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“A practical or economic interest of ours was to ensure that, whatever trade liberalisation occurred between island countries, if it were extended to other states such as … the EU, it did not disadvantage our trading position.” (Australia government evidence to Australian Parliamentary Committee, 2002) progressive cuts to tariffs that will achieve free trade in goods within 8 years (2011) for the ‘developing’ States (Fiji, PNG and Tonga) and 10 years (2013) for the rest. Sensitive products can be protected until 2016. Each country has a schedule of tariff cuts and sensitive products. Alcohol and tobacco were exempted until 2005 pending an assessment of the revenue impacts of including them. Nine countries originally signed PICTA in 2002. It came into force on 13 April 2003 after being ratified by 6 of them. As of December 2004 the Cook Islands, Fiji, Niue, Samoa, Tonga, Solomon Islands, PNG, Nauru and Kiribati were members. Tuvalu and the Compact States had not ratified. The Vanuatu government had gazetted its accession, but not formally notified the Forum Secretariat. Legally, any or all Pacific Islands governments can withdraw with 6 months notice. PICTA was promoted as a ‘stepping stone’ to bigger agreements. But the costs of implementation will be huge, with little or no economic return because there is not much trade between the Islands. Fiji is expected to be the main beneficiary, as firms are likely to centralise production there. But recent analysis shows that many of Fiji’s exports to the other Islands are re-exports; these would not satisfy the Rules of Origin to receive duty-free treatment under PICTA. Any gains to Fiji from relocation would also be short term if free trade deals with other countries (especially Australia and NZ) opened the door to more competitive products and if exporters centralised their production in those countries. The Pacific Agreement on Closer Economic Relations (PACER) is open to all members of the Pacific Island Forum, including Australia and NZ. PACER guarantees Australia and NZ that the Islands will enter into reciprocal free trade negotiations no later than 2011 - or earlier if triggered by one of several developments, including negotiations for a free trade agreement on goods with the European Union. A separate Annex provides for a trade facilitation programme which Australia and NZ agreed to part-fund. That is the only concrete benefit to the Islands from PACER. However, the amount Australia and NZ have been prepared to pay is much less than the Islands expected. After holding out for almost a year, Fiji and PNG agreed to accept what was on offer, with a vague commitment to more later. PACER came into force in October 2002 after being ratified by Fiji, Australia, NZ, Cook Islands, Samoa and Tonga. Kiribati, Nauru, Niue, PNG and Solomon Islands have since joined. Vanuatu, Tuvalu and the Compact States have not. Legally, any or all Pacific Islands governments can withdraw with 6 months notice. Why did the Pacific Islands end up with PICTA and PACER? Australia and NZ initially demanded that they be included in any Pacific regional trade agreement. When the Islands discovered this would require massive tariff cuts within 10 years they said ‘no’. After some outrageous bullying, they agreed to a two-tier approach that portrays PACER as the superior ‘umbrella’ agreement under which the Island-only PICTA sits. This bought them time before they had to negotiate anything concrete with Australia and NZ, and only promised to negotiate - not to conclude - a free trade agreement. But Australia and NZ had secured enough leverage to require a further round of negotiations, sooner or later. Their demands will be difficult to fend off a second time, especially if they are based on parity with what the Pacific Islands give the European Union. The fiscal, economic and social impacts of making parallel concessions to Australia and NZ will be huge. Why did the Pacific Islands make all these deals? When the Forum Secretariat was established in 1991, it was mandated to investigate the development of free trade among Forum Island Countries. By 1997 the globalisation bandwagon was moving at full speed. There was huge pressure to get on board or be left behind. The proposal for a Pacific Regional Trade Agreement was tabled at the Forum Economic Ministers Meeting in July 1997. They instructed the Secretariat to report to the 1998 meeting with options and a framework that gave ‘due regard to benefits from preferential and nonpreferential approaches, taking into account the need for WTO consistency, and differing speeds at which [Forum Island Countries] could do so.’ That led to the negotiations that produced PICTA and PACER. Did the European Union play any role in this? As the Green Paper made clear, the European Commission was looking for a regional entity in the Pacific with which it could negotiate a post-Lomé arrangement. The Forum Secretariat was the main regional organisation, but it includes Australia and NZ and it didn’t have a regional economic integration agreement. Other trade agreements covered only some Islands and were limited in scope. So it was in the Commission’s interest to support the negotiating of PICTA and reportedly it funded the preparatory process. The European Union also funds the Forum Island Countries’ office in Geneva, to help deepen their engagement in the WTO. 46 A People’s Guide To The Pacific’s Economic Partnership Agreement
