Trade Negotiations and Regional Economic Integration in the Pacific

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Asia & the Paciﬁc Policy Studies, vol. 1, no. 2, pp. 325–336 doi: 10.1002/app5.34 Original Article

Trade Negotiations and Regional Economic Integration in the Paciﬁc Islands Forum

Wesley Morgan*

Abstract 1. Introduction

When the Pacific Islands Forum was estab- Negotiations for a new regional trade agree- lished in 1971, regional economic integration ment for the Pacific Islands Forum—to be was high on the policy agenda. Over the four called PACER-Plus—have entered troubled decades since, a political commitment to waters.Aconsiderable dissonance of views per- regional integration has waxed and waned. sists between policy-makers in Australia and This paper explores past and present prospects New Zealand and their counterparts in the for economic cooperation through the lens of Forum Island Countries. Pacific officials argue regional trade negotiations. Into the new mil- that a regional free trade agreement (FTA) lennium, Pacific governments lobbied World would not in itself help the island states realise Trade Organisation (WTO) members to recog- significant welfare gains, and thus innovative nise their trade-related challenges, and sought regional policy initiatives are needed. Austra- special treatment in trade negotiations with lian and New Zealand trade officials do not the EU and with Australia and New Zealand. share the precepts of this argument. While they Despite these efforts, current trade negotia- acknowledge that island states require financial tions among all Forum members—to extend and technical assistance to negotiate—and the Pacific Agreement on Closer Economic implement—a new regional trade agreement, Relations (PACER-Plus)—look unlikely to there is no consensus that PACER-Plus should result in unique measures intended to help be substantively different from other treaties Pacific states take advantage of international being negotiated in the Asia-Pacific region. In trade. In this context, consideration should be the absence of agreement regarding the nature given to downscaling formal trade negotia- and extent of benefits arising from reciprocal tions in favour of other regional trade policy trade liberalisation, talks have proceeded initiatives. slowly and prospects for a mutually acceptable agreement remain poor. To understand how this Key words: regionalism, regional trade impasse came about, this article explores the agreements, Pacific, Pacific Islands Forum, recent history of trade cooperation in the Pacific PACER-Plus Islands Forum. In the final section, some suggestions for policy are also briefly discussed.

2. Trade, Regionalism and the Establishment of the South Pacific Forum * School of Social and Political Science, The University of Melbourne, Melbourne, Victoria 3010 Australia; email Island country members of the Pacific Islands Ͻwtmpacifi[email protected]Ͼ. Forum are some of the youngest states on

© 2014 The Author. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes. 326 Asia & the Pacific Policy Studies May 2014 earth, having achieved independence from nies, trade arrangements that maintained colonial powers within the lifetime of most colonial-era market access were negotiated current island leaders. No sooner had these for African states through the Yaoundé Con- nations been born than serious consideration vention of 1963, and extended to the Carib- was given to joining them together (with Aus- bean and Pacific states in the Lomé tralia and New Zealand) in some form of eco- Convention of 1975. Lomé allowed for duty- nomic union. When island states, led by Fiji’s free access to European markets for most Ratu Kamisese Mara, first considered a exports, and included a series of commodity- regional body for political cooperation the specific protocols. In the Pacific, Ratu Mara prospect of trade integration was high on the played a key role negotiating the convention’s agenda. In 1971, at the very first meeting of Sugar Protocol, lobbying the UK government the South Pacific Forum,1 a committee of to secure price guarantees that would prove senior officials was established to discuss the vital for employment and social stability in possibility of an economic union. However, it Fiji. was quickly realised that the issues involved in In the first decade of the South Pacific pursuing a free trade area were complex and Forum, moves towards ‘deep’ regional eco- politically difficult. The committee recom- nomic integration were set aside in favour of mended that a permanent secretariat be estab- a less ambitious agenda of sectoral coopera- lished ‘to enable continuing consultation on tion and regional service delivery. Key this and other trade questions’ (Department of initiatives included a regional university Foreign Affairs and Trade 2004, p. 18). At the (University of the South Pacific), a regional second South Pacific Forum, it was agreed that shipping line (Pacific Forum Line) and a a South Pacific Bureau for Economic Coopera- regional airline (Air Pacific). Even in these tion (SPEC) would be established in Suva. areas, however, political tensions, and More than 40 years later, the SPEC has particularly the view that the benefits of changed its name—it is now the Pacific Islands regionalism were accruing unfairly to Fiji, Forum Secretariat—and still facilitates served to undermine a wholesale embrace of regional discussion on trade. However, a free regional integration by island leaders. Despite trade agreement among all the Forum member this, the idea of a free trade area among states is yet to be. Forum member states—often envisaged as a When Papua New Guinea (PNG) achieved first step towards a more comprehensive full independence in 1975, a trade agreement integration through a common market, a was negotiated with Australia—the Papua common currency and regional political coor- New Guinea-Australia Commercial Trade dination—has proved to be recurring and Agreement—cementing arrangements allow- remarkably persistent over subsequent ing PNG goods to enter Australia duty-free. decades. Swiftly thereafter, an agreement granting preferential access to Australian and New Zealand markets for all Forum Island Coun- 3. Market Preferences and Pacific tries was negotiated, and the South Pacific Islands Development Regional Trade and Economic Cooperation Agreement (SPARTECA) was signed in Duty-free access to developed country 1981. markets, particularly through the Lomé Con- Australia and New Zealand were not alone vention and SPARTECA, helped ‘cushion in offering preferential market access to the trading realities’ in a number of Pacific states Pacific Island countries. As European powers (MacDonald 1986, p. 117). Both agreements sought to redefine relations with former colo- proved important for exports that were unlikely to have established or continued 1. The South Pacific Forum was renamed the Pacific without them, and thus had significant devel- Islands Forum in 1999. opment effects for those island states with

