USITC BIENNIAL CARIBBEAN BASIN INVESTMENT SURVEY

UNCLAS SECTION 01 OF 06 KINGSTON 001011 SIPDIS SIPDIS SENSITIVE STATE FOR WHA/CAR (HORNE, COLLINS),WHA/EPSC (JSLATTERY) STATE PLEASE PASS FOR USITC (SCHLITT) SANTO DOMINGO FOR FCS AND FAS TREASURY FOR L LAMONICA E.O. 12958: NA TAGS: ECON EFIN JM SUBJECT: USITC BIENNIAL CARIBBEAN BASIN INVESTMENT SURVEY REF A: STATE 065843 This cable is Sensitive But Unclassified. Please protect accordingly. ¶1. Bilateral trade between Jamaica and the U.S. rose to USD 2.3 billion or 37 percent of Jamaica's total trade at the end of 2005. At this level, the U.S. remained Jamaica's major trading partner. But while trade between both countries has grown in absolute terms, the U.S. share of trade has fallen steadily since 1996, when it peaked at 47.3 percent. The declining share of trade can be attributed to a number of factors, chief among them the demise of Jamaica's garment industry. Apparel earnings peaked at USD 288 million in 1995, providing the major impetus for the explosion in non-traditional export earnings, which recorded annual average growth of 15 percent during the first half of the 1990s. However, since 1995 apparel earnings have declined on average by almost 30 percent, reflecting rising competition from Mexico following the implementation of NAFTA coupled with Jamaica's challenging macroeconomic environment, characterized by high interest rates, exchange rate instability, and high labor, security, and utility costs. ¶2. Jamaica's share of trade with the U.S. has also been negatively affected by rising international oil prices, which has caused the growth in total trade (39 percent) between 2001 and 2005 to outpace the growth in bi-lateral trade (27 percent) with the U.S. Venezuela, which provides concessionary financing under the PetroCaribe Agreement and Trinidad and Tobago (T&T) are the main beneficiaries of this rising oil bill. Increased international competition from China and T&T has also caused some amount of trade diversion. This competition could become even more pronounced as China extends its global reach. Signs of this dynamic are already playing out, with the GoC financing a number of infrastructural projects at concessionary rates. These developments are executed by Chinese firms, which then import much of the required material from home. Some amount of import substitution is also evident as local producers respond, albeit slowly, to growing demand for fruits and vegetables from the expanding tourism sector. ¶3. Although bilateral trade has shrunk, Jamaica's balance of trade (exports minus imports) with the U.S. has deteriorated from a deficit of USD 1 billion in 2000 to USD 1.5 billion in 2005. The worsening trade balance is being driven by a combination of rising imports and declining exports. Imports have been fuelled by refined products imported by oil marketing companies. Food for the growing tourist market and machinery and transport equipment to support the infrastructural boom are the other major components driving import growth. In sharp contrast, exports have declined by 21 percent over the period due in large part to the demise of garment manufacturing and lowering crude material exports. The only real export successes appear to be in beverages, chemicals, and mineral fuels. ¶4. The demise of the apparel sector actually influenced a contraction in non-traditional exports, which moved from a high of USD 478 million in 1995 to USD 283.3 million in 2004. Hurricane-related damage to the agricultural sector also contributed to the drop in 2004. However, by the end of 2005, there were signs of recovery, led by ethanol exports following the rehabilitation of a dehydration plant. This resurgence has spilled over into 2006, with export earnings reaching a record USD 1.95 billion. Non-traditional exports, which almost doubled, accounted for USD 610 million of this amount. This was largely due to the USD 156 million expansion in the exports of mineral fuels (mostly ethanol) to USD 267 million. There was also a steep increase in the export of chemicals and crude material, led by waste and scrap metals. Food and other food exports also contributed to record export earnings. ¶5. While the apparel sector in its original form will most certainly disappear, efforts to diversify the island's export and production base could be further enhanced in late 2007 and 2008, as another two ethanol plants come on stream. There are also plans to expand capacity at the plants in operation. But while the revival of ethanol exports and to a lesser extent food exports based on improved technology is welcome, the sustainability of these and other non-traditional exports will be dependent on special and differential treatment. In fact, the current and expected pattern of ethanol exports might not be dissimilar to that of apparel exports in the 1990s and any lifting of the tariff on ethanol from Brazil would lead to the immediate and sure demise of the local KINGSTON 00001011 002 OF 006 ethanol industry. Therefore hindsight suggests that while CBERA/CBTPA will remain necessary for Jamaican exporters of non-traditional products