Transcript PACER Plus lunch presentations (1)

Evaluation of Regional Trade
Agreements in the Pacific Islands
Biman Prasad
Professor of Economics and Dean of the
Faculty of Business and Economics
PICS, ANZ & the three M’s
Country
Land area (sq
km)
Population
(‘000) (2004)
Pop'n density
(sq km)
GDP per capita
(PPP, 2004$)
Aid per capita
(2003US$)
Life expectancy
at birth (2003)
18270
730
181
848
98
60
46
134
331
6092
1600
61
191
991
70
63
70
702
127
181
2000
923
69
21
260
460
452860
2830
27990
720
26
12190
13
2
20
5625
179
471
102
11
215
619
8
43
12
63
17
141
423
18
5000
3600
Cook Islands
Kiribati
Marshall Islands
Micronesia, Fed.
Sts.
Naurua
Niuea
Palau
Papua New Guinea
Samoa
Solomon Islands
Tonga
Tuvalua
Vanuatu
2564
5694
1773
7236
1100
2893
63
1295
40
186
270
154
57
70
70
71
68
69
ANZ
Australia
New Zealand
7682300
267990
20120
4061
3
15
30116
22912
80
79
The 3Ms
Maldives
Malta
Mauritius
300
320
2030
300
401
1234
998
1253
608
Source: Satish Chand
3900
18954
11943
61
25
20
69
79
72
Source: Satish Chand
Fiji
Economic data
Percent change 1995 - 2005: selected PICS
Exports of
Agricultural Agriculture, goods and GDP
land (% of value added services (% (current
land area)
(% of GDP) of GDP)
US$)
Fiji
Kiribati
Services,
Industry,
Merchandise
etc., value
value added trade (% of Population, added (% of Workers'
(% of GDP) GDP)
total
GDP)
remittances
0.00
-28.63
-7.22
52.15
-9.88
0.52
7.83
14.64
457.58
0.00
-65.52
..
44.27
39.35
25.94
23.75
15.74
0.00
7.69
..
..
37.17
..
-16.89
24.05
0.00
..
..
10.96
..
12.90
2.65
..
..
0.00
-45.70
432.97
51.90
104.44
..
..
-7.95
..
12.82
..
..
7.48
..
14.06
28.91
..
-16.81
1.09
-26.75
..
101.60
-7.52
-5.08
9.27
13.84
-98.22
11.84
..
..
-8.33
..
-2.26
30.57
..
..
-9.09
..
..
32.28
..
8.71
2.00
..
..
1.38
-15.18
-13.13
61.47
-23.04
-9.87
25.05
7.86
-21.43
..
Marshall Islands
Micronesia, Fed.
Sts.
Palau
Papua New Guinea
Samoa
Solomon Islands
Tonga
Vanuatu
Source: ADB
PIC export markets
PIC Export Markets (% total exports), most recent year
Market 1
Market 2
Market 3
Market 4
Share 4
markets
Intraregional
share
Cook Is.