© 2014 The Author. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University Morgan: Trade Negotiations and Economic Integration 327 sufficient resources to develop export indus- were not to last forever. In September 2007, tries.2 Preferences associated with the Lomé the EU unilaterally withdrew from the ACP Convention were particularly important for Sugar Protocol, and guaranteed prices for ACP exports of sugar from Fiji, and tropical tree sugar were phased down and removed alto- crops (coffee, cocoa, oil palm, coconut oil) gether in 2012. With falling prices, sugar from PNG, Solomon Islands and Vanuatu. The production is increasingly unprofitable in convention also provided direct financial Fiji, although some growers have gained a assistance—the so-called STABEX funds—to price premium through fair trade certification island exporters faced with volatile prices for (Bower 2012), while others have diversified agricultural commodities. Significant margins away from sugar to higher value agricultural of preference were also available for processed exports. tuna exported to Europe. Canneries in Fiji, Preferential access to Australian and Solomon Islands and later in Madang in north- New Zealand markets, provided for under ern PNG were reliant, ‘virtually completely SPARTECA, also saw the development of upon the export of canned tuna to the EU commercial activity in the Pacific. Undoubt- market’(Grynberg 1995, p. 80). A tariff rate set edly of most importance was the growth of at 24 per cent on competing products from textile, clothing and footwear exports from Southeast Asia—particularly from Thailand Fiji. When the Australian and New Zealand and the Philippines—ensured the profitability governments dismantled protections for their of canned tuna exports. own textile industries in the late 1980s, many Ultimately, Lomé preferences had the effect firms relocated to Fiji to reduce costs. This of ensuring that the EU, ‘despite the vast dis- coincided with a pro-investment policy envi- tances involved in transporting low value prod- ronment implemented by Fiji’s Rabuka gov- ucts’, remained ‘an unnaturally significant ernment, including the establishment of low- trading partner’ for Pacific Island countries cost ‘export processing zones’and tax holidays (Grynberg 1998, p. 3). Market preferences for new factories. Amendments were also provided by the EU had significant welfare and made to the SPARTECA rules of origin, allow- employment effects. Guaranteed prices pro- ing Australian and New Zealand products, vided by the Sugar Protocol, for example, con- even if initially sourced elsewhere, to count stituted a direct income transfer to Fiji, towards SPARTECA’s content rules. This estimated in 2001 to be worth around US$50 enabled Australian and New Zealand firms to million per annum (Grynberg et al. 2006, p. import thread from low-cost sources in Asia 541). The Fijian sugar industry, reliant on and export fabric to Fiji, where it was made hand-cut cane and ageing transport and milling into clothing through the so-called ‘cut, make infrastructure, would have struggled to main- and trim’ operations and re-exported to both tain export volumes in the absence of above- countries duty-free. In essence, the labour- world prices. By 2011, the industry still intensive component of domestic manufactur- provided direct and indirect employment for ing in Australia and New Zealand was some 200,000 people—around 20 per cent of outsourced to the Pacific. Fijian exporters also Fiji’s population (International Monetary benefited from preferential access to the US Fund 2011, p. 7). However, Lomé preferences market, provided for by the Multilateral Fibre Arrangement (MFA). 2. For some of the Pacific’s smaller ‘micro-states’ (such The combined effect of policy changes in as Nauru, Niue and Tuvalu) and for more remote atoll Australia, New Zealand and Fiji saw a spec- states (such as Kiribati), there are very limited prospects tacular growth in Fiji’s garment industry, with for international trade, even with preferential access to export earnings growing from less than FJD 5 destination markets. Indeed, only in the larger Melanesian million to FJD 113 million per annum between states—Papua New Guinea, Fiji, Solomon Islands and Vanuatu—do traditional goods exports constitute a signifi- 1987 and 1990, accompanied by a tripling of cant proportion of national gross domestic product (Hezel employment in the sector (Storey 2003, p. 11). 2012, p. 11). Indeed, there have been virtually no other