to remain afloat in the short- to medium-term, it is far from sufficient for these producers to remain competitive in the long run. It might therefore be important to reiterate that long-term competitiveness will ultimately hinge on the GoJ's ability to make the structural adjustments (labor market, education, customs, utilities) necessary for exporters to become competitive. ¶6. (SBU) Begin Report: Answers are keyed to question format contained in ref A. The SBU classification is assigned solely because of the business confidential contents contained in the report. ¶A. Data on CBERA-related investment activity during 2004 by sector. -------------- Beverages & Tobacco -------------- a. Name of Company - Red Stripe b. Investment in 2006 - USD 7 million c. New or expansion investment - New and expansion d. Located in free trade zone - No e. Types of products exported - Brewed Beers and Stouts f. Estimated value of exports to the U.S. - USD 34 million g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 80 percent -------------- Chemicals -------------- a. Name of Company - Petrojam Ethanol b. Investment in 2006 - Zero c. New or expansion investment - N/A d. Located in free trade zone - Since November 2006 e. Types of products exported - Anhydrous ethanol - Fuel Additive f. Estimated value of exports to the U.S. - About USD 65 million g. Would project have been launched in the absence of CBERA/CBTPA preferences - No h. Approximate share of inputs from CBERA beneficiary origin - None a. Name of Company - Jamaica Ethanol Processing Ltd b. Investment in 2006 - USD 200,000 c. New or expansion investment - Expansion d. Located in free trade zone - Yes e. Types of products exported - Anhydrous Fuel Grade Ethanol f. Estimated value of exports to the U.S. - USD 90 million g. Would project have been launched in the absence of CBERA/CBTPA preferences - Unlikely h. Approximate share of inputs from CBERA beneficiary origin - None -------------- Fresh Produce -------------- a. Name of Company - Jamaica Agricultural Development Foundation b. Investment in 2006 - USD 1.5 million c. New or expansion investment - new d. Located in free trade zone - No e. Types of products exported - West Indian Sea Island Cotton f. Estimated value of exports to the U.S. - Zero g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 50 percent a. Name of Company - Jamaica Export Trading Company b. Investment in 2006 - Zero c. New or expansion investment - N/A d. Located in free trade zone - No e. Types of products exported - Fresh and processed foods, pimento, ground calcium carbonate and crafts products f. Estimated value of exports to the U.S. - USD 229,305 g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes KINGSTON 00001011 003 OF 006 h. Approximate share of inputs from CBERA beneficiary origin - None -------------- Furniture & Craft -------------- a. Name of Company - Jamaica Fibreglass Products b. Investment in 2006 - USD 500,000 c. New or expansion investment - Expansion d. Located in free trade zone - No e. Types of products exported - Restaurant furniture f. Estimated value of exports to the U.S. - USD 500,000 g. Would project have been launched in the absence of CBERA/CBTPA preferences - No h. Approximate share of inputs from CBERA beneficiary origin - 30 percent -------------- Other Manufactured Products -------------- a. Name of Company - West Indies Synthetics b. Investment in 2006 - USD 5 million c. New or expansion investment - New and Expansion d. Located in free trade zone - No e. Types of products exported - Beverages and plastics (disposables) f. Estimated value of exports to the U.S. - USD 1 million g. Would project have been launched in the absence of CBERA/CBTPA preferences - No h. Approximate share of inputs from CBERA beneficiary origin - 25 percent a. Name of Company - Jalex Manufacturing b. Investment in 2006 - USD 250,000 c. New or expansion investment - Expansion d. Located in free trade zone - No e. Types of products exported - Aluminum extrusions, scrap f. Estimated value of exports to the U.S. - USD 540,000 g. Would project have been launched in the absence of CBERA/CBTPA preferences - No h. Approximate share of inputs from CBERA beneficiary origin - 10 percent -------------- -------------- Pharmaceuticals/Cosmetics & Personal Care Products -------------- -------------- a. Name of Company - Starfish Oil b. Investment in 2006 - Zero c. New or expansion investment - N/A d. Located in free trade zone - No e. Types of products exported - Scented candles, aromatherapy oils and soaps, bath salts and incense f. Estimated value of exports to the U.S. - USD 200,000 g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 50 percent a. Name of Company - P.A. Benjamin Manufacturing Company b. Investment in 2006 - USD 250,000 c. New or expansion investment - New and Expansion d. Located in free trade zone - No e. Types of products exported - Pharmaceuticals (health care) and food flavorings f. Estimated value of exports to the U.S - USD 310,000 g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 30 percent -------------- Processed Foods -------------- a. Name of Company - Gray's Pepper Products b. Investment in 2006 - USD 80,000 c. New or expansion investment - Expansion d. Located in free trade zone - No e. Types of products exported - Pepper sauces KINGSTON 00001011 004 OF 006 f. Estimated value of exports to the U.S. - USD 1 million g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 50 percent a. Name of Company - Jamaica Cane Products Sales b. Investment in 2006 - Zero c. New or expansion investment - N/A d. Located in free trade zone - No e. Types of products exported - Raw sugar f. Estimated value of exports to the U.S. - USD 6.6 million g. Would project have been launched in the absence of CBERA/CBTPA preferences - No h. Approximate share of inputs from CBERA beneficiary origin - None a. Name of Company - Betapac b. Investment in 2006 - USD 30,000 c. New or expansion investment - Expansion d. Located in free trade zone - No e. Types of products exported - Curry powder f. Estimated value of exports to the U.S. - USD 150,000 g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 20 percent a. Name of Company - National Baking Company b. Investment in 2006 - USD 8 million c. New or expansion investment - New and expansion d. Located in free trade zone - No e. Types of products exported - Buns, biscuits and crackers f. Estimated value of exports to the U.S. - USD 1 million g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 25 percent a. Name of Company - Shim Successors b. Investment in 2006 - Zero c. New or expansion investment - N/A d. Located in free trade zone - No e. Types of products exported - Fruit syrup f. Estimated value of exports to the U.S. - USD 40,000 g. Would project have been launched in the absence of CBERA/CBTPA preferences - No h. Approximate share of inputs from CBERA beneficiary origin - 20 percent a. Name of Company - Nestle Jamaica b. Investment in 2006 - USD 905,000 c. New or expansion investment - New and expansion d. Located in free trade zone - No e. Types of products exported - Milk-based products f. Estimated value of exports to the U.S. - USD 1.5 million g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 45 percent a. Name of Company - JABEXCO b. Investment in 2006 - Zero c. New or expansion investment - N/A d. Located in free trade zone - No e. Types of products exported - Tilapia fish, chicken and beef f. Estimated value of exports to the U.S. - USD 2.2 million g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 90 percent a. Name of Company - Jamaica Standard Products b. Investment in 2006 - USD 70,000 c. New or expansion investment - Expansion d. Located in free trade zone - No e. Types of products exported - Green and roasted coffee and sauces and spices f. Estimated value of exports to the U.S. - USD 200,000 g. Would project have been launched in the absence of CBERA/CBTPA preferences - No KINGSTON 00001011 005 OF 006 h. Approximate share of inputs from CBERA beneficiary origin - None a. Name of Company - Salada Foods Jamaica b. Investment in 2006 - Zero c. New or expansion investment - N/A d. Located in free trade zone - No e. Types of products exported - Coffee f. Estimated value of exports to the U.S. - USD 253,000 g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 50 percent a. Name of Company - Coffee Industries b. Investment in 2006 - USD 50,000 c. New or expansion investment - Expansion d. Located in free trade zone - No e. Types of products exported - Roasted coffee beans f. Estimated value of exports to the U.S. - USD 771,000 g. Would project have been launched in the absence of CBERA/CBTPA preferences - Yes h. Approximate share of inputs from CBERA beneficiary origin - 50 percent a. Name of Company - Central Food Packers b. Investment in 2006 - Zero c. New or expansion investment - N/A d. Located in free trade zone - No e. Types of products exported - Bammies, jerk and pepper sauces, jerk seasonings, solomon gundy, roots wine, canned ackee and callaloo f. Estimated value of exports to the U.S. - USD 500,000 g. Would project have been launched in the absence of CBERA/CBTPA preferences - No h. Approximate share of inputs from CBERA beneficiary origin - 5 percent a. Name of Company - Walkerswood Caribbean Foods b. Investment in 2006 - USD 2 million c. New or expansion investment - New and Expansion d. Located in free trade zone - No e. Types of products exported - Jerk Seasonings, sauces, preserves, condiments, dried spices and canned vegetables f. Estimated value of exports to the U.S. - USD 3.1 million g. Would project have been launched in the absence of CBERA/CBTPA preferences - No h. Approximate share of inputs from CBERA beneficiary origin - 50 percent -------------- Comments on Survey -------------- ¶7. Jamaican exporters have become less responsive to the CBI survey. In fact, there has been a steady decline in the number of respondents, with almost 30 percent of the exporters contacted not responding. This increased apathy appears to be largely due to a lack of awareness of the benefits of the initiative and to a lesser extent apprehension about the use of the information. Surprisingly, a number of exporters told emboff that they were unaware of the content