Submission from the Pacific Network on Globalisation to the Inquiry into Australia activating greater trade and investment with Pacific island countries
Introduction The Pacific Network on Globalisation (PANG) would like the thank the Joint Standing Committee on Foreign Affairs, Defence and Trade for the opportunity to submit our views on the inquiry topic. PANG is a Pacific Islands based regional non-government organisation with a long history working on the issues of trade (and others) in the Pacific Islands.
PANG would like to provide some context for the contents below provided in response to the Terms of Reference.
PANG notes the aim of the inquiry to “examine the conditions necessary to activate greater trade and investment with countries of the Pacific region to the benefit of Australia and our Pacific neighbours”. This is a worthwhile pursuit and greatly needed when Australia considers how it decides to engage with the Pacific Islands. It is imperative that the Committee acknowledges that the benefits to Australia can be to the detriment of the Pacific Islands when it comes to trade and investment – these aren't automatically compatible. A prosperous and economically sovereign Pacific is in everyone's interest yet many of Australia's current actions regarding trade in the Pacific are prioritising short-term market access gains for Australian producers and investors over the long- term economic stability of the Pacific – most notably demonstrated by the PACER Plus Agreement.
PANG would also like to note the inherent asymmetry in the economic relationship between Australia and the Pacific Islands. With the exception of tourism services, Australian exports and investments dominate the trade relationship with the Pacific. This asymmetry flavours the entirety of this inquiry. When discussing the issues of “barriers and impediments to trade and investment” overwhelmingly this will be used to discuss how better to facilitate access for Australian exporters and investors into Pacific markets instead of the other way around. While it is common for a sovereign nation like Australia to look for ways to support their industries, including export facilitation, the push to further liberalise the markets in the Pacific ignore the economic realities of the Pacific and will further undermine their attempts at achieving sustainable development. Prioritising and furthering existing programs to support Pacific exports to Australia will be of most benefit to the Pacific and ultimately Australia. The nature of Australia’s existing trade and investment relationships with Pacific island countries and the potential that is presented by the Pacific Agreement on Closer Economic Relations Plus (PACER Plus) for enhancing those relationships
The barriers and impediments to trade and investment between Australia and Pacific island countries and how they can be mitigated
The nature of Australia's relationship with the Pacific Island Countries (PICs) should be viewed through the lense of PACER Plus as it encapsulates many of the defining features and attitudes towards the Pacific.
It is important to consider the history of PACER Plus when discussing the nature of the trade and investment relationship between Australia and the PICs. The genesis of PACER Plus lies in the creation of the PACER agreement, an agreement that came from the insistance of Australia and New Zealand that they not be disadvantaged by other trading partners in a geographic area they have long assumed influence over. The initiation of discussions between the European Union and the PICs under the Economic Partnership Agreement is widely regarded as having triggered the negotiating clause in PACER, leading to the instigation of negotiations for PACER Plus. This fear of being disadvantaged from other powerful economic players in the Pacific has long been a defining feature and attitude of Australia to the Pacific and can be seen in contemporary foreign and economic policy in the region.
PANG has documented the process which lead to PACER Plus and the intimidation, pressure and dubious processes employed by Australia (and some others) that lead to the launching of PACER Plus in our report “Speaking Truth to Power”.1
When PACER Plus was concluded in 2017, only 8 Pacific Island Countries representing approximately 15% of the PIC regional economy were present to sign. Vanuatu would agree to sign but only after a number of conditions were met including additional financial support for the impacts that PACER Plus would bring2. Further to this Fiji, Papua New Guinea, Palau, the Federated States of Micronesia and the Republic of the Marshall Islands all decided to not sign up to the final PACER Plus, a decision that resulted in over 85% of the Pacific Islands economy sitting outside of agreement.
PACER Plus was touted as supporting regional integration however the exclusion of over 85% of the economy proves that PACER Plus is a failure. It is critical that the lesson of this failure isn't lost on this committee: the overly ambitious and erroneous demands placed on the major economies of Papua New Guinea and Fiji (particularly in regards to infant industries and safeguards for domestic producers) resulted in them walking away from the outcome. The insistence that PICs agree to obligations that could undermine their productive sectors was a bridge too far and an approach that Australia must remember when dealing with sovereign nations no matter how big or small.
When considering the nature of goods trade between Australia and the Pacific Island Countries it is important to reflect on the commitments and obligations under PACER Plus. According to PANG's analysis of the text of PACER Plus the conclusion is that the Trade in Goods Chapter will severely hamper the development prospects of PICs. This chapter will restrict the PICs from being able to
1 “Speaking Truth to Power: Australia and New Zealand use of power politics to launch Pacific free trade negotiations”, 2009. 2 Government of Vanuatu, “Vanuatu to sign PACER Plus Agreement”, 1 September 2017, accessed at https://www.gov.vu/en/public-information/306-vanuatu-to-sign-the-pacer-plus-agreement ensure that their economy meets the needs of its people and their economic aspirations. PICs are being asked to take on more erroneous obligations than they have done at the World Trade Organisation (WTO), without access to adequate safeguards and protective measures provided in other trade arrangements. For those PICs not yet WTO members, the PACER-Plus and its Trade in Goods Chapter are effectively WTO accession ‘through the backdoor’.
PACER Plus will hamper government revenue, provide inadequate safeguards for Pacific producers, undermine the ability to nurture infant industries and contains no improved market access for Pacific exporters to Australia and New Zealand. PACER Plus places no binding commitments of Australia to assistant in the areas that would help Pacific Island producers meet and have access to Australia fruit and vegetable markets.
Based on this analysis, PANG has serious concerns about the Trade in Goods chapter and feels that it is undermining the ability of the PICs to determine the policy needs of their domestic industries and producers. Such an outcome will not only impact the Pacific Islands and their communities but will undermine the nature and trust in any relationship between Australia and the PICs.
With regards to Trade in Services and Investment, broad-ranging trade agreements, like PACER Plus, have become highly controversial due to the constraints they place on democratic governance and the sovereign right of states to regulate in the national interest. A growing number of countries are withdrawing from investment agreements that have similar rules and developing substitutes that balance commercial interests with regulatory sovereignty and social rights. The PACER-Plus texts do not contain even the limited safeguards found in the services protocol to the Pacific Island Countries Trade Agreement (PICTA TiS)3, or in similar chapters in the concluded, Comprehensive Trans-Pacific Partnership Agreement4 (CPTPP). An independent review is urgently required to, at the very least, expand on these safeguards and develop state of the art provisions that can provide the best protection for the interests of states and their people, while advancing the commercial objectives of the parties.
PANG has included in its submission Appendix A and B as a further examination of the impacts of Trade in Goods, Services and Investment of PACER Plus on Pacific Island Countries.
The Pacific Island Countries had identified a development component to PACER-Plus being essential in order to support them in benefiting from any outcome. The Development and Economic Cooperation Arrangement under PACER-Plus however represents an unenforceable commitment from Australia and New Zealand that uses existing aid allocations resulting in the PICs receiving little from the process of negotiation.
Australia has indicated that the funding will come from future allocations for aid to the region, stating “[t]he funding attached to PACER Plus would come out of the part of the [aid] allocation that's not programmed in the future years, so it's not coming explicitly out of a program.”5 Whilst it may not be being taken from a programme it is taken away from future aid projects with its diversion to PACER-Plus. This lack of additional funding being provided as part of the Work 3 Article 12 of the PICTA Trade in Services Protocol allows Emergency Safeguard Measures to protect threatened services sectors, although that is subject to restrictive conditions. 4Article 9.2.3 of the TPP allows an exception for acts that took place before the TPP came into force. Further to this is an attempt to rein in the rule on Fair and Equitable Treatment in TPP Art 9.6.4 and an interpretion of ‘like circumstances’ for the purposes of National Treatment in TPP Art 9.4 footnote 14 and Art 10.3 footnote 2 that requires consideration of ‘legitimate public welfare objectives’. Whilst these exceptions are limited, they are more than offered under PACER-Plus despite the TPP being signed before the PACER-Plus negotiations were finalised. Officials from Australia and New Zealand would most certainly have known about these exceptions but for whatever reason they were not offered to FICs. 5 Comments attributed to Ms Cawte, from DFAT during the Australian Parliament Joint Standing Committee on Treaties hearings on PACER-Plus, report available at https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/NuclearFuel- France/Report_179/section?id=committees%2freportjnt%2f024162%2f25858#footnote51target Programme means that all that is being accomplished is a re-organisation of existing aid programs and potentially future aid budgets, diverting funds away from other areas and into the activities that ensure the FICs comply with their commitments (and market access obligations) for Australia and New Zealand.
A critical feature of the Development and Economic Cooperation Arrangement is the fact that it is an “Arrangement” like the one on Labour Mobility (discussed below) and as such isn't a commitment that is legally binding and enforceable. The funding promises for the Work Programme and other developmental aid are in no way enforceable and can be withdrawn if and when Australia and New Zealand see fit – like the unilateral decisions that are being taken amid COVID19 for example.
The promises of funding for a Work Programme only extend for five years upon which then can be renewed if agreed by all Parties. This grants Australia a veto over a future work programme if they do not want it, are unhappy with its terms or fail to see enough new liberalisations in any reviews of PACER-Plus commitments. This veto also applies to the projects developed under the Work Programme as the objective of the program includes “taking into account the needs” that are identified by the developing country Parties, however because decisions are to be “mutually prioritised and determined by the participating Parties” brings back the power for Australia and New Zealand to be able to veto any decisions on the projects undertaken.
Funding projects in the Pacific Island Countries to help adapt to changing trade environments is a welcomed idea however under PACER-Plus it has resulted in a net loss for the PICs. Not only has it resulted in no additional money (as per JSCOT comments) but it will only be for projects that Australia and New Zealand are also interested in. Diverting aid funds away from other areas to ensure that the PICs comply with PACER-Plus is not a good use of development aid and will lead to futher problems.
PANG has included in its submission Appendix C as a further examination of the Development and Economic Cooperation Arrangement under PACER Plus on Pacific Island Countries.
The Arrangement on Labour Mobility, like the Development and Economic Cooperation Arrangement, was of critical interest to Pacific Island Countries in the negotiations and now sits outside of the binding legal commitments of PACER-Plus.
The movement of people, especially low and semi-skilled, is a complex issue with many factors that need to be considered. The seasonal worker schemes adopted by Australia and New Zealand have been taken up with great enthusiasm within the Pacific and the remittances are no doubt having an impact in Pacific communities.
The inclusion of labour mobility within the PACER-Plus negotiations was contentious as the movement of people cannot be treated the same as the movement of goods and capital. The Seasonal Worker Programme in Australia (and to a lesser extent New Zealand's RSE) have had a number of instances of exploitation due to the vulnerable nature of the workers themselves.
The final outcome from the negotiations resulted in an annual meeting on Pacific labour mobility issues – the Pacific Labour Mobility Annual Meeting (PLMAM). While regional dialogue on labour mobility is a welcomed initiative, it pales in comparison to the binding legal commitments that the Pacific are undertaking within PACER-Plus. Further the failure to ensure that the PLMAM was a tripartite meeting and that the voices of workers was present undermines the ability of those most vulnerable to be heard. Having the PLMAM produce a consensus report as well as report to the Forum Trade Minister's Meeting further undermines what can be accomplished in such a space for the PICs. Australia and New Zealand have long wielded their influence in those spaces to ensure their agendas weren't challenged, again please refer to PANG's report “Speaking Truth to Power”. It is also instructive to note the outcomes from the 2nd PLMAM which in proposing the need for a “Labour Mobility Secretariat” is under further consideration as “any Labour Mobility Secretariat are not within the scope of the AU$25.5million PACER Plus Development Cooperation Commitment allocation, and specific labour mobility resourcing would need to be new and additional, or reprioritised and repurposed”6.
It is also worth noting the way in which labour mobility has been used to pressure the PICs into signing PACER-Plus. The 2015 White Paper on the development of Northern Australia states “subject to the conclusion of the Pacific Agreement on Closer Economic Relations, the Government will also invite additional Pacific Island Forum countries to participate in the SWP, potentially adding the Cook Islands, Federated States of Micronesia, Niue, Palau and Republic of Marshall Islands”.7 There were media reports in Vanuatu that their access under the SWP to locations in Tasmania was being delayed on account of their intial decision to not sign PACER-Plus.8 Further the Pacific Labour Scheme was announced over a year after PACER-Plus was signed, however for other FICs looking to join “access will be extended to other PICs based on need, impact and progress on the PACER Plus regional trade agreement”.9 While this requirement was later removed for the PLS it demonstrates the lengths that Australia has gone to to leverage the PIC interest in labour mobility to ensure greater market access in the Pacific for Australian exporters and investors. It is interesting to note however that the New Zealand Government in its submission to this inquiry appears to imply that Australia and New Zealand are connecting labour mobility offerings with PACER-Plus countries10. If this is the case as either official or unofficial policy it only reinforces the disparity in the relationship between the Australia, New Zealand and the PICs, again displaying Australia's win at all cost approach to the region.
The 2018 changes to the “backpacker visa” have opened up the scheme to allow working holiday visa holders to be able to stay for up to three years if they complete the required hours of work in agricultural industries. Such reforms are argued to have effectively created an 'agricultural visa' allowing workers from Asia to come to Australia with the explicit goal of working for three years in the agriculture and horticulture industries, creating an experienced labour force (one of the selling points of the SWP) without the pastoral care responsibilities of the SWP11
The rapidly changing global situation regarding labour mobility – and PANG provides this submission in the midst of the COVID-19 pandemic response – emphasises the missed opportunity that PACER-Plus was for the Pacific. The PICs are being left with enforceable commitments that benefit Australia while Australia is left with only unenforceable commitments on development assistance and a labour mobility scheme that is employer driven and can be shut down when 6 Pacific Labour mobility Annual Meeting Outcomes Statement 2019, https://www.mfat.govt.nz/assets/PACER- Plus/PLMAM-2019-Outcome-Statement_-Public.pdf 7 Commonwealth of Australian Government, 2015, “Our North, Our Future: White Paper on Developing Northern Australia”, http://northernaustralia.gov.au/files/files/NAWP-FullReport.pdf 8 Cullwick, J., 13 September 2017, “PM to VCCI: Work With Me”, Vanuatu Daily Post, accessed at http://dailypost.vu/news/pm-to-vcci-work-with-me/article_648e28e2-dde2-59de-9f33-782a7f865257.html 9 Initially the factsheet on the PLS included the reference to progress on PACER-Plus. Now that the policy has changed it is no longer contained in the factsheet available at https://dfat.gov.au/geo/pacific/engagement/Documents/pacific-labour-scheme.pdf 10 New Zealand Government Minister for Trade and Export Growth submission to JSCFADT inquiry “Inquiry into Australia Activating Greater Trade and Investment with Pacific Island Countries”, 2020, https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Foreign_Affairs_Defence_and_Trade/Tradewith Pacific/Submissions 11 Howes, S., 27 November 2018, “Backpackers VS Seasonal Workers”, http://www.devpolicy.org/backpackers-v- seasonal-workers-20181127/ deemed necessary.
PANG has included in its submission Appendix D as a further examination of the impmacts of the Labour Mobility Arrangement under PACER Plus on Pacific Island Countries.
By using PACER Plus to define the trade and investment relationship – and as a way to address barriers or impediments to trade between Australia and the PICs – it is choosing to enshrine in a legal treaty an asymmetrical and unfair relationship that will erode the trust of Pacific Island governments and communities. It will also undermine the long-term interests of both the Pacific and Australia, that is, an economically sovereign and prosperous Pacific.
The opportunities to strengthen trade, investment, aid for trade and employment links between Australia and Pacific island countries and how they can be captured
As has been detailed above as well as in the Appendices, PACER-Plus is a flawed vehicle for which to use as a cornerstone of the relationship between Australia and the Pacific. Primarily this is due to the impacts on government revenue undermining essential services, the loss of economic sovereignty as PICs are forced to adopt liberalised trade regimes before they're ready, and the exclusion of over 85% of the PIC economy on account of Fiji and PNG not being parties to PACER-Plus.
There is nothing within the purported benefits of PACER-Plus that require a binding free trade deal to be imposed on the PICs. The benefits of liberalising trade in goods and services as well as investment are free to any PIC that wants to undertake such unilateral steps (like Kiribati has with tariffs), locking them in under PACER-Plus is a liability for both the PICs and Australia when the liberalisation impacts those communities negatively or circumstances change (as we have seen already in 2020).
A genuine approach by Australia would be to not push for a regional trade deal that contains WTO- Plus commitments on the region. Instead by promoting PACER-Plus as a non-binding agreement Australia is still free to support Pacific-led development through assisting with market liberalisation when it is appropriate. This would allow for greater flexibility as the global economy evolves over the next few decades in a post-COVID19 era.
The views, norms and cultural practices relating to trade and investment in Australia and Pacific island countries and how differences can be accommodated.
Pacific land systems differ vastly from the contemporary legal systems of property rights in Australia and as such are frequently cited as an issue when it comes to investing in the Pacific. Land is central to life in the Pacific. It lies at the cultural, spiritual, and economic heart of Pacific lives, being described as “the web of life that holds together custom, culture, history and beliefs of each person in a community”12. It is also a common adage that in the Pacific if you have land you'll never be hungry, however that remains true only whilst the ideas of corporate globalisation are not applied to land. The role of land as a custom provider and backbone of sovereignty is the antithesis of the pressures that are being felt in the Pacific to open up and embrace free markets.
12 Simo, Joel, 2005, Report of the National Review of the Customary Land Tribunal Program in Vanuatu. Port Vila: Vanuatu Cultural Council. There are numerous other views, norms and cultural practices in the Pacific Islands that must not be undermined in the interest of facilitating trade and investment. These practices come with ancestral obligations and responsibilities that have allowed Pacific Island people to act as custodians of the oceans and lands in a manner that supports the people and the environment.
Investment Agreements and the Implications for Customary Control of Land Foreign investment is often regarded as a major part of any country's ability to achieve development. It is argued that the money and infrastructure that comes from foreign companies investing in countries will bring jobs, greater tax revenue for governments and create flow-on effects, boosting the entire economy.
Investment is often also referred to as 'Foreign Direct Investment', that is foreign entities establishing themselves in another country. This investment can take the form of buying or building factories/resorts/shops etc as well as establishing services like banks/law firms/private hospitals etc, or even in the purchasing of land. It is argued that for the receiving country, foreign direct investment brings infrastructure, transfer of skills and experience, as well as revenue. The investor benefits by taking the profits and royalties.
As such what determines whether or not an investor will invest in a country can vary. Some of the reasons for investing include13: • The rules and regulations regarding the entry of operations into a country; • The standards and treatment of foreign companies compared to domestic ones; • Business facilitation measures including incentives and other measures to reduce the cost of doing business; • Closeness to markets (either domestic or export); • Political stability.
International investment agreements often claim to be a way to attract more foreign investment to countries. This however doesn't appear to be the case14. These agreements aim to create certainty for investors by enshrining their rights through binding commitments that reduce the regulatory scope of governments. The prominent critic of custom land in the Pacific, the late Helen Hughes, argued that the Pacific could garner greater economic growth but it had to embrace more neoliberal, capitalist policies. Specifically she commented that “the policy measures needed to make every Pacific island viable are well known: abandoning communal land ownership for individual property rights; deregulating counterproductive rules that prevent the growth of an informal sector, eliminating protectionist measures, freeing up labour markets and downsizing and privatising the public sector.”
Whilst such agreements, including PACER Plus, may provide certainty for investors they can create uncertainty for governments as the rights conferred to investors under these agreements leave many governments open to challenge for any changes in regulation or public policy that may, even inadvertently, impact upon investments.
International treaties on investment allow for corporations to have 'legitimate expectations' through so-called 'fair and equitable treatment' clauses. This means that once a corporation has formed a legitimate expectation it then becomes an entitlement and the corporation can claim compensation if that is infringed upon. An example of this could be in relation to accessing water on an acquired piece of land, if the agreement doesn't stipulate that such access would be reviewed any actions by a government to restrict that access (for example to ensure communities have access etc) could see
13 This is an adapted list from http://www.globalization101.com/factors-influencing-foreign-investment-decisions/. 14 See Poulsen, L. The Importance of BITs for Foreign Direct Investment and Political Risk Insurance: Revisiting the Evidence, Yearbook on International Investment Law and Policy 2009/2010. the government taken to international courts15.
PACER Plus includes a mechanism for foreign investors to use the domestic courts to argue that the Agreement has been breached, a mechanism completely unnecessary and that will lead to the domestic courts dealing with the administrative and legal burden of interpreting such an agreement.
For the Pacific, one possible outcome from commitments on an investment agreement could apply to land reforms. Currently in many Pacific nations whilst land ownership is reserved only for customary inhabitants, the leasing of land is possible. Despite land not being officially taken away from customary owners the conditions of the leases – length of time, paying for any improvements to the land etc can mean that the land is effectively taken away. If a Pacific nation wasn't careful changes to land tenure and lease systems could result in investors demanding compensation under international agreements. Often such compensation would be paid at much higher rates than what the investor initially paid leaving governments to divert scare resources to paying corporations16.
Further to this if a government decides to change laws relating to the environment or other public policies this can impact investments. Corporations feeling that they have been negatively affected by such public policy changes can claim that this is 'indirect expropriation' – that is indirectly taking away from the owner their investment and as such claim compensation under international arbitration17. Further, in bodies like the World Trade Organization (WTO) we have seen environmental and human health laws overturned in the interests of facilitating trade. Even when the WTO's own exception to trade commitments on the grounds of protecting humans and the environment has been used as a defence by governments it has lost an astonishingly 96% of times applied18.
All this international arbitration undermines the ability of governments to govern. Either by directly undermining any policies that place custom land stewards or the environment above foreign investments but also by simply the threat of such actions can result in governments self-censoring themselves when thinking about such measures. This 'regulatory chill' has a pervasive influence on governments who have entered into investment agreements and often can see them holding back on regulatory reform that they want but are worried may be challenged (the current discussions in the Pacific about banning fatty foods is a good example).
PACER Plus and other international agreements on investment are first and foremost about the investor. Whether by giving the investor certainty and rights in a country's investment regime, governments are sacrificing their regulatory capacity in exchange for the hope of foreign investment. When such sacrifices are made and ownership or control of land becomes intertwined, the impacts can be truly devastating. This Inquiry should learn the lessons from others burnt by such investment agreements and not push for a trade and Investment relationship with the Pacific that undermines their sovereignty to ensure that the foreign investment that enters does so on the terms of the Pacific and upholds the unique and central components of Pacific life, especially land.
