MAIN PAGE | SPEECHES & EDITORIALS | 1999 | PROTECTIONISM IN THE 21TH CENTURY
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | SPEECHES & EDITORIALS | 1999 | PROTECTIONISM IN THE 21TH CENTURY
Can protectionism be eliminated in the 21st century?W. Noel LeviSecretary General of the South Pacific Forum Secretariat Monday, May 17, 1999 The Challenges of the Next Century for the Pacific Basin
Mr. Chairman, Distinguished Guests, PBEC Members, Ladies and Gentlemen, I wish to express my appreciation to the Pacific Basin Economic Council for giving me this opportunity to speak at this meeting on behalf of the South Pacific Forum. This meeting is important to the Forum members and in particular to the 14 Forum Island Countries, because of their growing inter and intra-trading relationship. The Forum Island Countries (FICs), despite the commonality of being developing countries, have diverse economic characteristics. An appropriate indicator of this diversity is that the FICs range from small islands like Niue and Tuvalu with populations of under ten thousand to highly populated large landmasses, such as Papua New Guinea with more than 4 million inhabitants. Some of these countries have registered good export performances from the primary sector and the export of services through tourism, and in certain countries that extends to the manufacturing sector. The success of non-service exports was largely due to favourable or protected export market entry facilitated through preferential trading arrangements. The South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) with Australia and New Zealand, the Lome Convention with the European Union (EU), and the Generalized System of Preferences (GSP) with industrialized economies are notable in this respect Most FICs are small island developing countries, and particularly vulnerable to economic and environmental shocks over which they can have no control. The Forum considers that the existing criteria used in multilateral institutions for deciding eligibility for concessional aid and trade treatment do not sufficiently recognise this vulnerability. It therefore seems possible to develop a more sophisticated procedure for defining development status and the Forum has called for the development of a vulnerability index for this purpose. Despite success stories, the vulnerability of the FIC economies to external shocks has generally slowed down economic and social development. To minimise the risks associated with that vulnerability in the light of increasing pressures from international competition, the Forum has adopted measures for its members to pursue the sustainable development of their natural resources and ensure regional stability in order to improve their overall economic conditions. This is encapsulated in the Forum Economic Action Plan, a copy of which is attached to my statement. Given the relative success of the FICs' diversification of export markets to South East Asia and a growing dependence on that relationship for foreign exchange earnings, the Asian financial crisis did have an adverse impact on the FIC economies. To reduce its associated risks, the Forum Heads of Government have agreed that the best way for Forum members to respond to the crisis is by continuing to implement the Forum Economic Action Plan, first adopted in 1997. The Action Plan is a commitment by the Forum members to a very wide range of economic reform measures, including diversification of export markets and sources of investment, trade and investment liberalisation and facilitation, and better financial sector supervision. The Action Plan also addresses issues of better accountability in Government processes and increased attention to human resource development and the information sector. We feel that without these, the Forum's economic strategies will not be meaningful. The desired shift in economic policy from one of varying degrees of protectionism to trade and investment liberalisation has generated some reluctance particularly on the part of the smaller and more vulnerable FICs. That reluctance is attributed to the fact that preferential trading arrangements, as I had indicated earlier, have actually played a significant part in the successful penetration of export markets by some FICs. This is not to mention that FICs are usually heavily dependent on import tariffs for revenue generation. The real concern the FICs have is that trade liberalisation is contributing to the erosion of benefits from these trade preferences. Preferential market entry is obviously a means of protectionism hence, the ongoing erosion of benefits from the trading arrangements will meet with averse reactions from producers in FICs. The question that we would all ask at this stage would thus be is protectionism really being eliminated? Protectionism has become an unfriendly term because of the wave of globalisation that is sweeping the entire world today. On the international front, the act of shielding an inefficient industry against more efficient competitors was once upheld and practised. The imposition of import quotas, import licensing controls and extraordinary import tariffs and export taxes served effectively in protecting both the domestic industry and market. Colonial powers had preferential trading arrangements with their colonies, which continued even after these colonies attained independence. These protective mechanisms are no longer supported under WTO rules. The removal of protectionism has substituted highly subsidised and inefficient production and trading with increased international trade and competition. The idea of reducing or removing barriers to trade being advantageous is recognised by all of us as actions improving growth prospects. Just as experienced with the developed countries, the once highly protected FIC economies are becoming more liberal. In fact, the Forum Economic Ministers' Meeting Action Plan's sections on achieving free and open trade and investment and, multilateral trade issues commit the FICs to a number of strategies including:
I am pleased to inform this meeting that the Forum is well on its way to implementing the above strategies, the last of which is perhaps the most challenging one. The idea of a Free Trade Area (FTA) for the FICs has always been on the agenda of the Forum right from the time it was established in 1972 as the South Pacific Bureau for Economic Cooperation. At the 1997 meeting of the Forum Economic Ministers Meeting in Cairns, it was agreed that a study be undertaken on options for the creation of a FTA among FICs. Last year, the Forum Leaders directed the Forum Trade Ministers to consider a draft Framework Agreement for the creation of a FTA. A number of studies have been completed and in fact, in just two weeks time, the Forum Trade Ministers will meet in Suva to discuss the establishment of a FTA. In pursuit of the FTA, we have been mindful of firstly, the need for WTO consistency and, the requirements of our trading partners. I am pleased to note here that this appears to be in line with the proposal by the European Union for a Regional Economic Partnership Arrangement (REPA) to replace the Lome IV Trade Agreement upon its expiry next February. Under the proposed REPA, a Free Trade Area would be created between the EU and the Pacific member states of the African Caribbean and Pacific group of countries which are party to the Lome Agreement. That EU proposal is now being considered. We hope that with the creation of the FTA, the region will be better placed to provide its response to globalisation as a group rather than individually. The desired openness of the once inward looking economies is now being increasingly realised. The largest three of the FICs, Fiji, Papua New Guinea and the Solomon Islands, have become full members of the WTO. Vanuatu is expected to accede by this year while Samoa and Tonga are in the initial processes of accession. These countries are actively undergoing structural reforms in order to fulfil the requirements for WTO membership. Most of the rest of the FICs are appreciative of the inevitability of their integration into the global economy. Liberalisation of trade has resulted in negotiations for greater market access. For developing countries according to WTO, available data shows a gradual positive trend towards their integration into the global economy. Trade as a component of developing countries' GDP has increased from less than 20% in 1970 to 38 % today. Further to that, the share of developing countries' manufactured exports to industrialised markets over the past 25 years have increased three-fold from 7.5% to 23%. It is evident then that the FICs are also making genuine efforts to shift from a club of inward looking economies to one where trade and investment policies are more open, liberal and transparent. Protectionism is thus being eliminated as far as the FICs are concerned. The real question is whether our trading partners, while eliminating tariff barriers, are not using other measures to protect domestic industries. While we liberalise our trade, some of the largest WTO members continue to subsidise the production of such products as temperate edible oils, which only serve to depress coconut and palm oil prices. In moving towards a liberalised trade regime, the most common instrument to be reviewed in the first instance is import tariffs. Lower tariffs should mean relatively cheaper supplies of raw materials and processed goods. However, this is not quite true from the perspective of the FICs since trade has become more inhibitive through the developed economies' seemingly increased usage of non-tariff trade barriers. These non-tariff barriers include anti-dumping laws, as well as consumer, environmental, health, social and worker safety regulations which exporters need to comply with prior to shipping their goods abroad. Other barriers include food labelling laws, limitations on lead content in consumer products, prohibitions on carcinogenic food additives, the asbestos and smokeless tobacco bans and, bans on raw log exports. This list appears to be endless. Further, the Uruguay Round Agreements state quite clearly that internationally recognised standards cannot be considered technical barriers to trade. But what if you are too small and do not have adequate resources to be able to implement these standards? Increasingly, we are witnessing ever increasing technical standards as barriers to our trade. It is common knowledge that what the WTO views as non-tariff barriers are seen by the