© 2014 The Author. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 328 Asia & the Pacific Policy Studies May 2014 comparable examples of significant industrial they led to the development of activities that development in the Forum Island Countries. would not be viable when the preferences were By the turn of the millennium, around 18,000 removed. However, it remains unclear what, if Fijians, predominately women, were any, trading opportunities would have emerged employed manufacturing garments and the in their absence. Furthermore, a close reading number of tax-free factories in Fiji expanded of recent economic history suggests that pref- from 27 in 1988 to 110 in 1999 (Cawthorne erences have had significant positive welfare 2000). With the expiry of the MFA quota effects in some Pacific states. system in 2005, the Fiji garment sector con- tracted significantly. However, 40 factories 4. Regional Trade Agreements Revisited remain in operation, with successful firms as Response to Globalisation specialising in short-order, low-volume clothing production for the higher value Australian Changes in the global trade regime during the fashion market. early 1990s had significant consequences for Preferential access to Australian and New the Forum Island Countries. Trading partners, Zealand markets also precipitated manufactur- particularly in Europe, made commitments ing exports from Samoa. In 1991, the Japanese during the Uruguay Round of negotiations firm Yazaki relocated a car-part factory to the which served to undermine the value of pref- country, which quickly became the second- erential market access. Furthermore, the MFA largest employer after the public sector. The looked set to be phased out, thereby undermin- factory assembled and exported electrical ing Fijian clothing exports to the United wiring harnesses for cars that would then be States. The World Trade Organisation’s completed in Australian factories. As with the (WTO) strengthened compliance mechanisms development of the Fijian textile industry, the also meant that non-reciprocal preferences move essentially entailed an outsourcing of a were increasingly exposed to legal challenge labour-intensive component of manufacturing by other states. Taken together, these changes in Australia. Also, like the Fijian garment brought into sharper relief the competitive dis- sector, the move came only after changes to advantages faced by Pacific producers. To be domestic industry policy. Yazaki decided to sure, it was widely understood that the estab- relocate when the Australian Motor Vehicle lishment of the WTO would create new oppor- Plan was modified to include Forum Island tunities for developing countries on the whole, Country components in cars deemed Austra- as wealthy nations liberalised their markets in lian made. At its height, the factory employed selected areas. However, there was also a 3,000 people, and while that number had realisation that Pacific Island states would face dropped to 950 in recent years (Tone 2012), special difficulties taking any advantage of the factory remained a not-insignificant those opportunities. Thus, Pacific states faced employer for a small and remote island nation an erosion of their existing trading position with relatively few waged jobs. and faced ongoing difficulties attracting It is clear that preferential access to devel- investment or developing new exports. oped country markets, particularly as provided While globalisation was high on the agenda through Lomé and SPARTECA, was important by the mid-1990s, so too was regionalism: the for the development of Pacific Island exports. EU was developing a common market, a North Benefits accrued most to Fiji, through contin- American Free Trade Agreement was con- ued sugar exports to the United Kingdom and cluded in 1994, and in the same year Asia- new garment exports to Australia and New Pacific Economic Cooperation (APEC) states Zealand. Indeed, historical trade preferences resolved to pursue trade liberalisation through go some way to explaining why Fiji is the least ‘open regionalism’. In this context, policy advi- aid-dependent Pacific nation (Hezel 2012, p. sors in the Pacific recommended regional trade 22). Some argue that trade preferences had integration as a suitable response to changes in limited benefits for island economies because the global trade regime. Melanesian states led

