WT/TPR/S/42 Trade Policies Review Page 84

IV. SECTORAL TRADE POLICIES

(1) OVERVIEW

1. Jamaica continues to use trade policies and incentive schemes geared at promoting specific sectors. The National Industrial Policy identifies these sectors, focusing on activities where a comparative advantage is perceived to exist, such as tourism and on identifying others where it could be developed through policy actions, such as data processing and systems development.

2. Traditionally, Jamaica's endowments led to the development of activities linked to certain agricultural crops and minerals. Although agriculture and mining remain important, both sectors have lost GDP share to services and manufacturing. A number of incentives promote activity in manufacturing, including income tax exemptions, and import duty concessions for production for export outside of CARICOM. The main exporter in manufacturing is the textiles and clothing subsector, although the industry has been suffering from a loss of competitiveness and inability to fill bilateral export quotas in the past few years. A substantial part of the garment industry is located in free zones.

3. Jamaica's tariff structure offers higher levels of protection to goods with high value added and to agricultural products (Chart IV.1). Goods used as inputs are generally granted duty-free access.

4. The services sector is the largest and fastest growing in the Jamaican economy. Among services, tourism is the main earner of foreign exchange, generating around US$1.13 billion in 1997. After a period of privatization and reform, activities in the services sector have been largely liberalized, few restrictions remain and national treatment is prevalent. Financial services and telecommunications have undergone major reforms in recent years. In the case of the financial sector, this has led to a relatively liberal business environment, with a strengthened regulatory framework. In telecommunications, privatization has led to a temporary monopoly in the provision of basic telephony services, which is expected to be dismantled by 2013.

(2) AGRICULTURE AND FOOD PRODUCTS

5. Value added in the agriculture sector (excluding food products) was J$16.9 billion in 1996, equivalent to 8.4% of GDP. Its contribution to GDP declined to 7.4% in 1997 (J$17.6 billion), reflecting in large measure the effects of a severe drought. Including food processing, beverages and tobacco, agriculture represented 16.5% of GDP in 1996, and 15% in 1997 (Chart IV.2). Agriculture is labour intensive and employs 22% of the total labour force. It comprises three main subsectors: traditional agriculture, non-traditional agricultural products, and food processing, beverages and tobacco. Traditional agriculture includes products that have been grown at scale for a long period, namely: sugar, bananas and coffee. Non-traditional products include a variety of tubers, spices, herbs, fruit and vegetables, horticultural products, chicken, beef, pork, and goat's flesh.

6. Agricultural exports are dominated by traditional products, especially sugar, bananas, coffee, cocoa, citrus and other fresh fruit and vegetables (Chart IV.3). They accounted for almost 16% of Jamaica's total merchandise exports in 1997. Exports of processed foods, beverages and tobacco accounted for an additional 14% of exports of goods.

Jamaica WT/TPR/S/42 Page 87

7. Jamaica is a net importer of agricultural products, with imports almost one third higher than exports in 1996 (Table IV.1). The main imported agricultural products are cereals and preparations of cereals, dairy products and eggs, meat, sugar and sugar products, beverages and spirits, vegetable oils and fats, and fish. With the exception of sugar, Jamaica is a net importer of all the above-mentioned products. A substantial proportion of imported sugar is used as an input in domestic production of refined sugar and other products. Jamaica is a net exporter of vegetables and fruit, coffee, and beverages and spirits. Products of export interest to Jamaica are generally subject to import tariffs rates above the average for the sector. A wide range of fruit and vegetables are subject to additional stamp duties, while beverages and spirits are also subject to a special consumption tax (Chapter III.(2)(iv)).

Table IV.1 Trade and tariff data for agricultural products, 1997 (Per cent and US$ '000) Tariff (MFN) Imports Exports HS Description Average (%) Minimum (%) Maximum (%) (US$ '000) (US$ '000)

01-24 Agricultural products 20.2 0 40 436,916.7 339,700.0 01 Live animals 22.9 0 40 1,148.2 50.0 02 Meat and edible meat offal 26.2 0 40 43,165.1 511.9 03 Fish & crustaceans, molluscs & 25.5 0 40 28,636.3 19,498.9 other aquatic invertebrate 04 Dairy products; birds eggs; natural 20.4 0 40 44,533.3 3,953.5 honey; edible prod. nes 05 Products of animal origin, nes or 0.0 0 0 1,498.8 - included 06 Live tree & other plant; bulb, root; 26.7 0 40 670.8 2,045.4 cut flowers etc. 07 Edible vegetables and certain roots 26.5 0 40 7,102.3 16,219.9 and tubers 08 Edible fruit and nuts; peel of citrus 35.2 0 40 1,992.3 59,330.9 fruit or melons 09 Coffee, tea, mate and spices 22.8 0 40 4,621.8 36,891.0 10 Cereals 14.3 0 40 75,211.9 - 11 Prod mill industry; malt; starches; 8.5 0 40 10,550.1 28.4 inulin; wheat gluten 12 Oil seed, oleagi. fruit; miscell. 3.7 0 40 4,013.7 518.0 grain, seed, fruit, etc. 13 Lac; gums, resins & other 3.3 0 20 692.7 5.2 vegetable saps & extracts 14 Vegetable plaiting materials; 0.0 0 0 85.7 3.9 vegetable products nes. 15 Animal/veg. fats & oils & their 21.7 0 40 29,687.8 33.4 cleavage products; etc. 16 Prep. of meat, fish or crustaceans, 20.0 0 25 19,970.6 671.9 molluscs etc. 17 Sugars and sugar confectionery 26.5 0 40 38,280.5 109,308.9 18 Cocoa and cocoa preparations 9.1 0 25 3,990.5 3,482.3 19 Prep. of cereal, flour, starch/milk 16.9 0 25 30,657.4 8,318.4 20 Prep. of vegetable, fruit, nuts or 17.9 0 40 13,959.4 6,327.4 other parts of plants 21 Misc. edible preparations 20.8 0 25 15,005.2 11,750.8 22 Beverages, spirits and vinegar 26.3 0 30 30,150.3 49,432.2 23 Residues & waste from the food 6.5 0 25 21,617.5 1,256.7 industry; prep. animal fodder 24 Tobacco and manufactured tobacco 20.0 0 30 9,674.6 10,061.2 substitutes

Note: Trade data applies to 1996.

Source: WTO calculations based on data provided by the Jamaican authorities. WT/TPR/S/42 Trade Policies Review Page 88

8. Producers of non-traditional products are hampered by high capital costs, inadequate infrastructure and a lack of research and development. In principle, loans for investment in the agriculture sector are not subsidized, although farmers may have access to some programmes with concessionary terms (Chapter III.(4)(iv)).

9. Agricultural production declined by 16.5% in volume terms in 1997, after increasing by 5.5% in 1996 (Chart IV.4). Agricultural GDP contracted by 4% in 1997, after expanding by 3.1% in 1996 (3.4% including food and beverages). Over the 1986-96 period, agricultural production of unprocessed goods increased by 54.5%: production for the domestic market rose by 70% and exports by 52%. Export crops outperformed domestic crops in 1996 and 1997. 1

Chart IV.4 Agriculture production index, 1990-97

1986=100 200

180 Exports Domestic Meat and poultry Fisheries Total

160

140

120

100

80

60

40

20

0 1990 1991 1992 1993 1994 1995 1996 1997 a a Estimates. Source: Planning Institute of Jamaica (1998), Economic and Social Survey, Jamaica, 1997.

10. In livestock, self-sufficiency ratios are high for beef and veal, and close to 100% for whole chickens. Jamaica is, however, a large importer of certain livestock items, including chicken necks, mutton and goat meat. Imports of mutton and goat meat are not subject to additional stamp duties unlike beef and veal, pork meat, and some chicken cuts.

11. Although the fish harvest was over 50 million kilos in 1996, Jamaica remains a net importer of fish and seafood. Imports of fish are subject to an average tariff of about 26%.

1 Export crops increased by 7.2% in 1996 compared to 5.7% for domestic crops. This was due to an exceptional increase in the production of bananas, sugar cane and coffee. In 1997, production for export declined by less (10.1%) than production for domestic consumption (21.2%). Jamaica WT/TPR/S/42 Page 89

12. One of the main concerns of exporters of agricultural goods is access to the U.S. market. Access is facilitated by the existence of a preshipment clearance facility operated by the United States in Jamaica.

13. Until the mid 1980s, Commodity Marketing Boards acted as single buyer and seller of a number of crops, including cocoa, coffee, bananas, coconut and sugar. Deregulation broke the monopoly of the Boards, allowing producers to sell to alternative outlets which then competed with the Boards in the marketing of products.

14. Government policy in agriculture is geared at increasing production and productivity to expand exports, reducing reliance on food imports, and encouraging agro-industrial development. The sector is expected to provide the inputs required for this development. Policy is also aimed at lowering the unemployment rate and pursuing development strategies to achieve long-term environmental objectives. The strategy to obtain these goals is based on market forces combined with agricultural planning. Government support has focused on providing public investment in road construction, irrigation schemes, and research and development. Under the National Irrigation Plan, prepared in 1997, 51 irrigation projects have been identified; these are to be implemented over a period of 17 years.

(i) Market access

15. There are no quantitative restrictions on imports of agricultural products. Such measures were dismantled in the mid-1980s under a World Bank Structural Adjustment Programme, and replaced by tariffs and additional stamp duties; these were set initially at levels to provide protection equivalent to that previously given by the quantitative measures. The reforms included the dismantlement of the discretionary licensing system, which was in place for all agricultural commodities, and the elimination of the system of reference prices. The reforms continued in the 1990s under the Agricultural Adjustment Loan (ASAL), which sought to enhance the sector's competitiveness by eliminating most of the remaining distortions.

16. Under its Uruguay Round commitments, Jamaica bound the tariffs on all its agricultural lines at 100%. Other duties and charges were bound at 15%, except for a list of 56 products for which rates were bound at 80% and three products bound at 200%. These products include bovine and swine meat, poultry, vegetables, some cereals, fruit juices, sugar other than raw sugar (Chapter III(2)(v)). Applied tariff rates range from zero to 40%, with inputs normally subject to low rates or granted duty- free access. In 1997, Jamaica's simple average MFN tariff on agricultural products was 20.2%.2

17. There is considerable dispersion of MFN rates by product groups in the farm sector. Fruit falling under HS chapter 8 are subject to an average MFN tariff of 35.2%, with a peak of 40%. This is the highest average tariff applied to any group of imports into Jamaica. Vegetables and live plants are also subject to relatively high tariff rates, 26.5% and 26.7%, respectively. In contrast, products of animal origin and vegetable plaiting materials are dutyfree. Imports of sugar and sugar confectionery are subject to an average MFN tariff of 26.5%, with a 40% peak. Cereals carry an average tariff of 14.3%. Here, again, tariff dispersion is high and based on the end use of the imported product. This is true for most of the agriculture sector's 24 HS chapters (Table IV.1).3

2 This rate has been calculated by the WTO Secretariat at the HS seven-digit level. Under the ISIC definition of agriculture (including hunting, forestry and fishing), the average tariff rate is 20.1% (20.8% if only agricultural and livestock production is taken into account (Table AIV.1). 3 The definition of agricultural products used in Table IV.1 includes products HS Chapters 1 to 24. This includes beverages, tobacco products and other products that are considered manufactured goods under the ISIC classification. WT/TPR/S/42 Trade Policies Review Page 90

Dispersion is low only in subsectors where goods are destined mainly for final consumption, in which case the tariff is generally high, in many cases 40%, or are to be used as inputs, in which case the tariff is low or the good enters Jamaica duty free (Table III.6).

18. A wide range of agricultural imports are subject to additional stamp duties, which, applied on the c.i.f. price plus the tariff, can raise the level of nominal protection to up to 90%. This is the case for potatoes, onions, peanuts, tomatoes, kidney beans, fresh carrots, peppers and cabbage. A wide range of meat products - including all pork cuts and products, all beef and veal cuts and products, and some chicken cuts - and most fruit and vegetables face an aggregate border charge of 86%. Grains imported for animal feed are subject to a 70% tariff. Alcoholic beverages and tobacco are also subject to a special consumption tax.

19. Under the Approved Farmer Status Programme, machinery and equipment, as well as inputs used in the production of agricultural commodities may benefit from a reduction or removal of import duties. To obtain Approved Farmer Status, farmers must be involved in a prescribed agricultural activity.4

(ii) Sanitary and phytosanitary regulations

20. According to the authorities, some of Jamaica's sanitary and phytosanitary standards are obsolete and need to be updated to comply with the requirements of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS). The Acts that need to be amended include the Plants Quarantine Act of 1993 and the Agricultural Products Act of 1926.

21. All imports of fresh fruit and vegetables, plants and plant parts require an import permit, issued by the Plant Quarantine/Produce Inspection Unit of the Ministry of Agriculture. The permit must be obtained before importation takes place and then forwarded to the supplier. Phytosanitary certificates stipulating the phytosanitary conditions are required for all materials imported under an import permit. On arrival, all produce is inspected and certificates verified. Imports of plants and seeds are governed by the Plants Quarantine Act of 1993. Several plants and seeds are subject to import prohibition (Table IV.2). Importation of coffee berries; bees wax; some tropical fruit, such as mango; and root crops, such as yams or sweet potatoes, is forbidden.

22. Import permits accompanied by health certificates are required for live animals. Imported animals are subject to quarantine at the Government Quarantine Station for a minimum period of two weeks, with the exception of poitacine birds, which are subject to a longer quarantine period.

4 For inputs or capital goods, there is no real concession, since imports are generally duty-free. Jamaica WT/TPR/S/42 Page 91

Table IV.2 a Import and export regulations for selected agricultural products Product Regulation

Imports Fresh fruits and vegetables Import permit and phytosanitary certificate required. Dried or frozen fruits and vegetables and processed plant No import permit or phytosanitary certificate required. materials Coffee Importation of coffee berries is prohibited. Roasted coffee and coffee in parchment may be imported by permit from the Ministry of Agriculture through the Coffee Industry Board. Citrus Importation of citrus fruit plants or parts thereof is forbidden. Banana Importation of fruit suckers or plant parts is prohibited. Bees and bee products Importation of raw honey, unprocessed wax, bees, pollen and other live products is prohibited. Importation of processed wax for cosmetics or manufacturing purposes requires a permit. Plants Import permit required. Importation of finished plants in growing media prohibited. Plants must be bare-rooted; seedlings in liners or small pots. Soil Importation of soil is prohibited. Fruit Importation of mango, naseberry, and tropical soft fruits is prohibited. Root crops Importation of yam, dasheen, and sweet potatoe is prohibited. Exports Pimento Export of plants, cuttings or seeds of pimento is prohibited. Commercial exportation of pimento is allowed only by authorized exporters. Ginger Export of all portions of Jamaican ginger is prohibited except by special permit from the Ministry of Agriculture. Peeled dried ginger may be exported. Coconut Coconut Industry Board is the only body authorized to export coconut or grant a licence for its exportation. a These measures are applied under the Customs Act or the Plants Protection from Disease Act.

Source: Information provided by the Jamaican authorities.

(iii) Domestic support

23. The programme of reforms has led to divestment in state-owned enterprises and government land. All quantitative restrictions on imports were eliminated and the use of reference prices was phased out. Nominal tariff rates were reduced to a maximum of 100% and a timetable was set to lower these levels to CET rates over a period of five years.5 By 1995, all applied tariffs for agricultural products had been lowered to a maximum of 40%. Other reforms included the elimination of general food subsidies, which were administered by the Jamaica Commodity Trading Company (JCTC), and the removal of agricultural credit subsidies. The JCTC monopoly on the importation of basic foodstuff was terminated, including for corn, soybeans, wheat and rice.

