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Noonan, Chris --- "Trade Negotiations with the Pacific Islands: Promise, Process and Prognosis" [2011] NZYbkIntLaw 10; (2011) 9 New Zealand Yearbook of International Law 241

New Zealand Yearbook of International Law

Trade Negotiations with the Pacific Islands: Promise, Process and Prognosis [2011] NZYbkIntLaw 10 (1 January 2011); (2011) 9 New Zealand Yearbook of International Law 241

Last Updated: 13 July 2015

TRADE NEGOTIATIONS WITH THE PACIFIC ISLANDS: PROMISE, PROCESS AND PROGNOSIS

Chris Noonan*


I. Introduction

The PACER Plus negotiations between the Pacific Forum Islands Countries (FICs) and Australia and New Zealand did not begin with the hoopla usually associated with the commencement of trade negotiations.1 Many of the FICs still harboured reservations when Pacific Island Forum Leaders endorsed the commencement of negotiations in 2009.2 Australian and New Zealand Ministers have sought to reassure the FICs by emphasising that PACER Plus would not be a traditional trade agreement.3 These Ministerial statements may be contrasted with the strong support of Australia and New Zealand for the multilateral trading system and their pursuit of “high quality” comprehensive trade agreements.4 A further sign that things are not quite normal was the statement of the then Australian Minister for Trade, Simon Crean, that the PACER Plus negotiations are completely separate from the earlier Pacific Agreement on Closer Economic Relations (PACER),5 notwithstanding that the PACER is a treaty that purports to provide the framework for the trade and economic integration of the Forum Island Countries and Australia and New Zealand.6

The signs for the PACER Plus negotiations may not be auspicious. A plethora of preferential trade agreements have been concluded over the last decade and a number of major trade negotiations are underway around the world. However, both developed and developing countries are more closely scrutinising the provisions of potential agreements more than before, especially where the agreement might involve significant changes to current laws and policies. The PACER Plus negotiations commenced at about the time the failure of Doha Round of multilateral negotiations at the WTO began to appear inevitable.7 Australia and New Zealand are actively pursuing a Trans Pacific Partnership agreement with a number of countries, including the US.8 However, in recent years the US Executive has struggled to finalise a number of trade agreements, due to opposition in the US Congress.9

This article reviews the progress in the PACER Plus negotiations, beginning with the decision to negotiate and considers its prognosis.10 A single article cannot analyse the many issues that are likely to be considered during the PACER Plus negotiations. The focus is on the broad vision of regional integration that should underpin the negotiations, as well as the pathway to the vision. The article takes the decision of Forum Leaders to commence negotiations as its point of departure. It argues that if the PACER Plus negotiations are to be successful, and not simply concluded one way or another, PACER Plus cannot be a traditional regional trade agreement. Without clear agreement on what it is being negotiated, an early conclusion is unlikely. If PACER Plus continues down its current path, the negotiations are likely to be protracted and the outcome of modest, if any, benefit to the FICs. The parties should not be seeking to negotiate a PACER Plus agreement modeled on the Australia New Zealand ASEAN Free Trade Agreement (A ANZFTA).11 The parties need to give serious consideration to what it means to say a trade agreement is non-traditional and how the PACER Plus process should be structured.

It is argued that PACER Plus should be seen as an evolving relationship rather than a one-off effort to conclude a comprehensive agreement. Like the Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA),12 the legal relationship should broaden and deepen over time. An expectation that all parties should sign onto a GATT art X XIV compliant and/ or a GATS art V compliant trade agreement at the conclusion of the negotiations may be counterproductive. Australia and New Zealand will need to assist the FICs, including through the provision of development assistance, to overcome obstacles to greater integration into the international economy and regulatory reform. PACER Plus must also address labour mobility. More fundamentally, the PACER Plus process should not be a “trade negotiation”. The lessons from development cooperation need to be applied, including recognising the importance of policy dialogue and a thorough understanding of the political economy of reform in each FIC.

Section 2 of the article will provide the background to the PACER Plus negotiations and an overview of the negotiations to date and seeks to make several modest suggestions for how the negotiations should be re-imagined. Section 3 discusses why PACER Plus should not be a traditional trade negotiation. Section 4 concludes.

II. PACER Plus Promise and Progress


A. PACER

The PACER Plus Negotiation had its genesis in the PACER. The PACER was a compromise agreement. Its origins lay in the decision of the FICs to negotiate a trade agreement among themselves, in a large part, in preparation for the negotiation of an economic partnership agreement to replace the preferential trading arrangement between the EU and the FICs under the Cotonou Agreement.13 The Cotonou Agreement committed the African, Caribbean and Pacific group of States (ACP) and the EU to negotiate Economic Partnership Agreements by the end of December 2007 at which time the trade preferences set out in the Cotonou Agreement would expire. The Economic Partnership Agreement negotiations commenced with the EU at an all-ACP level in September 2002 and with the six ACP regional groupings commencing in late 2003 or early 2004.

Australia and New Zealand were not initially in favour of the FICs negotiating a trade agreement that excluded Australia and New Zealand. The FICs, however, were not ready to negotiate an agreement with Australia and New Zealand at the time and resisted the pressure of Australia and New Zealand to join the negotiations. A compromise was proposed whereby all Forum members would be party to an “umbrella” agreement providing a framework for future economic integration. The FICs alone would be party to a separate trade liberalisation agreement. The compromise was reached when New Zealand, and then Australia, changed position to support the two-agreement approach. The umbrella agreement became the PACER, while the FIC-only agreement became the Pacific Island Countries Trade Agreement (PICTA).14

The Pacific Islands Forum Leaders endorsed the PACER on 18 August 2001. Most, but not all, Forum Members have signed and ratified the Agreement.15 Article 2(1) of PACER asserted that the overriding objective was that: “The Parties wish to establish a framework for the gradual trade and economic integration of the economies of the Forum members in a way that is fully supportive of sustainable development of the Forum Island Countries and to contribute to their gradual and progressive integration into the international economy.” While more operational regional trade arrangements were envisaged in the future, the arrangements were to be structured in a manner that minimised the costs and maximised the benefits to the FICs. The agreement reflects the conflicting objectives of the parties and is, in places, open to interpretation. The absence of a binding dispute settlement mechanism limits the prachral value of a search for a definitive interpretation.

Article 2(2) elaborated on the objectives of the PACER, which were stated to include the following:

(a) to provide a framework for cooperation leading over time to the development of a single regional market; (b) to foster increased economic opportunities and competitiveness through more effective regional trade arrangements; (c) to minimise any disruptive effects and adjustment costs to the economies of the Forum Island Countries, including through the provision of assistance and support for the Forum Island Countries to undertake the necessary structural and economic adjustments for integration into the international economy; (d) to provide economic and technical assistance to the Forum Island Countries in order to assist them in implementing trade liberalisation and economic integration and in securing the benefits from liberalisation and integration; and (e) to be consistent with the obligations of any of the Parties under the Marrakesh Agreement Establishing the World Trade Organization.

A single market has the aim of removing barriers to the movement of goods, services, capital and labour between the member countries. The goal of a single market set out in art 2(2)(a) was consciously chosen by the parties, driven by the desire of the FICs to have labour mobility as an objective of the PACER.

The general objective of art 2(1) of the PACER, incorrectly, creates the impression that the FICs are not integrated into the international economy. The same idea is contained in the EU-PACPS Interim Economic Partnership Agreement, which talks of “promoting the gradual integration of the Pacific States into the world economy.”16 By a number of common measures the FICs are already more integrated into the international economy than most countries. See Table 1. Trade as a percentage of GDP in developed countries is typically significantly lower than the FICs. Illustrative figures for US 23 per cent; Japan 30 per cent; Australia 37 per cent; United Kingdom 39 per cent; New Zealand 45 per cent; Portugal 48 per cent; Denmark 66 per cent; and Sweden 72 per cent. Larger countries would, however, be expected to have naturally lower levels of trade as a per cent of GDP. The statistics indicate that the FICs are significantly exposed to the international economy.

Table 1: Selected Indicators of Integration into the International Economy (2007)17

Aggregate statistics can conceal important differences between the FICs, including on the manner in which they are engaged in the international economy. Table 2 is suggestive of some of the different economic and trade interests of the FICs. The FICs share a number of cultural, economic and social similarities, but the nature of their economic relationships with Australia and New Zealand is quite different. The region is also home to more than 1,000 languages and three distinct sub-regions: Melanesia, Micronesia and Polynesia.

One of the notable features of the trade and investment pattern in the Pacific Islands is the growing trade and investment links between the FICs and Asia.18 Asia is becoming increasingly important to the FICs as a trade, investment and development partner. Something the US, at times, appears to be more aware of than some policy makers in Australia and New Zealand.19

Table 2: Integration of Selected Pacific Islands into the International and Regional Economy

Table 2 continued

Table 2 continued

The PACER contains no trade liberalisation commitments, but Part 2 of the Agreement imposes obligations on the parties to enter into negotiations for a reciprocal trade agreement in certain circumstances. If the PACER contained any preferential trade liberalisation commitments on goods, it would be subject to the timetable and other disciplines of GATT art X XIV.36 Article 3(1) of the PACER explicitly provides that the general objective of the PACER shall guide the economic integration initiatives between the parties:

The objectives of sustainable development of the Forum Island Countries and gradual and progressive integration of the Forum Island Countries into the international economy shall guide all aspects of all stages of the development of the trade and economic partnership established under this Agreement.

Article 3(2) further provides “The trade arrangements established in accordance with Part 2 of this Agreement are intended to provide “stepping stones” to allow the Forum Island Countries to gradually become part of a single regional market and integrate into the international economy.” While nodding in the direction of a traditional preferential trade agreement, art 3(5) suggests, consistent with art 3(1), best practice may need to be modified to accommodate the circumstances of the FICs: “The Parties shall use their best endeavours to follow international best practice in formulating the rules governing the trade relations between them, taking into account the development status, capacity and resource constraints of Forum Island Countries.” Article 3(6) further provides: “Consistent with the objectives set out in Paragraph 1, Least Developed Countries and Small Island States may be integrated in accordance with different structures and by different time frames than other Parties.”

Article 4 recognises that it is desirable for the FICs to commence liberalisation among themselves before they liberalise trade with Australia and New Zealand. Articles 5 and 6 attracted most attention when the PACER was concluded. Article 5 provides that eight years after the PICTA entered into force, or as otherwise agreed under a general review of the PACER, “the Parties will enter into negotiations with a view to establishing reciprocal free trade arrangements between the Forum Island Countries and Australia and New Zealand.” The language was chosen so the provision fell outside of the strictures of GATT art X XIV. If GATT art X XIV applied, the parties would have been required to eliminate tariffs on substantially all trade between them within a reasonable period of time. Article 5 was seen as providing a long-stop for the commencement of negotiations if negotiations were not commenced sooner under art 6.

Article 6 was controversial, perhaps because the interests of Australia and New Zealand were more visible. The core obligations are in art 6(3) and (4).

3 Subject to Paragraph 10, if any Forum Island Country which is Party to this Agreement:

(a) commences formal negotiations for free trade arrangements which would include one or more developed non-Forum country, then that Forum Island Country shall offer to undertake consultations as soon as practicable with Australia and New Zealand, whether individually or jointly, with a view to the commencement of negotiation of free trade arrangements; or

(b) concludes free trade arrangements which would not include any developed non-Forum country, then that Forum Island Country shall offer to undertake consultations with Australia and New Zealand as soon as practicable after such arrangements are concluded. In cases where such arrangements involve a country which has a higher per capita GDP than the lowest per capita GDP of a developed Forum member, then the Forum Island Country shall offer the opportunity for negotiation of free trade arrangements with Australia and New Zealand, whether individually or jointly, following the consultation.

4. Subject to Paragraph 10, if all the parties to the PICTA jointly commence negotiations for free trade arrangements which would include one or more non-Forum country, they shall offer to undertake consultations, as soon as practicable, with Australia and New Zealand, whether individually or jointly, with a view to the commencement of negotiation of free trade arrangements.

Article 6(6) imposes a reciprocal obligation on Australia and New Zealand. The “obligation” must be viewed in light of the opposition of the FICs to negotiate a free trade agreement with Australia and New Zealand in 2001, as well as the pre-existing commitments of Australia and New Zealand to reduce tariffs on products originating in the FICs under the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA).37 Several features of art 6 are noteworthy. First, art 6(1) defined a “free trade arrangement” by reference to GATT art X XIV:8. Among other things, a GATT art X XIV compliant “free trade arrangement” must provide for the parties to eliminate tariffs on substantially all trade between them. Unless a preferential trade agreement with at least one developed country as a party complies with GATT art X XIV, it would be inconsistent with the obligations of the parties under the WTO.38 However, where only developing countries are party to a preferential trade agreement the agreement would not need to meet the requirements of GATT art X XIV as a result of the Enabling Clause. Such agreements do not need to eliminate tariffs on substantially all trade between their parties.39 The effect is that the FICs could enter a preferential trade agreement with other developing countries, without triggering art 6(3). It was at least possible for the FICs to provide preferential access to goods from other developing countries, such as the ACP States or major Asian trading partners, relative to the access provided to goods from Australia and New Zealand. Furthermore, the FICs could have made commitments on liberalisation without the difficulties that some FICs might face in making liberalisation commitments broad and deep enough to comply with GATT art X XIV.40

Second, the concept of “entering formal trade negotiations” was much discussed in the negotiation of the PACER, but remained ill-defined. In the Economic Partnership Agreement negotiations, the PACPS had pursued an approach that allowed the PACPS to elect whether they would sign a free trade agreement with the EU. The FICs that chose not to enter such an agreement could still have participated in other aspects of the Agreement. The position of the PACPS was in time accepted by the EU. The meetings between the PACPS and the EU to discuss the Economic Partnership Agreement were styled as Joint Technical Working Groups rather than Negotiating Meetings. In 2005, the FICs could take the view they had not entered into formal negotiations for a free trade agreement with the EU. A little later the FICs accepted the need to undertake consultations with Australia and New Zealand.

