The Trade Sub-Committee received various submissions and briefings from stakeholders who repeatedly emphasised the Pacific Agreement on Closer Economic Relations (PACER Plus) as a fundamental component of Australia-Pacific trade and investment in the future.
This chapter considers the core objectives of PACER Plus alongside evidence pertaining to the Agreement’s advantages and disadvantages. Complementing this, the chapter will highlight upcoming challenges to PACER Plus before noting potential opportunities to strengthen the trade and investment arrangement moving forward.
PACER Plus Overview
The Department of Foreign Affairs and Trade (DFAT) summarises the core tenets of PACER Plus:
PACER Plus is a comprehensive regional development-centred free trade agreement between Australia, New Zealand and nine Pacific island countries (Cook Islands, Nauru, Niue, Kiribati, Tuvalu, Samoa, Solomon Islands, Tonga and Vanuatu). PACER Plus was agreed in 2017.
Elaborating further on the significance of PACER Plus, DFAT notes:
When [PACER Plus] enters into force (anticipated in 2020), it will be the first trade agreement facilitating regional economic integration open to all Pacific island countries that is comprehensive – covering goods, services and investment. It also has a strong development focus with Australia and New Zealand committing A$25 million in development assistance to help Pacific island countries realise the opportunities of the Agreement.
From a broader regional perspective, DFAT highlights PACER Plus as a valuable policy apparatus to build regional economic integration and harmonisation, supporting a stable rules-based system alongside increased transparency, reduced trade costs and support to tackle existing trade constraints.
The World Bank Group and International Finance Corporation concurs DFAT’s standpoint, noting opportunities exist to strengthen Australia’s trade and investment relations with Pacific island countries. Examining PACER Plus’ current progress towards ratification, The World Bank Group and International Finance Corporation’s submission states:
PACER Plus has now been signed by nine of the 14 members of the Pacific Islands Forum that have committed to making it easier for trade in goods, services and investment in support of regional growth.
Noting the unique nature of the PACER Plus arrangement from an industry perspective, the Australian Fresh Produce Alliance discussed via their submission:
Given that many Pacific countries are small island economies, the nature of Australia’s trade and investment relationships with each country is different to many of our larger trading partners. The shape of Australia’s future opportunities with Pacific island countries will reflect the strengths and constraints of each country.
DFAT further explains that Australia is supporting Pacific island countries to implement their PACER Plus commitments and strengthen their capacity to trade. In particular, Australia has contributed $4 million to a joint Australia-New Zealand $7.7 million Readiness Package. This package aims to support legislative drafting, customs modernisation, training on notification requirements, public outreach, stakeholder engagement and revenue planning and mitigation.
Indra Australia warned trade agreements are ‘not a panacea in and of themselves, and the private and public sectors acting alone will not be capable of meeting PIC development objectives’.
Australian and PIC authorities will need to collaborate with businesses to proactively develop a secure and attractive investment environment for agreements like PACER Plus to be fully utilised and achieve their objectives. This will need to see all parties working together to develop robust infrastructure that can facilitate transactions, both physical and digital.
The United Nations Conference on Trade and Development called for investment by Australia in the capacity building of Pacific island countries to demonstrate the practical benefits or implications of the entry-into-force of the PACER Plus agreement to both the public and private sector, beyond the respective Ministries of Foreign Affairs:
Implement trainings/workshops on the ground in Pacific countries to better understand the realities of the respective small island countries and learn from their challenges
Take frequent fluctuation of key personnel as well as the restricted availability of human capital into account in all relationships/communication
Involve Trade Facilitation Committees/ Customs/Quarantine and other relevant institutions for the collection/update of data and legislation into national trade portals
Involve women in the function and tasks of contact points
Set-up mechanisms in the Pacific Islands for submitting enquiries and complaints related to the functioning and implementation of Pacer Plus
Strengthen the role and competencies of the Pacific Islands Forum Secretariat (PIFS) and Oceanic Customs Organization (OCO)
The Centre for Customs and Excise Studies (CCES) at Charles Sturt University, which has previously provided training and management programs to Customs officials from Pacific island countries, submitted the need for knowledge and skills required to effectively and efficiently carry out their regulatory responsibilities. The last such CCES program the Pacific Customs Management Program (PCMP) was conducted in 2012. The purpose of the Australian Government-funded program was to develop the operational leadership, skills and knowledge of PICs customs managers in order to strengthen their capacity under PACER Plus to support ‘regional economic integration, international trade facilitation and enhanced cross-border controls’…’and the OCO is keen to see its reintroduction’.
The Centre for Customs and Excise Studies believed sustainable economic growth through international trade will be ‘…greatly dependent upon the efficiency of a country’s customs administration’.
This is true of any economy, regardless of its size. In this regard, the breadth of border management responsibilities in a PIC does not vary significantly from that of a developed economy such as Australia - the regulatory issues are the same, even though the volume of internationally traded goods is much smaller. As a result, while a developed economy may devote a large team of officers to the management of one particular aspect of customs activity, there is an expectation that a handful of PIC customs officers will manage every conceivable cross-border situation that may arise.
