10 Reasons to Challenge an Australia/NZ – Pacific FTA (Part 1)
For those of you have been reading Tubuans & Dukduks you will know that I’m a big believer in the Melanesian Spearhead Group (MSG) and its potential in becoming the leading policy-institute for Melanesia, and a truly indepdendent organisation for the Pacific. I’ve criticised the Pacific Islands’ Forum before, in particular, Australia and New Zealand’s usurption of Pacific policy and their indifference to what is best for the Pacific. One example of this usurption is Australia and NZ’s aggressive demands that a free-trade agreement (called PACER-Plus) with the Pacific be established immediately. Certain academics have termed this bullying approach as being contemporary colonisation (I like that phrase).
The Pacific Network on Globalisation (PANG) recently published a fact-sheet regarding PACER-Plus which discusses the implications that an FTA with Australia and New Zealand will have on the Pacific. These concerns range from the undermining of the sovereign authority and responsibilities of independent Pacific nations, the economic and social well being of Pacific peoples, dramatic losses in government revenue, potential threats to to indigenous land-rights, business closures and job losses.
I’ve split up the 10 reasons into two different parts to make it easier to digest. Here are the first five:
1) PACER-Plus will lead to a substantial loss in government revenue
Many governments in the Pacific are struggling to provide public services paid for through taxes (like health, education, water, electricity, police and emergency services). One of the ways Pacific countries collect these taxes is through a tax on imported goods (often luxury goods). PACER-Plus will force Pacific governments to stop collecting some of these taxes, which means governments will have difficulty supporting already struggling public services.
A report commissioned by the Pacific Islands Forum Secretariat, and completed by Washington-based consultants Nathan Associates, found that under PACER-Plus, Pacific countries stand to lose tens of millions of dollars each year. That report found Vanuatu stands to lose around 17% of its annual government revenue, as does Tonga, while Samoa and Kiribati stand to lose around 14% of their revenue. Even bigger countries like Fiji and PNG stand to lose more than $10 million each year .
It is unclear how Pacific governments would continue to provide services to their people if they lose this much revenue. One of the ways they might save money is to downsize their public sector – putting more people out of work. Any loss of jobs for nurses, teachers and public servants would place an added burden on women who work in these sectors and increase the push to migrate.
2) PACER-Plus could lead to higher taxes for the poor
If Pacific governments sign on to PACER-Plus they will have to look for other ways to raise money they need to provide public services. This usually means introducing a new tax in the form of a value-added tax (VAT) or goods and services tax (GST). Governments that already have these taxes will be forced to raise them. Taxes on goods and services unfairly penalise the poor. This is because everybody pays the same tax on what they buy, regardless of how much income they earn. A poor person buys bread, cooking oil or other basic goods (and pays tax on it), just as much as a rich person.
Even if these taxes are introduced, it is unlikely that Pacific governments will be able to recover the revenue lost through PACER-Plus. Studies by the International Monetary Fund have found that over the past 25 years, low income countries have completely failed to recover government revenue lost from the reduction of import taxes (and that introducing VAT has little impact on meeting the shortfall) . There are recent examples of this in our region – when the Asian Development Bank forced Vanuatu to lower tariffs and introduce a VAT as part of conditions for a new loan in the late 1990s for example, the country suffered massive revenue losses that it took many years to recover from.
3) PACER-Plus will lead to business closures and job losses
Businesses and industries in the Pacific Island Countries face considerable constraints to doing business (distance from markets, cost of inputs, small economies of scale, lack of human resources etc). Opening Pacific markets to large well established corporations in Australia and NZ who do not operate within these constraints may not necessarily make Pacific businesses more efficient – it may instead wipe them out. Dr Wadan Narsey, Economics Professor at the University of the South Pacific, predicts that under PACER-Plus three quarters of Pacific manufacturing would close down, leading to unemployment for thousands of workers . Pacific countries have little or no social ‘safety nets’ to retrain these unemployed workers or support them with welfare benefits while they look for other job opportunities, and have even less revenue to fund them.
