Jamaica: October 1998
Jamaica needs a stable domestic economy and open access to export markets if it is to realize renewed economic growth by next year. Despite comprehensive structural reforms in the mid-1990s,
Jamaica must stabilize its economy and diversify its exports - Jamaican products to face market access problems
Jamaica needs a stable domestic economy and open access to export markets if it is to realize renewed economic growth by next year. Despite comprehensive structural reforms in the mid-1990s, a new WTO report and the first on Jamaica's trade policies and practices, notes that Jamaica's economy is highly vulnerable to domestic and external shocks. While rising production costs and an appreciating currency have undercut Jamaica's competitiveness, changes in external markets are making it more difficult for Jamaica to export key products such as clothing, sugar, bananas and bauxite. Moreover, the expiry of EU preferential trade access under Lomé IV and the recent WTO legal rulings on the EU banana regime will affect Jamaican exports.
The WTO Secretariat report and a policy statement prepared by the Government of Jamaica will provide the basis for a discussion at the WTO on 29 and 30 October 1998.
That WTO report notes that in 1985, Jamaica started a comprehensive programme of structural reform and liberalization and dismantled its price controls, privatized several public enterprises, reduced import duties and enhanced the role of the private sector. It also improved tax collection and reduced expenditure. However, the financial crisis of the mid-1990s contributed to a recession in 1996-1997. The economy is slowly beginning to recover, but is still deemed vulnerable.
According to the WTO's report, Jamaica is a relatively open economy which is very dependent on trade, with external transactions in goods and services representing over 100% of GDP. Tourism, followed by exports of bauxite/alumina and clothing, are the main earners of foreign exchange, amounting to 75% of foreign earnings. Jamaica's imports of goods, mainly oil, raw materials and capital goods, are twice as large in value as its exports. Jamaica's export markets are the United States, for manufactures, and the United Kingdom, for exports under preferential terms of sugar and bananas.
Despite guaranteed access levels for certain products, Jamaican exports of clothing to the United States have been losing market share to other more competitive producers, especially from Mexico, a member of the North American Free Trade Agreement (NAFTA). A main policy goal for Jamaica, a member of the regional trade agreement CARICOM (Caribbean Community and Common Market), is to obtain NAFTA-treatment for products of CARICOM origin. Preferential access for CARICOM bananas may be affected by the recent ruling of a WTO panel on European Unions' banana import regime, and by the expiry of Lomé IV.
Jamaica's import duties have been lowered from rates as high as 200% to maximum levels of 30% for industrial products and 40% for agricultural goods. Currently, Jamaica has an unweighted average MFN tariff of 10.9%. Protection is higher for agricultural products, with an average of 20.2%, while industrial imports face an average tariff of 8.4%. Jamaica's tariff structure offers higher levels of protection to goods with high value added and to agricultural products. Inputs, whether raw materials or capital goods, are generally granted duty-free access. Final goods that are substitutes for domestic production normally face the highest CARICOM common external tariffs (CET), from 20% to 25%. Exceptions to the CET, including motor vehicles and some electrical appliances, are charged import duties of up to 30%. In addition to tariffs, other duties are levied on certain imports, and can range from 65% to 90%. Moreover, a 15% General Consumption Tax is applied on all imported and domestically-produced goods.
The report mentions that Jamaica applies a wide range of production and export incentives, including tax concessions and duty-free access for imports of inputs and capital goods. The Government plans to eliminate these incentive schemes by the year 2003, when Jamaica, as a developing country, is expected to comply fully with the disciplines of the WTO Subsidies Agreement.
Services, mostly tourism, is the largest and fastest growing sector in the Jamaican economy, accounting for over 55% of GDP and employing around 60% of the total employed population. Under the General Agreement on Trade in Services (GATS), Jamaica made commitments on tourism, business, educational, health-related, recreational, transport and financial services. Jamaica also participated in the basic telecommunications and financial services negotiations concluded in 1997 .
The report notes that the mining sector is the second most important generator of foreign exchange in Jamaica after tourism. Its contribution to GDP was 9.4% in 1996, up from 8.8% in 1992. Bauxite and alumina production accounted for over 50% of Jamaica's merchandise exports. All exports of minerals require a permit from the Ministry of Mining.
Jamaica is not party to the WTO's plurilateral Agreement on Government Procurement, although a regional CARICOM plan is underway to create a central, regional information coordination agency. The report states that Jamaica is currently bringing its anti-dumping legislation into conformity with the relevant provisions of the WTO agreement.
The report concludes that in order for Jamaica to meet the targets outlined in its future industrial plan, which aims to achieve annual GDP growth of between 6 and 7.5%, it must continue to focus on increasing domestic economic stability and ensuring open market access for its products in key export markets.
Notes to Editors
The WTO's Secretariat report, together with a policy statement prepared by the Jamaican Government, will be discussed by the WTO Trade Policy Review Body (TPRB) on 29 and 30 October 1998. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system. The Secretariat report covers the development of all aspects of each of Jamaica's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the new "areas" of services and trade-related aspects of intellectual property rights are also covered.
