the impact of regional trade - usp...
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THE IMPACT OF REGIONAL TRADE
AGREEMENTS ON THE BUSINESS COMMUNITY
IN FIJI
by
MOUREEN RONIKA CHAND
A thesis submitted in fulfilment of the requirements for the Degree
of Master of Commerce
Copyright © 2014 Moureen Ronika Chand
School of Management and Public Administration
Faculty of Business and Economic
University of the South Pacific
March 2014
iii
ACKNOWLEDGEMENT
Though only my name appears on the cover of this dissertation, many people have
contributed, supported and inspired me to be able to successfully complete this write-
up. I owe my gratitude to all those people who have made this work possible and
because of whom my graduate experience has been a great learning acquaintance.
My deepest and foremost gratitude is to my supervisor, Dr. Gurmeet Singh. I have
been amazingly fortunate to have an advisor who gave me the freedom to explore on
my own and at the same time the guidance to recover and remain on track. Dr. Singh
taught me how to question thoughts and express ideas. His patience and support
helped me overcome many difficult situations and finish this dissertation. I am also
thankful to him for encouraging the use of correct grammar and consistent notation in
my writings and for carefully reading and commenting on revisions of this
manuscript.
I express my sincere appreciation to Mr Parmod Achary who has been always there to
listen and give advice. I am deeply grateful to him for the long discussions that helped
me sort out the technical details and the logistics of my work. Special thanks to Dr
Rafia Naz for sharing her views and assisting in data analysis.
My husband Nitesh Naicker’s insightful comments and constructive criticisms at
different stages of my research were thought-provoking and they helped me remain
focused. I am grateful to him for holding me to a high research standard and enforcing
strict validations for each research result. I am extremely grateful to the almighty God
for guiding me throughout my thesis.
Lastly, I am indebted to all my family and friends, especially my parents, Mr and Mrs
Deo Chand and my sisters, Irene and Rozleen for their continuous encouragement and
prayers which provided me with the strength to make this work possible.
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ABSTRACT
The recent proliferation of Regional Trade Agreements (RTAs) has attracted much
research interest from various stakeholders including the policy makers, academics
and the business community. Continuous efforts are being made by countries across
the globe to expand and strengthen trade relations with partner countries as such trade
liberalization polices are implemented with the adoption of RTAs. With Regionalism
in fashion and becoming an inherent, recurring and irreversible feature for the world
trade system, a careful analysis on costs and benefits of RTAs need to be carried out
to determine its contributions to the development of the economy.
Although much research has been carried out to examine RTAs and its impact on
industries and the economies of PICs, little has been done to provide micro firm level
information and views on RTAs that PICs are signatory to. This study is an attempt to
provide this information. The thesis explores the various implications that RTAs have
had on the business community in Fiji, with a special focus on exporters in the
country. It synthesises the empirical literature on this topic, scrutinizes the issues
related to trade, examines the awareness and utilization of RTAs, presents the
impediments to RTA use, access the institutional support and highlights the general
business view on RTAs in the Pacific.
This study encompasses the use of both qualitative and quantitative data. Descriptive
statistics has been used to analyse and present the background information on the
respondents while establishing the relationship between variables has been
quantitative. Structured questionnaires were the key survey instrument for this study
and these were distributed to 100 exporters across Fiji. Interviews were also
conducted on a smaller scale to further strengthen the findings of this research.
The findings of the research highlights that the business community in Fiji is
generally supportive of the initiatives taken by the Government to promote RTAs,
however, very few see the relevance of these RTAs on their businesses.
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Due to the lack of awareness and knowledge on existing RTAs and on the availability
of support services, the utilization of RTAs by exporters in Fiji is minimal and despite
the existence of RTAs for a number of years now, exporters continue to face barriers
related to trade. This has been attributed to the lack of commitment on the part of
partner market Governments to fully in force free trade in the region. This study also
highlights that though users of RTAs have experienced positive implications on their
businesses, the margin of contribution has again been minimal.
With the many shortcomings of the existing RTAs in the Pacific, the full benefits of
trade liberalization through RTAs are yet to be realized by exporters in Fiji. However,
the recent initiatives by the Government and the other stakeholders along with policy
changes and implementation, the effectiveness of RTAs can be further enhanced. The
findings of the study will assist in policy formulation at various levels in terms of
providing exporters with the necessary support as well as ensuring the effectiveness of
RTAs in Fiji.
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ABBREVIATIONS
ADB- Asian Development Bank
AFTA- ASEAN Free Trade Agreement
ANZERTA- Australia New Zealand Closer Economic Relations Trade Agreement
APEC- Asia Pacific Economic Cooperation
ASEAN- Association of South East Asian Nations
BENELUX- Belgium, Netherlands, and Luxembourg
CARICOM- Caribbean Community and Common Market
CASM- Central American Common Market
CM- Common Market
COMESA- Common Market for Eastern and Southern Africa
CU- Custom Union
CUFTA- Canada United States Free Trade Agreement
ECOWAS- Economic Community of Western African States
EEC- European Economic Community
EFTA- European Free Trade Association
EPA- Economic Partnership Agreements
EU- European Union
FIC- Forum Island Countries
FRCA- Fiji Revenue and Customs Authority
FTA- Free Trade Agreements
FTIB- Fiji Trade and Investment Bureau
GATT- General Agreement on Tariffs and Trade
GDP- Gross Domestic Product
IMF- International Monetary Fund
ISEFF- Import Substitution and Export Finance Facility
MENA- Middle East and North Africa
MERCOSUR- Southern Common Market
MFN- Most Favored Nation
MSG- Melanesian Spearhead Group
MSGTA- Melanesian Spearhead Group Trade Agreement
NAFTA- North American Free Trade Agreement
OXFAM- Oxford Committee for Famine Relief
PACER- Pacific Agreement on Closer Economic Relations
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PIC- Pacific Island Countries
PICTA- Pacific Island Countries Trade Agreement
PIFS- Pacific Islands Forum Secretariat
PIPSO- Pacific Islands Private Sector Organization
PTA- Preferential Trade Area/ Agreements
RBF- Reserve Bank of Fiji
ROO- Rules of Origin
RTAs- Regional Trade Agreements
SME- Small and Medium Size Enterprises
SPARTECA- South Pacific Regional Trade and Economic Cooperation
TCF- Textile Clothing and Footwear
VAT- Value Added Tax
WTO- World Trade Organization
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TABLE OF CONTENT Title Page........................................................................................................................i
Declaration of Originality..............................................................................................ii
Acknowledgement........................................................................................................iii
Abstract.........................................................................................................................iv
Abbreviations................................................................................................................vi
Table of Content.........................................................................................................viii
List of Tables...............................................................................................................xii
List of Figures.............................................................................................................xiii
CHAPTER ONE: INTRODUCTION
1.1 Background of the Research...................................................................................1
1.2 Research Problem and Objectives..........................................................................4
1.2.1 Aims and Objectives..............................................................................4
1.2.2 Hypotheses.............................................................................................5
1.3 Significance of the Research...................................................................................5
1.4 Outline of the Thesis...............................................................................................6
1.5 Limitations and Scope of the Study........................................................................8
Conclusion......................................................................................................................9
CHAPTER TWO: BACKGROUND: FIJI AND REGIONAL TRADE
AGREEMENTS
2.1 Introduction............................................................................................................10
2.2 Overview of the Fiji Economy...............................................................................10
2.3 Macroeconomic Performance.................................................................................12
2.3.1 Developments in the 1970s and 1980s...................................................13
2.3.2 Developments in the 1990s....................................................................14
2.3.3 Developments since 2000.......................................................................15
2.4 Recent Performance of Key Industries...................................................................16
2.5 Fiji’s Regional Trade Cooperation.........................................................................18
2.5.1 SPARTECA............................................................................................19
2.5.2 Melanesian Spearhead Group.................................................................20
2.5.3 Pacific Island Countries Trade Agreement............................................22
2.5.4 Pacific Agreement on Closer Economic Relation..................................25
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2.6 Conclusion..............................................................................................................27
CHAPTER THREE: LITERATURE REVIEW
3.1 Introduction............................................................................................................28
3.2 Overview................................................................................................................28
3.2.1 International Trade.................................................................................29
3.2.2 Trade Barriers.........................................................................................30
3.3 Background on Regional Trade Agreements.........................................................32
3.3.1 Forms of Regional Trade Agreements....................................................33
3.3.2 Regional Trade Agreements: Trends and Characteristics.......................35
3.3.2.1 Increasing Number of RTAs....................................................36
3.3.2.2 Growth in South-South and North-South RTAs......................37
3.3.2.3 Increasing Number of Cross Regional Agreements.................38
3.3.3 Historical Perspective on Regional Trade Agreements...........................38
3.3.3.1 The 1st Wave of RTAs- EU......................................................39
3.3.3.2 The 2nd Wave of RTAs- NAFTA.............................................40
3.3.3.3 Other RTAs..............................................................................41
3.4 Impact of RTAs on Businesses..............................................................................42
3.4.1 Trade Creation and Trade Diversion.......................................................42
3.4.2 Export Growth.........................................................................................45
3.4.3 Economies of Scales through extended Customer Base.........................46
3.4.4 Competition.............................................................................................47
3.4.5 Internationalization and Relocation of Production..................................48
3.4.6 Employment............................................................................................50
3.4.7 Reduced Supply Chain Costs..................................................................51
3.4.8 Easier Market Access..............................................................................51
3.4.9 Increased Investment...............................................................................52
3.4.10 Rules of Origin: Burden for Businesses................................................52
3.5 Arguments and Motivations for RTAs...................................................................55
3.6 Arguments against RTAs.......................................................................................56
3.7 Some Research Questions......................................................................................57
3.8 Developing a Conceptual Model............................................................................58
3.9 Conclusion..............................................................................................................61
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CHAPTER FOUR: METHODOLOGY
4.1 Introduction............................................................................................................63
4.2 Methodology..........................................................................................................63
4.3 Previous Research Methodologies.........................................................................65
4.4 Research Design.....................................................................................................66
4.4.1 The Population and the Sample...............................................................68
4.4.2 Research Tools........................................................................................69
4.4.2.1 Quantitative Research: Using Structured Questionnaires........70
4.4.2.1.1 Questionnaire Design................................................72
4.4.2.2 Qualitative Research.................................................................78
4.4.2.2.1 Primary Sources........................................................79
4.4.2.2.2 Secondary Sources....................................................79
4.4.3 Recording, Verification and Analysis of Data........................................79
4.4 Research Limitations..............................................................................................80
4.5 Conclusion..............................................................................................................81
CHAPTER FIVE: DATA ANALYSIS
5.1 Introduction............................................................................................................82
5.2 Demographic Profile of the Sample.......................................................................82
5.2.1 Respondent Profile..................................................................................82
5.2.2 Organizational Profile.............................................................................83
5.3 Important Issues.....................................................................................................87
5.3.1 Barriers to Trade......................................................................................88
5.3.2 Awareness and Utilization of RTAs........................................................92
5.3.2.1 Testing of Hypothesis 1............................................................96
5.3.3 Institutional Support for Exporting Firms...............................................98
5.3.3.1 Source of Institutional Support................................................98
5.3.3.2 Ease of Support from Institutions............................................99
5.3.3.3 Demand for Support Services................................................100
5.3.3.4 Testing of Hypothesis 2..........................................................102
5.3.4 Removal of Trade Barriers by RTAs....................................................103
5.3.5 Impact of RTAs on Businesses..........................................................106
5.3.5.1 Positive Impacts of RTAs......................................................106
5.3.5.1.1 Impact of RTAs on Business Growth.....................109
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5.3.5.1.2 Testing of Hypothesis 3...........................................112
5.3.5.2 Negative Implications of RTAs on businesses.......................113
5.3.5.2.1 Competition.............................................................114
5.3.5.2.2 ROO: Burden for Businesses..................................116
5.3.5.3 Testing of Hypothesis 4..........................................................118
5.3.6 General Business Views on RTAs........................................................119
5.4 Hypotheses Outcome............................................................................................123
5.5 Discussions on Research Questions and Hypotheses...........................................123
5.5.1 Discussion on Research Questions........................................................123
5.5.2 Discussion on Hypotheses.....................................................................126
5.6 Conclusion............................................................................................................127
CHAPTER SIX: CONCLUSION
6.1 Introduction..........................................................................................................129
6.2 Major Findings of the Study.................................................................................131
6.3 Implications of the Study.....................................................................................133
6.4 Recommendations................................................................................................134
6.5 Limitations...........................................................................................................136
6.6 Future Research Directions..................................................................................137
6.7 Conclusion............................................................................................................137
References..................................................................................................................139
APPENDIX
APPENDIX 1- Questionnaire for Main Survey
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LIST OF TABLES
Table 2.1 Exports of Fiji’s Key Industries
Table 2.2 Fiji’s Trade Performance from 2000- 2011
Table 2.3 Ratification dates of RTAs by Fiji
Table 2.4 Timetable for reduction and elimination of tariffs
Table 3.1 Summary Features of Regional Trade Agreements
Table 4.1 Study Sites and Firm Response Rate
Table 5.1 Respondent Profile
Table 5.2 Organizational Profile
Table 5.3 Reliability Test Scores
Table 5.4 Trade Barriers faced by Exporting Firms in Fiji
Table 5.5 Trade Barriers faced by Industry Type
Table 5.6 Awareness and Utilization of RTAs
Table 5.7 Firm Characteristics: Users and Non Users
Table 5.8 RTAs Utilization by Industry
Table 5.9 Correlation between Awareness and Utilization of RTAs
Table 5.10 Awareness and Utilization of RTAs Cross tabulation
Table 5.11 Sources of Institutional Support for Export firms
Table 5.12 Demand for Support Services by Respondents
Table 5.13 Chi- Square through Cross Tab
Table 5.14 Removal of Barriers by RTAs
Table 5.15 RTA Impact of Growth
Table 5.16 Rating for RTA contribution towards Firm’s performance
Table 5.17 Chi Square through Cross Tabs of Utilization and Growth
Table 5.18 Mean Comparison
Table 5.19 Respondent Views on ROOs
Table 5.20 ROO cost to Business and Firm Size
Table 5.21 Regression Test: Hypothesis 4
Table 5.22 Business View on Regional Cooperation
Table 5.23 Hypotheses Outcome
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LIST OF FIGURES
Figure 2.1 Fiji’s GDP Growth Rates: 2003-2015
Figure 3.1 RTAs Notification to WTO
Figure 3.2 RTAs signed and under negotiation by type of partner
Figure 3.3 Simplified Illustrations on the Impact of RTAs on Business
Figure 3.4 Research Conceptualization
Figure 4.1 Research Process of the Study
Figure 5.1 Utilization of Regional Trade Agreements
Figure 5.2 Impediments to RTA preference Use
Figure 5.3 Ease of Obtaining Support from key Institutions
Figure 5.4 Positive Impact of RTA Use
Figure 5.5 Costs of RTA Use
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CHAPTER ONE
INTRODUCTION
The growing economies, the demanding needs of trade and the ever changing
landscape of mass commercial trade has forced countless countries across the globe to
pursue regional trading arrangements to accelerate their economic development. This
not only provides a flexible trading platform but also a development framework for
the country’s economy. Nearly every country in the world is either a member of or is
negotiating on being part of one or more regional trade agreements. Regional trade
Agreements (RTAs) have various implications for businesses and although such
agreements become a promising tool for businesses, individual countries and for the
region as a whole, they require a comprehensive cost benefit analysis so that the
expectations and outcomes of such agreements become a win-win situation for the
businesses as well as the country’s trading protocols. Furthermore, the true potential
and capabilities of such agreements also portray a planned approach towards a
futuristic economic development.
In this introductory chapter, we provide an overview of the research, its aims and
objectives followed by scope and the justification of the study. The chapter also
highlights the limitations of the study, and presents the organisation of the thesis.
1.1 Background of the Research Regional Economic Integration has gained a global perspective over the past decades
and has attracted much research interest from various interest groups including the
policy makers, academics and the business community. Throughout the globe, there
has been an accelerated movement towards regional economic integration and the
establishment of RTAs to enhance and foster economic growth and cooperation.
Following the success of the European Community (now known as the European
Union), the phenomenon of a country “without frontiers” has been embraced by many
countries. The EU over the years has become the most successful governing economic
body in Europe.
2
It has attempted to liberalize trade by removing trade barriers and adopting common
policies in numerous fields such as agriculture, energy, food purity, trade, culture,
transportation and many others. Member countries of the EU have consensus for
negotiating trade and aid agreements and with the establishment of a monetary union,
the EU has further strengthened its economic and political power in the global
economy. The EU now affects every aspect of business in its member states1. Major
players in the global economy have also joined hands with the aim of achieving
similar benefits as the EU and the PICs is no exception as these countries have also
taken the initiative to liberalize trade through the establishments of RTAs. Many
countries regard this form of regional integration as the stepping stone towards fuller
participation in the increasingly liberalized global economy.
Almost all experimental growth studies have shown that outward oriented economies
that promote trade liberalization have consistently higher growth rates than inward
oriented countries (Kaur and Sidhu, (2012), Andersen and Babula (2008); Yanikkaya
(2002); Edwards (1998); Clark, (1997); Sachs et al, (1995); Dollar, (1992)).
According to Baldwin and Low (2009), there has been an explosion of RTAs over the
last two decades of which some had been within several countries whilst others
bilateral. However, it is important to note that only a few of these agreements have
gone for deeper integration while others have been quite superficial and light. As the
number of RTAs has been proliferating, Baldwin and Low (2009) argue that little
attention has been given to consistency amongst these agreements or to the
implications that such increased number of RTAs has on efficiency, trade costs and
competition in the global market place. All of these RTAs have had an impact on
businesses in respective countries. Whether these impacts have been minimal or
extreme and whether it has been positive or negative is an area that calls for further
research.
According to Jayaraman (2005) European regionalism has blossomed into the
realisation of the “concept of an area without frontiers”. However, other countries in
1European Union- Benefits, History and Structure. Retrieved on 29TH March, 2010 from http://www.referenceforbusiness.com/small/Eq-Inc/European-Union-EU.html
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other parts of the world which set regionalism as their goal have not progressed
beyond the initial steps.
The North American Free Trade Agreement (NAFTA) between the United States of
America, Canada and Mexico marks the second wave of this regionalism. Similarly,
the establishment of multilateral platforms such as Association of South East Asian
Nations (ASEAN), Asia Pacific Economic Cooperation (APEC) and the World Trade
Organization (WTO) as well as free trade agreements (FTAs) between individual
countries, has helped eliminate many of the trade barriers within East Asia (Barrell
and Choy, 2003).
Prasad (2002) highlights that trade liberalization policies are the driving forces in
many developing countries to achieve acceptable levels of economic growth. The
year 1947 marks the first step towards regional economic integration in the Pacific,
which led to the establishment of the South Pacific Commission (later named the
Pacific Commission). Over the decades, the Pacific Islands Forum Secretariat (PIFS)
is one of the regional organizations that has been playing an important role in
promoting regional integration amongst the Pacific Island Countries. Economic
integration has being on the agenda for years but did not attract much strong drive and
determination from the member countries. It was not until the 1990s that increasing
globalization forced the PIC’s leaders to consider economic integration as a means of
achieving prosperity and growth. Since then, the Forum Island Countries (FIC) 2has
taken a number of initiatives to opening up trade and cooperation in the region.
As a means of liberalizing trade, the FICs have pursed regional trade agreements as an
appropriate strategy for economic growth and prosperity. The 1981 South Pacific
Regional Trade and Economic Cooperation Agreement (SPARTECA) has been the first
truly regional treaty for the PICs; followed by the Melanesian Spearhead Group (MSG)
Trade Agreement and more recently the Pacific Island Countries Trade Agreement
(PICTA) and the Pacific Agreement on Closer Economic Relations (PACER). These
RTAs have been aimed at eliminating trade barriers and fostering free trade in the
region. 2 The 16 Forum Island Country Members are Australia, New Zealand, Fiji, Papua New Guinea, Solomon Islands, Cook Islands, Kiribati, Federated States of Micronesia, Niue, Nauru, Samoa, Republic of the Marshall Islands, Tuvalu, Tonga, Palau and Vanuatu.
4
In 1996, Fiji joined the World Trade Organization (WTO) and since then it has
embraced an outward looking and export oriented trade policy. The country has entered
into a number of RTAs and views this engagement as a stepping stone towards fuller
participation in the increasingly liberalized global economy. As an island country with
a small market, regional integration plays a vital role in creating a larger trade and
investment market for Fiji. Therefore, it is in this light, this thesis will investigate the
impact that these RTAs have had on the business community in Fiji.
1.2 Research Problem and Objectives Over the past few decades, there has been an explosion of RTAs across the globe.
Regionalism has swept every country, and Fiji is no exception. PICs have had a long
and difficult journey with little progress made towards regional economic integration.
As an initiative towards integrating closely with the highly liberalized global
economy, Fiji has entered into a number of RTAs.
The business environment in Fiji is promising and has a successful history of
attracting investors from various regions. The basic premise of adopting RTAs is to
eliminate trade barriers and to foster economic growth and prosperity. With reference
to other countries across the globe, including developed and developing countries like
Fiji, RTAs have had an impact on the business community whereby numerous
businesses have been boosted and have flourished while some business sectors have
not been able to experience such benefits. Hence, this study aims to investigate the
impact that RTAs have had on the business community in Fiji:
1.2.1 Aims and Objectives
The specific aims and objectives of this research are as follows: 1. Examine the Regional Trade Agreements existing between Forum Island
Countries.
2. Determine the level of awareness and utilization of Regional Trade Agreements
by exporters in Fiji
3. Identify the trade barriers faced by Fiji businesses
5
4. Investigate the positive impacts of the existing Regional Trade Agreements on
the business community in Fiji
5. Investigate the negative impacts of the existing Regional Trade Agreements on
the business community in Fiji
1.2.2 Hypotheses
The review of existing and available literature on RTAs has led to the formation of a
number of hypotheses for this study:
Hypothesis 1 (H1): There exists a correlation between the level of awareness and the
utilization of RTAs.
Hypothesis 2 (H2): Utilization of RTAs depends on the level of support given by
agencies set up to assist businesses in carrying out off shore operations
Hypothesis 3 (H3): The use of RTAs contributes towards the growth of the firm
Hypothesis 4 (H4): Internationalization plans and awareness on the provisions of
RTAs contribute significantly towards the utilization of RTAs
1.3 Significance of this research In recent years, PICs have increasingly focused on trade liberalization as a central
pillar of efforts to promote regional integration and cooperation with the development
of trade policies amongst FICs. Hence the need to examine the impact of these
regional arrangements on the business community in Fiji becomes more vital.
Although many studies have been carried out to analyse the impact of RTAs in
numerous countries across the globe, there is scope of further research in this area and
as regional economic integration is on the agenda of the PICs, this research will be
timely.
RTAs are a fertile area for research as such authors like Kaur and Sidhu (2012),
Mohammad and Yucer (2009), Korinek and Melatos (2009), Keck and Piermartini
(2005), Myles and Cahoon (2004), Josling (1998) etc, have analysed the openness of
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markets, trade and economic impacts of RTAs, EPAs and exports in respective
countries.
Most literature and research on RTAs on PICs have focused on trade impacts of
selected trade agreements (Rao, 2002) and views of various scholars on RTAs
amongst FIC (Narsey, 2004; Jayaraman, 2005, etc). Narsey (2010) has focussed on
the impact of PICTA on specific industries such as the tobacco and alcohol industries
while Mahadevan and Asafu-Adjaye (2008) have highlighted on trade liberalisation
and agricultural development in Fiji. Previous research have either focussed on trade
impacts of RTAs or focussed on certain industries which make it difficult to get a
clear picture on the implications of RTAs on business houses in general. There have
been limited studies carried out on the impact that RTAs on the business community
in developing countries like Fiji. This, therefore, sets the impetus for this research.
The rationale behind the adoption of RTAs is to foster trade liberalization to promote
growth and prosperity in the region. This can be achieved when our business
communities are able to experience the benefits of trade liberalization. This research
is thus justified, as it will enhance the understanding of various interest groups on the
views of the business sector on the existing RTAs. Further, this research is an
initiative towards adding to the developing and existing quantum of knowledge on
Regional Economic Integration in the Pacific. In the academic sense, this study will
make a valuable contribution to the field of Management and Public Administration
with a special focus on International Business.
1.4 Outline of the Thesis
This thesis is divided into six chapters and is described below:
Chapter one is the introductory chapter of the thesis that provides the summary of the
thesis. It highlights the background of the research as to establish a brief
understanding on what the thesis is all about. Together with this, the chapter presents
the aims and objectives of the study, its significance, scope and limitations. The
chapter also provides a brief summary on the remaining chapters of the thesis.
7
Chapter two is devoted to the background of the country under study in this thesis. It
provides some significant stylized facts about the economy of Fiji with the aim of
understanding the business environment in Fiji.
The chapter looks at the macroeconomic performance of Fiji and the developments
that have taken place in its attempt to liberalise its trade. A special focus is placed
into discussing the RTAs that the country is signatory to.
The central focus of chapter three is to outline the literature review. An in depth
analysis of available literature on RTAs and its impact on businesses elsewhere is
carried out through means of evaluation and comparison. The chapter is devoted into
highlighting the background of RTAs, its historical developments and current trends
and characteristics. Also presented in this chapter is the discussion on the possible
implications that RTAs can have on businesses. Some of the impacts highlighted in
this chapter are trade creation and trade diversion, export growth, economies of scale,
internationalisation, competition, investment, etc. The chapter ends with presenting
the motivations for and against the formation of RTAs. The development of the
conceptual model for this study is also highlighted in this chapter.
Chapter four will address the methodological issues and research methods adopted in
this study. The methods used involve a combination of qualitative and quantitative
means of collecting data. It will also stipulate the rationale behind the adoption of
each type of research method. Also highlighted are the data collection and analysis
techniques used in the study together with the problems encountered during the
process.
Chapter five is the most interesting chapter of the thesis whereby the findings of the
study will be presented. The entire chapter is devoted to data analysis and
interpretation of the results of this research.
Chapter six is the finale of the thesis that presents a recap of all the prior chapters of
the thesis together with the recommendations and conclusions of the study. The
chapter will also highlight the possible areas for further research in the field of RTAs
and international business.
8
An illustration on the organization of the thesis is presented in Figure 1.1
Figure 1.1 Organization of the Thesis
1.5 Limitations and Scope of the Study
This research is involved into studying the impact that RTAs have on businesses in
Fiji, however, the business community on its own is fairly large. In order to make this
study manageable, it was imperative to narrow down the research scope to include the
firms involved into export activities out of the large range of industries in the
economy of Fiji. Many businesses in Fiji are now involved into exporting and are
located in different parts of Fiji as such for convenience purposes 5 key locations
namely Suva, Lautoka, Nadi, Ba and Labasa were selected as majority of the
exporters reside in these areas. Convenience sampling technique was used to select
exporters in Fiji to be part of the study. This method was utilized as the full list of
exporters in Fiji was not available. Hence, information on the number had to be
obtained from numerous sources that involved the FRCA, FTIB and the Fiji business
directory. From these, a final list was drawn up and a total of 100 firms took part in
the study.
Limitations are necessary in all research (Ashwini, 2006). In this research, limitations
had to be undertaken due to the limited funds allocated for the research. The scope of
the research is limited only to those exporters in Fiji that took part in this survey and
the findings hence cannot be generalized to the general business community in Fiji.
9
1.6 Conclusion
The purpose of this introductory chapter was to provide an overview of the research,
its aims and objectives, justification, limitations, scope and organisation of the thesis.
This chapter intended to provide a brief understanding on what this study is all about
and what it intends to find out.
The next chapter will present the background of the Fiji economy, its business
environment with the developments that has taken place in recent years. This chapter
will provide an in depth look at the RTAs that Fiji is currently a member of.
10
CHAPTER TWO
BACKGROUND: FIJI AND REGIONAL TRADE AGREEMENTS
2.1 Introduction This chapter will provide an overview of the Fiji economy and discuss some
significant stylized economic facts. The discussions will be centred on the past and
future growth prospects of the country in terms of its trade performance, business
environment and growth potentials of the economy. Also presented in this chapter is
the approach taken by Fiji to promote trade liberalisation in the region. A special
focus has been placed on discussing the RTAs that Fiji is part of.
2.2 Overview of the Fiji Economy
Strategically located in the heart of the South Pacific region, Fiji has embraced a
business friendly environment and is one of the most developed economies in the
Pacific. Fiji offers a cost competitive location to investors who wish to engage in
offshore operations to offer products that are technologically advanced for the
international and regional markets. It has adopted an outward looking trade policy and
is an export-driven economy characterized by knowledge-based, capital-intensive and
high technology industries. The country stands out amongst the Pacific Island
economies in terms of its level of social and economic development, the size of its
natural resource endowment and its population (Fallon and King, 1995). It has been
ranked as a middle income country which according to Prasad and Tisdell (2006) has
the potentials (in a relatively short period of time) to move towards a status of higher
middle income country.
Fiji is a small open economy and is the second largest amongst the PICs. It is
estimated to have a population of 837,2713 that is widely dispersed across the two
main islands- Viti Levu and Vanua Levu. Being the most progressive island nation in
the central south of the Pacific Ocean, Fiji has become the major business hub in the
region.
3 As at September, 2007
11
The business environment is characterised by a number of industries and natural
resources that has contributed to the development of the economy. Fiji, amid the
South Pacific is blessed with abundant natural resources amongst which the major
ones are forestry, minerals, fish, fertile soil and arable land (Verdone and Seidl, 2012;
Singh, 2005; Prasad et al., 2000; Rokotuibau, 1997).The economy is based
exclusively on the exploitation of these natural resources making industries like sugar
still one of the most important industries for the country however, tourism is the most
promising. Other industries include food processing, textile, fisheries, gold mining
amongst others. Sugar, garment, fish, gold, fabrics and made up articles, textile yarns,
molasses and coconut oil make up the major export commodities for Fiji while
manufactured goods, transport equipment machines, mineral fuels and chemicals
account for the countries major imports.
