By Makereta Komai, PACNEWS Editor in Milan, Italy
Fiji doesn’t expect an immediate impact on the U.S trade war through the imposition of tariffs in the short to medium term but is worried about the threat that it may lead to a global economic slowdown.’
Deputy Prime Minister Biman Prasad outlined Fiji’s immediate concerns of the trade war and its impacts on Fiji and the Pacific Island economies at a side event at the Asian Development Bank (ADB) Annual Meeting in Milan, Italy on Tuesday.
“I think for small island economies like Fiji that is a big concern, specifically with respect to the U.S tariffs. 20 percent of our exports go to the United States. The weighted average on tariff on U.S goods is just 1.8 percent.a72 percent of imports from the U.S attract zero duty, 25 percent probably has less than 5 percent and only three percent will only have higher tariffs, Prasad told delegates.
He said Fiji does not expect any major impact in the short to medium term.
“We don’t expect the impact of the of the 32 percent duty on our exports, particularly Fiji Water but on other products such as kava and turmeric and other primary sector products where the demands may be inelastic, so we don’t expect a direct hit on our exports.
“However, what we are more concerned about is the 40 percent of our GDP that comes from tourism and the services sector. We experienced this when we had the global financial crisis. The good growth of the stronger economies of Australia and New Zealand cushioned us and we didn’t suffer so much.
Prasad warned if the tariff war escalates into a global economic slowdown, the impact will be huge on Fiji and other Pacific economies that depend on tourism.
“You see the household disposable income of our source destinations going down in countries like the U.S, Canada, Australia and New Zealand, our main sources of tourist. When that happens, we will see a significant impact on our economy. While tourism remains a very strong component of our economy, 60 percent comes from the export some of primary sector.”
He said Fiji is focusing on diversifying the island nation’s economy away from tourism. Most Pacific member countries of the ADB are ‘in the same boat’ and any global economic uncertainty will be disastrous.
“We don’t know right now how the trade diversion that is going to take place and how that will translate into the various transmission of trade remittances and whether that is going to have a drastic impact on our economy and the ability then to shift resources to other sectors to keep our economy resilient and sustainable.
He said the second order demand effect from the trade war is what countries should be preparing for because that is the bigger threat to global economies.
ADB President, Masato Kanda sharing the stage with Prasad at the side event agreed that the uncertainty caused by the trade should be a concern and an opportunity for the Asia Pacific economies.
He said five of the ten highest tariff imposition are in the Asia Pacific region.
President Kanda was specifically worried about the spill-over into the financial capital market.
“Investors don’t like any uncertain situation because it increases their risks and dampens their investor confidence in the market. Looking back at the Asian financial crisis, we witnessed the explosion of a huge capital outflow. But now Asia is now much stronger because of sound macro-economic policies, with much stronger default in reserves, much deeper financial markets.
He’s cautiously optimistic – challenging the 69 member nations of the ADB to take the challenge and make into opportunities to improve.
“We should strengthen our domestic demand, diversity our industry and trade partners and increase regional connectivity in the region.
“As far as trade is concerned, we should deepen our trade agreement in the region including the services sector and find broader partners including here in Europe, urged an optimistic President Kanda.
DPM Prasad said the greatest potential for the Pacific is to deepen ties amongst themselves and with development partners.
“If you look at the current global context and the uncertainties of the past, deeper and meaningful integration is the way to go and I have been a strong advocate for that for our region. By that I mean, amongst ourselves the 14 Pacific Developing Member Countries and also with our developed economies and closest neighbours, Australia and New Zealand.
“We have been advocating for visa free travel, harmonisation of laws, policies, regulations so that there is cross border movement of not only trade but people, ideas, policies, laws. Many Pacific Islands are small economies.
Prasad said be beyond the Pacific, Fiji and Pacific Island Countries are looking at partnership with development partners and larger economies.
“As far as Fiji is concerned, we have good relationship with our tradition partners including India where we feel there are lot of possibilities, not only in terms of markets for our products but also to get ideas, technologies and experience that would help us to diversify and build resilience.
As well, Fiji is leading the advocacy for better climate financing, as part of regional integration.
“We are saying to everyone, this is not about the future, this is our lived realities now. That will help us as a region to advocate better for better international financial architecture, better scaled up finances for adaptation and building resilience for our communities, said Prasad.
While in Milan, DPM Prasad and his high-level delegation of senior officials from government and the Reserve Bank of Fiji held bilateral discussions with ADB President.
Discussions focused on strengthening partnerships through the delivery of planned infrastructure projects and leveraging Fiji’s position towards regional integration and delivering regional public goods.
Both parties shared concerns on the global outlook, amid escalating trade tensions, financial market adjustments, and changing policy positions that could lead to even tighter global financial conditions.
DPM Prasad congratulated President Kanda on his appointment as the 11th President of ADB and assured him of Fiji’s support in his new role.
President Kanda recognised the unique position of Fiji in the Pacific as a hub and the challenge of vulnerability in the Pacific with increasing and intensifying natural disasters. He thanked DPM Prasad for the cooperation with the Fiji Government in finalising the Country Partnership Strategy and the various projects that have been progressing in Fiji.
DPM Prasad also met with the Head of the Australian Delegation to the Annual Meetings, Executive Director Rachel Thompson, and thanked Australia for the continued support of Fiji’s development ambitions and called for increased efforts to expedite regional integration in the Pacific and for the Pacific as a group to leverage the international financial architecture to meet their development challenges.
Here is the link of the ADB side event
https://www.adb.org/news/videos/58th-adb-annual-meeting-governors-seminar-cross-border-collaboration-future-resilience
