JamaicaWT/TPR/G/42
Page 1
World Trade
Organization / RESTRICTED
WT/TPR/G/42
29 September 1998
(98-3082)
Original: English
TRADE POLICY REVIEW
JAMAICA
Report by the Government
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), the policy statement by the Government of Jamaica is attached.

Note:This report is subject to restricted circulation and press embargo until the end of the meeting of the Trade Policy Review Body on Jamaica.

JamaicaWT/TPR/G/42
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CONTENTS

I.Background......

II.Recent Economic and Trade Environment......

(1)Trade Performance......

(i)Merchandise trade......

(ii)Traditional and non-traditional export performance......

(iii)Traditional domestic exports......

(iv)Non-traditional domestic exports......

(v)The apparel sector......

(vi)Services......

(2)Achievements under the NIP......

III.Regional Integration......

IV.Participation in Preferential Schemes......

(1)Caribbean Basin Initiative (CBI)......

(2)CARIBCAN......

(3)ACP/EEC LOME Convention......

(4)Generalized System of Preferences (GSP)......

(5)San Jose Accord......

V.The Uruguay Round and the WTO......

VI.Institutional Framework......

VII.Conclusions......

JamaicaWT/TPR/G/42
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I.Background

  1. Jamaica is an independent, English-speaking Caribbean island which has a total area of 10,990.5km2. It forms part of the greater Antilles comprising also Cuba, Hispaniola (Haiti and the Dominican Republic), and Puerto Rico. The population of Jamaica is estimated at 2.5 million with a work force of 1.1 million. Jamaica since its independence in 1962, adopted, as its form of government, a parliamentary democracy based on the Westminster model.
  2. There have been several phases to the country’s development. Jamaica was under Spanish rule from 1494 to 1655, and subsequently under British rule from 1655 to 1962. For more than 180 years after 1655, Jamaica was primarily a plantation economy based on the cultivation of sugar cane and export of sugar using slave labour. With the abolition of slavery in 1838 and the decline of sugar, until the 1940's, Jamaica progressively diversified into the production of other export crops such as coffee, cocoa, logwood, bananas and citrus. Tourism became an increasingly important industry after the turn of the century. From the 1950s, and for nearly 35 years, bauxite mining and alumina production was the island’s most important earner of foreign exchange. In 1985, it was surpassed by tourism. During the 1950s and 1960s, economic and trade policies were designed to promote import substitution for domestic consumption and export promotion with the emphasis on labour intensive industries. In the 1970's, Jamaica continued on the path of a mixed economy but with increased state participation.
  3. Since the 1980's and throughout the early 1990's, Jamaica underwent an accelerated programme of structural adjustment reforms to adapt to the global trend toward trade liberalization.
  4. The reforms consisted of the programme of privatization and divestment which facilitated the deregulation of sectors of critical development importance such as agriculture, tourism, transportation, banking, manufacturing and communications. These have resulted in the liberalization of markets, the elimination of price controls and subsidies, and the reduction and removal of tariffs and non-tariff barriers to trade. Other measures included a simplification of the tax system, financial sector reforms to enhance the prudential and supervisory role of the Bank of Jamaica, and the strengthening of monetary policy [1].
  5. The economic development of Jamaica, classified as a small economy, has to be viewed, in part, in the context of the constraints placed upon it by its small size, population, markets, and limited range of resources. Countries the size of Jamaica tend to be high cost producers in both the manufacturing and agricultural sectors. They are also externally propelled economies because of their high degree of openness. The impact of global economic fluctuations is felt more intensely in a very small country and this compounds economic vulnerability. Jamaica is continually striving to improve its level of international competitiveness, but it is challenged both by its geography and the new international trading environment in which it must now function.

