Seven and a Half Per Cent
In 1974 Jamaica taxed its bauxite on the price of the aluminium made from it rather than on the price of the ore, and revenue from the industry rose several times over inside a year. Three American companies took the government to international arbitration, lost the argument about jurisdiction, settled — and then moved their mining to Guinea, Australia and Brazil.
The road west out of Ocho Rios runs through cuttings the colour of brick dust. At Discovery Bay a covered conveyor crosses above the carriageway and carries out onto a pier, where a bulk carrier is loading ore that will be refined into alumina in Gramercy, Louisiana, and smelted into metal somewhere else again. Nobody stops here. There is no viewing platform and no sign, and the guidebooks for this coast are about waterfalls.
Jamaica has been in the aluminium business since 1952, when the first commercial shipments left, and from 1957 until Australia overtook it in the early 1970s it was the largest producer of bauxite in the world. That fact sits oddly beside the island's image and it is the reason for one of the most instructive economic experiments any small country has run on itself.
What the levy actually did
Until 1974 Jamaica was paid for its bauxite as if bauxite were the product. The companies mining it — Alcoa, Kaiser, Reynolds, Alcan — were vertically integrated: they mined the ore, refined it, smelted it and rolled it, and the price at which the Jamaican subsidiary sold to the American parent was an internal transfer price with no market behind it. Royalties and income tax computed on that number produced very little. Michael Manley's government changed the base. The Bauxite Production Levy Act of 1974 charged a percentage of the American realised price of primary aluminium ingot for every tonne of bauxite mined — 7.5 per cent to begin with, raised towards 8.5 within two years, and backdated to the first of January. It was no longer possible to price the ore low, because the ore's price had stopped mattering. Revenue from the sector rose several times over inside twelve months, and the proceeds went into a new Capital Development Fund.
A cartel that could not be one
The timing was not accidental. OPEC had quadrupled the oil price the year before and every commodity exporter in the world was reading the same lesson. In March 1974 Jamaica joined Guyana, Guinea, Surinam, Australia, Sierra Leone and Yugoslavia in founding the International Bauxite Association at a meeting in Conakry, and the secretariat was placed in Kingston. It never worked as OPEC worked, for a reason that had nothing to do with politics: bauxite is one of the commonest ores on earth, deposits are spread across three continents, and a buyer told to pay more in Jamaica could open a mine in Guinea or Western Australia instead. The IBA served as a clearing house for information, published statistics, argued for higher national takes, and was wound up in 1994.
A cartel needs scarcity. Bauxite has never been scarce — what was scarce was any government willing to find out what its own ore was worth.
The companies went to arbitration
Alcoa, Kaiser and Reynolds each filed against Jamaica at the World Bank's arbitration centre in 1974, arguing that agreements signed in the 1950s had frozen their tax terms for decades and that the levy broke them. Jamaica had a defence ready: on 8 May 1974 it had filed a notification under Article 25(4) of the ICSID Convention stating that it would not consider disputes over minerals to fall within the centre's jurisdiction. The tribunals rejected it. A notification of that kind, they held in 1975, tells the world what a state will consent to in future; it cannot retract consent already given in a signed contract. The point survives in every arbitration textbook. All three cases were settled and discontinued in 1977, by which time the government had negotiated something the companies minded more than the money — majority equity. Between 1975 and 1977 Jamaica acquired 51 per cent of the Kaiser and Reynolds mining operations and all of the land they worked, with the companies staying on as operators of assets they no longer owned.
And then they left anyway
Production peaked at a little over 15 million tonnes in 1974, the levy's first year, and fell steadily afterwards. Some of that was a genuine world slump in aluminium demand at the end of the decade. Some of it was the integrated producers doing precisely what the abundance of bauxite let them do, which was to expand elsewhere and run down Jamaica. By the mid-1980s output was well under half the peak, Reynolds had closed its Jamaican mining in 1984 and Alcoa had suspended its refinery at Halse Hall the following year, and unemployment in the mining parishes was the political problem of the decade. Edward Seaga's government renegotiated the levy downwards and in 1982 sold bauxite into the American strategic stockpile in a barter arrangement, which is what a commodity exporter does when the ordinary market has stopped calling.
Two refineries operate today; a third, at Nain in St Elizabeth, has been mothballed since 2019 and the town around it has been waiting ever since. The ore that leaves Discovery Bay still leaves unrefined. The Jamaica Bauxite Institute, set up in 1976 to give the government its own technical staff rather than relying on the companies for the numbers, is arguably the most durable thing the whole episode produced — a state that could read its own geology.
The argument moved inland
It is now about where the mining may go rather than what it pays. Cockpit Country, the limestone karst behind the north coast, sits over bauxite and over the recharge for a large share of western Jamaica's fresh water, and it is the ground the Leeward Maroons held against the British until the treaty of 1 March 1739 gave Cudjoe's people 1,500 acres and an end to the war. In November 2017 the government designated a Cockpit Country Protected Area of roughly 75,000 hectares and declared it closed to mining. Campaigners and the Accompong Maroons objected that the boundary was drawn tighter than the one they had asked for, that it left ore-bearing edges outside, and that they had not been properly consulted about land they hold by treaty. Both halves of that argument are old here. Jamaica was among the first countries anywhere to work out that a raw commodity is worth what the finished product is worth, and to make a foreign industry pay on that basis; it was also among the first to discover how quickly capital can walk when the resource is common and the country is small. Fifty years on, the thing being defended is not the price of the ore. It is the water underneath it.