Alcohol and Pacific Island countries' trade agreement

Stanley Simpson Pacific Network on Globalisation, Fijii

Pacific free trade negotiations on alcohol
Globalisation is contentious the world over – even more so for the small vulnerable economies of the Pacific. International agreements are opening up these economies to free trade in goods and services by lowering or eliminating tariffs and other regulations. Unrestricted trade in alcohol and tobacco is currently being considered under the Pacific Island Countries Trade Agreement (PICTA). So far, the debate among political leaders and trade negotiators is about impacts on local production, employment and government revenue versus the benefits of a wider choice of products and lower prices.

But the adverse health effects of alcohol and tobacco are well established. It is disturbing that governments are exploring strategies to help companies make alcohol and tobacco more available in the Pacific at lower prices. We need to look at the dangers that these changes pose for the health and social stability of Pacific communities.

Increased importation of alcohol, together with advertising and other marketing by multinational companies, will lead to increased consumption. We do not even have statistics and costings for the alcohol and tobacco related harm already happening in the Pacific today, yet we are preparing to open up our markets and our people to greater exposure.

PICTA and PACER
A free trade area among Pacific Island Forum countries was endorsed by leaders in 1999, and two documents were finally signed in 2001. The Pacific Island Countries’ Trade Agreement (PICTA) lays this out for Pacific Island countries excluding Australia and New Zealand. The region’s biggest trading partners were not included because Pacific Island countries were concerned about the huge adjustments local companies would face trying to compete with much larger Australian and New Zealand companies if tariffs were removed. The Pacific Agreement on Closer Economic Relations (PACER) – insisted on by Australia and New Zealand – stipulates that Pacific Island countries must begin negotiations for free trade with Australia and New Zealand eight years after PICTA comes into force, or earlier if Pacific Island countries enter into free trade negotiations with another developed country.ii

The purpose of PICTA is to liberalise trade with the aim of bringing economic and social benefits and improving the living standards of all peoples of the Pacific region. The elimination of tariffs and other barriers to trade will be gradual, with clear rules and conditions of fair competition:

• with a view to the eventual creation of a single regional market among the Pacific island economies in accordance with the respective social and economic objectives of the parties, including the advancement of indigenous peoples…iii.

These globalisation processes are happening at a rapid pace and Pacific countries are being pushed by their more developed trading partners into complying with the free trade agenda. In my opinion, we are not fully aware what we are getting ourselves into.

Agreements ‘lock in’ Pacific nations
PICTA is seen as a ‘stepping stone’ to economic integration with the wider globalised world order. Businesses will begin to compete with multinationals, and governments will implement adjustments to tax systems, laws, regulations on standards and customs procedures. It is also seen as having political advantages, in that a regional trade agreement can:

• facilitate a ‘lock-in’ of economic policies so as to discourage backsliding by individual governments, responding to purely political imperatives rather than strong political rationale. In other words, don’t give them much room to pull out if they change their mind later.

This is a concern in regard to alcohol and tobacco. Once you have signed a free trade agreement, it is against the rules or almost impossible to withdraw your commitments – when adverse social and health costs begin to sink in. Future governments are bound by it.

Under WTO rules, if a product is excluded from a trade agreement for public health reasons and this exclusion applies to all countries, then it is unlikely to be contested. However, if barriers such as higher tariffs by one country discriminate against the products of another country to protect local production or sources of government revenue, they are likely to face challenges and sanctions. These rules severely limit the ability of governments to control the importation, marketing and pricing of alcohol. They will be under strong pressure from trading partners to allow free trade to give consumers more choice and access to cheaper, high quality goods. This is after all the theoretical underpinning for free trade and globalisation.

Since public health is a valid reason for limiting the scope of WTO agreementsiv, it may seem surprising that Pacific governments have not used arguments about health and social stability to keep alcohol and tobacco out of PICTA. It appears that early on in the negotiations trade officials had wanted to exclude alcohol and tobacco, but for reasons unrelated to health impacts:

There were fears that reduction of duties might have a severe negative impact on some government’s excise and custom revenues. There was also concern that some Forum Island Countries (FIC) breweries, distilleries and cigarette manufacturers might not be able to compete in a Pacific-wide FTA, with the consequent loss of ‘unique’ goods currently being produced in FICs.