II.Recent Economic and Trade Environment

  1. Prompted by the emergence of an increasingly competitive global economy and sluggish domestic economic growth, the government adopted, in March 1996, a National Industrial Policy (NIP) outlining the range of policies which will serve to underpin the current process of domestic macro-economic adjustment and recovery. Recognizing the pivotal role of the export sector to the country’s development, the NIP emphasizes an aggressive export-oriented, private sector-led development strategy coupled with a programme of efficient import substitution. This outward-looking approach has been adopted as a means of facilitating Jamaica’s integration into the regional and global economies by way of ensuring that the requisite conditions are in place to facilitate a swift response to the new requirements of global competitiveness, as well as guaranteeing Jamaica’s ability to implement the commitments undertaken in regional, bilateral and multilateral trade negotiations.
  2. The main components of the NIP include (a) macro-economic policy aimed at creating the basis for growth in a stable environment; (b) an industrial strategy aimed at investment and trade promotion and the development of supporting physical, economic and human infrastructure; (c) social policy aimed at poverty alleviation and (d) environment policy[2] aimed at ensuring the sustainability of activities on land and in the oceans. Its implementation period spans a course of fifteen years and is characterized by three inter-locking phases each beginning in 1996.
  3. Phase I, 1996-1997, seeks to establish a Social Partnership between the government, business and labour in the short term. Phase II, 1996-1998, intends to achieve the medium-term strategy of growth and stability. Phase III, the long-term strategy, ends in 2010 with the overall achievement of sustainable export growth within a stable and predictable macro-economic environment.
  4. Five strategic industry clusters drawn from the services, science and technology, manufacturing and agricultural sectors have been identified as possessing the required dynamism which will serve to propel growth in the overall economy. Within each cluster one or two leading industries have been targeted as ‘growth poles’ in the economy[3]. These ‘growth poles’ - tourism, shipping and berthing, apparel, agro-processing, minerals, bauxite and alumina - exhibit significant potential for export growth and expansion. Although it is recognized that export potential still exists in the more traditional agricultural sector, emphasis is now being placed on the human resource-based services sectors such as tourism, entertainment, telecommunications, shipping and berthing, and informatics (and the synergies among these sectors) as new growth sectors. The decision to target the services sector as the catalyst for economic development stems from the fact that services are expected to play an increasingly dominant role in world trade. Jamaica’s primary service sector, tourism, is expected to continue to exhibit overall growth and improvement due in large part to the drive toward product enhancement and diversification within a context of sustainable development.

(1)Trade Performance[4]

  1. Although the NIP was implemented in March 1996, the expected growth in the export sector was not realized for reasons such as, inter alia: (a) high financing and operating costs; (b) increased competition from imports, and (c) drought.

(i)Merchandise trade

  1. The value of total merchandise exports for 1997 remained constant at US$1, 387.6 million, reflecting an increase of 0.1% over 1996. Merchandise exports contracted by 3.5%, or US$49.9million in 1996 over 1995. This performance contrasts sharply with the three previous years when export growth during 1993-1995 averaged 11.1% per annum. Merchandise imports increased by 6.5% moving from US$2,916.4 million in 1996 to US$3,106.7 million in 1997. This increase in imports contributed largely to the widening of the trade deficit which stood at US$1,719.1 million. Total merchandise trade for 1997 increased by 4.4% over the 1996 figure of US$4,303.3 million to reach US$4,494.3 million.

(ii)Traditional and non-traditional export performance

  1. The lack of export growth in 1997 was attributable to the negative effects in the agricultural sector of a year-long drought which resulted in a reduction in agricultural production. This reduction led to an increase in the price of produce for the local market which led to a diversion of some products from the export market to the domestic market. Another reason for the poor export performance was the decline in export earnings from, inter alia, the apparel sector and chemicals and chemical products.

