The Pacer-Plus Agreement between Australia and the Pacific Island Nations

Eloise attended the 2012 WTO Public Forum in Geneva where she represented Macquarie University. She is currently studying a Masters of International Relations and is a member of the Macquarie Global Leadership Program. She has completed an internship with the Australian Institute of International Affairs.

Abstract 

In 2001 Australia and New Zealand began negotiating a trade deal with thirteen Pacific Island nations (the Cook Islands, the Federated States of Micronesia, Kiribati, Nauru, Niue, Palau, Papua New Guinea, the Republic of the Marshall Islands, Samoa, the Solomon Islands, Tonga, Tuvalu and Vanuatu). The trade deal, the Pacific Agreement on Closer Economic Relations (PACER), was to cover trade in goods, services and investment.1 It provided the framework for a further trade agreement that was planned to develop into a free trade agreement (FTA) between Australia and New Zealand and the Pacific Island countries (PICs) and by 2011, known as the PACER-Plus.2 PACER-Plus was to be a regional FTA but one that held the development of the PICs at its heart.3 However from the launch of PACER-Plus negotiations in August 2009 by Pacific Islands Forum leaders, critics questioned whether such an FTA was in reality compatible and even desirable. Critics contested the congruence of this agreement that asserted its primary focuses to include the PICs’ development and enhancing the PICs’ capacity to engage in international trade, yet simultaneously required the PICs to liberalise their markets. This paper provides an examination of the arguments for and against the establishment of PACER-Plus, concluding that an FTA should not be the vehicle for any pursuit that has development as its principal objective.4 

Introduction 

Fundamentally, this line of enquiry asks one question: is PACER-Plus incompatible? In other words, is a trade agreement that involves the liberalisation of the PICs' markets whilst concurrently seeking to focus on their development agendas in reality feasible? First, this paper will judge the necessity of PICs engaging in international trade agreements in the first place. It will then evaluate the arguments that insist the PICs have much to gain from PACER-Plus, which claims to have capacity building and development assistance at its core through Aid for Trade. After this, the paper turns to a demonstration of critics’ contentions to demonstrate the core contention of this paper: that PACER-Plus would not only be detrimental to PICs’ development but would also not help them become a competitive global trading partner. To enhance this position, an evaluation of why labour mobility has not been included within PACER-Plus will then be presented, which will be followed by an argument that the PICs have ben disadvantaged through their limited capacity to negotiate. The investigation is concluded by recommendations for Australia’s future involvement with the PICs through PACER-Plus.  

The importance of addressing this area of research cannot be overstated. The fundamental objective of the current World Trade Organisation (WTO) Doha “Development Round” is improving developing countries’ engagement with, and prospects for, international trade.5 Yet since its launch in November 2001, negotiations have been in a deadlock due to disputes related to the inclusion of agriculture, services and intellectual property rights within the mandate of the WTO.6As British Prime Minister David Cameron stated on 28 January 2011: ‘We’ve been at this Doha round for far too long. If we enter 2012 still stuck on this, real leadership will mean a radical rethink of how we get this done.’7 As 2012 draws to a close, the world turns to the WTO Public Forum at the end of September 2012 to anticipate whether the meaning of real leadership can be demonstrated. In this context, this paper launches its debate about whether PACER-Plus is really a “plus” by asking the fundamental question: do PICs actually need international trade beyond their region?  

Why trade past the Pacific? 

Before delving into a debate about the alleged benefits or damages that PACER-Plus would bring to the Pacific, it is prudent to consider if it is actually worthwhile for the PICs to trade outside of the Pacific? In a study commissioned by the United Nations Conference on Trade and Development, John Scollay draws attention to the issues and limitations of an FTA that fourteen Pacific nations had begun to negotiate in 2001 in a bid to encourage trade.8 He explains that manufacturing is very underdeveloped in most PICs, accounting for only five per cent of GDP or less;9 Samoa and Fiji enjoyed the largest share with eighteen and fifteen per cent, respectively, although Samoa’s high percentage is largely due to one company which supplies the car industries in Australia and New Zealand and was supported under the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA).10 Moreover, Scollay adds that produce in the PICs comes chiefly from the agricultural, forestry and fishery industries and consequentially there is little diversity and little prospect for trade in produce within the region.11 Given these facts, the longevity of any arrangement within the FIC economies would be restricted and accordingly the PICs would have an improved prospect for economic growth (and development) from greater incorporation within the international trading system. This may be the case. However since this paper maintains that international trade through PACER-Plus would not be beneficial, this argument’s vigor can only truly become established after providing, and then discrediting, the perspectives of proponents of PACER-Plus. Hence a background of the international Aid for Trade initiative will now be provided to demonstrate the international context and motivations for the development of PACER-Plus. 