Trade in Services and the Implications for Customary Control of Land
Free Trade Agreements like PACER Plus and bodies like the World Trade Organization aim to remove barriers to trade such as subsidies, import taxes and preference for local producers amongst 15 For more information see: Traidcraft Briefing note, January 2013, Investors running wild on land: the threats posed by international investment agreements. 16 Traidcraft Briefing note, January 2013, Investors running wild on land: the threats posed by international investment agreements. 17 Traidcraft Briefing note, January 2013, Investors running wild on land: the threats posed by international investment agreements. 18 See Public Citizens analysis on the WTO disputes cases involving the GATT XX Article Exceptions, available here: http://citizen.typepad.com/eyesontrade/2011/09/wto-is-the-big-kid-on-the-seesaw.html many others. For both FTAs and the WTO, customary control of land is seen as a barrier to trade, something that raises the costs of investing and doing business. In response to many protests by civil society against pushes to remove customary or communal control of land, such agreements and bodies have pulled back from such direct demands, however there are threats to land that can creep in through other avenues.
Whilst trade is normally considered in terms of physical goods like food and manufactured products trade in services and investment are key components for many rich countries in any agreement on trade. Trade in services is considered to happen in a number of ways, these being understood best by using an example like education. For example the four ways that services are traded are: 1) A person studies remotely in their country from an institution based overseas; 2) A person travels overseas to study; 3) A foreign education institution sets up a campus in another country; and 4) Education employees travel to another country to teach.
Trade in services and investment are very heavily tied together as the ability for a foreign company to establish themselves in a country (example number 3 from above) is both trade in the service but also a type of foreign investment.
It's important to understand what the aims of trade in services commitments are in trade agreements and what that means. Trade in services is premised on two core components: Market Access and National Treatment. Market Access “proscribes the policy tools that a government can legitimately use to shape its services market”19.In practice this affects the ability of governments to apply regulations that restrict the number and size of firms, promote joint ventures, or limit the level of foreign shareholders amongst others. For example this means governments can't ensure that any new legal firms must be partnered with local firms. National Treatment “prohibits discrimination between foreign and domestic suppliers of 'like' services and suppliers”20, meaning that when governments make commitments on this they can't provide support or preference to local producers without extending that to foreign providers also. An example of this would mean that if a government had made commitments on shipping it couldn't encourage domestic businesses by providing benefits to small scale local operators without offering the same to foreign owned operators. These problems are not just in the service delivery, Market Access and National Treatment commitments have flow on effects to how land is utilised and how local populations can be prioritised to meet their specific realities.
The commitments made in service sectors under trade agreements (known as a schedule of commitments) by many Pacific countries ensure that customary control of land is given a 'horizontal' exception - meaning that the rights of only Pacific Islanders as reflected in their constitutions around land cannot be over-ruled by any commitments. Whilst that may be the case, the scheduling of services has a long and sordid history with many mistakes being made around the globe21.
To see what this may actually mean in the Pacific context we can look at the example of Vanuatu. Vanuatu acceded to the WTO under highly controversial conditions22. Vanuatu carved out a horizontal exclusion prohibiting the freehold ownership of land and stating that under the 19 Kelsey, J. 2008, Serving Whose Interests? The Political Economy of Trade in Services Agreements, Routledge- Cavendish 20 Kelsey, J. 2008, Serving Whose Interests? The Political Economy of Trade in Services Agreements, Routledge- Cavendish 21 The most high profile case being the Gambling case at the WTO where the USA accidentally liberalized internet gambling by making a mistake in its schedule, see for example http://web.me.com/jane_kelsey/Jane/Pacific_Trade_EPA_files/RP31%20Jane%20Kelsey%2019%20July %202010.pdf. 22 Accession was criticised by a wide range of organisations in Vanuatu and beyond including the Pentecostal Church of Vanuatu, Members of Parliament, and the Vanuatu Chamber of Commerce and Industry. constitution only ni-Vanuatu can own land under customary law provisions. Whilst this ensures that land ownership remains the realm of ni-Vanuatu, the usage of such land (and who effectively controls it) raises many questions from Vanuatu's services commitments.
Vanuatu's commitments for WTO membership expose the grey areas about what was intended in their commitments and what may be the reality. The commitments have meant that Vanuatu may not be able to make restrictions on the foreign use of land such as: to limit activities that threaten livelihoods, lifestyle, culture or the environment (such as a ban on certain tourism developments in ecologically sensitive areas, because the environment exception in the WTO Services agreement is likely to find that a less trade restrictive measure should have been found to deal with the environmental concerns); to provide subsidies only to indigenous burree or other tourism and tourism accommodation operators (without providing them to foreign companies in Vanuatu); restrictions on the amount of Vanuatu land that foreigners can lease for agriculture, forestry and hunting; restrictions on the number and location of rubbish and toxic waste dumps (including for waste from other countries – this is a live issue as countries like Japan have been accused of wanting to dump their rubbish in the Philippines).
As can be seen from the above, whilst land ownership may still be technically under customary control, the decisions about usage of that land is now intersecting with the global trading system. Sadly if Vanuatu decides to undertake some of these restricted activities and is successfully challenged at the WTO it will have to comply, pay compensation, or have retaliatory trade barriers imposed against it.
All Pacific nations need to be wary of the legal commitments that are made in trade agreements as there are far-reaching and sometimes unexpected consequences. This is more so when those commitments extend to issues as sensitive and vital as land. Governments across the region are free to liberalise services and investment anytime they choose but by making such commitments in binding trade agreements they are losing their ability to adapt to changing circumstances as they pursue development.
Land is too important to be subject to the rules of the global trading system. Instead Australia's relationship with the Pacific should be a focus on pursuing Pacific development with land, and all its cultural, spiritual, and sustaining qualities for Pacific life, at its heart.
Conclusion PANG believes that the current approach from Australia to the Pacific Islands trade and investment – lead by PACER-Plus – is the wrong approach both for Australia and the Pacific. PACER-Plus will increase economic insecurity within the Pacific in the long-term, a situation that does not appear to align with Australia's security interests, let alone the peoples of the Pacific.
Given the potential impacts of PACER-Plus, mentioned here but also shared by a wide range of experts including other Australian Parliamentary Committees, it is critical that Australia takes a step back and re-evaluates the push for PACER-Plus.
The unique ways of the Pacific Island communities are a vast strength and should not be undermined by the interests of exporters and investors from Australia. Trade is essential to the Pacific and is something that Pacific communities have engaged in for generations, the trade relationship currently being offered by Australia is not in the interest of the Pacific. Australia must listen to the Pacific and embrace a relationship that is in everyones interest. Submitted by:
Maureen Penjueli Coordinator Pacific Network on Globalisation 105 Amy Street Toorak, Suva Fiji Islands Appendix A
PACER-Plus Trade in Goods Analysis: Tariff cuts, poor safeguards, and an inability to support local industries
Pacific Network on Globalisation23
Introduction
This paper24 analyses the final Trade in Goods Chapter of the Pacific Agreement on Closer Economic Relations 'Plus' (PACER-Plus) and shows some of the negative implications for the Forum Island Countries (FICs) that have signed onto the agreement. Liberalisation of goods and other commitments in the area of goods have major implications on the development prospects of Forum Island Countries.
The conclusion of the analysis is that the Trade in Goods Chapter will severely hamper the development prospects of FICs. They restrict the FICs from being able to ensure that their economy meets the needs of its people and their economic aspirations. FICs are being asked to take on more erroneous obligations than they have done at the World Trade Organisation (WTO), without access to adequate safeguards and protective measures provided in other trade arrangements. For those FICs not yet WTO members, the PACER-Plus and its Trade in Goods Chapter are effectively WTO accession ‘through the backdoor’.
Based on this analysis, PANG has serious concerns about the Trade in Goods chapter and feels that it is undermining the ability of the FICs to determine the policy needs of their domestic industries and producers.
The analysis of the Trade in Goods chapter relates to five areas: 1. Market access commitments of trade in goods will benefit Australia/NZ not the FICs; 2. Inadequate safeguards for FIC industries 3. Reduced ability to support domestic producers; 4. Trade Facilitation Agreement and other WTO Agreement through the backdoor 5. Clauses that would oblige Pacific to give more to Australia and New Zealand in the future Below PANG has provided an analysis of the Trade in Goods Chapter in accordance to the five areas mentioned above.
23 Initially released in September 2018 24 PANG would like to acknowledge the work of the South Centre for their support and guidance with this analysis. I. Market access commitments - liberalisation of trade in goods will benefit Australia and NZ not the FICs
Current agreements and trading structure
PACER-Plus is very unlikely to bring any substantial market access gains for the FICs. In fact there is clearly a significant imbalance between the market access gains potentially available to the PICs on the one hand and Australia and New Zealand on the other.
At present, FICs are already exporting under the South Pacific Regional Trade and Economic Co-operation Agreement (SPARTECA) and in addition Papua New Guinea can export under the PNG-Australia Trade and Commercial Relations Agreement (PATCRA). Fiji also has a special bilateral trade arrangement with Australia for textiles, clothing and footwear (SPARTECA (S- TCF) Scheme). In addition, the Cook Islands and Niue have a constitutional commitment from New Zealand that preserves duty-free access which was established when both nations became independent.
Under these agreements FICs already have duty-free quota-free access to Australia/New Zealand.25 Informally that access is not under threat. The Pacific Agreement on Closer Economic Relations provides (Article 5.3) that “with respect to any Forum Island Country, Australia and New Zealand shall maintain all existing arrangements relating to market access at the time this Agreement enters into force, until such time as that particular Forum Island Country has concluded new and/or improved trade arrangements providing equal or better access to their markets”.
At the same time the value of the existing market access is being steadily diminished by the erosion of the FICs ‟preferential position” in the Australia and New Zealand markets as those two countries conclude Free Trade Agreements (FTA’s) with an ever-widening circle of partners, including especially the ten ASEAN countries (who are set to see the removal of 99% of tariff lines by 2020 under the AANZFTA26) and also China in the case of New Zealand and the United States in the case of Australia. PACER-Plus will not change this situation, and no language has been included to preserve the current margin of preferences.
For Australia/New Zealand the FICs are an important export market. In fact, together they represent the 13th largest trading partner for Australia/New Zealand. The four main importers among FICs are Papua New Guinea, Fiji, Solomon Islands and Samoa. Papua New Guinea and Fiji take up more than 80% of Pacific Island Countries’ import from Australia/New Zealand and the fact that both of those countries (as well as Palau, The Federated States of Micronesia and The Republic of the Marshall Islands) are not signatories to PACER-Plus highlights the shortcomings of the final deal. Recent figures indicate that FIC exports to NZ totalled to NZD$23 million whilst exports from New Zealand and Australia to the PACER-Plus parties were valued at NZD$376million and NZD$455million respectively.27 This excludes the major markets of Papua New Guinea and Fiji which accounted for NZD$612million of exports from New Zealand alone.28 25 An exception appears to be Fiji's exports of sugar to Australia (which is banned according to 2009 WTO Trade Policy Review). 26 Gay, D. 2017, “Brief Analysis of PACER-Plus legal text”, accessed at http://www.pina.com.fj/index.php? p=pacnews&m=read&o=1975932573593f622d83eb753e83c5 27 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf 28 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf On the other hand, Australia and New Zealand are relatively not so important export markets for the FICs, with the exception of certain products. Australia and New Zealand only buy around 28% of FICs exports (measured in value), most of it in the form of pearls and precious stones. If precious stones are excluded, Australia and New Zealand only account for 15% of Pacific exports. For many products, Australia and New Zealand is even of less significance – less than 10% of exports of fish and fish products, milling products, oil seeds, animal/vegetable fats, oil seeds, cocoa and cocoa preparations, beverages, articles of rubber, wood and articles of wood, paper and paperboard, nickel and articles end up in Australia/New Zealand (see also Annex). It is unclear how PACER- Plus would make a difference given that the tariffs are at 0 for these products in Australia/New Zealand.29 However, in return FICs are asked to liberalize ‘substantially all trade’ with Australia/New Zealand.
Pacific Island Countries are the 13th largest trading partner of Australia/New Zealand No Country AUSNZ export in No Country AUSNZ export in 2014 (USD billion) 2014 (USD billion) 1 China 89.7 11 Thailand 5.3 2 Japan 45.6 12 United Kingdom 4.6 3 Korea, Republic of 19.4 13 Pacific Island 3.4 Countries 4 United States of 13.9 14 United Arab 3.4 America Emirates 5 India 8.5 15 Viet Nam 3.2 6 Singapore 8.4 16 Hong Kong, 3.2 China 7 New Zealand 7.2 17 Saudi Arabia 2.7 8 Taipei, Chinese 7.1 18 Netherlands 2.5 9 Malaysia 6.3 19 Philippines 2.1 10 Indonesia 5.3 20 Germany 1.8
The four main importers among PICs are Papua New Guinea, Fiji, Solomon Islands and 29 A response to this could be that PACER-Plus will try and address the failing of SPARTECA to support FIC exports to A/NZ. This is very unlikely as several issues of interest to Pacific (SPS, rules of origin) are marginally addressed. Samoa. Papua New Guinea and Fiji take up more than 80% of Pacific Island Countries’ import from Australia/New Zealand.
The absence of PNG and Fiji undermine any chance of PACER-Plus facilitating intra-Pacific trade. As Daniel Gay, Adviser on Least Developed Countries at the UN Department of Economic and So- cial Affairs., writes: “...given that the annual output of these two economies together is worth approximately $21.3 billion compared with a collective $4.1 billion for the remaining Pacific island economies, meaning that Papua New Guinea and Fiji are together worth more than five times the remainder of the Pacific’s economies combined. Without the two regional heavyweights, any purported gains from intra-regional trade are negligible. The absence of these two countries in effect also works against regional integration, contrary to the purported aim of enhancing regional cohesion.”30 Papua New Guinea and Fiji represent almost 85% of the Pacific economy, not to forget that Palau, Federated States of Micronesia and Republic of the Marshall Islands are also not included. A trade deal that excludes close to 90% of the economy betrays even the lofty promises of integration that accompany it.
30 Gay, D. 2017, “Brief Analysis of PACER-Plus legal text”, accessed at http://www.pina.com.fj/index.php? p=pacnews&m=read&o=1975932573593f622d83eb753e83c5 ‘Substantially all trade’ does not need tariff liberalisation by Forum Island countries
Australia has stated that tariff liberalisation would have several objectives, including: 1. increasing freedom of trade and facilitation of trade that will lead to closer economic cooperation; 2. ensuring the removal of duties on substantially all the trade between Parties; 3. addressing the concerns of FICs revenue loss through staged tariff reductions over a long period of time and addressing other sensitivities;
These are problematic assumptions. Firstly, 'freedom of trade' and the 'facilitation of trade' can't be assumed to lead to economic cooperation. An influx of goods from Australia and New Zealand also cannot be assumed to be 'economic cooperation', one would argue that healthy, competitive and mature domestic industries in the FICs would be the best outcome for economic cooperation – an outcome that has been shown to come about through careful, deliberate tariff policy.
The ‘substantially all trade’ criterion is derived from the WTO. All free trade agreements that involve developed countries must follow the rules of Article XXIV of the General Agreement on Tariffs and Trade (GATT), one of the basic agreements within the WTO.31 A free trade agreement that liberalises trade between the parties should cover ‘substantially all trade’ (SAT) within a ‘reasonable time period’ for it to be WTO-compatible. The idea is that free trade agreements discriminate against other countries which is against Most-Favoured Nation treatment, a principle of the WTO. However if an agreement covers ‘substantially all trade’ it is considered OK.
There is no agreement on what constitutes ‘SAT’ or ‘reasonable time frame’ – it is up to parties to negotiate. So it is largely the stronger developed countries that can dictate the terms. Australia is known to have set very high standards in agreements with more developed countries than the FICs – 80 or even 90+%. The target of the European Commission has been liberalisation of 80% of imports in the Economic Partnership Agreement negotiations with African, Caribbean and Pacific (ACP) countries. It appears to have reached this goal in most instances. However, the Economic Partnership Agreement between EU and 16 West-African countries West Africa agreed to liberalize 75% in a timeframe of 20 years. However, 75% liberalisation is still having a major impact on nascent industries and the agreement has not been signed yet by all parties.
Papua New Guinea is the largest market for Australia and New Zealand. Interestingly, a trade agreement is already applicable in the trade between PNG and Australia and New Zealand. This agreement does NOT require PNG to liberalise. Nonetheless, Australia defended the non- reciprocal PNG-Australia agreement as being compliant with Article XXIV:
6. In 1974-75 and 1975-76 more than 95 per cent of Australian imports from Papua New Guinea were duty free and it was estimated that in 1977 more than 99 per tent of Papua New Guinea exports to Australia would be admitted free of duty. In 1974-75, almost 82 per cent of total two-way trade between Australia and Papua New Guinea was duty free.- Consequently, the parties to the Agreement considered that PATCRA conformed fully to the provisions of Article XXIV of the General Agreement in that it was a full free-trade area in GATT terms from the time it came into operation.
7. The representative of Australia stated that although Papua New Guinea would not be extending any reverse preferences to Australia under the Agreement, trade statistics showed 31More flexible rules apply for free trade agreements between developing countries under the so-called ‘Enabling Clause’ that substantially all the trade was covered within the meaning of Article XXIV:8(b). It was pointed out in this connexion that Article XXIV did not contain any specific provision with respect to reverse preferences. The absence of reverse preferences in favour of Australia did not, in the view of his authorities, affect the free-trade area status of the Agreement. (GATT document L/4571, 14 October 1977)
Consequently, Island countries need not have had to liberalize their imports in order to satisfy the requirement to liberalize ‘substantially all trade’.
The FTA between Australia and PNG is notified as an Article XXIV RTA - i.e. meeting the requirement of substantially all trade Despite the previous position from Australia to defend non-reciprocity at the WTO, PACER-Plus is very much about opening up FIC markets. New Zealand has stated that with PACER-Plus “88 percent of New Zealand exports will be bound at current rates with tariffs gradually eliminated on 84 percent of New Zealand exports at the full implementation of PACER Plus”32. As the table33 below indicates the coverage of PACER-Plus in regards to New Zealand exports is extensive by any FTA standards, least of all a deal with non-WTO member countries who are Small Island Developing States.
Party Average NZ exports % of liberalised trade at % of trade bound or (2013-2015) NZD$ full implementation duty free at full implementation Elimination commences on entry into force and is completed within 25 years of entry into force Samoa 109 million 86.64% 97.54% Cook Islands 99 million 74.36% 74.36% Tonga 57 million 91.69% 97.06% Niue 15 million 89.63% 89.63% Kiribati 10 million 96.30% 96.30% Elimination commences 10 years after entry into force FSM 4.9 million 98.15% 98.15% RMI 3.5 million 84.26% 84.26% Nauru 1.3 million 94.24% 94.38% Palau 0.4 million 98.41% 99.81%
32 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf 33 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf Elimination commences on graduation from Least Developed Country status or 10 years after entry into force whichever is later Vanuatu 42 million 80.20% 82.81% Solomon Islands 29 million 82.70% 82.70% Tuvalu 4.7 million 97.42% 97.87%
Australia has also secured extensive commitments on market access by the FICs. As Australia has stated, FICs “will have eliminated tariffs on 91.5 per cent of their tariff lines, covering 88.5 per cent of Australia’s exports in 2016 (a total value of $0.36 billion)”, see table below.34 Australia also states that: The Cook Islands, Niue, Samoa and Tonga will provide early tariff reductions or tariff-free access for Australian exports of beef, sheep meat, poultry meat, dairy products, fruit juices, wine, medicaments, insecticides, agricultural chemicals, toiletries, packing materials, gold coin, iron and steel products, engine parts, machine parts, computer parts, measuring equipment, electrical and electronic goods, car parts, telecommunications equipment, professional instruments, breathing apparatus and fishing equipment.35
Pacific Island Country Tariff coverage commitments for Australian Goods Exports
Tariff Elimination coverages Year of:36 (per cent) of: Pacific Island Australia's Total number of First tariff Last tariff Country exports to the the Party's tariff reductions37 reduction Party lines Cook Islands38 92.0% 93.6% 2019 2021 Kiribati39 90.4% 94.2% 2019 2019 Republic of the 88.2% 66.6% 2029 2053 Marshall Islands40 Federated States 99.0% 96.1% 2029 2053 34 Australia Department of Foreign Affairs and Trade, 2017, National Interest Analysis Pacific Agreement on Closer Economic Relations Plus, https://dfat.gov.au/trade/agreements/not-yet-in-force/pacer/Documents/pacer-plus- national-interest-analysis.pdf 35 Australia Department of Foreign Affairs and Trade, 2017, National Interest Analysis Pacific Agreement on Closer Economic Relations Plus, https://dfat.gov.au/trade/agreements/not-yet-in-force/pacer/Documents/pacer-plus- national-interest-analysis.pdf 36 Note: Entries in these columns assume the Agreement will enter into force during the 2019 calendar year. 37 Note: Where a Party has agreed to eliminate a tariff and the initial tariff reduction occurs after 2019 (the assumed year of entry into force), the tariff is bound at the base rate (based on its applied rate of duty) until reductions commence. Where a Party has agreed to bind a tariff at the base rate but not to eliminate the tariff, the tariff is bound at the base rate from the date of entry into force. 38 Note: Due to its low duties and existing extensive duty-free treatment, Cook Islands will eliminate tariffs in 2021 or year 3 (assuming 2019 is the year of entry into force, year 1). Kiribati is an LDC, but had eliminated all its ordinary customs duties in 2014. Accordingly, Kiribati’s tariff elimination will be effective on entry into force (in 2019 or year 1, assuming 2019 is the year of entry into force). 39 Note: The Least Developed Countries (LDCs) at the time of conclusion of negotiations were Kiribati, Solomon Islands, Tuvalu and Vanuatu. An LDC Party concluding negotiations at that time will not take their first tariff reductions until the year after the date on which the United Nations graduates it from LDC status or the 11th year (2029) from the year of entry into force, whichever is later. Those Parties’ last rescheduled reductions will occur in the 35th year (2053) or later. 40 Note: The Republic of the Marshall Islands, the Federated States of Micronesia and Palau participated in the decision of Trade Ministers to conclude negotiations made in Brisbane on 20 April 2017, but have yet to sign the Agreement. of Micronesia* Nauru 92.9% 98.6% 2029 2053 Niue 97.3% 97.4% 2019 2043 Palau* 99.7% 96.4% 2029 2053 Samoa 85.8% 85.3% 2019 2043 Solomon Islands# 85.1% 92.8% 2029 or later 2053 or later Tonga 98.6% 97.8% 2019 2043 Tuvalu 94.5% 97.4% 2029 or later 2053 or later Vanuatu 85.0% 81.5% 2029 or later 2053 or later All 12 Parties 88.5% 91.5%
Whilst PACER-Plus may contain longer timeframes for tariff reductions than the EPAs, the comprehensive coverage undermines any development standards set in other FTAs. FICs derive a lot of government revenue from trade taxes
Forum Island Countries are quite dependent on trade taxes – import/export tariffs and revenue from import licenses and fees/charges levied separately from import tariffs. PACER-Plus will significantly reduce or eliminate income from import tariffs, revenue from import licenses as well as fees and charges. In contrast, the governments of Australia and New Zealand have multiple other sources of government revenue. As a matter of fact, based on 2015 World Bank data, Australia and New Zealand only derive 2% of revenue from trade taxes whereas Samoa derives almost 10% of their income from trade taxes and Solomon Islands more than 25%:
Dependence of FIC and A/NZ countries on trade taxes (% of revenue) 30
25
20
15
10
5
0 NZ Fiji Solomon Islands Kiribati Australia FSM PNG Samoa Source: World Bank, based on 2015 data41
The latest World Bank figures for Vanuatu and Fiji have them deriving over 15% and 20% of government revenue from trade taxes respectively
Tariff revenue losses
Some studies demonstrate that lowering import tariffs on Australian and New Zealand goods, where most Pacific imports originate, could lead to big tariff revenue losses – in the order of US$110 million across the FICs. The biggest losers would be Cook Islands (6-12%), Samoa (12- 14%), Tonga (17-19%), and Vanuatu (17-18%) The tax bases of the tiny Pacific administrations are already vulnerable – and some are tax-havens. They will struggle to establish and collect new revenues.42
As New Zealand announced at the conclusion of negotiations on PACER-Plus, their exporters will save NZ$20million from tariff cuts under PACER-Plus once in full effect43 - this figure excludes the high value markets for New Zealand, namely Papua New Guinea and Fiji. This is money lost from Pacific governments. The Australian Parliamentary Joint Standing Committee on Treaties noted the impact of lost government revenues stating “The Committee is concerned PACER Plus may impact on Pacific Island Government revenues, which are not significant in any case and have to stretch a long way in remote, 41 http://data.worldbank.org/indicator/GC.TAX.INTT.RV.ZS 42 http://www.pacificpolicy.org/wp-content/uploads/2012/05/D08-PiPP.pdf 43 https://www.beehive.govt.nz/release/details-released-landmark-pacific-trade-deal isolated, low income communities. 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”.44 This loss of revenue was such a concern that Vanuatu, when announcing its decision to sign the agreement, raised a number of issues that needed to be “satisfactorily resolved”, one of which stated: “The Government of the Republic of Vanuatu also raised the need for both Australia and New Zealand to increase their development assistance programme to Forum Island Countries, not only through the PACER Plus framework but also for increased bilateral development assistance programmes for FICs and in particular budget support for Vanuatu as it faces adjustment in the years ahead.”45 (emphasis added) An updated PANG analysis shows that tariff revenue losses will actually be more than previously calculated: Pacific countries that are Parties to PACER-Plus are set to lose more than USD60 million per year, based on imports during the years 2012-2014:
Tariff revenue loss for Forum Island Countries will be more than USD 200 million based on current imports from Australia/New Zealand (2012-2014).
