Ransford Smith | Global Trade: Navigating a world of constricting policy space (Part II)

Part I of this article focused on the incompatibility with World Trade Organization (WTO) rules of GCT levied solely on imports. This part observes that regional and inter-regional trade arrangements entered into have as well constricted policy space – thus narrowing overall options for protection facing small developing countries such as Jamaica.

The current public debate on the incompatibility of levying internal taxes solely on imports provides the opportunity to draw attention to the very real constriction of trade policy space in global economic relations and, relatedly, to the complexity that is likely to attend that which some would regard as the obvious compensatory solution to the removal of GCT on imported agricultural products. This would be to maintain and even strengthen border protection on these agricultural products, by increasing tariffs and ‘other duties and charges’, specifically additional stamp duties.

However, this may be an option of limited usefulness. As has been noted, in the WTO Jamaica has bound its agricultural tariffs at a ceiling rate of 100 per cent. This is effectively the maximum tariff that Jamaica can apply on any agricultural import. Furthermore, and additional to its 100 per cent tariff bindings, in the WTO Jamaica has bound at 15 per cent ‘other duties and charges’ – in this case additional stamp duties – on most agricultural products, but with several notable exceptions. In Jamaica’s WTO Schedule, other than the many agricultural products bound at 15 per cent, additional stamp duties are, exceptionally, bound at 80 per cent on just over 50 tariff lines, and at 200 per cent on a few others. The tariffs and additional stamp duties are compounded in their application, thus offering substantial levels of actual and potential protection. Fresh vegetables, sugar, meats, poultry are among products with the highest level of combined tariff and stamp duties. The WTO Secretariat, commenting on Jamaica’s tariff profile in its report submitted to an earlier review of the country’s trade policies and practices, observed that: “The aggregate duties (tariff plus ASD) based on the Stamp Duty Act range from 65 per cent to 260 per cent for products that attract additional stamp duty”.

CANNOT EXCEED

It must be emphasised that Jamaica cannot legally exceed these levels of tariff and additional stamp duties on any agricultural import: where the WTO ceiling levels are already in force, no further protection can be provided – unless the country enters into potentially onerous renegotiations with trading partners, involving new trade-offs and rebalancing of interests. This situation is also complicated by the fact that while Jamaica has bound agricultural tariffs at 100 per cent in the WTO, the country has for several years, and in conformity with its obligations in another body – CARICOM – applied, at the border, rates much lower than those bound at the WTO. Since the 1990s, the CARICOM common external tariff (CET) of up to 40 per cent – with certain product exceptions – has been applied to agricultural imports from third countries, while agricultural imports from other CARICOM members enter Jamaica duty free.

Of some relevance as well is the major reciprocal trade agreement entered into by CARIFORUM members – CARICOM plus the Dominican Republic – with the European Community and its member states in 2008. This is the CARIFORUM-EU Economic Partnership Agreement (EPA). A phased process of reduction will result in CARIFORUM members, by 2033, eliminating tariffs on more than 90 per cent of imports from the EU, by tariff lines. There are of course the usual exclusions and long phase-in period for sensitive products, most of which would be readily recognisable as some of the same agricultural products that attract substantial additional stamp duties in Jamaica’s WTO Schedule. This is particularly noteworthy since Article 16 of the EPA requires that CARIFORUM members, including Jamaica, completely eliminate additional stamp duties on imports from the European Union. Indeed, under Article 16 this should be achieved by 2025 – that is, within 10 years of a grace period that ended in 2015.

ENSURING TRANSPARENCY

With a view to ensuring transparency, CARIFORUM members were required to notify these ‘other duties and charges’ to the CARIFORUM-EC Trade and Development Committee some years ago and are also required to promptly notify this committee upon their elimination. This could also possibly represent a complication to any effort to compensate for the removal of GCT from imported agricultural products by increasing tariffs and additional stamp duties, in so far as this may still be feasible in the context of WTO bindings. Jamaica’s adherence to the CARIFORUM-EU EPA commits the country to liberalise all trade substantially and reciprocally with the European Union. But of especial relevance considering the issue at hand, is that this would appear to rule out the possibility of maintaining – much less increasing – additional stamp duties on any agricultural import of EU origin. And although it is recognised that, though a major trading partner, the EU is not a leading source currently for agricultural imports into Jamaica, it is a major global agricultural producer with substantial export potential.

In concluding, I will reiterate that the reality for small developing countries is that under WTO rules, as well as a network of regional and other agreements, the permissible protection that can be afforded domestic producers is much less robust than even informed observers seem to recognise. In the case of the WTO, the illusion of autonomy and considerable flexibility to accommodate national circumstances is perpetuated to large extent by the behaviour of great powers who sometimes flout the rules, secure in the knowledge that besides moral suasion the only tool available to adversely affected trading partners is dispute resolution procedures, and ultimately, if there is no compliance or withdrawal of an offending measure by the great power, trade retaliation by the aggrieved.

Regrettably, this is not a course sensibly open to small countries lacking significant trade and economic clout, and for whom trade – and exports – is the essence of their economic well-being. For such countries, the promotion of fair and equitable rules, and steadfast advocacy for the adherence by all to a rules-based multilateral trading system remains the optimal strategy.

Ransford Smith served previously as Jamaica’s ambassador to the World Trade Organization. In the 1990’s, he was permanent secretary in the Ministry of Industry, Investment and Commerce. Subsequently, he was Commonwealth Deputy Secretary General. Send feedback to columns@gleanerjm.com