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Bahamas Minister of Financial Services 2014/15 Budget Contribution‏

Jun 13, 2014

2884

Remarks By

Hon. L. Ryan Pinder

Member Of Parliament For Elizabeth

Minister Of Financial Services

2014 / 2015 Budget Communication

June 10, 2014

Introduction

Mr. Speaker,

On behalf of the people of the great constituency of Elizabeth and as Minister responsible for Financial Services, Trade and Industry, I rise to offer my full support to the 2013-2014 Budget.The budget is a forward looking, progressive, and realistic statement of the Government of The Bahamas’ intent for betterment of the people of The Bahamas. We came to office and were faced with an unexpected fiscal mess created by the clear negligence of the prior FNM administration. We have worked as a government assiduously to ensure that our international financial reputation is intact, while causing for sustainable investment and growth in our economy, providing opportunities for Bahamians. Mr. Speaker we promised the Bahamian people a more responsible Government and a Better Bahamas and with hard work and God’s help we are delivering.

As I have said before, I represent an economically diverse constituency.However, while the economic realities of the people of Elizabeth may run the full spectrum of possibilities, I feel that all my constituents’ hopes and desires for their children, their siblings, and themselves are the same.We want confidence that the country is being run in a secure and sustainable way to ensure opportunity for growth and prosperity, we want confidence in our future, confidence we will be prepared as a people to take advantage of opportunities that are created. This PLP Government is providing just that for the Bahamian people.

Elizabeth

In the constituency of Elizabeth we have had an encouraging year. We have seen the growth and development of the small business program launched last year, with those who have been in the program developing successful businesses for themselves. We have seen 10 residents take advantage of scholarships provided to Success Training College to further their educational endeavours, and successful students who took advantage of partial scholarships to BTVI. I take pride when I see the report cards and the excellence being achieved by the aspiring youth of the constituency.

Following on the success of last year’s small business program, we look to further refine the offering to reach those who most need empowerment, those who the focus is needed. This year we will launch The Second Chance Entrepreneurship Program in Elizabeth, a program to further the Rehabilitation, Transformation, Intervention and Empowerment for Ex-Offenders & At-Risk Men and Women. The program’s main focus is to ensure that the above individuals start and operate businesses successfully with support from a cadre of stakeholders. The program has five stages: (1) Registration and Vetting, (2) Entrepreneurship Training, (3) Business Start-Up, (4) Business Support and (5) Reciprocity and Evaluation Process. We are encouraged and excited to bring this training opportunity to the Elizabeth constituency, to provide hope and opportunity to residents who because of a mistake in the past are foreclosed from normal employment opportunities in our country. We are a party who believes in the redemptive power of second chances, this is an attempt to bring that philosophy to the residents of Elizabeth.

The Malcolm Creek restoration was completed, along with upgrades to the neighbouring park so residents in and around Yamacraw Beach can enjoy the wonders of nature in their back yard, observation towers to view the natural birds and wildlife, gazebos to enjoy an afternoon on the park. Elizabeth is day-by-day, year-by-year becoming a better and more enjoyable place to live.

Similar to how we planned for the restoration of Malcolm Creek, I have asked the Bahamas National Trust to advise me on the environmental restoration and enhancement of the waterfront in St. Andrews Beach Estates. This is to ensure that the natural mangroves in the area are preserved, invasive vegetation is removed, native vegetation is re-planted, and the beach is replenished. This coupled with the addition of benches, gazebos, and grills so the community can better enjoy the waterfront access that is in their backyard, ensuring all improvements are done in an environmentally sustainable manner.

The vexing problem with the bathrooms on the large park in Elizabeth Estates is now solved thanks to the efforts of the Ministry of Works, and local contractors from the constituency. The bathrooms have been repaired and renovated and are functional and clean. We have plans this coming year to invest heavily into that park to turn it into a community sporting complex with re-surfaced basketball courts, volleyball courts and tennis courts, new bleachers, a walking track, football, soccer and maybe even a baseball field. Transforming the Elizabeth Estates community and allowing for the youth of the community to have positive activities in their back yard. We look to advance this as a public private partnership to ensure we bring the best opportunities to the Elizabeth community.

We continue to work hard in the constituency of Elizabeth, to provide opportunities for a better way of life, both socially, environmentally and economically. I will not stop in this quest.

The Fiscal Budget

This budget is premised on responsible spending, better revenue collections, and the balance between sourcing necessary government revenues against economic sustainability. This is a budget that continues to right the fiscal wrongs and irresponsibility of the prior FNM administration. This is a budget process over the last couple of years to ensure that the Bahamas does not fall into the financial abyss of some of our brothers to the south, but finds itself on a stable and sustainable financial course for the years to come.

