Last updated: January 2009

The current Pacific EPA negotiating text is not yet finalised and is therefore not yet a public document.

Historically, Solomon Islands, as a member of the group of 'African, Caribbean and Pacific' (ACP) developing countries, has been granted preferential access to European markets under the Lomé and Cotonou Agreements. These agreements were not reciprocal (the EU granted benefits to the ACP but the ACP countries made no market access commitments in return). Because of this, they were determined to be contrary to World Trade Organisation (WTO) rules, and a deadline of the end of 2007 was set for them to be replaced by a reciprocal, WTO-compliant trade agreement, which came to be known as an EPA.

Solomon Islands has been actively negotiating an EPA alongside the other Pacific members of the ACP group (the Pacific ACP States, or PACPS). However, various delays in the progress of negotiations meant that a full agreement could not be reached by the WTO deadline of the end of 2007, and so in the final stages the EU and ACPs decided instead to negotiate an 'Interim Agreement', which would be more limited in scope, as a temporary measure to be replaced by a full EPA as time allowed.

The Interim Agreement was envisaged to contain an agreement only on goods, leaving issues such as services and investment for later negotiation. The EU and PACPS conducted intensive negotiation through 2007 in order to work towards a mutually acceptable goods text, culminating in a joint ministerial meeting between PACP ministers and EU commissioners in November. At this meeting, there were still many major differences between the two sides. The PACPS, alongside many other ACP subgroups, asked that the EU make efforts to extend the deadline or to accept an even more limited agreement as a temporary measure to protect PACPS' market access into the EU beyond the 31st December deadline. The EU refused, threatening the revocation of preferential treatment which would cause considerable economic disruption and job losses in a small number of PACPS.

As with most other ACP regions, the EU's negotiating position was highly divisive. Two PACPS would have been severely affected had no agreement been reached, whereas other PACPS were able to delay the completion of negotiations until a favourable compromise could be reached. This is because (a) only a few PACPS export in large quantity to the European Union, and (b) Least Developed Countries (LDCs, including Solomon Islands) could continue to export to the EU under the preferential terms of a separate agreement called Everything But Arms (EBA). The predictable consequence of the EU's hard-line negotiating strategy was a disintegration of the PACP negotiating group, exactly as happened in other ACP regions. PNG and Fiji — both developing countries with large industries exporting to the EU under preferential treatment — were forced to sign up to a hastily prepared text at the end of 2007, whereas all other PACPS have refused to do so at this stage, given the various demands on which the EU has refused to compromise.

The most notable disagreements are:

1. Infant Industry provision. The EU refused to allow PACPS to provide adequate protection to new industries that we might want to support in future.
2. Export Taxation. The EU refused to permit PACPS to use export taxes to encourage downstream processing of its natural resources, such as timber.
3. An automatic 'most-favoured nation' (MFN) clause. This requires EPA signatories to offer the EU all benefits given to any other country. It would mean that any market access given by PACPS to Australia and New Zealand under PACER Plus must automatically be extended to the EU — and that the EU would not be required to give us anything further in return. For example, if we were allowed to send workers temporarily to Australia and New Zealand in exchange for improved market access, then we would be obliged to extend the same market access to the EU — even though they would not have to give us the same labour mobility opportunities as Australia and New Zealand. Australia and New Zealand are understandably strongly opposed to this provision, and it undermines our ability to negotiate a valuable agreement under PACER Plus.
4. Standstill. Even though Solomon Islands recently undertook a broad import duty reduction, the full effects of which are still not known, the EU insisted on a provision that required no import duties ever to be raised against the EU in future, even to very recent levels. Considering that logging revenues are likely to fall substantially over the next decade, SIG may be forced to seek substantial increases in other forms of taxation, so it is important that we maintain some flexibility in import duties in the medium term.
5. Substantially All Trade (SAT). The EU refused to compromise on its definition of 'substantially all trade' — the level of goods that must be covered by a free-trade agreement if it is to comply with WTO rules. In Solomon Islands' case, our EPA goods offer met the ACP definition of SAT but not the EU definition. The WTO does not have an explicit definition of SAT.