Fiji’s formal economy comprises of three main sectors namely: the primary4,
secondary5 and the service sector6; all of which has been relatively stable over the past
three decades with only a few minor changes. According to the World Bank (2011)
cited in Verdone and Seidl, (2012), the secondary sector over the years has increased
in economic importance whereby manufacturing’s share in the GDP increased to 15%
in the 1990s compared to an average of 12% in the 1980s while the service sector in
recent years has become the most prominent contributor to the economy. The
contributions of the service sector towards the country’s GDP increased from 63% to
67% by 2009. The primary sector continues to play an important role in the Fijian
economy contributing approximately 14.7% towards the GDP in 2009. At the overall
level, the service sector contributes on average 67.1% towards the GDP while the
primary and the secondary sectors contribute 14.7% and 18.2% respectively (World
Bank (2009) cited in Verdone and Seidl, (2012).
As a means of engaging itself fully into the liberalised global economy, the country
has advocated the use of RTAs with the PICs to prepare themselves to enter into
similar trade agreements with the rest of the world.
4 The primary sector consists of industries that use raw materials as primary inputs for instance the logging, mining and fishing industries 5 The secondary sector comprises of those industries that make use of immediate products to produce output such as construction and manufacturing 6 Service sector industries provide value added services amongst which are transportation, hotels, etc
12
In the face of declining per capita incomes in many parts of the region, trade
liberalization is increasingly viewed by the PICs as a strategy to enhance growth
prospects. However, such a strategy needs to be managed carefully so that it becomes
a ‘stepping stone' and not a 'stumbling block' (Tabaiwalu, 2005).
The next section will highlight on the performance of Fiji in recent years.
2.3 Macroeconomic Performance
Like many developing economies, Fiji suffers from numerous economic problems
such as slow growth in real GDP, high levels of unemployment, income inequality
rising poverty and macro economic imbalances in the form of large public sector
debts and trade deficits (Prasad and Tisdell, 2006). The economy of Fiji has followed
a mixed growth pattern (Singh, 2005). Such performance can be described as
sluggish, weak and unstable (Mahadevan and Adjaye, 2008; Prasad and Tisdell, 2006)
that has hampered investment and growth in the country.
The year 2012 ushered in its share of challenges for the whole economy however the
economy despite hardships grew following a meltdown in 2009. According to the
Tabaiwalu (2010), the economic performance of Fiji has remained relatively weak for
the past decade. On average the economy has grown only by 0.9% from 2000 to 2009
but with an improved growth by 2.5% in 2012 followed by a 1.9% growth the year
earlier (RBF Annual Report, 2012). Many authors and researchers such as (Verdone
and Seidl, 2012; Tabaiwalu, 2010; Mahadevan and Adjaye, 2008; Prasad and Tisdell,
2006; Browne, 2006; Fallon and King, 1995) have blamed the political instability in
the country for poor growth performance. The country has experienced a number of
coups that has resulted in reduced growth potentials and loss of investor confidence.
Such political instability as argued by Browne (2006) has also hampered private
sector business activity by creating an insecure and unsafe business environment.
Together with this, the recent global economic crisis adversely affected the economy
of Fiji and that of its trading partners resulting in poor performances of key sectors of
the economy. Other factors contributing to the lethargic growth rates are reduced
investment levels, underperforming exports, increasing imports and lower
remittances.
13
However, as the global economy recovers so will the economy of Fiji. The ADB has
projected a growth of 2% for 2013 and 2.3% for 2014 for the Fijian economy while
RBF is optimistic that the economy will grow by 2.7% and 2.4% in 2013 and 2014
respectively.
The subsequent sections will briefly highlight the developments in the Fiji economy
since independence and these developments are divided into three distinct phases. The
first phase will cover the 1970s and 1980s while 1990s will represent the second
phase followed by developments during 2000 and onwards as the third phase. A look
at these distinct time frames will help identify the many initiatives taken by Fiji to
liberalise trade and promote openness in the economy.
2.3.1 Developments in the 1970s and 1980s
Following its independence in 1970, Fiji like many developing economies adopted an
inward looking import substitution policy. This approach was particularly important
for two reasons: self sufficiency and development of the domestic industrial sector
(Prasad and Tisdell, 2006). This was seen to be an excellent idea and was supported
by local industries and this was due to the fact that Fiji could also produce products
for its own consumption using the available natural resources.
The country during the 1970s placed a high emphasis on the protection of local
industries by imposing high levels of tariff rates, using licenses and quota restrictions,
imposing tight controls on foreign investment and offering no incentives for export
promotion (Chandra, 1989; Chandra, 1996; Prasad et al., 2000). As such real GDP
growth during this period averaged 4%-5 % annually (Browne, 2006: 73). Due to the
widespread failure of this approach to produce sufficient growth, policy makers had to
adopt an open market approach since the mid 1980s (Mahadevan and Adjaye, 2008).
During the 1980s, the country experienced political upheavals that affected the output
of major industries and resulted in a loss of confidence in the Fijian economy.
However, these military coups were marked the watershed in Fiji’s economic
development. The government that took after the coup adopted a new economic
strategy to promote growth of the economy.
14
The main elements of the new strategy were to deregulate the economy as to align its
domestic prices more closely to world market prices (Browne, 2006; Fallon and King,
1995). As a result of this strategy, export performance was uplifted and an outward
oriented policy was adopted by Fiji. This resulted in increased competition for local
producers and a sharp reduction in the level of protection. Following the coups, the
currency was devalued by a total of 35% in 1987 and 1988 to revive the economy,
encourage exports, stop capital fights, dampen import demand and create employment
(Mahadevan and Adjaye, 2008).
Towards the end of 1980s, a tax free system was introduced to further encourage
investment in the economy. Tax free factories received substantial concessions for a
commitment to export 95% of their total output. Amongst these concessions were a 13
year tax holiday, total waiver of licensing for imports of capital goods and other
production materials, duty free import of capital goods and equipment and duty
exemption on importation of raw materials, components, spares and packaging
materials (Prasad and Tisdell, 2006; Fallon and King, 1995; Chandra, 1989). This
provided a major boost to the TCF industry. The SPARTECA also came into effect
during this period. Such measures of devaluation, tax incentives and the inclusion of
manufactured goods under SPARTECA produced a good growth performance during
1988- 1990.
2.3.2 Developments in the 1990s
Prior to 1989, over 50% of the imports into Fiji were subject to licensing
requirements. The national budget of 1989 proposed a program of progressive
liberalisation that replaced licenses on 31 categories of goods with tariffs and by
1995, the number of goods subject to import licenses were reduced to 1. The
subsequent budgets further promoted progressive reduction to the average tariff rates
and also the spread of tariff rates. By 1995, the standard rate of fiscal duty fell to
22.5% (Fallon and King, 1995) and in 1996; the country joined the WTO to enhance
its trade liberalisation policies. Further, the elected government in 1992 continued to
liberalise trade policies reducing quantitative restrictions, tax reforms, tariff replacing
licenses, reduction in some rates on business taxation and the introduction of Value
Added Tax (VAT).
15
This enabled the economy to recover to about 3% annually in the 1990s. The currency
was again devalued in 1998 to offset the real appreciation of nearly 10% during the
previous years (Browne, 2006).
2.3.3 Developments since 2000
Since its cession to WTO, Fiji has embraced an outward looking and export oriented
trade policy. The country has entered into a number of RTAs and views this
engagement as a stepping stone towards fuller participation in the increasingly
liberalized global economy. As an island country with a small market, regional
integration plays a vital role in creating a larger trade and investment market for Fiji.
However, political disturbances still remained as a major threat to the country as the
last decade saw two coups in the country in 2000 and the other in 2006. Despite the
2000 coup, the economy recovered well as real GDP averaged 3% annually between
2001 and 2004. To further facilitate trade, the subsequent governments continued to
upgrade on the areas of customs, quarantine protocols, ports and immigration. Such
facilitation is necessary if the benefits of RTAs are to be realised. The two major
RTAs ratified by Fiji during this period are PACER and PICTA.7 These agreements
were expected to assist in the facilitating trade for the country (Prasad, 2004; Reddy et
al., 2003) and act as a training ground to prepare the country to enter into similar
agreements with the rest of the world. Another measure taken by the government to
boost the export industry of Fiji was the devaluation of the Fiji dollar by 20% in 2009.
With positive outlook on the economy, Tabaiwalu (2010) states that the growth in the
economy in 2009 was supported by the recovery of trading partner economies. Major
boost to the economy activity in 2010 came from key sectors of the economy
including manufacturing, agriculture, forestry, fisheries, hotels and restaurants,
construction, mining and quarrying, real estate and other social and personal services
sectors. Growth in 2011 has been attributed by the activities in the service oriented
and primary industries of Fiji. Further the growth had been underpinned by the
increase in non cane crop production, tourism and transport activities and increased
financial intermediation (RBF Annual Report, 2011).
7 These agreements came into force in 2003. A detailed description of these agreements will be presented in the subsequent sections of this chapter.
16
Over 2012, the strength in the domestic economy came broadly from the industry and
service sectors. The year 2013 according to the RBF looks promising despite mixed
performance across key sectors of the economy based on the review in May 2013.
The economy remains to be on track to achieving the 2.7% growth target for 2013.
Despite its sluggish and unstable growth over the years, Fiji still remains to be an
important business hub in the South Pacific. Similarly, the graph given below presents
a summary on the unstable GDP growth patterns for Fiji since 2003.
Figure 2.1 Fiji’s GDP Growth Rates: 2003-2015
Note: e- estimate; f- forecast Source: RBF (2013)8 2.4 Recent Performance of Key Industries
Fiji, being a small open economy relies heavily on few export commodities such as
tourism, sugar, fish and garment. Tourism is the leading industry for the country that
contributes to 20% of the GDP (Mahadevan and Adjaye, 2008) and its recent
contribution towards Fiji’s GDP is estimated at 35.8% for 2012 (Ministry of Tourism,
2012). According to the Tourism performance report for 2012, the sector accounted
for 56.3% of the total service exports and generated F$1.074 billion in tourism
earnings in 2011.
8 Reference has to made to the RBF Annual Reports (2011) and (2012) together with recent projections by the Central Bank.
0.8%
5.4%
-1.3% -1.9%
-0.9%
1.0%
-1.3%
0.1%
1.9% 2.5% 2.7%
2.4% 2.2%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012(e) 2013 (f) 2014 (f) 2015 (f)
Fiji's GDP Growth Rates
17
This industry has proven to be the most promising as the number of visitor arrivals
into the country has shown a positive move. In 2012, the visitor arrival numbers stood
at 669,590 (Ministry of Tourism, 2012).
Table 2.1 Exports of Fiji’s Key Industries
Fiji's Major Domestic Exports 2005 - 2009: (F$ million) Domestic Exports 2005 2006 2007 2008 2009 Sugar 224 215 185 248 187 Fish 83 98 101 134 157 Garments 120 95 97 100 84 Mineral Water 68 87 105 109 80 Gold 59 43 3 27 40 Sweet Biscuits 13 18 20 26 34 Molasses 10 19 10 14 21 Taro 19 21 24 22 20 Flour 9 11 13 19 18 Woodchips 24 13 27 28 11 Ginger 6 5 5 5 6
Source: Fiji Islands Bureau of Statistics (2010)9
While the tourism industry is recovering slowly from adverse effects of cyclones,
performances of other industries including timber, garment and mineral water have
been adversely affected by weak demands from trading partners (Tabaiwalu, 2010)
With reference to Table 2.1, it is clearly evident that fish and gold exports continue to
improve and record higher output levels. In 2009, fish exports amounted to $157
million however it is argued that this sector has huge potentials but is not fully
exploited. It is the fourth largest industry that represented 5% of the GDP in 2005
(Mahadevan and Adjaye, 2008). In recent years, the performance of the agricultural
sector has underpinned the performance of the overall export industry. Sugar, textile,
mineral water along with ginger exports in 2012 managed to more than offset the
decline in exports of other commodities (RBF Annual Report, 2012). In the same
year, the domestic export earnings amounted to more than $1.04b, a notable increase
by 3.7%.
9 http://www.statsfiji.gov.fj/
18
The sugar industry that once was the backbone of the economy now faces major
setbacks as its performance remains subdued. Cane production continues to decline
and reached the all time low production of 168000 tonnes in 2009 since 1961. As a
result of low cane production, the industry has been experiencing declining sugar
productions as well whereby production of sugar declined to 131,506 tonnes
compared to 167,611 tonnes in 2010 (FSC Annual Report, 2011). Similar trend is
reflected in Table 2.1 whereby sugar export earnings have significantly declined over
the years. Appropriate measures have now been put in place to bring back lost
confidence in the industry. Table 2.2 provides a summary on the trade performance of
Fiji; reflecting continuous negative trade balances between 2000 and 2011:
Table 2.2 Fiji’s Trade Performance from 2000- 2011 (FJD 000)
Period Domestic Exports Re-Exports Total
Exports Imports Trade Balance
2000 995,986 158,814 1,154,800 1,822,222 -667,422
2001 990,708 230,621 1,221,329 2,017,051 -795,722
2002 874,096 258,092 1,132,188 1,970,000 -837,812
2003 958,323 310,900 1,269,223 2,284,730 -1,015,507
2004 950,701 254,818 1,205,519 2,501,639 -1,296,120
2005 847,604 344,974 1,192,578 2,722,787 -1,530,209
2006 834,271 367,302 1,201,573 3,124,342 -1,922,769
2007 828,823 380,990 1,209,813 2,890,072 -1,680,259
2008 982,805 488,223 1,471,028 3,601,404 -2,130,376
2009[p] 894,830 335,511 1,230,341 2,807,950 -1,577,609
2010[p][r] 1,058,599 546,624 1,605,223 3,464,614 -1,859,391
2011[p][r] 934,765 824,789 1,759,554 3,505,162 -1,745,608
Source: Bureau of Statistics (2013) 2.5 Fiji’s Regional Trade Cooperation Fiji amongst the PICs has a small economy that is exposed to numerous problems,
including the inability to influence import and export prices and the inability to enjoy
economies of scale.
19
It has over the past decades transformed its economic policy from an inward oriented
import substitution policy to a more open economy characterised by export promotion
incentives and reduced barriers to trade. According to Narsey (2004), most of the
PICs are signatories to a number of overlapping regional and international
agreements, surrounding trade, investment and aid. These agreements are seen by the
PICs as instruments to hasten their economic development, increase trade volumes,
create employment and generally improve standards of living.
Kalouniviti (2012) notes that for a country like Fiji that has a small market, regional
integration plays an important role in creating large investment and trade market for
the country by expanding the cultural industry trade. As highlighted earlier, the first
step towards integrating more intimately with the global economy, the Pacific Island
Countries (PICs) including Fiji agreed to enter into RTAs with the aim of minimising
trade distortions and promoting free trade. In this section, we take a close look at the
various trade agreements that Fiji is signatory to. A special attention is placed on four
specific trade agreements that have been studied in this thesis namely SPARTECA,
MSG, PICTA and PACER and the table given below present the ratification dates by
PICs on the existing RTAs.
Table 2.3 Ratification dates of RTAs by Fiji
Name of RTA List of Countries Ratification Date by Fiji
Date into Force
South Pacific Regional Trade and Economic Cooperation (SPARTECA)
Cook Islands, the Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, Niue, Papua New Guinea, Solomon Islands, Tonga, Tuvalu, Vanuatu and Western Samoa with Australia and New Zealand
2ND December, 1980 1ST January, 1981
Pacific Island Countries Trade Agreement (PICTA)
FICs excluding Australia and New Zealand
16TH October, 2001 13TH April, 2003
Pacific Agreement on Closer Economic Relations (PACER)
FICs including Australia and New Zealand
16TH October, 2001 3RD October, 2002
Melanesian Spearhead Group Agreement (MSG)
Fiji, Papua New Guinea, Vanuatu, Solomon Islands
14th April, 1998 22ND July, 1993
Source: Created by Author (2010) with Reference to Pacific Islands Forum Secretariat and Fiji Trade and Investment Bureau
20
2.5.1 South Pacific Agreement on Regional Trade and Economic Cooperation
Agreement
SPARTECA is a non- reciprocal trade agreement formed between Australia and New
Zealand (two developed countries of the South Pacific Forum) and the developing
island countries of the forum. Under this agreement, specified products originating
from the developing island member countries of the Forum can enter the Australian
and New Zealand markets duty free and without any quantitative restrictions
(SPARTECA Booklet, 1999).
While New Zealand allows for duty free and unrestricted access to all good
originating in the FICs, Australia has restrictions for sugar. For goods to qualify for
these access benefits, they must meet the Rules of Origin set out under the agreement.
The SPARTECA treaty was signed in Kiribati between the partner countries on the
14TH of July, 1980 and it came into force on the 1ST of January, 1981. This agreement
was truly the first initiative by the FICs to liberalise trade in the region. The objective
of the treaty as stated in Article II of the agreement is to:
“to achieve progressively in favour of the Forum Island Countries duty free and unrestricted access to the markets of Australia and New Zealand over as wide a range as possible; to accelerate development of the Forum Island Countries in particular through the expansion and diversification of their exports to Australia and New Zealand; and to promote and facilitate economic cooperation, including commercial, industrial, agricultural and technical cooperation”.
The major beneficiary of the SPARTECA agreements had been the garment industry.
This preferential agreement was expected to provide an important impetus to growth
in the FICs; however, it proved to be a double edged sword. The OXFAM report on
the Fiji Garment Industry by Storey (2004) highlighted that SPARTECA not only
benefited the manufacturing plants in Fiji but also many businesses operating in
Australia as raw materials were purchased from Australia, processed and then re-
exported to Australia. This has resulted in increased trade imbalances between Fiji
and New Zealand/ Australia. Rao (2002) argues that
“There is a strong relationship between Fiji exports of garments to Australia and New Zealand and her imports of textile yarn from the same destinations. This implies that SPARTECA agreement may not be, as claimed, a non-reciprocal trade arrangement”.
21
Like any other RTA, SPARTECA has several loop holes. Rao (2002) highlights that
SPARTECA has many weaknesses that has held back the maturity of the garment
industry notably the:
� Rules of Origin Clauses
� Lack of management and marketing skills
� Uncompetitive exchange rates
� Lack of size which has held back competition
� Supply constraints, especially the tied nature of raw material supply which is seen
to hamper both competitiveness and flexibility.
For goods to be entitled to preferential treatment under SPARTECA, they need to
meet the 50% rule that ensures that goods entering quota free and unrestricted
quantitative access to the Australian and Zealand Markets are manufactured in the
FICs and that no goods produced elsewhere enter their markets under these
provisions.
2.5.2 Melanesian Spearhead Group
The Melanesian Spearhead Group trade agreement is a free trade agreement between
Fiji, Papua New Guinea, Solomon Islands and Vanuatu (New Caledonia joined as an
observer) that requires the parties to the agreement to eliminate tariffs within 9 years
from the signing of the agreement. The agreement was initially signed between 3
Melanesian countries- Papua New Guinea, Vanuatu and the Solomon Islands. Fiji
later joined in 1993 but formalised its membership into the agreement in 1998.
According to Mahadevan and Adjaye, (2008), nothing has come out of this agreement
as this was a political move by the Prime Minister of Fiji, Sitiveni Rabuka to gain
support from Solomon Islands and Vanuatu who objected the coup of 1987. Since
2006, Fiji has attempted to provide duty free access to all goods originating from the
member countries apart from those excluded in the agreement. According to the Fiji
Trade and Investment Bureau, with MSG members being the larger of the PICs, the
majority of intra-regional trade in goods is conducted under MSG rather than PICTA.
22
The major objectives of the agreements as stated in Article IV were to:
“Promote and facilitate the free flow of goods and services by means of gradual and progressive removal of tariff and non- tariff barriers to trade between parties; to ensure that trade between the parties takes place under conditions of fair competition; to take appropriate measures to facilitate, strengthen, consolidate and diversify the trade between parties on a long- term and stable basis; and to contribute to the harmonious development and expansion of world trade”.
Not only does this agreement aim to eliminate customs duties on a set of agreed
product lists, it also aims to remove the quantitative restrictions that have been
previously imposed on import and export of specific products. For goods to qualify
for preferential access, they need to be either obtained wholly from the partner
countries territory or work or processed sufficiently in the country of stated origin.
The MSG member countries now are fully committed to making significant progress
on the implementation of the trade agreement and as such on June 2013, the leaders
endorsed the revision to ROO handbook with incorporated tariff schedules for PNG
and Memorandum of Understanding to further facilitate trade in the region. 10Leaders
believe that member countries need to first work on ensuring the successful
implementation and execution of MSGTA than move onto discussion on including
other countries into existing RTAs as well as entering into other RTAs.
2.5.3 Pacific Island Countries Trade Agreement
Following the 1999 Forum Trade Ministers and leader’s meeting in Palau, it was
decided that more integrated Pacific region was needed to be established. This led to
the decision of forming a free trade area amongst the FIC11 (Narsey, 2010; Tabaiwalu,
2005; Narsey, 2004). The Pacific Island Countries Trade Agreement (PICTA) is a
free trade agreement among the FICs, which will gradually; over a period of time lead
to the establishment of a free trade area. Under this agreement, members aim to
eliminate barriers to trade among themselves, while maintaining their individual
barriers against imports from the non-members. PICTA requires tariff rates to fall to
zero in accordance to the agreed timetable, some 10-12 years after ratification.
10 During this meet, a negotiation for the revised Draft MSGTA was also facilitated along with the MOU on technical operation in Costal Fishery and Aquaculture development amongst members. For details of these discussions visit: http://www.pina.com.fj/?p=pacnews&m=read&o=1465626151c7c506b34906534d361a 11 This free trade area created by PICTA excludes Australia and New Zealand.
23
The agreement came into force in 2003 only after it had received the minimum 6
ratification from interested FICs12. To date, only 10 out of the possible 14 FICs have
ratified PICTA13 (Tabaiwalu, 2005).
The implementation of PICTA will strengthen the FICs as an integrated region and
this can provide a stepping stone to fuller participation in the highly globalised world
economy. PICTA hence represents an essential training ground for the PICs. This
can help them to carry out effective negotiations with developed trade partner
including New Zealand, Australia and the EU and also in multilateral negotiations at
the WTO (Narsey, 2010, Tabaiwalu, 2005; Narsey, 2004; Scollay, 2001). The major
objectives of PICTA as stated in Article II are to expand, strengthen and diversify
trade between the parties through:
“Gradual removal of trade and non tariff barriers to trade between the parties in a gradual and progressive manner, under an agreed time table and with minimum disruptions; develop trade between the parties under the conditions of fair competition; promote and facilitate commercial, industrial, agricultural and technical cooperation between the parties; further the development and use of resources of the Pacific region with a view to the eventual creation of a single regional market among the Pacific Island economies in accordance with the respective social and economic objectives of the parties, including the advancement of indigenous people; and contribute to the harmonious development and expansion of world trade in goods and services and to the progressive removal of barriers to it”.
Table 2.4 Timetable for reduction and elimination of tariffs14
Minimum tariff on goods from: Base tariff on goods at 1st January, 2001 1/01/2001 1/01/2004 1/01/2006 1/01/2008 1/01/2010 More than 20% 20% 15% 10% 5% 0% More than 15% but not more than 20% 15% 10% 5% 0% More than 10% but not more than 15% 10% 5% 0% Not more than 10% 0%
Source: PICTA (Annex II)
12 The initial 6 ratifications were done by Fiji, Samoa, Cook Islands, Tonga, Nauru and Niue 13 The countries yet to ratify PICTA are Federated State of Micronesia, Palau, Republic of Marshall Islands and Tuvalu. 14 This timetable is applicable to originating goods that are imported into member countries other than Small Island States and Least Developed Countries. These two categories of countries have a separate time frame for elimination of tariffs till 2012.
24
The rationale behind the adoption of PICTA is attributed to both economic and
political forces. It has been largely recognized that PICs need to become more
internationally competitive and hence PICTA is seen to be the most effective
mechanism to do so. According to Narsey (2010, 2004), Tabaiwalu (2005) and
Scollay (2001), this agreement is expected to improve PICs competitiveness through:
� Enlarging the PICs markets that will result in competition, economies of scale and
new investment.
� PICTA requires members to reduce tariffs in a gradual manner. This will ensure
that competition and adjustments will be brought in gradually as well; reducing
disruptions.
� PICTA provides a training ground for further trade liberalisation with the wider
world economy. Such training is necessary because PIC businesses will need to be
ready for harsher competition and the government will need to implement reforms
to their taxation systems. This will enhance the capability of businesses as well as
the government to adjust for the loss in revenue, if any, that may result from free
trade.
PICTA has a number of political advantages as well. It is expected to benefit PICs by:
� Enabling them to act as a group with one voice in the international arena and have
greater influence.
� Technical and financial aid from donor countries like New Zealand and Australia.
� Being a member to the RTA will provide a lock in on economic policies and avoid
backsliding by the government.
PICTA currently covers trade in goods only; however, tobacco and alcohol products
are exempted from the agreement15. The agreement also has provisions on excepted
imports referred to as the “negative lists” that countries were expected to submit
during the time of signing the agreements. Goods listed in this lists are allowed a
longer period of time for tariff to be phased out.
15 It is feared that inclusion of these products into the agreement will have adverse effects on the some government’s customs and excise duty revenue. A decision is yet to be made on the permanent status of these products.
25
Along with this, the agreement also provides a list of exceptions that ensures that
countries can continue to restrict the trade of specific products such as those that harm
human and animal health. To be the beneficiary of preferential access into the FIC’s
markets under PICTA, goods must meet the 40% local content criteria set under the
rules of origin requirements. Recently there have been two significant extensions to
the agreement to include trade in services and the expansion of PICTA to include
some if not all the French and US Pacific territories. The inclusion of service
provisions into the agreement will result in service sectors such as tourism to benefit
from closer integration among the FICs while inclusion of other countries into the
integrated region will provide FICs preferential access to the new markets resulting in
greater trade and investment (Scollay, 2001).
While the benefits of participating in RTAs have been recognised elsewhere, their
application in the PIC context may be questioned. Studies have revealed that countries
are better served by a north- south agreement rather than a south- south RTA. A
regional study carried out by Filmer and Lawson and Scollay cited in Narsey (2004)
revealed that largest gains will arise if a FTA is formed between the PICs and
Australia and New Zealand. The exclusion of these two developed countries from
PICTA will not provide any benefits. This is particularly due to the fact that very little
trade takes place between the PICs.
2.5.4 Pacific Agreement on Closer Economic Relations
The PACER16 is a framework agreement setting out the basis for the future
development of trade relations among all 16 Forum members. The agreement
provides for free trade to be established gradually amongst the FICs. This has to be
done between FICs initially and may be negotiated to establish free trade
arrangements with Australia and New Zealand. As such PACER is an umbrella
framework that led to the formation of PICTA and although it does deal with trade
issues, it is not itself a FTA. Free trade amongst the PICs takes place under PICTA,
however, under the provisions of PACER, free trade arrangements between Australia
and New Zealand and the FICs will be negotiated some 8 years after PICTA comes
into force.
16 PACER has been signed and ratified by all FICs.
26
This free trade arrangement is only possible if negotiations between the concerned
parties are successful. There are a number of provisions in the agreement related to
the timing of negotiation for free trade between Australia and New Zealand. This
provides assurance to Australia and New Zealand that they will not be disadvantaged
relative to other trading partners in their trade relations with the FICs. According to
Article II of PACER, the objective of the agreements is to: “Provide a framework for cooperation overtime to the development of a single regional market; foster increased economic opportunities and competiveness through more effective regional trade arrangements; minimise any disruptive effects and adjustment costs to the economies of the FICs through provisions of assistance and support to undertake the necessary structural and economic adjustments for integration into the international economy”.
The agreement also contains requirements for New Zealand and Australia to provide
technical and financial assistance for the implementation and development of the
trade facilitation programmes. Narsey (2004) argues that PACER is a “reactive”
agreement and not a “proactive” agreement for fostering free trade between the 16
FICs. He highlights that PACER is a defensive agreement that protects New Zealand
and Australia’s trading interests in the PIC markets against other developed countries
and trading blocs. This is clearly spelled out in article VI of the agreement that if any
PICs wishing to commence free trade negotiations with any other developed non-
forum country, then they should do the same with Australia and New Zealand.
Australia and New Zealand play an important role in the investment and trade patterns
of a number of PICs, including Fiji. Closer integration will these countries is likely to
result in greater pay offs in terms of trade expansion. The formation of a RTA such as
PACER with Australia and New Zealand will be beneficial for Fiji in forms of
cheaper inputs, technology transfer and the locking in of economic policy reform
(Tabaiwalu, 2005). However, apart from these benefits, PACER will bring with itself
its adverse effects. It has been argued that PACER will result in increased competition
for firms in the PICs from established exporters in Australia and New Zealand that
may result in firms in PICs to go out of business. It will result in reduction of
government revenue and loss of government support for the private sector (Pacific
Cooperation Foundation, 2006).
27
PACER negotiations were expected to begin in 2011 and if successful it will have
implications for businesses operating in Fiji and in other PICs and whether these
implications will be beneficial or not, only time will tell.
2.6 Conclusion
Fiji’s growth performance since 1970s has been inconsistent and sluggish. Its growth
has been underpinned by political turbulence and economic problems in the global
economy. The political environment in Fiji has been one of the binding constraints to
sustainable growth and development to the Fijian economy. A high level of
uncertainty prevails amongst relevant stakeholders on the directions of the economic
and political reforms and this weighs heavily on business confidence in Fiji.
