Special Economic Zones and Global Economic Governance: Jamaica’s Economic Independence
Policy options and actions, especially economic ones, of a nation do not happen in isolation. Rather they are the result of a complex dance moving to and fro between the natural desire to improve ones lot and the constraints placed on what actions can be taken based on the rules of the game.
What game am I talking about?
Global Economic Governance.
A few weeks ago I published a shorten version of this article in Jamaica’s Gleaner Newspaper titled: Shaping Jamaica’s economic independence: The role of SEZs. The objective of this long version is to delve deeper in to the subject of Global Economic Governance and its impact on special economic zones. Enjoy!
How much freedom I have depends on the number and nature of my options. And that, in turn, depends both on the rules of the game and on the assets of the players: it is a very important and widely neglected truth that it does not depend on the rules of the game alone. –
Gerald Cohen
Economic independence is a stated policy objective of the Government of Jamaica. As it should be. Which well thinking Jamaican doesn’t want the personal and national freedom and capacity to shape one’s own socio-economic fortunes and destiny?
It is as Prime Minister Holness said at the 73rd Session of the United Nations General Assembly in New York City (September 27, 2018),“we cannot wait on the world to save us, and we recognize that the world will not wait for us. Notwithstanding that we are a Small Island Developing state with numerous challenges – we are taking our destiny into our own hands. Ultimately, we believe our economic independence will secure our resilience.”
What is economic independence?
But what exactly is economic independence?
Let’s first cover what its isn’t. It is not isolation or going it alone. We live in an interdependent world and as a small island developing state (SID) we apricate more than most that our very survival depends on our connectedness to the world. Now for what it is. Minister of Finance Nigel Clarke said it best, “achieving economic independence requires, among other things, that successive Jamaican governments manage the affairs of Jamaica so as to maintain a sustainable and credible economic path for future generations.”
Economic independence to borrow from the definition of sustainability is: designing and implementing economic policies that seek to meet the needs of the present without compromising the ability of future generations to meet their needs.
Therefore, economic impendence policy position of the Government of Jamaica (GOJ) is to manage the economic affairs of the nation in a sustainable way meeting our current needs without compromising the needs of future generations. In fact, Jamaica’s economic independence goes further by pursuing policies that enhance Jamaica’s future economic capabilities and opportunities.
Minister Clarke goes on further and making plain that, “one of the guiding principles in economic policy setting and decision-making, therefore, will be an evaluation of the degree to which a policy choice enhances or detracts from our pursuit of, and prospects for, economic independence.”
Jamaica’s drive for economic independence, as our Special Economic Zone (SEZ) Regime demonstrates, improves not just the number and but the nature of the options, giving us greater assets in the game of global competitiveness, a game defined by Global Economic Governance (GEG) rules. This is neither a game Jamaica created or set its rules but it is nevertheless a game we must play. One of the things that makes this game such a challenge to play is that not only did we not set the rules, attempts to improve your position may draw sanction.
A great example of this evaluation at play is the Special Economic Zone (SEZ) Regime but more on this later.
Jamaica’s drive for economic independence, as SEZ Regime demonstrates, improves not just the number and but the nature of the options, giving us greater assets in the game of global competitiveness. However, this very drive of economic independence is played in a game under Global Economic Governance rules.
This is neither a game Jamaica created or set its rules but it is never the less a game by which we must play. One of things that makes this game such a challenge to play is that not only did we not set the rules, attempts to improve your position may draw sanction or penalty. However, this is a game we must never the less play.
As a famous Jamaican proverb goes ‘donkey seh wurl nuh level.’ (Donkey says the world isn’t level – the supposedly ‘level playing ground’ is not so level.
Global Economic Governance
Global Economic governance is the set of institutional arrangements and international agreements that principally emerged after the second World War to manage the global economy such as the IMF, WTO, World Bank, etc. Or as succinctly put by Professor Wesley Widmaier, “Global economic governance refers to efforts to organize, structure, and regulate economic interactions. In substantive terms, economic governance deals with a host of policy challenges, including the definition of basic property rights, efforts at monetary and fiscal cooperation, and concerns for the “macroprudential regulation” of financial markets.”