Due to the absence of economies of scale, the Centre for Customs and Excise Studies declared most ‘…PIC customs administrations face significant capacity building challenges in introducing reforms and applying international customs standards’.
PIC countries tend to rely on development and regional partners to provide the necessary education and training in these areas, which is generally delivered on an ad-hoc basis…For example, as part of the implementation of the PACER Plus Agreement, the Australian Government through the OCO provided Rules of Origin training to those countries that are signatories to the Agreement. Whilst this is to be commended, it typically reflects the tendency for donors to provide subject-specific or country-specific training that can justifiably fit within the (often restrictive) terms of reference of a particular aid project...
Understanding the key components of PACER Plus, it is important to note contrasting advantages and disadvantages associated with the arrangement.
Advantages of PACER Plus
Examining the advantages of PACER Plus as it pertains to trade and investment, it is useful to understand the agreement as it benefits both Pacific islands and Australia.
As identified by DFAT, PACER Plus seeks to benefit Pacific countries to achieve the following provisions, which in turn support trade and investment in the region:
Modernise customs systems and processes, and adopt transparency practices, which will lead to less red tape and more efficient and accessible import/export procedures;
Access improved and more flexible rules of origin requirements, enabling Pacific island country firms to flexibly source inputs from other countries in the region, boosting opportunities for value addition and participation in regional and global value chains;
Develop the necessary systems and capabilities in application and adoption of sanitary and phytosanitary measures and technical regulations, standards and conformity assessment to help gain and maintain market access;
Help implement predictable investment rules that help attract capital, technology and knowledge to the Pacific, whilst supporting countries to work with the private sector to facilitate flows and address business enabling issues; and
Support regulatory reform and capacity building on trade in services – a major export sector in many Pacific island countries.
The World Bank Group and International Finance Corporation further note the benefit of deep and comprehensive free trade agreements (DCFTAs), including PACER Plus, as a means of strengthening trade and investment ties. In particular:
DCFTAs, such as PACER Plus, have been shown world-wide to be mutually beneficial to all partners by creating a framework for expanding economic opportunities – not just through promoting trade and investment flows, but more importantly for what it implied for knowledge transfers, which is a fundamental building block to faster long-run economic growth for developing countries.
Furthermore, the World Bank Group and International Finance Corporation states:
Streamlining border processes will reduce input costs, improve agribusiness and tourism viability and increase the potential to engage in global value chains. Benefits include a more predictable trading environment, consistent and transparent rules on sanitary and phytosanitary measures, technical barriers to trade, and customs procedures, more liberal and product-specific rules of origin and greater certainty around tariffs for exporters.
Discussing further the potential for PACER Plus to support Pacific countries overcome investment constraints, Professor Ronald Duncan AO of the Australian National University (ANU) highlights the value of PACER Plus if implemented successfully:
If PACER Plus leads to overcoming the binding constraints to investment, trade and growth, it can become a valuable vehicle for transforming the FICs. However, it must be acknowledged from the outset that overcoming their binding constraints will require them to do much more than simply implementing their PACER commitments. These alone, while a start, must be supported by unilateral policy decisions that are at the heart of good economic management.
Elaborating further on the potential of PACER Plus to support sustainable and successful economic management in the Pacific, Professor Duncan noted:
FICs have generally failed to do this up to now in any sustainable way, and so hopefully they will adopt the PACER Plus framework to seize such reform opportunities. After all, the main economic problems confronting FICs are domestic supply constraints that can only be tackled at home by governments, supported by the developed PACER Plus partners along with other aid donors.
Underlining the benefit of PACER Plus’ ability to push for services liberalisation, including stimulating increased regional investment in Pacific countries, Mr James Redden, a Visiting Fellow of the University of Adelaide’s Institute of International Trade, openly advocated for the immediate ratification and implementation of PACER Plus. Regarding services liberalisation, Mr Redden reasoned that:
Getting investment, training and Aid for Trade into services is the key to the future of the Pacific islands. The PACER Plus agreement has what’s called a positive listing. It means that if there are particular services they want to protect, they can. It’s a very open service liberalisation agreement that is encouraging Pacific islanders to get more investment, more training and more support to open up everything from air services, tourism services, financial services and health services, and that will bring greater investment and greater competition that will assist the Pacific islanders into the long term. That’s No. 1.
Elaborating further on advantages associated with opening Pacific island economies up to larger regional markets, specifically Australia and New Zealand, Mr Redden noted:
As the rest of the world globalises and improves technology and ability and skills to use technology, they don’t want to be left behind. PACER Plus brings with it the investment and the competition policy that enables the Pacific islanders to keep up with the rest of the world, almost using Australia and New Zealand as a gateway to be part of the modern, globalised world. For example, on infrastructure, Australia has supported a submarine cable that is improving infrastructure access for Pacific islanders to telecommunication. During the malaria virus in Samoa and even today with the coronavirus, a number of Pacific islanders have better access to technology, but they don’t have the skill levels to access it. Nurses were unable to use data and were unable to use some of the modern technology to assist their patients. By joining PACER Plus, they’ll get access not only to the technology, the investment and the infrastructure but also to stronger support for education, and a skills base.