Imports from 100% lib on MFN AUSNZ imports average during from Loss when applied 2012-2014 AUSNZ – 88% liberal- Country/ Binding Bound tariff on (USD Loss in USD ized, in USD Territory coverage average imports 000) 000 000 Samoa 100 21.3 11.4 125,071 14,258 12,547 Solomon Is- 100 78.3 10 147,827 14,783 13,009 lands Tonga 100.0 17.6 11.7 70,445 8,242 7,253 Vanuatu 100.0 39.7 9.1 94,056 8,559 7,532 Other PICS 9.746 237,700 23,096 20,324 Subtotal 60,665 Fiji 51.1 40.4 11.4 787,447 89,769 78,997 Papua New 100 32.2 4.7 2,553,106 119,996 105,596 Guinea Total PICs 245,259 Source: WTO (binding coverage, bound average, MFN applied average)
If Papua New Guinea and Fiji were to enter into PACER Plus the loss of government revenue for FICs would increase to over USD$245 million.
Finding alternative sources of government revenue is difficult
The FICs have good grounds to be worried about what the implications will be for government revenue as many currently utilise tariffs as an easily obtainable and convenient form of revenue 44 Parliament of Australia, Joint Standing Committee on Treaties, PACER Plus Agreement, available at: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/NuclearFuel- France/Report_179/section?id=committees%2freportjnt%2f024162%2f25858#footnote51target 45 Government of Vanuatu, “Vanuatu to sign PACER Plus Agreement”, 1 September 2017, accessed at https://www.gov.vu/en/public-information/306-vanuatu-to-sign-the-pacer-plus-agreement 46 Estimate based on simple average collection. It is also worth noting that tariffs are also a manner of which to, in general, target those who have more money and are able to afford luxury imported items, shifting to other forms of taxation such as value added taxes shift the burden to the entire population, a population that isn't wholly engaged in the cash economy. Whilst tax reforms are happening in the region is it important to bear in mind the ability of other forms of taxes to replace the revenue of those gained from tariffs. According to IMF economists, if low income countries, like most FICs, cut their tariffs they are at best likely to recover 30% or less of this lost tariff revenue from other taxation sources.47 The difference between the tax reforms that are being undertaken now in some FICs and the commitments on tariffs is that those made under PACER-Plus are irreversible in the event that FICs cannot obtain the necessary government revenue.
Unaddressed market access issues
The main potential for improved access to the Australian and New Zealand markets the FICs could come from improvements in rules of origin and more constructive approaches to Sanitary and Phytosanitary (SPS) issues. In the areas of SPS as well as rules of origin, the PACER-Plus has not achieved any perceptible result. The SPS Chapter of PACER-Plus essentially copies some provisions from the WTO’s SPS Agreement without really addressing the real problems associated with small island states.
Rules of Origin (RoO) commitments under PACER-Plus fail to offer much in the way of improvements for FICs that what currently exists under SPARTECA. Whilst FICs may have lacked capacity to fully take advantage of SPARTECA, the onerous rules of origin meant that they were unable to easily comply with the agreement.
Analysis of the RoO text by Daniel Gay highlights how little progress was made in the chapter: “Despite calls for greater simplicity on RoO in PACER Plus, insufficient progress has been made. Whilst it is a welcome development that the SPARTECA requirement for 50% of the value of a finished product to be added in the islands has been reduced to 40% for most goods, and that a change in tariff classification requirement has been introduced, 40% is still quite high. Several organisations, including the Tony Blair Commission for Africa and the World Bank, have argued that a change in tariff classification or value-addition requirement of as low as 10% would most benefit developing countries. If PACER Plus were genuinely development-orientated, it would have further eased RoO.
It also appears that the text proposed by the Forum Island Countries included in article 5 of Chapter Three (on Cumulative Rules of Origin48) of the draft which was leaked in 2016 has not been included in the final text. The FICs had proposed a specific relaxation of the strict requirement that goods originate within their own borders. The denial of this request again adds to the impression that the RoO are unlikely to constitute a big enough advance on SPARTECA.
The language proposed by the FICs in the leaked text on de minimis, under article 7, also appears to have been excluded from the final negotiated text. This would have allowed FICs a higher threshold for origination than Australia and New Zealand in the event that a good did not undergo a change in tariff classification.
Better RoO, however, would probably have been too late to have much impact in any case,
47 ‘Tax Revenue and (or?) Trade Liberalization’, Baunsgaard and Keen, June 2005, IMF Working Paper, WP/05/112, http://www.imf.org/external/pubs/ft/wp/2005/wp05112.pdf. 48 This refers to the leaked chapter on Rules of Origin at the 15th Intersessional meeting on March 10th, 2016 given that the ASEAN Australia New Zealand FTA (AANZFTA) will eliminate tariffs on 99% of trade with key ASEAN markets by 2020, eroding any relative benefits of any improved market access for the islands – be it through enhanced RoO or otherwise. In this sense PACER Plus could only have been beneficial – and only for a limited time – if negotiations had been concluded much earlier. There will soon be little incentive for ANZ to source goods from the Pacific islands when they can import them duty free from the larger and more competitive ASEAN nations.”49
Concluding remarks
The definition of 'substantially all trade' could be made without the FICs making any commitments. As has been mentioned above, Australia has previously argued at the WTO that “the absence of reverse preferences in favour of Australia did not, in the view of his authorities, affect the free- trade area status of the Agreement.” The final outcome and extensive coverage shows just how much the final text of PACER-Plus has failed the FICs. It is worth noting in 2013 the FICs comments at the 4th Intersessional: “The FICs indicated that they would be offering a SAT level of 60% and contended that the market access offers under the EPA were conditional upon global sourcing for products under the HS 0304/05 and 1604/05 as well as development assistance. In a similar vein, they argued that any market access commitment that they would make in PACER Plus would be contingent upon legally binding commitments on labour mobility and development assistance.” There was a legal argument for FICs to make no commitments on tariff cuts and that should be strongly argued in the negotiations, yet it appears that this did not happen. FICs already have Duty- Free Quota-Free access to the Australian and New Zealand markets, therefore the increase in trade will come from commitments made by the FICs, again it appears the FICs are shouldering the burden of commitments in PACER-Plus.
49 Gay, D. 2017, “Brief Analysis of PACER-Plus legal text”, accessed at http://www.pina.com.fj/index.php? p=pacnews&m=read&o=1975932573593f622d83eb753e83c5 II. Inadequate safeguards for FIC industries
Trade remedies are important policy tools for FICs to be able to respond to any damage that happens to domestic producers on account of low or no tariffs on imports from Australia and/or New Zealand due to PACER-Plus.
Policy space to nurture and support their domestic industries is an essential right for FIC governments. This right is unconditional and should not be linked with market access offers – that would be a feature of a true 'development agreement' that PACER-plus is supposed to be.
Australia had suggested that the ‘strength’ of safeguards should correspond to the level of tariff commitments to be undertaken by FICs. This suggestion is flawed. PACER-Plus goes far beyond what any WTO FIC member agreed to at WTO. Non-WTO FIC Members have complete freedom. FICs should have much stronger safeguards than what is available at the WTO. It also follows that in principle the maximum remedy in the form of additional tariff should be able to go up to the WTO bound tariff (if applicable) not the ‘base rate’(current applied tariff) or ‘suspension of tariff reduction’.
Further to this is ensuring that the FICs are matching the global calls for supporting of their industries by actions from Australia and New Zealand. In the current text on PACER-Plus this means ensuring that any proposals on Global Safeguard Measures support those of the G-90 (which includes the African Group, ACP and LDC Group) at the WTO. The proposal is stronger than what is currently worded in PACER-Plus and states: Parties shall not apply safeguard measures against a product originating in a developing country Party as long as its share of imports of the product concerned in the importing Party does not exceed 3 per cent or 10 per cent in the case of a least developed country Party. It is also worth noting the approach that Australia has taken to negotiation PACER-Plus. Australia states that: “in keeping with Australia’s (and New Zealand’s) commitment to provide special and differential treatment to developing Parties, PICs will have right of recourse to transitional safeguards, industry development measures and compensated modification or withdrawal of commitments”50
Whilst these are framed as an extension of Australia's generosity in factoring in the unique conditions of the FICs, it fails to mention that many of these 'concessions' merely uphold existing WTO commitments and the fact that compensation is required if FICs modify or withdraw commitments means that there is little incentive for FICs to undertake either activity.
Transitional Safeguard Measures too narrow and weak
The finalised 'Transitional Safeguard Measures' raise serious concerns about their effectiveness for FICs to support their industries.
Firstly it needs to be made clear why it is a 'transitional' measure, that the measures are not
50 Australia Department of Foreign Affairs and Trade, 2017, National Interest Analysis Pacific Agreement on Closer Economic Relations Plus, https://dfat.gov.au/trade/agreements/not-yet-in-force/pacer/Documents/pacer-plus- national-interest-analysis.pdf permanent and only available for the duration of tariff cuts (Art 8.1(e)51). These measures should have been made permanent to allow the FICs the ongoing adequate protection in the outcome that PACER-Plus causes serious damage to FIC industries.
For Developing country Parties, Article 8.2, in relation to the Transitional Safeguard Mechanism, states: If, as a result of the reduction or elimination of a customs duty pursuant to this Agreement:
(a) an originating good of one other Party is being imported into Party’s territory in such increased quantities, in absolute terms or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces a like or directly competitive good; or
(b) an originating good of two or more Parties, collectively, is being imported into the Party’s territory in such increased quantities, in absolute terms or relative to domestic production, and under such conditions, as to cause or threaten to cause serious injury to the domestic industry that produces a like or directly competitive good, provided that the Party applying the transitional safeguard measure demonstrates, with respect to the imports from each such Party against which the transitional safeguard measure is applied, that imports of the originating good from each of those Parties have increased, in absolute terms or relative to domestic production, since the date of entry into force of this Agreement for those Parties
In such cases then under Art8.3 a Party may: “to the extent necessary to prevent or remedy serious injury and facilitate adjustment: (a) suspend the further reduction of any rate of customs duty provided for under this Agreement on the good; or
(b) increase the rate of customs duty on the good to a level not to exceed the lesser of:
1. (A) in the case of a WTO Member, the most-favoured-nation (MFN) applied rate of customs duty, or
(B) in the case of a Party that is not a WTO Member, the general non-preferential applied rate of customs duty;
at the time the measure is applied; and
(ii) (A) in the case of a WTO Member, the most-favoured-nation applied rate of customs duty; or
(B) in the case of a Party that is not a WTO Member, the general non-preferential applied rate of customs duty;
in effect on the day immediately preceding the date of entry into force of this Agreement for that Party.
The provisions for the transitional safeguard measures are problematic for a number of reasons.
51 'transition period' means, in relation to a particular good, the three-year period beginning on the date of entry into force of this Agreement, except where the tariff elimination for the good occurs over a longer period of time, in which case the transition period shall be the period of the staged tariff elimination for that good. 1. The measures as currently proposed limits the grounds for use to conditions that “cause or threaten to cause serious injury” to a domestic industry producing like products. Limiting the scope of the measures used undermines the ability of the FICs to utilise the measure and can lead to it not being of most benefit to FICs.
There is no reason why PACER-Plus didn't accommodate a broader scope in relation to safeguard measures. New Zealand highlighted that the transitional safeguards measures within PACER-Plus are consistent with those in New Zealand's other FTAs (with the exception that Australia and New Zealand are unable to utilise it).52 Many EPAs signed with the European Union have added the following conditions to allowing their use: • disturbances in a sector of the economy, particularly where these disturbances produce major social problems, or difficulties which could bring about serious deterioration in the economic situation of the importing Party, or • disturbances in the markets of agricultural like or directly competitive products or in the mechanisms regulating those markets.53
The interim EPAs, signed and ratified by Papua New Guinea and Fiji, contained a similar scope and as such FICs should have demanded such flexibilities in PACER-Plus with two countries that are major exporters to the region.
1. Further it is worth paying attention to the condition that states “‘as a result of the reduction or elimination of a customs duty pursuant to this Agreement” (Art8.2). This condition, which is derived from Article XIX GATT is in practice not used in the WTO context. In the context of a bilateral safeguard, Australia/New Zealand can argue in the future that any damage by their exports has no causal link with reduction or elimination of customs duties which took place several years ago. This language should have been redrafted; it is noted that similar language does not appear in many other FTAs.
2. As can be seen from above, Article 8.3 outlines the actions that may be taken under measures yet is weaker than necessary. The remedy under 8.3 should be the customs duty to a level that does not exceed the customs duty applied to other WTO Members. Remedies should also include quotas not only tariff quotas (Art8.4). For instance ‘limit imports by means of quantitative restrictions to a rate not less than the rate of such imports during any period of twelve months which ended within twelve months of the date on which the restrictions come into force’ (from Article 22 ‘Difficulties in Particular Sectors’, Agreement Establishing the Caribbean Free Trade Association (CARIFTA)
3. The FIC proposal agreed to in Article 8.12 Investigation Procedures and Transparency Requirements reiterates Article 3 and 4.2(c) of the WTO Agreement on Safeguards. The proposal states that a Party may only apply or extend a transitional safeguard measure following an investigation by a Parties competent authority to examine the impacts of imports of the domestic industry. The proposal also includes mandated public hearings from all interested parties. Following the investigation the competent authorities will publish their findings and conclusions.
Such a proposal opens the door for exporters, government officials and others from Australia and New Zealand to intervene in the process of a FIC administering their safeguard measures and determine “whether or not the application of a safeguard measure would be in the public interest”. 52 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf 53 CARIFORUM-EC Economic Partnership Agreement, accessed http://trade.ec.europa.eu/doclib/docs/2008/february/tradoc_137971.pdf Further the proposals under Article 8.15 Notification and Consultation add an additional burden of proof on the FICs to justify any safeguard measure. Such a burden not only will make it hard for FIC bureaucracies but it remains unclear as to the justification of such a proposal.
4. The Transitional Safeguard Measures are still bound by the narrow scope of the safeguard measures and reliant upon the findings of the proposals for an investigation under 8.12. Such restrictions undermine the effectiveness and willingness to deploy such a measure as the narrowness may not be sufficient to protect the domestic industry and the requirements for an investigation will be an administrative burden. Provisional measures are aimed to be easy to use and effective, the FICs proposal falls short on both accounts.
5. It will be discussed in more detail below but Article 8.19 that deals with compensation should have been deleted from the text as it does not provide any developmental interest for the FICs and isn't necessary to be included in such a proposal.
Lack of protection for agricultural producers
Most FICs feature strong agricultural sectors with many Pacific Islanders engaging in some form of agrarian activity. As such ensuring that domestic producers are not overrun by the enormous agricultural export capacity of Australia and New Zealand is crucial. Events in Papua New Guinea over the last few years have shown the importance of being able to protect local farmers54.
New Zealand had proposed a Special Agricultural Safeguard Measures however the final outcome fails to include any specific protections for farmers. PACER-Plus could have borrowed from the EU-South Korea FTA which does not include such measures in a temporary form. As Developing and Least-Developed Countries, FICs must have the permanent right to support their farmers as essential to any proposal on safeguards.
With all agricultural safeguards there is a delay between the knowledge of and taking action against an import surge and the actual import surge. This is due to the compilation of trade statistics, the monitoring of import surges and the bureaucratic process that accompany the many phases of such. This being the case, the only way to retroactively apply duties is to release goods and delay the definitive assessment of customs duty (under a security), and if a safeguard becomes applicable the additional safeguard could be applied to ALL imports except those that have not been cleared yet (as they are en-route).
These time delays mean that ensuring there is an adequate response to import surges is crucial, this may mean being able to take provisional measures and to ban imports.
Concluding remarks
Safeguards and protections are meant to be used when things are going wrong, it is in those times when you need to ensure you have the best response possible. The proposals in PACER-Plus will leave FICs short when they need it most.
It's worth once again noting Australia's argument that safeguards are justified only by extensive commitments on market access. This not only shows a worrying lack of understanding about the developmental complexities and realities of the FICs but also undermines any notion from Australia
54“Ten imported fruit and veg banned in PNG”, Radio New Zealand International, posted 17 August 2015, available at http://www.radionz.co.nz/international/pacific-news/281606/ten-imported-fruit-and-veg-banned-in-png that PACER-Plus is a 'development agreement' for the FICs.
III. Reduced ability to support domestic industries
National treatment – the end of local content policies
Article 6 on Internal Taxation and Regulation states that “In respect of internal taxes, other internal charges and laws, regulations and requirements affecting matters within the scope of Article III of GATT 1994, each Party shall accord to the goods most-favoured-nation treatment and national treatment---” This means that local content policies that directly or indirectly favour domestic products are outlawed by the PACER-Plus.
For instance, Fiji has a local-content scheme which requires foreign investors manufacturing cigarettes to use at least 50% locally grown and processed tobacco (Foreign Investment Regulations 2008, Schedule 1). Australia/New Zealand could force Fiji to let go of this scheme based on Article 6. It is to be noted that Pacific countries do export zero dollar worth of tobacco and tobacco products from Australia/New Zealand.
Targeted local content policies can be beneficial in other sectors. For instance, the import of (frozen) fish could be limited and/or conditioned on the requirement of investment in local processing capacity or other local investments – that will not be allowed under Article 6.
Inadequate infant industry protection
Given the importance of policy space for tariffs it is disappointing that the safeguard measures that would support infant industry development are so weak.
Initial proposals by the FICs expanded the scope of what was defined to be: “Infant industry means an industry which is about to be established or an industry that has been in existence for not more than [10?] years and which was established with a view to generating jobs and raising the general living standard of the people of a developing country Party”55
The proposals under PACER-Plus restrict any measures for infant industry development to being for industries that are “new” or have undergone “substantial expansion” (Art9.1 a-d). This curtailing of the scope of what constitutes an infant industry will only result in fewer opportunities for FICs to support and nurture those industries. For a development agreement that is aiming to foster the expansion of the private sector such restrictions ignore the realities of the region yet ironically call upon those as justification for the inclusion of such measures.
Under Article 9 an Industry Development Measure: (a) shall consist of: (i) a delay in the scheduled reductions in the requesting Party’s rate of customs duty for one or more specified goods; or (ii) an increase in its rate of customs duty for one or more specified goods to no more than: (A) in the case of a WTO Member, the most-favoured-nation applied rate of customs duty; or
55 See draft Trade in Goods Chapter dated 03122015 (B) in the case of a non-WTO Member, the general non-preferential applied rate of customs duty; effective at the time of the request; (b) can be applied: (i) for an initial period of seven years, which may be extended for a further three years by the Joint Committee; and (ii) only during the period of the requesting Party’s scheduled reductions in a rate of customs duty on the affected product; (c) shall be eligible for approval if the tariff lines subject to the requested Industry Development Measure(s) and all Industry Development Measures of a Party in force at the time of such request(s) together account for not more than eight per cent of the total exports of the affected Party to the requesting Party6 and account for not more than three per cent of tariff lines.
New Zealand has highlighted how the provisions contain “stronger limitations” than those in similar provisions in the iEPAs signed between Fiji, Papua New Guinea and the European Union56.
Under PACER-Plus an Industry Development Measure may: Only be taken with Joint Committee approval (as the committee operates by consensus and includes Australia and New Zealand a measure cannot be taken without Australian and New Zealand Agreement); Only be taken during the period of the requesting Party’s scheduled reductions in the rate of Customs duty for the affected product; and Not, across all such measures taken by the requesting Party, account for more than eight percent of the total exports, and not more than three percent of tariff lines, of the affected Party to the requesting Party. Compensation will be provided in the form of equivalent concessions, or, as otherwise agreed between the Parties, after the first three years of application of the measure.
As mentioned above, the provisions under Article 8 and 9 fail to be sufficiently wide in scope to be of most benefit to FICs. The limiting of the measures to only the suspension of tariff reductions or the base rate limits the options for FICs in supporting their infant industries plus the addition of the burden of proof will undermine that ability to support FIC emerging industries.
There are times when FICs will need to apply a higher duty than is currently being applied. For example, since 1963, the United States has a relatively high tariff of 35% on imports of light trucks which has remained until today in order to protect U.S. domestic automakers from foreign competition (e.g., from Japan and Thailand).
Concluding Remarks FICs need to retain the maximum amount of flexibility to protect their domestic industries. The proposals contained within the current text, whilst allowing some options for protection, does so with significant rigidity. This rigidity ignores the complex economic circumstances that face the FICs and undermines their ability to follow the path that almost all other countries have used to industrialise.