In a Joint Diplomatic Note to the Forum Island Countries, Australia and New Zealand stated that it was their understanding that the FICs participating in the EPA negotiations recognise that their obligations under PACER art 6 with regard to Australia and New Zealand have now been engaged. Based on those understandings, Australia and New Zealand indicated that they believed it would be useful for preliminary exploratory consultations to be held in the margins of the next Pacific Islands Forum Trade Ministers Meeting, which was scheduled for August 2007.41

Third, the obligation to “offer to undertake consultations ... with a view to the commencement of negotiation of free trade arrangements” was crafted with GATT art X XIV in mind. GATT panels had considered early agreements fell within the definition of an “agreement leading to the formation of a free trade area” in GATT art X XIV:8 as soon as there was some legal commitment to form a free trade agreement,42 which meant that a full free trade agreement between the FICs and Australia and New Zealand would have had to be established within a reasonable period (ten years unless there are exceptional circumstances) after the PACER entered into force.43

The PACER says relatively little about the content of future trade agreements, except for stating the objectives noted above and laying down a few general principles. Article 7 of the PACER provides that the terms of any new trade arrangements between Forum Island Countries and Australia and New Zealand established pursuant to art 5 or 6 shall: (a) be consistent with the objectives and guiding principles of this Agreement; (b) provide Forum Island Countries with no less favourable treatment than exists under the arrangements referred to in Paragraph 3 of art 5 relating to market access in Australia and New Zealand; (c) recognise the differences in development status of the Parties by the inclusion of appropriate measures providing for special and differential treatment of developing countries; (d) not discriminate between any Forum Island Country which is a Party to this Agreement, unless the discrimination is to provide special and differential treatment for Least Developed Countries or Small Island States; and (e) not discriminate between Australia and New Zealand.

Part 3 of the PACER contains commitments by Australia and New Zealand to cooperate with the FICs on trade facilitation and provide assistance for that purpose. After some delay, a Regional Trade Facilitation Programme was established, which covered customs, quarantine and standards and conformance. The termination report for this programme was adopted by

Forum Trade Ministers at their Meeting in May 2011.44 While the obligation in Part 3 is not time bound, there appeared to be little interest in Australia or New Zealand to continue with the provision of capacity building in relation to trade facilitation under the PACER.

B. Trade Policy in the Pacific Islands

Viewed over the medium-term the economies of the FICs have been significantly liberalised and further liberalisation continues to take place.45 The liberalisation of telecommunications was one of the most beneficial developments for ordinary people in the Pacific over the last two decades and was largely nationally driven. The reluctance of the governments of the FICs to negotiate PACER Plus is generally not philosophical in nature but more based on practical concerns, uncertainty and in some cases a degree of inertia. As with most places, liberalisation is difficult where existing industries and interests are threatened and international trade commitments are likely to give way to domestic political pressures. In many of the FICs, the understanding of the nature and consequences of trade agreements is limited. As the recent opposition to the Parliamentary ratification of the Vanuatu’s accession to the WTO indicates,46 considerable popular opposition to trade agreements is present or can be quickly fanned to life. The PACER Plus negotiations could provide the legal framework intended to regulating the liberalisation of FICs economies and guide the progressive economic integration of the FICs and Australia and New Zealand. However, the extent to which PACER Plus would actually affect the pace, extent and nature of future liberalisation is at this point unclear.

The experience of WTO members has been that most preferential trade agreements do not result in significant preferential treatment for exports originating within the trading bloc, because sensitive sectors that may be subject to limited commitments in the WTO are excluded.47 The situation could, of course, be different where the asymmetries between the negotiating power and the technical capacity of the parties are much larger. Nonetheless, it is suggestive that PACER Plus should not be examined from the perspective of whether a general policy of gradual liberalisation of the economy is desirable. Rather, PACER Plus should be assessed from the perspective of whether the negotiation of a traditional preferential trade agreement, or incorporating such commitments into such a broader arrangement, advances the sustainable development of the FICs. What is the additional value that will be added (or lost) by binding some national policies in an international agreement?

Generally, economists believe that trade liberalisation done at an appropriate pace is beneficial and should be done unilaterally. The justifications usually advanced for liberalising under bilateral or multilateral agreements are therefore not purely economic but tend to focus on domestic political processes. However, as discussed in Section III below, the main rationales are not obviously applicable to the FICs in the PACER Plus negotiations, unless substantial benefits of a type not found in most traditional preferential trade agreements are offered to the FICs by Australia and New Zealand.

A thesis of this article is that a range of issues need to analysed before a decision can be made on how the negotiations should be structured and on whether or not PACER Plus should take the form of a traditional trade agreement. The PACER Plus could, of course, have a number of elements of value to the FICs other than trade liberalisation. A number of trade- related issues addressed by modern regional trade agreements are being considered, at least in part, in other bilateral and regional processes within the Pacific. For example, there are initiatives to address among other things customs procedures, competition, food security, food standards, government procurement, intellectual property, quarantine and labour mobility. Some of the initiatives are making more progress than others and some are more valuable than others. The PACER Plus negotiations and any resulting comprehensive agreement would need to be coordinated with existing processes, which in turn may require examining the existing regional institutional architecture and the activities of development partners.

C. (Non)Participation of Fiji in PACER Plus Negotiations

In response to the failure to hold elections after the 2006 military coup in Fiji, Forum Leaders decided to exclude Fiji from participating in Forum meetings in early 2009.48 At the 40th Pacific Islands Forum, held in August 2009, Fiji was also excluded from the PACER Plus negotiations:49

Leaders agreed that consistent with the Forum’s decisions, the Fiji military regime would not participate in the PACER Plus negotiations. However, Leaders agreed to a mechanism for Fiji to be kept informed on the negotiations. In this mechanism, Fiji officials will be briefed in Suva following each negotiating meeting by a representative from the meeting, with the representative also able to convey back to the next meeting any views from Fiji.

The PACER was intended to economically integrate the Pacific. The prospect of a member not being permitted to participate in any regional integration negotiations was not contemplated during the negotiations of the PACER. Indeed, art 6(4) of the PACER provided that “Any Forum Island Country not party to the negotiations with a country referred to in Paragraph 3 may participate in any resulting consultations and negotiations with Australia or New Zealand.” A full legal analysis of the situation is beyond the scope of this article, but Fiji concluded, not unreasonably, that the exclusion of Fiji from PACER Plus is inconsistent with the PACER.50 The Australian Trade Minister Simon Crean, however, claimed that PACER Plus was completely separate to the PACER.51 Taking the view that Fiji’s exclusion from the negotiations was a breach of PACER and the response to its request for consultations, Fiji announced its suspension of its obligations under Part 2 of the PACER.

Fiji has declined to be briefed by the Lead Spokesperson for the FICs on PACER Plus, Solomon Islands Minister for Foreign Affairs and External Trade or the Chief Trade Adviser to the Forum Island Countries.52

In September 2011, Forum Leaders, softening their position, agreed to permit Fiji to participate in the PACER Plus meetings at the officials-level only, given Fiji’s important role and links to prospects for broader regional economic integration.53 The response of Fiji was to accuse the Forum of hypocrisy. Minister for Foreign Affairs and International Cooperation Ratu Inoke Kubuabola stated that the Forum “must decide whether to include or to exclude Fiji in all of its dealings, not just where it suits them.”54 It is perhaps unrealistic to expect any country to accept being part of a negotiation where they could only participate at the officials’ level where the negotiations are under the control of Forum Trade Ministers and Leaders.

Without the participation of Fiji, Pacific Island regional integration initiatives do not make much sense.55 Fiji is a commercial and transportation hub of the Pacific. Fiji and Papua New Guinea are the only two FICs with significant economies and manufacturing capacity. Most of the trade for Kiribati and Tuvalu goes through Fiji. While Fiji is a relatively insignificant trading partner for Australia, almost half of New Zealand’s exports to the Pacific Islands, which are collectively one of the top ten export destinations for New Zealand, go to Fiji.56

Fiji has taken the position that it will not accept the outcome of any negotiations in which it has not been able to fully participate. If PACER Plus was concluded without the participation of Fiji, it will fail to economically integrate the region and distort regional trade. At some later point in time a new set of negotiations likely would be required, which raises the question of the value of the current negotiations. Over recent years there has been increasing criticism of the approach of Australia and New Zealand to the coup in Fiji and especially strong criticism about the exclusion of Fiji from PACER Plus. In addition to the legality of its exclusion, Fiji has also raised the question about the value of PACER Plus to Fiji and the FICs.57 As will be discussed below, as of the start of 2012, Australia and New Zealand have not put anything on the table that would convince either Fiji business or Fiji people to push their government to become part of PACER Plus.

While the existing decision of Leaders on the involvement of Fiji in PACER Plus activities stands, it is likely to be impossible for Fiji to participate in PACER Plus meetings convened by the Pacific Islands Forum Secretariat.

D. Ministerial Guidance for Officials on PACER Plus

A number of decisions have been taken by Pacific Island Leaders and Trade Ministers on PACER Plus. While not legally binding, the decisions will guide officials involved in the technical negotiations. This section provides a brief review of the recent decisions, beginning with the agreement to recommend the commencement of negotiations.

At the Forum Trade Ministers’ Meeting in June 2009, the decision to commence negotiations was made:58

• Ministers recommended to Leaders that PACER-Plus negotiations commence after the conclusion of the Pacific Islands Forum Leaders Meeting in Cairns in August 2009.
• Ministers recognised the importance of deepening regional trade integration as a means to create jobs, enhance private sector growth, raise standards of living and advance the region’s sustainable economic development.
• Ministers 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.

• Ministers stressed the importance of progressing PACER- Plus as a means to underpin the economic security of the region through capacity building and market liberalisation. Ministers reflected their intention to bolster the capacity of all Forum Island Countries to take advantage of trade opportunities to help their economies grow and become more resilient to shocks such as the current global economic crisis.

The Forum Trade Ministers’ Meeting should be viewed in context. In the Forum Trade Officials’ Meeting in June 2009, a PACER Plus Joint Roadmap was discussed but not finalised. The Roadmap contained more than one option for the structure of PACER Plus, including on the issue of whether they should be opt-in or opt-out components of PACER Plus. The decision of Trade Ministers did not commit the parties to any particular structure for PACER Plus.

In August 2009, the Forum Leaders agreed to the recommendation from Forum Trade Ministers to commence PACER Plus negotiations forthwith.59 Leaders also directed that the Trade Ministers should discuss a framework for PACER Plus negotiations including timelines; identification of issues; and issues in respect of which the Chief Trade Adviser could negotiate. As noted above, the Leaders decided that Fiji would not participate in the negotiations. Leaders noted the need for Forum Island Countries to undertake national consultations with all stakeholders and capacity building for the negotiations. The decision of Leaders did not decide whether or not all parties to PACER Plus negotiations would enter into to a GATT art X XIV compatible free trade agreement, nor even that a GATT art X XIV free trade agreement would result from PACER Plus.

The Forum Trade Ministers formally commenced the PACER Plus negotiations in October 2009 at the Special Forum Trade Ministers’ Meeting held in Brisbane, Australia.60 The Ministers agreed that national consultations are essential. The Ministers further agreed that during the preliminary stage of negotiations, within the next 12 months, Members would focus on:

• consolidating the Office of the Chief Trade Advisor;

• intensifying national consultations, bearing in mind the differing capacities of Members to undertake consultations; and

• undertaking meetings at Officials level 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.

Forum Trade Ministers next discussed PACER Plus at their Meeting in April 2010:61

• Ministers noted the fundamental importance of air and sea transport, telecommunications and water supply infra-structure to increase trade in goods and services and agreed that these were priority negotiating issues.

• Ministers recognised the capacity constraints faced by FICs when undertaking negotiations and the need for national consultations, recognising these consultations should be an ongoing process and should address the individual needs of countries.
• Ministers also 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.

In August 2010, the Forum Leaders spent little time on PACER Plus, but agreed to refer the issue of participation of Fiji in the PACER Plus process to the Ministerial Contact Group (MCG) for further consideration.62 Leaders further agreed for the MCG, then under the chairmanship of Vanuatu as Forum Chair, to consider possible modalities for engaging Fiji in PACER Plus negotiations and to circulate their findings to Leaders for consideration before the next Forum.

The level of preparedness for the PACER Plus negotiations varies among the FICs. Forum Leaders and Trade Ministers have accepted the need for consultations and preparation before negotiations commence. National studies and consultations were underway in some FICs at the start of 2011, but no FIC had a detailed understanding of its negotiating interests across the priority issues. The result of the first PACER Plus negotiation meeting in April 2010 was, predictably, a fairly general discussion of priority issues. Only Australia and New Zealand tabled papers at the meeting. Further PACER Plus Officials’ Meetings were held in October 2010 and March 2011.

The (future) activities of the Office of the Chief Trade Adviser (OCTA) received more attention at the PACER Plus negotiations at the 2011 Forum Trade Ministers’ Meeting held in Vava’u, Tonga.63 The Ministers agreed that the next Meeting of the PACER Plus Officials be held before the end of 2011, preferably in November, and noted the possibility of another Meeting of PACER Plus Officials being held in early 2012, prior to the next Forum Trade Officials and Ministers’ Meetings.64 The Ministers agreed that the agenda of the next meeting of PACER Plus Officials should focus on customs procedures, rules of origin and labour mobility, including related development assistance issues, with other priority areas to be discussed at subsequent meetings.