The numbers demonstrate this. The prior FNM administration took office in 2007, inheriting the prior PLP Government budget to a large extent and in 2007/2008 ran a deficit of $197 million. The next fiscal year, 2008/2009, the FNM first real budget, the deficit increased 118% to $430 million. 2009/2010 the deficit increased to $488 million; 2010/2011 the deficit fell to $243 million, the reduction attributable entirely to the sale of BTC; 2011/2012 the deficit grew to $508 million, and in 2012/2013 which is largely the FNM budget we inherited as a Government that had commitments to be paid of the former government the deficit was $647 million. That is an astronomical, unsustainable and fiscally negligent trend by the former FNM administration. Faced with this challenge, this PLP Government dedicated itself to arresting the financial spiral we found ourselves, reducing the deficit by almost $100 million in 2013/2014 to $550 million and again by almost $170 million to $384 million in this 2014/2015 budget. In two years we have reduced the deficit to lower than what the FNM ran up in their fiscal budget. This PLP Government has the financial affairs of the country on the right path, there is no denying that.

Tax Reform

As part of our fiscal consolidation program, this Government has undertaken the task of initiating the first comprehensive tax reform process since before independence. The current program of tax reform is intended to put the sustainable fiscal affairs of the government on sound footing. The current tax model is unsustainable, there is not sufficient revenue to support the obligations of the government, the tax base is too narrow. We as a Government believe that a Value Added Tax at a rate of 7.5% should be implemented to better provide government revenue, accessing a tax base that is broader and more equitably spread. We have not done so without reviewing other tax systems, this includes an income tax and a payroll tax. I will explain why a value added tax was chosen, and why an income tax and a payroll tax was not.

I believe the primary constraint for the fiscal affairs of the country is that our tax base is far too narrow. With the level of concessions that are granted, coupled with sectors that go untaxed such as the services industry and the domestic gaming industry, the current tax base cannot sustain the recurring financial obligations of the Government. It is important to point out that in the process of tax reform, in the policy and methods chosen, there has been comprehensive analysis of options, there has to be a recognition of efficiency of operation of the tax policy chosen, its effect on the economic model and development, and its effect on the people. You cannot determine a taxation method and policy in a vacuum.

Enhanced Revenue Collection – Before discussing VAT and other tax policies, it is important to emphasize that the Government is active in ensuring better collections of taxes otherwise due the Government. There are a number of examples of how the Government is going about this. It was recently announced that the Ministry of Finance has outsourced the collections of real property tax arrears. This is a positive step to collecting uncollected and owed revenue, we know the challenges, politically and otherwise, of the Government, regardless of administration, enforcing the collection of unpaid real property taxes.

The Minister of State for Finance announced that his Ministry is implementing a modern property tax regime through the introduction of new Property Tax Management System to improve the coverage ratio of the tax system, provide accurate tax information, manage arrears and collections and lead to an overall enhancement in the efficiency of the department.

The Minister of State for Finance has also announced that the electronic window for customs is open. This is where customs brokers will have to electronically clear shipments. This will not only ensure more efficiency in the operation of businesses in the Bahamas, but will minimize corruption, incorrect declarations and non-payment of amounts owed. This is another effort by the Government to ensure collection of taxes that are due and owing.

I would like to clear up, however, one misconception that is in the public domain. The Financial Secretary recently gave a statistic that only 46% of assessed customs duties were collected. Although we recognize that there are some challenges in customs, which we are addressing in part with the electronic window, the statistic is a little misleading as it included non-payment due to incentives granted. When one looks at the customs data, it will show you total assessed value of imports in the country by item, it will then show you what is collected. In most instances where the amount collected is significantly less than the amount assessed, this is due to incentive regimes such as the Hotel Encouragement Act, Industries Encouragement Act, Downtown Encouragement Act, Family Island Encouragement Act and Agriculture exemptions. These figures were included in the 46% collection that the Financial Secretary was referencing. Every modern economy uses tax policy and incentives and exclusions from tax as an economic development tool, we are no different. We heard the Minister of State for Investments speak of the incentive regimes used in encouraging investment, I am the Minister responsible for Industry where we give duty concessions for manufacturing development. These are a normal factor of economic stimulus and diversification and should not be included in the argument with respect to tax collections.

Value Added Tax – The Government of the Bahamas has decided that a value added tax will be a fundamental element of tax and fiscal reform of the Bahamas. The underlying philosophy of a VAT is that it by nature expands the tax base, the portion of the economy that is subject to tax. VAT, unlike the current tax system, taxes the services industry of the Bahamas, an industry that largely goes untaxed.

VAT is a consumption tax by its nature, ultimately every phase of consumption is taxed, all expenses, or inputs in a business are taxed, and through a credit system ultimately, in the current announced position, the total tax remitted to the Government is equal to 7.5% of the value of the final product. As mentioned, VAT is charged on goods and services, an element that makes this tax system attractive. Since a business has to file a return in order to claim the credits, to ensure that they are not being over taxed, VAT is to a degree self enforcing. This mechanism is thought to increase the likelihood of compliance of a VAT system.

The Minister of State has announced that effective January 1, 2015, the date VAT will be implemented, there will be select reductions in duty and excise taxes on goods. There will be a subsequent review at the next budget cycle. I frequently say that in the context of tax reform, the economic consequences should be evaluated. It is my recommendation that in the context of addressing select reductions in duties, the goal of the Government should be to do so with a mindset that those items selected are done so as not to stagnate economic development, and to also consider any inflationary effect on Bahamians at large.

