MAY 8, 2008

“ Economic Partnership Agreement (EPA) and the impact on the Real Estate Sector in The Bahamas”
Mr. William Wong, President of the Bahamas Real Estate Association
Members of the Board of Directors
Ladies and gentlemen:

Good afternoon:

The Economic Partnership Agreement or EPA is a trade agreement between the European Community and the Caribbean Forum known as CARIFORUM, which are the countries of CARICOM and the Dominican Republic. The EPA represents the new global reality for trading relationships between the developed and developing countries because it introduces the concept of ‘reciprocity’. Previous trade agreements only addressed trade in goods and did not require beneficiaries countries like The Bahamas to do anything more than ensure that customs authorities had procedures in place to verify that the goods exported to Europe originated in The Bahamas. In some instances, goods exported from The Bahamas also had to meet other criteria referred to as sanitary requirements to ensure that exports from The Bahamas were treated so that they did not pose a threat to human, plant or animal health in Europe. The Bahamas for the most part was able to quietly benefit from trade agreements in the goods sector without significant public interest or debate.

The reality is that the rules governing the international trading environment have changed. The Bahamas is a major exporter of services and actively participates in the global economy with respect to tourism and financial services. The European Union is not only a major market for goods but also for services. In some areas, some CARIFORUM countries also represent market opportunities with respect to services trade. A trade agreement that provides predictable and transparent rules for trade in goods and services with our neighbours and one of the largest trading blocs in the world cannot be ignored.

The EPA is a new type of trade agreement for The Bahamas and the countries of CARIFORUM. However, this type of agreement is not new to the developing world. In this region, the Dominican Republic has a similar type agreement with the United States. All around the world countries are seeking to enter trade agreements that promote their trading interests. It is likely that over the next few years the existing trading agreements with the United States and Canada will be replaced with EPA-type agreements.

The EPA is an agreement that has three major parts. The first section details the rules that govern trade in goods. The second part outlines the commitments with respect to service and investment and the final section addresses trade related issues.

Trade in goods

I will briefly outline the major obligations in each these sections. The trade in goods component commits the customs authority to international best practices for the treatment of goods that are imported, exported or in transit in The Bahamas. It also requires them to have in place specific protocols that would allow them to cooperate in a mutually supportive way with other Parties to the Agreement.

There is a schedule that is attached to the trade in goods section that outlines how the duties on EU and CARIFORUM imports will be reduced over the next 25 years depending on the basket in which the good has been placed. There are seven baskets 0, 5, 10, 15, 20, 25 and excluded. As an example, those goods in the 5 year basket will have the rate of duty progressively reduced over the next five years. Similarly, those in the 25 year basket will have duties reduced from current levels to relatively low rates over the next 25 years. The excluded basket represents approximately 13% of the tariff lines that are not included in the liberalization schedule. These are mainly agricultural and fisheries products and other goods that are manufactured in the CARIFORUM region and considered sensitive.

Investment, trade in services and e-commerce

The second section of the Agreement deals with trade in services, investment and e-commerce. The investment schedule deals with investment in five non- service areas that includes: 1) agriculture, fisheries, forestry, 2) fishing 3) mining and quarrying, 4) manufacturing and 5) production, transmission and distribution of electricity, gas, steam or hot water. Each country is required to list the existing restrictions, reservations or exclusions with respect to investment in these sectors. In the forestry sector, there are currently no investment restrictions however, The Bahamas like many of the CARIFORUM countries would have reserved the right to adopt measures on investment in this sector. Similarly, restrictions on foreign fishing in the Exclusive Economic Zone would have been listed as an exclusion in the fisheries sector.

The section on e-commerce deals with the development of electronic commerce in a manner which utilizes international best practices and allows for the exchange of information.

The Services Schedule includes 155 service sectors. The Bahamas as a More Developed Country in the CARIFORUM context is required to make offers in 116 sectors. There are two sectors that were not included in the Services Schedule for The Bahamas. These were telecommunications because of the pending privatization of the Bahamas Telecommunications Company and the real estate sector because of the sensitivity of the sector to foreign participation. The Government needs more time to develop a comprehensive framework for the development of this sector in consultation with the Bahamas Real Estate Association and other stakeholders. So for The Bahamas, the real estate sector is not part of the current EPA Services Schedule.

I will however use the real estate sector to illustrate some of the opportunities that are likely to become available as a result of the EPA.

The United Nations Statistical Service has classified the major service sectors and given them a code called a Central Product Classification Code (CPC Code). So there is a service called, Real estate services – on a fee or contract basis that has a code 822. The service real estate services – on a fee or contract basis involves the leasing, renting or appraising of houses and other residential property, commercial property, sales of residential and non-residential buildings and sales of residential vacant land.

The next part of the exercise involves determining how the service provider will be allowed to deliver the service into The Bahamas. A service can be provided through four modes of delivery. Mode 1 is cross-border supply. This is the supply of a service into The Bahamas from a provider that is outside The Bahamas without either party moving. Cross-border refers to services provided via the internet or by fax. With respect to real estate it would involve the selling of real estate services via the internet. Mode 2 is consumption abroad. That is the movement of Bahamian outside The Bahamas to purchase real estate services abroad. Mode 3 is commercial presence or the physical establishment of a branch or subsidiary of a foreign real estate company in The Bahamas and Mode 4 is the temporary movement of persons into The Bahamas to provide the service.

