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'Nail In Coffin' Of Freeport's $70-$120m Bond Economy

By NEIL HARTNELL Tribune Business Editor BAHAMAS Customs was yesterday accused of "putting another nail in the coffin of Freeport's" $70-$120 million bonded goods economy, a leading attorney describing the terms it was setting as a "bureaucratic perversion" that would cause "commercial constipation". Fred Smith QC, attorney and partner at Callender's & Co, said the minute he or his companies received a letter from Customs requiring them to provide it with a list of all 2011 bonded goods purchases, in order to have the same duty-free privileges renewed in 20102, he would launch Judicial Review proceedings. Describing the pre-conditions set by Customs as "unlawful" and contrary to the Hawksbill Creek Agreement, Freeport's founding document, Mr Smith said the Government's revenue collecting department was failing to use its available powers to crack down on tax evasion and abuse, and instead treating all Grand Bahama Port Authority (GBPA) licensees as potential criminals. The Bahamas Customs' letter, a copy of which has been seen by Tribune Business, calls on GBPA licensees to provide it with declarations of all bonded goods it has purchased during 2011. Failure to do so, the letter implies, will mean that renewal of a licensee's over-the-counter bond letter, allowing it to purchase such goods in 2012, will not happen. Instead, every time a licensee wishes to purchase a bonded good, it will have to obtain Customs' permission in advance - a process that will be bureaucratic, time-consuming and costly. The letter, signed by Lincoln Strachan, assistant comptroller of Customs, who heads its Freeport operations, says: "Please be advised that in order to consider your request, you are required to provide us with the C14A declarations of your bonded purchases for 2011. "In the meantime, should you need to make any over-the-counter purchases for 2012, you may do so by way of individual purchase order, stamped and approved by this office." Telling Tribune Business that there were no provisions in the Hawksbill Creek Agreement for Customs to either demand a bonded purchase report or set conditions under which such a letter was to be renewed, Mr Smith said: "This letter is yet another nail in Freeport's economic coffin. "Regrettably, Customs is obsessed with visiting bureaucratic perversions on Freeport's business community. There is a complete and utter failure to appreciate the fragility of Freeport's licensee economy. "Dolly Madison, Bellevue, Kelly's, any number of these businesses that have over the years developed a bonded inventory for sale to the local business community are dramatically affected by this annual tinkering that Customs undertakes to recover what it perceives as tax evasion." Referring directly to Mr Strachan's letter, Mr Smith asked: "Can you imagine the commercial constipation that's going to cause?" He said that, if implemented, it would take Freeport's licensee and bonded economy back to the 1960s and 1970s, some 30-40 years. Asked by Tribune Business to estimate the size of Freeport's bonded economy, the Callender's & Co QC told Tribune Business: "It is hundreds of millions of dollars. I would estimate that the bonded economy is between $70-$120 million a year within the whole business community. That's a lot of money to stay in the community." And Mr Smith warned that Customs, through its latest missive, was in danger of making it easier for Freeport-based businesses to purchase the goods they required in Florida, rather than at home. In such a scenario, he suggested, everyone lost because money was flowing out of the Bahamian economy, including potential tax revenues for the Government. Bonded goods sales is a practice whereby Freeport-based wholesalers, such as Dolly Madison, Kelly's (Freeport) and Bellevue Business Depot, are able to sell products to other GBPA licencees for use in their respective businesses only, without any duty being paid to Customs/Government on their sale. The current practice is that on the 15th of every following month, wholesalers submit a report on sales where duty is post paid - such as sales to residents and non-GBPA licencees - together with the relevant duty sum, to Customs. Tracing the 'bonded goods' practice's origins, Mr Smith told Tribune Business that it was designed to ensure money stayed in Freeport, enabling "licensees to compete with merchandising and wholesale businesses in Florida". The Government, through Customs, first started insisting on GBPA licensees obtaining prior permission from Customs for every bonded good purchase in the 1960s-1970s, with every purchase order pre-stamped. "That effectively brought dozens of licensees to a grinding halt," Mr Smith said, in a potential foreboding of what might happen again. "Consequently, the merchants in Florida, to the detriment of merchants in Freeport, benefited as it was easier to go to Florida than to buy goods locally." Learning from this mistake, Mr Smith said Freeport's bonded goods economy evolved to the present situation, where GBPA licensees obtain annually by end-January a letter from Customs entitling them to purchase goods bonded for use in their own business. "That has been operating very successfully to the mutual benefit of buyers and sellers in Freeport, and kept money on the island in the local economy, not in Florida," he added. "Now, what Customs has been doing with its NIB letter demand, and its attempt to reinstate the purchase order approval process, will effectively bring all these businesses to a grinding halt once again," Mr Smith said. He added that numerous GBPA licensees had already received the Customs letter, and told Tribune Business: "It is unlawful for Customs to require production of this bonded report or get pre-approval letters. This is not in the Hawksbill Creek Agreement. "There is no lawful basis upon which Customs can condition the local purchase of bonded goods by requiring monthly purchase reports or pre-approval orders from Customs." Describing Customs' latest move as "unilateral, unlawful and arbitrary", Mr Smith told Tribune Business it did "not foster a spirit of economic development and prosperity. "We must remember that Freeport is an artificially-created economy. It owes its existence to the provisions of the Hawksbill Creek Agreement."

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