Managing director of the FosRich Group Cecil Foster said the company has walked away from the special economic zone (SEZ) designation given to its Blue Emerald subsidiary two months after starting operation, citing differences of opinion about the tax status of the company from the Jamaica Special Economic Zone Authority (JSEZA) and Jamaica Customs for its decision.
"The venture into the special economic zone by our contract-manufacturing company, Blue Emerald Limited, which is based in Hayes, Clarendon, was terminated, due to the narrow interpretation of the custom duties to be applied on our activities in the special economic zone by the Custom authorities," FosRich noted in its audited financials released late last week.
Contacted by the Jamaica Observer about the development, Foster noted: "Blue Emerald was set up in order to get the licence to operate as a special economic zone. In going through the process and meeting all of the requirements, when we started to operate, the two government agencies (JSEZA and Jamaica Customs) had different ways of looking at tariffs and duties, and we said we didn't want to get caught up too much in that."
"The Jamaica Special Economic Zone Authority was saying that the raw materials and finished products can be duty-free while Jamaica Customs was saying the goods coming out should have duties applied to them, and that meant we would be paying more [duties] on goods coming from our Blue Emerald factory in Clarendon, than we are paying at our FosRich factory here in Kingston. So we have cancelled the contract while the Government officials sort themselves out," he added.
Foster said the duties that were being applied to the goods amount to 20 per cent with Jamaica Customs citing the Revised Treaty of Chaguaramas, under which the Caricom Single Market and Economy was set up, as one of the reasons why the tariff had to be charged.
The Business Observer reached out to Commissioner of Customs Velma Ricketts-Walker about the matter but was told the agency cannot comment about any specific importer or exporter, citing a clause in the Customs Act which prevents them from doing so.
However Ricketts-Walker, making general comments about how duties are applied in relation to entities operating as a special economic zone, pointed to Section 43(2) of the Special Economic Zones Act, which states, "Goods entering the customs territory from the Zone shall thereupon be deemed to be imported into the customs territory, and the provisions of the Customs Act shall apply thereto accordingly." In this case, the customs territory is Jamaica.
Reference was also made to Section 14 of the Customs Act, which states, "All goods deposited in any warehouse without payment of duty on the first importation thereof, or which may be imported or exported and shall not have been entered for use within the island or for exportation as the case may be, shall, upon being entered for use within the island or for exportation as the case may be, be subject to such duties as may be due and payable on the like sort of goods under the customs laws in force at the time when the same are entered save in cases where special provision shall be made to the contrary."
In other words, "goods entering the domestic market from an SEZ, or directly from overseas for home use, are required to pay all applicable duties and taxes", Ricketts-Walker said in comments to explain the section further.
It was also pointed out that with respect to the treatment of goods "produced in or shipped from free zones [SEZs] in member states", the Council for Trade and Economic Development (COTED) which promotes trade in Caricom, at its 8th meeting in February 2000, determined that with respect to the Community Policy, such goods should not be treated as of Community origin.
For this reason, Blue Emerald could not get a certificate of origin under which the goods coming out of the factory would be exempted from the duties.
"To date, that decision remains in effect," Ricketts-Walker said.
However, with FosRich deciding to cancel Blue Emerald's arrangement under the SEZ, Foster pointed out, "The factory we have in Kingston gets a number of privileges, and operating in the SEZ, we were not getting those privileges. One of the major privileges we get to operate our factory in Kingston was a certificate of origin. They were treating Blue Emerald as an overseas company, requiring us to pay duties. So we said no, that is putting us out of the game. So we decided to move on."
Blue Emerald, which produces industrial polyvinyl chloride (PVC) pipes and repairs transformers for the Jamaica Public Service Company (JPSCo), will continue to manufacture exclusively for FosRich. It has 60 employees.
"We are totally better off operating as a Jamaican factory outside the SEZ," Foster added.
Foster said the output of that factory will be crucial to FosRich moving forward, especially with the industrial PVC pipes it produces. It's factory in Kingston produces electrical and water PVC pipes.
"I think the industrial PVC pipes are going to be a game-changer," Foster pointed out.
FosRich, billed as the electric and lighting company, is thus morphing into a PVC business.
Last year, FosRich sold $670 million worth of PVC pipes for water and electric usage, which was roughly 20 per cent of its record $3.4 billion in sales during 2022. For 2023, Foster believes the sale of water and electric PVC pipes could reach $1 billion, eclipsing copper electric lines as the company's biggest revenue earner, and that is not counting sales of industrial PVC pipes from its Blue Emerald factory.
"We have a stronger growth plan than a billion [dollars] for PVC sales this year, but we are always going to be gauging ourselves. The market for the industrial PVC pipe is very prime and ready. The infrastructure projects that the water supply company is now embarking on will be using a whole lot of it," he said, while declining to name the company, explaining that negotiations are still underway.
"There are developments in St Catherine that will also use a lot of those pipes. There are private infrastructure projects that require a lot of these pipes. Every one of these developments that you see around the place, they all require these pipes," he added in an upbeat tone as he reeled off his expectations to sell at least $500 million in industrial PVC pipes this year to take the entire PVC business to $1.5 billion.
"Importing these pipes in the quantities that are needed would be more expensive than to produce them here, which gives us an advantage," he pointed out.
Turning to exports, Foster said the earnings from that "are miniscule now" but added that his sales team is beating the pavements in export markets seeking business for the company.
"We export to a few countries right now, and we are expecting that whatever export we did last year, which was just the start, that we are going to do more this year," he said. "We cannot stay in Jamaica alone; we also want to be in the other Caribbean islands."
"We have been to Guyana and we will be going back to Guyana in the next couple of weeks, so we are hoping we can make some good inroads into Guyana to sell PVC pipes and do transformer repairs."
"Guyana has seven light and power companies which have about 5,000 transformers on the ground awaiting repairs. We are with them right now and they want to send some of them into Jamaica for us to do repairs on them. Right now we are doing our mapping of the coils, and so on, before we can move into that direction, so we have a lot of potential business there. There is also the potential for us to build a little repair factory there in Guyana," he explained.
He said to further the transformer repairs business, the company will start manufacturing the coils in Jamaica, starting early May. The machine to start doing so is expected on the island in the next few weeks with plans to export the coils to Canada, as well.
"We are looking at a number of ways to earn foreign exchange for the country, and to also employ some of these technical personnel who are trained in Jamaica," Foster added.
Overall, FosRich exported only five containers of products last year, but want to ramp that figure up.
"In two years we want to be doing US$3.5 million to US$4 million in exports," Foster noted.
During 2022, the company posted profit of $325 million, up 63 per cent from the prior year on revenues which rose 43 per cent to $3.37 billion.
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