/I
NINXSTRY PAP=
------NO. 1 /983
EXPORT INCENTIVE SCHEME, RELATED PARALLEL
-MIGN EXCHANGE MARKET HEXXUNISM @ QUOTA SYSTEM
The a t t e n t i o n of Members of t h i s Honourable House is drawn t o
the programme f o r export incentives and r e l a t e d foreign exchange mechanism
t o support the basic t h r u s t of the Government f o r maximising the foreign
exchange impact of the manufacturing and a g r i c u l t u r a l sectors.
The programme seeks t o induce the strongest possible growth i n
exports t o t h i r d country markets.
E f f o r t s i n t h i s d i r e c t i o n derive from
two cons idera tions ; f i r s t l y , the scope f o r i n tra CARICOM export development
is r e l a t i v e l y limited, gfven the s i z e of the eARICOM market, the low growth
r a t e projected for these economies over the next f i v e year period, and the
h r g e increment i n export earnings d i c t a t e d by Jamaica's current economic
situation.
Secondly, there is accese on p r e f e r e n t i a l terms t o very large
t h i r d country market6 which a r e not being exploited by Jamaica,
Under the
LOME Convention, s u b s t a n t i a l opportunities a r e provided for the development
of exports t o the European Economic Community.
The p r e f e r e n t i a l arrange-
ments with Canada, and the proposed one-way f r e e trade arrangement with the
U.S.A.
under the Caribbean Basin I n i t i a t i v e a l s o provide new opportunities,
The basic c o n s t r a i n t which the current tightnees of the foreign
exchange s i t u a t i o n imposes on the growth of production i n the Jamaican
economy c a l l s for Immediate measures t o increase within the s h o r t arad medium
term, the foreign exchange contribution of each s e c t o r of the economy, i n
par t i c u l a t , the Manufacturing and Agricultural Sectors,
h e Manufacturing
Sector which is a net user of foreign exchange, has s u b s t a n t i a l p o t e n t i a l
f o r expansion i n the short-term.
The Agricultural Sector which has a
r e l a t i v e l y low import oontent has p o t e n t i a l far s u b e t a n t i a l export g r d ,
e s p e c i a l l y i n respect of non- t r a d i t i o n a l a g r i c u l t u r a l products.
The current t i g h t foreign exchange s i t u a t i o n is d i r e c t l y r e l a t e d
t o the dramatic and unprecedented decline i n the production and export of
bauxite and alumina.
Another contributory factor has been the sluggishness
i n the export p e r f o m n c e of both auger and bananas.
With the sluggish
growth i n these t r a d i t i o n a l a g r i c u l t u r a l commodities and the r e l a t i v e l y
small net foreign exchange earnings of the Manufacturing Sector, additions 1
e f f o r t is required i n other s e c t o r s t o complement performance of the Tourism
Sector i n order t o campemate f o r the decline i n bauxite/alumina eecainns.
/'
-+
-
I.
TRE EXPORT INCENTIVE SCH&ME FOR
NON -TRADITIONAL EXPORTERS
In order t o boost t h e e a r n i q s from t h e non-traditional export
sector, a new incentive scheme i s being impleme~tedt o Lnprwe the
p r o f i t a b i l i t y and external competitivenee8 of t h l s sector.
The Export Development Fund w i l l play a c r i t i c a l r o l e i n t h e
operation of t h e scheme and t o t h i s end s t e p s a r 3 being taken t o expand
t h e resources of t h e Fwd.
For the purposes of t h e Scheme, a non-traditional exporter is
one who, on t h e basis of the c r i t e r i a applied by t i e EDF, is e l i g i b l e
f o r access t o t h e Fund's resources and who exports o r plans t o export a t
least 5 per cent of t o t a l output during a twelve month period.
Non-traditf oasl exporters t o t h i r d country markets who qualify
under t h e EDF c r i t e r i a w i l l receive a t t h e beginning of each calendar
year, an a l l o c a t i o n equivalent t o 50 per cent of planned ~ x ~ o earnings
rt
f o r t h e year.