The Government of New Zealand’s Minister for Trade and Export Growth further recognises PACER Plus as assisting in the provision of new and purposeful aid for trade initiatives, whilst simultaneously supporting and facilitating greater regional labour mobility and social welfare impacts.
Likewise, via submission to the Sub-Committee, the Department of Agriculture, Water and the Environment highlighted PACER Plus’ benefits to the agricultural sectors of Australia and the Pacific:
PACER Plus provides opportunities for increased agricultural trade through trade liberalisation whilst maintaining protection for human, animal and plant life and health. It achieves this through incorporating key features of the World Trade Organization (WTO) international framework of rules and standards in relation to measures that protect against sanitary and phytosanitary risks as well as the application of technical regulations.
Concurring this perspective, the Institute for International Trade noted:
Improvements in agriculture and fishing capacity as well as productivity, along with related infrastructure development, arising from implementation of the agreement will increase the potential for investment in agriculture and fishing.
From an industry perspective, the Asian Development Bank reinforced PACER Plus as supporting Pacific countries to activate and benefit from regional and global trade opportunities. Specifically, the Asian Development Bank highlighted via their submission:
PACER Plus is expected to create greater opportunities for growth, long-term job creation, and increased living standards. The agreement is also expected to contribute to advancing more gender-inclusive trade policies and strategies in the region, primarily through enhancing women’s access to trade and markets, as well as facilitating labour mobility initiatives that support women’s empowerment.
Furthermore, Indra also corroborates the advantages of PACER Plus to Pacific island neighbours:
When it comes into force, PACER Plus can be expected to have a positive impact … due in part to the importance it places on supporting PIC economies to improve connectivity and the ease of doing business. The agreement will be an important facilitator of improvements that increase opportunities for intra-PIC and inter-regional trade, and in its text acknowledges that improved PIC access to international markets will support the region’s own development objectives.
Submissions to the Sub-Committee particularly highlight the expected advantages of PACER Plus to the Pacific islands’ business sector. The Department of Industry, Science, Energy and Resources discussed:
PACER Plus, once it enters into force, will provide for a rules-based trading architecture which mandated ongoing engagement with Pacific partners that will be of real benefit to business in the region.
DHL Express Oceania that operates extensively throughout all Pacific Islands submitted that elimination duties and taxes and streamlining of border clearance will help Pacific businesses such as theirs and their clients. DHL Express has been operating in Fiji since 1976, employs 147 people, has eight facilities, a fleet of delivery vehicles, and operates 69 commercial flights per week.
DHL Express transports a variety of goods to and from the Pacific I slands on behalf of a wide cross section of import and export customers. Several key industries exist within the Pacific islands that contribute to much of this international trade.
The textile clothing and footwear industry, for example, is an important part of many Pacific Island economies and provides investment and employment throughout the region.
According to DHL Express it is imperative, therefore, that any initiatives in trade agreements to support the textile clothing and footwear industry are supported.
In this regard, both SPARTECA [South Pacific Regional Trade and Economic Co-operation Agreement] and PACER Plus are vital to ensure trade is facilitated both within the Oceania Region and throughout the world.
DHL Express highlighted that industries such as handicrafts and other manufactured goods were an important cultural and economic driver in the region.
Similarly, beauty and personal care products (such as Pure Fiji and Volcanic Earth) represent burgeoning Pacific Island industries. Trade facilitation initiatives should therefore be encouraged, ranging from the elimination of duties and taxes through to streamlined border clearance processes that reduce regulatory burden.
Additionally, the Institute for International Trade concurred:
Improved trade facilitation implicit in PACER Plus and associated Aid for Trade (AfT) programs will reduce overall trade costs and time to trade, as well as drive customs reform in support of a more harmonised systems of customs and quarantine procedures of benefit to all PICs. As discussed further below, AfT can assist SMEs and MSMEs to meet the standards and sustainability requirements of not only Australia and New Zealand but also those of other developed economies.
Expanding further on associated Aid for Trade benefits, DFAT highlighted:
The provision of accompanying aid for trade under PACER Plus will help Pacific island country parties to benefit from the opportunities that are opened up by closer engagement with the international trading system. In implementing PACER Plus, Pacific island country parties will have access to assistance to ensure their regulations address risks at the level they consider appropriate while avoiding unnecessary barriers to trade, which will benefit consumers and businesses across the region. Consumers in Pacific island countries will be able to access a wider range of price-competitive goods and services and businesses will be able to access cheaper inputs. Collectively, these initiatives will create greater certainty resulting in increased businesses confidence and new opportunities for growth, jobs and rising living standards.
