TOWARDS FREE TRADE IN THE SOUTH PACIFIC FIJI

  • John Luxton
Food, Fibre, Biosecurity and Border Control

Mr Francis Mortimer, President of the Fiji Business Council
Honourable Mr Paul Manueli, Acting Minister of Foreign Affairs & External Trade
Members of the Fiji Parliament
Your Excellency Mr Tia Barret, NZ High Commissioner to Fiji
Your Excellency Mr Isimeli Bainimara, Fiji High Commissioner to NZ
Mr Solo Makaisale
Distinguished Guests
Conference Delegates
Kia Ora and Ni Sa Bula

Introduction

Thank Fiji/NZ Business Council for hospitality.

Appreciate the invitation back - in fact, last visit to Fiji was to address Fiji/NZ Council in 1996 - always a pleasure to return to your welcoming shores.

Congratulations on 10 years of Council meetings - perhaps the most successful and effective business council set up between NZ and any country in the region.

Theme

A timely and important opportunity to consider the topic of free trade in the South Pacific.

As you'll be aware, one of the key issues discussed at the Forum Economic Ministers meeting (FEMM), held in Nadi earlier this week (attended by our Treasurer and Deputy Prime Minister) was consideration of options for regional free trade arrangements.

Haven't had an opportunity to study the outcomes of the FEMM in great detail as yet, but it was extremely positive to see that there was general endorsement of the concept of free trade in the Pacific and agreement that the proposals warrant further consideration by Trade Ministers.

There are a number of options. First, in recognition of the spirit of the Pacific Community, one would involve 14 members of the forum establishing free trade among themselves. Another in recognition of the wider economic benefits which would flow from major markets, would be linking in to Australia and New Zealand. And of course there is the option of opening the region APEC-style to all markets.

Regional initiatives towards free trade in the South Pacific are an important stepping stone for the gradual introduction of the South Pacific to free trade in the global context.
Global context

As the 21st century stretches before us, facing an unprecedented move towards a global economy, with countries economically intertwined like never before, across goods, services, production, labour movements, investment.

Events in one corner of the globe can affect economies across the other side of the world - the recent jitters in Japan have sent ripples through financial markets all around the world.

The global trade context can at times seem extremely challenging but cannot be ignored.

Let's start with the global and regional setting in which we find ourselves. APEC and the WTO are moving ahead with trade liberalisation. And they are not alone. Significant liberalisation has already occurred and is still underway in North America, Europe, Southern Africa, the Caribbean, across the Tasman and elsewhere. And this is not only redrawing economic boundaries at the national level, it is building bridges between regions - between North and South America for example, or between Europe and North America.

I wouldn't want anyone here today to underestimate the pace and direction of regional and global change. It cannot be stopped. Even if Pacific countries were to decide it wasn't in their wider interests to keep up, most of the rest of the global community will continue. It will march on. And as it does, gaps and inequalities between those who competitively develop their economies, and those who do not, will continue to grow.

Even if PICs decide that it is not in their wider interests to keep up, most of the rest of the global community will continue. As liberalisation continues, the gaps and inequalities between those who competitively develop their economies and those who do not, will continue to grow.

South Pacific runs risk of falling behind, notwithstanding WTO accessions of Fiji, PNG and Solomons, and pending accessions of Vanuatu, Tonga and Samoa, and existing bilateral agreements.

Being left behind as the global community moves on means becoming inefficient. It means a slowing of growth. It means clogging private sector development and mounting pressure for migration.

It is in this context that Governments in the region are giving free trade options a serious look in the Pacific.

Movement towards free trade in the South Pacific should be complemented in due course by further work in the multilateral arena to ensure that the particular circumstances of more vulnerable countries, such as small island states, are somehow taken into account.

It is appropriate to reflect on the current economic climate under which possible FTA arrangements in the South Pacific are being considered.
Asian economic downturn

Falling exchange rates and lower growth in the South East Asian Economies will continue to have implications for countries with significant export exposure to their markets, and through indirect effects on commodity prices, tourism. Also impact on consumer and investor confidence in the currency, stock, and money markets.

Evidence of this effect in the Pacific region, particularly as in recent years Asian countries have become major trading partners for many PICs.

Fiji's terms of trade reflect this downturn with recent figures showing a 19% decline in exports in 1997 compared with the previous year. This is notwithstanding devaluation of Fiji dollar in January in an effort to provide a shot in the arm for Fiji exports.

