Identifier
Created
Classification
Origin
06NASSAU612
2006-04-06 20:27:00
UNCLASSIFIED
Embassy Nassau
Cable title:  

BAHAMAS BACKGROUND FOR CARICOM-USTR MEETING

Tags:  ETRD PREL BF 
pdf how-to read a cable
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RR RUEHWEB

DE RUEHBH #0612/01 0962027
ZNR UUUUU ZZH
R 062027Z APR 06
FM AMEMBASSY NASSAU
TO RUEHC/SECSTATE WASHDC 2396
INFO RUEHBE/AMEMBASSY BELIZE 1243
RUEHWN/AMEMBASSY BRIDGETOWN 5382
RUEHGE/AMEMBASSY GEORGETOWN 3509
RUEHKG/AMEMBASSY KINGSTON 8321
RUEHPU/AMEMBASSY PORT AU PRINCE 3352
RUEHSP/AMEMBASSY PORT OF SPAIN 4514
RUEHDG/AMEMBASSY SANTO DOMINGO 2630
RHEHNSC/NSC WASHDC
UNCLAS NASSAU 000612 

SIPDIS

SIPDIS

STATE FOR WHA/CAR WBENT
STATE FOR USTR

E.O. 12958: N/A
TAGS: ETRD PREL BF
SUBJECT: BAHAMAS BACKGROUND FOR CARICOM-USTR MEETING

UNCLAS NASSAU 000612

SIPDIS

SIPDIS

STATE FOR WHA/CAR WBENT
STATE FOR USTR

E.O. 12958: N/A
TAGS: ETRD PREL BF
SUBJECT: BAHAMAS BACKGROUND FOR CARICOM-USTR MEETING


1. The Bahamas will be represented at CARICOM's April 12
meeting with USTR Portman by Foreign Minister Fred Mitchell
and Leonard Archer, the Bahamian Ambassador to CARICOM.
Background material on The Bahamas and Minister Mitchell
follows.

Economy is Small but Developed
--------------


2. The Bahamas is a small economy highly dependent on
tourism and financial services for its growth. Tourism,
originating predominantly from the United States, accounts
for over fifty percent of gross domestic product. Financial
Services, the second-largest sector, contributes fifteen
percent of GDP -- the more than $280 billion in foreign
assets managed in The Bahamas makes it one of the largest
offshore financial centers in the Caribbean. Per capita GDP
is estimated at $16,000, among the highest in the region.


3. The Bahamas has a long track record of prudent
macroeconomic management and financial stability. The
Bahamian dollar has been pegged to the U.S. dollar at par
since 1973. Inflation has remained low, slightly below
inflation in the United States. With no income tax, the
relatively low tax burden is heavily dependent on customs
tariffs, which account for 65 percent of tax revenues.
Fiscal deficits and public debt are moderate, averaging
slightly over 2.0 percent and 30 percent of GDP respectively.

Trade Heavily Concentrated with U.S.
--------------


4. The Bahamas imported approximately $1.3 billion worth of
U.S. goods in 2004. With few domestic resources and little
industry, it imports nearly all of its food and manufactured
goods. American goods and services tend to be favored by
Bahamians because of cultural similarities and heavy exposure
to domestic American advertising from Florida. In addition,
the tourist industry prefers to purchase goods with which its
clientele, most of whom are Americans, is familiar. Roughly
three-quarters of The Bahamas' two-way trade is with the U.S.

Tariff Dependence Blocks Liberalization
--------------


5. The Bahamas' average tariff rate of over thirty percent
is among the highest in the world and almost doubles that of
neighboring Caribbean countries. The real impact of these
tariffs is not to protect domestic industry, of which there
is little, but rather is to raise revenue for the government.
Since The Bahamas must import nearly everything it consumes,
tariffs in effect function as an across the board sales tax.
The reduction and eventual removal of these tariffs through
trade liberalization initiatives would force a fundamental
change in the way the Bahamian government collects its
revenues.


6. The current government fears that one revenue-raising
option, the introduction of an income tax, would be political
suicide in The Bahamas, which takes great pride in being
"tax-free." Another option, a value added tax, is opposed by
merchants, who do not wish to incur the costs and
inconvenience associated with collecting it. Most Bahamians
believe the country will benefit little from trade
liberalization due to its small export base, making nearly
any disruption to the revenue system not worth the cost.


7. The government is interested in becoming a member of the
World Trade Organization, mainly for a seat at the table when
services issues are discussed. It is less enthusiastic about
the Free Trade Area of the Americas although it has
participated in the process. After several months of
contentious debate in 2005, however, the government has
stated that it will not join CARICOM's Caribbean Single
Market and Economy (CSME),at least for the foreseeable
future. Foreign Minister Mitchell was the government's point
man on CSME, but his arguments for maintaining CARICOM unity
failed to overcome the public's overriding fears about the
free movement of people, monetary union, and the Caribbean
Court of Justice, leading the government to suspend
consideration of The Bahamas' CSME participation.
Minister Mitchell: Capable but New to Trade
--------------


8. Fred Mitchell has been Foreign Minister of The Bahamas
since May 2002. He is one of the government's sharpest and
most active ministers. Mitchell was chairman of CARICOM's
foreign minister group in 2005-06 and hosted Secretary Rice
in Nassau for a meeting with the CARICOM foreign ministers in
March 2006. Minister Mitchell received responsibility for
trade negotiations in February 2006 after the Prime Minister
reshuffled his Cabinet and adjusted portfolios.


9. Mitchell holds a Masters degree in Public Administration
from the Harvard School of Government and an undergraduate
degree in English from Antioch University in Ohio, as well as
a law degree from the University of Buckingham in England.
Prior to his political career he worked as a journalist and a
lawyer. He is single with no children.

HARDT