Vila Times’ Exclusive: Dr Patricia Ranald explains why the trade deal, already signed by PM Salwai, is not good for Vanuatu and other Pacific Island nations
PM Salwai has already signed PACER Plus in September
‘Australian and New Zealand governments have exerted a lot of pressure on Pacific island countries to join PACER plus with aid packages. In the case of Australia, the funding is not additional funding to the total aid budget for Pacific islands, and will be of no additional cost to Australia’
– What are the main reasons, forcing other Pacific island nations (excluding Fiji and PNG) to sign PACER plus to begin with (since it seems the agreement is obviously not beneficial for them)? Is it mainly political and economical pressure?
The Australian and New Zealand governments have exerted a lot of pressure on Pacific island countries to join PACER plus, including the Aid for Trade and development and Economic Cooperation and Development packages which they received in exchange for signing the agreement.
The Australian government National Interest Analysis of the agreement says that the Aid for Trade Readiness Package are A$4 million and NZ$4 million, while the Economic Corporation and Development packages are A$19 million from Australia and NZ$7 million from New Zealand. It also reports that, in the case of Australia, this is not additional funding, but will be absorbed by the official development assistance budget. This means that the funding is not additional funding to the total aid budget for Pacific islands, and will be of no additional cost to Australia.
Presumably Fiji and PNG, because their economies are so much larger than other Pacific island economies, comprising 80% of total Pacific island GDP, have been able to resist this pressure.
– Objectively, what are the main benefits the Pacific island countries, that have already joined, can expect to get from the PACER plus agreement long-term?
Pacific island countries already have tariff free access for their exports to Australia and New Zealand, so there is no gain in market access for their goods into Australia and New Zealand. As developing countries, Pacific island countries do not have many developed services sectors, so they will not benefit from increased access to investments and services in Australia and New Zealand.
The Australian National Interest analysis says that the main benefits for Pacific islands are to maximise opportunities for them to use Australia-New Zealand imports and investment as engines of growth by lowering the cost of imports and having more foreign investment. It recognises that lower tariffs could also have a negative impact on local industries and jobs, especially in smaller economies, like Vanuatu, but claims that this is addressed through tariffs being lowered over a longer time frame by the time and flexibility in implementation.
However, this is a point of contention, as both Fiji and PNG have said that the tariff reductions schedules do not allow enough flexibility to protect their local industries.
‘All Pacific island governments have made commitments to provide Australian investors the same treatment as local investors in agriculture, hunting and forestry, aquaculture and manufacturing, and most have made commitments in relation to mining and quarrying’
– Could you please explain a bit more about the main reasons driving Australia and New Zealand to push this agreement through? Is there some particular local industry or number of industries in Australia and NZ to benefit after getting free entrance to Pacific island states’ markets?
The National Interest Analysis says that the agreement will deliver gains for Australian exporters by reducing tariffs in Pacific island countries on 91.5% of tariff lines covering 88.5% of Australia’s exports in 2016. This benefits Australian exporters by an estimated $A360 million over time on 2016 figures.
However, Pacific Island governments will over time lose this A$360 million in tariff revenue. For some countries, tariff revenue is a substantial proportion (10-20%) of their revenue. They will have to replace this revenue from other sources like consumption or other taxes in order to be able to fund essential services. So gains for Pacific Islander consumers through lower tariffs and cheaper imports may be offset by higher taxes to fund services. This is why detailed studies of the impacts in particular countries are needed.
Australia’s largest services sector exports to the Pacific are tourism, travel services, transport services and financial services, so these are the sectors which will benefit most. The agreement commits Pacific island countries to open up more of their services sectors to Australian and New Zealand investment in areas like tourism, travel, transport and financial services. Countries that are not already WTO members, Cook Islands, the Federated States of Micronesia, Kiribati, Nauru, Palau, Marshall islands and Tuvalu, will be opening up these areas to Australia and New Zealand investment for the first time. Countries that are already WTO members (Vanuatu, Samoa, Solomon Islands and Tonga) have made commitments in addition to their commitments under the WTO General Agreement on Trade in Services, including maritime passenger transport services, maritime freight transport services, and air transport services.
All Pacific island governments have also made commitments to provide Australian investors the same treatment as local investors in agriculture, hunting and forestry, aquaculture and manufacturing, and most have made commitments in relation to mining and quarrying. Only some have retained and investment admission review process.
‘The agreement will provide greater security, predictability and certainty for Australian exporters and investors, improve their access to markets and maintain that access in the event that Pacific island countries negotiate free-trade agreements with other countries, which could be China’
– In your opinion, can we say that PACER plus is not just a trade agreement, but to a large extent an instrument of political and economical influence in the Pacific for Australia in the context of continuously increasing competition with China in this region?
All trade agreements have a political and national security dimension, and the National Interest Analysis certainly recognises this by noting that a stable and secure Pacific is in Australia’s national interest, and that Australia provides $1.1 billion in official development assistance to the Pacific.
The National Interest Analysis says that the agreement will provide greater security, predictability and certainty for Australian exporters and investors, improve their access to markets and maintain that access in the event that Pacific island countries negotiate free-trade agreements with other countries, which could be China or other countries.
‘Parliamentary process would be the last opportunity to conduct independent assessments of the impact of the agreement’
‘The fact that governments have signed the agreement and that aid money is linked to the agreement will mean there is a lot of pressure for parliaments to comply’
– So what will most likely happen next? If I understood right, civil society groups are pushing for the independent assessments of this agreement. Is it likely that PACER plus will be considerably revised to eventually convince Fiji and PNG to join?
The Australian government has no intention of revising the current terms of the agreement. The agreement provides for more governments to join if they wish, but they would have to accept the terms of the current agreement. Presumably that is why PNG and Fiji decided not to join, because they could not get the further changes they wanted.
For those governments that have signed the agreement, there is a process of Parliamentary approval of implementing legislation before the agreement is finally ratified and comes into force.
I am not familiar with all of the different processes in different Pacific island countries, but the parliamentary process would be the last opportunity for them to conduct independent assessments of the impact of the agreement. It is theoretically possible that, if independent assessments were done, and parliaments decided that the benefits did not outweigh the costs of the agreement, parliaments may decide not to pass the implementing legislation.
However the fact that governments have signed the agreement and that aid money is linked to the agreement will mean there is a lot of pressure for parliaments to comply.
In Australia, civil society groups will argue to our Parliament that the agreement is not truly a regional agreement without Fiji and PNG, and the fact that they have not joined shows that there are flaws in the agreement for Pacific island countries.