(iii)Traditional domestic exports

  1. In 1997, the value of domestic exports of traditional products increased by 4.1% to reach US$948.1 million up from US$910.9 million for 1996. This increase in domestic export earnings was attributable to an increase in earnings for a few products namely alumina, bananas, coffee and coffee products and rum which increased by 7.6%, 2.0%, 7.7% and 5.7% respectively. With respect to other traditional exports, earnings from sugar and bauxite decreased as a result of a decline in the volume of exports of these products.
  2. Net earnings from the bauxite/alumina sector, however, were estimated at US$335.5 million for 1997, representing an increase of 0.8% over the 1996 total of US$332.7 million. Although the volume of banana exports fell by 10.3% to 79,709 tonnes from 88,917 tonnes in 1996, earnings increased by 2.0% to US$45 million consequent on a 23.9% increase in the price per tonne on the European market from US$456 per tonne in 1996 to US$565 in 1997. Therefore the increase in export earnings for bananas resulted primarily from the increase in price per tonne for this product.

(iv)Non-traditional domestic exports

  1. Domestic exports of non-traditional products totalled US$406.9 million representing a decline of 6.6% over total exports for these products in 1996. Exports of miscellaneous manufactured products accounted for approximately 57% of total non-traditional exports in 1997. Apparel was the chief earner of foreign exchange in this category of exports

(v)The apparel sector

  1. Over the years, the apparel sector has been one of Jamaica’s leading non-traditional exports. This sector exhibited robust growth between 1991-1995 and accounted primarily for the positive performance of Jamaica’s non-traditional export sector. In 1991 export earnings from the sector amounted to US$301.8 million. By 1995 export earnings increased by 92.4% to US$580.9 million. In 1996 the total value of apparel exports was US$538.2 million representing a decline of 7.3% over total earnings for 1995. The rate of growth contracted marginally the following year when exports declined by 0.3% over total exports for 1996 amounting to US$536.6 million in 1997. This is in sharp contrast to the average annual growth rate of 18% for the apparel sector between 1991-1995.
  2. The apparel sector began to suffer reversals in 1996 due to competition from Mexican apparel producers since the implementation of NAFTA, the on-going process of liberalization of the global textiles industry consequent on the phasing out of the Multifibre Arrangement (MFA), and the macroeconomic environment within which local manufacturers have operated. This led to the closure of approximately 23 factories and a reduction in the level of investment in the sector since 1996.
  3. The apparel sector is now benefiting from a programme designed to strengthen its international competitiveness through cost reduction, industrial restructuring, training and productivity improvement.

(vi)Services

  1. The share of services has increased dramatically moving from a level of 32.3% in 1980 to an average of approximately 53% in the 1990s. In 1996 services accounted for 57.1% of total earnings increasing from 49% in 1991. Over the last five years, 1993-1997, Jamaica’s net services exports moved from US$233.6 million in 1993 to US$299.3 million in 1997 representing an average growth rate of 9.7%. Services exports declined by 12.1% from US$340.6 million in 1996 to US$299.3million in 1997. This decline in net earnings was attributable to (a) stagnant earnings from foreign travel; (b) increased levels of investment income outflows particularly through increased profit repatriation by mining companies, and (c) increased foreign exchange outflows from other services.
  2. Although tourism is the primary services exports, the share of other services such as transportation consisting of passenger fares from the national airlines and port disbursements for the use of the increasingly important cargo transhipment facilities; data entry and processing, and the miscellaneous category of services consisting of, inter alia, fees for various types of professional services have been increasing steadily. The contribution of the entertainment industry to economic development is difficult to assess and quantify. However, the contribution of this industry is considered to be very significant and is increasing at a rapid rate.