According to the World Bank’s ease of doing business rankings, out of 183
economies, Fiji was ranked 62nd in 2011; a drop from 61st the year earlier17. However
in 2012, its ranking has improved and it is now ranked 60th out of 185 economies. 18
Fiji faces major challenges of a small domestic economy and its remoteness from its
major international markets. Despite its remoteness from major export markets, Fiji
still remains an important business hub and continues to attract investors from across
the region. Having adopted an outward looking trade policy, Fiji has advocated the
use of RTAs to further strengthen its export base. While some of these RTAs offers
huge potentials to businesses in partner countries, whether businesses in Fiji have
been able to utilise them to their advantage still remains in question. This chapter has
attempted to provide an overview of the Fiji economy and its macro economic
performance. It has looked at the developments that have taken place since its
independence in terms of its attempts to liberalise its trade practices. It has also
provided a summary of the RTAs in the pacific. The following chapter makes up the
literature review. It will highlight the theoretical background of RTAs, its historical
developments, trends and characteristics and the experiences that businesses have had
elsewhere from participating in RTAs. Also presented in Chapter 3 are discussions on
critical issues surrounding the use of RTA
17 World Bank and IFC (2010), Doing Business 2011: Marking a Difference for Entrepreneurs. Retrieved on 1st July, 2013 from http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB11-FullReport.pdf 18 The ranking of all economies are benchmarked to June 2012 by the World Bank
28
CHAPTER THREE
LITERATURE REVIEW
3.1 Introduction
The central focus of this chapter is to outline the literature review as to establish the
progress of the current research on the impact of RTAs on the business community in
Fiji. This review involves a compilation of previous studies and research and a critical
analysis through means of comparison and evaluation. Furthermore, this chapter will
highlight the background and formation of RTAs, the arguments for and against its
formation, the types of RTAs in use along with other critical issues surrounding
RTAs. It will also look at the evolution of RTAs and will also review existing
literature that examines the impact of participating in RTAs on businesses.
3.2 Overview Economic integration, regionalism and RTAs are the “buzz” words in today’s global
trading system. They have become the centre of discussion in inter governmental
debates, international politics and economic research. According to Liu (2007), these
terms refer to part of a single economic process. Majority of the countries across the
globe are going for deeper integration that has resulted in the formation of RTAs
within regions such as the EU and NAFTA. Numerous authors such as Piggott and
Cook (1999); Jovanovic (1998); Tsoulaly (1997); Swann (1996); Wallace (1990);
Robson (1989); Pinder (1983) and Balassa (1961) have illustrated the terms regional
economic integration, regionalism and economic integration as the progressive
removal of economic frontiers and barriers between partner countries.
Before examining the impact that RTAs can have on businesses globally, it is
important to first understand why RTAs are advocated. The basic premise for the
adoption of RTAs is to enhance international trade through the elimination of trade
barriers. This section will highlight the importance of international trade together with
the trade barriers faced by firms in trading with the outside world.
29
3.2.1 International trade
International trade is a process involving a wide-range of transactional and cross-
border commercial exchange of goods and services between the states, corporate
entities and individual persons (Wang, 2004). Such trade has increasingly become an
important determinant of economic success in many nations. Trade has been going on
for decades at the global and regional level.
In 2010, international trade amounted to US$ 7,600 billion and accounted for 24% of
world output as compared to 10% in 1970 (Consumer International, 2010).
International Trade Statistics reveals that since 2005, the GDP has grown by on
average 2.3% with a growth in world merchandise trade by 3.7% annually (WTO,
2012). It has also been noted that trade flows across countries has steadily increased.
In today’s highly competitive and globalised world, trade is seen as an engine of
world economic growth.
Engaging in international trade can bring both productive and consumption gains to a
country. Such trade enables countries to obtain some goods and services more cheaply
by importing them from countries that are able to produce them efficiently. Through
trade, resources and products that domestic producers are unable to supply are also
made available to the consumers, business entities, and to the state at large (Consumer
International, 2010). This argument is clearly supported by empirical studies carried
out in the 80’s and 90’s that revealed that countries that adopted an outward oriented
trade policy had higher growth rates than countries that had an inward oriented trade
policy (Yanikkaya, 2002). The study by Halit Yanikkaya (2002) on 108 economies
also revealed that there is a positive and significant association between trade
openness and growth. Similarly, Kaur and Sidhu, (2011-2012); Andersen and Babula
(2008); Clark (1997); Sachs and Warner (1995); Dollar (1992) in their research on the
link between openness and long run economic growth concluded that there is likely to
be a positive relationship between international trade and economic growth.
Trade liberalisation is currently the foremost global model for trade policy and is the
basis for the World Trade Organisation (WTO) and the General Agreement on Tariffs
and Trade (GATT).
30
It is also advocated by leading international bodies like the World Bank and the
International Monetary Fund (IMF) (Consumer International, 2007). According to the
World Bank (1991:7),
“When international flows of goods, services, capital, labour and technology have expanded quickly, the pace of economic advance has been rapid. Openness to trade, investment and ideas has been critical in encouraging domestic producers to cut costs by introducing new technologies and to develop new and better products. A high level of protection for domestic industry, conversely, has held development by decades in many places.”
Karakaya and Cooke (n.d) highlight that free world trade is not a realistic possibility
hence the adoption of RTAs is seen as a positive move towards free trade. Article
XXIV of the General Agreement on Tariffs and Trade (GATT) permits the
establishment of regional trade agreements (RTAs). However, the formation of RTAs
is subject to compliance to a number of specified conditions laid out under GATT.
RTAs are becoming an increasingly popular vehicle for the promotion of trade and
growth.
3.2.2 Trade Barriers Advocates of Protectionism argue that in order to achieve economic, social and
political objectives, it is imperative for the government to intervene in a market.
Protectionism is a deliberate policy developed by the government to establish trade
barriers such as quotas and tariffs. This is primarily done to protect the domestic
producers from fierce competition from the international market. Such arrangements
can also form alliance with other countries and can result in shutting other nations out
of trade relations (Consumer International, 2007).
The early 1960’s and 1970’s witnessed a rapid expansion of trade between developing
and industrial countries. This was largely a result of the substantial reduction of tariffs
in the industrial countries. Developing countries benefit from trade liberalisation as
tariff rates are reduced on a most- favoured- nation (MFN) basis under the auspices of
GATT (DeRosa, 1990). Traditionally, many businesses operating in the developing
economies have not been able to fully utilise the opportunities offered by participating
in the global economy. Though our local businesses wish to engage into trade outside
their country boundaries, barriers to internationalisation has hampered their chances.
31
This argument is clearly supported by business surveys on trade barriers that draw
attention to the fact that companies wishing to access foreign markets are continually
faced with problems of high tariff rates. They also indicate that non-tariff barriers
matter equally (Fliess and Busquets, 2006). For instance, out of the US manufacturing
exporters that participated in a 2004 poll carried out by the National Federation of
Independent Business, 37% of the small exporters reported that tariffs limited their
ability to increase export sales. Other surveys conducted in other countries and
regions (e.g. Sweden, MENA, and APEC) also confirm that although tariff was
significantly lower decades ago, it still remains an important issue for exporting firms
(Fliess and Busquets, 2006). 19
A tariff is a tax levied on imported goods and services and this is often the major
source of revenue for the government of many developing countries. On the other
hand, a non tariff barrier is a restriction imposed by the government other than tariff
that restricts the entry and exit of goods and services in a country. Hillman (1978)
stated that a non tariff barrier includes several policies that restrict trade including the
following:
� Measures that restricts imports
� Measures that provide assistance to domestic production to promote exports
through import substitution.
� Measures that provide direct assistance to domestic exporters
As described by Brent Radcliffe (n.d), tariffs as a barrier to trade can take many forms
of which the common types that a government may employ include Specific tariffs20
and Ad valorem tariffs21, while non tariff barriers are in the form of Import quotas22,
Licenses, Voluntary export restraints 23and Local content requirements24.
19 Fliess and Busquets (2006) study also revealed that trade barriers such as unfavorable foreign rules and regulations and tariff barriers got highly ranked by SMEs. Inadequate property rights protection, customs administration, restrictive health, safety and technical barriers were also amongst the barriers highlighted by firms. 20 Specific tariffs are stipulated as a money amount per unit of import. 21 Ad Valorem tariffs are levied on the goods based on the percentage of the goods value 22 Are quantitative restrictions placed on the import of certain products 23 VER are agreements whereby foreign producers and their government agree to limit exports to a particular market for a specific period of time. 24 Restrictions that require a certain percentage of the product to be made domestically or it should have a certain percentage of raw material from the domestic origin
32
RTAs hence become an important means of eliminating such barriers and enabling
local businesses to flourish by actively participating in trade outside their country of
origin25
3.3 Background of Regional Trade Agreements One of the major developments in the international economy in the last two decades
has been the formation and implementation of RTAs. As RTAs have developed
quickly since the 1990s, their impact on trade flows between members and non-
members and on the business community has attracted much interest and studies
amongst researchers and policy makers.
Harry Johnson (1954) developed the standard theory of trade agreements stating that
in the absence of trade agreements, there would be exploitation of international
market power by certain countries through trade taxing that may result in a trade war.
This would be inefficient for all countries involved. Trade agreements hence become
a viable means to prevent such trade wars.
According to Verbit (1969), “A trade agreement is a codification of the principles under which trade between the parties to the agreement will be conducted. Although it varies greatly in form and content, the basic aim of the agreement is the removal or amelioration of restrictions on trade so as to increase its volume and thereby enhance the economic well being of the parties”.
A RTA is a preferential trade agreement (usually reciprocal in nature) amongst a
group of countries that seek to reduce barriers to trade. Simply put, it is an agreement
between groups of countries in a geographic region to reduce, and ultimately remove,
tariff and non tariff barriers to the free flow of goods, services, investment and factors
of production between each other. By entering into RTAs, countries aim to reduce
trade barriers more rapidly than can be achieved under the auspices of the WTO.
25 For detailed description of types of trade barriers visit The Basis of Tariff and Trade Barriers: Brent Radcliffe at http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp
33
Regionalism is in fashion, something that has become an inherent, recurring and
perhaps irreversible feature of the world trading system (Freund and Ornelas, 2010;
Baldwin and Low 2009; Liu, 2007; Pomfret, 2006; Crawfor and Fiorentino, 2005;
Frankel et al (1997). It seems that every month brings news of yet another trade
agreement among group of countries, or between one country and another (Frankel et
al, 1997). This is primarily done to strengthen their economic ties through the removal
of barriers to trade and investment. To gain a better picture of the impact on these
RTAs, it is of important to first understand what are the various forms of RTAs, its
evolution amongst its trends and characteristics.
3.3.1 Forms of Regional Trade Agreements
RTAs can take various forms of integration, differing in the way discrimination is
applied to non members and on the level of integration. There seems to be a negative
relationship between level of integration and trade barriers, whereby, as the economic
integration between countries increases, the barriers to trade tend to diminish (Alva
and Behar, 2008). Baldwin and Venebles (2004) argue that the defining characteristic
of a RTA is based on its geographically discriminatory trade policy. Similarly, Liu
(2007) argues that the type of RTA between countries is based on their members’
trade and economic cooperation and on the sacrifices they make in their freedom to
set their national policies independently of RTAs. Alva and Behar (2008) further
argue that RTAs are grouped according to their motivations that are largely related to
common colonial ties, conflict prevention and trade. Similarly, Niekerk (n.d) states
that regional integration or RTAs can be defined along three dimensions26:
� Geographical scope- the number of countries involved
� Substantive coverage- the activity or sector coverage such as trade, macro
policies, labour mobility, etc.
� Depth of integration- the level of sovereign power a country is willing to
give up.
26 Regional Integration: Concepts, Advantages, Disadvantages and Lessons from Experience. Retrieved on 10TH May, 2010 from http://siteresources.worldbank.org/EXTAFRREGINICOO/Resources/Kritzinger.pdf
34
Balassa (1961) 27identified five levels of RTAs. These five levels are as follows:
� Preferential trade area- this is the lowest level of integration under which
members apply lower tariffs to imports produced by other members than to
imports produced by non members. PTAs tend to provide preferential access to
certain products from member countries by reducing tariff rates, but it does not
remove the tariff completely. An example could be MSGTA.
� Free Trade Area- this is where members to a RTA set their external tariff at
zero enabling member countries to trade completely freely with each other
without any trade barriers. In a free trade area all barriers to the trade of goods
and services among member countries are removed. There are no
discriminatory tariffs, quotas, subsidies, or administrative impediments.
However, individual countries have the sovereignty to determine its own trade
policies with regards to non members. Examples are EFTA and NAFTA.
� Custom Union- under this level of integration, members to a RTA trade freely
amongst themselves and at the same time agree to share a common external
tariff to other non members. To be part of a CU requires members to give up its
sovereign right to determine its country’s external trade barrier and cooperate
with other members to determine a sole external barrier for all member
countries. Examples include the BENELUX28 countries.
� Common Market- a CM is a CU that permits the free movement of factors of
production across national borders within the integrated area. Members give up
their right to determine which factors can go and come into their country. A
CM establishes common policies on product regulation and freedom of
movement of all factors of production amongst member countries.
MERCOSUR falls under this categorizat
27 The pioneer definition of economic integration as a development concept was by presented in Balassa’s seminal work. According to him, economic integration is a voluntary process that increases the interdependency between economies that are separated into areas or more expanded regions. 28 Benelux is a treaty that established a custom union in Western Europe which was formed by Belgium, the Netherlands, and Luxembourg.
35
� Economic and Political Union- presently the highest level of integration that
has similar characteristics of a CM but at the same time countries part of a RTA
share common currency and monetary policies. At a certain advanced level,
politics is also involved; countries give their national sovereignty to make
progress towards integrated trade, monetary and fiscal policies. The EU is
perhaps the most successful example of such integration.
(Siggel, 2005; Liu, 2007; Consumer International, 2007; Alva and Behar, 2008;
Larson and Clifford, 2004; Cardoso and Ferreira, 2000; Frankel et al, 1997)
Table 3.1 Summary Features of Regional Trade Agreements
Type of Agreement
Free Trade Amongst Members
Common Commercial Policy
Free Factor Mobility
Common Monetary and Fiscal Policy
One Government
Preferential Trade Area
� � � � �
Free Trade Area
� � � � �
Custom Union � � � � �
Common Market
� � � � �
Economic and Political Union
� � � � �
Source: Created by Author with reference to El-Agraa (1997) and Larson and Clifford
(2004)
3.3.2 Regional Trade Agreements: Trends and Characteristics
RTAs are not a new concept as it has become a “buzz word” in the global trading
system. The new regionalism of the 1990s was led by trade agreements with
objectives of creating free trade areas or common markets. RTAs are aimed at
eliminating trade barriers and fostering free trade amongst a group of countries.
Opening a country to free trade stimulates economic growth in the country, which in
turn creates dynamic gains from trade.
36
The governments of many developing countries have accepted the acceleration of
economic growth and this is also seen as one of their major functions. According to
Verbit (1969), it is not surprising these governments have turned to trade agreements
as a means of achieving this goal. The accelerated movement towards the use of
regional trade agreements is not a surprising trend. The successful economic
integration of the European countries has encouraged many nations across the globe
to pave their way towards more deeper and stronger integration and this has been in
the form of regional trade agreement. In this regard, many countries, including the
PICs pursue greater integration in the context of a very dynamic world economy.
In order to survive and prosper in this highly competitive world, it is essential that the
regional trade agreements adopted by various governments improve its
competitiveness and continues to ensure financial stability. The growth and
development of RTAs today is global, complex and fast paced. This growth clearly
reflects the growing number of countries emerging into the trading scene and the
growing number of agreements per country. Fiorentino, Crawford and Toqueboeuf
(2009) and Crawford and Fiorentino (2005) amongst other authors and scholars
observed a number of trends in the development of RTAs and these will be
highlighted in this section accordingly.
3.3.2.1 Increasing Number of RTAs
It is widely recognized that since the latter part of the twentieth century, the global
economy has experienced an exceptional strengthening of economic and financial
integration that has resulted in an explosion of RTAs. Since the early 1990s, the
proliferation of RTAs has been unabated. Figures released by the WTO (2013) reveal
that a total of 546 RTAs have been notified to the organization till January 2013. The
overall number of RTAs in force has been increasing at a steady rate. As many RTAs
are currently on the verge of negotiation, this trend is likely to be strengthened. Of
these RTAs, 90% are Free Trade Agreements and partial scope while the remaining
10% account for custom unions. 29 It has also been noted that there has been a rise in
bilateral agreements and a decline in plurilateral RTAs.
29 World Trade Organization: Regional Trade Agreements. Retrieved on 5TH April, 2010 from http://www.wto.org/english/tratop_e/region_e/region_e.htm
37
The following chart shows all RTAs notified to the GATT/WTO (1948-2012),
including inactive RTAs, by year of entry into force.
Figure 3.1 RTAs Notification to WTO
Source: WTO (2013)30
3.3.2.2 Growth in South- South and North- South RTAs
The second trend discernable from the current wave of RTAs relates to the geopolitics
of such agreements and more precisely the choice of preferential partners. Over the
past 15 years or so, there has been a gradual increase in the North South RTAs
(between developed and developing countries). However, recently these agreements
have been replaced by the signing of numerous South- South RTAs (involves only
developing countries). These two clusters of RTAs combined represents a total of 80
percent of the total number of agreements that has been entered into force since 2005
(Fiorentino, Crawford and Toqueboeuf, 2009; Crawford and Fiorentino, 2005).
30 Regional Trade Agreements: Facts and Figures. Retrieved on 25th June, 2013 from http://www.wto.org/english/tratop_e/region_e/regfac_e.htm
38
Figure 3.2 RTAs signed and under negotiation by type of partner as of
December, 2007
Source: Fiorentino, Crawford and Toqueboeuf, (2009)
3.3.2.3 Increasing Number of Cross-Regional Agreements According to the theories of Krugman (1991) on “natural trade blocs”, RTAs can only
yield welfare enhancing benefits if the countries to the RTAs are within close
geographic settings hence RTAs should be formed between neighbouring countries.
Transportation costs are low and similar cultures results in easier coordination of trade
policies due to similar tastes and interest of its member countries (Liu, 1998; Frankel
et al, 1995). However, recently it has been noted that there has been a shift from the
concept of “natural trade blocs” as RTAs are now driven by strategic, political and
economic considerations and that countries can be better off forming a PTA with a
distant rather than with a country is close proximity when these two countries are
otherwise identical (Fiorentino, Crawford and Toqueboeuf, 2009; Bhagwati and
Panagariya, 1996).
The historical development of RTAs will be highlighted next.
3.3.3 Historical Perspective on RTAs
This section of the literature review examines the historical evolution of RTAs in the
global trading system. This examination will shed some light into understanding how
the world ended up with countless RTAs with varying efficacy, complexity and
coverage.
3%
56%
41%
Developed only Developed- developing Developing only
39
3.3.3.1 The first wave of RTAs: The European Union
The creation and expansion of the World Trade Organisation (WTO), previously
known as the General Agreement on Tariffs and Trade (GATT) and the signing of
numerous bilateral and RTAs is an important development in the history of trade
liberalization (Maggi and Clare, 2007).
Europe has a long history of regional integration, underpinned by a strong
institutional framework. According to Coolidge and Tsuruda (2009), “United in
diversity” is an appropriate and telling motto for the most powerful and influential
international organization in world history. The European Union (EU) 31has evolved
over time into the major force it is today. The formation of the European Economic
Community (EEC) in 1958 was a mile stone in the history of regionalism. The EU has
uplifted the economic and political power of the member countries. The French
desire for security after the World War II led to the birth of European Regionalism.
This led to the formation of the European Coal and Steel Community in 1952 which
placed the French and the German steel industries under a common authority that
reduced the possibility of a war between the members and the EEC was born
(Carpenter, 2009).
The EU’s plans to move to a common external tariff in 1968 led to the birth of
another European bloc, EFTA32 formed by non- EC European members. This bloc
was led by United Kingdom. However, EFTA was not as successful as EC which led
to 5 of the original EFTA members to join EC and later UK, though not willing at first
to give up its sovereignty over trade policy, joined EEC will the aim of benefitting
from a larger market (Carpenter, 2009). Since then, a number of initiatives have been
taken by the members to promote regional integration. These have been aimed at
fostering more intergovernmental cooperation and reducing barriers to promote free
trade amongst the European countries. The RTAs to establish free trade have given an
incentive to businesses to export and import goods without any barriers.
31 The European integration process started in 1958 with the Treaty of Rome coming into effect. However, the success was achieved by the signing of the Treaty of Paris with the initial members being Germany, France, Luxembourg and Italy. Since then, a number of other Treaties were signed that led to the formation of a powerful economic and political body, the EU. 32 The original EFTA members were UK, Portugal, Austria, Norway, Denmark, Switzerland and Sweden.
40
There has been the establishment of free trade areas, custom union and the monetary
union that has been aimed at liberalizing and facilitating trade amongst member
countries.
3.3.3.2 The second wave of RTAs: NAFTA
The North American Free Trade Agreement (NAFTA) 33is a trilateral trade bloc
formed by United States, Canada, and Mexico. The basic premise that led to the
formation of NAFTA was to eliminate tariff barriers related to various fields such as
services trade, manufacturing and agriculture, remove restrictions on investment, and
to protect intellectual property rights. NAFTA while achieving these objectives was
also aimed at addressing concerns related to labour and the environment. According
to Carpenter (2009), NAFTA proposed a revolutionary approach to regionalism as it
incorporated the use of a North-South RTA between highly asymmetric partners.
Lawrence (1996) cited in Carpenter (2009) further highlighted that,
“NAFTA went far beyond market access as it included ‘deep’ commitments in an entirely new
set of trade disciplines, which responded to the Mexican focus on attracting investment”
The implementation of the NAFTA gave a boost to numerous businesses, including,
the small and medium sized enterprises. Amongst the beneficiaries, small businesses
were expected to benefit the most from the lowering of trade barriers since it would
make doing business with partner countries (Mexico and Canada) less expensive. The
red tape associated to the import of goods and services was also eliminated. Studies
carried out on NAFTA have revealed that American businesses have expressed
general satisfaction with the agreement. It has boosted employment, productivity and
trade amongst the countries. 34Turning to free area agreements as a means of fostering
economic growth and prosperity through globalization is not a new phenomenon. Free
trade agreements have proven to be one of the best mechanisms to open up foreign
markets to US exporters (International Trade Administration, 2007).
33 NAFTA came into effect on the IST of January, 1994. 34 North America Free Trade Agreement. Retrieved on 1ST April, 2010 from http://www.referenceforbusiness.com/small/Mail-Op/North-American-Free-Trade-Agreement-NAFTA.html#ixzz0jFwKkD4m
41
The liberalisation of trade has been on the top of the agenda for many developed and
developing countries. However, the implications that these regional trade agreements
have on businesses are an area of debate.
3.3.3.3 Other RTAs
RTAs have accelerated notably in the last several years. These RTAs have made
important contributions to political stability and economic welfare as well. Apart from
the successful integration of EU and NAFTA, countless RTAs have been signed by
countries across the globe. According to Bowles and MacLean (1996), the formation
of the ASEAN and ASEAN Free Trade Area (AFTA)35 in 1991 marks a significant
change in attitudes towards preferential trading arrangements in the region. This
arrangement was aimed at reducing tariffs on all manufactured goods that had a local
content of 40% from 0-5% over a period of time. Other trade agreements include
Common Market for Eastern and Southern Africa (COMESA), which was aimed at
the elimination of tariffs on all goods exported within its free trade area, the Southern
Common Market (MERCOSUR), a customs union where internal trade takes place
duty free with a common tariff being applied to goods originating from non-members.
Other RTAs between developing countries include Caribbean Community and
Common Market (CARICOM)36, Central American Common Market (CASM)37,
Economic Community of Western African States (ECOWAS) 38and many others.
Similarly, many countries have entered into regional and bilateral trade agreements to
enjoy the benefits of trading in the liberalised world economy.
35 On 1 January 1993 the six Association of South-East Asian Nations (ASEAN) members (Singapore and Thailand, Brunei, Philippines, Malaysia and Indonesia) entered into the ASEAN Free Trade Area (AFTA) that led to the creation of a free trade area of some 330 million people. 36 CARICOM was formed in 1973 by 4 small countries in the Caribbean basin. This was achieved after 15 years of efforts to promote regionalism amongst former British colonies. Its membership has grown to 14 countries. 37 Formed in 1960 between five Central American countries with the aim of freeing trade of manufactured products. 38 Established in 1975 with the aim of forming a custom union between 15 West African Countries- Burkina Faso, Benin, Mauritania, Côte d’Ivoire, Mali, Senegal and Niger and the members of the Mano River Union (Sierra Leone, Guinea, and Liberia) and Cape Verde, Togo, the Gambia, Guinea Bissau Ghana and Nigeria.
42
3.4 Impact of RTAs on Businesses
Much research has been carried out to evaluate the impact that RTAs have on the
business community across the globe. Membership in a RTA has implications for
almost all parts of the economy. Business sectors operating in participating countries
will all experience the impact of RTAs in one way or the other. While some sectors of
the economy face opportunities for expansion and boost to income, others will
contract and experience a decline in income (World Bank, 2000). RTAs can have both
positive and negative effects on trade depending on their design and implementation
(Global Economic Prospects, 2005). Similarly, Holmes (2005) highlighted that
economists in recent years have tried to examine and explain the patterns of RTAs
across the globe and it has been noted that many of the RTAs that have been signed
are not effectively implemented and this has implications for business sectors, the
public and the government at large.
It is important to note that RTAs bring along itself its own strengths and weaknesses.
In this light, it cannot be said that trade agreements between group of countries will
yield only benefits. It can also be argued that it is difficult to predict that RTAs will
yield the benefits as it should, it can even produce disadvantages for the business
community in developing countries like Fiji. As mentioned earlier, there will be some
business sectors that will have the luxury to enjoy the benefits of reduced tariff and
non- tariff barriers while there will be some that will not be able to experience such
benefits.
In this section, a review of previous research on the impact of RTAs on businesses
will be discussed. Existing literature reveals that participating in RTAs can result in
larger markets, new trade and investment opportunities, increased competition,
business growth amongst others which will be discussed accordingly.
3.4.1 Trade Creation and Trade Diversion
The traditional economic analysis on the impact of RTAs by economists is based on
the phenomena known as trade creation and trade diversion. The most influential
work carried out in this area has been by Jacob Viner (1950) that established a
theoretical framework on custom unions and regional integration.
43
Prior to the seminal work of Viner (1950), it was believed that integration to a CU
level is unambiguously a good thing for economic welfare as there was removal of
trade barriers, however, Viner illustrated that the realisation of welfare improvement
depended entirely on the net impact of trade creation and trade diversion (Karakaya
and Cooke, n.d). Trade creation occurs when the introduction of a RTA allows for an
increase in trade flows between partner countries as goods/ services are supplied by a
more efficient producer of the product within the RTA (Mohammad and Yucer,
2009). It results in a substitution of a high cost domestic supplier by a low cost
supplier for a member country to the RTA (Liu, 2004). On the other hand, trade
diversion means that a RTA diverts trade from a more efficient supplier outside the
RTA to a less proficient supplier within the RTA as the country ceases to import from
a low cost source in favour of buying from a country within the RTA at a higher rate
(Mohammad and Yucer, 2009; Fox, 2004; McMillan, 1993). Bhagwati and
Panagariya, (1996) state that,
“The essential message of the Vinerian approach was that PTA's, as distinct from non- discriminatory trade liberalization, could harm both a member country and world welfare. PTA's could be "trade diverting" or "trade creating."”
Numerous studies carried out by scholars have revealed that relaxation of trade
barriers increases the volume of trade between partner countries. Successful RTAs
have proven to benefit member nations through raising the level of intra industry trade
(Global Economic Prospects, 2005; Greenaway et al, 1989). On the similar note,
Stadler, et al (2006) argue that,
“When the world's largest trading blocks sign a deal reducing trade barriers, everyone is a winner. The advantages of cooperative agreements for trade are significant and generally recognized. Cooperative agreements for freer trade may well benefit all countries”.
Facts of NAFTA released by the Office of the Trade Representative (2008) revealed
that trade amongst member countries of NAFTA has more than tripled between 1993
to 2007, rising from $297 billion to $930 billion. NAFTA resulted in an increase of
117 percent in business investment in the United States since 1993 compared to 45
percent increase between 1979 and 1993. Similarly, output of the manufacturing
sector in US has risen by 58 percent between 1993 and 2006, while this was only 42%
between 1980 and 1993.
44
Manufacturing exports in 2007 reached an all time high with a value of $982
billion39. Many of the RTAs signed in the 1990s have shown effective trade
performance as there has been increase in intra regional trade (Global Economic
Prospects, 2005).
Various other researchers have also carried out research to examine the impact of
RTAs on industries in respective countries. According to the research carried out by
Korinek and Melatos (2009) on the selected RTAs like the Common Market for
Eastern and Southern Africa (COMESA), the ASEAN Free Trade Agreement
(AFTA), and the Southern Cone Common Market (MERCOSUR) in the agricultural
sector, they concluded that all these RTAs have been trade creating. When barriers to
trade are significantly reduced within a group of countries, trade in agricultural goods
increases. However, they also stated that such cannot be generalised for other RTAs
that are less effective and less ambitious (Korinek and Melatos, 2009: 34).
In contrast, Fox (2004) and Thirlwall (2000) argues that when it comes to developing
countries, the use of RTAs have resulted in little trade creation or in certain cases
diversion has exceeded creation. Imports that were bought from the world market now
come from RTA members. Schiff (2002) cited in Fox (2004) provided a justification
to this view highlighting that increase in trade between RTA members have come
from import substitution. This has been typically trade diverting as this new
substituted products does not come from efficient production of products already
being made in member countries. Studies conducted by Venebles (2003), Vamvakadis
(1999)40 and Melo, Panagariya and Rodrik (1993) also reveal that RTAs between low
income countries leads to divergence of member country incomes and that joining a
RTA does not necessarily lead to faster growth of countries as such evidence doesn’t
exist.
39For more facts about NAFTA visit http://www.ustr.gov/sites/default/files/uploads/factsheets/2008/asset_upload_file71_14540.pdf 40 Vamvakadis (1999) carried out a time series study spanning 43 years that revealed that growth of countries were faster (both long and short term) prior to countries joining an RTA. Countries, however, had slower growth after participating in an RTA. The major aim of his study was to examine the impact on growth of countries that have liberalised trade and that of those who joined a RTA.
45
The basic premise for the adoption of RTAs is to secure and promote trade
liberalisation. While the tradition debate about RTAs is the uncertainty that it can
divert trade, records to date suggest that trade creation dominates trade diversion
(Larson and Clifford, 2004), however, though RTAs have been effective in
encouraging wider liberalisation of trade, the gains of trade creation are likely to be
small as it is estimated to be only 3% of World GDP (World Bank, 2002 cited in
Larson and Clifford, 2004)
3.4.2 Export Growth
An impact that is closely related to trade creation is that of export growth. Research
suggests that participating in RTAs leads to increase in trade flows at the macro level.
