Trade Negotiations in the Pacific – Is There a Plus?

In view of the current  “crisis” over the role of the Office of the Chief Trade Advisor (OCTA) to the Pacific Islands Forum Secretariat, it seems appropriate to attempt an overview of the PACER Plus trade negotiations in the Pacific.

This terrain is sensitive and complex and there are many people who are very knowledgeable on the topic.  Therefore I am quoting the reports and often the views of others rather than stating my own views.  The intention here is merely to introduce some of the events and arguments that have been made around PACER Plus to those who are less familiar with them.

A background on trade negotiations and past agreements in the Pacific is given at the bottom of the article.  I also felt this diagram useful, if 2 years out of date, from a 2009 Oxfam report.  It shows existing trade agreements in the Pacific.  The purple circle for PACER now encompasses PACER Plus (but Pacer Plus excludes Fiji).

Some issues facing PACER Plus negotiations

In spite of the powerful theoretical arguments for free trade (although not all theory supports untrammeled liberalization – e.g. infant industry argument driven by learning-by-doing), and in many larger countries, empirically realised benefits of free trade, several commentators have raised concerns about PACER Plus.  My intention here is to summarise a complex discussion rather than to pass judgment on its content.  The list is an assortment of barriers to PACER Plus’s success, possible problems that commentators have pointed up with its implementation, symptoms or derivatives of lack of progress and problems that some have said it does not address:

  • Resignation of Chris Noonan, head of OCTA, the advisory body to Pacific Island Countries on PACER Plus negotiations
  • Lack of funds for OCTA, possibly due to challenging relations between FICs, OCTA and Australia
  • Perceived lack of benefits from PACER Plus for Pacific Island Countries, specifically that Australia and New Zealand are not bringing enough to the table
  • Decreased tariff revenue for PIC governments from implementation of a PACER Plus agreement
  • Low priority for PICs: compared to other challenges such as climate change, governance, aid effectiveness, and the potential benefits of migration schemes, the development ramifications of PACER Plus possibly less significant
  • Pressure on PICs to sign a WTO-compliant agreement – which PACER Plus would be – but little benefit from them doing so
  • Lack of involvement of major Pacific economy, Fiji, in PACER Plus in spite of its involvement in the earlier-stage PACER
  • Significance of non-tariff barriers in the Pacific

Here I summarise each and quote relevant sources:

Resignation of the head of OCTA

The Office of the Chief Trade Adviser (OCTA) is located in Vanuatu and commenced operations in March 2010.  It was created due to the perception by Forum Island Countries (FICs) that there was a need for an independent body to provide advice and support for the negotiation of PACER Plus.  The recent resignation (early August 2011) of the head of OCTA, Dr Chris Noonan, may be more of a symptom of lack of progress rather than a cause of it for PACER Plus – although he has cited purely personal reasons for his leaving.  But a leadership vacuum in OCTA at this stage has to be detrimental.  This article from the Fiji Times chronicles Chris Noonan’s resignation and this comprehensive article from Nic Maclellan outlines the context.

Lack of funds for OCTA & international relations

The Pacific Network on Globalisation (PANG) has accused Australia of threatening the independence of OCTA.  Adam Woolfenden said on Radio Australia: “we think its great that Australia is committing to funding the OCTA but it needs to fund it on the terms that suit the Pacific Island countries and they have made it clear what they want; that they want this body to be governed by them and to be answerable to them. Now what Australia is offering is a funding agreement goes beyond that. It’s trying to dictate to them the terms under which this body can operate.”  Maclellan’s article also explains that funding was provided by Australia and New Zealand up to March 2011 but OCTA has not been funded since then.

This from Nic Maclellan’s article – ‘Dr. Noonan has expressed concerned that Canberra is trying to limit OCTA’s mandate to PACER-Plus and not other trade agreements like the EU-PACP Economic Partnership Agreement (EPA). Last week he told Radio Australia: “Effectively, what Australia seems to be saying is that the countries have to get their advice on that trade negotiation from the Forum Secretariat. It’s taking away, effectively, the sovereign right of each country to decide where they should get their advice from on trade matters.’

