Vanuatu recently signed a series of agreements and memoranda which, taken together, constituted a bilateral commitment between China and Vanuatu. This was announced as Vanuatu signing on to China’s Belt and Road initiative.

Although they were not initially released to the public, the Daily Post has obtained access to these documents.

The agreements include a large cash gift, a new infrastructure loan, the establishment of a joint trade commission, and commitments to maintain ‘facilities connectivity’ and policy coordination, among other things.

One rather dubious carrot in this package is a roughly VT315 million debt forgiveness agreement. This pertains to what agreement describes as an ‘unpaid interest-free loan’ made by China in 2004. According to the document, it became due in December 2015.

The Daily Post sought comment from the department of Finance for details concerning this loan, and learned that the Government of Vanuatu had been under the impression that the money was a gift. Officials told the Daily Post that they only found out about the supposed debt three weeks ago.

Finance officials confirmed that they had not seen any relevant loan agreement. “We were not around the Government during those times. Different people at different times.”

The need for such an agreement raises serious questions about transparency even between the negotiating parties. It also raised concerns among government officials, who fret that the country might be accused of being a debt delinquent when in fact it’s paying back its loans ahead of schedule.

Over the weekend, the Financial Times ran an article claiming that lack of transparency generally among Belt and Road projects made it difficult for the International Monetary Fund to assess the level of risk being incurred by developing nations, let alone to provide assistance.

Equally noteworthy is a nearly VT4.8 billion grant to ‘explore and implement the Container Inspection Equipment Project’. A search through the Daily Post archives revealed nothing concerning this project.

The Prime Minister’s Office did issue a press release about the next item, though. On his return from APEC, Charlot Salwai’s office released a flurry of announcements. Among them was a statement that Phase II of the much-ballyhooed ‘road to nowhere’ project was to be financed by the China EXIM Bank.

The initial press release contained no information concerning the terms of the loan, and several requests for clarification went unanswered, due to the relevant officials being away from the office.

But the Daily Post can now reveal that the loan will be worth nearly VT5.7 billion. Its entire term is 20 years, according to the framework agreement signed by the two governments. The grace period remains to be negotiated but the agreement stipulates that it ‘shall not exceed seven (7) years’. The interest rate is 2% per annum—typical for EXIM ‘concessional’ loans.

For reference, past ADB and World Bank concessional loans signed by the government of Vanuatu feature interest rates around 0.5% per annum, and much longer repayment periods—although these vary widely depending on the purpose of the loan.

At APEC, the USA, Japan and Australia announced they would be establishing an infrastructure fund. It’s not clear why the PM chose to proceed with this agreement when other options hadn’t yet made it onto the table.

It's clearly a buyer's market for Pacific nations right now. The nation might well have saved hundreds of millions—or even billions—of vatu if this deal had been shopped around.

To be fair to CCECC, they did a decent job engineering-wise. But some will certainly ask if it’s worth the price.

Doing business on the Belt and Road differs fundamentally from other trade relationships in one important respect: China vastly prefers bilateral, one-to-one relationships to multilateral agreements such as PACER Plus or the common trading platform provided by the WTO.

Both China and Vanuatu are WTO members, of course, so whatever mechanisms protected us before still protect us now. But whether or not we find ourselves with a similar trading platform to Fiji’s or PNG’s, for example, depends entirely on China.

China has been respectful, generous and even deferential in its treatment of Vanuatu so far. But without a multilateral trading framework, we can’t be sure that other nations might not get a better deal, or that the nation would have any recourse if that relationship soured for any reason.

Most importantly, Vanuatu won’t easily be able to seek objective outside arbitration. An MoU establishing a bilateral trade commission specifically stipulates that differences arising from the “interpretation, application and implementation” of the memorandum will be “resolved amicably through diplomatic consultations and negotiations between the Parties.”

More analysis on the numerous areas of cooperation outlined in these documents will be published soon.

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