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Manufacturers 'Out Of Business' With No Tariff Guards

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Domestic Bahamian manufacturers and their 15,000-strong workforce will be “out of business” without tariff protection, a senior industry executive agreeing this had to be balanced with consumers’ needs.

Andrew Rogers, head of the Bahamas Trade Commission’s manufacturing sub-committee, told Tribune Business that while protection was “critical” for manufacturers and their workforce, the Government could not afford to “give them the sky” when it came to tariff rates.

Backing the assertion by Ryan Pinder that the Government had a “delicate balancing act” to achieve on this issue, Mr Rogers said he was “very confident” that the Minister and his team could negotiate the World Trade Organisation (WTO) membership accession terms necessary to protect Bahamian manufacturers against foreign rivals that held all the competitive advantages.

Mr Rogers, who heads Bahamas Aluminium Manufacturing and Nassau Glass, again suggested that industry ‘justify’ the tariff rates it was seeking through a variety of qualifying factors, such as employee numbers and product quality.

And he reiterated that WTO membership, and the creation of agencies such as a Standards Bureau, would further enhance the competitiveness of domestic Bahamian businesses by preventing foreign rivals ‘dumping’ inferior product in this nation.

“I just want to reiterate that it’s so critical. If we don’t get protective tariffs, we’re out of business,” Mr Rogers told Tribune Business. “Some of those [tariff requests] are unsustainable, pie in the sky, but the Government has to be careful that the protective tariffs work and are not too much.

“It’s fine and dandy to protect local industry, but you can’t give them the sky, as the consumer suffers. Ryan [Pinder] recognises this.”

Mr Rogers said that based on manufacturers’ meetings with him, and his interaction through the Bahamas Trade Commission, he was “very confident” that Mr Pinder and his team will be able to negotiate acceptable WTO terms of accession.

“Considering there’s been two proposals [offers], I feel very confident the protective measures are being implemented,” he added. “OK, it’s a matter of final negotiations, but it’s critical these steps are taken.”

The Bahamas Trade Commission’s Manufacturing Sub-Committee, in a report issued last year, said manufacturing “cannot survive” as an industry in the Bahamas without protective tariffs as high as 200 per cent.

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’s absolutely critical that protective tariffs are implemented to protect industries in our country that do employ a sizeable amount of staff; they do warrant protection,” Mr Rogers told Tribune Business.

“It’s also important that they protect local industries that manufacture a quality product, and which is sold at a competitive price. We can’t protect someone selling and manufacturing junk, because then the consumer suffers. It’s a delicate balance that the Government has to look at.

“If an industry in our country employs 100 people, they deserve to be protected because of the importance of employment. The Government has to be careful, though, that the tariffs implemented are the proper tariffs, which protect local industry, but the end consumer has to be taken into consideration.”

It is unclear whether the Bahamas will be able to obtain all the tariff rates sought in the manufacturer ‘wish list’ at the WTO, although all nations are able to secure ‘carve outs’ and exemptions for certain industries. This nation, though, will likely have to reduce average border tariff rates to 15 per cent, down from the prevailing 35-42 per cent average.

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.

The Bahamas’s WTO accession terms are being negotiated with a Working Group, formed from all the nations that currently - or wish to - trade with this nation. This country’s main trading partner, the US, is demanding that all tariff rates be cut to their agreed levels ‘across the board’ from day one.

While the Bahamas is resisting this, such a development may not be as bad as it seems, given the classic trade-offs and ‘swings and roundabouts’ of trade negotiations. Gowon Bowe, the Coalition for Responsible Taxation’s co-chair, told Tribune Business that WTO-related briefings last week indicated that nations which accepted ‘across the board’ tariff cuts on day one were allowed to keep them at higher levels.

Conversely, nations which ‘phased in’ tariff reductions over time were often required to slash them to zero ultimately. Mr Bowe added that he had also been informed the Bahamas would be able to maintain certain tariff lines as high as 70 per cent, indicating protectionist rates were possible in categories where trading partners had no interest in doing business with this nation.

The key now will be for the Bahamas to position its economy such that it maximises any potential benefits from WTO membership. The accession will likely stimulate fundamental changes to the Bahamian economy, as it will open up markets to foreign products and the physical presence of overseas firms.

Mr Rogers, meanwhile, said it was the terms rather than the timing of WTO accession that were key for Bahamian manufacturers.

“We also have the anti-dumping laws that are going to be introduced,” he told Tribune Business. “The only way to prevent dumping is to implement quality control, and this is something the Government is working on. There are no warranties to protect consumers.”

Last years’s Manufacturing Sub-Committee’s report showed what was at stake. 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.”

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