At the individual firm level, companies are able to take advantage of reduced trade
barriers and experience an increase in their export volumes as the goods they sell
becomes cheaper and affordable by the partner countries.
For instance, El Salvador, a business man through the assistance of the USAID’s
Export Promotion Program has been able to expand his family run businesses to
countries throughout the region as well as increase production, employment and
investment. All of these have been a result of America-Dominican Republic-United
States Free Trade Agreement (Rucker, 2010). 41At a much local level, many scholars
have also carried out research on the various RTAs existing between the PICs.
Research carried out by Rao (2002) on the SPARTECA agreement revealed that the
major gain of the SPARTECA agreement has been achieved by the garment and
footwear industries. This study also revealed that there is a strong relationship
between Fiji exports of garment to Australia and New Zealand and her imports of
textile yearn from the same region (Rao, 2002:23). Rao further argues that the
SPARTECA agreement may not be, as claimed, a non- reciprocal trade agreement.
Prasad (2002) also presents similar results of the SPARTECA agreement. He states
that the agreement had provided many of the island states access to the Australian and
New Zealand markets.
41 Rucker, A. (2010). El Salvador Businesses Profit from Regional Trade Agreement. Retrieved on 14TH May, 2010 from http://www.usaid.gov/press/frontlines/fl_mar10/p07_business100312.html
46
In 1994- 1995 Australia and New Zealand together imported about 1,327 million
Australian dollars worth of goods from the FICs (Prasad, 2002: 13). A maxim of
economic theory is that countries must buy abroad in order to sell abroad. Therefore,
countries that tend to maintain more liberal trade regimes tend to enjoy greater levels
of trade (DeRosa, 1990). Based on the success of agreements like NAFTA, this
research will hence try to investigate whether similar results have been achieved by
Fiji businesses or not.
3.4.3 Economies of scale through extended Customer Base
Companies with a global vision are always looking for opportunities of entering new
markets and offering new products to consumers in these markets. RTA offers
business houses the opportunity to serve more customers in other markets. Many
countries are relatively small to support separately, activities that are subject to large
economies of scale (Larson and Clifford, 2004; World Bank Policy Research Report,
2000; Niekerk, n.d.). This is particularly so because insufficient quantities of
specialised inputs are available or markets are not large enough to generate sales
enough to cover costs. Small markets limit the number and scale of firms that can be
sustained hindering competition and the achievement of economies of scale. As
identified in both the policy research reports of the World Bank (2000) and Larson
and Clifford (2004), RTAs hence become necessary to overcome the disadvantages of
smallness by combining markets that enables firms to expand, serving more
customers and becoming more competitive.42As noted by Zineldin (1998),
“Aggressive globalization 'emerging from the global village', increasing homogenization of tastes and attitudes, deregulation and eliminating of physical, fiscal/financial and technical barriers, rapidly scientific and technological innovations, and predictive uncertainty, are some factors that underlay the importance of emerging the new economic integration approach and relationships among bloc of countries.
42 This argument was also supported by Agustín Carstens, Deputy Managing Director of the International Monetary Fund who in his speech at the Biennial International Conference on Business, Banking & Finance (2006) highlighted that small open economies face unavoidable forces of globalisation. Regional integration hence is critical in helping these nations overcome the limitations of smallness and some of their natural disadvantages.
47
Most countries and organizations do not always have the resources or know-how to
cope with increasingly complex global environment, as one cannot rely on internal
resources alone. Hence the need for collaboration between blocs of countries becomes
vital. Greenaway et al (1989) argues that if members to a RTA have similar demand
structures and income levels but diverse preferences for variety of goods, the
formation of RTAs allows producers to exchange economies of scale in the provision
of differentiated products. With special reference to NAFTA, it has been highlighted
that the full implementation of this agreement will result in an integrated market of
350 million potential consumers (Waller and Emmelhainz, 1995); a market that is ten
times the size of Canada (Hashemzadeh, 1997).
Tabaiwalu (2005) highlights that PICs have relatively small domestic markets and
RTAs like PICTA is perhaps the most likely means to overcome this smallness. It is
hoped that PICTA by creating an expanded regional market of nearly seven million 43would enable firms to fully exploit economies of scale and attract foreign
investment. However, whether businesses in Fiji have been able to take advantage of
such expansion still remains in question.
Regional trade liberalisation results in significant gains particularly through reduced
average production costs and giving consumers a wide variety of products to choose
from. These benefits may increase if imports are replaced by domestic producer’s
increased competitiveness (Liu, 1998).
3.4.4 Competition
An inherent implication for participating in RTA is increased competition. When
markets are integrated, firms not only compete with domestic producers but also with
other producers located across the integrated region. Literature suggests that
competition created through opening markets can have both positive and negative
impacts on businesses. While some firms after facing fierce competition will become
more efficient and effective in their operations, other may not be able to withstand the
harsh competitive business environment.
43 This expanded market of seven million will only be achieved if all the signing countries ratify PICTA. Narsey (2010) argues that this number is likely to increase significantly if the French territories are also included in the RTA.
48
As argued by Niekerk (n.d) and World Bank Policy Research Report (2000), within a
small market, economies of scale and competition may trade off. Such tradeoffs can
be avoided through market magnification. A magnified market makes possible the
following: firstly, the existence of larger firms that is able to produce with greater
efficiency for any industry through economies of scale and secondly, increased
competition that results in firms cutting prices, expanding sales and increasing
internal efficiencies. Competition may hence result in firms rationalising their
production and removing inefficient plant duplication. RTAs increases the number of
players in the market and at the same time increases the intensity of competition. This
reduces the power of monopoly firms and hence forcing them to become more
efficient.
When it comes to RTAs resulting in fierce competition, SMEs are in a more
vulnerable position due to their smallness and lack of competitive abilities (Regnier,
2008; Julien et al., 1994 and Campbell, 1996). A practical implication of competition
resulting through RTAs can be seen under NAFTA. Oh and Sun (2003) in their study
on the reflection of NAFTA on the US textile industry stated that
“NAFTA provision not only helped US textile manufacturers to create an access to fabric markets in Mexico but also increased intense competition in the neighbouring countries. Such increase in competition resulting from NAFTA has, in fact, deteriorated the overall performance of US textile companies that have not had proper global strategies. The relocation of US textile firms in Mexico has further aggravated financial and managerial problems”.
NAFTA provisions for textile and apparel allowed US apparel firms to maintain
profitability by capitalising on low cost labour in Mexico however, increase in apparel
production in Mexico did not lead to the growth of the US textile industry. There have
been plant closures and massive layoffs.
3.4.5 Internationalisation and Relocation of Production
McDonald and Vertova (2001) highlighted that,
“As barriers to international business activities have been reduced, some markets that had been nationally based have become international markets”.
The definition of ‘internationalisation’ is not only restricted to exporting but to cross
boarder clustering, collaboration, joint venture, trade and alliances/ subsidiaries that
go beyond the home country environment (Singh et al, 2010).
49
As firms, especially SMEs attempt to internationalise, they face substantial complex
barriers which are both internal to a firm or emanating from larger business
environment in which firms operate (Fliess and Busquets, 2006). A major hurdle to
internationalisation is often related to trade policy barriers. Research conducted by
Chetty (1997) on the manufacturing firms in the apparel industry in New Zealand
revealed that RTAs and the economic deregulation has expedited the
internationalization of firms. The 1989 Australia New Zealand Closer Economic
Relations Trade Agreement (ANZERTA)44 made it easier for New Zealand apparel
manufacturers to enter the Australian market enabling firms to internationalise faster.
Other studies have also shown that firms that wish to internationalise often take their
own initiative to direct and indirect exports (Regnier, 2008) and that trade liberalising
agreements like NAFTA, EU and the ASEAN have increased the importance of firms
to internationalise particularly through exporting (Pett and Wolff, 2003; Campbell,
1996). Battisti and Perry (2008) highlighted that trade agreements are a specific
policy measure that can make international trade much easier and efficient. They with
special reference to New Zealand exporters argue that multilateral, bilateral and
regional trade agreements are essential to guarantee continuous competitiveness for
exporters in major markets.
The major hindrance to the developments of the export industries in PICs including
Fiji is the lack of experience that our local businesses have in the area of exporting.
According to the Pacific Islands Regional Economic Report (2002), a proven way to
overcome this hurdles is to form joint ventures (an aspect of internationalisation) with
foreign firms that have already established marketing and distribution networks. The
major objective of RTAs hence should be to widen trade liberalization to include
countries like US, Australia, the EU and New Zealand as exporting into these markets
will require such assistance even more.
44 Is a free trade agreement aimed at eliminating trade barriers between New Zealand and Australia in a progressive and gradual manner according to the agreed timetable. This agreement is also aimed at developing trade relations between the two countries with minimum disruptions and under conditions of fair competition.
50
Writers like Nadkarni (n.d) argue that
“Islands Governments have hardly encouraged free enterprises in all these decades. Little efforts, if any, has gone into building an enabling environment for business despite there being a number of regional trade agreements in place. Some of these offer great advantages to them. But they have never been utilized to the full potential”.
This further raises the question that if our RTAs have potential benefits than why have
our businesses not being able to capitalize on them. There is a need to investigate on
how the regional economic integration through the use of RTAs in the Pacific has
provided opportunities, if any, to our local companies in Fiji to internationalize or has
it hindered their chances.
Another important aspect related to internationalisation is that of the relocation of
production. RTAs are likely to induce economic activities to relocate by reducing
distortions and altering incentives. Firms and industries may choose to relocate based
on comparative advantage of members relative to non members (ECA, 2004).
Relocation can alter demand for factors of production and can alter income levels,
generating gains for some members and losses for others (World Bank, 2000b; World
Bank, 2000a; Venables, 2000; Venables, 1999; Puga and Venebles, 1996 cited in
Larson and Clifford, 2004).
3.4.6 Employment
Most trade theorists argue convincingly that relaxation of trade barriers and
promoting free trade will spur job opportunities. In order to meet production output
demands due to exporting to foreign countries, firms often increase their labour force.
A study carried out by Hashemzadeh (1997) on job related issues posed by the
implementation of NAFTA on USA and Mexico revealed that there was an empirical
association between domestic employment and changes in exports. His analysis
revealed that as a result of increased trade between Mexico and USA, there has been a
creation of nearly 7000 jobs for the period January, 1994 to December, 1995. He
further stated that
“By reducing barriers to trade, NAFTA is expected to raise efficiency by shifting jobs and resources to the most productive sectors in our economy. Likewise, Mexico is expected to benefit from the trade agreement in a number of important areas including greater capital inflows, reversion of capital outflows, creation of better jobs at higher wages, and greater job opportunities in manufacturing and financial services”.
51
Furthermore, in support of Hashemzadeh claims are facts released by the Office of the
United States Trade Representatives (2008) that states that after the implementation of
NAFTA, U.S. employment rose from 110.8 million people in 1993 to 137.6 million in
2007, an increase of 24%. The average unemployment rate was 5.1% in the period
1994-2007, compared to 7.1% during the period 1980-1993. However, RTA
opponents such as Oh and Sun (2003) amongst others have contended that the
positive implications of free trade agreements like NAFTA may fall short of
expectations as RTAs can also result in job losses.
With respect to PICs, Tabaiwalu (2005) argues that RTAs like PICTA would result in
increase in trade flows, improved consumer welfare and enhanced efficiency in the
FIC economies. This will hopefully lead to the creation of jobs in the member
countries.
3.4.7 Reduced Supply Chain Costs
The principal point for RTAs is to foster trade liberalisation. When barriers to trade
are high, the costs associated in transporting goods from the producer country to its
destination tend to be high, adversely affecting the parties involved. RTAs hence
become a primary means of eliminating trade barriers by reducing the supply chain
costs. Waller and Emmelhainz (1995) argue that RTAs like NAFTA can help
businesses by taking substantial costs out of the supply chain by both tariff reduction
and improved efficiencies hence making firms more competitive in the global arena.
3.4.8 Easier Market Access
Penetration into an open economy with limited trade barriers is much easier than
trying to establish a business in a highly protected market. Joining a RTA guarantees
its members free access to the markets of other members. Studies carried out by
Kawai and Wignaraja (2009) in Asian countries revealed that FTAs in the region tend
to provide businesses preferential tariffs and easier and larger market access that
results in increased exports and encourages import of immediate inputs. Similarly, Liu
(1998) states that Canada’s primary objective in negotiating CUFTA and in joining
NAFTA was to gain guaranteed market access to the markets of partner countries.
Mexico also joined NAFTA in the hope to secure market access to US.
52
3.4.9 Increased Investment
An important means of evaluating the impact of RTAs is by determining whether
RTAs provide a reliable platform for making efficient investment decisions (Fox,
2004). Numerous studies have been carried out on the interaction between trade,
investment and integration (Bende-Nabende, 1999; Barell and Pain, 1999; Motta and
Norman, 1996). RTAs can increase investment in member countries by attracting
investment from within and outside the integrated region as a result of market
enlargement and production rationalisation (Niekerk, n.d; Larson and Clifford, 2004;
Fox, 2004; Liu, 1998).
When markets integrate, various trade distortions are reduced and the credibility of
political and economic reforms are enhanced (ECA, 2004) that results in lumpy
investments that might only be viable above a certain size (Niekerk, n.d). Fox (2004)
argues that individual countries (initially unwilling to invest) are tempted as they
through an RTA now have access to a larger regional market. Another reason for this
attractiveness is that foreign firms wish to evade external duties of the RTAs by
establishing a manufacturing plant within the integrated area (Liu, 1998). An
integrated region becomes more lucrative and tends to provide many new business
opportunities to domestic as well as international investors
Empirical evidence shows that RTAs can increase investment. Floyd (2001) suggests
that RTAs are freeing up capital flows that has resulted in a huge increase in foreign
direct investments. According to the World Investment Report cited in Floyd (2001),
80% of the World flows are between trade blocs such as the EU, NAFTA and
ASEAN. Similar evidence has also been presented in Larson and Clifford (2004).
3.4.10 Rules of Origin: Burden on Businesses
To qualify for preferential treatment entailed in a RTA, goods must meet the specified
criteria on rules of origin laid out in the RTA. Rules of Origin (ROO) are certain
conditions that are laid out in almost all RTAs that help determine whether a good
qualifies for preferential treatment (such as reduction or exemption from custom
duties) when exported from one member country to another (Estevadeordal et al,
2009; Gasiorek et al, 2009). The principal for determining originating status is that
substantial transformation needs to be occurred.
53
Gasiorek et al (2009) suggests the following three criteria that can be used to
determine whether the level of transformation required has been achieved or not:
� Change in tariff classification rule- whether the transformation of the good has
resulted in a different tariff classification line between the manufactured product
and the input.
� The value content rule- whether or not the value of imported raw materials
exceeds a certain percentage of domestic value adds.
� The specific production process rule- whether goods manufactured have gone
through the specified production process.
Studies across the globe have revealed that businesses have raised their concerns on
the complexity and multiplicity of ROO laid out in RTAs. With specific reference to
studies carried out in Asian countries, Kawai and Wignaraja (2009) state that multiple
ROO in FTAs in the region has imposed serious burdens on businesses, particularly,
SMEs that find it difficult to meet the costs associated in complying to the
overlapping ROO. According to the Asian Development Bank Institute (2010), FTAs
are increasingly becoming a vehicle of trade policy and diplomacy across the globe
including the Asian countries. However, the benefits and costs of these trade deals are
the subject of debate. Critics worry that this wave of agreements fosters an alarming
“noodle bowl” 45of overlapping rules of origin requirements, which may be costly to
businesses. A survey carried out on 800 companies across Japan, Republic of Korea,
Republic of China, Singapore, Thailand and Philippines revealed that the Asian
“noodle bowl” has not harmed the business activity in the region. However, 27% of
the responding firms have showed concerns towards multiple rules of origin that have
added to the business costs (Kawai and Wignaraja, 2009). Similarly, in Fiji, our
exporters have to meet certain rules of origin requirements to qualify for preferential
treatment. As noted by Urwin (2007) the nature of the rules of origin under the
SPARTECA agreement made it difficult for goods produced and manufactured in the
PICs to qualify for SPARTECA preferences.
45 This phenomenon refers to overlapping regional trade agreements that is often viewed as harmful.
54
Based on the review of literature, it can be seen that impact of RTAs has both
negative and positive implications for businesses. The diagram given below provides
a simplified illustration on this phenomenon:
Figure 3.3 Simplified Illustration on the Impact of RTAs on Business
that utilise
experience
which may lead to
Source: Created by Author (2010)
Firms
Elimination of trade barriers
Negative Impact � Trade Diversion � Increased Competition � Increased business costs due
to complex ROO � Difficulty in qualifying for
preferential treatment � Investment Diversion
Positive Impact � Trade Creation � Export Growth � Economies of Scale through
extended customer base � Competition � Internationalisation and
relocation of production � Employment � Reduced supply chain costs � Easier market access � New business opportunities � Increased Investment
RTAs
55
3.5 Arguments and Motivations for RTAs
Besides the positive impacts of RTAs being the major motivating factor to purse or
join a RTA, there are some other arguments that encourage the growth of RTAs:
a) Enhanced Bargaining Power- Smaller nations with weaker economies do not
often have the power to influence the decision making and negotiation
process. By banding together through RTAs, member countries enhance their
bargaining power at the international level and this is indeed beneficial in
trade negotiations (Fernandez and Portes, 1998; Schiff and Winters, 1998;
World Bank, 2000b cited in Larson and Clifford, 2004) and (Consumer
International, 2007; Liu, 1998; Niekerk, n.d). Narsey (2010) states that for
FICs, RTAs can assist FICs to speak with one voice internationally enabling
them to have greater influence against other blocs.
b) Cooperation- Small countries that are particularly characterised by low
income can benefit from cooperation from resource pooling and problem
eradication (such as climate change or pollution) (Larson and Clifford, 2004;
Consumer International; Niekerk, n.d). Small and weaker economies are likely
to be more influential as a group rather than as individuals in a multilateral
system. With respect to FICs, by agreeing to the policy agenda under PICTA,
FICs will be provided with financial and technical assistance from donor
countries like Australia and New Zealand (Narsey, 2010). RTAs also reduce
the risk of conflicts and ensure security as it increase the level of dependency
amongst trading partners as regular political contact builds trust and
confidence. This in a way assures businesses reduced likelihood of a trade
war.
c) RTAs simply trade negotiations- Under a multinational trading arrangement,
numerous parties are involved that increase the complexity of negotiations. In
an RTA lesser number of parties are involved that help simplify the
negotiation process. Countries that form an RTA have harmonised trade
policies. Differences are resolved that enhances the ability of a RTA to simply
trade negotiations.
56
Trade matters that could take years to get resolved under the multinational trade
negotiations are solved much quicker under a RTA (Liu, 1998). This enables firms
to get trade issues sorted out in a shorter span of time. The formation of RTAs
such as PICTA between FICs was also encouraged by the EU. It was argued that
the post-Cotonus EPAs will be easier to negotiate if FICs acted as a regional bloc
rather than as individual countries (Narsey, 2010).
d) Economic Growth- the level of business activity taking place depends on
how healthy and promising an economy is. A healthy economy has high rates
of growth potentials and is able to attract investment. The theory of
endogenous growth proposes that growth rate of an economy is depended on
the type of economic policies, knowledge amassing, rate of technological
progress, quality of institutions and governance (Larson and Clifford, 2004).
Economic policies such as trade liberalisation through trade agreements are an
effective means to foster economic growth. Such growth is considered
beneficial to all parties in an economy, including businesses houses.
Besides these arguments that motivate the use of RTAs, there are certain other issues
that create antagonism against the growth of RTAs. Some of these arguments will be
discussed next.
3.6 Arguments Against RTAs
Despite the recent proliferation and enthusiasm in formatting RTAs, there are certain
arguments put forward by scholars that highlight the problems that can arise from the
growth of RTAs:
a) RTAs are protectionists- it is argued that RTAs provide preferential
treatment to members at the expense of non- members that makes it
discriminatory. After the implementation of an RTA, a new tariff structure is
developed that raises trade barriers to non-members (Crawford and Laird
2001; Liu, 1998). This also places threats and distortion to the rules of WTO.
As argued by Lloyd and Maclaren (2003), within an RTA a set of complex
multi layered pattern of discrimination exists that benefits members and
harms some of the non member countries.
57
b) RTAs can replace the multilateral free trade system- according to the
Consumer International (2007), RTAs can be either seen as a complement or
an alternative to the multilateral trading system. It has also been argued that
RTAs are a potential threat to the multilateral free trade system in the sense
that in certain cases, WTO members that experience frustrating negotiations
in GATT rounds that makes them not at all interested in the multilateral free
trade system. This negative attitude can hence be a factor in the failure of the
multilateral free trade system (Liu, 2007).
c) RTAs are stumbling blocks- this argument has been put forward by
numerous scholars who have questioned the ability of an RTA to be a
building block rather than a stumbling one. This is due to the fact that certain
research has shown that participating in an RTA doesn’t not lead to growth
(Vamvakadis, 1999), it can also lead to divergence of member countries
income (Venebles ,2003) and that such evidence that trade liberalisation
through RTAs leads to growth doesn’t exist (Melo et al, 1993). These
arguments however imply to developing countries and that such claims may
not hold true for all economies.
3.7 Some Research Questions
The impact of RTAs is of concern for all stakeholders in an economy: consumers,
businesses and the government. Many questions remain unanswered despite rich
literature available on RTAs and its impact. RTAs are a fertile area of research and as
far as this research is concerned, questions will be largely centred on exporting firms
and the impact that RTAs have on their operations.
Some of the research questions that arise from the current review of literature are as
follows:
� Fiji is part of several overlapping RTAs. If these agreements exist, at what rate are
its free trade provisions utilised? If firms are not using RTAs, what are some of
the impediments for this? What type of firms (small, medium or large) make use
of these agreements?
58
� RTAs have been in existence for a number of years now. How much awareness do
business houses have on the agreements that Fiji is part of? What else can be done
to make businesses aware of such opportunities? What support services are
available for our firms in Fiji to export under these RTAs?
� Literature reveals that participating in RTAs can yield numerous benefits for
businesses like trade creation, export growth, employment creation, increased
investment, easier market access, expanded customer base, reduced supply chain
costs, internationalisation etc. Do these benefits seem possible for businesses in
Fiji? Have businesses in Fiji in any way benefited from trade liberalisation? If
these benefits are not being realised, why is it so? What else needs to be done to
become major beneficiary of RTAs?
� Have RTAs negatively affected our export houses in Fiji? If yes, in what ways?
Do businesses in Fiji find it difficult to qualify for preferential treatment? Has
meeting the ROO requirements added to the cost of doing business? What other
trade barriers do firms encounter while trading with other countries?
� Are firms satisfied with RTA advocated by Fiji? Are RTAs the way forward to
strengthen the export industry of Fiji?
3.8 Developing a Conceptual Model
The primary objective of this research has been to examine the impact of RTAs on
the business community in Fiji and this requires the development of an appropriate
conceptual model that incorporates various issues that reflects what this study intents
to discover. While limited literature exists on a micro level analysis on the
implication of RTAs on businesses, this research has encompassed various factors to
develop the model illustrated by Figure 3.4. The model attempts to provide the
framework of this study as well as assist in the understanding of RTAs and its
implications on businesses in general.
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Figure 3.4 Research Conceptualisation
Source: Developed by Author (2011)
The following specific research questions have been formulated for this study:
� What are the existing RTAs that Fiji is signatory to?
� What is the level of awareness and utilization of RTAs in Fiji?
� What are the trade barriers faced by firms in terms of trading with their
partner countries?
� What are the positive impacts of participating in RTAs for exporting firms in
Fiji?
� What are the negative implications of RTAs?
The level of awareness that firms have on RTAs and the nature of support they get
from institutions dealing with RTAs determines whether firms utilise free trade
preferences in RTAs or not. In order to enjoy such benefits of reduced tariff rates and
removal of other trade related barriers, stakeholders need to first understand what
RTAs comprise of. Wignaraja and Kawai (2010) and Zhang (2010) in their respective
studies revealed that the most significant reason for the non usage of RTAs has been
the lack of knowledge that firms have on these agreements. Zhang (2010) further
presents that when firms are aware of these services, they are likely to use them.
Similar argument has been put forward by Wijayasiri (2007) and Mel at el (2011) that
the lack of awareness and understanding on the terms of the schemes on the part of
exporters has caused problems in its utilization.
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According to Kalouniviti (2012) when it comes to setting up imports and exports, it is
of important that one knows the current trade agreements that Fiji is part of.
According to the EU (2011), past experiences with RTAs suggests that despite the
many benefits of FTAs, continued attention needs to be paid in providing wide-
ranging information to allow the creation of necessary awareness amongst
stakeholders for them to fully exploit the potentials of these agreements. Thus:
H1- There exist a correlation between the level of awareness and the utilisation of
RTAs.
Awareness and understanding on RTAs play an important role in determining the
effectiveness of RTAs in general. This can only be gained if business houses are
provided with the necessary support by key institutions that deal with trade related
matters. Zhang (2010) in this light argues that in order to encourage the usage of
RTAs; the establishment of key institutions and the special programs in the form of
support services becomes a must. Kawai and Wignaraja (2009) also highlight that
industry and business associations tend to play an important role in providing support
services to trade under FTAs. When businesses are provided with such assistance, the
level of understanding on RTAs implications increases that results in firms wanting to
use and enjoy the luxuries that RTAs have to offer. Thus:
H2- Utilization of RTAs depends on the level of support given by agencies set up to
assist business in carrying out off shore operations
Furthermore, as discussed earlier, the utilisation of RTAs comes with its own benefits
and negative implications. It is ideal that if a firm utilises free trade preferences, it
should be able to reap its benefits in terms of growth in their businesses. Numerous
business and economic studies have shown that utilisation of RTA is correlated to
growth at both the macro and micro level. At country level, Kaur and Sidhu, (2011-
2012), Andersen and Babula (2008); Yanikkaya (2002); Clark, (1997); Sachs and
Warner, (1995); Dollar, (1992) present that an economy that promotes openness and
trade liberalization tend to experience higher levels of economic growth.
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The individual growth of firms tends to contribute to the growth of the country at
large. With reduced tariff rates and enlarged markets, exporters that exploit the
opportunities of RTAs tend to experience increase in their growth levels. In this light:
H3- The use of RTAs contribute towards the growth of the firm
A firm that has plans on expansion in terms of export strategies are in a more likely
position to be more interested in gaining awareness on RTAs thus utilizing RTAs.
The general business export strategy (plans on internationalization) tends to
determine the future directions of the business. RTAs present opportunities of
international expansion to business. A firm that has the necessary resources and
vision are the ones that are more likely to engage in RTAs. Study carried out by
Chetty (1997) revealed that RTAs along with deregulation tends to expedite the
internationalization of firms. He further argued that RTAs tend to influence the
choice of the initial export market. Cavusgil and Naor (1987) and Ahokangas (1998)
cited in Singh et al (2010) state that the strategic approach to exporting is closely
related to the firm’s ability to gather export market intelligence and its capability in
terms of controlling resources. Kawai and Wignaraja (2009) in relation to RTAs
suggest that firms tend to change their business plans or export strategies as a result
of RTAs. Therefore:
H4: Internationalization plans and awareness on the provisions of RTAs contribute
significantly towards the utilization of RTAs
3.9 Conclusion
From the premise that trade is an important instrument for economic development, the
need to encourage access to different markets becomes vital. This can be achieved
through the elimination of trade barriers and encouraging integration and trade
liberalization in the region. PICs have had a long and difficult journey without much
progress made towards integration. RTAs have its many advantages that can enhance
an economy’s performance; however, it is important to note that it has its negative
implications as well. There is enormous support for the claim the trade liberalization
brings about growth in an economy which is reflected in the growth of business trade.
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A careful study needs to be carried out to understand the implications of RTA that
fosters liberalization of trade on the business community in Fiji. It is in this light, this
thesis will tend to investigate how the regional trade agreements in the Pacific has led
to the elimination of the various trade barriers and the impact this has had on the
business community in Fiji.
This chapter has reviewed the literature on the implications on businesses in terms of
participating in a RTA. The chapter has described the nature of RTAs adopted by
countries, the trends in the development of the RTAs, its evolution and a review of the
perceived benefits and costs that RTAs can yield for businesses operating in member
countries. This chapter has also supported such claims by empirical evidences based
on the research and surveys of numerous academics and scholars. This review of
literature has helped develop some research questions that will assist in investigating
whether such benefits and costs of RTAs have been experienced by companies in Fiji
or not.
The next chapter develops an appropriate research methodology for this research that
will assist in effectively answering the research questions generated.
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CHAPTER FOUR
METHODOLOGY
4.1 Introduction This chapter outlines the research methodology adopted for this study. The chapter
will highlight and justify the need to incorporate a blend of both quantitative and
qualitative research methods. Together with this, the chapter will also explain the
previous research methodologies, the process and techniques used for data collection
and data analysis, the sampling, recording, verification of the data collected as well as
acknowledge the research limitations and problems encountered during the research
period.
4.2 Methodology
The nature of the research questions and research objectives for a particular study will
dictate the choice of the research methodology (Rosselet, 2004) and researchers
should use methods appropriate to the topic at hand (Filstead, 1970 cited in Chadwick
et al, 1984) . There exists no single research method or instrument that is excellent or
superior to any other rather each method has its own strengths and weaknesses
(Wilkinson and Birmingham, 2003; Chadwick et al, 1984). Qualitative and
quantitative research methods are the most commonly used methodological
frameworks in social and business research. Burns (1994) argues that both approaches
are necessary since no one methodology can provide answers to all questions and
provide insights on all issues as such a careful blend of both methods is essential. This
study therefore, incorporates the use of both approaches to ensure that rich
information is generated from this research.
Quantitative research is based on the methodological principles of positivism and neo
positivism that sticks to the standards of a strict research design that is developed
prior to the actual research (Adams et al, 2007: 26). This type of method is mainly
concerned with numbers and data that can be easily quantified as well as counting and
measuring facts by establishing relationship between theory and research (Bryman
and Bell, 2007).
