Jul 11, 2020 Last Updated 9:26 PM, Jul 10, 2020

Delving into PICTA

  • Jul 11, 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.

 

The Pacific Islands Forum (PIF) Trade Ministers met in February in Suva. Their key outcome on the World Trade Organization (WTO) was: “there is support for the multilateral trading system and the opportunity therein to address global trade concerns including harmful fisheries subsidies.”

In the global context of the roles of WTO and the multilateral trading system, the support above is essentially general affirmation of globalisation. Such formulation of an outcome however is not new for PIF. Previous outcomes statements have reflected the same or similar support.

However, such an expression of support raises more questions than answers. Firstly, out of the eighteen PIF members, only eight are WTO members – six Pacific Island Countries (PICs) – Fiji, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu; and the two developed countries of Australia and New Zealand. Then why should the other ten PIF members, non-WTO members, be included in the decision, one may ask. Obviously, the Trade Ministers had decided by consensus. That could mean that the non-WTO PIF members did not object to the decision.

The non-objection by the other ten PIF members would have been political to allow a decision to prevail in the interest of group solidarity. But more so, the non-WTO members know very well that regardless of their non-membership, they still benefit from the provisions of the WTO. They know, for instance, that they have benefitted from the WTO initiative of Aid for Trade (AfT). AfT resources, have been re-committed by Australia and New Zealand under the PACER Plus, and a good share of that is being disbursed through the Pacific Horticultural and Agricultural Market Access (see Islands Business July 2019).

The second question is a more substantive one. Despite all the downsides of globalisation, despite the growing inequality globally resulting from capitalism that powers global economic growth, despite the inaction of the Doha Round of trade talks (Doha Development Agenda) that was aimed at elevating the  trade and economic interests of developing countries and the least developed countries—those underprivileged under international trade— why is there still support for WTO and the multilateral trading system (MTS)?

In retrospect, it has to be said that such support is an affirmation of the benefits that WTO and MTS have generated through international trade for the region, despite their shortcomings. And these benefits can potentially increase. Furthermore, the support emanates from the realisation that all other options apart from the existing MTS will render the global trading community worse off.

WTO and the MTS it champions is rules-based. Obviously, some rules are negative and some positive. Their respective applications also create mixed results for the global trading community. Under GATT 1947, incorporated into the WTO Agreement, PICs have been able to negotiate their Free Trade Agreements (FTAs), like PICTA and PACER Plus - the latter with Australia and New Zealand, despite the fact that the negotiating model offered by the WTO is ‘broken’ – according to Professor Jane Kelsey of Auckland University.  

PICs continue to use the model since it produces a rules-based regional trading system that is better than a trading framework with no, vague or draconian rules. Furthermore, they continue to place their hopes on the model believing that the same model can result in better regional FTAs – better concessions, more creative special and differential treatments, derogation from general provisions and waivers - if there is genuine political solidarity and commitment to configure/reconfigure Pacific regionalism to something that we can all be proud of.

Furthermore, the immense benefits that PICs/Pacific African Caribbean and Pacific States (PACPs) have accrued from their membership of the ACP-EU Agreements can also be attributed to the WTO Agreement. This is so since the ACP-EU Agreement has been notified under the WTO, and its preferential arrangements are granted exceptionality under the Organization. Over the years, such exceptionality has been extended. It may also have been preserved for posterity under the application of a ‘grandfather clause.’

Fiji, for example, has benefitted immensely from the Sugar Protocol - an arrangement that offers supply quotas and preferential pricing. The Sugar Protocol, like all the other protocols offered by the EU, are formulated and implemented under the EU’s Common Agricultural Policy (CAP).

The CAP offers other preferential arrangements that have benefitted other PACPs. Fiji and others have benefitted also from EU’s Generalized System of Preferences (GSP) and may even so  from its more liberal version of GSP+. PACPS that are least developed countries (LDCs) and that export to the EU benefit under another preferential arrangement known as ‘Everything But Arms.’ The term denotes exactly what it can do and what LDCs can export preferentially to the EU.

The Americans have their own version as well. Under the African Growth and Opportunity Act (AGOA), 2000, the US offers enhanced market access to qualifying Sub-Saharan African countries. This has been extended to 2025. Fiji, in the early 2000s, was contemplating negotiating a similar arrangement that could be extended to other PICs.

As stated above, these benefits can potentially increase. Developing countries and LDCs still hold on to the hope that developed country members of the WTO will find sufficient unity and determination in their ranks to progress the provisions of the Doha Development Agenda thus creating new levels in LDCs’ respective integration into the global economy. Under that framework, it is hoped, that new creative concepts to improve the lot of developing countries and the LDCs will become more palatable.