Consequently, DFAT made specific mention of benefits to businesses in the Pacific region, stating:
Reform commitments and enhanced cooperation on policies will foster greater flows of goods, services and investment between Australia, New Zealand and the Pacific island country parties. Certainty for businesses will be provided and costs to businesses and consumers will be reduced as a result of Australia’s and New Zealand’s commitments not to apply tariffs to any products originating in other Parties. Pacific island country parties’ commitments to progressively eliminate tariffs on most products originating in other Parties will also benefit businesses. Pacific island countries will liberalise at a pace that takes into account their levels of development and unique challenges as small island developing economies, subject to flexibilities to deal with specific challenges such as import surges, natural disasters and industry development.
Complementing this, DFAT noted:
Pacific island countries stand to benefit through cheaper imports (including cheaper manufacturing inputs) and increased ease of doing business. Local producers of PACER Plus originating goods will also benefit from modernised, more flexible and less-restrictive rules of origin that will facilitate their exports within the region and best practice procedures for determining and claiming origin.
Several Pacific island governments provided submissions to the Sub-Committee, noting advantages for their domestic trade and investment-related sectors. In particular, the Government of Kiribati addressed expected benefits to the country, specifically:
Kiribati, a signatory to the PACER Plus trade agreement, is expected to strengthen its Trade and Investment relationship with Australia through implementation of the PACER Plus trade agreement and broader trade related development assistance as guided by the Development and Economic cooperation chapter of PACER Plus.
Furthermore, the Government of Kiribati highlights:
Kiribati underscores PACER Plus as an opportunity to deepen its engagement with Australia in regards to Trade and Investment Development. The linkage between PACER Plus and development strategies and policies will be instrumental in ensuring that trade contributes to economic growth, employment and sustainable development.
His Excellency Mr Robert Sisilo, the High Commissioner in Australia for the Solomon Islands declared if properly managed, Australia’s Pacific Step-up—and New Zealand’s Pacific Reset, and hopefully the early entry into force of PACER Plus—as the way forward.
Solomon Islands ratified PACER Plus on 22 June 2020. With two more ratifications, this landmark agreement will enter into force and the benefits can start to be fully realised. We really look forward to PACER Plus implementation, so much so that we have submitted our bid to host its implementation unit in the country.
Likewise, the Government of Samoa identified PACER Plus as a vehicle to address trade impediments for Samoa and the Pacific – impediments including access to commodity export pathways, limited kava allowances and biosecurity restrictions.
Additionally, the Government of Samoa underlined PACER Plus as particularly benefiting the Seasonal Workers Programme (SWP), a key area that will be explored in later chapters. Samoa recognised that:
The early entrance into force of PACER Plus is in Samoa’s interest so that the AUD$25 million Seasonal Workers Programme (SWP) can be implemented to address the key areas impeding trade for Forum Island Countries.
In turn, the Government of Samoa argued that PACER Plus’ support for the SWP would assist in building the capacity of Pacific island governments and private sector organisations as a whole.
For Australia, PACER Plus also provides a range of benefits to enhancing trade and investment with the Pacific. The Department of Industry, Science, Energy and Resources identified PACER Plus as an ‘important vehicle’ in Australia’s relationships with the Pacific, which in turn justified the need for continued efforts to ensure the agreement enters into force in a timely manner.
The agreement will help Pacific countries build necessary standards and conformance infrastructure, for which Australia can play an important role in generating mutually beneficial outcomes.
Evidently, advantages exist surrounding PACER Plus’ implementation in the Pacific, particularly for strengthening trade and investment ties.
Nevertheless, submissions also identified prominent concerns and associated disadvantages to the agreement which warrant the Australian Government’s attention.
Disadvantages of PACER Plus
Supported by the perspectives of additional submissions, The Australian Fair Trade and Investment Network Ltd (AFTINET) was particularly critical of PACER Plus. Specifically, AFTINET argued that:
Fiji and Papua New Guinea (PNG), which together make up over 80 per cent of Pacific island economic output, have not signed PACER Plus, despite the completion of negotiations in 2017. This severely undermines claims that PACER Plus is an effective regional agreement.
Expanding on this issue further, AFTINET noted:
Fiji and PNG did not sign PACER Plus because they say the deal is lopsided and does not meet their development needs. All Pacific island countries already have tariff free access for their exports to Australia. PACER Plus mainly benefits Australia and New Zealand through reducing Pacific island tariffs on imports and reducing regulation of foreign investment.
Following on this argument, Professor Duncan cautioned the potential for PACER Plus to trigger revenue losses amongst smaller Pacific island economies, or the smaller Forum Island Countries (FICs):
Some of the smaller FICs are likely to suffer substantial government revenue losses from tariff cuts under PACER Plus because their economies are so small and narrowly based that alternative taxes such as VAT are unlikely to be feasible through excessive administrative costs and lack of domestic supply chains i.e. a tax base. Prime examples are the US compact FICs of the Republic of the Marshall Islands and Federated States of Micronesia where efforts to introduce a VAT have collapsed. While these FICs trade little with Australia and New Zealand, they will nevertheless incur large government revenue falls from PACER Plus tariff reductions by virtue of their Compact agreement with the US…
Dr Wesley Morgan, Adjunct Research Fellow at the Griffith Asia Institute expressed doubts about the value of a new regional trade agreement to drive exports from Pacific island countries to Australia.
