The Bahamas Motor Dealers Association’s (BMDA) president yesterday expressed hope that WTO membership will result in price controls “going out the window” to be scrapped.
Fred Albury told Tribune Business he was optimistic that these regulations, which restrict the prices merchants can charge to a set percentage mark-up on price-controlled items, will be “over and done with” once the World Trade Organisation (WTO) accession is completed in late 2019.
He argued that the Bahamas’ long-standing price control regime was incompatible with liberalised, rules-based trading regimes such as the WTO because they disrupted competition between private sector companies.
“I think price control needs to be reviewed or out the window,” Mr Albury told this newspaper. “I think price controls will go away because in a WTO environment that goes against competition.
“I would like to think that price controls on things like automobiles and automobile parts would be over and done with.”
Price controls, and whether the Bahamas’ full WTO membership could lead to the regime’s abolition, are among the top questions auto dealers will pose to the Government when the two sides meet early next week for their first consultation on this nation joining the trade rules-setting body.
Rick Lowe, the BMDA’s secretary, confirmed to Tribune Business that “taxation and the price control regime” were likely the two biggest WTO-related impacts for the automobile industry.
“If they’re [the Government] going to reduce import duties and all that as they say, price controls really don’t fit with a corporate tax or income tax regime,” he said.
“Price controls would be one of the things I would think have to go. It’s a question I want to ask on Tuesday. That’s the only major change I see coming, unless I’m missing something, so hopefully they will give us enough insight on Tuesday so we can plan.”
Mr Albury’s expectation that price controls may be abolished post-WTO accession is likely to alarm consumer activist groups, who view the regulations as essential to protecting lower income Bahamians from potential exploitation by the private sector.
Apart from automobiles and associated parts, price control restrictions also apply to ‘everyday essentials’ such as gasoline and so-called food ‘breadbasket’ items, although the composition of the latter could soon be subject to radical change if Dr Duane Sands, minister of health, is able to shepherd through planned reforms.
Price controls were introduced in the 1970s as a means to ensure Bahamians, especially those on low incomes, were able to enjoy a reasonable standard of living and could afford to purchase the items necessary to support this.
The regime subsequently evolved to the point where a Price Control Commission now acts as its regulatory overseer, with businesses exposed to fines for breaching the mark-up restrictions on controlled items.
However, many in the Bahamian private sector argue that price controls are an anachronism that should be done away with. They view them as an obsolete, unnecessary regulatory restriction that creates multiple unintended, negative consequences for the business community.
With the price-controlled mark-ups often insufficient to cover costs, they force merchants to sell a significant portion of their inventory at a loss. This, in turn, forces companies to raise the cost of non-price controlled items to compensate, while also discouraging merchants from stocking those that are subject to the regime.
This can potentially lead to product shortages, harming consumer, while further supporting the private sector’s belief that price controls disrupt normal market workings at time when there is sufficient competition to keep prices keen without them.
Dr Sands earlier this year told Tribune Business that food retailers had made “a reasonable case” for price controls to be eliminated, but it remains to be seen whether WTO membership will have this impact given that the Bahamas’ ‘terms of accession’ have yet to be negotiated. There is little doubt, though, that the Bahamas will have to modernise its economy, and some traditional practices will either have to be adjusted or eliminated.
Auto dealers, meanwhile, told this newspaper that their exclusive contractual relationships with manufacturers meant they were unlikely to be impacted should the Government decide to open the sector to potential entry by foreign competitors.
Taxation, and especially the potential transition to lower Excise Tax/import duties post-WTO accession, are the key issues impacting the sector. The BMDA’s Mr Albury told Tribune Business he would “push” for the creation of a ‘bonded warehouse’ to prevent dealers being “caught off-guard” with inventory upon which higher-rate taxes have already been paid at the time of the Bahamas’ joining.
“One of the things we’ve been advocating for was for the Government to give us some bonded facilities, so that if they reduce import taxes we’re not caught off-guard too badly, having paid higher taxes on existing inventory and then the rates are subsequently reduced,” Mr Albury explained.
“That would be something we would push for. That would be the biggest issue we have to deal with out there; how we structure it so that we’re not caught with high-priced inventory we can’t sell, and we transition into whatever it is going to be without incurring tremendous losses.”
He was backed by Mr Lowe, who said: “My main concern for us and competitors is that if we have a lot of import taxes paid on inventory in stock already, we can’t simply write it off as we’ll all be bankrupt.
“Is there a plan in place? Is the Government going to give is a credit to write-off against the Business Licence fee once they decide to change the tax regime. We’re sort of advancing the Government money until we collect it from our customers, both on automobiles and parts. It’s a significant chunk of change. On a $50,000 car there’s about $20,000 in taxes. Those are the two killers.”
Some of the Government’s highest tax rates are levied on automobiles, and the last Ingraham administration moved the sector into the ‘Excise Tax’ regime to help safeguard it from potential cuts under the WTO and other rules-based trading regimes.
It is unlikely that the Bahamas will have to either eliminate or slash existing tariff rates immediately, and in ‘one go’, upon joining the WTO. The Economic Partnership Agreement (EPA) with the European Union (EU), for example, allows the Bahamas to phase-in cuts to affected tariff rates over a multi-year period.
Mr Lowe, though, said his concerns also extended to Business Licence fees, telling Tribune Business: “We’re really concerned about how they may apply Business Licence fees. What they’re doing now is inequitable. They’re charging us, in effect, more than we’re making in net profit, so it’s causing us to lose money.”
Both Messrs Albury and Lowe said the geographical exclusivity provided by their dealer contracts with auto manufacturers meant BMDA members were protected from foreign rivals establishing a physical presence in the Bahamas.
“As far as competition, our contract with Toyota, for example, is exclusive, so they won’t allow another Toyota dealer to come into the marketplace,” Mr Albury explained.
The BMDA president said next week’s consultations will be “more of a sit and listen situation”, and added: “Some industries will probably be impacted more than others. It’s a changing world; fast-changing world, out there.”