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DE RUEHBH #0612/01 0962027
ZNR UUUUU ZZH
R 062027Z APR 06
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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 
 
¶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