The Pacific Agreement on Closer Economic Relations Plus (PACER Plus) is described in the National Interest Analysis (NIA) as:
… a comprehensive, [World Trade Organisation (WTO)]-consistent regional economic integration agreement, which covers goods, services and investment and establishes rules and commitments.
The purpose of PACER Plus is to promote:
… economic growth and development in [Pacific Island countries] through strengthening their capacity to trade, to benefit from trade, to facilitate trade and to attract and retain investment.
PACER Plus principally concerns free trade between Australia and New Zealand and Pacific Island countries. Trade between Pacific Island countries is already tariff free under a separate free trade agreement, called the Pacific Islands Countries Trade Agreement.
Overview of the Agreement
The bulk of Pacific Island countries face particular economic barriers related to population size and isolation. Consequently, while PACER Plus is a WTO consistent Agreement, a number of PACER Plus’ provisions are different to those normally encountered in a trade agreement. These are discussed briefly below.
In addition to PACER Plus, two less than treaty status agreements were negotiated between the Parties:
the Implementing Arrangement for Development and Economic Cooperation; and
a Labour Mobility Arrangement.
The Implementation Arrangement for Development and Economic Cooperation contains the provisions for the dispersement of the funds committed by Australia and New Zealand discussed at paragraph 3.46.
Australia, the Cook Islands, Kiribati, Nauru, New Zealand, Niue, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu have also signed a Labour Mobility Arrangement.
The arrangement in the Labour Mobility Arrangement are in addition to the Movement of Natural Persons provisions in PACER Plus and is discussed in greater detail later in this Chapter.
If PACER Plus is fully implemented it will eliminate Pacific Island countries’ tariffs on 91.5 per cent of tariff lines on imports from Australia and New Zealand. Eighty-eight point five per cent of Australia’s exports to the region will be tariff free.
Tariff reductions are scheduled to take place over a longer time frame than would usually be the case in trade agreements. With the exception of the Cook Islands, Kiribati, Niue, Samoa, and Tonga, none of the tariff reductions will commence until 2029, and the expected date for the final removal of tariffs is later than 2053.
PACER Plus contains exemptions to the tariff schedule for Pacific Island countries, including:
if a country is considered to be one of the least developed countries by the WTO, it is allowed to apply relevant preferences in relation to WTO decisions on duty free and quota free treatment of goods;
allowing countries to apply preferences available in regional trade agreements exclusively applying to Pacific Island countries, such as the Pacific Islands Countries Trade Agreement; and
allowing Parties to apply preferences available in trade agreements exclusively applying to developing countries.
Pacific Island countries can also deviate from the tariff reductions in the PACER Plus in the following circumstances:
if the reduction in tariffs causes such an influx of a particular good that it threatens serious injury to a domestic industry; and
if development measures are required for specific industries.
Very briefly, the provisions of PACER Plus are as follows:
the rules of origin under PACER Plus permit Parties to access preferential treatment provisions on goods that are obtained or produced in one or more of the Parties. In other words, goods that have value added across Parties to the Agreement still attract preferential treatment;
Parties are encouraged to assist one another in implementing transparent, consistent and timely customs procedures and practice;
the Agreement applies the WTO standard for sanitary and phytosanitary matters;
the Agreement requires that technical standards, regulations and conformity procedures should not be a barrier to trade while protecting the rights of Parties to implement technical regulations necessary to achieve legitimate regulatory objectives and standards and related conformity assessment procedures;
Parties are obliged to treat foreign and local service supplies equally in an agreed set of service sectors;
the Agreement ‘facilitates cross-border movement of skilled workers’;
the Agreement obliges Parties to treat foreign investors from other Parties in a way consistent with the treatment of local investors; and
Parties may make exceptions to the application of PACER Plus in the following circumstances: to protect public morals; to protect human, animal and plant life; to conserve exhaustible natural resources; and to allow a Party to meet its obligations in relation to maintain or restore national or international peace and security.
According to the NIA, the following countries have signed PACER Plus:
The Australian Government expects the following countries to also sign PACER Plus in the near future:
Federated States of Micronesia;
Republic of the Marshall Islands.
Evidence provided to the Committee revealed a number of issues related to PACER Plus, including PACER Plus’ impact on: Pacific Island economies; health; women; business capacity; aid; and labour mobility.
The most significant immediate issue with PACER Plus is the absence of Fiji and Papua New Guinea from the Agreement.
Papua New Guinea and Fiji
The submission from the Australian Fair Trade and Investment Network (AFTINET), amongst others, points out that, combined, Fiji and Papua New Guinea make up more than 80 per cent of the Gross Domestic Product (GDP) of Pacific Island nations.
Australia’s exports to Fiji in 2015 were worth approximately A$500m, and to Papua New Guinea approximately A$2.3b in the same year.
In contrast, the Department of Foreign Affairs and Trade (DFAT) submission indicates that, in 2016, Australia’s exports to the Cook Islands, Kiribati, Niue, Samoa and Tonga combined was valued at A$84m.