A bright spot however: After initial concerns about the future of Fiji's largest forex earner - tourism, first quarter earnings for 1998 have shown a 5% increase on the previous year. While tourism numbers from Korea and Japan have declined, Fiji's lower dollar and wonderful climate is tempting ever increasing numbers from other sources, including Australasia, Europe and North America.

While New Zealand has also been buffeted by the Asian situation, confident that our prospects for recovery will be assisted by New Zealand's strong financial fundamentals and prudent government policies, including smaller, more efficient government, flexible labour market, low inflation, floating exchange rates.

We do not see the current situation in Asia as a reason to halt reform or put on ice regional initiatives towards free trade, but rather, a reason to continue.

New Zealand believes an open internationally competitive economy is essential for sustainable economic growth, and it enables an economy to better withstand external shocks in an increasingly interdependent world.
A framework for trade liberalisation

Many of policy settings required to form a free trade area already evident in the Pacific, especially in New Zealand and Fiji.

On the bilateral front, Fiji remains easily the largest market for New Zealand goods and services in the South Pacific ($185 million in 1997), and is one of New Zealand's top 25 markets overall.

Remain willing to consider FTA with Fiji, as was mooted at last year's conference, although this will need to be considered in light of developments in the regional context.

In Fiji you have a tariff reduction programme and an extensive system of tax and duty concessions applicable to the manufacturing, tourism and export sectors. So, for Fiji, extending liberal trade policies to the rest of the economy is really only an extension of existing fiscal policy. Put another way: here in Fiji you have a large network of tax free zones. Imagine extending the tariff concessions enjoyed by firms in those zones to any commercial venture in the country (leaving aside tax concessions on profits for a moment). That's all that's entailed in embracing free trade options for the Pacific. The duty free benefits of tax free zones are simply carried over to all other sectors of the economy, instead of paying off for a handful who have obtained special status by government decree, or by moving to a designated area.

Like Fiji, New Zealand has enjoyed policy settings which aim at easing adjustment pressures. We have CER. We have SPARTECA, and APEC. Part and parcel of these is an ongoing tariff regime which will see duties reduced to zero, all sources, well before the APEC 2010 timetable.

On the regional track, existing SPARTECA arrangements provide duty free access for FIC goods into New Zealand and Australia. However, preference margins for FICs under SPARTECA have reduced as New Zealand has reduced its barriers on imports from other countries.

As Minister of Commerce, currently in the process of reviewing SPARTECA ROO, in particular the 45% area content derogation for garments and the 25% FIC content requirement for products with Australian inputs.

Interesting that almost all submissions received on the review (from New Zealand and FIC manufacturers) spoke in favour of movement towards a Pacific FTA.

Hope to be able to announce the outcomes of the review shortly. Not in a position to pre-empt the decision of my Cabinet. Any change to SPARTECA ROO can not be more than a short term panacea for Fiji's concerns over garment exports to New Zealand. More open international competition in the New Zealand market is inevitable.

Long term, need to follow global trend toward non-preferential trade arrangements. In this context, SPARTECA dovetails nicely with FTA options currently being considered as part of the FEMM process.

On the multilateral front, the WTO binds New Zealand and other PICs (including Fiji) to agreed trade rules. Others, such as Vanuatu, Samoa and Tonga, looking to accede.

The rise in multilateral arrangements through GATT/WTO based on the MFN principle has seen corresponding gradual movement away from preferential trade arrangements.
The FEMM process

In the current climate, need to look towards arrangements that facilitate increased trade in the region. The Asian situation suggests that open economies can better withstand external shocks than closed ones.

FTAs should be seen as building blocks or stepping stones towards liberalisation in the global market.

I don't wish to go into too much detail on the options for this - that is for the experts and I will be looking forward to hearing this afternoon Mr Scollay's thoughts/reflections on the study he has carried out.

In relation to free trade arrangements, New Zealand would not foresee major direct trade benefits for itself in a South Pacific FTA, but recognises its wider importance to the region.

In this context, the messages we delivered at the FEMM were:

New Zealand favours a broader based, multilateral and non-preferential approach to trade liberalisation, and will support regional processes that work towards that goal. This should be an iterative and gradual process.