We as a government have also decided to revise the VAT model and implement with minimal exemptions. This I support, it broadens the tax base, and minimizes the adverse effect VAT would have on businesses that would otherwise sell a significant proportion of exempt goods. This model addresses much of the concerns and objections of Rupert Roberts and other food store owners.

VAT has been implemented in over 140 countries throughout the world. We have heard arguments that a VAT is a regressive form of tax that is harmful to economic growth, however, the OECD has found that VAT is less harmful to growth than personal income taxes, corporate taxes and taxes on capital.

Income Tax – We have heard some, such as the Member for Marco City, advocate for an income tax. His argument is that it is a more progressive tax, putting a higher tax burden on the rich. An income tax has its challenges, and especially in a small country with limited resources. An income tax is based upon voluntary compliance and declaring your income. This is an inherent limitation in the enforcement of an income tax system. Because the assessment and collection of income tax is voluntary, the costs and expenses associated with enforcing this tax system are high. There is some truth that an income tax system is more progressive because you can have higher rates with higher incomes, challenges of enforcement are great.

There are also adverse economic impacts of an income tax system in our current economy. Much of our financial services industry is based on the fact that there is no tax on income, capital or inheritance. An income tax would put at risk the 20% of GDP that the financial services industry represents in the economy, and put at risk the indirect contribution to GDP of the financial services industry, 16% of GDP attributable to professional services that depend on the financial services industry. We also have a significant ex-patriot resident population that is in the Bahamas because there is no tax on income, capital or inheritance. This ex-patriot community contributes both directly and indirectly to the economy through the purchase and building of second homes, related employment, and expenditures in the local economy. The imposition of an income tax would likely put at risk this segment of our population that has economic impact. Although there are arguments in favour of an income tax, the adverse economic impact, and the challenges of enforcement are persuasive that an income tax might not be the best option given our economic model and our culture.

Payroll Tax – We have heard some advocate for a payroll tax. The payroll tax would be more regressive and concentrated on the poor. For example, business owners would choose not to be paid a salary, but would elect to take profit distributions or dividends instead from their businesses. This can also take the form of having their company acquire assets and items on behalf of the individual owner. In an environment of many small business owners, the opportunity for abuse is great. This type of manipulation of a payroll tax would result in only those who depend on a job and a steady weekly paycheck to be in the tax pool, an unintended consequence that would result in the poor and working class being the persons who bear the greatest proportion of the tax. Certainly something that those such as the Member for Marco City would not support.

One might say that to address this proposed abuse, dividends should be taxed. This essentially would be the same as an income tax, which I have explained above the challenges of an income tax in our society and with our economic model. Our financial services industry, second home market, and private wealth planning industry are dependent on a zero tax, or tax neutral environment, and it would all be in jeopardy, some 36% of our GDP.

[Nassau Guardian]

Economic Growth

Before discussing matters specific to my portfolio, I wanted to take an opportunity to discuss a few items that I believe with respect to economic growth and fiscal governance. I am not one who believes that austerity measures is the way to address revenue shortfall and budget deficits. I believe in efficient and effective spending, limit waste, however, austerity for austerity sake does not produce economic growth.

I am one who believes in growth as compared to austerity. Growth requires investment, requires promotion, requires spending to advance new economic models, new ideas, new strategies. It is only through investing wisely in growth and development of your economy where new opportunities will emerge. We however also have to recognize that we must be flexible in policy matters in order to take advantage of growth in a changing international marketplace.

For example, we can all agree, that despite what some of us might believe, the Bahamas has based its economic development on international business and international investment. Foreign direct investment contributes significantly to the investment capital in the country. The hotel industry is largely an international industry. Our financial services industry is an international industry, whether through businesses present in the Bahamas, or more so the clients that do business within the industry. Specifically in financial services, as I will discuss, a fundamental element of our growth model is the establishment of defined, transparent residency programs, attracting high net worth international clientele to our country, to live here, invest here and do business here.

As an international business centre, in an ever changing international and global business arena, we also must be cognizant to the fact that expertise within our professional services providers is needed, and different expertise may be needed depending on how the economic environment is changing. For example, both domestically and internationally tax and tax policy is playing a significant factor in our economic model. We have not been a country that has had to develop tax expertise, whether it be for our domestic economy, or the development of our international business. Today is different, we require this expertise to advance and develop, we do not have this expertise in the Bahamas.

We must find a way where we as a country are inviting to allowing this expertise to come while putting in a framework where knowledge can be transferred. As such, I completely support the opinions of Sean McWeeney, QC in his speech to the recent STEP Caribbean Conference where he called for a more liberal, open bar where international specialty practitioners are permitted to come and practice, and contribute to the economic advancement of our country. In doing so, we also must assure that the knowledge is transferred, Bahamian practitioners are trained. This takes time, training in these specialty areas does not happen overnight, but I believe our practitioners have to commit to a regime of continued training and retraining if we are to advance in a world of changing expertise.