The absence of Fiji and Papua New Guinea therefore significantly impacts the scope of PACER Plus.
In evidence, Ms Alice Cawte, Assistant Secretary, Melanesia Branch, Pacific Division, DFAT, advised the Committee that:
We negotiated from the start with Papua New Guinea and Fiji, and both are significant economies in the Pacific. Neither completed market access schedules, so we were not in a position to sign at the end. We continue our discussions with both Papua New Guinea and Fiji, both at officials and ministerial level. We are hopeful that, in time, they will come to the agreement.
According to AFTINET, both Papua New Guinea and Fiji did not participate in PACER Plus because the benefits of the Agreement were heavily skewed towards Australian and New Zealand interests.
Other sources indicate that Papua New Guinea will not sign PACER Plus because it wishes to pursue bilateral free trade agreements with Australia and New Zealand, and that Fiji has not ruled out signing the Agreement, but is unhappy with provisions relating to the protection of infant industries and Most Favoured Nation status.
PACER Plus permits expedited access to the Agreement for Pacific Island Forum nations in future, which includes Papua New Guinea and Fiji. The NIA indicated the Australian Government continues to engage with these countries in an effort to encourage their participation.
Impact on Pacific Island economies
Pacific Island nations already have tariff free access to Australia and New Zealand for their exports, so all tariff reductions and consequent market access benefits will flow to Australia and New Zealand.
According to AFTINET, Pacific Island countries are particularly dependent on tariffs for Government revenue because low levels of income and consumption mean other sources of revenue are limited.
A 2007 estimate indicated that Fiji, Papua New Guinea, Samoa and Vanuatu would lose more than A$10m annually if tariffs were removed, and the Government revenue for the Cook Islands, Kiribati, Samoa, Tonga and Vanuatu would be reduced by more than 10 per cent.
AFTINET states that Australia and New Zealand have recommended an increase in consumption tax to make up for revenue losses from tariffs, but when a similar proposal was analysed by the International Monetary Fund (IMF) in 2005, it was determined that consumption tax could only replace 30 per cent of lost tariff revenues.
DFAT responded that tariffs are a declining source of income for Pacific Island countries. Ms Cawte pointed out that:
The chief trade adviser to the Pacific island countries estimated that the decline in tariff revenue as a result of PACER Plus over the period of implementation—that's up to 35 years—will be between one per cent and four per cent.
DFAT further advised that it would monitor the impact of tariff reduction on Pacific Island country revenues, and that the Australian Government supports the Pacific Financial Technical Assistance Centre, an IMF body that assists Pacific Island countries put in place new mechanisms for generating revenue.
The issue of the impact of PACER Plus on Pacific Islands’ Government revenue is relevant to a number of other issues raised during the inquiry, in particular, public health and the impact on women.
The Public Health Association of Australia (PHAA) is concerned about the potential impact on public health in Pacific Island nations as a result of PACER Plus.
Dr Belinda Townsend, Research Fellow, NHMRC Centre for Research Excellence in the Social Determinants of Health, ANU College of Asia and the Pacific, advised the Committee that:
Our policy on trade agreements and health states that trade agreements should not limit or override a nation's ability to foster and maintain systems and infrastructure that contribute to health and wellbeing; that policy space needs to be preserved in trade agreements for regulation to protect public health; and that trade agreements must address environmental sustainability and equity within and between countries.
The PHAA is concerned with the following specific implications of the PACER Plus agreement on health outcomes:
increased exposure to health damaging products: PHAA suggests that reduction of tariffs and other trade barriers can lead to increased availability and lower prices for unhealthy products such as ultra-processed food, alcohol and tobacco. The PHAA is particularly concerned over the health risks of increased tobacco use.
risks associated with liberalisation of health services: PHAA is concerned that the liberalisation of health services will lead to the proliferation of higher costs, private services which can only be accessed by wealthier sections of the population. The PHAA submission warns that this can lead to a two-tier health system and erode access and equity.
government capacity to raise revenue and provide health services: PHAA is concerned about the potential impacts on the revenue base of the Pacific island countries, damage which may constrain the capability of these nations to provide health services to their people. The PHAA notes that some Pacific Island countries are highly dependent on tariffs as a source of revenue. The submission argues that attempting to replace revenue through excise or value added taxes is unlikely to compensate for the loss from tariff based revenue.
burdensome requirements to justify health measures: PHAA is concerned that the obligations regarding technical regulations and standards will place a large burden on small island states with few resources to commit to developing a strong evidence base for public health policy interventions. PHAA claims that health-related measures may be perceived as technical barriers to trade under the PACER Plus agreement.
In response, DFAT advised the Committee that:
… there is nothing in PACER Plus that inhibits policy space for public health issues in the countries that are members. That's made explicit both in the preamble to the agreement and in the operative chapters …
In relation to concerns about the impact of tariff reductions on the increased availability and lower prices for unhealthy products such as ultra-processed food, alcohol and tobacco as a result of tariff reductions, the Australian Government argued that Pacific Island countries could apply other pricing mechanisms to limit consumption of these products, such as excises.