22 The Domino Effect of a Pacific EPA “PACER and the Cotonou Agreement have set in motion a process of negotiation of [free trade agreements] between the [Pacific Island Countries] and the EU and New Zealand, and for providing the United States with similar preferential treatment. The widening of preferential trading arrangements beyond PICTA is inevitable. Only the timing, extent and benefits are uncertain.” (Embarking on a Global Voyage, World Bank, 2002) Why have the Pacific Islands agreed to negotiations with the European Union? There are numerous reasons: - they are members of the ACP Group, and most were parties to Lomé, so they were automatically involved; - Pacific Islands that trade with the European Union need to protect their interests; - the Commission portrays aid and trade negotiations as a coherent package and most Islands want the money; - major donors (Australia, NZ, the ADB/World Bank) would view opting out as evidence of weak governance; - there is hope that the Islands can secure trade or development assistance that will leave them better able to cope with globalisation than they are now. What flow-on effects would a Pacific Economic Partnership Agreement have for dealings with other countries? There are three main effects: 1. Any precedents that are set in a Pacific Economic Partnership Agreement, especially in services, investment and competition, will be used by the European Commission to push other ACP regions into similar negotiations, most of them don’t want to. The Commission will likewise use those precedents in the WTO where similar demands have been rebuffed by the ACP countries. 2. The three Compact States have a binding obligation to give the US the best treatment they give any other country (which is called Most Favoured Nation or MFN treatment). Because the Compact States have a low level of trade with Europe a Pacific Economic Partnership Agreement would have a minimal effect on them; but extending the same commitments to the US, which is their main trading partner, could have a massive impact. 3. The Pacific ACP states who are signatories to PACER (all except Vanuatu, Tuvalu and the three Compact States) will face pressure from Australia and New Zealand to extend at least as good treatment to them. Because Australia and NZ are the Islands’ major trading partners, the domino effect would be enormous. What would the domino effects of PACER be? In a paper on the likely revenue impacts of a Pacific Economic Partnership Agreement, Wadan Narsey said that previous studies under-estimated the tariff loss to the Islands from a similar agreement with Australia and NZ. That is partly because the kind of good imported from Australia and NZ tend to attract higher tariffs, so the loss will be higher, and partly because goods that appear to be Fijian exports are often re-exports of goods imported from Australia and NZ. That means they won’t meet the Rules of Origin under PICTA or PACER and will be defined as goods from Australia and NZ. Can the Islands minimise the flow-on effect of a Pacific Economic Partnership Agreement under PACER? Narsey stresses the need to calculate the revenue effects of each negotiating option for the European Union and Australia and NZ. The Pacific Islands could minimise the impact of removing tariffs on trade in goods if they: - convert duties on imports to excise taxes that would apply to similar local goods. This could be defended under the WTO rules for ‘sin’ goods (alcohol and tobacco) and health-damaging products (sweet processed food and fatty meats) and possibly for luxury items (justified as an equity measure). Because most of these products are imported the taxes could still be collected at the border, just as tariffs are now. The impact on local producers would be limited; - raise revenue through an increase in Value Added Tax (VAT). Countries that don’t have VAT should introduce it, with a high threshold so that small businesses don’t need to provide returns, but with few exceptions to ensure simplicity and reduce avoidance. The regressive effect of a VAT, which takes a higher proportion of income from the poor than tariffs usually do, could be countered if governments spent more of their revenue on meeting poor people’s basic needs; - introduce an income tax where the country doesn’t have one (meaning Vanuatu); and - convince the European Union to provide compensatory finance. A People’s Guide To The Pacific’s Economic Partnership Agreement 47
Page 1 and 2: A PEOPLE’S GUIDE TO THE PACIFIC
Page 3 and 4: Foreword One of the callings of the
Page 5 and 6: Table of Contents Foreword Preface
Page 7 and 8: Abbreviations ACP African, Caribbea
Page 9 and 10: Spirituality, family life, traditio
Page 11 and 12: The description of reciprocal trade
Page 13 and 14: 2 The Lomé Convention Did the same
Page 15 and 16: 3 African, Caribbean & Pacific Soli
Page 17 and 18: 5 Europe’s New Plan for the ACP W
Page 19 and 20: 6 Clearing a Path for Free Trade Wh
Page 21 and 22: 8 The European Union’s Base Line
Page 23 and 24: 9 The ACP on the Back Foot When and
Page 25 and 26: compromise ‘good governance’ wa
Page 27 and 28: Is there another way of interpretin
Page 29 and 30: That sounds pretty watertight. It i
Page 31 and 32: 14 Capturing the ACP’S Services W
Page 33 and 34: 15 ‘New Issues’ through the Bac
Page 35 and 36: 17 Phase 1 Negotiations It sounds l
Page 37 and 38: 18 Unequal Partnership In Practice
Page 39 and 40: 19 Learning from Others’ Experien
Page 41 and 42: 20 Europe’s Quest for Legitimacy
Page 43 and 44: PART TWO The Pacific’s Regional E
Page 45: 21 The Pacific Negotiating Context
Page 49 and 50: to establish probable coverage, con
Page 51 and 52: unskilled services workers into the
Page 53 and 54: sector acting ‘in their personal
Page 55 and 56: Is the Commission prepared to come
Page 57 and 58: 28 (No) Goods What might a Pacific
Page 59 and 60: will probably approve this, especia
Page 61 and 62: PART FOUR of Origin that have to be
Page 63 and 64: 32 Tourism What kind of tourism do
Page 65 and 66: contracts. They are usually paid th
Page 67 and 68: PART THREE Another Way Forward KEY
Page 69 and 70: “Studies ‘confirm the absence o
Page 71 and 72: “It is not true that ACP countrie
Page 73 and 74: $ We strongly support the stand of
Page 75 and 76: “The power of the churches’ spi
Page 77 and 78: Appendix I: Regional Pacific ACP Ne
Page 79 and 80: Appendix III: Pacific Island Forum
Page 81 and 82: Appendix VI: Selected References Ac
Page 83 and 84: Nalunga, Jane, ‘Eastern and South
Page 85: A People’s Guide To The Pacific

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