Apart from considering the participation of Fiji, as noted above, the Forum Leaders Meeting in September 2011 again gave relatively little consideration to trade matters:65 “Leaders noted the high priority placed by the region on the successful conclusion to the Economic Partnership Agreement (EPA) negotiations in 2012. Leaders agreed that negotiations on the Pacific Islands Countries Trade Agreement (PICTA) Trade in Services and the Temporary Movement of Natural Persons and PACER Plus would also be progressed as matters of priority...” The contrast with the pre-2011 statements of Leaders and Trade Ministers is stark.

The acceptance of a fairly modest agenda by Australia and New Zealand, compared to the pressure to advance negotiations in 2009 and 2010, arguably reflects several factors, including the limited capacity of the FICs to engage in more than one major negotiation at the time and a commitment to complete the Economic Partnership Agreement negotiations with the EU in 2011 and the realisation that if negotiations proceed too far without Fiji the project may well fail.

E. Progress

A full account of the discussions cannot be given here. Nonetheless, an overview is important to understand the need to rethink the process. As of early 2012, three PACER Plus Officials’ Meetings66 and a workshop on rules of origin and customs procedures67 have been held. Papers have been exchanged between the parties to the negotiations on many of the common priority issues agreed by the Forum Trade Ministers, namely rules of origin, trade facilitation (customs procedures, sanitary and phytosanitary measures, and technical barriers to trade); labour mobility; development assistance; and trade-related infrastructure. Nothing of substance was agreed, but some deepening of understanding of the issues occurred.

Australia presented legal text for four chapters it proposed could form part of a PACER Plus agreement, covering rules of origin, customs procedures, sanitary and phytosanitary measures and technical barriers to trade. The proposals largely track the equivalent chapters in the Australia-New Zealand- ASEAN Free Trade Agreement. New Zealand had not at that point made any textual proposals.

The FICs, through papers prepared by the Office of the Chief Trade Adviser, made textual proposals on rules of origin and customs procedures, as well as fairly detailed proposals on the elements of chapters on labour mobility, sanitary and phytosanitary measures and technical barriers to trade. The textual proposals on rules of origin and customs procedures depart from the traditional model of free trade agreement favoured by Australia and New Zealand in both substance and structure. The “structure” was for the parties to initially negotiate a memorandum of understanding (MOU) that would allow for an “early harvest” from the PACER Plus negotiations and provide the text for a PACER Plus agreement.

The idea of an early harvest on rules of origin was raised with Australia and New Zealand by the FIC Trade Ministers in 2007. At the time, a legal mechanism by which the early harvest would be reaped was not proposed. The request for an early harvest was essentially a reaffirmation of the long- standing request to update and improve the rules of origin of SPARTECA. Some commentators and trade negotiators caution against picking the low hanging fruit, because it will be more difficult to conclude negotiations on the harder issues. Depending on the issues some of the parties to the negotiations may also feel they would be giving away bargaining chips. In the case of rules of origin, Australia did not support an early harvest. Such initiatives could however be viewed as critical for building confidence. The outcomes document for the 2011 Forum Trade Ministers’ Meeting recorded that New Zealand, however, “welcomed the work done by the OCTA towards an MOU framework for PACER Plus.”68

For reasons discussed in the next section of this article, an approach to the PACER Plus negotiations that rules out early harvests is likely to increase the chances of the negotiations failing to achieve much of significance. More generally, new approaches to regional integration should not be automatically ruled out. In any event, early harvests have been taken in other trade negotiations, including in circumstances where some of the parties may give greater concessions to the others. For example, the “early harvest programme” (zaoqi shouhuo) in China’s free trade agreements provides concessions to its trading partners.69 In early 2011, Pascal Lamy the Director General of the WTO, proposed an early harvest as part of his “Plan B” for the Doha Round, which would involve agreement on issues of value to least developed countries.70

The approach to early harvests welcomed by New Zealand has centred on some of the common priority issues, whereby the results of the negotiations could be captured in MOUs pending the finalisation of the comprehensive PACER Plus text. The MOUs could be implemented immediately, without the need for the ratification of treaties. This approach would allow the FICs to realise the development benefits from agreement on the priority issues without waiting several years for the PACER Plus negotiations to be concluded and the results ratified and implemented. It would also act as a driver for the negotiations.

One key rationale for an early harvest in PACER Plus is that the FICs cannot expect to gain significant increases in market access for goods and services from Australia and New Zealand from a new GATT art X XIV or GATS art V compliant trade agreement. Some FIC exporters could, however, benefit from a number of measures that do not need to be initially be part of such an agreement and could be part of an early harvest, such as improved rules of origin in SPARTECA and assistance coping with sanitary and phytosanitary measures. As discussed below, the benefits of FIC liberalisation can be achieved through unilateral action and liberalisation will be more beneficial if done multilaterally. Australia and New Zealand could assist FICs to open up their economies by providing assistance to remove the roadblocks to liberalisation, such as revenue loss and regulatory reform and capacity constraints. Again, many such initiatives could be part of an early harvest.

The MOU framework for PACER Plus also could have possibly provided a mechanism to reconcile the conflict between the economic integration of the Forum members and the promotion of the sustainable development of the FICs, on the one hand, and the exclusion of Fiji. The negotiation of complete legal text for PACER Plus would have made it harder for Fiji to participate at some later date.

III. Toward a Non-Tr aditional Tr ade Agreement?

A. The Missing Common Vision

The structure and content of PACER Plus are yet to be agreed. The issue is not just the final legal arrangements governing regional economic integration or the vision for the region, but also the path that leads to that vision. The objective of the PACER of promoting sustainable development through economic integration involves considering the choice of policy measures that should be taken to advance regional integration, the sequence of those policy measures, the time period over which the policy measures will be introduced, the type and level of support that may be forthcoming from development partners to assist the FICs implement various measures and benefit from opportunities and so forth.

The Forum Leaders’ decision to commence PACER Plus negotiations does not guarantee a timely conclusion of negotiations. The Doha Round of multilateral trade negotiations is, for instance, more than a decade old and few now believe that a broad agreement will be concluded any time soon. The average length of time required for a country to negotiate its accession to the WTO negotiations is now about twelve years.71 For many FICs a comprehensive preferential trade agreement would require making broader and deeper commitments than would be required for accession to the WTO. The negotiation of a comprehensive trade agreement can take considerable time, especially when some of the parties have not previously negotiated and implemented such an agreement. All things being equal, the greater the number of parties, issues and differences between the parties, the greater the time required for negotiations.

PACER Plus involves fifteen parties, with Fiji in the background. While the coordination among the FICs and between Australia and New Zealand simplifies negotiations to an extent, PACER Plus needs to adequately respond to the many differences between the FICs. Unlike Australia and New Zealand, the FICs have limited experience negotiating comprehensive preferential trade agreements. The EU-PACPS Economic Partnership Agreement negotiations were styled as comprehensive negotiations, but at the time of writing in early 2012, it is unlikely that the negotiations will contain many significant commitments outside the area of trade in goods.72 The FICs have therefore not been required to consider in detail the measures necessary, let alone adjust their policy settings, to accommodate a comprehensive preferential trade agreement. The situation is different in Australia and New Zealand where the conclusion of another “high quality” comprehensive preferential trade agreement, which involves significant regulatory commitments, might involve relatively little policy adjustment for either country in practice.

More fundamentally, the detachment of PACER Plus from PACER means that the few agreed guidelines on the possible content and structure of future trade agreements are no longer clearly applicable.73 Even if the guiding principles of PACER did apply to PACER Plus, the approach the parties might take to trade services, investment, labour mobility and the host of trade-related issues that appear in preferential trade agreements has not been agreed. The absence of agreement on the issues that PACER Plus will address, the broad parameters of the treatment of some issues and issue linkage substantially increases the risks of failure of the negotiations. If not an absolute failure, the result is likely to be that the FICs will devote considerable time and resources to the negotiations for very modest returns. The opportunity cost of trade negotiations is very high for small states.

The risk of failure creates a different but equally serious risk down the track of a big push for a quick conclusion to the negotiations. Whether due to the internal logic of bureaucracies or political reasons, Australia and New Zealand could decide to push for a speedy conclusion of the negotiations.74 The significant aid relationship and experience indicates that securing the signature of a document at the political level might be possible notwithstanding strong reservations about its contents at the technical level.75 However, if the signature was secured without winning the hearts and minds of the stakeholders in the FICs, ratification and implementation may not follow.

B. Rhetoric and Reality

The Doha Development Agenda was “sold” on the basis that a new round of WTO negotiations would be focused on the needs of developing countries.76 It has proved to be difficult to move from general statements to specific commitments and precise legal text. The effect is the round is rarely referred to by its official name, but is now simply the Doha Round. The ACP States, which were reluctant to negotiate reciprocal trade agreements with the EU, heard similar rhetoric from the EU around the same time as the Cotonou Agreement was concluded and during the lead up to the negotiation of the Economic Partnership Agreements.77 The lesson from both negotiations for many developing countries was that developed countries over-promised to get the negotiations started, but ultimately under-delivered. Without significant pressure to include the negotiations, developing countries resisted the position of developed countries and the negotiations drifted.

Each FIC wants to see that clear benefits for its sustainable development will flow from PACER Plus. A number of Australian ministers and parliamentary secretaries have agreed that “Australia’s primary objective in backing PACER Plus is to promote the economic development of Forum Island Countries.”78 Each component of PACER Plus should be scrutinised to see whether it promotes the development of the FICs. The Australian Minister for Trade Simon Crean observed: “We have acknowledged what many nations in the region regard as a flawed process in the Economic Partnership Agreement negotiations with the European Union.”79 It is perhaps too early to compare the Economic Partnership Agreement and the PACER Plus processes, but from the point of view of the Pacific Islands both have already involved the dominant developed country partners applying pressure and coming to the negotiations with preconceived ideas about the outcome. Furthermore, while the broad guidance provided by Forum Trade Ministers is valuable, the negotiations at the officials-level have resulted in Australia producing proposals that look similar to chapters that would appear in a traditional preferential trade agreement.

Australia and New Zealand have not put anything of value on the table for the FICs. Nor have the indicated what they will be, or will not be, asking for in the negotiations, with the exception that Australia and New Zealand have indicated that they will seek to ensure that its exporters are not disadvantaged vis-à-vis EU exporters under the Economic Partnership Agreement. Without an agreement on the vision for PACER Plus, the negotiations could be set move down a rather traditional track, in terms of substance and outcome.

C. Readiness and Capacity to Negotiate

PACER Plus is probably the most important economic agreement most of the FICs will negotiate this decade. It is understandable if the FICs want to get it “right”. Detailed analysis of issues is required for the FICs to understand the consequences of every component of PACER Plus, including for government revenue, and the impact on business and disadvantaged members of society. The need for more time for preparation and national consultations was repeatedly emphasised by FICs in the lead up to the commencement of the negotiations. The lack of preparation and capacity to negotiate were put forward as reasons to delay the commencement of negotiations. Australia and New Zealand have acknowledged the capacity constraints faced by the FICs. Most of the FICs have, with AUD $65,000 provided by Australia, used an approved consultant to prepare a general study on PACER Plus. The studies did little more than enumerate broad, generally well-known offensive and defensive interests. In any event, the assessment of potential costs and benefits is a first step in broad areas and does not provide an adequate basis for the FICs to enter negotiations. The more difficult task is the coordination of positions among the FICs and the formulation of realistic, specific proposals to level of the development of legal text.

The FICs do not have the capacity to handle a broad range of issues within the PACER Plus negotiations simultaneously, let alone conduct more than one major negotiation at the same time, namely the PACER Plus negotiations, the negotiation of the Economic Partnership Agreement with the EU and the extension of PICTA to trade in services and the temporary movement of natural persons. The capacity constraints have been recognised by the Forum Trade Ministers, both in the establishment of the Office of the Chief Trade Adviser as well as the pace and breadth of negotiating meetings.

The FIC capacity constraints manifest themselves in a number of ways. Most FIC trade departments are very small, with few or no specialists in the many sub-fields of trade negotiations. Officials involved in Economic Partnership Agreement and PICTA negotiations struggle to effectively participate in the PACER Plus negotiations. Even with a coordination of meeting times, the mere holding of meetings and travel around the region reduces time for preparation. The budget of most FICs does not permit them to send experts from all of the relevant government departments to the meetings. The greater the range of issues discussed at each negotiation, the greater the disadvantage for the FICs. If negotiations do not take place at a speed and in a manner that ensure effective participation by the FICs, they will be seen as unfair and illegitimate. As discussed below this will affect the prospects for PACER plus to be ratified or implemented.

Equally important is the speed at which many FICs could implement the outcome of any negotiations. It may not be possible for some FICs to implement many reforms simultaneously, even with financial and technical assistance from development partners. This reflects both the capacity of the government as well as the sources of opposition to change. Here, what Australian and New Zealand Trade Ministers like to describe as a high quality trade agreement may be most problematic.