Exporters t o CARICOM w i l l continue t o receive 80 per cent
of planned export proceeds.
I n respect of exports t o t h i r d country markets, t h e exporter
w i l l be allowed t o r e t a i n 50 per cent of Us export proceeds which he
may use e i t h e r t o procure raw materials, spare p a r t s and c a p i t a l goods
f o r h i e own use, or t o a e l l these proceeds i n t h e p a r a l l e l market which
i s being foratalieed i n t h e conrnercial banking eystem.
I n addition t o access t o t h e EDF and t h e 50 per cent of hard
currency earnings which he r e t a i n s , the non-traditional exporter w i l l
a l s o have access t o t h e formalised p a r a l l e l market and the resources of
t h e Jamaica Export Credit Insurance Corporation ( J E IC) ,
New non-traditional exporters w i l l be required t o submit
t h e i r export plans and import requirements t o t h e EDF.
After EDF, following
i t s usual procedures, approves these plans, exporters w i l l be allocated
foreign exchange by t h e EDF t o cover imports required by t h e i r planned
exports.
These procedures apply whether o r not t h e new exporter is n w
producing exclusively f o r t h e domestic market.
Non- t r a d i t i o n a l exporters w i l l r e c e i v e on an automa t i c bas is,
permission t o import raw m a t e r i a l s , s p a r e p a r t s , and c a p i t a l goods which
may be financed by t h e EDF and/or r e t a i n e d export earnings and/or p a r a l l e l
foreign exchange markets.
11.
THE FOREIGN EXCHANGE RETENTION SCHEME
FOR EX PORTERS,
The opera t i o n of t h e Foreign Exchange Retention Scheme for
n o n - t r a d i t i o n a l exporters w i l l be 8s follows:
(i)
The exporters' bank w i l l r e t a i n 50 per c e n t of hard
currency earnings f a r the c r e d i t of the exporter.
(ii)
The amount t e t a i h e d w i l l be denominated i n the appropriate
foreign currency and w i l l c o n s t i t u t e a foreign exchange
claim by t h e exporter on t h e connnercial bank,
(iii)
The above claim w i l l provide automatic access t o
import permits f o r approved products.
(iv)
The c r a b w i l l be negotiable w i t h i n 30 days of issue.
Thereafter i t can be used only by t h e holder.
(v)
The market f o r the exchange of claims w i l l be made by
the conrmercial banks.
(vi)
Exporters a s w e l l a s producers f ~ the
r domestic market
w i l l be e l i g i b l e t o purchase the f o r e i g n exchange
generated i n t h i s market.
These measures w i l l not only improve the p r o f i t a b i l i t y and
competitiveness o f t h e e x p o r t e r but w i l l a l s o place p a r t i c i p a t i n g firm8
i n a b e t t e r p o s i t i o n t o organize t h e i r o v e r a l l production programmes because
cf improved procurement conditions.
Since access t o f o r e i g n exchange f o r
production f o r t h e domestic market is viewed by many exporters a s a n
i n h i b i t i n g f a c t o r i n the expana i o n of t h e i r exports t h e r e t e n t i o n scheme
o u t l i n e d above w i l l gc a long way i n a l l e v i a t i n g t h i s p a r t i c u l a r problem.
With "ene i n t r o d u c t i o n of the r e t a i n e d export earnings scheme,
r e t a i n e d accounts operated by exporters w i l l be phased out.
zxr.
PARALLEL MARKET
For soam t b e t b r e har existed alongside the of f i e i a l Yoreign
Exchange Market, an informal market which has been increasing i n s ignif b a n c e
i n recent timas.
