New Internationalist

The Giants are Vulnerable

Issue 094

Michael Manley’s blunt bargaining with the multinational bauxite companies in 1974 knocked the industry on its ears. Within a year Jamaica’s tax income from bauxite increased almost six fold. And the island became a symbol of the Third World’s new determination to get a fair return for its resources. The Epica Task Force reports.

Photo: John and Penny Hubley
A Jamaican worker for one of the island's multinational bauxite companies scoops another bucketful of bauxite-laden earth. Photo: John and Penny Hubley

For more than 400 years the history and economy of Jamaica - the Caribbean’s third largest island - revolved around one product: sugar.

In 1942 the discovery of bauxite, the mineral from which aluminum is made, dramatically charged all that.

With the arrival of the aluminum com­panies, Jamaica’s construction and trans­portation industries started growing rapidly. Members of the island’s upper class began to invest in mining-related sectors. Plants had to be built, new roads cut, rail­ways laid and housing constructed for the bauxite employees. Cement and clay manufacturing boomed.

Especially during the early industrial­ization years, the amount of investment and growth in manufacturing and construction was dwarfed by the aluminum companies’ massive investments. At first, Reynolds was the most enthusiastic developer of Jamaican bauxite. Its chief geologist was flabbergasted by what he found. `Here was one of the greatest discoveries of bauxite in this hemisphere.’ Within six years of discovery, Reynolds, Kaiser and Alcan owned or held options to purchase some 60,000 acres of Jamaican land. However, it was estimated that only 7,600 acres contained commercial-grade bauxite. The companies scrambled to buy up more land than they needed just to keep it from falling into the hands of a competitor. The alum­inum industry quickly grew to one of the wealthiest international industries, and Jamaica soon became the largest supplier of bauxite in the world.

Aluminum made possible the develop­ment of the aero-space industry, so key to US economic and political strength in the world. Without aluminum this industry could not exist. Since the 1940s, aluminum has become a major material in the con­struction business, the electrical industry, the production of consumer goods, the transportation industry, packaging and containers, machinery and equipment.

While aluminum products were becom­ing ever more present in the lives of the American people, the bauxite-alumina industry soon replaced sugar as the most important sector of the Jamaican economy. By 1965 it accounted for ten per cent of the Gross Domestic Product (the total value of goods and services produced within the economy) and 47 per cent of its exports.

In fact, the Jamaican government’s liberal incentive legislation gave the corpor­ations many advantages, for which they paid a very small price in taxes, royalties and wages. The original Mining Regulations of 1947, for example, required that alum­inum companies pay the incredibly low royalty of one shilling (14¢) per ton of ore.

By 1972, Jamaica was the world’s second greatest bauxite producer. The island provided 20 per cent of world output, and exported $252.2 million worth of the mineral in raw or processed form. Yet the entire industry - mining, processing, trans­portation and shipping facilities, and vast tracts of Jamaican land -was owned lock, stock and barrel by six US and Canadian aluminum corporations: Reynolds, Alcoa, Kaiser, Alcan, Revere and Anaconda. Of the $252.2 million exported from the island, Jamaica gained about J$40 million in taxes and royalties, and employment for approximately 9,000 citizens.

Jamaica earned 64 per cent of its export income from bauxite and alumina, and nearly 20 per cent from sugar and bananas.

Like many Third World countries, the island had developed as a provider of raw materials and a labor force to extract them.

Little if anything had been done to develop agriculture in order to provide the food needed by the population, or to encourage Jamaican-owned, Jamaican-run industries that could provide jobs and an internal source of taxable income and capital.

The corporations, on the other hand, reasoned that a poor country like Jamaica would not even know it had resource wealth if it were not for the companies’ explorations, technology and capital. Lack­ing these, a poor country could not develop its own industry and should appreciate foreign development of its resources as far better than nothing.

Jamaica’s share of the bauxite income was determined by the amount paid by the North American firms for ore they bought from their own subsidiaries. These prices were easily fixed by the companies in order to decrease their tax payments to the Jamaican government. And in 1972, no Jamaican knew enough about the alumin­um industry to evaluate the fairness of these arrangements.

As Finance Minister David Coore stated, Jamaica was `at the mercy of the bauxite and aluminum companies in our negotiations because they knew the facts about their industry … and we had only such knowledge as they saw fit to let us have.’ It was two years before the National Bauxite Commission felt it knew enough to begin negotiations for new contracts with the aluminum companies.

Various Third World countries had at times tried to take control of their minerals industry or at least some part of it. They had always been beaten by the corporations’ ability to control shipping and marketing, and to play one country against another.

Then in October 1973, talk became action. OPEC raised crude oil prices four times higher and dramatically improved the terms of trade for each exporting country. For the first time in modern history, a major international economic decision had been made outside the indust­rialized countries. It had an electrifying effect throughout the Third World. The giants were vulnerable. If the oil producers could take control over prices and product­ion of their natural resources, why not the producers of other commodities so much in demand in the United States, Europe and Japan. Why not the producers of bauxite? In 1974, based on the         Bauxite Com­mision’s report,   Manley’s government declared that it would restructure the bauxite industry in order to increase the nation’s income and strictly regulate the firms’ operations. The highest priority was to immediately increase the revenue coming to Jamaica.

The aluminum companies resisted Jamaica’s proposals and in two months the talks broke down. In response, the government boldly declared anew bauxite production levy, calculated as a fixed percentage of the price of finished aluminum ingot.

The foreign companies threatened to escape the levy by drastically decreasing bauxite production in Jamaica. The Production Levy Act established minimum production levels for each company. Their tax would be reckoned at the minimum level even if production fell lower than that. Payments started in January 1974 and produced immediate results in the government’s revenue. Total bauxite pay­ments for 1973 came to J$40,840,000. For 1974 with J$142,853,000 from the levy, total bauxite revenues soared to J$193,692,000. Here was a Third World nation beginning to counter the corpora­tions for the good of the people of the producing nation.

Aluminium corporation executives fumed about how the Jamaicans were cutting their own throats and threatened to close down their operations on the island or at least to make no further investments there. They took their case to the International Centre for Settlement of Investment Dis­putes, a non-financial member of theWorld Bank. But in the end they paid the levy and started discussing new contracts.

The Jamaican government also wanted to buy majority ownership of the Jamaican subsidiary firms and all corporate lands. By the end of 1974, both Kaiser and Reynolds had agreed to sell 51 per cent equity and ownership of all company lands to the Jamaican government at full market prices. Negotiations were underway with Alcoa, Anaconda and Alcan; only Revere refused to accept the new conditions.

At the same time, Jamaica pushed to organize the bauxite producing nations. In July 1974, the International Bauxite Association (IBA) formed to try to control the bauxite market and obtain higher prices for the supplying countries.

Today the bauxite industry is more important than ever to Jamaica: providing 55 per cent of foreign exchange earnings and over three-quarters of the country’s exports. Although, according to Carlton Davis of the Jamaica Bauxite Institute, the island’s overwhelming dependence on the mineral means `the companies are still in the driver’s seat.’

Since 1974 the bauxite multinationals have used the levy as an excuse to curtail investment in the industry and pressed for a reduction. But with $215 million from bauxite in 1980 unable to meet Jamaica’s $300 million in debt service payments, it’s likely that even the stridently pro-free enterprise government of Edward Seaga will think twice about accommodating corporate demands. In the meantime the aluminum companies have turned their interests to Guinea and Australia - two countries that have refused to join the International Bauxite Association.

The Ecumenical Program for Interamerican Communication and Action (Epica) is a non­profit education/action project focusing on Central America and the Caribbean.

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