By: Dr. Jan Yves Remy and Alicia Nicholls
This year, the Caribbean Court of Justice (CCJ) delivered two substantive rulings in a dispute aptly dubbed by the media as the ‘cement saga’, a reference to a long-running spat involving regional competitors in the cement business: Rock Hard Distribution Limited, and its subsidiary Rock Hard Cement Ltd (RHCL), on the one hand; and Trinidad Cement Limited (TCL) and its subsidiary Arawak Cement Company Ltd (ACCL) on the other. The dispute would result in five CCJ rulings and several orders.
In its first substantive ruling, issued in April, the Court decided on the applicable rate of duty to be paid on Rock Hard cement imported from outside the region into Barbados. The second ruling concerned the correctness of the cement classification decision made by the Council for Trade and Economic Development (COTED), the CARICOM Ministerial Council charged with administering the Common External Tariff.
In this SRC Trading Thoughts Column, we take a brief look at the cement saga and discuss its legal and economic implications, highlighting the importance of the CCJ in advancing the development of Caribbean regional integration and trade law.
Cement occupies a special place in the CCJ jurisprudence. It was the subject matter of the first case brought to the CCJ in its original jurisdiction in 2008, and has featured in many subsequent cases litigated throughout the Court’s near 15-year history. The cement business is one of the few truly regional ones, characterized by cross-border ownership and operations – Rock Hard Distribution Limited, for instance, was incorporated in St. Lucia but also operates out of Barbados; and TCL, a Trinidad company, has subsidiaries in Guyana and Barbados.
The genesis of the ‘cement saga’ dates back to the 11th Meeting of the COTED in 2001 when Barbados requested, and was granted, from the COTED a derogation to apply a tariff rate on imported cement which differs from the Common External Tariff (CET) rate of 0-5%. The CET, which Member States must “establish and maintain” in accordance with plans and schedules set out by COTED, provides the rates to be charged on goods imported from third States, that is, from outside of the Community. The purpose of the CET, which is a defining feature of the CARICOM Single Market and Economy (CSME), is to inter alia provide uniformity in the rates for goods imported, and allow a margin of protection for community manufacturers from foreign imports. Any derogation or “suspension” from the CET, upward or downward, must be approved by COTED.
Barbados had requested COTED’s approval to increase its rate up to the maximum rate allowed under the World Trade Organization – the “bound rate” – and apply a 60% rate of duty on certain categories of cement, including those which fall under the category ‘other hydraulic cement’. Barbados amended its Customs Tariff legislation to give effect to the 60% rate of duty. Barbados’ reasoning for the derogation was to give a greater margin of protection to the local cement manufacturing sector from more competitive extra-regional cement imports. In 2009, Barbados finally gave legislative effect to this decision via its Customs Tariff (Amendment) Order 2009.
However, in 2015, Barbados decided to no longer apply the 60% tariff on cement and re-imposed the CET-consistent rate of duty of 5%. It did not, however, request COTED’s approval to reimpose the CET nor did it reflect this policy reversal legislatively. As such, regional cement manufacturers, TCL and ACCL, which had benefited from the higher tariff rate, sought and were granted special leave from the CCJ to bring an action against Barbados. To be clear, the CCJ has exclusive jurisdiction in the resolution of disputes arising out of the Revised Treaty of Chaguaramas.
TCL and its subsidiary argued that Barbados had required COTED’s permission to re-impose the CET rate, and that cement imported by RHCL was not ‘other hydraulic cement’ but ‘building cement (grey)’ which attracted a higher tariff. In July 2018 the CCJ gave an interim order requiring Barbados to reimpose the 60% tariff.
Brewing as well in the background of the Barbados case was a decision by COTED to classify Rock Hard cement imported from Turkey and Portugal, as ‘other hydraulic cement’ for purposes of the CET. COTED made that determination, in accordance with advice it sought and received from the World Customs Organization (WCO), the body that administers the classification system – the Harmonized System – on which the CET is based. At issue in that dispute, brought by Trinidad and Tobago, was whether the decision by COTED was proper.
In February 2019, the CCJ ordered the consolidation of the four disputes related to the classification of Rock Hard cement.
Whether Barbados required COTED approval to reimpose CET
In its April ruling, the CCJ held that the derogation Barbados received from the CET included ‘other hydraulic cement’ and that Barbados did not require COTED approval to re-implement the CET. The Court stated, as a matter of public policy, that a Member State should give reasonable notice of its intention of re-imposing the CET, but found that in this case Barbados had given enough notice to the regional cement manufacturers of its intention to revert to the CET.
Additionally, the Court ruled that there is also an implied obligation on Member States to give COTED reasonable notice of their intention to revert to the CET. This, according to the Court, would ensure COTED’s records are up to date and enable it to discharge its functions as the regional supervisor of external tariffs. The Court also emphasized the importance of certainty in the application by Member States of ‘extraordinary rates’ to engender private sector confidence and because changes to the applicable duty directly affect “the integration of national markets into a community market area”.
