Aug 14, 2020 Last Updated 10:45 PM, Aug 12, 2020

Delving into PICTA

  • Aug 15, 2020
  • Published in June

In the last issue of Islands Business, I discussed the abysmal state of the Pacific Island Countries Trade Agreement (PICTA) and concluded that there was indifference in the way signatory countries have regarded and treated this trade agreement. This article further pursues this matter to try to find out what is really going on and what lies behind the surface of the immediate problem.

I wanted therefore to use a political economy analysis (PEA) to get behind the scene. My search for any PEA of PICTA or of Pacific Island Countries (PICs)/Pacific Islands Forum (PIF) in general was unrewarded. The Pacific region lacks the depth of analysis and research that other regions take for granted.

I searched elsewhere for a guide. I was rewarded with a PEA of regional integration in Africa’s East African Community (EAC) with its finding pointing directly to the twin shortages of ‘political will’ and ‘capacity’ as being responsible for obstructing regional integration.

I opted therefore to use the finding as first basis of my own attempt at a PEA of PICTA. I figured out that if these twin shortages were obstructing regional integration in EAC, they are likely to be doing the same with the more specific regional economic integration driven by a trade agreement. And, given therefore, the similarities in developmental status of the EAC and PICs – comprising both developing and least developed countries, it can be concluded that those twin shortages would also apply to regional economic integration involving PICs.

On reflection, such a methodology and its deductive conclusion is not far off the mark. The shortages of political will and capacity resonate loudly with Pacific regionalism. For example, regional commentators, from time to time, have identified shortage of political will to explain the wide implementation gap regarding decisions reached by regional leaders. As regards capacity, a paper tabled at the ‘What We Can Learn’ regional symposium of 2012 stated: “….capacity is a key constraint both to policy development and policy implementation……Building capacity is at the top of all our priorities. It is however a long-term issue.”

Having come this far, I opted to apply a PEA to PICTA and of related regional economic integration, albeit, in a non-rigorous manner. Political economists have their own tool for PEA – a five lenses framework, with series of sub-lenses under each category.

From historical, geographical and other related lenses, the PICTA signatory countries – with exception of Papua New Guinea (PNG) are all small island developing states (SIDS), with small economies characterised by lack of resources that give rise, for example, to rent-seeking. Capacity is clearly a constraint. All are recipients of overseas development assistance (ODA). On a per capita basis, the region as a recipient of ODA scores very highly.  

When it comes to the acquisition of imported resources, these SIDS are constrained by the quantity and range of exports and thus by their ability to purchase their imports. They are further constrained by the tyranny of distance. Their relatively low degree of integration into the global economy restricts them from taking full advantage of various trade concessions, preferences and incentives that are available to them.

On the other hand, PNG and Nauru have/have had relatively large mineral resources. However, there is evidence of Resource Curse and Dutch disease. The abuse and mismanagement of the economy resulting from them tend be linked to capacity constraint and thus underdevelopment generally.

As regards the shortage of political will, the evidence also speaks for itself. The most prominent lens that irrefutably points to lack of political will is what can be referred to as ‘rules of the game’. That is that Pacific regionalism is - generally speaking, voluntary. Leaders and ministers who readily make decisions at the regional level are not obliged legally to comply and implement those decisions - either at national or regional levels. Furthermore, there is no political cost for non-compliance. Ministers do not lose their jobs for not implementing those decisions.  This has contributed directly to the growing implementation gaps that characterise Pacific regionalism.

This situation has changed somewhat under the Biketawa Declaration when it comes to regional security. It should be noted that it was under the provision of this Declaration that Fiji was suspended from PIF in 2009. However, there are other lenses that bring up the same evidence of lack of political will.

The 14 PICTA signatory countries belong to four sub-regional groupings, viz: Melanesian Spearhead Group (MSG), Polynesian Leaders Group, Micronesian Chief Executives Summit and the Smaller Island States (SIS). Five of these signatory countries have cross membership of two subregions. Only the SIS is structurally part of PIF. It can be envisaged that for these PICTA signatory countries, there would be a tendency to prioritise subregional issues before PICTA, which transcends subregional borders. This is particularly true for the MSG members who already have their own Free Trade Agreement in the MSG Trade Agreement.