24. Until recently, the marketing of cocoa, coconut, coffee, sugar and bananas was through commodity boards, established by law, which were sole buyers and sellers of the respective crop (Chapter II.2(x)).6 The main objectives of these organizations were to facilitate product marketing

5 According to information provided by the Ministry of Agriculture, the reduction timetable for some products was extended to seven years. Tariffs for a number of products, however, were adjusted to CET levels in a period of three years. 6 The Cocoa Industry Board, the Coconut Industry Board, the Coffee Industry Board, the Banana Industry Board, and the Sugar Industry Authority. WT/TPR/S/42 Trade Policies Review Page 92

and stabilize producer returns. The role of the boards has been reformed and currently only the Coconut and Cocoa Industry Boards retain a marketing monopoly for their respective crops.

25. Farmers who are granted approved farmer status may benefit from income tax exemptions on profits derived from farming activities. The exemptions are granted for a five-year period in the first instance and may be extended for an additional five years.

26. Agricultural credit is allocated by the Agricultural Credit Bank (ACB) through the People's Cooperative Banks (PCBs) and other approved financial institutions (AFIs). Credit allocated by the ACB in 1996 amounted to J$381.5 million. One third of this credit (some US$3.5 million) was in U.S. dollars at an interest rate of 8.5%.7 In 1997, credit allocated by the ACB increased by 9.2% to J$416.6 million.8 More than half of total credit was allocated to export crops, with coffee and sugar cane the major beneficiaries. Farmers also benefited until April 1997 from the Interest Rebate Programme, which granted loans to farmers at an interest rate well below market rates.9 To replace the Interest Rebate Programme, the Government introduced in April 1997 a new preferential interest rate scheme allowing the ACB to grant funds at the wholesale level at the lowest Commercial Bank Passbook Savings rate, currently at 13%. Furthermore, rates for outstanding loans by farmers were reduced to 13%. Another source of credit for the sector is the Jamaican Agricultural Development Foundation, which in 1996 provided loans at rates of 22-23% under the Micro Enterprise Programme.

27. The GCT is applicable to agricultural goods at its current rate of 15%. A number of products, however, especially those considered necessary to meet the basic nutrition needs of the population, are exempt from this tax, as provided in the General Consumption Tax Act, amended in 1991 (Chapter III, Table III.9).

28. Domestic support to the agriculture sector includes also the allocation of funds for a number of development projects, such as the Banana Quality Improvement Project, the Hillside Agricultural Project (to increase the productivity of some selected export crops), the Claverty Cottage/Shirley Castle Coffee Development Project, and the Citrus Certification Strategy. The Government is considering the introduction of a milk production enhancement programme, aimed at achieving milk self-sufficiency.

29. Supply of public services, such as electricity, water and transport is not provided to farmers at concessionary rates.

(iv) Export assistance

30. Agricultural goods do not receive export subsidies. Credit subsidies are not specific to production for export. Incentives under the Export Industry Encouragement Act (EIEA) (Chapter III(3)(iii)(a)) do not apply to unprocessed agricultural products, but are applicable to agro-industrial products.

7 The exception being credit granted under the World Bank Private Investment and Development Facility, which was granted at an interest rate of between 9.3% and 9.4% (Planning Institute of Jamaica 1997). 8 The increase in real terms was zero, but due to the contraction in production, credit allocated by the ACB covered a higher percentage of total agricultural production (2.4%) than in the previous year. 9 The rate was in the order of 17%, compared with the regular domestic currency rate of 26% for small-scale farmers and of 26%, plus the interest spread of AFIs, for medium and large-scale farmers. Jamaica WT/TPR/S/42 Page 93

(v) Crop production and livestock

(a) Sugar

31. Sugar is Jamaica's main agricultural export, totalling US$109.7 million in 1996 and US$100.7 million in 1997. Sugar exports are directed mainly to two markets, the United Kingdom and the United States, which pay a preferential price. Exports to these two markets are subject to quotas. In 1997, the United Kingdom absorbed some 78.3% of Jamaica's sugar exports10 and paid a price of US$646 per tonne, considerably higher than the world market prices, which stood at around US$220 per tonne. The second main destination was the United States, which accounted for 12.2% of total exports, and paid an average price of US$443 per tonne in 1997 (Table IV.3).

Table IV.3 Sugar exports by destination, 1992-97 (Tonnes and US$ million) United Kingdom United States Total Volume Value f.o.b. Volume Value f.o.b. Volume Value f.o.b.

1992 126,155 76.65 13,207 5.87 139,362 82.52

1993 126,599 88.40 22,920 10.20 149,519 98.60

1994 126,083 73.05 - - 126,083 73.05

1995 141,325 96.80 3,646 1.71 144,971 98.51

1996 156,780 98.82 24,403 10.89 181,183 109.71

1997a 134,409 83.91 20,898 9.27 170,94 100.65

a Exports to other countries in 1997 totalled 15,641 tonnes and US$7.47 million.

Source: Data provided by the Planning Institute of Jamaica and the Sugar Industry Authority.

32. Exports of sugar to the European Union are subject to a regular annual quota of 126,000 tonnes, allocated to Jamaica in 1990. Jamaica was allocated a supplementary quota of 30,000 tonnes in 1994. The regular quota has been filled every year, while the degree of use of the supplementary quota has varied: in 1995, around two thirds of the supplementary quota filled; in 1996, the whole quota was filled; while in 1997, only slightly over one quarter of the supplementary quota was used.

33. The privately owned Sugar Company of Jamaica is estimated to control around 60% of production. Sugar production remained relatively steady between 1992 and 1995, in a range of 211,000-219,000 tonnes. In 1996, production reached 231,000 tonnes, but declined to 228,000 tonnes in 1997 (Chart IV.5). The Government's goal is to achieve a level of production of 300,000 tonnes for the year 2000. Exports, at 171,000 tonnes in 1997, account for 75% of total production. The volume of sugar cane milled in 1997 was 2.4 million tonnes (Table IV.4).

10 This was, however, below its market share in the previous two years: in 1996, 87% of Jamaica's sugar exports went to the United Kingdom, down from 97% in 1995, and 100% in 1994. WT/TPR/S/42 Trade Policies Review Page 94

Chart IV.5 Sugar production, exports and prices, 1992-97

('000 tonnes) (US$ per tonne; US$ million) 250 600

500 200

400 150

300

100 200

50 100

0 0 a 1992 1993 1994 1995 1996 1997

Left hand scale:Production volume Right hand scale: Unit prices Export volume Export value

a Estimates. Source: Planning Institute of Jamaica (1998), Economic and Social Survey, Jamaica, 1997.

Table IV.4 Production of sugar cane and its derivatives, 1992-97 ('000 tonnes) 1992 1993 1994 1995 1996 1997

Total sugar cane milled 2,525 2,661 2,450 2,295 2,624 2,413 Farmers 1,381 1,546 1,402 1,270 1,482 1,346 Estates 1,144 1,115 1,048 1,024 1,142 1,067 Sugar production 223 215 217 210 231 228 Molasses production 98 104 93 90 101 93

Source: Data provided by the Planning Institute of Jamaica and the Sugar Industry Authority.

34. The Sugar Industry Authority (SIA), established by the Sugar Industry Control Act of 1937, is in charge of handling specialized market arrangements and of granting export licences. The SIA was, before the deregulation of the industry, the sole body allowed to engage in marketing; it was also responsible for determining and administering import quotas. The deregulation of the industry started in 1984 when the Government sold three factories and associated lands, and was completed in 1993 with the sale of the last four publicly owned sugar companies (Frome, Monymusk, Bernard Lodge, and Long Pond). Currently, the Authority plays mainly an information and advisory role and is no longer directly involved in the marketing of sugar. The SIA's marketing functions and the administration of export quotas are now conducted by Jamaica Cane Product Sales, a private grower company, which acts as an agent for the Authority. The allocation to local producers of export quotas Jamaica WT/TPR/S/42 Page 95

assigned to Jamaica in bilateral agreements with the United Kingdom and the United States is done on a first-come, first-served basis, taking into account the producer's past year's performance, until quota limits are filled. Once quotas are allocated, exporters must obtain a licence from the SIA.

35. Farmgate prices for sugar exports are determined by Jamaica Cane Product Sales on behalf of the SIA, based on the prices received under Jamaica's two bilateral market arrangements. They are split into two parts: 62% of the price is paid to growers and 38% to the manufacturers of refined sugar. Farmgate prices were J$17,170 (US$484) per tonne in 1997; they doubled between 1992 and 1997 in domestic currency, but lagged behind inflation. Profit margins have been affected by the rising costs of some inputs, such as fertilizers.

36. Imports of sugar and sugar confectionery were US$38.3 million in 1996. The reason for importing sugar is that once the export quotas are filled the remainder is insufficient to satisfy the requirements of the manufacturing sector. Refined sugar for final consumption is also imported. While sugar imports (HS Chapter 17) face an average 26.5% tariff rate, refined sugar enters duty free, but may be subject to additional stamp duties if the price of sugar falls below US$0.22 per lb. Imports of raw sugar are subject to a 40% tariff. Other duties and charges for sugar other than raw sugar are bound at a rate of 200% in the WTO, except refined sugar, for which they have been bound at 15%.11

(b) Bananas

37. Bananas are Jamaica's second largest agricultural export, with a total export value of US$45 million in 1997, compared to some US$44 million in 1996. Production was 89,000 tonnes in 1996 (Chart IV.6 ), practically all of which was exported. Preliminary information for 1997 shows a 10% decline in production, to 79,700 tonnes, as a consequence of the drought.

38. The farmgate price of bananas more than doubled between 1992 and 1995, before dropping by 16.3% (to J$17,813 per tonne) in 1996. Nevertheless, price increases lagged inflation, as was also the case for most of the other major agricultural crops, except pimento (Table IV.5). In 1997, the farmgate price of bananas fell slightly, to J$17,680 per tonne.

39. The main market for Jamaican bananas is the United Kingdom, with a share of 18% of U.K. banana imports in 1997. Bananas from Jamaica and other Caribbean countries have traditionally enjoyed preferential access to the European Union (EU) under the Lomé Convention. The sector could be affected by the ruling of the WTO Dispute Settlement and Appellate Bodies that certain import practices by the EU contravene WTO rules. The EU has decided to dismantle its import licensing assignment system by February 1999.12 Since the economic rent generated by the licences was an incentive to import bananas from ACP countries, the elimination of the assignment system may imply the end of preferential access of Jamaican bananas to the EU market in 1999. This could aggravate the sector's difficulties, which have included a reduction in prices in the past. The EU has, however, offered compensation for the possible losses. Compliance with the WTO dispute settlement recommendation will also imply the removal of tariff-free quotas by 2001. In the case of Jamaica, this quota is 105,000 tonnes a year.

11Import duties on sugar other than raw containing added flavouring or colouring matter are 40%; the tariff on imports of icing sugar is 20%. 12 The "B" licencing regime allocated 30% of the EU's global banana import tariff quota (2.2 million tonnes) to ACP and EU bananas. Imports from ACP countries within the 2.2 million-tonne quota pay a tariff of ECU 75 per tonne. Imports beyond the quotas are subject to a tariff of ECU 850 per tonne. WT/TPR/S/42 Trade Policies Review Page 96

Chart IV.6 Volume of production in selected crops, 1992-97

('000 tonnes)

100 90 80 70 60 50 40 30 20 10 0 a 1992 1993 1994 1995 1996 1997

Banana Coffee Cocoa (deliveries to processing plants) Citrus fruit Coconut Cocoa (outturn from processing plants)

a Prelimary; data for citrus fruit are not available. Source: Planning Institute of Jamaica (1998), Economic and Social Survey, Jamaica, 1997.

Table IV.5 Farmgate prices of selected traditional export crops, 1992-97 (J$/tonne) Relativeb price Product 1992 1993 1994 1995 1996 1997a change (1992-96) Sugar cane 6,537 7,070 14,825 18,120 20,456 17,170 30.4 Bananas 8,818 11,000 17,000 20,078 17,813 17,680 -15.8 Citrus (oranges) 30,800 15,432 30,864 39,683 55,115 n.a. -25.5 Coffee (Blue Mountain) 39,315 37,073 49,999 56,666 56,666 56,666 -40.0 Pimento 11,464 23,148 27,550 34,171 36,376 11,200 32.2 Coconut (copra) 12,376 13,738 13,738 16,500 16,500 n.a. -44.4 Cocoa 7,220 6,000 6,602 8,402 10,400 45,194 -40.0 aPreliminary. b With respect to CPI change.

Source: Information provided by the Jamaican authorities.

40. One of the goals of the Government is to try to enhance the competitiveness of the banana- producing industry. For this purpose, Jamaica has used funds stemming from an Income Support Programme provided by the EU to ACP countries. The programme comprises three phases: in the first phase (1995/96), the EU disbursed a total of ECU1.99 million; the amount was used to fund a water management system, to improve Sigatoka disease management, and to facilitate the purchase of inputs. Phase II of the project started in 1997: funds for a total of around ECU 3 million were to be Jamaica WT/TPR/S/42 Page 97

disbursed for the improvement of the industry's information system and the compilation of a data base, and for the improvement of packaging techniques. In Phase III, expected to start in 1998, a total of ECU5.8 million will be provided to continue the improvements initiated in Phase II.

41. The Banana Board was the exclusive exporter of bananas until 1985, when its commercial operations were divested and assumed by the Banana Export Company, which now purchases, ships and markets Jamaican bananas to the United Kingdom. The Board retains regulatory functions, manages a crop insurance scheme and runs a research programme.

(c) Coffee

42. Coffee is Jamaica's third main agricultural export, with sales abroad of US$33.5 million in 1996 and US$32.4 million in 1997. It is also one of the fastest growing exports, having tripled in value between 1991 and 1996. Most of the production (estimated at 18,612 tonnes in 1997; Chart IV.6) takes place in the Blue Mountain area. Production has been aided by the Claverty Cottage/Shirley Castle Coffee Development Project, which has resulted in an expansion of agricultural land for the sector, and has improved processing capacity through the construction of two pulperies and the development of infrastructure in the area.

43. The Coffee Industry Board has retained some marketing functions after its deregulation in February 1983. Although no longer the only purchaser from producers, it still participates in the market competing with private producers, which are also entitled to export directly.

(d) Cocoa

44. Jamaica is a small exporter of cocoa, with exports in 1997 of some US$2.0 million, down from US$2.1 million in 1996 and US$2.7 million in 1995. The Cocoa Industry Board plays an active role in the market, intervening to support prices and stimulate production. The Board is the sole purchaser and exporter of cocoa. Since the industry was deregulated, minimum production requirements for the obtention of export licences were eliminated, as well as all restrictions on private transaction prices and on location of exporters. In 1996, as a consequence of depressed international prices, the Board intervened to increase the advance price of cocoa, to J$200 a box, equivalent to a 48% increase. In 1997, the drought caused a decline in production, and the Board intervened, increasing the farmgate price to J$11,200 in crop year 1996-97 (October-September) from J$10,400 in the previous crop year. A recovery in international prices is expected to benefit production and exports during crop year 1997/98.

