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Trade furore: Pacific solidarity thrown into disarray

IB | Suva | September 2006

TRADE FURORE: Pacific solidarity thrown into disarray

Samisoni Pareti

Concerns are growing that the key bargaining chip for the islands of the Pacific with the European Union (EU) is fast eroding.

This follows a decision by the Federated States of Micronesia (FSM), Kiribati and the Solomon Islands to continue their bilateral fisheries agreements with Europe despite a collective decision for the Pacific to negotiate as a group.

While some Pacific negotiators like Fiji’s Senator Kaliopate Tavola and Secretary-General Greg Urwin of the Pacific Islands Forum are playing down the ramifications of the three islands’ position on the wider Pacific versus EU negotiations, others are not as diplomatic.

“This is a cheap shot,” one senior official of a Melanesian country told ISLANDS BUSINESS in confidence.

Another senior official who is involved in the region’s negotiations with the EU decried the three islands’ action as a manifestation of the growing discord and lack of solidarity in the islands.

“Think of it as all the Pacific islands nations standing around in a circle only to face inwards and start shooting each other down,” this official who asked not to be named told the magazine.

“You can’t afford these types of back-stabbing tactics in complicated and intense negotiations with the mega-rich trading blocs like the EU. This will just weaken our power to negotiate if we are seen to be not united. We might as well throw in the towel.”

The senior official also recalled an international meeting in which an EU official was reported to have told the meeting that “we can pick the islands one by one”.

At the heart of the debate is a decision taken by the Pacific’s trade ministers following a meeting in Nadi, Fiji, last June.

Convened to re-think the Pacific’s strategy in EPA (Economic Partnership Agreement) negotiations with the EU, the ministers took the collective decision that a multilateral fisheries agreement with Europe would be the way to go.

“In terms of the proposed fisheries partnership agreement (FPA), the ministers reaffirmed their commitment to negotiate a regional multilateral fisheries agreement with the EU,” a statement issued after that June meeting had said.

That fisheries was going to be the Pacific’s bargaining chip when negotiating with Europe was clearly spelt out by Tavola in a paper he wrote last year titled, ‘The Impact of WTO Agreements and the Current WTO and ACP-EU Negotiations on the Fisheries Sector.’

Key bargaining tool

Fisheries, Tavola wrote, should play a central role in EPA negotiations. It is a key plank in the Pacific’s negotiating strategy, the Fijian politician, who is also head of the Pacific’s EPA negotiating team, said.

“Fisheries is likely to be the key bargaining tool for extracting concessions for Pacific ACP member states (Cook Islands, Fiji, Kiribati, Marshalls, FSM, Nauru, Niue, Palau, PNG, Samoa, Solomons, Tonga, Tuvalu, Vanuatu) from the EU that might not otherwise be obtainable,” wrote Tavola.

“These concessions include trade, investment, tourism and market access, the benefits of which flow to a number of members’ economies beyond the fisheries sector.”

In that paper, Tavola said the choice of fisheries as the region’s bargaining “plank” is obvious, given EU’s heavy reliance on fish and the abundance of the resource in our waters.

“Western and Central Pacific Ocean (WCPO) is the world’s largest and most productive tuna area, with annual catches of approximately 2 million tonnes.

“The Pacific Islands Countries’ (PICs) portion of that area produces around one million tonnes per annum and with a landed value of around US$2 billion.

“Most of this catch is skipjack tuna, the species predominantly used for tuna canning-an increasingly significant export commodity.

“In addition, the tuna fishery in the WCPO is the most important shared natural resources for long-term income generation for the PICs. For some countries, the utilisation of this resource is the only significant foreseeable opportunity for sustainable development.

“This resource is attractive to a range of distant water fishing nations (DWFN), including the fishing states of the EU.”

Globally, Europe is the largest market for tuna products. Canned tuna in particular, according to Senator Tavola.

“Europe consumes around 560,000 tonnes of canned tuna per annum, of which 280,000 tonnes are imported.

“This consumption represents about 35% of the global consumption of tuna.

“The tuna products and the tuna industry in the WCPO present an opportunity for the long-term future of the EU tuna industry.

“On this basis, the Pacific ACP countries have accorded high priority to the conclusion of an FPA with the EU.”