Attempts have been raade t o t a p t h L market throu*
the
use of s p e c i a l retained accounts and the b e u e of no funds licences but t h i s
mechanism has proven t o be ine f f l c i e n t for the following reasom :
(a)
Ihe multiple layers of i n t e ~ d l a t i o noperating i n t h i s
market resulted i n large spreads 'between the buying and
s e l l i n g r a t e s thereby leading t o a r t 5f i c i a l l y high a e l l i n g
r a tee.
(b)
The funds generated i n the market have been used lazgely
for purchases of consumer goods r a t h e r than imported inputs for
the productive sectors.
(c)
Operators i n the market have been unable t o docu~rantt h e i r
transetctiona for t a x and a u d i t purposes because c f the
i n f o x m l nature of the market.
(d)
The system has led t o an increas ing harxessment of t o u r i s t s
which is hawing a negative irapiacr on the industry.
In order t o overcome the pxobleras outlined above, and t o ensure
t h a t the resources avaelable within the m~~rket
are more e f f i c i e n t l y u t i l l z e d ,
it has been decided t o formalise the p a r a l l e l market through the a o m e r c i a l
banks with immediate e f feet.
Steps have been taken by the Bank of Jamaica
t o provide the l e g a l framework f o r the opeeation of t h i e market.
me
Special Retained Account Scheme a@soclprted with the informal p a r a l l e l market
w i l l be phased out and only c a m e r c i a l hnkrr w i l l be authorised t o buy and
s e l l foreign ezmhailge
$0
the p a r a l l e l market.
The banks w i l l determine the
rate of exchange of f o r e i m currency cagainrr t Jeumicern d o l l a r on the b a s i s
of demand and supply.
Eaoh bgnk w i l l deternine i t s own r a t e rrepsirfaately and
publieh i t s buying end s e l l i n g rateta on a d a i l y basis.
The b a n b w t l l , i n e f f e c t , be operating two markers
-
one a t the
o f f i c h l r a t e of exchange set by the Bank of Jamaica and th other a t the
p a r a l l e l market r a t e determined by demand and supply.
Xn the o f f i c i a l
market the banks w t l l be operating aa agents of the Bank of Jamaica while
i n the p a r a l l e l market they w i l l be operating a s principals.
Certain
,
designated earners of foreign exchange w i l l be required to surrender t h e i r
earnings a t the o f f i c i a l r a t e and w i l l be subject t o monitoring by the
Bank of Jamaica.
bsluxite/aluntiaa, sugar, banana*, ho t e l a ,
These include
, .,*
In-Bond shops, Refit-&Car ri~4tccies, and tour operators.
Certain de9 igna ted
foreign exchange payments #ill a l s o be made a t the o f f i c i a l rate of exchanae
includihg public debt and private debt payments, basic foods, petroleum and
petroleum prctducts, e s s e n t i a l imports for the t o u r i s t sector, school books,
drugs, infant Eeedr and c e r t a i n service payments,
A complete l i s t i n g of permitted purchases and s a l e s a t the o f f i c i a l
------
r a t e of exchange is s h a m i n the Schedule t o the Farity of the Jamaica
Dollar Order 1983, which is attached a s alr Appendix.
A l l purchases and s a l c s of foreign exchange i n reageet of tram-
actions not: ldsted 2n the Schedule w i l l take place a t the pasa%%taSoarsltitet
rate.
The principal treneac tioaas i n t h i s category w i l l be a8 fb&&.ows:
on-essential
consumer goods (including thclse from W-m) ,
raw materials and cap%t a l goods f o r use by i n d u s t r i e s
prodwing f o r the domes t i c barkeb and cons tkuction r h a ~ . t t %l r
o t k than those imported under s p e c i a l f a c i l i t i e s such as the
Rehabilitation P.nd loan from the UDB.
It has been estimated t h a t of the t o t a l import budget approximately 78 per cent
w i l l be imported a t the o f f i c i a l r a t e of exchange and 22 per cent a t the
p a r a l l e l marlce t rate.
The supply of funds t o the formalised p a r a l l e l market its expected
t o come firom the following sources:
I.