Advice to Ministers omits socialand health impacts
In 2003, the Secretariat of the Pacific Island Forumv commissioneda study from Dr Wadan Narsey, University of the South Pacific, on the inclusion of alcohol and tobacco in PICTA.3 Although the report was not made public, Fiji is a small place and I was able to obtain a copy, together with the accompanying briefing paper for the 2003 Forum Trade Ministers’ meeting. The report, while quite comprehensive on options and opportunities for island countries, makes only brief mention of health effects. The narrow terms of reference confined the researcher to trade aspects only. The briefing paper makes no mention at all of the social or health costs of including alcohol and tobacco in Pacific free trade.

This is disturbing. It’s as if they have turned a blind eye to any adverse social or health impacts of alcohol and tobacco. This omission in advice to Ministers raises serious questions about the whole free trade process and how our leaders are making decisions. It says a lot about where priorities lie and who is having influence in these negotiations.

Alcohol production in the Pacific
The Narsey study found that, in most Pacific Forum countries, alcohol and tobacco contribute significantly to government revenue and to domestic employment and income. There are two large breweries in Papua New Guinea and Fiji, two of moderate size in Samoa and the Solomon Islands, and five micro-breweries – two in Fiji and one each in Palau, Cook Islands and Tonga.

Spirits is produced by two distilleries in Papua New Guinea and Fiji. Narsey notes that only Fiji has a genuine distillery creating a distinct rum brand. The others are essentially blending operations. Alcohol is either crudely distilled locally or imported in bulk, then blended with essences and concentrates to produce the required spirit – rum, gin, whiskey, vodka, mixed drinks, etc. Except for locally produced sugar in Fiji and Papua New Guinea, nearly all ingredients and materials for beer and spirits production are imported (malt, barley, hops, bottles, labels, packaging, etc.).

Alcohol taxes are a significant part of government revenues. In Samoa, beer alone provides 7.2 per cent of the government’s tax take and 6.6 per cent of its total revenue. In Papua New Guinea, beer tariffs and taxes provide 3.7 per cent of tax and 2.9 per cent of total government revenue. In Fiji, it is 3.2 per cent of tax and 2.4 per cent of total revenue. In Tonga, Vanuatu and the Solomon Islands, revenue from beer is around 1 per cent of revenue.

The Narsey report recommends the inclusion of alcohol and tobacco in PICTA. To protect government revenues while complying with free trade rules, it recommends that import tariffs on alcohol and tobacco be largely converted to excise taxesvi that would apply to both domestic and imported products, and these can be harmonised across the region. The report provides three options for reducing import duties. If alcohol and tobacco products originate (>40 per cent added value) within the region, tariffs are to be eliminated by 2012; they may be included on the ‘negatives lists’ for which tariffs are to be eliminated between 2007 and 2016, or a new schedule of reductions can be developed. Tariffs will continue on alcohol and tobacco from non-PICTA trading partners (until PACER begins). However, the level of these ‘should not be so high that imports of better quality and diverse range of products are completely shut out’ (p.33).

The report discusses ways of protecting beers such as ‘Fiji Bitter’ and Samoa’s ‘Vailima’ that are ‘unique national products giving cultural identity and diversity to each country’. Yet it also notes that all the Pacific producers except the microbreweries are part-owned and controlled by multinational alcohol companies. Health and sanitary standards in the breweries and distilleries are reported to beoften below accepted standards, with reference made to difficulties attracting skilled personnel. There is little or no health department monitoring of standards and this may be a particular risk in the production of mixed spirit drinks. The report notes ‘the universal free market trend…for economies of scale to prevail and small regional breweries to succumb to the large multinationals’. Under PICTA, he suggests, Pacific breweries could cooperate on the purchase of essential inputs to reduce unit costs and increase competitiveness.

Competitiveness might be improved by the development of niche export markets for Pacific beers and spirits and the report also suggests ‘the holding of annual Pacific alcohol product festivals for beers and spirits, to be rotated across the producing Forum Island countries, and that products to be entered in metropolitan beer and spirit festivals and competitions’. There is no mention of an annual conference to address the social and health impacts of increased alcohol consumption being promoted at these festivals.

