Sunday, March 18, 2012

Tonga , globalisation , WTO and discontent


Tonga is one of the world's smallest economies with a population of approximately 116,000 and an area of 748 sq km. Trade accounts for 54% of GDP. Its annual growth reached 1.9% in 2006 and its major Industries are agriculture (41% of GDP) and fisheries (20% of exports). Tonga's main trading partners are Japan, the United States, New Zealand and Australia. It became the 151st member of the WTO in 2007.

recent piece in the Epoch Times titled "Tonga questions WTO membership amid global recession" caught my attention.It said:
"Less than five years after joining the World Trade Organization, the once promising South Pacific Island nation of Tonga, is floundering under the weight of the global recession.
Tonga, which consists of 169 islands, joined the WTO in June 2007 despite a local survey showing that 89 percent of Tongans expressed qualms over the terms.
“A requirement for Tonga to join the WTO was a reduction in their import tariffs to a top tariff of 20 percent—far below the top tariffs charged by most of the countries that formed the working party for Tonga’s accession,” says Barry Coates, executive director of Oxfam New Zealand.
“This requirement represented a sharp reduction not only in the bound tariff [the agreed tariff ceiling], but in the actual tariffs. So the impact on government revenue of this tariff cut was significant,” says Coates."

While Tonga's accession to the WTO was seen as an opportunity to integrate into the world economy, the above report indicates the possible effects of globalisation on a small country. While the accession protocol of Tonga would not be as detailed and "onerous" as that of China, it would be interesting to study the impact of joining the WTO on trade, economic growth and development of the small island nation. A trade policy review, which would give a reasonable idea of the status of the country's trade policy and economy,  of Tonga has not yet been undertaken by the WTO. The piece highlights the vulnerability of small developing countries to face the interconnected, globalised world. While joining the WTO is with an objective of gaining from a more integrated world, the impact of lowering of tariffs and reduced spending on basic infrastructure is a recipe for disaster. How a country should tread in these circumstances by taking advantage of the world economy as well as "legitimately" protecting one's domestic interests, industry and workers is a huge challenge.

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