Piku-Piku and Asukena – Part 1
It’s not about politicians, it’s about the people

Can PNG take advantage of trade liberalisation?

Small freighter docked at Port Moresby
Small freighter docked at Port Moresby

BENWARD ROWA

WAIGANI - The World Trade Organisation (WTO) was established to enforce rules governing trade activities amongst member countries.

Essentially trade liberalisation is the idea that there should be less government intervention in international trade, allowing for the free flow of commodities and services across national boundaries.

The WTO promotes the reduction of tariff and other trade barriers, and also allows for a range of safeguards and exemptions to protect the domestic social policies of member states.

Papua New Guinea is a member of WTO, joining in 1996. As a member, PNG is obliged to abide by the WTO’s trade rules.

These rules allow member states a level of certainty in the conduct of their global trade relations.

International trade specialists argue that opening up domestic markets can unlock growth and economic development. The expectation is that PNG will meet its commitments to open its domestic market and abide by other trade liberalisation rules.

Implementation of the national trade policy (2017-2032) can facilitate PNG’s competiveness and safeguard its domestic market against unfair practices.

It is critical that a whole-of-government approach is undertaken to implement the policy, enabling PNG to maximise its membership of WTO.

Despite the benefits PNG can obtain as a WTO member, the country is still lagging in trade liberalisation.

Trade barriers are often used to protect domestic industries from foreign competition while reducing protectionist policies like tariffs and quotas can leave domestic industries vulnerable to large-scale disruption and unemployment.

Striking a balance between liberalisation and protection is key for small states like PNG.

The trade policy acknowledges the importance of strong regulation and enforcement, noting that “weak enforcement of national standards and technical regulations, weak enforcement of intellectual property rights, unfair trade practices such as dumped products and subsidisation of inefficient industries prevent the growth and diversification of PNG’s industries”.

WTO also observes that PNG’s membership has “exposed the country’s private sector to increased competition [and] damage to domestic manufacturing”.

In PNG, manufacturing industries are unable to compete profitably against imported products, mainly from Asia where manufacturing costs are lower due to efficient and reliable technology.

Increased competition from international firms has led to the collapse of non-profitable domestic firms.

Moreover, in PNG free trade has placed infant industries in a vulnerable position against foreign competitors.

As noted by an international trade specialist, “An already established foreign industry has the advantage of longstanding experience, market power, resource position, and external economies”.

In this context, competition with infant domestic companies is unequal and may result in their quick demise.

According to WTO, domestic industries in PNG are concerned over unfair trade practices such as dumping by foreign companies. Weak enforcement has also failed to protect domestic industries from an influx of cheap imports.

Another constraint to PNG’s integration into the global trade system under WTO rules is that it lacks comparative advantage in its exports.

In PNG, merchandise trade is concentrated in the extractive sector and it heavily favours imports.

In 2019, exports were valued at more than K7 billion, major exports being minerals (gold, silver, copper and crude oil), timber, coffee, palm oil, cocoa and copra.

These exports are very dependent on movements in international commodity prices. For instance, in 2019 most prices of agricultural commodities fell, affecting foreign exchange inflows.

PNG also faces difficulties in manufacturing. Cheap imports pose an increasing threat to local producers.

Due to reduced duties, foreign companies are dumping cheap imported goods into the country shutting out local producers.

The challenge for PNG is to focus on economic diversification.

A World Bank report said a more diverse production and trade structure is a key element of economic development.

On the other hand, a lack of diversification is often associated with increased vulnerability to external shocks that can undermine prospects for longer term economic growth.

Thus the PNG government must put into place policies that protect our local industries.

Cheap imports do not provide the same employment opportunities as domestic industries.

Local industries create wealth which is circulated within PNG and provides jobs.

Benward Rowa is majoring in political science at the University of Papua New Guinea

References
Department of Trade, Commerce and Industry 2017. Papua New Guinea National Trade Policy 2017 – 2032, Port Moresby
WTO 2019. Trade Policy Review, Papua New Guinea Trade Policy Review, Port Moresby

Comments

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Paul Oates

Thanks Patrick. Point taken.

Patrick Kaiku

Paul Oates - Thank you for your feedback. I edited Benward's response to a question I posed in the industrial relations and diplomacy course and submitted his response for publication on this blog.

So I feel compelled to respond to your very important questions above. Firstly, the whole idea in this whole exercise is PNG's domestic preparedness and competitiveness to commit to global commitments to free trade.

We have no control over what law-breakers do but domestic policy-making in response to our global commitments is where PNG has control. That is the crux of the issue.

Secondly, the international trade rules are not perfect. But at the level of sub-regional and regional or even bilateral trade arrangements, the same WTO rules are applied.

Small economies or regional blocs in developing countries should not think of themselves as being at the mercy of more powerful law-breaking big economies to forgo the benefits that they can get from trading arrangements.

The WTO is simply a benchmark for developing countries to use. There are more areas to look at to respond to your questions but will leave at that for another time.

Paul Oates

So Benward, what happens when a signature to the WTO breaks the rules? Are all the other members entitled and also prepared to back a 'rules based regime' or will they just 'missle off' and ignore the rules they signed up to because it's just all too hard?

If that's the case, what point is there in having the WTO? Or any other organisation when those that sign up decide on a arbitrary or selfish interpretation of the rules or simply just ignore the rules for their own gain?

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