Welcome to the electronic edition of Reforming Trade Policy in Papua New Guinea and the Pacific Islands. The book opens with the bookmark panel and you will see the contents page. Click on this anytime to return to the contents. You can also add your own bookmarks. Each chapter heading in the contents table is clickable and will take you direct to the chapter. Return using the contents link in the bookmarks. The whole document is fully searchable. Enjoy. Reforming Trade Policy in Papua New Guinea and the Pacific Islands Kym Anderson and Michael Bosworth UNIVERSITY OF ADELAIDE PRESS Reforming Trade Policy in Papua New Guinea and the Pacifi c Islands Kym Anderson and Michael Bosworth Th e countries of the South Pacifi c have struggled to generate sustainable economic growth since their independence. Interventionist policies have failed in the past here, as they have in all other regions. Business and government leaders in this region are now beginning to acknowledge — as has happened in many other developing country regions over the past two decades — that major reforms are needed to put their economies onto a higher growth path. Th is study examines the growth record of key Pacifi c island economies and indentifi es the reasons for their relatively poor performance. It then looks at the process of globalization that is aff ecting those and indeed all economies increasingly; and the role the WTO has played in that process. Reforming Trade Policy in Papua New Guinea and the Pacific Islands Reprints Collection: Economics As well as being established to publish high quality refereed new works the University of Adelaide Press selects previously published books by staff for reprinting both electronically and as soft- cover books. Strengthening the Global Trading System Indonesia in a Reforming World Economy Reforming Trade Policy in Papua New Guinea and the Pacific Islands The Economics of Quarantine Global Wine Markets, 1961-2003 The Building of Economics at Adelaide (Barr Smith Press imprint) Reforming Trade Policy in Papua New Guinea and the Pacific Islands Kym Anderson and Michael Bosworth Published in Adelaide by The University of Adelaide Press Barr Smith Library University of Adelaide South Australia 5005 [email protected] www.adelaide.edu.au/press The University of Adelaide Press publishes externally refereed scholarly books by staff of the University of Adelaide. It aims to maximise the accessibility to its best research by publishing works through the internet as free downloads and as high quality printed volumes on demand. Electronic Index: this book is available as a down-loadable PDF with fully searchable text. ____________________________________________________________________________ This book is a facsimile re-publication. Some minor errors may remain. Originally published by the Centre for International Economic Studies, University of Adelaide, and the Institute of National Affairs, Port Moresby. © Malcolm Bosworth and Kym Anderson 2000 First published 2000 Republished 2009 This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3.0/ or send a letter to Creative Commons, 444 Castro Street, Suite 900, Mountain View, California, 94041, USA. This licence allows for copying any part of the work for personal and commercial use, providing author attribution is clearly stated. __________________________________________________________________________ Subject Keywords: World Trade Organisation - Asia Pacific Economic Cooperation – Papua New Guinea Commercial Policy – Papua New Guinea Foreign Economic Relations – Oceania Commercial Policy – Oceania Foreign Economic Relations For the full Cataloguing-in-Publication data please contact National Library of Australia: [email protected] ISBN 978-0-9806238-2-6 (electronic) ISBN 978-0-9806238-9-5 (paperback) Cover image: iStockphoto Cover design: Chris Tonkin i Contents Page List of charts, tables and boxes ii Foreword, by Michael Manning iii Preface vi About the authors vii Acronyms viii Executive summary x 1: Introduction 1 2: Performance of Pacific island economies 7 3: Implications of globalization for Pacific development strategies 28 4: Policy reforms to boost development of the Pacific islands 41 5: How can WTO help achieve Pacific island development? 80 6: The supplementary role of APEC 138 7: Choosing the way forward 159 Appendix 1: Individuals and organizations visited in June 2000 166 Appendix 2: Public seminar program, Port Moresby, 9 June 2000 168 Appendix 3: What WTO accession and membership involve 169 Appendix 4: Determinants of structural change in a developing economy 176 Appendix 5: List of trade policy terms 190 References 197 ii List of charts, tables and boxes Page Charts Chart 2.1: Sectoral composition of GDP in PNG, 1988 and 1997. 