By Dr. Gianni Avila & Dr. Jan Yves Remy
The Common External Tariff (CET) is a critical component of the Caribbean Community (CARICOM), one of the oldest regional integration arrangements among developing countries in the world, whose aim is to remove barriers to the intra-regional trade among its Member States. In theory, the CET provides for the application of a protective common tariff by all CARICOM Member States to goods imported from non-member countries. In practice, however, the CET has not been so “common” and the staple diet of the original jurisdiction of Caribbean Court of Justice (CCJ) has been matters relating to the maintenance and application of the CET under the Revised Treaty of Chaguaramas (RTC).
In this SRC Trading Thoughts, we explore the origins of the CET and consider whether the time has come for its reform to meet the current needs of the Caribbean Community.
About the CARICOM CET
A CET is a uniform tariff adopted by members of a customs union, which applies to goods imported from countries outside of the union (third countries). The intended trade-creating effect of a customs union is that its members switch from a third country producer of a given product to an intra-customs union producer of that given product. While the CET therefore increases the cost of the third country imports, it provides protection to the goods produced within the customs union (free from internal barriers) thereby giving them a competitive edge. The determination of specific CET rates is a function of a number of factors specific to a regional integration community, including the economic sensitivity of a given product. Moreover, many regimes provide for flexibilities in the application of the CET, including through permitted suspensions and derogations.
The origins of the CARICOM CET can be traced to Article 31 of the Common Market Annex of the Original Treaty of Chaguaramas (1973), which made provision for the establishment of a CET in respect of all commodities imported from third countries. Although implementation deadlines for the CET were set for the early 1980s, they were not met. Later, the Grand Anse Declaration of 1989 – which emphasized the decision to pursue the establishment of a single market now reflected in the RTC – resulted in a further push to finalize the implementation of the CET particularly for the CARICOM Least Developed Country (LDC) Member States. Although an ambitious deadline of 1 January 1991 was set for the completion of the various instruments establishing the CET, it would take over a decade for CARICOM Member States to finally implement them.
Today, the RTC provides for a CET to be established and maintained by all CARICOM Member States participating in the CARICOM Single Market and Economy (CSME). In the CCJ’s own words, the CET remains a “a fundamental pillar in the establishment of the CARICOM Single Market and Economy” and “its primary purpose is to encourage and promote the production of goods within CARICOM”. Of utmost importance is the guiding philosophy of the CARICOM CET, which is centred on strengthening the CARICOM productive sector and accelerating the international competitiveness of CARICOM exports, whilst safeguarding the sensitive production of certain CARICOM goods.
The CARICOM CET of today consists of: (i) a schedule of tariff rates, (ii) legal provisions for the temporary departures from certain rates in the schedule of tariff rates as outlined in Articles 83 (and a Protocol) and 164 of the RTC and (iii) arrangements enabling exemptions from duty provided that certain conditions for the use of imported goods are fulfilled. In addition to this, there are several lists (A, C & D) of items intended to be read in tandem with the schedule of tariff rates that essentially serve as permitted derogations of the CET.
Also important in understanding the philosophy of the CARICOM CET are two policy handbooks by the CARICOM Secretariat created in the early 1990s: The Administrative Arrangements relating to The Alteration or Suspension of Rates under the Common External Tariff and The Working of the Safeguard Mechanism under the Common Market Origin Rules of 1992 (1992
Handbook) and The Common External Tariff of the Caribbean Common Market: An Explanation of its Scope, Structure and Other Features of 1993 (1993 Handbook). These handbooks were mentioned in one of the early CCJ cases, in which the Court explained that the handbooks “reflect the policies of COTED and [that]… until disavowed by the [Caribbean] Community or disapproved by this Court, the guidelines and prescriptions contained in them should be taken as being still in force so far as they are consistent with the relevant provisions of the RTC”.
Of note, the 1993 Handbook sets out eight principles that had been used to determine the CET rates namely: (i) international competitiveness; (ii) efficient production for the regional market; (iii) government revenue; (iv) cost of living; (v) removal of duty exemptions regime; (vi) commodity-based tariff (vii) special measures for less developed countries and (viii) simplification and transparency. It also explains that a 75% of regional demand threshold must be achieved by regional producers of a given product before the full force of CARICOM CET protection from extra-regional competition can be obtained. The 1993 Handbook also provides a fuller understanding of the policy thinking underpinning Lists A, C & D as well as the basis for the division of products into two categories: inputs into the production of other products and final goods. It also explains the further subdivision of goods into those that compete with like regional production and those which do not.
The regime for the CET under CARICOM is therefore a combination of RTC legal provisions, CARICOM Secretariat policy documents and now CCJ case law.
· Reform of the CET?
Needless to say, the current situation regarding the applicable CET regime has left many, including those in the private sector, unclear about how the CET is being administered. Many complain that there is very little transparency in understanding the CET rates, and more importantly, given the many exemptions that apply, it is hard to know the precise rate to be applied to a product at any given time. As a result, they argue, there is a wide variance between the letter of the CARICOM CET rules and the spirit in which they are applied and utilized.
CCJ case law provides a glimpse of the problematic application of the CET, especially as it relates to the procedures for suspensions and/or alterations. While some cases have involved procedural issues, such as the reasonableness and lawfulness of decisions taken by the Council for Trade and Economic Development (COTED) or whether sufficient consultations were undertaken, in many others, Member States have simply unilaterally decided to suspend the CARICOM CET and favoured production from foreign suppliers. For instance, Guyana has admitted to failing to impose the CARICOM CET on building cement imported from extra-regional sources, even though there is regional production of building cement; Suriname has admitted to failing to impose the CARICOM CET on flour imported from extra-regional sources and showed little regard to regionally produced flour; and most recently, St. Kitts and Nevis has admitted to failing to impose the CARICOM CET on brown sugar imported from extra-regional sources, despite availability of regionally produced brown sugar.
The common thread that runs through many of the cases before the CCJ appears to be the alleged favouring of extra-regionally produced goods even when there are like goods within CARICOM to meet demand. If it is indeed the case that one of the primary aims of the CARICOM CET is to encourage and promote the production of intra-regional goods, the current practice surrounding the implementation of the CET requires a review and possible reform of the CET.
· Concluding Thoughts
The above discussion suggests that the time has come for a revisit of the CARICOM CET. First, with all the derogations, suspensions, conditions and lists attached to its application, it is hard to know what rules actually apply. Second, it may be time to reconsider– in light of modern realities, value chains, and production patterns in the region – the governing philosophy of the CARICOM CET. Are the eight principles that have been used as criteria for determining the CARICOM CET rates still reflective of regional realities? Should newly identified principles and policy areas that consider the current international and regional economic environment be utilized when determining CARICOM CET rates? Which indigenous industries are still viable so as to merit the full protection of the CARICOM CET? Should the legal interpretation of the CARICOM CET, in 2021, still be informed and governed by policy documents published in 1992 and 1993?
These are questions that should be debated and discussed in full transparency. Although there is talk of a consultancy report for revision of the CET, the document has not been made public. A public education campaign aimed at sensitizing private sector stakeholders about the basics of the CARICOM CET, and soliciting their input in its reform, would be a step in the right direction. The time has come to revisit the CET and assess whether it is fit for purpose.
Dr. Gianni Avila is a lecturer in International Trade Law at Comenius University in Bratislava, Slovakia. Dr. Jan Yves Remy is Deputy Director at the Shridath Ramphal Centre for International Trade Law, Policy and Services (SRC) at The University of the West Indies Cave Hill. Learn more about the SRC at www.shridathramphalcentre.com.