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Utilising this method has its own strengthens. Its major attractiveness lies in its
precision and control. This is achieved through its sampling and design. Tests used
under this approach provide answers on firm basis of facts rather than subjective
means of intuition or opinion (Burns, 1994). However, its major drawback as argued
by Bryman and Bell (2007) lies in its reliance on instruments and procedures that
hinders its connection between research and everyday life. Adding to this, Burns
(1994) highlights that quantitative research often produces trivial and banal findings
of little consequence due to restrictions and control of variables.
As opposed to quantitative approach, qualitative methods facilitate the study of issues
in detail and in depth (Patton, 1990) that produces findings not arrived at by means of
statistical procedures (Strauss and Corbin, 1990: 17). It stresses on the validity of
multiple meaning structures and holistic analysis, as opposed to the criteria of
reliability and statistical compartmentalisation of quantitative research (Burns, 1994:
11). The major strength of this approach is that it provides greater depth of
understanding (Hesse-Biber and Leavy, 2004; Burns, 1994; Marshall and Rossman,
1989; Chadwick et al, 1984) as it helps researchers to ground observations and
impressions in a richly elaborated context of the perceived world view and values of
the subject (Chadwick et al, 1984: 211). A major drawback of qualitative research
methods is its subjective nature. Burns (1994) argues that due to its subjective nature,
it is difficult to apply conventional standards of reliability and validity on this
approach.
Keeping in mind that both quantitative and qualitative research methodologies come
with its own unique strengths and weaknesses, this study has incorporated the use of
an integrated approach. The use of both methods will enable the researcher to get
more information and gain better understanding on the research topic. As cited by
Mathison (1986), one of the assumptions of using an integrated approach is that bias
inherent in data sources, investigators and methods will be cancelled out when used in
conjunction with other sources, investigators and methods. Qualitative data makes
quantitative data more meaningful and helps to clarify issues which would otherwise
be obscure and insignificant (Fielding & Fielding, 1986).
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4.3 Previous Research Methodologies A number of studies have been carried out in different regions across the globe to
access the impact that RTAs can have on businesses or on the nation has a whole.
Each study has adopted its own research methodology based on what it intended to
find out. A look at these previous methodologies will assist in the selection of the
right research tools for this study.
Kawai and Wignaraja (2009) carried out their research in the East Asian region to
determine whether the multiple overlapping FTAs are harmful to business activity or
not. Their focus was mainly to access the impact on SMEs in the region. Together
with this, this study aimed to answer some critical questions such as the following:
� Are FTA preferences being used?
� What are the perceived benefits and costs of FTA for businesses?
� Are multiple ROOs a burden on SMEs?
� Is there enough support for domestic firms to use FTA preferences?
Some of these research questions are clearly related to what this study intends to find
out. Kawai and Wignaraja (2009) study adopted a comprehensive survey based on
609 firms operating in five countries including Japan, Singapore, Korea, Thailand and
the Philippines. The primary research tool utilised was a questionnaire that proved to
be an effective means of collecting data and providing invaluable insights on the
impact of FTAs on East Asian firms. Their research findings indicated that
overlapping FTAs have not severely harmed business activity in the region to date.
Similar study conducted by Battisti and Perry (2008) adopted a more qualitative study
based on face to face interviews with a sample of 51 firms in New Zealand that were
exporters or close to becoming one. Their study aimed to investigate the opportunities
that RTAs have created for SMEs in New Zealand by looking at the current
participation in exporting, the awareness of SMEs on RTAs and the perceived
opportunities presented by FTAs. Their findings revealed that FTAs do present
business opportunities to SMEs; however, SMEs are unable to incorporate them into
their export activities.
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While businesses studies have adopted a more qualitative face to face interviews and
quantitative structured questionnaires to access the impact of FTAs, economists have
adopted their own research methodology to examine the impact of RTAs. The most
commonly used economic research tool in such studies is the “Gravity Model” or
“Gravity Equation” that assumes that the trade between two nations depend on their
geographic proximity and their GDP’s (Muhammad and Yucer, 2009). Liu (2007)
utilised this approach to study the impact of RTAs for Australia and China while
Holmes (2005) has used this model to assess the effectiveness of a total of 158 RTAs.
Muhammad and Yucer (2009) have investigated whether RTAs have been trade
creating or trade diverting.
As depicted from the above examples, previous studies on impact of RTAs have
shown that researcher have advocated different research methodologies to answer
similar research questions. This study will assess the impact of RTAs on the business
community in Fiji and will therefore utilise a mixed methodology that is a blend of
both quantitative and qualitative research methods that will incorporate the use of
structured questionnaires and face to face interviews.
The subsequent sections of this chapter will discuss the research design and research
tools utilised for this study in detail.
4.4 Research Design
According to McMillan & Schumacher (1997, p 33), research design is the
“Plan and structure of the investigation used to obtain evidence to answer research questions. The design describes the procedures for conducting the study, including when, from whom and under what conditions the data will be obtained. In other words design indicates how the research is set up: what happens to the subjects and what methods of data collection are used.”
It involves a series of rational decision making choices (Sekaran, 2003) that
establishes a framework for the collection and analysis of data in a way that ensures
that requisition of data and its analysis assist in arriving at a solution to the stated
research problem (Bryman and Bell, 2007; Sekaran, 2003).
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Burns (1994) further argues that the process of a research design is to minimise
experimental errors which increases the likelihood that a research will produce
reliable results.
Figure 4.1 Research Process of the Study
Literature Review and problem statement
Research Objectives and Research
Questions
Research Methodology: Data
Acquisition methods
Quantitative: Survey based Structured Questionnaires
Idea Generation
Qualitative: Selected interviews
Data Analysis: Statistical Analysis
and evaluating interview data
Conclusion/ Recommendation/ Implications and Future Research
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This study has adopted a triangulation method that incorporated the use of survey
research, interviews and descriptive statistics. Such a method provides deeper
understanding and enables the researcher to be more confident of their results.
4.4.1 The Population and the Sample
Before data can be collected, a sample needs to be selected that is representative of
the population. In all forms of research, it is ideal to test the entire population but in
most cases, the population is just too large and given the time, resource and financial
constraints, a sample needs to be selected. The firms that are part of this survey are
exporting firms which are clearly related to the topic under study. The exact list of
exporters operating in Fiji is not available hence information on this had to be
obtained from numerous sources such as the Fiji Islands Revenue and Customs
Authority (FIRCA), Fiji Trade and Investment Bureau (FTIB) and the Fiji Directory.
Once this was done, a final list of 160 exporters 46in Fiji was prepared.
At the initial stages, it was decided that the entire population be tested for this survey,
however, only 133 firms were selected for survey. Selection of approximately 133
firms from the list of 160 was based on convenience sampling technique.
Convenience sampling is a non-probability sampling technique where subjects are
selected because of their convenient accessibility and proximity to the researcher
(Sekaran, 2003). The reason for the exclusion of 22 firms from the list was due to the
following factors:
� Specific location and address or phone numbers of certain firms could not be
found.
� A number of firms were located in areas that appeared to be outside the key
administrative divisions of Fiji. Costs of travelling to these areas were high. These
areas included Taveuni, Levuka, Sigatoka, Navua, Vatukoula, Dreketi, Savusavu
amongst others. Only 1 or 2 firms were situated in each of the stated areas hence
personally administrating the survey became meaningless.
� Certain firms that were located in remote areas and did not have email contacts
hence could not be contacted as well. 46 This number does not present the total number of exporters operating in Fiji. It is only based on what statistics was available from the mentioned sources.
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Keeping in mind these factors, convenience sampling technique appeared to be the
most viable option hence information was obtained from members of the population
that were conveniently available to provide it. Structured questionnaires were
distributed to a total of 133 firms of which the 100 firms responded. Majority of the
respondents were from the Central Division as it is the major business hub in Fiji
followed by the Western Division. In order to reduce the degree of bias, the size of
the sample has be to kept more than 60% of the population. The response rate for the
survey was 75%. Exporters operating in key business hubs such as Suva, Lautoka,
Nadi, Ba and Labasa were part of the survey. Given the time and financial constraints,
exporters from other parts of Fiji were excluded from the survey.
Table 4.1 Study Sites and Firm Response Rate
The majority of the responding firms were manufacturers of textile, clothing and
footwear (TCF), processed food, timber and furniture, beverages, nail, mesh,
aggregates and related products while others were from the agricultural sector,
wholesalers, retailers and consultancy services.
4.4.2 Research Tools
For the purpose of achieving the set aims and objectives of this research, both
primary and secondary data source has been utilized. This research was conducted
through two broad methodological frameworks namely quantitative and qualitative.
The subsequent sections will highlight the specific research tools utilised for the
methods suggested.
Region Number Contacted Number Responded Percentage Response Suva 85 60 72%
Lautoka 19 14 74% Nadi 16 15 94% Ba 8 6 75%
Labasa 5 5 100% Total 133 100 75%
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4.4.2.1 Quantitative Research: Using Structured Questionnaires
The survey instrument for this research is the questionnaire. It is to be noted that the
questionnaire is probably the single most common research tool in social sciences. In
this study, structured questionnaires were distributed to exporting firms for the collection
of primary data. Primary data refers to those data collected directly from firsthand
experience. Hence primary data is collected by the researcher from his/her own
observations and experiences.
The main advantages of the questionnaire are its (apparent) simplicity, its versatility, low
cost and its efficiency as a method of collecting data (Walter, 2006; Walsh, 2005;
Sekaran, 2003; Blackham 2004; Chadwick et al, 1984). Some researchers like Sudman
and Bradburn (1982) cited in Chadwick et al (1984) argue that questionnaire survey can
prove to be an effective means of collecting information about sensitive topics. They
further highlight that if respondents are convinced that the questionnaire is anonymous,
he or she can freely answer them without any fear or embarrassment.
The questionnaire was structured in nature so as to minimize the respondent’s time in
answering them. As this research adopted a survey approach to reach out to a large
number of businesses, and considering other factors such as travel, communication,
distance, time and finance; structured questionnaires seemed a viable option. It is
known that respondents have busy schedules and hence will prefer to finish answering
questions in a limited time frame. Majority of the questionnaires were personally
administrated to ensure that they were answered promptly. The main advantage of this
is that the researcher can collect all completed responses within a short period of time
and any doubts that the respondents might have on any question can be clarified on
the spot (Sekaran, 2003).
Based on the convenience of the respondent, questionnaires were also emailed to
them to be filled and returned via email. Prior arrangements through phone calls were
made to respondents seeking their approval to distribute questionnaires to them. In
many cases, the researcher made appointments through phone calls to see informants
and get questionnaires answered.
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Key informants of this survey were Export Managers, Directors, Accountants,
Marketing Officers, General Managers and others who had knowledge about the
export matters within their organisations.
Before data can be collected, it is important that a pilot survey is carried out. Pilot
survey starts with designing a draft questionnaire which can be pretested for its
accuracy and understandability. Pretesting involves the use of a small number of
respondents to test the appropriateness of the questions and their comprehension
(Sekaran, 2003: 249). This sample of respondents is similar as possible to those that
will ultimately be surveyed (Burns, 1994). For this research, pretesting of the
questionnaire was conducted in August 2010 in two phases. In the 1st phase, expert
opinions of academics were obtained regarding the design, format and content of the
questionnaire. Once this feedback was obtained, changes were made to the wording of
certain questions together with addition and deletion of specific questions. In the
second phase, the questionnaire was pretested on potential respondents from 10
exporting firms in Suva to find out whether the questionnaire will suffice the research
aims and objectives and whether:
� The instructions were clear
� The questions were clear and understood well
� Any questions were missing or whether questions were repetitive
� Time taken to complete the questionnaire was reasonable
To overcome the weaknesses identified during the 2nd phase, necessary changes were
incorporated in the questionnaire. It was noted that certain businesses did not
understand the meaning of certain type of trade barriers; hence footnotes were
inserted in the questionnaire to describe complex type of barriers (See Appendix 1-
Part III). During the pilot survey, it was also highlighted that certain businesses did
not utilise RTAs hence could not answer questions related to the impact of RTAs.
Keeping this in mind, changes were made to Part IV of the questionnaire that enabled
respondents that did not use RTAs to give their perception on the impact of RTAs on
businesses in Fiji.
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These changes helped to increase the context and structure of the questionnaire and
also ensure that rich data could be gathered in the actual questionnaire based survey.
Once these changes were done, the final version of the questionnaire emerged that
was distributed to 130 exporting firms.
4.4.2.1.1 Questionnaire Design
The questionnaire for this study was developed based on extensive review of literature
from which a survey questionnaire was constructed. A reliable research tool is one
where similar results are obtained from multiple sources. For a questionnaire to be an
effective instrument, care has to be taken in its preparation and design so as to ensure
that it is not lengthy, is clear and attractive, has a professional appearance and is easy
to fill out. Sekaran (2003) argues that sound questionnaire design must focus on three
key areas:
� Wording of the questionnaire
� Planning of issues on how variables will be scaled, categorised and coded after the
receipt of the responses
� General appearance of the questionnaire
Bearing in mind these points will ensure that biases are minimised (Sekaran, 2003)
and that the response rate is higher (Burns, 1994) as these will greatly assist in the
summarisation and analysis of the collected data. In designing the questionnaire for
this study, basic rules of presentability, courtesy as well as readability were kept in
mind (Converse and Presser, 1988). Efforts were made to ensure that technical
notions used also had descriptions provided in the questionnaire. The questionnaire
was designed with proper introductions and instructions to make it easier for
respondents to answer. In this study various types of rating scales were utilised in the
construction of the questionnaire items. These included multiple choice single
responses scale, multiple choice multiple response scale and 5 point Likert scales. The
type of questions developed was closed ended with only 3 open ended questions. The
subsequent sections will discuss each section of the questionnaire in detail
highlighting the context and relevance of the sections.
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Each section of the questionnaire had headings giving the respondent a clear
indication of what each section was based on.
Front Cover
To ensure that respondents were clearly informed on the purpose and nature of the
study, a title page summarising the description of the research with other necessary
details were incorporated in the front page of the questionnaire. Respondents were
informed on the goal of the survey and what the research intended to find out.
Assurance of confidentiality of information obtained was also stated as to make sure
that respondents answered the questionnaire truthfully and without any fear of
disclosure of confidential information. Since the survey required information related
to export matters, the front cover also stated the need for the questionnaire to be
answered by an Export Manager or a Senior Manager within the organisation. This
statement ensured that information obtained from the survey was reliable and the
respondents had some knowledge on the topic under study. The respondents were also
informed that the survey was carried out for a Master’s Thesis at the University of the
South Pacific and for the Department of Management and Public Administration. The
respondents had full liberty to withdraw from the survey at any point in time. The
front cover also stated the questionnaire number together with the date for easier
reference and identification. The front cover also required the respondents to fill in
their company names; however, this was left optional as some respondents showed
hesitation in disclosing their company names. Finally, respondents were
acknowledged for their willingness to take part in the survey.
Part I: Demographic Information
As the section title illustrates, questions under this section were related to the
demographic features of individual companies in terms of the following:
� Location
� Legal Status (firm type)
� No. Of employees
� Nature of the business (Industry that business belongs to)
� Length of business operations
� Export experience
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� Major Trading Partners
� No. Of export destinations and
� Percentage Export
These questions form an integral part of any questionnaire. These are used to identify
the characteristics of the firms under study that presents a clearer picture of the
sample that this study is trying to understand. Information gathered here assisted the
researcher in eliciting the details of the organisation for the purpose of categorisation
of the participant organisation and also in finding out the relationship between
variables such as percentage export and utilisation of RTAs, firm size and growth, etc.
In order to measure these, nominal scale technique had been used. According to Hair
et al (2003), a nominal scale uses labels or numbers to identify and classify
individuals, objects or events. In the survey, numbers had been assigned to variables.
A total of 9 questions formed this section and certain questions also had the “Others”
Option that required the respondent to provide specifications for that particular
question. Questions under this section were designed with reference to various studies
carried out locally such as Ashwini (2006) and Singh (2006). Questions that deemed
important and specific to this study were also incorporated in the questionnaire.
Part II: Awareness and Utilisation of RTAs
Questions under this section were to ascertain the level of awareness and utilisation of
RTAs. This section had follow up questions that could be answered when a particular
condition has been met in the previous question. For example, those firms that made
used of RTAs were also asked to select the specific RTA used and those that did not
use were required to answer a different set of questions as to why they did not utilise
the free trade preferences. Nominal scale had again been used in this section as
answers were to be provided in using two predetermined categories “Yes” and “No”.
In certain cases, a “Maybe” option was also used.
Part III: Trade Barriers
The basic premise for the adoption RTAs is the removal of trade barriers faced by
exporting firms. This section of the questionnaire was aimed at ascertaining whether
this aim has been achieved.
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Respondents were first asked to identify the trade barriers faced by their companies
from a list of commonly faced trade barriers by businesses in developing countries.
The common set of trade barriers had been identified with reference to studies carried
out by (Fliess and Busquets, 2006) and Brent Radcliffe (n.d). Similarly other
researchers have also identified the same set of barriers amongst the commonly faced
barrier types. The respondents were asked to select the barriers they faced on a simple
nominal scale with “Yes” or “No” categories. Together with this, the section also
required the respondents to rank the barriers based on the severity of the barriers
impact on the business exports. For instance, if custom/ duty were the major barrier
faced the company than it was given Rank “1” followed by quota “2” and so forth.
Such a measuring tactic is known as an ordinal scale. Hair et al (2003) states that this
scale places objects into a predetermined category that is rank-ordered according to
some criterion that enables the researcher to identify if a variable is more or less
important than some other variable. The section ended with questions related to the
removal of trade barriers and a nominal scale two predetermined categories
“Removed” and “Not Removed” were used for measurement. Firms that didn’t use
RTAs were advised to skip these questions.
Part IV: Impact of RTAs
This section of the question is the most important section whereby the researcher tries
to explore the impact, if any; that RTAs have had on the exporting firms in Fiji. The
section begins by analysing the general impact of RTAs. This section could only be
answered if businesses have made used of agreements. Hence in order to elicit more
information for all respondents, whose firms that did not make use of agreements
were asked to provide their perception on the impact that RTAs may have on firms.
After an extensive review of literature, a list of possible impacts had been identified
and respondents were asked to identify the likely outcomes of RTA utilisation.
Together with this, special focus was placed on the growth of firms that used RTAs.
Five growth variables had been identified and firms were to select whether they had
experienced any of those after exporting under RTAs in Fiji. The growth variables
used for this study included the following:
-Sales
- Employment Rate
-Market Share
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-Return on Investment
-Profit Margin
According to Singh (2006), prior research has shown that growth is a measure of firm
performance in terms of firm profitability sale turnover ratios hence for this study
growth has be used to measure the performance of the firms under study which in turn
will assist in evaluating the positive impact that RTAs have had on businesses in Fiji.
Furthermore, firms that utilised RTAs were also asked to provide the ratings to the
level of increase they have experienced and in order to do so nominal scale had been
used that allocated numbers to represent the increase bracket (expressed as
percentages). This assisted the researcher in determining the level of impact on those
firms that do make use of RTAs for trading. Future growth of firms also formed an
important aspect of this research hence it is vital that expectations of future growth of
firms be evaluated. This also contributes to the economic outlook for Fiji in terms of
exports firms and also the level of pessimism or optimism amongst firms in the Fijian
economy. In order to measure these growth variables, Thurstone scale had been used
that enabled firms to rate their growth ranging from Score 5 as “significant growth”
and Score 1 as “significant decline”. The scale was considered appropriate to capture
relevant data as it allows for flexibility of choices to the respondent. According to
literature, another significant impact of RTAs on firms is that of competition. Specific
questions related to this had also been included under this section. In order to measure
the impact of increased competition, if any, that firms had experienced respondents
were requested to rate competition before and after the implementation of RTAs. In
this way, the researcher has been able to identify whether increase in competition as a
result of RTAs have had a negative or positive impact on exporting firms in Fiji.
Reference was made to studies carried out by (Rucker, 2010); Korinek and Melatos
(2009); Mohammad and Yucer, (2009); Battisti and Perry (2008); Stadler, et al
(2006); Global Economic Prospects, (2005); Fox, (2004); (Liu, 2004); (ECA, 2004);
Fox (2004); Venebles (2003); Rao (2002); Prasad (2002); World Bank Policy
Research Report, (2000); Thirlwall (2000); Vamvakadis (1999); Zineldin (1998);
Chetty (1997); Hashemzadeh, (1997); Waller and Emmelhainz, (1995); McMillan,
(1993); Melo, Panagariya and Rodrick (1993); Greenaway et al, (1989); Jacob Viner
(1950); (Karakaya and Cooke, n.d); Niekerk, (n.d.) amongst others.
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PART V: Rules of Origin
No one RTA goes without certain terms and conditions that allow goods to be traded
under preferential treatment and PIC’s RTAs are no exception. This section of the
question was aimed that eliciting the level of awareness and impact of numerous and
complex ROO on firms. Kawai and Wignaraja (2009) state that multiple ROO in
FTAs in the region has imposed serious burdens on businesses, particularly, SMEs
that find it difficult to meet the costs associated in complying with overlapping ROO.
This section consisted of 4 questions that provided statements that needed the
respondent’s level of agreement on those statements. In order to do so a 5 point Likert
scale was used that ranged from score 5 as “strongly agree” to score 1 as “strongly
disagree”. Reference was made to study carried out by Kawai and Wignaraja (2009)
in designing questions for this section.
The next section of the questionnaire was aimed at examining the level of institutional
support that firms were either provided or needed to export under the RTAs.
PART VI: Institutional support for exporting under RTAs
In order to successfully trade under RTAs, firms need to have adequate knowledge
and understanding of the specific provisions in RTAs. While numerous agencies and
organisations have been set up to assist firms, only a handful of firms tend to take
advantage of the services provided. This section of the question attempts to find out
the sources of institutional support available and used by firms, the ease of access to
these agencies and the demand for additional support services by the exporters of Fiji.
The level of institutional support can then be linked to the positive and negative
outcomes of RTAs. Specific reference has been made to studies carried out by Kawai
and Wignaraja (2009) and Singh (2006) in designing this section. Questions under
this section ranged from simple “Yes and No” questions to rating their response on a
5 point Likert scale.
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Part VII: Internationalisation
This section was aimed at understanding whether the firms under study had any plans
of expanding their operations in terms of new products and new markets and the level
of confidence they had in the existing RTAs ability to assist them in achieving those
plans. Questions were asked in a manner that required the respondents to provide their
perception on specific statements related to internationalisation. 2 scales were used to
measure these responses that included the nominal scale with 3 options and a 5 point
Likert Scale. It is common knowledge that certain firms may not be fully confident of
their future strategies hence in asking questions related to the plans of new products
and new markets, a “Maybe” option was also incorporated alongside a simple “Yes
and No” scale.
PART VIII: Business Views
This was the final section of the question with only 3 questions aimed that
investigating the views of firms in general on RTAs and FTAs. Respondents were
provided with statements and asked to rate their level of agreement on the Likert scale
provided.
The final page of the questionnaire had an acknowledgment note thanking the
respondents for their time and cooperation. It also had an optional section where
respondents were to fill in their Position in the Firm, gender and the number of years
of employment in the firm. This section that been left optional as it known that certain
respondents are hesitant to disclose such information.
4.4.2.2 Qualitative Research
This study has relied equally on quantitative and qualitative sources of information.
While the self administered questionnaire was the main source of information,
qualitative information had been of equal importance to further strengthen and
support the findings of this research. Qualitative information had been gathered from
the following sources:
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4.4.2.2.1 Primary Source
Semi structured face to face interviews were conducted on a small scale with 10
exporting firms that were willing to share more information and insights on the topic
under study. The questions asked were in open ended manner to allow ample time for
the interviewee to respond freely so that a rich source of data could be generated.
According to Bouma (1993), studies that involve people or groups, the researcher needs
to be thoughtful and considerate of the needs of others. Hence, prior to the interview,
respondents were assured on the confidentiality of the information shared and also that
the information would be used for academic purposes only. It had been noticed that not
all interviewees had been comfortable with their views being tape recorded hence to
ensure that the respondents shared their views more freely, no hard evidence such as
recordings were done of the interview rather points highlighted and discussed were
jotted down in these interviews. In terms of assurance of confidentiality, fictitious
organisation and respondent names had been used in this study.
Information gathered through these interviews have been used to further strengthen the
arguments presented by the researcher and is presented in the following chapter.
4.4.2.2.2 Secondary Source
Secondary data is data that has already been collected by someone else and utilization
of these greatly adds to understanding of the research and can act as a foundation on
the basis on which further research can be carried out. Secondary data has been
obtained from extensive use of Text books, ministerial speeches, conference
proceedings, journal articles, newspapers along with the Internet. Journal articles on
RTAs have been the most important source of data for this research and these articles
have be used in developing the literature review on the topic under study. These
articles enabled the consolidation of a wide range of arguments on RTAs and in
strengthening and building on the analysis of the data collected.
4.4.3 Recording, Verification and Analysis of Data
The recording, verification and analysis of data are the most crucial element in
research design. Once data has been collected from the mentioned sources, it was then
analysed. As the nature of data collected is both qualitative and quantitative, they
were analysed accordingly.
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Computerized statistical package was utilized for this purpose. The collected data was
analysed based on the findings of the structured questionnaires and the outcome of
selective interviews. For the purpose of this study, Statistical Package for Social
Sciences (SPSS) was used for data analysis. SPSS has been perhaps the oldest and
commonly used analysis tool for social research and this research made use of
Version 17 to analyze data. However, it is ideal that a set of preliminary steps are
followed prior to analysing data. Before data was entered into SPSS, the
questionnaires were again checked for their correctness and given identification
numbers for cross referencing. Each question in the questionnaire had been coded and
assigned a variable name that made data entry and coding much easier.
After data had been entered, it was then ready for analysis. Data had been analysed in
this study via descriptive statistics. This provided an in depth view on profiling of
exporting firms in Fiji as well as on many issues surrounding RTAs and exporting
firms in Fiji. The findings of this research had then been supported with studies
carried elsewhere. Microsoft excel has also been utilized for data sorting, drawing
tables and simple graphs.
Further, before data could be analysed, it is important to carry out a reliability test on
the variables used for consistency, accuracy, dependability and predictability. The
most prevalent test used for measure of internal consistency is the Cronbach's
coefficient alpha. According to the rule under this reliability test, measures can be
accepted with a > 0.6, otherwise or > 0.7 should be the threshold. With a >0.8 the
measure is very reliable. If Cronbach's alpha (a) value is more than 0.5, one can claim
that internal consistency is good enough (Nunnally, 1978). Keeping this in mind,
variables used for this study had been tested for its reliability prior to hypotheses
testing and analysis.
4.4 Research Limitation
This section seeks to highlight the limitations and the intertwining factors associated
with the research methodology that could affect the comprehensive analysis of the
facts of this study.
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Firstly, this study has been aimed that examining the exporting firms in Fiji and
RTAs hence findings could not be generalised across other PIC s or any other
business sector in Fiji such as non-exporting firms and other exporting firms that
were not been part of this study. The data collection for this study had been carried
during Aug 10- Feb11 hence there could have been more developments thereafter.
Furthermore, it is important to note that all researchers suffer from prejudices and
biasness hence in order to avoid this the researcher maintained an open mind and took
a balanced approach in which both qualitative and quantitative means of data
collection. Another hurdle faced during the course of this study was getting
information from respondents. Some respondents had been very reluctant and
declined to corporate.
For certain questions that were related to financial performance of the business, the
researcher had to reassure respondents on the confidentiality of the information
shared. Hence it was concluded that the presence of the researcher at the study site
was very vital for this study.
4.5 Conclusion
This chapter on research methodology has looked at the previous research
methodologies used for similar research carried out in different countries. Once this
foundation had been laid, the chapter than explained the importance of using a
blended approach for data collection as well as the research process used for the study
was also discussed. The chapter further discussed the sampling technique and data
collection techniques with the justification on the use of each method. The chapter
ends with discussing the research limitations. The next chapter presents the analysis
of the data with discussions on the findings of this research.
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CHAPTER FIVE
DATA ANALYSIS 5.1 Introduction
Based on the literature review in Chapter 3, a series of research questions had been
developed which was later conceptualized. This chapter takes an in-depth look at the
data analysis and interpretation of the results. The findings have been tested through
appropriate statistical means to answer the research questions arising from the in
depth literature review, followed by relevant interpretations. The analysis includes
two parts. The first section discusses the demographic profile of the firms under
study. Descriptive statistics have been used for this purpose. The second section will
present the findings of study that has been divided into different topics based on the
research questions.
5.2 Demographic Profile of the Sample
A profile of the respondents and the sample is presented in Table 5.1 and Table 5.2. A
total of 100 exporting firms have been part of this study. As discussed in the previous
chapter, convenience sampling technique had been used. This approach is justifiable
because of the nature of the study and known factors as highlighted in the
methodology. In this study, descriptive statistics summarises the profile of the
respondent as well the organisational profile which are presented in the following
sections:
5.2.1 Respondent Profile
To ensure that respondents provided meaningful and accurate information, it was of
paramount importance that they had knowledge on the topic understudy as well as
held positions that ensured that they had access to the information required for this
study. Table 5.1 presents a summary on these respondents.
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Table 5.1 Respondent Profile47
Respondent Profile
Respondent Firm
Respondent Position 1 Finance 19 2 Export 24 3 Sales and Marketing 10 4 Operations 2 5 Others 11 6 Senior Management 34 Total 100 Respondent Experience with the Firm 1 1-5 years 44 2 6-10 years 30 3 11-15 years 13 4 Above 16 years 13 Total 100 Gender 1 Male 78 2 Female 22 Total 100
Majority of the respondents held key positions within their firms. 34% of these
respondents formed part of the senior management team that were mostly Managing
Directors, Executives or General Managers. These proved to be beneficial for this
survey as these respondents had more knowledge and expertise and were better
candidates to fill in the questionnaires. 24% of the respondents were part of the export
division that is directly related to managing of sales off shore. Looking at the gender
segmentation, 78% of the respondents were males. A significant number of
respondents had been with their firms for 1-5 years (44%).
