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Pacific lessons from the Economic Partnership Agreement

Solomons Star, Honiara

Pacific lessons from the Economic Partnership Agreement

1 April 2009

A trade deal between the world’s largest economic region, the European Union - and the world’s smallest - the Pacific - was never going to be easy.

But it may not be just a case of bullying by the big guys.

The Pacific countries could have prepared better, ensured that their interests were properly represented, and collaborated more appropriately.

Reflecting on this experience and where missteps were taken, the Pacific should now apply the lessons learnt to ensure a strong outcome for their EPA negotiations and a positive way forward for the region.

There were many key actors who contributed to how the Pacific-EU negotiations transpired.
Their roles, which were crucial in defining the experience of all stakeholders, are further examined below.

The European Union

Europe was committed to a similar EPA negotiation strategy in most of the ACP regions. Using a cookie-cutter approach would save time and effort.

In addition, Brussels knew that any agreement with the ACP regions would set a precedent for its next negotiations, likely to be economic partnership agreements with more lucrative markets.

Under the leadership of Commissioner Mandelson the EU believed that broad-ranging trade liberalisation was a panacea, irrespective of time and place.

Given that the motivation of the EU was mainly to stop having to defend the Lomé waiver at the WTO, as soon as individual countries pursed different objectives, the EU knew it would achieve its goal more easily.

The Pacific Islands Forum Secretariat

Negotiating on behalf of fourteen small, resource-strapped island countries was never going to be easy.

Member countries are widely divergent in terms of population, economic potential, wealth, and cultural background.

The region’s governments are notoriously unstable - and at the extreme end of the scale, the Solomon Islands were suffering the aftermath of a violent uprising.

The Forum therefore had to decide parts of the strategy for itself and a certain degree of compromise was always likely in such a diverse region.

Yet, there is a long-standing difficulty with the Forum’s position. Sometimes it felt like countries were answering to the Forum rather than the other way round.

To this end, in July 2004 the Melanesian Spearhead Group, comprising Papua New Guinea, Vanuatu, the Solomon Islands, and Fiji, made a spontaneous submission on its EPA position to the Forum secretariat.

This paper appears to have been ignored, or at the very least, allocated minimal priority in the negotiation strategy.

In the name of consultation, the Forum produced an avalanche of technical documents and visited each country a handful of times to run workshops.

But the Forum should have known that the miniscule budgets and resources of most trade departments meant that officials did not have enough time to pour over scores of technical papers.

The private sector, which is even less able to decipher international trade-rhetoric, was all but left out of negotiations.

Pacific island governments

Most governments were interested in keeping state coffers topped up because they depend on import tariffs for a substantial proportion of their income - in some cases a fifth of total revenues - and many Pacific capitals were concerned about the precedent that the EPA would set for the Pacific Agreement on Closer Economic Relations (PACER), which is likely to involve lowering tariffs on goods from Australia and New Zealand.

Considerable midnight oil has been burned over the definition of ‘substantially all trade’ - a WTO requirement for free trade agreements.

Pacific island governments worried that the EU’s definition of 80% would obligate them to cut tariffs on goods from their biggest trading partners, forcing them to look elsewhere for revenues.

They were therefore negotiating in Europe with one eye on Canberra and Auckland.

In many Pacific island countries the fiscal regime is inflexible, making it difficult for governments to capture any additional surplus through other forms of taxation.

A vulnerable revenue position leaves little room for the major fiscal changes that would result from significant and rapid tariff reductions with major trading partners.

Yet governments must undoubtedly take some of the blame for not giving enough feedback.
The current lack of attention to trade policy throughout the region must change; otherwise the default option will occur.

Non-government organisations

Many NGOs appear to have simply lifted trade policy ideas from their European counterparts.

It is all very well for NGOs to argue that institutions like the International Monetary Fund and World Bank should tailor their policies more to individual countries, but so should NGOs.

The EPA episode provides significant lessons about how the region, and its individual states, should move forward.

Can small states run their own affairs, or must they defer to regional organisations? And what lessons can be applied for the future to avoid repeating the same missteps?

