Our economy or theirs – Down to Kingston Market

First Published: 2005-02-09

NOTE: The drumbeat is on for the Bahamas to join in West Indian unification. And although some of us may be sick of reading about the Caribbean Single Market and Economy, the more we look at these complex issues the clearer they become. There is no doubt that whatever is decided will affect our lives and livelihoods for decades to come. Last week's article looked at the CSME's political dimensions. This one examines its economic implications.

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It should be fairly clear by now that government's motive to join the Caribbean Single Market and Economy is more political than economic. But that does not mean there will be no economic consequences.

Ambassador Leonard Archer says we didn't join Caricom in 1983 to find trading partners. We allied ourselves to a group of countries with shared geographical and political ties in order to increase our influence in world organisations.

"It is not likely that intra-Caricom trade would increase substantially with the full implementation of the CSME. Trade in the Caribbean is mostly determined by historical patterns, and these will not change overnight," Mr Archer acknowledged.

In fact, Caricom has never been much of a trading bloc. Experts say regional trade doesn't amount to even a quarter of total trade because Caribbean economies are geared mostly towards extra-regional exports. And Bahamian trade with our southern neighbours is almost non-existent.

It took 20 years for Caricom to agree on a common external tariff (in 1993). The project to establish a Caribbean Single Market and Economy was adopted in 1989, but the timetable continues to be pushed back – the latest deadline is the end of this year, although Jamaica, Trinidad and Barbados have agreed to start things off this month.

After years of dithering, our government now says it is urgent for us to join the CSME, because of the "interconnectedness" of negotiations for the proposed Free Trade Area of the Americas and the World Trade Organisation.

The logic goes something like this…we should join the CSME because it will make it easier to negotiate membership in WTO (which we applied for in 2001). And we have to join WTO because we intend to join the FTAA, which will use WTO rules when it comes into being. Got that?

Although the FTAA talks are currently stalled, Ambassador Archer says it is vital to complete the CSME project before the FTAA comes into being, "so that the CSME would be recognised as an economic group within the FTAA."

He says we can't afford to stay out of any of these trading arrangements. If we do, vacationing here will become more costly as tariff barriers are removed elsewhere. And our tourist industry is already feeling the pinch of low-cost competition from Cuba, Mexico and the Dominican Republic.

But this overlooks the fact that the government is already on track to switch from border taxes to a more robust value added tax system. Proponents say this would not only cut the cost of imports at a stroke but raise more revenue by widening the tax base.

Mr Archer's response is that the abolition of tarffs in the FTAA would occur sooner than it would take the Bahamas to change to a value added tax system. So, "for some period of time", competing destinations would have an advantage over us.

However, VAT could be introduced within as little as three years, according to State Finance Minister James Smith. Once a detailed study is available this spring, there will be a period of public consultation followed by a two-year phase-in period.

So if we are likely to make this shift (which many oppose because taxes will be harder to collect), there may well be no need to spend our limited time, money and energy negotiating free trade agreements with countries we don't trade with.

Some say that by joining the CSME we will be able to benefit from economies of scale and a larger regional market. But financial services and tourism are already open to foreign competition…and they are two thirds of our economy.

Mr Archer suggests that First Caribbean International Bank was influenced by the prospective CSME to place its headquarters in Barbados. But bankers say that decision was based on cost, as most operations were already in Bridgetown. And let's not forget that Royal Bank recently centralised its regional operations in Nassau.

Leaving aside tourism and offshore finance, the rest of our economy consists of the distributive trades, the media, medicine and law, telecoms, energy, fishing and agriculture. Most are reserved for Bahamians and some are state monopolies. They would all be open to Caribbean competitors if we join the CSME.

The government says more investment from the Caribbean will be a big benefit of CSME membership…with regional firms setting up "factory branches" here to access the US market, and West Indians arriving in droves to shop so as to avoid US Immigration.

But in the same breath we are told that "it is not likely that many Caribbean firms will consider our market large enough to make risky investments for small profits…(they) would be more interested in the international sector of the market."

And regional integration cannot substitute for what is lacking at the national level. According to one foreign investor we spoke to: "The Bahamas has no raw materials and labour rates (adjusted for productivity) are higher than in the US. It is a pipe dream to think that manufacturers will set up plants here."

But those who do invest, will be able to bring their managerial, supervisory and technical staff, as well as their families. And they will be able to buy land (other than for speculation) on a non-discriminatory basis and move money in and out of the country at will.

The CSME sets a goal of free movement of labour and specifies several skilled groups who will be able to work anywhere in the region immediately. But Ambassador Archer says we can seek exemption from these requirements for up to 20 years.

The number of eligible nationals – university graduates, musicians, performers, athletes, coaches, graphic artists, journalists, editors, cameramen and others – is at least 10 per cent of Caricom's six million inhabitants – or 600,000 people, double our entire population. And the list of approved categories is being expanded as we speak.

