Digital Snapshot

by Eva U Wagner

PACER plus

A potpourri of current affairs topics from Australia, New Zealand and the South Pacific brought to you by KAS Australia and the Pacific. The weekly digital snapshot showcases selected media and think tank articles to provide a panorama view and analysis of the debate in these countries.

Disclaimer: The views expressed in these articles do not necessarily reflect KAS Australia’s position. Rather, they have been selected to present an overview of the various topics and perspectives which have been dominating the public and political debate in Australia and the Pacific region.

The Pacific Agreement On Closer Economic Relations (PACER) Plus is due to come into force on 13 December 2020. Eleven years after the negotiations commenced and three years after they concluded, the Agreement was signed by Australia, New Zealand and nine Pacific Island countries. Of the signatories, nine countries have ratified it: Australia, New Zealand, Samoa, Kiribati, Tonga, Solomon Islands, Niue and the Cook Islands. Nauru, Tuvalu and Vanuatu have signed the Agreement but not yet ratified it. Neither Fiji nor Papua New Guinea, the two largest economies in the Pacific, have signed the Agreement to date.

The Agreement is in line with Australia’s Pacific Step-Up, a strategy announced at the 2016 Pacific Islands Forum (PIF) leaders’ meeting and outlined in both the country’s 2016 Defence White Paper and its 2017 Foreign Policy White Paper. According to the Australian Department of Foreign Affairs (DFAT), increased engagement with the Pacific region is one of Australia’s highest foreign policy priorities of fundamental importance. Likewise, the Agreement is in line with New Zealand’s Pacific Reset. Launched in 2018, the strategy acknowledges New Zealand’s connection by culture, history and politics to the region, the stability and prosperity of which directly affects its national interests. According to the New Zealand Ministry of Foreign Affairs and Trade (MFAT), an important mechanism of the reset has been the increased frequency of ministerial engagement.

PACER Plus is a free trade and development agreement. In terms of trade, the Agreement covers goods, services and investment. In terms of development assistance, the Agreement provides for a Readiness Package meant to support Pacific island country signatories with the ratification of the Agreement. This includes assistance in regards to legislative drafting, customs modernisation, harmonisation, implementation of up to date tariff codes and transposition of schedules, training on notification requirements, public outreach and stakeholder engagement, and revenue planning and mitigation. The Agreement also provides for an Implementation Package meant to enable Pacific island countries to take advantage of the Agreement.

The Agreement has received mixed reviews. Those in favour of it argue that it would enable Pacific island countries to reduce trade costs for importers and exporters through more harmonised customs systems, improved border and document compliance and a reduction in freight rates. The important services sector would grow through increased certainty, transparency and new market opportunities. Consumer protection standards and e-commerce could be improved with Australia and New Zealand’s support. Labour mobility could be increased in regards to skilled and semi-skilled professionals (eg by way of an APEC-style visa) as well as lower skilled labourers. The risk of brain drain would be addressed by the temporary nature of the transfers. In terms of health, market access would be facilitated through the upgrade of sanitary, phyto-sanitary and quarantine capabilities. Reduced tariffs on health products, including personal protective equipment, medical technology and medicines, could assist Pacific island countries in regards public health crises such as the ongoing coronavirus pandemic. The requirement to publish all laws, regulations, judicial decisions and administrative rulings that affect trade would create more certainty and transparency for the private sector and assist countries in their endeavor to improve governance and institutional capacity.

Those critical of the Agreement point to the economic asymmetry between the countries involved. Australia and New Zealand would dominate all but one (tourism) aspect of trade with the Pacific, including investment and the export of goods and services. The removal of barriers and impediments to trade and investment would primarily facilitate access for Australian and New Zealand exporters and investors. The Pacific islands would not receive any greater market access than they already had under the preceding South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA). The new Agreement would merely provide for more flexible rules of origin compared to the previous agreement. The Pacific island countries’ only comparative advantage, that is, its niche market products (vanilla, cacao, etc), would soon be overshadowed by ASEAN countries with free access to the Australian and New Zealand markets. The Agreement would constrain the Pacific island countries’ ability to support and protect their economies, for example, by way of import taxes. These constraints were also the reason why Fiji and Papua New Guinea had not signed the Agreement to date. Further, the Pacific island countries had to make extensive commitments in regards to their services and investment sectors. As a result, they might be exposed to challenges beyond their means if Australia and New Zealand would claim unfair treatment of their investors. PACER Plus’ most favourite nation clause could affect future trade negotiations. Australia and New Zealand, it is argued, intended to benefit from the Pacific’s generous commitments made in its Partnership Agreement with the EU. While the Pacific’s commitments in regards to goods, services and investments were to be reviewed after three years, the non-binding development assistance was only due for review in five years’ time. In the view of one of the critics, the focus of any agreement with Pacific island countries should be on assistance in regards to quality standards, support of emerging industries, diversification of economies and promotion of traditional systems and cultural practices.

Given Australia and New Zealand’s economic dominance, the more plausible argument appears to be that their interest in the Agreement was geostrategic rather than economic. For the Pacific island countries which already enjoyed preferential market access under the previous agreement, the side agreement on labour mobility seems to have been a major factor. Further, it is accepted that their ability to trade competitively is limited for various reasons, including small size, reliance on imports, remoteness, expensive transport links and vulnerability to natural disasters (eg cyclones) and other disruptions (eg coronavirus pandemic). This, in turn, may mean that they cannot develop in the same manner as other countries, and that unique solutions must be found.

Time will tell if, and to what extent, PACER Plus and the European Union’s new Africa-Caribbean-Pacific Partnership Agreement will contribute to the Pacific region’s development.