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Fair deals a Pacific pipedream

Canberra Times | 21/08/2008

Fair deals a Pacific pipedream

Labour mobility may be in the headlines but as Kevin Rudd talks the talk at the Pacific Islander Leaders’ forum in Nuie, he’ll have one thing on his mind; trade.

Allowing Pacific workers to plug the holes in Australia’s labour market is certainly a priority for Australia’s farmers. But the real gain for Rudd lies in the bargaining power the scheme will give Simon Crean as he moves into the second phase of the Pacific Economic Cooperation Agreement negotiations, the free trade agreement Australia and New Zealand are negotiating with the Pacific countries.

At $5 billion, annual trade with the Pacific is relatively small from Australia’s perspective. But for most Pacific countries, Australia remains their largest trading partner. Its dominance in the Pacific, however, is increasingly under threat from Asia’s emerging economies and most recently by the European Union’s efforts to establish an economic partnership agreement in the Pacific.

In an area traditionally considered Australia’s ’’backyard’’, this has caused some concern and made the agreement a key priority for the Rudd Government.

The Pacific countries, however, are wary of the agreement, and with good reason. Reducing tariffs will make it difficult for local producers to compete alongside Australian imports, especially on products such as textiles, clothing and footwear.

Furthermore, according to a recent report by the Washington DC-based Nathan Associates some Pacific states would lose as much as $10 million in government revenue under the Pacific Economic Cooperation Agreement, very little of which could be recouped through other means.

As Pacific exports already receive duty-free entry into Australia, Australia has little to offer in terms of trade concessions. Which is why Rudd will be championing Australia’s seasonal labour scheme and bilateral aid program at the Pacific leaders’ forum this week.

Australia is, of course, under pressure at home and in the Pacific not to make its labour scheme conditional on an agreement outcome.

Even on the remote chance Rudd does agree to this, the not-so-subtle message behind the ’’trial’’ nature of the scheme will be obvious to all pacific leaders. Play ball on the agreement or go it alone.

It’s an approach that strongly resembles the aid-for-trade model heavily promoted within the World Trade Organisation. Developing countries that liberalise their economies are rewarded with aid packages designed to ’’minimise the adjustment costs’’ associated with rapid liberalisation and allow them to ’’maximise the benefits’’ of new market access. An expanded aid program will help overcome the revenue loss for pacific governments and the labour mobility scheme will take the edge off any unemployment which occurs as domestic producers become displaced by Australian imports.

Or so the theory goes.

The main reason aid-for-trade is so controversial is that it requires developing countries to make binding trade commitments in exchange for non-binding promises of aid, which in many cases may have been provided anyway.

The Pacific countries experienced the pitfalls of aid-for-trade in 2001 when Australia committed to finance a Regional Trade facilitation program as an incentive for the islands to accept the initial agreement. In July 2003, after the agreement was signed, Australia and New Zealand rejected the funding proposal for the scheme and asked the Pacific trade ministers to come up with a better idea. Now that the agreement is heavily in Australia’s sights, funding is magically re-appearing.

This time to fund trade advisers to train Pacific island ministers in the fine art of negotiating a free trade agreement with Australia.

Yes that’s right, Australia will be training the very same people with which it is negotiating.

It will also be assisting by funding national studies for the Pacific countries to demonstrate the benefits the agreement can bring them.

Despite this generosity Australia is resisting the Pacific countries’ own proposal to fund a regional Trade Advisory Office, a move Pacific non-government organisations claim is designed to prevent a unified Pacific response to Australia’s trade propositions.

As well as the $300 million Australia will spend on aid-for-trade this year, Australia’s broader aid program is increasingly being linked in with its free trade aspirations in the Pacific as part of what Foreign Minister Stephen Smith terms a ’’bilateral package’’.

Trade can undoubtedly play a crucial role in development and poverty alleviation, but when presented in this way it risks becoming a take-it-or-leave-it package, a development burger with the lot, consumed whole or not at all.

One juicy Australian-grown aid patty, some aromatic seasonal labour sauce all held together within the iron clad guarantee of two trade liberalising pieces of white bread and a smattering of forest carbon partnership-flavoured fries.

What financially famished island state could resist?

Australia’s aid-for-trade antics fly in the face of our aid program’s focus on promoting ’’good governance’’ and alleviating poverty in the region.

Fast tracking the negotiations at the same time as the Pacific countries are struggling to come to terms with their own internal trade zone, the World Trade Organisation accession and free trade negotiations with the EU can hardly be seen as encouraging responsible policy decisions by pacific leaders.

In countries such as Vanuatu and Tonga, revenue from tariffs on imports accounts for one third of the government’s income. Reducing cash-strapped governments’ finances in this way is hardly going to facilitate effective governance and will directly affect Pacific countries’ capacity to provide basic health care, education and essential services.

Furthermore, the most probable solution value added taxes or a GST are well-known recipes for increasing inequality and will only further exacerbate social tensions.

Managed carefully, a labour mobility scheme has clear potential to help Australian farmers and aid development and poverty reduction in the Pacific.

Using such a scheme to pressure the Pacific countries into a free trade agreement opposed to their interests is only likely to increase resentment in the region.

In so doing, it threatens to thoroughly undermine the effectiveness of Australia’s aid and foster exactly the type of dependency Australia’s aid program should be working to reduce.

Flint Duxfield is a co-director of AID/WATCH, an independent monitor of aid and development issues.

 source: Canberra Times