Fiji: Sugar and sweatshirts, migrants and remittances

The difficult position that Fiji’s sugar industry faces now that the EU will no longer pay a heavily subsidised price for a substantial proportion of the country’s crop is underlined by a number of issues that are coming to the fore on a regular basis. Among these is the Fiji Government’s action in taking out a loan from the ADB for no less than $F41 million (approximately $A33.7 million). This loan is for the stated purpose of ‘helping to develop alternative livelihoods for rural dwellers at risk in the restructure of the sugar industry’. The loan will cover half the estimated cost of the alternative livelihoods project — almost $A67.4 million — and must be repaid over 25 years with an upfront five-year grace period. It seems that the future must now be mortgaged to pay for past neglect of an industry that has hidden behind, and been nourished by, first British and then EU trade preferences. The Fiji Government is also scheduled to directly provide $US8.7 million and the Fiji Development Bank $A11.7 million to the project to ‘help develop alternative livelihoods’ and this is in addition to a significant tranche of EU ‘conscience money’ and Fiji’s usual and significant aid receipts from a number of sources, including Australia’s $A30.5 million aid package for the year 2005–06 and a further $A33.8 million for 2006–07. ^[5]

In June 2000 when the Lomé Conventions were reconstituted as the Cotonou Agreement, the European Commission (EC) was already signalling its intention to alter, or at least to update, trade arrangements between itself and the African, Caribbean and Pacific (ACP) states. The EC used the Cotonou Agreement to clearly flag that changes in trade relations were to take place ‘in conformity with WTO rules’ and to point out that updated trading arrangements would come into force no later than January 1, 2008. ^[6]

In spite of many commentators noting the obvious point that ‘the relationship between the EU and the ACP has never been an equal one’, the Cotonou Agreement has been presented as one that ‘foresees the negotiation between September 2002 and December 2007 of economic partnership agreements (EPAs)’. These agreements are to cover the delicate terrain of being WTO-compatible and based on an apparently benevolent initiative that boosts asymmetrical reciprocity, which ‘allows ACP regions to open their markets to the EU at a slower rate than the EU would open its market to the ACP’. ^[7] However, while this benevolence will obviously be appreciated, the EC is left in a position where it must take at least some responsibility for the harsh economic and social effects that will attend the forthcoming changes it has adopted in relation to the preferred status that has long been enjoyed by ACP banana and sugar producers selling into the EU market. The commission flagged that in the case of sugar, ‘the real price offered to ACP Sugar Protocol producers will be substantially reduced under the EU’s current proposals for CAP [Common Agricultural Policy] reform to begin in 2006’, and it is in this context that commentators have noted:

The latter point was interpreted as meaning that in strictly legal terms the EU was obliged to negotiate and agree to a guaranteed price for specific quantities of sugar with ACP Sugar Protocol countries such as Fiji. However, the unequal nature of the relationship between the EU and the ACP states has meant that the EC alone has decided what it will do. At one level, the EC has taken the view that the transitional assistance that is to be negotiated under the EPAs will atone for its withdrawal from ‘a binding undertaking which was of indefinite duration’ and at another level the EC is pressing the argument that the Common Organisation of the Market in Sugar (COMS), to which the Sugar Protocol is linked and on which it depends, ‘can be amended’. Changes to the COMS can be made with matters such as WTO commitments in mind. Faced with this situation, ACP countries have been left with only a narrow range of realistic alternative options. ^[10]

One of the options open to the governments of ACP countries severely affected by the EC’s change of approach is to draw public attention to what they see as the EC’s breach of the principle of fairness. For example, Fiji’s Minister for Foreign Affairs and External Trade, Kaliopate Tavola, complained to the EC that its intended removal of trade quotas and price subsidies did not take Fiji’s situation (and the situation of the other affected ACP countries) ‘into account in any way’. He added that the ending of quotas and price subsidies for Fijian sugar, which the EC had flagged, was ‘completely at odds with EU development policy, the general objectives of the Doha Development Round of the WTO, and the pursuit of the UN Millennium Development Goals’.

Ministers and administrators representing other ACP countries have also noted what they depict as a ‘cold-hearted’ approach being taken by the EU and they too have questioned the legality of the EU’s alteration of the Sugar Protocol. They have been keen to point out that ‘the ACP has faithfully met its obligations and should reasonably expect the EU to respect its commitments enshrined in the Protocol in terms of the three guarantees of price, access and indefinite duration’. For their part, EC sources have noted that ‘some ACP countries have used the economic rents associated with preferences to secure long-term efficiency gains by diversifying into new export sectors … [while] for other countries … preferences have resulted in resource allocations to uncompetitive sectors.’ These are sectors that are uncompetitive in world market terms. The EC then argues that the removal of market access preferences and price subsidies will result in gains in the long-term. However, it is admitted that in the shorter term, ‘any large-scale reallocation of production could undermine employment and foreign exchange earnings which would impose high adjustment costs’. In spite of significant funds being made available from a range of sources, including and particularly the EU, Fiji, and those who have been associated with the Fijian sugar industry, will have to pay ‘high adjustment costs’. ^[11]

