|The Bahamas Investor Magazine
July 13, 2011
July 13, 2011
Although The Bahamas has begun reforming laws governing both foreign and domestic trade, bringing practices into compliance with the rules of the World Trade Organization (WTO), there remains considerable work to do if the nation is to shed its observer status and accede to full membership of the global trade body.
Membership is at least three years away, according to managing partner of Deloitte Bahamas Raymond Winder, the country’s chief negotiator for WTO accession. “They are not asking us to become a member. It depends on how quickly we can negotiate. The timeline would be three years plus,” he estimates. “Also, we have elections next year, so we need to see what happens.”
The Bahamas is the only country in the western hemisphere that is not a member of the Geneva-based WTO, which replaced the 46-year-old General Agreement on Tariffs and Trade (GATT) in 1995. The WTO creates the legal framework for global trade among its 153-member nations, who collectively carry out 97 per cent of total world trade.
Moreover, the organization establishes a system for international commerce where, in theory, no country has a trading advantage over another. It also adjudicates trade disputes and imposes penalties.
Becoming a member of the WTO has its advantages, says Winder. It will protect existing and future market access into the United States, Canada and other large markets for exports of Bahamian goods and services. More importantly, it creates a legally binding framework for The Bahamas’ trading relationship with the rest of the world.
While WTO membership opens foreign markets to Bahamian exports, it will conversely open the local market to imports. There are no quotas in The Bahamas on imports, and the only protective duties applied are in respect of agricultural products in season. However, much of the government revenue is derived from customs duties on imports, which is viewed by the WTO as an impediment to trade.
According to Winder, most countries in the WTO have an average import tariff rate ranging from nine to 20 per cent. The average tariff rate for The Bahamas is 33 per cent. So, The Bahamas will ultimately be expected to reduce its tariff rates, which will have significant implications on government revenue and the local light manufacturing industry. The latter relies on government taxes tacked on to imports to give them a competitive edge when serving the domestic market.
The WTO chief negotiator has publicly admitted that some industries, such as light manufacturing, may struggle, while others, such as finance and tourism, will thrive in a competitive, global environment. “If we want to protect trade for The Bahamas, whether it’s tourism, financial services, or light manufacturing, we need to have a way of resolving any potential disputes that may arise in the future. Being a member of the WTO provides that as an avenue to us.”?
Strengthening his argument, the WTO negotiator points to Freeport. “[Freeport] was always meant to be a light industry city, but it really hasn’t grown to the point that most Bahamians would have liked,” says Winder, who suggests that the city’s growth has been hampered by a lack of investor confidence. “If you invested $30 million in The Bahamas through Freeport to manufacture certain products and you identify certain countries to export to, if those countries decided, for whatever reason, that they want to create impediments to prevent Freeport from exporting those goods, as it now stands, there’s nowhere The Bahamas can go to resolve those disputes.”
Winder also points out that WTO membership is an anchor for domestic reforms necessary to usher in 21st century trade operations. “We still, for the most part, operate our country based on policies. The disadvantage is that policies are subject to change, while laws provide the people with an avenue for legal recourse.”
Perhaps one of the most challenging tasks facing The Bahamas is to make local industries competitive. In general, Bahamian products are not ready for competition in the global market because of high production costs. “We are trying to prepare most of these organizations now, so that they could be on a better footing to compete on a worldwide basis, or at least within the region,” says Winder. “For the most part, the business community has been interested and keen to hear what the issues are. It is a shift in attitude.”
“Active” phase of accession
It has been over a decade since The Bahamas first showed interest in joining the WTO. It became an observer member in 2000 and applied for full membership in May 2001. In July of that year, at a general council meeting, a working party (a committee of member countries) was established to examine The Bahamas’ application.
In 2002, when the Progressive Liberal Party (PLP) came into office, The Bahamas government seemingly lost interest in the WTO. Consequently, progress on WTO accession stalled until Hubert Ingraham’s Free National Movement (FNM) returned to power in 2007. On April 17, 2009, the government submitted to the WTO its Memorandum on the Foreign Trade Regime–a comprehensive description of the rules, procedures and protocols with respect to trading with The Bahamas.
At the first meeting of The Bahamas accession working party in Geneva September 2010, Minister of State in the Ministry of Finance Zhivargo Laing noted that WTO accession was an “important component” in the government’s programme of national economic development. The government, he said, looked forward to concluding its negotiations on WTO accession “in an orderly and timely manner.”
At the meeting, which marked the beginning of the “active”?phase of the accession process, the working party’s chair, Jamaica’s Peter Black, lauded The Bahamas’ political commitment to WTO membership. However, members pointed to areas that required further attention, such as pricing policy, tariffs, internal taxes, quantitative restrictions, import licensing, customs export subsidies and intellectual property.
Laing said at the time that the government had commenced a programme of legislative reform that engaged consultants from many WTO member countries. He said that the programme was expected to result in the introduction of new WTO compliant customs legislation, amendments to existing intellectual property legislation, a foreign investment law and the operation of a competition law regime, among other initiatives.
Most Favoured Nation status
Once implemented, these reforms could considerably improve conditions of access for foreign suppliers of goods and services on a Most Favoured Nation (MFN) basis. Seeing how a WTO status for The Bahamas means all foreign enterprises are due “national” treatment, it is unclear whether WTO membership could result in a shift away from the concept of Bahamianization, a term coined by former Deputy Prime Minister Arthur D Hanna that aims to see Bahamians become greater stakeholders in their own nation.
Laing addressed this issue while in Geneva. “We seek to balance our commitment to WTO accession with the firm recognition that small, vulnerable economies, such as ours, must accede to the WTO on terms that safeguard our growth and promote development,” he said.
Despite such concerns, The Bahamas will start bilateral negotiations with the tabling of initial offers on goods and services at a meeting expected to be held later this year, although at press time, a firm date had yet to be announced.
“Our strategy will be not to downgrade anything,” says Winder. “We will try to keep everything as it is and then we negotiate from there.”
When WTO members agree to open their markets for goods or services, they “bind” their commitments. For goods, these bindings amount to ceilings on customs tariff rates. A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade.
When asked whether The Bahamas negotiating team is ready to pit its skills against the WTO, Winder replied:?“We need to know what’s important to The Bahamas, what we are prepared to give away and what we are not prepared to give away.”