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The Pacific Agreement on Closer Economic Relations Plus – PACER Plus – will contribute to the development of the Pacific Island Countries (PICs). PACER Plus will increase trade and investment in the region, thereby creating more business opportunities, stronger economic growth, and more jobs.
More specifically, PACER Plus would bring the following benefits.
✓ Stimulate economic growth and job creation by reducing the costs of exporting goods and services to Australia, New Zealand, and other PICs
The PICs already have duty-free quota-free market access to Australia and New Zealand for all goods. PACER Plus will help make that access effective by reducing related trade barriers and overcoming supply-side constraints in the PICs. This will increase the competitiveness of PIC exporters, who will benefit from an increased market size and greater opportunities to exploit economies of scale.
Several provisions in PACER Plus would reduce the costs involved with trading among the Parties. These provisions include: i) improved customs procedures that would cut red tape and result in more efficient importing and exporting practices; ii) more flexible rules of origin requirements that will enable PIC firms to flexibly source inputs from other countries in the region; and iii) more clear and transparent rules on sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT).
The Agreement would also contain a Chapter on Development Assistance which would lead Australia and New Zealand to provide financing and other assistance to assist the PICs in the effective implementation of the Agreement, and in overcoming supply-side constraints that currently limit the PICs’ capacity to fully take advantage of market access opportunities.
PACER Plus would also provide greater access to the services markets of Australia and New Zealand, thereby enabling increased PIC exports in a sector that accounts for most domestic economic activity in Pacific Island Countries.
Through these measures, PIC firms will be able to expand production and exports within the region, and also to the rest of the world, thus leading to both economic growth and job creation. In particular, more flexible rules of origin requirements – which determine whether a good is considered as being ‘produced domestically’ – will allow PIC firms to add value to imported goods and then export these new goods to other countries, e.g., for textiles. This reflects the new reality of global trade, whereby relatively few goods and services are produced wholly only in one country, and instead firms can find their niche in the regional or even global production process of various goods and services which best suits their own comparative advantage. High import barriers make it difficult for exporters to succeed and further accentuate the isolation and remoteness of Pacific Island Countries.
✓ Attract more foreign investment in PIC economies
Investment is a fundamental driver of long-term economic development in both developed countries and developing countries. The PICs’ small populations and economic sizes constrain the amount of investment that can be sourced from each PIC individually.
The chapter on investment in PACER Plus will establish the foundations for greater investment in PIC economies, by opening up opportunities for investment from Australia, New Zealand, and other PICs.
Globally, competition among countries to attract foreign investment is fierce. Ensuring basic protection of foreign investments according to international standards (for example, against expropriation without compensation) and guaranteeing minimum levels of non-discriminatory treatment through international agreements provides a level of security and predictability that enables foreign investment flows. Through the inclusion of a Chapter on Investment, PACER Plus will give an important signal that the region is serious about attracting foreign investment and that it is ‘ready to do business’. A more stable and attractive investment environment also benefits domestically-owned enterprises.
Foreign investment helps bring in the necessary capital, knowledge and technology to start new – or expand existing – businesses, including to take advantage of export opportunities in the region. Increased foreign investment contributes to local employment, can foster greater competition in the domestic market, and is a powerful tool for economic growth and sustainable development.
✓ Give consumers and producers in PICs access to cheaper imported goods
PICs figure among the most import-dependent countries in the world, owing to their relatively limited domestic productive capacities. Consumers in PICs, including some of their very poorest citizens, often have to pay high prices for imported goods that currently face import duties. PACER Plus will lead to a gradual removal of import duties used by PICs for a large proportion – but not all – of their imports from Australia, New Zealand, and the other PICs. This, alongside a more competitive regional economic framework provided by PACER Plus, will make many products more affordable for ordinary citizens.
Firms in PICs will similarly benefit from these lower prices. PACER Plus will allow many PIC firms to import – from Australia, New Zealand, and the other PICs – the various inputs that go into the production of their goods and services, at lower prices. This will bring down the overall costs for these firms, and allow them to increase their domestic, regional, and global competitiveness.
✓ Secure development assistance to allow the PICs to implement the Agreement and to overcome constraints so as to take advantage of market access opportunities
Recognising the capacity constraints of PICs, the Agreement will innovate by including a Chapter on Development Assistance. This will lead Australia and New Zealand to provide assistance – financial and technical – to the PICs to ensure that they are able to effectively implement the agreement, therefore ensuring that the associated benefits materialise for consumers and producers. In addition, the Chapter would provide assistance to help the PICs address the supply-side constraints that had prevented them from fully taking advantage of market access opportunities in the past. Through this development assistance, firms in PICs will be able to gradually exploit existing and emerging market access opportunities within the region and beyond the region too, which will lead to economic growth and job creation.