To this press release are attached the summary observations from the Secretariat report and a summary of the government policy statement. The full Secretariat and government reports are available for journalists from the WTO Secretariat on request (call 41 22 739 5019). They are also available for the press in the newsroom of the WTO internet site (www.wto.org). The Secretariat report, together with the government policy statement, a report of the TPRB's discussion and the Chairman's summing up, will be published in hardback in due course and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991 & 1998), Iceland (1994), India (1993 & 1998), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994 & 1998), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
The Secretariats report: summary
TRADE POLICY REVIEW BODY: JAMAICA
Report by the Secretariat Summary Observations
In the past twenty years, but particularly since 1985, the Jamaican economy has become relatively open and liberal, with few restrictions to trade. A liberalization process engaged in the framework of CARICOM has gone hand-in-hand with commitments under the multilateral trading system.
After average GDP growth of 5% between 1962 and 1973, the Jamaican economy underwent a period of declining output and large internal and external imbalances that lasted until the mid-1980s. Although a more outward looking strategy was initiated somewhat earlier, it was not until 1985 that Jamaica started a comprehensive programme of structural reform and liberalization, aimed particularly at restoring external balance and reducing state intervention in the economy. The process of structural reform, supported by IMF and World Bank programmes and by debt rescheduling, was continued and strengthened during the 1990s, when price controls were dismantled, several public enterprises privatized, import duties reduced and the role of the private sector in economic activity enhanced.
GDP grew at an average rate of some 2½% in the decade following 1986. Monetary discipline served to help bring inflation down from 80% in 1991 to around 9% in 1997. However, the consequent high interest rates and real appreciation of the currency, combined with a financial sector crisis, again slowed growth and led to an economic downturn in 1996 and 1997.
After a period of budget surplus between 1990 and 1995, resulting from an improvement in tax collection, reductions in expenditure and income from privatization, the fiscal balance deteriorated in 1996, to a deficit of 7.2% of GDP in fiscal 1996/97 and 9.5% in 1997/98. The main reasons for this increase were the reduced rate of economic activity stemming from the financial sector crisis (leading to lower tax revenues) and increases in government spending resulting from higher interest payments and a growing public sector wage bill.
The economy is very dependent on trade, with external transactions in goods and services representing over 100% of GDP. Tourism has been the main earner of foreign exchange since 1983, followed by exports of bauxite/alumina and clothing; these three sectors account for 75% of foreign earnings. The relatively low degree of export diversification and strong dependence on imported oil, inputs and capital goods, means that Jamaica is vulnerable to external shocks. Jamaica's heavy reliance on a single market, the United States, for exports of manufactures, and on the United Kingdom for exports, under preferential terms, of sugar and bananas, adds to this vulnerability, especially since rising unit labour costs and an appreciating currency have affected competitiveness. Despite guaranteed access levels for certain products, exports of clothing to the United States have been losing market share to other more competitive producers during the past few years; in the case of bananas, preferential access could be affected by the recent ruling of a WTO Panel regarding the EU's banana import regime.
Net private transfers, particularly remittances from Jamaicans working abroad, play an important role in the economy. The surplus on current transfers, of some US$ 640 million in 1997, helps finance the large trade deficit. Jamaica's imports of goods are twice as large in value as its exports. Net capital inflows allowed an increase in foreign exchange reserves in most of the past ten years; more recently, they have also been encouraged by high interest rates, contributing to the real currency appreciation.
Trade Policy Regime and Objectives
The National Industrial Plan for the period 1996 to 2010 seeks to achieve annual GDP growth of between 6% and 7.5%, to reduce unemployment and to triple the value of exports. It targets five strategic clusters in which Jamaica has traditionally had a comparative advantage: tourism, shipping and berthing, agro-processing, apparel, and bauxite and alumina. These are to be promoted through investment in infrastructure, technology and machinery and equipment. The Plan aims at encouraging the development of skills in areas with higher value added and technological content, through the use of a number of incentives.
A major trade policy concern is the loss of export competitiveness due to high production costs and the erosion of preferential market access, as well as real exchange rate appreciation. The authorities are particularly concerned about exports of clothing to the U.S. market, which have lost market share vis-à-vis Mexico and other lower-cost producers A policy goal is to achieve NAFTA-treatment for CARICOM products. Another trade policy concern is Jamaica's access to the EU market and the expiry of Lomé IV in 2000.
Jamaica, formerly a GATT contracting party, became a WTO Member on 9 March 1995. In the Uruguay Round, Jamaica bound all its industrial tariffs at a uniform ceiling rate of 50% and its agricultural lines at 100%; other duties and charges were bound at 15%, with few exceptions. Jamaica is also in the process of amending its domestic legislation, where necessary, to give effect to obligations undertaken in the Uruguay Round. An Anti-dumping Act is currently under preparation. New Patent and Trademark Acts are being drafted, and the Copyright Act is in the process of amendment to conform with the WTO Agreement on the Trade-related Aspects of Intellectual Property Rights (TRIPS), as well as with the Bilateral Intellectual Property Rights Agreement with the United States. Legislation with respect to trade secrets and layout design is expected to be implemented shortly.
