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12th Summit
of the

Noel Levi, CBE Secretary General, South Pacific Forum Secretariat

Warwick Hotel, Korolevu July 23, 1998

Prime Ministers, Your Excellencies, Senior Officials of the Melanesian Spearhead Group:

Thank you for giving me and the officials of the Forum Secretariat this opportunity to brief the Melanesian Spearhead Group meeting on the proposal to create a Free Trade Area among Pacific Island countries.

The Free Trade Area among Forum Island Countries was initially proposed at last year's Forum Economic Ministers Meeting (FEMM) by Vanuatu which sought a study of the subject. The proposal for the creation of a Pacific Island Nation Free Trade Area was confirmed by the 28th South Pacific Forum. Last year the Forum Secretariat commissioned a study by Professor Scollay of the University of Auckland. The study was sent to all Forum Island Countries and a proposal for a Free Trade Area among Forum Island Countries was presented to this year's FEMM.

At the same time Australia and New Zealand have also undertaken a study by Mr. Andy Stoeckel which was also tabled at this year's FEMM. The Stoeckel report was about extending the Free Trade Area to Australia and New Zealand. While the Forum Secretariat does not aim to exclude any Forum member we are of the view that trade liberalization should proceed in a step-wise fashion. We believe that Forum Island Countries should eliminate tariffs among themselves first and then proceed to broadening the relationship to other much larger countries such as Australia and New Zealand. The reason is that many of us, despite having introduced tax reform remain heavily dependent upon import duties and eliminating tariffs to Australian and New Zealand imports will require a massive restructuring of our economies and our tax systems. We believe in proceeding cautiously and that is why we advocate a Forum Island Country Free Trade Area and an extension to Australia and New Zealand when Forum Island Countries feel ready to make such a change.

Some of you are now wondering why this is being proposed. The main reason is that in the longer term the creation of a Free Trade Area will generate considerable trade among Forum Island Countries. We have only to consider the example of the Melanesian Spearhead Group (MSG) agreement to see that there is clearly potential for trade among Forum Island Countries. We feel that potential will grow once we begin to tear down the trade barriers between island states.

However there is also a pressing reason why this is necessary, not just desirable. As you are all aware the renegotiation of the Lomé Convention will begin in September of this year. In order to bring Lomé preferences into conformity with World Trade Organization obligations the European Union is seeking to create regional free trade areas with all of the regions of the African, Caribbean and Pacific group, including ours. This will mean that we will have to create a Free Trade Area.

However, I would like to assure you that despite the fact that this is an extra benefit of an Forum Island Countries Free Trade Area, it is not the cause. Our own thinking at the Secretariat about a Free Trade Area for the region long predates the current discussions about the Lomé Convention. We are not aiming to create a Free Trade Area among Forum Island Countries to help bring the Lome Convention into conformity with the World Trade Organization but rather to create a regional economic entity that will generate economic opportunities for the next generation. This in my view is a long term construction project that will create a home in which our children can comfortably live. I hope you as leaders share my vision.

What then of the Melanesian Spearhead Group Trade Agreement and the other bilateral agreements? If the Forum Island Countries' Free Trade Area proceeds, and we believe we have such a mandate from FEMM, and it is also endorsed by the Forum, then what will become of your magnificent efforts as trailblazers in trade liberalization among Forum Island Countries? The bilateral agreements between the Forum Island Countries can have an important role in the transition period and a Free Trade Area among Forum Island Countries does not preclude members of the Free Trade Area having other bilateral relationships.

The Melanesian Spearhead Group Trade Agreement can proceed in either of two directions. Either trade will occur through the Forum Island Country Free Trade Area Agreement, and the Melanesian Spearhead Group Agreement and the bilateral agreements become redundant once the Free Trade Area liberalization is complete, or the Melanesian Spearhead Group moves to deepen the trade relationship and create a Melanesian Customs Union.

I believe that there is an enormous amount of political good will among Melanesians and among you, the leaders, to deepen the Melanesian trade and economic relationship. We have already seen that there has been a very substantial increase in trade between Melanesian Spearhead Group states since the beginning of the Melanesian Spearhead Group Agreement. It is time for you as Leaders to be bold and move to deepen the Melanesian Spearhead Group relationship further. In this way we feel that the Melanesian Spearhead Group can continue to act as an excellent example to other Forum Island Countries of the long term benefits of trade liberalization.

I thank you for your time and indulgence.

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