Whether COTED’s classification was correct
In August, the CCJ upheld the COTED’s classification decision of Rock Hard cement as ‘other hydraulic cement’ and held that it was binding on all Member States. The Court found that COTED was entitled to rely on the advice received by the WCO because of that organisation’s pivotal role in the administration of the Harmonized Code.
However, as a matter of public policy, the CCJ made several recommendations following the legal decision. Firstly, it recommended that COTED conduct a study to assess whether the CET for imported ‘other hydraulic cement’ be increased to provide additional protection to regional cement manufacturers in keeping with the obligation placed on COTED by the Revised Treaty to keep the CET under review. Secondly, it suggested that Member States consider more robust participation in WCO and similar bodies, and collaborate more when undertaking international trade commitments. Thirdly, the CCJ suggested the implementation of a project to harmonise the classification of goods based on WCO standards which would help to increase CARICOM trade.
Legal and Economic Implications
The Court’s decisions confirm that the CCJ has come into its own. After several judgments by the Court in its original jurisdiction, there is certainly enough jurisprudence to warrant dedicated study – if not an entire workshop or symposium – to better understand their legal and economic consequences. Permit us to highlight just a few.
On the legal front, the CCJ’s decision clarifies a number of issues, including The Bahamas, and its voting rights, under the CSME; the voting procedures and required majorities for Ministerial Councils; the role and powers of COTED in the maintenance and review of the CET, including the scope of its obligations and its duty to provide reasons for its decisions.
Three specific issues deserve mention.
First, as the CCJ highlighted, some of the issues decided by the Court are likely to be moot because of the Protocol to the Revised Treaty adopted in 2015 which now provides that a Member State may be exempted from applying the CET on goods ‘for a period of time’. In the Barbados dispute, the Protocol could not be retroactively applied to the 2001 derogation granted to Barbados, which was not time bound. Going forward, however, COTED’s decisions regarding suspensions and alternations will be governed by the Protocol and are therefore likely to be more specific.
The decisions also exposed the overlap of parties, and roles, in the administration of the CET. The Court assigned a primary role for COTED, not just in the ascription of CET rates but also the classification of products, under the CET; the CCJ confirmed its own (indirect) role, through judicial review of COTED’s classification decisions; the role of Member States who ultimately implement and apply the CET; and finally, the role of an external body, the WCO.
While it makes eminent sense for COTED – comprising Ministerial representatives – to rely on technical experts to make classification decisions, it may strike some as peculiar that the Court would entirely delegate that role to an extra regional body, the WCO, possibly at its own expense. Is it not the very business of a Court to interpret legal instruments affecting the operation of the CSME? The Court may have chosen instead to approach its task as the WTO’s Appellate Court does, that is, to rely on the WCO’s advice only as a matter of fact in resolving classification disputes, and to support its own interpretation using the tools of treaty interpretation provided under the Vienna Convention of the Law of Treaties. It is also strikes us as a missed opportunity for a CARICOM Member State to have requested that the Court provide an advisory opinion, under Article 212 of the Revised Treaty, to aid in the COTED decision.
The third issue concerns the obligation of Member States in respect of prima facie inconsistent domestic law. As has happened in previous cases, the Court did not find it necessary to make a finding that Barbados’ retention of domestic law specifying the 60% rate to be applied to Rock Cement, was inconsistent with the CET 0-5% rate for “other hydraulic cement” following the expiration of the derogation. The Court declined to make a finding of inconsistency because it noted that the determination of inconsistency depends on how a law is applied. Again, WTO case law may have been instructive: domestic law, even absent application, that is on its face inconsistent with a country’s WTO obligations, can ground a finding of “as such” inconsistency. This ensures that a delinquent State has little room to revert to WTO- inconsistent behavior permitted by its domestic law, and that private parties are not left in doubt as to the country’s WTO-consistency. In this case, a finding by the Court of inconsistency based on the domestic legislation would also have led to greater uniformity in the application of the CET, a point highlighted by the Court as being in need of greater attention by CARICOM Member States.
The economic implications are also considerable. During the protracted dispute, the Court explained how the type of cement being imported to the Community has changed. When the CET was first established, blended cements like Rock Hard Cement were not in existence and their competitive impact on the regional market could not have been contemplated. This explains why such cement was ascribed a very low CET rate.
The Court’s rulings permit the importation of a cheaper cement product which could help lower building costs, and allow for greater competition within the regional cement market, which could benefit consumers. There is concern, however, about whether indigenous cement manufacturers can compete with the influx of cheaper cement. As such, there is merit to the CCJ’s suggestion for a study to be conducted on whether the CET for ‘other hydraulic cement’ ought to be raised. Such a study should take into account the potential economic implications of any such increase, including on consumers. The rulings also raise the broader question of how “nimble” the CARICOM structures are to adapt to the economic realities of the region – with implications beyond just the cement sector.
Dr. Jan Yves Remy is the Deputy Director of the Shridath Ramphal Centre for International Trade Law, Policy & Services (SRC). Alicia Nicholls is a Trade Researcher with the SRC. The SRC is the premier trade training centre of the region, located at the Cave Hill Campus, The UWI.