Financial Services: Refocus, Re-Energize and Re-Engage

Since taking up this position as Minister of Financial Services in 2012, three words have defined my tenure: Refocus, Re-Energize and Re-Engage. I had to refocus the workings of the government on the development of the financial services sector. I had to re-energize The Bahamas’ brand in the international arena and third, I had to cause The Bahamas to re-engage the world so that everyone from the business people in Sao Paolo to the standard-setters of the OECD understood what The Bahamas was about.

There are challenges and volatility of the global world of financial services and the uncertainty as it relates to financial centers. There are many outside influences that affect not only the growth prospects of the financial services industry, but in some instances, can affect the viability of the international financial services industry. We have seen fallout from the unique pressures being faced by Swiss banking institutions, we have seen the evolution of international best practices in transparency, money laundering and a movement towards tax automatic exchange initiatives. We have seen consolidation of institutions, regional realignments and public and political admonishing of products and structures utilized in our region.

The Bahamas, as a mature financial services centre, understands that greater transparency in financial matters is the new order of the day. Notwithstanding this understanding, I believe that the largest threat to our Financial Services industry are matters related to an unjust evolution of tax transparency and automatic exchange. I also believe that the largest opportunity in Financial Services for the Bahamas are in matters related to the evolution of tax transparency and automatic exchange and how we position ourselves and build resilience in the face of what will be change in how we do business.

Some in our industry feel that the historical financial services industry of the Bahamas is threatened, and they may be right; however I believe that we are not historical, we are not and have not been like the rest, we are a progressive and sovereign country. We have the focus and dedication to advancement and growth that is required to come out ahead, we will succeed, we will grow, we will evolve, and we will continue to create opportunities for Bahamians in financial services.

The main topic of conversation and discussion when the future of the financial services industry is referred to has to do with the progression towards and acceptance of a global standard for automatic information exchange. I would like to highlight some of the international initiatives that we are focusing on, and planning for to transform a threat into an opportunity.

OECD Standard for Automatic Exchange of Financial Account Information – The OECD, with the support of the G20 and G8, has been over the last few years advancing a global standard for the automatic exchange of financial account information. Under the single global standard released in February jurisdictions obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures. The intent is to implement this global automatic regime through negotiated bilateral agreements between countries.

The OECD has decided to obtain commitments from countries to the automatic exchange of financial information as a standard through the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and has called for all countries, including financial centers, to sign up as early adopters. The Bahamas has not indicated to the OECD that it intends on being an early adopter however, we do recognize the evolution of the global standard on automatic exchange of information and will always make decisions in the best interest of the Bahamas, its citizens and economic welfare and consistent with international best practices.

Foreign Account Tax Compliance Act – These proclamations and commitments to automatic exchange of information and allegations against tax avoidance planning all come on the heels of the United States and their attempts to put in place the Foreign Account Tax Compliance Act, better known as FATCA. FATCA was signed into US law in 2010 through the US Hiring Incentives to Restore Employment Act and has the effect of designating financial institutions around the world which receive US payments or deal with US clients as “Foreign Financial Institutions” (FFIs). Under FATCA, FFIs are required to register with the United States Internal Revenue Service (IRS) and to report certain account information to the IRS with respect to persons considered US persons for tax purposes. Failure to report this information either directly to the IRS or through the relevant government agency can result in a 30% withholding being applied to the institutions payments from United States sources.

The Bahamas Government chose to implement FATCA through an agreement to exchange information between the Government of the Bahamas and Government of the United States through an Intergovernmental Agreement. We chose the Model 1 agreement which causes the information to be reported to the Bahamian Government, and then the Bahamian Government provides it to the United States Government. We were able to negotiate key exemptions for our industries and products that were innovative. We negotiated sponsored exemptions for trusts, were able to negotiate feeder funds, private trust companies and foundations as an exempt sponsored investment entity. We were also the first country to negotiate the agreement to be a FATCA only agreement, and not refer to supporting the global standard on automatic exchange of information. These were truly progressive. We were able to negotiate exemptions when our counterparts such as Barbados and the Cayman Islands were not. I am pleased to announce that last week the US State Department approved all of our amendments and revisions, setting the Bahamas apart.

US Enforcement Action – FATCA is not the only US initiative that is a perceived threat to the industry, the continued enforcement action by the US against tax evasion is a growing concern. We all know the story of the US and UBS in Switzerland. That investigation and settlement with UBS caused significant upheaval in the Swiss banking system, and had a fundamental effect on the operations of UBS, the largest Swiss bank. We have seen the investigations continue, with criminal indictments of bankers from Switzerland, and even recently the criminal charges and $2.8 billion fine against Credit Suisse, the second largest Swiss banking institution.

We have recently seen the US pursue their enforcement action in the Caribbean region. We have seen John Doe Summons issued with respect to CIBC and Butterfield Bank, both regional banks, and we have seen criminal indictments of advisors associated with the region. There is a thought that the US as it works itself through the Swiss bank matters is refocusing to this region. The head of the DOJ’s tax division, shortly after the Credit Suisse guilty plea, was quoted saying “we expect to get from the Swiss banks a wealth of information that will lead us to the rest of the world, and that information will be fuelling our investigations for some time in the future.”