Unfortunately, that trade agreement won’t do much to ameliorate the barriers that make it difficult for Pacific island countries to export to Australia and New Zealand, and it’s not even likely to do an awful lot to improve other important areas like tourism and investment to the Pacific. I do think that there is an opportunity here for Australia to think about ways to create new access to the Australian market for the export of Pacific goods and for the movement of Pacific people.
…obviously, we’re in the middle of a global pandemic, I think Australia really needs to capitalise on that moment by creating new pathways for Pacific exports, particularly for agricultural exports, which have always been very important for Pacific economies, but particularly important right now as tourism, as we’ve heard, has crashed in all Pacific island countries where tourism has been important.
Providing a local perspective, supplementary evidence supplied to the Sub-Committee by New Caledonia noted PACER Plus’ multilateral approach as requiring resources and expertise beyond domestic capacities:
The multilateral approach of PACER Plus involves resources and expertise that New Caledonia does not currently have. Moreover, its legal and regulatory environment is not currently compatible with this agreement.
ANU Development Policy Centre described the PACER Plus approach as ‘shallow and broad’ seeing more merit in forging bilateral agreements with individual countries.
An alternative approach to the broader goal of Pacific integration would be deep and narrow. This would involve Australia reaching a bilateral agreement with one or more Pacific island countries. The bilateral agreements would offer Pacific economies greater access to the Australian labour market, and perhaps other benefits (such as participation in various government services, such as meteorological or drug registration). In return, the Pacific economy would have to make various commitments.
The Policy Centre thought it ‘unlikely’ that many Pacific countries would enter into security compacts with Australia, but believed alternative requirements could relate to ‘standards of good governance, and/or education and health’.
Such an approach should be pursued together with New Zealand, and seen as an expansion of the Closer Economic Relationship, with the end goal of extending that relationship beyond Australia and New Zealand. While that goal would take decades to reach, it could be approached incrementally, starting with one or two interested Pacific countries.
This evidence provides an important standpoint – for PACER Plus to be successful in the Pacific, greater understanding of local contexts, including regulatory environments, is necessary to support its implementation. Otherwise, PACER Plus’ associated benefits may not be sufficiently achieved.
In particular, AFTINET argued that PACER Plus dramatically lacks detailed studies of economic, gendered, health and environmental impacts of PACER Plus. Climate change was specifically focused on as an area inadequately addressed by PACER Plus, with AFTINET noting:
During the nine years of negotiations, Pacific island governments said consistently that their priorities were addressing the climate change crisis, not a trade agreement that would mainly benefit Australia and New Zealand.
Pacific island countries are already experiencing the effects of climate change from rising sea levels and have asked Australia for greater support in reducing climate change and mitigating its effects. Despite this, PACER Plus contains no environment chapter committing governments to implement international environmental agreements, including those on climate change.
With regards to PACER Plus’ potential impact on gender issues, AFTINET recognises:
Many Pacific island women are involved in agriculture … this sector could be adversely affected by tariff cuts, which could therefore have a disproportionately severe impact on women. Women employed in the public sector in areas like health and education could also be affected if tariff cuts result in revenue losses and cuts to public services. Such cuts in services could also affect women disproportionately as they and their children are large users of health services, for example.
ActionAid Australia was also explicitly critical of PACER Plus and confirmed the standpoints of AFTINET. From a broad level, ActionAid contends:
ActionAid is concerned that the current agreement, PACER Plus, has the potential to undermine development outcomes and pose significant risks to women’s rights in the Pacific region in its current form.
Furthering this, ActionAid identified that the refusal of Fiji and PNG to sign the trade deal highlighted the region’s general lack of support for the agreement. Likewise, the organisation argued that as only two Pacific countries, Samoa and Kiribati, have ratified the deal along with Australia, Pacific support for the agreement is low.
Identifying key causes for the minimal support of PACER Plus, ActionAid argued:
PACER Plus reduces tariffs, which are a significant source of revenue for Pacific island countries. A 2007 report found that eliminating tariffs could reduce total revenue for the Cook Islands, Kiribati, Samoa, Tonga, and Vanuatu by more than 10.3 per cent. This could cause the erosion of public services that support gender equality, such as healthcare, education, transport, and justice services.
Specifically highlighting PACER Plus as undermining gender equality in the region, ActionAid elaborated that:
PACER Plus has the potential to threaten women’s livelihoods by increasing competition in sectors with the highest rate of women’s participation, such as small holder farming and industries in their infancy such as garment manufacturing and food processing. One analyst is projecting that 75 per cent of manufacturing in the Pacific will be forced to close because of competition.
Ultimately, ActionAid concluded that PACER Plus fails to sufficiently address the development needs of Pacific island countries, neglects their concerns over climate change and threatens social equality. The organisation reasoned that:
PACER Plus trade negotiations were conducted largely in private between governments and multinational corporations. ActionAid Australia is concerned that this lack of transparency has effectively excluded Pacific women’s voices from the negotiations given their low rate of representation in formal government structures.
