PACER Plus, a trade and development agreement including Australia and New Zealand and a majority of Pacific Forum Island Countries (FICs), presents important opportunities for business and government to drive economic recovery and regional integration.
PACER (Pacific Closer Economic Relations) Plus (‘Plus’ meaning special added features to include development as well as trade aspects) is now set to become a binding agreement between Australia, New Zealand and all FICs who ratify it.
PACER Plus negotiations began in 2009 and concluded in 2017. Eleven countries signed the agreement. Cook Islands recently became the eighth country to ratify PACER Plus, following Kiribati, New Zealand, Niue, Samoa, Solomon Islands, Tonga and Australia. Eight ratifications is the number needed to bring the trade agreement into force. This will happen on 13 December 2020 (Vanuatu, Nauru and Tuvalu have signed but are yet to ratify the agreement. PNG and Fiji are yet to sign.)
PACER Plus creates a number of new avenues for FICs to modernise and harmonise trade systems, reduce the costs of trade, build the capacity of Pacific businesses to increase market access and value add, and generally boost to intra-regional trade. The potential benefits can be summarised as follows.
Reduction in trade costs: Given the geographic isolation of Pacific islands, improving trade facilitation (the efficient movement of goods between countries) and reducing trade costs through more harmonised customs systems, improved border and document compliance and a reduction in cargo and freight rates will go some way to reduce the time and cost for importers and exporters.
Boost to trade in services: In many FICs, the services sector accounts for over 65% of economic activity, so support for growth in services trade is critical for economic development. Businesses in the region working in service areas – such as accounting, finance, management, ICT, business process outsourcing, telecommunications, health, education and most importantly, tourist services – will gain increased certainty, transparency and new market opportunities. With support from Australia and NZ, undeveloped consumer protection standards and poor e-payment practices will improve to facilitate the development of e-commerce in the region.
Increased movement of skilled and semi-skilled professionals: Skilled and semi-skilled labour transfers will be more easily facilitated. Post-COVID, PACER Plus will facilitate the movement of employer-sponsored skilled professionals needed for infrastructure projects, ICT and e-commerce development, for education services and for shoring up health services. There is a possibility of an ‘APEC-style visa card’ being introduced to allow professionals such as engineers, medical personnel and IT specialists to move more freely throughout the region. Concerns about Pacific ‘brain drain’ are addressed by the fact that PACER Plus only facilitates temporary access.
The special ‘Arrangement on Labour Mobility’ for lower-skilled labour: While the PACER Plus agreement did not go as far as I would have liked in terms of special access for Pacific Islanders, it does provide for a number of benefits for signatories such as ‘enhanced labour mobility schemes to maximise development benefits’ and ‘support for efforts to build labour supply capacity’. Non-signatories such as Fiji and PNG have also benefited from participation in Pacific temporary migration programs created or expanded during PACER Plus negotiations.
First mover advantage and increased aid for trade: FICs that have ratified PACER Plus will gain from first mover advantages on market access and concessional arrangements, such as access to any new or enhanced labour mobility schemes and an aid for trade package of some AU $25 million set aside to help address supply barriers and to build FIC trade capacity. This could include new processing facilities and quarantine assets, such as those being sought in Kiribati for fish and craft products. An implementation unit will likely be based in Samoa providing institutional support and technical trade measures to assist FICs to implement the trade agreement.
Advancing health cooperation: Under PACER Plus, the upgrading of sanitary, phyto-sanitary and quarantine capabilities for the containment of animal and human disease will enable ease of market access and improve trade cooperation on health services and products. Reduced tariffs on health products – such as personal protective equipment, medical technology and medicines – along with an increased circular flow of health and allied health professionals will be timely.
Contributing to better economic governance: The legislative, regulatory and institutional frameworks required for the PACER Plus trade and development agreement will mean that FICs need to publish all laws, regulations, judicial decisions and administrative rulings that affect trade. Any new imposts, restrictions or prohibitions on exports and imports will need to be made public, creating certainty and transparency for the private sector. Aid for trade support will assist FICs in this endeavour, in line with recent calls from people such as Biman Prasad to improve governance and institutional capacity around the Pacific.
It is likely Fiji will join the agreement in the not-too-distant future given improved diplomatic ties and the significant potential benefits. PNG has continued to hesitate primarily on political grounds, due to wanting a direct free trade agreement with Australia, but nevertheless is also predicted to join by some PNG trade officials.
Overall, PACER Plus is a win-win agreement that will help stimulate economic recovery in the region and modernise Pacific trade systems. It will help to prepare FICs to access other trade agreements, such as the Regional Comprehensive Economic Partnership, the largest trade agreement in the world. As Prime Minister of the Cook Islands Mark Brown recently put it:
The PACER Plus agreement is important to our country. Economic diversification is a cornerstone of our development strategy and international trade policy must be an important strategic tool that we use to diversify our economy. We have participated actively in PACER Plus negotiations and fought hard to ensure that the Agreement will work for us. We are certain that PACER Plus will open new trade and investment opportunities for the Cook Islands that have not existed before.
This post is the first post of the #PACER-Plus series. You can find the second post here and the third here.
I note the elephant in the room in the form of China has not been mentioned. Not sure how the scale (real and potential) and its ‘cold war’ with Australia will pan out in this context, with leverage that China can bring to bear. Good that NZ has generally not bought into it, and PNG is fence sitting in relation to both China and Pacer, maybe less fence sitting with China.
I particularly note the reference made in your blog to the Agreement provisions creating certainty and transparency for the private sector. Whilst you have not overtly referred to foreign investment, it is implied in your blog, and also based on the concluding comments from the Prime Minister of the Cook Islands.
PACER Plus will provide the first treaty framework for investor protection in the region including treatment based on customary international law, protection against arbitrary expropriation of assets and the ability to transfer funds for investments (including getting returns out). These commitments (when acted upon) will absolutely contribute to the easing of investor’s concerns related to the risk of investment expropriation by PIC governments (either directly or through retrospective taxes) and will increase the relative attractiveness of the PICs that have ratified PACER Plus. I note that all Pacific Island governments want and need more investment in their economies, and I think the Agreement will strongly facilitate this.
From our own experiences and capabilities in delivering economic growth and development services in the Pacific @DT Global we note with interest the timely opportunities which PACER Plus presents for business and government to work together to drive economic recovery. With government budgets and revenues being severely shocked in 2020, success in delivering quick recovery will be dependent on catalysing investment from the private sector. There is considerable and important implementation work still to be done under an assistance package (which you have mentioned) to put the required protections in place through legislated and simplified regulations. This important support would, if correctly applied, help to ameliorate one of the points made by Adam Wolfenden in the ‘case against’ regarding the low capacities of PIC governments to be able to open up and regulate their economies to prioritise the needs of investors over other concerns.
Clearly a balance is needed, and I would stress that PIC governments think carefully about the characteristics of the type of private investment that would appeal most to their communities in achieving their development and fiscal goals. Until the proposed harmonisation and standardisation of investment regulations is in place however, the legal and regulatory barriers are likely to remain high despite the emerging investor appetite for the region.
Steven Baker
Steven Baker is Practice Leader, Economic Growth at DT Global in Asia Pacific with a focus on trade and inclusive growth, enterprise development and innovative financing approaches.