Wednesday, 25 February 2009 4:44 AM

Is Free Trade-A Way Forward For Solomon Islands?

AS GLOBALISATION brings real economic challenges home and abroad, the leaders around the pacific region are searching for durable economic solutions to elevate and consolidate the small and vulnerable economies in this economical challenging times. So, Is free trade a way forward for that durable economic solution for the pacific nations and in particular our country Solomon Islands? It has known that the pacific island trade ministers are gearing up for what some termed it as a big year for trade negotiations in the pacific region.
This year 2009 we'll see our nation Solomon Islands will be among other pacific island countries to negotiate some major development in trade agreements in the pacific region.

In this discussion I will argue that although free trade is said to be the engine for growth, a better way of achieving economic and social development and poverty eradication for the developing and participating countries, the realities behind it is still a mounting hostility with the process it self, especially by the millions around the world who have been thrown into poverty by market liberalizations from free trade agreements. Then I will also discuss some examples on the effects of free trade, as it will provide evidence to our people that free trade practices do not assist in closing economic gaps, but rather they assist in making these gaps wider. And also I will touch a little bit on the key players involve in free trade negotiations. Lastly in this discussion I will express in brief my personal view on this topic "Is free trade a way forward for Solomon Islands?
Before going further into this discussion I want to provide to our citizens the free trade negotiations that Solomon Islands is currently negotiating with the EU, Australia, New Zealand and other pacific island nations. From my general understanding on this issue of trade negotiations in the pacific region, there are three major free trade negotiations facing the pacific island countries (PICs) including our very own country Solomon Islands and they are:
- Pacific Agreement on Closer Economic Relation ( PACER- plus)
- The Pacific Island Countries Trade Agreement (PICTA) and
- Economic Partnership Agreement (EPA) - A Free Trade Agreement with European Union (EU).
For the understanding sake about these three free trade negotiations, I will in brief elaborate on some basic and fundamental ideas and objectives behind these trade negotiations that we Solomon Islands citizens should have some fair ideas about.

Pacific Agreement on Closer Economic Relation (PACER - plus) Done at Nauru, 18th August 2001, PACER is a framework agreement that establishes the guidelines for the future development of trade relation among the 14 forum island countries (FICs) and with our two developed country members of the pacific island forum, Australia and New Zealand.
One of the PACER -plus 's objective is that - the FICs wish to establish a framework for the gradual trade and economic integration of the economies of the forum members in a way that is fully supportive to sustainable development of the forum island countries and to contribute to their gradual and progressive integration into the international economy.

The Pacific Island countries Trade Agreement (PICTA) PICTA is the first agreement to be established under PACER - plus.
PICTA is a Free Trade Agreement among the FICs, which aims to gradually reduce import duties on goods that originate from the member countries. Cook Islands, Fiji, Kiribati, Nauru, Niue, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu have ratified PICTA.

Economic Partnership Agreement (EPA) - A Free -Trade Agreement with the European Union (EU) Economic Partnership Agreement (EPA) is the agreement currently negotiating to replace the original trade chapter of the Cotonou Agreement signed between Europe and the Pacific for trade and development over 30 years- and its objective and purpose is to promote regional integration, and to help pacific island countries build a new economic partnership which strengthens the region economically and helps equip pacific countries for a challenging economic world.

What is Trade Liberalization?
From a layman's perspective, trade liberalization involves the reduction of barriers in the international trade of various goods and service. These barriers can include the removal of government interference in financial capital market as well.
Therefore, the principal point of any Free Trade Agreement is to secure trade liberalization, and that's the primary goal of the three free trade negotiations above - that is to liberalise the trade in goods and services because there is a view that free trade leads to international division of labour and therefore to interdependence between the countries. This supports co-operation between countries and result in stability, prosperity and peace for all nations. In contrast to that, any kind of governmental trade restriction leads to diminish of prosperity both home and abroad.
There are many different arguments concerning economic, political and environmental issues, which support but also criticize free trade. Nevertheless, economic arguments played the most important role of free trade. Firstly, national customs gain from free trade. We can choose the cheapest products from other trading partners. This means our country will have an increase with foreign suppliers who offer the cheapest goods. Therefore they can expand their production which will cause severe problems to the domestic industries.

