Pacific trade pact PACER Plus extended for five more years

The Pacific Agreement on Closer Economic Relations (PACER) Plus will be renewed for another five years, after a meeting of ministers in the Solomon Islands last weekend.

The agreement, which turned five years old this year, commits its 10 members to reducing tariffs and trade restrictions over the next two decades, all the while guaranteeing foreign investment from Australia and New Zealand.

After the meeting, the two developed nations jointly committed an additional US$20 million to the agreement, mostly to support foreign investment in commercial activities.

Commerce Minister Scott Simpson, representing Aotearoa at the meeting, told RNZ Pacific it reflects their belief in the deal's potential.

"The sense I got from my time in the Solomons was that those Pacific nations that are trading directly with Australia and New Zealand are benefiting in a tangible, real way that boosts those local economies," he said.

"I think that's a good thing."

But not all of the Pacific are convinced, with Papua New Guinea refusing to sign up, and Fiji holding out indefinitely.

And with China laying down economic commitments of its own, Simpson acknowledged that ministers' minds could have been elsewhere for much of the meeting.

"We are all aware of the geopolitical situation in the region and indeed the wider global economy."

Fleshing out the details

According to official figures, Australia and New Zealand's running commitment to the deal totals out at around US$42m. According to PACER, around 75 percent of the budget before the new funding had been used.

Simpson said new funding would go towards smoothing out any issues relating to the reduction of trade barriers.

"That is designed to ensure that there are opportunities for businesses in those local Pacific nations to grow and thrive."

Part of New Zealand's "PIF Centrality" policy, PACER aims to integrate its members' supply chains, building interdependence when it comes to making and manufacturing goods.

For smaller countries, this means access to capital and investment, at the cost of tariff revenue and trade protections of their own.

"I was thrilled to learn, for instance, that New Zealand's exports to PACER Plus members had increased to nearly a billion dollars last year" Simpson said.

"Take a country like the Solomon Islands, for instance, their ability to export cocoa beans to New Zealand is a significant part of their economy. Those cocoa beans are processed into high-quality chocolate that is sold around the Pacific and worldwide."

For most countries, commitments to reduce tariffs will not kick in until 2030, with more than two decades before they have to go to zero. As such, the meeting revolved around fleshing out conditions for tariff reduction - and mitigating any negative impacts.

But front of mind for most Pacific Island members was labour mobility.

In his opening address, Solomon Islands Prime Minister Jeremiah Manele compelled Australia and New Zealand to boost funding in this area especially.

"With more than 30,000 Pacific workers now engaged in Australia and New Zealand, we know the systems are delivering. I therefore urge Australia and New Zealand to allocate separate and dedicated funding to ensure its sustainability and expansion," he said.

PACER Plus has an "Arrangement on Labour Mobility" that facilitates the circulation of temporary workers amongst its members. It complements the Australian PALM and Aotearoa RSE schemes and supports the movement of workers across the island nations.

According to a strategic priorities document, a review "identified gaps and areas of improvement", and discussions revolved around harm done to island households.

"There is a need to strengthen the role of the PALM in addressing these negative impacts as they can compromise the development benefits of labour mobility for the region."

This appeared to revolve around reintegration, suggesting that workers were failing to return to the islands, weakening their labour force and increasing reliance on remittances.

Documents stated that Pacific Island nations also asked Australia and New Zealand to accept more sectors into their own schemes.

Simpson said they have left the door unlocked for potential extra funding in the future.

Is PACER Plus making a difference?

Economists at Sense Partners, a firm in Wellington, were called in to write a review of PACER Plus last year.

John Ballingal, one of the authors of the report, told RNZ Pacific they found that direct benefits from the agreement were limited.

"I think that's to be expected, because it's a long-term investment, tariff elimination is going to happen over 25 years... we didn't expect to see significant direct economic gains after just three years, especially when those three years cover the pandemic period," Ballingal said.

"It makes more sense to see PACER Plus as a mechanism for channelling development assistance to the parties, to try and help their governments and their businesses become more trade-ready over time."

Ballingal said that labour mobility, despite concern levelled by island nations, was still a core element of that trade-readiness.

The two largest Pacific Island countries, Papua New Guinea and Fiji, which represent 80 percent of the Island economies, remain outside of the agreement.

PNG Trade Minister Richard Maru said that they had no interest whatsoever in joining.

"PNG will not enter into any regional agreements when I am the Minister responsible for trade," Maru said in a speech earlier in November.

"Let us talk about a bilateral trade agreement that has to be on a win-win basis where both parties mutually benefit."

As for Fiji, they have long signalled they are willing to consider joining, but are often equally as critical.

Then-trade Minister Manoa Kamikamica, speaking with RNZ Pacific in September, said it could wreak havoc by exposing Fijian businesses to global price shocks and force greater reliance on imports.

"Liberalising may have an adverse impact... these are industries that employ quite a few thousand Fijians. That could potentially close down some of the businesses if we're not careful," he said at the time.

Fiji even snubbed an invitation to join the meeting. Their foreign affairs secretary, Raijeli Taga, told RNZ Pacific they had other priorities.

Ballingal said their concerns were reasonable, but overblown.

"I'm not sure that signing up would cause an enormous surge in imports into these countries. Any changes would be very gradual. And this is not designed to try and hollow out any specific country."

The China factor

But Ballingal said those are not the main reasons why PNG and Fiji were holding out.

"There are certain parts of the agreement they found slightly difficult to reconcile with their ambitions to sign trade agreements with other countries."

Early in November, China signed an economic framework agreement of their own with Fiji, Nauru, the Federated States of Micronesia, Vanuatu and Kiribati. The latter two are PACER Plus members.

Chinese state media outlet Global Times reported that the agreement contained provisions for "trade in goods and services, investment, rules, and practical cooperation" - much like PACER.

"The goal is to achieve common development and jointly build a closer China-Pacific Island community with a shared future," a statement said.

Under PACER Plus rules, anything that a member offers another country must be offered in equal measure to Australia and New Zealand.

Whether China was competing for preference, or whether member nations asked for more, Simpson would not say - but he would not rule anything out.

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"Those matters weren't raised as part of the formal discussions during the forum," he said.

"But in the background, I think each member nation is very much aware of issues relating to the broader geopolitical situation in the region, and those matters, even though they weren't part of the formal agenda, certainly would have been in the minds of members."