While the EC’s assessment of the negative employment and foreign exchange effects of the end of their preferential arrangements on recipient ACP countries smacks of blaming the victim, it is the case that Fijian interests sat back and sheltered under the preferential umbrella and chose to take little or no account of the possibility of their future exposure to the full force of the global marketplace. This is a view that I expect underpinned a remark made by Australia’s Foreign Minister, Alexander Downer, who argued that ‘European Union practices have done Fiji’s sugar industry enormous damage over the years.’^[12]

Those who have profiled Fiji’s sugar industry note that ‘in and before the 1980s, Fiji was regarded internationally as an efficient producer and reliable supplier of high quality sugar’. This is no longer the case. Sugar was ‘the single largest industry in the country during the 1970s’ and, although its success in terms of the relative size of its economic contribution to national coffers has been reduced (particularly and most recently in the period since 1994), the industry still dominates the rural economy. A number of scholars estimate that it continues ‘to provide employment directly or indirectly to about 51,000 people’. This would mean that more than ‘250,000 people, or 31% of the country’s population, are directly reliant on the sugar industry’. There are said to be about 22,000 individuals (the Government’s estimate is 21,000) who are sugar growers and a further 20,000 who are engaged as cane harvesters. They farm an average of only three to four hectares and raise less than 200 tonnes of cane per annum. The productivity of these small leased holdings has been falling for some time and the average net income of sugar farming households is recognised to already be below the poverty line. ^[13]

It is a generally agreed view that low productivity in Fiji’s sugar industry as a whole ‘stem[s] from the inability of the FSC [the Fiji Sugar Corporation, currently with a 67 per cent government-owned shareholding] over many years, to improve its efficiency and provide leadership to the industry’. The continuing need to contend with inefficient milling procedures, a decrepit sugar rail system, and tensions over the renewal of land leases are among the issues that have further exacerbated problems associated with the relatively small size of leaseholdings, low returns to farmers and the low level of investment. There is also an array of problems associated with Fiji Governments and authorities, which have consistently adopted a delayed, dithering and dispute-ridden approach to restructuring the industry. What has happened is that the end of EU preferences has left the industry with nowhere to go other than to effect a massive restructuring program. About 90 per cent of Fiji’s raw sugar is exported to international markets, with the majority of this being taken up by the EU under terms established and agreed to under the ACP/EU Sugar Protocol. In March 2005 it was estimated that the EU was paying 529 euros per metric tonne for Fijian sugar. This amount is now scheduled to be reduced to approximately 329 euros per metric tonne in the next five years, a reduction of more than one-third. The price paid by the EU under the Sugar Protocol ‘has been frozen since 1993/4 at more than three times the world price’. ^[14] The substantial (even catastrophic) price reduction for raw sugar exported to the EU that is looming must surely be recognised as the ‘straw that will break the back’ of an already ailing and beleaguered industry. ^[15]

At this point in my argument I think it is well worth adding a comment made by Isikeli Mataitoga, CEO of Fiji’s Ministry of Foreign Affairs and External Trade. He recognised that, at least in the short term, Fiji can expect to ‘still export its Sugar Protocol quota allocation of 163,600 tonnes but with decreasing price (initially a reduction of 25 per cent) to come into effect from 2006/2007 and a further 11 percent from 2007/2008’. This means that under present conditions and production costs, ‘Fiji would simply be unable to supply the EU market on a commercial basis’. This is a view that is supported by Fiji’s Sugar Cane Growers Council, whose leader, Jaganath Sami, has stated that the new European prices would mean that under the present conditions for sugar production and milling, ‘by 2009, at least 65 per cent of cane farmers may not be viable’. He went on to note that ‘the revenue of the farmers would be reduced by as much as 31 per cent under the new prices’ and we can add that this is in the context where, as noted above, the average net income of sugar farmers is already considered to be below the poverty line. ^[16]

In spite of the advantageous price paid by the EU for a large proportion of Fiji’s sugar exports (and in part as a consequence of the declining productivity of the sugar industry), between 1997 and 2001 Fiji’s garment manufacture replaced sugar as the country’s leading export earner. ^[17] Garment industry exports, however, will not be capable of replacing sugar exports now or in the future. Fiji-based garment manufacture is in decline. Like the sugar industry, the garment industry is occupying an increasingly untenable position in relation to the international marketplace. This situation is made clear when:

Descriptions of day-to-day working conditions in Fiji, including the attitude of managers towards workers, show that they are hardly better than in Chinese factories and the wages paid are considered to be below the poverty line in terms of the cost of living in urban centres. It is widely recognised that ‘despite Fiji’s relatively high labour costs, wages of garment factory workers are low compared to other industries’. However, they are much higher than the wages paid in China and Chinese workers (in China and those who have come to Fiji to work) are considered to be more highly skilled and more productive. They work longer hours and there is far less absenteeism among Chinese workers. ^[20]

Until January 1, 2005, Fiji could produce behind the shield of the MFA that had been operating in concert with various preference and protection arrangements provided by Australian manufacturers. The MFA that was in place in the global marketplace for three decades had run its course and in the absence of any further international agreement effectively offering preferential treatment for various geographically located sectors of the garment industry, a number of developing countries, including Fiji, found that their industries could not compete with the cheap labour offered by Chinese rural-to-urban migrant workers. While Fijian production has already found several niche markets (and this approach clearly offers a way forward for a number of manufacturers with an attendant reprieve for their workers), benefits derived from bilateral trading arrangements between Australia and Fiji cannot be expected to offset the advantages offered to manufacturers by the Chinese-based clothing, textile and footwear sector.

The South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA), in tandem with a number of other arrangements including those bearing the titles Import Credit Scheme (ICS), Tax-Free Factory Scheme (TFF) and SPARTECA–Textile, Clothing and Footwear scheme (S–TCF), has allowed Fiji’s exports to enter Australia (and to a lesser extent New Zealand) duty-free. The finished garments exported under these arrangements have had to meet 50 per cent rules-of-origin requirements (later, in 2001, reduced to a minimum of 35 per cent). These arrangements allowed Fiji’s garment industry to boom during the 1990s. ^[21] However, faced with the coup of May 2000, coupled with the end of the ICS in June the same year (a scheme that had ‘given incentives for Australian companies to source raw materials from Asia, add value in Australia and then export to Fiji for offshore processing where the finished product could re-enter Australia under SPARTECA’ ^[22]), and now battling the consequences of the end of the MFA, Fiji-based manufacturers are finding that their industry has been dealt first one blow and then another. Moreover, rules of origin advantages — even if now reconstructed in a streamlined, clear and well-organised fashion into a program that successfully succeeded the ICS — could obviously do nothing to reinstate the loss of Fiji’s MFA-protected quota for garments to be sold into the US market. It is now too late for specially constructed Australian preferences to produce the outcome needed to ensure the continued health of Fiji’s cut, make and trim garment industry. Nevertheless, Fiji’s Foreign Minister found himself again pleading for a better export deal for his country. In spite of the already agreed extension of S–TCF advantages for a further seven years (until 2011), in September 2005 he requested that Australia further ‘relax its current rules relating to market access to Australia for garments manufactured in Fiji’. This reduction in origin requirements would be from 35 per cent to 25 per cent. ^[23]

It is also worth noting that there is now concern among Fiji’s garment manufacturers that if Australia signs a bilateral free trade agreement with China, they would be further disadvantaged. Fiji-based manufacturers are stating that if this happens the jobs of their remaining garment workers ‘are likely to disappear overnight’. It is clear that their fear over this issue is doing its part in further eroding their confidence in their increasingly fluid and already fragile industry. ^[24]

The obvious and widely agreed view that Fiji’s garment industry has made a significant contribution to the nation’s economy must now be tempered by the observation that, in the protected form that it took, the industry was likely to fail to increase its productivity levels to a point where it would justify its relatively high wages and on-costs. It is now clear that the industry will no longer play its previous role in absorbing low-skilled workers and providing foreign exchange earnings. The best-case scenario is that, with government support and clear goals, the industry will be in a position to nurture a smaller, but internationally competitive garment industry that will survive without the benefit of preferences or subsidies. ^[25]

In a manner that mirrors criticism of the sugar industry’s failure to restructure while protected by EU price and quota preferences, it has been pointed out that the Fiji-based garment industry ‘illustrates the problems preferences can cause developing economies’. The industry and its workers became trapped in labour-intensive, ‘low-skill and low-technology’ cut, make and trim manufacture. Nevertheless, it will be sorely missed. The consequences of its demise will be ‘immeasurable’ and will have a particularly sad and serious impact ‘on the tens of thousands of urban poor … who are inextricably linked to its continued existence’. Most estimates are that the industry continues to employ some 12,000 to 15,000 workers, mostly women and often Indo-Fijian women, whose incomes are estimated to affect as many as 80,000 people. ^[26]

When considering the low-wage, low-technology state of Fiji-based garment manufacture (a situation nurtured by MFA access to garment markets in the USA, and both nurtured and exacerbated by ‘tied trade’ arrangements with Australia), most commentators would agree with the observation that preferences ‘represent bad trade and bad development policy approaches’. ^[27]