Aid for Trade through PACER-Plus: a plus? 

The concept of a free trade agreement which values development at its heart is commendable for its ingenuity and deserves a consideration of its potential benefits before being dismissed prematurely. The international Aid for Trade initiative was introduced in December 2005 at the Hong Kong Ministerial Conference and was intended to help developing and least-developed countries improve their capacity to implement and gain from WTO agreements by enhancing trade-related skills and infrastructure.12 Similarly, the Australian Aid for Trade was created to offer developing countries support to improve their capacity to engage in international trade. The concept of Aid for Trade includes areas such as modernising tax and customs systems, improving infrastructure and providing assistance to manage costs of adopting trade agreements.13 As then Australian trade minister, Simon Crean, stated in 2008, Aid for Trade was focused on ‘…creating the practical alignment, or coherence, between our trade policy –which unambiguously calls for the continued liberalisation of trade– and Australia’s development assistance.’14 This proposed alignment, it was argued, could become manifest though the PACER-Plus agreement, and was esteemed as ‘the central plank’ of the Australian Government’s involvement with the Pacific.15 Due to the prestige allotted to PACER-Plus by the Australian Government, it is important to illustrate the stated benefits of such an agreement to consider whether they are realistic, beneficial and compatible.  

In simple terms, the neoliberal conviction which the contemporary multilateral trading system and the PACER-Plus agreement are based upon may be summed up by the 1978 Hot Chocolate hit: ‘Every 1’s a Winner.’16 Providing the perspectives of a prominent government, businessman and academic undoubtedly offer a thorough demonstration of the claimed benefits of PACER-Plus. Through its inclusion of aid, specific commitments and the opening of Pacific Island nations markets in PACER-Plus, the Australian Government explained that not only would Australian and PIC businesses benefit from increased market access but also that the PICs’ individual development agendas would be strengthened.17 Also, Michael Rowland, the ANZ Bank's Pacific CEO, stated on 14 April 2012: ‘Anything that increases or enhances access to markets has to be a good thing.’18 Mr Rowland stated that the PACER-Plus agreement would enhance numerous Pacific Island nations’ fishing and agriculture industries, adding that Papua New Guinea and the Solomon Islands would benefit from a superior market environment in mineral exports.19 Furthermore, Jim Reddenof the Institute for International Trade from the University of Adelaide explained that PACER-Plus ‘should in the long-term reduce the high cost of aid and dependency on Australia,’ also pointing to the enhanced security relationship that would grow.20 The concepts underpinning this multifaceted trade and aid certainly appear impressive. On the other hand, despite the potential of PACER-Plus including increased market access and the increase of security, a plethora of critics have argued that the “plus” in the PACER would in fact incur significant disadvantages for the PICs. 

Whilst PACER-Plus was labeled a “unique agreement” that would benefit both the PICs and Australia,21 Andrew Rose argues that ‘…there is little reason to believe that the GATT/WTO has had a dramatic effect on trade.’22 Despite the benefits that governments, businesses and academics insisted PACER-Plus would offer, this paper contends it would be injudicious for Pacific Island states to unequivocally agree to the WTO compatible PACER-Plus. Instead of seeing the PACER-Plus as unique, Christine Milne, Senator for Tasmania and Leader of the Australian Greens, dubbed it ‘out of step with other free trade agreements.’23 Agreements such as PACER-Plus that provide an equally large slice of the neoliberal pie to all are no doubt appetising, but the reality has proven that experience falls short of such rhetoric. A chorus of critics have argued that free trade would not only put the fragile economies of PICs further at risk but that it would also not enhance their development. This paper’s core contention has now been summoned which is, namely, that PACER-Plus is an inherently incompatible agreement and would not benefit the PICs’ development. Discussion will commence by debasing the neoliberal contention that everyone can reciprocally ‘win’ within PACER-Plus, and more specifically, that the PICs would enjoy augmented development as a result of PACER-Plus. 