Two concepts in this respect have entered the lexicon of the WTO recently. Emily Jones wrote in 2013: “The Right to Trade: A Mechanism for Revitalizing Pro-Development WTO Negotiations?” She later introduced in the same article: ‘right to development’. She added: “Having raised deep concerns about the failure of ‘aid for trade’ (Joseph) Stiglitz and (Andrew) Charlton make ambitious proposals for rebalancing the global trading system. The first pillar of their proposal is to enshrine and enforce a ‘right to trade’ and a ‘right to development’ through the WTO’s dispute settlement mechanism (DSM).”  

For the PIC members of the WTO, that will be most welcome. Wilfred Golman of the University of the South Pacific wrote in 2017: “The WTO DSM and the South Pacific Island Nations’ (SPIN) Participation.” Golman concluded from his research that SPIN countries were notably absent from the WTO’s DSM. He discussed a number of reasons why this was so, including: the continuing debate as to whether the DSM accommodated the interests of the developing countries or LDCs; the issue of fairness in DSM’s decisions (that the process favours richer countries as they were able to argue more effectively and settle their cases), and that the poorer countries were disadvantaged by constraints on their ability to pursue any trade infringements at the WTO level.

As tools for globalisation, there is a sense of inevitability around supporting the WTO and the MTS, regardless of their respective downsides.  This essentially evolves from the understanding that global traders, large or small, lack a better trading framework option than that presented by the existing MTS.  With the benefit of history, it can be concluded that any setback to the MTS and a reversion to excessive and uncontrolled trade protectionism will inevitably return the global trading system to one of ‘Beggar Thy Neighbour’ situation, or much worse. When that happens, international traders will essentially be engaged in a kind of zero-sum game. The end result is likely to be unprecedented global inequality.

The author is a former Fijian Ambassador and Foreign Minister and runs his own consultancy company in Suva, Fiji.

 

By Caleb Jarvis

As a young boy growing up in Papua New Guinea (PNG), every Saturday Dad would drive up a windy road that overlooked 2-Mile settlement in Port Moresby, where people went about their daily lives. Looking out the window of our 1978 Toyota Corolla as we climbed the hill, the vibrant colours and the glistening tropical waters are forever etched in my memory. Dad and I were on our way to Taurama to collect the international newspapers and a Phantom comic, which arrived every week from Australia. As we reached our destination, there was a mass of people and all I could see was blood splattered all over the walls and across the road. Seeing the terror on my face, my father calmly explained that is was the stain from buai (betel nut) chewing and not to be concerned. PNG was certainly an exciting place to spend my childhood years. Having worked in the Pacific for more than 25 years, I have returned often to Port Moresby and marvelled at the bustling modern city it has become. The developments in the broader region have also been huge, particularly over the past ten years.

As Pacific Trade Invest (PTI) Australia celebrates its fortieth anniversary this year, it’s an ideal time to reflect on how these developments will shape the next 40 years of trade and investment in the Pacific.

Below are what I see as some of the greatest changes in the past 40 years, and what the next 40 years must bring for the Pacific to grow and meet its enormous potential.

The changing nature of connectivity

The Pacific once felt isolated. Now it’s more mobile and global than ever before. When my family operated its business in PNG there was no internet or mobile phones and two-way radios were the norm for communication.

According to the GSMA’s Pacific Islands report, the region’s unique mobile subscriber base increased from 2.3 million in 2009 to 4.5 million in 2018.

By 2020, the economic contribution of mobile technology to the region’s GDP is expected to reach 6 per cent – with mobile services driving development in financial inclusion.

Now, thanks to sea cables, internet and mobile phone proliferation, the Pacific’s window to the world has increased the Pacific’s appetite to move regionally and globally. The flow of global information through Facebook, YouTube, Google and music has had an enormous impact on, and greatly influenced, the lives of Pacific people, especially the younger generations.

From a trade perspective, established and aspiring businesses in the Pacific have new affordable channels to access international markets, customers and information. They know what is being traded, where, and for how much – particularly important for economies heavily reliant on exports.

Right now, small- and medium-sized enterprises (SMEs) in the Pacific still face barriers around small parcel logistics and affordable payment systems limiting their ability to take full advantage of digital connectivity.

Connectivity and technology are giving rise to a wave of new micro-enterprises. For example, locals can now use platforms such as Airbnb to generate additional family income.

It’s vital that investment in technology and improvements in the region’s connectivity and digital capacity building continues so that the Pacific can compete in global supply chains and find further efficiencies domestically.

Whether it’s selling goods, providing services or promoting tourism, the Pacific must be able to participate and promote itself digitally. It’s exciting to see this next generation of Pacific entrepreneurs already translating ideas into a Pacific context, for example GoFood in PNG, Cyber Food in Fiji and Seki eats in Samoa – all Pacific versions of Uber Eats.

In time, the improvements in connectivity and technology will enable significant advances in the delivery of education and health services to those in remote areas of the Pacific.