© 2014 The Author. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University Morgan: Trade Negotiations and Economic Integration 329 the way with the formation of the Melanesian (PACER). The former provided for the Spearhead Group Trade Agreement (MSGTA) liberalisation of trade in goods among the in 1993. The MSGTA provided for free trade in island states, while the latter provided for the prescribed goods among PNG, Solomon possible future negotiation of a free trade Islands and Vanuatu. Soon thereafter, consider- agreement with Australia and New Zealand. ation was given to trade integration for the Australian concerns about being excluded South Pacific Forum more broadly. from a Pacific trade agreement had been exac- At the time, two distinct models of integra- erbated in 1999 when the EU proposed a tion were considered. Australian policy- regional trade agreement to replace Lomé-era makers favoured Forum-wide cooperation in preferences. Policy-makers in Brussels had the form of ‘open regionalism modelled on proposed that preferences contained in the APEC, and with regulatory standards geared to Lomé Convention be replaced with reciprocal the WTO’ (Johnston 2009, p. 128). However, trade agreements, thus bringing the EU–ACP Pacific governments were of the view that a trading relationship in line with WTO obliga- trade agreement among themselves would help tions (particularly as found in Article XXIV of Forum Island Countries adjust to a more the General Agreement on Tariffs and Trade sharply competitive global trading environ- (GATT)). In 2000, Pacific ACP states signed ment. Island governments were also concerned the successor to Lomé—the Cotonou about greater adjustment costs associated with Agreement—which provided for the negotia- an agreement including Australia and New tion of a regional ‘Economic Partnership Zealand. Key advisors suggested a ‘stepping Agreement’ (EPA) between Pacific Island stone’ approach could allow for inter-island countries and the EU. integration before island states moved to more By early in the new millennium, Pacific ambitious liberalisation with larger trading Island countries were circumscribed by an partners. They suggested such an approach increasingly complex array of trade arrange- would allow Pacific countries to better manage ments. Island states were considering joining the pace of reform (see Scollay 2010, p. 11). the WTO,3 and looked set to negotiate and Others cautioned, however, that preferential implement free trade agreements among them- agreements could act as ‘stumbling blocks’ selves and with the EU and Australia and New that would lead to trade diversion and ‘create Zealand. Despite moves to embrace new trade interests which could stall the move toward arrangements, there remained concern that wider liberalisation’ (see World Bank 2002, negotiating reciprocal free trade agreements pp. 31–2). with developed countries would not provide Primarily for political and geostrategic significant economic benefits for the island reasons, the Australian government insisted on states. In this context, Pacific policy-makers being included in the processes of integration increasingly sought concessions from the through the auspices of the South Pacific international community and pursued innova- Forum. It was thought that exclusion from a tion in the global trade regime. regional trade agreement would send a poor message about Australia’s place in the South 5. Uniquely Vulnerable: Seeking Pacific Forum itself. Both Australia and New Innovation in the Global Trade Regime Zealand also had some commercial interest in securing preferential access to Pacific Island Early in the twenty-first century, there was an markets. Both governments, furthermore, increasing consensus that producers based in argued that a Forum-wide agreement would be Pacific Island states faced inherent disadvan- welfare-enhancing for the Forum Island Coun- tages that limited their ability to compete in tries. Ultimately, two separate agreements 3. Only Fiji, Papua New Guinea and the Solomon Islands were negotiated: the Pacific Island Countries were founding members of the WTO. Tonga (2007), Trade Agreement (PICTA) and the Pacific Samoa (2012) and Vanuatu (2012) have acceded Agreement on Closer Economic Relations subsequently.