To be fair, in endorsing the need to negotiate a multilateral fisheries agreement with the EU at the Nadi meeting last June, Pacific members of the ACP acknowledged the bilateral agreements some of them already enjoy with Europe. But if delegates had hoped these countries would not renew their bilaterals in light of the decision taken at the Nadi meeting, they were in for a shock.

Just a little over a month after that decision was taken, the EU and Kiribati announced a renewal of their fisheries partnership agreement, this time for another six years and with no increase in access fees paid.

“The annual EU financial contribution will amount to €478,000 (US$613,744), representing the same amount of compensation as under the current protocol,” a statement released by EU headquarters in Brussels said.

“(Of this,) €416,000 (US$534,137) (will be) compensation for a reference tonnage of 6400 tonnes of tuna catches per year, plus a specific allocation of €62,400 (US$80,121) to support the application of Kiribati’s national fisheries policy.

“The contribution by vessel owners will amount, as of now, to €35 (US$44) per tonne, and the EU’s to €65 (US$83).”

Papua New Guinea and Fiji-being the larger countries of the Pacific-stand to lose the most from the decisions of the three nations to continue their bilateral deals with Europe.

The two are the only Pacific islands that have developed their capacities to trade in other goods and services, including investment with Europe.

“We were caught by surprise with the announcement of the renewal by Kiribati,” Sylvester Pokajam, Managing Director of PNG’s National Fisheries Authority, told ISLANDS BUSINESS from Port Moresby.

“We thought we had a regional agreement in place, so we could have some leverage in our EPA negotiations.

“We would have achieved more if we speak with one voice. But all that is diluted now.”

Pokajam said the three nations’ action is a blow particularly to PNG since as a member of the so-called Nauru 8 (FSM, Kiribati, Marshalls, Nauru, Palau, PNG, Solomons, Tuvalu) they hold the largest tuna stocks.

It’s not clear whether the remaining five, PNG included, will now break ranks and join the other nations in negotiating their own bilaterals with the EU, an option Brussels would rather have as opposed to a multilateral approach.

Break ranks

Such a likelihood seemed unlikely for now judging from expressions heard at last month’s trade officials’ meeting in Samoa. The matter was raised for discussions and ISLANDS BUSINESS was told that Forum trade ministers will have to take another decision on the matter at their Vanuatu meeting in November.

In the absence of penalty clauses for countries that break ranks, Pokajam said the Pacific has no choice but to continue EPA negotiations with the EU.

“What else can we do? Things will become very, very difficult now. But negotiations on EPA will still need to be done.”

Tavola agreed with Pokajam that the decision by Kiribati and the other two countries will only make negotiations with Europe much more difficult. But contacted on electronic mail late last month in Papeete where he was leading a Fiji trade mission to French Polynesia, Tavola seemed resigned to the perplexities of Pacific politics.

“The regional stance is that we have acknowledged their existence (of bilaterals) and that the multilateral fisheries partnership agreement that we propose to negotiate with the EU is over and above these three bilaterals,” said Tavola in his email.

“The condition we are setting as a guideline for us in the negotiations is that the benefits that will be derived from the MFPA (multilateral fisheries partnership agreement) from the perspective of the three bilaterals, should be more than what they are currently getting from the bilateral fisheries partnership they now have.

“Our regional stance is based on political reality. It does weaken our stance as a region, admittedly, but that is the way it is.”

Kiribati’s Fisheries Minister, Tetapo Nakara, who signed the renewal of his country’s fisheries agreement with the EU told ISLANDS BUSINESS he was doing what was best for his island nation.

He said although he didn’t attend the Nadi meeting last June, he was made aware of the decision made by the trade officials.

“This is not a new agreement as such, we only renewed an agreement that had begun I think three years ago.”

Asked why Kiribati still renewed the agreement in defiance of the call for a multilateral approach, Nakara said, “sometimes it is good to go bilateral”.

He declined to comment when asked whether Tarawa had considered the ramifications of their decision on the other islands of the Pacific who had respected the push for a collective negotiation with the EU.

He said the renewed fisheries agreement with Europe which would see 16 Spanish fishing vessels fishing in Kiribati’s waters was a “fair deal” although he did admit that his government could have negotiated for an increase in access fees.

