In August, two days before the Pacific Islands Forum, the heads of state of the 14 Pacific nations were adamant in saying that they were not ready to negotiate. But by the time the Forum meeting had ended, they had done a complete about turn and agreed to start negotiations. There is no doubt that Australia and New Zealand can get their way in the Pacific, but at what price?
The Pacific’s development future is on the table in these negotiations. A rigid free trade agreement could have severe impacts on jobs and livelihoods in the Pacific, and exacerbate the growing levels of poverty and ill-health in the region particularly if they lead to local producers being pushed out of the market by cheaper imports from Australia and New Zealand.
A key risk is the loss of government revenue from tariff reductions that could see Tonga losing 19 per cent of government income from a free trade agreement with Australia and New Zealand, Vanuatu 18 per cent, Kiribati 15 per cent, and Samoa 12 per cent. For many of these countries, the projected loss of government revenue is more than their total health or education budgets.
What is needed is an economic co-operation agreement with the Pacific’s development at its core. Australia and New Zealand have talked the talk on making this a development agreement, they now need to walk the walk.
Given the small size of most island economies and the diversity of societies in the region, there is no off-the-shelf model for an agreement on economic co-operation that could help the Pacific’s development.
These small island nations face complex challenges in their economic development including remoteness from international markets, high transport and communications costs, small population sizes and small domestic markets.
In open competition they are not likely to do well. The question of how they can use international trade to enhance their development given these competitive constraints is a key question.
There needs to be objective research conducted into the types of trade and other economic policies that would benefit the Pacific. A rush to start negotiations without this preparation could cause irreparable damage to the Islands’ economies and their development prospects. There is a lot at stake for the people of the Pacific.
Pacific Island countries are already on the wrong side of a massive trade imbalance with Australia and New Zealand which is almost 6:1 in favour of the two major regional economies once extractives from Papua New Guinea are excluded. A poor agreement is likely to widen this trade imbalance even further.
A good start would be to remove the barriers that make it difficult for the Pacific businesses to export. Many barriers to trade lie in Australia, not the islands. Australian regulations have stymied niche agricultural exports from island countries, at a time when Pacific farmers are seeking new markets. For example, bans on the importation of commercial quantities of kava into Australia have damaged an industry worth tens of millions of dollars to Vanuatu, Fiji and Samoa.
Australia’s rush to begin negotiations must also take account of “the Fiji paradox”. Fiji is the second largest economy in the islands region after Papua New Guinea, and serves as a major transport, services and communications hub.
Any regional trade agreement without Fiji is unlikely to be worth the paper it’s written on. The Pacific Islands Forum has rightly decided to exclude Fiji from regional trade talks following the abrogation of Fiji’s constitution by the military-backed interim administration in Suva. The PACER-Plus negotiations will only succeed with Fiji as part of the process, which means waiting for the restoration of democracy there.
Framed in the right way, these negotiations could support the Pacific to build on its assets, strengthen its resilience during the global economic recession, and accelerate progress towards meeting the Millennium Development Goals on health, education and poverty reduction.
Framed the wrong way, a trade deal could exacerbate the problems of poor economic performance, growing economic hardship and conflict for the region’s fragile economies.
It is technically possible to use trade rules to enhance the development prospects for small island nations. But this will only happen with a truly innovative approach. Forcing the pace of negotiations for a standard free trade agreement will only lead to failure and damage to relations with our closest neighbours.
Oxfam has called for a new framework that targets new funding and support for priority sectors in Pacific countries, including small business, agriculture, fisheries, tourism and cultural sectors.
In the report, PACER Plus and its Alternatives, Oxfam shows that there are viable alternative ways of improving trade in the islands region.
One option is to improve on the current non-reciprocal arrangement (the South Pacific Regional Trade and Economic Cooperation Agreement SPARTECA), to create a “SPARTECA Plus” framework. Such a scheme could remove the existing technical barriers to Pacific exports, while retaining the flexibility for Pacific governments to adopt targeted policies to add value to their natural resources, boost exports and better supply their domestic markets
The Brisbane meeting will be a crucial test of whether Australia and New Zealand are prepared to listen to the Pacific’s needs and aspirations, or whether they will push an inappropriate model of development on the Pacific.