Bahamas' Academic Questions International Trade Memberships

Tax-News.com, New York

22 January 2003

The Bahamas is devoting a good deal of attention to preparations for membership of the World Trade Organisation and the Free Trade Area of the Americas.

In December, Bahamian Prime Minister, Perry Christie announced the creation of two new commissions, The Commission on Trade Liberalisation and Globalisation and The Office of the Bahamas Trade Commission, tasked with reviewing the country's tax regime in the light of these future memberships.

Trade and Industry Minister, Leslie O. Miller anticipated that the Bahamas may make a representation to join the World Trade Organisation as early as January 2003, although he was less convinced about the case for FTAA membership.

Lecturing in London last month, Dr Gilbert N M O Morris of the Bahamas' Landfall Centre for Finance, Trade & International Affairs addressed issues arising from the current push by the United States to include the Bahamas and other Caribbean jurisdictions in the nascent Free Trade Area of the Americas (FTAA).

'The recent US proposal on creating a customs union,' said Dr Morris, 'and so eliminating customs duties should be taken as an indication that 2003 will be a pivotal year in developments toward the FTAA. In order to push their agenda, some persons who focus on regional trade issues – such as Mr. Reginald Lobosky - have pointed out that the US is attempting to avoid opposition by negotiating bilateral agreements with individual countries. Whilst this is true, some countries, such as Belize sought independently to be allowed to participate in the North American Free Trade Area (NAFTA). Taken together, this means that countries such as the Bahamas have got to develop baselines on a variety of issues, which will determine whether or not we will or can participate in the FTAA. The implications of this decision will go to the root of our Constitution, our economic development over the immediate and the long term and our national identity.

'We can divide the relevant issues between "Heads to be Agreed" and "Readiness" issues. The most important Heads-to-be-Agreed are:

Small and Medium Sized Enterprises. Whilst discussions are underway on under these terms, there are some questions as to whether they address issues related to countries like the Bahamas in the most effective way. It will be important for countries like the Bahamas themselves to begin to control the meanings of these definitions or find that they have agreed to more than they are aware.

• Article XXIV of World Trade Organization (WTO) issues: Because we are on the way to becoming members of the WTO, we shall be governed by Article XXIV, which deals with WTO members who are also members of regional trade agreements. This means that we shall have to ensure that nothing we have agreed to breaches WTO rules. What this means generally is that WTO members must not find themselves treated less favourably than FTAA members – which seems logically impossible. It also means that we shall be ready to defend ourselves in case an action is brought against us for unfairness. This means we must become experts on the distinctions between WTO and FTAA.
  
  
• Mutual Enforceability: There is still the issue of whether countries the size of the Bahamas can enforce the rules against larger nations – particularly the United States; which is wealthy enough to maintain a breach of the rules indefinitely and pay fines equivalent to the GNP of 30 of the 34 nations combined, without much trouble.
  
  
• Liberalization or Harmonization: Which one of these characterises FTAA ? We must determine and ensure an agreement is reached on this question. Some scholars say both. However, such a notion increasingly complex. Mexico treated NAFTA as the second, America traded as the first. This lead to any number of problems.
  
  
• Chapter 11: This Chapter of the Draft Agreement is the most important in the Agreement itself. It must be expertly negotiated and requires at last count at least three separate studies on the issues it raises. For instance, it offers investors the right to sue governments directly if the investor ‘determines’ that government policy has injured his business. Such an investor may even argue that so great was the damage, that his business was effectively expropriated by the government, and so he may claim for the value of the total loss. Even as a Draft Provision it is troubling.
  
  
• Institutional Resources: So as not to turn their Departments of Trade into managing offices for WTO and FTAA, small nations will have to bear the costs of developing agencies to deal with these agreement separately. Because of the complexity it will be necessary in my view to establish offices of Deputy Attorney General of Trade Disputes for instance. One will also need someone for economic issues and trade and each will require a staff. In addition, a research body will be required to develop strategies for future negotiations. Some scholars suggest that the US will offer "technical assistance". I find it troubling to accept such assistance from an opposite party to negotiation.
  
  
• MERSOCUR and US Security: I do not think Brazil will agree to FTAA. If they do, it will require a strong economic aid package. Second, how will US security be advanced against liberalization ?

On the Readiness points, things are even more complex. I shall just try to list them…and even as I do, I shall leave the more complex ones out and add, that these must be decided this year, 2003:

• Justification of Existing Tax System or Reform and Implementation of a new System;
• Design, Purchase & Implementation of a Universal Network Backbone for electronic tax collections and monitoring;
• Develop and Implement Capital Account or Exchange Control Policy. Here it must be kept in mind, that nations in economic downturns or with heavy debt were hit badly in the Asian Economic Crisis when they liberalised the Capital Accounts.
• Competition Law: I actually think you cannot simply invent a competition law. It have to grow around the business you do and the way you do business;
• Capital Markets: if we do not have a capital market strategy and a more immediate and inexpensive way of buying credit for investment, foreign investors will have access to cheaper credit whilst competing for the same projects as local business people.

Having said all of that, there can be no successful negotiation of these agreements unless a negotiator has designed or is given a comprehensive national vision from which to seek guidance and to which he can bring advantages…

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