Cover Story
What PICTA and PACER mean to the Islands
Landmark Nauru OK bringing trade changes.
PICTA and PACER. These acronyms are bound to become engraved on the hearts of most Pacific Islands businesspeople. Signed at Nauru by 11 of the Pacific Islands countries to soon become affected by them, and also by Australia and New Zealand, they pave the way for the evolution of a Pacific Islands free trade zone over the next 10 to 12 years. Starting date: January next year.
Some countries, principally Fiji, will benefit from free trade much more than others. This is because they have a comparatively broad spread of manufacturing industries that sell as much to export as to domestic markets. But according to Pacific Islands Forum Secretariat officials the trade deals approved at Nauru are aimed at helping small, poor, isolated island states survive in a globalising world. This by becoming better positioned to negotiate trade deals with such massive trading blocs as the European Common Market.
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The Forum began talking about free trade from its inception in 1971. Since at that time its members had even less to trade than they have now, that vision then seemed a bit of a laugh and was laughed at.
But inexorable forces of globalisation have pushed Forum islands countries into a corner. They must respond or suffer crippling economic consequences. PICTA is the Pacific Islands Countries Trade Agreement. Member countries agree to progressively drop import taxes and other trade barriers on goods from each other.
Officially PICTA¹s purpose is, according to the Forum Secretariat, to "hopefully encourage specialisation and greater efficiency² in Forum islands countries economies and increase the flow of goods between themselves. Since it should create a single market of more than 6,000,000 people, it should attract more investment from manufacturers not interested in markets of under 100,000, or even 10,000 people. Large Forum islands countries will cut tariffs on imports to zero by 2010. Smaller ones have until 2012, except in the case of products which qualify for protection as start-up industries until 2016.
Import taxes will still apply to goods from islands countries which don¹t join PICTA (they can when they wish) and from Australia and New Zealand. PICTA will hurt some businesses, the Forum Secretariat admits. Some will be forced out of business.
"Adverse social impacts can arise from "adjustment costs" associated with the removal of tariff barriers. In some cases inefficient businesses may find it difficult to compete with businesses in other Forum islands countries partners. Those involved in these businesses may have to look for other avenues of employment. They may suffer unemployment and/or a loss of income at least temporarily. Forum Secretariat view: "There may be a disruption to their way of life and this may place some burden on their communities to provide them with temporary support."
Eventually losses will be balanced by opportunities for starting other businesses with new jobs and a "net overall benefit."
PICTA covers trade in all goods but not trade in services, capital or labour. Laws and regulations applied to local goods must be applied equally to goods from other PICTA members. Trade in alcohol and tobacco is exempted from PICTA for two years after which a decision will be made on permanent status for them.
Most countries rely heavily on revenue from liquor and tobacco duties. They also want to protect their small liquor and tobacco businesses from competition from mainly Fiji products. PICTA countries have filed "negative" lists of local products they want protection for as long as they are allowed to keep it.
Papua New Guinea's list is the longest and includes garments, fishing nets, a wide range of writing paper, record books, labels, jewellery, aluminum structures and prefabricated buildings. Samoa wants to keep protection for paints, mineral water, eggs, and cement blocks. Vanuatu lists meat, canned beef, ice cream, paints, wooden and plastic furniture and fibre glass boats and tanks.
Pacific islands countries that haven't yet signed up with PICTA are Palau, the Marshall Islands and the Federated States of Micronesia. They are not free to do so unless they can extract a waiver from the United States, to which they are bound by military, political and economic shackles in return for aid.
PICTA makes provision for membership for the region's remaining non-independent territories, like American Samoa and French Polynesia. It does not affect such arrangements as the South Pacific Agreement on Regional Trade and Economic Co-operation (SPARTECA), the Melanesian Spearhead Group Trade Agreement, the new Cotonou trade and aid deal with the European Union and to some extent membership of the World Trade Organisation.
PACER is the Pacific Agreement on Closer Economic Relations. This goes into force after being signed and ratified by seven of the Forum's 16 members, including Australia and New Zealand. PACER is a fudge by which PICTA members can keep the Australians and New Zealanders out of their agreement. But it sets the scene for a slower pace of the growth of free trade between Pacific islands countries and Australia/New Zealand without running into difficulties for both sides that would crop up in Australia and New Zealand.
It is meant to assure the Australians and New Zealanders that their goods won't be hit by competition from cheaper imports from other parts of the world if the islands do deals with trade blocs like the European Union. It also allows for the creation of a single regional market if Pacific islands countries and Australia and New Zealand one day decide that that is what would suit them. If one or more Pacific islands countries begin free trade talks with the European Union or some other prospective partner, this will trigger a requirement for consultations with Australia and New Zealand leading to negotiations for a free trade deal.
This rule does not apply to Pacific islands countries talks with least developed countries or islands countries which are not Forum members. Pacific islands countries can expect financial and technical help for their trade development efforts from the two big countries.