5.2.2 Organizational Profile
As indicated in the previous chapter a total of 133 exporting firms were approached of
which the response rate had been 75%. Table 5.2 presents a summary on these 100
exporting firms.
47 The sample size of this survey is a group of 100 exporters hence the number of responding firms under each field also exhibits the percentages of the total
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Table 5.2 Organisational Profile
Organizational Profile
Respondent Firm
Geographical Spread 1 Suva 61 2 Nadi 15 3 Lautoka 13 4 Ba 6 5 Labasa 5 Total 100 Legal Status
1 Shareholding company with shares trading in the stock market 12
2 Shareholding company with non trading shares 44 3 Sole Proprietorship 24 4 Partnership 5 5 Limited Partnership 14 6 State Owned Enterprise 1 Total 100 Length of Business Operations 1 1 year ago 2 2 2 to 5 years ago 9 3 6 to 10 years ago 18 4 11 to 15 years ago 20 5 16 to 20 years ago 8 6 21 to 25 years ago 11 7 26 years and over 31 8 Dont Know 1 Total 100 Workforce Size 1 0-5 8 2 6-20 23 4 21-50 16 5 51-100 19 6 101 and above 34 Total 100
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Industry Sector 1 Textile, Clothing and Footwear 23 2 Food Processing Industry 16 3 Furniture Making 3 4 Beverage Industry 3 5 Agriculture (Forestry, Fisheries and Mining) 18 6 Wholesale and Retail 11 7 Other Manufacturing 19 8 Others 7 Total 100 Export Experience 1 1 year 3 3 2-5 years 12 3 6-10 years 22 4 11-15 years 19 5 16- 20 years 12 6 21-25 years 11 7 Over 26 years 18 8 Dont Know 3 Total 100 Export Partners 1 1-5 countries 65 2 6-10 countries 27 3 11-15 countries 7 4 21 countries and over 1 Total 100 Major Trading Partner 1 New Zealand 15 2 Australia 25 3 United States of America 5 4 United Kingdom 2 5 China 5 6 Japan 6 7 PICs 32 8 Others 10 Total 100
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Export Sales (% of Total Production) 1 1-10% 18 2 11-20% 8 3 21-30% 11 4 31-40% 7 5 41-50% 8 6 51-60% 4 7 61-70% 3 8 71-80% 10 9 81-90% 7
10 91-100% 24 Total 100
Of the 100 exporting firms, 61% were from the Suva Area followed by the Western
Division. Suva, being the central business hub for Fiji has access to major resources
that makes it an ideal location for business thus the high number of exporters
operating from this region. In terms of type of business, 44% of the exporting firm are
registered as shareholding companies with non trading shares followed by sole
proprietor businesses that accounted for 24%.
When businesses have reached an acceptable level of financial and production
stability, it is then in a better position to explore options of venturing into businesses
in other countries. Expanding operations off shore requires considerable business
experience and this is clearly reflected in this study whereby 31% of the responding
firms have been in operation for over 2 and a half decade (26 years and over) and
most firms have been in the export business for 6- 10 years (22%). However, it is also
important to note that there are also some business operators who tend to focus more
on the export market than on the local market itself hence 24% of the firms in this
study were selling 90%-100% of their total production off shore followed by a group
of business that exported only 1-10% of their total production overseas (18%).
In terms of business workforce size, most of the exporting firms in Fiji are entities
that employ over 100 employees. This segment represents 35% of the total
respondents in this study. In terms of industry sector, 23% of the respondents were
from the Textile, clothing and footwear industry. 64% of the total respondents were
involved in some form of manufacturing operations.
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When it comes to export partners, business tend to enter those markets that fall in
close proximity to their own operations as this eases the burden of higher costs of
doing business off shore as well as reduces the complexity of engaging in exports.
This is clearly reflected in the organizational profile as the major trading partners of
these exporting firms are PICs that account for 32% of the total respondents followed
by the remaining 25% that regard Australia as a major export market. In terms of
number of export partners, 65% are engaged into exporting to 1-5 countries while
only 8% export to more than 10 markets.
5.3 Important Issues
This section attempts to explore and present key issues and findings surrounding
RTAs when it comes to engaging in export operations. In most cases, descriptive
statistics has been used and arguments presented by respondents during the survey are
also highlighted to support the findings of this study.
Before carrying out data analysis and hypotheses testing, it is important to check the
questionnaire for its consistency and reliability. In this study, SPSS software has been
used to carry out the reliability tests using Cronbach's Alpha. The Cronbach Alpha is
a reliability coefficient that indicates how well the items in a set are positively
correlated to one another. The scale reliability test was carried out on a set of
variables and the results are presented in the following table:
Table 5.3 Reliability Test Scores
Construct Cronbach Coefficient alpha
Awareness and Utilization .736
Growth .952
Competition .782
Rules of Origin Burden .706
Institutional Support .802
Internationalization plans .897
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According to Bryman and Cramer (1990) and Nunnally (1978), the Cronbach Alpha
coefficient can hold a value of zero to one, but the coefficient of 0.6 and 0.8 is
generally acceptable. The closer the reliability coefficient is to 1 the better it is. As
illustrated in the above table, the reliability test scores for key variables used in this
study is between 0.7- 0.95 which indicates that the variables used are reliable.
5.3.1 Barriers to Trade
Rapid globalization over the past years has made trade restrictions even more
significant. In the world of import and exports, businesses need to clearly gain
knowledge about trade barriers in order to familiarize themselves with the processes
that their products are subject to before it leaves and enters their partner markets.
Trade barriers make it more difficult for companies to export their products to other
markets. Globalization makes handling of trade barriers more complicated as products
are subject to internal and external regulations in both the domestic and the export
markets. Trade barriers are no exception when it comes to exporting firms operating
in a market like Fiji. The extensive literature review revealed common trade related
barriers faced by businesses globally. In this survey, export houses were asked to
identify the barriers that they faced when engaging in off shore trading. Table 5.4
presents the findings.
Table 5.4 Trade Barriers faced by Exporting Firms in Fiji
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At the overall level, tariff, customs and duty tend to represent the major barrier faced
by the respondents. While the other barriers as highlighted in Table 5.4 hinder
businesses to export by a small extend. While only tariff related issues have been seen
as a barrier to all exporting firms, it is important to note that possibilities exists
whereby certain trade barriers are faced by specific industries. This is highlighted in
the following table whereby evaluation on barriers faced is done on industry basis.
Table 5.5 Trade Barriers faced by Industry Type
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In all industries except for food processors and manufacturing, more than 50% of the
respondents see tariff rates are a barrier to trade. Higher tariff rate tend to discourage
businesses to engage in off shore operations as well as adds to the cost of doing
business which in tend affects the financial stability of the firms in general. Similar
statistics is seen in case of customs and duty. Export and business operating license is
a barrier for the furniture, beverage and agricultural sector. Majority of the operators
in the furniture business also face quantitative restrictions as well as voluntary export
restraints when exporting their products to partner markets. Meeting local content
requirements presents challenges for the Textile, clothing and footwear industry as
businesses find it difficult to meet the requirements to qualify for preferential
treatment. 67% of the total respondents in the Beverage industry view unfavourable
foreign rules and regulations as a hinderance to expanding their exporting footprint.
For the agricultural sector, 72% of the respondents have highlighted Standards,
testing, labelling and certification requirements are a barrier to sell produce in other
markets. This is also clearly evident in the number of cases highlighted over the years
whereby Fiji grown agricultural produce do not at numerous occasions get the
approval to enter foreign markets. This is particularly due to high standards set by the
Bio security authorities in all countries.
Respondents have also highlighted that regional partners like Australia and New
Zealand are very stringent when it comes to agricultural imports. For instance, The
New Zealand bio security recently banned the entry of Fiji eggplants into their market
after it failed to meet their set standards. It is also important to note that 80% of all
eggplant product is exported to New Zealand hence such a ban posses a major threat
on businesses engaging in its exports. Furthermore, some of Fiji's fishing vessels have
been scrutinised to have not met standards and requirements set by the European
Union of which one of the key requirements is that vessels need to have the capacity
to full freeze blast fish to -100 degrees Celsius. Such requirements posses major
challenges specifically for the agricultural sector.
Excessive government requirements seems to be problematic for the Textile and
footwear as well as the Beverage industry whereby 52% and 100% of the operators in
each industry segment respectively listed this as a barrier to trade.
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Government procurement barriers in general do not pose any problems for exporting
firms in Fiji. Apart from the common trade barriers faced by exporters, respondents
also highlighted that costs of freight, shipping schedule and frequency and turnaround
time for enquires raised to partner markets also represented challenges for exporters in
Fiji. For instance, it was highlighted that the frequency of vessels travelling to partner
markets were relatively low hence it has affected the firm’s ability to meet demands
for its products off shore. Together with this, higher costs of freight and shipment
present major drawbacks especially for those firms that are in their early stages of
business operations and are smaller in size.
5.3.2 Awareness and Utilisation of Regional Trade Agreements
Fiji has a number of overlapping RTAs that has been in existence for a number of
years. However, the level of awareness that exporters have on agreements that Fiji is
signatory and whether RTA preferences are being used by Fiji’s exporting firms
remains in question. These are critical to the debate on the effectiveness of RTAs.
This section attempts to evaluate the level of awareness and utilisation of RTAs by
exporters in Fiji. The section will provide firm level evidence on the RTA awareness,
use of RTA preferences by sample firms, impediments to RTA use and an analysis of
factors associated with RTA use.
Table 5.6 Awareness and Utilisation of RTAs
When asked on the level of awareness that respondents had on RTAs namely
SPARTECA, MSG and PICTA, majority stated on having average level of knowledge
on the provisions and key issues discussed and documented in RTAs. Respondents
were asked to rate on a scale of 1- 5 with 5 representing full knowledge on RTAs. The
mean score of 2.57 clearly reflects that majority of the respondents have little to
average to knowledge on RTAs. This represented 30% of the total respondents.
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Another important finding was that only 3% of the total respondents had full
knowledge on RTAs. It was also highlighted that certain companies only had some
knowledge on RTAs that they used but not on other agreements that they were yet to
utilize. An overarching indicator of the effectiveness of RTAs is the use of
preferences by businesses (Kawai and Wignaraja, 2009). In terms of utilization of
RTAs, the mean score of 1.49 reveals that majority of the firms do not utilize the free
trade provisions laid out in RTAs. This segment represents 51% of the total
respondents while the remaining 49% do make use of free trade provisions. Table 5.7
presents the summary on the firm characteristics of users and non users of RTAs:
Table 5.7 Firm Characteristics: Users and Non Users
Note: t value= mean (users) - mean (non users)
Table 5.7 presents the results of the difference in mean values for various firm
characteristics such as firm legal status, length of operations, number of employees
etc. It presents the majority respondent categories of the listed variables. According to
the results, the nature of the firm and number of export partners are similar when it
comes to users and non users of RTAs. A significant difference however exists when
it comes to length of business operations, workforce size, and export experience as
well as export percentages. The study reveals that firms that are in operation for a
significant number of years and have substantial export experience are in a better
position to make use of free trade preferences than those firms that are new to the
export market.
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For non users of RTAs, majority of the respondents sold 90%- 100% of their
production off shore. This is also the same in the case of users of RTAs. In this study,
majority of the users of RTAs had large number of employees compared to non users
which have small to medium workforce size. In terms of industries that made use of
the RTAs, majority belonged to the Textile, clothing and footwear industry. 100% of
all firms operating in the furniture and beverage industry represented users of RTAs
followed by 87% of firms that belonged to TCF. This clearly reflects that RTAs have
been high in use for specific industries as reflected in the table below. For instance,
the SPARTECA agreement has proven to be an effective mechanism for exporting
garment to the Australian and New Zealand markets such as utilization of RTAs by
TCF is generally high. Table 5.8 presents the summary on the industries that these
firms belonged to.
Table 5.8 RTAs Utilisation by Industry
When asked to state the RTAs that respondents utilized, it was noted that there was a
high number of respondents that made use of the SPARTECA agreement than MSG
and PICTA. For majority of the firms, PICs are the major export markets however
utilization of PIC RTAs was lower than agreements with New Zealand and Australia.
Of the 49 respondents that made use of RTAs, 78% of total users utilised
SPARTECA, 41% and 33% of total users utilised MSG and PICTA respectively.
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Figure 5.1 Utilisation of Regional Trade Agreements
This study also highlighted that majority (51%) of the respondents did not make use
of RTAs. Some of the impediments to RTA usage as revealed by respondents are as
follows:
Figure 5.2 Impediments to RTA preference Use
Statistics reveal that lack of information on RTAs are the major impediment to RTA
use whereby 77% of the respondents that did not utilize RTAs highlighted on the need
to have detailed knowledge on free trade preference before one could explore and
exploit opportunities that these RTAs have to offer.
0510152025303540
SPARTECA MSG PICTA
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Coun
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espo
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RTAs
RTA Utilisation by Respondents
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Most of the responding firms generally understood the importance of eliminating
trade barriers and encouraging free trade but very few could see the relevance that
these agreements could have on their businesses and how it could create positive
impact on it. This was attributed to the lack of information that companies had on
RTAs. 39.2% of the respondents also stated that RTAs were not with their major
trading partners hence they could not use these agreements to their benefit. It was also
highlighted that the percentage of exports that for these operators sold to countries
that were not part of the countries in the RTAs were significantly higher. For some
operators these represented 100% of their export sales hence RTAs with PICs and
New Zealand and Australia didn’t mean much in terms of export growth.
Furthermore, for firms to be able to enjoy free trade preferences, certain rule of origin
criteria has to be met. 39.2% of the firms that did not make use of RTAs highlighted
that they found it difficult to meet this ROO criteria hence their goods could not
qualify for free trade preferences. For some manufacturers due to the nature of the
goods the business produced, a large percentage of raw materials had to be imported
hence could not make use of RTAs (the study also found that for some operators
almost 100% of the manufacture of their products were dependent on imports).
Exclusives or negative lists that PICs had on Fiji products also hindered firms to
utilize agreements. This represents 33.3% of the non users. For some exporters
(7.8%), their business operations was more involved in indirect trading hence did not
use RTAs. High administration costs proved to be an impediment for only 11.8% of
the non users. Non users of RTAs in this study were also asked if they plan on using
RTAs in future. 51% of the non users were not interested in changing their current
export strategies because of RTAs. While 9.8% of the non users were keen to explore
opportunities presented by RTAs and the remaining 39% were unsure on where they
would use RTAs in future.
5.3.2.1 Testing of Hypothesis 1: Relationship between level of Awareness and
Utilization of RTAs
In this study we attempt to examine whether there is a correlation between the level of
awareness of RTAs and the utilization of RTAs by exporting firms in Fiji. Presented
below is the hypothesis, results and interpretation:
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I. Formulating the Hypothesis
There exists a correlation between the level of awareness and the utilisation of RTAs.
In order to test the hypothesis, the correlation test was carried out between two
variables; awareness and utilisation. In research such as this, it is vital to know how
one variable is related to another and how changes in one variable will affect the
other. In this study, we attempt to test the bivariate relationship of variables used. The
Bivariate Correlations test computes Pearson's correlation coefficient. Pearson's
correlation coefficient is a measure of linear association.
II. Data Analysis
The results of the test are presented in the table below:
Table 5.9 Correlation between Awareness and Utilization of RTAs
III. Result Interpretation
According to the output shown in Table 5.9, awareness on the free trade provisions
laid out in RTAs is significantly correlated to the utilization of free trade preferences
in RTAs. A correlation of 0.784 exists between the two variables which is significant
at the 0.01 level hence it can be said that H1 is accepted. The study reveals that the
non users of RTAs are those groups of respondents who had average, limited to no
knowledge on RTAs while the users are those respondents whose awareness level was
in the average, some to full knowledge category. Table 5.10 presents this
phenomenon. It is also noticed that the correlation in this case is positive hence it
indicates that the more aware business houses are on RTAs, the more likelihood that
they will make use of RTAs.
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Table 5.10 Awareness and Utilization of RTAs Cross tabulation
5.3.3 Institutional Support for exporting firms
For firms to trade successfully under RTAs, business houses need to have the
necessary information about specific provisions in these agreements, for instance,
rules of origin requirements, tariff elimination schedules on products and services,
tariff preferences, investment rules, etc. This serves an important basis as firms need
to upgrade their capabilities to take advantage of free trade provisions. Firms also
need to develop appropriate regional sourcing strategies as well as mechanisms for
RTA administration. As such the need to provide a wide range of support services are
required to help enterprises to adjust to RTAs and make effective use of RTAs. This
section attempts to examine Fiji’s institutional support systems and whether there is
enough support available for domestic firms to trade effectively under the RTAs. This
section will also explore the adoption rate of support services currently provided by
respective authorities and what additional support services are required to trade under
RTAs.
5.3.3.1 Sources of Institutional Support Table 5.11 shows the firm responses on the sources of institutional support to engage
in off shore operations. A number of institutions have been set up in Fiji with the aim
of assisting exporting firms and providing the needed support services to make
effective use of RTAs and in the general conduct of export operations. According to
the results of this study, The Customs Department has been the most consulted when
it comes to support services.
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78% of the respondents stated that they had consulted the Customs Department while
61% were given support by the Fiji Trade and Investment Bureau. In terms of
government ministries, 57% of the respondents saw them has a vital institution to seek
assistance from. Other institutions such as the Chamber of Commerce, Business
Associations and the Pacific Islands Forum Secretariat were of little support as only
41%, 42% and 29% of the respondents consulted the services of these institutions
respectively to trade effectively with partner markets.
Table 5.11 Sources of Institutional Support for Export firms
5.3.3.2 Ease of Support from Institutions
While many firms are aware on the existence of numerous agencies to provide them
with the necessary support to trade as and when needed, the ease at which businesses
are able to approach and get support from these institutions remains in question.
Figure 5.3 presents the degree of ease in getting support services from a set of
agencies specifically set up to assist business houses:
Figure 5.3 Ease of Obtaining Support from key Institutions
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Fiji Trade and Investment Bureau (FTIB) appear to be most popular when it comes to
getting support from key institutions. 68% of the respondents regard FTIB as very
easy to somewhat easy in terms of getting assistance and support services.
Government Ministries (such as Primary Industries, Foreign Affairs, etc) as well as
the Customs Department are seen as equally approachable whereby 64% of the
respondents in both cases regarded them as easy to get support services from.
However, since Customs Department has been the most commonly consulted agency
when it comes to export operations, 28% of the respondents found it difficult to get
assistance from them. For other agencies, most respondents were generally not sure
on the level of difficulty or ease of obtaining support from these agencies as they were
not aware on the relevance of their support services on their business operations hence
didn’t consult these agencies.
5.3.3.3 Demand for Support Services
The level and nature of support services given to the export industry are a
confirmation of its continuing growth and sustainable contribution to the overall
economic performance of Fiji. Several initiatives and agencies have been set up to
assist Fiji’s exporters however in order to fully exploit RTA free trade provisions, a
lot more needs to be done in terms of ensuring the effectiveness of RTAs to Fiji’s
exporters. The results on the nature of support services demanded by respondents
under this study are discussed in the following table:
Table 5.12 Demand for Support Services by Respondents
101
As highlighted earlier, a large number of exporters still do not have all the necessary
knowledge and expertise to capitalize on free trade preferences. While the general
agreement documentation is available through various mediums, majority of the
respondents demand for more information to be available to them on RTAs.
Awareness and information availability is the key to ensuring RTAs meet its full
potential. It has also been highlighted in this study that majority of the respondents do
know on the existence of trade agreements but only a small group had detailed
knowledge about them. What seems to be lacking is the relevance of these agreements
to business growth. As such, the need to conduct training on these RTAs is another
nature of support service demanded by exporters. The objective of these training
sessions need to be focused on all areas of RTAs; from its content, relevance,
processes involved and what all were required from the business side to make use of
them. Many respondents do not seem to know on what they needed to do to benefit
from these agreements. As such the need to conduct training becomes even more
vital.
Majority of the exporters strongly agreed that there was a need for responsible
organizations to conduct enhanced consultation on RTAs negotiations. The mean
score of 4.57 highlight that there is a high level of agreement amongst respondents on
the need to take into consideration all relevant stakeholder views in RTA formulation.
While it is known that RTAs have been formulated with each related party input and
participation, little has been done at the micro level to include views of business
houses themselves before such agreements became effective. Exporting firms make
significant contribution towards the general economic performance of Fiji hence the
general effectiveness of these RTA will also depend on the level of consultation
between them and relevant authorities. In recent years, numerous initiatives have been
taken by the Fiji Government along with partner countries to facilitate regional
cooperation. Amongst these initiatives has been the following:
- Approval for the launch of MSG Trade Fair and Investment
Roadshow in August 2013 aimed at promoting trade and investment
amongst members. Fiji will be hosting the Roadshow in 2013 with
PNG hosting it in 2014. As trade is the key pillar in the establishment
of MSG, this initiative will make valuable contributions towards the
social and economic development in the member countries.
102
- April 2013 marked yet another milestone towards enhancing trade
relations in the Pacific. Led by the Prime Minister of Fiji, an
inaugural Trade and Investment Mission and State Visit was made by
Fiji businesses to PNG. The primary objective of this mission has
been to give opportunity to Fiji businesses to showcase their product
offerings to the PNG market as well as PNG operators to build on
opportunities available in Fiji thereby creating better links for the
benefit of both nations. Fiji’s trade to other PICs accounted for 4.5%
of its total exports in 2010 of which 20% of total pacific trade takes
place with PNG. With removal of most duties by PNG under
MSGTA, major growth is expected in the years to come.
- In March 2013, the SME export development program was launched
by the PIPSO with the aim of financial assistance to SMEs that have
potentials to export thereby build on their competiveness and capacity
to enable them to penetrate into overseas markets.
- The approval of $51.2 million worth of assistance to exporting firms
(with a 5% interest rate charged to businesses) by the Reserve Bank
Import Substitution and Export Finance Facility (ISEFF) has been
another form of assistance in improving the balance of payment
situation for Fiji.
- A series of workshops are planned to take place aimed at closing the
gap for exporters and providing them with the much needed
information that can assist in making informed decisions on when,
how and who to export to.
5.3.3.4 Testing of Hypothesis 2: Relationship between Institutional Support and
Utilization of RTAs
In order to fully exploit RTA potentials, one needs to be familiar with RTA
provisions, procedures and processes involved. Utilization to a large extend will
hence depend on whether businesses have the necessary information and support from
agencies in relation to RTAs. In this section we attempt to see whether utilization of
RTAs depends on the support of institutions related to export businesses.
103
I. Formulating the hypothesis
Utilization of RTAs depends on the level of support given by agencies set up to assist
business in carrying out off shore operations.
This hypothesis has been developed to the test the contribution of support from key
institutions towards the utilization of RTAs. A chi-square test was carried out using
SPSS which is shown as the output in Table 5.13. In order to carry out this test, the
mean score of individual firms on whether they got support from agencies was
calculated first after which the chi square test was carried out between two variables:
support and utilization. A chi-square test is a non-parametric test that establishes the
independence or otherwise between two nominal variables. A significance level at 5
percent (α= 0.05) was set. In other words, if the calculated p-value (significance level)
is less than 0.05, the hypothesis will be rejected.
II. Data Analysis
The output of the test is presented below:
Table 5.13 Chi- Square through Cross Tab
III. Result Interpretation
According to the output of the test as reflected in the above table, the utilization of
RTAs depends on the support from trade related institutions. With the chi square
value of 8.050 and p value at 0.234 (p> 0.05), the results of this test supports the
hypothesis.
5.3.4 Removal of Trade related Barriers by RTAs
The basic premise of trade agreements are the elimination of trade barriers and
strengthening of trade relations that encourages the free flow of goods and services
amongst partner markets. While RTAs are utilized by business houses, it is important
to investigate whether the target of removing trade barriers has been met.
104
Exporting firms that were part of the survey were asked on whether the agreements
they utilized did remove trade barriers or not. As mentioned earlier, only 49% of the
respondents did make use of RTAs; however information on removal of trade barriers
were obtained from a group of 38 exporters. Table 5.14 presents the findings:
Table 5.14 Removal of Barriers by RTAs
As highlighted earlier, tariff rates, customs and duty are amongst the most common
trade related barriers faced by exporting firms. 76% of the respondents stated that
RTAs had removed tariff barriers for their businesses while 61% of the respondents
saw the removal and reduction on customs and duty on their products and services. It
is important to note that not all users of RTAs saw the removal and reduction of tariff
rates, customs and duty that their products attracted. This has been the result of parties
to RTAs not adhering to the set rules and agreed terms and conditions in these
agreements. For instance, some respondents stated that despite the agreement stating
that their products attracted zero duty; they had to pay theses taxes. A specific
reference was made to products exported to countries under the MSG agreement
whereby Fiji made products attracted duty.
Relevant authorities in Fiji have also raised concerns on the failure on the part of the
partner markets to adhere to the agreements. For example, it has been noted that
although Fiji is adhering to the agreements like MSG, other signatory countries are
yet to honor these agreements. This had indeed created problems for Fiji traders.
According to the Minister for Trade, countries like Papua New Guinea (PNG) were
not honouring the MSG agreement.
105
While goods from partner countries don’t attract any form of tax in Fiji, countries like
PNG, Solomon Islands and Vanuatu had negative lists against Fiji whereby Fiji made
products gets taxed when it enters these markets (Khaiyum, 2012). In terms of Quota
restrictions, 71% of the respondents saw the removal of these quantitative restrictions
by these agreements while only 13% saw the reduction in standards, testing,
certification and labelling related barriers. Majority of the respondents shared that
RTAs have on one hand reduced or in some cases eliminated duty, tariff and customs,
partner countries have on the other hand raised other unrealistic barriers that makes it
expensive for Fiji exporters to comply with. Products like eggs and chicken from Fiji
face raised quarantine issues in PNG (Khaiyum, 2012). One of the respondents also
highlighted that Solomon Islands had raised issues and concern over its canned
products despite them having submitted proper certification on products they
exported. Not only PICs but countries like Australia and New Zealand, as revealed by
some exporters have given duty free and non quantitative access to Fiji products, they
had also raised quarantine standards that exporting firms in Fiji find difficult and
costly to comply with.
RTAs that Fiji is signatory to has in general looked at eliminating tariff related
barriers together with quantitative restrictions. Most of the respondents stated that
RTAs did little to reduce barriers they faced in terms of licenses, unfavorable foreign
rules and regulations amongst others. This is clearly reflected in Table 5.14 whereby
less than 35% (maximum) have noticed the elimination of other barriers other than
tariff rates, customs duty and quantitative restrictions.
Despite having these agreements in place, Fiji exporters have not seen a significant
reduction in trade related barriers. While attempt has been made to reduce barriers
like duty and quota restrictions, other barriers such as strict quarantine rules and
regulations have added more pressure on exporters in Fiji. It is important to however
note that trade agreements only aim to promote and facilitate free trade between
partner countries and do not completely remove trade related barriers faced by
businesses. The next section of this chapter attempts to examine the impact of RTA
use on Fiji exporters.
106
5.3.5 Impact of RTAs on Businesses
RTAs have been in existence for decades now however its implications for exporters
in Fiji continue to attract considerable attention. Trade is a crucial medium for PICs
economies like that of Fiji’s. PICs are also on the of most decisive moments in the
history of trade policy formulation as negotiations on various trade agreements are
under way or on the verge of finalization (Gounder and Prasad, 2011). PICs have long
been an example of an attempt to promote free trade cooperation in the region. The
results however have been mixed. Despite several articles on PICs RTAs, trade and
trade patterns (Gani, 2009; Singh and Prasad, 2008; Warner, 2005; Scollay, 2001;
Narsey, 2004; Chand, 1997; Mellor, 1997), there is a lack of firm level analysis on the
consequences of RTAs for business in Fiji. This section will hence attempt to provide
evidence based on information gathered at firm micro level on the impact of RTAs on
exporters in Fiji. The section will highlight on the perceived benefits and costs of
RTAs by non users of MSG, SPARTECA and PICTA as well as the actual benefits
and costs associated for the users of RTAs. This section will conclude with the testing
of relevant hypotheses developed for this study.
5.3.5.1 Positive Implications of RTAs Use
Many studies have been carried out across numerous countries in an attempt to
examine the positive impacts, if any, that RTAs have generated for businesses. Based
on the literature review, a list of potential positive implications of RTAs was
developed and businesses were asked on whether such benefits have been realized by
their businesses or not. Prior to the study, it was expected that a significant number of
exporters did not make use of RTAs based on the little volume of trade that took place
between PICs. Hence, respondents that were not users of RTAs were asked to give
their perception on the impact of RTAs while the users were to give their concrete
experience with RTA use. Figure 5.4 presents the optimistic outcome of RTAs as
experienced by users and perception by non users.
107
Figure 5.4 Positive Impact of RTA Use
According to the results as presented in Figure 5.4, a high level of agreement exists
amongst the users of RTAs in terms of export growth whereby 43 out of the 49
respondents stated that RTAs have enabled them in growing their export business.
Kalouniviti (2012) from the Fiji Export Council also highlighted that through the
liberalization of trade in favor of export promotion has resulted in increased volumes
of exports for Fiji and this has led to prosperity and opportunities for the economy as
a whole. This is also in line with studies carried out by scholars like Korinek and
Melatos (2009), Rao (2002), Prasad (2002), (DeRosa, 1990) and others that presented
evidence on export growth being closely associated with RTA utilization. This
research also revealed that for certain exporters, trade agreements have been the
motivating factor for them to expand their business operations.
108
For instance, the Managing Director of Firm No. 26 stated that the SPARTECA
agreement has been the key to its business success whereby the agreement has
allowed its product (garment) to enter with zero duty and without any quantitative
restrictions into Australia which is its major trading partner. Similarly, Firm No. 3
also from the Textile, Clothing and Footwear industry stated that its business is
depended on export sales. More than 80% of the production is sold to foreign markets
and agreements like these have proven to be the key driver for increased export sales.
While exporters seem to generally agree that RTAs are associated with export growth;
the margin of growth as a result of RTAs remains an area attracting considerable
debate. The results of this will be discussed in depth in the next section.
