SPARTECA's last stand

Developments

By Paula Yavala

IT was inevitable that Fiji will

pick up the cudgels and fight

an almost lone battle to improve SPARTECA, the South Pacific Regional Trade and Economic Cooperation Agreement.

SPARTECA was signed by most Forum member countries at the Forum’s 11th meeting in Kiribati on July 14, 1981.

Under the agreement, the Forum’s two developed member countries - Australia and New Zealand - offer duty free and unrestricted or concessional access for vir

tually all products originating from Forum

Island Countries (FIC).

However, to qualify for the duty free and unrestricted access benefits, goods exported to Australia and New Zealand must meet the rules of origin set out in SPARTECA. This determines whether or not the products are genuinely of FIC ori gin. Effectively, nearly everything is going in duty free provided the products have met the rules of origin requirement.

It was around this issue of rules of ori gin that the agreement struck its first major snag in the early 19905.

It followed an audit of FIC exports to Australia and New Zealand by customs officers from the two countries. Of all the other FIC countries, Fiji was the major beneficiary of SPARTECA and found itself fighting a lone battle to improve the terms of the regional agreement.

In this regard, the Fiji garment industry found the interpretation of the customs officers severe and uncompromising.

Specifically, the industry considered that the interpretation of allowed and non allowed local content was very restrictive.

They argued that the officers rejected outright what the industry put up as local content. For example, while the industry maintained that telephone bills should be considered local content, the officers said only 25 per cent would qualify.

Against strong arguments put forward by the industry, the customs officers ruled that administrative costs were not allowed as local content. Nor was overseas travel.

So change the rules of SPARTECA, the industry argued. First, the regional coun tries pushed for a lowering of the 50 per cent rule of origin as a possible solution.

But Australia and New Zealand flatly rejected such a move.

Instead they told the FICs to adopt a rule that not only will be widely applied in future, but is also WTO acceptable. What the industry then suggested was a rule of origin that basically converts a piece of cloth into a finished garment. In short, total transformation.

The suggestion closely followed a model pushed by the WTO in its search for new rules of origin to cover various world trade agreements. Discussions on the issue have started in Geneva and in one of the meetings, Fiji was represented by the country’s High Commissioner to Australia, Isikeli Mataitoga.

Some industry sources privately feel he should attend more such meetings in Geneva before a decision on the issue is made in the latter part of 1998.

What Fiji wants is a rule of origin that allows for total transformation but, at the same time, gives the member countries of SPARTECA preferential treatment.

In other words, total transformation without reciprocity. In this it differs from the WTO’s known stand which favours reciprocity in the application of such rules.

Does it matter? The industry says it does. For one thing, the existing Australian TCF industry plan will reduce the present 34 per cent tariff, on clothing and textile imports to Australia, to 25 per cent by the year 2000.

This would amount to a nine per cent erosion in Fiji’s margin of preference under SPARTECA within the next three years. By 2005, the tariff on imports would reduce to 17.5 per cent - meaning a 16.5 per cent erosion in margin of preference from existing levels.

Second, agreement on total transforma tion is crucial to an industry that is current ly providing the engine of growth in the Fiji economy. Fiji’s TCF industry account ed for 23 per cent of domestic exports in 1996. Since 1993, total estimated invest

ment for implemented projects in textile and clothing factories approved by the Fiji Trade and Investment Board is $F15.9 mil lion.

Moreover, the industry continues to provide a significant number of jobs for over 14,500 people. In essence, with total transformation, the Fiji garment industry will expand further, increase investment and double employment. “Everything that the Government wants,” says Mark Halabe, a major player in the Fiji garment

industry.

The key question now is whether Australia and New Zealand will agree to changes in the rules of origin that allows for total transformation but which is non reciprocal. The industry believes there are signs that Australia and New Zealand may be adopting a more accommodating stance.

As a pointer to a thawing of attitude on the part of the Forum’s metropolitan neigh bours, they referred to Australia’s decision last month to agree to a request to reduce the local content rule from 50 per cent to 44 per cent.

The agreement followed submissions that the recent devaluation of the Fiji dol lar made it difficult for many operators to qualify under SPARTECA.

The new rule, which applies for certain items only, will be reviewed after 12 months. Fiji is banking on Australia and New Zealand adopting a similar stance on the issue of substantial transformation.

This is based on the fact that Fiji has not been successful in attracting large and new investments in other sectors of the economy in recent years. A united voice on the issue by the rest of the FICs can only help matters along.

For this reason, Fiji will keenly study the outcome of a meeting of the Forum economic ministers in July this year, which, among other things, will deliberate

On Sparteca.

This will be followed by a review of SPARTECA in August by the Forum Secretariat.

No doubt, Fiji will be making its lone voice heard at both the meeting and the review. ■