Pacific trade deal under scrutiny ahead of signing

Trade Minister Todd McClay says the PACER Plus deal for the Pacific is about development as much as trade. Photo: Lynn Grieveson.

New Zealand is trumpeting a new trade and development deal for the Pacific - but will it boost the economies of the smaller countries, or undercut their development? Sam Sachdeva reports.

After eight long years of negotiations, it’s finally time to put pen to paper.

New Zealand, Australia and 11 other Pacific nations are gathering in Tonga on Wednesday to sign the PACER Plus trade and development agreement.

Speaking ahead of the signing, Trade Minister Todd McClay hailed the deal as “a new era for closer economic relations in the Pacific”, saying it will cut red tape for Kiwi exporters while making the region more attractive for trade and investment.

However, not all of the Pacific is on board: Vanuatu announced last week it needed more time to review the 1000-page document before signing on.

The country has joined Papua New Guinea and Fiji - the two largest countries in the Pacific in opting against signing the deal for now.

Papua New Guinea said the agreement would benefit Australia and New Zealand but “kill” its own manufacturing sector, while Fiji has claimed it was excluded from final negotiations after its appeal for a delay was ignored.

So what are their concerns?

Aid 'from one pocket to other'?

Green Party trade spokesman Barry Coates says there has been “a distinct lack of enthusiasm” about the deal from Pacific countries, who entered negotiations with two primary goals: receiving “some kind of baseline of future commitments” for seasonal workers travelling to New Zealand and Australia, rather than deciding on a year-by-year basis, along with more aid to develop their supply chains.

“Their problem with trade is not that they don’t have duty-free access...it’s that they don’t have the supply capacity, the quality to meet product standards, biosecurity and so on.”

He argues they got neither. There is no specific chapter on labour mobility in the PACER Plus text, and while there is a commitment from Australia and New Zealand to provide 20 per cent of their development funding as “aid for trade”, Coates says that is simply aid money “shifting from one pocket to another”.

“It’s aid that they would otherwise get for health or education or some other poverty-related issues, it’s now going to be diverted for the purposes of trade, and I don’t think that’s such a good idea.”

For his part, McClay points to $55m of new development money from the trans-Tasman countries as well as the potential for “hundreds and hundreds of millions of dollars more” from New Zealand’s aid for trade commitment.

“We’re not walking away from our commitment to work with them around poverty eradication and health and education, but...the things we’ll end up doing with [the islands] they’ve been asking for.

“If you think about the importance of fisheries as a resource to the Pacific island countries, we’ve been able to establish the equivalent of a fisheries school, where people from the islands will be able come and work and get experience and qualifications and then return home with those skills which will add to their economy.”

“We didn’t go out and say, ‘You’ve got to get the tariff rates down straight away’, and that’s because we do recognise in many cases the revenue is very very important.”

McClay says he explicitly asked MFAT officials to focus on the development aspects of the deal, and credits the shift as one of the reasons for swift progress with negotiations in the last two years.

“While we were seeking assurances and better access for New Zealand companies to the Pacific island nations, at the same time if we didn’t get the development part right, the smaller economies wouldn’t be able to benefit from the agreement.”

McClay says the lack of a labour mobility provision is in part due to the difficulty of dealing with “very small economies of different levels of economic development”, as well as the risk it could be too restrictive as requirements in the Pacific changed.

Coates says the agreement means the Pacific countries will have to forego “significant” government revenue from tariffs, with many already suffering from financial problems and relying on soft loans from countries like China.

He also highlights the bureaucratic cost of complying with new trade measures as one aspect which may have unintended consequences.

“It is not insignificant for a relatively small economy, 10,000 people or less to have to fill out all the paperwork and the administration and the forms and the compliance and so on.”

However, McClay says negotiators made a point of taking the countries’ unique circumstances into account, giving them up to 30 years to phase in some measures.

“We didn’t go out and say, ‘You’ve got to get the tariff rates down straight away’, and that’s because we do recognise in many cases the revenue is very, very important.”

Neither disaster nor delight

Matthew Dornan, the deputy director of Australian National University’s Development Policy Centre, argues PACER Plus’ proponents and opponents are both overstating their cases.

Dornan says the lack of a labour mobility provision means “there’s not that much for the countries”, while Australia was already moving towards the “aid for trade” approach.

However, he says those who claim the deal is a disaster are wrong, with many criticisms of its potential to damage local industries “borrowed from broader criticisms of trade deals”.

“You’re not going to see a manufacturing base established in the likes of Tonga or Samoa, absent some special deal...I don’t think there is the potential for export industries to establish in the first place.”

Coates concedes there have been people “making extravagant claims in both directions”, but says the power imbalance with the Pacific nations reliant on Kiwi and Australian aid means they have agreed to restrictions which could harm them in future.

“There is an obligation of New Zealand and Australia to bend over backwards not to exercise that power for their own benefit and I feel they haven’t taken that responsibility seriously enough...

“Will it completely ruin them overnight? Absolutely not, but is it something that will restrict their development options in future in ways that might otherwise provide better outcomes for them? Yes, I really think that’s true.”

McClay argues otherwise, describing the deal as “fairly well balanced, quite honestly”. He believes it will lead to investment flowing into the region, while setting up standards the Pacific countries will be able to hold up in trade deals with other parts of the world.

He declares himself unworried by the decision of some countries not to sign, saying “the door remains open” and pointing to encouraging discussions with both Papua New Guinea and Fiji.

Whether they will walk through that door, and what awaits in the long term, remains to be seen.