The changing nature of mobility

Deregulation of air services has resulted in more incoming and outgoing flights from the Pacific at more affordable prices.

Australia must embrace its neighbours in a sustainable and respectful manner. A new significant factor in worker mobility is Australia’s commitment to the Pacific Labour Scheme (PLS), which allows semi-skilled Pacific Islanders to work in regional and rural Australia for up to three years.

This will provide them with the opportunity to earn income and develop skills under the guidance of experienced professionals – something they can take with them and apply in their future work. The initial success seen through the pilot program has been immense both for the Australian employers and the Pacific workers.

Personally, the PLS is one of the greatest initiatives I’ve witnessed over the past 25 years of working across the Pacific. Under the scheme, Pacific workers are able to generate significant income and continue their learning while gaining international experience. There is much still to be done, but we must adopt a long-term view and give it the time and support it needs to achieve its potential.

Developing industries

The range and volume of exports from the Pacific has evolved enormously. Be it extractive industries, coffee, cocoa, fish, coconuts, root crops or bilum weaved goods, the Pacific has continually found ways to export its goods to the world.

With continued advances in connectivity, education and mobility, the Pacific’s exports can expand beyond physical goods to include services, knowledge and intellectual property.

Take, for example, the growing global interest in kava. Nobody is better positioned to share knowledge and lead the development of this growing industry than Fiji and Vanuatu.

In the future, Pacific enterprises need to value add their exports and move away from traditional export of commodities. Enterprises need to be consistent, improve quality and learn to tell the world their amazing stories. This will in turn allow them to charge premium prices to offset higher logistics costs due to the natural isolation of the Pacific islands.

Doing it the Pacific way

To ensure the Pacific plays to its strengths, it must use its resources, tourism assets, fertile land, abundant water, traditional knowledge and affordable labour force to support change and growth. This must be achieved in a way that respects the region and, more importantly, understands and works within the context of rich and diverse cultures and traditions.

PTI Australia must evolve and recognise that the support and advice we are asked for will change. Soon it may not be export advice related to physical goods, but advice on how to protect and sell intellectual property, how to sell and connect to digital marketplaces, and how to support the movement of Pacific Islanders to good work, temporary or long term, overseas.

While there is much work to be done, we can be certain that the next 40 years is going to be incredibly exciting for the Pacific.

Caleb Jarvis is the Pacific Trade Invest Australia’s Trade and Investment Commissioner. Founded in 1979, PTI Australia is an agency of the Pacific Islands Forum Secretariat, funded by the Australian Government, that facilitates trade and investment in the Pacific islands.

This article first appeared on the DevPolicy Blog, published by the Development Policy Centre at the Crawford School of Public Policy, The Australian National University

Australian Prime Minister Scott Morrison will be at this year’s Pacific Islands Forum leaders meeting in Tuvalu, and Foreign Minister Marise Payne says she is keen to get to Papua New Guinea soon “to  visit our new friends in government.”

Minister Payne made the comments in a speech before media and diplomats at a Press Club lunch in Suva today.

The Minister was in Fiji  just a week after being sworn in as Minister for Foreign Affairs and Minister for Women, following the Liberal/National coalition’s win in Australia’s recent federal election. This week Prime Minister Scott Morrison has also been in Solomon Islands, meeting with the new government of Manasseh Sogavare.

Minister Payne says both visits show the importance of the Pacific islands to Australia.

She revealed that Australia has begun work on a joint trade and economic scoping study to look at creating more opportunity for Australia and Fijian businesses.

“That work began literally last week and is going to be finalised by the end of July. I very much look forward to the findings of the independent team that will shortly be in Fiji to engage with government and the business community.”

Australia’s record on climate change and the lack of ambition in its targets to cut emissions has been widely criticised by Pacific leaders. However today Payne said: “For Australia’s part, we are on track to meet – indeed to exceed – our commitments to the year 2020 under the Paris Agreement, and making progress towards our 2030 target,” while also commending Fiji Prime Minister Voreqe Bainimarama for his leadership in climate change negotiations.

Minister Payne’s program also involved visits to the Blackrock Camp in Nadi, breakfast with female MPs, and a meeting with advocates against gender based violence at the House of Sarah.

Details of a possible visit to meet with PNG’s new Prime Minister, James Marape and his cabinet, will be announced at a later date.

Advancing regional integration

Writing about the future of the Pacific Islands Forum (PIF) in this magazine last month, I concluded: “Economic union will come in due course when we deepen regional integration, specifically regional economic integration,” and added that “some structures that will bring this about have been created through our efforts at regional cooperation via the establishments of committees.” I then named the various committees and the private sector body involved.