14 Tables Table 2.1: Key economic indicators for selected Pacific island and other 8 economies, 1999 Table 2.2: Social indicators of PNG and low and middle human 11 development economies, 1997 Table 2.3: Shares of key commodities in the value of PNG’s merchandise 18 exports, 1963 to 1997 Table 4.1: Effective rates of protection for selected activities, Papua New 53 Guinea, early 1990s Table 5.1: Major non-tariff measures affecting exports from Pacific island 108 economies Table 5.2: Notifications to the WTO by PNG as at 30 June 1999 123 Table 5.3: Summary of sector-specific commitments by PNG under GATS 130 Table 5.4: Summary of sector -specific commitments by the Solomon 134 Islands under GATS Table 6.1: Compliance of PNG’s investment policies with APEC non- 147 binding principles Table 6.2: Foreign investment approvals in PNG, 1995-98 150 Table 6.3: Other PNG APEC commitments 153 Boxes Box 2.1: Norfolk Island’s success – smallness and remoteness no barrier to 25 prosperity Box 4.1: The liberalization experience of Trinidad and Tobago and 43 Mauritius Box 4.2: Samoan trade reforms 45 Box 4.3: Effective rates of protection 57 Box 4.4: Sugar production in PNG 58 Box 4.5: Modeling the supply response of devaluation of the Kina 70 Box 4.6: Agricultural production in PNG 74 Box 4.7: The economic pitfalls of using trade barriers to promote domestic 76 processing Box 4.8: Mineral development in PNG 78 Box 5.1: Proposed preferential Free-Trade Area (FTA) among Forum 86 island countries Box 5.2: The MSG Trade Agreement 89 Box 5.3: The Samoan alia fishing industry 92 Box 5.4: Trade policy reviews of Pacific island economies 119 iii Foreword It is almost impossible for a meeting to be held in the world to discuss international economic issues without it being disrupted by violent demonstrations. Papua New Guineans are not immune to the distrust and bewilderment that surround these issues which affect all of us. As is so often the case when we don’t understand something we hit out blindly at it. The World Bank, the IMF, WTO and APEC are all institutions that come under this mantle. They are blamed for almost everything that is supposed to be wrong with our lives. It is fashionable to blame these institutions and the easy part is that those who do blame them can do so by merely calling their names rather than having to justify their stands or provide any evidence for what they are saying. This study is aimed at providing a reasoned argument about the effects of WTO and APEC, primarily how they affect PNG but also about how they affect other small Pacific nations. PNG is a trading nation and will be one for a long time to come. We rely on exports for our income and our growth and we need to create the best possible conditions in which our exporters can sell to the rest of the world. There is nothing wrong with being a trading nation and many of the world’s richest nations got there because they were good traders. PNG needs to stimulate all of its exports and to create conditions that will encourage new ones. It cannot afford to retain barriers that make the cost of exports higher. The INA has long been concerned about this subject. Its concern has been whether PNG will be able to carry out the necessary adjustments and how it will be able to absorb business and workers who are replaced by the changes. This worry comes because of the smallness and disparity of the PNG economy and the lack of obvious alternative investments to absorb the displaced capital and labour. There are many reasons why there has not been enough investment in PNG and tariff protection has only been one of them. It has embraced the WTO and APEC agenda enthusiastically, some would say too quickly and too willingly. This study makes the very iv important point that the expected improvements for a more liberal trade policy will only work if the rest of the economy is freed up and resources are encouraged into new ventures because investors see that there are markets available and profits to be made. The best wage, price and employment policies will only emerge as a result of good and liberal economic policies. Governments are not good at setting wages or prices because they don’t have the pressures of competition and they tend to reflect the prejudices of a small group of people. Protection looks after small interest groups and has tended to encourage corruption as those interest groups try to protect their privileged positions. Competition, or even the threat of competition, forces firms and traders to seek the cheapest methods of production and makes them pass on these benefits to the rest of the economy. The study has paid particular attention to PNG’s sugar industry because it is a classic example of the problems that a small economy faces when it encourages, through protection from import competition and other measures, a large investment in a remote area.