A Canadian analyst says a regional free trade agreement in the Pacific will assault Pacific island economies and give China a strategic opening in the region.
Representatives who signed the PACER Plus trade agreement in Tonga Photo: Pacific Islands Forum Secretariat
On Wednesday, New Zealand became the first country to ratify the PACER Plus agreement, which Australia and nine Pacific Island countries have signed.
Cleo Paskal, of the global think tank Chatham House, said enforced free trade will undermine customary land holding and social capital systems in the Pacific.
She said once those economies are weakened, China will pick up the pieces.
"You'll get Chinese government-backed companies perhaps registered in Australia and New Zealand that then go in once those economies have been broken open to bid for pieces of critical infrastructure, like ports, like telecoms."
The free trade deal is also damaging New Zealand and Australia's reputation because it is seen as forcing other regional powers out, Dr Paskal said.
"PACER Plus is possibly one of the biggest strategic mistakes that Australia and New Zealand can do and it is being watched very closely in other capitals including D.C. and Delhi and Tokyo, all of which, for example, would be locked out under a PACER Plus situation," she said.
In a statement, a spokesperson for New Zealand's Foreign Ministry said the main goal of PACER Plus was to encourage economic development in the Pacific, and not to benefit Australia and New Zealand.
The two governments are providing $US23.5 million towards the implementation of the free trade agreement, as well as around $US1.4 billion in aid in the first five years after it comes into force, which will be targeted towards PACER Plus signatory countries, the spokesperson said.
"Tariff reductions in Pacific Island countries will lower costs for Pacific consumers and businesses, increasing economic activity in those countries," they said, adding the reductions would be gradually implemented to allow governments to adapt if necessary.
Responding to claims PACER Plus would give China inroads into the Pacific, the Foreign Ministry spokesperson said no one could invest in Pacific Island countries without the approval of their governments.
"Land tenure systems won't be changed by PACER Plus and some governments have even reserved some key sectors of their economies and jobs only for locals.
"Even if an investor receives government approval, investors are not above the law."
Critical report
On Wednesday, the Pacific Network on Globalisation (PANG) released a report saying the nine Pacific Island countries signed on to PACER Plus stand to lose more than $US60 million each year in government revenue if the deal is signed.
Through financial losses stemming from tariff exemptions in the deal, Samoa would lose $US12.5 million each year, the Solomon Islands $US13 million, Tonga $US7.2 million and Vanuatu $US7.5 million, PANG's report said.
Smaller economies, including the Cook Islands, Kiribati, Nauru, Niue, and Tuvalu would lose more than $US20 million each year.
"People within New Zealand and Australian communities genuinely think that this sort of economic development is a path to prosperity and within the context of Australian and New Zealand societies it might be," said Dr Paskal.
"But within the context of the very different economies of the Pacific Islands, it won't be. It'll be disastrous."