The same can be said for PICTA signatory countries that have strong bilateral relations. The three Micronesian signatory countries, for example, have the Compact agreement with the US; The Cook Islands and Niue enjoy a special political arrangement with New Zealand; Nauru and PNG have special bilaterals with Australia.  Bilateral interests, in these cases, are likely to prevail over any PICTA issues. This can spill over to politics.

Another aspect of the ‘rules of the game’ is that Australia and New Zealand are PIF members. They also happen to be two of the largest aid donors to PICs and are the biggest contributors to the PIF budget. Their influence in regional matters can be overwhelming. Add their respective bilateral influences on specific PICs, they do indeed represent sizable diversionary forces form PICs’ own regional economic integration. Australia and New Zealand’s seasonal labour schemes, for example, may have contributed to the lack of political will for PICTA and the prospects for its regional economic integration benefits.

Related also to the ‘rules of the game’ is PICTA’s Rules of Origin (ROO). This is being modernised. It can be deduced therefore that such ROO currently lacks concessions such as cumulation that can incentivise value adding amongst the signatory countries. This is unlikely to motivate politicians.

There is also the factor relating to the diversity of size of countries and economies – from tiny Niue, to large PNG; from the smaller islands of Polynesia to the relatively larger islands of Melanesia. Such diversity can be divisive. It can breed indifference and lack of drive for any regional integration by way of PICTA, for example, especially if national development and economic growth are already proving difficult to sustain. This can only raise questions as to whether this wider engagement will be cost-effective – PICTA being the first Free Trade Agreement for the PICs concerned. The status of the private sector development in the region and its lack of concerted influence is perhaps reflective of assumed cost-ineffectiveness of regional economic integration.

The realisation that the twin shortages of capacity and political will are constraining regional economic integration in PICTA signatory countries is perhaps not unprecedented. Regional commentators have entertained and affirmed such ideas in the past. For them, such a revelation is nothing to write home about. What this intimation hopes to achieve however is that it may drive the regional planners and strategists, who are currently formulating the 2050 Strategy for the Blue Pacific Continent, to seriously factor in shortages of capacity and political will in their planning to the extent of having to design new, imaginative and enterprising operational and structural features of Pacific regionalism, even if unprecedented, to take us through the post-Covid-19 new world order.

 

PICTA: Picture of indifference

  • Aug 15, 2020
  • Published in May

PICTA stands for Pacific Island Countries Trade Agreement. It is a Free Trade Agreement (FTA) negotiated amongst the Pacific Island Countries (PICs) to free up trade amongst themselves, under the provisions of ‘GATT 1947’, which morphed into ‘GATT 1994’ that is incorporated into the WTO Agreement. PICTA was signed in 2001 and came into force in 2003. But implementation was delayed until 2007. As of today, only seven PICs are trading under this agreement.

The situation depicted above has not changed since 2010, 10 years ago. In a workshop, sponsored by the Pacific Islands Private Sector Organization (PIPSO), the European Union (EU) and the Pacific Regional Integration Programme (PACREIP) in 2010, its outcomes document had this to say: “They are concerned therefore that only 7 of the 14 PICs are currently implementing PICTA. They believe that this is retarding regional economic integration and delaying the realisation of the collective economic and social benefits and improvements to the living standards of all the peoples of the Pacific region. They further believe that the delay in the benefits of regional economic integration under PICTA will constrain our ability and capacity to negotiate a fully meaningful PACER Plus with Australia and New Zealand.”

Later, on 5-8 November 2012, in a ‘What Can We Learn Symposium’, sponsored by six organisations including regional, United Nations and aid agencies, Dr Roman Grynberg, former Director of Economic Governance at the Forum Secretariat lamented the fact that PICTA “has thus far been of the most limited success.” He put the reasons down to: “there was no appetite amongst island officials and policy makers for any form of liberalisation that involved a direct adjustment cost. Whereas island officials have always been happy to write, sign and even ratify trade agreements, implementing them and accepting the real economic costs were quite another matter.”