Pacer-Minus? 

Opponents of PACER-Plus argue that Australia’s aid rhetoric has diverted attention from the fact that the liberalisation of PICs’ economies would likely be accompanied, inter alia, by a significant strain upon government revenue, would affect business competitiveness and would deplete tariffs which provide a key source of income for most PIC governments.24 Minister Crean announced on 30 November 2009 at the 7th WTO Ministerial Conference in Geneva that ‘Trade is a critical avenue to reducing poverty,’ adding that developing countries needed to adopt Canberra’s ‘unequivocal’ support for the WTO pillars of trade liberalisation and the opposition of protectionism to ensure their economic growth and swift and sustained development.25 Yet the neoliberal affirmation that all actors engaged in international free trade would reciprocally benefit has, in reality, not been translated into experience. In Latin America soaring exports were attended by increased unemployment, and in Asia, rising textile exports were supported by exploited labour.26 Returning to the Pacific, at present multiple Pacific nations governments’ revenue are only just able to support their national services such as water, health and police and emergency services. 27 Furthermore according to a study authorised by Pacific Islands Forum Secretariat, if Vanuatu and Tonga liberalised their economies they would suffer losses of annual government of up to seventeen percent.28 Consequentially, it is vital that Australia acknowledges that ‘economic growth at all cost will not do…’29 From these arguments, it is clear that liberalisation of the PICs’ economies would not help them achieve their goal of improving their capacity to trade and developing their societies. This apparent disparity between rhetoric and reality thus beckons for the contribution of empirical evidence to conclude whether PACER-Plus can actually simultaneously benefit Australia and support the Pacific’s capacity development and economic growth.  

To demonstrate the strength of this paper’s belief that PACER-Plus in its current form is incompatible, empirical evidence is now provided.  In 2008, the Institute for International Trade in Adelaide published findings and noted that regional trade in the Pacific would likely increase by thirty percent under the Pacer-Plus agreement;30 however, the study added that because Pacific countries already enjoyed duty and quota-free access to much of the Australian and New Zealand Markets through SPARTECA, this increase would be predominantly by Australian and New Zealand products entering the Pacific Island markets from the free trade agreement.31 Furthermore, a study authorised by the Pacific Islands Forum Secretariat in 2007 discovered that for ten out of the fourteen PICs, either Australia or New Zealand was the major location of imports, but noted that remarkably few agricultural products entered the Australia and New Zealand Markets considering the Pacific Islands’ comparative advantage of their climate;32 the majority of PIC exports to Australia and New Zealand were comprised of crude oil and gold exports from only one PIC, Papua New Guinea.33 To sure up the argument that PACER-Plus would be highly detrimental to the PICs, Dr Wadan Narsey of the University of the South Pacific explains that as a result of PACER-Plus free trade agreements, nearly three-quarters of Pacific Manufacturing would be forced to close with the obvious consequence of thousands of job losses.34 Undeniably, there is much cause for concern simply from these aforementioned impacts that PACER-Plus would have upon the Pacific. It is therefore logical to turn to the Australian Government officials’ explanations of this rift between rhetoric and reality in a bid to conclusively determine whether the PACER-Plus is compatible and beneficial to the Pacific.  

