The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian manufacturers will struggle to survive unless the Government can maintain existing tariff protection upon joining the WTO, a well-known producer warned yesterday.

Walter Wells, Caribbean Bottling's president and chief executive, told Tribune Business that many will "fall by the wayside" unless the Government is able to maintain existing import duty rates in negotiations for full World Trade Organisation (WTO) membership.

With most Bahamian-manufactured products targeted at the domestic, rather than export, market, Mr Wells said local businesses will simply be unable to compete with deeper-pocketed rivals enjoying greater economies of scale unless import tariffs remain to 'level the playing field' on price.

Arguing that "there isn't much to be gained" by undermining Bahamian manufacturers, resulting in business closures and job losses, the Caribbean Bottling chief said ensuring the sector's survival in the WTO's rules-based, liberalised trading environment will present the Government's greatest challenge.

Mr Wells suggested that some tariff lines may even need to be increased, and he warned against "locking in" duty eliminations/reductions for products that might offer future possibilities for Bahamian entrepreneur.

Manufacturers were yesterday the first sector to participate in the two week-plus consultations between the Government and private sector, with the results intended to help craft the Bahamas opening full WTO membership 'offer'.

Mr Wells, who was present, hailed it as "a good first step" in developing the Bahamas' terms of accession, and he called for the continuous involvement of manufacturing representatives as the negotiations with other WTO members gather pace.

He emphasised that manufacturers' needs could not be addressed "in a vacuum", warning that the Government's "ambitious timeline" for completing the WTO accession by end-2019 may not allow for "careful consideration" of all interests.

"Certainly the challenge is ensuring we continue to have a vibrant manufacturing regime after the process is all out to bed," Mr Wells told Tribune Business. "WTO revolves around free trade and the removal of trade barriers, and people see the removal of import tariffs as eliminating such barriers.

"Import duties are the only protection manufacturers enjoy," the Coca-Cola bottling chief added, highlighting the dilemma WTO accession may pose for many Bahamian manufacturers. Mr Wells emphasised that the sector "are relying heavily on government to ensure the current protection remains intact to ensure manufacturers exist tomorrow".

The Bahamas' accession to full WTO membership will require the elimination of, or substantial reduction in, many existing import tariff rates given that such liberalised trading regimes view them as trade barriers.

But, apart from forcing the Government to reform its tax system to compensate for the revenue losses that will result, such a restructuring also raises the prospect that many Bahamian manufacturers will lose the protection that enables them to compete on price with rival imports.

"Manufacturing is based around the ability to sell product locally, not so much product for export," Mr Wells told Tribune Business. He pointed to the relatively minimal level of Bahamian goods exports, which are largely concentrated on fisheries (crawfish) and polystyrene/styrofoam products (Polymers International).

One argument advanced for joining the WTO is that it will better guarantee market access for Bahamian exports, as other countries will be unable to deny them entry through their own tariffs and other trade barriers. Ray Winder, the Bahamas' chief negotiator, says this will help attract new investment to Freeport and unlock its potential as a manufacturing hub.

And Brent Symonette, minister of financial services, trade and industry and Immigration, told yesterday's manufacturing consultation that the Bahamas' existing high import tariffs could make its exports "vulnerable to sanctions" from other countries as a retaliatory measure.

But Mr Wells said some form of tariff protection post-WTO accession will be necessary "otherwise you will see some businesses fall by the wayside". He added: "I don't think it's the Government's intention, and hope it's not the Government's intention, for anyone to go out of business because of WTO.

"Government stated it's their desire to see local industry protected, but the devil is in the detail and accession is a negotiated process. We will say: 'We want tariff x', but other countries will say: 'We want tariff y'. There is some horse trading, but we hope that horse trading is not to the detriment of local manufacturers. I don't think there's much to be gained by seeing companies closed down and people laid off."

Ryan Pinder, who once had Cabinet responsibility for trade as minister of financial services, previously told Tribune Business he had sought a solution that both protected Bahamian manufacturers and met the demands of WTO members.

Acknowledging that this country's high cost base made it difficult for local producers to compete, Mr Pinder said the Bahamas needed to negotiate the preservation of existing tariff rates on rival imports while eliminating/lowering duties on products that did not compete with domestic manufacturers - thereby reducing its average tariff rate to levels acceptable to the WTO.

Mr Wells, meanwhile, explained why it was impossible for Caribbean Bottling to compete with the likes of Nestle by shipping water products to Florida and other export markets, adding that local mattress and window manufacturers faced similar obstacles.

"A bottling company in Florida sells 300 million cases of product per year," he told Tribune Business. "Their cost per unit is one-tenth of what it costs me to produce. They don't have the overseas freight cost to import materials here, and have far greater economies of scale.

"They can run 24/7, while I can produce maybe for eight hours per day. They can amortise their fixed cost base over a much longer period."

Pointing out that the Industries Encouragement Act and other legislation had encouraged Bahamians to "invest in this for the long haul", Mr Wells added that there "seems to be little benefit" to scrapping incentive regimes "put in place long ago to encourage diversification".

Calling for existing tariff rates on imported rivals to be preserved "at a minimum", he said: "There are some industries today that the Government sees producing which are barely surviving.

"They're vulnerable because their cost to produce the product is at the same price it's imported for. In some cases, they may have to give consideration to increasing tariffs."

Mr Wells also urged the Government to look into the future, and identify possible future Bahamian manufacturing possibilities, when setting its tariff-related WTO offers.

"The other thing that needs to be considered in terms of the economy, and diversification of the economy, is that we need to look at what we may consider manufacturing down the road," he told Tribune Business.

"It we reduce tariffs today on items someone may consider manufacturing, we make it impossible to do it tomorrow. We mustn't ring fence current manufacturing, and have to leave all those wide open.

"Once we start down a certain path and commit to tariff rates for the long haul.... once we do that, you're kind of locked in. It makes it difficult to entertain those opportunities down the road."

The WTO accession process will likely bring debate over the extent to which the Bahamas needs to maintain a domestic manufacturing/production base to the fore, together with the liberalisation versus protectionism argument and whether consumers will be better served through lower tariff rates.

Mr Symonette alluded to this in last year's Budget debate, after the Government received 'push back' on the lowering of duties on paint and imported juice drinks, saying there needed to be a wider discussion on the merits of maintaining high tariffs to protect just one or two businesses at the expense of the consumer.

Mr Wells, praising the Government's efforts to involve the private sector in the WTO process, said manufacturers were yesterday asked to provide information on the products they make and "the level of protection they are seeking".

"It was a good meeting. It's the first crack," he told Tribune Business. "I think it's very important that they listen very closely to people on the ground, people that live this, so they know what their challenges are and what they need to survive.

"It's ensuring there's adequate representation at the negotiating table of people who understand what's going on in the manufacturing sector. You can't negotiate for manufacturing in a vacuum; you need to take advantage of people in the industry. The meeting this morning was a good first step in that direction."

Suggesting he was ready for whatever the WTO might bring, Mr Wells added: "It's today's world and just another challenge. It's something to give me a few more grey hairs, but it's what business is about. We'll deal with it as best we can and keep moving.

"Let's start down this road together. It's a challenge, it's a very long negotiating process, and needs to be given careful consideration. It's not something that can be rushed, and the Government has set a very ambitious timeline."