Small States in Peace and War
Research Forum

It is widely argued that international trade is especially important to small states. Opening up to foreign markets allows consumers access to high quality goods at lower prices, helps exporters overcome the challenges of weak domestic demand, and increases foreign direct investment. Thus, it appears sensible for small states to covet membership in the World Trade Organization (WTO), a 164-member strong institution promoting minimal trade barriers and a rules-based forum for dispute resolution. Yet the Bahamas, an island nation with just over 400,000 people, has not acceded to the WTO, and is the last remaining country in the Western Hemisphere to do so. Despite initiating the accession process more than 20 years ago, why has the Bahamas not joined the WTO? One plausible explanation could be the Bahamas' uncertainty about the potential benefits it would gain from WTO membership.

Reasons for staying out

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For one, the government of the Bahamas is doubtful of the economic benefits that accession may bring. According to Minister of Economic Affairs Michael Halkitis, the WTO is merely one of many aspects to consider, and that the key consideration whether “the Bahamian public will benefit.” Although much long-term gains are to be made from opening up trade, domestic industries in small states face immediate losses from being out-competed by their foreign counterparts, which outpace domestic companies in knowledge of the market and lower production costs.

 

Furthermore, small states like the Bahamas could feel disadvantaged in the WTO due to a lower capacity to influence decisions by more powerful states. Even if a case is ruled in their favor, a smaller state may not obtain compliance from a larger state, as seen in the US-Antigua Gambling dispute, where the US has failed to pay the compensations it owes to Antigua and Barbuda.

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Weighing the pros and cons

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Despite these concerns, it could be argued that initial difficulties faced by domestic industries will eventually be offset by future benefits. However, whether these future benefits are realized depend on the nature of a country’s economy – diversified and developed economies draw more benefit from the WTO trade system. The Bahamian economy heavily depends on a limited number of industries; it is unclear if the Bahamas can achieve long-term gains and offset initial losses. By contrast, Singapore’s diversifying economic portfolio in the 1990s made it well-poised to join the WTO from its inception in 1995 and to reap the benefits of globalization. While Singapore’s GDP per capita was similar to that of the Bahamas in the late 1990s, Singapore has since experienced remarkable growth compared to the Bahamas. Presently, Singapore's GDP per capita stands at over twice that of the Bahamas. It could be argued that the level of diversification in the economy contributed to the difference – Bahamas may not necessarily achieve what Singapore has.

 

Rather than Singapore, the Bahamas’ journey following its accession may more closely resemble Grenada, a neighboring tourism- and agriculture-reliant small state. As per the Bahamas’ concerns, Grenada underwent tax reforms, had its policy options reduced, and earned less from import duties after joining the WTO. Far from reaping long-term gains, however, Grenadian producers suffered from volatile prices, and faced challenges to meet stringent market requirements in other countries. In the Bahamas,’ mandatory tax reforms are more than an issue of sovereignty – its tax policies underpin the very success of its offshore finance industry.

 

Is there an alternative?

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Clearly, membership in the WTO benefits some more than others. In fact, some argue that the gains conferred onto rich and powerful countries were based on the expense of developing nations. Economist Ha-Joon Chang describes such exploitative practices as ‘kicking away the ladder’ – in their ascent, many developed nations “promoted their national industries through tariffs, subsidies, and other measures” and yet, through instruments such as the WTO, effectively inhibit today’s developing nations from doing the same.

 

Perhaps, then, Minister Michael Halkitis had valid grounds for concern when he urged the Bahamas to “not get fixated” on the WTO, citing the Caribbean Basin Initiative, separate Economic Partnership Agreements (EPA), and CaribCan as other possible avenues to maintain trade relations. Such bilateral and regional arrangements may allow the Bahamas more time to diversify its economy and minimize the risk of shocks that follow a greater degree of liberalization. Ultimately, whether the Bahamas should complete its accession process to the WTO depends on whether it is sufficiently prepared to harness the gains from increased trade liberalization, and whether its unique challenges are adequately addressed by the WTO’s terms.

 

Overall, the Bahamas’ drawn-out WTO accession process reflects the unequal effects of trade liberalization. For island nations like the Bahamas, such uneven effects are exacerbated by climate change, starkly illustrated in the devastating effects of Hurricane Dorian. The recent move to instate a loss and damage fund offers a glimmer of hope to small island developing states; the WTO should consider such inclusive and sustainable policies if it is to truly open trade for the benefit of all.