One who understood Nakara’s dilemma is Urwin. He said weighing one’s interest against that of the region is always a delicate exercise.

“I think this is particularly complex. Yes you have to strike those sort of balances as members have shades of different views of their own positions and those need to be worked through,” said Urwin.

“We’ve got to arrive at a result which to the greatest extent possible covers the interests of all our members.”
Because of this balancing of interests, Urwin sees nothing wrong with the positions taken on fisheries by FSM, Kiribati and Solomons.

“I think it is a proper expression of a real situation and that’s the kind of situation which regional machineries are set up for.

Double jeopardy

“It’s a fact that there will be regional interests in any given situation and there will also be national interests. The trick is to try and accomodate both of them.”

There is no hiding the fact that regional negotiators like Tavola and Urwin’s trade team are in trepidation about the lack of solidarity in the Pacific.

This is a classical case of double jeopardy for Pacific islands countries coming as it is in the aftermath of the collapse of the Doha Rounds in Geneva last July.

That development which saw the suspension of the Doha talks by the World Trade Organisation Director-General Pascal Lamy signifies very bad news for developing nations in the Pacific, says Isikeli Mataitoga, chief executive officer at Fiji’s Foreign Affairs Ministry and adviser to the Pacific’s EPA negotiating team.

Putting it simply, the suspension of Doha means that all the gains made by developing nations are now lost. And this is particularly troubling for the Pacific since the region can no longer use these gains in its EPA negotiations with Europe.

Gains now lost and have to be re-negotiated from scratch and these include classifying products like sugar as sensitive products (thus qualifying for higher prices) and the exclusion of fish access and fishery licensing in the proposed ban by WTO of fishery subsidies.

“The Doha development agenda was an attempt by developing countries to re-balance the unfairness of GATT, the Uruguay Rounds rules, which had caused a big disparity in trade,” said Mataitoga.

“So what Doha did was to authorise several major work programmes which are new, new because it is the first time that trade ministers decided that you cannot just talk about trade in the classical sense without addressing the development concerns of countries.

“So they came up with a work programme for small vulnerable economies and what this work programme consists of is a series of flexible applications of the Uruguay Rules in terms of certain areas of exports for us.

“So now when the Europeans insist that we negotiate an EPA that is WTO consistent, it means it ought to include those things that we thought we would be getting out of the Doha agenda talks.

“But with that collapsing, we’ll go back to the rules before Doha, to the Uruguay Round of Rules that actually caused the problems in the first place.

“Remember that the agenda issues to be discussed and agreed upon by the ministers in Doha had yet to be finalised.

“And until they are finalised, they are not part of the WTO rules, they are still part of the negotiations and the applicable principle is that “nothing is agreed to until everything is agreed” applies right across the board.

“While there were movements in other areas, there is no agreement until everything else is agreed.

“That’s the rule in which WTO actually functions.”

Mataitoga said with the Doha rounds not expected now to reconvene until the first or even the second quarter of 2007, islands of the Pacific are virtually running out of time with their EPA negotiations.

Both EU and ACP members need to adopt and ratify their EPAs by December 31, 2007 for implementation from January 1, 2008.

Missing this deadline, according to Mataitoga, will be costly to ACP members.

“The last time we had the extension of the waiver for this special arrangement under the Lome Convention (predecessor to Cotonou Agreement), three countries demanded similar special preferences on their product access into the EU market which they were not entitled to.

“These were Thailand, Brazil and the Philippines, and they said they would support our special access into the EU provided their quota into the EU was increased.

“And by increasing their quota, we have to reduce ours. That’s the cost to us.”

Economists love to use metaphors in explaining technical and complex terms used in trade negotiations.

After years of telling us that countries need to work to get a level playing field, negotiators are now talking of managing the spaghetti-like bowl of various intertwining and overlapping regional and international trade agreements.

Like other regions in the world, the Pacific in addition to EPA negotiations with the EU, has to contend with other trade negotiations such as PICTA, PACER, SPARTECA, WTO, PIASA and MSG, not to mention the numerous United Nations-initiated conventions and treaties.

Amidst all the confusing and slippery spaghetti bowl of trade talks and agreements, what can the islands of the Pacific lay a firm grip on?

