This regional economic report, evaluatesthe strategy that the Pacific Island Countries (PICs) havechosen towards liberalizing their economies, and, analyzesas well the interaction of trade liberalization withcomplementary reforms in taxation, and the public sector. Asa consequence of multilateral and unilateral efforts towardsfreer trade worldwide, preferential access granted to PICsin developed country markets, is being eroded. Inparticular, the report looks at the Pacific Island CountriesTrade Agreement (PICTA), viewed as a "steppingstone" to become more competitive in global markets. Itis important to note that the formation of a preferentialtrade area, as opposed to multilateral or unilateralliberalization, is perceived as trade liberalization, but ina gradual process, to limit disruptions, and adjustments totheir economies. However, in order for this "steppingstone" not to become a "stumbling block," theliberalization strategy needs to be actively pursued,through sound policy framework, and trade facilitation.Furthermore, the small un-diversified economies of, and verylittle trade among PICs suggests very small benefits fromPICTA; yet, trade diversion which favors the moreindustrially advanced members is likely to develop.Nonetheless, the formulation of a free trade agreementbetween the PICs, and Australia and New Zealand,negotiations over reciprocal free trade agreements with theEuropean Union in 2002 as envisaged, and provision of a freetrade association by some PICs with the United States,inevitably will require the widening of preferential tradingarrangements beyond PICTA, though the timing is uncertain.It is suggested that the pace and composition of reforms -in particular, more complete trade liberalization, andpublic sector reform - will need to be calibrated to theprogress on efforts to enhance the business environment, andincrease labor, and capital mobility.
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