Caricom's energy-charged power issue

Caricom's energy-charged power issue


Wednesday, October 06, 2010

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Minister Christopher Tufton is to be commended for boldly taking the first step in challenging the super-sensitive issue of Trinidad and Tobago's preferential energy-pricing policy. The policy has been particularly injurious to Jamaica's three key productive sectors, namely manufacturing, export and agriculture. The GOJ persistently baulked at confronting the issue, even while Jamaica's key productive industries continue to be severely eroded by T&T goods being imported duty-free at prices with which Jamaican producers find it very difficult to compete. The highly visible symptom of the anomaly is the approximate cost of US 3 cents per kilowatt hour for electricity in Trinidad, compared to Jamaica's cost of approximately US 30 cents per kilowatt hour, that has generated a spiralling Caricom trade deficit that reached US $1.6 billion in 2008. During the period January to April 2010 quoted by Mr Aubyn Hill on Friday, September 24, "Jamaica spent US $246 million (on Caricom imports) reflecting a 12 per cent increase over the corresponding period or 13 times the amount of money Caricom countries spent on Jamaican goods and services." The bulk of Caricom trade is with T&T.

This troubling development is reflective of the so-called "China Syndrome" being experienced by the US, whose job market has been dislocated by the relocation to China of large numbers of American producers, which has adversely affected the national unemployment rate. In Caribbean terms, this has led to local firms having their products manufactured in Trinidad for export to Jamaica and elsewhere while enjoying the benefit of T&T's preferential energy price. Continuation of this shift would obviously result in further miniaturisation of domestic industries and productive sectors and with a deleterious effect on the labour market. Jamaica's stunning underperformance should be reviewed critically when considering any future remedial strategy. In 2002 domestic manufacturing contributed 15.4 per cent of GDP. Today that figure has plummeted to 8.5 per cent. Furthermore, when the trade deficit with Caricom in 2008 - the major part owed to Trinidad - swelled to US $1.6 billion, exports to Caricom amounted to only US$66 million that same year!

At the symposium conducted by the Rural Agricultural Development Authority on September 22, Dr Tufton was reported to have given notice of GOJ's intention to take concrete steps, starting at the policy level, to redress Jamaica's spiralling trade balance with T&T. He stated: "I continue to maintain that the cost of energy in that country is subsidised, and even though in theoretical terms that may not appear to be in breach of WTO rules, because it applies to everybody across the board there, in practical terms it has compromised the ability of the manufacturers, and indeed primary producers who partake in the value chain, to compete within their own markets but also within the regional marketplace". It is relevant that the subject of Jamaica's renewed export-led trade policy is on the table for review at the Ministry of Foreign Affairs and Foreign Trade, which must critically examine the issue with utmost urgency. Dr Tufton, as reported, pointed out that he was not advocating a controversial approach in addressing the contentious matter.

In 2004 Trinidad and Jamaica signed an agreement for supply of 1.1 million tonnes of LNG per annum over a 20-year-period, beginning 2009, that would mainly fuel alumina company Jamalco and the Jamaica Public Service Company power plants, together with other operators in the extractive industries. Trinidad later claimed their supply of LNG was inadequate to carry out its commitment to Jamaica. With the current surplus of LNG in the US, T&T is reconsidering its approach to the Jamaican market now engaged in the construction of its regasification facility. Despite prospective third-country suppliers, Trinidadian LNG could benefit from a shorter duty-free delivery distance to Jamaica.

Jamaica's balance of payments (BOP) problem presents a unique opportunity to apply permissible border measures to Caricom imports. The understanding on BOP provisions of GATT 1994 and Article XVIIIB requires developed and developing countries to prefer in such situations implementation of price-based measures (tariffs) as their impact on the price of imported products is transparent and measurable. This measure is compliant with the WTO legal system that reinforces protection to domestic production primarily through tariffs. Increased tariffs are temporary as long as the BOP problem exists but must be removed when the problem is corrected. The WTO legal system has further reinforced the basic GATT rule that protection to domestic production should be given primarily through tariffs instead of non-tariff barriers (NTBs). For example, quotas, licences, etc. Caricom being a Regional Trade Agreement (RTA), such measures would be confined to intraregional trade. The foregoing measure is also permitted by the Revised Treaty of Chaguaramas (RTC) for a period of 18 months. With the Jamaica/Caricom trade deficit expected to balloon well over US $1 billion this year, it is certainly worthy of GOJ's urgent attention.

For existing naysayers, hoping the issue would disappear before any implosion of Jamaica's manufacturing and exporting sectors, the tariff-based measures are proposed. However, they may choose an asymmetrical approach that would permit T&T to maintain its preferential energy policy and be accommodated in the reformed RTC, similar to the UK when entering the EU being allowed to retain Sterling as its national currency and continue to drive on the left hand side of its roads, and to forgo memberships of the Schengen Treaty pertaining to entry visas. The magnitude of such a concession to T&T, however, may not find favour with the majority of public opinion.

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