompted strong responses from our Government and the private sector. But while our Government's actions will no doubt result in the resolution of the present impasse, Jamaica's problems with CARICOM are much deeper and more entrenched than can be solved with a piecemeal approach. The permanent solution Jamaica needs has to go to the heart of the problem which affects our competitiveness in the region.
There is no doubt that the anti-production economic policies of past governments, which left Jamaica the most uncompetitive economy in the region, have been major contributors to our present hopeless trading position. However, equally damaging to Jamaica's competitiveness in the region has been the extraordinary imbalance in the substantial government subsidies given to producers in certain countries, which are not available to Jamaica's producers.
CARICOM is a free-trade market within which all producers should be on an equal footing where government assistance is concerned. It is, therefore, quite amazing that Jamaican governments have sat by for so many years and allowed the Trinidadian government, in particular, to use subsidies and other devices to put its producers on a superior competitive footing to ours. It is clear that natural gas and oil used in Trinidad for energy production is priced at less than the world-market prices, which non-oil-producing CARICOM countries, like Jamaica, have to pay. As a result, Trinidad's producers pay only three US cents per kWh for electricity while Jamaican producers have been stuck with electricity bills at rates as high as 25 cents per kWh (JPS inefficiency not withstanding).
Such subsidies give Trinidad's producers an insurmountable advantage and are incompatible with the fundamental principles of fair trade within a common market. It is surprising that Trinidad, in its obvious quest for CARICOM domination, has not recognised that its own enlightened self-interest would be better served by being more judicious in its use of energy as a weapon of trade in the region. One cannot but wonder, however, whether Trinidad was not encouraged in its actions by the apparent complicity of our own Government which had, at the same time, been sending the Jamaican economy into uncompetitiveness with misguided macro-economic policies.
Trinidad's producers now completely dominate Jamaica's market, while Jamaican producers have minimal presence in theirs. This one-way trade cannot be sustained and should no longer be tolerated by the Jamaican Government. Apart from anything else, it is depriving the Jamaican Treasury of desperately needed revenue; perhaps as much as J$20 billion of Customs duties foregone last year. How can it be rational for our Government to ask us to sacrifice revenues we desperately need for our schools, our hospitals and our security forces so as to allow subsidised Trinidadian goods to drive Jamaican goods produced in Jamaican farms and factories by Jamaican workers, out of the Jamaican market?
How many Jamaican manufacturers have been driven into the ground by Trinidadian products benefiting from three cents per kWh electricity and duty-free entry into the Jamaican market? How many workers and farmers who now stare hopelessly into the black hole of unemployment are aware of the fact that their distress is substantially the result of unfair trade practised by some of our CARICOM trading partners?
There is a good reason The Bahamas does not participate in the trade aspect of CARICOM: it cannot justify surrendering the revenue needed to provide social services to its people if it cannot gain commensurately from exports of goods to the region. What is more, the logic of protective-tariff barriers suggests that more foreign exchange is spent for CARICOM imports than would be needed to pay for similar goods imported from extra-regional sources. This is even truer in Jamaica's case, as the additional cost of imports from CARICOM could run into tens of millions of US dollars and is likely paid for with debt, adding to our burgeoning debt stock and exacerbating our debilitating debt-servicing burden.
expanding the domestic and export market
The position from which every country's trade policy should start is the objective of expanding the domestic- and export-market opportunities for its productive assets: its workers, factories and farms. No trade policy, not even CARICOM, should be accepted if it cannot be demonstrated that it will result in the achievement of this objective.
Trinidad and Tobago was accused recently of using non-tariff barriers to block the importation of patties from Jamaica. There have also been difficulties getting Red Stripe beer into the Belizean marketing.
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Because the outrageous trade imbalance with CARICOM so obviously undermines and destroys the economic and social well-being of the Jamaican people, there would have to be some powerful countervailing benefit to justify it. On the other hand, it would be in the interest of any country that has a significant trade surplus with Jamaica to create opportunities for reciprocity to ensure the continuation of the benefit it enjoys.
Trinidad, which is by far the greatest beneficiary of CARICOM trade, was provided a real opportunity to reciprocate when Jamaica requested LNG supplies at its domestic price. Trinidad initially agreed, but after a long period of broken promises and unfulfilled expectations, declined the request and Jamaica's hopes for low-cost energy were dashed.
Unfortunately, Jamaica contributed as much as Trinidad to the failed outcome by employing a most ill-advised negotiating strategy. We sought to use Jamaican alumina as a bargaining chip, as Trinidad needed alumina for its planned aluminium smelter. But it should have been clear that Trinidad never saw Jamaica as a necessary source of alumina and never felt pressured to secure Jamaica as its source. Additionally, because our request for LNG was linked to the Jamalco alumina plant expansion, the Trinidadian government was far more concerned with anticipated opposition from its own electorate, which would not have taken kindly to their government giving subsidised natural gas to a multi-national company, Alcoa, which is the majority owner of the Jamalco plant. What is surprising is that the Jamaican Government did not recognise that it had a far better and more powerful bargaining chip: the enormous market Jamaica represents to Trinidad's producers under the protective cover of CARICOM.
Competitively priced energy is essential to Jamaica's economic future and our Government should have taken a much stronger stand to force Trinidad to honour its original commitment to supply our LNG on the same basis as it supplies it to its own producers. Given the circumstances of Trinidad-Jamaica trade, this should now be a non-negotiable condition for Trinidad's exports to continue to receive duty-free CARICOM treatment from Jamaica. Trinidad's exports to Jamaica exceeded US$1.5 billion in 2008 and were exceeded only by its exports to the United States.
For many years, nearly all our CARICOM partners have watched their trade surplus with Jamaica rise and the prosperity of their people grow. Many, like Trinidad, now boast per capita incomes several times greater than ours, with every indication that the gap will continue to widen. CARICOM has been killing Jamaica softly, while we have slept quietly. It is now time for us to wake up and defend ourselves. It is time to say enough. Jamaicans must now demand that our Government begin to protect us from the abuse our economy has suffered within CARICOM; and wake up and fight.
Claude Clarke is a former trade minister and manufacturer. Feedback may be sent to columns@gleanerjm.com.