Expanded customer base and market is another area that has a high level of agreement
by respondents. 76% of the users of RTAs stated that trade agreements have increased
their customer base by allowing them to have access to other markets of significant
size and growth potential. 73% of the users also believed that RTAs have presented
their business with new business opportunities in terms of venturing and expanding
into other neighbouring markets. For instance, Fiji’s traditional trading partners have
been Australia and New Zealand. With the introduction of RTAs like MSG and
PICTA, businesses now see an opportunity to enter lucrative markets such as PNG.
Firm No. 42 that specialises in Quarry and manufacture of concrete blocks stated that
their business had recently entered the MSG agreement that has presented them
opportunities to enter the Vanuatu market. Domestic market has shown a marginal
growth for this business hence entering into PICs through trade agreements have been
an ideal move in the right direction.
As presented earlier, one of the major trade related barriers for exporters in Fiji has
been high tariff rates. This has made it difficult for businesses to enter partner
markets. In terms of easier market access and preferential tariffs, 67% of the users
stated that RTAs have proven to provide them with easier access by allowing their
products privileged tariff rates. However, there seems to be little agreement amongst
users of RTAs on agreements allowing their businesses to enjoy reduced supply chain
costs and increased labor productivity whereby 31% and 41% of the users
respectively agreed to having experienced a reduction in costs associated with product
supply chain and increased output per worker.
109
Some of the respondents stated that it was only the tariff rates that had been reduced,
all other costs such as shipping and freight costs have been the same. When it comes
to labor productivity, very few exporters saw RTAs motivating their employees to
increase their output. While production might have increased at the overall level to
meet demand in other markets, productivity per worker has been relatively the same.
The perceived benefits of RTAs by non users have generally been the same as of the
users but with a lesser % of agreement. The areas of conflict has been export growth
whereby majority of the non users stated that RTAs do not encourage export growth.
This represented 57% of the non users. Similarly in terms of market access, only 51%
believed that RTAs have provided exporters with easier market access. The highest
level of agreement between users and non users tends to exists on RTAs providing
preferential tariffs and expanding the market size for exporters. While exporters
generally tend to agree on the positive implications associated with RTA use, the next
section tends to examine the contribution of RTAs towards business growth in general
as well as the margin of increase on the growth variables of the business for users of
agreements.
5.3.5.1.1 Impact of RTAs on Business Growth
5 key variables associated with business growth were selected and users of RTAs
were asked to state where they experienced any growth in those variables are a result
of exporting under trade agreements. Table 5.15 presents the mean scores on each
variable.
Table 5.15 RTA Impact of Growth
110
A firm’s performance is usually measured in terms of sales and employment (Singh,
2006). Prior studies have identified growth as an indicative measure of business
performance as such growth has also been used as a basis of measuring firm
performance in this research. Benefits realized by RTAs contribute to business
performance hence it becomes ideal to measure this to evaluate the effectiveness of
RTAs in general on Fiji exporters. According to the mean scores of growth variables,
the users of RTAs have generally agreed on RTAs making a positive contribution
towards its sales, employment rate, return on investment and overall business growth
however majority of the exporters do not see RTAs making a positive change in their
market share as well as profit margins. Detailed discussions on each of these variables
are presented next.
The key motivation for the regional governments to adopt RTAs is to ensure its
business operators have a larger market to serve and where accessibility and cost
effectiveness are the business drivers towards export success. Serving a larger market
means an expanded customer base with an increase in sales volumes. Economic
growth can be realized with growth in individual business success. According to the
study, majority of the exporter agree that they have seen an increase in their sales
volumes as a result of trading under RTAs. This represented 87.4% of the total users
while 12.2% of the users generally disagreed on having seen any increase in sales
volumes. This has been attributed to the fact that parties to RTAs failed to adhere to
the duties and set conditions agreed in these agreements.
To meet the demand of a greater market, businesses are compelled to produce more
hence employ more people to meet increased production demands. 57.1% of the users
of RTAs did increase their workforce size while 42.9% of the users worked with their
existing employees. In terms of market share, only 49% of the users saw an increase
in their market share. While RTAs open markets presenting greater business
potentials, the existence of many competitors both in domestic and foreign markets
makes it difficult for business to seize competitor customers. Though there has been
generally an increase in sales, the market share has been evenly distributed amongst
small, medium and larger operators.
111
In terms of return from investments, 57.1% of the users have seen getting a positive
return from investment made however when it comes to profit margins, 51% stated
that their profit margins have not seen much growth with an increase in sales
volumes. This has been a result of the many other operating costs associated to
exports such as salaries and wages of additional workers, shipping costs,
administration costs etc. At the overall level, 76.9% agreed on RTAs having a positive
contribution towards their business performance.
The next section attempts to explore the percentage contribution of RTAs on
businesses key performance indicators. Respondents that made use of RTAs were
asked on to provide their ratings (0- 11) on the growth variables as a result of RTA
use. The table below presents the outcome.
Table 5.16 Rating for RTA contribution towards Firm’s performance
While majority of the users of RTAs showed a general agreement on the benefits of
RTAs, the percent contribution of RTAs towards growth of the business in key areas
has been relatively low. This survey highlighted that in terms of employment rate,
market share, return on investments and profit margins; RTAs have contributed a
marginal growth of 1%- 10% for the users. Highest contribution of RTAs has been in
export sales and overall growth between 11%- 20%. This is also evident from the
little volume of trade between PICs under regional agreements such as PICTA. It was
also highly evident that the business expectations on the perceived percentage
contribution of RTAs towards business growth remain to be unmet.
112
As highlighted earlier, the nature of the business along with other factors such as
trading partners, volume of exports to RTA signatories, etc are also significant
contributing factors towards benefits of trade agreements being realized by respective
businesses. For instance, one of the respondents that belonged to the TCF highlighted
that as a result of the SPARTECA agreement, his export sales has increased by almost
over 100%.
5.3.5.1.2 Testing of Hypothesis 3: Contribution of RTA use towards Business
Growth In this section attempt has been made to statistically prove the correlation between the
use of RTAs and business growth. While the above sections do highlight the
contribution of RTAs towards business growth, it is of utmost importance to make use
of relevant statistical tools to prove this theory.
I. Formulating the hypothesis
The use of RTAs contributes towards the growth of the firm.
In order to test this hypothesis, a chi square test was carried out between two
variables; utilization of RTAs and growth of firms to establish the contribution of
RTA usage towards growth of firms. Table 5.17 presents the results of the test.
II. Data Analysis
The results of the test are presented below:
Table 5.17 Chi Square through Cross Tabs of Utilization and Growth
113
III. Result Interpretation
According to the output in Table 5.17, it can be said that growth of exporters is
dependent on the utilization of RTAs. With the chi square value of 58.657 and p value
at 0.245 (p> 0.05), the results of this test supports the hypothesis
5.3.5.2 Negative Implications of RTAs on Businesses The uses of RTAs bring with itself associated costs and benefits. In the previous
sections, the benefits of RTAs for businesses have been examined. Literature has
revealed that competition arising from imports under RTAs pose a major threat to
domestic firms.
This section attempts to evaluate the costs of RTA use and sheds light on whether the
costs of RTAs overweigh the benefits or vice versa. Figure 5.5 presents the costs
associated with RTAs faced by Users and Non Users of RTAs
Figure 5.5 Costs of RTA Use
Opening up markets through the elimination of barriers encourages healthy
competition that leads to businesses improving their service levels and efficiency.
78%
39% 41%
63%
16%
33%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Competition Documentation relatedto RTA Use
Multiple ROO
% A
gree
men
t
Costs of RTA Use
Users Non Users
114
RTAs have opened up the Fiji market that has enabled PICs goods to enter the
country without attracting any duty. When asked if RTAs have increased the level of
competition for Fiji exporters, there is a general agreement amongst respondents. 78%
of the users of RTAs have experienced competitive pressures while non users of
RTAs also perceive PICs trade agreements to have promoted competition for local
producers. According to studies carried out by Kawai and Wignaraja (2009), East
Asian firms that were part of the survey highlighted the documentation related to
agreement use as a cost associated with RTAs. For the Fiji exporters, only 39% of the
users of RTAs see this as a cost while only 16% of the non users find it difficult to
make use of RTAs as a result of complex documentations. 33% of the non users of
RTAs saw multiple ROO as a burden for businesses while 41% of the RTA users
generally agreed on this as well. In the following section, an in depth study has been
carried out to examine the impact of competition on exporters in Fiji as a result of
RTA use.
5.3.5.2.1 Competition RTAs are aimed at simplifying trade negotiations and increase the efficiency of firms
in both the domestic and foreign markets. While some exporters see increased
competition as being constructive for their own business operations, certain firms
view themselves as being in a vulnerable state due to a more competitive business
environment. Respondents under this survey were asked to rate how their saw
competition before and after the introduction or the use of RTAs. In order to find out
if competition has increased that has been problematic for businesses; a series of data
organization was carried out prior to comparing the mean scores. As mentioned
earlier, firms were asked to rate competition. Data was than transformed to calculate
the mean scores of competition before and after the introduction of RTAs. The
resulting mean scores were than compared and the results are presented in the table
below:
Table 5.18 Mean Comparison
115
The mean score of competition seen as a problem for business prior to RTA use or
implementation was 2.16 while the mean score after the use presently comes to 2.77.
The t value in this case is 0.6125. The t value being positive certainly indicates that
the level of competition in the market place has increased which can be said to have
presented some threat to businesses in Fiji. This has also been evident in the number
of concerns highlighted by businesses as a result of foreign goods entering the country
that has affected the firms in the domestic market. The most prominent example has
been in the case of Vanuatu kava exports to Fiji that faced opposition from domestic
producers and sellers in Fiji. According to Narsey (2010), whenever attempt has been
made to successfully trade under agreements like MSG and PICTA, it has faced
opposition from various stakeholders.
In 2004, The Fiji Kava Council proposed for a ban on Kava from Vanuatu which was
believed to cause liver problems but such allegations according to Narsey (2012) were
unrealistic. Vanuatu kava prices had been cheaper compared to the kava from Fiji.
This had been seen the driving force for posing a ban on kava imported from Vanuatu.
Narsey (2012) further highlighted that the objective of agreements like MSG is to
allow consumers to be able to purchase products with the right quality and price
combination from whichever producer and from any country that is part of the
agreement. If more kava from Vanuatu had been bought, prices would have risen and
Fiji price would fall. Eventually prices would equalize with more efficient producers
from both countries remaining in the market48. These are positive implications of
trade but received antagonism from local stakeholders due to the fear of increased
competition having negative effects on producers in the local market.
Another prominent paradigm of such actions taken as been in the case on banned
Fijian biscuits by the Vanuatu Government with the aim of protecting its own Biscuit
industry in 2005. This ban however was later lifted with the new condition
introduction of 50% import duty on Fijian biscuits. According to Hari Punja, the
Chairman of the Flour Mills of Fiji this would make their product more expensive and
uncompetitive hence affect export sales.
48 Fiji’s Unfair Opposition to Vanuatu Kava. Accessed at 03/06/13 from http://narseyonfiji.wordpress.com/2012/03/28/fijis-unfair-opposition-to-vanuatu-kava-fiji-times-and-island-business-september-2004/
116
These are all clear implications of increased competition as a result of opening up
markets and the pressure from exporters in some industries to introduce other forms
of barriers that protects them from fierce competition from other producers in other
markets. This also clearly reflects that despite having these agreements, barriers do
exists that deter the free flow of goods for the benefit of consumers.
As highlighted earlier, competition arising from free trade agreements is seen as
having both negative and positive implications on local businesses. While majority of
the respondents do agree that competition in the market place has increased as a result
of RTAs, some exporters see this competition has an opportunity to improve their
productivity and increase their efficiency levels. More competition means local
producers need to ensure their products are of exceptional standards with competitive
pricing.
5.3.5.2.2 Rules of Origin: Burden for Businesses
This chapter in Section 5.3.2 suggested that ROOs are one of the several impediments
to using RTAs by exporters in Fiji. This section probes the issue further and focuses
on whether the ROO requirements laid out in RTAs are indeed a burden for Fiji’s
exporters. The table given below presents a summary on the view of respondents on
ROOs laid out in RTAs:
Table 5.19 Respondent Views on ROOs
117
The general lack of knowledge on the details of RTAs has been one of key deterrents
for this survey hence when asked on whether the ROOs laid out in RTAs were
complex in nature, 46% of the respondents were not sure while 40% of the exporters
showed agreement on this. When it comes to impediments of RTA use, 54% of the
respondents agreed that ROOs are making it difficult for businesses to qualify for
preferential treatment under trade agreements. While many exporters had limited
understanding on RTA preferences, 56% of the respondents highlighted the need for
RTAs to be simplified for administrative purposes. It has also been highlighted that
this simplification will also greatly assist the exporters in understanding and
complying with ROO requirements.
According to Kawai and Wignaraja (2009), multiple ROOs in overlapping free trade
agreements pose a severe burden on firms especially SMEs that are in a more
vulnerable position and unable to meet such costs. When asked if complying with
ROO requirements to qualify for preferential access to markets had added to cost of
doing business, 41% of the respondents stated that such compliance came with costs
associated with it. For instance, businesses need to have a certain percentage of local
content to meet the criteria of qualification. While it may be cheaper for these firms to
export those materials from elsewhere, they have to rely on local raw materials which
are more expensive hence adds to the cost of doing business. Table 5.20 provides a
further breakdown of views of businesses by firm employment size:
Table 5.20 ROO cost to Business and Firm Size
With reference to study carried out in East Asia by Kawai and Wignaraja (2009),
larger firms measured by number of permanent employees, were more likely to
express concerns about ROOs.
118
Similar statistics are revealed in the case of Fiji whereby 50%- 53% of firms with
employees from 51-100 and above 100 generally regarded compliance to ROO
requirements as costs to business operations. This has been particularly attributed to
the fact that larger firms tend to export to several markets and amend their business
strategies in response to RTAs hence they are more likely to show more concerns
about the issue of multiple ROOs and costs.
On the other hand, SMEs due to its smallness do not have multiple export partners
hence do not use many trade agreement and their level of concern is limited when
compared to larger firms as reflected by the outcome of this study. The next section of
the chapter discusses the internationalization of firms and usage of RTAs by Fiji
exporters.
5.3.6 Testing of Hypothesis 4: Internationalization and Use of RTAs
One of the key motivations for trade agreement use has been the ability of firms to
enter into nontraditional markets without facing major trade related barriers. As firms
plan to internationalize, the need to have effective RTAs becomes even more vital.
This section attempts to test whether utilization of RTAs is indeed dependent on
firm’s plan to internationalize together with having the necessary level of awareness
on these RTAs.
I. Formulating the hypothesis
Internationalization plans and awareness on the provisions of RTAs contribute
significantly towards the utilization of RTAs
II. Data Analysis
A linear regression test was carried out with the help of SPSS. The utilization of free
trade preferences in RTAs was the dependent variable with internationalization plans
and awareness on RTA provisions being the independent variable. A regression test
assists in predicting the value of one variable based on the value of another variable or
whether a variable determine the outcome of another variable. The output of the test is
presented in Table 5.21:
119
Table 5.21 Regression Test: Hypothesis 4
III. Result Interpretation
From the output displayed in Table 5.21, it can be said that the regression formed
between utilization and the selected variables is best given by the equation:
Utilization of RTAs= 0.460 +0.278 (Awareness) + 0.112 (Internationalization plans)
Plans to internationalize contributes to the firm's utilization of RTAs with co-efficient
being 0.278 (beta value is 0.262 and t value is 3.512), which is significant
(p=0.01<0.05). The awareness on RTAs contributes the highest to the utilization of
RTAs as its co efficient is 0.278 (beta value is 0.625 and t value is 8.367), which is
significant (p=0.00<0.05). The t statistics of the regression model can also help
determine the relative importance of each independent variable. The general rule to
follow is if the t value is well below -2 or above +2, then the independent variable in
the equation can be kept. In this case, the t values are well above 2 hence the equation
can be retained and the hypothesis is accepted. Further the values of 0.811 in adjusted
R2 hence the model has accounted for 81.11% variance in the utilization value. This
also indicates that firms level of awareness on RTAs and its plans to internationalize
do contribute significantly to the utilization of RTAs hence the model is good.
5.3.7 General Business Views on RTAs
In this section, the views of the business community particularly exporters that were
part of this survey on regional corporation through the use of trade agreements are
presented. While trade agreements have not been as successful as initially thought, it
has proven to be of some benefit to organizations that utilize them.
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Regional cooperation has been on the agenda of numerous developing countries like
Fiji and seen as a stepping stones towards eliminating the barriers of trade and in
establishing a fully integrated region with free flow of goods and services.
Agreements like MSG, SPARTECA and PICTA has been in existence for a number
of years now and due to limited knowledge and utilization (as presented earlier) the
satisfaction level of exporters on these agreements are generally been moderate. With
a mean score of 3.32, majority of the respondents stated that they were at the overall
level “Not Sure” if the RTA advocated by Fiji to promote trade in the region has been
satisfactory or not.
In terms of satisfaction level on RTA amongst users and non users, majority of the
users 77.6% of the respondents showed a higher level of satisfaction when compared
to 54.9% of non users that showed disagreement on RTA’s promoting trade in the
region. This is clearly attributed to the many impediments of RTA use that results in a
high level of dissatisfaction on the provisions of RTAs by exporters who could not
qualify for this preferential treatment. Many exporters tend to raise concerns on the
effectiveness of RTAs that Fiji is signatory to as these are mainly related the many
barriers that exporters in Fiji still face despite the existence of such agreements. While
Fiji has opened its markets, partner countries still tend to impose strict conditions and
measures aimed at protecting their own producers and making it difficult for Fiji
produce to enter their markets without attracting duty and other trade related barriers.
The current trade agreements that are examined in the study are amongst the PICs and
New Zealand and Australia. These agreements however are not truly “free trade
agreements” as under these agreements certain provisions have been made to
minimize the effects of competition on SMEs in partner countries. SPARTECA has
been a non reciprocal trade agreement while MSG does not fully eliminate tariff rates
on all goods. PICTA on the other hand as a set timeline for the elimination of tariff
rates and has a “Negative List” provision whereby tariff rates are not eliminated on
certain products. With talks on PACER going on for some time now, majority of the
exporters have showed agreement on FTAs to be extended to include other countries
as well. With the mean score of 3.84, 78% of the users of RTAs wish to have trade
agreements with other countries. Likewise 61% of the non users also show agreement
on this.
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As highlighted earlier, one of the impediments to RTAs has been that the major
trading partners of some exporters are countries other than the signatories to existing
trade agreements. Hence majority of the exporters tend to believe that if more
agreements are established than their cost of doing business will decline. However,
FTA brings with itself its own disadvantages as well and this has been the concern of
the remaining respondents that do not agree that FTAs should be extended to include
other countries or agreements should be signed with other trading partners. The
existence of numerous overlapping trade agreements can result in increased cost and
adverse effects on local companies. As highlighted by the respondents, countries like
Australia and New Zealand export a large volume of products to Fiji. Being more
advanced in terms of technology and having the accessibility to other resources make
its products more affordable when it enters Fiji while producers in Fiji rely on these
countries for raw materials and import of intermediate goods adding to the cost of
production. Certain respondents feared that these would result in them losing
substantial market share in the domestic market as well as revenues. One of the
respondents also highlighted that if bigger players enter into FTAs with PICs, their
market share in other markets will also be affected.
Fiji, being the one of the most developed country in the Pacific region exports certain
products that are also manufactured more cost effectively by other developed
countries hence Fiji produced goods will not only face competition in the local arena
but also in the PIC markets. It is also feared by Fiji exporters that producers in their
export markets will have access to affordable raw materials from abroad hence will
then be able produce certain products themselves and the import volume will decline
that may have negative implications on Fiji exporters. PICs are able to produce for
themselves but at times are not able to meet domestic demand hence the need to
import becomes essential. One of the respondents believes that over time
manufacturers in partner RTA markets will become more efficient as they will be able
to have access to other countries raw materials that could be of good quality and of
cheaper value.
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Table 5.22 Business View on Regional Cooperation
Statements
N Minimum Maximum Mean Std Deviation
Overall, I am generally satisfied with the RTAs advocated by Fiji to promote trade in the region
100 1 5 3.32 1.109
FTAs should be extended to include other foreign countries
100 1 5 3.84 1.098
The adoption of RTAs is the way forward to strengthen the export industry of Fiji
100 1 5 4.04 1.014
Majority of the respondents that took part in this study regarded RTAs at the overall
level to be important for Fiji. Although most of the respondents were not engaged
with RTAs, they have been interested and supportive of the initiatives taken by
various stakeholders such as trade agencies and the government at large at negotiating
and promoting the use of RTAs to strengthen export relations with partner markets.
The mean score of 4.04 clearly reflects the high level of agreement amongst exporters
that RTAs are the way forward to strengthen the export industry in Fiji. However, it is
important to note that while the general export community has shown support for
RTAs, very few of these exporters could see the relevance of these agreements on
their businesses and how it could be an important aspect of expanding opportunities
for their businesses. The outcome of the study in terms of business views on RTAs are
consistent with the study carried out Battisti and Perry (2008) on SMEs in New
Zealand whereby the support of exporters towards government initiatives on RTAs
are high however few of these exporters see the positive implications or benefits that
RTAs can have on their businesses.
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5.4 Hypotheses Outcome
Table 5.23 presents a summary on the outcome of the hypotheses with the specific
test carried out that determines the acceptation or rejection of the hypotheses.
Table 5.23 Hypotheses Outcome
5.5 Discussions on Research Questions and Hypotheses
The fundamental aim of this study has been to investigate and examine the RTAs that
Fiji has been part of and its contributions towards the export industry in Fiji; be it
positive or negative. In this study several research questions were developed that
examined important issues surrounding regional trade cooperation that ranged from
trade barriers, support services to the positive and negative implications of
participating in RTAs on exporting firms in Fiji. The research questions were further
broken by the formulation of hypotheses.
5.5.1 Discussion on Research Questions
Protectionist policies have been advocated by many countries with the aim of
protecting their sovereignty and small and developing industries. While free flow of
goods and services has its own benefits, many countries that have aimed to achieve
this by participating in RTAs continue to face obstacles while engaging in the export
business.
Hypothesis Statistical Test Outcome
Hypothesis 1 (H1): There exists a correlation between the level of awareness and the utilization of RTAs.
Correlation Test (SPSS/Correlate/Bivariate) H1 Accepted
Hypothesis 2 (H2): Utilization of RTAs depends on the level of support given by agencies set up to assist business in carrying out off shore operations
Chi - square Test (SPSS/Descriptive/cross tab) H2 Accepted
Hypothesis 3 (H3): The use of RTAs contribute towards the growth of the firm
Chi - square Test (SPSS/Descriptive/cross tab) H3 Accepted
Hypothesis 4 (H4): Internationalization plans and awareness on the provisions of RTAs contribute significantly towards the utilization of RTAs
Regression test (SPSS/Regression/Linear) H4 Accepted
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In terms of the nature of barriers faced by the business community in Fiji, this study
has revealed that tariff rates and duty is the most common form of trade barrier. Brent
Radcliffe (n.d) in his study made reference to 10 commonly faced trade barriers which
were used in examining the nature of barriers faced by exporting firms in Fiji. The
outcome of this study is consistent with studies carried out by Fliess and Busquets
(2006) whereby tariff rates has impede the ability of firms to increase their export
sales. Similar findings have been presented by Battisti and Perry (2008). While tariff
rates, customs and duty has been the most prevalent form of trade barrier faced by
exporters in Fiji, this study has also revealed that certain barriers tend to be specific to
particular industries. Standards, testing, labelling and certification requirements are
the most common form of barrier faced by the agricultural sector while majority of
the respondents from the Food Processing and Beverage Industry have to deal with
unfavourable foreign rules and regulations.
With respect to the level of awareness of firms on existing RTAs, it was highlighted
that majority of the firms had average level of knowledge on the provisions of free
trade while only a marginal (3%) of the respondents had full knowledge on the trade
agreements. There seems to be general awareness amongst exporters that agreements
namely SPARTECA, PICTA and MSG exists but very few of them actually tend to
know the contents and aim of these agreements. Similar trend also exists amongst
exporters in New Zealand as revealed by study carried out by Battisti and Perry
(2008) whereby generally exporters tend to agree that FTAs are good for the economy
but very few could see the relevance of the FTAs on their own business. Kawai and
Wignaraja (2009) in their East Asia study also found that one of the impediments to
RTA use was lack of information. In terms of the utilization rate of existing RTAs in
Fiji only 49% of the respondents have made use of free trade preferences. This is also
clearly reflected in the little volume of trade that takes place under agreements like
PICTA and MSG.
Furthermore in Chapter 3 the various arguments for and against the use of RTAs are
discussed. Rucker (2010) highlighted that user of a FTA such as El Salvador has been
able to grow his export sales as a result of participating in America-Dominican
Republic- United States Free Trade Agreement.
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This research also supports Rucker (2010) as 88% of the users of RTAs agreed that
RTAs are closely associated with export growth. Studies carried out by Korinek and
Melatos (2009), Rao (2000), DeRosa (1990) also present similar results on trade
agreements supporting trade creation and export growth. In terms of providing easier
market access, 67% of the users of RTAs agreed that market access has been made
easier with the help of RTAs. The results are consistent with studies carried out by
Kawai and Wignaraja (2009) that highlighted that FTAs in the East Asia region
provided easier and larger market access to exports. Also in support of this argument
has been Liu (2008) who states that FTAs provided guaranteed market access to
partner countries. In terms of new business opportunities, in Chapter 3 it is shown that
RTAs offer business houses the opportunity to serve more customers through
increased business opportunities. Results of this study highlight that more than 70%
of the users agreed that RTAs have presented them with new business opportunities
and increased customer base. Greenaway et al (1989), Zineldin (1998), World Bank
(2000) and Larson and Clifford (2004) state that RTAs assist countries to overcome
their smallness by uniting markets that enables firms to serve non traditional markets
as well as expand and become more competitive. The results of this study is also
consistent with studies carried out by Waller and Emmelhainz, (1995) and
Hashemzadeh (1997) who in their study on NAFTA presented that NAFTA with its
full implementation has presented a market that is many times more the current size of
individual partners. Also in support of this result has been Tabaiwalu (2005).
In terms of reduced supply chain costs, Waller and Emmelhainz, (1995) argue that
RTAs like NAFTA can assist business by reducing costs related to supply chain. This
could be the result of reduction in tariff as well as improved efficiency. The results of
this study however do not support the above study as only 31% of the users agreed on
RTAs assisting their businesses to reduce business costs by removing substantial costs
out of the supply chain while only 41% agreed that RTAs helped improve efficiencies
by increasing labour productivity.
This study also aimed to investigate the negative implications of RTAs on exporters
in Fiji. In Chapter 3 it has been highlighted that imports under RTAs are likely to put
competitive pressures on domestic firms.
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Mean comparison on level of competition post RTAs in this study reveals that in
general majority of the respondents have seen increased competition that seems to put
extreme pressure on firms to survive in the market place. The results are in line with
studies and arguments put forward by Regnier (2008); Julien et al (1994); Campbell
(1996); and Rathumbu, (2008). These scholars have put forward that RTAs result in
fierce competition and firmly especially SMEs are in a more vulnerable position. The
findings of this study is also consistent with the experiences of textile firms which
under NAFTA experienced plant closure and shut down (Sun, 2003). Kawai and
Wignaraja (2009) in their study also indentified two other costs associated with RTA
use: Documentation related to agreement use and Multiple ROO. The findings of this
study are not consistent with this as only 39% of the users of RTAs saw
documentation related to agreement use as a cost of RTA while only 41% saw
multiple ROO as a cost. However when it comes to firm size and ROO burdens, the
findings of this study is consistent with Kawai and Wignaraja (2009) as both studies
show that firms that are larger in size tend to have more issues with multiple ROO.
The research questions of this study had been formulated with the aim of investigating
the main important issues surrounding RTAs. The intensive literature review also led
to the formulation of hypotheses and the discussions on these are presented next.
5.5.2 Discussion on Hypotheses
Presented below are the discussions on the hypothesis:
1. Hypothesis 1 (H1): The aim of H1 was to investigate whether the awareness
levels on RTAs contributed to the utilization of RTAs by exporting firms in
Fiji. A correlation test was carried out between the utilization of RTAs and the
awareness level on these agreements. The results of the test indicated that in
order for firms to be able to use and benefit from RTAs, they needed to be
aware of the provisions laid out in these agreements. A correlation of 0.784
exists between the two variables which has been significant at the 0.01.
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2. Hypothesis 2 (H2): The objective of H2 was to examine the relationship
between the level of institutional support and the utilization of RTAs. Support
from key institutions becomes vital in assisting firms to engage in off shore
operations and the level and nature of support given by institutions determines
whether a firm is able to make use of existing RTAs. A chi square test of
independence between institutional support and utilization of RTAs was
carried out. With the chi square value of 8.050 and p value at 0.234 (p> 0.05),
the hypothesis was accepted.
3. Hypothesis 3 (H3): The intent of H3 has been to assess whether the utilization
of RTAs make any significant contributions towards the growth of the firms.
A chi square test of independence was again carried out between the variables
and the outcome of the test revealed that utilization of RTAs do contribute
towards the growth of exporting firms. The chi square value of 58.657 and p
value at 0.245 (p> 0.05), the results of this test supported the hypothesis.
4. Hypothesis 4 (H4): While tests carried out the H1 revealed that awareness on
RTAs determined the utilization of RTAs, H4 further aimed to access the
contribution of export strategies or plans of internationalization of firms to the
utilization of RTAs. A linear regression test revealed that internationalization
plans and awareness both contributed towards the usage of agreements by
respondents.
5.6 Conclusion
This aim of this chapter has been to present and discuss the research findings and is
perhaps the most important chapter of the thesis. This chapter has been divided into
two sections. The first section of the chapter presents the demographic profiling of the
sample. This lays the foundation of the chapter in terms of highlighted the nature and
background of firms that took part in this survey. The second section of this chapter
has presented the analysis and findings on a number of important issues surrounding
RTAs.