1. No negotiation without representation

The Forum should either become more democratic or less powerful. If not, it risks becoming irrelevant.

Countering the democratic deficit would require more government representatives formally involved in the political machinery, rather than the current situation, where a couple of regional leaders are chosen in a nontransparent way.

Only with formal democratic representation will the Forum be able to truly reflect regional demands and negotiate effectively.

2. Brief the press, influence opinion

Any trade negotiations require a media blitz.
The Forum should have publicised all information fully in the media and openly online at an early stage and adopted a public relations strategy.

At the very time when information should have been made fully available, many governments and ordinary people found it difficult to understand and access key documents.

For most islanders, the EPA became an obscurity being discussed thousands of miles away in Suva which had little to do with their lives. In reality, nothing could be further from the truth.

3. The Pacific way

Pacific islanders tend to promote decision by consensus.
Yet events during the EPA discussions led to the suspicion that the Pacific way was to prevaricate.
First, the countries could not agree on a candidate to lead the Forum in 2003 leaving the way clear for a compromise candidate that few openly favoured.

Next, in-fighting between Samoa and Papua New Guinea meant that relations soured further.
A process involving secret ballots would have led to a smoother outcome in both cases.

4. One size doesn’t fit all

Is there real strength in numbers, or can strength derive from smaller, cohesive groups?

The islands are so small that they must band together if they are to achieve anything on the international stage.
They must understand on the one hand their geo-political and economic marginality and vulnerability, and on the other hand consider how this disadvantage can be reconceptualised and transformed into opportunity.

Each country requires national resources to make regional funding work. Arguably it should focus on the EPA negotiations - the primary purpose of its existence.

Better to negotiate in smaller regional or issues-based blocs than to reach platitudes in order to satisfy every member of a big gang.

5. Death by a thousand Eurocrats

Success in international trade negotiations is almost as much about numbers as it is about technical prowess or negotiating power.

Small countries are at a clear disadvantage. During the EPA negotiations the Pacific islands were simply stretched too thin.

At the time, only two of the fourteen countries had representation in Europe. Forum members had to travel to Europe to attend discussions.

Criticisms must also be levelled at the newly-established Forum office in Geneva, which, according to several observers, underperformed during the critical stages.

That Vanuatu has since established its own diplomatic presence in Brussels suggests that it does not feel fully satisfied with the performance of the Geneva office.

6. Levelling the playing field

The Pacific ACP countries had no power to inflict a marginal cost on their bigger partner. They therefore had to accept the European position.

Transparent, well-designed guidelines, laid out in advance, would have helped protect them.
These guidelines could have at minimum involved a European pledge not to go beyond current WTO commitments on investment and government procurement, and laid out transitional arrangements.

As it was, the entire negotiations appeared to be in flux until the final hour, when many governments had no choice but to either opt out or sign up to a hastily-conceived agreement.

Neither of these outcomes had been expected or prepared for. To leave everything undecided until the end is to play into the hands of the powerful.

Future negotiations

Ardent free-traders will argue that the Pacific islands should open their markets unilaterally.

But despite their small size, the Pacific islands must be allowed to promote a select few areas in which they have an actual or potential comparative advantage.

Ultimately, tariff reductions may best be achieved on a timescale with which the islands can cope with accompanying institutional changes.

The Pacific islands could have done a better job in negotiations by being better prepared and undertaking widespread public consultation.

They could have made sure that the Forum heard their demands. Leadership of the ACP should have been better utilised.

The islands could have publicised their cause. And a few countries could have collaborated more on the issues that concerned them most.

They could have identified the industries, products or services that were their biggest priorities.
It is always easy to blame the big players, but if the Pacific is to challenge its bigger partners, next time it should assemble all its resources ahead of time.

· The Pacific Institute of Public Policy is an independent, non-partisan and not-for-profit think tank based in Port Vila, Vanuatu and exists to stimulate and support policy debate in the Pacific.

By Pacific Institute of Public Policy
Port Vila, Vanuatu