The EPA vehicle import agreement

JAMAICANS WERE largely surprised at last week’s announcement that vehicles imported from the European Union (EU) were no longer subject to import duties under the Economic Partnership Agreement (EPA) between the EU and Caribbean countries.

What, perhaps, was more notable was the broad ignorance of the EPA itself, as well as a similar arrangement with Britain, which adopted essentially the same scheme after it exited the EU.

Which points to a deeper problem: the failure of policymakers to seriously orient the Jamaican economy to export-led growth and rally the country around that agenda. While it is not too late to start now, the strategy for doing so must be radically different from the past. And there is little time to waste.

To be clear, this newspaper does not claim that the elimination of duties on European-made vehicles is good for Jamaica’s economy, or that the EPA is a panacea for the island’s exports. Indeed, there are many critics of the EPA who highlight its failure, after nearly two decades, to significantly lift exports from CARIFORUM countries (CARICOM plus the Dominican Republic) to Europe.

And there are questions about the potential impact of the revenue to be foregone with the elimination of duties from vehicles from Europe, and if that was factored into Finance Minister Nigel Clarke’s J$1trillion Budget for the current fiscal year. While the Government’s public budget documents do not provide the breakout, motor vehicle duties are likely to account for a decent slice of the J$63.5-billion projected to be earned from import duties this fiscal year.

NOT YET LUCRATIVE

When the EPA was formally signed in 2008 – having been pulled across the line by CARICOM’S chief trade negotiator, the late Richard Bernal, and Jamaica’s then Prime Minister Bruce Golding – the EU was to quickly open its market to almost all goods from CARIFORUM. It should also have been easier for this region’s individuals and firms to sell their services in Europe.

CARIFORUM would reciprocate, but would have 25 years to match the EU, with a phased removal of tariffs. This region, to the angst of its partners in the African, Caribbean and Pacific (ACP) group of countries, was the first to negotiate a reciprocal trade pact with the EU, to replace the Cotonou Agreement, for which the Europeans had hankered.

The agreement received sharp criticisms in and outside the Caribbean. Edward Seaga, Mr Golding’s predecessor as leader of the Jamaica Labour Party (JLP), characterised it as “another failure in the making”, arguing that the region had little with which to compete in Europe’s markets.

Mr Golding, however, argued that failing to conclude the agreement would have added up to US$72 million in duties on Jamaica’s exports to the EU, while Dr Bernal held out the prospect of a market of 450 million people.

The EPA, thus far, has not yet proved lucrative to CARIFORUM’s CARICOM contingent. Over its first decade, CARIFORUM’s exports increased a mere 2.2 per cent a year to €3 billion in 2018, having, during the period, peaked at €3.6 billion in 2016, according to an EU-commissioned report on the agreement released in 2021. The EU’s exports of goods over the period grew by four per cent, to €5.1 billion, but its exports of services were estimated to have nearly doubled to €6 billion.

In 2022, the EU, minus post-Brexit Britain, sold €7.8 billion in goods to CARIFORUM, an 86 per cent increase after the downturn of the COVID years. Its imports from the region nearly doubled, to €12 billion. The bulk of those imports, however, were from the Dominican Republic.

INCREASE IN IMPORTS

In Jamaica’s case, exports to the EU dribbled to €73 million in 2022, a 52 per cent decline from the previous year, and a 72 per cent slump from the high of €262 million in 2019.

On the other hand, Jamaica’s imports last year valued €441 million, an increase of 35 per cent, maintaining a trend of hikes over nine of the past 11 years.

Those i mport figures could well rise if – notwithstanding the fact that other charges remain – the zero duty on European vehicles entices consumers to buy more of the mostly luxury brands that are imported into the island.

On the face of it, these imports have to meet a 60 per cent domestic European input to qualify as a “manufacture in which the value of all the materials used does not exceed 40 per cent of the ex-works price of the product”, as is required of “vehicles other than railway or tramway rolling-stock, and parts and accessories thereof”.

But that cannot be the entirety of the debate around the EPA.

In its 2021 retort to the EU’s claim of CARIFORUM’s shortfall in implementation obligations, CARICOM’s trade chief insisted that the evaluation showed “scant regard for CARIFORUM’s concerns, including those regarding procedural and regulatory barriers to the EU market, such as the EU visa requirements, which continue to impact effective … access to the EU market, especially for cultural and professional services”.

Those concerns are indeed valid. The region has to push hard for the EU to live up to its side of the bargain.

But if those doors are open, Jamaica must be prepared to compete in those markets. That will not happen if our focus is merely on, as Don Robotham said in this newspaper, “low-value added, extractive raw materials and raw services activities”. That proved a failure in the first round of the EPA.

A new conversation must start on an industrial policy of a different type to lift Jamaica up the global food chain.