The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Freeport’s contribution to the Public Treasury could increase five-fold to $500 million if the city reaches its planned population size, with the private sector arguing that it could help solve both the Bahamas’ fiscal and ‘free trade’ issues.

The Grand Bahama Chamber of Commerce, in its ‘Vision 2015 and Beyond’ paper recently presented to the Christie administration, called for Freeport to become a true ‘free trade zone’ by expanding the Freeport Container Port’s existing rights to include the Sea/Air Business Centre and Grand Bahama International Airport.

This, the paper argued, would be “a game changer” and lead to the creation of a major international logistics/transhipment hub that could lead the Bahamas into the era of rules-based trading regimes.

The Chamber paper, obtained by Tribune Business, argued that Asian and Middle Eastern nations had embraced the concept pioneered by the Hawksbill Creek Agreement to ‘leapfrog’ ahead of the Bahamas and improve living standards/economic conditions for all their people.

Suggesting that the Bahamas could still use Freeport, and its founding agreement, to accomplish the same thing, the Chamber called for an expanded ‘free trade zone’ to obtain US cargo pre-clearance.

‘The Future of Freeport - 2015 and Beyond’ paper, which was handed to the Government on Friday, and is understood to have been presented to the Grand Bahama Port Authority (GBPA) yesterday, suggests the city could be the answer to many of the economic and fiscal problems currently plaguing the Bahamas.

Yet it warns that for this to happen, major reforms will be required from both the Government and GBPA. Whether these come to pass will determine whether the Chamber’s research paper has any lasting impact.

With the Bahamas preparing to become a full World Trade Organisation (WTO) member, and already signed on to the Economic Partnership Agreement (EPA), the Chamber paper implied that Freeport gave this nation the perfect platform to maximise the potential benefits from these rules-based trading regimes.

Calling on the Bahamas to look to the world, rather than fall back on protectionist policies from the past, the Chamber said fulfilling Freeport’s international ‘free trade zone’ potential would help grow the city to ‘critical mass’ and boost the Public Treasury.

“WTO is a forgone conclusion that the Bahamas must organise itself to embrace. Gone are the days of inward looking, protectionist policies,” the Chamber warned.

“Freeport is a fiscal solution for the Bahamas. Growth in Grand Bahama from Hawksbill Creek Agreement redefinition can significantly fund the Government of the Bahamas.”

Explaining how this could occur, and outlining the potential impact, the Chamber said: “Freeport/Lucaya can physically support 300,000 residents. If 50,000 residents contribute a net $100 million plus to the Treasury, it is envisaged that a population of 300,000 residents would at least increase this to $500 million.”

With full exploitation of Freeport’s business model key to achieving both these goals, the paper said: “As seen with the Asian countries, unrestricted engagement in international trade through designated free trade zones has the effect of economic improvement to the entire population to create a better standard of living.

“The liberalised use of Freeport/Lucaya for this same purpose is in the best interest of the country, and is congruent with WTO principles.

“This is best facilitated by expansion of the Freeport Container Port’s foreign trade zone to include the adjacent Sea/Air Business Centre and the GB International Airport, providing for a major international logistics hub to be developed. Acquiring US Customs preclearance of cargo from this proposed sterile zone would also be a game changer.”

The Chamber said Freeport’s US and shipping lane proximity, together with the Hawksbill Creek Agreement; the city’s deep water harbour; a container port compliant with international safety and security standards; and an airport that met all US requirements, provided the building blocks needed to execute this strategy.

It added that successful free trade zones, where goods were landed, manufactured or reassembled for export - with no import tariffs - had flourished in Panama, Singapore, Dubai, Gdansk and Copenhagen.

Suggesting that the Bahamas could emulate their achievements through Freeport, the Grand Bahama Chamber warned that this could be jeopardised if the Government failed to renew the city’s real property tax exemptions that expire in August 2015.

Its paper suggested that the revenue generated from imposing real property tax in Freeport would not compensate for the potential loss of Bahamian and foreign-owned businesses that might depart as a result, especially since Freeport has yet to achieve a “critical mass” that would be self-sustaining.

“The dismantling of Freeport’s ‘tax-free benefits’ at a time, when, by the Government’s own admission, the nation faces huge economic challenges, is counter-intuitive, since it may cause existing licensees to take flight to more business friendly jurisdictions,” the Chamber paper warned.

“Notwithstanding the potential for the sun setting of the real property tax in August 2015, it should be mentioned that other tax exemptions relating to the importation of certain goods by GBPA licensees will remain intact through the year 2054.

“Hence, if the property tax exemptions are not extended through the year 2054, the competitiveness of many of the GBPA licensees’ businesses in the international market will be significantly disadvantaged, due in large part to the favourable impact that these incentives currently have on the cost of goods and or services they provide.”

Separately, Tribune Business sources in Freeport’s business and legal communities have pointed out that imposing real property tax in Freeport is unlikely to prove the revenue ‘gold mine’ many in government may think.

Pointing to the prevailing real property tax rates, and web of exemptions, one attorney told this newspaper that the Government would only earn between $1-$2 million in tax for every $100 million worth of property.

And Freeport’s major industrial players would all likely be exempt from the tax, as they would seek to come under the Industries Encouragement Act should the Government make such a move.

As a result, the burden of real property tax in Freeport would fall most heavily on the Grand Bahama Development Company (Devco), owned by Port Group Ltd and Hutchison Whampoa, plus foreign residents.

The Chamber meanwhile, said the existing incentives provided by the Hawksbill Creek Agreement had helped Freeport grow to a 40,000-50,000 strong population.

And the city, developed at no cost to the Government, generated an annual $100 million for the Treasury while reducing welfare costs for the Government if its residents had to relocate to another island.

“While on the surface it would appear that additional government revenue can be developed by imposing real property tax on Freeport/Lucaya, failure to extend the exemption will have the opposite effect,” the Chamber warned.

“Freeport/Lucaya has not yet reached the self-sustaining critical mass. Additional taxes will result in loss of local and foreign businesses, and will place already struggling property owners underwater, resulting in an exodus of residents and a proportional decrease in government revenue and a proportional increase in government welfare requirements.

“While no fault of the Government, or the GBPA licensees, the investment opportunity afforded by the last extension was lost due to the hurricanes of 2004-2005, the GBPA ownership dispute, lack of administrative transparency of the Hawksbill Creek Agreement, and the 2008 global recession.....

“An extension of the exemptions will create a competitive edge over regional competition for foreign direct investment, which will result in increased development potential and government revenue.”