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3. Structural Policies

Pricing Policies: Prices are generally determined by free market forces. However, prices of certain items such as domestic kerosene and bus fares are subject to price controls. Prices of these items can only be changed by ministerial approval. In addition, the margins of motor vehicle dealers is restricted to 12.5 percent of CIF plus customs duty on motor vehicles, and between 12.5 to 20 percent on motor vehicle parts. The Fair Competition Act was introduced in 1993 to create an environment of free and fair competition and to provide consumer protection.

Tax Policies: Taxation accounts for 90 percent of total recurrent and capital revenue. Tax revenue includes: personal income tax (38 percent of tax revenue), valueadded tax (29 percent), and import duties (12 percent). Although no new taxes have been imposed so far during FY 94/95, the government proposes to raise additional revenue of about JD 723 million through increases in the ad valorem tax on petroleum products, the departure tax, and the general consumption tax on purchases of motor vehicles. Given the increase in the national minimum wage from JD 300 to JD 500 per 40 hour work week effective July 1994, the income tax threshold was raised from JD 18,408 to JD 22,464 effective January 1994 and will be increased to JD 35,568 effective January 1995. Jamaica implemented the Caribbean Economic Community (Caricom) Common External Tariff (CET) on February 15, 1991 in order to enhance the region's international competitiveness. Under the CET, goods produced in Caricom states are not subject to import duty. Third-country imports are presently subject to import duties ranging between 5 percent and 30 percent, with higher rates applicable to certain agricultural items, "non-basic" and finished goods. The tariff rate is to be phased down to 5 to 20 percent by 1998. The Government of Jamaica offers incentives to approved foreign investors, including income-tax holidays and duty-free importation of capital goods and raw materials. The United States and Jamaica signed a bilateral investment treaty in early 1994.

Regulatory Policies: All monopoly rights of the state Jamaica Commodity Trading Company (JCTC) ceased December 31, 1991, but it retains responsibility for concessionary sales such as PL-480. The U.S. Embassy is unaware of any government regulatory policy that would have a significant discriminatory or adverse impact on U.S. exports. 4. Debt Management Policies

Jamaica's stock of external debt fell to JD 3.65 billion in 1993, the lowest since 1986. The average annual decline over the past three years has been 4.2 percent. Cancellation by official bilateral creditors, conversions on commercial bank debt, debt servicing, and reduction in contracting new loans contributed to this debt reduction. Half of the public debt is owed to bilateral donors (the United States is the largest bilateral creditor), 35 percent to multilateral institutions, 9 percent to commercial banks, and 6 percent to other entities.

Actual debt servicing during 1993 accounted for 22.6 percent (USD 637.9 million), of which 8.42 percent represents interest payments. The debt service burden in 1993 was lower than for any year since 1984. The ratio of total outstanding debt to exports of goods and services declined from 156.3 percent in 1992 to 150.59 percent in 1993 due mainly to debt reduction and improvement in exports. Although the debt per capita improved by 14.6 percent to USD 1,475 over the last four years, debt servicing continues to be a major burden on the government budget (49 percent). Jamaica passed the June IMF test for its Structural Adjustment Program. The current IMF agreement is expected to be Jamaica's last. Jamaica negotiated a new Multi-Year Rescheduling Arrangement (MYRA) with the Paris Club of OECD creditor countries and agencies in 1992. The MYRA provides for rescheduling of USD 281.2 million of principal and interest for the period October 1992 to September 1995.

Under the debt conversion program (reducing foreign. commercial debt), about 30 percent or USD 119.4 million of outstanding commercial debt has been converted over the last five years. 5. Significant Barriers to U.S. Exports

Government Procurement Practices: Government procurement is generally effected through open tenders. U.S. firms are eligible to bid. The range of manufactured goods produced locally is relatively small, so instances of foreign goods competing

with domestic manufacturers are very few. Customs Procedures: Due to the efforts of the Government of Jamaica, customs procedures are being improved and streamlined. In order to facilitate the movement of goods, the government has simplified the documentation and clearance requirements for exporters. Computerization of the entire system is underway.

