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Manufacturer Survival Needs Tariffs Post-Wto

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."

Comments

Economist 1 year ago

"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."

Ambitious timeline??? You have had since 2001 to make comments. Nothing ambitious about the timeline.

Just a group of lazy business people who have been sitting in their ass for the last 17 years.

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hrysippus 1 year ago

Lazy business people? In my experience lazy people do not go into business, they either hit up their MP for a government job or sit at home writing comments on The 'Bune web site like you and me, Economist.

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ThisIsOurs 1 year ago

I een lazy. I write when I take breaks from work. I'm up at 6 and down at ...well it fluctuates. On a break;)

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hrysippus 1 year ago

you should go into business for yourself then, your are already putting in the hours.

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bcitizen 1 year ago

Can anyone name a small developing country that the WTO has been good for?

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DDK 1 year ago

Don't think so. The problem is, our stupid governments get themselves so far into hock with these mega organizations when they say "jump", we say "how high?".

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bcitizen 1 year ago

Lazy business people? What have our successive lazy governments done over the last 17 years to help the private sector? Lower rankings in ease of doing business. No reforms that deal with energy costs. Poor utilities and basic infrastructure. Little to no reforms for accessing foreign capital. No reforms for the likes of our horrendous business tax on turnover and the list goes on. No change in the government worker mentality of come back tomorrow, I busy, leaving at 2 to pick up children from school, come up with any excuse not to do anything attitude. Don't lay all this at the private sector who struggle to survive with ever increasing tax compliance obligations and ever increasing government bureaucracy.

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proudloudandfnm 1 year ago

Man. Just eliminate duty. That is what's holding us back. That and stupidly high electricity.

Local manufacturers will just have to up their game. No biggie. If duty is eliminated and the cost of business is significantly reduced local manufacturers can compete. Stop being afraid and embrace the future.

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Socrates 1 year ago

i hear Wells and i guess to a certain extent all countries have some minimal tariffs on some imports. however, i do not think the argument put forth to keep barriers to protect local industry holds water. if your costs are too high, do something about it. other countries seem to have been able too. and the interest of a few companies or individuals must not be allowed to persist to the detriment of the majority. lower costs benefit the economy at large and that cant be a bad thing. we will have to adapt to tte new reality and stop fighting to stay in the 19th century.

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DDK 1 year ago

The U.S. of A. is a member of WTO but seems to be able to impose tariffs at will. Protectionist tariffs do need to be considered on existing and future businesses that contribute to the Bahamian economy. Manufacturing in the Bahamas is challenging at best. Just look at the cost of getting equipment shipped to our islands for starters. With all the political talk about growing our economy, which is definitely in the doldrums, it is not a good idea to allow the rest of the world to COMPLETELY dictate to us.

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TheMadHatter 1 year ago

Socrates, Proudloud, and Economist - yall gats to be smokin the Bin Laden weed. You can't compete with people that eat one bowl of rice per day and live 24 in a shack swapping out for 8 at a time to get 8 hour sleep breaks while working 16 hour days - UNLESS you want to live the same lifestyle and consume less than one bowl. Then you will be competive.

It all comes down to labour costs.

There are global forces out there under the leadership of George Soros that wish to destroy "western" culture.

As Pindling said if we don't fight for what is ours, others will gladly come and take it away. The WTO is simply a huge, complex, and glorified way of conducting "legal" theft.

If you want to give away the Bahamas, go ahead. I don't. I enjoy our high stature among Caribbean nations and the benefit of our proximity to the USA. We have it. Others don't. Don't give it away my friend.

The WTO must be stopped.

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Dawes 1 year ago

Just checking that you never complain about the cost of items in this country then?

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TheMadHatter 1 year ago

The cost of items in this country is often very high - yes. BUT the money we pay for them at least goes into our hands. If we allow foreigners to come in and own everything then where will the money go? What jobs will we have except (if we lucky) cash register operators, and offloading trucks of inventory? Companies like WalMart and Home Depot etc will come in and undercut the market and put all Bahamians out of business. Look on YouTube and you will see how when WalMart goes into small towns across America they put all the smaller stores out of business. They are a big flat roller like you see on roadwork projects that just flattens and smashes people out of business to the benefit of their Chinese (off the record) masters. Turn the items upside down and you see "Made in China" printed on them.

Yes, we have a lot of corruption here - but I believe by and large Bahamians can succeed if they get out there a try get off the wall smokin weed. There are lots of examples.

Of course, I could be wrong about the WTO. I hope I am, because I believe they already have our Govt in their pocket - so I hope that they truly intend to make things better for us. I will gladly admit two years from now that i was wrong and i was a complete idiot - but a happy idiot with money in my pocket - and say thank you WTO.

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Dawes 1 year ago

So make it a law that all companies must be owned X % by a Bahamian. This is not against WTO, the WTO just says you can't increase duties on a product to protect a domestic exporter.

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Aegeaon 1 year ago

Once again, no one understands..

We as Bahamians are damned if we do and damned if we don't. Dropping the WTO will only delay the inevitable. We'll still go bankrupt but faster because we can't think outside the box and will resort to laundering money and disrupting vital projects by derailing money from said project for personal gain. The WTO may have ideas or two to provide new ways to make money, but stealing from the country remains a concern. Dying slower but having an organization capable of reporting corruption is somewhat helpful.

Besides DDK, we're the most spoiled, rotten Caribbean nation. I mean, we got so much money from the illegal drug trade, yet that money cursed us and created webshop money smugglers and big time Bahamian kingpins in gangs. We can't get rich off of nothing legal anymore. Don't use foreigners as an excuse.

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ThisIsOurs 1 year ago

"#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"

Exactly what do we export? I mean if every country in the world said "The Bahamas can send their goods to us with zero tariffs attached" exactly what would happen? And I'm talking significant numbers other than lobster and conch, they gonna buy that anyway, there's a demand for it and scarce supply. Cars? Furniture? Paper? Technology? Oil? Why is we'll be able to export the best argument we can come up with?

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OldFort2012 1 year ago

Rum cakes. Laced with pot.

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