David and Goliath
Jamaica Observer
David and Goliath
By Anthony Gomes
6 June 2007
The title refers to the possibility of David, Caricom, endeavouring to negotiate a Free Trade Area (FTA) with Goliath, the United States. There has been a general criticism that the language used in reporting international trade matters is not readily understood by the average reader. As far as possible therefore, this article is couched in colloquial language.
For some years now, Jamaica enjoyed one-way free trade benefits with the US under the Caribbean Basin Initiative (CBI) for a wide range of goods excluding services. The CBI, being a "one way" non-reciprocal free trade arrangement, is obliged to operate under a waiver (special permission) from the World Trade Organisation (WTO) expiring next year. The CBI boosted Caricom’s exports, and its non-renewal is a significant setback.
Roughly three-quarters of Jamaica’s exports are directed to the US, and nearly half of our imports come from there. This makes the US Caricom’s main trading partner. What then are the options?
First, the possibility of continuing the CBI is remote. Second, Caricom can adopt the Generalised System of Preferences (GSP), that is preferential tariffs, and this is less advantageous than those available in a Free Trade Area. Third, continue waiting for the Free Trade Area of the Americas (FTAA) to restart, which is unlikely. Fourth, conclude a Free Trade Agreement with the US using the CBI benefits as a benchmark upon which to build. There are a myriad of difficulties with implementing the fourth option, as David (Caricom) faces Goliath (US), the world’s only superpower, and its largest economy. Earlier, the US had indicated that an FTA for "substantially all trade", that they believe to be above 90 per cent, is the only acceptable option for serious consideration.
However, from examination of similar FTAs which the US has concluded with Central American countries (CAFTA) and the Dominican Republic (DR), the US applied a "template" that defines the boundaries within which it is prepared to negotiate that is seen as very restrictive. This tactic puts Caricom at a distinct disadvantage from the outset of any negotiations. CAFTA, after concluding the FTA with the US, now offers more attractive conditions to investors, hence Jockey’s recent move from Jamaica to Costa Rica.
Despite this daunting situation, as David felt when he first looked up at the towering Goliath, it is believed the "template" can be challenged. The basis of a challenge, being the 14 (Bahamas not included) smallest states in the hemisphere, composed of small economies and small island developing states (SIDS), and the present level of development of Caricom nations, demands in equity differential treatment. A significant degree of Special & Differential (S&D) treatment had already been negotiated in the FTAA, and other aspects of S&D await the outcome of the Doha Development Round to be formally legalised.
A major concern is the revenue loss from the removal of import duties, accompanied by the decline in GCT proceeds, together totalling from 10 to 16 per cent of Jamaica’s national revenue. The longer the time from entry into force of an FTA, to the date of the complete abolition of import duties, except for those areas designated as non-negotiable, the less would be the negative impact on Jamaica’s national revenue. The inevitable consequence of liberalisation is that tariffs so foregone have to be recovered by additional taxation likely to be through indirect taxes. This situation makes it imperative for the Informal Sector, estimated at 43 per cent of Jamaica’s economy, to be urgently brought into the tax net by whatever means.
The Jamaica Chamber of Commerce has always recommended a maximum market opening in Jamaica of 80 per cent. An exclusion zone of 20 per cent would be reserved for the preservation of non-negotiable national assets whether they are in services, goods, natural resources or other economic or cultural activities.
Sensitive products and processes which usually require a longer gestation period should be allowed 25 years to become internationally competitive and self-supporting. A similar 25-year arrangement has been granted by the European Commission in the Economic Partnership Agreement (EPA) negotiations with Caricom.
An influential factor that needs explanation is the Trade Promotion Authority (TPA) previously known as "Fast Track", conferred on the US president which expires this month. TPA allows a proposed trade agreement put before the US Congress, to be approved or disapproved in total, without further inquiry as to specific aspects of the treaty. Without TPA, any trade agreement is likely to languish in the Congress being scrutinised and questioned for a very long time. Such a delay would be highly unfavourable and costly to the negotiating process estimated to be in the region of US$2 million for completion of a Caricom/US FTA.
Submissions, and by elimination of the three options mentioned, so far indicate that Caricom should choose an FTA, as the only long-term strategy possible to create a permanent trade relationship with the US despite the enormous difficulties to be encountered. If, however, once started the negotiations become too onerous, then Caricom may withdraw adopting the GSP option mentioned earlier, while it plans an alternative forward strategy.
Minister of Foreign Affairs and Foreign Trade Anthony Hylton has said: "Our objective, as we approach the conference on the Caribbean, should be to forge a development partnership with the USA centred on trade and investment. This is an objective we should aim not only to promote, but to achieve."
It remains for the Council for Trade and Development (COTED) to decide the direction for Caricom to follow after the Conference on the Caribbean in Washington this month.