(e) Citrus

45. The production of citrus fruit has gained importance during the 1990s, with total exports increasing from US$3.3 million in 1991 to US$5.7 million in 1996. Acreage under production has been systematically increased and standards have improved. In 1997, however, exports were affected by drought conditions and lower international prices, dropping by 28%, to US$4.1 million. In 1996, the citrus industry introduced a certification strategy with the assistance from the FAO. The Citrus Growers Association, an organization of private producers had regulatory and monopoly power over the industry until export licenses were removed, and minimum production and planting requirements for exporters were eliminated. Imports of citrus face a tariff of 40% plus an additional stamp duty, for total border charges of 86%. WT/TPR/S/42 Trade Policies Review Page 98

(f) Pimento

46. Exports of pimento are subject to export licensing. However, they increased their importance as sources of foreign exchange during the first half of the 1990s, with total exports increasing from US$3.5 million in 1991 to US$4.9 million in 1995. Affected by the drought, exports suffered a setback in 1996 and 1997 (Chart IV.3), returning to 1991 levels in value terms. The Government is trying to support an expansion of the industry, aiding it through research conducive to the propagation of grafted plants and pimento seedlings and through a Pimento Tree Planting Programme.13 The exportation of pimento plants is prohibited.

(g) Cereals

47. Jamaica is a net importer of cereals. Imports in 1996 were 277,000 tonnes, to a value of US$75.2 million. Preliminary estimates for 1997 point to imports of US$76.6 million (300,000 metric tonnes). The main cereals imported are rice (37.8% of cereal imports), maize (36.2%), and wheat (25.9%).

48. The average tariff on imports of cereals in 1997 was 14.3%; the maximum applied rate was 40%. Imports of cereals to be used as, or in the manufacture of animal feeds are subject to a stamp duty, for a total border charge of 70%.

49. Jamaica benefits from the United States's Department of Agriculture's Programme PL480, by which brown rice is provided in the form of aid; the Jamaica Commodity Trading Company (JCTC) is in charge of importing this rice.

(h) Animal and dairy products

50. In 1996, Jamaica imported US$44.5 million of dairy products (HS 04) and exported less than US$4 million. Imports of meat (HS 02) were US$43.2 million, while exports were negligible.

51. Imported animals are subject to customs duties based on c.i.f. value. The average MFN tariff for live animals is 22.9%, with a peak of 40%. Imports totalled US$64.7 million in 1996. The average tariff on imports of meat and dairy products in 1996 were 26.2% and 20.4%, respectively; maximum applied rates in both cases were 40%. Imports of milk and cream from CARICOM countries are not exempt from customs duties, and must pay the CET on these products.

(i) Food processing, beverages and tobacco

52. Food processing, beverages and tobacco represented 68.6% of the agricultural sector's production in 1996. In the food processing sub-sector, Jamaica is an important producer of animal feeds, refined sugar and sugar products, flour, molasses and processed poultry meat, among other products. Imports of poultry meat are subject to a 40% tariff, and some cuts are subject to additional stamp duties; aggregate protection levels may be as high as 86% (Table III.7). Refined sugar imports are subject to a benchmark price regime (section (v)(a)).

53. Jamaica is an important producer of rum, beer and carbonated beverages. Imported beer is subject to customs duties, additional stamp duties, to a special consumption tax, and to the GCT. All considered, the aggregate duty level on imported beer can be as high as 132.2% and is never lower than 86.5%. In the case of spirits, total border charges can reach 149%. This compares to a maximum aggregate tax level of 33.3% for domestically produced beer and of 42.9% for domestically

13PIOJ (1998), p.7.10. Jamaica WT/TPR/S/42 Page 99

produced spirits. The production of carbonated beverages has competition from imports that use PET instead of glass bottles.14

54. Although the production of cigarettes in Jamaica remained virtually unchanged between 1992 and 1997, the production of cigars has doubled during this period, basically due to strong foreign demand. Imported tobacco products are subject to a maximum border charges of 226.3% (cigarettes), and a minimum of 15% (tobacco), with cigars facing duties of 161.2%. By comparison, domestically produced cigarettes face an aggregate tax level of 60.9%, and duty levied on domestically produced cigars is 28.8%.

(3) FORESTRY AND FISHERIES

(i) Forestry

55. Jamaica has had a serious problem of deforestation since Hurricane Gilbert hit in 1988. The annual rate of deforestation has been estimated at 3.5%, triggered by the pressure to convert forest land into agricultural land, or for industrial development and housing purposes. The high rate of deforestation has affected timber and water production, and accelerated soil erosion and flooding. Forest resources are estimated to be 259,930 hectares, of which 77,000 in undisturbed natural forest.

56. The production of lumber increased substantially between 1992 and 1995, before experiencing a severe contraction in 1996. Imports of forestry products are subject to an average tariff of 3.3%, with a peak of 20%, and logging products to an average rate of 6.4%.

57. Government policy in the sector aims at developing an export market for local forest products, reducing soil erosion, and encouraging the use of wood as a source of energy. This policy is being implemented and coordinated by the Forestry and Soil Conservation Department of the Ministry of Agriculture.

(ii) Fisheries

58. Total fish production in Jamaica is estimated to have been 17 million kilograms in 1996. Despite sizeable domestic production, Jamaica is a net importer of fish and crustaceans. Imports in 1996 of products classified under HS chapter 3 were US$28.6 million, compared to exports of US$19.5 million. Tariff protection and dispersion are high: the average tariff is 25.5%, with rates ranging from zero to 40%. Tariffs are applied according to whether the good is for final consumption or used as an input. Fresh, frozen or chilled fish is subject to a 40% tariff, smoked fish faces a 25% customs duty, and imports of cod, herring, mackerel and alewives are duty-free. Fish imports for processing are also free of customs duty. The main imported products are canned sardines, smoked, dried or slated codfish, and fresh, chilled or frozen fish.

59. Government policy with respect to fisheries is managed by the Fisheries Division of the Ministry of Agriculture. The Division is responsible for managing three major programmes regarding: Fisheries, Aquaculture, and Oyster Culture. Among the aims of these programmes is the development and increase in the production of marine and fresh water species.

14Mainly imports from Canada, Trinidad and Tobago, and the Dominican Republic. See: PIOJ (1997), p.p. 10-3. WT/TPR/S/42 Trade Policies Review Page 100

(4) CONSTRUCTION

60. Construction accounts for 9.1% of Jamaica's GDP and employs around 9% of the labour force. Activity in the sector is closely linked to tourism, but also, in the past few years, to a number of projects to improve Jamaica's infrastructure, such as the increase in telephone lines undertaken by Cable and Wireless Jamaica, a number of water connection programmes, and the development of new berths by the Port Authority. The sector experienced a period of varying output between 1992 and 1996, mainly due to fluctuations in the number of housing starts (Table IV.6). In 1997, the construction sector again showed mixed results, with housing starts, cement production and the value of imported materials increasing; the number and value of mortgages, however, declined substantially, affected by high interest rates.

Table IV.6 Performance indicators of the construction sector, 1992-97 1992 1993 1994 1995 1996 1997 Housing starts 5,710.0 6,045 4,842.0 10,848 6,047.0 7,193.0 Production of cement ('000 tonnes) 473.7 450.8 445.5 562.8 565.4 591.2 Value of mortgages (J$ million) 356.8 517.2 998.4 2,146.8 3,646.0 2,757.7 Value of imported construction material (US$ million) 71.6 95.9 92.7 149.9 131.6 162.2 Number of persons employed ('000) 59.1 62.1 66.3 72.6 81.2 79.6

Source: Information provided by the Jamaican authorities.

61. The construction sector used imported materials totalling US$162.2 million in 1997. Construction materials classified in Jamaica's Customs Tariff as "competing inputs" (such as bricks, baths, lavatories, building blocks, pipes, products of asphalt, clay tiles) are generally subject to a 20% customs duty; those classified as "non-competing inputs" (corrugated sheets, articles of stone, wired sheets, some kinds of glass) may be imported duty free. Kitchenware is subject to a 25% tariff.

62. The sector accords a number of incentive schemes, such as the Factory Construction Law, which provides relief on import duties for items not available locally, and tax exemption on income from leasing factories to manufacturers operating under the Export Industry Encouragement Act (EIEA); 15 capital gains on sales of such factories are also tax exempt. The Hotel Incentives Act provides income tax relief for ten years, and duty-free importation of building materials and furnishings used for hotels of at least ten bedrooms. The Resort Cottage Incentives Act offers a similar duty relief, but for seven years, provided the articles imported are used for the construction and equipment of resort cottages. The Urban Renewal (Tax Relief) Act provides income duty relief to persons undertaken developments in declining urban areas. Some construction materials, including cement, concrete and steel products, are subject to the GCT at the reduced rate of 12.5%.

(5) MANUFACTURING

63. Manufacturing accounted for 18.1% of Jamaica's GDP in 1997, employing 9.4% of the labour force. Excluding food, sugar, molasses and rum, alcoholic and non-alcoholic beverages, and tobacco and tobacco products, the sector's share of GDP was 10.5%. During the period 1992-96, manufacturing GDP declined by 0.9% on average per year, after expanding by 3% during 1987-91. It declined by a further 2.5% in 1997. Jamaica is a significant net importer of manufactures, with imports twice as large as exports. Manufactured exports were US$512.9 million in 1996, and

15The import duty relief may, in many cases, be of little relevance, since inputs and capital goods not available locally are likely to be classified as "non-competing" in the Jamaican Customs Tariff, and, therefore, granted duty-free access to Jamaica. Jamaica WT/TPR/S/42 Page 101

US$489.6 million in 1997 (Chart IV.7). This figure includes exports of processed foods and beverages and tobacco (combined exports of US$ 194.2 million in 1996 and US$188.5 million in 1997) and excludes exports from the Free Zones. Exports of industrial products (including mining products) were US$1.07 billion in 1996. Imports of industrial products were US$2.4 billion in the same year.

Chart IV.7 Value of selected exports of manufactured commodities, 1992-97

(US$ million)

600 Total exports 500 Non-traditional exports Traditional

400

300

200

100

0 a 1992 1993 1994 1995 1996 1997

a Estimates. Note: Selected exports include SITC sections: processed foods, beverages and tobacco, crude materials, mineral fuels, animal and vegetable oils and fats, chemicals and products, manufactured goods, machinery and transport equipment and miscellaneous manufactures. Source: Planning Institute of Jamaica (1998), Economic and Social Survey, Jamaica, 1997.

64. Excluding food, beverages and tobacco, the main manufacturing sub-sectors are: machinery and equipment; textiles and clothing; petroleum refining; and chemical, rubber and plastic products (Chart IV.8).

65. On average, the most dynamic sub-sector has been textiles and clothing. Other sub-sectors have performed more erratically (Table IV.7).

66. Industry has high labour costs and has been further affected by high interest rates, which have had a negative impact on investment. To counter this and other investment disincentives, the Government has put forward several measures, such as the removal in 1996 of tariffs on non- competing capital goods, a waiver of the GCT on capital equipment (under the Modernization of Industry Act), the extension of Free Zone status to single entities, a programme to support and restructure the garment industry, a plan for low interest financing of working capital through the NEIBJ, an interest rate rebate scheme, assistance to small enterprises, and the provision of funds to the manufacturing sector through the National Industrial Bank of Jamaica (NIBJ), the National Development Bank and other financial institutions (Chapter III(3)(v) and (4)(i)and (iii)). WT/TPR/S/42 Trade Policies Review Page 102

Chart IV.8 Manufacturing GDP by subsector, 1992 and 1997 (Per cent, based on constant 1986 prices)

a 1992 1997 Chemicals & other Paper, printing & Chemicals & other non-metal products Paper, printing & publishing non-metal products 30.3 publishing 5.8 29.5 5.8

Metal products, machinery & equip. 22.7 Metal products, machinery & equipment Petroleum refining Other manufacturing industries 28.1 20.0 5.0 Petroleum refining Textiles & clothing 26.1 Other manufacturing industries Textiles & clothing 10.0 6.3 10.4

Total: J$2.1 billion Total: J$1.9 billion

a Estimates. Source: Planning Institute of Jamaica (1998), Economic and Social Survey, Jamaica 1997.

Table IV.7 Manufacturing output, 1992-96 (Per cent change) 1992 1993 1994 1995 1996

Manufacturing 1.6 -1.9 0.3 -1.2 -3.1

Textiles, clothing and leather 8.1 3.1 30.7 6.8 -11.5

Chemicals, petroleum, rubber and plastic -2.5 -0.4 0.6 -17.0 -5.6

Metal based products 3.3 13.7 -1.2 10.2 -8.4

Non-metallic mineral products 23.2 -5.4 -2.6 5.2 1.3

Source: Information provided by the Jamaican authorities.

(i) Market access

67. The tariff on imports of industrial products (HS chapters 25-97, covering both manufacturing and mining) averaged 8.4% in 1997, with a range of zero to 30%. The highest tariffs were on those items for which there is an important domestic production base, such as clothing and clothing articles, leather goods, and soap, toiletries and detergents. Major imports, with a low degree of domestic substitutes, face tariff rates below, around, or slightly above the average. Examples of this are mechanical machinery (average tariff of 2.6% for HS chapter 84); electrical machinery (HS chapter 85), subject to an average tariff of 10.1%; paper (9.4%); and plastics (11.2%). Inputs for the textile and clothing industry (HS chapters 50-55) enter Jamaica duty free. The same applies to fertilisers and most organic chemical products. Table IV.8 provides a detailed analysis of tariff averages by HS chapter. Jamaica WT/TPR/S/42 Page 103

