The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has been urged “not to throw the baby out with the bath water” on protecting domestic producers in a liberalised trade environment, a well-known economist calling on it to use current “breathing space” to boost local firms’ competitiveness.

Hank Ferguson, a trade specialist and former adviser to the Bahamas Chamber of Commerce on the Economic Partnership Agreement (EPA) , called on this nation to determine its own framework for economic growth and development, rather than allow it to be imposed from the outside via the likes of the World Trade Organisation (WTO).

Suggesting that the Government’s EPA commitments had given the Bahamas necessary policy flexibility and “breathing space”, Mr Ferguson said this nation needed to devise appropriate protection and support for its domestic industries, as many would “not survive” being exposed immediately to international competition.

And, calling on the private sector to better organise itself in presenting its worries/positions to government over issues such as the WTO accession and trade agreement talks with Canada, Mr Ferguson expressed concern that some WTO ‘offers’ had been made without the necessary industry input.

Speaking to the formal incorporation of the Bahamas’ services and investments offer in the EPA, Mr Ferguson told Tribune Business: “What it means for business is that we need to go back and revisit what the offer included, the sectors that we liberalised and the positions we took on it.

“We need to be proactive in terms of our review of the EPA, what protections we need to maintain, and the need to use the policy space we have before we proceed with the WTO accession to ensure we make the offers in the best interests of private sector development.”

Pointing out that “every country in the world protects their local industries”, Mr Ferguson said the Bahamas had to follow suit if Bahamian-owned producers, manufacturers and industrial enterprises were to survive.

“We should be careful not to throw the baby out with the bath water, and ensure we do consult with the private sector,” he told Tribune Business. While the second round of EPA-related tariff cuts was scheduled for January 2013, the agreement’s liberalisation schedule was not as stringent as the WTO’s requirements for the Bahamas to accede to full membership.

Me Ferguson, in an e-mail to private sector leaders on the EPA, said: “The Bahamas is finally all in, even though I doubt most of us are certain as to the details of the submission, and we have agreed to yet another round of tariff cuts in January 2013; as in two months.

“Key questions are: What cuts are proposed, what does it mean for your sector (both services and goods), and what opportunities or concessions have you gained in exchange for facilitating greater access to our market?

“The private sector in most countries lead these discussions and direct the actions of Government. A failure to organise and participate means that we accept the idea of being dragged along or face the very real possibility that one morning we wake up and the game has changed.”

In his interview with Tribune Business, Mr Ferguson said public consultation on the various agreements and trade liberalisation was a must “to ensure we get the protection and support we need for our industries”.

“There’s a general need for the private sector to stay abreast of what’s happening, and for the Government to ensure they are directing the commitments we are making, not the Government.

“There’s not been enough engagement with the private sector on these matters. I’m still concerned there’s been a few offers to the WTO without consultation.”

Two key industries where government policy, on the face of it, is likely to run up against rules-based trading regimes are chicken imports and beer/liquor manufacturing. On the chicken front, V Alfred Gray, minister of agriculture and marine resources, earlier this year threatened to ban chicken and egg imports unless Bahamian wholesalers/importers complied with a policy requiring them to source 30 per cent of their supply locally.

However, Mr Ferguson said nothing the Government was doing on tariff or import policies currently contravened the EPA or any agreements it had signed up to.

“The Bahamas has negotiated very conservatively, so in most instances they still have some flexibility,” he explained. “With chicken, in the context of the EPA, the Government has imposed the MFN (Most Favoured Nation) tariff rate of 10 per cent on eggs and broiler parts.

“We’re applying the MFN to anyone sending eggs and broiler parts. There’s still a great deal of flexibility and policy room the Government can use to put themselves in a position where they have great flexibility in being able to raise tariffs.”

Mr Ferguson said the Government could legally raise the eggs/broiler parts tariff as high as 300 per cent, adding that it had complied with the EPA without further exposing domestic producers.

“Nothing the Government is doing in terms of protection right now is contrary to these arrangements,” he added. Thus the suggestion that outside pressure would force the Bahamas to alter its chicken import policy was currently not true.

But, with the question of a return to 1980s-style protection unanswered, Mr Ferguson said the Bahamas “needs to determine whether it will be in our interests, and the consumer’s interests, to necessarily protect higher priced, smaller producers”.

As for the beer/liquor sector, the locally-owned Bahamian Brewery and Beverage Company currently holds a $3 per liquid gallon tax differential advantage over BISX-listed Commonwealth Brewery, which is 75 per cent majority-owned by global brewing giant, Heineken.

Under the current tax structure, Commonwealth Brewery pays $5 per liquid gallon in tax, and the Bahamian Brewery and Beverage Company $2 per liquid gallon. Commonwealth Brewery has been lobbying the Government to eliminate the tax differential, which its smaller, Bahamian-owned rival says is essential to its survival.

The issue seems like a raging certainty to be referred to a disputes resolution panel under a body such as the WTO, given the preferential treatment being handed out to a Bahamian-owned company compared to a foreign rival. Another issue is the higher $10 per liquid gallon tax imposed on beer/liquor imports, which would also come under scrutiny from a trade agreement.

This all points to the need to harmonise beer/liquor production taxes under a single, liberalised tariff rate. Mr Ferguson, though, said that while this would eventually have to happen, as the situation was “untenable”, it again would not be the outside and trade agreements forcing this.

“The agreements by themselves will not force this to happen in the near-term. It will be two-three years before we have to look at it,” he explained.

“That sector has to be more competitive. If we’re serious about beer production, one of the few things we produce, we should harmonise taxes, boost protection for local manufacturers as best we can, and give them an opportunity to become as competitive as possible before we have to look at liberalisation of the sector and allow imports to come in.

“These things will definitely come to fruition, they will happen gradually, and the question is what we are doing to support and boost local producers, setting policies that give them the required space to become as competitive as possible.”

Mr Ferguson said the Bahamas needed to move on such issues in its own interests, and not wait to be forced by the outside. Beer manufacturers, for instance, needed to be “in a position of strength” when their market liberalised.

As a result, the Bahamas needed to focus on growing its domestic industries and enhancing their competitiveness while it still could. “If we do not have policies to support local producers, we leave them open to international competition that they will not survive,” Mr Ferguson warned.

He added that the Bahamas also needed to look beyond tariff issues, and ensure it had “adequate institutions” in place to support a liberalised trade environment. Key among these were a Standards Bureau and competition regulator, plus accompanying policies and laws.

“In industries where we have tariff reductions, and where we are proposing tariff reductions, we must also ensure we have non-tariff mechanisms in place to protect these industries,” Mr Ferguson said.

“Things like competition policy, a Standards Bureau, are important before we go ahead and liberalise, and tell the poor Bahamian: ‘Man, it’s a free market’.”

He added: “The biggest issue with government is the need to broaden the base of consultation, and the need to have the private sector involved in directing the negotiations. Mr Pinder’s being more inclusive, and there is that effort.

“With the private sector, the challenge is that we need to organise ourselves a bit better to make sure our concerns are heard before, and not after, the process.”