For the proposed protections to have a meaningful impact they must be strengthened and made to work for the FICs. Instead of approaching such protections as aberrations on the free trade 56 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf landscape they should be seen as legitimate policy tools to achieve the development aims that are supposed to be at the heart of PACER-Plus.
IV. Trade Facilitation Agreement and other WTO commitments through the backdoor
Despite there being no mention of the WTO's Trade Facilitation Agreement (TFA) in the Trade in Goods chapter under PACER-Plus, FICs are going to be bound by the commitments it contains without the flexibilities it currently offers.
For instance, Article 10: Fee and Charges Connected with Importation and Exportation covers the issues associated with any charges attached to export and imports. The Article states that all fees and charges on or in connection with importation or exportation: I. are limited in amount to the approximate cost of the services rendered; II. do not represent an indirect protection to domestic products or a taxation on imports or exports for fiscal purposed; and III. are otherwise in conformity with the WTO Agreement, including inter alia Articles I and VIII of GATT 1994.
It is the clause in Article 10.1 (c) referenced above that introduces the TFA into PACER-Plus. The TFA came into force on February 22, 201757 and is now part of the WTO Agreement thus ensuring that its commitments are now part of the commitments included under PACER-Plus.
With regards to fees and charges related to importation and exportation the Trade Facilitation Agreement adds certain requirements which aim to reduce fees and charges (Article 6 of the TFA): • Information on fees and charges shall be published, the information to be published shall include the fees and charges that will be applied, the reason for such fees and charges, the responsible authority and when and how payment is to be made. • Fees and charges shall not be applied until information on them has been published. • An adequate time period shall be accorded between the publication of new or amended fees and charges and their entry into force, except in urgent circumstances. • Fees and charges are to be periodically reviewed with a view to reducing their number and diversity, where practicable.
Another example through which the Trade Facilitation Agreement is imported into the PACER-Plus is Article 13 on Publication and Administration of Trade Regulations. Para 6 states that ‘.. Article X of GATT and other provisions of the WTO Agreement relating to the publication and administration of trade regulations are incorporated into and shall form part of this Agreement, mutatis mutandis’. This makes Article 1 of the TFA (publication and availability of information) applicable to FICs.
It is important to note the manner in which the TFA has been oversold. The International Chamber of Commerce prior to the Bali WTO Ministerial released a report stating that the TFA would contribute US$1 trillion to the global economy, a figure that was widely touted and repeated by proponents of the TFA. The figure however appears to be a gross inflation of the impacts of the TFA with Joseph Capaldo of the Global Development and Environment Institute at Tufts University examining the modelling that lead to the ICC's figure and finding that the gains are largely over stated as they are “based on a set of unjustifiable assumptions; its initial costs are substantial; its destabilizing potential is ignored in most discussions”58. The inclusion of the TFA in PACER-Plus 57 https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm 58For a more thorough critique see Capaldo, J. The uncertain gains from Trade Facilitation Published in the South-North Development Monitor (SUNS) #7713 dated 9 December 2013 is a serious concern as there are very real and substantial costs associated with its compliance.
In recognition of the costs of compliance, TFA contains scope for Developing and Least-Developed Countries to schedule their level of commitment. This scheduling comprises of three categories: • Category A – commitments implemented upon entry into force; • Category B – commitments implemented after a transitional period. • Category C – indicates commitments that require implementation capacity and technical assistance to implement provisions to be implemented after a transitional period.
FICs who are currently WTO Members are undergoing their own decision making processes regarding the ratification of the TFA59, yet PACER-Plus may go beyond their initial commitments.
For the FIC WTO Members who have ratified, Samoa, Papua New Guinea and Fiji, they are bound by the TFA now that is has come into effect. Those FIC WTO Members who have not ratified are currently not bound by the TFA commitments. The inclusion of the TFA commitments within PACER-Plus creates a problematic area for FIC WTO Members.
If PACER-Plus comes into force then those commitments within the TFA that have been incorporated will apply to all PACER-Plus parties regardless of ratification or not. The FIC WTO Members who have ratified and scheduled their commitments will still be bound by that schedule but for PACER-Plus Parties that are WTO members who haven't ratified or aren't WTO members, they will be required to implement the relevant aspects of the TFA immediately to comply with PACER-Plus.
If FICs did not ratify the TFA, or if ratified did not list TFA provisions on fees and charges in the TFA as Category A/B (i.e. Category C - need for implementation capacity and technical assistance to implement provisions), it would still be bound to implement these provisions through the PACER-Plus.
Fiji, Samoa, Papua New Guinea, Australia and New Zealand have ratified the TFA. Vanuatu and Solomon Islands, as Parties to PACER-Plus that haven't ratified the TFA are in danger of losing any of the limited flexibilities that were granted it under the TFA once PACER-Plus enters into force.
Tonga Samoa Solomon Papua New Fiji Vanuatu Islands Guinea General B A B Not yet B B Disciplines notified of Fees and Charges Specific A A B A A A Disciplines on Fees and
59 Samoa, Papua New Guinea and Fiji are the only FICs who have ratified the TFA as of October 2018. Charges
According to the WTO Secretariat, fees and charges provide revenue for the government and protection to domestic production’ and ‘the removal of fees and charges entail a loss of revenue for the government’.60 The WTO Trade Policy Review found that for Tonga “the fees for customs processing, attendance fees, wharfage charges, and bond rent generated approximately T$1.1 million in government revenue during the financial year 2011/1261”. Whilst the entirety of this revenue wouldn't be lost, it is indicative of the valuable contribution to government revenue that such fees can provide.
This analysis of the text doesn't have the scope to go through each FICs level of fees and charges and how they contribute to government revenue. Rather it wants to highlight how in the context of tariff reductions they can play an important role in generating government revenue. Further the additional costs that will come with the additional commitments of the TFA, commitments that it appears are not specifically mentioned (nor the associated assistance through the scheduling process in the WTO).
Concluding remarks
The inclusion by stealth of the TFA and other WTO Agreements into the commitments under PACER-Plus is highly problematic. Non-WTO FICs will be bound by the TFA and other WTO Agreements, without formally being a WTO Member. For WTO FICs, the Scheduling process of the TFA is short-circuited. WTO Member FICs possibility of scheduling such commitments into Categories A, B or C as agreed upon by WTO Members is constrained. It goes beyond existing WTO commitments and leaves FICs without recourse to transition and access to additional assistance in order implements these commitments. PACER-Plus, the so called 'development agreement' for the FICs is unwinding the minimal, yet hard fought for, flexibilities that exist in the TFA.
60 http://www.wto.org/english/thewto_e/acc_e/cbt_course_e/c5s2p6_e.htm 61See WTO Trade Policy Review for Tonga in 2014, available at https://www.wto.org/english/tratop_e/tpr_e/s291_e.pdf V. Clauses that would oblige Forum Island Countries to give more to Australia and New Zealand in the future
Despite the rhetoric of PACER-Plus being a “development agreement”, Australia and New Zealand have ensured that their interests are protected under the Trade in Goods chapter. In addition to having the FICs shoulder the burden of commitments in the chapter, Australia and New Zealand will ensure that they have multiple avenues that would force FICs to give more to them in the future.
Most Favoured Nation (MFN) Clause
In Article 3: Commitments on Tariffs Art 3.2 is a Most Favoured Nation clause, aimed to ensure that any benefits that Parties offer to non-Parties that are better than provided for under PACER-Plus are passed on PACER-Plus Parties. Given that FICs already enjoy duty free and quota free access to Australia and New Zealand under SPARTECA, this proposal is about ensuring that Australia and New Zealand maintain the best access to FIC markets. As New Zealand explained, the “most- favoured-nation provisions in the Agreement including, unusually, in the goods chapter” represented a “significant achievement”.62 It's worth highlighting that not all Free Trade Agreements have an MFN clause. In fact such clauses are relatively rare in the area of goods. The Australia-US FTA as well as the recently agreed Trans-Pacific Partnership do not contain an MFN clause in the Trade in Goods chapters, yet Australia and New Zealand succeeded in including one in PACER-Plus.
New Zealand has also added that the flexibilities in the coverage of PACER-Plus for FIC commitments are only “made possible by a most-favoured-nation provision which will ensure that New Zealand is treated no less favourably than other significant competitors in the future”.63 Again we see that despite all the rhetoric about the extended flexibilities for FICs it has come at the expense of an MFN provision that is about ensuring Australia and New Zealand are not disadvantaged.
Under the Chapter, Article 3.2 states that: “With respect to the levels of all duties and charges referred to in paragraph 1, any advantage granted to any good of any country or territory, other than in respect of a preference in force under a regional trade agreement on the date referred to in Article 8.1 of Chapter 15 (Final Provisions), shall be accorded immediately and unconditionally...”
To clarify further Art 3.2(c): (c) the advantage granted is in respect of a preference in force pursuant to a regional trade agreement2 exclusively involving developing countries to which at least one Party is a party and other parties are non-Parties, where: (i) each such non-Party accounts for not more than 1 per cent of world merchandise exports; and (ii) all non-Parties that are party to the regional trade agreement together account for not more than 4 per cent of world merchandise exports;
62 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf 63 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf measured as of the date of entry into force of the regional trade agreement for each such Party and as of the date of accession of a new party to it. New Zealand argues that despite the unusual nature of the MFN applying to the Trade in Goods chapter, it is consistent with an MFN in the iEPA signed between the EU and Papua New Guinea and Fiji. Whilst New Zealand may say that this “mirrors the approach taken by other developed countries in their development agreements” it ignores a number of important issues. Firstly, the signature of the interim EPAs by Fiji and Papua New Guinea were done somewhat under duress as they needed to ensure continued market access to Europe for their key industries. This MFN condition is still considered, among others, a “contentious issue” for further negotiation for a Comprehensive EPA. So whilst it may be a part of the iEPAs, it is far from something that the FICs are happy about.
Secondly, the threshold values used in other EPAs are in fact much higher than that proposed in PACER-Plus. Threshold values of 1.5-2% have been utilised in the EU's EPAs yet PACER-Plus only offers 1% threshold values. This is a poor concession as countries of interest to some FICs like Malaysia or Indonesia sits around 1-1.5% of world trade, thus rendering any flexibility to the FICs in effect meaningless.
This MFN aims to ensure that any other agreement that FICs enter into passes on any preferential treatment to Australia and New Zealand. As Developing and Least-Developed Countries this would add an enormous disincentive to any FIC undertaking a pro-development South-South agreement. Thus PACER-Plus becomes a tool to inhibit development activities in order to ensure that Australian and New Zealand exporters are protected. As New Zealand states “This is the first time this outcome has been secured in a New Zealand Free Trade Agreement and means that New Zealand businesses will remain competitive in the region if Forum Island Countries Parties move to conclude free trade agreements with any of our significant commercial competitors in the region”.64
Further tipping the scales in favour of Australia and New Zealand is the proposed review of the MFN provision. Article 16.3 states that: “The Parties, through the Joint Committee or a relevant subsidiary body, shall review the operation of Articles 3.2(c) and 3.3 and Annex 2-B two years from the date of initial application of Annex 2-B, and thereafter at ten-year intervals unless otherwise agreed by the Parties, and shall submit a report to the Joint Committee, including any recommendations, within six months of the date of commencement of each review.” The implications of this have been made clear by New Zealand who see the review not as a way to ensure that it is working to support South-South development but rather “this ensures that the provision remains fit for purpose, for example by providing for the thresholds to be lowered to cater for significant changes in the trade profiles of our competitors.”65 What was already a provision that wasn't pro-development appears to intended to be weakened further for the FICs.
Use of safeguards are subject to paying compensation to Australia/New Zealand
Under Article 8 Transitional Safeguard Measures the issue of compensation is raised in conjunction with the use of any such measure. Initially and sadly it was the FICs that proposed this paragraph, 64 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf 65 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf yet the final outcome in PACER-Plus is worse for the FICs. Under the heading of Compensation Article 8.19 states: 19. A Party applying a transitional safeguard measure shall, after consultations with each Party against whose good the transitional safeguard measure is applied, provide mutually agreed trade liberalising compensation in the form of concessions that have substantially equivalent trade effects or equivalent to the value of the additional duties expected to result from the transitional safeguard measure. The Party shall provide an opportunity for those consultations no later than 30 days after the application of the transitional safeguard measure.
This language allows for compensation in regard to the use of safeguard measures, an allowance that is not contained in the EPAs. Even in the EU-South Korea FTA, which has language on compensation and the right of suspension of equivalent concessions, it states that such rights should not exist in the first two years of application of the bilateral safeguard – this was also proposed at one stage by the FICs but didn't end up in the final text. The text now ensures that Australia and New Zealand will be able to maintain their interests above what would be a more development friendly proposal of allowing the FICs to utilise their bilateral safeguard measures without fear of reprisal.
Modification of Schedules
The adoption of proposals regarding any Modification of Schedules sees Australia and New Zealand attempting to ensure that any modification of schedules by the FICs would see them compensated in an equivalent way. If this cannot be obtained through commitments on tariffs then such a “compensatory adjustment” would be made in either FIC Investment or Services schedules. Such a proposal highlights the desire by Australia and New Zealand for greater access in the services/investment markets of the FICs, potentially allowing them to gain through this mechanism what they couldn't gain in other negotiations.
The Article however also goes beyond what is seen as most development friendly. The EU CARIFORUM EPA contains a similar article on the modification on schedules but the linkage for “compensatory adjustment” isn't made. The article states: 1. In the light of the special development needs of Antigua and Barbuda, Belize, the Commonwealth of Dominica, Grenada, the Republic of Guyana, the Republic of Haiti, Saint Christopher and Nevis, Saint Lucia, and Saint Vincent and the Grenadines, the Parties may decide in the CARIFORUM-EC Trade and Development Committee to modify the level of customs duties stipulated in Annex III, which may be applied to a product originating in the EC Party upon its importation into the CARIFORUM States. 2. The Parties shall ensure that any such modification does not result in an incompatibility of this Agreement with the requirements of Article XXIV of the GATT 1994. The Parties may also decide simultaneously to adjust the customs duty commitments stipulated in Annex III and relating to other products imported from the EC Party, as appropriate (Article 17 CARIFORUM EPA)
By not containing such a commitment the CARIFORUM countries are not required to offer such compensation specifically due to their developing country nature. FICs should have insisted upon the flexibilities that have been given to the CARIFORUM countries and not include such proposals that would provide a disincentive for them to respond to their development needs and modify their schedules if need be.
The final outcome in PACER-Plus effectively gives Australia and New Zealand a veto on any modifications or withdrawal of concessions. By requiring the agreement of all interested Parties (and later the Joint Committee if initial consultations aren't successful) FICs will be forced to decide whether or not the modification or withdrawal is worth the compensation that will be demanded. Such a mechanism again reinforces the interests of Australia and New Zealand and avoids the incorporation of existing development-orientated texts.
Concluding Remarks
Australia and New Zealand have gone to great lengths to stress that PACER-Plus in a development agreement and in the interests of the FICs. At the time that the decision to launch negotiations was being made Australia's then Parliamentary Secretary for International Development Assistance Bob McMullan stated that “there is nothing in it for us”. Yet we have seen that Australia has made proposals to ensure that there most definitely is something in it for them and that they are in no way disadvantaged. Whilst it is not surprising that a Party would take such a position the problem arises when such a position will directly disadvantage the Parties this agreement was supposed to benefit, undermining the very purpose of such an agreement.
Conclusions
The rhetoric surrounding PACER Plus was that it was meant to be development agreement that would foster economic integration. The PACER Plus text is concerning both for what it includes and what it omits. FICs are shouldering the burden with regards to commitments and the loss of the policy space that has been enjoyed by countries like Australia and New Zealand to protect and nurture their domestic industries and to reflect their development aspirations. The extensive coverage of the market access commitments by FICs, the impractical safeguards, the weak protections for infant industries and the implications for policy space all show the lopsided nature of this agreement. Economic integration under PACER Plus is nothing more than greater integration of exports from Australia and New Zealand into the FICs.
The ongoing issues FIC exporters face in gaining access to the markets of Australia and New Zealand haven't been meaningfully addressed. This coupled with the erosion of any such preference within a year of PACER Plus coming into effect again shows how it is the FICs who in fact have 'nothing in it' for them and Australia and New Zealand have everything to gain. Annex - Australia/New Zealand share in FIC exports (by product category)
Product Product label export to export to AUSNZ code AUSNZ world export share (%) 71 Pearls, precious stones, metals, coins, etc 2057666 2139376 96% 86 Railway, tramway locomotives, rolling stock, 5261 5541 95% equipment 08 Edible fruit, nuts, peel of citrus fruit, melons 3355 3975 84% 62 Articles of apparel, accessories, not knit or 38693 46314 84% crochet 07 Edible vegetables and certain roots and tubers 19601 24069 81% 61 Articles of apparel, accessories, knit or crochet 13321 16551 80% 73 Articles of iron or steel 18091 26123 69% 63 Other made textile articles, sets, worn clothing 4780 7232 66% etc 30 Pharmaceutical products 4936 9167 54% 23 Residues, wastes of food industry, animal 8989 16962 53% fodder 95 Toys, games, sports requisites 1184 3032 39% 25 Salt, sulphur, earth, stone, plaster, lime and 13634 38034 36% cement 19 Cereal, flour, starch, milk preparations and 16266 47421 34% products 85 Electrical, electronic equipment 37360 119976 31% 82 Tools, implements, cutlery, etc of base metal 633 2046 31% 24 Tobacco and manufactured tobacco substitutes 504 1658 30% 74 Copper and articles thereof 4319 14875 29% TOTAL All products 3693237 13068419 28% 27 Mineral fuels, oils, distillation products, etc 1284243 4748681 27% 42 Articles of leather, animal gut, harness, travel 295 1183 25% goods 39 Plastics and articles thereof 2299 9288 25% 99 Commodities not elsewhere specified 4631 19439 24% 76 Aluminium and articles thereof 2363 10741 22% 21 Miscellaneous edible preparations 1139 5476 21% 20 Vegetable, fruit, nut, etc food preparations 1190 5960 20% 84 Machinery, nuclear reactors, boilers, etc 12197 61792 20% 09 Coffee, tea, mate and spices 39467 206803 19% 52 Cotton 384 2170 18% Product Product label export to export to AUSNZ code AUSNZ world export share (%) 49 Printed books, newspapers, pictures etc 575 3681 16% 33 Essential oils, perfumes, cosmetics, toileteries 1121 7219 16% 87 Vehicles other than railway, tramway 5431 36666 15% 94 Furniture, lighting, signs, prefabricated 727 4980 15% buildings 97 Works of art, collectors pieces and antiques 1199 8452 14% 90 Optical, photo, technical, medical, etc apparatus 2405 17079 14% 04 Dairy products, eggs, honey, edible animal 932 7105 13% product nes 88 Aircraft, spacecraft, and parts thereof 3030 23616 13% 83 Miscellaneous articles of base metal 126 1140 11% 02 Meat and edible meat offal 501 4597 11% 64 Footwear, gaiters and the like, parts thereof 217 2210 10% 75 Nickel and articles thereof 28829 313075 9% 72 Iron and steel 2355 28580 8% 40 Rubber and articles thereof 848 11079 8% 34 Soaps, lubricants, waxes, candles, modelling 358 6273 6% pastes 11 Milling products, malt, starches, inulin, wheat 873 17501 5% gluten 96 Miscellaneous manufactured articles 123 2633 5% 12 Oil seed, oleagic fruits, grain, seed, fruit, etc, 2845 62749 5% nes 41 Raw hides and skins (other than furskins) and 456 11459 4% leather 38 Miscellaneous chemical products 106 3342 3% 48 Paper and paperboard, articles of pulp, paper 410 13325 3% and board 32 Tanning, dyeing extracts, tannins, 176 8794 2% derivs,pigments etc 22 Beverages, spirits and vinegar 2438 130928 2% 10 Cereals 21 1165 2% 44 Wood and articles of wood, wood charcoal 18746 1320368 1% 05 Products of animal origin, nes 67 5203 1% 16 Meat, fish and seafood food preparations nes 2213 172314 1% 03 Fish, crustaceans, molluscs, aquatic 9271 745617 1% invertebrates nes 43 Furskins and artiPICial fur, manufactures 15 1355 1% Product Product label export to export to AUSNZ code AUSNZ world export share (%) thereof 15 Animal,vegetable fats and oils, cleavage 5684 625338 1% products, etc 89 Ships, boats and other floating structures 1959 749205 0% 18 Cocoa and cocoa preparations 321 146591 0% 68 Stone, plaster, cement, asbestos, mica, etc 1 2487 0% articles 17 Sugars and sugar confectionery 25 116019 0% 26 Ores, slag and ash 9 851395 0% Appendix B PACER-Plus Trade in Services and Investment Analysis: Limiting regulatory powers of FIC governments
Pacific Network on Globalisation66
Introduction
The chapters on services and investment in the Pacific Agreement on Closer Economic Relations ‘Plus’ (PACER-Plus) show Australia and New Zealand (NZ) have dominated the negotiations to advance their commercial and strategic self-interest, just as they drove the original PACER signed in 2001. Commitments that development would be at the core of PACER-Plus for island countries have never materialised.
For services and investment trade, the Pacific Islands are not an insignificant market for Australia and New Zealand. This must be remembered when assessing the intent behind the outcomes of these chapters and in whose interest they really are. In 2016 New Zealand sold NZD$278million of services to PACER-Plus countries (excluding Australia) and describes the new commitments made by the Forum Island Countries in Services as “commercially significant” and importantly protected against any future deals the Pacific signs with other nations.67
The focus in this paper68 is on the implications for Forum Islands Country (FIC) governments’ ability to regulate in the national interest.
The rules on services and investment may appear neutral on their face, but that disguises the reality that Australia and NZ currently dominate both activities in the South Pacific. These chapters will deepen the existing economic and development gap with the FICs and impose World Trade Organization-plus obligations on states that are not even parties to the World Trade Organization (WTO).
Broad-ranging trade agreements have become highly controversial over the constraints they place on democratic governance and the sovereign right of states to regulate in the national interest. A growing number of countries are withdrawing from investment agreements that have similar rules and developing substitutes that balance commercial interests with regulatory sovereignty and social rights. Negotiations for a mega-Trade in Services Agreement (TiSA) broke down in late 2016. The PACER-Plus texts do not contain even the limited safeguards found in the services protocol to the Pacific Island Countries Trade Agreement (PICTA TiS)69, or in similar chapters in the recently concluded Trans-Pacific Partnership Agreement70 (TPP). An independent review is urgently
66 Released in September 2018 67 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER-Plus/PACER-Plus-National-Interest- Analysis.pdf 68 PANG would like to acknowledge the critical work of Professor Jane Kelsey, this analysis builds on her assessment of PACER- Plus in the 'Defending Pacific Ways of Being: A Social Impact Assessment of PACER-Plus'. 69 Article 12 of the PICTA Trade in Services Protocol allows Emergency Safeguard Measures to protect threatened services sectors, although that is subject to restrictive conditions. 70Article 9.2.3 of the TPP allows an exception for acts that took place before the TPP came into force. Further to this is an attempt to rein in the rule on Fair and Equitable Treatment in TPP Art 9.6.4 and an interpretion of ‘like circumstances’ for the purposes of National Treatment in TPP Art 9.4 footnote 14 and Art 10.3 footnote 2 that requires consideration of ‘legitimate public welfare objectives’. Whilst these exceptions are limited, they are more than offered under PACER-Plus despite the TPP being signed before the PACER-Plus negotiations were finalised. Officials from Australia and New Zealand would most certainly have known about these exceptions but for whatever reason they were not offered to FICs. required to, at the very least, expand on these safeguards and develop state of the art provisions that can provide best protection for the interests of states and their people, while advancing the commercial objectives of the parties.