D. Full Implementation of a Comprehensive Trade Agreement is Unlikely

The extent to which states follow their international treaty obligations has become a major research area in international law and international relations scholarship,80 perhaps excessively so.81 A consensus on when and why states comply with their international obligations has not been reached. The research, however, provides some guidance on the type of circumstances where a state might not comply with its international law obligations. If PACER Plus negotiations produce a traditional comprehensive preferential trade agreement, it is suggested that many of the FICs could not or would not comply with all of their obligations. In those circumstances PACER Plus will not achieve the objective of “promot[ing] sustainable economic development of the Forum Island countries through greater regional trade and economic integration”.82

Where the balance of costs and benefits favour non-compliance, perhaps opportunistically, especially where transparency is low,83 realists are convinced that states will not honour their obligations.84 One response has been to argue that reputation, reciprocity and retaliation will promote compliance.85 The incorporation of international adjudication and enforcement mechanisms into trade agreements have been analysed through this lens as a mechanism to increase compliance. The WTO Dispute Settlement Understanding is often seen as the most important achievement of the Uruguay Round, providing for binding arbitration of trade disputes.86 Compliance with the WTO agreements is promoted by the clarification of legal rules and the legality of measures and possibly of the authorisation of successful complainants to impose retaliatory trade measures.87 Even if PACER Plus contained a dispute settlement mechanism like that of the WTO, it is unlikely to be used by Australia and New Zealand much. Quite apart from the potential harm to overseas development policy objectives and the political cost, the small size of markets and volumes of trade in the Pacific Islands mean that enforcement costs will generally exceed the expected benefits. The FICs will face similar obstacles, heightened by a lack of financial and technical capacity to pursue legal resolution of a trade dispute.

The broader economic and political relationship might provide Australia and New Zealand with leverage to compel compliance where an individual FIC has opportunistically failed to comply, but where the FIC lacks the capacity to implement the agreement it is unclear what might be achieved. Chayes and Chayes have argued that instances of non-compliance with treaty obligations are frequently inadvertent, resulting from, inter alia, a lack of state capacity or resource constraints and/ or uncertainty over the content of treaty obligations.88 The proposal that non-implementation of an obligation in a trade agreement by a developing country should in many cases lead to financial and technical assistance being provided, rather than a right to impose trade sanctions, has been not infrequently made in trade negotiations between developed and developing countries.89

Small developing countries will not even have the capacity to comprehend all of their obligations and formulate the legislative or administrative actions necessary for full compliance. The notion that capacity to comply is a major impediment to both the implementation and negotiation of trade agreements is generally accepted.90 The readiness and capacity of the FICs to negotiate PACER Plus was discussed in Section III.C above. Modern preferential trade agreements address a wide range of subjects other than the elimination of tariffs and quotas on trade in goods. The implementation of the regulatory and institutional requirements of a modern preferential trade agreement by the FICs would involve the significant commitment of resources. Implementation decisions are investment decisions, which involve considerable opportunity costs for FICs. The type of regulatory and institutional structures required by modern trade agreements are basically already in place in Australia and New Zealand.91 In a review of World Bank project experience, Finger and Schuler found that to get up to speed in only three areas, customs valuation, intellectual property and sanitary and phytosanitary measures, would cost each country USD 150 million.92 The WTO General Council’s 2004 “July Package” determined that the modalities for negotiations on trade facilitation state that “the extent and the timing of entering into commitments shall be related to the implementation capacities of developing and least-developed Members.”93 While many of the regulatory changes that would be required by a modern trade agreement may be desirable, each FIC should consider the costs, including other spending that must be curtailed and the prioritisation of reforms.

Franck has argued that “compliance is secured – to whatever degree it is – at least in part by the perception of a rule as legitimate by those to whom it is addressed.”94 The legitimacy of the WTO and other trade and investment agreements from the point of view of the participating states and citizens has attracted much public and scholarly attention over the past two decades. The legitimacy of the rule-making process and the substantive content of the rules will affect compliance with a PACER Plus agreement. The conduct of Australia and New Zealand in the PACER and PACER Plus processes has previously been criticised in reports by nongovernmental organisations and in many newspaper articles throughout the region.95 If PACER Plus negotiations and/ or the outcome are perceived to be unfair, the ratification of any agreement and the enactment of implementing legislation in the legislatures of the FICs will be more difficult. Public opposition could even provide cover for the non-implementation of treaty provisions that were seen as imposed by Canberra and Wellington.

That full compliance by the FICs with a comprehensive traditional preferential trade agreement is unlikely is no real surprise. Therefore, neither should be the fact that the mere conclusion of such an agreement will not achieve the stated development objectives of the parties. An agreement could be designed to reduce the prospect and consequences of non-compliance, including through parties with less capacity being asked to accept fewer obligations and capacity building assistance. Compliance is, however, a narrow lens through which to view PACER Plus. PACER Plus cannot purport to have the objective of promoting sustainable development through promoting economic reform where the prerequisites for successful reform are ignored. Aid agencies have come to appreciate that for reform projects to be effective they need to be designed and implemented with a detailed understanding of the political economy of the developing country beneficiary.96 They also need support within the beneficiary country and there needs to be a shared understanding of the purpose and predicted impact of the reforms. Any reform or policy or legislative change proposed to be initiated under PACER Plus should be viewed with the political economy of each FIC in mind.

E. Single Undertakings and Consensus Decision Making

Any PACER Plus agreement must respond to differences between Australia and New Zealand and the FICs and the differences between the FICs. One size will not fit all when, to cite just two statistics, the population of the largest is more than 10,000 times the smallest and the GDP per capita of the richest is more than 10 times the poorest. While many FICs will often have common interests, as discussed above, there are important differences in the relationship between each FIC and Australia and New Zealand. In 2010, former Australian Trade Minister Simon Crean wrote: “Australia supports the new trade and economic agreement being crafted in a way that takes account of the individual circumstances of the Forum Island Countries and incorporates a substantial focus on development outcomes.”97 The relevant Ministerial decisions instruct officials to be innovative and take account of differences between the parties.98 The FICs are likely to press for this instruction to be taken seriously.99 In April 2010, at the Forum Trade Ministers’ Meeting, the Ministers discussed the development of a framework that enables those countries ready to move ahead with negotiations to progress, while allowing other countries more time to prepare.100 This is an area where general statements can lead to misunderstandings and false expectations. The New Zealand Trade Minister Tim Groser, in a speech given in Wellington on 6 September 2010, going beyond previous statements about the need to respect differences, indicated that New Zealand favoured a flexible approach to PACER Plus:101

I do not see PACER Plus as a trade negotiation in any traditional sense. ... Rather, the priority for this Government in PACER Plus is to develop the exports and economic development of Pacific Island countries. It is up to Pacific Island countries to determine whether they go down the PACER Plus path and at what speed they do so.

At this year’s Pacific Forum Trade Ministers meeting in Pohnpei, Ministers discussed a flexible approach. New Zealand supports that flexible approach: those Pacific Island countries that are willing can move more quickly and those that want more time can take it.

Based on the textual proposals made by Australia, however, the extent to which all officials will be willing to accept a framework for economic integration that does not look like the traditional regional trade agreements to which Australia and New Zealand are party is far from clear.

A key issue is whether or not PACER Plus should be a “single undertaking” where all parties sign on to all major components of PACER Plus from the start, or whether the FICs should have the ability to opt-in or opt-out of PACER Plus, or at least certain elements of PACER Plus. The experience of the WTO with the single undertaking in the Doha Round and the WTO consensus decision-making rule, which recently have come under significant scrutiny,102 contains some lessons for PACER Plus. Paragraph 47 of the Doha Ministerial Declaration states that “the conduct, conclusion and entry into force of the outcome of the negotiations shall be treated as parts of a single undertaking. However, agreements reached at an early stage may be implemented on a provisional basis ....”103 The WTO members recently accepted that the pursuit of a single undertaking in the Doha Round has failed.104 A number of commentators have suggested that the WTO consider a club-type approach, which allows a subset of the membership to move forward on an issue while other might not make commitments.105

The standard justification for a single undertaking in multi-party negotiations is that it will facilitate issue linkage and trade-offs and therefore a broader (welfare enhancing) agreement. Export-oriented industries, it is argued, will support liberalisation in exchange for greater access to foreign markets. Exports from the FICs currently enjoy tariff free access to Australia and New Zealand markets under SPARTECA. The impact of PACER Plus on FIC imports is likely to be much greater than the impact on FIC exports. In few FICs is the export sector likely to be a strong voice in favour of liberalisation under PACER Plus, because of the relative insignificance of Australia and New Zealand as export markets. In the context of PACER Plus multi-country issue linkage is also unlikely to be of importance. In the WTO, a single undertaking may facilitate agreement if A wants x from B; B wants y from C; and C wants z from A. In PACER Plus, the level of trade among the FICs is generally low relative to their trade and economic relation with Australia and New Zealand, which means the negotiation is largely going to take the form of a bilateral negotiation between the FICs and Australia and New Zealand.

For multilateral issue-linkage to be facilitated by the single-undertaking principle requires the agreement of most WTO members. The consensus decision-making norm in the WTO is thus linked to the single undertaking. In the WTO, consensus decision-making imparts a bias towards lowest- common denominator outcomes. On the other hand, it is also widely assumed that decision-making by voting in the WTO would lead to widespread, or at least greater, non-compliance with the WTO agreements. The diversity of the parties to PACER Plus suggests a comprehensive preferential agreement will be opposed by some of the FICs. Such an agreement may be unachievable, at least in the short term, if a single undertaking of all PACER Plus parties is sought. An attempt to push through an agreement is likely to have negative consequences for the successful implementation of the agreement.

Issue linkage is also easier in theory than practice. While issues can be relatively easily linked when the negotiating agenda is being discussed, it is much harder where specialists are negotiating the detailed text for different chapters. The devil is in the detail. Technical negotiators may have fixed ideas about the form and content of the provisions of the trade agreement for which they are responsible and/ or start the negotiation of a new agreement with the text of the most recently concluded agreement in mind. That which appears to be a good bargain at the agenda-setting stage of the negotiations might turn out to contain a number of onerous obligations for some parties and create limited opportunities for increased market access.106 The relative technical capacity of the trade negotiators can make a significant difference.

The costs and benefits of pursuing a GATT art X XIV and/ or GATS art V compliant trade agreement need to be examined from the perspective of each FIC before determining the structure of the PACER Plus negotiating process. If there are few benefits for some FICs that would not be available through unilateral action and only modest if any opportunities for increased exports, but significant costs from adjustment to increased import competition, revenue loss, implementation, and the alike, the pursuit of a single undertaking for a comprehensive preferential trade agreement in context of PACER Plus will increase the risk of the negotiations being long and costly.107 The experience of the Economic Partnership Agreement negotiations shows that without clear benefits from the agreement, or significant costs from not signing, the FICs are unlikely to quickly conclude negotiations.

In summary, insisting that all FICs sign onto a GATT art X XIV and GATS art V compliant trade in goods and services agreement will lengthen negotiations and some FICs may drop out. The absence of a single undertaking does not mean, however, that PACER Plus would promote liberalisation or economic reform. Greater benefits to the FICs in the form of labour mobility and development assistance could also drive the negotiations. Australia and New Zealand have not, however, yet put anything of value on the table for the FICs. Nor have they clearly indicated what they will or will not request in the negotiations.

F. Opening Markets

The speed of liberalisation and the level of liberalisation vary between the FICs, and the process has not always been without hiccups, but the overall direction has been towards greater openness. The Forum Leaders and Trade Ministers have agreed that PACER Plus should lead to greater market liberalisation and economic integration.108 Liberalisation, economists tell us, is generally beneficial when done unilaterally, which raises the issue of the justification for including liberalisation commitments in PACER Plus.109 The three political economy rationales for negotiating liberalisation commitments bilaterally or multilaterally most commonly advanced relate to securing greater access to foreign markets; overcoming domestic political blockages to reform; and locking in reform and making commitments credible.110 As discussed below, none of these reasons are, however, clearly applicable in PACER Plus.

The SPARTECA provides non-reciprocal duty free access to Australia and New Zealand for most products from the FICs. Australia and New Zealand are also generally fairly open to trade in services, whether from the FICs or other countries. While some increase in trade from some FICs is possible through, inter alia, addressing quarantine measures and restrictive rules of origin, success in the negotiations is not assured and the gains are likely to be relatively modest or negligible for most FICs. The prospect of increased market access for goods and services exported from the FICs will not drive the PACER Plus negotiations at either the international level or the domestic level in the FICs. The normal mercantilist logic of trade agreements, therefore, does not apply to trade in goods and services in PACER Plus.111 The FICs do not need to provide market access commitments to secure market access commitments from Australia and New Zealand. While the status of SPARTECA might be a little incongruous under the WTO, it does not seem to be under threat.

Exports of goods and services from Australia and New Zealand are likely to increase from FIC liberalisation much more than exports of FIC goods and services.112 The benefits of liberalisation to the FICs are likely to accrue over the medium to longer term. In the short term a FIC is likely to face a variety of adjustment and implementation costs, which might create economic or political obstacles to securing the longer-terms benefits. Certain adjustment costs are likely as domestic industries are required to face competition from imports. The level of adjustment costs will depend on the precise liberalisation commitments made by the FICs in PACER Plus, in particular the range of products subject to tariff elimination commitments and the speed at which tariffs must be eliminated will affect the adjustment costs. Furthermore, several of the FICs are dependent on tariff revenue for a not insignificant part of government revenue.113 The loss of government revenue from tariff liberalisation will increase the strain on the finances of a number of FICs and possibly affect the provision of government services.

There are also real but harder to quantify costs from a loss of policy and regulatory space, which may flow from the country-specific commitments on goods or services or general disciplines in trade agreements. Insisting that all FICs sign onto a GATT art X XIV and GATS art V compliant trade in goods and services agreement could therefore threaten the whole negotiations. An open discussion and agreement on the basic parameters of the negotiations might make the FICs less hesitant about to discuss market access issues with Australia and New Zealand.114

As discussed in Section III.D, the FICs are likely to face significant financial, technical and domestic political constraints in the implementation of a comprehensive preferential trade agreement. Small developing countries are likely to struggle to implement and comply with a traditional preferential trade agreement without significant external technical and financial assistance. There may also be limits on the number of reform projects small states can undertake at any one time.115 The implementation of many detailed requirements of a preferential trade agreement could result in a FIC being diverted from the optimal sequence and prioritisation of reform projects, or lead to piecemeal reform.116 Among others, these matters will affect whether PACER Plus as a whole is considered to be beneficial and need to be considered in structuring the PACER Plus process.

