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The three-month waiver of the Common External Tariff (CET) of 15% on cement granted Monday, May 16, 2006 is a short-term measure to address the immediate need to import cement. This comes against a background of difficulties importers are having in sourcing product on the spot market to fill the current shortfall, caused by recent production problems being experienced by the local manufacturer, Caribbean Cement Company Limited (CCCL).
This follows the March 6, 2006 decision taken, after detailed consultation with the sector, to reduce the duty from 40% to 15%
To date the Ministry of Finance and Planning has issued waivers to importers of cement totaling 108,174 MT. Of this total, only 45,726 MT have been actually imported since March 6, 2006, with Caribbean Cement accounting for over eighty percent of these imports. As a result, the situation has not eased, as the shortage persists.
On my instructions, a meeting was convened on Tuesday May 16 with the Incorporated Master Builders Association (IMBA) and the Hardware Merchants Association (HMA) to explore other initiatives to facilitate imports. At that meeting a joint proposal was tabled for a total removal of the 15% CET to allow importers to source higher priced cement on the spot market.
The removal of the CET on cement requires CARICOM approval. Following consultation with other CARICOM Ministers, I was able to secure support for the duty relief within four hours of the request from IMBA and HMA.
STATUS OF IMPORTS
At the meeting, we discussed issues related to the importation of the product and the quantum of cement required immediately. It was agreed that there was a backlog in demand of about 60,000 metric tons of cement, caused by production difficulties at the local plant. With the replacement of inventory estimated at a further 40,000 tons, the volume of cement needed immediately to correct the current shortfall was now about 100,000 tons.
The meeting received a report from the Chief Technical Director in the Ministry of Information and Development, regarding supplies of the product from Cuba. He confirmed that some 72,000 tons will be delivered over the period, June to August 2006, and that shipping logistics were being finalized.
Mainland International also acknowledged that while it would miss the original May delivery date, its first shipment of 40,000 MT is expected in the island during June.
LOCAL PRODUCTION
Caribbean Cement Company also reported that they would seek to maintain production levels at 75 – 80,000 metric tons monthly. There are many who are critical of the Government’s support for the US$100 M expansion programme now underway at the local cement plant.
It should be noted that less than 5% of world production of cement is traded. Therefore, Jamaica must ensure supply security. Further, this ministry has always supported competition and given the increase in demand for this product, I am prepared to give the full support of this ministry to any new cement manufacturing operation to come on stream. Cement: a Complex and Sensitive Matter The decision to allow a temporary increase in the import tariff on cement was not taken quickly nor was it taken lightly. It is a complex and sensitive matter that requires balancing of:
. The interest of consumers. The importance of the construction industry. The protection of a domestic industry. Regional obligations. Transparency in Government. Security of long term supply
Government Action
On October 21, 2003 the Minister of Finance and Planning tabled a Resolution in Parliament to increase the import duty on cement from 15% up to 50% as a strategy to give support to CCCL’s proposed expansion.
The Resolution stimulated public debate and the Minister of Finance & Planning agreed to delay the implementation until interest groups had an opportunity to make formal submissions.
A public hearing was convened on November 20, 2003, at which five Cabinet Ministers heard presentations from a cross section of the industry. The Government agreed to be guided by the findings of the economic analysis from the Anti Dumping and Subsidies Commission before taking a final decision on the appropriate tariff for imported cement.
On July 16, 2004, the Commission revealed its findings. The Commission found that increased imports of Ordinary Portland Grey cement constituted a serious threat to the viability of the domestic industry. It recommended that an additional duty of 25.83% for a period of four years with defined parameters for possible liberalization after the first two years. This would take the total duty to 40.83%.
Cabinet then agreed to increase Jamaica’s applied rate to 40% and in November 2004 the tariff was increased. For the twelve month period following the tariff increase the local cement plant produced approximately 840,000 MT of cement, which substantially met local demand.
However, by November 2005, growth in demand and production difficulties at CCCL required that the Company provide a full report to the Ministry. The report from CCCL dated November 18, 2005 advised that a ‘wildcat strike’ and heavy rains had had a negative impact on inventories and that 40,000 MT of cement would have to be imported. The Company also gave an undertaking to source the required imports from its extensive regional network and to pay the required import duty.
The Ministry directed the Trade Board to monitor the imports, inventories and production levels at CCCL to ensure that there was early warning, in the event that the Company was not meeting the targeted quantities.
A report from the Trade Board in February 2006 indicated that the Company was not on target and recommended policy intervention by the Ministry.
The Ministry then engaged in another round of urgent consultations with the sector, and as a result of these discussions Cabinet took the decision to roll back the duty from 40% duty to 15% effective March 6, 2006
PRODUCT QUALITY
In March 2006, quality issues at the cement plant forced an unexpected closure of the Company and this further exacerbated supply difficulties. On March 21, 2006, I appointed an Investigation Team to determine the causative factor(s) for these unprecedented quality problems and to make recommendations to avoid a reoccurrence. This report is due on May 19, 2006. I will not preempt the findings of that report.
To ensure consumer safety the Ministry will continue to support batch-by-batch testing of product from CCCL by the Bureau of Standards until we receive the recommendations of the Investigation Team.
CONCLUSION
The offer of the three-month waiver of all duty on cement to assist importers is now on the table, and I urge all suppliers to provide commitments within thirty days and to complete their applications for the tariff concession, through the Trade Board to ensure delivery on the island within the three-month time frame.
I will continue to meet with the trade every Monday morning to closely monitor the situation and to ensure quick response to any further issues that may emerge.