Given the increasing discussion of the Free Trade of The Americaﾴs Agreement (FTAA), the lack of discussion of World Trade Organization (WTO) Membership for the Bahamas, I thought to put forth some considerations not heard or seen routinely; which implies ﾖ I hope fairly ﾖ a misapprehension of their significance.
The issue in constant discussion is “readiness”. That is to say, much of the FTAA discussion turns on whether The Bahamas is ready for FTAA and if not, what is to be done to put these islands in a state of readiness. Any benchmark or criteria for FTAA will prove wholly inadequate. The reason is no true benchmark or criteria can be known; as no one can say specifically what FTAA will bring ﾖ whether in benefits or burdens ﾖ without a large helping of speculation. If no benchmarks are available, exactly what is to be recommended ? We should fix what we have always known to be wrong with our country; whether or . But we should begin by:
Calandering a time frame for reform between now and 2004
Designating core areas for reform
Developing strategies to reform them
Moving with unprecedented commitment to reform these core areas
Our guide in this should not be FTAA or WTO, but our heralded potential. If we can put ourselves in position to exploit our economic and geo-political potential, we will have succeeded in making ourselves more than prepared for FTAA, WTO and sundry other international or regional co-ops. If we are going to do this, it will require us to pay attention to national responsibilities we have ignored for far too long.
Let me explain some of the issues, whilst begging readers to bear in mind that I cannot in this limited space outline the entire question under discussion here.
COMPARATIVE ADVANTAGE:
First, how do we prepare to meet our potential ? This leads to the economic policy we must cultivate and the legislative agenda necessary to bring it about. This is straight-forward: we have to take an audit of our comparative advantages. For instance, Singapore envisioned that even with the explosion in investment into China, investors did not want to have Chinese courts settle their disputes. To exploit their geo-political position and comparative advantage Singapore developed an advanced international arbitration and mediation centre. Now you can do business in China but settle disputes in Singapore under English law or the law of a variety of jurisdictions by arbitrators trained in the English system. (Let us not be patient with any nonsense that Singaporeans have a greater work ethic than Bahamians. What they have is a government that refuses to give handouts !) (More on this soon).
Readers must not take this example literally. It is a way of thinking I am trying to highlight. Having said that the Bahamas has several comparative advantages given its location. I will not list them here. In the case of arbitration and mediation, we have Singaporeﾴs advantage over China, over our neighbours in much of the Caribbean and South America. However, we must reform our legal system to take advantage of this potential opportunity. This will require:
Thoughtful legislation
Respected arbitrators
Advanced networked technologies
Research libraries
Efficient highly skilled staff
Our system must not only be outstanding, it must be seen to be outstanding by the outside world.
INSTITUTIONAL & INFRASTRUCTURAL RISK:
This discussion highlights another problem: “Institutional & Infrastructural risk”. As a rule where there is institutional risk, there is infrastructural risk also. For example: the absence of well organized courts, leads to a dysfunctional judicial system – from the police, to prosecutors, courts themselves, to the jails. Excellent institutions force sound infrastructure. This means our civic institutions – the Bahamas Bar, the Accountants, Physicians, Bankers, Engineers ﾖ must lead the way. All professional organizations in the Bahamas must become introspective; developing access to profound research as a means of regulating their members according to high national standards and developing policy at the highest levels.
I can go on in this direction but this is not the only institutional risk. For whatever reason, our education system has ceased to be what it was in the heydays of schools such as Government High, St. Augustine and Eight Mile Rock High. I am sorry if this upsets hardworking teachers, but the new world circumstances will not allow us to pretend that we are anywhere near our potential in the area of education. (More on this in two weeks). More than any other area ﾖ excepting immigration possibly ﾖ our national potential is at risk because of the quality and standard of education. (There is more to this than quality of teaching. We must discuss the quality of discipline, attitudes toward study and obsession with amusement in our country).
CONCEPTUAL RISK:
The NAFTA agreement does not stipulate whether it is a “Liberalization” or a “Harmonization” agreement. This has led to problems. Liberalization means each country removes trade restrictions toward mutually open trade in a “tit-for-tat” manner. This is more “equal” free trade than free trade. Harmonization usually means that all trade restrictions are removed and the territories harmonize their borders. The failure to determine which model was being followed between the US and Mexico, for instance, led Mexico to treat NAFTA as a harmonization agreement ﾖ as a poorer country is more likely to do; letting in US manufacturers, equipment and goods. The US has treated NAFTA as a Liberalization agreement permitting only select classes of goods and limited access. The question for the Bahamas is what is our vision of FTAA, liberalization or harmonization ?
I have not mentioned the WTO since my opening statement. But everything said here must influence our national negotiating strategy. Moreover, the question of liberalization and harmonization gives relevance to the WTO issue. Given the host of “anti-dumping” laws which nations use to avoid WTO sanctioned trade, WTO membership amounts to a liberalization agreement in which barriers are brought down not only by countries voluntarily on a tit-for-tat basis, but by the WTO in its settlement of trade disputes. What flows from this is the need for strong judicial institutions, because even if we understand the complex WTO rules, national strategy, negotiation, and litigation are central to success as a WTO member.