An FTA should cover services as well as goods. It should also incorporate trade facilitation measures such as customs procedures, quarantine measures and standards and conformance.

Recognising that the FEMM represents just the first step in opening quite a complex debate, New Zealand stands ready to participate in further work on all these issues and would support further consultations among officials.

New Zealand considers too that in view of the importance of all these issues, there should be public debate as well as consultations with the business sector in Forum member countries.
Consultation with business sector

This is where you come in. It is important to reinforce the initiatives undertaken by Government with representations by business. Ultimately, we, like Fiji (in the words of Prime Minister Rabuka at last year's BC meeting) wish to ``leave the business of business to the private sector''.

We want to ensure a role for business in assisting governments to formulate the right approach. And we would like to encourage widespread input into that process. We already know some businesses are likely to be affected by free trade more than others because some businesses receive high levels of protection. Those industries would face greater adjustment costs, because they have the furthest to go in matching outputs to global benchmarks. On the other hand there will be plenty among you here today who will reap considerable rewards from lower barriers to trade. Input costs should reduce, market access costs lowered, and productivity geared up on the back of efficiency gains.

The Fiji/NZ BC meetings offer an ideal forum for close dialogue between politicians and business.

We know that some businesses are likely to be affected by free trade more than others because they receive high levels of protection. Greater adjustment costs faced because furthest to go in matching outputs to global benchmarks.

On the other hand, many among you today will receive considerable rewards from lower barriers to trade. Input costs reduce, market access costs lowered and productivity geared up on the back of efficiency gains.

Also challenges for government. Those reliant on revenue from tariffs will need to identify alternative sources and to switch to them. They will need to weigh the costs and benefits of changed policy settings and make decisions on the basis of national circumstances.

If governments and business can together agree that the future lies in greater freedom for trade and economic linkages, then both will want to find a formula to deliver maximum results from it. We will want to ensure that growth in competitive sectors more than offsets adjustment costs in uncompetitive ones. This means that for every inefficient enterprise which must shut down, at least one efficient one should spring up in its place and offer sustainable employment prospects well into the long term future.

It is this seesaw effect that makes it so important for governments to hear from industries at both ends of the spectrum. Those who feel threatened by free trade must tell us. Conversely, if you see that free trade options will uncover new opportunities for your business and offer prospects for growth, tell us as well. Governments need balanced inputs so they can make balanced decisions.

Like any prudent business, I would expect forums such as this to weigh these issues carefully before approaching governments. And in doing so, I would urge recognition of the good head start that our countries, New Zealand and Fiji, have already made. We both enjoy largely competitive trade policy settings.

So, many of the policy features that are required to form a free trade are already evident in the Pacific, and especially in New Zealand and Fiji.

If agreement that future lies in greater freedom for trade and economic linkages, it becomes a question of finding the right formula to maximise the benefits.

A successful aim might be to ensure that businesses in the South Pacific are internationally competitive. In achieving this the uncompetitive firms may close, and be offset by the growth in internationally competitive businesses.

It is vital to hear from industries at both ends of the spectrum. Those threatened by free trade must tell us. Conversely those seeing new opportunities for business and growth must also tell us. Governments need balanced inputs to make balanced decisions.

Like any prudent business, I would expect forums such as this to weigh these issues carefully before approaching governments. And in doing so, I would urge recognition of the good head start that our countries, New Zealand and Fiji, have already made. We both enjoy largely competitive trade policy settings.

What we now need to do is to engage the private sector in a serious assessment of the options and a collective decision on "where to from here". We have the analyses. We have a regional and international setting conducive to change. And we have a mutual desire to keep building our economic and social welfare. All we need now is your considered input. Which is why I am very grateful to have had the opportunity to speak to you today to encourage your interest in this key topic, and to urge you to become involved in planning the Pacific's trade architecture as we move toward the new millennium.

Business should recognise the good head start that New Zealand and Fiji share, with our largely competitive trade policy settings, through bilateral, regional and multilateral tracks discussed above.
Conclusion

Global momentum for liberalisation.
Need to ensure that South Pacific does not get left behind.
Regional initiatives underway, including through FEMM process.
A stepping stones towards competing in the global economy: vulnerability of small island states needs to be recognised in some form.
Need to consult with business to get the full picture on where to go from here.
Would urge you to become involved in planning the trade architecture in the Pacific as we move toward the new millennium.