Proceeds of the 50 per cent of export r e c e i p t s retained
by non-traditional exporters;
11.
The funds from c e r t a i n l i n e s of c r e d i t operated by the
Jamaica Export Credit Iagurance Corporation
subs&diary of the Bank of Jamaica;
-a
111.
Certain foreign exchange flows which a r e not amenable t o
e f f e c t i v e monitoring by the Bank of Jamaica;
IV.
Capital funds which might be a t t r a c t e d t o Jamaica as a
r e s u l t of a more orderly mechanism i n the p a r a l l e l market.
With regard t o I11 and IV above, the banks w i l l purchase foreign
exchange on a "no questions askedw basis.
Persons wishing to purchase foreign exchange from the p a r a l l e l
market w i l l get automatic approval a s long a s the goods a r e not on the
r e s t r i c t e d l i s t and the required imports a r e within quota allocations,
Service payments through t h i r market can be made only against approvals
given by the Exchange Control Department of the Bank of Jamaica.
The introduction of the Export Incentive Scheme and Formalised
P a r a l l e l Market w i l l lead t o further leakages of foreign exchange from the
c f f i c i a l market and steps a r e being taken t o strengthen existing measures
and to introduce new oses i n order t o capture the maximum foreilpl exchange
for the o f f i c i a l market.
The main area of concern is the tourism flows
and a programme i s being put Lnto e f f e c t immediately.
F i r s t l y , new f a c i l i t i e s
for foreign exchange transactions a r e being established a t the International
Airports and a r r i v i n g v i s i t o r s w i l l be encouraged t o c o m r t some portion of
t h e i r foreign exchange i n t o local currency to meet incidental expenses.
The
amount converted a t the a i r p o r t s w i l l be recorded on the v i s i t o r ' s m i g r a t i o n
card and w i l l f a c i l i t a t e reconversion of local currency t o foreign exchange
a t the point c f departure.
Secondly, v i s i t o r s w i l l be required t o pay for
a l l hotel services i n foreign exchange.
Monitoring and auditing procedures
r e l a t i n g to hotels w i l l be improved so as t o ensure t h a t the hotele comply
with Bank of Jamaica regulations and t h a t the foreign exchange earned by
them is channelled into the o f f i c i a l market.
Thirdly, new programmes a r e
being introduced t o ensure t h a t earnings by v i l l a s and apartments as well as
l o c a l tour operators and places of a t t r a c t i o n a r e channelled into the
o f f i c i a l system.
Finally, the requirement the t U-Drive and In-Bond transactions be
discharged i n foreign exchange w i l l be r i g i d l y enforced.
IV. THE QUOTA SYSTEM
A quota system is being put i n place a s an fmportant p a r t of
t h e new mechanism t o improve the efficiency i n foreign exchange a l l o c a t i o n ,
The Sys tam c e l l s f o r the establishment of import c e i l i n g s f o r
broad categories of commodities.
Within these c e i l i n g s , each firm w i l l be
given a l l o c a t i o n s which e s t a b l i s h limits t o the amount of goods which i t
may import.
Approvals t o import goods w i l l be given only t o importers who
have been assigned quotas o r who have been e x p l i c i t l y exempted.
Exemptions
w i l l apply t o a l l exporters.
For producers, quotas a r e computed on a b a s i s which takas i n t o
acccunt the r e l a t i o n s h i p between imports and output a t the l e v e l of both
t h e firm and the sub-sector.
I n the case of traders, t h e i r import quotas
w i l l be based on perfcrmance during the preceding period i n t h e context
of the l e v e l of importe t o be permitted i n respect of the categories of
goods i n question.
Informal commercial importere (higglers ) w i l l be granted import
quotas on the basis of t h e i r import performance during the l a s t twelve-month
period based on retusna made t o the Revenue Board.
V.
