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US-NZ Partnership Forum: Neo-liberalism - Pacific Style

by Ryan Bodman

According to the organizers, this year’s US-NZ Partnership Forum will in part focus on the, “potential for the United States and New Zealand to cooperate on ... economic development and sustainability in the Asia Pacific region.” It will come as no surprise, considering that the two New Zealand representatives are Jim Bolger and Mike Moore, that this so called ‘economic development and sustainability’ is little more then a euphemism for neo-liberal, free market reforms.

The possibility of the US becoming further involved in the economies of Pacific Island Countries (PIC) is cause for concern, considering the affect the US has had on the economies of countries, not dissimilar to PICs, in the Caribbean. Concern for the PICs is further warranted as the Pacific currently buckles under the pressure of a neo-liberal assault on multiple fronts, in the form of Pacific Island Countries Trade Agreement (PICTA) exclusively for PICs, Pacific Agreement on Closer Economic Relations (PACER) with Australia and New Zealand and Economic Partnership Agreements (EPAs) with Europe.

To understand the affects of further US involvement in the Pacific, we must note the likely outcomes of the policies which the US champion and which are currently being implemented in the Pacific by their allies and subordinates. The three are as follows:

PICTA - Pacific Island Countries Trade Agreement

This agreement exists to establish the free trade of goods between Pacific Island countries. Countries that ratify the agreement must cut tariffs and restrictions to all goods by a predetermined time. In theory, this agreement will increase the efficiency of the island nations by eliminating unproductive businesses via increased competition and promoting successful businesses with access to new markets. It is easy to get carried away with this simplistic argument which is the basis of neo-liberalism. However this argument ignores the real world, the harsh realities of which are more often then not suffered by the lower classes.

In reality, PICTA will mean the loss of a major source of revenue to many island governments, many of which rely on tariffs for 20-70% of their income. Proponents of PICTA see this as a non-issue, encouraging island states to substitute the loss of income tariffs with Value Added Tax (seen in NZ as GST). However, tariffs tend to be highest on luxury goods commonly bought by the wealthy, while VAT would apply for all goods, including necessities. Thus, if these tariffs are replaced with VAT, the wealthy will be financially rewarded while the prices of everyday items will increase, leaving less money in the pockets of the general populous.

As highlighted above, a major component of neo-liberal reforms is the failure of inefficient business and the success of profitable business. In the short term, this means the loss of employment for many people and even assuming the promised benefits of more productive enterprises does eventuate, the strain on the subsistence economy and the government to meet the needs of the unemployed during the interim will be so great, many of the tiny economies of the Pacific nations will be unable to handle the pressure. Thus, a perfect recipe for an economic recession, and in turn, widespread suffering exists. These issues are just two of the many problems which will result following the fulfillment of PICTA principles. But compared to PACER, PICTA ‘tis but a flesh wound’, to Pacific development.

PACER - Pacific Agreement on Closer Economic Relations

The major component of the PACER agreement is that parties must begin to negotiate for the free trade of goods by 2011 at the latest. However, what makes PACER so concerning is the presence of Australia and New Zealand, the regional heavyweights.

Like PICTA, PACER will have a range of negative affects on the PICs however this will be exacerbated due to the new challenge of competing on an equal playing field with countries so disproportionately favoured to the free market ideals. Australia and New Zealand have strong comparatively diverse economies, access to large amounts of money and well-established infrastructure. Many of the PICs have few of the previous attributes and those which do, will stand little chance when the playing field is leveled.

Assuming that the country gets through the massive economic hardships (which will result as more tariff generated income is replaced by user-pays services, privatisations and VAT measures) without the rise of conflict, the promised employment which will result from the growth of the productive industries will likely prove to be little to write home about. Due to the excess of unemployed people, wages will be forced downwards and job stability affectively non-existent. Even if employment rises to the level prior to the agreement, (the chances of which, going by the results of previous free trade agreements, is practically non-existent) wages will be consistently driven down and jobs continuously discontinued as companies compete with other companies in a race to the bottom.

Another issue which will arise from the free trade deal under PACER is the destruction of the secondary and tertiary economic sectors in the PICs. These industries will be unable to compete with their comparatively larger equivalence in Australia and New Zealand. They will be out competed, forcing the few PICs that have started to thrive in the secondary and tertiary sectors back into the primary sector. Not only will this result in less income for exports, but the PICs will be extremely dependent on world commodity prices. This will result in an unstable economy where the country’s economic wellbeing will be decided by abstract forces in the world’s stock exchange. The emphasis on the primary sector will also increase the demand for land. In turn, ancestral land will quickly change hands from ancestral lineage to big business interests.

Other free trade agreements have highlighted how ancestral ownership means little when economic progress is at stake. Land will be individualized, exorbitant prices offered and the land which is so instrumental to Pacific cultures will change hands. This however is the best possible outcome under free trade legislation, as many precedents exist where abusive legislation or simple coercion is used to free up the land for business interests.

As you can see, the affects of PICTA and PACER in their current form will be devastating and long lasting. However, the above are based on the very unlikely scenario that PICTA and PACER will remain restricted to the trade in goods. It is likely that in time, services will be included in the free market agreements in the region, the affects of which are too numerous to mention here. One thing is for certain based on the affects of other agreements which have liberalised services, and that is that wages will decrease, prices will increase and the quality of services such as education, healthcare and utilities will be dramatically damaged.

Unfortunately time is not on the Pacific’s side. As I write this another agreement, this one with the European Union, is being negotiated.

EPAs - Economic Partnership Agreements

Since the 70s, due to colonial related guilt, the EU has given preference in their market to exported goods from Africa, the Caribbean and the Pacific (ACP) via the Lomé agreement. However the US won a ruling at the WTO which stated that this agreement discriminated against exporters from other countries and therefore had to be stopped. To replace it, the EU is negotiating with the three different regions to establish EPAs.

The negotiations are dictated by an agreement in 2000 called the Cotonou agreement. This agreement uses lots of colourful language and emphasises that the major aim of the EPAs are to reduce and eventually eradicate poverty consistent with the objectives of sustainable development and the gradual integration of ACP countries into the world economy. Of course, the very idea that the continent made famous for its butter mountains could care less for the developing world is a joke.

Currently, under funded Pacific diplomats have to compete with the armies of lawyers that the EU employ, in an attempt to include a development focus in the EPAs. It is unlikely that a deal will be reached by the end of the year and it is becoming more likely that any agreement that is signed will act at best, as lip service to real economic development.

It is also interesting to note that the EU is unconcerned with the agreement with the Pacific (focusing most of their energy on Africa) as so little trade is done between the two regions. It is therefore likely that the affects of the EPAs on the PICs will not be as significant as the affects of PACER. However, the EPAs remain extremely relevant in the local context. The reason for this is that the PACER agreement promises member states that the deal they sign amongst each other will be at least as extensive as deals with other bodies. Therefore, the negotiations for the EPAs will set a benchmark for future PACER discussions.

As the examples above exemplify, the Pacific, like many areas in the global south, is facing an onslaught of cut-throat neo-liberal agreements. The Australasian powers and the EU are in on the action and the US-NZ partnership forum, taking place in September 2007, expedites the arrival of the US to take its piece of the pie. If this agenda is allowed to reign supreme, it is more then likely that the Pacific, as we know it, will cease to exist.

Jane Kelsey, A People’s Guide to PACER, 2004.
Waden Narsey, PICTA, PACER and the EPAs: Where are we going?, 2007.
Oxfam, Blood from a Stone, 2005.
Oxfam, Vanuatu: The 2006 Land Summit, 2006.
Oxfam, Weighing the Options, 2007.