PACER-Plus: Why we need to get it right

Islands Business | September 2010

Interview: Dr Chris Noonan Chief trade adviser on PACER-Plus

Why we need to get it right

“PACER-Plus is the most important economic negotiation that Forum Islands nations will undertake this decade, so you need to get it right.”

So says Dr Chris Noonan, Chief Trade Advisor to Forum Islands Countries for the PACER-Plus free trade negotiations. The former University of Auckland academic was appointed in 2009 to provide support and assistance to the Pacific islands in their trade negotiations with Australia and New Zealand.

During negotiations for an Economic Partnership Agreement with the European Union, the Pacific Islands Forum Secretariat has been providing technical advice on a range of trade and economic issues. But the secretariat can’t play the same role in the PACER-Plus negotiations, where all the parties on both sides of the negotiations are Forum members.

As ISLANDS BUSINESS reported earlier this year, it’s taken some effort to guarantee the independence of the Office of the Chief Trade Advisor (OCTA) and provide the necessary resources to fulfill its mandate.

Rather than operating from the Forum Secretariat in Suva, OCTA is now based in Vanuatu, in the MSG Secretariat.

Speaking to NIC MACLELLAN, Dr Noonan outlines the state of play since PACER-Plus negotiations were launched a year ago, and the challenges facing Forum islands countries as they negotiate a trade deal with Australia and New Zealand.

Could you describe the mandate of OCTA and your role in the negotiations?

“The OCTA was set up after a decision of the Forum Trade Ministers and endorsed by the Forum leaders. The mandate of the office is to provide support and assistance to the Forum Islands Countries (FICs) in their trade negotiations with Australia and New Zealand. The office is answerable to and takes direction only from the FICs. It is very important for the office to be independent of the Forum Secretariat, as the secretariat has the broader membership of both Australia and New Zealand and the FICs. It was felt it was necessary to have an independent office to support the FICs in the negotiations. The sort of support we’ll be providing is technical advice and analysis on trade issues, assisting the countries to co-ordinate and discuss their negotiating positions. Some of the work is simply organising meetings; at another level it’s to suggest strategies for negotiations. To the extent that we’re directed by the countries, our role is also to represent the FICs in the actual negotiating rooms themselves. The process is however controlled by the FICs and we act on the instructions of the FICs.”

Negotiations were commenced after the 2009 announcement by Forum leaders in Cairns.

But have there been some difficulties in getting your office up and running to the full extent that is required?

“The decision in Cairns was in August in 2009 and our doors opened here to an empty room on 29 March this year, so there was quite a gap. Some of the background for that has already been reported. If you’re trying to set up an office from scratch, it takes time to put in place systems and also to employ staff. We’ve got a certain budget and we’re trying to employ staff—we’ve interviewed people and we’re looking to make offers for trade policy people, but it just takes time to get people on the ground.”

Do you have the financial resources that you’ll need for the range of tasks that are being set by the FICs?

“One part of our mandate was to seek funding from donors other than Australia and New Zealand. We get a certain amount of core funding from Australia and New Zealand, but in addition to that it was always one of the concerns of FICs that the office should be able to seek funding from elsewhere. Some additional funding has been sought from a couple of sources, but nothing has been confirmed yet. If we were restricted to the resources provided by Australia and New Zealand at present, we could not provide the sort of services or support the FICs require for these sorts of negotiations.”

The global multilateral trade negotiations through the Doha Round and the EPA negotiations with the European Union have both gone well past their scheduled deadline for completion. Is that complicating the FICs’ ability to participate in trade negotiations with Australia and New Zealand?

“A lot of trade ministries or departments in the Pacific do not have a large number of staff, so once there are a couple of major negotiations and the Doha round as well, there’s always a risk of departments being overwhelmed. That’s on top of other trade issues the departments have to deal with. So it’s always been a concern of the FICs in the lead-up to the commencement of the PACER-Plus negotiations that they would be required to maintain two major negotiations at the same time: the EPA and PACER-Plus.”

Do the participating governments have a common understanding of what they’re aiming for at the end of this process?

“At the moment, precisely what PACER-Plus will be is a matter for discussion and FICs are at this moment thinking about what their objectives are in these negotiations. One of the key points FICs have been pushing in the lead up to the commencement of PACER-Plus negotiations is the need for national consultations, to talk to their stakeholders and to find out what their offensive and defensive interests are in these negotiations. To some extent within the FICs, what are the ambitions for PACER-Plus are still not entirely certain. There are a number of things the countries have flagged as priority issues and things they believe could actually assist their economic development in a trade agreement with Australia and New Zealand—things like access for agriculture in relation to biosecurity and allowing agricultural products from the islands into Australia and New Zealand markets.

“Things like development assistance have been put on the agenda, improvement to the Rules of Origin has been put on the agenda and labour mobility and also infrastructure is now on the agenda as well. So there are a number of things the countries believe they can benefit as well, but precisely how they all fit together in one agreement or what the overall architecture is, is not something that has been discussed at any length in the course of these negotiations.”

Fiji is the second largest economy in the region, but it has been suspended from Forum activities. In the longer term, can the PACER-Plus negotiations succeed without involving Fiji, as one of the major hubs of economic activity in the region?

