Opinion: PACER Plus is a poor deal for Vanuatu businesses that we should walk away from

Vanuatu says no to PACER Plus

As negotiations for PACER Plus, the proposed regional free trade agreement between Australia, New Zealand and the Pacific Island Countries draw to a close, we can now see what it contains—and more importantly, what it means for Vanuatu producers. It’s important to note that Papua New Guinea’s concerns over protecting local producers and an independent evaluation of PACER Plus that found that it would result in a ‘net loss’ for PNG saw it withdraw from the talks.

Trade in Goods

The rules on how goods are traded under PACER Plus cross a number of chapters and are of keen interest to Ni-Vanuatu producers regardless of whether or not they export.

It is a well-known fact that Australia sets very high standards in agreements with developed countries, and is reported to have been asking Pacific countries for import duty cuts of up to 95% under PACER Plus. Compare this to the European Union under the EPA which has contained cuts of 80% even going down to 75% for West Africa.  However, 75% liberalisation is still having a major impact on nascent industries. Currently it appears that under PACER Plus, Vanuatu will be offering to cut around 85% of its import duties.

The reduction in tariffs will lead to significant revenue loss for Vanuatu. Taking a slightly conservative estimate of 80% of tariff cuts, we can see that based on trade data from 2012-2014, Vanuatu stands to lose approximately US$6,000,000 per year once its obligations are all implemented – for the 2014 budget this represented more than the combined allocation for both the Ministry of Land and Resources and the Ministry of Trade, Tourism Commerce and Ni-Vanuatu Business. This however only counts import duties and not all the taxes related to trade that will be banned under PACER Plus. Vanuatu’s import duty cuts won’t come into effect until it graduates from “Least Developed Country” status in 2020, but given this timeline the Vanuatu Chamber of Commerce and Industry recommends that the government does not make any final offer until closer to that date, if indeed Vanuatu even signs onto PACER Plus.

For domestic producers, PACER Plus doesn’t offer many protections. The extensive tariff cuts remove a simple and effective measure to protect emerging industries whilst the other protections appear to be weak and of little use. The proposed transitional safeguard measures are only available for three years (the period of tariff elimination); they require the establishment of investigation authorities, prohibit the use of simple remedies like import bans and quotas, and require proof of serious injury – a process largely dependent on access to comprehensive data from individual producers affected by an import surge. This is very difficult, especially in the agricultural sector. A simpler agricultural safeguard, which is easier to apply, should be included.

Vanuatu exporters already have ‘duty free, quota free’ access under the SPARTECA agreement, but Australia and New Zealand are again re-committing to this under PACER Plus. Exporters however know that duties have never been the major barrier to exporting to the region’s two industrialised countries. PACER Plus aims to address some of these issues— but falls short.

The draft PACER Plus text dedicates a whole Chapter to Rules of Origin (RoO), adding to the complexity of variable and overlapping rules that already exist and not necessarily improving the SPARTECA situation for our exporters. Regardless of how good the Rules of Origin may be, it may not have much impact given the ASEAN/Australia/New Zealand FTA (AANZFTA), which will erode any relative benefits of improved RoO for Vanuatu products.

Any improvements in meeting the quarantine standards of Australia and New Zealand fail to support Vanuatu exports by again placing all the burden on Vanuatu to demonstrate it meets the standards of Australia and New Zealand. It may be hard for Vanuatu to prove it has that capacity. Further, it is unclear why PACER Plus is needed for Australia and New Zealand to provide aid funding to help Vanuatu exporters meet their standards and ‘develop’.

Investment and Services

Investment and Trade in Services are closely related as they both cover the establishment of foreign investments in Vanuatu. PACER Plus sets out the limits of what Vanuatu can and cannot do in how it regulates the service industry and foreign investments. It aims to give foreign firms from PACER Plus countries the right to sell services to customers in Vanuatu on the same terms as locals without restrictions on how big they grow or how much foreign ownership they have.

Vanuatu has a very active services industry, with tourism playing a huge part. Local experts have reported that tourism contributes about 65% of Vanuatu’s Gross Domestic Product but that the benefits of that flow mostly to foreign-owned businesses. While we welcome foreign investment, PACER Plus undermines the ability of Vanuatu to direct that investment to maximise benefits to domestic producers and workers.

The services chapter recognises the right of parties to regulate and introduce new regulations, provided that regulation is not inconsistent with the chapter. In other words, it confirms that governments can do what the chapter allows them to do anyway, but can’t do anything that would breach the chapter.

Investment chapters are often advocated on the belief that they will attract investors who would not come otherwise. Evidence that this occurs is mixed at best, but is especially questionable for island states like Vanuatu who don’t have the large markets and infrastructure commonly desired by investors. Again, the rules under PACER Plus make it harder for governments to direct investment to the sectors and places it is needed. Even where new ventures are established, such as in tourism, the costs of imports, offshore sales of package deals and repatriation of earnings can neutralise the expected gains.

Further, any language in PACER Plus that aims to promote or facilitate investment into Vanuatu is based only on best endeavour language, meaning that Australia and New Zealand are not bound to such activities.

Labour mobility arrangement

The chapter on Labour Mobility is an ‘arrangement’ which is legally distinct from an ‘agreement’, the latter being legally binding. This chapter offers little more than the promise of an annual meeting to discuss a range of labour mobility-related matters. Such a meeting whilst a good initiative is problematic in a number of ways. Primarily it is not being conducted in a tripartite manner, that is, there is no mandate for the inclusion of trade union voices – a key voice when it comes to the movement of actual humans. Secondly, the question remains that if Australia and New Zealand are serious about development in Vanuatu, why is this initiative only offered as a trade-off?

Development Assistance

This is supposed to be one of the key areas that will benefit Vanuatu and the rest of the Pacific—but is only included in non-binding language. The chapter in the agreement makes carefully worded promises to address ‘mutually determined and prioritised’ activities ‘taking into account’ needs as identified by developing countries. Such language keeps Australia and New Zealand in the driver’s seat when it comes to determining what assistance Vanuatu needs to ‘develop’. The chapter links aid funding to trade co-operation, with specific funding commitments from Australia and NZ to a work program that is designed to benefit their national interests. Again, this is all unenforceable!

PACER Plus may offer some benefits to Vanuatu producers but it comes with significant and legally binding costs. The development of our industries and sectors is more important than non-binding promises of aid, money and labour mobility. We call on our government to stand with our producers and walk away from PACER Plus.

vcci-logoArticle by the Vanuatu Chamber of Commerce and Industry (VCCI), Vanuatu’s peak business body representing 1,300 Vanuatu businesses.