Sustainable development and inclusive growth are central to the new trade deal signed earlier this month by New Zealand, Australia and Pacific Island nations. While “PACER Plus” has its critics (including in the Pacific), it provides some strong building blocks to empower Pacific Island countries to participate more successfully in the global trading system. It also means that New Zealand and Australia do not find themselves on the back foot relative to others who are negotiating their own trade agreements in the region.

The Pacific Agreement on Closer Economic Relations (“PACER Plus”) was signed in Tonga on 14 June by NZ Trade Minister Todd McClay along with counterparts from Australia, the Cook Islands, Kiribati, Nauru, Niue, Samoa, Solomon Islands, Tonga and Tuvalu. The Federated States of Micronesia, Palau and the Republic of Marshall Islands are still completing domestic processes. The agreement is currently undergoing the Parliamentary approval process in New Zealand (see the MFAT information page and NIA here).

 PACER Plus is a new kind of trade agreement, aimed at enabling Pacific Island countries to participate in international trade while also safeguarding livelihoods, raising living standards and enhancing resilience.   The agreement, which took eight years to negotiate, recognises that these economies face not only formidable challenges of distance and scale (the population of one signatory is around 1,500, for example), but also disadvantages including inadequate infrastructure, limited resources and vulnerability to extreme climatic events.

The agreement includes a range of measures designed to help Pacific nations to grow exports, including significant capacity-building funding. New Zealand has committed to provide at least one-fifth of its total development assistance as ‘aid-for-trade’ to help build capability and infrastructure over the next five years (potentially worth over NZD$340 million), and the combined Australia-New Zealand development package is worth $55 million. New Zealand will also enhance the current seasonal labour scheme and other worker opportunities in a standalone arrangement, recognising the importance of remittances to Pacific economies – and of course the significant contribution that the Pacific workforce makes to New Zealand primary industries.

Pacific Island nations have committed to only modest tariff reductions over a long period, along with other flexibilities, enabling a gradual integration into regional markets. The agreement should also help them to attract much-needed investment.   For New Zealand businesses (including those from the many Pacific Island communities established in New Zealand), the agreement will provide greater certainty and less red tape in exporting to the Pacific, and new opportunities for services trade and investment. The deal also ensures that New Zealand and Australia can maintain a level playing field relative to others active in the region, such as the European Union, who have their own trade deals with Pacific Island countries in prospect.

PACER Plus has been criticised as asking too much of Pacific Island countries, although it is hard to see how this argument stacks up. Papua New Guinea, Fiji and Vanuatu – three of the largest regional economies – have also decided not to sign up, which of course will diminish the overall gains for the region (although the door remains open to them).   By pressing ahead, however, New Zealand and Australia are signalling that want to see their Pacific neighbours benefit as much as possible from trade; a resilient and prosperous Pacific is in everybody’s interests, after all.

This post was prepared by NZIBF Associate Director Stephanie Honey.