I wish to elaborate briefly on the provisions of the EPA as it relates to rights of establishment or commercial presence. There is no automatic right of establishment in the EPA. Each country based on the sector and the specific activity indicated whether or not a service provider will be allowed to establish a commercial presence.

Some countries in the CARIFORUM bloc like the Dominican Republic, Jamaica, St. Lucia, Suriname and Trinidad and Tobago have made offers in respect of the real estate services – on a fee or contract basis. So with respect to Bahamian realtors providing this service via Mode 1, like the internet or Mode 2, foreigners traveling abroad to purchase this service, the current Service Schedule indicates that real estate companies in The Bahamas will be able to provide these services into the Dominican Republic, Jamaica, St. Lucia, Suriname and Trinidad and Tobago.

Mode 3 is the physical establishment or commercial presence of real estate companies to provide real estate services on a fee on contract basis. Bahamians will be able to provide this service into the Dominican Republic and Suriname but would be required to do so through joint venture arrangements in Jamaica, St. Lucia and Trinidad and Tobago.

With respect to the European Union, there are no restrictions on commercial establishment which means that Bahamian realtors will be allowed to offer this service into EU.

With respect to the temporary movement of persons from The Bahamas to supply this service. The EPA facilitates the temporary entry of persons in six categories to supply a service. These categories of persons and the terms of their temporary entry have been clearly defined by the Agreement and includes (a) business visitors or key persons involved in the establishment of a business, (b) intra-corporate transfers, (c) graduate trainees, (d) business service sellers, (e) contractual service suppliers and (f) independent professionals. All Parties to the EPA are concerned about the temporary movement of persons. As a consequence great efforts have been expended to define these categories of persons. These provisions are important for persons in the professional services and tourism sector. The EC has provided access for contractual service providers in a number of areas that includes architectural and engineering services, environmental services, chefs de cuisine, fashion models and travel agency services.

The final section of the EPA involves six trade related issues. These are issues that are not directly involved in trade and they are: competition policy, innovation and intellectual property, public procurement, environment, social aspects and protection of personal data. The obligations in these chapters generally reflect international best practices. The public procurement chapter which was recently discussed in the press does not require the government to open to procurement process to foreign participants. The main commitments in the chapter relate to improvements in transparency. For example tender requests would have to available electronically and a mechanism would need to be put in place for bid challengesWith respect to the Services Schedule, there is no proposal to open the construction sector to foreign competition. The Contractors Association was consulted on the proposed offer in construction services and adjustments were made to that schedule to reflect their concerns.

The social aspects chapter incorporates the four core labour standards of the International Labour Organization. Most Caribbean countries are already committed to maintain these standards. These labour standards are: (1) freedom of association, (2) elimination of forced labour, (3) abolition of child labour and (4) elimination of discrimination in the workplace.

The section on competition policy will require the Government to have in place legislation and the necessary institutional capacity within five years to ensure that there is competition in the marketplace.

The commitments on intellectual property, the environment and data protection building on existing legislation and institutions. The text of the Agreement encourages countries over specific periods of time to bring their legislation and institutions up to international standards.

Ladies and Gentlemen: some question whether The Bahamas should be involved in a trading agreement with Europe and the Caribbean. It has been pointed out that trade in goods represents a relatively small component of the Bahamian economy. This is true. Importantly, for The Bahamas the EPA is trade agreement that deals with trade in services and investments. While it may seem proactive to travel around the world promoting The Bahamas as a place for investment, it is far more efficient to place our investment priorities in a framework that is easily understood by international investors. Moreover, The Bahamas, the trade agreement brings a degree of clarity and transparency to our trading relationship with CARIFORUM and the EC.

The EPA is not a guarantee that there will be additional investment in any sector of the economy. It does however provide a framework for persons seeking to understand our investment regime to readily decipher which sectors are open for investment and the mode through which the service can be provided to Bahamian consumers. Tourism and financial services are sectors where we encourage inward investment and our offer in the EPA indicates the existing openness in these sectors. With respect to outbound investment, Bahamians can look at the Services Schedules that have been proposed by the CARIFORUM countries or the EC and identify whether there are opportunities for joint ventures or other strategic partnerships in specific service areas.

The real estate sector is currently not on the negotiating table. This is therefore an opportunity for the sector to determine where it strengths are and to advise the government on areas of the real estate sector which could be included in future trade negotiations and those areas that are sensitive.

Trade negotiations are a very dynamic process. We need to have the sectors understand fully what the potential benefits are as well as their vulnerabilities. We have undertaken consultations with a broad section of service providers and over the course of the next few weeks, we will be implementing recommendations to strengthen our consultative mechanisms. We look forward to the active cooperation and participation of the Bahamas Real Estate Association (BREA) in these initiatives.

Thank you.