Our discussions have not been over these technical issues. The question more discussed is the possible ” Wal-Martization” of the Bahamas. We must have done with these erroneous fears. First, if we act to fulfill our potential, we would be so competitive, the only way “Wal-Mart” would get into the Bahamas is through partnership with some existing entity. Secondly, if the “Wal-Marters” come, it suggests that we have some means of earning money to buy what they have to sell. This will mean that we have convinced investors that this is a business-friendly place. But the fact is since April, 1967, Winn Dixie (the Wal-Mart of the 70s), has been in The Bahamas ﾖ and over the past 35-years, we have enjoyed the presence ‘locally owned’ food giants: Super Value, Costrite, Centreville Supermarket, Abaco Markets, Solomon’s, Budget Markets and a host of substantial Wholesalers, the likes of Asa Pritchard, Thompson Trading, Lightbourne Trading, Island Wholesale and hundreds of Mom and Pop convenience stores owned 100% by Bahamian Nationals are doing just fine. We have already had ‘globalization’ working in our midst for 35-years and we have competed even though US giants like Home Depot in Florida, selling to Bahamians, do over US$10 million annually, pay not one cent of Bahamas Tax, and is in direct competition with Kelly’s Lumber, City Lumber, John S. George. Yet we do substantial business here in the Bahamas in the face of abominable rates of customﾴs duties.
I re-cap my points here: We must not try to divine FTAA criteria, but fulfill our measurable potential through exploiting comparative advantages. Over the years ﾖ indeed the centuries ﾖ we have hustled and survived even with our ungodly sense of entitlement. The effect of this new order is that sense will end by force or reform. Our comparative advantages have been so great that even our self-induced inefficiencies have not undermined our standard of living or quality of life substantially. Moreover, our problem is not that we are not smart enough to compete, but that our system of doing business is inefficient, our credit system is clumsy and cloistered, our productivity is poor, our attitudes increasingly awful, there is an abundance of stealing and our institutions ﾖ no matter what we think of them ﾖ lack international credibility. We must attack these problems and those of institutional and infrastructural risk; particularly education without which we cannot and will not compete. As a practical exercise, businesses should seek advice on their growth models going forward, to get an idea of their competitiveness. I will end my discussion with two technical subjects:
TAX SYSTEM:
There are two further infrastructural issues I shall like to mention: First, our tax system. I have suggested that we reduce customﾴs duties to 6% or below. Since our duties are not used as tariffs, and so not directed at protecting any domestic industry, there is an argument for keeping as is. However, the best reason to change it is that the government is not taking the same risk as those who must pay taxes. It gets its money up front no matter how it does its job. A low rate of duty plus a sales tax or VAT would mean that the government would have every incentive to cultivate and facilitate a more business-friendly environment, since failure to do so will mean lower revenues.
There has been some argument over the feasibility of this proposition. I understand the trepidation, but lets look at the issue squarely. The math is unambiguous. We have a 5 billion dollar economy. The governmentﾴs budget is 1 billion or 20%. A 5% duty and 15% VAT would net $1 billion from $5 billion in revenues. Secondly, sale of the public utilities would lessen further the governmentﾴs dependence on this level of income from taxes. We mustnﾴt forget the Bahamas Government US$600.00 Duty Free allowance to every Bahamian over 12 years is estimated to total a maximum of 150m. in untaxed Dutiable goods. The aggregate Duty, landed costs and mark-up is over 50%. A 15% Sales Tax plus a maximum of 6% Duty (allowed under FTAA) would bring in a high of 21% or a margin in favour of lowering retail/wholesale costs by 20%!! Making the Bahamas very competitive with Florida ﾖ Advantage: Bahamian business ! In all probability more Bahamians would buy locally, inducing an expansion in both the wholesale-retail trade, new employment, and a leaner, larger economy.
The next question is how to collect these lower taxes ? I invite readers to go to the Estonian Official Web Centre at: http://www.riik.ee/en/ – and see the Estonian government online. In Estonia, the Parliament is on an intranet which allows citizens to e-mail during debates. But more than that, the network allows for a powerful tax collection tool.
Put simply, if we have Oracle database capacity and Micro-Strategies data mining technology all on a Cisco network “backbone”, we could collect taxes through a network assessed against business inventories. It would work in this way: a merchant would scan his manifest if it is not already electronic. This would be held on a central searchable database, with copies going to the relevant authorities. The Tax would be assessed against the inventory sold, calculated electronically. This would give the government an incentive to treat pilferage as the crime it is, since inventory lost to stealing would reduce government revenues. I think this answers the “how to” of 21st. century tax collection.
CREDIT SYSTEM:
The second infrastructural problem is our bank and credit system, and our capital markets. I apologize for mentioning this without details but we should not dollarize our economy, when we can achieve the same benefits with less risks by relaxing exchange control ﾖ as Barbados is now doing. Relaxation allows us to open our capital markets to the world over time. This means to be competitive in attracting investment dollars, local companies must absorb optimal market share, and develop efficiencies. This implies mergers in every industry from food, to law practice, to real estate. On the investment side, if we want to keep money in the country, we must develop competitive investment products beyond government bonds. This will open new opportunities for Bahamian entrepreneurs by creating limited venture capital and a more genuine market for credit in the Bahamas. Bahamian bankers can “get a jump” on this by exploring new models of venture capital finance, now, to create a genuine entrepreneurial customer base. This form of banking requires “ideas-credit-management” rather than “ideas-collateral-credit”.
In closing, even if we forgo the FTAA, the WTO is an inevitability. Perhaps in another lettre I will outline what the agenda of the Bahamas should be at the table in the WTO (and if necessary the FTAA). Insofar as the difficulty and complexity of the issues the WTO throws up, we simply have no means of escaping them. Perhaps for the first time, we shall have to pull together as never before to move our nation toward its potential. But whatever your opinion, one thing is certain, whilst each generation experiences the same country in a new way, a child of 10 in the Bahamas today will experience a different country in a very different way in 10 years. We must decide now whether we are responsible enough to prepare these islands for their dwelling.
By: Dr. Gilbert NMO Morris
