BY AZIZ CHOUDRY
Leaders of Pacific island states met August 16-18 at the 32nd Pacific Island Forum on the island of Nauru to discuss the creation of a regional free-trade area.
Facing imminent depletion of the high quality phosphate reserves on which its economy is based, most of the tiny Pacific island republic of Nauru resembles a mined-out moonscape. Sri Lankan jurist Christopher Weeramantry, who chaired a commission of inquiry on Nauru, concluded that the island's "wealth and very substance were scattered throughout the world in the form of cheap fertilisers which helped grow food not only for particular countries but through them for all the world".
Nauru's history until independence in 1968 was one of colonial exploitation, social and environmental devastation, and great profits for the British, Australian and New Zealand governments which jointly administered the island after a period of German rule. It now faces being wiped off the map by rising sea levels due to global warming, rising unemployment after the downsizing of the public service and Nauru Phosphate Corporation which provided 95% of all employment, and threats of financial sanctions because of European crackdowns on money laundering and tax haven operations.
Just as forces outside the Pacific wrought the destruction in Nauru for their own benefit, recent moves to create a regional free trade area to "ease" the Pacific island nations' "smooth and gradual integration into the world economy" are being imposed from beyond the islands. The place of the colonial powers of yesteryear has been taken by the European Union (EU), Australia and New Zealand.
"The forum comes complete with some crazy maths", writes New Zealand journalist, Michael Field. "The Marshall Islands has just 181 sq km of land, a third the size of Singapore, and none of it more than 5 metres above sea-level, yet it sits in an exclusive economic zone the size of Greenland. So small are the states that the populations of five of the smallest combined would nearly half fill Sydney's Olympic Stadium. Australia, New Zealand and Papua New Guinea make up 93 per cent of the forum's population and 99 per cent of the land area."
High-level statements about special "development challenges" and vulnerabilities faced by developing small island states are ubiquitous. They're in numerous UN and Commonwealth secretariat documents.
Former New Zealand politician and current World Trade Organisation director-general Mike Moore acknowledged "problems of small and vulnerable countries with scarce resources" in a video link to participants in a joint Pacific Island Forum/WTO trade policy course held in Fiji this March. Predictably, he thinks their problems are best addressed in the context of a new round of WTO talks.
Free trade agreement
Against a backdrop of pressure from the EU, Australia and New Zealand, and multilateral financial institutions like the ADB, in 1999 Pacific Island Forum leaders endorsed the development of a Pacific regional free trade agreement and tasked the forum secretariat to prepare a text. This was closely based on recommendations of a 1998 report by Robert Scollay, director of Auckland University's APEC study centre.
Forum secretary-general Noel Levi has sought to brand the concept of a regional free trade agreement as a regional initiative. He claims that the "vision of trade and economic integration" had been the basis for the forum's creation 30 years ago.
However, Fijian activist/academic Claire Slatter believes that the attempt to market the regional free trade agreement "as the culmination of a regional dream is aimed at legitimating the ... proposal and engendering region-wide political support — the idea that regional interests, as opposed to external ones, are being realised here is intended to create a strong sense of ownership among Pacific governments."
According to Slatter: "The emergence of discordant thinking within the South Pacific Forum since 1997, and steadily growing criticism from NGOs and leaders of other regional institutions and organisations about the programme of economic restructuring being undertaken in the region under its direction and leadership, have made ownership and legitimacy key concerns of the Forum secretariat since 1999."
Controversy and tension surrounded the nature of Australia and New Zealand involvement in any eventual free trade agreement. New Zealand government documents show that the Melanesian Spearhead Group countries (Fiji, Papua New Guinea, Solomon Islands and Vanuatu) and the small island states were concerned at the impact on small and fragile economies of opening up to competition from larger countries, and wanted Australia and New Zealand — the economic heavyweights in the South Pacific — to be separate signatories to a separate protocol.
Australia and New Zealand had sought to be full participants and parties principal at any negotiations.
PACER and PICTA
So two agreements were approved at Nauru. The Pacific Agreement on Closer Economic Relations (PACER) is not a free trade agreement as such but an "umbrella" framework agreement for future free trade agreements and economic relations in the region as a whole — including Australia and New Zealand. It provides for cooperation on trade facilitation and financial and technical assistance including in the areas of trade facilitation and promotion, capacity building and structural adjustment.
PACER allows for the start of negotiations of forum-wide free trade arrangements no later than eight years after PICTA enters into force. PICTA (Pacific Island Countries Trade Agreement) is a goods-only agreement, which will come into force after six countries have ratified it.
Goods trade liberalisation will take place among the 14 forum island countries (FICs) over an eight-year period to 2010 for developing countries, and 2012 for "small island states and least developed countries". Protection of sensitive industries will be maintained over a longer period, by country-specific "negative" lists to be eliminated by 2016. Eventually these agreements can be extended to cover services and investment liberalisation.
Like Cotonou, the trade arrangements are presented as "stepping stones" to allow FICs to gradually become part of a single regional market and integrate into the global economy.
An important objective for Australia and New Zealand has been to ensure that their trading interests in forum island markets are adequately defended should FICs begin free trade negotiations with non-forum partners. Australia and New Zealand "can accept FICs-only liberalisation as a first step so long as our situation vis-a-vis third parties is safeguarded", said a New Zealand official.
The Pacific Islands are a valuable market for Australia and New Zealand, whose products have long flooded into the region.
For exporting FICs like Fiji and the Solomon Islands, tariff cuts in Australia effectively spell an end to preferential trade arrangements that have helped them develop their industries. Pacific countries, few of which enjoyed preferential access to European markets in the first place, have no real prospect of gaining further EU market access.
The balance of trade between Australia/New Zealand and the Pacific Islands has always been unequal. In the year to June 2000, New Zealand received NZ$129 million in imports from Forum Island Countries, while its exports to them totalled NZ$490 million. Australia's trade with the region is worth A$ 1.5 billion annually.
Many island countries depend greatly for their government revenue on customs duties. According to a 1998 report tariffs represented 64% of the total tax revenue in Kiribati, 57% in Vanuatu, and 46% in Tuvalu. Value-added or goods and services taxes are being advanced as alternative revenue sources. Social budgets will be first to feel the pinch.
At the Nauru summit, President Tebururo Tito of Kiribati warned: "Globalisation and economic liberalisation ... may create untameable and unpredictable free market forces. These forces, in my view, steer the most powerful economies on earth in a direction that could take humankind back to the sociologists' adaptation of Darwin's theory of the survival of the fittest where life for the weak and the poor in the family, village and society is more precarious than that for the strong and powerful. I believe that this is the most important ideological challenge for the leaders in our region over the next decade."
The structural adjustment programmes applied to the islands will arguably have a much greater impact than the new trade deals. But these agreements will help to lock in economic reforms. The EU sees its new agreements acting as an "anchor" for this purpose.
External pressure to prise open these small island economies and the region's fragile ecosystem to the global market smacks of the same callous disregard with which the Pacific and its peoples have long been treated by Pacific Rim powers and Europe. Pacific peoples still have little input into the development of the macroeconomic policies sold to them as the only alternative.
[Aziz Choudry works for GATT Watchdog, PO Box 1905, Christchurch, New Zealand.]