© 2014 The Author. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 330 Asia & the Pacific Policy Studies May 2014 global markets. Factors such as small and dis- economies (SVEs)...butSVEs will need to persed populations, a limited resource base, adjust to the inevitable’. distance from external markets, and an acute By contrast, Grynberg (2006) argued that vulnerability to natural disasters all served to the trade regime should be adapted to allow constrain opportunities to benefit from interna- wealthy states to maintain preferences for tional trade. While the unique vulnerabilities Pacific countries. He also suggested that the of small island economies had been discussed international community should ‘devise appro- more broadly for some time, new studies priate interventions that will replicate the sought to quantify the extent of island-based results of trade preference while avoiding disadvantage. Winters and Martin (2004) mod- some of the more market-distorting conse- elled the costs of production in small and quences’ (2006, p. 24). This analysis proved remote economies, and found that exports particularly influential among Forum island from many small states were priced out of the governments, who decided to seek innovation world market even in their areas of compara- in the global trade regime itself. If developed tive advantage. Gibson and Nero (2006, p. 15) countries were to provide preferential treat- found that Pacific Island states were not only ment to Pacific countries, this could contra- further away from major economies than other vene a key principle of the multilateral trade small island states, such as those in the Carib- regime: that of non-discrimination. Thus, the bean, but they were also ‘much further away in island states lobbied WTO members to recog- terms of airfare-based measures of distance’. nise a new category of small and vulnerable An appreciation of the unique features of states. In 2001, at the launch of the Doha Pacific Island economies led to an acknowl- Round, members agreed to establish a work edgement that there was ‘likely to be a perma- program ‘to frame responses to the trade nent wedge between the cost of production in related issues identified for the fuller integra- the Pacific and the world price in both manu- tion of small, vulnerable economies into the facturing and services, making it difficult for multilateral trading system’ (WTO 2001, para the islands to compete in all but a few niche 35). However, this work program would be markets’ (World Bank 2009). designed explicitly so as ‘not to create a sub- While there was agreement that Pacific category of WTO members’. While small Island states faced difficulties competing in a island states may receive assistance to imple- liberal global marketplace, there remained ment them, they would be required to commit divergent views as to how to respond to the to the same obligations as other developing islands’ trading circumstances. Suggestions country members, and developed countries tended either towards regime compliance: would not be able to extend preferences to encouraging Pacific states to liberalise trade in island states on a discriminatory basis. accordance with the regulatory requirements Having gained limited recognition of their of the WTO and through WTO-compatible trade-related challenges at the WTO, Forum FTAs, or towards regime innovation: encour- Island Countries pursued policy innovation aging the international community to adapt through regional trade negotiations. At the multilateral trade rules and consider additional outset of the EPA negotiations with the EU, for concessions that would reflect the special example, island governments suggested that an needs of Forum Island Countries. In part, dif- ‘FTA-Plus’ approach would be required if an fering policy suggestions reflected different agreement was to encourage development in understandings of the historical effects of trade the Pacific (Pacific Islands Forum Secretariat preferences. Some argued that island states 2004). A roadmap for the negotiations, agreed had little choice but to adapt to the global trade between island trade officials and their regime. Duncan and Redden (2009, p. 611), Brussels-based counterparts, explained that a for example, suggested that there would ‘no Pacific-EU EPA would ‘go beyond existing doubt be pain associated with the loss of pref- WTO measures and include provisions that erences in some Pacific small and vulnerable effectively address the Pacific ACP states’criti-