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This section began with the identification of the barriers faced by Fiji exporters when
it comes to trading with other countries. The section further highlighted on the
awareness and utilization of RTAs together with sources of institutional support
available to exporters in Fiji. The impact of RTAs on respondents was also
highlighted and the general business view on RTAs was discussed. The chapter has
also made use of various statistical means to test the hypotheses formulation and
present findings and discussions on the research questions.
The next chapter of the thesis is the finale as it recapitulates all chapters, draws
conclusions and presents a summary on the major findings along with the limitations,
future research directions and implications of the study.
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CHAPTER SIX
CONCLUSION 6.1 Introduction Regional Integration has been on the agenda for numerous countries across the globe
and PICs are no exception. With increased focus placed on trade liberalization by the
WTO and PICs alike, Fiji has embraced a series of RTAs to achieve this ultimate
goal. The recent wave in the growth of RTAs globally has met skepticism by policy
makers, trade economists, and business operators amongst others that view RTAs as
“stumbling blocks” while other see RTAs as drivers for economic growth and
development. The objective of this study has been to examine the impact, if any, that
RTAs have had on businesses in Fiji by presenting micro firm level information on
numerous issues surrounding RTAs and export businesses. Based on an in-depth
review of existing literature in the field of regional integration, a series of research
questions were developed and a field survey was carried out on exporters in Fiji to
identify, assess and evaluate the positive and negative implications of existing trade
agreements that Fiji is part of. From the discussions in this thesis, it can be said that
RTAs have created opportunities for exporters in Fiji however the contribution of
RTAs towards business growth has been relatively minimal.
Before presenting the breakdown of the final chapter, it is important to summarize
what the previous sections of this thesis has looked at. Chapter one being the
introductory chapter presented the overall picture of the study by laying the
foundation on what the study aimed at investigating. The chapter presented the
research problem along the justifications of this research.
Chapter two was devoted to presenting the background on Fiji, its RTAs and
economic facts. As this study was aimed at evaluating the impact of RTAs on
exporters in Fiji, it was important to first understanding the business environment in
the country along with its current economic performance and growth potentials. The
chapter also provided discussions on the existing RTAs that Fiji was part of.
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The objective of chapter three was to present the literature review. Existing literature
on issues surrounding RTAs were analysed through various means of comparison and
evaluation. . This review enabled the identification of various issues surrounding
RTAs and this formed the basis for this research. This chapter began with the
discussion on regional integration and international trade and barriers related to trade
along with the formulation, development and trend in RTAs. Literature available on
the impact of RTAs was also discussed. The implications of RTAs highlighted by
various researchers included export growth, employment creation, increased
investment, internationalization, easier market access amongst others. The in-depth
review of literature led to the formulated of research questions and hypotheses which
was later conceptualized.
Chapter four was devoted to presenting the research methods adopted for the study. It
also stipulated the justifications on methods adopted and highlighted the data
collection and techniques of analysis together with the problems encountered. Due to
the unavailability of a complete directory of exporters, the convenience sampling
technique had been adopted for this study.
The research findings and discussions are presented in Chapter five. The whole
chapter is devoted to data analysis whereby various issues surrounding RTAs that led
to the development of research questions and hypotheses were analysed through
various statistical means and the results are interpreted and discussed. The findings of
this research in general were in line with studies carried out elsewhere as well there
was consistency between the results. This study in particular supported the findings of
Mel at el (2011); Rucker (2010); Korinek and Melatos (2009); Kawai and Wignaraja
(2009); Regnier (2008); Rathumbu, (2008); Battisti and Perry (2008); Wijayasiri
(2007); Fliess and Busquets (2006); Rao (2000); Campbell (1996); Julien et al (1994);
DeRosa (1990) amongst others.
This chapter presents the conclusions for the whole thesis by presenting and
recapitulating the previous chapters and presenting the findings, implications,
recommendations along with future research directions.
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6.2 Main Findings of the study
This firm level study on 100 exporters has produced rich and fresh findings on the
impact of RTAs on businesses in Fiji. The findings of this study are summarized
below:
1. In recent years, numerous efforts have been made to promote regional
integration in the Pacific. While RTAs have been in existence in the Pacific
for a number of years now, businesses continue to face barriers related to
trade. Amongst these barriers, tariff rates, customs and duty are the most
prevalent. The underlying factor has been the lack of commitment from
governments of partner countries to completely erasing off tariff under RTAs
along with the little volume of trade that takes place between PICs. The study
also reveals that certain trade barriers tend to be specific to industries.
2. The awareness on RTAs amongst exporters and the business community in
Fiji is generally low. While majority of the exporters agreed on having heard
about RTAs, only a fraction of the respondents had detailed knowledge on
these agreements and many could not relate on how these agreements can be
beneficial for their business operations. In terms of utilization, 49% of the
respondents made use of RTA preference and majority of the users belonged
to the TCF. The study also revealed that users of RTAs are generally larger
firms with a number of business and export experience when compared to non
users.
3. Lack of information on RTAs is the major impediment to RTA use followed
by the non existence of agreements with exporter’s main partner market and
the ROO requirements. As mentioned earlier, the limited knowledge on these
trade agreements along with the qualification requirements hinder firms to
make use of FTA preferences
4. Fiji has a number of institutions that provide assistance to businesses in terms
of export matters, general business assistance and RTAs. The Customs
Department seems to be the most consulted institute with the FTIB ranked the
easiest in terms of getting support. Results highlighted that a significant
demand exists amongst exporters for more support to carry out business
through RTAs. Service demanded includes more awareness, training
facilitation, and availability of information and enhanced consultation during
RTA negotiations.
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5. There exists a general agreement amongst users and non users of RTAs on the
benefits of RTAs for businesses. Users of RTAs agree that their businesses
experienced export growth, easier market access, preferential tariffs, new
business opportunities and expanded customer base while few agreed that
RTAs assist in reducing supply chain costs as well as increase labour
productivity. Similar statistics are prevalent in the case of non users however
the areas of conflict are export growth and new business opportunities.
However percentage contribution of RTAs towards business growth has been
relatively low ranging from 10%- 20%.
6. At the current level of concluded RTAs, the level of competition at the market
place has become fierce placing pressure on businesses. While competition
resulting from RTAs has been healthy to some level, certain businesses find it
difficult to keep up with the ever competitive market place. Documentation
and ROOs impose limited burden on firms. Although 41% of the users stated
that multiple ROOs could add to business costs, many do not see this as a
problem at present. The evidence from this study also suggests that larger
firms tend to express more concerns related to ROO requirements than SMEs.
7. Based on the literature review, a series of research questions were formulated
which was later broken down into hypotheses. The results of the hypotheses
are restated below:
a. There is a positive and significant correlation between the level of
awareness on RTAs and the utilization of the RTAs by exporters in
Fiji.
b. The utilization of RTAs by exporters in Fiji is dependent on the level
of support given by key institutions. When businesses are provided by
support services, the general level of understanding on RTAs tends to
improve hence utilization of RTAs increases
c. The utilization of RTAs contributes significantly towards the growth of
exporters in Fiji. Evidence from this study highlight that firms that
make use of RTAs tend to have higher growth levels than non users.
d. A firm’s internationalization plans and its awareness on FTA
provisions contribute significantly towards the utilisation of RTAs.
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8. Exporters in Fiji are supportive of RTAs and agree that this form of
integration is the way forward to strengthen the export industry in Fiji. While
many tend to be supportive of the recent initiatives by the Government to
promote RTAs, the level of satisfaction of exporters on existing RTAs is
moderate.
6.3 Implications of the Study The various implications of this study are discussed below:
1. This study has made valuable contribution towards the existing body of
knowledge on RTAs and its impact on business activity particularly exporters
in Fiji. The study determined the various implications of RTAs and the views
of exporters on the existing RTAs. This study has been an initiative to carry
out the 1st ever comprehensive micro firm level study on issues surrounding
RTAs such as awareness levels, utilization levels, costs and benefits, trade
barriers etc that lays the foundation for other studies to be carried out as well
as policy formulation and implementation to further enhance the effectiveness
of RTAs in the region. At the overall level, this study also highlights the fact
that firm level surveys are an important instrument of empirical research to
enhance our knowledge on the effects of RTAs on businesses in Fiji.
2. The study has highlighted the areas that requires relevant stakeholder attention
and as mentioned earlier in formulating effective policies in the area of
regional integration. The findings of this survey can assist parties to invest
resources in the required areas such as in increasing awareness, evaluating
their current communication modes, access the availability of required
services as demanded by exporters (as presented in this study) as well as in
establishing networks to further assist the exporters of Fiji.
3. This study directly contributes to the enhancement of business knowledge on
existing RTAs and its implications on business activity. During the course of
this survey, many respondents highlighted that the study had also added to
their existing understanding on RTAs in the Pacific and its many implications.
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The findings of this study will also enable exporters and potential firms that
maybe interested in venturing into the export business to better understand and be
prepared for challenges in the exporting environment and exploit the potentials of
RTAs to their advantage.
The next section discusses the various recommendations of the study.
6.4 Recommendations
This micro firm level survey has presented invaluable set of findings when it comes to
RTAs and its impact on businesses in Fiji. With numerous initiatives taken by PICs to
strengthen regional ties, the effectiveness of RTAs remains doubtful. Nonetheless, the
findings of this survey highlight specific areas that can assist in facilitating a more
conducive business environment and support for RTAs by businesses in the region.
The various policy implications are presented below:
1. Increased cooperation- closer cooperation and increased resources amongst
government agencies and business associations across all partner countries to
RTAs are necessary features of effective implementation. Fuller commitment
from relevant agencies from partner markets is indeed vital for successful
RTA implementation. Despite the existence of RTAs for a number of years
now, it still lacks the commitment from all parties as such exporters continue
to face barriers to trade in the form of increased duty or strict quarantine rules
and regulations. This study has highlighted the plight of many exporters that
continue to pay duty on their goods despite the existence of RTAs that
promote free trade. It is on the part of the governments of all PICs to commit
to the goal of trade liberalization and regional integration in the Pacific.
2. Increase awareness on RTAs amongst the business community- the findings of
this study reveal that the awareness levels of firms on existing RTAs are
relatively low and the major impediment to RTA use in Fiji has been a result
of lack of information available on RTAs and its implications on businesses.
There is a need to for authorities to assist firms in understanding RTA
provisions such as ROO requirements, tariff reduction schedules, etc that can
enhance the awareness of firms on RTA provisions. More transparency as well
as readily available information could greatly assist in this area.
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More seminars and firm to firm visits to educate exporters and businesses on
RTAs can contribute to the knowledge of firms.
3. Increased commitment by Governments on addressing loop holes in existing
RTAs- The signatory governments to existing RTAs need to come together and
address the loop holes in the existing RTAs rather than negotiation on other
new RTAs and entering into new cooperation plans with other countries. By
tackling the existing issues, better and effective RTAs and cooperation plans
can be negotiated in the future with experiences gained from the current. PICs
are part of many overlapping RTAs, hence there is a need to harmonize these
agreements and ensure the effective and successful implementation of these
agreements first rather than allocating resources to new RTAs
4. Enhanced business consultation in RTA negotiations- improved business
participation in negotiating RTA provisions is a must for successful RTA
implementation. Regular consultations should be held with the business
community to seek their views on trade agreements to be negotiated or
amended. Such consultations will ensure that all parties are able to raise their
concerns and have better understanding of developments taking place in the
area of regional integration. Increased participation by the business
community before the implementation of RTAs will ensure that they take the
ownership of these agreements hence utilization will eventually be higher once
RTAs come into effect.
5. Improve support services provided to businesses- more effort should be made
to improve the assistance available for making the best use of the RTAs.
While a number of agencies have been set up to assist businesses in Fiji, the
results of this study highlight that many exporters are not aware on the
relevance of these support services to their own businesses. Firms in general
lack the awareness of the availability of support services. The findings of this
study suggest that if firms are aware of the support services, they will use
them. These institutions play an important role in the delivery of services
related to exporting under RTAs hence focus must be placed on improving and
upgrading the current support mediums to address the needs of the business
community in terms of RTAs in general. Administrative processes need to be
put in place that are simple and assist exporters to comply with the trade
regulations.
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Another area that requires attention is the need for all agencies to coordinate and
develop strategies aligned to the overall goal of the economy. An agency that is a
“one stop shop” could be set up so that businesses are able to access all information
necessary to make informed decisions. Special programs and agencies should be set
up that can provide all information related to RTAs, consulting services and training
for the business community.
6. Trade Missions and Road shows- The recent initiatives by the Government to
organize trade mission visits to other regional partners is a stepping stone
towards strengthening the export industry in Fiji. These provide opportunities
to Fijian exports to showcase their product offerings in other markets and
build trade relations. Such missions could be extended to other countries as
well.
7. Improve logistics and transportation links- Shipping schedules and the
geographical distance between major markets have been highlighted as a form
of barrier faced by exporters in Fiji. With improved logistics, the trade links
between regional countries could further strengthen that will make positive
contributions to the overall economy.
6.5 Limitations
The limitations of this study are highlighted below:
1. The findings of this study are limited to exporters in Fiji and cannot be
generalized to the other businesses in Fiji and the Pacific alike.
2. This research does not include views and expert opinion of other stakeholders
in the economy such as Government Ministries and other institutions but is
limited to the exporters in Fiji
3. The sample for this study has been selected based on convenience sampling
technique hence the findings of this study cannot be generalized to all
exporters in Fiji especially those that operate from remote areas.
4. This study has only looked at the impact of RTAs on the business community
in Fiji and does not discuss the other internal and external factors that evolve
around RTAs and its implications.
137
Despite its limitations, this study has made significant contribution by presenting
comprehensive firm level information on the views of RTAs by the business
community in Fiji.
6.6 Future Research Directions Regional integration has attracted much research interest in the past and continues to
be on the agenda for developed and developing countries alike. RTAs are fertile area
of research and based on the experiences of this study and literature reviewed, scope
of further research are available in the following areas:
1. Comparative studies can be carried out in other PICs and results evaluated.
Such studies will assist in the identification of similarities and difference
within the Pacific context that can further assist in policy formulation and
implementation options for relevant economy stakeholders.
2. This study can be extended to a larger sample size of exporters in Fiji so that a
much clearer implication of RTAs can be determined
3. Further research can be carried out to include other variables affecting RTAs,
its utilization and implications.
4. Research can be carried out in the context of internationalization and RTAs to
specific industries or business segments such as SMEs. Case study research
can also be carried out to further validate the findings of this study. Along
with these, the link between export strategies and how it is influenced by
RTAs can also be examined.
6.7 Conclusion
This chapter has presented the major findings of this study along with
recommendations, limitations and further research directions in the field of RTAs and
Fiji. The study on the impact of RTAs on the business community in Fiji has
produced rich findings and pointed out areas that required considerable interest of all
stakeholders. The general lack of awareness on RTAs in the country has been one of
the contributing factors to the non utilization of these agreements. With the little
volume of trade that do take place between PICs, the full benefits of RTAs are yet to
be realized by the country as a whole. While those firms that do make use of RTAs
have realized some benefits, the margin of contribution towards growth of these firms
is relatively low.
138
Increased commitment from regional countries along with policy changes is necessary
to achieving the ultimate goal of regional integration in the Pacific.
139
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The University of the South Pacific
Faculty of Business and Economics
School of Management and Public Administration
Survey Questionnaire
The Impact of Regional Trade Agreements on the Business Community in Fiji
The goal of this survey is to examine the impact that Regional Trade Agreements
have had on the business community in Fiji. This survey is being carried out as part of
my Master thesis at the University of the South Pacific. This research will hence try
to find out the experiences of businesses in Fiji, mainly those firms that are export
oriented with the existing Regional Trade Agreements between Pacific Island
Countries. The findings of this research will help to identify the benefits that
businesses in Fiji have experienced through the implementation of these Regional
Trade Agreements as well as the problems encountered by firms in Fiji in trading with
the other countries.
The information obtained in this survey will be held in the strictest confidence.
Neither your name nor the name of your company will be used in any document based
on this survey. This survey is intended to be completed by a Senior Manager within
your organisation or Manager responsible for export matters within your organisation.
Thank you for taking the time to complete this questionnaire.
QUESTIONNAIRE IDENTIFICATION
Questionnaire Number: _____________________
Date: ___________________________________
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PART ONE: FIRM DEMOGRAPHIC INFORMATION Name of the Company (optional): __________________________ Q1. What is the location of the firm? Region A- Suva 1 Region D- Ba 4 Region B- Nadi 2 Region E- Labasa 5 Region C- Lautoka 3 Region F- Others 6 Q2. What is your firm’s current legal status?
Q3. Approximately for how long your firm is involved in its current business? One year ago 1 16 to 20 years ago 5 2 to 5 years ago 2 21 to 25 years ago 6 6 to 10 years ago 3 26 years and over 7 11 to 15 years ago 4 DK (Don't know) 8 Q4. How many people are employed by your business? 0-5 1 51-100 4 6-20 2 101 and above 5 21-50 3 Q5. Which of the following describes the industry that your business belongs to? Textile, Clothing and Footwear 1 Agriculture (Forestry, Fishery/ Mining) 5 Food Processing Industry 2 Wholesale and Retail 6 Furniture Making 3 Other Manufacturing 7 Beverage Industry 4 Others 8 Q6. How many years of exporting experience your business has? One year 1 16-20 years 5 2-5 years 2 21-25 years 6 6-10 years 3 Over 26 years 7 11-15 years 4 Don’t Know 8
Shareholding company with shares trade in the stock market 1 Shareholding company with non-traded shares or shares traded privately 2
Sole proprietorship 3 Partnership 4 Limited partnership 5 Other (- Specify in box) 6
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Q7. Out of the following list of countries, which is your major trading partner? (SINGLE CODE ONLY) New Zealand 1 China 5 Australia 2 Japan 6 United States of America 3 Pacific Island Countries 7 United Kingdom 4 Others 8 Q8. How many countries do you export your product to? 1-5 countries 1 16-20 countries 4 6-10 countries 2 21 and over countries 5 11-15 countries 3 Q9. What percentage of your total annual production of goods is sold to foreign countries, both directly and indirectly? 0% 1 51-60% 7 1-10% 2 61-70% 8 11-20% 3 71-80% 9 21-30% 4 81-90% 10 31-40% 5 91-100% 11 41-50% 6 PART TWO: AWARENESS AND UTILISATION OF REGIONAL TRADE AGREEMENTS Q10. Are you aware of the free trade provisions laid out in Regional Trade Agreements or have knowledge on Regional Trade Agreements? Full Knowledge 5 Above Average Knowledge 4 Moderate 3 Below Average 2 No Knowledge 1 Q11. Is your business utilizing the free trade preference in Regional Trade Agreements? YES 2 GO TO QUESTION 12 NO 1 GO TO QUESTION 15
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If yes, have you used these Regional Trade Agreements to trade with your trading partners? Yes No Q12 South Pacific Regional Trade and Economic Cooperation Agreement
(SPARTECA) 2 1
Q13 Pacific Island Countries Trade Agreement (PICTA) 2 1 Q14 Melanesian Spearhead Group Agreement (MSG) 2 1 Q15. If no, do you plan to use these preferences and Regional Trade Agreements? YES 3 MAYBE 2 NO 1 If no, why not ….Because there is: Yes No Q16 Lack of information 2 1 Q17 High Administration Cost 2 1 Q18 Trade Agreements are not with my trading
partners 2 1
Q19 Too many exclusives 2 1 Q20 Difficult to meet rules of origin 2 1 Q21 Indirect Trade 2 1 PART THREE: TRADE BARRIERS From the list of trade barriers below, please select the ones faced by your business. Yes No Q22 Tariff rates 2 1 Q23 Licenses 2 1 Q24 Quotas 49 2 1 Q25 Voluntary Export Restraints 50 2 1 Q26 Local Content Requirements 51 2 1 Q27 Customs/Duty 2 1 Q28 Unfavourable foreign rules and regulations 2 1 Q29 Standards, testing, labeling or certification barriers 2 1 Q30 Government procurement contract barriers 2 1 Q31 Excessive Government requirements 2 1 If there are some other trade barriers, please specify: _______________________
49 Are quantitative restrictions placed on the import of certain products 50 VER are agreements whereby foreign producers and their government agree to limit exports to a particular market for a specific period of time. 51 Restrictions that require a certain percentage of the product to be made domestically or it should have a certain percentage of raw material from the domestic origin
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Q32. From the same list of trade barriers given below, please rank these barriers (from 1 to 10) as to which is the major barriers faced by your company in trading with your partners. E.g. If tariff rates are the major barriers for your business, then give rank= 1. Tariff rates Customs/ Duty Licenses Unfavourable foreign rules and regulations Quotas Standards, testing, labeling or certification barriers Voluntary Export Restraints
Government procurement contract barriers
Local Content Requirements
Excessive Government requirements
Which trade barriers from the list below have been removed by Regional Trade Agreements for your business? If you do not make use of RTAs, move to Q43 Removed Not Removed Q33 Tariff rates 2 1 Q34 Licenses 2 1 Q35 Quotas 2 1 Q36 Voluntary Export Restraints 2 1 Q37 Local Content Requirements 2 1 Q38 Customs/Duty 2 1 Q39 Unfavourable foreign rules and regulations 2 1 Q40 Standards, testing, labeling or certification barriers 2 1 Q41 Government procurement contract barriers 2 1 Q42 Excessive Government requirements 2 1 PART FOUR: IMPACT OF REGIONAL TRADE AGREEMENTS From the following list of positive impacts that Regional Trade Agreements can have on businesses, please tell me whether your firm has been able to experience any of them or not. (If not using, please provide perception) Yes No Q43 Export Growth 2 1 Q44 Easier Market Access 2 1 Q45 Preferential Tariffs 2 1 Q46 New business Opportunities 2 1 Q47 Reduced Supply chain Costs 2 1 Q48 Increased labour productivity 2 1 Q49 Expanded Customer Base 2 1 If there are other positive impacts, please specify:________________
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For the following question related to growth, please tell me if Regional Trade Agreements have helped your business in the following ways: Has the use of Regional Trade Agreements enabled your business to: Yes No Q50 Increase your sales 2 1 Q51 Increase firm’s employment
rate 2 1
Q52 Increase market share 2 1 Q53 Increase return on Investment 2 1 Q54 Increase profit margin 2 1 Q55 Increase overall growth 2 1 Please provide ratings for the increase as well using the scale given: For example, if your sales have increased by 20%, then give rating 2
Q56 Increase your sales 0 1 2 3 4 5 6 7 8 9 10 11 Q57 Increase firm’s employment
rate 0 1 2 3 4 5 6 7 8 9 10 11
Q58 Increase market share 0 1 2 3 4 5 6 7 8 9 10 11 Q59 Increase return on Investment 0 1 2 3 4 5 6 7 8 9 10 11 Q60 Increase profit margin 0 1 2 3 4 5 6 7 8 9 10 11 Q61 Increase overall growth 0 1 2 3 4 5 6 7 8 9 10 11 How to your evaluate the following after the use or implementation of Regional Trade Agreements?
0 1 2 3 4 5 6 7 8 9 10 11 0% 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% 71-80% 81-90% 91-100% Above
100%
Statement Much above expectation
Above expectation
Just as I expected
Slightly below expectation
Much Below expectation
Q62 Sales growth 5 4 3 2 1 Q63 Firm’s employment rate 5 4 3 2 1 Q64 Market share 5 4 3 2 1 Q65 Overall growth 5 4 3 2 1 Q66 Return on investment 5 4 3 2 1 Q67 Profit Margin 5 4 3 2 1
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For the next five years, what are your expectations for the growth of your business in the following areas?
Select from the list below the negative impacts that Regional Trade Agreements can have on your business? (If not using, please provide perception) Yes No Q73 Increased competition 2 1 Q74 Documentation related to agreements use 2 1 Q75 Difficulty in qualifying for preferential
treatment 2 1
If there are other negative impacts, please specify: ____________________________ Have Regional Trade Agreements increased the intensity of the following for your business?
Competition
Yes
No
Q76 Competing with big businesses 2 1 Q77 Pricing my goods/services in comparison to
competitors 2 1
Q78 Competition from Internet businesses 2 1 Q79 Competition from imported products 2 1
Statement Significant Growth
Slight Growth
No Change
Slight Decline
Significant Decline
Q68 Customer Share Gain: More sales from existing customers
5 4 3 2 1
Q69 Market Share Gain: Take up sales from your competitors
5 4 3 2 1
Q70 Product/service Development: New Product/service aimed at existing markets
5 4 3 2 1
Q71 Market Development: Enter adjacent markets with existing products/service
5 4 3 2 1
Q72 New Lines of business: Invest in unrelated new businesses
5 4 3 2 1
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With regards to increased competition, please tell me how you see competition as a problem before and after the implementation or use of Regional Trade Agreements. Before
Competition
Not a
problem 1
Bit of a proble
m 2
It’s OK
3
Problem
4
Very big problem
5
Q80 Competing with big businesses 1 2 3 4 5 Q81 Pricing my goods/services in comparison
to competitors 1 2 3 4 5
Q82 Competition from Internet businesses 1 2 3 4 5 Q83 Competition from imported products 1 2 3 4 5 After
Competition
Not a
problem 1
Bit of a proble
m 2
It’s OK
3
Problem
4
Very big problem
5
Q84 Competing with big businesses 1 2 3 4 5 Q85 Pricing my goods/services in comparison
to competitors 1 2 3 4 5
Q86 Competition from Internet businesses 1 2 3 4 5 Q87 Competition from imported products 1 2 3 4 5 PART FIVE: RULES OF ORIGIN In general, how much do you disagree or agree with each of the following
statements describing the rules of origin laid out in Regional Trade Agreements and the effect that it can have on your business.
Please select the degree to which you agree or disagree with the following statements. Use the following scale 1= strongly disagree and 5= strongly agree
Statement Strongly Agree
Agree Somewhat
Not Sure
Disagree Somewhat
Strongly Disagree
Q88. The rules of origin laid out in Regional Trade Agreements are complex and cumbersome in nature
5 4 3 2 1
Q89. The rules of origin laid out in Regional Trade Agreements have made it difficult for businesses to qualify for preferential treatment
5 4 3 2 1
Q90. The rules of origin laid out in Regional Trade Agreements should be simplified for administrative purposes
5 4 3 2 1
Q91. Meeting the rules of origin requirements in Regional Trade Agreements have added to the my cost of business
5 4 3 2 1
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PART SIX: INSTITUTIONAL SUPPORT FOR EXPORTING UNDER REGIONAL TRADE AGREEMENTS Are you making use of the support given by the following organisations or agencies to exporting firms in Fiji? Yes No Q92 Government Ministries 2 1 Q93 Customs Department 2 1 Q94 Fiji Trade and Investment
Bureau 2 1
Q95 Chamber of Commerce 2 1 Q96 Business Associations 2 1 Q97 Pacific Islands Forum
Secretariat 2 1
How easy was it for your firm to get support from the following agencies?
In general, how much do you disagree or agree with each of the following
statements describing the nature of support services that should be given to businesses like yours with regards to Regional Trade Agreements
Please select the degree to which you agree or disagree with the following statements. Use the following scale 1= strongly disagree and 5= strongly agree
Very Easy
Somewhat easy
Not Sure Difficult Very Difficult
Q98 Government Ministries 5 4 3 2 1 Q99 Customs Department 5 4 3 2 1 Q100 Fiji Trade and Investment
Bureau 5 4 3 2 1
Q101 Chamber of Commerce 5 4 3 2 1 Q102 Business Associations 5 4 3 2 1 Q103 Pacific Islands Forum
Secretariat 5 4 3 2 1
Strongly Agree
Agree Somewhat
Not Sure
Disagree Somewhat
Strongly disagree
Q104 More awareness on existing Regional Trade Agreements
5 4 3 2 1
Q105 More Training on these agreements 5 4 3 2 1 Q106 More information on the implication
of Regional Trade Agreements for Businesses
5 4 3 2 1
Q107 Enhanced consultation during Regional Trade Agreement negotiations
5 4 3 2 1
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PART SEVEN: INTERNATISATION Could you answer the following questions related to your plans regarding new products and new markets?
Q No Statement No Maybe Yes Q108 Expand into new markets 1 2 3 Q109 Experiment with new products in new markets 1 2 3 Q110 I’m always looking for opportunities in new markets 1 2 3 Q111 In order to remain competitive we need to explore product market
opportunities 1 2 3
Q112 Open up a business outlet or manufacturing plant in new markets 1 2 3 In general, how much do you disagree or agree with each of the following
statements describing Regional Trade Agreements assisting your company in achieving your plans regarding new products and new markets
Please select the degree to which you agree or disagree with the following statements. Use the following scale 1= strongly disagree and 5= strongly agree
Strongly Agree
Agree Somewhat
Not Sure
Disagree Somewhat
Strongly disagree
Q113 Expand into new markets 5 4 3 2 1 Q114 Experiment with new products in
new markets 5 4 3 2 1
Q115 Opportunities in new markets 5 4 3 2 1 Q116 Remain competitive by explore
product market opportunities 5 4 3 2 1
Q117 Open up a business outlet or manufacturing plant in new markets
5 4 3 2 1
Q118 Regional Trade Agreements have helped in the internationalization process of my business
5 4 3 2 1
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PART EIGHT: BUSINESS VIEWS In general, how much do you disagree or agree with each of the following
statements describing Regional Trade Agreements.
Please select the degree to which you agree or disagree with the following statements. Use the following scale 1= strongly disagree and 5= strongly agree
Strongly Agree
Agree
Somewhat
Not Sure
Disagree Somewhat
Strongly Disagree
Q119. Overall, I am generally satisfied with the Regional Trade Agreements advocated by Fiji to promote trade in the region.
5 4 3 2 1
Q120. Free Trade Agreement should be extended to included other foreign countries 5
4 3 2 1
Q121. The adoption of Regional Trade Agreement is the way forward to strengthen the export industry of Fiji
5 4 3 2 1
Any other comments: _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
THANK YOU VERY MUCH FOR YOUR TIME AND COOPERATION Please complete the following information about the respondents (optional): Position of Main Respondent: ________________________ Gender: _________________________ No. Of years of employment in the firm: ______________