Regrettably, the investment and services chapters in PACER-Plus suggest the Forum Islands governments have accepted, or at least not opposed, that outdated model. The text was negotiated in secret over many years without a comprehensive and independent cost-benefit analysis and often in the absence of the second largest Pacific country, Fiji.
This paper addresses four issues: fetters on state sovereignty, development asymmetries, ineffective protections, and enforce compliance, followed by some recommendations. Further aspects of these chapters warrant attention by others, including financial regulation and balance of payments, movement of professionals and recognition of qualifications, and the fraught question of labour mobility for remittance workers.
I. FETTERS ON STATE SOVEREIGNTY
The reach of this agreement is vast. Its rules implicate a broad range of services that affect the daily lives of Pacific communities, from schools and tertiary training providers, water and electricity companies, health clinics, sports facilities, and newspapers, to businesses such as supermarkets and duty free stores, banks, lawyers, advertising firms, fish canning factories and logging or mining operations.
What counts as an ‘investment’ is equally open ended and includes land and buildings, businesses, shares, licenses (telecoms, transport, mining, fishing), concessions or contracts (water supply, forestry), intellectual property (copyright, patents), debt instruments, etc. Foreign direct investment (known technically as establishing a commercial presence in relation to services) covers any type of business or professional establishment, whether greenfields or buying an existing business or asset. Foreign firms can also operate through a branch or representative office, which means they do not have a separate existence from their parent overseas company but operate as that company.
The core services and investment rules apply to ‘measures’, which are basically anything a government does, whether laws on land use, foreign investment, regulations on health and safety, environmental and conservation standards, rules that govern tourism operators or taxis, administrative decisions of a licensing body, school curriculum requirements, approval to operate a restaurant, banking regulation, or granting planning consents. The restrictions apply even where the measure doesn’t directly target the service, but affects it, such as a tourist resort’s rights to own or lease land or have unlimited access to fresh water.
The services chapter aims to give foreign firms from PACER-Plus countries the right to sell services to customers in each other’s territory on the same terms as locals and not face restrictions on how big they grow or how much foreign ownership they have. A foreign firm or person might ‘trade’ their services by setting up a local business or a branch inside the country, or by providing the service from outside the country, especially by the Internet. Someone might travel temporarily to the FIC to deliver the service, such as a consultant or tour operator. Alternatively, a tourist or student from a FIC might go to another country to access the service there. The services rules potentially restrict how governments can regulate all these activities.
Investors and investments from PACER-Plus countries are also protected from discrimination, for example if certain sectors are reserved for locals. In addition, foreign services firms and other foreign investors who own, say, mining rights, leaseholds over land, or a public-private partnership contract, are given special guarantees that governments won’t regulate in ways that significantly erode the security or value of their investment. They can freely move their capital and earnings in and out of the country, which raises concerns about transfer pricing and profit shifting to avoid tax. As per the WTO, investors cannot be required to process a certain amount of product locally or use local content. Non-WTO FICs have two years to list any measures they have that are inconsistent with this rule and after that they can’t adopt any additional non-complying measures! (Art 11)).
Obligations in the services and investment chapters are not limited to central government, or even regional or local government. They also apply to any non-government body that has been given authority by central or local government to make those kinds of decisions. This could even see a decision by a village council being challenged by another state or one of its investors on the grounds that the central government recognised its authority. The final chapter of PACER-Plus says central government must take ‘reasonable measures available’ to it to ensure those lower levels comply, which requires a positive effort to do so (Art 2).
Core rules
The core rules of the services and investment chapters restrain what governments can do to provide opportunities for locals providing services such as shops, tourism ventures, media, health care facilities, education, professions, or transport, and protect them from being overwhelmed by big well-resourced foreign firms. For example, the rules say governments can’t give better treatment to locals (aside from subsidies and grants). They can’t restrict foreign investment generally, or in specific sectors, or require investment through a joint venture with someone local. The number of firms or people who can supply a particular service across the country or in a particular place can’t be capped to prevent over-supply, even when that makes it difficult for small local firms to survive. Nor can the government limit the number of clients of a firm, or its total output, which is a way of ensuring that one or more big businesses do not dominate the market.
Countries’ schedules of commitments
A government has a schedule which sets out which services sectors or parts of sectors it will subject to these core rules. That schedule has to be agreed by the other parties. Services have many component parts. The tourism industry in the Pacific, for instance, spans hotels, tour guides, restaurants, cruise ships, souvenir shops, eco-tourism operators, airports and seaports, computer booking systems, airline catering, advertising, golf courses, foreign exchange dealers, and much more.
It is clear from the PACER-Plus text that Australia and NZ intend to strengthen their control over core parts of the tourism industry in which they have strong commercial interests. Many of these services can be supplied to FICs from outside the country, such as sales and marketing of air travel, computerised reservation systems and flight planning. Other tourism-related services supplied inside the country, such as ground handling at airports and the operation of airport facilities and infrastructure, and related activities such as retail and parking, are often delivered through management contracts or public-private partnerships. They don’t develop local capacity, mainly employ low-skilled local workers, and the profits usually leave the country.
Where a government does bring a service under the PACER-Plus rules it can still limit which parts of the service it is agreeing to – for example, retail stores except souvenir shops, ground transport except for bus services that carry fewer than 10 people, requiring a percentage of local content on broadcast television, or that lawyers or engineers must be nationals to deliver certain services. A broad commitment, such as private education or services related to fishing, can have unforeseen consequences, especially over the years as the way those services are structured changes and new technologies emerge. Pressure to commit a large number of services can lead governments to tick the boxes they think might not have much impact, such as the long list of financial service sub- sectors, that can cause major problems for governments when difficulties arise and they need to re- regulate.
If no limitations are entered for a service that is committed, then that service sector is fully subject to the rules. Once commitments are made they are almost impossible to change. Governments must also anticipate the flow-on effect of those commitments to other rules that they can’t limit in their schedules, such as licensing or technical standards for a service. It was critically important for the FICs to anticipate the present and future implications of committing specific sub-sectors, write their schedules as narrowly and precisely as possible, and future-proof them to preserve as much policy space as they can – and that Australia and NZ allowed them to do so. The extensive schedules of almost all the FICs suggests that did not happen.
Vanuatu, Tonga and Samoa, on account of their accession to the WTO have already committed a significant number of their service sectors, but that has expanded under PACER-Plus to include new areas like social services, tourist guide services, entertainment services, services provided by midwives, nurses, physiotherapists and para-medical personnel, and wholesale trade services. Australia, in its national interest analysis singled out Maritime passenger transportation services (Solomon Islands); Maritime freight transportation services (Solomon Islands); and Air transport services (Solomon Islands, Tonga, Vanuatu), as among the additional sectors committed by WTO Member FICs.71
The Solomon Islands’ obligations will expand to many more service sectors. Currently its services commitments in the WTO are limited to only 9 of over 160 sub-sectors. Under PACER-Plus this expands to almost 70 sub-sectors and includes sectors like telecommunications, courier services, travel agencies and tour operator services as well as a host of services associated with maritime transport and air travel. This level of commitments greatly extends the limits on regulations of services to address the needs of Solomon Islander society.
Australia has noted that each of the FICs have made commitments in its key export sectors - tourism and travel services, transport services, and financial services (including insurance) – with “many committing to market access for the first time.”72 It also highlighted the market access commitments of the non-WTO Member FICs as being “broadly similar” to those of the WTO Member FICs and “providing new opportunities for Australian service businesses.”
Similar schedules for the investment chapter identify the sectors or measures that are subject to the non-discrimination rule, including vetting of investments.
Samoa, Tonga and Vanuatu have committed to minimal restrictions on foreign investments.. The Cook Islands, Federated States of Micronesia, Kiribati, Nauru, Niue, Palau, Republic of Marshall Islands, the Solomon Islands and Tuvalu maintain the right to screen all foreign investment, but may be locked into their current vetting regime. Australia summed up the commitments by the FICs as saying that “While several [F]ICs have retained an investment admission review process, these are bound and may not become more restrictive.”73 Contrary to the approach taken by all other Parties (including New Zealand), Australia has exempted its investment screening regime in its entirety from the most-favoured-nation obligation. That means Australia can deny the FICs any better treatment that it gives to other countries’ investors.
Importantly, a country’s schedule cannot exclude certain sectors or measures from the special
71 Australia Department of Foreign Affairs and Trade, 2017, National Interest Analysis Pacific Agreement on Closer Economic Relations Plus, https://dfat.gov.au/trade/agreements/not-yet-in-force/pacer/Documents/pacer-plus-national-interest-analysis.pdf 72 Ibid. 73 Ibid. protections for foreign investors against expropriation or minimum standards of treatment.
‘Disciplines’ on domestic regulation
There are other intrusive restrictions on future choices about how to regulate services and which criteria should have priority when governments make those decisions. A cookie cutter approach to drafting saw these ‘disciplines’ imported from the WTO’s General Agreement on Trade in Services (GATS) into PICTA Trade in Services Protocol (PICTA TiS) and now into PACER-Plus. Some rules apply to all services, while others apply to the sectors that a government has committed in its services schedule.
The impacts on governments’ options are more severe in PACER-Plus than in PICTA because they apply to more services sectors. Australia and NZ actively promote a hands-off approach to regulating services and can be expected to pressure the FICs to do so too.
There are three main obligations: 1. General laws and policies that apply to the services in a country’s schedule must be administered in a reasonable, objective and impartial manner (Art10.1). That may sound benign, but it opens up decisions to challenge for being ‘unreasonable’, ‘subjective’, and based on partisan considerations, such as giving priority to community concerns or indigenous rights. 2. Every PACER-Plus government must set up tribunals or other procedures for aggrieved service firms to have decisions reviewed and receive ‘appropriate’ remedies (Art 10.2). This is not limited to services sectors that a country has committed in its schedule. In addition to the burden that this imposes on FIC governments with limited capacity and budgets, the potential for a challenge may have a chilling effect on those who make the original decisions. 3. The aim is to require licensing and qualification requirements or technical standards to reflect narrow considerations like the technical quality of a service, rather than social or cultural factors, and be the option that has the least impact on the rights of the service supplier under the chapter. (Art 10.4) Technical standards, for example, include water quality standards, toxic discharge levels from mining operations, environment and health and safety rules for logging, eco-tourism accreditation, supermarket size and trading hours, zoning for town planning purposes, mandated school curriculum, etc. That has not been agreed yet in the WTO, but PACER-plus will be reviewed if and when that happens.
These restrictions apply to the expanded range of services that FICs have committed in their PACER-Plus schedules.
Special protections for foreign investors
The constraints in the investment chapter go deeper and intensify the legal risks for the FICs under PACER-Plus.
Two special protections for investors pose particular risks. The first is a vague guarantee that an investor or investment must receive a ‘minimum standard of treatment’ under customary international law that includes ‘fair and equitable treatment’ and ‘full protection and security’ (Art 9.2). These concepts are open ended and, in practice, unbalanced. The ‘fair and equitable treatment’ obligation is the one that investors commonly rely on. They argue that this entitles them to a stable regulatory environment, ie the rules don’t change in ways that significantly erode their investment’s value or profits, even when they cause social or environmental problems. The ad hoc system of investment dispute settlement has resulted in routinely pro-investor but inconsistent interpretations of these rules. The PACER-Plus investment chapter attempts to tie down the ‘fair and equitable treatment’ rule (Art 9, footnote 6), following similar moves in the TPP and Canada EU agreement. But the underlying concepts are still opaque and open to inconsistent interpretation. Despite the same wording in the Central America-USFTA (CAFTA), the investment tribunal interpreted fair and equitable treatment broadly and the governments lost.74 Even though foreign investors can’t bring a dispute directly against a government under PACER-Plus, they are likely to push the broadest possible interpretation in their dealings with FIC governments. The only safe approach is to drop the provision altogether - something that countries like South Africa and Brazil have been doing in their recent new investment agreements.
The second problematic rule is on expropriation (Art 13). There is an obligation to compensate an investor when any level of government confiscates the investment, such as the nationalisation of a mine or cancelling a contract for privatised water supply to a village. The rule also applies to actions that have an indirect but equivalent effect on the investment. Indirect expropriation has been used to challenge decisions such as stricter environmental regulations or moves to restrict price increases on necessities like water or electricity. Annex 9-C to the investment chapter sets out criteria for deciding if there is an indirect expropriation, and restricts its application where a government regulates to achieve ‘legitimate public welfare objectives’, such as public health, safety and environment. That is important, and should make disputes on those issues unlikely, but it is unclear whether ‘legitimate public objectives’ extends to employment related measures or affordable access to utilities like mobile phone networks.
‘Legitimate’ has been interpreted in a WTO dispute to mean widely recognized state practice.75 If this interpretation was followed under PACER-Plus, regulations that have not yet been widely adopted, such as large health warnings for alcohol or regulations to address climate change, might also be considered an expropriation.
Foreign investors tend to rely more on the minimum standard of treatment protection than on expropriation. It is unclear how foreign investors, or Australia and NZ as their home states, will use these rules, especially as the investors can’t bring a dispute directly against the host government. However, claims that proposed actions of a FIC would breach the PACER-Plus rules, with the implied threat of a state-state dispute, may have a serious chilling effect on the government’s decision whether or not to proceed with a measure that they believe is in the best interests of the country.
Performance requirements
PACER-Plus imports the existing prohibition on performance requirements from the WTO’s TRIMS Agreement, which include requirements that foreign investors source local inputs (including material or human resources), known as Local Content Requirements (LCRs). Existing WTO members cannot impose these requirements on investments from any country in the world. In the WTO the initial TRIMS agreement gave developed members two years to comply, developing country members five years and LDC members seven years (with some extensions possible)76.
74http://www.citizen.org/documents/RDC-vs-Guatemala-Memo.pdf, http://www.citizen.org/documents/rdc-v- guatemala-rebuttal.pdf and the TECO case in http://www.citizen.org/documents/investor-state-chart.pdf. 75DS 114, Panel Report dated 17 March, 2000, http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds114_e.htm 76 See the summary of the TRIMs Agreement at: https://www.wto.org/english/tratop_e/invest_e/invest_info_e.htm#top Both Vanuatu77 and Samoa78, in their accessions to the WTO waived the transition periods on implementing TRIMs measures, but they remain important for the others. The recent proposals by the G9079 in the WTO relating to the TRIMS agreement highlights the importance of performance requirements for development. The proposals seek an exemption for LDCs from the TRIMS agreement for the duration of their LDC status and to allow developing countries to deviate temporarily (no longer than 15 years). The gap between the G90 proposals and what has been agreed to in PACER-Plus demonstrate the failure of Australia and NZ to deliver the promised pro- development outcome.
This provision is especially significant for FICs who are non-WTO members. PACER-Plus requires them to conform to the TRIMS agreement in two different ways. Initially the country must comply “to the extent of its capacity”. But within two years they must list all of their measures that don't conform to the rule and cannot add more measures later to that list. 80
The importance of these transition periods and retaining the policy space for non-WTO Members so that FICs can still require foreign investors to use local inputs can be seen in the amount that foreign firms spend on inputs and the number of developed and developing countries which required local content to help them develop. For example: ‘According to British Petroleum (BP) and Anglo American, for example, they spent an estimated 87% and 64%, respectively, of total value created on suppliers in 2014. These expenditures dwarf tax and royalty payments which, for BP and Anglo American, amounted to 2% and 11%, respectively. These figures help explain why governments are increasingly seeking to require or encourage extractive industry firms to purchase goods and services from domestic providers.’81 According to UNCTAD, ‘studies have shown that TNC affiliates in developing countries tend to buy the bulk of their inputs from their parents or other associated suppliers and hence generate few domestic linkages... Local content requirements, therefore, may force TNCs to identify nascent local capabilities and provide them with know-how and technology...’82
Local content rules have also been an important way of obtaining technology transfer in the past,83which is essential to development, whether in fisheries, tourism, or the digital economy. A famous example is the Singer Sewing Machine Company which was allowed into Taiwan in 1964 on condition that Singer must buy 80% of the parts for the sewing machines from Taiwanese companies within one year.84 To achieve this, the company offered training seminars, provided standard blueprints to its parts producers, supplied them with tools and fixtures, and gave technical assistance and by 1967 Singer's exports used all locally made parts except needles for its straight 77 Report of the Working Party on the Accession of Vanuatu to the World Trade Organization, 2011, WTO document: WT/ACC/VUT/17 78Report of the Working Party on the Accession of Samoa to the World Trade Organization, 2011, WTO document:WT/ACC/SAM/30 79 The proposals are contained in the restricted WTO Document “JOB/DEV/47” as cited here: http://twn.my/title2/wto.info/2017/ti170705.htm 80Art 11.2b 81 GIZ, Lise Johnson, July 2016, Space for Local Content Policies and Strategies – A crucial time to revisit an old debate, https://www.giz.de/expertise/downloads/giz2016-en-local-content-policies-study.pdf 82 UNCTAD, Proceedings of the Expert Meeting held in Geneva from 6 to 8 November 2002, The Development dimension of FDI: Policy and Rule-Making Perspectives, UNCTAD/ITE/IIA/2003/4, http://unctad.org/en/Docs/iteiia20034_en.pdf 83 Eg Stephan Haggard and Yu Zheng, Institutional Innovation and Private Investment in Taiwan, ‘Singer was subject to stringent local content requirements that could only be met through effective technology transfer to suppliers’, http://siteresources.worldbank.org/INTEXPCOMNET/Resources/Institutional_Innovation_and_Private_Investment_ in_Taiwan.doc 84Oxfam International,Watkins Kevin and Fowler Penny, 01 May 2002, Rigged Rules and Double Standards: Trade, globalization and the fight against poverty, http://policy-practice.oxfam.org.uk/publications/rigged-rules-and-double-standards-trade-globalisation- and-the-fight-against-pov-112391 stitch model.85
Senior management and boards of directors
Like other countries, FIC governments may want to ensure that locals are in senior management and decision making positions of foreign firms that establish in their countries. There are strong development arguments for building the management and governance capacity of nationals, which is a pre-requisite to establishing their own enterprises. They also bring cultural understandings that are important to most commercial enterprises in the FICs. Research suggests that ‘having board members be resident in the host country can help increase the value added of and spillovers generated by activities of that affiliate in the host country, and can also help promote management decisions beneficial to the host country.’86 Further, it can become much more difficult to effectively regulate foreign service companies if there are no local managers. In particular, it can be very difficult to hold senior managers or directors from other countries liable for a breach of the host country’s law or to enforce any resulting penalties, especially if they live or move outside the country.
Yet PACER-Plus prevents the parties from requiring senior managers, or a majority of the board of directors, to be of a particular nationality (Investment Art.10). PACER-Plus countries which want to continue to have these kinds of laws and policies (or introduce them) need to reserve the right to do so in a schedule of exemptions. Those schedules take a negative list form, meaning only those sectors or measures that are listed by an individual country are exempted from the rule. However, which sectors are sensitive and so need local directors and/or managers can change over time (eg as political sensitivities change and/or foreign ownership in a sector increases due to liberalisation under PACER-Plus, other FTAs or at the WTO). PACER-Plus does not allow its parties to unilaterally add exceptions to their schedule, so additional exceptions for these changed sensitivities will not be possible.
In New Zealand, the local incorporation policy for banks was ‘designed to ensure that larger and systemically significant banks had local boards of directors, which should be more responsive to New Zealand needs than the directors of a foreign bank operating a New Zealand branch’.87 Australia, was careful to ensure an exception in the TPP that allows it to require the Chairperson and a majority of directors of Telstra (the privatised telecommunications company) are Australian citizens. However, even though PACER-Plus allows such exceptions to be scheduled , if a party privatises additional companies in the future and public sensitivities require the senior managers and/or directors to be citizens, this would not be possible. The FICs have included a broad exception in their schedules that allows this requirement when privatising a state-owned company, but it can’t be introduced afterwards.
In relation to boards of directors, every Party to PACER-Plus has also included an exemption that allows it to specify the nationality of a majority of directors, or that they reside in the host country, provided that doesn’t ‘materially impair’ the investor’s ability to exercise control over the investment. That vague condition creates uncertainty, especially as the investor could claim such an impact at any time, converting an acceptable requirement into an unacceptable one.
Cross-fertilisation with other agreements
85Myers, Ramon H. “The Economic Transformation of the Republic of China on Taiwan.” The China Quarterly, No. 99 (Sept. 1984): 517. 86Lise Johnson, July 2016, Space for Local Content Policies and Strategies – A crucial time to revisit an old debate, https://www.giz.de/expertise/downloads/giz2016-en-local-content-policies-study.pdf 87David Tripe, Centre for Financial Services and Markets, Massey University, 1 November 2012, Regulation in New Zealand Banking and Financial Services, http://www.nzfc.ac.nz/archives/2013/papers/updated/57.pdf A standard rule in services and investment chapters (but not labour mobility!) is that a country must give the firms from one party to the agreement the best treatment it gives to firms of any other party, and often to any other country. This is known as the most-favoured-nation (MFN) rule. For example, Australia and NZ would get the benefit of any deal between the FICs and the EU, or among the MSG group, or between any FIC and China. The effect is to constantly ratchet up the investor protections and liberalisation commitments and investor protections that governments make. It also means that an agreement that had extensive commitments and few safeguards on an issue because it was expected to have little impact between the parties (eg PICTA TiS), has far greater impact and risk when it is extended to countries that have more significant interests, such as Australia and NZ.
Because of this risk, agreements have taken different approaches to MFN.
The PICTA TiS protocol explicitly excludes treatment given to other countries in existing agreements listed in an Annex (Art 4.2), although publicly available versions of that annex are blank. It only excludes future agreements between developing countries in the Pacific region from the MFN rule. The Cariforum EC EPA only applies MFN treatment to future deals with major exporting countries, but that includes China, Russia and Taiwan. New model investment agreements from countries like Brazil and India do not include the MFN provision at all.
The services (Art 3) and investment (Art 7) chapters in PACER-Plus instead require that any better treatment given by one party to another country is shared with all the PACER-Plus parties. Any country-specific exceptions must be listed in an annex. But each entry on that annex had to be negotiated and approved by all the parties. All of them, including Australia and NZ, have excluded their existing multilateral or bilateral agreements signed before PACER-Plus comes into force. The FICs have all excluded future agreements with Pacific countries that are not parties to PACER-Plus and with Least Developed Countries. New Zealand – which has the longest list of MFN exceptions - has described this provision as “strong”, and goes on to claim that “Parties provide most-favoured- nation commitments across virtually all service sectors” except for those limited exemptions listed by FICs.88 This patch protection is driven by naked self-interest with no concern with the development implications for FICs individually or collectively.