(a)
THE IMIURT AND PA-WEN!I M G E
O f f i c i a l Market Imports
Importers who have access t o the o f f i c i a l m r k e t w i l l be required
t o seek approval from the Trade Board f o r importation of goods and w i l l be
provided with import permits which w i l l enable them t o c l e a r such goods
through the customs and t o secure payment from the Bsnk of Jamaica.
These
pennits w i l l indicate, along with other relevant data, the schedule of
payments, and w i l l be countersigned by the Bank of Jamaica.
A new and
simplified form f o r the import permit w i l l replace the e x i s t i n g import licence
application form.
A s is now the case, importers using the resources of the
Export Development Fund w i l l be exempt from these procedures and w i l l be
a b l e to c l e a r goods through cusrome on the basis of the document issued
by the Export Development Fund.
(b)
P a r a l l e l Market Impo,rts
The following procedures w i l l apply t o importers who are making
payment through the p a r a l l e l market f o r goods imported:
I.
The importer w i l l seaure through a commercial bank an
undettaking t h a t the necessary funds w i l l be a v a i l a b l e
a t t h e time required.
This undertaking w i l l be given
i n w r i t i n g on a specified form which must be signed
by two senior o f f i c e r s of the Bank of Jamaica,
11.
The importer w i l l present t h i s undertaking through
h i s commercial bank t o the Trade Board and approval
f o r importation w i l l be granted a u t o ~ t i c a l l y
provided t h a t the required imports a r e not on the
res t r i c t e d list and f i t i n t o the importers quota
allocations.
Applications for importation of i t e m
on the r e s t r i c t e d l i s t w i l l be processed by the
relevant committee of the Trade Board.
111.
After securing the necessary permits from the Trade
Board the importer w i l l r e t u r n t o h i s connnercial bank
t o f i n a l i s e arrangements f o r the impartation of the
goods.
IV.
Payment for imports i n the p a r a l l e l market w i l l have
t o meet the documentation requirement s e t o u t i n the
c i r c u l a r dated 18 J u l y 1979 e n t i t l e d ''PByments f o r
Imports
- Instructions to Banks,
Custom Brokers and
Custom Officers It.
V.
The import permit provided by the Trade Board w i l l a l s o
serve the purpose o f c l e a r i n g goods through the custom,
Xmpor ts from CARICOM except those designated a s qualf fying for
o f f i c i a l market treatment w i l l be transacted a t the p a r a l l e l market r a t e of
exchange.
These transactions will continue t o be s e t t l e d by the Bank of
J a m ica through the Car icom Mu1t i l a t e r a l Cleating F a c i l i t y
.
The importer ,
through h i s commercial bank, w i l l contdnue t o provide Jamaican currency t o
the Bank of Jamaica i n respect of these transactions.
VI,
DATE OF I M p L ~ T I O N
The new import and payrnent regime w i l l come i n t o e f f e c t on the
10th January, 1983.
A l l imports cleared through the cuetam before t h i s d a t e w i l l be
a t the o f f i c i a l r a t e of exchange.
Imports cleared on and a f t e r t h i s d a t e w i l l a t t r a c t the p a r a l l e l
r a t e except f o r goods designated for payment a t the o f f i c i a l r a t e ,
The
e f f e c t i v e d a t e of clearance is the date of the customs cashier $tamp.
EDWARD SEAGA
Prime Minis t e r and
Minister of Finance and Planning.
6th January, 1983.
APPENDIX
THE BANK OF JAMAICA ACT
THE PIlRITY OF THE JAMAICA DOLLAR ORDER. 1983
In exerciliie of the powers conferred on the Minister by Section 11
of the Bank of Jamaica Act, a f t e r consultation with the Governor of the
Bank of Jamaica, the 'following Order is hereby made:
1.
This Order may be c i t e d a s the Rarity of the
Jamaica Dollar Order, 1983.
2.
During the continuation i n force of t h i s Order,
the Parity of the Jamaica Dollar f a transactions
a s specf fied i n the Schedule hereto shall be ode
Jamaica Dollar t o 0.561349 United States Dollar.