US, for instance, as basic environmental and health laws. Geneva has in fact hosted challenges to a number of US laws, one of which comes easily to mind due to its importance to the Pacific. This relates to laws designed for the protection of dolphins. Its relevance is based on the established finding that the Pacific is home to just under half of the world's entire tuna fish. The laws of other countries have also been challenged and they include Canada's cigarette packaging and reforestation requirements and, Thailand's cigarette sales limitations. Other challengeable laws include the bans by the governments of Malaysia, Philippines and the US on raw log exports. Interestingly, these illustrations all relate to countries belonging to the Pacific Basin. We are frequently told that liberalisation of trade barriers will result in specialisation in areas where our countries have a comparative advantage which will in turn result in an improvement in total welfare. While we do not dispute this, there is nothing to suggest that countries may yet be worse off as a result of liberalisation. We know that in a global economy, capital will shift to least cost locations. To say the least, this does not describe some of our smaller members which are disadvantaged by inherent characteristics of smallness, isolation and poorly developed human resources. I do not accept that liberalisation will immediately result in an increasing level of investment in some of the countries of the South Pacific, but much will depend on Government policy and the dynamism of the private sector. To that end, I would like to propose that one way to ensure private sector development and investment in the region is to begin to think globally and provide concessionary funds for the private sector to invest in inherently disadvantaged regions. This could work in much the same way as regional investment funds are operated in the EU or other developed countries. This investment preference could act as a WTO-compatible substitute trade preference which is now being removed. Developing countries like the FICs feel that they are being rushed through the development process. They feel that the developed countries did not attain their present status without the use of protective trade policies. Our closest developed neighbour, Australia, again a Pacific Basin country, was for many decades highly protective of its manufacturing sector. Such insulation of manufacturing industries obviously resulted in high inefficiencies but it also gave these countries time to learn how to produce. We are not allowed such opportunities. FICs are at various stages of development. While in pursuit of the goals of the development process, they are now being encouraged to dismantle existing protective mechanisms and to adopt measures by which trade and investment with the rest of the world are non-discriminatory. It is therefore unfortunate and thought unfair that those developed countries did not then have to go through the pressures of WTO-supported trade and investment liberalisation. As mentioned earlier, the seemingly growing usage of non-tariff barriers tends to strengthen the view that protectionism remains in developed countries and that, developing countries require technical assistance in order for them to comply with the complex rules of the WTO. At the same time however, we are appreciative of the fact that there are clauses under the WTO rules and obligations, which can facilitate the needs of developing countries such as FICs. FICs are supportive of measures that assure the sustainable use of their limited resources. If it can be realised through the removal of protectionism, then we should make full use of it. Our capacities need to be continually upgraded so as to enable us to meet the vigorous demands of overseas markets especially, key export markets, which offer premium prices for our goods and services. Our initiative in the region to establish a FTA is further commitment by our leaders to move towards free trade and integrate with the global economy. Ladies and Gentlemen, the Asia Pacific Economic Cooperation (APEC) is a good example of the commitment towards liberalisation. Yet the FICs, except for Papua New Guinea, are not part of it. These island countries are like a "hole in the doughnut". The integration of these small countries is therefore necessary with APEC and the rest of the world. In closing, I am especially grateful for this opportunity to address this meeting on developments in the South Pacific Forum and in particular, how the region views the issue of protectionism. I am hopeful that the interests of the Forum will be taken into account at this meeting and that we will be kept abreast of developments on protectionism within Pacific Basin countries. The simple reason for this desire is that these countries will remain as key partners of the FICs with respect to the development of the Pacific islands as a whole. I would like to take this opportunity to encourage you members of the private sector to look at the FICs for doing business in future. This can be done either through direct investment and joint ventures with companies in the region or through the development of the FICs' export sector. Thank you very much for your attention. |