Pacific island countries and Timor-Leste recognise the importance of trade to their economies and are seeking ways to maximise the benefits to their communities through regional and multilateral trade agreements.

There has been regional acknowledgement of the importance of trade in stimulating economic growth, with a key regional priority being the expansion of markets for goods and integrating trade in services.

Diversifying trade can help reduce the impact of shocks. Pacific island countries and Timor-Leste continue to export primarily to Australia, making them highly dependent on the strength of the Australian economy for their economic growth. The exports of goods is narrowly focused on mineral and energy commodities and low value-added agricultural products, logging and fisheries. By identifying export opportunities where countries have a comparative advantage, they can gain more benefits from trade liberalisation.

Diversification will only add value if countries are truly competitive in these exports. Trading behind subsidies and other distortions will likely lead to slower rather than stronger growth and distract the private sector from investing in potentially more efficient industries. No country in the world has generated sustained economic growth and poverty reduction by closing itself off to international trade and development. Trade provides access to a wider range of goods and services, technologies and knowledge. It creates entrepreneurial activity and jobs, and provides opportunities for skills transfer and knowledge development. It also attracts private capital and increases foreign exchange earnings.

Trade liberalisation is not an end in itself, however, and does not guarantee that the benefits of trade will flow immediately. Trade liberalisation must be accompanied by efforts to improve domestic competitiveness through improving domestic human resources, investing in productive infrastructure, and improving the business enabling environment, including access to finance. Countries that address these three areas, while also progressing with trade liberalisation, find it easier to benefit from international trade. Good domestic policy settings form the foundation of a growing export base. Product differentiation is increasingly important for commodity exporters.

Identifiable, high quality commodities attract higher prices at market. Product differentiation, through branding, certification programs and value-adding, offers potential for improving returns to farming communities. Exporters are also finding success by using agricultural products in new and innovative ways. Beauty products are a growing industry, and successful exporting companies include Vanuatu’s Volcanic Earth.