From the same article: ‘In a speech to the Senate last month, Lee Rhiannon stated: “Australia went as far as to insist that the OCTA constitution limit it to only PACER-Plus matters and that Australia have the ability to influence amendments to the constitution through decisions made by Forum leaders and trade ministers meetings. This was rightly rejected by the Forum island countries. Failing this, Australia has offered the OCTA a funding agreement that has been called unworkable. Primarily this is due to Australia’s condition that the OCTA only work on PACER Plus and undergo quarterly reviews where the funding could be terminated.”

Parliamentary Secretary for Pacific Island Affairs Richard Marles rejects criticism of Australian bullying, stating: “I’m confident that in the not too distant future, we will have reached an agreement and that will be done in a very normal and usual way and there are no strong arm tactics at all.”’

Perceived lack of benefit for FICs

Chris Noonan said: “There is a need for Australia and New Zealand to decide what to put on the table. At the moment, there is really nothing of value for the Forum Island countries.”

Woolfenden from PANG, said of this: “It’s very much consistent with what we are hearing, particularly with issues like labour mobility. We understand the Pacific have put forward a paper on that. That has taken a very long time to even get a response from Australia and New Zealand. My understanding is that the response is coming soon but, for such a critical issue, these are the things that the Pacific needs to have on the table and getting a response from Australia and New Zealand as quickly as possible, if they want to move these negotiations forward. But until they hear back on critical issues the there is really very little interest in it for them anyway.”

And from Radio Australia:

“GARRETT (Interviewer): So what action would you like to see from Australia and New Zealand?

NOONAN: Well, I think there is an opportunity for them to think carefully about what has been put on the table, what are they proposing for the countries. The interest of the countries in labour mobility has been made very strong and the possibility of having greater access to the Australian and New Zealand market. And there are a number of other areas where the Forum Island countries have made proposals to Australia and New Zealand and they are looking for something that can assist their development and their private sector to increase their exports.”

Decreased tariff revenue for FICs and Balance of Payments Issues

report commissioned by PIFS, from Nathan Associates from 2007  – also see here in Islands Business from Samisoni Pareti – concludes that many FICs will lose millions of dollars of tariff revenue per year.  For instance:

“a number of FICs will lose greater than 10% of their overall government revenues when PACER-Plus eliminates duties on imports from ANZ. We note that the current share of revenues accounted for by import duties on goods originating in ANZ are as follows: Cook Islands (12.2%), Kiribati (14.3%), Samoa (14.0%), Tonga (17.2%), and Vanuatu (17.2%)”

This is hardly an incentive for Pacific Island governments to get rid of tariffs.

The report also notes that getting rid of tariffs is likely to increase import spending relative to export spending, exacerbating existing imbalances in some Pacific Island countries.

Low priority for PICs

This relates to the last two points.  This article from Terence Wood, an ANU PhD student, argues that “There are some potential static welfare benefits that could come with reduced tariffs. But with respect to actual long-run economic growth, tariffs aren’t likely a major barrier. The inefficiencies associated with them are, it seems to me, trivial when weighed up against the other impediments to economic development in the Pacific: geography, human capital, and the interaction of informal institutions and economic incentives…” although others have noted that PACER Plus IS supposed to be a package deal to address these other impediments to development too.

Pressure on PICs to sign a WTO-compliant agreement

In a 2010 interview with Nic Maclellan at Islands Business, former OCTA head Chris Noonan said:

“The pressure to negotiate a WTO-compatible agreement is coming from Australia and New Zealand rather than the FICs. That’s been the whole history of the PACER-Plus process. As FICs have nearly quota free and duty free access under SPARTECA, it means that a GATT Article-24 compliant agreement is unlikely to improve the level of access, as far as pure market access considerations are concerned.
“Not all FICs are likely to enter into a free trade agreement with the European Union and for a lot of the smaller countries maybe it doesn’t make sense for them to sign up to a GATT Article-24 compliant agreement because of the obligations that this necessarily entails. Maybe, there are some other sorts of solutions, other sorts of approaches than that taken with PACER-Plus, especially for some of the smaller countries that are not likely to become WTO members in the foreseeable future.”