The Pacific Network on Globalisation (PANG), a non-governmental advocacy body, acts as a ‘regional watchdog’ promoting Pacific islander rights and regional development. PANG’s evidence, received both via submission and public hearing, highlighted multiple concerns pertaining to the agreement’s ‘erroneous’ trade obligations.
Specifically, PANG highlighted that:
PACER Plus was touted as supporting regional integration however the exclusion of over 80 per cent of the economy proves that PACER Plus is a failure … the overly ambitious and erroneous demands placed on the major economies of PNG and Fiji (particularly in regards to infant industries and safeguards for domestic producers) resulted in them walking away from the outcome. The insistence that PICs agree to obligations that could undermine their productive sectors was a bridge too far and an approach that Australia must remember when dealing with sovereign nations no matter how big or small.
PACER Plus will hamper government revenue, provide inadequate safeguards for Pacific producers, undermine the ability to nurture infant industries and contains no improved market access for Pacific exporters to Australia and New Zealand. PACER Plus places no binding commitments of Australia to assist in the areas that would help Pacific island producers meet and have access to Australian fruit and vegetable markets.
Interestingly, PANG raised specific concern that PACER Plus would undermine the ability of PICs to determine the policy needs for their domestic industries and producers. In turn, PANG cautioned that this would not only negatively impact Pacific islands and their communities, but would undermine the nature and trust of Australia’s relationship with the PICs.
Discussing these concerns further:
By using PACER Plus to define the trade and investment relationship – and as a way to address barriers or impediments to trade between Australia and the PICs – it is choosing to enshrine in a legal treaty an asymmetrical and unfair relationship that will erode the trust of Pacific island governments and communities. It will also undermine the long-term interests of both the Pacific and Australia, that is, an economically sovereign and prosperous Pacific.
There is nothing within the purported benefits of PACER Plus that require a binding free trade deal to be imposed on the PICs. The benefits of liberalising trade in goods and services as well as investment are free to any PIC that wants to undertake such unilateral steps (like Kiribati has with tariffs). Locking them in under PACER Plus is a liability for both the PICs and Australia when the liberalisation impacts those communities negatively or circumstances change (as we have seen already in 2020).
The Sub-Committee also received a submission from Public Service International (PSI) who identified similar disadvantages associated with PACER Plus. In particular, PSI argues that PACER Plus, and Australia’s Aid for Trade model in general, will work to erode Pacific state ability to:
Generate revenue equitably through progressive fiscal policy;
Regulate markets to ensure the interest of all citizens; and
Provide universal essential services to citizens run and operated by the state.
In particular, PSI contends:
PACER Plus and Australia’s Aid for Trade model is based on a failed economic model which assumes that the benefits that accrue to foreign investors from a liberalised foreign investment environment, with reduced corporate and labour regulation, will ‘trickle down’ to the general population. The interregional adviser for the United Nations Committee for Development Policy, Mr Daniel Gay, has analysed the agreement and concluded the neoliberal model upon which PACER Plus is based ‘isn’t relevant in tiny, isolated islands featuring permanent shortfalls of domestic demand, inadequate capital stocks and extremely inflexible factor market’. Moreover, as has been demonstrated in both the developed and developing worlds, even if a case can be made that reduced trade barriers create aggregate gains, those gains are likely to be appropriated by a minority, leaving most people no better off.
The PICs already have duty-free and quota-free market access to Australia and New Zealand under the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) but have struggled to meet the stringent rules to take advantage of this … Consequently PACER Plus will improve market access for Australian and New Zealand enterprises and not the PICs.
Of equal concern to PSI:
PACER Plus is currently asking PICs to forgo their ability to regulate with regard to their development interests, placing additional burdens on already stretched services. It is not clear that PACER Plus will protect government rights to regulate in the public interest or that essential public services will be completely excluded.
Ms Mele Amanaki, the Chair of Public Services International Oceania; and Secretary General of Public Services Association in Tonga, believed the time was right to reassess the impact of PACER Plus in light of the economic hit from the COVID-19 pandemic and recent natural disasters.
Promoting a binding free trade agreement through PACER Plus or private investment in public services through the aid for trade strategy or other investment mechanisms is not in the interests of nor a priority for Pacific island countries at the moment. This approach will hamper our governments’ abilities to: firstly, generate revenue equitably through progressive fiscal policy; secondly, regulate markets to ensure the interests of all citizens; and, lastly, provide to citizens universal essential services run and operated by the state.
Ms Amanaki wanted the Australian Government with work more closely with Pacific trade unions.
Australia is well placed to partner with us to ensure a public goods approach to sustainable development and inclusive growth for the creation of decent work and the strengthening of democratic institutions. Quality public services owned and operated by the states and staffed by public employees are central to this. Australia can do this through increasing official development assistance to provide reliable and grants-based funding to the governments…
Importantly, it is not solely non-governmental, advocacy organisations that identify concerns about PACER Plus. Specifically, the Griffith University Asia Institute (the Griffith Asia Institute) acknowledged the disadvantages associated with PACER Plus for PIC communities, reinforcing the existence of concerns across sectors.