Impact on women
A number of submissions have identified that the combination of potential impacts of PACER Plus on Pacific Island nations is likely to fall disproportionately on women.
In particular, in Pacific Island communities, women are generally engaged in caring and unpaid household and community work.
ActionAid Australia is concerned that the reduction in Pacific Island Government revenues resulting from tariff reductions will disproportionately affect women as the Government services that support their roles, such as health care and transport, may have funding reduced.
ActionAid points out that Pacific Island women who do paid work are concentrated in industries that are likely to be impacted by PACER Plus, such as agricultural production, clothing manufacturing, and retail.
The Australia Pacific Islands Business Council’s submission argues that PACER Plus represents the best possible opportunity for Pacific Island nations to become economically self-sustaining without external development assistance.
The Business Council believes this will be ‘played out over multiple generations.’
Building the capacity of Pacific Island nations to meet quarantine standards in Australia and New Zealand in order to facilitate greater agricultural exports opportunities is a high priority for the Business Council.
In addition, the Business Council would like to see capacity building in Pacific Island chambers of commerce to enable better access for Pacific Island exporters to international markets.
The NIA states that an important aim in negotiating PACER Plus is to ‘promote growth and development and enhance stability and security.’
According to the NIA, in addition to the economic benefits that would normally be expected from an economic agreement, Australia and New Zealand have allocated funds to assist Pacific Island countries to prepare for the implementation of PACER Plus.
Under PACER Plus, Australia and New Zealand have committed A$4m each to a readiness package, and A$19m and A$7m respectively to a development and economic cooperation work program.
The AFTINET submission points out that this is not actually additional funds, but rather funds that will be diverted from existing development assistance.
The NIA makes it clear that:
The Department of Foreign Affairs and Trade’s Official Development Assistance budget will absorb funding for implementation assistance to the Pacific Island Countries.
The funding attached to PACER Plus would come out of the part of the [aid] allocation that's not programmed in the future years, so it's not coming explicitly out of a program.
As noted in paragraph 3.8, in addition to PACER Plus, a less than treaty status agreement was negotiated between the Parties relating to labour mobility.
This less than treaty status agreement aims:
… to enhance cooperation between participants on regional labour mobility, including in respect of mobility for unskilled and semi-skilled labour. The Arrangement establishes a Pacific Labour Mobility Annual Meeting to address key issues in cooperation, including enhancing existing labour mobility schemes (such as Australia’s Seasonal Worker Programme) and facilitating other forms of temporary labour mobility, as well as exploring the recognition of qualifications and the registration of occupations.
Remittances from Pacific Islanders working in Australia and New Zealand are a significant part of Pacific Island economies. Access to labour markets in Australia and New Zealand is consequently an important issue for Pacific Island countries.
According to Matthew Dornan, Deputy Director of the Development Policy Centre at the Australian National University, the Pacific Island countries are generally unhappy with the outcome in PACER Plus in relation labour mobility because the Agreement does not include a binding commitment to provide labour mobility opportunities to Pacific Islanders.
Another concern for some inquiry participants is the treatment of Pacific Island workers who are able to access employment in Australia.
The Australian Council of Trade Unions (ACTU), amongst others, raises concerns about the treatment of Pacific Island workers employed under the Seasonal Worker Programme. In particular, the ACTU is concerned that expanding the use of temporary migrant workers to Australia should not occur in an environment where these workers are subject to exploitation and work in unsafe conditions.
The Committee considers that the absence of Papua New Guinea and Fiji from PACER Plus significantly diminishes the utility of the Agreement for Australian business.
However, because of the long time frame over which the PACER Plus will be implemented, the Committee is of the view that there is still sufficient opportunity for both nations to join the Agreement if satisfactory conditions can be negotiated.
While the Australian Government’s advice on PACER Plus has highlighted the development assistance aspects of the Agreement, the Committee notes that the development assistance identified in PACER Plus is coming from the existing aid budget, and so would likely have been expended as aid to Pacific Island countries anyway. It is not clear how tying this expenditure to PACER Plus implementation is likely to provide a greater benefit to Pacific Island countries that it otherwise would.
The Committee is concerned PACER Plus may impact on Pacific Island Government revenues, which are not significant in any case and have to stretch a long way in remote, isolated, low income communities. The impact on the public health capacity as a result of reduced government revenues and access to tariff free products that cause harm has been a significant issue in the inquiry.
The Committee recommends that part of the development assistance allocated to implementing PACER Plus be specifically used to monitor the revenue of Pacific Island Governments, the public health, and gender equality impact of the Agreement, and where necessary, provide funds to Pacific Island countries to assist relevant development outcomes.
As previously recommended in Reports 165 and 172, the Committee again recommends that the Government commission independent economic analysis of all trade agreements to improve the transparency and quality of their assessment.
These issues aside, the Committee considers PACER Plus should be ratified.
The Committee supports the Pacific Agreement on Closer Economic Relations Plus, and recommends that binding treaty action be taken.