Trade agreements are often advocated as a means for countries, especially developing countries, to overcome domestic political blockages to reform and liberalisation. However, it is doubtful whether external pressure and visibility are alone sufficient to drive the process. Without the expectation of substantial benefits from the trade agreement, the developing country is unlikely to be highly motivated. If the prospects of increased exports of goods or services from the FICs under PACER Plus look fairly modest, labour mobility and development assistance would need to be the drivers of reform. The successful liberalisation of telecommunications suggests the need for clear understanding of benefits, a domestically driven process and external technical and financial assistance with reform. A more positive approach to market liberalisation under PACER Plus would be to locate it in the broad context of the development plan and reform agenda of each FIC and take account of the political economy of reform in the FICs.117

Evidence from other regions indicates that bare legal commitments by many developing countries in trade agreements lack credibility,118 due to the implementation and enforcement difficulties discussed in section III.D. Without the reform, there may be nothing to lock in.

Other WTO consistent options for PACER Plus that could better promote economic integration and liberalisation exist. More may be achieved through specifically addressing obstacles to reform and liberalisation in each FIC rather than simply mandating liberalisation and hoping for the best. The parties should be upfront and reasonable about the level of commitment that will be sought from FICs. Options for flexibility include lower initial requirements for the proportion of goods on which tariffs need to be eliminated for some FICs, or agreeing to commitments for some FICs to reduce if not eliminate tariffs on a most-favoured nation (MFN) basis and so avoiding the strictures of GATT art X XIV,119 or agreeing to APEC- style aspirational commitments.120 All of these can be broadened and deepened at a later stage if the parties so desire. This was the experience of Australia and New Zealand under ANZCERTA.121 The agreement, which came into force in 1983, did not provide for the elimination of all tariffs between the parties, but within a few years that built confidence the parties were able to agree to eliminate tariffs on all bilateral trade.122 Indeed, if the preferential trade agreements of Australia and New Zealand are examined as a group, it is evident that the approach has evolved over the years, getting increasingly sophisticated and comprehensive. Safeguard mechanisms and assistance could be provided under PACER Plus to help the FICs overcome any obstacles to reform.

Services commitments under preferential trade agreements are frequently modest. The minimum legal requirement of the GATS can be met without scheduling many, if any, market access commitments of commercial value. In other words, WTO compliance is possible without effective liberalisation.123 In some cases, the services commitments have been less than the commitments made by a party in the WTO.124 The value of the exercise of the negotiation of such agreements can be questioned. Furthermore, beneficial liberalisation of services will frequently involve regulatory reform. The FICs may need assistance. Some FICs would struggle to liberalise many sectors simultaneously. The parties could consider some FICs liberalising a limited number of strategically important sectors as part of a general reform of that sector.

The level of ambition the FICs are prepared to contemplate in relation to trade in goods and services, and the challenges they might face, is likely to be influenced the level of ambition Australia and New Zealand are prepared to contemplate in other areas, notably labour mobility.

G. Labour Mobility

Freedom of movement of labour is a core element of the economic integration between Australia and New Zealand and within the European Union. Increased labour mobility among Pacific Islands Forum members, in particular increased access for FIC workers to the Australia and New Zealand labour markets, has long been an objective of Pacific Island political leaders. Forum members committed to the objective of a high level of integration of regional labour markets in art 2 (a) of the PACER, which provided for the gradual establishment of a single regional market among Forum members.125 Labour mobility will be a central element – politically and economically – to meaningful and beneficial economic integration between the FICs and Australia and New Zealand. Meaningful commitments on labour mobility could make PACER Plus economically more beneficial to the FICs and individual families within the FICs. Without such commitments to offset clear costs, the signature and ratification of PACER Plus may not be politically possible for some FICs.

At the Special FTMM held in October 2009, Trade Ministers agreed that regional labour mobility (beyond Mode 4) is a common priority issue for the PACER Plus negotiations. The qualification “beyond mode 4” reflects the fact that FIC nationals are unlikely to be able to benefit significantly from GATS mode 4 commitments, as well as the desire to avoid becoming entangled with the WTO rules relating to regional trade in services agreement and the most- favoured-nation obligations in some of Australia and New Zealand’s trade in services agreements.

In recent years the debate has been influenced by the New Zealand Recognised Seasonal Employer Scheme (RSE).126 The RSE was developed in response to labour shortages in viticulture and horticulture sectors and with the aim of assisting the FICs. The RSE provides for the temporary entry of up to 8,000 workers. In the 2007/2008 season 83 per cent and in the 2008/2009 season 73 per cent of the workers came from five FICs, predominantly Vanuatu, Tonga and Samoa. An AusAID and World Bank funded study on the New Zealand RSE concluded “this seasonal migration program is one of the most effective development interventions for which rigorous evaluations are available.”127

The possibility of extending the scheme to other sectors and to caregivers has been suggested on a number of occasions.128 In addition to the RSE, and other general permanent and temporary migration schemes, a number of Pacific people enter New Zealand through other schemes, including the possession of New Zealand passports by Cook Island and Niue nationals and the permanent migration rights conferred by the Samoan Quota Scheme and the Pacific Access Category applicable to Kiribati, Tonga and Tuvalu.

Australia does not have the same range of preferential immigration policies for FIC nationals. The equivalent Australian scheme to the RSE has been somewhat smaller and less successful. In December 2011, the Australian government announced a “permanent Seasonal Worker Program” for farm workers from the Pacific and East Timor, as well as a small-scale, three-year trial with accommodation providers in the tourism industry.129 The greater size and better transport connections between Australia rather than New Zealand, with in particular, Papua New Guinea and Solomon Islands, mean that the participation of Australia is central to the success of any regional labour mobility scheme.

Global flows from remittances are rising toward $400 billion per year.130 The gains from eliminating barriers to international migration dwarf the gains from eliminating the remaining barriers to international trade and investment by an order of magnitude or two.131 For labour mobility the gains have been estimated to be an increase between 67 and 147.3 per cent in global GDP.132 Even small reductions in the barriers to labour movement could bring enormous gains.133 A host of studies and government reports have detailed the benefits of temporary labour mobility schemes to both the sending and receiving countries in the Pacific region.134 Using the RSE scheme income as a benchmark, back of an envelope calculations show that the benefits from a significant temporary labour mobility scheme would dwarf any other benefits from PACER Plus. If labour mobility is not on the table, PACER Plus cannot be considered serious about regional economic integration.

A PACER Plus labour mobility scheme would help address some of the labour shortages in Australia and New Zealand, especially for low and semi- skilled workers. Australia and New Zealand already use immigration to address labour market issues, including temporary migration to fill vacancies in a number of lower-skilled occupations, including through the development of working holiday programmes.135 Such a scheme could reduce the risk of social unrest from the growing young un- or under-employed populations in a number of the FICs, enhancing regional stability. Australia and New Zealand are also likely to have an interest in regional labour mobility for business persons and professionals.

The impact of a labour mobility scheme will depend on the design of the scheme, including the nature and size of the opportunities to seek employment abroad, relevant procedures and the safeguard for workers. The mere fact that labour markets are integrated does not mean that all people will move. For example, despite the wage differential and free access to the Australian labour market, most of the population of New Zealand has stayed put. As with the working holiday schemes, Australia and New Zealand should be prepared to consider sizable labour market access commitments. Unless Pacific workers have the proper skills and qualifications, which are recognised in Australia and New Zealand, increased access will be of little benefit to the sending countries. Both the FICs and Australia and New Zealand recognise the importance of appropriate skills development in the region and the link with migration.136 Here, PACER Plus should be linked with broader development cooperation initiatives in the Pacific. Australia and New Zealand recognised importance of supporting education and vocational training in the Pacific, as evidenced by the joint announcement of Prime Ministers Gillard and Key at the time of the Forum Leaders’ Meeting in 2011 to increase funding in this area.

H. Development Assistance

Australia and New Zealand are already major donors in the Pacific. They have indicated development assistance is one of the things that would make PACER Plus unlike a traditional preferential trade agreement, that is, part of the ‘Plus’ in PACER Plus.137 As noted in Section II.D, the Forum Trade Ministers have agreed that development assistance is one of the common priority negotiating issues. Development assistance is likely to be the main possibility for any significant benefits for some FICs flowing from PACER Plus, especially the FICs that have access to the New Zealand (Cook Islands, Niue) or United States (Federated States of Micronesia, Palau, Republic Marshall Islands) labour markets. Similarly, WTO Ministers recently affirmed: “that development is a core element of the WTO’s work.”138 There is scope for even greater integration of aid and trade policies under PACER Plus.139

Many of the issues the PACPS, and the other ACP regions, struggled within in the Economic Partnership Agreement negotiations with the EU are also likely to become issues in PACER Plus. The PACPS sought additional resource commitments from the EU above those committed under the Tenth European Development Fund (EDF). The EU steadfastly refused. In the case of PACER Plus, the up-scaling of AusAID resources140 and the possible refocusing of New Zealand aid on the Pacific,141 probably means that some additional resources will be available to the FICs in the area of aid for trade. For FIC negotiators, the appropriate benchmark to assess whether additional development assistance is made available as part of PACER Plus, as part of an overall assessment of costs and benefits, might not be the current or promised future level of development assistance or aid for trade from Australia and New Zealand. There is also a risk of aid for trade, driven by the desire to conclude negotiations, coming at the expense of other valuable aid projects.

Both the experience in the Economic Partnership Agreement negotiations, and the approach of Australia and New Zealand in the Australia-New Zealand- ASEAN Free Trade Agreement (A ANZFTA),142 suggest that getting a legally binding commitment to provide assistance will be difficult, especially for a period of more than a few years. A related issue is whether a largely bilateral approach to aid for trade, which is anticipated under the A ANZFTA, would be the best institutional structure for the delivery of development assistance under or in relation to PACER Plus. Many other options exist.143 In addition to the Cotonou Agreement, and its implementing instruments, a variety of models exist for the delivery of regional aide for trade assistance. Open- minded consideration should be given to the best method for the delivery of any assistance provided under PACER Plus.

The identification of priority issues for assistance may also be problematic. In some areas, assistance can be linked to obligations undertaken. In other areas, the scope of potential assistance will be a matter of negotiation. It is likely to be difficult for the parties to agree about the level of funding and the priorities for funding. Ministers directed that development assistance,

focusing on physical infrastructure for trade, trade development and promotion be a negotiation priority. Australia and New Zealand have so far not made any proposals and the FICs only made narrow proposals in relation to specific areas.

Despite the aforementioned problems, PACER Plus also provides opportunities. Opportunities exist to overcome the unrealistic time frame of only a few years for most development projects, which can permit not only longer term projects but also more comprehensive projects.

IV. Conclusion

The review of the PACER Plus negotiations suggests that few of the lessons from the Uruguay and Doha Rounds of multilateral negotiations have been learned. Hoekman’s observations on the Doha Round apply to the PACER Plus negotiations:144 “the Doha Round the agenda was badly crafted, helping to explain why the round has lasted so long. ... Having papered over a lack of consensus at the Doha ministerial meeting ... the first years of the Doha Round were more about the agenda than substantive negotiations.” Getting the agenda of PACER Plus right is a critical first step. The agenda needs to provide some tangible benefit for all of the parties. Without a clear indication of what may be achievable in the areas of labour mobility and development assistance, PACER Plus negotiations could follow the path of the Doha Round, wasting the resources of all parties to the negotiations and creating unnecessary tension in the relations between Australia and New Zealand and the FICs.

The political economy of policy reform in the FICs suggests that PACER Plus proposals need to be viewed through a broader lens. To the extent the focus is on policy regulatory reform and capacity building in the FICs, the presentation of draft chapters from a fairly traditional preferential trade agreement by Australia is at odds with the approach to development cooperation on policy reform advocated by AusAID. PACER Plus could be more usefully seen in terms of a policy dialogue, whereby Australia and New Zealand can assist the FICs to “explore and implement policies that accelerate sustainable and equitable growth” in light of the sometimes unique circumstances of each FIC.145 Such an approach would move the discussion away from a mindset that sees PACER Plus as involving the negotiation of a trade agreement, followed by separate processes of implementation and enforcement.

The ultimate structure and content of PACER Plus is yet to be agreed, as is the path that will be taken to that destination. PACER Plus is touted as a non-traditional trade negotiation. Statements to the effect that the objective of PACER Plus is primarily to promote the sustainable development of the FICs are perhaps more unsettling than reassuring. The implicit message is that there are other undeclared objectives.146 The Forum Trade Ministers’ decisions on PACER Plus need to be taken seriously by officials when setting the PACER Plus agenda. The negotiations will not end successfully if a traditional regional trade agreement is pursued.

PACER Plus must have the sustainable development of the FICs as its focus. Rather than start with preconceived ideas, based on previous preferential trade agreements, the development plans and needs of the FICs should be the starting point. An innovative approach to regional integration in the Pacific that responds to the differences among the parties, including among the FICs and their capacity constraints is needed. An agreement that does little more than place the primary burden of adjustment on the FICs is unlikely to be successful.

Trying to quickly negotiate a comprehensive agreement with all Forum members is unlikely to be a successful approach. The original ANZCERTA was signed in 1983, but has continued to evolve with new agreements or understandings added every few years, broadening and deepening the integration of the Australian and New Zealand economies over almost three decades. Similar patterns can be observed in relation to regional trade agreements that have brought about closer economic integration of their parties. A progressive approach to PACER Plus should also be considered, with the first phase focusing on the areas of most value to the FICs to build confidence and commitment to the process.