Predictably, Australia and NZ have protected their own interests by not extending the MFN obligation to the Temporary Movement of Natural Persons.
DEVELOPMENT ASYMMETRIES
Four reasons are usually given for developing country governments to agree to services and investment chapters in regional agreements. All are problematic for the FICs. 1. To attract investors who would not come otherwise. Evidence that this occurs is mixed at best,89 but is especially questionable for remote small island states. They are not attractive venues for investors seeking a market. Investors in extractive and resource industries, which have poor records for reinvestment, human rights, sustainability, and cultural responsibility, are more likely to invest through contracts that provide greater rights and benefits than services and investment agreements do. Services firms in banking, education or media may take advantage of new openings, but the rules make it harder to require those firms to have a grounded presence in the country, rather than operating from offshore or through visiting consultants, or as branches whose operations are driven by the interests of their parent 88 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER-Plus/PACER-Plus-National-Interest- Analysis.pdf 89 Joachim Paul, Societal Benefits and Costs of International Investment Agreements, OECD Working Papers on International Investment, 2018/1, OECd Publishing, Paris. companies. There is no requirement that investors are greenfields investment that create new businesses, jobs, downstream commercial opportunities and generate foreign exchange. Again, the rules make it harder for governments to direct investment to the sectors and places it is needed. Even where new ventures are established, such as in tourism, the costs of imports, offshore sales of package deals and repatriation of earnings can neutralise the expected gains. Tax avoidance through transfer pricing and profit shifting by transnational companies is now seen as a major problem.90 2. To build capacity for long term development. There is no commitment in PACER-Plus to technology transfer and infrastructure development, or for foreign firms to recruit and train local people in sectors such as tourism, finance, telecommunications, fisheries, education or health care. The ‘development’ provision merely talks of strengthening FICs domestic capacity through access to technology accessible on a commercial basis (Art 4.1(a)). When Australia and NZ seek more access for services, such as private education providers, that is driven by commercial not development objectives. 3. To secure better treatment for their services providers and investors offshore. Australia and NZ have been the dominant sources of capital and services in the region. Few FICs invest offshore and that tends to be in other FICs, which are already covered by PICTA Services (not yet in force) and the recently revised Melanesian Spearhead Group (MSG) agreement (known as MSGTA3). PACER-Plus promises liberalisation in sectors and modes of supply of export interest to the FICs. But the consistent demand of the FICs for greater, binding commitments on labour mobility has not been met, and is relegated to a non-binding side arrangement. 4. As a quid pro quo for beneficial concessions in other parts of the agreement. Again, there is no evidence that Australia and NZ have made any significant concessions in areas of importance to the FICs, notably labour mobility and quarantine and testing requirements for fruit and other products. PACER-Plus replaces the preferential arrangements previously available under SPARTECA. Australia and NZ already have very low tariffs for any FICs that do have capacity to increase supply.
There is a further motivation underlying these agreements: power politics. Some FICs managed to push out the timeline for the PACER-Plus negotiations for a number of years. Despite reservations expressed publicly by several governments, it was difficult to continue to say ‘no’ to demands and pressure from Australia and NZ when they remain the major aid donors for many FICs and are past- masters at divide and rule. However, the decisions of Fiji and Papua New Guinea not to sign PACER-Plus shows it is possible to reject a bad deal, and provides a precedent that others who have signed could follow by not ratifying the Agreement.
Development Obligations
From the start, PACER was designed so as to ensure the European Union (EU) did not secure advantages in the South Pacific over Australia and New Zealand, and to maintain the historic influence over the region. Despite the official rhetoric, the agreement was never about ‘development’ – even less so than the EU’s Economic Partnership Agreements.
Article 4 of the services chapter makes a token gesture towards development. It asserts that the FICs will strengthen their capacity, efficiency and competitiveness with access to technology on a commercial basis by making commitments to liberalise the services rules in the FICs economies. That is disingenuous. A FIC can already choose to liberalise those services, but it also has the space to retreat if problems emerge. PACER-Plus won’t guarantee them any better access to technology any cheaper. Instead, it dictates how the FICs need to make these changes and makes it practically impossible for them to alter or revoke those commitments if they prove damaging or alternative
90 OECD Action Plan on Base Erosion and Profit Shifting, 2013 approaches would have better outcomes.
There is a development assistance chapter in the agreement. It makes carefully worded promises to address ‘mutually determined and prioritised’ activities, merely ‘taking into account’ needs as identified by developing countries. Aid funding is linked to trade cooperation, with specific funding commitments from Australia and NZ to a work programme that is designed to benefit their commercial interests. Any promises in the chapter are also unenforceable!
Survival of local businesses
Unequal agreements like PACER-Plus carry a major risk that foreign services and services companies will threaten the survival of local firms or the livelihoods of individuals who provide similar services or compete with foreign investors in producing goods. That risk can arise whether the foreign firm operates within a FIC or from outside the country.
Rich countries have consistently rejected special safeguards to provide protections when a FIC faces such threats. When the WTO was formed in 1995 a safeguard mechanism for services was promised within 3 years. Nothing has happened. PACER-Plus will review the question if these negotiations are ever concluded (Art 14.1), but there is no chance they ever will be.
In PICTA TiS (Art 12) a country could impose restrictions that breached its commitments in ‘response to problematic market conditions in particular service sectors, the correction of structural problems within the market, or the threat of the disappearance of service sectors’. That was subject to very tight restrictions on the kind of measures that could be adopted and for how long, but even that is not in PACER-Plus. Instead, PACER-Plus says where commitments have a serious adverse impact on a Party’s domestic service sector, that country can seek consultations with other Parties whose firms have caused the problem. They are required to discuss it in good faith and try to reach an agreement over a reasonable time, but nothing can be done if they don’t agree.
Asymmetrical commitments
There is minimal recognition of the intrinsic development asymmetries between the FICs and Australia and New Zealand, and how the PACER-Plus services and investment chapters would deepen them.
Many FICs are not members of the WTO, for good reason: it is not relevant to their realities, the rules are lopsided in benefiting larger and richer countries, and the obligations are too onerous. Yet PACER-Plus imposes WTO-plus obligations on those countries. This is unconscionable and any such obligations should at least be unenforceable through dispute settlement mechanisms.
For WTO members, Article V of the General Agreement on Trade in Services (GATS) says developing countries should make fewer commitments in regional trade agreements than developed countries. Under the Doha round developing countries are to have ‘appropriate flexibility to open fewer sectors’, while LDCs do not have to make any new GATS commitments at all. In other words, all FICs should face far fewer new obligations than Australia and NZ. But, even if the overall level of sectoral commitments that FICs make in PACER-Plus is considerably lower than those made by Australia and NZ, the gap between the FICs’ existing and new commitments will be much greater than for Australia and NZ, who will have to do very little if anything new. In other words the already dominant countries could effectively get PACER-Plus for free.
As for future negotiations, the services chapter mirrors the words of the GATS about recognising ‘appropriate flexibility’ in reviews to extend each country’s schedule (Art 18). However, the investment chapter just says parties will ‘take into account’ the limited capacities of developing countries (Art 23).
It may be argued that the FICs have already made extensive services commitments under the PICTA TiS protocol. That agreement adopted the inappropriate GATS model for the FICs with minimal modifications, and countries made commitments that are far beyond what developing countries and LDCs have been required to do in the WTO (except for countries like Samoa, Vanuatu and Tonga when they acceded). The PICTA TiS protocol has been signed by 10 countries: the Cook Islands, Federated States of Micronesia, Kiribati, Nauru, Republic of the Marshall Islands, Samoa, Solomon Islands, Kingdom of Tonga, Tuvalu and Vanuatu, but it needs to be ratified by 6 of the signatories before it comes into force. It remains to be seen whether and how far those countries would comply with the technical rules and relatively high level of commitments they have adopted in PICTA TiS.
Fiji and Papua New Guinea (PNG), the largest FICs, have not ratified either PICTA TiS or PACER- Plus. Nor have the Federated States of Micronesia, Marshall Islands and Palau. As Fiji and PNG would be the most likely to seek to enforce PICTA TiS, their absence means its overall impact is likely to be minimal. Moreover, PICTA TiS has limited application to investment, whereas PACER-Plus has a comprehensive investment chapter.
Institutional arrangements
The Joint Committee that oversees PACER-Plus and any subsidiary bodies, including the technical committee on Services, Movement of Natural Persons and Investment, is comprised of all the parties. Decisions are by ‘mutual agreement’, rather than consensus. This will have been deliberate. A decision will be binding if no country present at a meeting formally objects – hence any Pacific Way silence will be taken as consent. If a country is not at a meeting there is no provision for a proxy and it will be bound by any decision (Institutional Arrangements, Art 3). There is a promise of ‘appropriate’ funding for FICs’ participation at meetings (Art 4), but this is through the un- enforceable Arrangement for Development Assistance and Economic Cooperation.
INNEFFECTIVE PROTECTIONS FOR THE RIGHT TO REGULATE
The text has various provisions that give an illusion that sovereign rights to regulate are protected. These assurances are either weak or meaningless. The very purpose of these agreements is to constrain the way that governments can regulate. The WTO panel that heard the dispute on US Gambling famously said: Members’ regulatory sovereignty is an essential pillar of the progressive liberalization of trade in services, but this sovereignty ends whenever rights of other Members under the GATS are impaired.
The services chapter (Art 2.3) recognises the right of parties to regulate and introduce new regulations, provided that regulation is not inconsistent with the chapter. In other words, it confirms that governments can do what the chapter allows them to do anyway, but can’t do anything that would breach the chapter.
The objectives of the investment chapter (Art 2) are to encourage a stable and predictable environment to attract and promote investment flows, with ‘due respect’ to national policy objectives and the government’s right to regulate. A stable and predictable environment is the phrase that foreign investors commonly use to describe ‘fair and equitable treatment’ (Art 9), which they believe means the government should not change how it regulates their activities during the term of their investment. National policy objectives are subordinated to foreign investors’ rights. PACER-Plus ‘acknowledges’ that parties’ investors and investments are subject to the laws, regulations and standards of the host country (Art 5.1). But any measures that don’t comply with the investment chapter could be challenged under the dispute settlement provisions. In a similar vein, a government can keep or introduce any measure that is otherwise consistent with this Agreement that it thinks is appropriate to ensure an investment’s activity is sensitive to its environmental or other regulatory objectives (Art 19.2). In other words, a government can’t pursue those objectives in a way that breaches the chapter, unless it has preserved the right to do so in its schedule or can bring the measure within another exception in the Agreement.
Exceptions
Every contemporary agreement has general exceptions that provide a limited defence for governments when they adopt measures to protect public order and morals, human health, environment and conservation. PACER-Plus copies those exceptions from the WTO GATT and GATS. However, they look more effective than they are in practice, because there are many layers of conditions that have to be satisfied before they apply. In the WTO the general exception has only provided an effective defence once in the forty-four times it has been relied on.91 The very restrictive circumstances in which the national security exception can be invoked in the WTO is broadened to include threats to public infrastructure, but does not apply to situations such as climate change or cybercrime by private actors (Art 2).
Cross-border services and foreign investment involve flows of capital. FICs must not restrict these flows for investments or services covered by PACER-Plus, or payments for cross-border services. That can be problematic for small vulnerable economies with minimal foreign reserves, for example if they wish to stem the outflow of income from tourism or transfer pricing by foreign companies for tax avoidance. The global financial crisis showed how destabilising large inflows of speculative or shady capital and rapid capital outflows can be. PICTA TiS at least allowed unusually large payments and transfers to be staggered (Art 11.1); there is no such flexibility in the Investment Chapter in PACER-Plus. The conditions set out in the Balance of Payments emergency provision of the Exceptions Chapter (Art 3) are very restrictive, although they do recognise that developing countries face particular pressures on balance of payments.
Social responsibility
The investment chapter has another ineffectual provision on social responsibility. The parties reaffirm the importance of encouraging enterprises to voluntarily incorporate internationally recognized standards of social responsibility into their internal policies where they have been endorsed by the particular government (Art 5.2). It is merely ‘inappropriate’ for a government not to enforce its own laws on environment, health, labour, safety or other regulatory standards (Art 19.1)!
Public services
A further feeble protection is the standard exclusion of ‘services supplied in the exercise of governmental authority’ (Services Art 2.2(a)). This phrase is drawn from the GATS. It only applies where services are not commercial and have no competitor – meaning the service is provided as a monopoly free of charge or possibly at a nominal payment. Very few services meet both these requirements and those that do face constant pressure to adopt user charges or allow competition, which would mean losing the protection. By contrast, the PICTA Trade in Services Protocol (Art 91 Public Citizen, “Only One of 44 Attempts to Use the GATT Article XX/GATS Article XIV “General Exception” Has Ever Succeeded: Replicating the WTO Exception Construct Will Not Provide for an Effective TPP General Exception”, August 2015, accessed at https://www.citizen.org/sites/default/files/general-exception_0.pdf 3.4(b)) said the term includes ‘activities forming part of a system of social security or public retirement plans or the public provision of health, education or water services.’ That means PACER-Plus has much more serious consequences for FICs, but has fewer protections for their basic public services.
There is also an important requirement that a monopoly or restricted number of authorised providers is not allowed to ‘abuse’ its monopoly. That is code for cross-subsidising the provision of a monopoly service in high-cost locations from revenue earned in low-cost areas, or using earnings from the monopoly service to support the provision of other activities, whether for social or commercial reasons. Cash-strapped governments often fund core public services in that way (Art 13.2). This restriction again comes from the GATS (Art VIII.2). Under PACER-Plus it will be applied to a greater number of sectors for existing WTO members and expanded to non-WTO members.
A footnote says the services chapter doesn’t require privatisation of public services (fn2). That is a red herring (although some accessions to the WTO have required privatisations). The privatising effect of PACER-Plus is more subtle: it creates conditions that erode the public good dimension of government services operations and privilege the commercial dimension and the role of private, especially foreign competitors.
The PACER-Plus services chapter does have several positive variations to the GATS. Consistent with some other recent agreements, subsidies are excluded from the services chapter, and they are broadly defined to include loans, grants, insurance etc (Art 2.2(c)). However, if a country’s subsidies for services are seen to undermine the benefits that another government expects from PACER-Plus it must agree to consultations, with an expectation of reaching a mutually satisfactory outcome (Art 15.1). Whether they agree on an outcome is likely to depend on the leverage of the countries involved.
Withdrawing commitments
Schedules are technical high-risk undertakings. The rules are complex and it can be hard to identify what they would mean in practice inside the country and therefore what needs to be protected. Mistakes are easily made – even the US has done so. Local needs and conditions change unexpectedly. New technologies emerge that were inconceivable when the schedule was drafted. But there are real barriers to adjusting a country’s schedule. Under PACER-Plus no changes are allowed for 3 years. After that a Party can tell the others it wants to make a change, and if no other country objects within 3 months it can do so. But if another Party objects, the request goes to the joint committee of all the parties for a decision. Consensus decision-making basically gives the country that objected a veto. If they allow the change, they can require new commitments to compensate for what is being withdrawn. No changes can be made until those new concessions are in place. If the government goes ahead without making those changes, it can face forms of retaliation from the other party that can hurt its other businesses or exports.
This power has rarely been invoked in the WTO and the outcomes were pure power politics. In November 2008 the Bolivian government of Evo Morales sought to rescind a commitment made by a previous neoliberal government that allowed foreign control of hospital services, because its new constitution declared health care a human right that could not be privatised. The EU consented to the change. At the last minute, the Bush administration in the US lodged an objection requiring the Bolivian government to negotiate compensatory liberalisation in other services sectors with the US. Bolivia’s request is still unresolved.
By contrast, changes have been agreed when it serves the interests of powerful countries. The US announced in May 2007 it would amend the commitment on ‘recreational services’ that was the subject of the US-Gambling case, rather than comply with the ruling Antigua had secured in 2005. The US successfully negotiated the change with the EU in 2007. Antigua is still awaiting a resolution of the dispute it won over a decade ago.92
PICTA TiS allows a government in the first 5 years to notify the others if it wants to modify its schedule of commitments and the others collectively decide whether to agree (Art 27.5). It says that consent should not be withheld if that would hinder the country’s development. Yet the FIC is still meant to maintain the overall level of its commitments, suggesting some new compensatory liberalisation would be required if the change affects a commercially meaningful service. There is no equivalent reference to development in PACER-Plus. FICs who seek to change their schedules may face significant risk of a veto or demands for unacceptably high compensatory liberalisation, especially from Australia and/or NZ, and pressure to withdraw a measure to avoid the threat of legal action.
Blocking back door entry
A business from a country outside PACER-Plus, for instance Taiwan or Russia, could try to use the back door by setting up under the law of a PACER-Plus country and claiming benefits as a national, including the right to challenge measures adopted by Australia and NZ that impact on their operations.
The Investment (Art 18) and Services (Art 16) chapters allow a PACER-Plus country to refuse to provide those benefits, but it must show that the owners come from outside the PACER-Plus group and the business doesn’t have any substantive operations in the country it has set up in. This is a judgement call.93 It could be especially contentious where the business involves services delivered electronically across the border, with little on the ground presence, or when there is limited value added to their global operations.
A PACER-Plus government could also refuse to extend the benefits of the Agreement to one of its domestic businesses that claims it belongs to another PACER-Plus country, such as a Samoan business in Australia, without a genuine commercial presence there.
COMPLIANCE
Governments of small or remote countries may assume they can enter into these agreements and make promises that are not going to be closely monitored or enforced. Even if that were true of the WTO or PICTA TiS, which have some similar obligations, it is not true of new regional agreements. PACER-Plus provides multiple pressure points for Australia and NZ to demand compliance, culminating in actual enforcement, in addition to leverage through their aid budgets.
‘Transparency’
Several chapters of PACER-Plus set down procedures and ‘transparency’ rules relating to goods and services. This will impose a heavy burden on central government, which must also take ‘such
92 United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds285_e.htm 93An Investor-State Dispute Settlement tribunal did find that an investor (whose main activity was in the field of financial investments by participating as a shareholder in companies) had ‘substantial business activities’ when it had a small but permanent staff in a rented office. The findings state that “Accordingly, 'substantial' in this context means 'of substance, and not merely of form'. It does not mean 'large', and the materiality not the magnitude of the business activity is the decisive question. In the present case, the Tribunal is satisfied that the Claimant has substantial business activity in Latvia, on the basis of its investment related activities conducted from premises in Latvia, and involving the employment of a small but permanent staff”. http://www.italaw.com/sites/default/files/case-documents/ita0030.pdf reasonable measures available to ensure their observance’ by local government and non- government bodies performing delegated functions.
There is a long list of measures that FIC governments will have to publish in print or post online, including licensing requirements and procedures, qualification requirements and procedures and technical standards for services (Art 17.3). The information must include details like requirements, criteria, procedures, fees, timeframes and monitoring mechanisms. Because the services chapter applies to sub-central government and non-government decision makers, this requirement includes their general rules and procedures. The objective of publicising this information is not simply to make it easier to do business; it also aims to remove discretion from decision makers as far as possible and empower commercial interests to intervene with government to advance their interests. Although it only applies ‘to the extent of the government’s capacity’; the other parties can contest whether they have done so.
PACER-Plus governments must respond promptly to all requests from other parties for information about laws, policies, procedures that ‘pertain to or affect’ the operation of the services chapter, even if they do not directly relate to a particular service or obligation. There is no flexibility in that provision (Art 17.4), even ‘to the extent of their capacity’.
Institutional oversight
Australia and NZ will dominate the institutional mechanisms of contacts points, cooperation and technical discussions because they have the expertise, resources and commercial interests to drive the process in the direction that benefits them. The Joint Committee will oversee implementation of the services and investment chapters. This will involve much stronger oversight than the periodic Trade Policy Reviews of WTO members and focus on compliance with the rules and obligations, involving officials from government agencies that may have little or no understanding of trade rules.
A general review of the Agreement is scheduled for 3 years after entry into force and 5-yearly after that (Institutional Art 1.2(k)) with a view to ‘furthering its objectives’. Such reviews (Trade in Services – Art.18; and Investment Art. 23) are intended to extend the liberalisation agenda of PACER-Plus, not to review how it operates in the FICs and adjust or remove obligations if they have adverse development impacts. By contrast, at the time the Cariforum EC EPA was signed the Cariforum countries insisted on a Declaration that guaranteed a review after 5 years of the costs and consequences of implementation of the EPA. The first review in July 2015 makes for sober reading and should be considered closely by the FICs before they ratify PACER-Plus.94
In addition, the Committee on Services, Investment and Natural Persons is to review those chapters and related annexes within just 2 years after the agreement comes into force and report to the main committee (Institutional Art 2.1(e)). Negotiations to extend the FICs commitments must begin within 3 years after PACER-Plus comes into force (Investment Art 23, Services Art 18), with ‘appropriate flexibility’ in services for developing countries as required by GATS Article V (discussed earlier). That means pressure to commit more services to the rules and more resources to negotiations while FICs are trying to implement the obligations they have already agreed to.
State-state enforcement
One of the most outdated parts of the proposed agreement is the process for settling disputes. States can enforce the rules and obligations against other states before ad hoc tribunals with each state appointing one arbitrator and the chair by agreement. Unlike most recent agreements, including the
94 http://www.europarl.europa.eu/meetdocs/2014_2019/documents/dcar/dv/working_/working_en.pdf TPPA, there is no commitment to openness (hearings are to be open unless Parties agree otherwise) and disclosure of documents, no provision for amicus curiae briefs from concerned parties, and no code of conduct for arbitrators or rules on conflicts of interest. Because Australia and NZ are the most likely complainants on behalf of their commercial interests, these omissions strip the FICs of crucial protections, including pressure from concerned community groups in those two countries.
Enforcement of investment rules
The enforcement of the rules in the Investment Chapter as well as the rest of PACER-Plus allows Parties recourse to bring a dispute against another Party they believe are not implementing the agreement. Thankfully PACER-Plus does not have an Investor-State Disputes Settlement (ISDS) mechanism, a mechanism that is widely seen as bad for development.95 The State-State process for dispute settlement could still see FICs having to defend their policies before a tribunal. Whilst technically they are equally able to instigate a dispute process against Australia and New Zealand, the enormous legal costs plus the damage to the diplomatic relationship makes such an outcome unlikely.
An actual dispute is not the only problem. Arguably, the bigger danger is the ‘chilling effect’ of potential disputes on domestic decisions. This was evident in NZ with the plain packaging law after the tobacco companies threatened an investment dispute, but it also holds true for the threat of litigation from other government parties to PACER-Plus. The possibility of litigation can also cast a more general shadow over decision making, so that governments become super-cautious when passing laws or making policy decisions that foreign governments or their investors don’t support.
