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JamExit?

Reviewing the review: Should Jamaica be in or out?

Delroy Beckford

Sunday, May 20, 2018

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It is not very often that a topic of much significance has gone almost unnoticed by key observers when it relates to the country's future economic development. Maybe this is a case of flogging a dead horse and, therefore, small wonder not much interest, it seems. Nonetheless, the recent report by the Caricom Review Commission, chaired by former Prime Minister Bruce Golding, has given much food for thought.

The central question raised is whether Jamaica should remain in Caricom or get out and find some alternative arrangement that can advance its interests. For those looking for a visceral, predetermined discourse based on the fact that the report was commissioned by the present Government, seen as traditionally anti-integrationist, this was not the case. In the main, the report was balanced and had some very insightful observations on the way forward.

It makes 32 recommendations to be carried out over a five-year period, failing which Jamaica should consider withdrawing from the arrangement. These all point to meeting an objective of deeper integration.

It is often a difficult business to analyse a free trade agreement to determine if its members are benefiting. There are so many modes of analysis, some likely to lead to conflicting results on benefits or losses. We may look at the goals and objectives, but that may be limiting and premature if the goals and objectives are intended to be realised over the long term, or if the belief is there should be shallow integration as a slow process moving into deep integration.

The agreement may be for diplomatic purposes mainly, that is a negotiating tool for engaging other trading arrangements for market access. And then several objectives may be combined, each with its own level of importance, and some more aspirational than attainable in the short term.

Beyond this, a static analysis of trade agreements suggests that there will often be some trade creation and some trade diversion. Trade creation means that trade is shifted from higher-cost member countries to a lower-cost member countries, and trade diversion means that trade is shifted from lower-cost member countries to higher-cost member sources.

So, trade is created, for example, when Barbados does more trade with St Lucia because it is a lower-cost producer, and trade is diverted when lower-cost producers outside the trading bloc lose trade to Barbados as a higher-cost producer due to a common external tariff that makes the imported product from a non-member country more expensive than would be the case without the common external tariff.

A trade agreement is always mediating between these tensions and, for free trade supporters, the trade agreement is often seen as beneficial to its members if trade creation outweighs trade diversion. But this view is premised on what are seen as the advantages of free trade for the global community as a whole, through further liberalisation, and not just those within the regional agreement framework.

The report acknowledges that trade creation has occurred, but not in the sense of increased trade for Jamaica in Caricom. One of the main beneficiaries of this trade creation is Trinidad and Tobago, but it is observed that this has possibly occurred in breach of the Revised Treaty of Chaguaramas, because of, for example, energy subsidies.

This state of affairs, it is argued, permits manufactured goods to be sold at less than fair market value in the Jamaican market. But there is also the frustration of a competitive advantage because of the denial of the energy subsidy to Jamaican producers since energy resources, in particular liquefied natural gas (LNG), is sold at a higher export price than the domestic price.

One recommendation is that the CCJ should be engaged at the earliest to have this issue resolved. Now what is a little surprising is that it has taken this long for this long-standing issue to be addressed. There are many provisions in the treaty to deal with a measure of this nature. The frequently cited and applicable provision is that relating to the prohibition on discrimination on the basis of nationality.

The defence raised is that there is no breach of this provision because a company within Caricom can be incorporated in Trinidad and Tobago and obtain the benefit of the subsidy. This is premised on the view that the prohibition against discrimination on the grounds of nationality is not breached if the energy resources are bought and used by anyone in the country of origin.

So, the fact that the benefit of the subsidy will not be extended to companies not incorporated in the country of origin of these energy resources is not seen as a breach of the treaty.

But this interpretation is seemingly inconsistent with the treaty. The revised treaty imposes an obligation on member states to pursue, inter alia, the “cross-border employment of natural resources… for the production of goods and services on a sustainable basis”. The treaty also requires member states to “refrain from trade policies and practices, the object or effect of which is to distort competition, frustrate free movement of goods and services, or otherwise nullify or impair benefits to which other member states are entitled under this treaty”.

Leaving aside the question of differences in interpretation of the provision prohibiting discrimination on the grounds of nationality, it would seem odd that a trade agreement providing for intra-regional trade (trade across borders) and covering both inputs in the manufacturing process and final goods could be interpreted for the result that intra-regional trade relating to inputs is not contemplated.

On this view, the very defence raised is also a powerful argument to support a claim of a breach of the treaty on nationality grounds. Also, if energy resources for which subsidies are provided are intended to be used only in the country of origin, then an argument can be made that this amounts to a de facto quantitative restriction on exports of the product in breach of the treaty.

Greater access to the Caribbean Court of Justice (CCJ) by the private sector is another recommendation. The view of the report is that Article 222 of the Caricom treaty is insufficient for this exercise.The article provides that the CCJ may allow any person to appear before it if they can show they have been prejudiced in respect of a right or advantage under the treaty that is for their benefit, and their government has omitted or declined to support the claim, or has agreed for them to pursue the claim.

So far, the CCJ has given a liberal interpretation to this provision, indicating that this is not a serious hurdle. It would be counter-intuitive for that to be otherwise since trade agreements are not negotiated by governments for the benefit of the executive as a distinct grouping, but for its constituents of producers and consumers.

It is also suggested that a dispute settlement body along the lines of the World Trade Organization (WTO) should be established, presumably with similar strict timelines for action at each stage of the process of resolving a dispute, such as consultation, setting up a panel, a decision by the panel, and, if necessary, an appeal to the CCJ.

We could perhaps go farther with this discussion to avoid some of the pitfalls of the WTO dispute settlement system, since for all the praise it receives there are fundamental shortcomings of the WTO process.

In terms of economic performance, it seems that Jamaica has not done nearly as well by being in Caricom. The production possibilities in Caricom indicate that its parties produce mainly the same types of goods, indicating that there needs to be more product diversification.

But, as it turns out, this is also the case with other trade agreements to which Jamaica is a party, even those where there is no requirement for immediate reciprocal concessions.

Therefore, while Caricom does not provide a panacea for economic development, it is doubtful that Jamaica's involvement in other trade arrangements will provide comfort in this regard without the requisite structural adjustments.

Dr Delroy S Beckford is a Fulbright scholar, attorney-at-law, and adjunct lecturer in the Faculty of Law, The University of the West Indies, Mona. He is the author of Power and Judicial Activism in the WTO: The Appellate Body's Interpretation of Trade Remedy Agreements . Send comments to the Observer or delroy.beckford@gmail.com.

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