Repercussions of Free Trade for The Bahamas

by Sir Arthur Foulkes

Last week the eyes of the world were focused on Hong Kong where the representatives of 149 countries were meeting in an effort to reach agreement on rules for the further expansion of global trade. The negotiations inside were accompanied by confrontational and violent demonstrations outside.

Not much progress was made in advancing new trade arrangements that would affect hundreds of millions of people around the globe. Indeed some of the complex issues and conflicts involved seem to defy resolution. The European Union’s Peter Mandelson described it as not a failure and not a success.

The Bahamas is not yet a member of the World Trade Organization but we are a member of the African Caribbean Pacific Group which interfaces with the European Union to promote development of ACP countries and trade with their European partners.

On Friday The Tribune published a story based on an interview with Bahamas Minister of Trade and Industry Leslie Miller. According to Mr. Miller, ACP countries have failed to get a further extension of preferential tariffs from 2007 to 2010.

These preferences have been supported mainly by Britain and France, two former imperial powers, as a means of helping former colonies to get on their feet economically. They have never been popular with other European nations and have been under attack by the United States and others for years.

The end of them will have a tremendous impact on the economies of those Caribbean countries which depended heavily on agricultural products such as bananas, sugar and rum.

Fortunately, the impact on the Bahamas – which enjoys a developed services-based economy – will not be so profound. Neither is the Bahamas likely to benefit substantially from any aid for trade compensation package.

But we are likely to lose the rum industry operated by Bacardi since that company came here principally to take advantage of the preferential tariffs enjoyed by the Caribbean. Bacardi was able to export rum from the Bahamas to Europe under more favourable conditions than rum produced at its plants in non-ACP countries like Mexico.

Caricom leaders did not object to this arrangement even though it was not to the advantage of the producers of traditional West Indian rum in countries like Jamaica, Barbados, Trinidad and Guyana.

All of them are producers of sugar cane which is the primary product for rum. The Bahamas had to import molasses or bulk rum from one of these Caribbean countries to qualify for the preference.

Bacardi bought shares in Angostura of Trinidad in 1971 “to provide our company with an additional source of bulk rum for export”. The West Indian rum producers did not like the idea of the giant Bacardi competing with them from the Bahamas.

Some of them suspected that Bacardi was behind the so-called zero-for-zero agreement between the US and Europe in 1997. Under this arrangement all duties on spirits, including rum, would have been removed in 2003 thus effectively wiping out the West Indian rum producers’ preference.

The suspicion that Bacardi had instigated the zero-for-zero agreement was strengthened when Bacardi sold its shares in Angostura in that same year, 1997. The West Indian rum industry got a reprieve when implementation of the 1997 agreement was delayed but what Mr. Miller now reports would mean that it will come into effect in 2007.

Bacardi, with its powerful marketing capability and name recognition, would then be able to produce rum for export much more cost-effectively in countries like Mexico and Brazil. It remains to be seen whether Bacardi will maintain its operations in the Bahamas after 2007.

* * *

Those who believe that the developed countries will put the interests of friendly developing countries above the interests of their own powerful corporate citizens should face reality. If third world countries like the Bahamas do not collaborate and fight for their own interests, they will most certainly lose out.

What has happened in Hong Kong and the whole globalization process gives credence to those who argue that it is being driven by powerful corporate interests rather than any concern for the hundreds of millions languishing in poverty in third world countries.

The gap between rich and poor countries has not narrowed with the much-touted benefits of liberalized world trade. It has, in fact, widened considerably. The developed countries have exerted relentless pressure on third world countries to allow free market access for their manufactured goods and for access to service industries.

At the same time the developed countries effectively block agricultural products from the third world with tariffs and scandalously generous subsidies and export support for their own farm produce.

In this, the Europeans are by far the worst offenders with the French being the most stubborn. The Americans have been urging the Europeans to slash these supports in the interest of free trade. US Trade Representative Rob Portman says that a new agreement on agriculture is central to any new global free trade deal:

“I believe either we move forward or we risk moving backward towards protectionism that will stunt economic growth and harm the developing world most.”

But as long as the Europeans hold out, the Americans will say there is not much they can do with regard to their own agricultural subsidies. So third world producers wait and get poorer.

During the first three days of the Hong Kong meeting says World Bank Vice President Danny Leipziger, “the rich countries have transferred more than two billion dollars to their farmers in various forms of support. In the same period, the 300 million poorest people in Africa have earned less than one billion dollars between them.

* * *

At the recent Commonwealth Heads of Government meeting in Malta, Uganda President Yoweri Museveni used cocoa and coffee to illustrate the unfair trade practices of the developed countries.

He told the Commonwealth Business Forum (reported by The Times of Malta) that the developed countries do not impose tariffs on cocoa, which is the primary ingredient of the lucrative chocolate industry. But if the Ugandans make chocolate themselves they cannot export it because a prohibitive tariff is exacted.

Uganda also sells coffee beans to Britain at $1 per kilo. That same unit is processed and sold for $10.

* * *

As the Bahamas seeks entry to the WTO, no time should be lost in collaborative efforts with other ACP countries to make the case for special treatment for small developing countries. This should be done in every appropriate forum and at every opportunity.

We must protect the Bahamas as far as possible and reserve opportunities for Bahamians in areas such as the retail sector, the construction industry, professions and services which do not require foreign investment. Otherwise we will be in for serious cultural convulsions and social and political unrest.

The government should also take to heart the lesson of the CSME debate. Now is the time to educate the Bahamian people about all the implications of our joining the WTO so there will be no nasty surprises at the eleventh hour.