Assess the Economic Implications of Free Trade in the South Pacific for Small Islands Nations. Is Regional Economic Integration Desirable?

Questions: Assess the Economic Implications of Free Trade in the South Pacific for small Islands Nations. Is regional Economic Integration desirable?

The assignment will consist of

1. Analysis of Result (which is Assesses the Economic Implications of Free Trade in the South Pacific)
2. Limitations (limitations of Free Trade)
3. Recommendations (some of the recommendations:  (I believe this will be based on the limitations))
4. Conclusion

Introduction

"Globalization" refers to the growing interdependence of countries resulting from the increasing integration of trade, finance, people, and ideas in one global marketplace. International trade and cross-border investment flows are the main elements of this integration. One of the driving factors of Globalization has to do with the increasing liberalization of trade and capital markets: more and more governments are refusing to protect their economies from foreign competition or influence through import tariffs and nontariff barriers such as import quotas, export restraints, and legal prohibitions. What it means here is "free trade”.  

The theory of free trade has been around for approximately two centuries, and one which has lived up to various challenges throughout its existence. The fundamental nature through which trade may benefit a nation was impressively stated by Adam Smith. David Ricardo strengthened our belief on the advantages of trade through the principle of comparative advantage. The benefits of free trade have been adequately demonstrated overtime through theoretical and empirical research. Free trade is a system in which goods, capital, and labor flow freely between nations, without barriers which could hinder the trade process. Many nations have free trade agreements, and several international organizations promote free trade between their members. Thus in simple, it means a country can import or export from other one without any barrier.

Trade liberalization brings real economic challenges for small Pacific Island countries (PICs). Small developing South Pacific Island Economies (SPIEs) are aware that globalization, projected largely as trade liberalization, is inevitable. They are gearing themselves to capitalize on the opportunities trade liberalization offer rather than become victims of the same. This includes an overall strategy shift in the 1990’s from import substitution to that of export promotion and institutional restructuring. Whilst barriers to imports still exist, South Pacific Island countries are taking major steps towards liberalizing their trade by gradually dismantling tariff and other non-tariff barriers to trade. Three of the PICs: Solomon Islands, Fiji and Papua New Guinea (PNG) have become signatories to World Trade Organization, while few others are currently on the list of observers. Two interregional trading agreements: Pacific Island Countries Trade Agreement (PICTA) and Pacific Agreement on Closer Economic Relations (PACER) have also been formulated and ratified by the Forum member countries.4 PICTA has a wide mandate which includes the phasing out of tariffs over ten years whilst PACER provides the provision for facilitation of interregional trade and financial and technical assistance.