Trading in Free Choices: A Look at the Free Trade Movement

First Published: 2002-11-09

The world is changing fast in ways that could have a big impact on the Bahamas in the near future. Experts warn the changes are as profound as any since the Industrial Revolution.

There is a drive towards a globalised economic system managed by the World Trade Organisation (WTO), which the Bahamas is on track to join. Formed in 1995, the 134-nation WTO is often described as "one of the most powerful international bodies on earth".

Meanwhile, the Free Trade Area of the Americas (FTAA) currently being negotiated by the Bahamas and 33 other Western Hemisphere countries, is poised to become the most significant trade agreement in history—providing sweeping new authority over national policies.

The lurch towards a global economy could have major consequences for Bahamians. Among the issues involved are a complete overhaul of our tax system, the end of exchange controls, easier immigration and a possible influx of foreign business interests and investment.

"If the Bahamas embraces these changes in thoughtful and creative ways, it can mean a continuation of the prosperity of the 1990's," according to Ralph Massey, an economist with the Nassau Institute. "But the policy alternatives that government faces in this regurd should be widely discussed and debated."

Critics of this new world order – from both the left and the right – fear it may lead to global government by multinational corporations and trade bureaucracies that are less accountable to democratic processes. Globalisation, they say, will expand inequality within and between nations, threaten employment and living standards, devastate the environment, degrade local cultures and values and thwart social progress.

"The world's corporate and political leadership is undertaking a restructuring of politics and economics with little public disclosure of the profound consequences affecting dcmocracy, human welfare, local economies and the natural world," says the San Francisco-based International Forum on Globalisation, a group of experts opposed to globalisation.

Conservative critics tend to support the idea of free trade, but oppose the growth of a global super-state controlling every aspect of our lives. Jeffrey Tucker, writing in the libertarian Free Market Magazine, is characteristic of this view. He says: "Free trade means nothing more than laissez-faire economics applied across borders The role of government is

entirely negative: do not stop goods from coming across borders; do not prevent them from leaving."

However, there is no doubt that the gradual liberalisation of the global economy since World War Two has sharply increased the volume of world trade – now growing at more than 6 per cent a year and exceeding $5 trillion in total value, according to the International Monetary Fund (IMF).

In addition to the growing importance of international trade for national economies, globalisation brought about record world foreign investment of $865 billion in 1999 and increasingly mobile capital market flows. Today, for example, advanced information technologies move $1.5 trillion around the world every day, compared to $10 billion daily in 1978, while the Internet has a rapidly growing online population of more than 250 million people.

Although these developments had their origin in the immediate postwar years, when the world's economic and political structure was rebuilt, the pace of economic change acclerated in the 1980's following the collapse of communism and the end of the Third World's infatuation with import substitution. The IMF says an important transformation is

underway:

"Encouraging this trend, not reversing it, is the best course for promoting growth, development and poverty reduction. Global markets offer greater opportunity for people. It means they can have access to more capital flows, more technology, cheaper imports and larger export markets"

In the course of moving towards a global economy, ever larger regional trading blocs are being formed, such as the 15-nation European Union (EU) and the North American Free Trade Area (NAFTA), which unites Canada, Mexico and the US in a huge common market.

NAFTA has been a success by most accounts. American trade with Canada and Mexico has increased by 44 per cent since the agreement was concluded in 1993. That compares with a 33 per cent increase in US trade with other countries. And Mexico has now become the US' second largest export market, just ahead of Japan and behind only Canada.

Building on this, the US launched negotations in 1994 to create a Free Trade Area of the Americas. But the idea is not new. In 1988, for example, then US president Ronald Regan forecast a day "when the free flow of trade….unites the people of the Western Hemispere in a bond of mutually beneficial exchange; when all borders become what the US-Canadian border so long has been—a meeting place, rather than a dividing

line."

Probably the best reason for the FTAA, wrote Canadian economist William Watson, is to avoid a proliferation of bilateral deals with differing rules for the hemisphere: "If every country has its own seperate deal with the United States, then the US becomes the hemisphere hub. From it you can get to all the other economies in the hemisphere, tariff-free. But from all the other economies you can only get to the United States, because

they retain tariffs on each other's goods. In such a situation, who do you suppose gets all the hemisphere's investment? Avoiding hub-and spoke was a main reason Canada got into NAFTA."

