Adjusting To A Pacific Economic Partnership Agreement Economics Essay

The Pacific Island Countries ( PICs ) are in the thick of a planetary tendency to ‘free up their boundary lines ‘ ; to diminish ( and finally extinguish ) trade limitations – trade liberalisation has come to town.

When Fiji and Papua New Guinea moved to subscribe an interim understanding for Economic Partnership Agreements ( EPAs ) with the European Union ( EU ) towards the terminal of 2007 ( ECDPM, 2009 ) , it triggered the dialogue of PACER[ 1 ]– An understanding that would convey about a trade understanding between the PICs, inclusive of Australia and New Zealand. This translated into major deductions for non merely PNG and Fiji but for the part as a whole. Pacific Islands Forum Secretariat ( PIFS ) states now had to see the bewildering state of affairs of three overlapping trade understandings[ 2 ]. In the aftermath of these developments, legion surveies, documents and conferences have come about to discourse the possible path ( s ) for the part ( under the streamer of regionalism ) or for states on their ain.

This essay looks at a position of the EPA. It seeks to supply an analysis of a survey by Smith ( 2006 ) : Potential Costss of Adjusting to a Pacific Economic Partnership Agreement. The survey was commissioned by the PIFS and looked at the scenario of the part implementing an Environmental protection agency with the EU.

The purpose of the survey stated by Smith was:

“ [ T ] o cast visible radiation on the possible costs of accommodation to a regional Economic Partnership Agreement ( EPA ) with the EU. The survey is aimed at replying the inquiry – ‘How much will seting to an EPA cost? ‘ ”

This essay will measure the findings of Smith ‘s study and remark on possible deductions to Fiji and the PICs.

Theoretical Foundations

To place the EPA accommodation costs, the effects of implementing the EPA have to be understood. McKay, et al. , ( 2005 ) supply a representation of an EU-PACP[ 3 ]EPA. It is presented under partial equilibrium analysis as that shown in figure 1.

Figure 1: Consequence of an EU-PACP EPA

A PACP state ‘s ( place state ) demand for imports is shown by DH. The spouse state ‘s supply is shown by SP ; it is upward inclining. Two initial outside providers are besides present ( EU and the remainder of the universe – Row ) and are assumed to be boundlessly elastic ( SEU and SROW severally ) . Markets are assumed to be absolutely competitory

The premise is taken that the place state ( H ) and spouse state ( P ) already have a PTA ( Preferential Trade Agreement ) in topographic point and are every bit viewed as being little relation to the EU and ROW who supply at a changeless cost ( PEU and PROW severally ) .

For statement ‘s interest PEU is taken to be higher than PROW. This would assist show a instance where a prejudiced trade policy by the PTA towards outside states can hold both trade creative activity and trade recreation.

The PTA places a duty on imports from outside the part ( extra-regional ) . Here, PtROW = PROW ( 1 + T ) . PtEU is non shown.

Under the initial conditions, the place state imports OM2 in entire, with OM1 coming from the spouse state and M1M2 from the ROW.

Barring domestic production capableness, public assistance can be derived by accounting for consumer excess with mention to the import demand map – DH. This is given by the trigon ABPtROW plus the duty gross from the extra-regional duty ( country a + B ) .

Now with the debut of the EPA with the EU, the PACP will let for responsibility free EU imports but continue to bear down duty on ROW imports. The relevant supply monetary value is now PEU ; imports are wholly from the EU with entire import volume expand from OM2 to OM3.

The debut of the EPA shows three clear trade-effects:

A ingestion consequence – M2M3 – Addition in import volume induced by the lower import monetary value.

A trade recreation consequence – M1M2A­A­ – Imports are diverted from the ROW to the more efficient EU.

A trade creative activity consequence – OM1 – Intra-regional imports are replaced by more efficient imports from the EU.

