Aid $20 million
Imports $486 million
Remittances $300 million
Speaking last month to the Pacific Islands Forum (the annual assembly of 18 countries and territories around the South Pacific*), Vice President Harris regretfully observes that “in recent years the Pacific Islands may not have received the diplomatic attention and support that you deserve.” To make up for lost time, she announces an array of new political and economic supports, to be finalized this September at the first U.S.-Pacific Islands summit ever held:
All this will be amplified, presumably with more ideas, by a “U.S. National Strategy on the Pacific Islands” to be published sometime after the summit. Some explanation below, plus a couple of suggestions:
Background: The South Pacific expanse spans 3,000 islands, spread out over an expanse of sunlit water as large as Asia, Europe, and North America combined. These islands combine to form 14 independent countries, two French departments, one U.S. state plus three insular territories. They are home to 50 million people, of whom 35 million live in Australia and New Zealand, 9 million in Papua New Guinea, 1.5 million in Hawaii, and 2.5 million in the other 15 countries and territories combined.
This region suddenly seems like an arena for big-power diplomatic competition. Some of its rapidly proliferating Chinese aid programs are civilian and visually striking: a ring road around Papua New Guinea’s capital Port Moresby, a large hospital on the coastal road east of Suva in Fiji, a “royal military band” facility in Tonga. Others carry murkier overtones of intelligence and high naval strategy: leaked mutual defense and telecommunications arrangements between China and the Solomon Islands, the sudden withdrawal of coral atoll-state Kiribati from the Forum after a visit by the Chinese Foreign Minister, etc. With this subtext, the VP’s concern and interest presumably goes beyond abstract hope to raise the American diplomatic profile.
The policy outlined in her speech focuses, along with climate and fisheries policy, on aid and infrastructure development. These are useful and needed no doubt; on the other hand, the impact of aid likely has some limits. On one hand, the Pacific Islands are already the world’s most aid-saturated region. By the Sydney-based Lowy Institute’s calculations, they receive $2.4 billion in aid annually. This amounts to 10 percent of the region’s economy, a figure sixteen times higher than the 0.6% average for all low- and middle-income countries. Adding more may encourage the governments of very small countries – setting aside Papua New Guinea, the populations range from 11,000 in Nauru to 900,000 in Fiji – to take on more aid than they can manage.
More conceptually, a strategy focused particularly on aid may miss an area of American “comparative advantage”, which Harris’ speech notes in observing that 1.4 million Americans trace family to the Pacific islands. A useful insight here comes from the influential 1993 essay Our Sea of Islands, in which the late Tongan intellectual Epeli Hau’ofa argued that the people of Pacific island nations should see themselves as citizens of a large ocean continent extending to expatriate communities in the United States, Australia, and New Zealand, rather than as comparatively helpless residents of small and isolated islands. He notes in particular the large role these communities play in island economies through remittances and exchanges of goods (clothes, TVs, refrigerators etc. going to the islands; crafts, agricultural goods, information coming in turn), and concludes with a caution against very heavy reliance on aid: “Ordinary Pacific people depend for their daily existence much more on themselves and their kin, wherever they may be, than on anyone’s largesse.”
With this in mind, two policy options for the VP and her administration associates as they think about next steps:
1. Trade preferences: Americans bought $0.5 billion worth of goods from Pacific islands last year. This is a tiny sum in the $2.8 trillion world of U.S. goods imports, but a large part of the islands’ export portfolio. A simple way to bolster it would be renewal of the Generalized System of Preferences, the main U.S. trade program for developing countries, which lapsed in 2020. Before the lapse, it provided substantial support for growth and employment through candied and sushi-grade ginger and taro from Fiji, canned tuna from the Solomon Islands, taro and cassava from Tonga. A more ambitious option would be creation of a special trade program analogous to the Caribbean Basin Initiative’s permanent duty-free access to the U.S., which could offer additional support for processed fish exports.
