BY JULIAN RICHARDSON Assistant business co-ordinator email@example.com
JAMAICAN manufacturers of some key items are likely to have their profit margins squeezed by higher duties in the Canadian export market, if Caricom fails to reach a new trade agreement with the North American country before year end.
Pepper sauce and rum exports top the list of goods that would potentially be under threat if negotiations are not completed in time to avert a World Trade Organisation (WTO) challenge of the existing Caribbean-Canada Trade Agreement (CARIBCAN), a preferential arrangement under which most regional items enjoy duty-free access to the Canadian market, but which the WTO has ruled as unfair.
Canada is the second biggest market for Jamaica's food exports, behind the United States. Jamaican exports to the country stood at Cdn$274.1 million ($25.9 billion) in 2011. But if a new trade agreement doesn't come into effect for January 1, 2014, and Canada is forced to charge duties, it could be harmful to some of the nation's most valuable export products to that market, says Lincoln Price, private sector liaison at the Office of Trade Negotiations (OTN) of the Caricom Secretariat.
"The current trade negotiations are designed to ensure that exporters that depend on the CARIBCAN for duty preferences into Canada, such as Jamaican rum companies, aerated beverages and pepper sauce companies, have stable duty-free market access into Canada," Price told Caribbean Business Report.
Jamaican rum exports generated US$11 million ($1 billion) in export sales in 2011, while pepper sauces earned US$1.5 million. Without a trade agreement, if Canada is forced to charge duties, it would add another 25c/litre to market access costs for rum and 9.5 per cent to the market access cost for Jamaican pepper sauces, said the OTN technocrat.
Canada is among GraceKennedy Limited's top five markets for exports from Jamaica, and hot sauces represent 25 per cent of the conglomerate's sales from Jamaica to the North American country, according to GraceKennedy group CEO Don Wehby.
Additionally, he said Grace is planning to expand its revenue through new markets in Canada such as the west coast.
"It is therefore very important that an agreement is reached," declared Wehby.
"We need to ensure that the timelines are met as any delay would put our products in a disadvantageous position," he said.
The Canadian market is an extremely important one for rum-maker J Wray & Nephew (JWN), producer of the Appleton Estate and Wray & Nephew White Overproof Rum brands.
"Our products are exported to 68 countries, and our Appleton Estate brand is the number one gold rum sold in Canada. Sales to this country represent our single largest export market, which is larger than Jamaica and we believe there is significant room for further market penetration in Canada," said Greta Bogues, general manager of JWN's Corporate Affairs Division.
"We therefore consider a successful resolution to the negotiations critical and anticipate that the final decisions will redound to the benefit of all Jamaican manufacturers and exporters to Canada, including J Wray & Nephew Limited, its subsidiaries, and associated companies," she added.
On the flip side, a new trading arrangement with Canada could open valuable opportunities for Jamaican exporters, including those behind products that currently attract tariffs.
"The negotiations objective is to target those tariffs and remove them so that exporting is cheaper for those sectors," said Price.
Among the local products that could benefit are non-alcoholic beverages, which despite being charged 128 per cent duties, generated almost US$900,000 in export sales in 2011, and communion wafers which earned US$1 million in the face of 4.4 per cent duties.
Jamaican manufacturer Wisynco, a leader in the non-alcoholic beverage industry, has embarked on an aggressive export thrust for brands such as Wata, Cran Wata and Boom. The company does not have a huge presence in Canada but has targeted the country as a potential growth area, said Wisynco Export Manager, Stephen Dawkins.
"Canada has a fair size diaspora and it is a market that we certainly can make some inroads in," said Dawkins.
Other local exports to Canada under tariffs include sweet biscuits (2.7 per cent tariffs); processed or tin cheese (245.5 per cent tariffs-plus a dairy licence requirement); other food preparations, including powdered mixes, vegetable preparations and flavoured extracts/essences (96 per cent tariffs); malt extract with less than 10 per cent cocoa (106 per cent); and knitted t-shirts of cotton (18 per cent).
Caricom have completed four rounds of negotiations with Canada and are now at the stage where lists of goods, services and investment interests are being negotiated.
For JWN, the inclusion of services in the negotiations can provide for the improvement of market access.
"JWN is particularly interested in improving the access of agribusiness sector and tourism services, which should enable us to further enhance our capacity to produce and export," said Bogues.
The WTO has ruled that preferential agreements such as CARIBCAN are unfair, stipulating that trading arrangements must have an element of reciprocity that provide for the duty preference. A waiver allowing CARIBCAN to continue unchallenged expires at the end of the year.
Canada is one of the few countries with which Jamaica has maintained a trade surplus with over the years. Canada's exports to Jamaica in 2011 was Cdn$112.1 million and were mostly meats, electrical and other machinery, fish, pharmaceutical products, cereals, paper and paper board and plastics, according to data from the Canadian High Commission in Jamaica.
But in the new trade arrangement, the Canadians are seeking a significant amount of reciprocity, said Dr Andre Gordon, past president of the Jamaica Exporters' Association.
"They now want access to our market; under CARIBCAN it has been mainly one way," he said.
What's more, Gordon said the Canadians are looking at a lot of specifics in certain areas, including compliance with their own food safety regulations.
However, Gordon expressed concern that members of the private sector are not as involved as they should in the consultations.
"The truth is that I am not sure that the private sector is as engaged as it should be in these discussions," said Gordon.
"A lot of the negotiations are taking place between Government people and Canadians; the private sector that stands to benefit is really not very engaged," he said.
While admitting that there have been constraints on the national level, Price said the Caricom office has pushed hard to incorporate the private sector in the negotiations. He said 100 business interests across the region were flown to Canada to get a first-hand view of the industry there and engage in round-table discussions, from which they made a set of recommendations that have been taken into consideration during the negotiations. Furthermore, he said the organization has a cloud-based platform available for regional firms at Team Lab, where they can play a more interactive role in the process.
"What we want the private sector to do is use the platform that we have created because it gives them direct access," said Price.
"The OTN is available to provide further information, however the first contact should be either their private sector advocate, or the trade ministry."
He said the OTN office in Kingston is prepared to engage firms on a one and one basis through boardroom presentations.
Both Grace and JWN said they are well informed on the process. But JWN's Bogues expressed concerns over the pace at which the negotiations are proceeding.
"After numerous rounds of negotiations and a two-year extension which will expire December 31, 2013, we are not yet close to completion and the Agreement requires ratification ahead of the deadline. The alternative would be an erosion of the benefits achieved so far," she said.