However, this analysis is uncomplete since the short to medium term accommodation is non factored in. Milner ( 2005 ) provides a list of the accommodation costs to be considered:

Fiscal accommodation

Trade Facilitation and export variegation

Production and employment sweetening

Skills Development and productiveness sweetening

Milner makes it clear that the list focuses:

“ [ O ] n the procedure of domestic structural alterations associated with the debut of mutual import liberalization in ACP-EU dealingss. It does non seek to cover with all facets of the costs of an EPA. ”

Literature Review

The writer ‘s preliminary figures were based on an earlier economic paper by Milner ( 2005 ) which quantified EPA accommodation costs for African, Caribbean and Pacific ( ACP ) states. The paper had estimated that a‚¬9 billion would be needed for ACP broad accommodations and a‚¬642 million for the PACPs

Milner classified states into five size classs. PACPs were included in the smallest class: populations under 1 million. Four classs of economic accommodation costs are raised – financial, production and employment, trade facilitation and accomplishment development. Scollay ( 2002 ) subsequently examined financial accommodation and trade facilitation. Milner made it clear that the survey did non undertake macroeconomic accommodation costs.

Discussion of Main Issues

Ian smiths ( 2006 ) appraisal was a re-estimation of Milner ‘s figures. It resulted in a immense bead of overall PACP accommodation costs to a‚¬170 m. There was besides concern about Milner ‘s methodological analysis incorporating of larger states size ; irrelevant to the huge bulk of PACP provinces. Milner ‘s classs were revised integrating a distinguishable non-government service sector.

To quantify economic accommodation costs, they were coupled with the undermentioned placeholders:

Fiscal Adjustment – trade revenue enhancements as a per centum of entire gross,

Production Employment – fabrication production as a per centum of GDP,

Trade Facilitation – entire goods exports as a per centum of GDP.

Skills Development – secondary schools enrollment rate.

Productivity Enhancement – cost of implementing contracts.

Smith proposes the incorporation of new establishments to cover with the challenges of an EPA. He argues for an betterment of the national competition governments – where Fiji and PNGs current several administration ( Independent Consumer and Competition Commission, and Fiji Commerce Commission ) can put the benchmark as “ Centres of excellence ” . This together with a regional consultative service would be a‚¬15 million. Smith argues for an Investment Protection and Promotion Agreement, which would necessitate support, and a regional office by the EU as a “ Centre for the Development of Enterprises ” . Last, a Human Resources Development Facility bing a‚¬7.5 million would be needed to provide for accomplishments development demands in both the domestic labor market and the skilled and semi-skilled labor market of the EU.

The entire EPA accommodation costs for PACP would by Smith ‘s computation entire a‚¬170 million over five old ages. Smith advocates for this cost to be available as a Regional Development Fund.

Relevance to Fiji and the South Pacific

As the largest Pacific economic systems and with important rural populations, PNG and Fiji are the most susceptible to endure from a failed EPA understanding. Fiji ‘s sugar industry hereafter is of great importance, with around 100,000 occupations linked to it. Sugar ; nevertheless is non on the EPA docket. PNGs export of palm oil, copra, chocolate and java are to a great extent dependent upon entree to the EU market. Under the proposed EPA, domestic manufacturers in Fiji and Papua New Guinea are expected to confront stiff competition from the EU. For other Pacific Island Countries, the greatest challenge would be the loss of revenue enhancement gross from the reduced trust on imposts responsibilities. Fiji could good capitalise on its ‘hub ‘ position if the proper establishments needed are established for the EPA. Regional bureaus frequently set up their central offices in Fiji partially due to convenience ; the same would be expected for the suggested establishments ( Dearden, 2008 ) .


The Pacific Region is at the hamlets in its long colourful history of trade with Europe. EPA dialogues are waving and with that PACER dialogues. The part at the same clip realizes the exposures that it presently has. Poor substructure and high cost curves provide a speedy ruin for any haste towards the common liberation up of markets. A current option on the dialogue tabular array incorporates the aid of flush states in assisting bear the accommodation costs. A Regional Development Fund would supply a construction for the EU, Australia and New Zealand, to back up the important accommodation in the PACP.