Under the GATS, Jamaica made commitments on tourism, business (including professional), educational, health related, recreational, transport and financial services, as well as in the subsequent negotiations on telecommunications and financial services.
To date, Jamaica has not been involved directly, as either plaintiff or defendant, under the GATT or WTO dispute settlement mechanisms. However, Jamaica's exports of bananas may be affected by the recent WTO dispute settlement funding that the EU's import regime and licensing procedures were inconsistent with certain WTO provisions. Jamaica has held bilateral consultations with the European Union, Canada, and the United States regarding technical regulations and standards, seafood, and textiles.
Jamaica is a founding member of the Caribbean Community and Common Market (CARICOM). CARICOM has been moving towards greater integration since 1991, when the Caribbean Single Market and Economy (CSME) was endorsed. Jamaica adopted CARICOM's Common External Tariff (CET) in 1991. In 1993, a four-phase schedule of CET rate reductions was implemented, with the goal of lowering the maximum tariff for most goods other than agricultural products to 20% in 1998. A further step towards integration was taken in 1997 under two protocols amending the Treaty Establishing the Caribbean Community; these are expected to lead to the free movement of goods, services, and capital, while further steps are taken to liberalize the movement of persons. Schedule I of the CARICOM Treaty allows a few national exceptions to the duty free entry of goods from other CARICOM member states. Jamaica maintains milk and cream (fresh, evaporated or condensed) on this list; imports of these products from other CARICOM countries are subject to the CET.
CARICOM has preferential trade agreements with Colombia and Venezuela. Under the Agreement with Colombia, Jamaica, as a CARICOM medium-development country, binds duty-free access bilaterally as of 1 June 1998 on a number of products that de facto already receive MFN duty free treatment, on an unbound basis. Phased, bound duty reductions will be extended from 1 January 1999 on another group of products, including some that currently pay MFN customs duties. The Agreement with Venezuela offers unilateral preferential treatment for CARICOM exports.
Foreign investment is regulated by the provisions of bilateral investment agreements, which generally incorporate the national treatment principle. To date, agreements exist with Argentina, China, France, Germany, Italy, the Netherlands, Switzerland, the United Kingdom and the United States, while bilateral agreements with Belgium/Luxembourg, Canada, Costa Rica, Cuba, Korea and Russia are under negotiation. Investment issues are also covered in CARICOM's agreements with Colombia and Venezuela. There are no restricted areas for foreign investment; screening practices, used until recently, have been abandoned.
Trade Policy by Instrument
Since the mid 1980s, when Jamaica engaged in a process of trade liberalization, import duties have been lowered from rates as high as 200% to the current maxima of 30% for industrial products and 40% for agricultural goods. Jamaica adopted the CARICOM's Common External Tariff (CET) in 1991 for all goods, except a group of mainly agricultural products (List A) and industrial goods (List C). Under CARICOM Jamaica has engaged in tariff reductions to a ceiling, possibly to be achieved during 1998, of 20% for industrial products other than those included in its list of exceptions. As a consequence of this liberalization effort, Jamaica currently has an unweighted average MFN tariff of 10.9%. Protection is higher for agricultural products, with an average rate of 20.2%, while industrial imports face an average tariff of 8.4%.
Tariffs and other price-based measures are currently the preferred trade policy instrument. Jamaica does not use other measures, such as prior import deposits, minimum import or export prices, variable import levies, import surveillance, local-content requirements, or restrictions for balance-of-payments purposes. Jamaica's tariff structure offers higher levels of protection to goods with high value added and to agricultural products. Inputs, whether raw materials or capital goods, are generally granted duty-free access. Final goods that are substitutes for domestic production normally face the highest CET rates, from 20% to 25%. Exceptions to the CET, including motor vehicles and some electrical appliances, are charged import duties of up to 30%.
In addition to tariffs, Additional Stamp Duties on Customs Warrants Inward are levied on certain imports, including some agricultural products, alcoholic beverages, tobacco products, and aluminium products. Border charges for agricultural products are calculated on an aggregate level including the tariff, and they range from 65% to 90% The additional stamp duty on alcoholic beverages is 34%, while tobacco products are subject to a rate of 56% rate, and aluminium products to rates of 20% to 25%..
The General Consumption Tax (GCT), introduced in 1991, is applied on all imported and domestically-produced goods, except those exempted or zero-rated. The rate for most products is 15%. Motor vehicles are generally subject to higher GCT rates than other goods, with rates reaching a peak of 176.92%.
Jamaica has delayed the application of the WTO Agreement on the Implementation of GATT Article VII (on Customs Valuation), in accordance with the provisions of the Agreement, and has until end-1999 to bring its valuation system into conformity with its WTO commitments; it is in the process of implementing the changes required. The valuation system currently applied is based on the Brussels Definition of Value. Reference prices are sometimes used, especially on imports of meat and other foods, clothing, footwear, and used motor vehicles.
The Jamaica Bureau of Standards (JBS), under the Ministry of Commerce and Technology, is in charge of developing and controlling standards. It also assesses the conformity of applied standards with ISO standards, as well as their WTO conformity. Jamaica has about 500 local standards, including 100 technical regulations. A number of compulsory standards have been notified to the WTO. Jamaica is in the process of harmonizing standards, labelling and packaging with other CARICOM members.