(2)Achievements under the NIP

  1. Two years after the implementation of the NIP, macro-economic stability has been substantially achieved. Reflecting the successful pursuit of a strict monetary policy during the financial year 1996/97, inflation declined from a peak of 80.2% in 1991 to 15.8% in 1996 down from 25.6% in 1995. By the end of the calendar year 1997 inflation fell to 9.2%. For the fiscal year 1997/98 to December, the rate of inflation was 7.2%, a marginal decrease from the 7.5% recorded for the same period of the 1996/97 fiscal year. Nominal interest rates declined and the exchange rate is relatively stable with fluctuations occurring within a narrow band around J$36.00 to the US dollar[5]. Local aggregate demand has been contained so that import growth slowed during the fiscal year 1996/97. External trade, however, is still characterized by a large deficit of US$1.7 billion in the merchandise trade account for 1997. Macroeconomic achievements include a) inflows of relatively high levels of private capital, and b) an increase in the Net International Reserves (NIR) by US$271.3 million to US$692.6 million. A major objective of subsequent budgets has been to build on the gains of the 1997/98 fiscal year. Projections for the current fiscal year 1998/99 envisage the maintenance of a competitive exchange rate; a lowering of the inflation rate to 6%-8%; the attainment of real GDP growth of 2-3% and an increase in the NIR by US$118 million.
  2. Progress has also been made with regard to the establishment of a Social Partnership between the Government, the private sector and labour. The main objective of the Social Partnership is the achievement and maintenance of sustainable macroeconomic growth and development through a process of cooperation and coordination in economic management and decision-making among the three major partners. Under this tri-partite agreement, each party will undertake commitments in its respective area(s) - the government - macroeconomic management; the private sector - prices, and the trade unions - wages - with a view to obtaining the aforementioned objective.
  3. Negotiations on the Social Partnership are currently being conducted on a sectoral basis. A Memorandum of Understanding (MOU) has been concluded between the Government, the bauxite/alumina companies and the unions and is now subject to ratification by the workers. Indications are that the workers will ratify the MOU. A similar Memorandum of Understanding has also been reached between the Jamaica Public Service Company, the electricity supplier, and the unions. It is envisaged that other agreements will be concluded in other sectors. It is expected that these agreements will be a first step toward achieving a national social partnership.
  4. Government continues to lend support to the private sector in its effort to build international competitive advantage particularly in those sectors which will serve as catalysts for the modernisation of the economy and diversification of the production and export base. Under the NIP various initiatives have been undertaken by the Government to re-examine and restructure the incentives regime with a view to implementing a more flexible and transparent incentives programme. Measures taken to improve the incentives regime include the extension of the Export Industry Encouragement Act (EIEA) to grant tax relief to firms exporting a minimum of 5% of their output; the amendment of the Jamaica Export Free Zones Act to allow for private designated free zones outside of the existing free zone area; Motion Picture Encouragement Act is to be amended to extend beneficiary status to musicians and providers of motion picture facilities; low interest financing under the Export-Import Bank facility; the elimination of tariffs on non-competing imported raw materials and capital goods, and the strengthening of the Modernisation of Industry Programme. These pieces of legislation are designed to promote investment, productivity, international competitiveness and industry parity with competitors from other countries enjoying similar benefits.
  5. The institutional framework within which the private sector will operate is currently being re-organized. The supervisory role of the government agencies and the mechanisms to facilitate public-private sector consultation are being implemented. Nine (9) Industry Advisory Councils have been established under the NIP and will serve as fora for discussions on sector-specific issues and on the appropriate economic and trade policy measures to be implemented in order to facilitate sectoral and overall growth and private sector integration into the economy. This will provide the business sector the opportunity of having a direct input into the formulation of trade and economic policy. Allied to this is the public sector modernisation programme geared toward improving the productivity, efficiency and management capability of government and para-statal institutions.
  6. Other developments regarding the strengthening of the institutional and regulatory framework within which businesses will operate include the review of the Fair Competition Act; a revision of the Companies Act; the establishment of the Office of Utilities Regulation to regulate the public utilities sector; strengthening of the Jamaica Bureau of Standards in its measurement and quality assessment systems and financial sector reform and adjustment.
  7. An integral factor in Jamaica’s industrial development is the intrinsic role of investment in upgrading and expanding production methods and facilities in research and development infrastructure; marketing and distribution; technological advancement and innovation and the application of new business strategies and support infrastructure in human and technical resources and science and technology. In order to attract the requisite level of investment needed to spur economic growth, a liberal foreign investment regime has been implemented representing great strides over the last twenty years - the 1970's and 1980's - when the climate for foreign investment was very restrictive. Numerous measures which once inhibited foreign investment such as the Foreign Exchange Control Act, and the list of areas reserved for local investment only have been eliminated.