Japan
30.8
NZ
12.9
Australia
7.1
50.8
20
FSM
Japan
21.4
USA
20.9
Guam
3.4
45.7
0
Fiji
USA
19.1
Australia
16.5
UK
11.9
47.5
16.5
Kiribati
USA
26.2
Belgium
24.6
Japan
16.4
Australia
8.6
75.8
8.6
Nauru
S. Africa
56.7
India
15.4
Canada
5.9
Australia
1
79
1
Niue
N/A
0
RMI
N/A
0
Palau
USA
N/A
Japan
N/A
Singapore
N/A
PNG
Australia
29
Japan
8.7
China
5.4
Solomon
China
39.7
Korea
15.1
Thailand
6.7
Samoa
Australia
65.5
USA
8.2
A. Samoa
3.5
Tonga
Japan
33.3
USA
26.6
NZ
11.1
Australia
Tuvalu
Germany
62.1
Italy
20.7
Fiji
7
Vanuatu
Thailand
47
Malaysia
18.6
Poland
8.3
Average
0
43.1
29
62.8
1.3
77.2
65.5
2
73
13.1
Australia
2.7
92.5
9.7
Australia
1.5
75.4
1.5
65.71
11.8
Australia
1.3
Agreements (regional and
International
• PICTA- Pacific Islands Countries Trade Agreement
• PACER- Pacific Agreement on Closer Economic
Relation
• EPAs Economic Partnership agreement with the EUtrade side of Cotonou agreement
• MSG- Melanesian Spearhead Group Trade
Agreement (Fiji Papua New Guinea, Solomon
Islands and Vanuatu
• SPARTECA- South Pacific Countries and ANZ
PICTA
•
•
•
•
•
PICTA- All Pacific Islands Countries
Australia and New Zealand were excluded
PICTA signed in 2001
Came into effect in 2003
6 Countries ratified- Fiji, PNG, Solomon Islands,
Tonga, Samoa, Cook Islands, Niue, Nauru and
Kiribati
• US Compact countries were given a grace period (to
seek waiver from US on their MFN relationship
PICTA-trade liberalisation
• Gradualist approach to reduction/elimination of tariff
or other non-tariff trade restrictions (over10-12
years)
• Clearly defined rules for trade and fair competition
• PICTA – ROO (50% local content)
• Objective to create a single regional market of 8
million people
• Grace periods for manufacturers and infant
industries
PICTA-Stepping stone
• View that trade under PICTA will help countries to
face steeper competition from other developed
countries
• Learning by doing first amongst themselves
• Governments also will learn from this as far as
monitoring and regulations are concerned
• Allow governments to promote fiscal reforms to
ensure that they adjust better when there is a more
open environment.
PICTA-political advantages
• PICTA will give international voice
• Lock in effect expected from the implementation of
the PICTA- harmonised policies
• Aid packages from ANZ could facilitate further trade
PICTA- can it deliver
• Evidence on RTAs around the world suggest that it
promotes trade
• Some advantages- lower prices for consumers,
greater consumer surplus and better quality
products
• Benefits to both Governments and exporters
PICTA- can it deliver (2)
• Without PNG total population is less than 2m
• All have low income per capita
• All have poor communications links
• All lack developed infrastructure
• All have similar resource endowments
• Very few geared to exports
PICTA- can it deliver (2)
• Larger firms from bigger countries could take
advantage
•
driving out smaller producers and suppliers
• Monopolists may capture the benefit
• Effective competition may not be possible
PICTA- can it deliver (3)
• Much of the exports are simply re-exports
• Investment benefits are doubtful
• Fiji potentially the biggest beneficiary- trade
disputes- Vanuatu Kava to Fiji
• Powerful lobby groups don’t allow the full
liberalisation
• Government officials unable to understand and
reduce the influence of lobby groups
EPAs,
• EPA with the European Union- Most Pacific ACP
states derived preferential access to the EU market
• EPA was to replace the Cotonou agreement
• Negotiations begin in 2002 and concluded in 2008
• 10 Pacific Island Countries engaged in negotiations
with EU but only Fiji and PNG signed in 2007
• Fiji and PNG signed to avoid the disruption to trade
in their principal exports- sugar and tuna
• PNG tuna worth about 40 million pounds
EPAs (2)
• EPA with Fiji and PNG contains the following:
– Trade in goods- prohibition of new export taxes except
environment or infant industry support
– ROO- subject to review in 5 years
– Safeguards- available to PICs for 10 years
– Customs and trade facilitation- protcol on customs
cooperation
– TBS and SPS- enhanced cooperation amongst national
authorities and identification of priority products for regional
harmonisation
– Dispute settlement
– Rendezvous Clause
EPAs (3) Implications
• Displacement- has the potential to replace intra
regional trade frameworks such as PICTA and MSG
• Diversion- potential to divert PICs imports from ANZ
to EC
Benefits of PACER plus- this section is based on a
presentation by Peter Callagher on behalf of the team
Regional share of exports to top 4 markets
Regional trade benefits
–
–
–
–
PACER offers significant trading benefits for
ANZ and PIC consumers (ignored factor)
Up to 30% increase in merchandise trade
(based on Prasad study)
Unquantified but likely fundamental gains from
commercial services
Labor liberalization gains could be biggest
For both sides (PIC share = 80% if unskilled included)
Deepening the economy
Costs of PACER Plus
•Tariff revenue
•Costs of adjustment
•Diversion a potential cost to PIC
consumers/growth
•Planning, implementation are major national
projects for PICs
–
We recommend substantial ANZ
assistance
•Tariff revenues are a surmountable problem
–
more difficult for small PICs
Adjustment & diversion need more
attention
Tariff revenues in 3 PICs
PNG
Fiji ($m)
(Km)
Solomo
n Is.