“Obviously, the PACER-Plus process takes place within a wider political context. That wider context has involved the suspension of Fiji from Forum activities, so PACER-Plus can only operate in that wider political environment. But as far as Fiji’s role in the Pacific is concerned, you’re entirely correct. Fiji is a transport hub and an economic hub for a large part of the region. Ultimately, it would be desirable for Fiji to be part of the PACER-Plus process, but again that is subject to the broader political considerations.”

Fiji has raised concerns about the separation of PACER-Plus from the original PACER framework. For example, former Australian trade minister Simon Crean described PACER-Plus as “completely separate” from PACER.

“The position of Australia has been made very clear and the contrary position of Fiji has also been made very clear, which challenges its exclusion from PACER. There isn’t a technical legal answer for this that will solve the problem. Ultimately, this is going to be a political issue to be determined by the leaders of the region.”

Could you describe the negotiating priorities agreed at the past negotiating sessions?

“The priorities that have been listed are largely the priorities of the FICs, such as improvement of Rules of Origin. At the moment, trade from the FICs to Australia and New Zealand takes place under a preferential agreement known as SPARTECA. The Rules of Origin under SPARTECA are very old and out of date and make it very difficult for FICs to trade any processed products to Australia and New Zealand. So there’s an opportunity to substantially improve the Rules of Origin that exist under SPARTECA and this could be an early harvest prior to the conclusion of PACER-Plus process as well—Rules of Original could be negotiated under SPARTECA, then integrated under PACER-Plus, as well allowing FICs’ improved access into the Australian and New Zealand markets almost immediately.”

If there could be improvement in the Rules of Origin and trade facilitation under a sort of “SPARTECA-Plus”, why is there a need for a WTO-compatible agreement beyond that?
“The pressure to negotiate a WTO-compatible agreement is coming from Australia and New Zealand rather than the FICs. That’s been the whole history of the PACER-Plus process. As FICs have nearly quota free and duty free access under SPARTECA, it means that a GATT Article-24 compliant agreement is unlikely to improve the level of access, as far as pure market access considerations are concerned.

“Not all FICs are likely to enter into a free trade agreement with the European Union and for a lot of the smaller countries maybe it doesn’t make sense for them to sign up to a GATT Article-24 compliant agreement because of the obligations that this necessarily entails. Maybe, there are some other sorts of solutions, other sorts of approaches than that taken with PACER-Plus, especially for some of the smaller countries that are not likely to become WTO members in the foreseeable future.”

On labour mobility issues, there are already two schemes for unskilled workers to come to Australia and New Zealand and there are few barriers for skilled workers to enter. Why do we need to integrate labour mobility into a free trade agreement?

“What the overall architecture is, is still a matter of discussion but part of the reason for discussing labour mobility is the uncertainty about the current access arrangements. The access arrangements are not necessarily about skilled labour. Part of that is about training and the recognition of qualifications and mutual recognition of registration requirements as well. There are a whole range of issues that are linked to a technical deal on sending people from one country to another.”

Will FICs be seeking transitional revenue arrangements, given that the loss of tariffs and import duties through trade liberalisation will hit some budgets significantly?

“For some countries, the loss of revenue is of major concern and countries are still looking closely at what are going to be the revenue implications of PACER-Plus. There are a number of uncertainties about the extent of revenue loss and how it’s going to vary from country to country. There are also a variety of potential responses: everything from limiting the extent of liberalisation to deciding what products are liberalised to improvements in tax collection or—as Europe has agreed with parts of Africa—to provide some additional assistance in relation to revenue loss.”

Recently Australian and PNG ministers announced they were going to begin discussions on an Economic Co-operation Agreement (ECA). Are bilateral deals like this within the region going to help or hinder the PACER-Plus process?

“I think the PACER-Plus process and the EPA negotiations are quite different. Fiji and Papua New Guinea signed on to interim EPAs because of particular trading concerns and that was recognised by the rest of the region as something that they would need to do. Fiji and Papua New Guinea are continuing to negotiate with the rest of the region under the comprehensive EPA negotiation itself.

“So ultimately the region may come together in that process. When you talk about Papua New Guinea and the negotiation of a potential ECA with Australia—they have trade deals and development assistance agreements already—so there always is a bilateral element to trade relationships between each of the FICs and Australia and New Zealand. The relationship varies between all the FICs as well.”

With trade in services, covering areas like health, education, tourism and water, there are issues about equity and universal service obligations. Is it a concern that under trade in services, Pacific governments are opening up public assets like health or water to foreign investment? Will they be able to regulate the obligations that citizens are demanding?

“At the moment, there is not an agreement to commence negotiations on trade in services. If there are to be negotiations in this area, there are a variety of different approaches that can be taken. One of those opportunities is a GATT Article 5 compliant agreement. It doesn’t mean that every sector has to be opened up—it may be that countries want to protect some sectors. If some sectors lack the appropriate regulatory protections, maybe it’s inappropriate for them to be opened at this time.

“Maybe part of the negotiations is building the appropriate regulatory capacity to be able to liberalise particular trade in services and do so in a way that is beneficial to the FICs, to address questions about equity and the provision of essential services.”