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The Aussies and Kiwis shouldn’t leave island neighbours high and dry

By Andrew Hewett - posted Monday, 2 August 2010

Prime Minister Julia Gillard won’t be attending a meeting of Pacific island leaders this week (August 3 and 4) - despite the fact that she is currently at the helm of the Pacific Islands Forum.

Her focus is firmly on domestic issues and trying to win an election campaign. But New Zealand Prime Minister John Key certainly will be attending, and ready to discuss the negotiations between Australia and New Zealand and their island neighbours for a new regional trade agreement. While they have only just begun, the negotiations have been full of controversy.

There are likely to be major costs for the smaller island countries if the new agreement - dubbed PACER Plus (Pacific Agreement on Closer Economic Relations) - is negotiated as a typical free trade agreement, including business closures and job losses that would add to the growing levels of poverty in the islands.


Pacific island countries are already on the wrong side of a massive trade imbalance with Australia and New Zealand - which is almost 6:1 in favour of the two major regional economies (once extractive industries from Papua New Guinea are excluded). A poor agreement is likely to widen this trade imbalance even further as any surge in cheaper imports from Australia and New Zealand sees local producers pushed out of their own markets.

Another key risk is the loss of government revenue from tariff reductions, which could see Tonga lose 19 per cent of its government income, Vanuatu 18 per cent, Kiribati 15 per cent, and Samoa 12 per cent. For many of these countries, the projected loss of government revenue is more than their total health or education budgets.

Wary of these implications, a number of Pacific non-government organisations, church groups and trade unions are calling for the PACER Plus negotiations to be put on hold, at least until a new approach is taken.

Oxfam too is calling for a new approach - one that takes into account the needs of island producers and builds on examples of successful exporters in the region. Oxfam has just released a report (Learning from Experience: Sustainable economic development in the Pacific) that provides a snapshot of enterprises in the islands that are using trade to lift people out of poverty. Typically these enterprises build on the existing strengths of Pacific island economies - including vibrant rural agriculture, market gardens and the skills of traditional craftspeople.

Oxfam believes trade policy must help these kinds of enterprise, because to build a better future for growers and their families, development in the Pacific must be sustainable, must generate broad-based benefits, must be appropriate to the local culture, and must be able to be scaled up to make a significant contribution to the region’s needs.

Australia and New Zealand already have a trade agreement with the Pacific: the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA), but it is nearly 30-years-old and needs improvement to help producers in the island countries take better advantage of their access to Australian and New Zealand markets. An improved agreement could, for example, help Pacific growers and their families by opening new “export pathways” that would allow islanders to sell their produce to discerning customers in Australia and New Zealand. It could also provide the resources and expertise needed to meet Australian and New Zealand quarantine standards, and prioritise the assessment of Pacific produce by quarantine agencies.


Changes to SPARTECA are also needed to help Pacific islanders export more manufactured goods. The current rules fail to take into account the realities of manufacturing in the Pacific islands, where industries are more reliant on imported inputs than in most other parts of the globe. They are so out-of-date that two of the most important manufacturing exports from the islands to Australia and New Zealand - car parts from Samoa and clothing and textile exports from Fiji - rely on temporary exemptions from existing rules.

By contrast, Australia and New Zealand have just finished a review that improved the rules for trade between them, but, despite action being needed now, have refused to review the rules that Pacific exporters face, preferring instead to embark on arduous negotiations for an entirely new agreement.

The way the Australian and New Zealand governments deal with the issue of trade is a crucial test of whether they are prepared to listen to the Pacific’s unique needs and aspirations. Rather than being a bone of contention, Australia and New Zealand could use the trade discussions at this year’s meeting to offer the Pacific improved trade rules immediately, building political trust and contributing towards the shared goal of sustainable economic development for the region. There is no time like the present.

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About the Author

Andrew Hewett is Executive Director of Oxfam Australia.

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