a commentary piece published in the Jamaica Gleaner on February
8, Professor Norman Girvan, who I last week anointed as
the Dean of Caribbean thinkers, wrote about the potential
impact of preference erosion which he described
as the diminishing relative advantage enjoyed by Caricom
exporters vis-à-vis other exporters, which
exposes the Caricom exporters to competition from
lower-cost sources of supply.
The professorwho along with two of his academic colleagues
responds to my EPA Madness: How preferences underdevelop
sugar on this pagewent on to argue that preference
erosion reduces the relative advantage of DFQF (duty-free,
quota-free) market access for all Caribbean exports, including
manufactured good. He wrote that the expansion and
even the maintenance of existing exports will be dependent
on the ability to reduce production costs. It is quite possible
to envisage a situation where exports to Europe fall rather
That, to me, is the crux of the argument of those who oppose
the EPA: At the base of their position is a fear that the
agreement will lead to job losses.
In this they are right.
The trade aspect of the EPA will undermine the inefficient
producers of goods and services in the Caribbean who can
only survive behind protective barriers, fixed quotas and
high tariff barriers in the EU.
Those who have the most to fear from the EPA, as with all
trade agreements, are those companies or countries which
do not have the will or the means to transform their operations
or their workforces by being relentless in slashing inefficiency.
Faced with the reality of the EPA, inefficient manufacturers
and service providers in the region will be forced to make
the investments (for example in equipment, training and
hiring quality staff) needed to increase productivity. If
they dont make the adjustments in a timely fashion,
there will be a steady erosion in their profitability which,
in effect, lessens their ability to make the needed investments
in efficiency. They will be forced out of business eventually.
Competition from European goods and services will require
regional manufacturers and service providers to either raise
their gameby constantly and deliberately focussing
on driving productivity growth and customer serviceor
As it is companies, so is it with countries.
Countries which do not have the vision, capacity or ability
to make the necessary investments in raising the efficiency
of their populations will, undoubtedly and deservedly, suffer
as a result of the implementation of the EPA.
Politicians who divert resources away from education, skills
training and infrastructural upgrades and into providing
populist make-work jobs and goodies for their constituents
would be expected to hate the EPA because it will expose
the inadequacies of their policies.
The mantra now must be efficiency or certain demise. There
is cogent evidence from the region that our manufacturers,
given the right incentives and facilitation can compete
with the best in the world. In the early 1990s, faced with
a period in which oil and petrochemical prices had declined,
the first Manning administration put in place the framework
for the dominance by T&T manufacturers of the regional
This framework included the lowering of tariffs on imports,
the flotation of the TT dollar, the privatisation of some
state enterprises, increased depreciation on capital equipment
and the reduction in taxes.
As I argued in my debate with another professor, UWI St
Augustines Dennis Pantin, this mix of macro-economic
policieswhich came straight out of the handbook of
the International Monetary Fundwas mainly responsible
for the fact that T&T was able to pull itself out of
the recession caused by the decline in oil prices in the
late eighties. That issue, in my view, is now settled. The
point is that given the right conditions it is possible
for Caribbean producers to increase their competitiveness
But, as was noted in the Wilson/Pantin debate, it is also
possible for countries to get competition wrong as Jamaica
has done in the last 30 years.
The other point of departure on the EPA between me and the
three professors is that they never recognise that lowering
import tariffs may have some real and tangible benefits.
Reducing tariffs on the importation of European productswhich
should lower the cost of EU imports into the regionmay
hurt some regional producers but it is likely to benefit
regional consumers and some manufacturers.
The classic, and deliberately provocative, example of the
positive and negative impact of a sudden decrease in the
cost of an imported product is Jamaica which was required
to open up its dairy market in the early 1990s as part of
the World Banks structural adjustment policies.
As a result of Jamaicas dairy liberalisation, the
over-production of powdered milk in Europe and substantial
subsidies for European dairy farmers, Jamaica was flooded
by subsidised powdered milk from the EU. A 2004 IPS wire
service story indicated that in the 10-year period between
1994 and 2003, Jamaican farmers saw their market share for
local milk slip from 24 per cent to 4.2 per cent.
The article quoted Aubrey Taylor, one of the countrys
champion dairy farmers, as saying that the country's poorest
farmers were hardest hit by the unfair trading practices
of the EU dumping of powdered milk.
In the last 20 years, the article quoted farming officials
as saying, the number of dairy farmers dropped from more
than 4,000 to just over 100.
While this may have led to severe hardships for some 4,000
farmers, can it be disputed that cheaper milk provided a
significant benefit for all 2.6 million Jamaicansespecially
the poorest Jamaicans?
So, while acknowledging all of the issues surrounding food
security, the issue becomes: Does one put the interest of
4,000 farmers ahead of the interest of 2.6 million consumers?
It is not a question I am prepared to answer but certainly
it is a question that needs to be asked whenever this issue
of the EPA is discussed.
But it is indisputable that the lowering of tariffs and
the global competition which has resulted from it, has meant
significant benefits for the cost of living in the Caribbean.
All things being equal, the cost of cellphones, computers,
cars, clothing and electronic gadgets such as DVD players
and televisionswhich are all subject to global competitionhave
become relatively more affordable compared with the price
of imported food, for example.
While the availability of cheap Made in China clothes on
the local market may have put some garment factories out
of business, can anyone dispute that T&T has benefited
from the availability of cheap garments from China?
We will resume battle next week, I am sure.