Pacific Paradox
p. 25 · Read in the full issue
HOW to solve “The Pacific Para dox”? That is a question vexing governments of the island states, New Zealand, Australia and the World Bank.
“The Pacific Paradox” was phrase used by the World Bank in a study on the island economies published earlier this year. It defined it as follows: “Virtually no growth occurred in aver age real per capita income during the last decade or so despite a favourable natural and human resource endow ment, high levels of aid and reasonably prudent economic management.”
It noted that per capita real GNP grew by only 0.1 per cent a year, while the Caribbean islands, for example, posted 2.4 per cent growth over the same period and those in the Indian Ocean 3.7 per cent. This despite healthy inflows of foreign aid, investment and
emigrant remittances, relatively stable exchange rates and control over inflation.
The World Bank’s report covered only its member countries - Fiji, Vanuatu, Marshall Islands, Solomon Islands, Tonga, Kiribati, Western Samoa and the Federated States of Micronesia. But its comments are equally applicable to other island states in the region, which also have reasonable basic subsistence incomes and good, if not over generous, human j and natural resources.
Why then, given their intrinsic potential, have they failed to capitalise on these pulses in comparison with other island communities around the world which share the negatives of small internal markets, narrow production bases, high j infrastructure costs, heavy dependence on overseas trade and I vulnerability to external shocks and natural disasters?
From a Wellington perspective, there is a suspicion that the j island nations tend to blame the South Pacific Regional
Trade Economic Cooperation Agreement (SPARTECA) for
failure to turn their economies around.
It is certainly true that SPARTECA has not achieved the export growth envisaged when it came into effect 12 years ago. There have been some successes, but as I have noted previously, total Pacific island exports to New Zealand in 1992 were down on the figure achieved four years earlier and $35 million under the peak reached in 1990.
New Zealand can justifiably ask what more it can do than offer duty-free unrestricted access to all Forum country goods and finance an office in Auckland to encourage their entry and facilitate investment in the island states.
So is tinkering with SPARTECA, as the Forum countries, lead by Fiji, are asking, going to solve the problem?
New Zealand and Australia have been given a breathing space to make their response, with the postponement of this month s (Oct) scheduled Committee on Regional Issues and Trade (CREIT) meeting until next March.
J*. i 8 time they badly need, for as Trade Negotiations Minister Philip Burdon admitted to me, it is one of the most difficult items on his agenda.
New Zealand - and no doubt, Australia - desperately want to help the island nations improve their economic viability.
It is not just a question of preserving their own regional
security and economic interests, they recognise that as major powers in the area, they have a responsibility to help their neighbours.
The question is; How best to do that?
Fiji, backed by the other Forum members, has proposed relaxation of SPARTECA’s rules of origin pro visions that require their exports to Australasia to have at least 50 per cent
regional content to qualify for duty
free entry.
The main reason is that Fiji’s clothing industry (one of the region’s undoubted successes in recent years) is suffering as New Zealand and Austra lia cut their tariffs on imports from the rest of the world, reducing the price advantage the Fijians once enjoyed.
As a result, New Zealand’s imports of Fijian clothing are falling and Asian
manufacturers, once edged out by SPARTECA-aided products, are regaining lost ground.
The Fijians, told to lift their quality to compete at the top end of thee market, are finding the cost of the better cloth they have to import forces them out of the 50 per cent local content category. They want a range of other costs, including packaging, administration, insurance and freight to be included when assessing regional content.
This, Burdon says, is being considered in conjunction with Australia, but both countries are reluctant to foster artificial subsidies which will not in the long run help the island nations stand on their own economic feet.
The best way to do that, he suggests, is to help them broaden their trading horizons beyond New Zealand and Australia. In this, he is in agreement with the World Bank, which said: “Development of the small and scattered economies can come about only through effective economic engagement with the rest of the world.
“In pursuing growth, they have little option but to seek export opportunities (and efficient import substitutes) to drive domestic economic activity.”
It can be done. Fiji’s clothing exports (so successful to the United States that they attracted quota restrictions), Tonga’s squash sales to Japan and Western Samoa’s automotive wire assembly plant, have proved this.lt means the island states have to become (italics) internationally competitive (unitalics) - able to sell around the globe, not just to markets j like New Zealand and Australia, protected by a benien
Sparteca. J
To this end, New Zealand is offering Fiji assistance with trade promotion activities and is prepared to help others with j fishing management and afforestation expertise.
The World Bank has talked before about top-heavy public \ sectors in the region, outdated inward-looking policies and lack of encouragement for private enterprise. It’s a refrain i Pacific Island leaders may get tired of hearing, but it’s a j message they should heed if they want the prosperity their ! people deserve. n I