6. Export Subsidies Policies

The Export Industry Encouragement Act allows approved export manufacturers access to duty-free imported raw materials and capital goods for a maximum of ten years. Other benefits are available from the Jamaican Government's EX-IM Bank, including access to preferential financing through the Export Development Fund, lines of credit, and export credit insurance. Jamaica does not adhere to the GATT subsidies code. 7. Protection of U.S. Intellectual Property

Jamaica is a member of the World Intellectual Property Organization (WIPO) and respects intellectual property rights. The Jamaican Constitution guarantees property rights and has enacted legislation to protect and facilitate acquisition and disposition of all property rights, including intellectual property. Jamaica is a member of the Bern Convention (copyright) and intends to adhere to the Paris

Convention for the Protection of Industrial Property (i.e., patents and trademarks). The Govern. ment of Jamaica and the Government of the United States signed a bilateral Intel. lectual Property Rights Agreement in March, 1994. The U.S. Embassy is not aware of any complaint concerning the protection of intellectual property in Jamaica.

Patents: There are plans to modernize the patents, trademarks, and designs legis. lation. Under the present regulations, patent rights in Jamaica are granted for a period of 14 years with the provision of extension for another seven years. The “nov. elty test" contained in the Jamaican patent law, however, limits the definition of "novelty of invention' to that which is novel in Jamaica, without reference to the novelty of the invention abroad. Further, patents granted in Jamaica shall not con. tinue in force after the expiration of the patent granted elsewhere. The periods of examination are long; it can take years for a patent to be issued.

Copyrights: The Jamaican Senate passed the Copyright Act in February 1993 which entered into force September 1, 1993. The Act adheres to the principles of the Bern Convention and covers a wide range of works, including books, music, broadcasts, computer programs and databases.

New Technologies: There is no statute with regard to new technologies. Jamaica follows common law principles as established in England. Breaches of such laws can result in either injunction or suit for damages.

Impact on U.S. Trade: Piracy of broadcasts and pre-recorded video cassettes for distribution in the domestic and regional market is widespread. Video stores import a large number of copyrighted motion pictures and television programs each year. However, a draft policy paper on cable television was tabled in parliament in February 1994 which identified 100 unauthorized cable systems involving investment in Jamaica valued at between JD 20-40 million. The government is presently examining submissions from the public before it decides on the final licensing regime for the legal operation of cable television. 8. Worker Rights

a. The Right of Association.—The Jamaican Constitution guarantees the rights of assembly and association, freedom of speech, and protection of private property. These rights are widely observed.

b. The Right to Organize and Bargain Collectively. -Article 23 of the Jamaican Constitution guarantees the right to form, join and belong to trade unions. This right is freely exercised. Collective bargaining is widely used as a means of settling disputes. The Labor Relations and Industrial Disputes Act (LRIDA) codifies regulations on worker rights. About 15 percent of the work force is unionized, and unions play an important economic and political role in Jamaican affairs. In the Kingston Free Zone, none of the 18 factories are unionized. Jamaica's largest unions, includ. ing the National Workers' Union, have been unable to organize workers in the Free Zone.

c. Prohibition of Forced or Compulsory Labor.-Forced or compulsory labor is not practiced. Jamaica is a party to the relevant ILO conventions.

d. Minimum Age for Employment of Children.-The Juvenile Act prohibits child labor, defined as the employment of children under the age of twelve, except by parents or guardians in domestic, agricultural, or horticultural work. While children are observed peddling goods and services, the practice of child labor is not widespread.

e. Acceptable Conditions of Work.-A 40-hour week with 8-hour days is standard, with overtime and holiday pay at time-and-a-half and double time, respectively. Jamaican law requires all factories to be registered, inspected and approved by the Ministry of Labor. Inspections, however, are limited by scarce resources and a narrow legal definition of "factory."