($m)
Avg. imports
21054
4257
806
Tariff revenue
@ simple avg.
tariff rate
147.4
255.4
177.4
Limits of PACER plus
Most of the PIC population (80% in PNG) depend
on rural incomes. A substantial improvement in
their welfare can only come from higher
agricultural productivity or more productive
employment in other sectors. PACER alone,
even with labour market access will not provide
this...
Integration demands & promises
more
• Integration = trade + investment + standards +
'facilitation' + institutions
• These days there are 'many recipes' for global
market integration
–But no recipe for growth turns away from integration
• Distance and borders the great 'disintegrators'
Timing
• All PACER parties are committed, the trigger has been tripped
– There are other reasons (global economy, demographic,
environmental?) for an early start
• If work starts now, negotiations could start ... in 2 years?
– Planning, collaboration, data collection, setting priorities
• End-date suggests itself
– Coincident with the final PICTA date
• Possibly an additional two years for 'sensitives' designated in EPA
– Incidentally consistent with WTO
The biggest challenge: coherent
strategy
•
Integration is more than a decade away
–
Short term (private) losses loom larger than economy-wide gains
•
•
Gains will be difficult to see, except remittances
Analysts usually call for 'leadership'
–
... because they don't have to face the political dilemma
–
Collaboration is more practical
•
–
Essential that information about plans flows in both directions
Public-private collaboration on trade negotiations and agreements ensures lower costs, better capture of the
benefits
•
Requires deliberate action by governments to make it work; see International Comparative Study published by ITC
Planning
•
•
Trade agreements are not recipes for economic planning
–
A good trade policy starts with other decisions about economic management
–
Those decisions need data and political choices
•
Example: land and workforce policy objectives
•
Example: substituting for lost tariff revenues
•
We recommend action to improve data collection
Agreements are not a puzzle with a 'solution'
–
Expect to discover some answers and more questions as you prepare
•
–
Process of ‘discovery’, especially examination of services regulations
Another reason public-private collaboration is essential
'Winning' and 'losing'
•
Trade agreements are not a competition with foreigners
–
If there's no mutual gain then you have the wrong agreement
•
•
It doesn’t matter who gains the most as long as you are better off with the agreement than without...Looking at the ‘long-run’ result (when all profits are
normalized)
But trade negotiations have some contentious aspects
–
Ensuring your priorities are acknowledged
•
–
–
Especially in implementation schedules
Making sure your costs are minimized
•
Example: longer, back-ended tariff cutting schedules
•
Example: Simplified (CTH) ROO or no ROO
Making sure that surveillance & dispute settlement are fair
•
Who determines non-compliance? Provision for compensation pending remedy?
PICs priorities(1) -- IIT assessment
•
Preparation
–
ANZ typically model the outcome of an RTA to refine the approach
•
–
Not possible in this case
Collaboration, capacity, data (statistics), RTA overlap
•
Essential background work, some already underway (e.g. improvements in national statistics)
–
•
We recommend assistance as part of a capacity building program
Labour market liberalization
–
–
Model suggests benefits crucially depend on the category of labour
•
Costs to PICs of a scheme limited to skilled labor can reduce net benefits to zero (or less)
•
Seems likely that ANZ will require some vocational skills (contain management + corollary costs)
•
We recommend a sustained cooperative vocational training initiative to increase PIC supply
There are many other challenges in this proposal
Labour market challenges
• Very high rates of population growth.