The Swiss Government and the Department of Justice have agreed to a program to finally address the enforcement matters. The Program divides banks into Categories 1 through 4: (1) banks under grand jury investigation; (2) banks that have reason to believe that they may have committed a tax crime; (3) banks that did not commit a tax crime; and (4) local banks. Those Category 1 banks who have reached a settlement and those in Category 2 are obliged to provide information to the United States Government information on structures, flows of funds, and independent verification of US related accounts. We as the Government, and the private sector must work together to better understand this DOJ Switzerland program and how we as a country, and the Bahamian financial services industry are best prepared.

EU Initiative – In the face of its economic woes the European Union is leading policy action in an area that could potentially be a risk to all financial centers, the desire to create a public registry of beneficial ownership of shareholders of companies, and of trusts. Even more concerning is the rhetoric that is being used to support this initiative. Financial Centers and the services and products that are fundamental to them are being portrayed by European politicians as a beacon of corruption, in fact the foundation of corruption, and we cannot stand for our country, our industry to be falsely portrayed as such.

David Cameron in a recent statement following a G7 meeting in Brussels stated: “The best way to fight corruption and drive growth is through what I call the three Ts: greater transparency, fair tax systems and freer trade.

We need greater transparency over the ownership of companies and the use of natural resources to stop corrupt officials, oligarchs and money launderers from plundering the wealth of countries and funnelling money around with impunity. …

On the ownership of companies, the G-20 has agreed that companies should know who really owns and controls them and that tax collectors and law enforcers should be able to obtain this information easily. In the U.K., we have committed to making this information public. But we need others to do the same. Until this information is easily available in every country, we will never completely lift the cloak of secrecy that is allowing corrupt regimes to stash their money abroad under false identities.

Last year, the G-8 agreed to work toward common global standards of transparency in extractive industries to help end the scandal of people in power looting billions of dollars from countries that are rich in oil, gas and minerals. Europe has already agreed to rules for public, company-by-company and project-by-project reporting of payments to all governments. Canada plans to follow suit. We now need the U.S. to do the same, so we can work together to deliver common global standards. There is no reason we can’t all agree to this within the next few months.”

We can be forced to evolve our industry, to respond to global shifts in new standards, however, we cannot stand by idly and be portrayed in this negative light, I for one as Minister of Financial Services for the Commonwealth of the Bahamas will not do so, we are a sovereign financial center which takes pride in providing legitimate and lawful business services and I will defend our country and our industry. Nor will I stand by and watch the EU take away a person’s right to financial privacy. We can have transparent systems with clear rules and guidelines while maintaining privacy. I wish to remind those who sit in the safety of Europe that there are many places in the world where wealth is a safety hazard. The wealthy and their family face real dangers making privacy still a necessity.

The Way Forward

In the face of all I have described, one would be expected to question the way forward for financial centers such as the Bahamas. I, however, look at the challenges and seek out opportunities, identify what sets the Bahamas apart, where do we find growth, where do we find areas that differentiate us as a full service business center. Today, in an international environment that seems to be plagued with volatility and unpredictability, the independence and sovereignty of the financial center provides international clients with what is needed to mitigate the political risk that seems to be the single most significant risk factor for international investors and clientele.

In order for the financial industry to advance and stay ahead of the constant change in the global arena, the industry itself must continue its transformation. I typically speak about the Bahamas as an international financial center that offers a diversified offering of product and services to support the products. In fact, this was the underpinning of our 10-year strategy in financial services, to cause the Bahamas to be a full service business center.

Many would hear me opine that there are limited prospects for financial centers that are generally commodity jurisdictions, focused on a single product and how many of those products or structures they can sell in the international marketplace. We have seen the international attack and name and shame game in recent years with a motivation of bringing down these jurisdictions.

Having financial centers that are full service offerings, or diversified offerings is imperative for preservation and growth. Having a focus on not only a wide range of product offerings is important, but so is having the service providers to support the elements of your industry. Ultimately attracting physical presence operations, both from a commercial offering side, but also client side is fundamental. It is a process that we believe in. First we must have the products to be attractive to clients; we then must create the confidence for them to continue to bank assets with us, and then we have to instill confidence in our clients to follow their money and establish physical presence, both individually, and portions of their business to the country. Attracting a wide range of products, services, and physical presence business operations demonstrates substance, credibility, demonstrates a business center, providing a platform with business purpose.

The fact that we have structured our financial services industry in this fashion provides opportunity and insulation against certain of the multilateral tax initiatives I have already discussed. This model of growth and operation also provides insulation against the volatility of elements and businesses in the global industry. Us tax attorneys operate under the belief and philosophy of “substance over form”.

I also believe the success of a financial center is dependent upon the creation of new product offerings to meet market challenges and remain relevant in new growth markets. We in the Bahamas have invested considerable resources and intellectual capital in this initiative. We have responded to a focus on new markets with new products. This year we extend our successes in Brazil to Mexico and China. We plan to re-energize these markets.