3.
During the continuatton i n force of t h i s Order, for a l l
transact ions not spec i f ied i n t h i s Schedule hereto there
s h a l l be no prescribed p a r i t y of the Jamaica Dollar
but any bank which has, by Order of the Minister, been
designated an authorised dealer may purchase and s e l l
foreign currency a t such buying ratea, and s e l l i n g r a t e a ,
respectively, a s each such bank may specify a s f t s
Market Rates each day a t the opening of business a t
that bank on t h a t day.
4.
The R a r i t y o f the JamaicaDollar (No.5) Order, 1979
is hereby revoked.
5,
This Order s h a l l come i n t o e f f e c t on the
day of
1983.
SCHEDULE
Purchase of foreign currency by authorised dealere from:
(a)
the Government of Jamaica
(b)
expcrrters of bauxite and alumina
(c)
exporters of sugar and bananas
(d)
exporters not l i s t e d under (b) and (c) above
save such a s a r e e p e c i f i c a l l y excluded by Bank of
Jamaica a s qualifying for the purchase of export
c e r t i f i c a tae
.
"Export ~ et irf icates" herein means
i n s trurnents denmine ted i n foref gn currency and
issued by authorieed dealers i n exchange for
export proceeds
(e)
in-bond shops
(f)
car re n t a l e n t e r p r u e s
(g)
operatots of h o t e l s , v i l l a s and apartments
(h)
operators of tours and places of a t t r a c t i o n
primarily for the benefit of t o u r i s t s
(i)
exporters t o Caricom countriee.
Purchase of foreign currency by authorised dealers i n r e l a t i o n
t o the following:
(a)
proceeds of foreign l o a m
(b)
proceeds of investment4 from abroad
(c)
dividends and p r o f i t s
(d)
interest
(e)
port disbureements
(f)
f r e i g h t charges
(g)
i n t e r n a t i o n a l conmunicat ion charges
(h)
o f f i c i a l transfers
Sales of foreign currency by authorised dealers for:
(a)
imports by the Government of Jamaica for the purposes
of any Ministry o r Department of Government
(b)
imports of the following basic foods:
Rice
Counter Flour
Baking Flour
Cornme81
Ghicken necks and backs
Frozen c h i l l e d meats
Corned Beef
S a l t Fish
Milk and Dairy Products
Milk Pbwder
Pickled Beef
Canned Sardines
Canned Herrinw
Canned Mackerel
Pickled Fish
Pork T a i l s
Infant Feeds
a r g a tine
Cooklng O i l
(c)
import of raw materials by Jamaica Conmodity
TradSng Company
(d)
imports of the fallowing basic a g r i c u l t u r e l m a t e r i e l s :
f e rt i l i z e r e
insec ticidea
herbicides
vaccines
medic8t ions
planting marer ials
a g r i c u l t u r a l hand tools
hatching eggs
animal feeds
b u l l semen
(e)
imports of petroleum and petroleum products
(f)
imports of e s s e n t i a l medical and pharmaceutical products
(g)
imports of t e x t books for schools
(h)
importo of eclsential items f o r the t o u r i s t industry
(i)
import8 of raw materials for the production of cooking o i l ,
detergents and soaps
Sales of foreign ourrency by authorised dealers for:
(a )
bus iners and other t r a v e l
(b 1
passenger fare8
(c )
fees
(d )
pens ions
(e 1
dividends and pro f i t s
(f1
p r i n c i p a l and i n t e r e s t i n tespeet of l o a m approved
by Bdnk of Jamaica
chatter hire
port disbursements excluding f r e i g h t
intetna tiona 1 communication charges
o f f f c i a l transfers
tour is t refunds
educational expenses
medical expenses
maintenance payments
Dated a t King8 ton t h i s
day of
~dwardSeaga
MINISTER OF FlINANCE AND PUNNING.