However some Pacific Island countries were trying to become WTO members for years – for instance Vanuatu took ten years and finally joins this year, and Samoa is the process of accession, targeted to join by the end of 2011.  Fiji, Solomon Islands, Tonga and Papua New Guinea are members.

Lack of involvement of Fiji

Chris Noonan again – this time on Radio Australia in June 2011: “regional integration without Fiji doesn’t necessarily make a lot of sense so there needs to be thought about how Fiji can be brought in and involved in any regional integration initiative that takes place in the Pacific.”

Significance of non-tariff barriers

According to the Nathan Associates report:

  • “Quarantine standards in ANZ are stringent and prevent many potential FIC agricultural and wood-based goods from being sold in the ANZ market…Most FICs have limited resources to overcome ANZ quarantine requirements. Many do not have adequate treatment facilities to eliminate pests in the pre-shipment phase and treatment options at the border can diminish the value of goods as, for example, would fumigation of organic produce. Both Australia and New Zealand require import permits for quarantine materials to be obtained in advance, which can be a difficult administrative barrier.”
  • “Implementing a Quality Assurance system that meets HACCP and ISO 9000 standards can be excessively difficult for small FIC businesses; the cost of implementation alone can be prohibitive. Processed agricultural goods are subject to these standards, which in turn can prevent FIC agricultural producers from moving up the value chain in export goods.”
  • “FIC exports must also adhere to packaging and labeling requirements set forth by ANZ regulatory agencies. These requirements can be complex and confusing to potential FIC exporters despite the presence of many ANZ-origin products in their own economies. Both Australia and New Zealand retain the right to refuse import of improperly labeled items.”

From personal communications, other commentators ask “where is the ‘Plus’ in PACER Plus?” By this they mean that the existing package is just not attractive enough nor pro-development enough.  Australian and New Zealand need to link up their development professionals in AusAid and NZAid with their purely national-interest-oriented trade negotiators, to put a pro-development trade package together that would be attractive to PICs.  The package might include more help with circumventing non-tariff barriers (like the Pacific Horticultural & Agricultural Market Access program PHAMA and an ACIAR project entitled Developing Cleaner Export Pathways for Pacific Commodities – both teams nested in LRD-SPC) and more support for the private sector in the Pacific to expand both domestic production and export production through initiatives such as the Enterprise Challenge Fund as well as SPC’s EU-FACT and EU-IACT projects.

Background: Trade Negotiations in the Pacific

PACER Plus is the proposed free trade agreement between member countries of the Pacific Islands Forum and Australia and New Zealand.  This is a good link from the Pacific Islands Forum Secretariat; see also here from the Australian government.

The Office of the Chief Trade Advisor (OCTA) was created due to the perception by Forum Island Countries (FICs) that there was a need for an independent body to provide advice and support for the negotiation of PACER Plus.  Dr Chris Noonan was appointed as Chief Trade Adviser on 29th March 2010.

OCTA was tasked with providing the Forum Island Countries with independent advice and support in the PACER Plus negotiations.

PACER, signed in 2001, was the agreement between Pacific Islands Forum countries to lay the groundwork for the negotiations, supposed to be contained in PACER Plus.  Here is the link to the text of the PACER agreement from the Forum Secretariat web site. PACER and PACER Plus were in turn intended to be an update to the out of date South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA), signed in 1981, which was actually developed with Fiji’s cooperation, and still applies.  PACER Plus was intended to be its successor.

PICTA , is a free trade agreement among the Forum Island Countries and excluding Australia and New Zealand, which by 2021 aims to remove all tariffs between the signatories, on goods only.

This useful link from the Forum Secretariat web site contains a series of FAQs on PACER and PICTA.

SPARTECA is not compliant with World Trade Organisation (WTO) standards – or specifically, not compliant with the General Agreement on Trade and Tariffs Article 24 (GATT was WTO’s previous name).

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