Haiti’s government tries a risky experiment with industrial policy
| PORT-AU-PRINCE |
FOR the past two months Haiti has been in a one-sided trade war with its neighbour, the Dominican Republic—an unusual development in a country that, as well as being the poorest in the hemisphere, has the most liberal tariff regime in the Caribbean. Though a settlement may be imminent, the Haitian government of President Michel Martelly has sought to ban the import of poultry and eggs, claiming there was a risk of bird flu, a charge vigorously denied in Santo Domingo.
Since the start of August it has also cracked down on the use of polystyrene containers, 80% of which come from the Dominican Republic. Though ostensibly a measure to rid Haiti of rubbish, some suspect the country’s big trade deficit with its neighbour is also a factor. Dominicans chuckle wryly at Mr Martelly’s slogan that Haiti is “open for business”.
Business diplomacy is one way of helping things along. Delegations now often arrive in Port-au-Prince to talk trade, not aid—though the countries they come from are not heavy hitters in global commerce. Last month the government signed a deal in Vietnam to expand co-operation in energy, textiles, food and electronics. Britain has reopened an embassy after a 47-year gap, partly with an eye on business opportunities (as well as helping the country recover from the ravages of the 2010 earthquake).
More significantly, Wilson Laleau, the finance minister, has submitted a budget to parliament that proposes a radical shake-up of tariffs, raising them on a long list of zero-rated food imports, such as chicken and fish, but lowering them on chemicals and other manufacturing inputs. “This is the first time in our history that a government has changed tariffs on 85% of all traded items to attract investment, stimulate manufacturing and strengthen productive capacity,” he says.
One of his intended beneficiaries is the domestic pharmaceuticals business. Another is the garment trade. Gregor Avril, head of Haiti’s main industrial association, says his members applaud changes that they hope will make it cheaper to produce, say, pasta and books at home than buy them from abroad.
But Barbara Kotschwar of the Peterson Institute for International Economics in Washington, DC says the policy runs the risk of picking winners, which is rarely a good idea. Others say that raising tariffs on food could have dire consequences, potentially driving up prices and increasing malnourishment in a country where 1.5m have nothing like enough food and another 5.2m eat less than they should.
The budget must be approved by October, and Mr Martelly will struggle to push it through a parliament in which his party does not have a majority. He can argue that Haiti badly needs a government that fights for business; it lags most other countries in terms of ease of doing business, infrastructure and education. But being captive to industry brings its own problems.