Trade Negotiations and Regional Economic Integration in the Pacific

bs_bs_banner Asia & the Pacific Policy Studies, vol. 1, no. 2, pp. 325–336 doi: 10.1002/app5.34 Original Article Trade Negotiations and Regional Economic Integration in the Pacific Islands Forum Wesley Morgan* Abstract 1. Introduction When the Pacific Islands Forum was estab- Negotiations for a new regional trade agree- lished in 1971, regional economic integration ment for the Pacific Islands Forum—to be was high on the policy agenda. Over the four called PACER-Plus—have entered troubled decades since, a political commitment to waters.Aconsiderable dissonance of views per- regional integration has waxed and waned. sists between policy-makers in Australia and This paper explores past and present prospects New Zealand and their counterparts in the for economic cooperation through the lens of Forum Island Countries. Pacific officials argue regional trade negotiations. Into the new mil- that a regional free trade agreement (FTA) lennium, Pacific governments lobbied World would not in itself help the island states realise Trade Organisation (WTO) members to recog- significant welfare gains, and thus innovative nise their trade-related challenges, and sought regional policy initiatives are needed. Austra- special treatment in trade negotiations with lian and New Zealand trade officials do not the EU and with Australia and New Zealand. share the precepts of this argument. While they Despite these efforts, current trade negotia- acknowledge that island states require financial tions among all Forum members—to extend and technical assistance to negotiate—and the Pacific Agreement on Closer Economic implement—a new regional trade agreement, Relations (PACER-Plus)—look unlikely to there is no consensus that PACER-Plus should result in unique measures intended to help be substantively different from other treaties Pacific states take advantage of international being negotiated in the Asia-Pacific region. In trade. In this context, consideration should be the absence of agreement regarding the nature given to downscaling formal trade negotia- and extent of benefits arising from reciprocal tions in favour of other regional trade policy trade liberalisation, talks have proceeded initiatives. slowly and prospects for a mutually acceptable agreement remain poor. To understand how this Key words: regionalism, regional trade impasse came about, this article explores the agreements, Pacific, Pacific Islands Forum, recent history of trade cooperation in the Pacific PACER-Plus Islands Forum. In the final section, some sug- gestions for policy are also briefly discussed. 2. Trade, Regionalism and the Establishment of the South Pacific Forum * School of Social and Political Science, The University of Melbourne, Melbourne, Victoria 3010 Australia; email Island country members of the Pacific Islands Ͻwtmpacific@gmail.comϾ. Forum are some of the youngest states on © 2014 The Author. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes. 326 Asia & the Pacific Policy Studies May 2014 earth, having achieved independence from nies, trade arrangements that maintained colonial powers within the lifetime of most colonial-era market access were negotiated current island leaders. No sooner had these for African states through the Yaoundé Con- nations been born than serious consideration vention of 1963, and extended to the Carib- was given to joining them together (with Aus- bean and Pacific states in the Lomé tralia and New Zealand) in some form of eco- Convention of 1975. Lomé allowed for duty- nomic union. When island states, led by Fiji’s free access to European markets for most Ratu Kamisese Mara, first considered a exports, and included a series of commodity- regional body for political cooperation the specific protocols. In the Pacific, Ratu Mara prospect of trade integration was high on the played a key role negotiating the convention’s agenda. In 1971, at the very first meeting of Sugar Protocol, lobbying the UK government the South Pacific Forum,1 a committee of to secure price guarantees that would prove senior officials was established to discuss the vital for employment and social stability in possibility of an economic union. However, it Fiji. was quickly realised that the issues involved in In the first decade of the South Pacific pursuing a free trade area were complex and Forum, moves towards ‘deep’ regional eco- politically difficult. The committee recom- nomic integration were set aside in favour of mended that a permanent secretariat be estab- a less ambitious agenda of sectoral coopera- lished ‘to enable continuing consultation on tion and regional service delivery. Key this and other trade questions’ (Department of initiatives included a regional university Foreign Affairs and Trade 2004, p. 18). At the (University of the South Pacific), a regional second South Pacific Forum, it was agreed that shipping line (Pacific Forum Line) and a a South Pacific Bureau for Economic Coopera- regional airline (Air Pacific). Even in these tion (SPEC) would be established in Suva. areas, however, political tensions, and More than 40 years later, the SPEC has particularly the view that the benefits of changed its name—it is now the Pacific Islands regionalism were accruing unfairly to Fiji, Forum Secretariat—and still facilitates served to undermine a wholesale embrace of regional discussion on trade. However, a free regional integration by island leaders. Despite trade agreement among all the Forum member this, the idea of a free trade area among states is yet to be. Forum member states—often envisaged as a When Papua New Guinea (PNG) achieved first step towards a more comprehensive full independence in 1975, a trade agreement integration through a common market, a was negotiated with Australia—the Papua common currency and regional political coor- New Guinea-Australia Commercial Trade dination—has proved to be recurring and Agreement—cementing arrangements allow- remarkably persistent over subsequent ing PNG goods to enter Australia duty-free. decades. Swiftly thereafter, an agreement granting preferential access to Australian and New Zealand markets for all Forum Island Coun- 3. Market Preferences and Pacific tries was negotiated, and the South Pacific Islands Development Regional Trade and Economic Cooperation Agreement (SPARTECA) was signed in Duty-free access to developed country 1981. markets, particularly through the Lomé Con- Australia and New Zealand were not alone vention and SPARTECA, helped ‘cushion in offering preferential market access to the trading realities’ in a number of Pacific states Pacific Island countries. As European powers (MacDonald 1986, p. 117). Both agreements sought to redefine relations with former colo- proved important for exports that were unlikely to have established or continued 1. The South Pacific Forum was renamed the Pacific without them, and thus had significant devel- Islands Forum in 1999. opment effects for those island states with © 2014 The Author. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University Morgan: Trade Negotiations and Economic Integration 327 sufficient resources to develop export indus- were not to last forever. In September 2007, tries.2 Preferences associated with the Lomé the EU unilaterally withdrew from the ACP Convention were particularly important for Sugar Protocol, and guaranteed prices for ACP exports of sugar from Fiji, and tropical tree sugar were phased down and removed alto- crops (coffee, cocoa, oil palm, coconut oil) gether in 2012. With falling prices, sugar from PNG, Solomon Islands and Vanuatu. The production is increasingly unprofitable in convention also provided direct financial Fiji, although some growers have gained a assistance—the so-called STABEX funds—to price premium through fair trade certification island exporters faced with volatile prices for (Bower 2012), while others have diversified agricultural commodities. Significant margins away from sugar to higher value agricultural of preference were also available for processed exports. tuna exported to Europe. Canneries in Fiji, Preferential access to Australian and Solomon Islands and later in Madang in north- New Zealand markets, provided for under ern PNG were reliant, ‘virtually completely SPARTECA, also saw the development of upon the export of canned tuna to the EU commercial activity in the Pacific. Undoubt- market’(Grynberg 1995, p. 80). A tariff rate set edly of most importance was the growth of at 24 per cent on competing products from textile, clothing and footwear exports from Southeast Asia—particularly from Thailand Fiji. When the Australian and New Zealand and the Philippines—ensured the profitability governments dismantled protections for their of canned tuna exports. own textile industries in the late 1980s, many Ultimately, Lomé preferences had the effect firms relocated to Fiji to reduce costs. This of ensuring that the EU, ‘despite the vast dis- coincided with a pro-investment policy envi- tances involved in transporting low value prod- ronment implemented by Fiji’s Rabuka gov- ucts’, remained ‘an unnaturally significant ernment, including the establishment of low- trading partner’ for Pacific Island

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