The Griffith Asia Institute was particularly critical of the argued benefits associated with PACER Plus, contending:
PACER Plus does little to enhance market access for Pacific exports into Australia and New Zealand, and does not address key barriers to trade – such as burdensome quarantine requirements for agricultural exports from Pacific island countries. The agreement does reduce border tariffs and provide market access benefits to Australian and New Zealand exporters. However, neither of the two largest Pacific island economies (PNG and Fiji) have signed on to PACER Plus, citing concerns about the utility of the agreement, and this limits potential benefits to Australian businesses as well.
Expanding on this disadvantage further:
Optimistic observers have suggested tariff reductions for Australian exports to the Pacific will see reduced prices for Pacific island consumers. In many cases however, projected gains are likely to be offset – at least somewhat – by the introduction of increase of consumption taxes. Close analysis suggests that lowering domestic tariffs will entail difficulties for island states reliant on import taxes for government revenue.
For smaller island countries, replacing trade taxes with less distorting, but harder-to-administer, consumption taxes would also do little to generate economic growth. In the few Pacific island states that have a significant manufacturing sector – most notably Fiji, but also PNG – there also remains concern that removing import tariffs will undercut local manufacturing (with resultant business closures and job losses).
Instead, Griffith University urges the Australian Government to pursue further initiatives other than PACER Plus to successfully activate greater trade and investment. Notably, they contend that:
Australia should, through its aid program, build supply-side capacity and address market access barriers in a direct way. Simply implementing World Trade Organization-compliant rules for regional trade will not substantially boost trade and investment.
Considering the above evidence, it is apparent that concerns exist across many trade and investment-specific sectors with regards to PACER Plus. These comments provide important contrasting perspectives to submissions favouring PACER Plus’ ratification.
Therefore, considering these noted concerns, it is worthwhile investigating opportunities the Australian Government can champion to safeguard PACER Plus’ successful and effective implementation in the Pacific.
Safeguarding PACER Plus’ effective implementation
A key challenge to the successful implementation of PACER Plus, which was identified in multiple submissions, was the broad theme of needing to create a more attractive business climate in Pacific island countries. This in turn was noted as a means of enhancing progress towards trade and investment flows.
Professor Duncan recognised this necessity through a joint submission with ANU academics. It was noted:
All FICs (Pacific Forum Island Countries) need an improved environment for investment, both domestic and foreign. If trade in goods and services is to increase between the members of the Agreement in response to the opportunities created by PACER Plus, there must be increased private sector investment. Of course, public investment in infrastructure and essential services will often be needed to enhance the environment for private investment.
The World Bank and International Finance Corporation concur with Professor Duncan’s perspective, highlighting that for PACER Plus to be successful in the Pacific, supporting greater development and broad-based connectivity via enhanced trade and investment, both developing and developed countries will need to take further joint steps to foster an improved business climate.
Specifically, the World Bank and International Finance Corporation argue that:
While lowering trade barriers and reducing investment restrictions may provide some impetus for foreign investors to view developing Pacific country markets as more attractive for investment, easing trade and investment restrictions may not be sufficient to overcome the lack of transport connectivity, an educated workforce, and a transparent regulatory environment that are critical for improving the investment climate.
Elaborating further on this perspective, it is contended that:
Deep and comprehensive trade agreements can open the door to greater economic opportunities, but unless complementary activities are taken within developing Pacific Countries to improve the investment climate, this opening will only provide limited economic benefits.
In turn, The World Bank Group and International Finance Corporation recommend sector-wide reforms to support the opening of access to trade and investment opportunities as well as basic investments in education, health, infrastructure and governance.
Alternatively, the Cairns Regional Council identified the opportunity for Cairns to support the implementation of PACER Plus by providing opportunities for capacity building. In particular, it was suggested that:
There is also the potential for organisations in Cairns to provide capacity building services to the region, for example, training and mentoring for key industry sectors such as tourism, healthcare, maritime, civil/structural engineering, arts and cultural services and corporate governance.
From the Council’s perspective, Cairns is strategically positioned to support the Australian Government’s engagement with Pacific island countries, particularly in relation to PACER Plus. For example, activating greater trade and investment regionally would not only support Pacific island communities, but could enhance trade capacity through Cairns’ air and sea ports.
Australia’s peak non-government, not-for-profit standards organisation, Standards Australia, addressed similar suggestions through their submission to the Sub-Committee. Noting Australia’s preference for pursuing trade opportunities with the Asia-Pacific region, Standards Australia highlighted Pacific islands as accounting for only 4.89 per cent of Australian imports despite abundant trading opportunities.
In turn, Standards Australia corroborated:
To better realise the economic potential of the region and the opportunities that PACER Plus will bring, there is a need to build and enhance quality infrastructure across Pacific island countries. This is especially relevant for standards development, adoption and implementation, with the Organization for Economic Cooperation and Development (OECD) estimating that up to 80 per cent of trade is impacted by standards and related technical regulations.
