Edward Seaga
The Caribbean Basin Initiative (CBI) came into operation in January 1984. It was a dream scheme! In the Central American and the Caribbean region, American goods imported by designated countries would continue to pay duty, but goods exported from those countries would cease to pay duty on entry into the United States. This arrangement meant that CBI exports to the US market would be less expensive than comparable competition. This would be a huge boost. What could be better? The CBI was, understandably, hailed by all the beneficiary countries for its one-way flow of benefits.
During my visit to President Ronald Reagan, as his first head of government invitee in January 1981, I proposed a Marshall-Plan type of programme for the Caribbean. This plan entailed a substantial flow of financial benefits principally to the defeated European countries. Europe needed capital to rebuild after the war. This was the answer. Secretary of State, Alexander Haig, however, varied my proposal for financial assistance to the Caribbean economies on a meaningful basis. He proposed, instead, duty free benefits included in the package, was some one-time financial aid as well.
CBI expectations
The CBI was expected to show substantial increase in exports from the Caribbean countries to the American market. Jamaica, among other countries, expected to reap huge benefits. But these benefits did not materialise. Quite apart from the fact that the world economy was deeply depressed at that time as a result of the impact of the worst recession in 50 years, there was little or no increase in the production of goods in Jamaica for duty free exports to America under the CBI. Jamaica showed exports to the US valuing US$396 million in 1984, and US$460 million in 2001. This modest improvement, rather than huge increase, was not the fault of the structure of the CBI. The fault was in the lack of production by Jamaican exporters who were working with obsolete equipment and inadequate capital.
Only a few countries - the Dominican Republic, Honduras, Costa Rica and Trinidad (export of steel) - found the CBI to be an export boom. The bottom line was that we got an excellent opportunity to increase exports dramatically, but we could not use it.
The 807 garment export programme, on the other hand, benefited Jamaica tremendously. In fact, Jamaica was one of the highest beneficiaries in the world. This was the other Reagan programme. In this case, we provided neither equipment nor capital, only workers, overcoming the problems of lack of modern equipment and capital.
The Caribbean region also developed its own programme to promote exports. The CARICOM structure envisaged the development of a single market and economy to enhance economic growth in the region, especially through exports.
CSME launched
The CARICOM Single Market and Economy (CSME) was launched on January 30, 2006. For sometime prior to its launch, there were predictable doubts about the inclusion of the economic segment of the programme since this depended on the creation of a single CARICOM currency. The establishment of a central monetary union (CMU) with a single currency had to satisfy certain criteria:
Three months imports cover in foreign exchange reserves for at least 12 months.
A stable exchange rate against the US dollar for 36 months.
An external debt service ratio of no more than 15 per cent of the value of exports.
The first stipulation was readily achievable. The latter two were far from achievable. This made the inclusion of the Jamaican dollar in the CMU impossible, which in turn rendered the CMU unworkable and, still further, halted any further proceedings to include a framework for the regional economy in the CSME. As a consequence, the CSME was truncated to a CSM. But many CARICOM experts have felt that a CSM could not work by itself as the single market will need a single currency to be effective.
It can be said that this most important function of the CSME has been still born. But even if the CSME were alive and kicking, Jamaica would not have shown the desired results in export growth.
For Jamaican exports to grow they must be competitively priced. This has not been the case for some time. There are a number of factors which militate against cost-effective Jamaican exports in the CARICOM region. For meaningful comparison:
Trinidad's electricity rate is one-third the Jamaican rate of US$18 cents per kilowatt hour.
The average Jamaican commercial lending rate, 20.9 per cent is roughly twice the average Trinidadian rate.
The notoriously small percentage of Jamaicans, 25 per cent who graduate from secondary schools with more than a single pass in the Caribbean Secondary Education Certificate exam, is exceptionally weak compared to Trinidad.
The weakness of the Jamaican economy has prevented a re-tooling of the manufacturing sector, as was done in Trinidad, condemning Jamaican manufacturing counterparts to using obsolete equipment.
Utility rates are far cheaper in Trinidad than in Jamaica.
These factors and others have enabled Trinidad to become the factory of the Caribbean and the exporter, with Jamaica the supermarket, importer.
Little surprise then that Jamaican exports to the CARICOM region as a whole, and Trinidad in particular, have shown virtually no movement, as a percentage of GDP: 1970-3.3 per cent and 2001-4.1 per cent , even though it climbed significantly in 1983 to 12.4 per cent.
It is reasonably safe to assume, against this background, that there will be little improvement of growth in Jamaican exports under the proposed CARICOM scheme, the CSME, if it really ever comes to life.
A European version
With the US and Caribbean areas getting nowhere in the enhancement of Jamaican exports because of the lack of Jamaican export price competitiveness, it was time for a European version. The recently signed Economic Partnership Agreement (EPA) of the European Union is that version.
The EPA is complex in details, but very simple in objective. The bottom line says: EPA states should remove their import duties into their countries and the European states would remove theirs. Hence, European exports would enter Jamaica duty free, while Jamaican exports would be free of duty to Europe. Sounds wonderful! Europe has many products which Jamaica would like to buy free of import duty, from Mercedez Benz motor vehicles to Italian designer fashion wear. But so what does Jamaica expect to export to Europe? Sugar and bananas, of course. But these are not growth areas, as maximum exports of these products are already occurring with European importers. What else can be exported? In so far as manufactured products are concerned, the answer is depressing - very little, because of:
An electricity rate of US$26 cents per kilowatt hour.
An average commercial bank lending rate of 20.9 per cent.
Obsolete plant equipment.
The truth is only Jamaican agricultural products have a chance of breaking into the European market, as some organic vegetables, coffee, seafood, citrus and other fruits have, in modest quantities. If the agricultural sector can be mobilised to take advantage of the many possible niche markets for agricultural products, then there could be growth opportunities which could be developed.
In the EPA recently signed, the entertainment industry will be free to take bookings in EU countries without bureaucratic restrictions, but the earnings from that industry are not necessarily destined for Jamaica.
Without having the benefit of seeing the EPA document, I wonder whether anyone thought of extracting from the EU partners in the EPA a quota for admission of Jamaicans to work in Europe, since migration, in the circumstances, is one of our most beneficial foreign exchange earners. This would have to be a reciprocal arrangement, admitting an appropriate number of Europeans as migrants with their skills, to Jamaica. In this connection, Europe has already decided to issue a 'blue card', similar to the US 'green card', to ease the expected manpower shortage. What would be needed now would be a quota arrangement for migration under the EPA.
With these glimpses of growth possibilities, it may be that the EPA could bring better results than the CBI has and the CSME is likely to produce. If this is to be the outcome, JAMPRO would have to be redirected to provide a concerted effort of promotion to find European market possibilities. But that of course, would have to follow production, since with little to sell, there would be little to promote.
The EPA benefits between the EU and Jamaica are clear on the EU side, but not on the Jamaican side. But this is not good reason to abandon the potential of the EPA without trying. It is a good reason for directing the efforts of economic expansion more fully to the new export potential with the hope of better results this time than in the previous two arrangements.
Edward Seaga is a former prime minister. He is now a distinguished fellow at the UWI. Email: odf@uwimona.edu.jm.