As mentioned, the ideas underpinning PACER-Plus were impressive. Yet when rhetoric falls short of reality in such an agreement, explanations that officials offer are telling. On 16 February 2012 Greens Senator Lee Rhiannon raised issues regarding PACER-Plus during Senate in Canberra, explaining that there was an inherent contraction regarding Australia’s intentions within the agreement.35 Senator Rhiannon pointed to the fact that the Australian Government was obliged to ensure Australian commercial interests in the Pacific, 36 yet that it continued to state that Pacific development agendas were Australia’s priority.37 To Senator Rhiannon, Department of Foreign Affair and Trade (DFAT) deputy secretary Bruce Gosper replied that whilst the PACER-Plus agreement would require a suitable degree of the most favoured nation (MFN) principle, he explained: ‘But it is very much in the hands of the Pacific countries.’ 38 Mr Gosper clarified that whilst some businesses would possibly be disadvantaged, the Australian Government’s national interests were to ensure the economic growth and development of the PICs. This statement from a head DFAT official, however, appears to be remarkably blind to the fundamentals of economic liberalism that defines the global economy. A business is not interested in national interests: it is interested in profit. From this demonstration of contradictions within the Australian Government own explanations, it is vital to probe even deeper to discover whether Australia’s declaration that PACER-Plus values development does indeed sit at the core of the agreement, and is not in fact floating at the periphery. This will be investigated through the disputes surrounding the PICs’ bid to include labour mobility within the agreement, assessing particularly why it continues to be excluded when it is a major area of comparative advantage for the PICs. 

Labour mobility and PACER-Plus 

Throughout, it has been made clear that PICs suffer from highly vulnerable economies, rely on subsistence production such as agriculture and few nations profit from crude oil or gold exports to Australia and New Zealand.39 So it should be safe to assume that any trade deal that has development at its core would offer absolute assistance to any trade-related area that has been identified to significantly benefit the PICs’ growth and development. It is remarkable then that whilst the Pacific has the potential to gain substantially from the inclusion of labour mobility within PACER-Plus, the Australian Government has actively excluded it from the agreement. In 2009 the Australian government introduced the Pacific Seasonal Worker Pilot Scheme, external to the PACER-Plus negotiations, which provides temporary visas for workers from several PICs including Kiribati, Tonga and Tuvalu. 40 Whilst it was initially restricted to seasonal fruit picking, in December 2011 the Government announced that the scheme was to become permanent and that the cotton, sugar and tourism industries would be trialed for possible inclusion.41 Oxfam Australia executive director Andrew Hewett also welcomed the seasonal workers scheme, explaining that it would assist many Australian farmers who suffer from labour shortages.42 However, the scheme has had the effect of overshadowing the arguments of PICs for the inclusion of labour mobility within PACER-Plus. The proceeding assessment will therefore determine whether the fact that Australia has excluded labour mobility from the agreement is a further indicator that PACER-Plus is inherently incompatible- that Australia can’t get what it wants whilst concurrently giving what PICs wants to help their development.  

With regards to the inclusion of labour mobility within PACER-Plus, the Australian Government argued that a permanent agreement would not be possible because any labour scheme is entirely dependent upon Australian businesses’ interests and is only possible if there was a demand for labour.43 Furthermore, the Australian government argued that because the MFN principle would, to a degree, have to be present within any PACER-Plus agreement, any agreement which offered privileged access to Pacific Islanders ‘may be open to challenge from other WTO members seeking similar access.’44 However, despite this argument that labour mobility within PACER-Plus would have to be in line with WTO regulations, Morgan clarifies that GATS has generally only applied to corporate employees and managerial positions. Morgan explains that ‘there's no need to bind the labour mobility within a WTO compatible FTA,’45 consequentially deflating the arguments regarding the issues of including labour mobility with the remit of PACER-Plus. Therefore, it can be concluded that Australia is not primarily interested in ensuring that the PICs can benefit by including labour mobility within PACER-Plus but are chiefly interested in ensuring the availability of workers for Australian industries. As a result, the ensuing discussion will demonstrate the arguments in favour of the inclusion of labour mobility within PACER-Plus to demonstrate the extent to which its inclusion is imperative for PICs’ development. Once again, findings confirm that PACER-Plus is incompatible through its inability to be simultaneously beneficial to Australia’s commercial interests and the PIC’s development agendas.  