Jamaica is not party to the plurilateral Agreement on Government Procurement. Government procurement is not included in the scope of CARICOM, although an action plan to create a central regional information coordinating agency has been launched. Procurement for Jamaican governmental agencies is regulated by the Financial Administration and Audit Act (FAA). Ministry of Finance and Planning guidelines are used for the procurement of supplies.
Anti-dumping legislation is being brought into conformity with the relevant provisions of the WTO Agreement on the Implementation of Article VI of the GATT, 1994 (Anti-Dumping Agreement); this exercise is expected to be completed before the end of 1998. The Anti-Dumping Advisory Board is in charge of conducting investigations with respect to the dumping of goods, as well as for the possible application of countervailing measures. Some investigations have taken place, but Jamaica has never made use of anti-dumping measures; nor has it applied countervailing duties on imports.
Although licences are still needed for the importation of some products, particularly motor vehicles and some agricultural products, in general terms licensing is not used as an instrument for the protection of local production, but for health and environmental reasons. Quantitative restrictions were eliminated in the mid-1980s.
Measures affecting exports, production and trade
Jamaica applies no export taxes. There are no export bans, but a system of export licensing for products representing over half of Jamaica's exports, including bauxite/alumina, is in effect. There are no export quotas or specific export performance requirements.
Jamaica applies a wide range of incentive schemes; these generally include tax concessions and duty-free access for imports of inputs and capital goods. Some schemes are geared at promoting exports, such as measures under the Export Industry Encouragement Act (EIEA) and Foreign Sales Act. Others are designed to promote the development of some specific industry, such as the Hotel Incentives Act or the Bauxite Encouragement Act, while still others are more broadly applied to a whole sector, such as the Modernization of Industry Programme. The Government plans to eliminate these incentive schemes by the year 2003, when Jamaica, as a developing country, is expected to comply fully with the disciplines of the WTO Agreement on Subsidies and Countervailing Measures. The elimination of these schemes will be facilitated by Jamaica's programme of tariff reductions; duty concessions granted by some schemes have, in some cases, already been eroded or wiped out by the elimination of tariffs on non-competing inputs and capital goods.
The establishment of free zones is regulated through the Free Zone Encouragement Act, which has now been extended to cover single-entity zones, namely, firms located outside the three existing Free Zones. Companies in Free Zones must export at least 85% of their production; activity is concentrated in textile and clothing production.
Most price controls and food subsidies have been eliminated, and only the prices of certain basic products and services, including water, electricity, domestic kerosene and bus fares, remain under administration. Business practices are regulated by the Fair Competition Act.
Measures by Sector
The agricultural sector, including food processing, beverages and tobacco, accounts for some 16% of GDP. Agricultural exports are dominated by traditional products, especially sugar, bananas, cocoa, citrus and other fresh fruit and vegetables, which accounted for almost 16% of domestic exports in 1996. Processed foods, beverages and tobacco are an additional 14% of exports.
Jamaica is a net importer of agricultural products; in 1996 imports were almost one third greater in U.S. dollar value than exports. The main imported agricultural products are cereals and preparations of cereals, dairy products and eggs, meat, sugar and sugar products, beverages and spirits, vegetable oils and fats, and fish. Until deregulation in the mid-1980s, Commodity Marketing Boards acted as single traders for a number of crops, including cocoa, coffee, bananas, coconut and sugar; these are now open to private trading. Quantitative restrictions on the importation of agricultural products were dismantled in the mid-1980s and replaced by tariffs and additional stamp duties. All imports of fresh fruits and vegetables, plants and plant parts require an import permit, issued by the Plant Quarantine Department of the Ministry of Agriculture.
Agricultural tariffs vary between 0 and 40%, with inputs normally subject to low rates or granted duty free access. In 1997, Jamaica's simple average MFN tariff on agricultural products was 20.2%. Imports of fruit, vegetables and sugar face above average tariffs, while non-competing imports, either for final consumption or as inputs, face lower rates. A wide range of agricultural imports are subject to additional stamp duties, which, applied on the c.i.f. value plus the tariff, can raise the level of protection to up to 90%. Beverages and spirits are subject in addition to a special consumption tax.
Sugar is Jamaica's main agricultural export, with a value of some US$ 100 million in 1997. Jamaica's sugar exports are directed mainly to two markets: the United Kingdom and the United States, under preferential market access and price arrangements. Exports of sugar to the European Union are subject to a regular annual quota of 126,000 tonnes and a supplementary quota of 30,000 tonnes. The regular quota has been filled every year, while the degree of use of the supplementary quota has varied. The Sugar Industry Authority (SIA) is in charge of handling specialized market arrangements and of granting export licences.
Bananas are Jamaica's second largest agricultural export, to a value of US$45 million in 1997. The main market for Jamaican bananas is the United Kingdom. Bananas from Jamaica and other Caribbean countries have traditionally enjoyed preferential access to the European Union under the Lomé Convention. The sector could be affected by the ruling of the WTO Dispute Settlement and Appellate Bodies that certain import practices by the EU contravene WTO rules.