Pacific Islands Forum Secretary General, Dame Meg Taylor, enlightened us on how to progress with regional integration when she spoke as an Observer at the Asia-Pacific Economic Cooperation (APEC) meeting in Port Moresby on 15 November 2018. She said: “In the Pacific we take a more expansive view of regional integration that extends beyond simple economic or market integration…….Indeed, our approach to integration is unique – the catalyst being Forum Leaders endorsement in 2017 of the Blue Pacific narrative as the core driver of collective regional action in the Pacific. Grounded in the strength of our collective will, the Blue Pacific narrative emphasises action as one ocean continent, based on our shared ocean identity, geography and resources.”

The above statement is loaded and somewhat pedantic. This article unpacks the various issues and forges a way forward on how we can effectively implement and achieve our own resolutions.

The economic union I wrote about is still very much in the mix, judging from Dame Meg’s statement. Economic union comprises a common market. The Forum’s regional integration proceeds beyond market integration, the Secretary General said. I did however write that such market integration is yet to be fully formed in the region.

Moving forward from here does not necessarily mean that we ignore the deficiencies of the past. PIF needs to re-visit its market integration agenda and implement relevant reparations to strengthen its integration bases before it builds further on it. What is needed is that all planned reparatory and foundational structural work directed at future regional integration is carried out on the basis of its Blue Pacific narrative.

As far as PIF’s Free Trade Agreements (FTAs) are concerned – the Pacific Island Countries Trade Agreement (PICTA) for the Forum Island Countries (FICs) and the Pacific Agreement on Closer Economic Relations (PACER) Plus for all members including Australia and New Zealand, the Blue Pacific narrative requires our ‘collective action’; and this should be directed at addressing the still outstanding ratification and implementation of these agreements. Essentially, this is action taken together by members to enable them to implement the agreements and trade freely amongst themselves, and more; enabling an individual member and the group to benefit from regional economic integration.

In terms of PICTA - its Trading in Goods agreement is currently being implemented by less than half of the FICs. Negotiations on its supplementary agreements in Services and Investment are still a work in progress; and this has been ongoing since 2001 when PICTA was first signed and 2004 when FICs Leaders endorsed extension of the PICTA to include Services and Investment.

Such lethargy needs addressing. Clearly, a boost of collective adrenalin from the Blue Pacific narrative is needed here to reinforce and rejuvenate the ‘collective will’ and ‘collective action’ in order to ‘recapture the collective potential’ of the economic integration we all aspire to achieve under Pacific regionalism.

PACER Plus, on the other hand, has proved divisive already. Fiji and Papua New Guinea have pulled out of the agreement. Others may do so in due course. This, clearly, is a blight against the Blue Pacific’s ‘one ocean continent’ approach. Further, it is a blight against ‘collective action’. This is a recipe for reduction in the collective benefit to all.

What is the Forum going to do to bring about the unity it desperately promotes? What specific actions will it take to enable the Blue Pacific narrative to boost and drive the unity it needs given the divide that has already emerged?

What are Australia and New Zealand— the Forum’s developed countries and OECD members, going to do in the same spirit of unity? Will they, in the spirit of give and take, and teamwork, return to the trade negotiations to inject much-needed pragmatic concessions and/or an array of special and differential treatments that may have been sidelined previously?

Implementation of these agreements will require all FICs to readily abolish trade barriers, and other barriers relating to movements of capital and personnel that exist amongst us. We may be further persuaded to consider establishing relevant institutions from pooling of our resources aimed at regionalising specific activities for economic integration. This is the regional integration we all seek.

It will require also, at the national levels, the enabling environment re-enforced with concomitant laws and regulations aimed at achieving sustainability of procedures and benefits under these agreements. Such regulatory and legal requirements are provided for under the Framework for Pacific Regionalism.

The sustainability being sought is the essence of the Blue Pacific narrative. Further, it is the essence of green policies that is fundamental in any land-based development. I tweeted recently: “Lest we forget, protecting our Blue Pacific, our Livelihood and our Home obliges us to guarantee green policy on land in every sector of life. Any shade of colour other than green will eventually tarnish the land that feeds us and will muddy the blueness
of our ocean.”

Such pragmatism will bring immediate benefits through utilising the various trade preferences built into these agreements; and economic development consistent with regional aspirations—our collective will—are likely to be facilitated. This will advance the Leaders’ vision of a region of social inclusion and prosperity. It will underline Blue Pacific’s ‘collective regional action’, grounded in our ‘collective will.’

Furthermore, a Common External Tariff (CET), envisaged by our early Leaders, resonates unity amongst PIF members and underscores our efforts at creating a ‘one ocean continent’, based on our ‘shared ocean identity’ and ‘geography.’ There are options in its application. If configured under PICTA, for example, then FICs need to consider Australia and New Zealand’s special positions as major trading partners whose preferential treatment is ensured under PACER Plus. If CET is configured under PACER Plus, then caution is called for. The issue can be somewhat complex given Australia and New Zealand’s numerous FTAs with other regions
and major global trading partners.

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