Table IV.8 Trade and tariff data for industrial products, 1997 (Per cent and US$ '000) Average Imports Exports HS Description Min Max (MFN) (US$ '000) (US$ '000) 25-97 Industrial products 8.4 0 30 2,399,768.7a 1,007,353.5 25 Slat; sulphur; earth & stone.; plastering mat.; lime & 2.9 0 25 8,192.2 2,945.8 cement. 26 Ores, slag and ash 2.2 0 15 51.3 78,350.1 27 Mineral fuels, oils & product of their distillation; etc. 8.4 0 25 447,096.0 5,930.2 28 Inorg. chm; compds. of prec. met., radioact. elements, 1.6 0 20 72,084.4 617,212.9 etc. 29 Organic chemicals. 0.5 0 20 19,368.6 6,465.5 30 Pharmaceutical products. 7.8 0 15 43,455.0 1,202.3 31 Fertilizers. 0.6 0 15 11,738.8 120.0 32 Tanning/dyeing extract; tannins & derivs; pigm etc 10.7 0 20 13,110.7 1,107.4 33 Essential oils & resinoids; perf, cosmetic/toilet prep 19.6 0 30 13,650.5 10,069.9 34 Soap, organic surface-active agents, washing prep, etc 20.5 0 30 29,081.3 2,260.2 35 Albuminoidal subs; modified starches; glues; 4.3 0 20 1,423.3 1,079.8 enzymes. 36 Explosives; pyrotechnic prod; matches; pyrop alloy; 12.7 0 25 982.6 448.6 etc 37 Photographic or cinematographic goods. 4.3 0 25 5,437.1 8.8 38 Miscellaneous chemical products. 4.0 0 30 37,099.5 490.3 39 Plastics and articles thereof. 11.3 0 25 74,170.7 3,290.1 40 Rubber and articles thereof. 8.0 0 30 41,685.7 4,630.8 41 Raw hides and skins (other than furskins) and leather. 0.0 0 0 818.5 1,061.1 42 Articles of leather; saddlery/harness; travel goods etc 21.8 0 25 3,692.0 56.6 43 Furskins and artificial fur; manufactures thereof. 8.3 0 25 33.2 - 44 Wood and articles of wood; wood charcoal. 11.2 0 25 55,862.0 709.0 45 Cork and articles of cork. 4.5 0 25 20.3 - 46 Manufactures of straw, esparto/other plaiting mat; etc 16.7 0 25 209.6 9.3 47 Pulp of wood/of other fibrous cellulosic mat; waste etc 0.0 0 0 177.0 470.8 48 Paper & paperboard; art of paper pulp, 9.4 0 25 88,801.2 1,159.9 paper/paperboard 49 Printed books, newspapers, pictures & other product etc 7.2 0 25 26,487.6 749.5 50 Silk. 0.0 0 0 446.1 - 51 Wool, fine/coarse animal hair, horsehair yarn & fabric 0.0 0 0 135.8 - 52 Cotton. 0.0 0 0 10,602.3 48.5 53 Other vegetable textile fibres; paper yarn & woven fab 0.0 0 0 1,067.3 4.8 54 Man-made filaments. 0.0 0 0 9,042.0 0.3 55 Man-made staple fibres. 0.0 0 0 16,215.2 8.6 56 Wadding, felt & nonwoven; yarns; twine, cordage, 7.7 0 25 3,093.7 - etc 57 Carpets and other textile floor coverings. 25.0 25 25 2,266.5 32.4 58 Special woven fab; tufted tex fab; lace; tapestries 0.9 0 20 8,200.2 3.2 etc 59 Impregnated, coated, cover/laminated textile fabric 3.6 0 25 8,704.0 0.2 etc 60 Knitted or crocheted fabrics. 0.0 0 0 4,268.0 - 61 Art of clothing & clothing access, knitted or 24.7 0 25 73,248.3 206,578.5 crocheted. 62 Art of clothing & clothing access, not 24.6 0 25 162,509.8 43,457.2 knitted/crocheted Table IV.8 (cont'd) WT/TPR/S/42 Trade Policies Review Page 104

Average Imports Exports HS Description Min Max (MFN) (US$ '000) (US$ '000) 63 Other made up textile articles; sets; worn clothing 20.3 0 25 7,367.7 550.7 etc 64 Footwear, gaiters and the like; parts of such articles. 20.0 0 25 11,306.8 1,450.9 65 Headgear and parts thereof. 17.7 0 25 903.9 68.4 66 Umbrellas, walking-sticks, seat-sticks, whips, etc 18.8 0 25 401.5 1.1 67 Prepr feathers & down; arti flower; articles human 17.1 0 25 226.7 - hair 68 Art of stone, plaster, cement, asbestos, mica/sim mat 10.6 0 25 5,789.4 326.9 69 Ceramic products. 15.7 0 25 21,279.2 62.6 70 Glass and glassware. 6.0 0 25 13,076.7 702.4 71 Natural/cultured pearls, prec stones & metals, coin etc 19.9 0 30 30,662.2 4.1 72 Iron and steel 2.1 0 20 36,838.4 291.5 73 Articles of iron or steel 8.3 0 25 64,020.9 1,988.8 74 Copper and articles thereof 2.8 0 25 5,373.1 872.6 75 Nickel and articles thereof 0.0 0 0 91.1 - 76 Aluminium and articles thereof 7.3 0 25 15,949.9 1,726.4 78 Lead and articles thereof 4.3 0 5 89.6 26.7 79 Zinc and articles thereof 0.0 0 0 35.6 - 80 Tin and articles thereof 0.0 0 0 3,595.0 214.6 81 Other base metals; cermets; articles thereof. 0.0 0 0 13.5 - 82 Tool, implement, cutlery, spoon & fork, of base met 6.8 0 25 9,525.6 61.7 etc 83 Miscellaneous articles of base metal. 7.6 0 25 13,925.5 264.5 84 Nuclear reactors, boilers, mchy & mech appliance; 2.6 0 25 305,469.8 650.1 parts 85 Electrical mchy equip parts thereof; sound recorder 10.3 0 30 176,409.7 2,683.7 etc 86 Railw/tramw locom, rolling-stock & parts thereof; 0.0 0 0 2,036.0 - etc 87 Vehicles o/t railw/tramw roll-stock, pts & accessories 8.3 0 30 239,760.1 134.6 88 Aircraft, spacecraft, and parts thereof. 3.8 0 25 50,421.7 - 89 Ships, boats and floating structures. 3.7 0 25 1,865.0 76.6 90 Optical, photo, cine, meas, checking, precision, etc 6.0 0 25 31,534.3 21.6 91 Clocks and watches and parts thereof. 18.1 0 30 12,769.6 3.5 92 Musical instruments; parts and access of such articles 10.9 10 25 541.2 5.3 93 Arms and ammunition; parts and accessories thereof. 19.5 0 30 1,961.7 0.5 94 Furniture; bedding, mattress, matt support, cushion 21.0 0 25 31,516.0 3,350.4 etc 95 Toys, games & sports requisites; parts & access 19.3 0 25 4,478.4 214.0 thereof 96 Miscellaneous manufactured articles. 15.6 0 25 5,838.9 1,631.5 97 Works of art, collectors, pieces and antiques. 25.0 25 25 165.6 5.1 a Excluding "special transaction trade", totalling US$79.6 million.

Note: Trade data applied for 1996.

Source: WTO calculations based on data provided by the Jamaican authorities.

68. Import licensing applies to some industrial products, in particular to motor vehicles and parts, arms and ammunition and certain toys (Chapter III(2)(ix)). No safeguards or trade-related investment measures are applied in the manufacturing sector. Jamaica WT/TPR/S/42 Page 105

69. Under its Uruguay Round commitments, Jamaica bound all of its industrial tariffs at ceiling rates of 50%. Other duties and charges were bound at 15%, except for aluminium extrusions (solid and hollow shapes and slugs for toothpaste) and corrugated sheets, for which they were bound at 80% (Chapter III(2)(v)).

(ii) Incentive schemes

70. The manufacturing sector has a number of incentive schemes (Chapter III(4)(iii)). Manufacturing firms that export their production may use the Export Industry Encouragement Act (EIEA) and can receive income tax exemption and tariff concessions for ten years; if they also produce for the domestic market but export at least 5% of their production to non-CARICOM markets, manufacturing firms can receive an income tax exemption but not tariff concessions (Table III.12). Firms can benefit from this scheme up to 2002. Manufacturing firms can also use the provisions of the Free Zones Act, whose scope was extended in 1996 to encompass both firms that sell a maximum of 15% in the domestic market and firms operating outside the physical area of the Free Zones (single entity free zones).16 The Modernization of Industry Act allows relief for manufacturing companies from the GCT on capital goods. Qualified businesses operating in the manufacturing sector may also take accelerated depreciation allowances. In 1997, the National Development Bank (NDB) was commissioned to establish a lending facility, similar to the one established by the ACB for farmers, which is to provide funds to manufacturers at the lowest commercial bank savings rate (currently 13%). A Productivity and Performance Improvement Scheme, to be operated by the Jamaica Manufacturers Association, has been established.

(iii) Textiles and clothing

71. Jamaican exports of a number of clothing products have guaranteed or designated access to the U.S. market under bilateral quota arrangements, such as the TSUS807 and the Cut, Make and Trim (CMT) programme. Quotas are, however, generally not filled. Most of the production under these programmes takes place in Free Zones. Textiles and clothing exports from the Customs Territory of Jamaica were US$253.0 million in 1996; total exports, including production in the Free Zones were US$538.2 million (Table IV.9(a)). Although this was a decline from the previous year, only producers operating outside the Free Zones experienced an actual contraction in their exports. Preliminary data for 1997 shows a slight decrease in exports: they were US$536.6 million, 0.3% below the level posted in the same period the previous year, of which US$403 million were under the TSUS 807 Programme (Table IV. 9(b)).

72. The main market for Jamaican textile and clothing exports is the United States (around 84% of total exports). Exports take place mainly through the TSUS807 programme - which accounts for around 85% of U.S. imports of textiles and clothing from Jamaica - and through the CMT programme, which accounts for 15%. Most companies benefiting from access to the U.S. market under these programmes operate in Free Zones, particularly in the Montego Bay Free Zone. Exports to the United States declined by 1.9% in 1997, chiefly due to an 11.2% contraction on exports under the CMT programme. Exports under TSUS807 (807A) continued to post high growth rates.

16Up to April 1998, four manufacturing companies had been granted single-entity-free-zone status, PIOJ (1998) p. 10.5. WT/TPR/S/42 Trade Policies Review Page 106

Table IV.9 (a) Structure of clothing exports, 1993-97 (US$ million value) Source 1993 1994 1995 1996 1997

Total 453.1 481.8 580.9 538.2 536.6 Customs territory 239.4 246.6 288.0 253.0 257.2 Free zones 213.7 235.2 292.9 301.8 279.4

Source: Information provided by the Jamaican authorities.

Table IV.9 (b) Textile/clothing exports to the U.S. market 1996/97 (US$ million value) Market Jan-Dec 1996 Jan-Dec 1997 Absolute change Percent change Total 475.17 466.26 -8.90 -1.87 Total 807 388.05 402.96 14.91 3.84 807 A 259.93 289.18 29.26 11.26 807 R 128.12 113.78 -14.34 -11.19 CMT 87.12 63.30 -23.82 -27.34 Others 61.43 89.35 27.92 45.44

Note: 807 A products are made of fabric formed and cut in the United States; 807R products are made of fabric cut but not formed in the United States.

Source: Information provided by the Jamaican authorities.

73. Jamaica signed a Bilateral Textile and Apparel Agreement with the United States in 1994; it has been notified by the United States to the WTO Textile Monitoring Body under Article 2.1 of the Agreement on Textiles and Clothing. This agreement is the successor to the United States/Jamaica Bilateral Textile Agreement of 27 August 1986. The agreement sets export restraints on a number of textile and clothing items. There are currently quotas applied on 20 products, grouped in eight (US) categories. Under the agreement, exports of products of fabric cut and formed in the United States (TSUS807.0010, or 807A) are classified under Group I (GALS) and given guaranteed access to the U.S. market. Access levels are determined by the United States every year, but generally exceed Jamaica's export capacity, as evidenced by the large percentage of quotas that remain unfilled (below). Guaranteed access levels may be renegotiated. A flexibility clause allows a specific product to exceed its GAL by not more than 7% during any agreement period, provided equivalent adjustment is made in other products. The agreement also has carry-forward and carry-over allowances.17 Products classified under Group II and Group III include products of fabric cut but not formed in the United States (TSUS807.0050, or 807R), and CMT products. Products in Group II are subject to Designated Consultation Levels (DCLS), while products in Group III are subject to Specific Limits (SL).

74. Exporters of clothing under any quota schedule must obtain a certificate of exportation from JAMPRO. To obtain a certificate, products must be included in the Schedule of Specific Products listed in the Trade (Certificates of Jamaican Origin) Regulations, 1984, and must be of Jamaican origin (as defined by rules of origin requirements that concern the nature of the imported components, the manufacturing process undertaken in Jamaica, and the cost of that process).18 In the case of

17Which should not exceed 11% of the GAL. 18Jamaica National Export Corporation. Certificate of Jamaican Origin System. November 1986. p.3. Jamaica WT/TPR/S/42 Page 107

products made of U.S. fabric and re-exported under TSUS807, a Certificate of Jamaican Origin is not required, but a certificate of exemption must be obtained from JAMPRO. Exporters located in the Customs Territory of Jamaica must pay a fee per shipment for the certificate of Jamaican origin of J$25 per J$25,000 f.o.b. (or part thereof) of exported goods, with a free-ceiling of J$500. Exports from Free Zones must, as from 1 August 1997, pay a fee of US$10 per US$10,000 f.o.b. (or part thereof), with no ceiling per shipment. Exports to the United States require also a circular visa stamp on the Certificate of Jamaican Origin.

75. JAMPRO allocates export quotas among eligible exporters, who must be registered manufacturers of textiles and clothing under the Trade (Certificates of Jamaican Origin) Regulations, 1984. There are three main types of quota allocation: 60% of Jamaica's national quota is allocated among (performing) exporters who have shipped in the past twelve months (regular quota);19 30% of the quota is allocated among rural exporters (rural quota); 10% of the quota is allocated to new or to performing exporters (free quota allocation).20 Additionally, any undistributed portion of the rural or the free quota allocation may be distributed among all exporters on the basis of the regular quota allocation. Supplementary quota allocations are possible within the 7% limit set by the Bilateral Textile and Apparel Agreement. There are penalties for underutilization of quotas, which translate into reductions of future quotas in accordance with the portion of the quota that has remained unused.

76. Despite the existence of penalties, quotas for certain categories of products remain underutilized (Table IV.10). In 1997, none of the guaranteed access level quota was used in the case of cotton sweaters, and very little of it in the case of woven blouses. The highest utilization rates for products with guaranteed access levels was for cotton underwear (88.2%), and cotton shirts and blouses (73.2%). Quota utilization for products under specific limits was even lower.

77. Table IV.10 shows that exports under 807R and CMT have fallen considerably in certain categories. A possible explanation for this may be found in increasing production costs in Jamaica, triggered by high labour and capital costs, which has resulted in a loss of competitiveness vis-à-vis other producers. Another factor cited by the Jamaican authorities is the advent of NAFTA, which they state has resulted in a 190% increase in Mexican exports of 807A products to the United States between 1992 and 1995 - with most of the increase taking place in 1994 and 1995, when NAFTA was already in place21, displacing exports from CBI beneficiaries.22

19Quota allocation may be enhanced if the exporter contributes to employment creation; subcontracts to manufacturers outside a Free Zone; purchases machinery, equipment, raw material and services from the exporting country; the exported product has a level of local value added of at least 35%. 20Exporters allocated quotas under the free quota allocation are required to export 95% of their quota; if they fail to do this of they may be excluded from future participation in the allocation for a specified period. See: Jamaica National Export Corporation. Quota Allocation System for Exports of Textiles and Textile Products. 1987, p.4. 21As a result of this increase, Mexico's 807A exports to the United States represented 77% of total U.S. imports of clothing from Mexico in 1995, compared to 58% in 1992, while non-807A exports loss share, falling from 29% of the total to 7%. In the case of the CBI countries, exports of clothing to the United States rose by 80% during the same period, but the share of 807A products remained low, at 22%, while the bulk of exports was accounted for by non-807A products (61% in 1995) (JAMPRO.-Brief Comparative Analysis of Mexico and CBI Apparel Imports into the U.S.A. Working Paper. September 1996). 22However, Jamaica's share of 807A exports on total exports of textiles and clothing to the United States increased to 62% in 1997 from 54% in 1996, in the midst of a 2% contraction in exports to the U.S. market. WT/TPR/S/42 Trade Policies Review Page 108

Table IV.10 Clothing exports under quota, 1996-97 Quota Exports Exports Change Category Group Description 1997 Jan-Nov Unused Fill rate % Jan – Nov 97/96 quota (dozens) 1997 1996 %

331/631 GAL Gloves and 1,320,000 184,322 1,135,678 13.96 150,911 22.14 mittens, cotton and a m.m.f. 338/339/638/639 GAL Shirts and 4,500,000 3,292,518 1,207,482 73.17 3,386,385 -2.77 blouses,cotto n and m.m.f. 340/640 GAL Woven 300,000 15,410 284,590 5.14 26,191 -41.16 shirts, cotton and m.m.f. 341/641 GAL Woven 375,000 1,859 373,141 0.50 109 1605.50 blouses, cotton and m.m.f. 345/845 GAL Sweaters, 50,000 0 50,000 0.00 0 0.00 cotton and other veg. fibres 347/348/647/648 GAL Trousers, 2,000,000 447,396 1,552,604 22.37 418,010 7.03 slacks and shorts 352/652 GAL Underwear, 13,500,000 11,901,352 1,598,648 88.16 11,176,940 6.48 cotton and m.m.f. 331/631 SL Gloves and 621,149 32,433 588,716 5.22 170,122 -80.94 mittens, cotton and m.m.f. 338/339/638/639 SL Shirts and 1,224,743 468,218 756,525 38.23 613,021 -23.62 blouses,cotto n and m.m.f. 340/640 SL Woven 572,721 241,947 330,774 42.25 274,940 -12.00 shirts, cotton and m.m.f. 341/641 SL Woven 719,163 41,140 678,023 5.72 69,147 -40.50 blouses, cotton and m.m.f. 345/845 SL Sweaters, 177,456 759 176,697 0.43 0 0.00 cotton and other veg. fibres 347/348/647/648 SL Trousers, 1,321,957 110,264 1,211,693 8.34 191,002 -42.27 slacks and shorts 352/652 SL Underwear, 1,975,492 93,709 1,881,783 4.74 122,597 -23.56 cotton and m.m.f. 445/446 SL Wool 52,304 6,399 45,905 12.23 7,725 -17.17 sweaters a Man-made fibres.