Despite the issues discussed in this article, PACER Plus still has the potential to be beneficial for all parties and draw the FICs and Australia and New Zealand politically closer together. With some careful thought PACER Plus could even provide a model for how other developed countries should negotiate with small developing countries.

* - Associate Professor of Commercial Law, University of Auckland; until September 2011 Chief Trade Adviser at the Office of the Chief Trade Adviser (OCTA) for Forum Island Countries. The author had previously served as a legal adviser to the Forum Island Countries in several trade negotiations. The views of the author are not necessarily the views of the OCTA or any of the Forum Island Countries. This article is based on a presentation made to the Annual Trade Law Symposium organised by Law Council of Australia in September 2011.

1 - In this article, the term “preferential trade agreement” or “PTA” is preferred to “regional trade agreement” or “free trade agreement”. The usage reflects the fact that many PTAs are not regional. A PTA might include arrangements for trade in goods and/or services that fall within the ambit of the General Agreement on Tariffs and Trade (GATT), art X XIV, the Enabling Clause, the General Agreement on Trade in Services (GATS), art V, or the World Trade Organization (WTO) Ministerial Decision of 17 December 2011, “Preferential Treatment to Services and Service Suppliers from Least-Developed Countries” WTO Doc WT/L/847 (2011), and may contain provisions on a number of more or less trade-related issues. The Enabling Clause is officially called the “Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries” and was adopted under the GATT on 28 November 1979, see WTO Doc BISD 26S/203 (1979).

2 - See Maureen Penjueli and Wesley Morgan Speaking Truth to Power: Australian and New Zealand Use of Power Politics to Launch Pacific Free Trade Negotiations (Pacific Network on Globalisation, Suva, 2009).

3 - Australia: See for example, Richard Marles “Pacific free trade negotiations criticised” ABC Radio Australia (Australia, 7 July 2011); Richard Marles “Solomon Islands stands up for PACER Plus” ABC Radio Australia (Australia, 14 April 2011); Simon Crean “Commencement of PACER Plus negotiations” (Ministerial Statement, 18 August 2009) (“Quite frankly, from the point of view of trade, Australia is not primarily pursuing the PACER Plus agreement from the perspective of commercial benefit. Australia’s primary objective with PACER Plus is a more sustainable and prosperous Pacific ...”); Interview with Bob McMullan, Parliamentary Secretary for International Development Assistance and Simon Crean, Minister for Trade “Australian Ministers tour Pacific on regional free trade push” (Linda Mottram, Radio Australia, 1 April 2009) transcript available at <http://www.radioaustralia. net.au/international/radio/onairhighlights/australian-ministers-tour-pacific-on-regional- free-trade-push> (“[T]his is not about Australia, there’s nothing in [PACER Plus] for us, we think it’s good for the region. And it is an initiative that we want to extend because it is beneficial to reduce poverty in the region ... It doesn’t have any economic significance for us; it’s just good for the region as a whole and that’s why we’re doing it.”); cf Duncan Kerr “Address to Pacific Trade Fellowship Participants” (address given at the Investment, Trade and Tourism Ministerial Conference of the China-Pacific Island Countries Economic, Trade and Tourism Cooperation, Adelaide, 22 September 2008 (“Australia is determined over time to establish genuine regional economic integration in the Pacific of the type already enjoyed bilaterally by Australia and New Zealand.”)

New Zealand: See for example, Murray McCully “Speech to the Pacific Wave Conference” (Auckland, 3 June 2009); Murray McCully “Address to NZ-Fiji Business Council” (Wellington, 18 September 2009); Murray McCully and Tim Groser “Ministers welcome start of PACER Plus talks” (press release, 20 August 2009); Tim Groser “Remarks to 13th Roundtable Meeting for Pacific Islands Countries on WTO and Regional Trade Agreements and Provisions” (Wellington, 6 September 2010).

4 - For example, Department of Foreign Affairs and Trade Gillard Government: Trade Policy Statement, Trading Our Way to More Jobs and Prosperity (Australian Government, Canberra, 2011) at 9 and 11: “The Gillard Government [stated that it] will not enter into any trade agreement that falls short of the benchmarks set by the WTO or the benchmarks we set ourselves of high-quality, truly liberalising trade deals that support global trade liberalisation.” The Trade Policy Statement did not, however, list PACER Plus as one of the trade agreements Australia was negotiating. See also Bill English and Tim Groser “Next Step in the Trans-Pacific Partnership” (press release, 13 November 2011). Whether or not a trade agreement is non-traditional or high quality is in the eye of the beholder. Australia, New Zealand and the FICs are likely to have different views on what a high quality PACER Plus agreement would look like. The Malaysia-New Zealand Free Trade Agreement (signed 26 October 2009, entered into force 1 August 2010) provides an indication of the breadth of topics that may be addressed in a trade agreement. The chapters cover initial provisions, trade in goods, rules of origin, customs procedures and cooperation, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, trade in services, movement of natural persons, investment, intellectual property, competition, economic cooperation, transparency, institutional provisions, dispute settlement, general exceptions and final provisions. There are also side agreements on the environment and labour, as well as a number of annexes. Whether or not an agreement is non-traditional or high quality depends on the nature and extent of the commitments made, not just the breadth of the topics covered.

5 - Simon Crean “Address to the Opening of the Lowy Institute’s ‘Pacific Islands in the World’ Conference” (Brisbane, 2 August 2009). It is not clear that everyone had the same understanding: Warren Truss “Liberalised Trade for a More Prosperous Pacific Region” (press release, 14 June 2007); Alexander Downer “Speech for the Biennial Sir Arthur Tange Lecture on Australian Diplomacy” (Canberra, 8 August 2007); Duncan Kerr “Victoria University Symposium on Pacific Islands Migration and Labour Mobility” (Wellington, 6 August 2008); Phil Goff “Economic relations between New Zealand and Australia grow further” (press release, 6 March 2008); Luamanuvao Laban “Speech to Pacific Cooperation Foundation’s Melanesia Conference” (Wellington, 30 September 2008); Tim Groser “Groser to attend Pacific Trade Ministers’ meeting” (press release, 17 June 2009); Tim Groser “Groser to attend Pacific Trade Ministers’ meeting” (press release, 22 October 2009).

6 - Pacific Agreement on Closer Economic Relations (signed 18 August 2001, entered into force 3 October 2002).

7 - WTO Ministerial Conference “Elements for political guidance” WTO Doc WT/ MIN(11)/W/2 (2011).

8 - Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and the United States are parties to the Trans-Pacific Partnership negotiations. Canada and Japan have indicated a desire to join the negotiations. For an overview see Meredith Kolsky Lewis “The Trans-Pacific Partnership: New Paradigm or Wold in Sheep’s Clothing” (2011) 34 Boston Coll Intl & Comp L Rev 27.

9 - See Binyamin Appelbaum and Jennifer Steinhauer “Congress ends 5-year standoff on trade deals in rare accord” The New York Times (United States, 12 October 2011); Editorial “No way to run a trade policy” The New York Times (United States, 2 February 2011).

10 - The lead up to the formal decision to commence negotiations has been discussed elsewhere. See for example, Penjueli and Morgan, above n 2.

11 Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (signed 27 February 2009, entered into force 1 January 2010).

12 Australia New Zealand Closer Economic Relations Trade Agreement, and Exchange of Letters (entered into force 1 January 1983).

13 The FICs were negotiating in their capacity as the Pacific members of the African, Caribbean and Pacific Group of States (PACPS). The Cotonou Agreement is the Partnership Agreement between the members of the African, Caribbean, and Pacific group of States, of the One Part, and European Community and its Member States, Of the Other Part, signed in Cotonou, Benin on 23 June 2000. The European Commission first proposed an “Economic Partnership Agreement” between the EU and the African, Caribbean and Pacific (ACP) States in 1996. European Commission, “Green paper on the relations between the European Union and the ACP countries on the eve of the 21st century – Challenges and options for a new partnership” COM (96) 570 final, 20 November 1996.

14 PACER contains no reference to other trade agreements among the parties, including the ANZCERTA.

15 (Signed 18 August 2001, entered into force 3 October 2002). As of 12 December 2008, all Forum members except Federated States of Micronesia have signed the PACER, while Federated States of Micronesia, Palau, Republic of Marshall Islands, Tuvalu and Vanuatu have not ratified PACER. See <http://forum.forumsec.org/resources/uploads/attachments/ documents/PACER%20status%20report1.pdf> .

16 Interim Partnership Agreement between the European Community, on the one part, and the Pacific States, on the other part, art1(b), [2009] OJ 52 L 272/1. As at 1 January 2012, only Fiji and Papua New Guinea had signed the Interim Economic Partnership Agreement.

17 Simon Feeney The Impact of the Global Economic Crisis on the Pacific Region (Oxfam Australia Melbourne, 2010) at 9.

18 Between 1990 and 2010, the imports from Asia as a percentage of total imports went from 19.7 to 37 in Federated States of Micronesia; 26.4 to 53.6 in Fiji; 14.4 to 41.9 in Kiribati; 29.4 to 39.9 in Papua New Guinea; 37.5 to 42.7 in Solomon Islands; 16.9 to 21.5 in Tonga; 29.8 to 63.7 in Tuvalu; and against the trend fell from 62.7 to 44.7 in Vanuatu. Asian Development Bank Key Indicators for Asia and the Pacific 2011 (42nd ed, Asia Development Bank, Manila, 2011) at 227.

19 Chinese lending and investment in the region have attracted attention, in particular the USD 1 billion investment in the Ramu nickel mine in Papua New Guinea. See Richard Herr and Anthony Bergin Our Near Abroad: Australia and Pacific Islands Regionalism (Australian Strategic Policy Institute, Barton, 2011). On the growing interest in the Pacific from major powers see for example, Cleo Paskal “Why the West is losing the Pacific to China, the Arab League, and just about everyone else” Huffpost World (online ed, United States, 24 November 2010); Audrey Young “Pacific party sets tone for better relations” New Zealand Herald (New Zealand, 16 July 2011); Audrey Young “US and China join post-talks dialogue” New Zealand Herald (New Zealand, 9 September 2011); Greg Ansley “Australia told it has to repair relations with Pacific states” New Zealand Herald (New Zealand, 6 December 2011).

20 Asian Development Bank Key Indicators for Asia and the Pacific 2011 (291), 134. The significant rates of growth of the populations in Kiribati, Papua New Guinea, Solomon Islands and Vanuatu, and almost twice the percentage of the population in the 0-14 age group in the same states compared to Australia and New Zealand, has been described as a demographic time bomb. Ibid, at 135 and 137.

21 Ibid, at 162. The comparable figures for Australia and New Zealand are 39,290 and 28,993.

22 Ibid, at 163.

23 Ibid, at 225.

24 Ibid, at 214.

25 Ibid, at 223 and 227. Total merchandise imports in millions of USD for 2009 were: Cook Islands 181; Federated States of Micronesia 172; Fiji 1434; Kiribati 67; Palau 104; Papua New Guinea 2863; Republic of Marshall Islands 158; Samoa 205; Solomon Islands 268; Tonga 152; and Vanuatu 291.

26 Ibid, at 226. Of the countries where a significant portion of merchandise exports are to Oceania, total merchandise exports from Tuvalu in 2010 were negligible, Tonga exported 8 million USD of goods; Samoa 12 million USD; Fiji 613 million USD; and Papua New Guinea 5611 million USD. Asian Development Bank Key Indicators for Asia and the Pacific 2011 (2011), 221.

27 Tax revenue as a percentage of GDP in 2009 is: Cook Islands 23.8; Federated States of Micronesia 11.5; Fiji 21.9; Kiribati 20.4; Palau 14.6; Papua New Guinea 22.4; Republic of Marshall Islands 15.7; Samoa 22.7; Solomon Islands 28.5; Tonga 19.9; and Vanuatu 17.2. In a number of FICs, total government revenue is a much greater percentage of GDP: Kiribati 71.6; Federated States of Micronesia 21.4; Palau 18.6; Republic of Marshall Islands 24.4 and Samoa 32.4. Asian Development Bank, above n 20, at 269-270.

28 United Nations Economic and Social Commission for Asia and the Pacific Asia-Pacific Trade and Investment Report 2011: Post-crisis Trade and Investment Opportunities (United Nations, Bangkok, 2011) at 167. The figure for Kiribati is for 2008.

29 Asian Development Bank, above n 20, at 239.

30 Francis X Hezel “Pacific Island Nations: How Viable are Their Economies?” (2012) 7 Pacific Islands Policy 16.

31 Asian Development Bank, above n 20, at 215.

32 Asian Development Bank, above n 20, at 218. The figures for Federated States of Micronesia, Kiribati, Republic of Marshall Islands and Tuvalu are from Hezel, above n 30, at 18.

33 Development Co-operation Directorate “Aid statistics, recipient aid charts” OECD <http:// www.oecd.org/countrylist/0,3349,en_2649_34447_25602317_1_1_1_1,00.html> .

34 Ibid.

35 Asian Development Bank, above n 20, at 220. The inward FDI stock in millions of USD are: Cooks Islands 41; Fiji 2163 Kiribati 143; Palau 126; Papua New Guinea 3071; Samoa 81; Solomon Islands 873; Tonga 99; Tuvalu 34; and Vanuatu 1046. Notably there is a FDI outward stock from Solomon Islands of 389. See United Nations Economic and Social Commission for Asia and the Pacific, above n 28, at 176.

