Monday, May 25, 2020
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The symbiotic relationship between tourism, exports and the WTO

Dear Editor,

The debate in the public square over whether we should accede to full membership in the World Trade Organization (WTO) has produced a virtual cornucopia of old wives tales, misplaced fears and a general lack of knowledge of some of the facts that should inform the debate.

While some of it is deliberate (and even political) mischief-making, most of it reflects genuine trepidation of the unknown.

It’s better we stick with the devil we know, the argument goes, even if that devil cannot possibly serve our needs in the new global dispensation that we did not create but nonetheless must conform to.

We are the only country in the entire Western Hemisphere that is not a member of WTO, and one of only 16 in the world, keeping company with the likes of Azerbaijan, Iraq, Somalia and Syria.

Most striking in the debate is the belief that we have no business being in the WTO because we have precious little to trade with other countries.

This is where the fallacy starts, and it truncates plain old common sense. Nations trade with each other to earn foreign exchange, the true currency of globalization.

We need foreign currency to pay our foreign bills, the bulk of which are due to our having to import oil to run our imported generators and our imported cars; imported food; imported medicines, and just about everything that is not grown here.

Even local food involves some elements of foreign exchange because farmers invariably import seeds, fertilizers and equipment.

We tried our hand at manufacturing products like toilet paper but outside of the manpower component, everything else is imported. Because we have a high wage bill, the manpower component renders this prohibitive.

To compete, we resort to protectionism, placing high duties on foreign imports to protect domestic products even if 80 percent of it is also “foreign”.

In the past, our Caribbean neighbors earned foreign exchange by planting and selling agricultural products like sugar and bananas.

This was lucrative only so long as the former colonial master could impose protectionist measures of its own to give Caribbean agriculture a competitive fighting chance in the U.K.

The European Union (EU), which is an anchor of the WTO, and its predecessor, the GATT (General Agreement on Tariffs and Trade), were forced by the U.S. to drop the preferential treatment given to former colonies.

Even though the U.S. exports neither sugar nor bananas, it nonetheless threatened action to protect the profits of its multinational corporations like Dole and Chiquita, which own mega plantations in Central and South America.

As a result, the farmlands in the Caribbean lied fallow and the sugar cane stills rusted so the region en bloc turned to tourism.

Unlike typical exports, with tourism the consumer comes to the supplier. But make no mistake, tourism is our principal export and we make over $2.5 billion a year from it. Yet the current debate doesn’t capture this fact.

We tax this export heavily. Before the tourist even steps onto Bahamian soil, we charge him over $100 in airport-related taxes for the “privilege” of coming here.

Before he rests his head on the fluffed pillows of our hotels, we “tax” him for that slumber.

Few have a problem with this, although intellectuals like former Tourism Minister Vincent Vanderpool-Wallace rightly argue (but in vain) the economic truism that if we lowered the airport tax more tourists would come and contribute more than the sum total of what the treasury would lose by lowering airport taxes.

The WTO is well aware of the importance of tourism as an export. It is the world’s largest industry, generating over $8 trillion a year.

The WTO Working Group on Tourism Services accepts as the main components of tourism expenditure items like accommodation, meals, local transport, entertainment and shopping.

That means the maid, the waiter, the taxi driver, the straw vendor, the lounge singer and the shop clerk are all components of our thriving export trade. They have a stake in our WTO negotiations, but not in the negative way in which the debate is currently being framed.

In addition to being labor-intensive, tourism is also capital intensive; and for Mr. Vanderpool-Wallace’s theorem to be proven, we will need to build thousands more hotel rooms across the price spectrum and on places other than Nassau/Paradise Island.

Expanding tourism should be a part of the debate. How will WTO accession help us maximize our earnings from tourism to replace what will be lost at the border from lowering duties on “boxed” imports?

It will mean that we import more food to feed the tourists (because it is cheaper than growing it ourselves) while helping our farmers to take advantage of the global demand for organically grown, indigenous crops like pineapples, that fetch higher prices at Harrods in London than they ever could at Potter’s Cay Dock. The Eleuthera farmer is incentivized to become an important foreign exchange earner.

It could help fishermen sustainably trap lobsters and allow for ease of entry of live fish stock into Japan where the demand for sushi is infinite. The fisherman becomes a serious forex player.

While we don’t need full WTO membership to take advantage of these opportunities, lowering the cost of inputs into their businesses would make our lobsters and pineapples price competitively with other countries.

When Alfred Sears ran against Perry Christie in 2017 for the leadership of the Progressive Liberal Party (PLP), he was a lone voice articulating a bold new economic plan for The Bahamas. He envisioned a new paradigm to replace the very same Stafford Sands model that many are begging the government to cling to, decades after its sell-by date.

That model ordains customs duties in perpetuity while requiring us to tax most of what enters the country, contributing to high prices for consumers. This is unsustainable.

Lower taxes at the border and merchants will have to become transparent in their pricing and profit ratios. They will have to explain why a jug of Tide washing liquid that sells for $18 in Miami fetches $43 in Nassau.

As a share of total exports, our tourism receipts make us number seven in the world at 76 percent. Yet with so much of our economy hyper-dependent of this export, it is folly for us to keep our head in the sand and say the WTO has nothing to offer us.

Facts are immovable objects. Little wonder then that the current debate prefers to dance around them.

– The Graduate

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