© 2014 The Author. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University Morgan: Trade Negotiations and Economic Integration 331 cal constraints of small size, dispersed land ence and we are not going to repeat it. Unlike masses and populations, and isolation from the EPA, PACER-Plus is not just a trade agree- major markets and sources of investment and ment’ (Crean 2009). However, translating supply for important economic inputs’ this political commitment—that PACER-Plus (European Commission 2004, p. 2). would include unique and additional policy Between 2004 and 2006, Pacific trade min- measures—into mutually agreed negotiating isters proposed unique measures to be text would prove to be difficult. included in the EPA. These included a reori- enting of EU development institutions to 6. The PACER-Plus Negotiations: reduce the costs of business finance in the Towards a Regional Stalemate? Pacific, sector-specific strategies to encourage investment in Pacific tourism and agriculture, In June 2007, Australian and New Zealand and a regional fisheries agreement. Pacific governments argued that negotiations between governments sought to link market access the Forum Island Countries and the EU had offers with aid-for-trade commitments from triggered articles of the PACER requiring dis- the EU. They also proposed labour mobility cussion of a Forum-wide free trade agreement. arrangements allowing Pacific islanders to Between mid-2007 and mid-2009, consider- work in Europe. However, when European able diplomatic effort was expended securing officials responded with a draft EPA text, in support for a launch of ‘PACER-Plus’ negotia- August 2007, Pacific policy-makers were bit- tions. For the Australian government, this terly disappointed. They argued that the EU effort was driven by a change to overall trade text set out the Commission’s key demands policy orientation. Until the late 1990s, while reflecting ‘almost none of the key national interest had been pursued through the written proposals of the PACP group nor the multilateral trading system, and there was a positions put forward and key interests general ‘antipathy towards preferential trade expressed by PACP Ministers and Officials’ agreements’ (Ravenhill 2008, p. 122). From (Pacific Islands Forum Secretariat 2007). 2000, however, the Australian government Having failed to gain support for the view became an enthusiastic proponent of bilateral that an ‘FTA-Plus’ agreement would be and regional trade agreements. Myriad com- needed, Pacific governments were reluctant to mercial and strategic motivations drove this conclude a region-wide agreement. In late new policy orientation, but chief among these 2007, however, Fiji and PNG initialled interim was a defensive imperative, based on the view EPAs covering trade in goods. Governments in that ‘standing still is going backwards’ both countries were concerned to ensure a con- (Capling 2008, p. 236). With other states nego- tinuation of market preferences that were vital tiating preferential access to destination for existing exports—sugar and canned tuna, markets, Australian trade officials became con- respectively. These preferences looked set to cerned that new trade agreements were needed be removed as a WTO waiver for Lomé pref- to maintain the commercial value of existing erences was due to expire on 31 December market access. 2007. In the first decade of the new millennium, The EPA talks with the EU framed subse- Australia pursued trade agreements through- quent negotiations for a Forum-wide trade out the Asia-Pacific region. Indeed, by the time agreement. Crucially, the EPA experience pre- PACER-Plus negotiations were launched, the cipitated a political commitment from Austra- Pacific Islands Forum was a relative ‘empty lian and New Zealand trade ministers that they patch’ on the patchwork quilt of agree- would support an ‘FTA-Plus’ regional trade ments being pursued in the geopolitical agreement. As then Australian trade minister neighbourhood. While Australian commercial Simon Crean argued, ‘Australia has learnt the interests in a Pacific free trade agreement were lessons of the EPA negotiations with the Euro- limited, there was nonetheless concern to pean Union. We have learnt from that experi- avoid preferential access being granted to

© 2014 The Author. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 332 Asia & the Pacific Policy Studies May 2014 exporters from elsewhere. Australian policy- ‘relatively small contribution to [Forum Island makers were also concerned for geopolitical Country] development can be expected from a reasons to avoid exclusion from processes of conventional FTA’—underscored efforts to regional integration among Pacific Island ‘identify dimensions with a greater potential states. development contribution that could be Because the PACER-Plus negotiations were included in these agreements’(Scollay 2010, p. pursued by Australia and New Zealand as part 13). As with the EPA negotiations, Pacific gov- of a series of concurrent trade negotiations, ernments advanced proposals for unique mea- officials from both countries were reluctant to sures that might be included in PACER-Plus. consider measures that would differ substan- Chief among these were special access to Aus- tially from other regional agreements, both to tralian and New Zealand labour markets for avoid precedents that might undermine Pacific workers, new ‘aid-for-trade’ to help the ongoing negotiations and to maintain ‘policy island states develop supply capacity, and more consistency among their various FTAs in order flexible rules of origin requirements to help to reduce implementation costs’ (Nathan island exporters take advantage of existing Associates 2007, VIII). This desire for policy market access. consistency sat uneasily alongside political Between 2009 and 2013, the PACER-Plus commitments that PACER-Plus would not be a negotiations proceeded slowly, with little traditional trade agreement. Australian and agreement reached on key issues. Regarding New Zealand policy-makers were of the view labour mobility, Australia and New Zealand that Pacific countries required special support refused to countenance the inclusion of treaty to engage the PACER-Plus discussions, and commitments facilitating the movement of potentially to implement commitments agreed unskilled and semi-skilled Pacific workers (the to, but were not of the view that a substantially areas of most interest to island negotiators). unique agreement would be needed. As then Perhaps concerned commitments could set a Australian high commissioner to Fiji, James precedent for other negotiations; both govern- Batley (2007), explained: ments continued to implement labour mobility schemes for Pacific islanders outside of the Yes, Australia (and New Zealand) are prepared to PACER-Plus discussions.4 This cautious assist [Forum Island Countries] with transition, approach was not limited to Australia and New negotiation and adjustment costs; and yes, we are Zealand; many developed countries had prepared to take careful consideration of issues resolved that trade agreements were a suitable like timeframes for implementation. But ultimately we are convinced that greater regional framework for liberalising categories of skilled integration through trade liberalisation will bring workers, but that temporary movement of its own rewards. unskilled workers should be managed through bilateral labour agreements (see Saez 2013, Australia and New Zealand funded a new p. 2). By early 2014, it remained unclear what, Office of the Chief Trade Advisor, established if any, commitments were being considered by in Vanuatu in 2009 to help coordinate the island Australian and New Zealand negotiators countries’ negotiating positions. While this regarding a movement of skilled workers. support was welcomed, most Pacific governments remained concerned that a reciprocal 4. In 2007, New Zealand implemented a ‘recognised sea- trade agreement would, in itself, do little to help sonal employer’ scheme intended to address seasonal the island states take advantage of international labour shortages in the horticulture and viticulture indus- trade. The Pacific’s first Chief Trade Advisor tries. The scheme gave preference to Pacific Island Chris Noonan argued that ‘the benefits from a workers. In 2009, Australia introduced a pilot for a similar traditional trade agreement would be relatively scheme, allowing island workers to pick fruit in Australia on a seasonal basis. In 2012, the pilot scheme was con- modest...whereas implementation and adjust- verted to a 4-year ‘seasonal worker program’ which was ment costs will likely be more immediate and extended to new sectors—such as Australia’s cotton and significant’ (Noonan 2011). This view—that a sugar industries and the tourism sector.