f. Rights in Sectors With U.S. Investment.-U.S. investment in Jamaica is con. centrated in the bauxite/alumina industry, petroleum products marketing, food and related products, light manufacturing (mainly in-bond apparel assembly), banking, tourism, data processing, and office machine sales and distribution. Worker rights are respected in these sectors, and most of the firms involved are unionized with the important exception of the garment assembly firms. No garment assembly firms in the free zones are unionized and only one firm outside the free zones is unioniz There have been no reports of U.S.-related firms abridging standards of acceptable working conditions. Wages in U.S. owned companies generally exceed the industry average. Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993

(Millions of U.S. dollars)

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Key Economic Indicators-Continued

[Billions of U.S. dollars unless otherwise noted]

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1992

1993

1994 1

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Money and Prices (annual percentage growth):

Money Supply (M2)
Banks' Average Cost of Funds
Financial Savings Rate (M4 as pct. of GDP)
Consumer Price Inflation (Dec-Dec pct. change)
Wholesale Price Inflation
Exchange Rate (year-end Interbank rate) (new

pesos. INP=1,000 old pesos)
Balance of Payments and Trade:
Merchandise Exports (FOB)

Exports to U.S.(U.S. Customs Data)35.2
Total Imports (FOB)

Imports from U.S.(FAS)
Aid from U.S.
Aid from Other Countries
External Public Debt
External Debt Service Payments (public sector

amort. & interest)
Gold and Foreign Exch. Reserves
Trade Balance

Trade Balance with U.S.

46.2 39.6 62.1 40.6 N/A N/A 75.8

51.9 47.0 65.4 41.4 N/A N/A 78.7

74.7 49.0 N/A N/A 81.4

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N/A--Not available.
1 Estimated.

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1. General Policy Framework

The new Zedillo Government's decision in mid-December to devalue and subsequently to float the peso provoked a deep financial crisis in Mexico and highlighted the vulnerabilities of the Mexican economy. Principal among these were the overvalued peso, excessive trade and current account deficits, and undue reliance on short-term capital to finance the government and current account deficits. The December crisis has led the Zedillo Government to reinforce its policy commitment to economic reform and adjustment and to enter into discussions with the International Monetary Fund (IMF) on a new macroeconomic stabilization program supported by an IMF stand-by arrangement. The government has also promised greater foreign access in key sectors such as ports, railroads, satellites, telecommunications and financial services as part of its renewed commitment to economic reform and market opening

In doing so, the Zedillo Government continues to rely on a general understanding with key labor and private sector groups to underpin its economic policy approach. Economic goals have been set and implemented since December 1987 through a series of 14 government/labor/private sector agreements known as economic pacts. Heretofore, the pacts combined dramatic increases in government revenues and reductions in government expenditures, tight monetary policies, and a managed exchange rate policy with voluntary price and wage controls. As a result, 12-month inflation fell from 159 percent in 1987 to a rate of 6.7 percent as of October 1994. At the same time, the average annual rate of economic growth between 1988 and 1994 is expected to be 2.6 percent.

Responding to the December crisis, the signatories of the pact agreed on January 3, 1995 to a new set of austerity measures. Key goals: to temper the inflationary impact of the peso devaluation by tough measures and limiting annual wage increases to seven percent, with additional increases possible for productivity and a negative tax for the lowest paid workers. To reduce Mexico's reliance on foreign financing, the government's new economic program aims to halve the USD 30 billion 1994 current account deficit and to boost domestic savings. Moreover, the program calls for continuing structural reforms within the economy, including a cut in government spending equal to 1.3 percent of GDP and a further wave of privatizations in key sectors. Monetary policy is expected to be tight.

