Unilateral Liberalisation or Trade Agreements: Which Way Forward for the Pacific?



Empirical results show that, for the Pacific island states, a free trade agreement with developed countries provides more benefits followed by regional trade agreement within the Pacific and then unilateral tariff reduction. While the agricultural sector expands and the manufacturing sector declines in all scenarios, to avoid second-best outcomes, developed countries need to go beyond the provision of aid for trade/development measures. For developing countries, the way forward with regional trade agreements is to carefully sequence them with regard to the different developed countries involved. This must be accompanied by domestic reform which is necessary but not sufficient for long-term gains.