The 1997 MFN tariff on imports of industrial products averaged 8.4%, with a peak of 30%. The highest tariffs are applied on products where there is significant important domestic production, such as clothing and apparel articles, leather goods, and soap, toiletries and detergents. The manufacturing sector has a number of incentives, including income tax exemptions, and import duty concessions on production for export outside CARICOM.
Textiles and clothing are the main earners of foreign exchange in manufacturing. Some 84% of exports go to the United States, with guaranteed or designated access quotas for a group of clothing products under the framework of the Bilateral Textile and Apparel Agreement signed between Jamaica and the United States in 1994. The Agreement applies to textile manufactured products of cotton, wool, or man-made fibres. Quotas are applied on 20 products grouped in eight categories, and are generally not filled. Most companies benefiting from these programmes operate in Free Zones, particularly the Montego Bay Free Zone. Jamaica also has a textile and clothing arrangement with Canada, dealing with managed access under a quota system for underwear.
The mining sector is the second most important generator of foreign exchange, after tourism; its contribution to GDP was 9.4% in 1996, up from 8.8% in 1992. Bauxite and alumina production accounted for over 50% of Jamaica's merchandise exports, generating foreign exchange earnings of US$ 726 million, in 1997. Other mining products of importance include non-metallic materials, such as limestone/lime, marble and gypsum. However, as a capital-intensive activity, the sector employs only about 6,000 people. There are no government controls on mining production, and prices are market-determined. Although there are no restrictions on the importation or exportation of minerals, all exports of minerals require a permit from the Ministry of Mining.
The services sector is the largest and fastest growing in the Jamaican economy. It accounts for over 55% of GDP (including government services) and employs around 60% of the total employed population; tourism receipts are almost equal to those from merchandise exports (US$ 1.4 billion). Activity in the sector has been largely liberalized, with few restrictions remaining. Market access is relatively open in most of the services sub-sectors; national treatment applies for providers of services in most areas. Financial services and telecommunications have undergone major reforms in the past years, with now a strengthened regulatory framework. In telecommunications, privatization had led to a temporary monopoly in the provision of basic telephony services, which is expected to be dismantled by 2013.
Under the General Agreement on Trade in Services (GATS), Jamaica scheduled "horizontal" commitments regarding commercial presence and the movement of natural persons for all sectors included in its Schedule. Specific commitments were scheduled in business services (including professional services, computer and related services, research and development services, real estate and other business services); educational services; financial services; health related and social services; tourism and travel-related services; recreation, cultural and sporting services; and transport services. Jamaica presented a Schedule of Specific Commitments in the Negotiations on Telecommunications. Jamaica also submitted an offer in the Negotiations on Financial Services. The commitments in professional and other business services, including computer services generally accord national treatment; employment of foreigners ("presence of natural persons") is subject to the relevant domestic legislation. For some services, (e.g. tax agents) an economic needs test may be required. There are no broad restrictions with respect to national treatment: total foreign ownership is allowed in all sectors. The last area where foreign ownership was limited, insurance, was liberalized in the WTO Negotiations on Financial Services, concluded in December 1997.
Jamaica's economy has undergone a dramatic process of liberalization and deregulation since 1985, particularly during the 1990s. The financial crisis of the mid-1990s has, however, contributed to a recession out of which the economy is only now beginning to emerge. Dependence on a limited number of exports and markets, and on tourism, keeps the island's economy highly vulnerable to both domestic and external shocks; in this context, the rising domestic cost structure and adjustment to changes in external markets for textiles, clothing and bananas are cause for possible concern. Jamaica needs both domestic economic stability and open access to markets for its exports in order to progress.Back to top
TRADE POLICY REVIEW BODY: JAMAICA
Report by the Government
Jamaica is an independent, English-speaking Caribbean island which has a total area of 10,990.5km2. It forms part of the greater Antilles comprising also Cuba, Hispaniola (Haiti and the Dominican Republic), and Puerto Rico. The population of Jamaica is estimated at 2.5 million with a work force of 1.1 million. Jamaica since its independence in 1962, adopted, as its form of government, a parliamentary democracy based on the Westminster model.
There have been several phases to the countrys development. Jamaica was under Spanish rule from 1494 to 1655, and subsequently under British rule from 1655 to 1962. For more than 180 years after 1655, Jamaica was primarily a plantation economy based on the cultivation of sugar cane and export of sugar using slave labour. With the abolition of slavery in 1838 and the decline of sugar, until the 1940's, Jamaica progressively diversified into the production of other export crops such as coffee, cocoa, logwood, bananas and citrus. Tourism became an increasingly important industry after the turn of the century. From the 1950s, and for nearly 35 years, bauxite mining and alumina production was the islands most important earner of foreign exchange. In 1985, it was surpassed by tourism. During the 1950s and 1960s, economic and trade policies were designed to promote import substitution for domestic consumption and export promotion with the emphasis on labour intensive industries. In the 1970's, Jamaica continued on the path of a mixed economy but with increased state participation.
