Select Committee on International Development Written Evidence

Memorandum submitted by Dr Stephen Dearden, Department of Economics, Manchester Metropolitan University


  Negotiations in regard to the Pacific EPA commenced in September this year. With the exception of Fiji and Papua New Guinea the EU is not a significant market for the 14 Pacific ACP (PACP) exports (

530 million 2003; 9% of the regions total), nor is the EU a significant supplier of their imports (

300 million: 4%). The five low income PACP's—Kiribati, Samoa, Solomon Islands, Tuvalu and Vanuatu—qualify for the non-reciprocal "Everything But Arms" trade agreement.

   The principle difficulties in the establishment of a reciprocal PACP EPA lies in the implications of such an agreement for their trade arrangements with Australia and New Zealand under the Pacific Agreement on Closer Economic Relations (PACER). It provides that in the event that negotiations with another developed country be commenced then similar consultations should begin with Australia and New Zealand "with a view to extending similar arrangements". Australia and New Zealand are far more significant trading partners for the PACP's and the implications of a reciprocal free trade agreement with them would have a far more profound impact upon their economies. Although Australia and New Zealand appear sympathetic to the development character of the EU's intentions in regard to an EPA, nonetheless any assessment of the impact of tariff reductions must take into account the likely extension of these concessions under PACER. Such changes will be significant not only in terms of the possible structural adjustment that may be required, but also for fiscal adjustment, as many PACP's are particularly dependent upon customs duties for government finance.

  Similar extensions of any free trade agreement will be required for the three ACP US compact states—the Federated States of Micronesia, Palau and the Marshall Islands.

  Given the PACPs limited interests in EU trade, and sensibilities to any PACER revision, the PACPs have proposed a flexible two-tier EPA structure that will provide something of benefit to all its members. The proposal is for an "umbrella" or "master" agreement, setting out the broad terms including MFN for the EU, accompanied by subsidiary agreements covering a broad range of issues including services, investment, fishing and the trade in goods. The PACP's could then choose to which subsidiary agreements they wish to subscribe, with only those committing to the trade in goods agreement needing to adopt reciprocity. These latter would be WTO notifiable, with implications for PACER. This radical solution to the particular problems and diverse interests of the PACP's has not been rejected by the EU and will form the basis for further studies and negotiations. However some ambiguity remains, as might be expected, in the Joint Road Map (September 2004). However for the EU WTO compatibility remains a central requirement, although the potential of the current Doha round for introducing greater flexibility in the interpretation of "special and differential treatment" is recognised.

  A particular problem exists for Fiji in regard to significant sugar exports to the EU under the Sugar Protocol (92% of the value of its EU exports). The recent successful WTO challenge to the EU's dumping of sugar on the world markets and proposals for reform of the CAP are likely to lead reductions in the guaranteed price, with significant implications for long-term future of Fiji's sugar industry. While sugar export quotas are expected to continue, their value will almost certainly decline with a fall in the guaranteed price and new suppliers may enter the EU market under the EBA. One of the unanswered questions of the regional EPA negotiations is their relationship to discussions about the Sugar Protocol, which will need to take place at the ACP level.

  It is also unclear as to the prospects for additional aid that might support the restructuring, economic and fiscal, that will be necessary under an EPA. The Commission appears to have indicated that no additional funding is regarded as necessary beyond that contained within the current envelope of EDF 9. However EDF 10 negotiations will almost certainly offer the opportunity to revisit this issue.

  Finally, I would draw attention to the Sustainability Impact Assessment that has been contracted by the Commission to inform the "stakeholders" in the EPA negotiations. Intended to assess the economic, social and environmental impact of all regional EPA proposals, this contract has been placed with PricewaterhouseCoopers. In the case of the Pacific PricewaterhouseCoopers are just commencing their consultation, but had decided to undertake a sector study of fisheries. Although there are references in the Joint Road Map to "particular attention also to be paid to the ongoing EC's SIA exercise with a view to both making optimal use of its results within EPA negotiations and feeding ideas and outcomes of the negotiation process into the construction of a Pacific ACP-specific SIA process", there must be serious concerns as to the value of this exercise. The fisheries industry is a sector where considerable work has already been undertaken. The usefulness of this exercise for the broader Pacific EPA negotiations is not self-evident and the selection of this focus—other than as an expression of EU commercial interests—is unclear. Indeed the question of the ownership of the SIA process is not apparent. Certainly among the PACPs there was little awareness and little value placed upon the SIA. By contrast the Pacific Forum Secretariat will be conducting supportive technical assessments over the coming year. The strength of the Pacific Forum Secretariat is likely to prove an important factor in the successful outcome of the EPA negotiations in a region where intra regional trade is minimal and economic and political interests diverse. This diversity needs to be recognised by the EC and the appropriateness of its rather dogmatic emphasise upon the potential for regional integration questioned.

October 2004

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