Since 1998, the FTAA process has been carried forward by nine international negotiating groups examining specific issues such as agriculture, intellectual property rights, services and market access. These groups periodically report to trade ministers of all the 34 countries involved who, in turn, meet once a year.

A draft agreement has been produced (and is available on the FTAA web site), and a final document could be no more than two or three years away. The Bahamas' trade negotiations committee is composed mostly of civil servants, but the government coordinates its position with other Caribbean countries, and also has a team of international consultants advising it on both the FTAA and WTO processes. The whole project is supervised by the Ministry of Economic Development (now the Ministry of Trade and Industry under Leslie Miller).

The FTAA draft agreement calls for the elimination of tariffs and other trade restrictions (although individual countries can maintain tariffs against non-members); a free flow of investment and capital across national borders; the unrestricted entry of key personnel involved with such investments; and cross-border supply of professional services. This has led to fears among Bahamians that foreigners will threaten their jobs and businesses, and the Government has not been very helpful in providing information.

However, in a 2001 presentation to the Grand Bahama Chamber of Commerece, then Economic Affairs Minister Zhivago Laing declared emphatically that the FTAA "will not mean the free movement of labour, will not mean that any foreign business can set up in the Bahamas, will not lower wages of Bahamians and need not negatively impact agriculture

and fisheries".

At pesent, the agreement does not call for a relaxation of immigration controls other than to allow the cross-border supply of professional services and the employment of key personnel by investors. "This is something entirely familiar to us already in the Bahamas (and) does not include services provided by tradespeople," Mr Laing added.

Currently, the only foreign professionals that are restricted from entering the Bahamian labour market are lawyers and engineers. The FTAA also allows governments to continue to reserve sectors of the economy from foreign intrusion, and smaller economies will be "specfically facilitated" in this regard, the minister said. "Small countries like the Bahamas have the means to determine what investments take place," he added.

Mr Laing said that among the potential benefits for the Bahamas of FTAA membership were general economic growth throughout the region leading to more tourism, more foreign investment and greater use of our financial services sector.

The greatest impact. he acknowledged, will be on the Bahamas' tax system, which is currently based almost entirely on import duties "Trade liberalisation does not have the same implications for our economy as it has for other closed trading, farming and/or manufacturing communities." Mr Laing said. "It has the greatest effect on the way we raise revenue."

The government is already exploring its options on this. A recent IMF report on the Bahamian economy noted that "taking into account possible future obligations under the FTAA (the government) agreed to conduct within a short period of time a broad assessment of the tax structure, with a view to implementing a sales or value added tax that would permit a significant reduction in import duties".

However there is no quick fix. According to Neil Mckinney,the former Bahamas Chamber of Commerce president, "the problem with devising a new tax regime is the lack of enforcement of the laws we have in effect now. If we move to a sales tax, who is going to monitor all the thousands of cash registers in the country?

"Perhaps we could shift taxes to the business licence, but there are plenty people who don't pay that, too. If we can't even collect taxes now – on a handful of importers and on property that can't move – how can we realistically expect to implement a radical new tax regime?"

Gradually, is one answer proposed by wholesaler Robert d'Albenas ."The only workable way to change our tax system without shocking everyone into a state of apoplexy is to do it slowly – a bit at a time – by reducing the amount of revenue collected from duties as new types of taxes are introduced. like business taxes or value added taxes… he said.

As to other consequences. the question is also one of timing. Mr d'Albenas said. "If we concede to the FTAA too quickly, without adequate preparation or mental absorption, we will face some major consequences that could be extremely detrimental to our way of life.

"For example, we could start a flight capital if exchange controls were lifted immediately, or increase the opportunity for corruption if a new tax system were introduced without proper training or controls, or see a dramatic rise in unemployment and crime if businesses closed due to unfair competition from foreign corporations.

