REPA Booklet - Stop Epa

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