PACER Plus progress and promise: Regional integration challenges and opportunities in the Pacific

9 December 2011

The Pacific Forum Island Countries (FICs) are engaged in two major trade negotiations with developed countries - the EPA negotiations with the EU and the more recently commenced PACER Plus negotiations with Australia and New Zealand. [1]

The negotiations were linked from the beginning. When the FICs sought to negotiate a regional trade agreement among themselves, in preparation for the EPA negotiations, Australia and New Zealand initially insisted on being parties. As a compromise, under the Pacific Agreement on Closer Economic Relations (PACER), the FICs undertook to negotiate a free trade agreement with Australia and New Zealand if the FICs entered negotiations for or concluded a trade agreement with a third party, such as the EU. The position of the FICs in the EPA negotiations has been shaped by the PACER.

The FICs were mostly reluctant to commence negotiations for a comprehensive free trade agreement. Australia and New Zealand sort to reassure the FICs that these negotiations, dubbed PACER Plus, would not be like traditional trade negotiations. The FICs, however, face a number of challenges in negotiating a trade and economic agreement that is truly an instrument for development.

PACER Plus Promise

At the Forum Trade Ministers' Meeting in June 2009, Ministers recommended to Leaders that PACER Plus negotiations commence after the conclusion of the Pacific Islands Forum Leaders Meeting in August 2009. The Trade Ministers' recommendation was however silent on the intended outcome and structure of the negotiations, perhaps reflecting the officials' earlier failure to agree on a Joint Roadmap for PACER Plus.

In August 2009, the Forum Leaders agreed to commence PACER Plus negotiations forthwith. Leaders also directed that the Trade Ministers should, inter alia, discuss a framework for PACER Plus negotiations including timelines. The decision of Leaders otherwise left open the objective, structure and contents of PACER Plus. The subsequent meetings of the Ministers in October 2009 and April 2010 did not deal with these matters. To guide the negotiations the officials only have had a few general statements made by Forum Trade Ministers during their meetings in 2009 and 2010, in particular the Ministers:

  • recognised the capacity constraints faced by FICs when undertaking negotiations, and the need for national consultations with all stakeholders;

  • recognised the importance of deepening regional trade integration;

  • affirmed that PACER Plus provides the Pacific region with a significant opportunity to develop a truly innovative trade and economic agreement that takes account of the different stages of development of each nation;

  • reflected their intention to bolster the capacity of all FICs to take advantage of trade opportunities; and

  • discussed the development of a framework that enabled those countries ready to move ahead with negotiations to progress, while allowing other countries more time to prepare.

Office of the Chief Trade Adviser for Forum Island Countries (OCTA)

The experience of the FIC trade officials in the EPA negotiations will be highly valuable for the PACER Plus negotiations. The experience together with the assistance provided by the EU through the Pacific Islands Forum Secretariat (PIFS) to assist the FICs participate effectively in the EPA Negotiations convinced the FICs that they need an expert advisory body to assist in the negotiations independent of their negotiating partners. The membership of the PIFS extends beyond the FICs to include Australia and New Zealand, which made it impossible for the PIFS to support the FICs in the PACER Plus negotiations. The establishment of the OCTA to advise the FICs, and the provision on funding by Australia and New Zealand, was a precondition for the FICs agreeing to the commencement of the PACER Plus negotiations. The OCTA started operation in March 2010 and is based in Port Vila, Vanuatu.

Exclusion of Fiji

Following the decision of Forum Leaders in early 2009 to exclude Fiji from participating in Forum meetings in response to the failure to hold elections after the 2006 military coup, Forum Leaders decided in August 2009 that Fiji would also not be able to participate in the PACER Plus negotiations. Fiji responded that its exclusion from the PACER Plus negotiations was a breach of the PACER. The Australian Trade Minister Simon Crean, however, responded that PACER Plus was completely separate to the PACER. The non-participation of Fiji has been criticised by business groups. Fiji is an economic and transport hub in the Eastern Pacific. Regional integration without Fiji makes little sense and PACER Plus without Fiji is likely to distort regional trade flows. In September 2011, Pacific Forum Leaders agreed to permit Fiji to participate in PACER Plus meetings at officials-level only, given Fiji's important economic role and links to prospects for broader regional economic integration. Without full rights of participation, progress towards regional integration is likely to be modest.

Common Priority Issues

Beyond general principles listed above, in the decision to launch negotiations in October 2009, Forum Trade Ministers instructed officials in the first 12 months to deepen understanding on common priority issues including, but not limited to: Rules of Origin; Regional Labour Mobility (beyond Mode 4); Development Assistance, focusing on physical infrastructure for trade, trade development and promotion; and Trade Facilitation, including Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Standards and Customs Procedures. These are key issues for the FICs and have become the focus of negotiations since the first meeting of officials in April 2010.

In April 2010, Forum Trade Ministers noted the fundamental importance of air and sea transport, telecommunications, and water supply infrastructure to increase trade in goods and services and agreed that these were also priority negotiating issues.

PACER Plus negotiations have involved the exchange of papers between Australia and the FICs. The legal texts prepared by the OCTA on behalf of the FICs (and welcomed by New Zealand) reflect an alternative approach to regional integration, which would not initially focus on the negotiation of a comprehensive agreement. The negotiations have produced a deepening of understanding on a number of issues, but so far no common negotiating texts.

Conclusions

So far PACER Plus lacks an agreed vision of the type of regional economic integration that should come out of, or at least be set in motion by, the negotiations, let alone the path that will be taken to that ultimate destination. The lack of direction risks prolonged negotiations and ultimately risks generating few benefits for the development of the FICs.

Developed countries have over-promised on the benefits likely to flow to ACP countries in the EPA and in the WTO's Doha Round of negotiations. The Doha Round, after a decade, looks unpromising. The general pro-development promises, such as those agreed by Forum Trade Ministers in relation to PACER Plus, made before the commencement of the negotiations have been hard to turn into concrete legal provisions. Australia and New Zealand have said that PACER Plus is a not a traditional trade negotiations, but do not appear to have thought through the full implications for negotiation processes and outcomes. Substantive commitments on issues of importance to the FICs made early in the negotiations would help to build confidence in the process.

For many of the FICs the benefits from a traditional trade agreement would be relatively modest, especially if key issues such as labour mobility are not adequately addressed, whereas implementation and adjustment costs will likely be more immediate and significant. Insisting that developing states bend to fit the trade regime rather than bending the trade regime to assist developing states is not conducive to timely completion of negotiations.

The failure to account for differences between countries within a region in agreements with developed countries will also create intra-regional pressures. Insisting on a single undertaking can be an obstacle to regional integration.  The PACER Plus parties should be realistic about the difficulty to conclude and implement a comprehensive agreement. While some parties may wish to take risks and move swiftly, others will be more risk adverse. If a developing country region wishes to stick together, compromises will be necessary or more nuanced negotiating positions formulated. Negotiating partners can assist by looking at trade negotiations as about a relationship rather than a discrete event. A phased approach to economic integration, not insisting one-size fits all, and ensuring rules are matched with equally firm commitments to provide resources would assist.

Author: Dr Chris Noonan is Associate Professor of Commercial Law at the University of Auckland was the Chief Trade Adviser at the Office of the Chief Trade Adviser for the Forum Island Countries (OCTA) until September 2011.

Note:

1 All of the fourteen FICs, as Pacific ACP States, are party to the EPA negotiations, while all of the FICs except Fiji are parties to the PACER Plus negotiations.

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