The rules of Global Economic Governance therefore shape Jamaica’s economic independence by placing limits on the number and nature of policy options open to us. Click To TweetThe rules of Global Economic Governance therefore shape Jamaica’s economic independence by placing limits on the number and nature of policy options open to us. This important not just for policy makers to understand but for business and citizen alike as it shapes the business environment, our competitiveness, employment numbers and opportunities and the overall socio-economic wellbeing of the nation.
Jamaica is however, not entirely hapless, as the SEZ Regime demonstrates, as we have a few options that we must play well. However, even these options attract ire of Global Economic Governance rules and institutions, as the SEZ Regime also demonstrates.
Figure 1: Examples of policy instruments and the Global Economic Governance rules they must follow.
| Policy instrument | Global Institution | Global rule affecting policy | Consequences for not adhering |
| Export subsidies | WTO | WTO Agreement on Subsidies and Countervailing Measures (SCM) | Opens up Jamaica being sued at the WTO by other member states. |
| Free flow of capital | The Financial Action Task Force (FATF); OECD; EU The Caribbean Financial Action Task Force (CFATF) | Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) | Grey or Black listing – making international financial transitions (investment, trade, remittances) more difficult. Loss or reduced investor confidence in Jamaica. |
| Fiscal incentives | OECD (base erosion and profit shifting (BEPS)) | Base Erosion and Profit Shifting (BEPS) Project | Grey or Black listing – making international financial transitions (investment, trade, remittances) more difficult. Loss or reduced investor confidence in Jamaica. |
| Trade Facilitation | World Customs Organization (WCO); WTO; OECD (Recommendation on Countering Illicit Trade: Enhancing Transparency in Free Trade Zones) | The Revised Kyoto Convention; WTO Trade Facilitation Agreement ; OECD (Clean Zones) | When Jamaica enters it will be obliged to follow its obligations; non-adherence could erode confidence of trading partners and could result in slower clearance of Jamaica goods. Non-adherence could erode confidence of trading partners and could result in slower clearance of Jamaica goods. None at this time but this framework could become the global best practice for SEZs. |
| Targeted investment in BPO, IT Enabled service and e-commerce* | WTO OECD | WTO Moratorium on Customs Duties on Electronic Transmissions ; BEPS | None at this time however as momentum builds for the lifting of the Moratorium on Customs Duties on Electronic Transmissions at the WTO and unilateral nation levels this is a space that has to be keenly watch, scenario policy planning engaged and national policy positions formulated and promoted globally. Blacklisting of Jamaica making international financial transitions (investment, trade, remittances) more difficult. |
*The GOJ has targeted one or more of these sections in various policy instruments, including but not limited to Vision 2030 (Jamaica’s National Development Plan); a Five Year BPO Strategy; the JSEZA P3+ Programme (Priority, Permitted and Prohibited Industries); and the Covid-19 Recovery Taskforce Report.
A copy of Figure 1 can be downloaded below.
Special Economic Zones
One of Jamaica’s major economic independence policy initiatives is the SEZ Regime. Click To TweetOne of Jamaica’s major economic independence policy initiatives is the SEZ Regime. SEZs, are geographically designated purpose-built areas used to attract foreign and local investment. They typically have trade laws that are applied differently from the rest of the country, an example of which is duty-free concession on all building materials, equipment, raw materials, and finished goods as long as these goods remain in the SEZ or are exported.
Three examples of Global Economic Governance affecting Jamaica’s SEZ Regime are:
- Agreement on Subsidies and Countervailing Measures (SCM)
- Financial Action Task Force (FATF) and its Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF)
- Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Project
These Global Economic Governance institutions and rules do not exclusively impact SEZs but also impact the wider economy. However, the focus on SEZs helps to highlight the wider impact and potential ways to leverage these rules exert Jamaica’s economic independence.
The WTO’s Agreement on Subsidies and Countervailing Measures (SCM), among other things, mandated Jamaica eliminating export subsidies which we had under our Free Zone Regime hence the new SEZ Regime which as a trade rather than export focus. While the Financial Action Task Force Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) direct investment entry controls, screening and monitoring to prevent, detect and mitigate the proceeds of crime being filtered through our SEZs as investments or through trade.