Mexico joined the General Agreement on Tariffs and Trade (GATT) in August 1986 and unilaterally lowered its average tariff level from 100 percent ad valorem to a structure with a top rate of 20 percent. At the same time it reduced or elimi

nated many non-tariff barriers such as import licenses and quotas. Between 1986 and 1992, Mexico's merchandise imports increased at an average annual rate of 25 percent, while its exports increased at an average annual rate of only 13.5 percent. Consequently, Mexico began to run trade deficits in 1990. The trade deficit is expected to reach USD 17.5 billion in 1994. U.S. companies have been the primary beneficiaries of Mexico's trade liberalization since about 70 percent of all Mexican imports come from the United States. In 1994, with the implementation of the North American Free Trade Agreement (NAFTA), U.S. exports to Mexico will be about USD 50 billion, an increase of about 21.7 percent compared to 1993. Mexico has ratified the Uruguay Round agreements and became a founding member of the World Trade Organization (WTO) on January 1, 1995. 2. Exchange Rate Policies

Prior to the mid-December decision to widen the exchange rate band and subse. quently to allow the free flat of the peso, Mexico had relied since November 1991 on a regime by which the peso was allowed to float within a designated band. The rate at which large foreign exchange transactions were conducted Iluctuated within a band that was defined by the rates at which banks would buy and sell U.S. dollars on a cash basis. Within the band, the actual exchange rate was determined by market forces with some government intervention. In the run-up to the December devaluation, Mexico's Central Bank reserves declined substantially. At the time of the decision to allow a 13 percent devaluation of the peso, the dollar sold in the inter. bank market for 3.4647 new pesos. In the final days of December, the peso traded as low as six to the dollar. It closed the year at 5.505 to the dollar.

The value of the peso in U.S. dollars changed little in nominal terms between November 1991 and early 1994. At the same time, Mexican inflation was higher than that in the United States. As a result, during 1992 and 1993 the Mexican peso appreciated in real terms by almost 10.5 percent against the dollar. This appreciation gave Mexican importers an incentive to buy U.S. exports which gained a slight competitive advantage over domestic goods, whose prices were rising more rapidly. Due to political uncertainty in 1994, steady capital outflows caused the peso to lose value against the U.S. dollar. Between January and July 1994, the peso depreciated by about eight percent in real terms. Despite the depreciating peso, U.S. exports to Mexico grew at a faster pace during 1994 than in 1993. Between January and July, Mexican purchases of U.S. goods rose by 18.5 percent compared to a 2.3 percent growth rate in the same period of 1993. Sales of Mexican goods to the United States rose by 19.2 percent in the first seven months of 1994 versus 12.6 percent growth in the comparable period of 1993. 3. Structural Policies

Prior to the financial crisis of the Zedillo Government's early weeks, the Salinas Government sought during its six-year tenure to modernize and increase efficiency of the Mexican economy by promoting greater external and internal competition. The North American Free Trade Agreement (NAFTA) implemented in January 1994, with its side accords for labor and the environment, and a new dispute resolu. tion mechanism, represents the cornerstone of future Mexican trade policy. Mexico also signed free trade agreements (FTA) with Chile, Costa Rica, Bolivia and a tri. lateral (G-3) agreement with Venezuela and Colombia. Mexico is negotiating, an FTA with the Northern Triangle" nations of Central America: Guatemala, Honduras, and El Salvador. Mexico's other FTA's (except for Chile, which was negotiated before NAFTA) track, with some variation, the basic objectives of NAFTA.

NAFTA's key features include:
-Progressive elimination of tariffs, non-tariff barriers and quantitative restric-

tions on traded merchandise.
-Phased and market-share limited opening of Mexico's service industries, includ-
ing financial services, to U.S. and Canadian firms wishing to invest or provide
cross-border services.
-Gradual opening of Mexico's central government purchasing and construction

contracts to bidding by U.S. and Canadian firms. -Establishment of clear dispute resolution and international arbitration proce

dures to provide proper protection to U.S. and Canadian investors in Mexico. -Commitment from all parties to afford effective protection for intellectual prop

erty rights. The disincorporation (privatization or elimination) of about 900 state-owned companies since 1986 stands as a major achievement and testimony to the government's belief in the benefits of private enterprise. The process of privatization of stateowned companies has generated USD 22 billion in government revenues and shrunk the number of state-owned firms to under 200 today. During President Salinas' ad

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