4) PACER-Plus could undermine access to essential services
Services like health, education, water, electricity, post, waste management etc. are important services that should be available to everybody in society. These services play a social role, and it’s only recently that they have been thought of as ways to make profit. Some of these services (like health and education) represent basic human rights, and under international treaties governments are obliged to provide these services to everybody at accessible prices.
PACER-Plus will require Pacific governments to open service ‘sectors’ – allowing Australian and NZ companies to compete to provide certain services in their country. There are two main reasons why this could undermine access to services (especially for vulnerable people, like the unemployed, or the rural poor).
Firstly, opening service ‘markets’ could allow foreign companies to pick and choose where they provide services, and who they provide them to. Companies might provide water, health, education, or power services to wealthy people in the cities and towns, but not extend these services to rural areas or to outer islands. This is especially a concern in the Pacific, where in some countries there are no regulations in place to ensure everyone has a right to access these services.
Secondly, opening service ‘markets’ can lead to two levels of services in the country, where the rich get good services, but most people don’t. Listing health services for example, would allow the building of foreign hospitals, clinics and dental clinics. This could lead to an internal ‘brain drain’, where the most skilled health staff are drawn away from the public sector (by means of higher pay) leaving poor or remote areas without the people they need to run essential healthcare facilities.
Negative social impacts arising from the liberalisation of services have already been recorded in the Pacific. For example, the privatisation of water supply in Port Moresby, Papua New Guinea, during the 1990s was marked by allegations of bribery and corruption. There have been improvements in the efficiency of water supply to the capital, but higher water rates put the cost of water out of reach for many poorer urban dwellers.
There are also many cases of ‘two-tiered’ provision of services in the region. In Vanuatu a subsidiary of the world’s largest private water utility corporation (French-based Suez) provides water at some of the highest prices found anywhere in the Pacific, to people in the capital Port Vila. While Suez is making healthy profits delivering water to the better-off in Vila, provision of safe drinking water to the majority of ni-Vanuatu remains a responsibility of government (who cannot cross-subsidise the extension of water services into rural areas with money made from water provision in the capital).
5) PACER-Plus will strip Pacific governments of policy options they could use to stimulate industry and employment
PACER-Plus is likely to prevent Pacific governments from making a range of policy choices that could be used to stimulate Pacific industry, tourism and agriculture, and create local jobs.
PACER-Plus would make it very difficult for Pacific governments to favour local companies or agricultural producers. Under the terms of a new deal, Pacific governments may not be able to support local firms with things like time-bound tax breaks, preferential credit, input subsidies, or duty exemptions without extending those same treatments to an Australian or NZ corporation interested in establishing a similar enterprise.
A free trade agreement would also force Pacific governments to bind their tariff rates at a low level – removing forever the ability to protect local producers from foreign competition while they become established. This removes the right of Pacific governments to use development strategies that have been implemented successfully by developed nations and other developing countries around the world.
Mauritius, a small island state similar to some of the countries in the Pacific, has used a mixture of import taxes, quotas and investment incentives to govern the market in a way that added value and stimulated development. Many of the policy options that have been used by Mauritius would be banned under PACER-Plus.
The same would apply to services. Pacific governments may want to support local landowners to develop tourism services in a rural area, or on ‘offshore’ islands. This may be important for preventing rural-urban drift, promoting culturally sensitive development, and providing appropriate sustainable livelihoods for villagers. However, ‘national treatment’ provisions under a free trade agreement could mean Pacific governments cannot support those landowners with preferential credit (to build new tourist accommodation for example), duty exemptions on imports, subsidised fuel (for operating vehicles and dive/fishing boats), time-bound tax breaks, or training grants to send young people to hospitality courses, without offering the same treatment to Australian and NZ tourism companies.
Providing support to farmers (through subsidised fertilizer, seeds, machinery, equipment etc) could become even more important in the future, as Pacific countries look to improve domestic food security in the face of world-wide price rises for key staples like rice.
But it is likely to be more difficult to support farmers as well. Many Pacific countries have provided price subsidies in recent years to stabilise fluctuations in the price of key commodities like copra. PACER-Plus may ban certain supports and subsidies to the agricultural sector in Pacific countries.
Part 2 will be published shortly. To view the full fact-sheet now , click here.