Complementing this suggestion, Professor Duncan urged the Australian Government to consider training opportunities to build awareness and understanding of international trading practices and standards. Specifically:
There appears to be widespread demand for training to gain an understanding of the standards applied in other PACER Plus member countries. This will be necessary for any successful development of supply and value chains, in order to trade between FIC members, Australia and New Zealand. However, this will have to be an ongoing process in order to meet the improving standards in other FICs.
On this matter, DFAT highlighted current efforts to foster the smooth and effective integration of PACER Plus trade and investment standards, noted by Australia’s efforts to establish a PACER Plus Implementation Unit. DFAT defined the responsibilities of this Unit as:
Providing technical support to implement the agreement and address gaps in key areas such as rules of origin, customs, biosecurity measures, standards and conformance, trade in services and investment.
Solomon Islands’ Government identified the importance of overcoming technical barriers and enhancing understanding of international standards to successfully reap PACER Plus’ associated advantages. In particular, the Solomon Islands noted:
The PACER Plus Agreement presents a unique opportunity for Solomon Islands, especially with regards to the Rules of Origin and in particular the product specific rules … There are challenges for Solomon Islands in the areas of Technical Barriers to Trade (TBT), and Sanitary, Phyto-Sanitary (SPS) and/or Biosecurity standards to meet the expected standards in Australia and New Zealand markets. These challenges could be addressed through the development assistance components under PACER Plus to help support and strengthen the ability to trade under the agreement.
Mr Aidan Devitt submitted the importance of standards for growing trade and also the problems with a lack of regulatory framework and enforcement throughout much of the Pacific. Mr Devitt had spent six months working in Fiji as the Trade Standards Coordinator at the Ministry of Commerce, Trade, Tourism and Transport (MCTTT) under the Australian Volunteer Program.
Living in Fiji gave me first-hand experience on the comparable quality of goods and services available in the Pacific. Whilst tariffs and/or logistics do not help, a significant challenge is the lack of regulatory frameworks and associated enforcement.
To demonstrate, I provide the example of a taskforce I assisted in Fiji, trying to devise a practical solution for poor quality electrical appliances being sold in country. This taskforce was convened due to many complaints about poor quality electrical appliances. Products were not performing as intended, and in the worst circumstances were causing loss of property and lives through electrical fires. The lack of appropriate standards and conformity assessment in policy and regulatory frameworks plays a major role in enabling these poor-quality electrical goods being sold in Fiji and the broader region.
Mr Devitt’s experience came from working within the Fijian Department of National Trade Measurement and Standards (DNTMS). DNTMS is the National Standards Body (NSB) of Fiji, with responsibility to produce Fijian Standards and to represent Fiji’s views at international standards organisations.
Explaining further efforts required by the Australian Government to successfully implement PACER Plus, submissions identified the need for PACER Plus to be tailored to address pressing regional challenges. Identifying the challenges posed by climate change, ActionAid Australia urged:
Australia should ensure a reformed PACER Plus or alternative agreement includes clear and binding targets for emissions reductions in accordance with the Paris Agreement given the importance of climate change to the security of Pacific nations.
Also adopting a broader analysis of the need for PACER Plus to target trade and investment benefits to regional challenges, the Government of Kiribati suggested PACER Plus focus on contributing to gender and economic empowerment. In particular, it was suggested that:
In order to maximise the development benefits of PACER Plus through broader trade and investment development assistance, there is a need to mainstream aid-for-trade initiatives in bilateral programs targeting productive sectors, gender and economic empowerment, women in business, and domestic violence programs. Trade and economic empowerment programs could contribute to household income which would directly contribute to supporting general equality and reducing domestic violence as women will be equally economically empowered.
Finally, Mr Redden highlighted, whilst giving evidence to the Sub-Committee, of the need for Australia to push for PNG and Fiji’s participation in PACER Plus given their economic weight in the region. Recommending the need to introduce incentives for the countries to join PACER Plus, Mr Redden suggested exploring specific Pacific work visas associated with a potential COVID-19 Pacific bubble:
We believe that perhaps Fiji and Papua New Guinea have been able to gain a number of market-access concessions to Australia’s market without there being many incentives for them to join PACER Plus. I’d like to see something like a Pacific work visa that is attached to a Pacific bubble that is open for those who ratify PACER Plus so those members who ratify PACER Plus are part of a regional community that benefits from Pacific work visas that enable freer travel and freer movement of labour mobility as part of a regional or a trans-Pacific arrangement. I think we need to be giving more incentives for the bigger countries of PNG and Fiji to actually join PACER Plus.
In turn, such suggestions would be useful for pursuing greater Pacific engagement and support for PACER Plus, therefore enabling all associated benefits for respective stakeholder countries.
The Sub-Committee acknowledges the Australian Government, particularly DFAT, for their efforts in supporting increased trade and investment between Australia and the Pacific via the PACER Plus agreement.
Nevertheless, the Sub-Committee recommends that, given the evidence received, certain measures and reforms to PACER Plus could and should be considered as Australia, New Zealand and Pacific island countries seek its implementation.
In turn, such efforts would work to ensure PACER Plus meets the objectives of Pacific Island economies and can provide equal benefits for all parties.