Big catch for new FSM head

By David North

BAILEY OLTER, the brand new president of the Federated States of Micronesia, had his first presi dent to president meeting with George Bush, and four days later a half decade-long deadlock on tuna-canning rights in Micronesia was resolved in favour of the islands.

The dispute is a complicated one, and the immediate resolution may not help anyone right away, but long-term it implies Micronesia may pack and sell tuna to the lush American market while being protected by the same American tariff barriers which shield tuna packers in American Samoa and Puerto Rico. [Americans spend about $2 billion a year [on tuna at the retail level.

There are no tuna canneries currently in FSM, the Marshalls, or Palau, the three potential beneficiaries of the de cision; but there may be medium-sized facilities in one, two or three of those jurisdictions in the next few years. For three island nations without any major exports, it could make a big difference.

The controversy goes back to the original agreement between the islands and Washington, the Compact of Free Association. The islanders thought they had secured an agreement that up to 10 per cent of America’s consumption of tuna would be set aside to be canned in the islands. That understanding seemed to hold as the Congress passed enabling legislation in 1985 but then the Presiden tial proclamation implementing it was subtly changed, merging the 10 per cent set-aside into other, not particularly attractive, categories of tuna imports.

The subtle change, written into the proclamation, was the upshot of three interlocking struggles. First, there was the usual battle between the haves and the have-nots. American Samoa, Puerto Rico, and the canneries active there and to some extent the Thai and Indonesian tuna interests, did not want to upset the applecart of existing arrangements; the new island nations wanted part of the action, and had none.

Second, tariffs are a speciality of the Customs Service, a semi-autonomous arm of the US Treasury, and the Service had no involvement in the Compact; that task was handled largely by the State and Interior Departments. Washington sources say Customs caused the twist in language in the presidential procla mation to show the other players it could not be ignored.

Third, the actual field of battle was a struggle over the difference between the meaning (in this context) of the words “but” or “provided that”. “But” had been in the congressional language, but was replaced by “provided that” in the staff-written Presidential Proclamation.

Without parsing all the legalistic verbage involved, “but” meant a tuna set aside for the islands, and “provided that” meant no such set-aside.

The State Department and the power ful Office of the Trade Representative sided with the islands on this issue, but Customs stood fast by its “provided that” language, and blocked the building of island tuna canneries until November 2 when the President over-ruled the Cus toms Service. Four days earlier Bailey Olter and the Marshalls President, Amata Kabua, met with Bush in con nection with the two island presidents’

visit to the United Nations. Olter said the tuna cannery issue was the most import ant problem between the two countries.

The President’s decision will be im portant not only to the islands, but to the tuna trade generally. If the islands do build tuna canneries, there will then be three flows of canned tuna to the mainland: the duty-free product from American Samoa and Puerto Rico, where some Mainland-imposed labor

standards apply; the duty-free product

from Micronesia, where no such labor standards are likely, and wages will be lower; and the duty-paid product from Indonesia, Thailand and elsewhere, canned in plants where wages are very low. If tuna is canned in Micronesia it will be the popular variety packed in water. Tuna canned in oil is not part of the agreement with Micronesia, but that is a small loss to the islands.

What happens next? FSM is probably best positioned to make use of the decision. It is closer to the tuna-laden waters than the Marshalls (if not Palau) and the long-dormant conversations between some investors and FSM over a facility at Yap will now take on greater intensity. The Marshalls, which have

recently concluded a feasibility study

regarding a Joining plant at Majuro, may start re-examining a wider range of possibilities. The Marshalls’ study of a joining plant, funded by the US Depart ment of Commerce, was based on the assumption that cooked, frozen tuna loins would have to be sent along to American Samoa where the tuna would be canned so that it could go duty-free to the US. The Marshalls feasibility study, unlike many such documents, concluded that it would not be wise to construct a Joining facility, as the market for the loins was uncertain. The study did not cover the possibility of a canning

plant. □