After 19 years since signing, and 17 years since the agreement came into force, it can only be said that the current status of this trade agreement, the first for PICs, is most unfortunate indeed. The regional economic integration that PICTA was supposed to bring about is still very much at its infancy.

The founders of Pacific regionalism, way back in 1971, had conceived such a FTA would free up Intra-PIC trade and would further develop into an economic union, permitting initially the free movement of capital, labour, goods and services. By specifically targeting an economic union, the regional leaders then would have envisaged a Pacific-wide common market that went beyond trade, also envisaging prospects of coordination of various social, fiscal and monetary policies amongst participating nations.

However, after 49 years of regionalism, it can be said that the early regional leaders’ dream remains a pipedream. Recent decisions by those who could transform this situation have not helped. The Pacific Islands Forum (PIF) Trade Ministers’ meeting last February failed to give PICTA the thrust it needs to get it urgently going forward and to expediently make a difference to regional economic integration.

The PIF Trade Ministers’ outcomes were a damp squib. For PICTA, the ministers “also recognised the importance of …PICTA and its potential to facilitate intra-regional trade.” This is essentially saying the obvious. The FTA’s importance and potential were the qualities that drove the early regional leaders to negotiate the agreement in the first place. What is to be gained from such reiteration? This speaks volumes of the foresight of our early leaders but not much about our current leaders.

Furthermore, the use of ‘also’ in this context implies that such a statement was an afterthought. This presents an interesting angle. PICTA is a matter for PICs trade ministers only. But in this case, trade ministers from Australia and New Zealand (ANZ) were present during the discussions. Was the language of the outcomes especially aimed at sugar-coating due to the presence of the two elephants in the room?  

It did not stop there. The next part of the decision was extraordinarily naïve. Ministers indicated the direction further discussions could take but provided only if such and such were done. They failed to give concrete direction and action-oriented instructions as how those issues that were thwarting the ratification and implementation of the FTA could be expedited.

Admittedly, the issues involved are not simple. These are to do with what is now termed as the ‘modernisation work on PICTA’, including the extensive PICTA review and the Rules of Origin review. I can imagine that someone had coined ‘modernisation’ since the issues have been there on the table for donkeys’ years and have somewhat lost their vitality.

For the PICs trade officials and PIF Secretariat (PIFS) staff after the ministers’ meeting, it may be just business as usual. They have not heard any plea for urgency and certainly no specificity of actions to be taken both at the national and regional levels. There was no mention of additional resources. There was no mention of the legal, technical, political and consultative measures that need to be mobilised to progress matters. There was no mention of the measures directed at mobilising the private sector representatives at the national level and at the regional level through PIPSO. There was no mention of the prospects of technical assistance (TA) that PIFS staff should extend to members especially to the Smaller Island States (SIS).

It is difficult to be optimistic about PICTA given its dismal history. But one can be proven wrong. The trade officials may have reached a tipping point and could now be driven to do all they can despite the vagueness and the absence of commitment in the ministerial directives. This is a possibility given the commendation they have received recently from Professor Jane Kelsey of Auckland University.

The good professor was a resource person for the ministerial meeting last February. Whilst she was impressed with the quality of some of our trade officials, she was not however with the Forum Secretariat. Her assessment of the latter was that whilst there has been an improvement, the Secretariat is still inadequate in servicing the needs of the PICs. The Secretariat lacks the ‘fundamentals’ and the ‘nuances’ to identify the real needs of the PICs and the ‘independence’ to address them. If there was a vindication for the provisions of TA by PIFS for its deserving members, this was it.  

The case of PICTA and its stunted history raises two big issues for Pacific regionalism. The first is that if PICs are not getting the benefits from this trade agreement as intended, then questions have to be asked about the suitability of the model around which the agreement is built. Professor Kelsey has already told us that the model is broken. So, what can be put in its place?

There is also the question of the suitability of a regional grouping of only small states. Can such create the net benefits needed? Would PACER Plus with ANZ be a better configuration for a regional trade agreement?

Big questions need critical thinking on the part of our regional planners. These are all food for thought for the regional strategists who are developing the 2050 Strategy for the Blue Pacific Continent and for the next PIF Leaders’ meeting scheduled for August later this year in Port Vila.

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