– Workforce growth of almost 5% in PICS other than Fiji
• Employment share of feasible ANZ labour quotas will be relatively
small and will shrink
• Poor standard of most unskilled labour
– E.g. nearly 50% of PNG labour illiterate (Chand)
• Resource-rich PICS need to retain skilled and semiskilled labour
– But may find positive spillover effects (‘up-skilling’)
• Labour market access not a guarantee of growth
– Marshalls have full access to US labour market yet economy
performs poorly
Source of wealth
•
The key is total factor
productivity
• The change in GDP that
cannot be explained by
changes in the quantities
of capital and labour.
• Remittances increase
income but not
sustainable wealth. Only
policies that sustain high
levels of TFP growth
reliably lead to greater
output and wealth.
PIC Priorities (2)
•
The ‘fine print’
–
–
–
–
Phase-in
•
Highest PIC barriers seem to be on products traded among themselves (i.e. ‘sensitive’ in PICTA)
•
Agreement in EPA suggests that 10 years from 2011 (IIT recommendation) is feasible for elimination of goods barriers
ROO --- how much is needed?
•
In small economies ROO can be a barrier to both importer and exporter benefits from FTA [why?]
•
We recommend simplified CTH with sector provisions as necessary
•
Possibility that ROO can be simplified further once regional RTAs are extended
Avoiding diversion by making MFN barrier cuts
•
Diversion cuts your benefits from an FTA [why?]
•
There is a simple remedy: reduce the same tariffs on an MFN basis (eroding ANZ preferential margins)
Dispute settlement
PICs priorities (3)
•Services sector
•Why a negative list?
–
Impact
•Negative list means those service sectors not listed have market access (and possibly
national treatment) restrictions within the region
–
Integration with ANZ
•The ultimate goal is region-wide integration. Since ANZ have a negative list in the
ANZCER region, this strongly suggests PACER should have a negative list approach
–
Challenge: keeping it short but not too short
–
Procedure: regulatory review of commercial services
•We recommend ANZ assistance during preparatory phase
–
A feasible plan
•Despite high services component of PIC GDP, largest commercial services sectors are
already mostly open or strongly integrated with ANZ
–
Possibly, start with a simulation
PICs priorities (4)
•
Goods sector
–
–
Industry ('competitiveness') survey, positive adjustment planning
•
Not to ‘pick winners’ for negotiations but to identify sectors where adjustment costs are likely to be greatest (‘pick losers’)
•
Depends in principle on data preparations
Investment survey and promotion program
•
–
Standards conformity and institutional links
•
–
It is not possible to eliminate risk that SPS barriers will arise. But institutional links e.g. with FSANZ should reduce risk.
Government procurement
•
–
Experience in Australian FTAs suggests that ‘head-turning’ investment impacts don’t occur without some explicit promotion
Our report does not examine, but experience shows this deserves specific consideration in design of the agreement
Customs collaboration
•
Often more valuable to business links than tariff cuts
How should ANZ respond?




Access for unskilled labour
Dual citizenship for PIC migrants
Use of PIC soldiers and naval personal in ANZ forces
Investment in PIC infrastructure- water, roads, sewerage
etc
 Investment in social infrastructure, education and health
 Promotion of investment in WTO compatible industries
Summary
• An historic step that will help shape the economic
environment of the Pacific over next decades
• Substantial trade benefits
• ... expanded by labour market opening
• But trade benefits do not guarantee growth or a better
distribution of income
• Overall gain from integration depends on strategic
choices that complement market integration
– Overall market environment, including peace & security,
transparency, good governance and political stability
– Continuing to build market-supporting institutions including
accountable management of goods and services markets
thank you