"On the other hand, with proper thought and discussion, these changes could be implemented over a longer period and people would be able to adapt mentally, socially and financially."

Much criticism, both here and abroad, has been levelled at the apparent secrecy that has surrounded the FTAA negotiations over the past six or seven years. Even Pierre Pettigrew, the Canadian Trade Minister, has called for the opening up of talks. "By adopting a transparent approach we can demystify the globalisation process in the eyes of many citizens," he said earlier this year.

Compounding this problem in the Bahamas is the fact that the private sector lacks the human and professional resources needed to interface with the trade negotiations. To help fill in the gaps, the Chamber of Commerce has commissioned a Jamaican consultant named Trevor Hamilton to conduct a three-month study of the of the impact the FTAA could have on the Bahamas. But few local businesses seem concerned with the issues, and those that are find the going tough.

"From what I've seen so far in the negotiating process, the Government has regarded this as their personal arena and mostly given lip service to private sector input," said Mr. d'Albenas. "I went to one of their briefings several months ago and it was as boring and as useless as a UN subcommittee discussing the plight of crows in western Mongolia"

According to some analysts, there is no reason for the Bahamas to even consider joining the FT AA in the first place because it is not being denied access to overseas markets, and will gain no significant competitive advantage. "Our fraternization with the FTAA betokens a deep misunderstanding of our place in the world," said Dr Gilbert Morris, a Bahamian professor at St Thomas Law School in Miami who is also an international financial consultant. "Everything that will be offered to businesses under the FTAA can be offered now."

Meanwhile, the government maintains it is merely exploring its options, that nothing has been agreed to, and that no decision has been made on whether or not to join the FTAA should it ever be implemented.

"When the architecture is created, each country will then have to make the decision whether or not to proceed…based on its assessment of the benefits and losses to it of the proposed free trade area," a Ministry of Finance publication explains.

Some see this as putting the cart before the horse. "I want to know what is being discussed now so that I can consider adjustments to my business," said Rick Lowe of Nassau Motor Company. "We could be at a disadvantage if we do not plan for the change, but the government does not seem to want business people looking over their shoulder as it is reported they do in other countries. The lack of substantive information from our government regarding the actual negotiations has been dramatic."

Veteran hotelier Barrie Farrington agrees: "Until we understand fully the direction of current negotiations we are not really able to assess the impact on Bahamian businesses. I can say with certainty that the hotel industry has not been included in any discussions nor consulted on any issues which may be under consideration with respect to the FTAA."

Felix Stubbs, of IBM Bahamas, is one of a handful of private sector leaders who are participating in the negotiating process. He chairs a consultative committee on e-commerce, but acknowledges a general disinterest among business people: "There is a very limited understanding of the FTAA process in the private sector," he says "The Chamber of

Commerce is only just beginning to address some of the issues. Globalisation will force Bahamians to perform at a much higher level of professionalism. They will need to seek more international exposure, and be more willing to entertain foreign expertise"

According to David Lunn, a Bahamian manager with the European investment bank, Leopold Joseph, free trade will not mean much to the financial services industry unless it increases the cost of doing business "We already have freedom of capital movement and personnel and skills. If the tax changes affect our costs that would be critical, but one could

argue that free trade will lower costs by introducing competition in areas like telecommunications and that would be a boon."

Just how the whole free trade process will play out following the unprecedented terror attacks of September 11 is anyone's guess. The New York Times reported that Latin America was entering one of its most difficult periods in decades and could experience a "backlash against the free market reforms of the 1980's"

Nearly a dozen Latin American and Caribbean governments face elections during the coming 12 months, and the global downturn triggered by the September 11 events could accelerate a shift towards anti-free market parties. This, in turn, could undermine efforts to build closer commercial and political ties within the region.

But whether or not the FTAA process continues without upset, and whether or not we become a part of it, the world is changing in significant ways right before our eyes. It is up to us to make the most of it. The real issue here is whether Bahamians have the will and creativity to take advantage of a globalised economy.

No single group or sector has the knowledge or the capacity to achieve this. It will take all of our resources—human and financial—engaged in a co-operative effort to chart a new course towards a secure and prosperous future.

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