We, however, have also recognized in the context of the international initiatives I have discussed today, that new product development is key to expanding on opportunities that are presented. I believe that The Bahamas can position itself to take advantage of its natural assets and business platform to attract new residents who will engage in substance over form in The Bahamas. We must commit ourselves to a framework of immigration reform to encourage true physical presence and tax residence in the Bahamas. The risks and imposition on privacy demands a sustainable, credible and transparent residency product, both in the form of permanent residency, and even temporary residence.

We believe a framework for residency based on both the acquisition of property, as well as the operation of a business, coupled with tax certification based upon days spent in the country is the most ideal framework for growth. We believe this strategy creates opportunity out of an otherwise intimidating international initiative, supports the development of substance from within the jurisdiction by giving a framework for small institutions, such as family offices, investment advisors and other closely held service providers to base in the Bahamas. One must through new product development and refinement create opportunity out of changing situations, and do so in a nimble and innovative fashion. We have also benchmarked ourselves against other reputable financial services centres – namely the United States and the United Kingdom.

In the face of evolution of our industry, creation of new products and identifying new opportunities, we must maintain the defense of our industry, the defense of our country, the defense of our sovereignty. We must insist on having input and persuasion as standards develop, we must defend our integrity, we must have sustained engagement in the international arena. Through sustained engagement as a financial center you can advance initiatives favorable to your industry development. The end goal of sustained engagement should be to ensure the voice of the jurisdictions that are doing business in the otherwise threatened environment is heard.

The Bahamas is committed to having sustained and direct engagement on the development and implementation of the OECD standard on automatic exchange of financial account information, we believe we can formulate and advance positions that will provide opportunity through its implementation. We are active participants in the Global Forum Committee on Automatic Exchange of Information. We are likewise members of The Committee of Experts on International Cooperation in Tax Matters at the United Nations. The Bahamas has advocated the position of international financial centers at a meeting of technical experts of the G20 on this issue. The Bahamas has also engaged at the diplomatic level to encourage our partners who are members of the G20 and OECD to advance our advocacy.

Center of Excellence in Financial Services – It is important, as we plan and implement strategy to develop and grow our financial services industry in the face of what might be thought of as intimidating circumstances, that our people are prepared, our people have an opportunity to develop new knowledge, are able to fill the human capital gaps that will exist. We will see the Center of Excellence in Financial Services a reality. The University of the West Indies and the Bahamas Institute of Financial Services have agreed to work together towards the establishment of the Caribbean Centre of Excellence for Financial Services.

Based on the over three decades of experience in providing professional certification and expertise in the Financial Services Sector, the Bahamas Institute of Financial Services is eminently placed to provide the level of international credibility to the centre’s offerings. This, in conjunction with the internationally recognized brand of the University of the West Indies, places the region in an extremely advantageous position to strengthen and advocate on behalf of a sector so critical to the regions overall economic development.

Regional Ministers in attendance at the 3rd Caribbean Conference on the International Financial Services Sector held in Nassau Bahamas from March 31-April 2nd fully endorsed this Agreement as the way forward for the establishment of the proposed Centre of Excellence. Just last week the initial RFP for a consultant was issued to develop the way forward for the Caribbean Centre of Excellence for Financial Services. This Center of Excellence will find the support of the EU through grant funding. We will develop this to ensure that as we chart or journey through what seem to be challenging times, our people are prepared for the new horizon in financial services, as we develop new products requiring new expertise, there will be an opportunity for our people to have that expertise. These are challenging and volatile times in the industry, but I have firm belief that we will come out ahead, we will do as we always have, persevere, find out opportunity and embrace it.

Trade

Our trade policy continues to develop with an intent on causing international trade to be a significant component of our economic development and to provide new opportunities for Bahamians. We heard the Member for Marco City speak to how Freeport is positioned to absorb population and economic opportunity from throughout the Bahamas. I agree with him. However, I believe this can only become a reality if trade is a fundamental component of our economic development.

Value Chain – Since becoming the Minister responsible for trade, you would have heard me speak to a strategy that includes the Bahamas being part of the global value chain, contributing in the way of value added trade. Global trends are not supportive of a traditional industry concept of manufacturing a product from the ground up, meaning that one jurisdiction creates an entire product for export. Rather, there is considerable demand for jurisdictions where inputs from various countries are brought together at a trade centre where the production process might be advanced or completed.

A value-added trade strategy is one that seeks to increase the value of a product at each stage of production, utilizing both trade in goods and services. It has the potential of leveling our trade balances by simultaneously increasing our export of goods (namely the value-added product) and services (for example distribution, transportation and professional services).

The Bahamas, more specifically this city of Freeport, presently contains the necessary international trade logistics infrastructure for the creation of such value-added trade centers. The trade logistics infrastructure is arguably the best in the hemisphere including: the container port, transshipment terminals, shipyard repair facilities and our geographical location at the crossroads of the Americas. We have the infrastructure to place the Bahamas in the middle of the value chain. The trade agreements which we have been busy negotiating can provide the necessary market access for those goods and services.

