Trade liberalization shortchanges Pacific Island economies
The Pacific Agreement on Closer Economic Relations Plus, a regional economic integration pact that opens free trade among Australia, New Zealand and Pacific Island nations, is raising skepticism among critics, who describe the treaty as a lopsided deal.
The agreement, better known as PACER Plus, proposes tariff cuts among signatory nations and is rhetorically touted to help small Pacific Island nations through increased import-export trade and investments. But subsequent analyses indicate that Pacific Island countries will actually get the short end of the stick from the trade treaty, which is deemed askew toward Australia and New Zealand.
In a report released in May, the Australian Parliament’s Joint Standing Committee on Treaties noted that Pacific Island economies already have tariff free access for their exports to Australia, so the main impact of PACER Plus is to reduce tariffs and improve access for Australian and New Zealand exports and investment, the report states. Therefore, all tariff reductions and consequent market access benefits will flow to Australia and New Zealand.
Signatories include Australia, Cook Islands, Kiribati, Nauru, New Zealand, Niue, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu. The three freely associated states — Palau, the Federated States of Micronesia and Republic of the Marshall Island — are expected to sign soon.
The Australian Foreign Investment and Trade Network, or AFTINET, noted that 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.
“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 Joint Standing Committee on Treaties’ report states.
AFTINET cited a 2007 estimate indicating that Fiji, Papua New Guinea, Samoa and Vanuatu would lose more than A$10 million 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 percent. 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.
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.
The Joint Standing Committee on Treaties’ report said full implementation of PACER Plus would eliminate Pacific Island countries’ tariffs on 91.5 per cent of tariff lines on imports from Australia and New Zealand, while 88.5 percent of Australia’s exports to the region will be tariff free.
Australia and New Zealand have recommended an increase in consumption tax to make up for revenue losses from tariffs, but the committee noted that when a similar proposal was analyzed by the International Monetary Fund in 2005, it was determined that consumption tax could only replace 30 per cent of lost tariff revenues.
“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,” the committee said. “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.”
Papua New Guinea and Fiji, which represent 80 percent of the combined GDP of Pacific Island countries, did not sign up, saying the agreement threatens their infant industries and would not benefit their economies.
“PNG and Fiji’s rejection shows that the PACER-plus agreement is heavily skewed towards the interests of Australia and New Zealand, who want lower tariffs for their exports and more rights for foreign investors. This is despite early rhetoric that the agreement was about the development needs of Pacific Islands,” the report states.
Patricia Ranald, convener of AFTINET, noted that without PNG and Fiji, the smaller island economies that have less negotiating power and reliant on Australian and New Zealand aid may have been pressured into signing a deal which does not benefit them.
“Given that the report says is that the deal could cause considerable harm to vulnerable Pacific Island economies, and that these impacts should be monitored, it is surprising that it still recommends ratification of the deal,” Ranald said. “At a time when many commentators are concerned about China’s influence in the region, resentment about such a deal could contribute to a reduction in Australia’s and New Zealand’s influence.”