Despite the introduction of the worker scheme, Pacific trade ministers have continued to advocate for the inclusion of PICs’ labor mobility within PACER-Plus. The PIC ministers argued that the inclusion of mobility in PACER-Plus would give it treaty status to provide certainty that the agreement would not be revoked; that it could not be used as a foreign policy tool by Australia; and that because labour is one area in which PICs have an advantage significant economic and employment growth would be enjoyed.46 Furthermore, a 2006 World Bank study found that gains from increasing labour mobility between states could dwarf those from trade liberalisation, adding that ‘Perhaps nowhere is this more true than in the Pacific region.’47 The World Bank candidly stated that Australia should open its doors to thousands of unskilled Pacific Island workers for seasonal work ‘to prevent the collapse of small economies in the region.’48 However, whilst labour mobility was recently reconsidered at the March 2012 PACER-Plus negotiations in Brisbane, no binding agreement was established.49 Accordingly, it can be argued that the inclusion of labour mobility within PACER-Plus (as well as other aspects of the agreement) has been largely dependent upon the ability of each party to negotiate. The paper will thus expand upon this theme to consider whether the PICs, as well as Pacific non-state actors (NSAs), have had an equal ability to negotiate as Australia has. If not, this suggests once again that the PICs’ development agendas are in reality far from the heart of PACER-Plus.  

Fair trade…? 

The ability of the PICs to negotiate within various PACER-Plus forums is vital due to the idea of fairness; the importance of the fairness discourse stems from WTO practice, in which it is understood as ‘legitimacy of process and in terms of just distributive outcomes.’50 If PACER-Plus is not considered throughout the Pacific to be legitimate or to provide an even distribution of gains, it has little chance of progressing. Furthermore if Pacific NSAs, from businesses to civil society, were excluded from discussion, crucial voices would be silenced as well PACER-Plus being devalued by little public support. This section provides an assessment of the first and second Non-State Actors Dialogues on PACER-Plus. It will evaluate the extent to which Pacific non-state actors have been involved within negotiations and then determine the implications these findings have for the equity of PACER-Plus.  

The first of the annual Non-State Actors Dialogue on PACER-Plus was held in Honiara, Solomon Islands, on 18 October 2010 in conjunction with the Forum Island Trade Ministers Meeting.51 There was much anticipation surrounding the meeting, with Emele Duituturanga from the Pacific Island Association of Non-government Organisations stating: ‘We have been calling for engagement with civil society, with non-state actors. This is a major breakthrough.’52 Its purpose was to involve NSAs more deeply in negotiations regarding PACER-Plus both nationally and regionally. Participants at the forum included the Growers Federation of Tonga, Solomon Islands Women in Business Association and Oxfam Australia, with the Pacific Islands Association of Non-government Organisations (PIANGO) as one of the main proponents of the discussions. The forum was centered on the economic growth in Pacific Island countries. It noted the necessity for increased funding to developing the capabilities of PICs to engage in trade and the sharing of information, and its central recognition was the importance of NSAs being involved within negotiations. 53 Yet despite these promising beginnings uncertainty beset the launch of the second NSA Forum nearly two years later, with one of the Pacific’s leading trade NGOs, the Pacific Network on Globalisation based in Fiji, refusing to attend claiming that an unacceptable number of key organisations had been absent due to financial reasons.54 The second NSA meeting will therefore be investigated to determine whether societal actors within the Pacific were involved, which will suggest the extent to which the development agendas of the PICs are truly valued within PACER-Plus.  

