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The missing linchpin

ANTHONY GOMES

Wednesday, February 20, 2013    

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The vociferous rhetoric engulfing the nation is due to the government's imposition of a swingeing tax package, applied without forewarning. The fundamental reason for official desperation stems from years of profligate spending beyond the country's capacity to earn, and borrowing to settle outstanding debt which finally attained a debt to GDP ratio of 140% -- among the highest in the world, thereby paralysing government machinery resulting in recourse to the International Monetary Fund (IMF).

Remedial negotiations with the IMF continue along two critical paths of cutting government spending and spurring economic growth in all areas. However, in the public discourse with Government, three essential words that constitute the linchpin of the proposed recovery programme have not been heard. They are Export, Manufacturing and Production, which constitute the principal ingredients for economic survival. It is not possible to only cut national operating costs and expect to achieve economic growth. This was demonstrated by the Grecian dilemma that after a review by their Eurozone sponsors, alternative methods were introduced to ignite economic growth in concert with amended cost-cutting measures.

In the words of the Jamaica Exporters Association president Andrew Collins: "There needs to be a clearly articulated approach to trade policy and export development with support of government to grow the productive sectors of the economy."

Does the country possess sufficient wealth to support a financial demand of this magnitude? Consider the low level of productivity, the substantial trade deficits regionally and internationally, its implementation deficit in all sectors, that spawns the monumental debilitating bureaucracy, the national "calypso mentality" that permeates the national psyche and is responsible for the "soon come" attitude. The list of these descriptive national characteristics is not exhaustive, and demonstrates how our work ethic must improve considerably during and after the IMF has left Jamaica's shores.

Much has been written about the development of exports, resulting in the formulation of the National Export Strategy of which so far little has been implemented. An important factor to be addressed is the maintenance of a tax-free channel to be used for exports as we saw with the Asian Tigers in earlier times.

Becoming internationally competitive is a painful and difficult process and once a product has been developed and priced for export, additional expenses cannot be accommodated once the product has left the manufacturer's warehouse until it goes over the "ship's rail". In such an event, the smallest price increase can render an export product uncompetitive. In the Sunday Observer of July 22 2012, Mr "Butch" Stewart had this to say: "There are many ways the Government can help the export sector," and he singled out two -- taxation and energy".

He continued: "If we're really putting together an export plan, then all equipment that goes into factories has got to be tax-free, and you need to get tax breaks on rental for factory buildings. Energy prices should also be cut for exporters, and should be passed through to exporters at cost rather than being re-priced at international rates and then burdened with profit margins and taxes". This is a large part of what is meant by a "tax-free channel". The concern the WTO can be dealt with as others are doing in the international arena. Trinidad does not attract any attention from the WTO with their alleged subsidy on electricity for their manufacturing sector. So, to the government, these are some of the measures the export sector needs, so "run wid i"!

Attention is now focused on the EU and Brazilian markets with their potential for future growth. Last year the executive director of the Caribbean Export Development Agency, Pamela Coke Hamilton recommended at a London Cariforum-EU business forum that the region needs to work together. She observed: "We need to do joint packaging, labeling, shipping, and so on and share the cost. The China Council for the Promotion of International Trade expressed an interest just last year, in trading with the collective Caribbean, instead of individual countries. They say that we are investing in the Caribbean a lot, and want to import certain items, but they do not have the time, energy or interest, in going from island to island."

The Chinese, she said "expressed the desire to have a central clearing house from which to order. At some point, we need to decide what is it we want. If we want to stay separate that is a choice. But that will not lead to great wealth and success".

Under the Economic Partnership Agreement, Jamaica should have started reducing import tariffs on EU goods in January 2011, but have delayed doing so due to the need to preserve border revenue as long as possible at this time of acute economic downturn. The delay caused the EU to chide Jamaica for not honouring the terms of the agreement. However, the agreement allows for restrictive measures to be used if a Cariforum state encounters balance of payments problems or serious financial difficulties. Albeit, Jamaica, now experiencing an undeniable financial crisis, chose not to invoke Article 8 in Part VI - General and Final Provisions of the Agreement, and instructed Customs to implement the tariff reductions on EU goods forthwith, exposing the already marginalised private sector to greater international competition.

Trinidad on the other hand, did not start the tariff reductions as in their wisdom, they have not yet ratified the agreement. When will we learn to play the game?

COLLINS ... clear approach to trade policy needed

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