Note: GAL = guaranteed access level SL = specific limit

Source: Data provided by the Jamaican authorities. Jamaica WT/TPR/S/42 Page 109

78. Jamaica also has a bilateral arrangement for textile and clothing exports to Canada. This agreement deals with managed access to the Canadian market. Market access is enhanced every year by an automatic annual increase of imports of 6%, with the exception of some sensitive products, such as women and girls underwear. The agreement also has carry-forward and carry-over allowances of 5%.

79. Although Free Zones are a different customs territory, exports originating in them are considered a part of Jamaica for quota purposes. Clothing imports from MFN suppliers bear a customs duty of 25%, with a few exceptions.23 Under the WTO Agreement on Textiles and Clothing, Jamaica benefits from the higher growth rates assigned to smaller countries for the integration of their products into GATT 1994.

(iv) Other industries

80. Other important industries in Jamaica include the chemicals industry, where there is domestic production of oxygen and acetylene, sulphuric acid, aluminium sulphate, paint, printing ink, soap, detergent, toothpaste, among others. Imports of these products are subject to a tariff of 20%, with the exception of detergents, which are subject to a 25% tariff rate, and soap and toothpaste, which face a 30% tariff. This contrasts with rates applied on products where there is little or no local production, on which rates are generally much lower. Pharmaceuticals, for example, are subject to an average tariff of 7.9%, while miscellaneous chemical products face an average tariff of 4%. Despite a reduction in production, exports of chemicals have grown rapidly during the first half of the 1990s, doubling between 1995 and 1996, when they were US$48.3 million. In 1996 and 1997, the chemical sector showed a weak performance, with output and exports contracting in both years (exports totalled US$39.5 million in 1997). The production of soap and detergents declined during the 1990s; despite high rates of protection, domestic products are having difficulties competing with imported substitutes. The decline in the domestic production of soaps and detergents has triggered a fall in demand for sulphonic acid, a key input.24

81. The non-metallic minerals industry is an area that has experienced accelerated development during the 1990s, particularly, the production of cement and PVC pipes. Production is primarily aimed at satisfying local needs, with small exports of cement, glass and other products (totalling US$1.7 million in 1996 (Table AIV.2). Tariff protection in this industry is slightly higher than the average for industrial products (9.4%).

(6) MINING

82. Mining is an important earner of foreign exchange for Jamaica, due primarily to bauxite and alumina production. Jamaica is the world's third largest producer of bauxite and of alumina. Exports of the products account for over 50% of Jamaica's merchandise exports; they generated foreign exchange earnings of some US$700 million in 1996. This makes the sector the second most important generator of foreign exchange, after tourism. Other mining products of importance include non-metallic materials, such as limestone/lime, marble and gypsum.

83. Between 1992 and 1996 mining activity expanded at an annual average growth rate of 1.1%, modest but still above total GDP growth. In 1997, mining grew by 3.3% triggered by an increase in international demand for aluminium, especially in the first half of the year. Consequently, the sector's contribution to GDP was 9.9% in 1997, up from 8.8% in 1992. Mining is capital-intensive, employing only about 6,000 people in Jamaica (4,500 in the production of bauxite and alumina). The sector's

23Average tariff rates for HS chapters 61 and 62 are 24.7% and 24.6%, respectively. 24 PIOJ (1998), p.p.10-3. WT/TPR/S/42 Trade Policies Review Page 110

performance was particularly dynamic in 1996 and most of 1997, mainly as a consequence of a relatively calm situation in the labour front, which prevented production disruptions. In the past, production disruptions caused by labour unrest have plagued the sector, despite wages being considerably higher than the national average.

84. Mining is regulated by the Mining Act and the Quarries Control Act; both are currently in the process of amendment. Mining companies operating in Jamaica are granted a 25-year lease to pursue their activities, except bauxite companies which, by special agreement, hold 40 year leases. The owner of all minerals in Jamaican territory is the state, which retains all rights for the exploration and extraction of minerals. Under the Natural Resources Conservation Act (NRCA), an environmental impact assessment must be presented before a mining lease is granted. There are no government controls on mining production. Prices are determined by market forces. Although there are no restrictions on the importation or exportation of minerals, all exports of minerals require a permit from the Ministry of Mining.

(a) Bauxite and alumina

85. The bauxite and alumina industry has four operators: Jamalcan, a joint venture between Alcan Aluminium Ltd. (Canada) and the Government of Jamaica through Jamaica Bauxite Mining Ltd.; Alumina Partners (Alpart), owned by Kaiser and Norsk Hydro; Jamalco, a joint venture between Alcoa Minerals of Jamaica and the Government of Jamaica through Clarendon Alumina Production (CAP); and Kaiser Jamaica Bauxite Company, owned 51% by Jamaica Bauxite Mining Ltd. and 49% by Kaiser Bauxite. There are five bauxite mines in operation in Jamaica (Water Valley in St. Ann, Mocho, Schwallenberg, Kirkvine, and Manchester Plateau) which, combined, produce some 12 million tonnes a year (around one tenth of world production). Discovery Bay is the largest mine, with an annual capacity of 4.5 million tonnes; annually, Manchester Plateau produces 3.6 million tonnes, Schwallenberg and Kirkvine together have an output of 3 million tonnes, and Mocho 2 million tonnes a year. One third of total bauxite production is exported as ore to the Unites States. Two-thirds of production is treated in domestic refineries and exported as alumina, mainly to the United States, Canada, and Western Europe. Jamaica has bauxite reserves estimated at 2 billion tonnes, which at the current level of exploitation, is equivalent to 167 years of production.

86. Four alumina refineries operate in Jamaica. They produced a total of 3.4 million tonnes in 1997. The largest producer is at Nain, owned by Alpart with participation from Kaiser, with a capacity of 1.45 million tonnes a year, followed by Jamalco's Clarendon (830,000 tonnes) and Jamalcan's Ewarton and Kirkvine (1.1 million tonnes).

87. The bauxite-alumina industry is an important user of energy. According to some sources, it consumes around 45% of all crude oil and petroleum imports.25 Despite increasing labour costs, Jamaica remains a relatively low cost bauxite producer, partly due to the proximity of production areas to ports. Production disruption due to labour unrest has led to supply being supplemented by a reduction in alumina stocks to meet demand requirements, since exports have outpaced production in every year of the 1992-97 period, except in 1993 (Table IV.11).

25Latin American Economy and Business. November 1997, p. 28. Jamaica WT/TPR/S/42 Page 111

Table IV.11 Alumina and bauxite sector performance 1992-97

1992 1993 1994 1995 1996 1997

Alumina

Production (tonnes) 2,917,162 2,989,360 3,221,222 3,030,167 3,199,513 3,394,200

Exports (tonnes) 2,941,440 2,943,345 3,326,305 3,044,590 3,253,072 3,414,000

Prices (f.o.b.) (US$) 160.1 151.1 162.4 210.2 188.5 191.4

Earnings (US$ million) 470.9 444.7 540.1 639.8 613.3 653.4

Bauxite (crude)

Production (tonnes), 4,131,760 3,938,590 3,628,830 3,532,810 3,924,780 3,645,300

Exports (tonnes) 4,128,330 3,916,723 3,649,419 3,546,893 3,917,478 3,641,100

Prices (f.o.b.) (US$) 21.5 21.5 20.0 20.0 20.0 20.0

Earnings (US$ million) 88.8 84.2 73.0 70.9 78.4 72.8

Source: Information provided by the Jamaica Bauxite Institute.

88. A levy, the Bauxite Levy, which is collected at the production level, is calculated on a base price of US$5 per tonne, to which a variable percentage, based on the difference between the world price and a benchmark price, is added. Revenue accruing from the Bauxite Levy was J$2.04 billion in FY1996/97, or around 5% of total government revenue.

89. The Government provides incentives for the exploitation of bauxite and alumina through the Bauxite and Alumina Industries (Encouragement) Act. The Act provides for the exemption of customs duties on imports of capital goods; and duty concessions and exemption from the special consumption tax on lubricating oil, greases and other petroleum products used by the industry. These are also exempt from the special consumption tax normally applied on them. Items acquired under the Act are zero-rated for GCT purposes. Dividends repatriated are exempt from withholding tax. Under the National Industrial Policy, the Government is envisaging extending these concessions to the whole mining sector. Currently, the concessions are extended to non-bauxite minerals, but on a case-by-case basis. Accelerated capital depreciation over a period of two years is applicable to mining.

90. The prospects of the bauxite and alumina industry seem to point to an expansion in production. Capacity utilization is high: 81.0% for bauxite, and 99.8% for alumina in 199726, and all producers have expansion plans. The four alumina refineries are currently considering an increase in capacity, which could take production levels to 4.8 million tonnes a year. Additionally, studies being concluded could lead to the implementation of a new project, Trelawny, that would include a bauxite mine and an alumina refinery, which could add another 1 million tonnes to Jamaica's annual alumina production.

(b) Other Minerals

91. The production of gypsum, limestone, sand and gravel, and marl and fill has been gaining importance since 1992 (Table IV.12). Although exports remain modest, with gypsum being the most significant export product among them (US$1.64 million in 1997), prospects are relatively good, especially for limestone and silica sand.

26PIOJ (1998) p. 8.4, from Jamaica Bauxite Institute. WT/TPR/S/42 Trade Policies Review Page 112

Table IV.12 Production of industrial minerals, 1992-97 (Thousand tonnes) 1992 1993 1994 1995 1996 1997

Silica sand 20.4 21.3 18.4 16.3 15.8 12.1 Limestone 3,161.0 3,319.1 3319.0 3,385.0 3,351.0 3,350.0 Gypsum 145.0 152.2 203.7 208.0 338.9 263.7 Marble 4.6 5.8 5.7 2.8 2.0 1.5 Sand and gravel 1,337.0 1,548.1 1,700.0 1,800.0 1,836.0 1,928.0 Marl and fill 3,451.0 3,627.0 3,808.7 3,920.0 4,116.0 4,198.0

Source: Information provided by the Planning Institute of Jamaica.

92. Imports (actual or potential) of all these minerals, with the exception of gypsum and limestone, are exempt from customs duties. Imports of gypsum are subject to a 20% tariff, while limestone, an input in the production of cement, is subject to a 15% tariff. Silica sand is mainly used by the beverage industry for the production of glass bottles, which are classified as an intermediate input and subject to a 20% tariff. Minerals in the form of stone are subject to the GCT, but crushed minerals, sand and gravel are exempt.

(7) SERVICES

93. The services sector in Jamaica accounts for over 56% of GDP and employs around 60% of the labour force (Chart IV.9). Tourism receipts, estimated at US$1.13 billion in 1997, are around 80% of merchandise exports (US$1.4 billion).

Chart IV.9 Services GDP by subsector, 1992 and 1997 (Per cent, based on constant 1986 prices)

a 1992 1997 Other Commerce Commerce 7.0 Other 31.0 6.4 30.6 Transport, storage & telecommunications 15.4 Electricity Transport, storage & & water Electricity telecommunications 6.8 & water 19.5 6.6 Government Financing & services insurance services Government Financing & 9.1 17.6 services insurance services Real estate services 11.6 16.0 Real estate services 11.9 11.6

Total: J$9.8 billion Total: J$9.8 billion a Estimates. Source: Planning Institute of Jamaica (1998), Economic and Social Survey, Jamaica 1997. Jamaica WT/TPR/S/42 Page 113

94. The services sector has witnessed a process of privatization and liberalization in the past decade. There is currently little government involvement in activities such as tourism, telecommunications and financial services. Market access is relatively open in most of the services sub-sectors with the exception of telecommunications, where Telecommunications of Jamaica has an exclusive licence for the provision of basic telephony until 2013.

95. Under the General Agreement on Trade in Services (GATS), Jamaica scheduled horizontal commitments on commercial presence and the presence of natural persons for all sectors included in its Schedule. Specific commitments were scheduled in business services (including professional services, computer and related services, research and development services, real estate and other business services); educational services; financial services; health related and social services; tourism and travel-related services; recreation, cultural and sporting services; and transport services. Jamaica presented a Schedule of Specific Commitments in the Negotiations on Telecommunications.27 Jamaica also submitted an offer in the Negotiations on Financial Services. The commitments in professional and other business services, including computer services generally accord national treatment; employment of foreigners ("presence of natural persons") is subject to the relevant domestic legislation. For some services (e.g. tax agents), an economic needs test may be required.28

96. Jamaica maintains no broad restrictions with respect to national treatment: total foreign ownership is allowed in all sectors. The last area where foreign ownership was limited, insurance, was liberalized in the WTO Negotiations on Financial Services, which were concluded in December 1997.

97. Services activities are eligible for a number of incentive schemes, such as the Hotel and Incentives Act, and the Resort Cottages Incentive Act, in the case of tourism (discussed below), and the Motion Picture Industry (Encouragement) Act, in the case of film production.29

(i) Tourism

98. Tourism is the main earner of foreign exchange in Jamaica. The sub-sector generates some 45% of Jamaica's foreign exchange receipts, equivalent to over 80% of exports of merchandise. Tourism also accounts for more than 13% of GDP and for 8% of total employment (directly employing over 30,000 people). The spill-over effects to other areas of the economy, including manufacturing and agriculture make an important contribution to Jamaica's economy.

99. Tourism receipts have been increasing substantially during the 1990s, at an annual average rate of 5.6% between 1992 and 1997, moving from US$858 million to US$1.13 billion despite competition from other Caribbean states and the recent real appreciation of the Jamaican dollar. The number of visitor arrivals has increased at a slower pace than receipts, 2.2% as annual average during the same period, to reach a total of 1.9 million in 1997, of which 1.19 million were stop-over arrivals, and the rest cruise arrivals (Table IV.13).