36 See text at footnotes 40 and 41.

37 South Pacific Regional Trade and Economic Cooperation Agreement (signed and entered into force 1 January 1981)

38 It would be possible for the parties to a free trade agreement that did not comply with GATT art X XIV to seek a waiver from WTO members. The expiry of the waiver for the trade provisions in the Cotonou Agreement between the ACP States and the EU lead to the EPA negotiations. European Communities – The ACP-EC Partnership Agreement WTO Doc WT/MIN(01)/15 (2001). See also the waiver of the trade provisions in the Compacts of Free Association between the US and the Federated States of Micronesia, Palau and the Republic of the Marshall Islands. United States – Former Trust territory of the Pacific Islands WTO Doc WT/L/694, 1 August 2007.

39 For a discussion of the WTO requirements for preferential trade agreements see generally James H Mathias, Regional Trade Agreements in the GATT/WTO: Article X XIV and the Internal Trade Requirement (The Hague, T M C Asser Press, 2002); William J Davey “A model Article X XIV: Are there realistic possibilities to improve it?” in Kyle W Bagwell and Petros C Mavroidis (eds), Preferential Trade Agreements: A Law and Economic Analysis (Columbia University Press, New York, 2011) at 233.

40 See Section III:F (Opening Markets) below.

41 Warren Truss “Liberalised trade for a more prosperous Pacific region” (press release, 14 June 2007); Warren Truss “Truss to visit Port Vila for Forum Trade Ministers’ Meetings” (press release, 1 August 2007).

42 See for example, Association of Israel with the European Economic Community GATT BISD 18S/150 (1972) (Working Party Report) at [9] and [15]; Association of Malta with the European Economic Community GATT BISD 19S/90 (1972) (Working Party Report) at [8] and [10].

43 Understanding on the Interpretation of Article X XIV of the General Agreement on Tariffs and Trade 1994 (signed 15 April 1994, entered into force 1 January 1995) at [3].

44 2011 Forum Trade Ministers’ Meeting Outcomes (Vava’u, 18-19 May 2011) at [22]-[24] [“Outcomes Vava’u”].

45 An overview of FIC trade policy is provided by the Nathan Associates “Pacific Regional Trade and Economic Cooperation: Joint Baseline and Gap Analysis” (Final Report to the Pacific Islands Forum Secretariat, Suva, 2007). Australia and New Zealand recognise (and have supported) liberalisation in the FICs. See for example, Crean, above n 3: “A reduction in tariff revenues is a necessary consequence of any trade liberalization, however it happens, and a lot of it is happening already in the Pacific.”

46 See for example, “Australia, WTO in Vanuatu accession gaffe” Vanuatu Daily Post (Vanuatu, 21 December 2011).

47 See WTO, World Trade Report 2011: The WTO and Preferential Trade Agreements: From Co- existence to Coherence (WTO, Geneva, 2011).

48 Leaders’ Decisions from the Pacific Islands Forum Special Leaders’ Retreat, Port Moresby, Papua New Guinea, 27 January 2009; see also “Statement by Forum Chair on suspension of the Fiji military regime from the Pacific Islands Forum” (press release, 2 May 2009).

49 Pacific Islands Forum Leaders’ Communiqué (Fortieth Pacific Islands Forum, Cairns, 5-6 August 2009) at [23] [“Pacific Islands Forum Leaders’ Communiqué – Cairns”].

50 See for example, Fiji Government “Illegality of Fiji’s exclusion from PACER Plus negotiations” (press release, 6 August 2009); Fiji Government “Fiji’s notification of intention to suspend part 2 of PACER” (press release, 23 October 2009).

51 Crean, above n 3; Crean, above n 5.

52 Forum Trade Ministers tasked the Chief Trade Adviser with communicating with Fiji after PACER Plus negotiations. Special Forum Trade Ministers’ Meeting Outcomes Document (Brisbane, 23-24 October 2009); 2010 Forum Trade Ministers’ Meeting Outcomes Document (Pohnpei, 29 April 2010) [“Outcomes Pohnpei”]; Outcomes Vava’u, above n 44.

53 Pacific Islands Forum Leaders’ Communiqué, (Forty-Second Pacific Islands Forum, Auckland, 7-8 September 2011) at [34] [“Pacific Islands Forum Leaders’ Communiqué – Auckland”].

54 Kubuabola (press release, 12 September 2011).

55 See for example, Jenny Hayward-Jones “Policy overboard: Australia’s increasingly costly Fiji drift” (Lowry Institute, Policy Brief, May 2011); Richard Herr and Anthony Bergin “Our near abroad: Australia and Pacific Islands Regionalism” (Australian Strategic Policy Institute, November, 2011) at 62.

56 According to the New Zealand Ministry of Foreign Affairs and Trade website, New Zealand merchandise exports to the Pacific Islands Forum countries (other than Australia) were valued at $820.3 million in 2009. Fiji accounted for 37 percent of these exports. Major commodities exported include sheep meat, iron, oil (non-crude), medicine, timber, milk, and butter. See <http://mfat.govt.nz/Foreign-Relations/Pacific/Trade/index.php> .

57 Aiyaz Sayed-Khaiyum “Address by Attorney General and Minister for Industry and Trade at the Pacific Regional Business Conference” (Nadi, 20 June 2011).

58 Forum Trade Ministers Meeting Outcomes Document (Apia, 17-18 June 2009) at [22]-[29].

59 Pacific Islands Forum Leaders’ Communiqué – Cairns, above n 49, at [20]-[23].

60 Special Forum Trade Ministers Meeting, above n 52, at [13].

61 Outcomes Pohnpei, above n 52, at [7]-[14].

62 Pacific Islands Forum Leaders’ Communiqué, Forty-first Pacific Islands Forum, Port Vila, Vanuatu, 4-5 August 2010, at [43]-[44] and [50]-[54].

63 Forum Trade Ministers’ Meeting Outcomes Vava’u, above n 44. The OCTA provides independent advice and support to the FICS in the PACER Plus negotiations, in particular through assisting the FICs to analyse trade policy issues, develop and coordinate negotiating positions, build trade negotiation capacity, and advance their positions in trade negotiation meetings. The agreement to establish the OCTA was integral to the Forum Trade Ministers’ recommendation to commence negotiations on PACER Plus. The OCTA is under the control of the thirteen FICs that are participating in the PACER Plus negotiations and is headed by a Chief Trade Adviser. The OCTA started operation on 29 March 2010 and is based in Port Vila, Vanuatu. See <www.octapic.org>.

64 The PACER Plus negotiating meeting scheduled to be held in November 2011 was held in March 2012.

65 Pacific Islands Forum Leaders’ Communiqué – Auckland, above n 53, at [13].

66 Held in Port Vila, Vanuatu, April 2010; Honiara, Solomon Islands, October 2010; and Koror, Palau, March 2011.

67 Held in Nuku’alofa, Tonga, September 2010.

68 Outcomes Vava’u, above n 44, at [31].

69 See Peter K Yu “Sinic trade agreements” (2011) 44 UC Dav L Rev 953.

70 See for example, WTO Trade Negotiations Committee: Informal Meeting “Member support Lamy’s proposed three-speed search for Doha outcome in December” WTO News Items (Geneva, 31 May 2011). The Cairns Group, which includes Australia and New Zealand, are also reportedly interested in pursuing an “early harvest” on export competition. See “2012 should not be a ‘wasted year,’ Lamy urges WTO members” (2012) 16 BRIDGES Weekly Trade News Digest 2.

71 For example, Vanuatu began the accession process in 1995 and Samoa began in 1998. Both completed the accession negotiations in 2011. For summary of the status of countries that have applied to accede to the WTO see <http://www.wto.org/english/thewto_e/acc_e/status_e.htm> .

72 “The EU and the Pacific region hold EPA talks in Brussels” PACNEWS (Fiji, 8 December 2011).

73 Prior to the commencement of negotiations, the Australia Government was reported as committed to working towards a comprehensive regional trade agreement. Institute for International Trade, Research Study on the Benefits, Challenges and Way Forward for PACER Plus, Final Report (Institute for International Trade, Adelaide, 2008) at 12.

74 This was the advice given by the Australian Department of Foreign Affairs and Trade to the Gillard Government in mid-2010. Department of Foreign Affairs and Trade, “Briefing for Incoming Government” (Canberra, 2010) at 41.

75 The announcement of the EU of the withdrawal Regulation 1527/2007 on 1 January 2014 and the proposal to modify the EU Generalised System of Preferences are widely seen by in the ACP states as an intended to force the ACP states to conclude the Economic Partnership Agreement on the terms favoured by the EU. See “Access to EU Markets for Exporters from African, Caribbean and Pacific Countries” (30 September 2011) European Commission <http://trade. ec.europa.eu/doclib/docs/2011/september/tradoc_148215.pdf> European Commission “A Proposal for a Regulation of the European parliament and of the Council applying a scheme of generalized tariff preferences” (Brussels, 2011) at COM(2011) 241 final, 2011/0117 (COD) {SEC(2011) 536 final}{SEC(2011) 537 final}.

76 Ministerial Declaration WTO Doc WT/MIN(01)/DEC/1 (2001) at [2] (“The majority of WTO members are developing countries. We seek to place their needs and interests at the heart of the Work Programme adopted in this Declaration.”); at [50] (“The negotiations and other aspects of the Work programme shall take fully into account the principle of special and differential treatment for developing and least-developed countries embodied in [all relevant WTO provisions].). The Doha Implementation Decision at [12.1](i) provides that “The Committee on Trade and Development was instructed to “identify those [S&D] provisions that are ... mandatory ... and those that are nonbinding ... [and] to consider the legal and practical implications for developed and developing Members of converting special and differential treatment measures in to mandatory provisions”.

77 See Cotonou Agreement, art 37(5): The EPA negotiations “will be undertaken with ACP countries which consider themselves in a position to do so, at the level they consider appropriate and in accordance with the procedures agreed by the ACP Group, taking into account regional integration process within the ACP.” See also Louis Michel “Economic Partnership Agreements: Drivers of Development” (1 January 2008) <http://ec.europa.eu/ development/icenter/repository/EPA_louis_michel_en.pdf> at 14 and 19 (“The EPAs thus establish a new type of trading relationship between the EU and the ACP countries based on a partnership for development ... The EU has no offensive interests” (original emphasis).

78 See for example, Justine Elliot “Address to Australia Solomon Islands Business Forum” (Brisbane, 22 October 2010).

79 Crean, above n 5.

80 For surveys see Kal Raustiala and Anne-Marie Slaughter “International law, international relations and compliance” in Walter E Carlsnaes, Thomas Risse and Beth A Simmons (eds) Handbook of International Relations (Sage Publications, London, 2002) at 538; B A Simmons “Treaty compliance and violation” (2010) 13(1) Ann Rev Pol Sci 273. The differences between the overlapping concepts of compliance, implementation and effectiveness are abstracted from in the text.

81 Robert Howse and Ruti Teitel “Beyond compliance: Rethinking why international law really matters” (Public Law and Legal Theory Research Paper Series New York University School of Law, New York, 2010).

82 Reply of Minister of Trade to a question from Senator Bob Brown, Senate, PACER Plus, Question No 678.

83 Stephanie J Rickard and Daniel Y Kono “Policy transparency and preferential trade agreements” (APSA 2011 Annual Meeting Paper, Washington DC, 2011).

84 Niccolo Machiavelli, The Prince (Quentin Skinner and Russell Price (eds)) (Cambridge University Press, Cambridge, 1988) at 61-62; Jack L Goldsmith and Eric A Posner The Limits of International Law (Oxford University Press, New York, 2005).

85 Robert O Keohane After Hegemony: Cooperation and Discord in the World Political Economy (Princeton University Press, Princeton, 1984) at 104-105 and 128-131; Andrew T Guzman How International Law Works: A Rational Choice Theory (Oxford University Press, New York, 2008) at 211-212.

86 Agreement Establishing the World Trade Organisation (signed 15 April 1994, entered into force 1 January 1995) at Annex 2 Understanding on Rules and Procedures Governing the Settlement of Disputes [“DSU”].

87 DSU, art 22. The deficiencies of the system of suspension of concessions, in particular from the point of view of small developing states, have been extensively analysed. See for example, M Bronckers and N van den Broek “Financial compensation in the WTO – Improving the remedies of WTO dispute settlement” (2005) 8 J Intl Econ L 101.

88 Abram Chayes and Antonia Handler Chayes “On compliance” (1993) 47 Intl Org 175; Abram Chayes and Antonia Handler Chayes The New Sovereignty: Compliance with International Regulatory Agreements (Harvard University Press, Cambridge, 1995).

89 The potential harm of the suspension of concessions to both parties to a dispute has been recognised in the WTO. European Communities – Regime for the Importation, Sale and Distribution of Bananas WTO Doc WT/DS27/ARB (1999) at [2.13]. See also the discussion of the Montreal Protocol’s Non-Compliance Procedure in David Victor “The operation and effectiveness of the Montreal Protocol’s Non-Compliance Procedure” in David G Victor, Kal Raustiala and Eugene B Skolnikoff (eds) The Implementation and Effectiveness of International Environmental Commitments (MIT Press, Cambridge, 1998) at 137.

90 See for example, Olu Fasan “The effectiveness of WTO law in developing countries: the relevance of rule legitimacy and ownership” (2007) 30 UNSW L Rev 409 (customs valuation). See also Matthias Busse, Ruth Hoekstra and Jens Königer “The impact of aid for trade facilitation in the cost of trading” (Ruthr-University of Bochum, Bochum, 2010).

91 After the Uruguay Round, the standards required by the WTO were essentially already in place in the industrial countries, but reflected little awareness of development problems and appreciation of the capacities of developing countries. J Michael Finger and Julio J Norgués “The unbalanced Uruguay Round outcome: The new areas in future WTO negotiations” (2002) 25 The World Economy 321 at 326.