Finally, the OECD’s BEPS Project, which Jamaica’s SEZ Regime is under official review, mandates that that Jamaica’s SEZ Regime be modified to add greater investment entry controls and supervision in the form of greater ‘substance requirements’ for investors which creates a greater nexus between investments and presence in Jamaica. This is aimed at mitigating tax base erosion resulting from multi-nationals moving their profits and operations from higher tax jurisdiction to lower tax ones such as Jamaica’s SEZs.
Figure 2: Examples of policy instruments, the Global Economic Governance rules they must follow and Jamaica’s SEZ Regime response
| Policy instrument | Global Institution | Global rule affecting policy | Consequences for not adhering | Jamaica’s SEZ reaction/outcome/action/result |
| Export subsidies | WTO | WTO Agreement on Subsidies and Countervailing Measures (SCM) | Opens up Jamaica being sued at the WTO by other member states. | The SEZ fiscal incentives are by design export neutral. |
| Free flow of capital | The Financial Action Task Force (FATF) OECD EU The Caribbean Financial Action Task Force (CFATF) | Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) | Grey or Black listing – making international financial transitions (investment, trade, remittances) more difficult. Loss or reduced investor confidence in Jamaica. | The SEZ Act mandates the JSEZA in its review for an investor to gain status to conduct due diligence and background checks (Section. 21(2)) for money laundering and financial crimes; the financing of terrorism and the manufacture and proliferation of weapons of mass destruction. |
| Fiscal incentives | OECD (base erosion and profit shifting (BEPS)) | base erosion and profit shifting | Grey or Black listing – making international financial transitions (investment, trade, remittances) more difficult. Loss or reduced investor confidence in Jamaica. | Jamaica’s SEZ Regime is under official review and will be required to establish greater investment entry controls and supervision in the form of greater ‘substance requirements’ for investors which creates a greater nexus between investments and presence in Jamaica. |
| Trade Facilitation | World Customs Organization WTO OECD (Recommendation on Countering Illicit Trade: Enhancing Transparency in Free Trade Zones) | The Revised Kyoto Convention WTO Trade Facilitation Agreement OECD (Clean Zones) | When Jamaica enters it will be obliged to follow its obligations; non-adherence could erode confidence of trading partners and could result in slower clearance of Jamaica goods. Non-adherence could erode confidence of trading partners and could result in slower clearance of Jamaica goods. None at this time but this framework could be global best practice for SEZs | The SEZ Act makes clear unlike the previous Export Free Zones Act that SEZs are under Customs Control. Jamaica’s Trade Facilitation implementation is WTO plus, that is to say the WTO Trade Facilitation Agreement and additional measures, several of which relate to SEZs. An example of which is the high level of Customs facilitation mandated by the SEZ Act and Regulations. None at this time. |
| Targeted investment in BPO, IT Enabled service and e-commerce* | WTO OECD | WTO Moratorium on Customs Duties on Electronic Transmissions BEPS | None at this time however as momentum builds for the lifting of the Moratorium on Customs Duties on Electronic Transmissions at the WTO and unilateral nation levels this is a space that has to be keenly watch, scenario policy planning engaged and national policy positions formulated and promoted globally. Grey or Black listing – making international financial transitions (investment, trade, remittances) more difficult. Loss or reduced investor confidence in Jamaica | No official position taken at this time however the JSEZA serves on Jamaica’s National services Policy Steering Committee where the moratorium is a matter of deliberation and scenario policy planning. Jamaica’s SEZ Regime is under official review and will be required to establish greater investment entry controls and supervision in the form of greater ‘substance requirements’ for investors which creates a greater nexus between investments and presence in Jamaica. |
A copy of Figure 2 can be downloaded below.
Conclusion
The SEZ Regime represents for Jamaica’s economic independence a policy instrument that creates safe haven for near shore manufacturing… Click To TweetEven with these Global Economic Governance restrictions, maybe even because of them, Jamaica’s SEZ Regime, especially during the Covid-19 pandemic has become an island of calm in a turbulent ocean. The SEZ Regime represents for Jamaica’s economic independence a policy instrument that creates a safe haven for near shore manufacturing, logistics, distribution, outsourcing services, etc ready to serve the 1-billion-person market in the Americas and beyond.
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