27GATS/SC/45/Suppl.1, 11 April 1997. 28See WTO document GATS/SC/45. 29The Motion Picture Industry (Encouragement) Act provides recognized motion picture producers the right to import into Jamaica any plant, equipment, machinery and materials for the building of studios or for use in motion picture production free of customs duty, additional stamp duty and general consumption tax, provided the goods cannot be manufactured domestically. WT/TPR/S/42 Trade Policies Review Page 114

Table IV.13 Summary performance of tourism 1992-97 Performance indicators 1992 1993 1994 1995 1996 1997

Visitor arrivals 1,706,699 1,734,969 1,693,323 1,752,179 1,820,627 1,903,893 Stop-over 1,057,182 1,105,382 1,098,287 1,147,001 1,162,449 1,192,194 Cruise 649,517 629,587 595,036 605,178 658,178 711,699 By source market (stopover) United States 563,009 610,600 723,463 760,304 773,846 804,361 Europe 187,874 202,362 189,327 197,551 208,366 210,632 Canada 100,770 94,916 103,882 108,440 102,215 99,226 Caribbean 18,189 20,394 28,466 29,386 31,070 34,768 Japan 15,901 18,660 22,471 23,673 22,280 15,775 Latin America 16,642 26,745 26,278 22,261 18,721 20,682 Other 6,625 5,038 4,310 5,393 5,951 6,750 Earnings (US$ million) 858 950 919 1,069.9 1,092 1,128 Employment 25,842 26,030 27,210 27,937 28,182 28,976 Number of rooms 18,489 18,935 19,760 20,896 21,984 22,945 Number of beds 37,759 38,859 40,697 43,370 45,577 47,537

Source: Data provided by the Jamaica Tourist Board.

100. Some two-thirds of arrivals are from the United States, 18% from Europe, 8% from Canada, and the rest from other countries. In 1997, there were 31 all-inclusive hotels and 166 non-all inclusive, which have a total of 15,094 rooms and 31,934 beds. Three domestic groups (Sandals, Super Clubs, and Friends International) account for some 40% of the total rooms available, or 60% of all-inclusive hotels. The average occupancy rate stood at 55.7% in 1997.30 The reason for the low growth of the sector in the last few years may be found in increased competition- sometimes at a lower cost- from other destinations, particularly from other Caribbean countries, as well as from some countries in Asia. Increasing labour costs, and high operation and capital costs have resulted in higher prices for tourist services than in some comparable destinations. This problem may have been magnified by the relative strength of the Jamaican dollar. The fact that tourism receipts have been increasing at a much faster pace than the number of visitors seems to corroborate, at least partially, that the services provided by the sector have become more expensive in U.S. dollars terms since 1992.31 The average expenditure per tourist and visit increased from US$503 in 1992 to US$604 in 1997. Expenditure per day was US$87.5 for stop-overs, and US$84.7 for cruise passengers.

101. The supply of tourism services is provided mainly by private operators, with the Government divested from the sector over the past ten years. Between 1989 and 1994, eleven hotels were privatized. The Government, through the Ministry of Tourism32 and the Jamaica Tourist Board (JTB), continues to play an important role in the development of infrastructure and the provision of promotion activities. A Tourism Council was created in 1997 to act as an advisor to the Government with respect to policies affecting the industry. The main policy aims are to attract more investment

30Occupancy rates vary considerably according to the type of hotel. In 1995, when the average occupancy rate was 60.8%, all-inclusive hotels had an occupancy rate of 75%, while non-all inclusive hotel posted a 51% occupancy rate. See PIOJ (1996) p.p. 14-4, (1997) and (1998). 31Another factor contributing to the difference in growth rates may be the gradual move to the middle and upper-end of the market. The increase of popularity of all-inclusive destinations, generally four and five-star hotels, is witnessed by their higher occupancy rate compared to non-inclusive hotels, which include hotels of lower categories. The popularity of all-inclusive destinations may also have been triggered by the safety problem, since this kind of hotel often provides good protection against theft and harassment. 32The Ministry of Tourism is under the direct responsibility of the Prime Minister, who is also Minister of Tourism Jamaica WT/TPR/S/42 Page 115

into the sector - through the use of the services of the JTB and JAMPRO - and to increase the level of foreign exchange generated by the sector. Another goal is to encourage product diversification and expansion. The policy of diversification aims at reducing reliance with respect to visitors from the United States, and trying to attract visitors from other destinations, particularly Europe and Japan. Guidelines for the development of the tourist industry are included in the National Industry Policy, designed in 1996.

102. Foreign investment policy allows total foreign control of hotels, resort cottages, or tour operators. Any newcomer may open a hotel or start a tour operator, subject to the prior satisfaction of some required standards. The main requirement is the obtention of a license from the Jamaica Tourist Board (JTB). The proposal is examined by the Standards Division of the Tourism Product Development Company (TPDCo), which sends a recommendation to the JTB. The Standards Division inspects hotels and resorts at least twice a year; those that do not meet the required standards are removed from the official list of the JTB.

103. The tourist industry has a number of incentive schemes33, including: the Hotel Incentives Act, and the Resort Cottages Incentive Act. The Hotel Incentives Act (HIA) allows for a ten-year relief from income tax and import duties on building materials, machinery and equipment; convention-type hotels have a 15-year relief period. For purposes of the HIA, a hotel is defined as a building or group of buildings containing no less than 20 bedrooms and facilities for meals. A convention-type hotel must contain at least 350 bedrooms and facilities for holding conferences. The Resort Cottages Act34 grants income tax relief for up to seven years, as well as import duty relief for the importation of building materials, furniture and machinery. Establishments that do not fall into the category of "hotel" or "resort cottage" may still benefit from import duty concessions under the Tourist Accommodation Refurbishing Programme.

104. Investment in tourism continues and a number of hotels are planned, mainly along the North Coast of Jamaica, from Negril to Ocho Rios. Investment in hotels has been accompanied by a programme of public works to upgrade existing infrastructure. Infrastructure projects include the construction of the New Development Road in Ocho Rios and of the Northern Coastal Highway; the upgrading of the Montego Bay Airport; improvement of the Montego bay sewage system; and a drainage and flood control programme in Montego Bay.

105. Jamaica's Schedule of Specific Commitments under the GATS sets no limitations on market access for cross-border supply, consumption abroad, and commercial presence, for the activities of hotels and restaurants, as well as travel agencies and tour operators. Only the movement of natural persons remains unbound. Similarly, there are no limitations on national treatment.

(ii) Financial services

106. The Jamaican financial system accounted for 12.2% of GDP in 1997, of which 10.8 percentage points are accounted for by banks and related institutions, and 1.4 percentage points by insurance activities. The sector is relatively well developed and liberalized, and experienced dramatic growth up to 1995, when activities were affected by a severe financial crisis. Between 1992 and 1997 the sector expanded by 32.6% in real terms (Table.14).

33These incentives have been outlined in Chapter II. 34A resort cottage is defined for the purposes of the Resort Cottages Act as: "any accommodation containing at least two furnished bedrooms, a furnished living room with kitchen and bathroom facilities used for the accommodation of transient guests, for reward". WT/TPR/S/42 Trade Policies Review Page 116

Table IV. 14 Banking and insurance: contribution to GDP and employment, 1992-97 Indicator 1992 1993 1994 1995 1996 1997

Contribution to GDP 11.7 10.8 15.9 15.5 15.0 12.2 Financial services 10.4 9.4 14.5 14 13.5 10.8 Insurance 1.2 1.3 1.4 1.5 1.5 1.5

Real GDP growth 8.0 -6.6 49.9 -2.2 -5.2 -20.1 Financial services 8.3 -8.5 56.0 -3.4 -5.0 -22.0 Insurance 4.8 9.8 6.5 10.7 -6.9 -2.7

Employment ('000) 43.6 43.3 47.2 51.6 54.5 59.5

Source: Information provided by the Jamaican authorities.

107. Some 59,500 persons are employed in financial sector activities. Fast growth has been accompanied, however, by lax credit policies, which helped create an unstable situation in 1995. The difficult situation of several financial institutions has prompted the intervention of the Bank of Jamaica and the creation of the Financial Sector Adjustment Company (FINSAC) to rescue some institutions and enhance regulation (Chapter I). This adds to steps undertaken previously or in parallel to improve the financial supervision of institutions accomplished through amendments to various laws related to the sector, namely the Banking Act, the Financial Institutions Act, the Bank of Jamaica Act, the Building Societies Act, the Bank of Jamaica (Building Societies) Regulation, the Deposit Insurance Scheme, and the Industrial and Provident Societies Act. An intervention by FINSAC generally implies that a percentage of shares is traded for a liquidity injection. The amount of scheduled and projected assistance at 31 March 1998 was J$37.64 billion (slightly over US$1 billion) (Table IV.15).

Table IV.15 FINSAC, loans and investments, actual and projected, 31 March 1998 (J$ million) Institutions Loan amount

Crown Eagle life 13,729.6 Workers Bank 2,000.0 Mutual Life 9,500.0 Eagle Merchant Bank 2,000.0 Eagle Commercial Bank 450.0 National Commercial Bank 4047.8 Life of Jamaica 1,200.0 Citizens Bank 3,067.3 C.I.B.C. 519.8 Island Life 300.0 Crown Eagle Life 624.0 Dyoll Life 200.0 Total 37,638.5

Source: Data provided by the Financial Sector Adjustment Company (FINSAC). Jamaica WT/TPR/S/42 Page 117

108. The Bank of Jamaica Act, as amended in 1992, enhances the Central Bank's supervisory authority over commercial banks and its degree of independence. Exchange control restrictions were completely removed in 1992 and decisions on monetary policy rest with the Bank of Jamaica. Final decisions remain, however, with the Ministry of Finance. The Department of Supervision of Banks and Financial Institutions of the Bank of Jamaica is responsible for the supervision of banks and specified financial institutions. The Bank reports to the Ministry of Finance every year on its activities.35 The policy with respect to the granting of banking licences is determined by the Minister of Jamaica in consultation with the Bank of Jamaica. Licences are granted by the Minister of Finance, on recommendation from the Bank of Jamaica which applies "fit and proper" criteria with respect to directors, management and major shareholders to ensure that the approved institutions are stable and sound. The transfer of 20% or more of total shares in any financial institution or any arrangement by which a person would acquire 20% or more of the voting power in an institution must also be approved by the Minister of Finance.

(a) Banking

109. The banking system in Jamaica consists of commercial banks, merchant and trust banks, finance companies, building societies and development banks. Currently, the sector includes nine commercial banks (National Commercial Bank, Bank of Nova Scotia, Citizens Bank, Workers Bank, Canadian Imperial Bank of Commerce, CIBC Jamaica, Island Victoria Bank, Trafalgar Commercial Bank, and Citibank) of which three are foreign-owned (Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Citibank); 22 merchant banks and trust companies; 4 finance companies; 10 building societies; and three development banks. Concentration in the banking sector is relatively high: the five largest commercial banks control two thirds of total deposits.

110. As bound in the offer presented during the WTO Negotiations on Financial Services, there are no restrictions to private foreign ownership of banks and the banking sector benefits from the national treatment principle. Foreign governments or agencies may not, however, hold more than 5% of the issued share capital of any bank without the written approval of the Minister of Finance.36

111. The Bank of Jamaica supervises commercial banks, governed by the Banking Act; financial institutions licensed under the Financial Institutions Act, called Financial Institutions Act Licensees (merchant banks, finance houses, trust companies); building societies (regulated by the Building Societies Act);37 and, more recently, also institutions operating under the Industrial and Provident Societies Act, which are engaged in credit and deposit-taking activities. Minimum reserve requirements for commercial banks are currently fixed at 47% of deposit liabilities, with cash requirements fixed at 25 per cent. Reserve requirements for financial institutions are currently at 35%, while building societies are subject to a (lower) dual cash reserve ratio (Chapter I, Section (2)(iii)). The capital adequacy ratio is 25:1 for commercial banks, and 20:1 for institutions governed by the Financial Institutions Act. Building societies are subject to a minimum risk weighted capital adequacy requirement.38 Minimum capital requirements vary according to the type of financial institution (they are higher for banks) and also, in the case of banks, according to whether the bank is foreign or

35See: The Bank of Jamaica: The Bank of Jamaica Act. In: http://www.boj.org.jm/boj-boja.htm. 36The Banking Act 1992, par.7(a). 37The supervisory principles for building societies are contained in the Bank of Jamaica (Building Societies) Regulations, 1995. See: http://www.boj.org.jm/boj-fia.htm. 38The capital adequacy requirement is defined as the ratio of deposits to the capital base. This is used as a proxy to a weighted risk capital adequacy requirement, which is not yet incorporated in the Banking Act, nor in the Financial Institutions Act. Guidelines with respect to risk capital requirements are expected to be included in a review of both Acts, currently under way. The Building Society Regulations Act already includes guidelines in this respect. WT/TPR/S/42 Trade Policies Review Page 118

national (Table IV.16); for prudential reasons foreign-owned banks are subject to higher minimum subscribed capital requirements than local banks (J$250 million, compared with J$80 million). The amount of paid-up capital is, however, the same for domestic and foreign-owned banks (J$60 million).

Table IV.16 Minimum capital requirements for financial institutions Type of institution Paid-up capital Subscribed capital Local commercial banks J$60 million J$80 million Foreign commercial banks J$60 million J$250 million Financial institutions act licensees J$20 million J$25 million Building societies J$20 million J$25 million

Source: Information provided by the Bank of Jamaica.

112. Under the Banking Act, 1992 and the Banking (Amendment) Act, 1997 licensing requirements for foreign-owned banks are the same as those for domestic banks. Foreign banks may establish both branches and subsidiaries. The same capital-fixed-asset and credit limit exposures apply to foreign and domestic-owned banks.39 No distinction is made between domestic and foreign banks with respect tothe services they can provide. Banks are subject to a compulsory creation of reserves from profits: they are required to transfer each year a minimum of 15% of net profits to a statutory reserve fund until its balance reaches 50% of the paid-up capital. After this level is reached, a minimum of 10% must be transferred every year until the reserve fund covers the whole paid-up capital.

113. The Bank of Jamaica (Authorized Dealers) Order 1995 authorizes 15 institutions licensed under the Financial Institutions Act to operate as authorized dealers. Authorized dealers are allowed to lend and borrow in foreign currency, as well as trade foreign currency instruments. Apart from this, there are about 100 cambios and bureaux de change, which are authorized to buy and sell foreign currency only. Cambios are required to sell a minimum of 5% of their foreign exchange purchases to the Bank of Jamaica at least once a week.40 The price paid should not exceed the preceding day's weighted average selling rate of the authorized foreign currency dealers as a whole. Cambios must obtain a licence from the Bank of Jamaica based on an assessment of whether the applicant is "fit and proper" and has sufficient financial resources. There is an application fee of J$1,000. Licensees must pay an initial fee of US$2,500 per licence per location, and, subsequently, a fee of US$1,500 per year. Cambio licences are renewable annually and are not transferable.

114. The Banking Act (Amendment), 1997 and the Financial Institutions (Amendment) Act, 1997 introduced some modifications to the 1992 Act. Some of the changes include a tightening of reserves- for-non-performing loans obligations. Banks are now required to create reserves against losses when no payment on principal or interest of a loan has been made for a period of three months, instead of six months, as was the case previously.41 Banks and licensees are now also required to add to their deposit liabilities all other indebtedness for borrowed money for the calculation of their capital adequacy ratios; deposit liabilities must not exceed 25 times their capital base for banks and 20 times

39Banks may not maintain fixed assets exceeding an amount equivalent to their capital base, without prior authorization from the Minister of Finance. (The Banking Act, 1992, par.10).Credit exposure is limited to 10% of the capital base in the case of unsecured lending to a single costumer; 20% in the case of unsecured lending to a group of costumers; 30% in the case of secured lending to a single customer; and 40% in the case of secured lending to a group of customers.(The Banking Act, 1992, par.13). 40The maximum amount to be purchased by the Bank of Jamaica from any single cambio in any specific day should not exceed 10% of the cambio's purchases during that day. 41The Banking (Amendment) Act, 1997, section 7. Jamaica WT/TPR/S/42 Page 119 the capital base for licensees.42 Banks and other financial institutions are required to submit monthly balance sheets, quarterly and annual statements of earnings and expenditure, and audited financial statements, which must be published in a daily newspaper.