✓ Foster greater movement of natural persons across the region, and achieve greater access of PICs to seasonal worker programs in Australia and New Zealand
Through the negotiations, the PICs are seeking concrete and rapid improvements to the seasonal workers programmes of Australia and New Zealand, namely the Seasonal Worker Program (SWP) and the Recognised Seasonal Employment (RSE). The PICs’ demands include the expansion of the programmes to additional sectors, an increase in the number of workers allowed under the schemes, and the extension of the programmes.
Seasonal worker programmes provide significant benefits to many PICs. In addition to providing well-paid work for a significant number of unskilled workers from the islands, remittances contribute to rising income and consumption at the household level, thereby alleviating poverty.
The Agreement would also include additional provisions on the movement of natural persons, for example to permit PIC nationals to temporarily go abroad to provide services in areas of interest. In view of the small size of the economies of PICs and their rapidly growing youth populations, expanding opportunities by facilitating the movement of natural persons is of high interest.
✓ Expand trade in services in the region and reinforce the PICs’ services sector
Given their geographical situation and small populations, services play a dominant role in the economies of the PICs. Given technological advances, trade in services offers opportunities for the PICs, since distance and smaller market size are less constraining than for trade in goods.
In the context of PACER Plus, PIC services suppliers would be afforded greater access to the Australian and New Zealand markets, thereby contributing to export growth and diversification, as well as job creation. Export opportunities for the PICs would concern not only the cross-border supply of services, but also the supply through the temporary movement of natural persons abroad (mode 4).
The Agreement would also help attract further investment in the PICs’ services sector. In addition, PIC firms in all sectors would benefit from cheaper access to services that are readily available from abroad, thereby bringing down production costs and resulting in greater competitiveness. Relatedly, consumers in PICs would also benefit from greater availability and lower prices of services, as this would free up income and increase demand for other products. Excessive services restrictions further isolate PIC nationals and firms from the rest of the world, while efficient service sectors cut distances.
✓ Inject healthy competition into PIC economies
Achieving competition in small and remote economies can be challenging. Lack of competition is associated with higher prices for consumers, lesser quality goods and services, and limited innovation. By reducing barriers to trade and investment, PACER Plus will stimulate a more competitive environment in the region. This will lead to lower prices for consumers, and will also be beneficial to many firms located in PICs who will be incentivised to be more innovative, efficient, and productive. Ultimately, this process will underpin the framework for long-term economic growth of PICs.
✓ Allow PICs to benefit from special and differential treatment, to reflect their unique development needs
PACER Plus will not be a standard trade agreement among developed countries. First and foremost, it will contain Chapters on Development Assistance and Labour Mobility, topics that are usually not addressed in typical trade agreements.
Further, the Agreement will not require PICs to achieve the same amount of liberalisation of trade in services or import duties as Australia and New Zealand. Moreover, the tariff commitments of the PICs will be implemented over a generous time-frame, thereby allowing PIC governments time to adjust to any revenue losses that may occur from the reduction of import duties, as well as allowing domestic firms ample time to adjust to increased competition.
In addition, in a number of instances, the obligations of the Agreement would provide additional flexibility for PICs. The special situation of non-WTO Members and of PICs that are Less Developed Countries (LDCs) is also recognised.
PACER Plus: Myths and Misunderstandings
There are a number of myths and misunderstandings about PACER Plus that warrant correction or clarification:
✗ PACER Plus is heavily unbalanced and does not reflect PIC interests
This is false. PACER Plus will not require PICs to undertake the same level of liberalisation as Australia and New Zealand. Whereas the PICs will get full duty-free quota-free market access to Australia and New Zealand, the same will not be true of Australia and New Zealand’s access to PICs’ markets. Levels of tariff liberalisation, as well as their period of implementation, will take account of the level of development of the PICs and contain adequate flexibilities. Market opening will be gradual. The PICs would also be allowed to permanently exempt the most sensitive products from competition.
Levels of commitments in such other areas as trade in services and investment would also take the Parties’ levels of development into account. In addition, various provisions of the Agreement would include additional flexibilities for the PICs. Further, in line with PIC demands and interests, the Agreement, unlike typical trade agreements, will include Chapters on Labour Mobility (seasonal workers programmes) and Development Assistance.
✗ PACER Plus will lead to business closures and job losses
This accusation is inaccurate and simplistic. Over time, PACER Plus will lead to a more competitive and dynamic economic environment in the region, meaning more business opportunities, greater incomes, and more jobs.