The second NSA meeting on PACER-Plus was held on 26 March 2012 by Australia in Brisbane. However, critics argued that Australia directly failed to provide funds to Pacific civil society and as a consequence no meaningful dialogue was achieved at the forum.55 Indeed, the Australian Trade and Development Statement acknowledges that developing countries possess ‘limited financial resources [and] technical and institutional capacity to negotiate…’ adding that Australia supported ‘… developing countries to participate in regional and WTO negotiations.’56 However, Harvey Purse of the Australian Fair Trade and Investment Network noted that despite Australian leaders acknowledging the importance of the ability to negotiate, actions taken to remedy the situation were ‘…not happening at the moment.’57 In addition to this, a media release issued by the Pacific Network on Globalisation (PANG), the Australian Fair Trade and Investment Network (AFTINET) and AID/WATCH raised concerns over the inability of key actors in the Pacific which were unable to attend due to lack of funding, ‘undermining the ability of their concerns to be raised.’58 Moreover on 30 March 2012 Radio New Zealand International wrote that small and medium Pacific businesses were absent, whilst larger corporations such as British American Tobacco, Heineken and ANZ were present.59 It is vital that Australia ensures that all relevant stakeholders have a voice within PACER-Plus to guarantee its operation, progress and endurance.60 If the PICs development is at the core of PACER-Plus, it is vital that Australia provides the resources to ensure that all levels of Pacific society are equally involved within negotiations, ensuring equitable and positive outcomes from the agreement. As this paper has maintained throughout that PACER-Plus in its present form is incompatible, the final part of this paper seeks to offer recommendations for the improvement of PACER-Plus.  

Recommendations 

Patently, PACER-Plus is due for a rethink. One of the central problems of the agreement is that it possesses elements of a North-South divide, which trade unionists and human rights activists globally argue characterises trade agreements. Within PACER-Plus, this is apparent through severe disparities between Australia and the PICs within theories (liberalism), agendas (labour mobility), and power (negotiations), and is demonstrative of Philippe Sand’s conviction that ‘free trade is not socially or culturally neutral.’61 Trade between Australia and the Pacific is full of potential, but at the Pacific nations’ current stage of development and trade capacity, PACER-Plus is not functional. Indeed, a lengthy time scale for the conclusion of an agreement is a highly unattractive prospect for any government (and their voters). However the capacity of the PICs to participate within international trade must be developed before they could truly engage in and benefit from an agreement such as PACER-Plus. Due to this contention, this paper stresses the importance of Australia directing its focus entirely upon the PICs capacity building and poverty reduction goals before PACER-Plus talks can achieve any meaningful results. Suggestions for this change of direction as follows. 

To achieve meaningful action within PACER-Plus, the agreement should be transferred from being directed by DFAT to AusAid. This would encourage a greater focus on achieving development targets for the PICs. Possible targets include improving transport and communications, meeting quarantine regulations, improving local agriculture and fisheries and developing the professionalism of Pacific trade ministers which would enable them to trade fairly with Australia.62 Additionally, PACER-Plus should accommodate the ‘six priority areas’ that the Solomon Islands trade minister Clay Forau identified.63 These include labour mobility, development, rules or origin and customs processes, sanity and phyto-sanity measures and technical barriers to trade.64 A time scale of five years could be set and if such vital targets have been achieved, only then could PACER-Plus negotiations enjoy meaningful, compatible and progressive results.65  

Conclusion  

Whilst there is undeniably potential for small Pacific Island nations to engage in more trade with Australia, Australia must be cautious not to push the agenda of the PACER-Plus without the utmost support of PICs and only after extensive scrutiny, research, discussion and evaluation of different options; the Pacific Island nations need ‘Real development… not “free trade.”’66A reiteration of why this conclusion has been drawn: firstly, this paper observed the impossibility of the PICs remaining isolated from international trade. After this, it evaluated, and devalued, the arguments in favour of a PACER-Plus agreement. This was followed by the criticisms of PACER-Plus and concerns of the PICs, and the paper concluded that it would not enhance their trading capacity nor improve their development. Next discussion focused on why labour has not been included within PACER-Plus and it was resolved that this was essentially to ensure Australia’s gain. Lastly the (in)ability of the Pacific nations to effectively negotiate within the debates was assessed and evaluated. As Pacific Chief Trade Advisor Dr Kessie ventured: ‘…we need to be very creative, very innovative…’67 Whilst there is no sure course as to where PACER-Plus will lead, both proponents and critics of the negotiations should take advice from Gramscian wisdom by adopting ‘“the pessimism of the intellect” with “optimism of the will.”’68 Despite the oceans of wealth to be lost or found between Australia and the Pacific Island nations, possibility remains afloat. 

Bibliography