The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Manufacturing “cannot survive” as an industry in the Bahamas without protective tariffs as high as 200 per cent, Tribune Business can disclose.

The Bahamas Trade Commission’s Manufacturing Sub-Committee report details a ‘protective tariff’ wish list requested by different manufacturing sectors, with the industry “unanimously” agreeing such measures are essential to its survival in a trade liberalization environment.

The document, attached to the Trade Commission’s 2013 annual report, illustrates why many Bahamian manufacturers are unable to compete with lower-priced imports without tariff protection, noting that electricity rates as high as $60,000-$100,000 per month are “killing” the sector.

And it calls for the Bahamas to enact “critical” anti-dumping legislation as means to protect both local manufacturers and consumers from foreign rivals exporting inferior, unsafe products to this nation.

The sub-committee, chaired by Andrew Rogers, head of Bahamas Aluminium Manufacturing and Nassau Glass Company, had sought input from manufacturers on their key concerns over the Bahamas’ accession to full membership in the World Trade Organisation (WTO).

“Taking everything into consideration, by far and large the most important concern to all local manufacturers is the implementation of protective tariffs with all foreign trade agreements,” the sub-committee’s report said.

“It was unanimously agreed that without proper protective tariffs, the manufacturing sector in our country cannot survive.”

Asked what tariff rates should be set for their protection, industry responses varied from uniforms and chicken products except leg quarters (50 per cent) to ice (200 per cent). Drinking water companies sought tariff rates on imported rivals ranging from 72 per cent to 150 per cent, while food processors, bedding manufacturers, concrete block makers, sail and awning manufacturers, and automotive and marine battery manufacturers all wanted 100 per cent tariffs.

Other sectors seeking high tariff rates were makers of rubbing alcohol, cleaners and auto coolant (150 per cent), with cleaning chemicals and pipe manufacturers also wanting import duties as high as this.

It is unclear whether the Bahamas will be able to obtain all the tariff rates sought in this ‘wish list’ at the WTO, although all nations are able to secure ‘carve outs’ and exemptions from certain industries. Much may depend on the skill of Bahamian negotiators, with private sector support, as rules-based trading regimes view import tariffs as barriers to trade, and automatically demand that they either be eliminated or significantly reduced.

Still, the Manufacturing Sub-Committee’s report illustrates the dilemma facing the industry and, to the same extent, the Government from a policy perspective.

Economic theory says countries should specialize in the industries where they have a comparative advantage, and are most efficient in, and that is clearly not the case with manufacturing.

Bahamian manufacturers are largely unable to compete on price with foreign rivals who enjoy greater economies of scale and much lower raw material, equipment and other input costs. Protecting these businesses via import tariffs and other so-called ‘protectionist measures’ also goes against consumer interests, as they are faced with purchasing higher-priced products.

The relief that greeted the reinstatement of Bahamian manufacturers’ 100 per cent duty exemptions on raw materials and equipment perfectly illustrated how vulnerable the sector is, something that will only be exacerbated by trade liberalization.

And what is at stake for the Bahamas, apart from the policy desire to retain a productive industries capability, was again shown by the Manufacturing Sub-Committee’s report. With 800 manufacturers registered under the Tariff Act, and another 500 under the Light Industries Encouragement Act, the sector is said to be responsible for maintaining 10,000 direct, and 4,000 indirect, jobs.

It remains to be seen, too, whether energy sector reform takes care of manufacturers’ most pressing issue, as the Manufacturing Sub-Committee’s report again called for a special electricity rate for the industry.

“Electricity costs alone at the present rate are killing local manufacturers and are the main cause of stifling them,” the report said. “Some manufacturers presently are paying an average $60,000-$100,000 per month.

“It is absolutely a necessity that a competitive manufacturing rate be implemented to assist local manufacturers.” The Manufacturing Sub-Committee report suggested that the Bahamas adopt a three-tier energy rate structure – for residential, commercial and manufacturing – like other countries.

Noting that under such structures the electricity rate for manufacturing was half that of residential, the report added: “Considering countries such as the US are paying on average $0.08 per kilowatt hour, in comparison to only one rate in the Bahamas presently in excess of $0.40 per kilowatt hour, you can clearly appreciate the necessity of not only lowering our electricity cost, but just as important, implementing necessary protective tariffs.”

The Manufacturing Sub-Committee also identified as a high priority area the dumping of sub-standard products in the Bahamas by foreign companies.

“This problem not only hurts local manufacturers from an unfair competitive point, but just as important hurts the Bahamian consumer, as this practice in most cases involves inferior products,” the report warned.

“To help alleviate this problem and protect local manufacturers, it is critical that anti-dumping regulations be established and enforced.”

The Manufacturing Sub-Committee report also called for a special real property tax rate for Bahamian manufacturers, and for the sector to be able to import replacement parts for machinery duty-free.

And, with another protectionist measure, it called for foreign companies to “be disallowed to compete with established Bahamian manufacturers”.