95Investor-state dispute settlement (ISDS) allows foreign investors to sue governments in private ad hoc offshore tribunals, whose arbitrators are often practicing investment lawyers and can award unlimited compensation against governments, including lost future profits with compound interest. Appendix C PACER-Plus Development Assistance Analysis: No new money but still with strings attached
Pacific Network on Globalisation96 Introduction
Despite excluding over 85% of the Pacific Islands economies, PACER-Plus continues to be promoted as a development agreement supporting regionalism. With four countries having completed ratification it is more important than ever to look through the rhetoric and see that even the supposed 'benefit' chapters of PACER-Plus for the Pacific offers little of value.
Proponents frequently refer to PACER-Plus as a trade and development agreement, the inclusion of the Development and Economic Cooperation Arrangement was seen as a large part of the 'development' plus rhetoric. However, what the Arrangement results in, is aid money, tightly controlled by Australia and New Zealand to flow to areas that will make Forum Island Countries (FICs) uphold their commitments on market access, ultimately benefiting the two metropolitan Parties. As Australia's then Minister for International Development stated in regards to its Aid programs “we owe it to the taxpayers to ensure that we are spending our aid money in a way that provides a direct benefit to them”.97
Non-binding with a veto after five years A critical feature of the Development and Economic Cooperation Arrangement is the fact that it is an “Arrangement” like the one on Labour Mobility and as such is in no way legally binding. The funding promises for the Work Programme and other developmental aid are in no way enforceable and can be withdrawn if and when Australia and New Zealand see fit.
The ongoing nature of the Arrangement is dealt with in Paragraph 12 which states: This Arrangement and accompanying Work Programme will commence on the date that PACER Plus enters into force. The Arrangement and accompanying Work Programme will operate for a period of five years, at which point they will be reviewed by the Joint Committee and may be renewed for a further five years. Any further renewal of the Arrangement and accompanying Work Programme will be subject to the mutual consent of the Participants. It is important to note that the funding for the Arrangement and Work Programme exists for only five years and then will be up for review by the Joint Committee. The need for “mutual consent” for any further renewal provides all Parties an effective veto – however a veto is, in reality, of interest only for Australia and New Zealand as they control the money. The review and veto power for Australia and New Zealand also offer them additional leverage for ongoing discussions within PACER-Plus regarding additional liberalisation commitments, effectively handing the donor governments the power to insist on greater market access commitments in periodic reviews of other areas of PACER-Plus (like services or investment) if the FICs want a favourable outcome of the evaluation. Again, Australia and New Zealand have managed to achieve an outcome that retains their control over the processes attached to PACER-Plus.
Underscoring how little a 'win' the Arrangement is for FICs is the push from New Zealand to ensure
96 Released in March 2020 97 'Aid is not charity': minister rebuffs request from Papua New Guinea, Sydney Morning Herald, 28 March 2017, http://pina.com.fj/index.php?p=pacnews&m=read&o=149730221358daccdc758fbb2b8272 that the funding promises come from existing aid budgets. As New Zealand stated, that “Officials will seek to manage the resource implications within current allocations including through ODA- funded state sector activities in the Pacific.”98 Australia has indicated that the funding will come from future allocations for aid to the region, stating “The funding attached to PACER Plus would come out of the part of the [aid] allocation that's not programmed in the future years, so it's not coming explicitly out of a program.”99 Whilst it may not be being taken from a programme it is taken away from future aid projects with its diversion to PACER-Plus. This lack of additional funding being provided as part of the Work Programme means that all that is being accomplished is a re-organisation of existing aid programs and potentially future aid budgets, diverting funds away from other areas and into the activities that ensure the FICs comply with their commitments (and market access obligations) for Australia and New Zealand. So poor is this offer of development assistance that the Australian Parliamentary Joint Standing Committee on Treaties noted: “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. 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”100. The same Committee was so worried about the potential impacts of PACER Plus that it recommended: “part of the development assistance allocated to implementing PACER Plus be specifically used to monitor the revenue of Pacific Island Governments, the public health, and gender equality impact of the Agreement, and where necessary, provide funds to Pacific Island countries to assist relevant development outcomes”.101 It is a reflection on how low the outcome is for the FICs that an Australian Parliamentary Committee recommends that money be set aside to monitor the impacts of a so-called development agreement. This only doubles down on the negatives as any money being used to monitor the impacts of PACER-Plus ends up taking money away from the current aid allocations meaning that FICs would not only end up with the burden of the commitments of PACER-Plus but that some of the existing aid budgets would be lost as it was diverted to assessing the impacts of this trade deal!
Ironically, the development that will come from this Arrangement will in fact be of benefit for exporters from Australia and New Zealand as PACER-Plus, and the development assistance that is spent, ensures that the commitments of FIC Parties are implemented.
Access to funds impacts PACER-Plus ratification In October 2018, the Cook Islands government announced its intention to put its ratification on hold over access to the Development Assistance package. The Cook Islands' status as a developing country under the OECD's Official Development Assistance (ODA) criteria is under review with it potentially graduating to developed country status. According to the press release from the Cook Islands Government, it has placed its ratification of PACER-Plus on hold following discussions amongst PACER-Plus officials where “it became evident it was unclear whether the Cook Islands 98 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf 99 Comments attributed to Ms Cawte, from DFAT during the Australian Parliament Joint Standing Committee on Treaties hearings on PACER-Plus, report available at https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/NuclearFuel- France/Report_179/section?id=committees%2freportjnt%2f024162%2f25858#footnote51target 100 Parliament of Australia, Joint Standing Committee on Treaties, PACER Plus Agreement, available at: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/NuclearFuel- France/Report_179/section?id=committees%2freportjnt%2f024162%2f25858#footnote51target 101 Parliament of Australia, Joint Standing Committee on Treaties, PACER Plus Agreement, available at: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/NuclearFuel- France/Report_179/section? would still be eligible for the PACER Plus ODA implementation package, should it graduate from developing to developed status under OECD’s ODA criteria.”102
The press release also went on to add: “The obligations on parties to PACER Plus are costly to implement, binding and endure as long as the Agreement is in force” said Deputy Prime Minister Brown. “To expect a country like the Cook Islands, with very little in the way of exports to take on those implementation costs without assistance through the PACER Plus ODA implementation package is untenable. Government has therefore put our ratification of PACER Plus on hold whilst we review the implications of ODA graduation on our obligations and entitlements under PACER Plus.”103 Under Chapter 10, the definition of the Work Programme established under the Arrangement make it clear that it is for “developing countries”, stating: Work Programme means the programme of development and economic cooperation activities mutually prioritised and determined by the Parties taking into account the needs identified by the developing country Parties, under the relevant components. Throughout Chapter 10 the terms “developing country Parties” and “Forum Island Countries” are used, seemingly interchangeably at times whilst in the Arrangement there is no use of the former term, only the latter (including in using it when discussing the broader trade and investment related assistance).
The Cook Islands already have existing market access to Australia and New Zealand and an already significantly liberalised economy and as such “the development package and Aid for Trade commitment from Australia and New Zealand was a significant consideration in Government’s decision to sign PACER Plus.”104 With the development component of PACER-Plus equalling approximately AUD$555,000 per country per year (for five years) it is an stinging indictment on the agreement that there are so few benefits that it isn't worth pursuing for just over half a million dollars. The issue of accessing the existing aid allocated to the region but under PACER-Plus mechanisms appears to have been resolved with the Cook Islands now progressing with ratification and expecting “immediate benefits”.105
The Development and Economic Cooperation Work Programme The Work Programme aims to assist in the implementation of PACER-Plus and is comprised of six components (with flexibility for emerging issues).
Establishment of the PACER-Plus Implementation Unit In order to implement PACER-Plus as well as the Work Programme a PACER-Plus Implementation Unit is being established “under the umbrella of the Pacific Islands Forum Secretariat (PIFS), to assist the Joint Committee and the participants to implement the Agreement”.106 A Budget subcommittee will also be established in the Unit and it will contain representatives from Australia (2); New Zealand (1), FICs (2) and Unit officials (2). Some of the functions the Unit will perform include: 102 Government of the Cook Islands, 31 October 2018, Cook Islands ratification of PACER Plus Agreement on Hold, press release, available at: http://www.pina.com.fj/?p=pacnews&m=read&o=14483931075bda6137343914c9dcfb 103 Government of the Cook Islands, 31 October 2018, Cook Islands ratification of PACER Plus Agreement on Hold, press release, available at: http://www.pina.com.fj/?p=pacnews&m=read&o=14483931075bda6137343914c9dcfb 104 Government of the Cook Islands, 31 October 2018, Cook Islands ratification of PACER Plus Agreement on Hold, press release, available at: http://www.pina.com.fj/?p=pacnews&m=read&o=14483931075bda6137343914c9dcfb 105 Radio New Zealand International, PACER Plus set to come on stream later this year – Cooks Deputy PM, February 21 2020, https://www.rnz.co.nz/international/pacific-news/410016/pacer-plus-set-to-come-on-stream-later-this- year-cooks-deputy-pm 106 Implementing Arrangement for Development and Economic Cooperation Under the Pacific Agreement on Closer Economic Relations Plus, Attachment A: PACER Plus Development and Economic Cooperation Work Programme (i) provide information to the Joint Committee to assist in decision making and implementing decisions; (iv) coordinate the development of the Work Programme, including liaising with the subsidiary bodies and national focal points; (v) develop and maintain a Monitoring and Evaluation Framework for the Joint Committee’s approval; (ix) support Participants in the promotion of the Agreement to key stakeholders such as business and industry, including through the development of communications strategies, tools and resources.107 The Implementation Unit will prepare annual programmes that will be presented to the Joint Committee for approval; the Joint Committee will meet during the annual Forum Trade Officials Meeting – an annual meeting that has only met once in the past 3 years.
It is clear from the structure of the Implementation Unit that Australia and New Zealand will be keeping a close grip on how it proceeds. Firstly is the problematic location of the Unit within the PIFS, a secretariat long seen as doing the work of its main donors - Australia and New Zealand. Secondly the number of positions allocated to the metropolitan powers on the budget subcommittee will allow them to wield their influence significantly as well as maintain constant scrutiny on the progress of implementing the Agreement. Thirdly the reporting of the Joint Committee to the Forum Trade Officials Meeting offers yet another avenue for Australia and New Zealand to exert pressure of FIC officials as has been seen in that forum for many years.108
What's included? The Arrangement states the Australian Government will provide AUD$19 million to fund the management and delivery of the Work Programme whilst the Government of New Zealand will provide NZD$7 million to fund the management and delivery of the Work Programme.109 This money will be allocated across 5 years and amongst all the FIC Parties. As of February 2020, this will translate to approximately AUD$555,000 per FIC per year.110
It is worth stating again that whilst the 'understanding' is that Australia and New Zealand will provide such funding, this is a non-binding commitment and can be withdrawn whenever.
Components of the Work Programme The Scope and Objective of the Work Programme is articulated in Chapter 10 Development and Economic Cooperation Article 2 (2): The Parties agree to improve and complement their existing development and economic cooperative partnerships in trade and investment related areas, taking into account the needs that are identified by the developing country Parties; and mutually prioritised and determined by the participating Parties. In elaborating areas of partnership, the Parties shall take account of the different levels of development and capacities of the Parties. Whilst the objective is “taking into account the needs” that are identified by the developing country Parties, that decisions are to be “mutually prioritised and determined by the participating Parties” brings back the power for Australia and New Zealand to be able to veto any decisions on the projects undertaken.
107 Implementing Arrangement for Development and Economic Cooperation Under the Pacific Agreement on Closer Economic Relations Plus, Attachment A: PACER Plus Development and Economic Cooperation Work Programme 108 PANG's reports “Speaking Truth to Power” and “Big Brothers Behaving Badly” have documented the behaviour and power politics of PIF meetings of trade officials and ministers. 109 Paragraph 2 and 3 of Implementing Arrangement for Development and Economic Cooperation Under the Pacific Agreement on Closer Economic Relations Plus 110 This is an approximate based on exchange rate conversion. The Work Programme is comprised of six components: Rules of Origin and other Aspects of Implementation of Tariff Commitments Customs Sanitary and Phytosanitary Measures Technical Regulations, Standards and Conformity Assessment Procedures Trade in Services Investment
A brief outline of the component, its objective and some indicative activities can be seen below:
Work Programme Components Component Objective Indicative Activities Rules of Origin and ...Rules of Origin and other 4. Assist FIC governments to develop other Aspects of Aspects of Implementation of procedures to administer documentary Implementation of Tariff Commitments evidence of origin provisions, Tariff Commitments including to undertake verification of origin; 5. Assistance with the transposition of earlier HS Codes to later versions.
Customs ...to promote cooperation among 1. Assistance for implementing an the Customs Administrations of automated system or upgrading an the Participants and support existing automated system; customs cooperation activities 2. Training of officials and private sector to acquire expertise in customs procedures including classification, valuation and risk management;
Sanitary and ...to help build the capacity of 1. Capacity building on developing and Phytosanitary agencies responsible for the enforcing export certification systems; Measures implementation of SPS policies 2. Technical assistance to improve and procedures; build business industry compliance with export awareness of the application of certification systems; SPS measures consistent with the principles in the SPS chapter... 3. Assistance to establish or strengthen capacity to manage sanitary and phytosanitary risks including food safety.
Technical ...to support joint efforts in the 1. Assistance in the adoption and Regulations, fields of technical regulations, application of technical regulations, Standards and standards and conformity standards and conformity assessment Conformity assessment procedures; assist in procedures; Assessment promoting mutual understanding 2. Assistance to improve technical Procedures of each Participant’s Technical analysis, product testing and Regulations, Standards and certification (including organic Conformity Assessment certification) of local products to Procedures ensure that they meet international standards
Trade in Services to facilitate increased cross-border 1. Assistance in developing and flows of services among the strengthening qualifications Participants, by assisting them to frameworks in consultation with adapt and improve regulations relevant competent agencies; affecting services trade, building 2. Assistance to explore possible on the reductions in barriers to recognition of qualifications in sectors trade in services embodied in the of comparative advantage between Agreement. national competent bodies in the Participants; 3. Assistance with strengthening the capacity of the FICs to regulate services, according to international standards and benchmarks, particularly in the financial and telecommunication sectors;
Investment ...to facilitate the flow of 1. Assistance to enhance capacity of investment across the participants, participants to facilitate investment by deepening and broadening flows including through the private linkages and assisting them to sector; address impediments to expanding 2. Assistance to undertake legislative investment reforms that enhance the investment and business operating environment, including with regard to public enterprises; 3. Assistance to assess and improve the investment climate with the involvement of the private sector.
The Work Programme can be broken down into those of benefit to the FICs and those of benefit to Australia and New Zealand. Whilst none of the components of the Work Programme are clear cut the political and economic realities that they exist in impact the interests and benefits at play.
Benefit to the FICs: Rules of Origin and Technical Regulations, Standards and Conformity Assessment Procedures/Sanitary and Phytosanitary Measures
The Rules of Origin (ROO) component of the Work Programme has the best opportunity to be of benefit to the FICs.
The restrictive ROO associated with the SPARTECA agreement has long been something that FIC exporters have struggled to meet, undermining any ability to take advantage of the duty-free, quota- free market access to Australia and New Zealand that they had. Whilst the ROO flexibilities under PACER-Plus are some slight improvement on SPARTECA they are still problematic as has been elaborated in the Trade in Goods analysis. The ROO component of the Work Programme however can assist FICs and FIC businesses to comply with the ROO requirements opening up thepotential opportunity for greater export opportunities for FICs.
The impact of the Work Programme relating to the Technical Regulations, Standards and Conformity Assessment Procedures and Sanitary and Phytosanitary Measures depends on how it is implemented.
The objective of the Technical regulations component aims to support joint efforts and mutual understanding of each Parties technical standards and regulations and strengthen information exchanges on such. Such activities may provide the FICs with a better understanding of the standards needed to comply with for FIC exporters to successfully export their products into Australian and New Zealand markets. Whilst the efforts to better understand regulations and promote harmonisation across Parties may be of benefit to FICs it's important that such exercises are not used to ensure that Australian and New Zealand regulations are pushed over those in the FICs for the benefit for A/NZ exporters – Australia has recently argued that influencing global standards and seeking conformity can be of direct benefit for their producers.111
The assistance associated with the SPS component relate more to the application of the Chapter as well as ensuring strengthened cooperation between Parties on SPS matters. Like the restrictive ROO issues, the ability of FIC exporters to meet the high standards of Australian and New Zealand quarantine/SPS standards has proven a barrier to further FIC exports. Whilst this component may result in a better dialogue surrounding the barriers for FIC exports the benefits will truly only come with development assistance to help the FICs comply with the quarantine barriers in Australia and New Zealand, something that is yet to be determined. As the Work Programme currently stands assistance to ensure the application of the SPS Chapter is of little benefit especially considering Vanuatu, Solomon Islands, Samoa, and Tonga already apply the WTO requirements on SPS and the FICs who are not WTO members have lesser requirements to comply relevant to their capacities.
111 Commonwealth of Australia, 2017, 2017 Foreign Policy White Paper, accessed at https://www.fpwhitepaper.gov.au/ Beneficial to Australia and New Zealand: Custom, Trade in Services and Investment
For Australia and New Zealand, PACER-Plus will result in the FICs undertaking binding commitments on a range of issues relating to trade in goods, services and investment. The Work Programme offers the opportunity to ensure that those commitments are implemented as well as potentially further enhanced.
Whilst the FICs have made substantial commitments on market access for trade in goods, the next step to make Australian/New Zealand exports more competitive is to streamline their movement through FIC customs procedures. In this regard the aim of the Customs component of the Work Programme will be reflected in “efficient and economical Customs Administration and expeditious clearance of goods”, and “simplified and harmonised customs procedures”. Whilst some may argue that this will benefit the FICs by reducing the costs of imports there can be no denying that this is of clear benefit to Australian and New Zealand exporters and places them at a competitive advantage against other exporters as well as domestic producers.
The Trade in Services and Investment Components need to be viewed in the context of the existing trade (im)balance. Whilst some FICs may have a significant tourism industry to boost their exports, Australia and New Zealand are the main investors in the region, particularly in the service areas. As such the commitments undertaken in PACER-Plus that relate to services and investment are predominantly for Australian and New Zealand investors and service exporters and the Work Programme will further their interests. The aim of the Components to result in “improvements in the investment climate in participating countries” and “streamlined and harmonised regulatory arrangements which facilitate trade in services” are little more than ensuring that the regulations in the FICs prioritise being as 'pro-business' as possible for investors. Such work does little for ensuring that development is focused on the needs of the FICs and their people and instead puts the needs of foreign investors above the right of FICs to determine their own development.
Broader Trade and Investment Related Assistance
During the negotiations on PACER-Plus, there was an insistence that any development component must include assistance to support FICs to take advantage of any outcome. The Solomon Islands former Trade Negotiations Envoy, Robert Sisilo stated as such in 2013 that: “for PACER Plus to live to its full potential, ANZ should provide FICs with new and additional resources to help address the supply-side and other trade-related constraints that prevent us from increasing and diversifying our trade. ANZ have indicated in general terms that they are prepared to consider our request, but have not been very forthcoming.”112 This has been reflected in the inclusion of “Broader Trade and Investment Related Assistance” in the Implementing Arrangement for Development and Economic Cooperation.
The mutually reached understandings that include the Broader Trade and Investment Related Assistance aims “[t]o maximise the benefits from the expected liberalisation of the trade and investment environment that will flow from PACER Plus”.113 It's worth noting the language that simple states that the benefits “will flow”, it is presented a certainty, a fact that warrants no further critique.
112 “Time for Australia and New Zealand to give concessions in PACER Plus”, 16 December 2013, Solomon Star, accessed on 10/10/2017 at http://www.voiceofmelanesia.com/2013/12/16/smol-melanesian-na-pasifik-nius-digest- 909/ 113 Paragraph 4 of the Implementing Arrangement for Development and Economic Cooperation Under the Pacific Agreement on Closer Economic Relations Plus. The assistance provided under this banner will “include funding for PACER Plus related projects, will complement and be additional” to the Work Programme.114 “Taking into account” the individual priorities of the FICs, the assistance will meet the definition of Aid for Trade as determined by the OECD and include115: I. Trade policy and regulations; II. Economic infrastructure; III. Building productive capacity; and IV. Trade-related adjustment. Under the Arrangement, Australia and New Zealand state that they “will approve an Aid for Trade funding target” of 20% of their foreign aid budgets.116
Whilst it may sound like the FICs demands for additional assistance to ensure that they can take advantage of any outcome under the Arrangement has been achieved, there are few guarantees. The language here emphasises the flexibility for Australia and New Zealand to not fulfil their promises – the Arrangement is already non-binding and contains merely a 'target' to be aimed for, something that would be 'achieved' if they set the target and did nothing further. The projects funded under this assistance will be the “needs identified by the FICs and be mutually prioritised and determined” by Australia/New Zealand and the individual FIC.117 The key phrase here being “mutually prioritised and determined”, again Australia and New Zealand retain the final say in any project and will ensure that it meets the requirements of their foreign aid budgets, including the need for projects to “promote Australia's national interest”.118
The lack of guaranteed control of the decisions of this support undermines the ability of FICs to determine for themselves just what development assistance they need. Instead they are being offered aid projects that may be of benefit to them but will also come with benefits for the donors. Ultimately this Arrangement may offer some development benefits for the FICs but this cannot mean that the benefits that will flow to Australia and New Zealand should be ignored.
Conclusion
The Development and Economic Cooperation Arrangement offers little to the FICs whilst conferring advantages to Australia and New Zealand. Despite the FICs wanting development cooperation as a key outcome of any PACER-Plus deal the final result has seen the FICs with nothing more than redirected aid monies from existing budgets that are controlled by Australia and New Zealand. The failure to secure additional aid money combined with the failure to have such commitments legally binding again demonstrates the uneven burden of commitments within PACER-Plus and lays bare the rouse that this deal was ever about development of the FICs.
114 Paragraph 5 of the Implementing Arrangement for Development and Economic Cooperation Under the Pacific Agreement on Closer Economic Relations Plus. 115 Paragraph 6 of the Implementing Arrangement for Development and Economic Cooperation Under the Pacific Agreement on Closer Economic Relations Plus. 116 Paragraph 8 and 9 of the Implementing Arrangement for Development and Economic Cooperation Under the Pacific Agreement on Closer Economic Relations Plus. 117 Paragraph 7 of the Implementing Arrangement for Development and Economic Cooperation Under the Pacific Agreement on Closer Economic Relations Plus. 118 Department of Foreign Affairs and Trade, 2017, “Australia's Aid Program”, Commonwealth of Australia, http://dfat.gov.au/aid/Pages/australias-aid-program.aspx Appendix D PACER-Plus Labour Mobility Analysis: Unbound promises and an annual meeting
Pacific Network on Globalisation119
Introduction One of the critical demands of Forum Island Countries (FICs) in the negotiations on the Pacific Agreement on Closer Economic Relations Plus (PACER-Plus) was greater labour mobility for Pacific Island workers into Australia and New Zealand. Indeed labour mobility was seen as a “deal breaker” and any agreement that failed to include considerable outcomes on the issue would render PACER-Plus of “little value”.