2. Reducing remittance costs: The 1.4 million Americans from Pacific Island and Native Hawaiian families noted in Harris’ speech are a source of income almost equal to trade. Remittances — wires of money from workers abroad to families — account for 7%-10% of Pacific island GDP, and peak at levels of 43% of GDP for Tonga and 21% for Samoa. Assuming a roughly equal division between the islands’ three main remittance sources (the U.S., Australia, and New Zealand), this would probably mean about $300 million per country. The challenge is that, by World Bank tallies, Pacific islanders abroad pay a lot more than other remittance senders for their generosity: bank and wire fees eat up 11% of remittance value for Vanuatu, 9.8% for Tonga, and 8.4% for Samoa. Reducing these costs to 2.9% of remittance — the figure for equally remittance-reliant El Salvador — this would free up as much as 2% of national income for some countries, all of which would go directly to families.
Summary: Harris’ remarks are a thought-provoking read and a good beginning for policy; but one has room for more.
* Australia, Cook Islands, Marshall Islands, Federated States of Micronesia, Fiji, French Polynesia, Marshall Islands, Nauru, New Caledonia, New Zealand, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, Vanuatu, and associate member Tokelau. Outlier Kiribati withdrew on July 14.
Some quick geography/economy background: Geographers traditionally divide the South Pacific into three areas with Fiji more or less in the middle. Melanesia, just north and east of Australia, includes Papua New Guinea, the Solomon Islands, New Caledonia, and Vanuatu, which have large extractive-industry economies driven by timber and mining exports to China. Polynesia, the largest expanse of ocean, goes east from Fiji through Tonga and Samoa to Tahiti, Hawaii and Easter Island (and also includes New Zealand’s Maori community), with fisheries along with taro, vanilla, ginger, and other specialty agriculture. Most Polynesian trade is with the U.S., Australia, and New Zealand. Micronesia, in the north heading toward Guam, has six countries mostly made up of small coral atolls with especially high climate change risk; three of these (Palau, the Marshall Islands, and the Federated States of Micronesia) have special trade access to the U.S. dating to their independence. Fiji, in the center, is a middle-income state with a diversified economy with the region’s main air and maritime logistics centers and the University of the South Pacific, along with a large tourism sector, agriculture, and light manufacturing.
U.S. policy:
Remarks by Vice President Kamala Harris to the Pacific Islands Forum.
The White House promises more in the run-up to next month’s Summit.
Capitol Hill views from the Congressional Pacific Islands Caucus.
Policy spectrum:
A regional overview from the Forum Secretariat looks at climate change response, COVID, nuclear weapons tests legacies, and big-country diplomacy.
Epeli Hau’ofa’s Our Sea of Islands essay and other writings on Pacific islands culture and government in We Are the Ocean.
The Diplomat on Kiribati’s withdrawal from the Forum.
Brookings Institution China scholar Patricia Kim on the possible implications of the China-Solomon Islands security document.
Trade:
Trade Fact series editor/PPI Vice President Gresser, then in government, visits a Fijian ginger factory and GSP exporter in 2018. They were buying sushi-quality vinegar from Oregon and Florida-made machinery, and selling candied ginger and sushi ginger back.
And a look at the GSP program, with a friendly critique of Congressional reauthorization bills and suggestions for next steps.
Remittances:
The World Bank on remittance flows to Pacific Island nations during and after COVID.
Sydney-based Lowy Institute on remittance policy.
Aid programs from the U.S./Australia/New Zealand:
The Lowy Institute’s Pacific Aid Map, with aid figures by country and donor.
USAID’s Pacific Islands programs.
MCC’s Solomon Islands Threshold Program.
AUSAID’s Pacific programs.
And New Zealand’s Pacific Islands aid and diplomacy.
And from China:
MoFA on China’s Pacific aid programs.
… and the Chinese Embassy in Tongan capital Nuku’alofa reviews deliveries of water tanks, computers, and tractors along with building a “royal military band” facility.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
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