Benefits from Free-Trade
The benefits from free trade mainly fall on the business that can basically go to do free trade with trading partners (any countries) with cheapest workforce and cost to produce their items and then still able to sell their products without any tariffs in any participating countries. The public will set cheaper prices because of the competition of free trade.
The classic example to hail the success story of free trade is the economic miracle of china. Indeed ever since China liberalized in 1978, it has sustained a growth rate well over 7% and reduced the poverty rate. And the second phase of its liberalization in the 90s, proportion of people living under $1/day fell from 31% to 5.5%. Liberalization resulted from foreign direct investment flown to China and from around $580 million in the 1970s; today China attracts nearly $50billion of FDI which fund around 23,000 projects in the country, In terms of purchasing power parity, China's GDP per capita has risen from less than $980 in the 1978 to in excess of $2,600 today. However, under the shadow of this colorful portrayal exist serious macro-economical problems. China faces a threefold problem of disparity of wealth- rural urban, regional as well as between rural dwellers. Example China rural population earn only 40% of its urban counterpart where most nation (developing or developed) where is around 67%. One of the biggest problems China has faced since the resorting to free trade is that of unemployment and currently the number of unemployed amongst the rural population is increasing.

The Side-effects of Free Trade
The economics of free trade agreements (FTAs) is more ambiguous than the legalities. Even though FTAs by definition result in lower trade barriers between member countries, they do not necessarily result in economic gains for all members or the world.
Studies have shown that although FTAs can promote new trade opportunities among members, but they can also divert trade from more efficient producer outside the agreement. Free Trade does not automatically lead to poverty eradication or environmental sustainability. In fact, it can increase poverty and be harmful to countries at different stages of development.

While free trade can be a medium for a nation's development and prosperity, some economist who supports the idea of trade expansion argued that not every bilateral and regional free trade agreements proposed is necessary good economic policy. Despite the name, free trade agreement (FTAs) does not always promote more trade, nor do they necessary leave trading parties to the agreement or the rest of the trading partners better off. Beyond the economic ambiguities of FTAs are number of important strategies and foreign policy consideration that shouldn't or cannot be ignored.

As our trade negotiators with other trade officials from the pacific regions will be negotiating some major trade development in the pacific region on what I termed it as "forward or backward" for our small and vulnerable economies in the pacific region including our very own economy.

I want to bring to our attention what history has thought us about signing such free trade agreements (FTAs), especially with the developed and rich countries like EU, Australia, and New Zealand etc... It must be noted that whenever there is an free trade agreement that are negotiated between developed, developing and least developed (LDC) countries, or between rich and poor countries if you like, there is always a danger that poor countries are often forced to make concessions that not good for their economies, one good example to illustrate my point above is the rough textile negotiation that the EU or EC had with Hong Kong in 1982. According to the Hong Kong chief negotiator, Hong Kong was 'bullied into the agreement' by EU (textile Asia, Jan 1983).
More recently is the signing of EPA the EU had with the Caribbean countries at the leaders meeting in Barbados, some commentator sounds the sediment that the signing was done due to the pressure from EU.