In any market economy, firms have to adapt to evolving circumstances – not only trade-related ones – to be successful. In that context, adjustments may in certain cases be required as a result of tariff liberalisation. However, the Agreement will not require that tariffs on all products be eliminated from the entry into force of the Agreement. Rather, tariff reductions would be gradual and spread over several years, especially for less developed economies. There would be no shocks. In addition, tariffs could be maintained for the most sensitive products. Protectionism is not a long-term solution, as it increases costs and promotes inefficiency.
✗ PIC Governments will lose their ability to regulate
This is false. Trade agreements do not compel countries to give up their regulatory powers. Parties are able to amend existing regulations or introduce new regulations. For example, obligations of the Chapter on Investment only mandate that governmental measures not discriminate between similar enterprises on the basis of the nationality of its ownership.
While this misunderstanding is often mentioned in the context of regional trade agreements or the WTO, recent history has repeatedly proved its inaccuracy. It is generally accepted that liberalisation needs to be accompanied by adequate regulation, and therefore that governments need to adapt their regulatory frameworks to changing circumstances over time.
✗ PACER Plus will give unprecedented rights to big corporations and allow them to take PIC governments to international arbitration
This is false. Unlike various regional trade agreements, PACER Plus will not include a so-called investorstate dispute settlement mechanism. Accordingly, the Agreement will not give foreign companies the right to take PIC governments to binding international arbitration tribunals and seek monetary compensation for alleged violations of the Agreement.
Obligations of PACER Plus will not prevent a government to undertake certain measures simply because it somehow gets in the way of companies’ capacity to make profits. Nor would PACER Plus somehow prevent governments from introducing new regulations that might be “more burdensome than necessary”. Saying otherwise is simply false.
✗ PIC Governments will lose their sources of revenue as a result of tariff reductions, thereby threatening the provision of public services in PICs
This is not the case. While it is too early to make a detailed estimate of revenue losses as long as import duty reductions remain under negotiation, it is already clear that revenue losses will be modest. First, in many PICs, revenue collected through import duties only accounts for a small share of government revenue. Second, PICs will ensure that their most revenue-sensitive items will be excluded from duty reductions, or duties will be replaced by similar taxes, such as excise taxes. Third, where duties are reduced, this would happen over long implementation periods, providing sufficient time to make adjustments if necessary. Fourth, a number of PICs are actively pursuing ways to improve their national revenue systems, which will make them independent from import duty revenue. Accordingly, It is false to say that PACER Plus will lead to reduced public spending or threaten the delivery of public services.
✗ PICs will be flooded by unwanted imports from Australia and New Zealand, driving down the prices and earnings for firms and workers in PICs and threatening the well-being of consumers
This will not happen. Under PACER Plus, PICs will be able to apply safeguard measures. Moreover, nothing in PACER Plus will prevent a country from imposing measures that are necessary for health reasons, or to protect consumers’ safety or public order. For example, any country is free to ban the import of food items deemed unsafe, such as expired food.
✗ PACER Plus will undermine indigenous rights to land
This is false. Most PICs maintain policies that prohibit or limit the acquisition of land by foreigners. Such policies would not be affected by the Agreement since the PICs would list such measures in their relevant schedules of commitments under the Agreement, thereby exempting them from any requirement to withdraw or modify them. This is standard practice, whether in the context of the WTO or regional agreements, including the Pacific Island Countries Trade Agreement (PICTA) Protocol on trade in services.
✗ PACER Plus will lead to privatisations, will undermine the supply of public services like healthcare and education, and limit the capacity of governments to take measures to protect the environment
All false. Nothing in PACER Plus requires countries to liberalise or privatise their public services. The capacity of governments to supply public services, such as in relation to health and education, or to take measures to protect the environment would in no way be threatened.
✗ Under PACER Plus, the PICs will lose their capacity to regulate the entry of foreign investors or foreign service suppliers into their territory
This is incorrect. Regional trade agreements usually contain obligations on trade in services and investment, including with respect to “pre-establishment”. Investment-related obligations do not give foreign investors unfettered rights to enter PIC markets. All investors have to comply with governments’ non-discriminatory measures, including as it relates to the admission of investments. As in any other trade agreement, Parties would have the possibility to apply measures that discriminate against foreign investors by listing them in their national schedule. This may include measures relating to, for example, the screening and review of foreign investments, or discriminatory measures that require foreign corporations to train local personnel. Several PICs have already undertaken similar commitments in the context of the WTO’s General Agreement on Trade in Services.