Since the 1980's and throughout the early 1990's, Jamaica underwent an accelerated programme of structural adjustment reforms to adapt to the global trend toward trade liberalization.
The reforms consisted of the programme of privatization and divestment which facilitated the deregulation of sectors of critical development importance such as agriculture, tourism, transportation, banking, manufacturing and communications. These have resulted in the liberalization of markets, the elimination of price controls and subsidies, and the reduction and removal of tariffs and non-tariff barriers to trade. Other measures included a simplification of the tax system, financial sector reforms to enhance the prudential and supervisory role of the Bank of Jamaica, and the strengthening of monetary policy .
The economic development of Jamaica, classified as a small economy, has to be viewed, in part, in the context of the constraints placed upon it by its small size, population, markets, and limited range of resources. Countries the size of Jamaica tend to be high cost producers in both the manufacturing and agricultural sectors. They are also externally propelled economies because of their high degree of openness. The impact of global economic fluctuations is felt more intensely in a very small country and this compounds economic vulnerability. Jamaica is continually striving to improve its level of international competitiveness, but it is challenged both by its geography and the new international trading environment in which it must now function.
Recent Economic and Trade Environment
Prompted by the emergence of an increasingly competitive global economy and sluggish domestic economic growth, the government adopted, in March 1996, a National Industrial Policy (NIP) outlining the range of policies which will serve to underpin the current process of domestic macro-economic adjustment and recovery. Recognizing the pivotal role of the export sector to the countrys development, the NIP emphasizes an aggressive export-oriented, private sector-led development strategy coupled with a programme of efficient import substitution. This outward-looking approach has been adopted as a means of facilitating Jamaicas integration into the regional and global economies by way of ensuring that the requisite conditions are in place to facilitate a swift response to the new requirements of global competitiveness, as well as guaranteeing Jamaicas ability to implement the commitments undertaken in regional, bilateral and multilateral trade negotiations.
The main components of the NIP include (a) macro-economic policy aimed at creating the basis for growth in a stable environment; (b) an industrial strategy aimed at investment and trade promotion and the development of supporting physical, economic and human infrastructure; (c) social policy aimed at poverty alleviation and (d) environment policy aimed at ensuring the sustainability of activities on land and in the oceans. Its implementation period spans a course of fifteen years and is characterized by three inter-locking phases each beginning in 1996.
Phase I, 1996-1997, seeks to establish a Social Partnership between the government, business and labour in the short term. Phase II, 1996-1998, intends to achieve the medium-term strategy of growth and stability. Phase III, the long-term strategy, ends in 2010 with the overall achievement of sustainable export growth within a stable and predictable macro-economic environment.
Five strategic industry clusters drawn from the services, science and technology, manufacturing and agricultural sectors have been identified as possessing the required dynamism which will serve to propel growth in the overall economy. Within each cluster one or two leading industries have been targeted as growth poles in the economy. These growth poles - tourism, shipping and berthing, apparel, agro-processing, minerals, bauxite and alumina - exhibit significant potential for export growth and expansion. Although it is recognized that export potential still exists in the more traditional agricultural sector, emphasis is now being placed on the human resource-based services sectors such as tourism, entertainment, telecommunications, shipping and berthing, and informatics (and the synergies among these sectors) as new growth sectors. The decision to target the services sector as the catalyst for economic development stems from the fact that services are expected to play an increasingly dominant role in world trade. Jamaicas primary service sector, tourism, is expected to continue to exhibit overall growth and improvement due in large part to the drive toward product enhancement and diversification within a context of sustainable development.
Although the NIP was implemented in March 1996, the expected growth in the export sector was not realized for reasons such as, inter alia: (a) high financing and operating costs; (b) increased competition from imports, and (c) drought.
The value of total merchandise exports for 1997 remained constant at US$1, 387.6 million, reflecting an increase of 0.1% over 1996. Merchandise exports contracted by 3.5%, or US$49.9 million in 1996 over 1995. This performance contrasts sharply with the three previous years when export growth during 1993-1995 averaged 11.1% per annum. Merchandise imports increased by 6.5% moving from US$2,916.4 million in 1996 to US$3,106.7 million in 1997. This increase in imports contributed largely to the widening of the trade deficit which stood at US$1,719.1 million. Total merchandise trade for 1997 increased by 4.4% over the 1996 figure of US$4,303.3 million to reach US$4,494.3 million.
Traditional and non-traditional export performance
The lack of export growth in 1997 was attributable to the negative effects in the agricultural sector of a year-long drought which resulted in a reduction in agricultural production. This reduction led to an increase in the price of produce for the local market which led to a diversion of some products from the export market to the domestic market. Another reason for the poor export performance was the decline in export earnings from, inter alia, the apparel sector and chemicals and chemical products.
Traditional domestic exports
In 1997, the value of domestic exports of traditional products increased by 4.1% to reach US$948.1 million up from US$910.9 million for 1996. This increase in domestic export earnings was attributable to an increase in earnings for a few products namely alumina, bananas, coffee and coffee products and rum which increased by 7.6%, 2.0%, 7.7% and 5.7% respectively. With respect to other traditional exports, earnings from sugar and bauxite decreased as a result of a decline in the volume of exports of these products.
