Edward Seaga, Contributor
It is quite amazing how serious conclusions on subjects of great importance can be reached without real analysis by people in Jamaica who are not devoid of learning or understanding. There is a general failure to ask all the critical questions which could answer all the critical problems. A glimpse of truth or a smattering of facts and these are sufficient to reach a conclusion.
The Economic Partnership Agreement (EPA) is about to be signed soon between the European Union and the CARIFORUM countries. According to Ambassador Richard Bernal, in a reported speech published in The Sunday Gleaner of July 6, "The region is preparing to open its doors to Europe in a way that it never has before, to take full advantage of the 450 million high-income consumers the continent boasts."
Better price
How is this to be accomplished? "In the past," Dr Bernal says, "what we really did was to make supplications to Europe to say: 'we need a better price, or we need a bigger quota, or we need development assistance'. That is no longer the platform, we have to negotiate. That means this is a reciprocal agreement. We have to give something; we are not getting something for nothing as in the past. This is required by the World Trade Organisation."
What this really means is that we will open our markets to the remaining 50 per cent of European goods which now pay customs duties to enter the region, providing valuable earnings to boost the revenue. On a graduated scale, the 50 per cent of European goods now paying customs duties will cease to do so over the next 25 years. What is the compensation for this loss of earnings? It is assumed that we must export more to Europe under the new arrangement for duty-free entry of goods from the region. This is where the argument falls flat.
What goods can the CARICOM countries sell to Europe, even on a duty free basis? Certainly not industrial or manufactured goods. The much higher cost of energy alone makes this a virtual impossibility. Our labour rates and poor productivity level are not able to provide competitive costs. The scale of production is too small to provide any savings on an economy of scale.
Traditional agricultural products from this region have long proven to be too costly to sell. The markets they enjoyed in the past were based on special arrangements which protected them from the more competitive production of other countries. This protection will now be withdrawn, so goodbye to sugar and banana exports in the near future.
Evaluation
Proper evaluation of a proposed scheme like the EPA would require a cost-benefit analysis. How much revenue will be lost? What additional export earnings can be expected? Has this been done?
I would be very happy if it were possible to export more goods from the region to Europe duty free in the EPA. The truth is that very few items of current production are competitively priced to be exportable, and this will continue to be the case since the region does not now possess, nor will it in the reasonably distant future, the ability to produce at low costs to match China.
Ironically, there has been substantial benefit from Europe for Jamaica and some other regional countries, as the considerable investment and employment package of the Spanish hotels will testify. But this has nothing to do with the EPA.
The only hope for the EPA to be of value is the production of goods produced from local raw materials. This means agro-industry and some non-traditional agricultural crops. Organic vegetables and hydroponics production of small berry fruits, like strawberries, would have good markets in Europe at the right time of the year.
The only other avenue of increased earnings is the migration of Jamaicans to Europe, as is now occurring with other developing countries. The remittances from migrants are the only way to help close the gap, otherwise the EPA is just another way of giving away much while receiving little. In this limited framework of reciprocation, it is wrong to build up hopes of export riches which do not and will not exist.
Customs duty revenues
What is now taking place with the EPA is little different than what occurred with the CBI in the 1980-1990s, when goods from the region could enter the United States duty free while exports from America still continued to pay duty. On this basis, the regional countries continued to receive revenues from custom duties, unlike the EPA arrangement where the revenue of earnings from European imports will be zero.
Anyone who studies the history of the CBI sufficiently will recognise that the countries of the Caribbean and Central America had no capacity to export manufactured goods to the USA and had to fight farm lobbies which tried to bar competing agricultural imports. Over a 15-year span, the record will show that only three or four countries benefited to any great extent. This was not because the CBI scheme was ill-conceived, but because the countries of the Caribbean had no capability to respond, except in the manufacture of apparel and some footwear.
The considerable boost in production and, consequentially, employment and export earnings from apparel and footwear, were effective silver bullets which eventually justified the CBI although, strictly speaking, the apparel programme was not a part of the CBI. There is no silver bullet negotiated for the EPA.
Perhaps there is no better way to point out the futility of the EPA in increasing regional exports than to look within the region itself. Much of the 1990s were spent by the parliaments of the CARICOM group following a rainbow which would lead to a pot of gold in increased export earnings.
This was to be done by the CSME, or CARICOM Single Market and Economy, the dream scheme of CARICOM, to boost exports. A great deal was heard of the CSME in the 1990s up to the beginning of the new century. Parliaments worked hard to harmonise legislation among the member countries so that there would be a seamless border to facilitate trade. Everything else was put on the back burner. But little is now heard of the CSME.
First, the scheme is now the CSM, the economic component which intended to create a single regional currency, having been abandoned as an impossibility, as I forewarned in my final budget address to Parliament in April, 2004. Second, the smaller islands of the Eastern Caribbean, the Organisation of Eastern Caribbean States were among the most vociferous champions of the CSME until they recently came to realise that there was little and nothing in it for them. In fact, they are contending, as I contend with the EPA, that they are being asked to reduce import duties and give up badly needed revenue to boost the export trade of the one or two Caribbean countries which can export, while they have no capacity or capability to reciprocate.
This is exactly the position in which Jamaica finds itself. In fact, it was the same position Jamaica found itself in the lopsided West Indies Federation which offered little to gain and much to lose. Pity no one has called for a referendum on the EPA. It would end up in the same way as the federation, a footnote of history.
Jobs for the unemployed
The countries in this region need jobs for the unemployed which cannot be found here by the conventional development strategies. Unemployment will continue to swell until the single effective outlet for surplus labour, migration, is maximised again. In the past, migration of labour to countries where there was a shortage of labour, as in the building of the Panama Canal, work on the plantations of Central America and Cuba, economic opportunities in North America and the United Kingdom, over the past century, have been our saving grace. But no one has negotiated migration quotas as a reciprocal benefit. So we will continue to give much and get little, waiting on consumers abroad to buy the goods we cannot manufacture, or the marketable agricultural products we cannot produce.
This is the grand design of the type of globalisation which has been created to force all feet to fit one shoe.
Sir Shridath 'Sonny' Ramphal, former Commonwealth Secretary General, once said, "The ruling principle in negation between unequals is not reciprocity but proportionality."
Edward Seaga is a former prime minister. He is now a Distinguished Fellow at the UWI. Email: odf@uwimona.edu.jm. or columns@gleanerjm.com.