Below I want to put across to the readers and especially the citizens of Solomon Islands few of the real catastrophes that happened to some countries as a result of FTAs.
Our first example is the North America Free Trade Agreement (NAFTA) - The North America Free Trade Agreement, known usually as NAFTA, is a free trade agreement singed between Canada, the United States, and Mexico. NAFTA went into effect on January 1, 1994. NAFTA is also used to refer to the tripartite trading bloc of North America countries.
After the NAFTA was signed Mexico increased export of fruits and vegetables by 50% to the US. But it's import from the US tripled for corn and over 500% for soybean, wheat, poultry and beef, Mexico's agricultural imports rose much ore than is exports, and 1.7 million rural jobs have been lost, we may ask why? One reason is that Mexico reduced its tariffs to zero within a few years of NAFTA signing. On the other hand, the US did not reduce its farm subsidies and many of its food products could sell at lower prices than production costs. Thus they swamped. The Mexico market displacing the farmers- resulted in severe problem on the rural people business operators and farmer of Mexico.

Furthermore, the next example on the drastic effect of tariffs cut under a FTA can be seen in the example of serious problem facing Malaysia national cars as the country fulfils its obligation under the Association of the south east Asian (Asean) Free Trade Agreement (AFTA) to bring the tariffs down by stages almost zero, where Malaysia national car faces with competition from other car manufacturers from Thailand. Under the same treaty, rice farmers of Indonesia and Malaysia are also faces with the similar problems when import duties are reduced to low levels within a few years, as the rice from Thailand and Vietnam is cheaper.
Our third example of the consequences from the free trade agreement is the results of the free trade agreement (FTA) Thailand made with China, Australia, New Zealand and India. In the first year of the FTA with China and Australia, Thailand recorded a combined trade deficit of 78 billion baht (baht is a Thailand currency) - resulted in Thai ordinary citizens held the protest against gov't's decision to enter the trade liberalization.

Additional point to the few examples discussed above about the side effects of FTAs is the fact that the norm for FTAs is aimed for zero tariffs for both sides as a general rule. Although some exceptions are then allowed for certain products or sectors.
Between the equal partners, there maybe mutual benefits, But between a strong and weak country, the stronger parties tends to get more benefits as they have the capacity to sell, whereas the poor country is unable to make use of the increased market access. This is so even in agriculture, where developing countries are supposed to have comparative advantage.

Another fearful scenario when agreeing to an FTA with the developed or rich countries would be thus require a developing or least developed countries to alter its law, policies and perhaps its entire development strategy, and shows that that is exactly what US, EU and Japan have requested when in a trade agreements.

Next major influence on developing and poor countries trade policies comes from the international organization such as International Monetary Fund (IMF), World Bank and other international aid donors. These organizations and countries attach to conditions to aid, loans and debt cancellation that require poor countries to adapt to certain trade policies, often these conditions force countries to make commitments that go beyond what they have negotiated at the world trade organization (WTO). This is evident at the meeting of the IMF and World Bank in September last year, when campaigners are pressing for these changes to put a halt on imposing economic policy conditions such as trade liberalizations, deregulation and fiscal austerity so that countries are free to determine their economic policies.

What Big Brothers Should Do
Instead of pushing the vulnerable small economies in the pacific region for a free-trade with some bullying tactics for what some said to be a big advantage on their part. The brothers should, and with a senses of mutual respect and genuine motives.
- Just assist without a full liberalization of trade to the small pacific island states in enhancing their competitiveness in the international markets.
- Ensure that the rule-base bilateral, regional or multilateral trading system properly takes into consideration the economic vulnerabilities of the small developing and least developed states in the pacific region.
- Improve the capacity to the small island developing states in the pacific region to effectively participate into the world trade organization (WTO) negotiations.
- Increase the scope for acceptance of pacific island countries as a case for special treatment in the world trade organization (WTO)
- Lastly, but not the least, strengthen the institutional capacities of the countries in the pacific region, including their capacity to develop trade-related policies and relevant regulatory measures.