I would have announced that we were seeking cooperation from the Organization of American States in preparing a comprehensive case study / strategy document on implementing and developing a value added trade strategy in the Bahamas. I am pleased to announce that the technical representative from the OAS is scheduled to travel to the Bahamas next month to start work on this project. This is very exciting as we look to formulate a proven strategy for trade as an economic development tool for the Bahamas, providing new opportunities for Bahamians, and utilizing the trade hub of Freeport as envisioned.

CARICOM Canada – As Bahamians would know, The Bahamas and CARICOM Member States have been negotiating with Canada a replacement trade agreement to the CaribCan Agreement. The negotiations between Caricom and Canada have been long, involved, highly technical and with challenges. The tone of the Canadian negotiations to date places the onus on CARICOM to make concessions up front before Canada is willing to display flexibility on the issues of major interest to the region.

One of the more significant areas of disagreement include on what basis will we agree to services and investments from Canada. CARICOM maintains its preference for a positive list approach to scheduling commitments for supply of services. A positive list approach requires the Parties to only list the services sectors they are willing to undertake commitments/reservations on market access and national treatment. Therefore if a sector is not listed in the schedule of commitments, it would not be considered to be presented for liberalization. In the case of Investment, CARICOM maintains its preference for the positive list approach with respect to establishment, acquisition and expansion (pre-establishment). Canada has reiterated its preference for the use of a negative list approach for the liberalization of trade in services and investment and maintains that it currently has no flexibility in its mandate concerning the negative list approach to services and investment liberalization. A negative list approach requires the comprehensive inclusion of all sectors, unless the Parties list an existing measure that discriminates against foreign investors in their schedule.

Even with this area of disagreement, Caricom and Canada continue to negotiate. The Seventh Round of negotiations between the Parties is scheduled for 16-21 June 2014 in Barbados. Although a deadline of July 1 has been set, much work still remains between the Parties.

WTO Accession – The process towards WTO accession is on pace and continues. We continue to work on legislative updates as well as ensuring that we have the necessary infrastructure to be a viable trading partner consistent with international best practices. In order to advance as a trading hub, and in order for trade to be a fundamental part of economic development, guaranteed market access through WTO membership is a necessity. We are living a real work example of how we as a country and industry in our country can be compromised because we are not WTO members. If Caricom is unable to reach a trade agreement with Canada, and without WTO membership which will guarantee access to Canadian markets at most favorable rates or a bilateral trade agreement, industries in the Bahamas such as fisheries, salt, pharmaceuticals, oil which currently have preferred rates will no longer have them and be at a tax disadvantaged position to regional competitors when trading to Canada. We believe WTO accession provides the framework for development of our value added trade strategy of which I spoke earlier. Additionally, WTO membership and its attendant rules based framework ensures the type of transparent and predictable trading environment which foreign investors favour when considering jurisdictions in which to invest.

We are committed to keeping the Bahamian public informed, and consulting on the process. Recently at our request the Deputy Director General of the WTO visited The Bahamas for consultations. This is the most senior member of the WTO executive to visit The Bahamas during our accession process. We took the opportunity to have widespread consultations. I am pleased that the public consultation panel drew more than 250 Bahamians to participate, asking honest and sometimes provocative questions. We are a government that will involve the public in these sometimes complex and difficult decisions.

As a demonstration of our commitment to ensure that the Bahamian people are informed about this process we have allocated funds under the IDB Trade Loan to launch a widespread public information campaign in print, video and radio on the WTO process and what it means.

The Ministry of Financial Services is also collaborating with the Bahamas Chamber of Commerce and Employers Confederation with its representation of more than 500 registered companies in tourism, banking and finance, retail, construction and light manufacturing, to establish a public private partnership to provide the necessary support to businesses accessing international markets. The Ministry and Chamber recognize the importance of stimulating private sector development by supporting local exporters and importers with market intelligence and information to facilitate opportunities for trade and access to international markets, especially markets available through International Trade Agreements such as the CARIFORUM-EU Economic Partnership Agreement (EPA).

Additionally the Ministry continues to advance the process to undertake a vulnerability study on the WTO accession and hope that the study, which will involve the College of The Bahamas will commence this year. My Ministry, the IDB and the College of The Bahamas are in the final stages of selecting the consulting firm to undertake the study.

EPA Implementation – The Economic Partnership Agreement represents the only reciprocal trade agreement that the Bahamas has entered. At the time we signed onto the EPA, it was intimidating, it was confusing, but today, going into our 5th year, it is a tool for trade that is underutilized. The EPA allows products of the Bahamas, and the region to enter into the EU market duty free. It also provides a framework for our service providers to enter the EU market, from artisans, to professional service providers. The EPA and technical assistance from the EU under the development component of the agreement, continue the development of these industries in preparing for trade and taking advantage of the opportunities which the agreement can provide.