These might be considered as part of ‘Mode 4’ ling them a ‘complete waste of time’ (Pareti concessions in a trade-in-services agreement, 2013). In July, the Australian shadow minister or as part of an annexed side letter specifying for trade Julie Bishop argued PACER-Plus market access in listed occupations (similar to negotiations had ‘stalled’ and that ‘fresh think- annexes contained in FTAs between New ing’ would be required to reinvigorate the talks Zealand and China, and New Zealand and (Bishop 2013). She suggested a regional agree- Thailand). ment might be abandoned in favour of bilateral With regard to aid-for-trade, indications or selective negotiations with larger economies were that Australian and New Zealand nego- like Fiji and PNG. Whether a selective tiators had proposed an ‘economic coopera- approach would be supported by Pacific gov- tion’ chapter in PACER-Plus similar to that ernments was not known. However, it was clear found in the ASEAN-Australia-New Zealand that, more than 40 years after it was first pro- Free Trade Agreement (AANZFTA). Chapter posed, a free trade area for the Pacific Islands 12 of the AANZFTA refers to the provision of Forum remained as elusive as ever. technical advice through an annexed work program, designed to help less-developed 7. Implications for Policy: A More ASEAN states implement obligations in what Cooperative Approach Needed for is otherwise a fairly typical regional free trade Pacific Trade agreement. However, Pacific governments continued to argue that aid-for-trade should go Australian and New Zealand policy-makers beyond assistance with the implementation of are negotiating an array of bilateral and obligations and include measures intended to regional trade agreements throughout the Asia- improve supply-side capacity. With regard to Pacific region. However, considerable debate rules of origin, Australian and New Zealand remains about the economic merits of free officials rejected Pacific proposals for across- trade agreements (both for the members and the-board flexibility, preferring instead cum- third parties) and their implications for multi- bersome negotiations for rule changes on a lateral cooperation on trade (see, e.g., Krishna product-specific basis. 2012). Furthermore, there is a relative consen- At heart, the lack of progress in the PACER- sus that the greatest domestic gains from trade Plus negotiations reflected a considerable and liberalisation are realised not through prefer- persistent dissonance in the way a regional ential arrangements but through the removal, trade agreement was conceived by Pacific on a unilateral basis, of barriers to trade from policy-makers and their Australian and New all sources (see Sally 2008). Zealand counterparts. Australian and New Perhaps most pertinently for cooperation Zealand officials argued that PACER-Plus within the Pacific Islands Forum, the new gen- should help the island states achieve trade eration agreements pursued by Australia and liberalisation compliant with obligations of the New Zealand are ill-suited to addressing the international trade regime. By contrast, Forum unique trade-related challenges of Pacific trade ministers argued that ‘PACER-Plus needs Island states. Here, the analysis of Winters and to be innovative to deliver its fundamental Martin (2004) remains especially germane. [development] objective’and that liberalisation Their research regarding the high cost of through aWTO-compliant FTAwould, in itself, island-based production suggests that even if be ‘unlikely to deliver that objective for all smaller Pacific states have access to destina- [Forum Island Countries]’ (Office of the Chief tion markets and rationalise their domestic Trade Advisor 2011, p. 5). By 2013, a lack of economies through trade liberalisation, there meaningful progress in the negotiations meant are still only limited prospects for exports at that political commitment to PACER-Plus internationally competitive prices. This began to waver. In May, PNG trade minister implies that, for smaller island states, negoti- Richard Maru indicated that his country was ating new trade agreements is a poor use of considering pulling out of negotiations, label- limited resources. Even for larger Pacific