and by extension the importance of the CBERA, suggesting the need for some form of education. That said, a few exporters have a high level of awareness and one even suggested that the initiative was one effective way the USG could help developing countries to grow out of poverty, without monetary handouts. Another exporter said that without the facility he would not be in business. ¶8. Managing Director of Petrojam Ethanol, Ricardo Neins said the continuation of CBI preferences were pivotal to his business and his major concern was the possibility of the USG extending similar benefits to other countries like Brazil, which would literally kill the local ethanol industry. So important is this issue to Jamaica, that in conjunction with some Central American countries it has engaged the services of George Fitch to lobby Congress not to lift the tariff on ethanol from Brazil. Neins told emboff that he would prefer if Jamaica had its own quota, especially with so many new plants in the pipeline. Interestingly, one major food exporter said he was not comfortable providing the information requested for the survey. "To be frank I do not see the relevance of providing this sort of firm specific information," he said. "I am not convinced that this is the kind of data a bureaucrat would want to see," he KINGSTON 00001011 006 OF 006 continued. The exporter said that bureaucrats are generally more interested in overall trade data and not in a small company in a small country like Jamaica. "Only private sector competitors would have an interest in this kind of company-specific information," he stated. "I can only imagine that this data would be filed in a library somewhere for private sector competitors to access when necessary," he concluded. Despite assurances that this was not the case, he refused to provide any data. ¶9. B. Foreign Direct Investment in 2005 (USD Million) Agriculture/Manufacturing/Distribution 118.9 Information Technology/Communication 55.0 Minerals and Chemicals 12.8 Insurance 0.0 Tourism 106.7 Mining 111.6 Other 75.9 Sub-total 480.9 Retained Earnings 201.6 TOTAL 682.5 Source: Bank of Jamaica ¶10. Foreign Direct Investment flows to Jamaica recovered in 2005 due to increased manufacturing, mining, and information technology investment. Total FDI in 2005 increased by 13.4 percent to USD 682.5 million, the second highest FDI level recorded by the island in history. The resurgence in manufacturing is associated with a USD 100 million expansion in the cement plant and was particularly important as the construction sector was becoming a consistently poor performer in the Jamaican economy. Mining investment is due to continued expansion in capacity at the country's bauxite plants to benefit from increasing international aluminum prices. The country also continues to benefit from robust growth in information technology investment as two firms rolled out fiber optic infrastructure. FDI to Jamaica is expected to jump in 2006 and 2007, given the surge in tourism investment, particularly from Spanish hotel chains such as RIU, IberoStar, Bahia Principe, and Fiesta. In addition, the country could benefit significantly from a USD 1 billion expansion project being undertaken by Alcoa to expand capacity once the GoJ is able to guarantee energy at competitive rates. Investment in information technology could also increase as the GoJ has just sold a fourth cellular license. ¶11. (SBU) The Jamaica Trade Board is the agency charged with administering the CBERA/CBTPA program in Jamaica. An official there told emboff that, during 2006, 484 certificates were issued at a value of USD 64.7 million, down from 546 in 2005. While the number of certificates issued has declined due to the demise of the apparel industry, the value of exports has soared due to ethanol. She stated that the CBI is underutilized because most manufactured products cannot meet the Wholly Produced or 35 percent Value Added criteria. She attributes this development to the fact that most raw materials are sourced outside the U.S. and Caribbean Basin countries for competitiveness purposes. She noted that if the Rules of Origin were expanded to include a change in Tariff Heading, more manufactured products would become eligible for export to the U.S. under CBI. ¶12. Jamaica Trade and Invest (JTI) (formerly Jamaica Promotions - JAMPRO) has about 1,300 registered exporters of which about 1,000 export to the U.S. However, most do not benefit from CBI as they cannot meet the eligibility criteria. Cheronne Allen, Policy Development Consultant, told emboff that while JTI does not monitor the use of the CBI, they are happy with any trading arrangement that provided access to Jamaica's non-traditional products. She said the trend points to a steady growth in products such as sauces, one of the "champion" products of the island. Allen said that while the CBI provides market access to the U.S., the existing non-tariff barriers (NTBs) tend to make market penetration very difficult. "The results of the CBI may therefore show greater impact where the NTBs are removed and the Jamaican products are provided access to the U.S." HEG