Net earnings from the bauxite/alumina sector, however, were estimated at US$335.5 million for 1997, representing an increase of 0.8% over the 1996 total of US$332.7 million. Although the volume of banana exports fell by 10.3% to 79,709 tonnes from 88,917 tonnes in 1996, earnings increased by 2.0% to US$45 million consequent on a 23.9% increase in the price per tonne on the European market from US$456 per tonne in 1996 to US$565 in 1997. Therefore the increase in export earnings for bananas resulted primarily from the increase in price per tonne for this product.
Non-traditional domestic exports
Domestic exports of non-traditional products totalled US$406.9 million representing a decline of 6.6% over total exports for these products in 1996. Exports of miscellaneous manufactured products accounted for approximately 57% of total non-traditional exports in 1997. Apparel was the chief earner of foreign exchange in this category of exports
The apparel sector
Over the years, the apparel sector has been one of Jamaicas leading non-traditional exports. This sector exhibited robust growth between 1991-1995 and accounted primarily for the positive performance of Jamaicas non-traditional export sector. In 1991 export earnings from the sector amounted to US$301.8 million. By 1995 export earnings increased by 92.4% to US$580.9 million. In 1996 the total value of apparel exports was US$538.2 million representing a decline of 7.3% over total earnings for 1995. The rate of growth contracted marginally the following year when exports declined by 0.3% over total exports for 1996 amounting to US$536.6 million in 1997. This is in sharp contrast to the average annual growth rate of 18% for the apparel sector between 1991-1995.
The apparel sector began to suffer reversals in 1996 due to competition from Mexican apparel producers since the implementation of NAFTA, the on-going process of liberalization of the global textiles industry consequent on the phasing out of the Multifibre Arrangement (MFA), and the macroeconomic environment within which local manufacturers have operated. This led to the closure of approximately 23 factories and a reduction in the level of investment in the sector since 1996.
The apparel sector is now benefiting from a programme designed to strengthen its international competitiveness through cost reduction, industrial restructuring, training and productivity improvement.
The share of services has increased dramatically moving from a level of 32.3% in 1980 to an average of approximately 53% in the 1990s. In 1996 services accounted for 57.1% of total earnings increasing from 49% in 1991. Over the last five years, 1993-1997, Jamaicas net services exports moved from US$233.6 million in 1993 to US$299.3 million in 1997 representing an average growth rate of 9.7%. Services exports declined by 12.1% from US$340.6 million in 1996 to US$299.3 million in 1997. This decline in net earnings was attributable to (a) stagnant earnings from foreign travel; (b) increased levels of investment income outflows particularly through increased profit repatriation by mining companies, and (c) increased foreign exchange outflows from other services.
Although tourism is the primary services exports, the share of other services such as transportation consisting of passenger fares from the national airlines and port disbursements for the use of the increasingly important cargo transhipment facilities; data entry and processing, and the miscellaneous category of services consisting of, inter alia, fees for various types of professional services have been increasing steadily. The contribution of the entertainment industry to economic development is difficult to assess and quantify. However, the contribution of this industry is considered to be very significant and is increasing at a rapid rate.
Achievements under the NIP
Two years after the implementation of the NIP, macro-economic stability has been substantially achieved. Reflecting the successful pursuit of a strict monetary policy during the financial year 1996/97, inflation declined from a peak of 80.2% in 1991 to 15.8% in 1996 down from 25.6% in 1995. By the end of the calendar year 1997 inflation fell to 9.2%. For the fiscal year 1997/98 to December, the rate of inflation was 7.2%, a marginal decrease from the 7.5% recorded for the same period of the 1996/97 fiscal year. Nominal interest rates declined and the exchange rate is relatively stable with fluctuations occurring within a narrow band around J$36.00 to the US dollar. Local aggregate demand has been contained so that import growth slowed during the fiscal year 1996/97. External trade, however, is still characterized by a large deficit of US$1.7 billion in the merchandise trade account for 1997. Macroeconomic achievements include a) inflows of relatively high levels of private capital, and b) an increase in the Net International Reserves (NIR) by US$271.3 million to US$692.6 million. A major objective of subsequent budgets has been to build on the gains of the 1997/98 fiscal year. Projections for the current fiscal year 1998/99 envisage the maintenance of a competitive exchange rate; a lowering of the inflation rate to 6%-8%; the attainment of real GDP growth of 2-3% and an increase in the NIR by US$118 million.
Progress has also been made with regard to the establishment of a Social Partnership between the Government, the private sector and labour. The main objective of the Social Partnership is the achievement and maintenance of sustainable macroeconomic growth and development through a process of cooperation and coordination in economic management and decision-making among the three major partners. Under this tri-partite agreement, each party will undertake commitments in its respective area(s) - the government - macroeconomic management; the private sector - prices, and the trade unions - wages - with a view to obtaining the aforementioned objective.