As Solomon Islands with other small vulnerable economies in the pacific region are ready for some big continuing trade negotiations in the region with EU, Australia New Zealand, May I call on behalf of the pacific island nations and my country Solomon Islands (in particular) to our good friends like EU, Australia and New Zealand, do not push the pacific islands for opening up of a market while making minimal concession on your part, rather we should take stock and to corrective measures on the basis of fairness and share benefits. Otherwise only the words are sweet and leaving us the ordinary citizen to suffer the consequences.
Thinking of a world beyond PICTA, PACER-plus, and EPA with EU, and starting building a strengthening people's alternatives, we Solomon Islands want an alternative system of free trade agreements that protects livelihoods, promotes food sovereignty, secure jobs and facilitates access to basic human needs such as water, education, healthcare and affordable medicines; this alternative system is anchored on cooperation and not competition, where people's welfare matters more than profits.

As clouds of anxiety jumping up and down in the mind of the pacific leaders, my only hope is for the public and policy makers alike will wake up to the realities of what free trade agreements entails, and the issues are examined in detail before decisions are taken to begin an FTA or to sign on to them if the negotiations are already underway.
So far our trade negotiators are on the right direction, therefore, we Solomon Islanders should be thankful to our previous governments and the present government on their stand on this very complex issue for free trade negotiations, we remain hopeful that you will make the final decision base on what is best for country's economy and it's people.

Be wise like your name sake SOLOMON
Nation like ours where our national government finances its basic services like healthcare, education, shipping, and government workers and so on from the domestic revenue collected from the import goods (tax revenue), it would be a real catastrophe for the ordinary people, small business operators and farmers of this nation if we are to enter into a trade liberalizations, let it be for the big economies. And worse still are our infant small industries that are way far from competing into the international markets for goods for that matter. Example, just imagine the pacific region total exports to EU account for only about 11% while import is 3%, and the European region is one of the regions around the world where they really have some tough marketing regulations, especially towards the developing and the poor nations. So do we hope to gain some fair economic benefits from this so call trade liberalization with the developed nations? To answer this question I would suggest that it's too early for a small and vulnerable economy like ours to enter into any trade liberalization.

Somebody might ask a question, why wasting your time discussing all the examples and argument about this issue of frees trade? The answer is very simple, as we the ordinary citizens often victimized by some upper level decisions whether it is at the national, regional or internationally; we all have the rights to have an overview of what our country is facing and our leader's decisions in terms of the globalizations of the economic challenges.
Therefore, Is free trade a way forward for Solomon Islands? My answer would be, I don't think so, why? Well, let me take you back to the history of the Asian region in the early 1990s, global investors were impressed by their consistent rate of growth, and it was considered the" East Asian Miracle" however, their growth had nothing to do with the International organizations such as IMF or World Bank policies, instead the asian governments had implemented the development and financing policies that spurred successful economic growth and healthy trade with the advanced industrialized countries ( Stiglitz, 2000). Singapore is a great example of how a government investment in education, high saving rates, and state- directed industrial policy dramatically increases the standard of life for all its citizens (Stiglitz, 2000). And even Canada, which is clearly an advanced industrialized country, has experienced both social and economic hardships due to free trade and the flow of capital in 1980s.
Looking at the examples above, we don't need to fully liberalize our trade for the economic growth instead we should just impose sound policies and implement them.

Today we are facing set of challenges as a nation similar to any of them we have faced before. And there is an uncertainty if we can summon the courage and wisdom to meet these challenges. But what we all know is this, if we do not tackle these problems and challenges together we will not tackle them at all.
But may we as a nation remain hopeful that we will come to our collective senses and see a new dawn in international trade for a better Solomon Islands in the name of justice for all in a near future.
On receiving his Nobel Prize for literature in 1980, one of the great minds, Czeslaw Milosz, offered words of wisdom which seems particularly relevant today. "Transformation has been going on" he said, "defying short term predictions, and it is probable that in spite of all the horrors and perils, our time will be remembered as a necessary phase of travail before mankind ascends to a new awareness"
Together we can develop Solomon Islands
God bless my beloved country Solomon Islands.

Disclaimer: The views and opinions expressed in this letter/article are those of Frank S.Bilau and do not necessarily reflect the official policy or position of Solomon Times Online.

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