CARICOM Concerns

Byron Blake, Guest Columnist

A situation of serious balance of payments and external financial difficulties is one of the few circumstances in which a CARICOM member state may unilaterally adopt or maintain restrictions on trade.

The invocation of such action must, in the first instance, be consistent with the member state's international obligations and is also subject to paragraph 5 of Article 43 of the Revised Treaty of Chaguaramas.

Consistency with international obligations is most easily inferred from the views of the International Monetary Fund (IMF) and relations with that body since the IMF exists to assist members overcome short-term balance of payment difficulties without resorting to trade-restricting measures. That is set out in Article 1 of the IMF Charter.

A state that is in a programme with the IMF, therefore, can hardly claim to have balance-of-payment difficulties requiring unilateral action. The IMF would have required in the process of negotiations that all actual or projected gaps be provided for. The programme and the resources provided would have taken account of the full short-term balance of payment considerations.

Even if the IMF were to admit that there are continuing balance-of-payment difficulties which could justify unilateral action, the CARICOM treaty and practice would evoke specific considerations in the application of any such actions. CARICOM practice requires, inter alia, that:

(i) Any restrictive measure be applied first to imports from third countries;

(ii) Second, if necessary, to similar imports from the CARICOM MDCs;

(iii) The application should be for a maximum of 18 months; and

(iv) Any restrictions on CARICOM trade would apply equally to all CARICOM MDCs.

Put differently, restrictions on grounds of balance of payments cannot target particular member states. Any legislation or regulation would have to be cast in the general. There have been, over the last several months, increasing calls for Jamaica to unilaterally restrict imports or withdraw from CARICOM, at least for a period. These have now reached the floor of the Senate of the governmental administration through a subtle campaign by the parliamentary Opposition. Yet, the bases of the calls remain unclear and unsubstantiated.

Concerns, which might be real, seem to include:

• Balance-of-payments (BOP) difficulties.
• Fiscal difficulties.
• Adverse merchandise balance with CARICOM.
• Unfair trade practices by one or more member states of CARICOM.

Each of these areas would need to be examined separately, however, as each would be subject to different rules or conditions. It is not a matter of throwing everything into the pot with the hope that something sticks.

BALANCE OF PAYMENTS

We have intimated earlier that a case for action on imports from CARICOM based on balance-of-payment difficulties can hardly be made by Jamaica at this time, since the country is in an active Fund programme. Such a claim would call into question the agreement with the IMF with all the implications.

More fundamentally, to the extent that Jamaica's imports from CARICOM are only a fraction of its total imports, it will be difficult to demonstrate technically that the BOP problem arises from the CARICOM imports.

Even if it is assumed for the purposes of discussion that Jamaica could apply measures in defence of its balance of payments, the restrictive action would have to be in accordance with the provisions of Article 43 of the Revised Treaty. Article 43(2) is permissive, but it sets conditions, including the fact that such restrictions:

(a) shall ... not discriminate among member states or against member states in favour of third states;

(b) shall seek at all times to minimise damage to the commercial, economic or financial interests of any other member state;

(c) shall not exceed those necessary to deal with the circumstances that gave rise to it; and

(d) shall be temporary, but in any event not longer than a period of 18 months.

Article 43(4) requires also that the measures be "notified within three working days" to the Council for Finance & Planning and the Council for Trade and Economic Development. These bodies would have the right to discuss and agree whether the measures can be maintained.

In contemplating such action, Jamaica would need to take into account that the bulk of its imports from CARICOM are petroleum and petroleum products - an essential product where there is no domestic production or substitute. Restricting the importation from CARICOM, whether by duty imposition or otherwise, would require similar action on imports from other sources, including on the trade under the PetroCaribe arrangement. Any other action would lead to a switch from a CARICOM member to a third state which would not be consistent with the treaty.

FISCAL DIFFICULTIES

Neither the revised nor the original
treaty contemplated recovery of customs duty losses. The process of
trade liberalisation implies duty losses, and Jamaica has been involved
in a process of overall trade liberalisation for some years, resulting
in revenue losses.

Even more relevant, Jamaica's trade
regime, which has been bound with the WTO, would have indicated that
duties on the imports from CARICOM states would not attract duties and
other charges not attracted by similar Jamaican products. The imposition
of duties now could raise demands for
compensation.

Similarly, raising duties on imports
from third countries above the bound, not the applied, rates could also
raise demands for compensation. In the latter case, there would be some
flexibility where the applied duties are below the bound
rates.

Revenues can be increased by the imposition of
internal duties or charges which apply to imports, including from
CARICOM and domestic production. In cases where there is no domestic
production, this would not invalidate the imposition once the
legislation or regulation is written in general
terms.

ADVERSE TRADE BALANCE

Jamaica
is an open trade economy. It runs a persistent adverse merchandise
trade balance with the world. Since the early 1990s, it has also had
adverse balances with CARICOM on the merchandise trade
account.

Jamaica runs a positive balance on its
overall services trade account, as well as its service trade account
with CARICOM. It is the overall trade, and not the merchandise trade
deficit which would be relevant. Care must, therefore, be taken in
predicating retaliatory or even remedial action on the merchandise trade
balance.

Jamaica's trade with CARICOM, even in years
of high energy prices, has been less than 20 per cent of its total
external trade. Its contribution to the trade deficit has been
consistently less than 25 per cent.

The bulk of
Jamaica's import from CARICOM, as stated earlier, is petroleum and
petroleum-based products. This ranged from 65.0 per cent in 2004 to over
80.0 per cent in 2007 and 2008, for example. Jamaica has made little
progress in reducing its energy consumption or its dependence on
imported petroleum-based energy. What is not imported from CARICOM will
be imported from third countries. The CARICOM Treaty would not
countenance the diversion of trade from a member state to a third
state.

Jamaica enjoyed a surplus on its merchandise
trade with CARICOM into the 1990s. The dominant market for its
non-traditional exports was CARICOM. In the 1980s, Jamaica shifted its
policy and promotion strategy to trade with 'large' markets, in
particular North America.

Jamaica might wish to
review, fundamentally, its production, trade and consumption strategies.
On a progressive front, with the strong shift to services in the global
trade mix, its low energy intensity and Jamaica's reputation in
culture, tourism, music and athletics, there is an opportunity to lead a
new Caribbean economic resurgence in a tight integration
framework.

Add to this the increased global importance
of the Caribbean Sea with the imminent expansion of the Panama Canal
and the creation of a logistics hub, and the regional developmental
opportunities are near limitless.

NEXT WEEK:
Unfair trade practices in CARICOM.

Byron
Blake is a former assistant secretary general of the CARICOM
Secretariat. Email feedback to
columns@gleanerjm.com.