There's a small number of niche growers producing vanilla, cacao, copra, and other goods in the Pacific, but they may soon be overshadowed by big nations who will have largely free market access to Australia and New Zealand, eroding any price advantage from the Pacific, writes Adam Wolfenden. 17013001
PACER Plus, the regional free trade agreement, will come into force next month. In this first of a three-article series, Adam Wolfenden of Trade Justice Campaigner for the Pacific Network on Globalisation writes about the case against this trade deal.
On December 13, 2020 the controversial regional free trade
agreement – the Pacific Agreement on Closer Economic Relations Plus (PACER
Plus) – will come into force, ending a drawn-out process, with millions of
dollars spent in negotiations that started before 2010.
Cook Islands was the eighth nation to ratify PACER Plus,
enabling the agreement to enter into force.
PACER Plus is an agreement that has been sold as a positive
development outcome for Pacific Island Countries (PICs). But what does it
actually mean for the countries that have taken the plunge and ratified the
deal in the midst of a global pandemic?
It’s important to first highlight the inherent asymmetry in
the relationship between Australia, New Zealand and the Pacific islands. With
the exception of tourism, Australia and New Zealand dominate every aspect of
trade with the Pacific, including investment and the export of goods and
professional services. When there is talk of removing barriers and impediments
to trade and investment, overwhelmingly this will be to facilitate one-way
access for Australian and New Zealand exporters and investors into Pacific
markets instead of the other way around.
As Papua New Guinea Minister Richard Maru summed up in 2017:
“The trade is so lopsided and to their advantage… they take so much out of this
country and yet they don’t want to talk about economic partnership with this
country – a deal where we will get a far better deal.”
To discuss the advantages of the new agreement one must
compare where the PICs are now compared to where they were before. Under the
previous agreement (SPARTECA) the PICs already had duty-free, quota-free market
access to Australia and New Zealand. However, the PICs struggled to meet strict
rules about what would qualify their goods for favourable treatment or needing
a derogation or exemption (in the cases of Samoa’s wire-harnessing for
automobiles, which has come to an end, as well as Fijian textiles).
Under PACER Plus the PICs haven’t received any greater
market access, but it appears that there has been some greater flexibility in
the rules about whether or not a good qualifies for that market access. In the
terminology of trade agreements, the “rules of origin” have been relaxed.
It’s important to also consider PACER Plus in the context of
the comparative advantage that the Pacific currently holds. While there are a
small number of niche market products that the Pacific produces (vanilla,
cacao, copra, etc.) these may soon be overshadowed by the big ASEAN nations who
will now also have largely free market access to Australia and New Zealand,
eroding any price advantage from the Pacific.
When considering the disadvantages from the agreement, it is
important to look at the impacts and burdens for the PICs. PACER Plus puts significant
constraints on what Pacific island governments can do to support and protect
their economies, including in regards to nurturing infant industries, applying
import taxes, and ensuring the use of local content by investors. These
constraints were too restrictive for both Fiji and Papua New Guinea, the two
PICs with significant manufacturing industries, both of which have decided not
to sign the new treaty.
PACER Plus also requires the PIC economies to be open to
foreign investment and to prioritise the needs of investors over other
concerns, thereby explicitly limiting the role of government to regulate the
economy. This opens up government regulation to be challenged if Australia and
New Zealand feel that their investors are being treated unfairly. Many PICs
have limited experience making binding commitments on their services and
investment sectors yet they have taken on extensive commitments in PACER Plus.
PACER Plus must be considered in the way that it impacts
other trade negotiations that the Pacific is currently undertaking, or may
undertake in the future. In PACER Plus there are broad clauses that require the
Pacific to pass on any better treatment they give to a third-party to Australia
and New Zealand as well. This will impact the current Post-Cotonou negotiations
between the Pacific islands and Europe, which are set to be concluded at the
end of the year. Given the entry of PACER Plus into force it will now ensure
that Australia and New Zealand also gain the generous and ill-defined commitments
being agreed to there by the Pacific. This was always Australia and New
Zealand’s intention with PACER Plus and was written into the framework PACER
agreement that was its precursor.
Going forward, PICs will need to be wary of the timelines
for reviews of commitments within the agreement. The non-binding development
assistance arrangement is only for five years and then is up for review. This
is important, as it will come after the other reviews within three years of the
commitments in goods, services and investment. The latter two reviews are
explicitly ‘to progressively liberalise’ the already extensive market access
(with some ‘appropriate flexibility’ for developing countries). One imagines
that the PICs will once again have to trade off market access to secure donor
For the PICs, PACER Plus represents a squandered opportunity to address the real development needs of the region and a waste of time and significant resources. The focus should be on assisting PIC exporters to meet quarantine standards in Australia and New Zealand, supporting the emergence of new PIC industries, promoting the diversification of PIC economies and ensuring that the traditional systems and cultural practices in the Pacific aren’t displaced by Western-style investments. None of this requires PACER Plus to be in force.
It’s a different story for Australia and New Zealand, however, who have leveraged their relationship to secure market access for their businesses to the region now and into the future at the expense of the region itself.