115. Business in 1996 by licensees, such as merchant and investment banks, under the Financial Institutions Act (FIAs) included J$ 7.1 billion in loans and advances, 53.6% of which went to finance productive activities, with the rest financing chiefly consumer-oriented activities. Despite a substantial increase in activities and a high growth rate (assets and liabilities experienced a 32.6% growth in 1996), liquid asset ratios have been kept well above statutory requirements.44 Capital adequacy ratios have been well within the statutory limit of 20 to 1: in 1996, it was 2.84 to 1, which resulted in a large amount of unused deposit-taking capacity. As a comparison, the capital adequacy ratio for commercial banks was 23.88 to 1 in the same year (Table IV.17).

Table IV.17 Key prudential indicators of commercial banks and licencees under the Financial Institutions Act, 1996 and 1997 (Per cent) Commercial banks FIA licensees 1996 1997 1996 1997 Overall Structure Assets: rate of growth 11.9 7.5 14.6 -19.9 Deposits: rate of growth 5.6 16.2 -1.1 -2.0 Loans: rate of growth 18.8 4.3 20.1 -36.5 Investments/total assets 18.2 21.7 34.3 35.6 Fixed/total assets 2.8 2.8 2.6 2.4 Loans/total assets 39.2 37.9 35.5 28.1 Loans/deposit 55.7 50.1 103.0 66.7 Liquidity Cash reserves/prescribed reserves 25.0 25.0 17.0 17.0 Liquid assets/prescribed liabilities 50.4 50.7 56.8 55.4 Asset quality Loans arrears/total loans 14.0 24.4 23.8 48.8 Loan loss reserves/total loans 3.9 7.2 4.8 17.2 Capital adequacy Deposits/capital (ratio) 23.88: 1 21.14: 1 2.84: 1 6.12: 1 Total shareholders equity/total assets 4.9 4.4 14.8 10.3 Primary capital/total assets 2.9 3.6 12.1 6.9 Profitability Gross profit margin 9.7 1.5 5.3 -15.6 Return on average assets 2.1 0.2 1.7 -4.1 Return on average capital employed 44.9 3.8 13.6 -41.4

Source: Data provided by the Bank of Jamaica.

116. Building societies mobilize and allocate savings by providing long-term mortgage financing, of up to 90% of the value of a property, mainly for residential purposes. There are currently 10 building societies in operation, down from 13 in 1996, which follow the Bank of Jamaica (Building Societies) Regulations,1995 and the Building Societies (Licences) Regulations, 1995. Their combined assets at the end of 1996 were J$32.9 billion, of which 78.7% was controlled by the largest three building societies: Jamaica National Building Society (32.8%); Victoria Mutual Building Society (31.6%); and Citizens Building Society (14.3%).

42Previously, the requirement referred to deposit liabilities only. See: The Banking (Amendment) Act, 1997, section 4, and The Banking Act, 1992, section 9. WT/TPR/S/42 Trade Policies Review Page 120

117. Cash requirements for building societies are lower than for other financial institutions, and also vary according to the perceived solvency of the society linked to the amount of total loans which are granted for residential mortgage purposes, with a dual reserve mechanism currently applied. The Building Societies (Licences) Regulations, 1995 were modified in 1996 to introduce more stringent cash reserve requirements, with the higher ratio raised from 5% to 11%. Of the 13 building societies in operation, seven qualified in 1996 for the lower cash reserve requirement of 1%, while the other six qualified for the higher ratio of 11%.43 Gross profit margins and return of capital were higher than for commercial banks and FIAs during that year (Table IV.18 ).44

Table IV. 18 Key prudential indicators of building societies, 1996 and 1997 Ratio

Overall structure 1996 1997 Investments/total assets 29.7 28.4 Fixed assets/total assets 2.9 3.2 Loans/total assets 43.1 41.9 Mortgage loans/total loans 71.5 78.8 Liquidity Average cash reserves/savings fund 3.6 3.6 Average liquid assets/savings fund 19.9 21.6 Assets quality Loans arrears/total loans 11.2 3.5 Profitability Gross profit margin 7.6 -1.5 Return on assets 3.4 -0.6 Return on capital 55.8 -12.7

Source: Information provided by the Bank of Jamaica.

118. Credit unions started to operate in Jamaica in the 1940s. Loans obtained through credit unions are short-term and are at relatively low interest rates. There are currently 77 credit unions in operation in Jamaica with over 500,000 members. Institutions are part of a league, the Jamaica Cooperative Credit Union League, which pools resources through the "Central Finance Facility" and then redirects them to individual credit unions at concessionary interest rates. Credit unions have been very successful in attracting savings (which expanded from J$694.2 million in 1990 to J$4,681.4 million in 1996) and have entered the mortgage market. Credit unions are regulated by the Co-operatives Societies Act and are not subject to the minimum capital requirements imposed by the Banking or Financial Institutions Acts, nor are the liquidity ratio guidelines enforced. As a result, the ratio of loans to savings has been traditionally higher than the ratio loans/deposits in commercial banks.45

119. Among specialized development financial institutions, the National Development Bank, owned by the Government, provides medium and long-term financing to businesses (particularly manufacturing and tourism) through commercial banks. Funding is provided through the National Industrial Bank of Jamaica (NIBJ) (Chapter III(4)(i)), the European Investment Bank, the Caribbean

43The lower ratio applies to building societies where loan assets are not less than 27% of its liabilities in respect of deposits and withdrawable shares paid in Jamaican dollars. See: BOJ Annual Report 1996, p.98. 44Bank of Jamaica. Annual Report 1996, p.46. 45The ratio was 78% in 1996, compared to a loan/ratio of 54.6% for commercial banks. Jamaica WT/TPR/S/42 Page 121

Development Bank, and through bond issues of the Bank of Jamaica. The Agricultural Credit Bank (ACB) acts as a wholesaler of funds by providing agricultural credit through commercial banks, people's cooperative banks, and approved lending institutions to finance agricultural activity. To finance its lending programmes, the ACB supplements internally generated resources by sourcing funds from a number of bilateral and multilateral agencies (through the Government), as well as from the Caribbean Development Bank and from the Government. The Trafalgar Development Bank provides medium and long term financing to productive enterprises in the private sector; its activities are concentrated on the foreign exchange loan market. Around half of the loans disbursed are directed to manufacturing, with agriculture, tourism and mining following at a certain distance.46 The Jamaica Mortgage Bank borrows funds from foreign and local lenders for on-lending to other public sector institutions; it also operates in the secondary market, buying and selling mortgages on residential property, and performs mortgage loan-insurance activities.

120. Jamaica presented an offer in the WTO Negotiations on Financial Services concluded in December 1997 in Geneva.47 Banking and other financial services, acceptance of deposits and other repayable funds from the public, as well as lending of all types, including consumer credit, mortgage credit, factoring and financing of commercial transactions remain unbound for all modes of supply, with the exception of commercial presence. The free operation of foreign banks and other financial institutions in Jamaica is bound, prior entry authorization subject to meeting prudential as well as "fit and proper" criteria under the Banking Act (the same requirements apply for local banks). There are no limitations on national treatment.

(b) Insurance

121. Insurance activities accounted for 1.4% of GDP in Jamaica in 1997. They expanded at a fast pace between 1992 and 1995; but experienced a sharp contraction in both 1996 and 1997. There are 10 life insurance companies operating in Jamaica; the largest two are Life of Jamaica, and Mutual Life Insurance Company. Under the Insurance Act, 1972, the Office of the Superintendent of Insurance, within the Ministry of Finance and Planning, regulates and supervises all the operations of registered insurance companies, brokers, agents and salespersons.48

122. The Superintendent of Insurance is in charge of the verification needed to register insurance companies. Authorization by the Superintendent of Insurance is accorded as defined within the conditions of the Insurance Act. These include limitations in the scope of operations: a company may not engage in both long-term and general insurance operations, unless general insurance operations are limited to the personal accident insurance business.49 Solvency requirements stipulate that assets exceed liabilities by an amount equivalent to 50% of the capital requirements. Capital requirements are currently J$100 million for Life insurance companies, or J$75 million for Non-life insurance companies. Foreign insurance companies are required to establish a branch or agency to operate in Jamaica. They are also required to deposit in Jamaica the equivalent of the capital requirements set for locally incorporated companies. Insurance companies are required to pay a quarterly fee of 0.25% of its Gross Written Premium Income in the case of domestic companies and 0.5% in the case of foreign-owned companies. Fee payments are subject to an annual minimum level of J$10,000 for domestic life companies (ordinary long term and industrial insurance) and general companies dealing

46Loans by the Trafalgar Development Bank outstanding in 1996 reached J$1.29 billion, compared to J$2.64 billion for the National Development Bank, and J$1.19 billion for the Agricultural Credit Bank. See: BOJ Annual Report 1996, p.p.22-26. 47WTO document, S/FIN/W/12/Add.38, 3 December 1997. 48There were 183,467 life-insurance policies in force at the end of 1996. 49Life insurance companies are permitted to market personal accident business (accident, health and sickness insurance), but no other class of non-life policy. WT/TPR/S/42 Trade Policies Review Page 122

with motor vehicle insurance, and of J$12,000 for foreign companies. Domestic general companies must pay minimum fees of J$5,000 for each other class of insurance (apart from motor vehicles insurance) they provide (J$6,000 for foreign companies).

123. Jamaica made national treatment commitments in both the life and non-life insurance sectors during the Uruguay Round negotiations.50 These commitments were enhanced in the Negotiations on Financial Services, concluded in December 1997. All forms of insurance activities are open to foreign suppliers; the sector has been further liberalized and is open to foreign investment with up to 100% foreign equity permitted under the 1997 investment regime. Previously, foreign investors were required to establish joint ventures with domestic investors, in which the latter would own at least 51% of the equity. Three insurance companies have foreign participation: CUNA Mutual Insurance Society - a wholly owned subsidiary of CUNA Mutual Group -, American Home Assurance Company - wholly owned subsidiary of American International Group -, and Royal and Sun Alliance Insurance Company Limited - 51% owned by Sun Alliance (Overseas) Limited.

124. Under the Insurance Act, 1972, insurance may only be taken with licensed insurance companies. Third-party motor vehicle insurance (covering death, bodily injury and property damage to third persons) is the only class of insurance compulsory by law.

125. Since January 1997, when the Financial Sector Adjustment Company (FINSAC) was created, supervision has been tightened. The financial crisis affecting banks and other institutions has not spared insurance companies. Four insurance companies - Crown Eagle Life Insurance Company, Life of Jamaica, Island Life, and Dyoll Life- have traded a percentage of their shares in exchange for an injection of capital from FINSAC. The percentage of shares traded is 86% for Crown Eagle, and 26.5% for the other three companies. Additionally, Life of Jamaica has sold its stake in two banks to FINSAC. FINSAC has also been approached by Mutual Life Assurances for funding; a restructuring approach has, however, not yet been decided.

(c) Securities trading

126. Securities trading is regulated by the Securities Act, 1993, which established a Securities Commission. The Commission is in charge of ensuring that appropriate standards of performance, security, and business practices are maintained. It is also in charge of granting the licences required to operate in the Stock Exchange. Stockbroking activities are restricted to broker-members (of the Stock Exchange), who act both as agents and principals and must be Jamaican nationals. Broker-members have the same faculties as company directors and are the only ones who can trade. There are currently nine broker-members in operation. The Stock Exchange also has associate members with no trading rights. The Stock Exchange Council is the governing body; its members are: the Governor of the Bank of Jamaica (or a representative), a representative of the Ministry of Finance, up to four broker- members, and a representative of the associate members.

127. Three different types of stock are traded: ordinary/common, preferential, and loan/stocks. Some 50 companies are listed in the Jamaica Stock Exchange. Market capitalization at the end of 1996 stood at J$66.12 billion (around US$1.9 billion), the equivalent to 32.6% of GDP. The top 10 stocks by market capitalization are listed in Table IV.19.

50GATS/SC/25, 15 April 1994. Jamaica WT/TPR/S/42 Page 123

Table IV.19 Top ten stocks by market capitalization, 1996 and 1997 (J $ million) Stock 1996 1997

Telecommunications of Jamaica 14,176.2 18,927.4 Bank of Nova Scotia 12,806.6 12,879.8 C.I.B.C. Holdings 10,347.3 16,951.9 Carreras Group 6,602.0 7,281.6 Lascelles 2,275.2 2,256.0 C.I.B.C. Jamaica 2,126.7 1,546.7 National Commercial Bank Group 1,991.6 2,121.5 Caribbean Cement Company 1,962.5 n.a. Grace Kennedy 1,482.6 2,957.8 Jamaica Producers Group 1,405.3 n.a.

Source: Data provided by the Bank of Jamaica.

128. Government bonds are not listed in the Stock Exchange; they may, however, be traded by broker-members in over-the-counter markets regulated by the Bank of Jamaica. The Bank of Jamaica actively operates in both the primary and the secondary market. The main primary markets are the Treasury Bill market, the Local Registered Stocks market, and the commercial paper market. The Treasury Bill market is a short-term market with issues with maturities ranging from a few days to a year. There is a regular issue of a 6-month Treasury Bill every month, with other issues taking place throughout the year.51 There is a ceiling of J$12 billion for the outstanding amount of Treasury Bills at any time during the year. Local Registered Stocks are medium-term issues, of a maturity generally comprised between one and three years.52 Through the commercial paper market, companies issue promissory notes, which are becoming an important source of funding, especially for the manufacturing sector. Trading in securities in the secondary market has been expanding since 1994, triggered by the need of financial institutions to meet stricter liquidity requirements in accordance with Bank of Jamaica regulations.

(iii) Transportation

(a) Air transport

129. There are two major airports in Jamaica: Norman Manley International in Kingston and Sangster International in Montego Bay. Since June 1997, Montego Bay is Air Jamaica's hub. Both airports are currently operated by the Airports Authority of Jamaica, a public sector body, established by the Airports Authority Act. Privatization of the administration of both airports is envisaged, starting with Sangster International. Norman Manley International Airport has the lead in freight movement - 12.5 million tonnes landed, and 12.7 million loaded in 1996, compared to 4.9 million tonnes and 5.6 tonnes at Sangster. In number of flights and passengers, however, Sangster International is the leading airport - 27,129 flights and 1.1 million passengers in 1996, compared to Norman Manley's 25,160 flights and 703,516 passengers.

130. Several airlines service Jamaica's two main airports. The flag carrier, Air Jamaica - privatized in 1994 - is 75% privately owned, while the Government's share is 25%. It is 100% locally owned and

51In 1996, there were 31 issues, totalling J$23.5 billion; this implied a net increase of J$1.5 billion, and an outstanding total of J$10.47 billion at the end of 1996. 52A total of J$21.3 billion was issued in 1996, increasing the outstanding stock to J$15.5 billion. WT/TPR/S/42 Trade Policies Review Page 124

currently flies to 15 destinations.53 There are nine local operators providing charter services (Air Jamaica Express, Tropical Airlines, etc), all of which are totally locally owned, in accordance with the Civil Aviation Act, 1995, which requires that airlines be substantially owned and controlled by Jamaican citizens. Airline operations are monitored by the Civil Aviation Authority, under the Ministry of Transport and Works. Airlines have the right to transport cargo and passengers. Cabotage is not allowed.