92 J Michael Finger and P Schuler “Implementation of Uruguay Round commitments: the development challenge” (2000) 23 The World Economy 511. In the case of the accession of Cambodia to the WTO it was informally estimated that compliance with only four of the WTO agreements (TRIPS, Customs Valuation, SPS and TBT) would amount to about USD 120 million per year during the five-year period of accession. See WTO Doc WT/ACC/ KHM/13/Rev.1 (2003).

93 WTO Doc WT/L/579 (2004) (Decision adopted by the General Council) Annex D.

94 Thomas M Franck “Legitimacy in the international system” (1988) 82 AJIL 705 at 706. See also Thomas M Franck The Power of Legitimacy Among Nations (Oxford University Press, New York, 1990).

95 See for example, Jane Kelsey Big Brothers Behaving Badely: The Implications for the Pacific Islands of the Pacific Agreement on Closer Economic Relations (Pacific Network on Globalisation, Suva, 2004); Penjueli and Morgan, above n 2.

96 See for example, Ron Duncan (ed) The Political Economy of Reform in the Pacific (Asian Development Bank, Manila, 2011).

97 Vanuatu Times Newspaper (Vanuatu, Issue 34, 7-13 May 2010) at 5.

98 See section II.D.

99 See Outcomes Vava’u, above n 44.

100 Outcomes Pohnpei, above n 52, at [12].

101 Earlier, New Zealand preferred a comprehensive single undertaking. See Penjueli and Morgan, above n 2, at 27. See also the speech by Alexander Downer: “PACER holds the prospect of a comprehensive, region-wide free trade agreement. But there may be some countries that would like to develop their relationship with Australia at a faster rate and in ways that go beyond the scope of PACER. To encourage even greater commitment to good governance and economic growth in Pacific economies, we might be able to give them more support in return for a greater commitment to reform.” See Alexander Downer “Australia’s commitment to the Pacific” (Biennial Sir Arthur Tange Lecture on Australian Diplomacy, Canberra, 2007) quoted in Ron Duncan, Pacific Trade Issues (Asian Development Bank, Manila, 2008) at 12.

102 See for example, Consultative Board, The Future of the WTO: Addressing Institutional Challenges in the New Millennium (WTO, Geneva, 2004); The Warwick Commission The Multilateral Trade Regime: Which Way Forward? (University of Warwick, Coventry, 2007).

103 Ministerial Declaration, above n 76.

104 Elements for political guidance, above n 7.

105 See for example, Robert Lawrence “Rulemaking amid growing diversity: A club-of-clubs approach to WTO reform and new issue selection” (2007) 9 J Intl Econ L 823 at 832; Kent Jones The Doha Blues: Institutional Crisis and Reform in the WTO (Oxford University Press, New York, 2010) at 178.

106 In the Uruguay Round the benefits that developing countries expected from commitments from developed countries on clothing and textiles and agriculture in exchange for commitments on intellectual property and services proved to be rather more modest than was anticipated at the conclusion of the negotiations in 1993.

107 To be clear, this article does not support the elimination of the consensus rule in the PACER Plus negotiations. The value of consensus decision-making to smaller countries can be over- estimated. See Amrita Narlikar “Fairness in international trade negotiations: developing countries in the GATT” (2006) 29 World Economy 1005 at 1011-1025. However, as Pascal Lamy said there is consensus about consensus among WTO members. Director General “Strengthening the WTO as the global trade body” (press release, 29 April 2009) at [25]. No other decision rule is likely to provide the same level of “ownership” of the outcomes of the negotiation as the consensus rule. Robert Wolfe “The WTO single undertaking as negotiating technique and constitutive metaphor” (2009) 12 J Intl Econ L 835.

108 See section II.D.

109 For a recent survey of attempts to provide an economic or political rationale for trade agreements see WTO, World Trade Report 2011: The WTO and Preferential Trade Agreements: From Co-existence to Coherence (WTO, Geneva, 2011) part II.C.

110 A state may have foreign policy or non-trade reasons for negotiating a trade agreement. The focus of the current section of the article is, however, on the economic consequences for the FICs of seeking to negotiate a traditional a trade agreement.

111 Arguably, the traditional mercantilist exchange of market access commitments no longer underpins most preferential trade agreements. See Richard Baldwin “21st century regionalism: Filling the gap between 21st century trade and 20th century trade rules” (Centre for Economic Policy Research, London, 2011).

112 See Institute for International Trade, above n 73, appendix 1. A recent report prepared for the Australian Department of Foreign Affairs and Trade acknowledges developed countries would benefit from the liberalisation of foreign direct investment ownership requirements in the services sector. See Centre for International Economics “Quantifying the Benefits of Services Trade Liberalisation” (research report prepared for the Department of Foreign Affairs and Trade, Canberra, 2010).

113 See for example, Nikunj Soni, Belinda Harries and Betty Zinner-Toa Responding to the Revenue Consequences of Trade Reforms in the Forum Island Countries (Watergall Consulting Ltd, Port Vila, 2007). The published studies make a number of assumptions, not all of which are realistic. The FICs most likely to be affected by a loss of revenue under PACER Plus have with the assistance of consultants prepared further studies.

114 Australia and New Zealand have stated that they are seeking only to ensure New Zealand exporters are not at a disadvantage relative to exporters from the EU under the Economic Partnership Agreement with the PACPS. Department of Foreign Affairs and Trade, above n 74, at 42: “Australia’s objectives for the negotiations are to strengthen the FICs’ economies and ensure Australia receives no less favourable treatment than that given to others, such as the European Union.”; New Zealand Cabinet “Minute of decision” (April 2009) CAB Min (09) 13/3B at [17], quoted in Oxfam Australia and Oxfam New Zealand “PACER Plus and its Alternatives: Which way for trade and development in the Pacific?” (Briefing paper, 2009) at 9.

115 See generally Duncan, above n 96.

116 See for example, Malcolm Bosworth and Ray Trewin “Australian PTAs In Services: ‘Much Ado About Nothing’: Recent Unilateral Trade Policy Re-focus Promises Much More” (Swiss National Centre of Competence in Research, Bern, 2011).

117 The Australian Government takes the view that Australian trade policy is part of its overall economic reform. Department of Foreign Affairs and Trade, above n 4, at 7 and 9.

118 World Bank, Africa’s Trade in Services and Economic Partnership Agreements (World Bank, Washington DC, 2010).

119 Any constraint on the level and speed of liberalisation that might be required under PACER Plus will not arise from the legal obligations of the parties to the WTO, but from the position that Australia and New Zealand have taken on the issues in the WTO. On the dysfunctional current system of review of preferential trade agreements under the WTO, and some details of the positions taken by Australia and New Zealand, see Petros C Mavroidis “Always look at the bright side of non-delivery: WTO and preferential trade agreements, yesterday and today” (2011) 10 World Trade Review 375; Jo-Ann Crawford and C L Lim “Cast light and evil will go away: The transparency mechanism for regulating regional trade agreement three years after” (2011) 45 Journal of World Trade 375.

120 See also the different options suggested by Oxfam, above n 114.

121 Australia New Zealand Closer Economic Relations Trade Agreement, above n 12. Following the 1988 review of the Agreement, the parties agreed to 1989 Protocol on Acceleration of Free Trade, which lead to all bilateral trade being duty free from 1 July 1990.

122 Following the 1988 review of the Agreement, the parties agreed to 1989 Protocol on Acceleration of Free Trade, which lead to all bilateral trade being duty free from 1 July 1990.

123 Bosworth and Trewin, above n 116, at 23, report that Australia’s PTAs “have resulted in negligible actual liberalization.”

124 R Adlung and P Morrison “Less than the GATS: ‘Negative preferences’ in regional services agreements” (2010) 13 J Intl Econ L 1103.

125 See also Kerr, above n 3: “Australia is determined over time to establish genuine regional economic integration in the Pacific of the type already enjoyed bilaterally by Australia and New Zealand.”

126 See generally the New Zealand Labour Department’s website <http://www.dol.govt.nz/ initiatives/strategy/rse/index.asp> .

127 David McKenzie and John Gibson “The development impact of best practice seasonal work scheme” (World Bank, Washington DC, 2010).

128 See for example, P Callister, J Badkar and J Williams “Paid caregivers and domestic workers: Some policy issues in relation to meeting future demand in new Zealand” (2009) 5(3) PQ 38.

129 Bill Shorten and Kevin Rudd and Martin Ferguson “Pacific and East Timor workers helping Australian farmers and tourism industry” (press release, 18 December 2011). See, however, “Pacific seasonal farm workers quit” The Guardian (online ed, United Kingdom, 6 February 2012).

130 Sanket Mohapatra, Dilip Ratha and Ani Silwal “Outlook for remittance flows 2011-2013” (World Bank Migration and Development Brief 16, Washington DC, 2011).

131 See Michael Clemens “Economics and emigration: trillion-dollar bills on the sidewalk?” (Centre for Global Development, Washington DC, 2011).

132 Ibid.

133 Terrie L Walmsley and L Alan Winters “Relaxing the restrictions on the temporary movement of natural persons: a simulation analysis” (2005) 20 J Econ Integ 688; Dominique van der Mensbrugghe and David Roland-Holst “Global economic prospects for increasing developing-country migration into developed countries” (United National Development Programme, New York, 2009).

134 See for example, J Connell and R P C Brown “Remittances in the Pacific: An Overview” (Asian Development Bank, Manila, 2005); World Bank “At Home and Away: Expanding Job Opportunities for Pacific Islanders” (World Bank, Washington DC, 2006); Institute for International Trade, above n 73, at 39-50; Jane Silloway Smith “Being better Neighbours: Improving New Zealand’s Contribution to Foreign Aid and International Development” (Maxim Institute, Auckland, 2011); Richard Herr and Anthony Bergin, above n 55 at 62.

135 In 2008-2009, 187,696 working holiday maker visas granted access to the Australian labour market and in 2009-2010 175,739 working holiday visas were granted. For Working Holiday (Subclass 417) visa holders, there was a 12.6% increase in the number present in Australia on 30 September 2011 (114 560), compared with 30 September 2010 (101 790). In addition to Subclass 417, there were 4140 Work and Holiday (Subclass 462) visa holders present in Australia on 30 September 2011, up 4.4% from 3970 on 30 September 2010. There were

114 560 people in Australia on Subclass 417 visas as at 30 September 2011, compared with 65 780 as at 30 September 2006. See <http://www.immi.gov.au/media/statistics/pdf/temp- entrants-newzealand-sept11.pdf> . In 2009/2010 40,369 applications for working holiday visas were approved in principle in New Zealand. Detailed statistics are provided on the Immigration New Zealand website, <http://www.immigration.govt.nz/migrant/general/ generalinformation/statistics/> . See also Yan Tan et al “Evaluating Australia’s Working Holiday Maker (WHM) Program” (National Institute of Labour Studies, Adelaide, 29

February 2009).

136 See Nic Maclellan “Kiribati’s policy for ‘migration with dignity’” (4 December 2011) Inside Story <http://inside.org.au/kiribati ’ s-policy-for-migration-with-dignity/> .

137 See for example, Crean, above n 3. By contrast, the Department of Foreign Affairs and Trade, above n 4, at 19, agreed with the Productivity Commission that capacity building programmes should be funded and delivered in a manner that minimises potential (or perceived) conflicts of interest and should not impose an obligations to negotiate a trade agreement.

138 Elements for political guidance, above n 7. Although not legally binding, the multilateral aid for trade initiative launched at the 2005 Hong Kong WTO Ministerial Meeting has been one of the few achievements of the Doha Round. See generally <http://www.wto.org/english/tratop_e/ devel_e/a4t_e/aid4trade_e.htm>. The WTO Director General in his opening remarks to the 8th Ministerial Conference said noted: “[WTO Members] work of Aid for Trade has firmly embedded trade capacity building as a necessary complement to global trade opening.” See Pascal Lamy “Stand up for the values of multilateralism” WTO News (Geneva, 15 December 2011).

139 A more general issue is the extent to which the level of development assistance provided by a development partner should not be seen simply in terms of financial transfers, but also take into account the other policy settings, such as on migration, that might positively impact on the development of the FICs. See 2011 Commitment to Development Index, Centre for Global Development <www.cgdev.org/section/initiatives/_active/cdi/>.

140 In 2011–12, Australia will provide $4.8 billion of official development assistance. By 2015–16 the annual aid figure is estimated to reach around $8–9 billion (0.5 per cent of Gross National Income). See <http://www.ausaid.gov.au/makediff/default.cfm> .

141 See Murray McCully “Resilience in the Pacific Conference” (press release, 16 February 2011). The New Zealand Government allocated $586 million to official development assistance (ODA) in 2010/11. New Zealand’s international development assistance is scheduled to increase over time to $620 million in 2014/15. See <http://www.aid.govt.nz/about-aid- programme/aid-statistics> . See also Silloway Smith, above n 134.

142 Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Agreement, above n 11.

143 For example, the PACPS have agreed to the establishment of a Pacific Trade and Development Facility. See Corinna Braun-Munzinger Regional Owned Funds: Mechanisms for EU Delivery of Aid for Trade in ACP Regions (European Centre for Development Policy Management, Discussion Paper No 90, April 2009).

144 Bernard Hoekman “Proposals for WTO reform: A synthesis and assessment” (2011) Minn J Intl L 325 at 346.

145 See A McCullough et al “Review of Literature and International Practice in Policy Dialogue” (Office of Development Effectiveness, Canberra, 2011); Office of Development Effectiveness Theory of Policy Dialogue Success (Office of Development effectiveness, Canberra, 2011).

146 Department of Foreign Affairs and Trade, above n 74, at 42 (“Australia’s objectives for the negotiations are to strengthen the FICs’ economies and ensure Australia receives no less favourable treatment than that given to others, such as the European Union.”)