FTC Comments on Cement CET

I make reference to the on-going debate concerning the merits of maintaining the current policy of suspending the 15 percent Common External Tariff (CET) on imported cement. The current policy is due for review in September 2009.
During the last two weeks, media houses have been covering the concerns raised by interested parties on both sides of the debate. This coverage is commendable given the obvious public interest in the matter. The reports on the issues raised indicate that the local monopoly producer of cement, the Caribbean Cement Company Limited (CCCL), is against maintaining the status quo and that the local importers of cement are in favour of maintaining it.

These reports come as no surprise as individuals will invariably adopt positions which are consistent with advancing their interests; and renewing the suspension of the CET would only constrain CCCL’s future earnings. This “selfish” motivation of individuals is to be recognized as a common feature of human interaction and not misconstrued as a trait of only “shady characters.”

This very point is implicitly highlighted by CCCL in an open letter to the Jamaica Manufacturers’ Association (JMA), of which it is a member, which appeared in the Financial Gleaner dated May 29, 2009. Through the letter, CCCL expressed its disappointment with the JMA’s recommendation for the Government to renew the suspension of CET for an additional year. CCCL pointed out that, among other things, the JMA’s position in this matter is inconsistent with its general position of promoting the local manufacturing sector.

In the same issue of the Financial Gleaner, the JMA denies the existence of any such conflict. The JMA argues that the local manufacturing and construction sectors were severely affected by the disruption in cement supplies in 2006; hence its decision to support the suspension of the waiver is aimed at protecting these sectors from a reoccurrence of similar events. Further, its recommendation that the suspension be renewed for only one year is aimed at giving the CCCL enough time “…to demonstrate within this time period that the company is able to fully supply the market.”

The initial decision to intervene by suspending tariffs on imported cement was taken in March 2006 and motivated by the aforementioned disruption in cement supplies. During the preceding two years, cement was not being imported on a commercial basis as there was a 40 percent tariff on imported cement. In 2009, the Fair Trading Commission (FTC) conducted an empirical study of the impact of the Government’s suspension of the 40 percent tariff during the period March 2006 through June 2008.

The lowering of the tariff stimulated competition from imported cement which lowered the market price of cement. This study estimated that consumers saved in excess of $694 million during the period, as a result of the lower cement prices. This result draws attention to the fact that “stability in supplies” is not the only criterion which ought to be used to assess the merits of a re-imposition of the CET.

The official position of the JMA, regarding trade barriers, needs to be ventilated as any valid argument used in support of the lowering of trade barriers for imported cement can be used to support the lowering of trade barriers for any tradable good produced by local manufacturers. If one accepts the premise that competition is best for the public in times of “crises,” does it stand to reason also that competition continues to be the best in the absence of a crisis?

A fundamental issue to be recognised is that these arguments will inform a wider debate that should be taking place publicly to address the role of competition in national development. Should the national development plan for Jamaica be based on a competitively organized economy, or would it be best to implement a plan where competition is stifled?

As part of our role as advocates for competition, the FTC facilitates discussions on matters relating to competition through our open annual Shirley Playfair Lecture Series, customarily held in September. This year’s theme will cover these and related issues.