131. Jamaica has bilateral aviation agreements with 26 countries. Jamaica is not a party to the CARICOM Multilateral Air Services Agreement. Prices of air transport on international routes are determined by bilateral agreements. National prices are determined in accordance with the different airlines; they are supervised and regulated by the Civil Aviation Authority. Fare increases need to be previously approved by the Authority. Air tickets are not subject to the GCT; but a stamp duty is applied, which depends on the value of the ticket for international destinations, and is a fixed (and lower) amount for domestic destinations. Additionally, travellers are subject to a travel tax of J$750.

132. Maintenance services are provided by private operators. National treatment applies on the provision of these services, subject to technical requirements.

(b) Maritime transport

133. Maritime activities are mainly governed by the Marine Board Act, the Port Authority Act, the Merchant Shipping Act and the Harbours Act. The Port Authority of Jamaica, a statutory public company, has regulatory responsibility for the operations of both privately and publicly owned ports. Maritime transport policy is aimed at providing incentives, modern infrastructure and appropriate legislation, responsive to the needs of the international maritime community. To this end, a Shipping Bill is currently in the process of being examined. The Bill would result in the creation of a Maritime Authority, which would regulate maritime transport, including areas such as safety at sea, and pollution. The Bill would incorporate International Maritime Organization (IMO)- of which Jamaica is a member- conventions and guidelines into domestic legislation.

134. Jamaica is a member of the UN Convention on a Code of Conduct on Liner Conferences. It has exempted cargo reservation from MFN treatment in its Schedule under GATS, limiting it to signatories of the Convention for an indefinite period.

135. The mains seaports include Kingston, Montego Bay, Ocho Rios, and Port Antonio. The main port is Kingston, which is increasing its importance as a transhipment center. In 1997, out of a total of 15.24 million tonnes handled by Jamaican ports, 6.39 million tonnes of cargo were handled in Kingston, of which 4.06 million tonnes corresponded to transhipment. Transhipment activities in Kingston have tripled between 1993 and 1997 (Table IV.20). Kingston is one of the most highly mechanized ports in the Caribbean;54 its transhipment terminal (Port Bustamante) has four berths, totalling 2,100 feet, 85 lands of paved land, and about 10,200 feet of warehouse space. Jamaica has applied to the Association of Caribbean States (ACS) to be considered as a candidate for becoming the Transhipment Hub Center of the region.

53New York, Miami, Orlando, Fort Lauderdale, Los Angeles, New Jersey, Philadelphia/Baltimore, Chicago, Atlanta, Nassaue, Grand Cayman, London, St. Lucia and Barbados. 54According to information provided by Lloyds, the port of Kingston has five ship-to-shore gantry cranes, 30 Valmet narrow-span straddle carriers, 50 stevedoring chassis, 22 stevedoring yard tractors and five tractors dedicated to yard activities (Lloyd's List. 31 July 1996. In: http://www.llplimited.com/ LLArchi...tput.cgi?Wed 31Jul1996-025&jamaica). Jamaica WT/TPR/S/42 Page 125

Table IV.20 Ports: ship traffic and cargo flow, 1992-1996 1992 1993 1994 1995 1996 1997 Kingston Number of vessels (visits) 1,413 1,750 2,048 2,210 2,218 2,180 Volume of cargo ('000 tonnes) 2,303 2,983 4,011 4,502 5,716 6,390 Domestic 1,496 1,779 1,729 1,972 2,076 2,328 Transhipment 807 1,204 2,282 2,530 3,653 4,062

Outports Number of vessels (visits) 1,200 1,171 1,190 1,155 1,258 1,227 Volume of cargo ('000 tonnes) 10,253 10,802 10,769 10,544 11,153 11,242 Landed 2,075 2,807 2,749 2,779 2,832 3,105 Loaded 8,178 7,955 8,020 7,765 8,321 8,137

TOTAL Number of vessels (visits) 2,613 2,921 3,239 3,275 3,476 3,415 Volume of cargo ('000 tonnes) 13,533 14,197 14,157 14,824 14,908 15,239

Source: Data provided by the Planning Institute of Jamaica; and Port Authority of Jamaica.

136. Shipping services are provided by over 30 shipping lines. Jamaican shipping companies may benefit from the incentives included in the Shipping Incentives Act, by which they are exempt from income tax and from import duties for a period of ten years after their establishment.

137. The Jamaica Maritime Institute (JMI) currently provides maritime training to the region. Pursuant to the 1995 amendment to the Convention on Standards of Training Certification and Watch keeping (STCW) JMI is upgrading its equipment, facilities and staff to meet the requirements of the revised convention. JMI has also applied to the ACS to be named as the Training Institute of the region.

(iv) Telecommunications

138. The provision of telecommunications services in Jamaica is currently under the monopoly control of the privately owned Cable and Wireless Jamaica Limited (formerly Telecommunications of Jamaica Ltd.).55 TOJ has been granted a 25-year exclusive right to operate basic telephony services, which will expire in 2013. This arrangement is being reviewed, however, with Cable and Wireless Jamaica in the context of a draft Telecom Bill.

139. Jamaica presented an offer in the WTO Negotiations on Telecommunications, which was added to its Schedule under GATS (GATS/SC/45). The Schedule contains limitations on market access (commercial presence and cross-border supply) for voice telephone services, which, in accordance with the concession granted to the former TOJ when it was privatized, are the monopoly of TOJ until September 2013. Exclusive rights are also extended to telex and facsimile services. Similarly, cross-border supply or consumption abroad of callback services is not permitted, and telephone, telex, teleprinter and facsimile services may not be supplied over cable TV network facilities. Monopoly rights do not extend to paging, internet services, or cellular phones. If the review

55According to Government sources, Cable and Wireless Jamaica Ltd. is 89% foreign-owned, with the rest of shares being owned by domestic investors. WT/TPR/S/42 Trade Policies Review Page 126

currently conducted with Cable and Wireless Jamaica is successful, the Government expects to submit an improved commitment of private voice telephone services.56

140. Under the jurisdiction of the Ministry of Transport and Works, the Office for Utilities Regulation (OUR) is the body in charge of regulating and monitoring telecommunications activities (see below). Pricing practices by the Cable and Wireless Jamaica are regulated by the Government, who determines the rate of return to be earned, taking into account the risks to the provider. According with information provided by the Government, this rate of return is currently 17.5%. Based on this rate-of-return requirement, Cable and Wireless Jamaica then sets prices.

141. Jamaica's penetration rate of telephone lines has substantially increased in the 1992-1996 period, going from a telephone density of 5.4 lines per 100 inhabitants in 1992 (a total of 131,566 lines), to 11.9 lines per 100 inhabitants in 1996 (a total of 300,000 lines). According to government estimates, the number of lines were 402,194 at the end of 1997, which brought telephone density to 15.8 lines per 100 inhabitants (Table IV.21); additionally, 55,500 cellular phones were in operation.

Table IV.21 Telecommunications indicators, 1992-97 1992 1993 1994 1995 1996 1997

Number of subscribers 131,566 167,251 208,480 245,480 300,000 402,194 Telephone density (per 100) 5.4 6.8 8.4 9.8 11.9 15.8

Source: Information provided by the Jamaican authorities.

142. The postal service is currently under Government control: all investment and price decisions are determined by the State. There are, however, plans to undertake a partial privatization of postal services. The Post and Telecommunications Department is the body in charge of providing postal services; its operations have resulted in a deficit in every year of the period 1992-96.57 Overseas cable service is provided by JAMINTEL, a company controlled by Cable and Wireless.

143. The combined contribution of telecommunications and transport (data is reported for the two sectors together in Jamaica's GDP statistics) to GDP is 14.9% and they employ about 53,400 persons (Table IV.22).

Table IV.22 Telecommunications and transport: contribution to GDP and employment, 1992-97 Indicator 1992 1993 1994 1995 1996 1997 GDP contribution 10.2 11.0 11.4 12.4 13.8 14.9 Employment ('000) 36.5 40.1 40.2 44.5 48.3 53.4

Source: Information supplied by the Jamaican authorities.

(v) Public Utilities

144. The Office of Public Utilities (OUR) was established in 1995 and became operational in 1996, with a mandate to regulate all utilities (electricity, water, telecommunications) and utility

56WTO document, GATS/SC/45/Suppl.1, p.3. 57The deficit was particularly large in 1996, when it reached J$380 million, more than double the deficit of the previous year (PIOJ (1997), p.p. 13-2). Jamaica WT/TPR/S/42 Page 127 providers, as well as land transportation. The main utility companies regulated include the Jamaica Public Service Company (JPSC), Cable and Wireless Jamaica, and the National Water Commission (NWC). OUR is also in charge of establishing operating and customer service standards for these three utility companies.

(a) Electricity

145. The main supplier of electricity in Jamaica is JSPC, which is wholly owned by the Government. There are several private suppliers of electricity, both domestic and foreign, on the generation side; they sell their electricity to JSPC, which is the sole distributor. JSPC offers them a standard offer contract and sale prices are negotiated.

146. Out of a total electricity output of 2.77 billion kilowatt hours in 1997, generation of electricity by JSPC reached 1.9 billion kilowatt hours; the rest (864 million kilowatt hours) was purchased by JSPC from private sources. Increasing the share of electricity generated by independent providers has become an important policy element of JSPC. About 82% of total electricity output is sold, with the rest being lost. More than one third of sales are to households (Table IV.23).

Table IV.23 Output and distribution of electricity, 1992-97 (KWh) 1992 1993 1994 1995 1996 1997

Net output 2,140.0 2,216.0 2,303.0 2,043.3 1,879.8 1,904.3 Steam 1,601.0 1,594.0 1,470.0 1,325.1 1,287.3 1,520.9 Hydro 248.0 240.0 256.0 225.8 237.7 116.3 Slow speed diesel 108.9 90 11.0 99.8 109.8 114.5 Gas turbine 181.9 292 446.0 392.6 244.9 152.6

Power purchased 13.0 18.0 22.0 373.8 677.1 864.1 Total output 2,153.0 2,234.0 2,325.0 2,417.1 2,556.8 2,768.4 Disposal 1,693.0 1,793.0 1869.0 1,998.0 2,146.8 2,281.1 Residential rate sales 535.6 568.0 618.0 684.1 763.9 829.3 General service rate 388.0 403.0 436.0 470.5 500.8 545.9 Power service rate 396.0 444.0 433.0 451.7 471.6 495.4 Large power rate 322.0 336.0 332.0 339.9 357.8 356.7 Street lighting rate 35.0 36.0 36.0 36.5 43.3 49.2 Other 16.0 6.0 14.0 15.3 9.5 4.6

JPSC use 6.0 8.0 11.0 9.8 8.4 9.5 Line losses 460.0 440.0 455.0 419.1 410.0 487.3

Source: Data provided by the Jamaican authorities.

147. The Electric Lighting Act, 1890 regulates the electricity industry but does not contain guidelines regarding prices. JPSC needs approval from the Ministry of Transport and Works to modify rates. Pricing procedures are based on average U.S. Gulf petroleum prices. The OUR does not, at present, participate in price determination. Discrimination between consumers for the application of electricity rates is not very wide. Households pay preferential fares; other fares include the general service rate, the power service rate, the large power rate, and the street lighting rate. JSPC is moving towards a policy of applying fares according to marginal costs. WT/TPR/S/42 Trade Policies Review Page 128

148. Jamaica is a large importer of petroleum products. Imports are made through three main channels: Petrojam, the Bauxite-producing companies, and marketing companies (Table IV.24). Crude petroleum imported by Petrojam is of Mexican (57% of imports) or Venezuelan (43% of imports) origin, and enters under the terms of the San Jose Accord. Total petroleum imports were US$473.3 million in 1996, or a total volume of 22 million barrels. Ex-refinery prices are determined weekly, based on U.S. Gulf reference prices.

149. Imports of crude oil are subject to a 5% tariff. Imports of other products are faced with tariffs which range from zero to 25%. Some petroleum products are subject to a special consumption tax (Table III.8).

Table IV.24 Volume and value of petroleum imports, 1993-96 (Barrels and US$) 1993 1994 1995 1996 Volume Volume Volume Volume Value US$ Value US$ Value US$ Value US$ (Bls) (Bls) (Bls) (Bls)

Venezuelean 2,740.2 48,666.8 2,449.8 40,963.8 2,099.3 37,016.1 2,154.6 45,203.9 crude Mexican crude 2,618.4 42,444.5 3,048.9 45,246.3 2,821.2 48,412.6 2,959.0 61,420.3 Oriente crude 358.7 5,822.5 241.3 3,977.3 .. .. Total crude oil 5,358.7 91,111.3 5,857.4 92,032.6 5,161.8 89,406.0 5,113.7 106,624.2

Refined 6,209.7 115,190.7 5,947.5 117,700.5 5,345.8 109,073.1 6,165.2 148,526.6 products Total Petrojam 11,568.4 206,302.0 11,804.8 209,733.1 10,507.6 198,479.1 11,278.9 255,150.8 imports

Bauxite 7,054.0 84,696.7 7,198.9 93,914.6 8,105.6 112,807.3 7,490.6 114,120.2 companies imports

Marketing 383.9 18,681.6 1,256.2 43,628.4 1,653.3 52,820.2 3,261.4 104,000.6 companies imports Total 19,006.3 309,680.4 20,259.9 347,276.1 20,266.6 364,106.7 22,030.9 473,271.6

.. Not available.

Source: Data provided by the Jamaican authorities.

(b) Water

150. Water in Jamaica is supplied by governmental bodies, in accordance with the National Water Commission Act. The National Water Commission is the body in charge of the distribution of potable water to urban areas. Distribution for agricultural purposes is under the responsibility of the National Irrigation Commission. Rates charged are partly subsidized; they are not structured to recover capital costs. The OUR is currently the body in charge of determining rates, taking into account the Water Act's guideline that the Commission is not expected to make a profit from the supply of water. In urban areas, the Commission practices price discrimination, with commercial users paying higher rates than residential users.

151. Irrigation water is viewed as an agricultural input, and not as a utility. Since the Government considers water an important input for agricultural development, the rates charged for the supply of water are heavily subsidized: recovery costs are, on average, about 60% of actual costs. The rates Jamaica WT/TPR/S/42 Page 129

charged for irrigation water are uniform and hence the element of subsidy varies according to the region and beneficiary. The Government intends to eliminate all subsidies for water supply by 2002.

152. An estimated 284,168 megalitres of water were produced in 1997. Consumption of water reached 98,208 megalitres in 1997;58 approximately 80% of the population has access to running water. A number of projects are currently been carried out to improve water supply conditions. These include the Lucea/Negril Water Supply Sub-Project, the Montego Bay Sewerage Improvement Sub-Project, the Great River/Montego Bay Water Supply Programme, the Lluidas Valer Water Supply Project, and the south Chapelton Water Supply Project.

58The sizeable difference between production and consumption is due to leakage losses, theft and underestimation of consumption (PIOJ (1998), p.13.2). WT/TPR/S/42 Trade Policies Review Page 130

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