The Pacific’s chief negotiator with the EU had alluded to an option even before the Doha talks collapsed or FSM, Kiribati and Solomons opting to break ranks and go solo with the EU on fisheries.

Tavola believes islands countries can fall on the EU’s Everything But Arms (EBA) market access agreement that it currently offers to some members of the ACP.

“Everything But Arms market access for LDCs (least developed countries) exists under the Cotonou Agreement,” Tavola said in his paper quoted above.

To date, that proposal by Tavola has not been taken up by the EU which means that EBA will only be available to LDCs who take up the option of not negotiating an EPA with Europe.

Another option

In a Pacnews dispatch on August 23, Mataitoga said out of the 14 Pacific states that belong to the ACP, only Kiribati, Samoa, Solomons, Tuvalu and Vanuatu qualify to access Europe through the EBA.

Another option would be to call on the goodwill of trading blocs like the EU.

“That’s really the way we have to do it,” Mataitoga explained.

“I mean we have to go back and say ‘look, you have been also engaged in this process, you know what we want.’

“We have not been openly antagonistic, so irrespective of what happened in Geneva, surely we could still agree that this is the understanding that we have. So let’s go ahead and cut this EPA.”

Other negotiators are not as optimistic. They, for instance, point to the EU’s reluctance to accept the Pacific position on an EPA Adjustment Fund, in that the EU ought to cover the high cost of Pacific islands economies adjusting to a more freer trading regime.

These costs cover marketing and distribution, new technologies, new skills, adjusting for revenue losses due to lower import tariffs and establishing and implementing regulations and regulatory authorities.

The EU in response is claiming there are no extra resources and that such adjustments ought to be financed through existing regional resources.

1) Temporary Movement
Pacific countries have asked the EU for a quota of several thousand temporary workers in such areas as hotel and tourism, construction services and health care. This would mean that several thousand workers would be trained to EU standards and would be able to work temporarily (up to 3 years) in the EU.
EU Response-The EU has indicated a willingness to discuss the issue but has suggested that it will find the subject ‘difficult to address' within its normal services negotiations. The EU understands the importance of the issue for the PACPs and has indicated a willingness to consider innovative approaches within the context of the EPA negotiations

2) EPA Adjustment Fund
Pacific states have asked the EU for resources to cover what would be the very high cost of adjusting to the liberalised trading environment. These costs include making Pacific businesses more competitive (marketing and distribution, new technologies, new skills), adjusting for revenue losses, establishing and implementing regulations and regulatory authorities. All ACP regions have asked the EU to live up to the promises it made last year at the Gleneagles summit to increase aid. According to Commonwealth studies, the European Development Fund should be increased by a further Euro 4.6 billion if the EU lived up to its Gleneagles commitments. The ACP regions have asked that this be used to help with EPA adjustment.
EU Response-The EU says there are no extra resources and that the only source should be through the existing regional resources. In September/October EU development ministers will meet to reconsider the issue.

3) Multilateral Fisheries Agreement
Pacific countries have asked that, on the one regional resource that the region has, that the EU deal with us on a regional basis rather than bilaterally.
EU Response-the EU has said it prefers to deal with the region bilaterally and furthermore has no commercial interest in the region at the moment. Three bilateral agreements exist with Kiribati, Solomons and FSM.

4) Changed Rules of Origin
Rules of origin determine whether a good produced in a Pacific country qualifies for reduced or zero duty treatment in the EU. Pacific countries want greatly simplified and less burdensome rules of origin in a trade agreement because the current rules in effect require them to use EU intermediate goods. For example, EU boats are required to catch tuna for the export of Pacific canned tuna. Pacific countries are requesting rules of origin that take into account that,they can't source inputs from the EU or other small Pacific countries and still export competitively in the EU.
EU Response-There has been no substantive response while the EU itself decides what it wants to do on these rules. A response is expected in October.

5) Improved Investment for the Private Sector
The Pacific has asked the EU to bring its investment funds and facilities into the region by creating a joint facility that focuses on the development of small and micro-enterprises in the region. The European Investment Bank (EIB), the Centre for Development of Enterprise and Proinvest should establish one regional office to assist small firms rather than invest in big projects which crowd out local private banks.
EU Response-No integrated regional facility-EIB will establish a one-man office in Sydney

 source: Islands Business