In this article I discuss the Pacific Agreement on Closer Economic Relations or PACER Plus and the way forward for Fiji and Pacific Island states that are negotiating a free trade agreement with Australia and New Zealand. What needs to be made clear from the outset is that since 1981 when Pacific states had a preferential trade agreement with Australia and NZ and the successor PACER in 2002 that the old ways of doing business has changed. While Australia and NZ continue to be important to Fiji in terms of trade and development aid, Fiji’s policy is now non aligned and no longer mirrors their foreign policies as was the case 11 years ago. The bulk of Fiji’s earnings of remittances, for example, reported in December 2015 of FJ$300 million came from the US, UK, EU. Even in higher education studies, Fijians are moving towards the UK and the USA and increasingly now towards China and other Asian countries. Australia and NZ are no longer the destinations of choice for education and employment even though very large Fijian communities reside in these two countries.
While the PACER Plus negotiations are under way, the failure to reach an amicable solution can result in a scenario where the economic tapestry is reset with Fiji developing new trade partners and sourcing most of its products from these new players. Fiji benefits more from the Melanesian Spearhead Group Trade Agreement and reciprocal MFN arrangements. One of the flaws of PACER Plus is that it excludes nations like China that have huge economic activities especially in Fiji and Australia. In the case of the Solomon Islands, a relationship with China would be beneficial in facilitating robust economic development. Currently the Solomon Islands receives aid from Taiwan that is directly accessed by parliamentarians.
The Context of PACER Plus
One of the difficulties of having a Pacific regional trade agreement is that many countries are small and geographically isolated from the major markets they wish to supply. Countries like Tuvalu, Nauru, Cook Islands, Niue for example have populations that are less than 10,000. Kiribati has 33 coral atolls spread over 3.5 million square kilometres of the Pacific ocean. Many countries do not even have their own currencies. Tuvalu and Nauru use the Australian dollar. Niue, Tokelau and the Cook Islands use the $NZ. The Marshall Islands, FSM and Palau use the US$. The World Bank reports that economic growth in the Pacific has been well below the global average for developing nations. This is due to very limited natural resources, narrowly-based economies, huge distances to the big markets, and vulnerability to the booms and busts of the global economy. On top of these challenges are the climate change issues and natural disasters. 8 of the 20 nations in the world with the highest average annual disaster losses scaled by gross domestic product are Pacific Island states.
Given these facts, it is clear that a one size fits all arrangement in PACER Plus will not work well. It is necessary that there be sustainable provisions to cater for countries that are doing well economically like Fiji and PNG and countries that have the potential to increase economic growth within the next 5 years like Vanuatu and those that would continue to require development assistance even in their recurrent public budgets. Separate economic negotiations would need to be carried out by Australia and NZ within the framework of PACER Plus with PNG and Fiji with a view of MFN statuses.
Level playing field?
The Australian Minister for International Development and the Pacific, Steven Ciobo had stated on 20/10/2015 that the Australian Government would like a successful PACER Plus as it will help Australian firms invest and trade in countries like Fiji and vice-versa. It will also help bring down market barriers. In the context of this sentiment, PACER Plus should also encourage Australia to follow transparent processes in its trade in the Pacific.
In countries like Nauru which does not have a currency of its own and uses the AUS$, Fijian manufactured goods (especially general food items and construction materials) that are competitively priced and are produced to international ISO standards are not being provided in its full range to consumers due to cumbersome trade practices.
There are trade stories making the rounds that some Australian items like tooth paste are being sold in the Pacific at much lower prices due to the lower abrasives content.
PACER Plus allows some mobility to Pacific islanders as seasonal workers. However one of the growing issues in fruit farms and orchards in New South Wales is the dilapidated state of the farms making if difficult for many islanders to earn sufficient remuneration. There is a need for the Australian Government to provide agricultural technical support to these farms. Other countries with better working conditions and more stable earnings also beckon to Fijians.
Fiji and PACER Plus
The Fiji Government view is that the fundamental premise of the proposed agreement fails to take into account the ground realities of the economies of small island developing states. PACER Plus must recognise the power differentials and the economic capacities between countries such as Australia and NZ on the one hand and Pacific Island states that lack comparatively the economic sophistication and economic strength.
Fiji’s policy of looking to Asia means that other economic giants such as China, India and increasingly Russia are now part of the socio-economic landscape of Fiji. Fiji had rejoined PACER Plus after a lapse of five years after the Pacific Islands Forum decided to exclude it. This was a blessing in disguise because in the years in the wilderness, Fiji had developed economic ties with Asian countries and had learnt quickly that to compete globally, its manufactured goods, for example, had to adhere to ISO standards and priced competitively. Fiji re-entered PACER Plus with valuable lessons learnt from outside the region.
Countries like Kiribati and Tuvalu who have cultural and socio economic links to Fiji might like to negotiate trade and development aid agreements with Fiji through the Pacific Islands Development Forum. Fiji can possibly provide support to the seafarers training program and assistance especially in education, health and civil aviation.
One of the provisions of PACER Plus is development aid especially to states that are not economically viable. In the Solomon Islands, Australian aid through RAMSI has not helped the nation to stand on its own feet. After RAMSI folds in 2016, the Solomon Islands will still need aid even in its recurrent public budget. There should be clear key performance indicators otherwise aid becomes like a drug. PACER Plus should wean nations of aid through support of SMEs/financial literacy of the grassroots. Development support of rural farmers with entrepreneurial skills can help agrarian based Pacific economies move away from subsistence livelihoods. The development of rural farm cooperatives, for example, can assist in the export of farm produce like ginger, cocoa, taro for example.
The Pacific diplomatic landscape shows that there is a sense of goodwill (despite the robust discussions) and there is a prevailing view especially in Fiji that despite the differences, there should be more bilateral discussions to reach an amicable solution. This is perhaps the best time for Australia to engage in deeper talks especially with Melanesian countries to iron out the areas of economic concern. Countries like Tuvalu and Kiribati need to be addressed separately in terms of climate change realities and the potential to harness their fishing zones. My point is that within PACER Plus, there should be provisions to address the different economic realities of the Pacific. In countries like PNG with a growing manufacturing base, Australian development aid could develop efficiencies in production and marketing so that protectionist policies are not required.