Samuel Braithwaite | Stamp, import duties can be increased

On March 26, Minister of Finance and the Public Service, Dr Nigel Clarke, delivered his closing presentation for the 2024/2025 Budget Debate. One issue which has garnered much interest is the proposed removal of General Consumption Tax (GCT) on imported raw foods.

In keeping with the national treatment principle as set out in the General Agreement on Tariff and Trade, Jamaica, as a member of the World Trade Organization (WTO), is obligated to apply internal taxes uniformly across imported or domestically produced goods. For reasons which are not entirely clear to me, Jamaica was not in compliance with the rules, i.e., GCT is being erroneously charged on many imported raw foods.

BREACH THE RULES

Jamaica has long held the portfolio of External Trade Negotiations within the CARICOM Quasi-Cabinet and has led the charge on international trade negotiations affecting the bloc, such as the Economic Partnership Agreement. Within this context, therefore, one would not ordinarily expect Jamaica to breach the rules.

We must acknowledge that the agreements of the WTO are quite complex and lengthy and have proven quite challenging for small island developing states, with limited human resources to adequately treat with the rules and to use same creatively to promote the welfare of their citizens. We should therefore be highly appreciative of the work done by past trade delegations whose sizes were often dwarfed by the armies of experts which form the delegations of larger more developed countries.

Dr Michael Witter, speaking at a recent Department of Economics (The UWI, Mona) event to celebrate the lives and works of ambassadors Richard Bernal and Havelock Brewster, highlighted the yeoman service our trade negotiators have provided in service to the region. Further, it is quite possible that Jamaica would have lost much of the trade expertise available to it in the late 1990s and the early 2000s.

According to Minister Clarke, it was the WTO which flagged Jamaica’s non-compliance. The country therefore has no choice but to meet its obligations to the members of the WTO. Unsurprisingly, stakeholders, especially domestic producers of raw foods, are concerned about the impacts on the domestic agricultural sector and how best to mitigate against these.

IMPORTED RAW FOODS

It has been suggested that the Government of Jamaica can remove the GCT on imported raw foods while increasing the stamp duties on said products. This can be done, but not for every type of raw food.

Based on information contained in the 2011 Trade Policy Review for Jamaica, import duties for agricultural products imported into Jamaica are bounded at 100 per cent and other duties and charges (such as stamp duties) are bounded at 80 per cent; this means that Jamaica cannot apply import duties of more than 100 per cent on agricultural products, and stamp duties and other fees cannot exceed 80 per cent.

The tariff schedule (April 24, 2023) of the Jamaica Customs Agency contains a broad range of items which could be classified under the heading of raw foods. A cursory glance of the schedule shows that there is no uniformity in import duties and other charges across the various categories of items (tariff codes). This is not a problem, per se, as there might be good reason to apply various tariffs for specific items. What is quite consistent, however, is the 15 per cent GCT.

In the case of tomatoes and cabbages there can be no increases in import duties or stamp duties as these are already at the bound rates (100 per cent and 80 per cent, respectively) for agricultural products imported by developing countries as specified by the WTO. However, in several cases, raw food items such as beans and fruits carry an import duty of only 40 per cent which is the Common External Tariff required under CARICOM regulations. In many cases, too, stamp duties are well within the bound rate of 80 per cent.

The WTO rules allow for the Government of Jamaica to increase the import duties in instances where the current import duty is less than 100 per cent. Stamp duties which are currently below 80 per cent can also be increased. Some commentators will likely view a shift from GCT to import duty as ‘six of one and half a dozen of another’, but this misses a key WTO principle where the organisation has consistently pushed for non-tariff barriers to be replaced by tariffs, within bound, thereby allowing for ease of comparison and monitoring across states.

LESS ROOM

While GCT is a tariff barrier, albeit an internal one, replacing it with an import duty reduces the gap between Jamaica’s actual tariff on a specific agricultural item and its bound tariff (100 per cent), thereby giving the country less room to increase tariffs on the affected product in the future. Looked at another away, to allow GCT on an imported item, while a similar domestic product has no GCT, increases the total potential tariffs and charges beyond what the WTO bound rates allow for. It is precisely this sort of scenario the WTO wishes to guard against.

Removing GCT on raw foods requires a detailed discussion, as was needed when there was a proposal a few years ago to reduce the tariff on imported chicken meat. It is therefore encouraging that in his closing presentation, Minster Clarke told the nation that a committee will be set up to carefully consider the issues which could arise after Jamaica becomes compliant re the removal of GCT on applicable imported raw foods. This is necessary. This is welcome.

Dr Samuel Braithwaite is a lecturer in the Department of Economics at The University of the West Indies, Mona. The views in this article are not necessarily the views of the faculty or the Department of Economics, UWI, Mona. Send feedback to braithwaite.samuel@gmail.com and to columns@gleanerjm.com