During the upcoming 5 year review period of the EPA, there is one particular trade area that I believe is underutilized, and that is the expansion of opportunities in trade in services, and especially professional services. We are primarily a services based economy, and in certain areas, have developed our talent to be superior providers of professional services. The parameters of the EPA, in my opinion, can be improved to allow our professional service providers more ease of access to the European market. Imagine our lawyers, accountants, bankers, architects, engineers, etc. having unfettered access to the EU markets, it’s a clear area where trade in services can increase opportunities for Bahamians. I have requested a specific review of market access in trade in services as part of the EPA review, with a goal to secure access to these markets, to enhance opportunities for Bahamians through the EPA trade agreement.

As mentioned by the Minster for the Environment, we have to continue to advance the argument of the Bahamas that we should have access to development funding assistance and that the unique characteristics of the Bahamas should be taken into account. We are an archipelagic country which has to routinely duplicate infrastructure when other countries only have to invest once. Also, due to our significant ex-patriot residence community with high incomes, the GDP per capita figures are skewed upward and do not reflect the realities of the Bahamas and its population. These arguments must always be advanced in international fora at every opportunity.

Development Assistance for Trade – As part of the EPA, the Bahamas is entitled to certain development assistance programs sponsored by the EU. We, however, are the only country in the Cariforum region to have not been allocated development funding for national programs, in part because of high GDP per capita, and in part because the former administration failed to properly execute prior development funding allocations. We in the Ministry of Financial Services, led by our recently established EPA Implementation Unit, have negotiated development funding for multi-country applications.

We have identified and secured 3 million Euro to assist in the development of Sanitary and Phytosanitary infrastructure and Standards development. The application which envisages increased cooperation and trade between The Bahamas, the Dominican Republic and Haiti will also result in technical assistance and training between the Bureau of Standards in the Dominican Republic (INDOCAL) and the Bahamas Bureau of Standards (BBS) and its standards development. This is a significant achievement that will go a long way in modernizing our standards regime, and providing opportunities for Bahamians in intraregional trade of which I will speak further.

Standards Bureau

The establishment of the standards bureau is critical to our national development. A standards system enhances the reputation of locally made products by assuring buyers that such products meet specified levels of quality and safety, thereby permitting domestic producers to compete more effectively not only locally, but also regionally and internationally. Moreover, such a system encourages fair competition in the marketplace, and provides necessary consumer protection by preventing unsafe products or products of inferior quality being priced more cheaply and flooding our markets.

Implementation of the Technical Barriers to Trade Agreement which is one of the commitments which comes with WTO membership, will offer the government an opportunity to institute changes in the regulatory regime which will not only fulfill commitments with respect to international trade rules but also improve the well being of Bahamians and the competitiveness of the economy.

However, before effective implementation of the TBT Agreement all Members of the WTO must have at least a minimum level of institutional infrastructure which includes an operational standards system, a national notification authority, and an enquiry point. The National Notification authority would be a government agency with legal responsibility for preparing and sending notifications of draft technical regulations and conformity assessment procedures. An Enquiry Point would be responsible for responding to requests for information on those measures as well as other types of information related to the domestic regulatory and standards regime. In most WTO members, these two functions are generally unified in one site called the “Enquiry Point”.

To set up the necessary institutional infrastructure, time and effort are being mobilized to accelerate and formalize the establishment of the Bahamas Bureau of Standards (BBS). The Standards Act which gives the BBS the responsibility to develop and promote standards and codes of practices for products and services for the protection of the health and safety of consumers and the environment is also a crucial requirement for us to take advantage of the many trading opportunities which can arise under the various trading arrangements which we are currently negotiating.

Toward this end, a five (5) year strategic action plan has been developed to assist us with the realization of a national quality infrastructure (NQI) that will either align us to or exceed our regional counterparts. We have developed an organizational structure with job descriptions attached in 5 major divisions: Standards Development, Metrology (Science of Measurements), Conformity Assessment, Informational Services, and Administration. We hope to have the technical expertise in place for all areas by the end of 2014.

In addition, the Standards Act Chapter 338 has been reviewed by CROSQ and a report generated to address the gaps that exist between the Act and its compliancy with international commitments and best practices in terms of trade related aspects of a national quality infrastructure. The report has also made recommendation for the overall composition of the Standards Council for the BBS. The report will be forwarded to the Attorney General’s office for vetting.

We have commenced our standards development program through a series of workshops and the constitution of technical committees in the Commonwealth of The Bahamas. We conducted workshops in Nassau, N.P., Grand Bahama, Abaco, and Eleuthera. We will continue with Central Bahamas and then Southern Bahamas by the end of this year 2014.

Industry

The Ministry continues to provide support to local manufacturers designated as “approved Manufacturers” under the Industries Encouragement Act and who continue to seek Government’s support to import equipment, supplies and materials to manufacture “approved products” under the Act.

For the period 2013-14 there are presently 64 active “approved manufacturers” being manufacturers that were previously approved and have updated their file to receive benefits under the Act. Twenty Two new businesses have applied to take advantage of the opportunities under the Act.

Arbitration

Conclusion