The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas will find it impossible to maintain its status as free trade’s ‘odd man out’, a former Barbadian PM yesterday warning that its World Trade Organisation (WTO) accession terms will determine whether Value-Added Tax (VAT) is successfully implemented.

Arguing that VAT, and other key economic reforms, had to be viewed in the context of the Bahamas entering the world’s chief rules-based trading regime, Owen Arthur told the Grand Bahama Chamber of Commerce that this nation’s WTO ‘market access’ commitments would impact the new tax’s base.

He said these commitments, which will involve eliminating/reducing tariff and non-tariff trade barriers, had to be “carefully negotiated” by the Bahamas “to pre-empt fiscal and economic dislocation”.

And, while not referring to Freeport by name, Mr Arthur warned that certain government incentives were prohibited by the WTO’s Agreement on Subsidies and Countervailing Duties.

Such prohibitions applied only to goods, especially exports, and not services, but the former Barbados prime minister urged the Bahamas to pay “close and careful attention” to this issue if Freeport’s competitiveness is to be maintained.

Placing the Christie administration’s tax reform plans within the ‘bigger picture’ of the Bahamas integrating more fully into the global economy, Mr Arthur said the world was much changed from the environment in which this its economic model was crafted in the late 1940s.

“The Bahamas has now to find its way in a globalised economy which is governed, in large measure, by a body of international trade law, which has been devised to give effect to a number of specific principles,” Mr Arthur said.

“Among these is the principle that countries should, as far as possible, reduce protection to domestic industries by reducing tariffs and removing other barriers to trade.”

Recalling a previous address, in which he had warned that countries who fail to adapt risked falling behind or “at worst, becoming failed states”, Mr Arthur pointed out that non-discrimination between countries, and companies, was WTO’s basic foundation.

In particular, he singled out the concept of ‘National Treatment’. This will prevent the Bahamas from treating domestic companies more favourably, via tax, incentive and regulator policy, than foreign-owned ones.

Noting that the Bahamas was the only Western Hemisphere nation yet to become a full WTO member, Mr Arthur said the Bahamas must pay “close attention” to National Treatment’s impact on manufacturers and producers.

“For a country whose economic activities and performance are influenced, to an extraordinary degree, by its participation in the global economic arena, it is inconceivable that the Bahamas will be able to indefinitely maintain this ‘odd man out’ status where relating to a rules-based international economy is concerned,” he added.

“The relevant issue, therefore, is not that as to whether Bahamas should become a member of the WTO. It is that as to how best the nation should prepare for and negotiate the terms of its participation in this critical institution, and how it should do so while giving equal priority to the other reforms that the forging of such a relationship with the global economy are sure to trigger.”

Given the commitments the Bahamas will have to make in reducing Customs duties and other trade barriers, Mr Arthur warned this would impact VAT’s base.

This would affect the amount of revenue the new tax, set to be implemented on July 1 next year, would earn from goods and, in turn, the monies the Government would need to generate from VAT on services.

The former Barbadian prime minister also drew attention to the implications that the WTO’s General Agreement on Trade and Tariffs (GATT) held for special economic zones, such as Freeport.

GATT, and its Agreement on Subsidies and Countervailing Duties, prohibits direct government subsidies to exporting industries. However, the fiscal benefits offered by the likes of Freeport - exemptions from duties and taxes - are not impacted.

However, Mr Arthur said GATT and the underlying Agreement would prohibit “preferential transport and freight charges for export shipment; exemption or remission of indirect taxes on exports in excess of those on goods sold for domestic consumption; provision of export credit guarantees; and subsidies contingent on the use of domestic over imported goods”.

But, to the Bahamas’ advantage, Mr Arthur said the WTO’s General Agreement on Trade in Services (GATS) contained no subsidy/incentive restrictions.

“In negotiating a relationship with the WTO through the GATS, as a predominantly service producing economy, the Bahamas will find that it has more leeway than under the GATT because there is no requirement for across-the-board National Treatment to be applied in relation to the trade in services,” the former Barbadian prime minister said.

Yet he warned that the terms under which this nation acceded to full WTO membership “bear very heavily on the future prospects of the Bahamian economy more than any other single undertaking”.

He called for the Bahamas to achieve a national consensus if it was to obtain the best conditions possible.