In purely trade terms, the study may make good sense. But free trade will significantly increase alcohol use. If health and social issues are marginalised in negotiations, we are in for a rude awakening when the impacts finally hit.

I understand that Public Health Programme advisers at the Secretariat of the Pacific Communityvii are working to keep tobacco outside the free trade agreement. They note that the inclusion of tobacco in free trade agreements tends to lower the price and as a result increase the consumption of tobacco. From a health view point, there is good reason to ensure that the price of tobacco remains high. This thinking should apply to alcohol as well.

Conclusion
Free trade and globalisation is criticised by many people because of its focus on increasing markets and profits, with scant regard for the environment, health and social stability. Trade processes are often uneven and disadvantage small developing countries that face resource constraints and barriers to trade with developed countries, while struggling to ensure the survival of local industries. Developing countries are vulnerable to exploitation as cheap labour and the ‘dumping’ of surplus products From more industrialised countries. Dumping could be an issue as alcohol globalisation expands in the Pacific under PICTA and PACER. Cheap, left-over beers and spirits from more affluent countries could be lapped up by many Pacific Islanders in the same way they have lapped up cheap unhealthy mutton flaps from New Zealand.

Because Pacific governments have come to rely on alcohol and tobacco for revenue as well as employment, these industries may be given special consideration so that investment remains in the country. In effect, multinationals are rewriting Pacific rules and regulations. The current round of WTO negotiations includes provisions that could give ‘investors’ like the giant tobacco and alcohol corporations standing to challenge government regulations and seek compensation for lost profits if these do not comply strictly with trade agreements.viii

Pacific young people are now exposed to alcohol marketing from all over the world. We turn on satellite channels in Fiji and see ads for Amstel and Budweiser. Other marketing strategies, such as the linking of alcohol and sporting events, are also worldwide. Fiji Bitter is known as ‘the sportsman’s beer’, and Fiji Gold is being marketed to women as the ‘diet coke of beers’.

These things are happening right under our eyes, with little response from health agencies and nongovernment organisations. We need to build our capacity to understand and influence trade policies, and to develop strategies to influence policy decisions. We must make strong efforts now to oppose the inclusion of alcohol, as well as tobacco, in the Pacific Island Countries Trade Agreement.

This article is based on a presentation to the Asian Pacific Meeting on Alcohol Policy on 23 September 2004 in Auckland.

Stop Press
A meeting of ministers for health in Samoa recently agreed to seek broad support to resist the inclusion of tobacco and alcohol in trade agreements.

References
i Pacific Network on Globalisation, www.pang.org.fj

ii Kelsey, Jane (2004) Big brothers behaving badly: the implications of the Pacific Agreement on Closer Economic Relations (PACER). April. www.arena.org.nz; Kelsey, J. (2004) A People’s Guide to PACER: August. www.arena.org.nz

iii Wadan Narsey (2003) The inclusion of alcohol and tobacco products in the PICTA. Final Report for the Forum Secretariat. Pacific Institute of Advanced Studies in Development and Governance, University of the South Pacific, Fiji.
Available from GAPA on request.

iv WHO and WTO (2002) WTO Agreements & Public Health: A joint study by the WHO and WTO. www.wto.org/english/news_e/pres02_e/pr310_e. htm

v Secretariat of the Pacific Islands Forum, www.forumsec.org.fj/

vi Contrary to public health recommendations that excise tax rates should reflect the alcohol content of drinks (Brian Easton, 2002 Taxing harm: Modernising alcohol excise duties. www.alcohol.org.nz), the Narsey report recommends rates that are a per centage of price to ‘ensure that the price competitiveness of cheaper products are not undermined’.

vii Secretariat of the Pacific Community, New Caledonia, www.spc.org.nc Formerly the South Pacific Commission (and Council), this grouping was established in 1947 by Australia, France, New Zealand, the Netherlands (no longer a member), the UK and USA America. From the 1960s it expanded to now include 22 Island countries and territories as full members. It addresses a wide range of social and economic development issues, including a public health programme.

viii Robert Weissman (2003) International trade agreements and tobacco control: Threats to public health and the case for excluding tobacco from trade agreements. November www.essentialaction.org/tobacco