Negotiations on the Social Partnership are currently being conducted on a sectoral basis. A Memorandum of Understanding (MOU) has been concluded between the Government, the bauxite/alumina companies and the unions and is now subject to ratification by the workers. Indications are that the workers will ratify the MOU. A similar Memorandum of Understanding has also been reached between the Jamaica Public Service Company, the electricity supplier, and the unions. It is envisaged that other agreements will be concluded in other sectors. It is expected that these agreements will be a first step toward achieving a national social partnership.
Government continues to lend support to the private sector in its effort to build international competitive advantage particularly in those sectors which will serve as catalysts for the modernisation of the economy and diversification of the production and export base. Under the NIP various initiatives have been undertaken by the Government to re-examine and restructure the incentives regime with a view to implementing a more flexible and transparent incentives programme. Measures taken to improve the incentives regime include the extension of the Export Industry Encouragement Act (EIEA) to grant tax relief to firms exporting a minimum of 5% of their output; the amendment of the Jamaica Export Free Zones Act to allow for private designated free zones outside of the existing free zone area; Motion Picture Encouragement Act is to be amended to extend beneficiary status to musicians and providers of motion picture facilities; low interest financing under the Export-Import Bank facility; the elimination of tariffs on non-competing imported raw materials and capital goods, and the strengthening of the Modernisation of Industry Programme. These pieces of legislation are designed to promote investment, productivity, international competitiveness and industry parity with competitors from other countries enjoying similar benefits.
The institutional framework within which the private sector will operate is currently being re-organized. The supervisory role of the government agencies and the mechanisms to facilitate public-private sector consultation are being implemented. Nine (9) Industry Advisory Councils have been established under the NIP and will serve as fora for discussions on sector-specific issues and on the appropriate economic and trade policy measures to be implemented in order to facilitate sectoral and overall growth and private sector integration into the economy. This will provide the business sector the opportunity of having a direct input into the formulation of trade and economic policy. Allied to this is the public sector modernisation programme geared toward improving the productivity, efficiency and management capability of government and para-statal institutions.
Other developments regarding the strengthening of the institutional and regulatory framework within which businesses will operate include the review of the Fair Competition Act; a revision of the Companies Act; the establishment of the Office of Utilities Regulation to regulate the public utilities sector; strengthening of the Jamaica Bureau of Standards in its measurement and quality assessment systems and financial sector reform and adjustment.
An integral factor in Jamaicas industrial development is the intrinsic role of investment in upgrading and expanding production methods and facilities in research and development infrastructure; marketing and distribution; technological advancement and innovation and the application of new business strategies and support infrastructure in human and technical resources and science and technology. In order to attract the requisite level of investment needed to spur economic growth, a liberal foreign investment regime has been implemented representing great strides over the last twenty years - the 1970's and 1980's - when the climate for foreign investment was very restrictive. Numerous measures which once inhibited foreign investment such as the Foreign Exchange Control Act, and the list of areas reserved for local investment only have been eliminated. Consequently, Jamaica now has no legal impediment to direct foreign investment and applies the principle of national treatment to foreign investors.
Social and environmental policies to complement the industrial policy have also been developed. The government has developed a social agenda addressing important issues of education and training consistent with the overall strategy for human resource development.
Given the countrys high dependence on its natural resources, particularly in the tourism, mining and agricultural sectors, emphasis is now being placed on sustainable economic development as a means of effectively integrating environmental concerns into economic planning thereby achieving a balance between economic development objectives and those of environmental preservation.Back to top
Jamaica has embarked upon an irreversible process of market liberalization. With the adoption of an export-led growth model attempts are being made to create an environment conducive to attracting and increasing investment, fostering private sector growth and increasing levels of productivity. The long-term policy directions of the industrial policy is the sustainability of high growth through investment promotion, particularly, the dynamic and competitive export clusters. However, in order to achieve these growth targets, efforts will have to be aimed at (a) a further lowering of interest rates; (b) promoting financial sector consolidation to stimulate long-term investment; (c) promoting greater private sector productivity and efficiency; (d) upgrading the economic, physical and social infrastructure, and (e) implementing WTO-consistent sector-specific incentive schemes.
Jamaicas ability to strengthen and deepen the push toward export growth will also depend to a large extent on the outcome of intra-regional negotiations on the CSME and extra-regional
negotiations on the Lomé Convention, FTAA, the ACS, CARICOMs negotiations with sub-regional blocs such as the Andean pact, the CACM and individual countries such as Colombia, Venezuela and the Dominican Republic. These negotiations have been characterized by the process of `open regionalism, the dismantlement of protectionist policies, the reduction or the elimination of tariff and non-tariff barriers and the creation of an expanded export market base for products of member states. The issue of NAFTA parity is another matter of concern to Jamaica and by extension the CBI region in terms of the trade diversionary impact on the local apparel industry as a result of the more advantageous market access conditions afforded to Mexico under this agreement.
A market-oriented economy will serve to underpin Jamaicas participation in these negotiations and, as a corollary, will consolidate the thrust toward export growth. Open regionalism will assist in attracting foreign investment; facilitate foreign market penetration; encourage intra-sectoral specialisation, increased levels of productivity and will aim to foster the growth of reciprocal trade.
Ministry of Foreign Affairs and Foreign Trade