The main benefit of initialling an Interim EPA would be to make use of the improved rules of origin for processed fish, which would enable Soltai to process fish caught on a wider variety of different vessels and export it to the EU with a 24% duty preference over other developing exporters. However, if the WTO Doha Development Round completes, then the preference offered into the EU on processed fish will reduce sharply. DET circulated the following paper on the issue in December 2008:

• Doha and Preference Erosion

The first meeting to discuss the extension of the IA to a comprehensive EPA was held in April, to discuss a chapter on trade in services. The PACPS have made clear throughout the negotiation process that, in order for a services agreement to offer meaningful opportunities for PACP economies, it must provide viable a viable opportunity for PACP individuals to supply services through the “temporary movement of natural persons”, classified in WTO jargon as “mode 4”. This is because, given the difference in size and economic development, it is unrealistic to expect PACP firms to be able to supply services into the EU economy by any other means. A services agreement which did not offer PACPS a viable opportunity in the temporary movement of natural persons could therefore only be of use to the EC side.

PACPS further explained what they regarded as economically viable in this context. An offer on the temporary movement of natural persons must

1. the offer must be for a commercially meaningful number of people; PACPS proposed the inclusion of an explicit quota in the agreement;
2. the offer must be for workers with a realistic level of skills and experience, of particular importance given the lack of highly skilled labour in the Pacific, and the undesirability of encouraging highly skilled people to leave the region; and
3. the offer must be for an economically realistic time frame, given the large distance and cost of travel between the Pacific and the EU and the relatively limited remuneration that can be expected from employment with lower qualification levels, PACPS argued that the EU would need to offer employment for at least two years.

Given that these requirements have been clearly enunciated at repeated JTWGs over the past few years and the EC's repeated inability to meet these criteria, PACP Trade Ministers decided to suspend services negotiations in April. This suspension is designed to give PACPS the opportunity to negotiate an agreement with Australia and New Zealand under the PACER Plus process which does meet these criteria. PACPS have proposed that negotiations could be reopened in the future, either if the EC is able to offer something of offensive value to PACPS, or failing that, after PACER Plus negotiations are complete, at which time reaching an agreement with no offensive value would not prejudice PACPS' opportunities to reach valuable agreements with other partners.

With services suspended and little indication that the EC was willing to move substantively from the initialled IA text, the September JTWG focused on various other features of a comprehensive EPA, including:

• customs cooperation;
• rules of origin;
• fisheries;
• trade-related areas; and
• the non-execution clause.

The EC and PACPS further agreed to begin negotiating electronically in order to attempt to make progress between JTWGs. Substantial progress was made in narrowing differences between the two sides in some of these areas, although not in all. In particular, no progress was made on the subject of the non-execution clause, which would allow the EC to suspend tariff preferences unilaterally if it had concerns about human rights, democratic principles, the rule of law or corruption in the PACPS. PACPS believe that a non-execution clause may be in conflict with WTO rules. A central principle of the WTO system is to remove this type of political discretion from trading rules.

• Press article: Sisilo challenges EU over trade agreement

On 2nd October, the British government announced that Peter Mandelson, hitherto EU Commissioner of Trade, would be made the new Business Secretary in the UK. Baroness Catherine Ashton, previously Leader of the House of Lords in the UK, was nominated and accepted as his replacement. As head of the Directorate General of Trade within the EC, she has ultimate responsibility for the conduct of all EPA negotiations.

Peter Mandelson's departure has created some measure of doubt about the future direction of negotiations. Ministers representing the PACP group, alongside representatives of the other ACP negotiating groups, have been invited to meet with new Commissioner Ashton in January 2009 to take stock of the state of negotiations and to discuss the way forward. In his capacity as alternate regional spokesman on EPA issues, Solomon Islands' Hon William Haomae will attend the meeting.

The EC summarises the state of negotiations here:

On 29 November 2007 the European Commission initialled an Interim Partnership Agreement with Papua New Guinea and Fiji, the two main economies and exporters in the Pacific region. The agreement enables both countries to benefit from significantly improved market access to the EU as from 1 January 2008. This will be an immediate boost for investment and growth in Papua New Guinea and Fiji due to new trade opportunities in sectors of interest to these countries, in particular fishery products. This Interim Agreement is open to any other interested Pacific State. All sides reaffirmed their commitment to the ongoing negotiations towards a comprehensive EPA containing arrangements for trade in goods and services, development co operation, fisheries, trade related rules and other aspects with the whole Pacific Region. This comprehensive EPA is foreseen to be concluded by the end of 2008.

The EC has also released a brochure.