Considering the furious reaction to recent proposals to ease inefficient bureaucratic restraints over work permits in the financial services sector, and the emotional commitment to "Bahamianisation", it would be political suicide for any government to propose CSME entry without such reservations.

The other big issue is opening the reserved sectors of our economy. The consensus is that were Wal-Mart set up here tomorrow, prices would drop and selection would increase… and all our inefficient retailers and wholesalers would go out of business. But it is unclear what impact the entry of Caribbean firms and capital will have on our economy.

Commercial agriculture is mostly foreign-owned already, but our fishing industry is another matter entirely. What would foreign investment in this sector mean for the future of our marine resources? The government has yet to address this.

Mr Archer argues that Caricom would become stronger if we were to join. Goods, services and capital would flow freely across national borders just as they do from island to island within the Bahamas itself, and we would all have a slice of a bigger pie as a result.

But more importantly, he says membership would let the Bahamas claim the same international trading concessions that Caricom nations have: "As a member of CSME, the Bahamas would be treated in the same way as countries with the lowest per capita income. This is the main reason for the Bahamas to join."

In this context, the example most often cited as a warning is Vanuatu's aborted attempt to join the WTO. That Pacific island chain of 180,000 people has an economy similar to ours (though poorer), based on tourism and financial services. It is largely dependent on Australia.

But WTO demands to open up Vanuatu's wholesale/retail sector were too much for it to handle politically. Another sticking point was the US insistence on opening up the country's telecoms sector – a private monopoly at the time.

We suspect our government would love to open some of the reserved sectors of our economy – just think of the deals that could be done and the leverage that could be applied. And we are equally certain that the private sector would love to see our inefficient telecoms and energy sectors opened up to free market competition.

There is yet another dimension to the CSME. The so-called Single Economy refers to the coordination of foreign exchange and interest rate policies, tax regimes, laws and a common currency, But most experts say this is not achievable in the near term.

One last factor to consider is cost. We will pay 13 per cent of the total Caricom budget as part of the CSME – about $1.3 million a year at present rates. Caricom currently supports over a dozen regional organizations, including the Community Secretariat, the Regional Negotiating Machinery, and the University of the West Indies.

But the CSME calls for several new regional bodies, as well as national counterpart agencies. They include the Caribbean Court of Justice, a standards organization, a competition commission, a conciliation commission, a regional securities body, a regional intellectual property rights office, and a regional development fund.

In fact, "creeping regionalisation" has been the impetus for most of the recent regulatory legislation the government has been proposing…on standards, consumer protection and contracts, for example. And these laws will create several new regulatory bodies.

All of these regional agencies – as well as their national counterparts – will require funding. Exactly how much remains to be seen. What does seem clear, is that both FNM and PLP governments have been quietly going along with Caribbean integration for years without really telling us, and simply postponing all the hard choices.

But now we are down to the wire, and the Christie administration has an ideologue in the form of the present foreign minister who is keen to drive the process forward.

Barrie Farrington was one of several businessmen named to a special trade commission by Prime Minister Christie after the last general election. The commission has been inactive for some time, so Mr Farrington felt constrained to write to the press recently.

"Let there be no doubt that the decision with respect to CSME is enormous," he said. "We cannot afford to misstep, otherwise we will be tormented with serious consequences."

And it is interesting to note that former Barbados opposition leader David Thompson recently said Prime Minister Owen Arthur was "trying to ram the Single Market and Economy down the throats of Barbadians without adequate discussion and consultation."

Which makes us think that Prime Minister Christie should take a page from Hubert Ingraham's book and hold a referendum on CSME membership. Then the issues and interests can be clearly defined and discussed.

This article was first published in The Tribune, February 9, 2005.

The column 'Tough Call' by Larry Smith is published in The Tribune every Wednesday and is reprinted here as a courtesy. Mr. Smith founded and successfully grew an advertising agency over 20 years. Under his direction Media Enterprises diversified into short-run commercial printing and publishing, and is now the largest non-fiction book wholesaler in the Bahamas. He has 30 years experience as a journalist and publicist and has contributed numerous articles and columns to the Bahamian press. A former reporter at the Nassau Guardian, local correspondent for Reuters and editor at the Bahamas News Bureau, he conceived and edited the Bahama Almanac (published 2000 by Media Enterprises), wrote the commentary for Mike Toogood's Portrait of an Archipelago (published 2004 by Macmillan Caribbean), and edited the Bahamas Environmental Handbook (published 2002 by the government). In 2003 he took a year's leave of absence from Media Enterprises to lead a transition management team at the Nassau Guardian after the paper was acquired by local investors. After leaving the Guardian he was contracted by the Tribune as online manager/editor and columnist. He has a degree in political science and journalism from the University of Miami. Mr. Smith can be contacted at: larry@tribunemedia.net

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