© 2014 The Author. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 334 Asia & the Pacific Policy Studies May 2014 states, greater domestic gains are to be had and New Zealand markets. Finally, Australian through unilateral liberalisation (for discus- policy-makers should reconsider measures sion, see Warner 2007, p. 39). Furthermore, introduced in 2005 requiring backpackers to limited human resources in island trade depart- work in rural areas in order to extend their ments could be put to better use developing visitor visas (for discussion, see Hay & Howes supply-side capacity and addressing market 2012, p. 37). By 2013, nearly 40,000 second access barriers in a more direct way. ‘Working Holiday’ visas were granted per The particular trade-related needs of annum, and 86 per cent of applicants engaged Pacific states suggest that development gains in agricultural work in order to qualify for are most likely to be realised not through tra- those visas (Department of Immigration and ditional trade agreements, but through alter- Citizenship 2013). Reconsidering incentives native forms of cooperation. Bilateral labour targeted at holidaymakers could see rural pro- agreements are particularly important in this ducers hiring a more productive Pacific Island regard. For island states that cannot take workforce and increase remittances to island advantage of export opportunities (and where states. opportunities are not sufficient to the needs of growing populations), Australian and New Zealand policy-makers should allow islanders 8. Conclusion to enter their labour markets on a temporary basis, a move likely to benefit both econo- Regional trade negotiations in the Pacific mies in any case. Some suggest that going Islands Forum need to be understood in their beyond a regional FTA to a ‘single regional historical context. Pacific governments are still market’ among Pacific Island Forum coun- dealing with a long-run transition away from tries would facilitate labour mobility, and colonial-era export sectors reliant on preferen- bring together ‘economic integration and tial access to metropolitan markets. In their development policy under a common place have been limited opportunities for the purpose’ (see Scollay 2005, p. 147). development of competitive exports—in niche However, the political dimensions of pursu- tourism and high-value agriculture, for ing deep regional integration remain fraught. example. Faced with a permanent decline in The recent experience of pursuing a single their trading position, island governments have market initiative in the Caribbean provides a negotiated regional trade agreements among cautionary tale in this regard (Warner 2012). themselves in the hope of stimulating eco- Ultimately consideration should be given to nomic activity. However, intra-island trade is, downscaling PACER-Plus altogether, in and will likely remain, small compared with favour of policy initiatives more likely to help trade between island states and external econo- Pacific island countries take advantage of mies. Pacific countries have also sought to international trade. Much could be done to negotiate innovative measures in regional help larger Pacific countries make use of exist- trade agreements with developed countries. ing access to Australian and New Zealand However, arguments for special treatment markets. With regard to agricultural trade for have, in the main, fallen on deaf ears in Brus- example, gains to be made from increasing sels, Canberra and Wellington. With little con- exports of high-value niche tropical crops are sensus regarding the likelihood and extent of estimated to be substantial, but ‘quarantine economic benefits arising from a regional restrictions are major obstacles’ for would-be trade agreement for the Pacific Islands Forum, Pacific exporters (McGregor 2007, p. 81). consideration should be given to downscaling Australia already funds a Pacific Horticultural the PACER-Plus negotiations in favour of and Market Access program intended to unique regional policy initiatives designed address some of the issues involved, but more with Pacific states in mind. could be done to expedite the assessment of island produce for entry into both Australian May 2014.

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