The movement of people in relation to PACER-Plus is addressed mainly through the binding commitments in the “Movement on Natural Persons” Chapter as well as the related “Arrangement on Labour Mobility”.
In the end however PACER-Plus itself achieved little by way of actual improvements for Pacific Islander workers to access the labour markets of Australia and New Zealand. Rather all that was agreed in non-binding language was an annual meeting to discuss matters relating to labour mobility.
Movement of Natural Persons (MNP)
The MNP chapter and the corresponding schedules from each Party outlines the rules that will apply to the movement of workers under PACER-Plus. These rules aim to make immigration- related applications more transparent and streamlined.
The common categories for classifying the commitments are: • business visitors – Someone who enters as an investor, or aiming to negotiate the sale of goods or a service. • intra-corporate transferees – Someone transferred to a branch/subsidiary of an enterprise; • independent/corporate service suppliers – Someone suitably qualified who has been contracted to for servicing; • installers/servicers - Someone where such installation or servicing is a condition of the purchase of the relevant machinery The commitments in these sectors, particularly that of 'intra-corporate transferees' undermines the ability of FICs to maximise the benefits of investment by ensuring that local workers are mandated to take more senior positions. As has been mentioned in the previous analysis of Trade in Services/Investment, ensuring the use of local staff particularly in management and senior levels increases the wealth retained domestically and increases the skill sets and experience.
Throughout the negotiations, the FICs had pushed to have “Skilled and Semi-Skilled Workers” included in the commitments by parties. This it was hoped would allow FIC workers better opportunities in the labour markets of Australia and New Zealand, giving them better experience and allowing them access to better wages. Australia and New Zealand however did not offer any such commitments in this “unusual feature” as “this would be inconsistent with our normal mandate
119 Released in March 2020 approach to such chapters in free trade negotiations”.120
The Impact and Role of Temporary Labour Schemes
From the outset a binding commitment on Labour Mobility was singled out as a key demand for FICs to ensure that PACER-Plus was of benefit to them. As then Nauru Secretary of Foreign Affairs Robert Sisilo was reported in 2010: “If there is one issue that could be a deal breaker for Nauru on the proposed PACER-Plus economic and trade agreement with ANZ, it is labour mobility – allowing Nauru’s semi- skilled workers to go and work in Australia and New Zealand. Mr Sisilo, told Forum Trade Officials negotiating PACER-Plus early this week in Honiara. Mr Sisilo pointed out that any outcomes from the PACER-Plus process that does not include binding commitments for access of semi-skilled and skilled workers from Nauru to the ANZ labour market will render PACER-Plus of little value to Nauru.” 121 A binding commitment on labour mobility however was long resisted by Australia, New Zealand and later the Office of the Chief Trade Advisor (OCTA). The argument was largely based on the belief that if such an outcome was offered to the FICs, under Most-Favoured-Nation commitments in their other FTAs, Australia and New Zealand would be forced to extend the same commitments to other countries, rendering any preference under the existing schemes for the Pacific useless. There is some doubt about just how valid such an argument is and whether or not it was seriously considered by the Australian and New Zealand negotiators.
The seasonal labour schemes, and the remittances they provide, are of increasingly significant importance for the FICs. New Zealand's Recognised Seasonal Employer (RSE) sees workers remit up to NZD$41million per year and this importance further highlighted by World Bank estimates that: “in 2010 Tongan seasonal workers remitted $5.3 million, equivalent to half of Tonga’s annual export earnings; and ni-Vanuatu seasonal workers remitted $9.7m equivalent to a quarter of Vanuatu’s annual export earnings”122. Remittances were the equivalent of 42-47% of New Zealand's bilateral aid to these countries123. The Australian Seasonal Worker Programme has also been of enormous financial significance. As reported “...[t]he A$26.2 million earned in [financial year 2017] also represents more than the A$12.4 million generated through exports in Tonga.”124 However in 2019 Tonga's net earnings from the SWP (AUD$36.5m) have now surpassed the combined total of Australian aid to Tonga (AUD$28.9m) and Tongan exports to Australia (AUD$2.3m)125.
During the negotiations of PACER-Plus both Australia and New Zealand increased the quotas of 120 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf 121 PACER-Plus: Labour Mobility a deal breaker for Nauru, 22 October 2010, Solomon Star, http://pidcsec.org/news.asp?pageID=2145885662&RefID=2141740147 122 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf 123 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf 124 Doyle, J. and Sharma, M. March 29, 2018, Maximising the development impacts from Australia’s Seasonal Worker Programme, accessed at http://www.devpolicy.org/maximising-development-impacts-seasonal-worker-programme- 20180329/ 125 Howes, S. and Orton, B. January 21 2020, For Tonga, Australian labour mobility more important than aid and trade combined, accessed at https://devpolicy.org/for-tonga-australian-labour-mobility-more-important-than-aid- and-trade-combined-20200121/ workers allowed on the schemes and expanded their scope of coverage. New Zealand raised its quota from 9,000 to 9,500 visas available under the RSE126 as well as pilot schemes for 24 carpenters from Fiji, Tonga and Samoa to help with the Christchurch rebuild that was completed in 2017. A pilot programme was also launched for approximately 20 i-kiribati and Tuvaluan graduates from the Maritime colleges to participate in the fisheries industry in New Zealand127. Following the pilot programs New Zealand has established the Pacific Trades Partnership, that is separate to the RSE, to include both the carpentry and fisheries sectors as well as announcing a feasibility study that was to be undertaken in 2018128.
Australia's expansion of its Seasonal Worker Programme came through the release of its White Paper on the development of Northern Australia. From 1 July 2015 Australia removed the national cap on the programme and expanded the coverage to include “the broader agriculture industry and the accommodation sector on an ongoing basis, and invite northern Australia’s tourism industry to suggest proposals to trial the SWP in tourism sectors other than accommodation from 1 July 2015”.129
Further changes to the SWP included the removal of the minimum stay requirement of 14 weeks, provided workers receive a net financial benefit of at least $1,000 during their stay. There was also a change in the cost-sharing arrangements by “combining the employer’s contribution to each seasonal worker’s international and domestic airfare to a total of $500”.130 The changes to the financial arrangements have resulted in more costs borne by the workers participating in the scheme.
In September 2018 Australia announced the “Pacific Labour Scheme” (which actually commenced on June 1 2018), a scheme that allows up to 2,000 low and semi-skilled workers from participating countries to work in rural and regional Australia for up to three years131. Initially the programme had been open to Kiribati, Nauru and Tuvalu but includes Solomon Islands, Vanuatu and Samoa132 with expansion to other Pacific Island countries available. Like the Seasonal Worker Programme the scheme is employer driven.
In November 2018 further reforms were made in Australia that relate to the Seasonal Worker Programme. The SWP reforms aimed to make it more enticing to employers include reducing the contribution to worker plane fares from $500 down to $300 and increasing the maximum stay period from six to nine months133. The other reforms relate to changes to the working holiday visa, also known as the 'backpacker' visa, for those who enter Australia for a working holiday. The new changes provide the opportunity for backpackers to gain both a second and third year on their visa if they undertake sufficient work during the time periods allocated. Such reforms are argued have effectively created an 'agricultural visa' allowing workers from Asia to come to Australia with the 126 New Zealand Ministry of Immigration, 2015, “Recognised Seasonal Employer cap raise”, https://www.immigration.govt.nz/about-us/media-centre/media-releases/recognised-seasonal-employer-cap-raise 127 Radio New Zealand International, 7 July 2016, “NZ to include Fisheries in RSE Scheme for Tuvalu and Kiribati”, http://www.radionz.co.nz/international/programmes/datelinepacific/audio/201807418/nz-to-include-fisheries-in-rse- scheme-for-tuvalu-and-kiribati 128 New Zealand Ministry of Foreign Affairs and Trade, 2018, “Labour Mobility”, https://www.mfat.govt.nz/assets/FTAs-in-negotiations/PACER/labour-2018.pdf 129 Commonwealth of Australian Government, 2015, “Our North, Our Future: White Paper on Developing Northern Australia”, http://northernaustralia.gov.au/files/files/NAWP-FullReport.pdf 130 Commonwealth of Australian Government, 2015, “Our North, Our Future: White Paper on Developing Northern Australia”, http://northernaustralia.gov.au/files/files/NAWP-FullReport.pdf 131 Government of Australia, 2018, “Pacific Labour Scheme”, available at https://dfat.gov.au/geo/pacific/engagement/Documents/pacific-labour-scheme.pdf 132 Government of Australia, 2018, “Pacific Labour Mobility”, available at https://dfat.gov.au/geo/pacific/engagement/pacific-labour-mobility/Pages/default.aspx 133 Howes, S., 27 November 2018, “Backpackers VS Seasonal Workers”, http://www.devpolicy.org/backpackers-v- seasonal-workers-20181127/ explicit goal of working for three years in the agriculture and horticulture industries, creating an experienced labour force (one of the selling points of the SWP) without the pastoral care responsibilities of the SWP134. This unilateral change to the overseas labour market for the horticulture and agriculture industries in Australia epitomise the concerns FICs had regarding the need for binding legal commitments under PACER-Plus.
Using Labour Mobility to Pressure FICs to Sign The final change to the scheme included the explicit tying of participation in the SWP to the conclusion of PACER-Plus. The White Paper states that “subject to the conclusion of the Pacific Agreement on Closer Economic Relations, the Government will also invite additional Pacific Island Forum countries to participate in the SWP, potentially adding the Cook Islands, Federated States of Micronesia, Niue, Palau and Republic of Marshall Islands”.135 Whilst the Cook Islands is the country with most practical interest in SWP participation, the deliberate tying of SWP participation to PACER-Plus undermines the notion that PACER-Plus is about FIC development and rather put additional pressures upon the FICs to sign up.
In addition it appears that Vanuatu's ability to access the SWP was impacted by its decisions on PACER-Plus. Prior to the June 2017 Signing Ceremony of PACER-Plus, Vanuatu made a last- minute announcement that it would not be signing the agreement until further assessments of the impact had been done.136 In September that year Vanuatu announced it had decided to sign PACER- Plus.137 Following the signature, then-Prime Minister Salwai was reported in an interview: The Vanuatu Prime Minister explained that [SWP and RSE participation] too can be affected if Vanuatu does not sign PACER Plus, in areas to be accessed such as Tasmania, which is taking a long time to materialize and it could be because the country did not sign PACER Plus when other countries signed in Tonga.
“At our meeting with the Prime Minister of Australia he assured me and the Minister of Foreign Affairs (Bruno Leingkone), that Australia will expand the scheme to allow for more ni-Vanuatu to work in Australia’s labour mobility.”138 These comments come after a May 2017 trip by two Vanuatu MPs assessing the status of a 2016 MOU between Vanuatu and the State of Tasmania reported “that bureaucrats in Australia had made sure that the MOU between Vanuatu and the Premier of Tasmania was delayed to a future date”.139 Whilst there is currently no proof that Australia was withholding further access for ni-Van workers into Tasmania under the SWP as leverage on PACER-Plus, the assurances by the Australian Prime Minister after Vanuatu's signing of PACER-Plus are consistent with the history of real-politiking and pressure that has been a hallmark of Australia's (and New Zealand's) approach140 to the Pacific with PACER-Plus.
Like the pressure being exerted around the SWP, the Pacific Labour Scheme was initially being 134 Howes, S., 27 November 2018, “Backpackers VS Seasonal Workers”, http://www.devpolicy.org/backpackers-v- seasonal-workers-20181127/ 135 Commonwealth of Australian Government, 2015, “Our North, Our Future: White Paper on Developing Northern Australia”, http://northernaustralia.gov.au/files/files/NAWP-FullReport.pdf 136 Cullwick, J., 9 June 2017, “Vanuatu Will Not Sign PACER Plus”, Vanuatu Daily Post, accessed at http://dailypost.vu/news/vanuatu-will-not-sign-pacer-plus/article_06ad664c-870d-5ea8-b79f-ddbee0929c80.html 137 Government of Vanuatu, “Vanuatu to Sign PACER Plus Agreement”, 1 September 2017, accessed at https://www.gov.vu/en/public-information/306-vanuatu-to-sign-the-pacer-plus-agreement 138 Cullwick, J., 13 September 2017, “PM to VCCI: Work With Me”, Vanuatu Daily Post, accessed at http://dailypost.vu/news/pm-to-vcci-work-with-me/article_648e28e2-dde2-59de-9f33-782a7f865257.html 139 Garae, L., 31 May 2017, “Parliamentary Secretaries react to Tasmania MOU impasse”, Vanuatu Daily Post, accessed at http://dailypost.vu/news/parliamentary-secretaries-react-to-tasmania-mou-impasse/article_b45202ed- 010a-5401-b18c-435b9663dde6.html 140 See PANG's reports “Speaking Truth to Power” and “Big Brothers Behaving Badly” for the documentation of this history. used to pressure the FICs on PACER-Plus. Whilst the scheme was announced over a year after PACER-Plus was signed, for other FICs looking to join “access will be extended to other PICs based on need, impact and progress on the PACER Plus regional trade agreement”.141 This requirement for progress has now been removed (with no references to such on the website) which is a welcome development. That it was initially a condition highlights the approach that is taken by Australia to the region and the lengths they are going to in order to make sure FICs ratify PACER- Plus. Further it highlights the nature of change that can impact any discussions around labour mobility in the region, standing in stark contrast to the binding commitments taken by the FICs in PACER-Plus.
Worker Exploitation under Seasonal Labour Schemes The expansion of the SWP came amidst concerns about the exploitation of the workers on the schemes. In their submission to the Australian Parliamentary Inquiry into the Seasonal Worker Programme the Australian Council of Trade Unions (ACTU) stated that they had not been consulted regarding the White Paper's outcomes, particularly regarding the expansion of the schemes. The ACTU states that “appropriate safeguards and oversight must accompany any future expansion, and be in place before that expansion takes place”.142
Both the National Union of Workers and the Fair Work Ombudsman raised concerns about worker exploitation to the Parliamentary Inquiry: The National Union of Workers states that these fears mean that there is “significant risk that problems experienced by workers participating in the scheme are underreported”, while the Fair Work Ombudsman acknowledges compliance challenges, including “the transient nature of visa holders; language barriers; visa holders’ limited understanding of workplace entitlements; and their concerns about their visa status.”143 Exploitation is already prevalent in existing labour mobility schemes with cases of workers being paid AUD$1.21/hour when they were entitled to AUD$21.61/hour.144 A Labour-hire firm Maroochy Sunshine Pty Ltd is being prosecuted by the Fair Work Ombudsman for underpaying workers a total of $77,000. Including failing to pay 13 Ni-Vanuatu workers brought to Queensland in 2014, and paying another nine workers between $50 and $300 for up to seven weeks’ labour on Queensland fruit and vegetable farms.145
These cases and others support the ACTU's recommendation to the Parliamentary Inquiry that “relevant unions in both the home and host countries should have access to the workers and input into the briefings at each stage of the process, consistent with recommendations of the World Bank”.146 141 Initially the factsheet on the PLS included the reference to progress on PACER-Plus. Now that the policy has changed it is no longer contained in the factsheet available at https://dfat.gov.au/geo/pacific/engagement/Documents/pacific-labour-scheme.pdf 142 The Australian Council of Trade Unions, 2015, “ACTU Submission to Parliamentary Inquiry into the Seasonal Worker Program”, http://www.aph.gov.au/DocumentStore.ashx?id=e17d70cc-11b7-4714-8f1c- ce4807e134e2&subId=354047 143 Maclellan, N., 2017, “Where are the unions in seasonal work programs?”, http://devpolicy.org/unions-seasonal- work-programs-20170815/ 144 Emma Field and Alex Sampson: “Shocking conditions exposed in Federal Government’s Seasonal Worker Program”, Weekly Times, 16 December 2016. http://www.weeklytimesnow.com.au/news/national/shocking-conditions- exposed-in-federal-governments-seasonal-worker-program/news-story/46a5db6adb9611b8db30a2a41689cc25 145 Emma Field, “Fair Work Ombudsman Takes Labour-Hire Firm to Court for Allegedly Underpaying Vanuatu Workers | WeeklyTimesNow,” The Weekly Times, January 13, 2016, http://www.weeklytimesnow.com.au/agribusiness/fair-work-ombudsman-takes-labourhire-firm-to-court-for-allegedly- underpaying-vanuatu-workers/news-story/d8e42103d960d0b17ff4ec6348ad3a0c. 146 The Australian Council of Trade Unions, 2015, “ACTU Submission to Parliamentary Inquiry into the Seasonal Worker Program”, http://www.aph.gov.au/DocumentStore.ashx?id=e17d70cc-11b7-4714-8f1c- ce4807e134e2&subId=354047 The ongoing exploitation of workers on the SWP however pales in comparison to the fact that 14 workers have died whilst in Australia under the SWP.147
The Arrangement on Labour Mobility
The final outcome of PACER-Plus reflected the wishes of Australia and New Zealand by securing a non-binding outcome and instead agreeing to the “Arrangement on Labour Mobility”148. According to New Zealand the arrangement holds “less-than-treaty status and is therefore not legally binding” however it does “represent an important political commitment” to the FICs149.
The key outcome from the Arrangement is the establishment of the “Pacific Labour Mobility Annual Meeting” (PLMAM) (Paragraph 4). The meetings are to be held annually and a consensus report with any recommendations will be conveyed to Ministers at the annual Pacific Islands Forum Trade Ministers Meeting (Para 4.1 and Para 4.2).
Paragraph 4.4 details that the PLMAM will be responsible for reviewing the progress against the key objectives of the Arrangement that will address where appropriate: (a) enhancement of existing labour mobility schemes and facilitation of other forms of temporary labour mobility (paragraph 5); (b) support for institutions (paragraph 6); (c) facilitation of circulation (paragraph 7); (d) TVET and other tertiary education (paragraph 8); (e) facilitation of recognition of qualifications and registration of occupations (paragraph 9); and (f) any other matter which relates to the objectives of this Arrangement. The meeting will be funded by Australia and New Zealand and hosting is rotated between Australia, New Zealand and a Forum Island Country (Para 4.6).
At the most recent PLMAM held in October 2019 concerns were also registered “that workers’ take home incomes were decreasing due to rising costs, deductions and lack of progression in remuneration”150. Further, a number of issues were raised “relating to contract arrangements and the roles and responsibilities in ensuring that workers’ welfare and working conditions, including remuneration, were adequately safeguardedand understood” with a list requiring priority consideration given to Australia and New Zealand151.
Coming out of the PLMAM is the proposal for a “Labour Mobility Secretariat” however this is under further consideration as “any Labour Mobility Secretariat are not within the scope of the 147 Australian Broadcasting Corporation, Pacific Beat, January 12 2018, Death of seasonal worker sparks questions about program, accessed at http://www.abc.net.au/news/programs/pacific-beat/2018-01-12/death-of-seasonal- worker-sparks-questions-about/9324114 148 The “Arrangement” only includes the following countries: The Governments of Australia, the Cook Islands, the Federated States of Micronesia, the Independent and Sovereign Republic of Kiribati, Republic of Nauru, New Zealand, Niue, the Republic of Palau, the Republic of the Marshall Islands, the Independent State of Samoa, Solomon Islands, the Kingdom of Tonga, Tuvalu, the Republic of Vanuatu 149 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf 150 Pacific Labour mobility Annual Meeting Outcomes Statement 2019, https://www.mfat.govt.nz/assets/PACER- Plus/PLMAM-2019-Outcome-Statement_-Public.pdf 151 Pacific Labour mobility Annual Meeting Outcomes Statement 2019, https://www.mfat.govt.nz/assets/PACER- Plus/PLMAM-2019-Outcome-Statement_-Public.pdf AU$25.5million PACER Plus Development Cooperation Commitment allocation, and specific labour mobility resourcing would need to be new and additional, or reprioritised and repurposed”152. It is insightful to see that even within the framework of the PLMAM, any initiative that might help progress and be of real institutional support for the FICs has to come from somewhere else in the existing aid budgets of Australia and New Zealand.
The PLMAM meeting in and of itself is not an unwelcome initiative as greater ongoing conversations are needed when dealing with the movement of people around the region for labour projects. The PLMAM is problematic however for a number of reasons.
First and foremost it is the indicator of the imbalance in PACER-Plus. Forum Island Countries are undertaking binding commitments on the areas of interest to Australia and New Zealand yet on the key interest to the FICs, Australia and New Zealand have promised to fund an annual meeting of officials.
Secondly, there is no mandated union voice at the meeting. The recent and ongoing stories of exploitation of workers under seasonal employment schemes indicated the very important need to ensure that seasonal workers know their rights and have a voice. The failure to ensure that the PLMAM was a tripartite meeting will ensure that the voice of workers is excluded from the decisions made on the workings of the schemes.
Thirdly, the mandating of a “consensus report” effectively provides Australia and New Zealand with a veto of any recommendations. Whilst this continues the current arrangements within PIFS meetings, FICs know very well the power that the region's main aid donors have and the way they can use it to ensure their interests.
Fourthly, the requirement to have the PLMAM report to the Pacific Islands Forum Trade Ministers means that Ministers who may have little understanding of the complex implications of these schemes will be making decisions regarding them. Furthermore, the history of the Forum Trade Ministers Meeting has seen Australia and New Zealand wield their political power in that environment to great effect153, undermining the ability of FICs to ensure that their concerns about the issues are going to be addressed.
Finally, the PLMAM amounts to no new commitments from Australia and New Zealand. As New Zealand has stated, the “financial implications are minimal and can be met from within existing Official Development Assistance (ODA) programmes”154. The fact that the PLMAM, and any proposed “Labour Mobility Secretariat” will see money diverted away from other ODA programmes means that it is not a net gain for FICs.
Conclusion
There is no doubt of the importance that temporary labour mobility has for many Forum Island Countries, which is why it was a centrepiece of their interest in PACER-Plus negotiations. While there have been a number of welcome developments regarding this over the course of the PACER- Plus negotiations the bitter truth is that the outcome of those talks resulted in no binding benefits from the regions big brothers Australia and NZ in exchange for the disproportionate commitments
152 Pacific Labour mobility Annual Meeting Outcomes Statement 2019, https://www.mfat.govt.nz/assets/PACER- Plus/PLMAM-2019-Outcome-Statement_-Public.pdf 153 See PANG's publications “Speaking Truth to Power” and “Big Brothers Behaving Badly” for accounts of some FTMMs. 154 New Zealand Ministry of Foreign Affairs and Trade, 2017, Pacific Agreement on Closer Economic Relations (PACER) Plus National Interest Assessment, https://www.mfat.govt.nz/assets/FTA-Publications/PACER- Plus/PACER-Plus-National-Interest-Analysis.pdf being undertaken by the FICs. Instead labour mobility is now indicative of the failure of PACER- Plus to deliver in the interests of FIC development and instead embodies the traditional approach that Australia and New Zealand have to the region, one of pursuing their interests first and foremost.