By Adam Wolfenden
Fiji’s consideration of joining the regional free trade agreement known as PACER-Plus, raises critical questions about what it realistically expects to get out of it compared to what it will cost. Fiji previously has looked at the offer and decided against it, so what has changed?
The previous Fijian government was at the table when PACER-Plus was negotiated and upon assessing the texts rejected it in unequivocal terms. This rejection was based largely on the impact that PACER-Plus was going to have on Fiji’s economic sovereignty. PACER-Plus would limit how Fiji could determine for itself what development means and enact policies to do that unencumbered by what the impact will be on Australia and New Zealand exporters.
Protecting local industries from large Australian and New Zealand exporters
There were numerous contentious aspects of PACER-Plus for Fiji and these are more prominent now than before. The need to develop a wider economic base is part of Fiji’s post-COVID economic plan, but under PACER-Plus, increased competitive imports from Australia and New Zealand coupled with weak protections for infant industries undermine this.
The Infant Industry Protections were a contentious area that even when finally included were so weak that it became a key reason in Fiji’s decision to not sign onto the agreement. Fiji’s then Trade Minister Faiyaz Koya stated that they can’t allow PACER-Plus “to limit our development aspirations by taking away the flexibility to support our new and emerging industries”.
The protections in PACER-Plus restrict any support to industries that are classified as “new” or have undergone “substantial expansion”. The protections are limited only to suspending import tax cuts if Pacific countries can prove that a certain industry is being harmed by the trade deal, requiring a difficult burden of proof for Fiji. This problematic section of the agreement narrows the scope and incentive for countries to be able to utilise the protections freely to suit their development aspirations. New Zealand has bragged that PACER-Plus’ infant industry protections contained “stronger limitations” than those in similar provisions in the other agreements some Pacific Island Countries (PICs) are party to.
The agreement undermines emerging industries in Pacific Island Countries, especially those like Fiji and Papua New Guinea that have an established industrial sector and is hardly the basis for a claimed ‘development agreement’.
This is exacerbated further by the inclusion in PACER-Plus of rules that state that if Fiji is to negotiate better market access for goods with another country, it has to give the same conditions to Australia and New Zealand. While such clauses, know as Most-Favoured Nation (MFN), are common in other parts of free trade deals like trade in services, the unusual inclusion of it in PACER-Plus was heralded as a “significant achievement” in Wellington as it will “ensure that New Zealand is treated no less favourably than other significant competitors in the future”.
This impacts Fijian industries and undermines the negotiating position of Fiji to explore other market opportunities with new partners, especially with developing countries. The incentive to offer better conditions to a new trading partner will now be tempered by the MFN provision and the implications for domestic industries to withstand greater imports from the main trading partners of Australia and New Zealand.
This is by design and inherently anti-development. New Zealand says that the flexibilities in PACER-Plus – such as the length of time for tariff cuts and the weak safeguards mentioned above – were only possible because of the MFN clause. This makes a mockery of any claim that this was about development of the Pacific and instead was purely about ensuring that Australia and New Zealand maintain a commercial advantage in exporting to the Pacific.
Loss of government revenue
Another challenge for Fiji will be the loss of government revenue that will come from cutting import taxes from Australia and New Zealand. While the schedule of tariff cuts isn’t public, based on the other PACER-Plus party commitments, it can reasonably be expected that Fiji will have to start making additional tariff cuts upon joining. This was the schedule set for many PICs.
As Fiji slowly brings down its debt levels post-COVID, cutting off revenue sources remains a highly risky approach. At Fiji’s full implementation of the interim-Economic Partnership Agreement (iEPA)with the European Union, Trade Minister Kamikamica stated that it will result in the loss of FJD$737,000 (US$368,500) a year in government revenue.
Imports from the EU account for approximately 3 per cent while imports from Australia and New Zealand account for over 30 percent. While previous estimates have put expected revenue loss in Fiji at close to USD$80 million per year, prior to any decision there should be a clear outline of what the projected revenue loss is and how it will be addressed. Further increases to the Value-Added Tax would only exacerbate the cost-of-living issues.
If there are no new gains from membership, why sign it?
The PACER-Plus agreement does not provide any new opportunities for Fiji and that has not changed since it was previously rejected. Fiji currently enjoys duty-free and quota-free market access into Australia and New Zealand, PACER-Plus will offer no new market access for its products into those markets. The Development Assistance program is based on existing aid allocations from Australia and New Zealand, and Fiji is already accessing the labour mobility programs in both countries (while also wrestling with labour shortages at home).
There is a clear set of challenges that Fiji has already identified within PACER-Plus that have not changed since the agreement was concluded. The lack of protections for industries in Fiji raise serious questions for Fiji’s ability to adapt to changing economic circumstances and support new and emerging industries from competition.
In 2015, as host of a round of negotiations, then Trade Minister Faiyaz Koya summed this position up by stating: ‘Pacific Parties are being pushed to give away their policy space, especially the right to regulate. The Chapters on Investment and Service and General Exceptions, for example, seek to constrain our policy space to the extent that we no longer are in control of our development.’
Fiji is set to renew its trade policy for 2025-2035 which is taking place is a quickly changing global economic environment. The proponents of PACER-Plus are selling it as a long-term development agreement but it is ultimately locking Fiji into economic ideas that have done little to support development.
Fiji already has access to Australia and New Zealand markets (although the quarantine issues remain a problem) but PACER-Plus offers them only the burden of giving access to both countries. Joining PACER-Plus will result in a limiting of opportunities for Fiji, not expanding them.
