The SPARTECA introduced in 1981 was duty free access to Australia and New Zealand for Pacific goods, followed by PACER in 2002 than PICTA in 2003 which is a trade agreement between Pacific Island Countries and after 7 years of negotiation PACER Plus was signed on 14th June 2017 in Tonga.
It is perceived that PACER plus was formed by 2 very influential countries, New Zealand and Australia in response to the Pacific Island Countries negotiating with EU for an economic partnership. It is also believed that PACER PLUS was a motivation for Australia and New Zealand to maintain their influence over the Pacific Islands and also strengthen it further.
PACER Plus can be professed as the Pacific’s gradual and progressive integration into the International Economy. The purpose of PACER Plus is to improve prosperity and resilience in the Pacific region, create jobs thus increasing wealth, enhancing trade and attracting investment, ease of trade for export market, and so forth.
Background and Rationale:
The proposal for having in place regional trade agreements that promote freer trade and economic integration amongst island countries goes back to as early as 1971 when South Pacific Bureau of Economic Cooperation first came into inception and thereafter progressed into the Forum Agreement when the Forum Secretariat was first established in 1991.
The most attractive feature of PACER Plus is that it creates the foundation for trade amongst the members. It also helps create a long term goal of a single market region among Pacific Island Countries. Under PACER Australia and New Zealand are committed to provide for programmes of assistance to the member islands with trade facilitation. Whilst PACER Plus is seen as a mechanism for welfare enhancing on the other hand it can be have a vast impact on the Pacific Island Countries revenue generation from the elimination of tariff barriers.
Meanwhile, PACER is also perceived as an attempt by Australia and New Zealand to maintain their political and economic interests in the pacific where the provisions assure Australian and New Zealanders that their goods will not be hit by competition from cheaper imports from other parts of the world if the islands do deals with trade blocs like European Union.
Overview of the PACER agreement
The spirit for having in place regional trade agreements that promote freer trade and economic integration amongst island countries and it goes back to as early as 1971 when the South Pacific Bureau of Economic Cooperation first came into commencement and subsequently developed into the Forum Agreement when the Forum Secretariat was first established in 1991. Lately, the notion was re-established at the Forum Economic Ministers Meeting (FEMM) in Cairns in Australia 1997 when the proposal for a Pacific Regional Trade Agreement was tabled. Thereafter, the idea gained momentum and was reflected on at the 1999 Forum Trade Minister’s meeting (FTMM) which commended to the Forum that Leaders endorsed in principle a free trade area among all Forum members.
Scollay and (1998) commissioned a study looking at the potential economic benefits and costs of the free trade agreement in goods and services amongst the PICs by applying a computable general equilibrium model (CGE). He projected very minimal economic gains of around A$5 million in aggregate but having more non-economic benefit except for Cook Islands, Samoa, Kiribati and Palau which could face negative impacts. According to the report if these countries incorporate a 25% cut in tariffs on imports from the rest of the world would be able to converts a net economic loss into a net economic benefit. The report also pointed out that significant losses of tariff revenue are inevitable and an alternative source of government revenue will therefore have to be developed (such as VAT). Furthermore the study also concluded that the resulting gains from free trade agreement for PICs could be improved further provide the trade facilitation initiatives helped harmonize and improve the quality of customs, sanitary and phytosanitary (SPS) and standard regimes. On the same note Stoeckel (1998) also commissioned a study under the same mandate to examine the benefits and costs to PICs of including Australia and New Zealand where using the same data and methodology as of Scollay, the computable general equilibrium model provided some attracting results whereby welfare gains of around A$200 million in aggregate and a resulting moderate benefits to Australia and New Zealand. The report further revealed that out of the 14 PICs, Fiji, PNG and Cook Islands would be the significant gainers because they have high tariff and once tariffs were removed it will results in greatest efficiencies. Furthermore the report goes to say that the resulting loss of revenue by such a move does not pose a threat to these countries because they have in place VAT which could be raised to makeup for any loss of revenue. Stoeckel further predicts that the proposed free trade agreement will have minimal impact on Nauru, Palau and Federated States of Micronesia (FSM) because of their low levels of trade and tariffs. Marshall Island, Kiribati, Niue, Samoa, Solomon Islands, Tuvalu, Tonga and Vanuatu are indirectly alleged to reconsider their stance of joining the free trade agreement basically due to the prediction to suffer huge revenue losses when tariffs are removed since these countries do not VAT in place to fall back.
PACER Plus is a unique agreement tailored to the Pacific. There are potential benefits identified which could further enhance development in the Pacific. This being said, PIC’s must not be left behind by economic globalisation and that closer integration into the regions with the two developed countries ANZ, would assist in the long-term development.