PACER Plus: Trade in Goods Trade in Goods in PACER Plus Overview of the Main Elements of the Chapter PACER Plus Sixth Non-State Actors (NSA) Dialogue Workshop on PACER Plus Nadi, Fiji 10-11 July 2016

FSM has signed but not ratified. RMI and Palau not signatories Pacific Island Countries Trade Agreement (PICTA) PICTA was signed in 2001 and came into force in 2003. Closed for signature in 2006. Twelve FICs have signed but only 7 FICs have announced their readiness to trade under it. Covers all goods except alcoholic, tobacco and petroleum products. PICTA provides for the progressive phasing out of tariffs on trade of originating goods among the FICs. Tariffs on originating goods of developing FICs to be reduced to zero by 2015, and by 2017 for SIS’ and LDCs, except in case of ‘excepted imports’ (the ‘negative list’) for which tariffs are to be reduced to zero by 2020 and 2021, respectively. PICTA PICTA Cook Islands*, Fiji*, Kiribati, Nauru, Niue*, Papua New Guinea, Samoa*, Solomon Islands*, Tonga, Tuvalu*, Vanuatu* FSM has signed but not ratified. RMI and Palau not signatories

Observer: New Caledonia Melanesian Spearhead Group (MSG) Trade Agreement Established in 1993 to promote intra-MSG trade and strengthen economic cooperation among the countries. Initially, positive list approach centred around traded products (canned tuna, beef, tea etc). Fiji joined in 1996 and the agreement was revised in 1998. Coverage of the agreement extended to 180 products. Coverage expanded over time culminating in the decision to switch to a negative list approach following the revision of the Agreement in 2005. Tariffs expected to be phased out within 8 years. Exempted are alcoholic, tobacco, mineral fuels and sugar. Fiji provided DF treatment to all goods except those on the exemption list from 2006. Vanuatu implemented the revised agreement in 2010, Solomons in 2011 and PNG in 2012. MSGTA3 signed in Noumea in November 2015, which broadens the scope of the Agreement. MSG Fiji Papua New Guinea Solomon Islands Vanuatu Observer: New Caledonia

South Pacific Regional Trade and Economic Cooperation Agreement SPARTECA Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Nauru, Niue, Papua New Guinea, Republic of Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu, Vanuatu Palau not a signatory Non-reciprocal trade agreement concluded between Australia, New Zealand and 13 FICs in 1980; entered into force in 1981. Notified by Australia and NZ to the GATT, but not as a regional economic integration agreement. A product of its time. Virtually, duty-free, quota-free access for FICs. Antiquated, pre-WTO approaches to rules of origin (50% ex-factory cost),SPS/TBT and other issues Erosion of preferences as a result of Australia’s and NZ’s MFN and unilateral liberalization, FTAs and strengthened GSP preferences to non-Parties. Would be superseded upon each FIC’s adoption of PACER Plus Duty free & Quota free in ANZ for FICs originating products Australia & New Zealand

The FTA - Trade in Goods: key issues for the FICs Market Access: Defensive Interests Asymmetrical Commitments: trade coverage, transition periods & regulatory regime Special and Differential Treatement Development assistance, infant industry clause, bilateral safeguard mechanism, modification of tariffs Market Access: Offensive Interests Duty-Free Quota-Free access in A/NZ markets (binding) Development assistance to address FICs’ supply side constraints and build export capacity Assistance to comply with A/NZ’s SPS and TBT rules Flexible rules of origin to reflect FIC production processes

Intersessional Meetings: State of Play of TiG Negotiations Areas where consensus has been reached Article Heading 1 Objectives 2 Scope of the Chapter 5 Duty-free Entry of Commercial Samples of Negligible Value 6 Internal Taxation and Regulation (National Treatment) 8 Fees and Charges Connected with Importation and Exportation 9 Import Licensing 10 Other Non-Tariff Barriers 11 Publication and Administration of Trade Regulations 12 Information Exchange 13 Contact Points and Technical Discussions 14 Meetings on Trade in Goods Matters 15 Amendments to the HS Code 17 Non-Application of Articles

Intersessional Meetings: State of Play of TiG Negotiations Areas where further discussions required Article Heading 3 Commitments on Tariffs (MFN Treatment) 4 Goods Re-entered after Repair and Alteration 7 Trade Remedies (Antidumping, Subsidies and Safeguards) XX Infant Industry

MFN Clause Scope of the MFN Clause Should the MFN obligation apply to pre-existing trade agreements as well as future trade agreements concluded by the Parties? Position of FICs is that it should apply to only future trade agreements and that pre-existing agreements should be grandfathered. Australia willing to accept depending on the outcome of its tariff negotiations with Fiji and PNG. It does not want the EU to be accorded more preferences in respect of products in which it has an export interest. FICs want agreements with other Pacific Island Countries, ACP states and LDCs to be exempted. NZ supports but the share of ACP states should not be more than 4 per cent of global trade Australia supports the exclusion of agreements with other PICs, LDCs and other developing countries which are neither high-income or upper middle income developing countries. FICs want to be able to deny MFN treatment to A/NZ, if they can demonstrate that a future FTA Partner has given it more preferential treatment than under PACER Plus. Both A/NZ are strongly opposed to this proposal

Tariff Modification Developing country facing unforeseen difficulties in implementing tariff commitments: May modify/withdraw tariff concession Must engage in negotiations with interested Parties Compensatory adjustment to be made with respect to goods, or where not appropriate in services/ investment, which would be extended to all the Parties

Tariff Modification If the Parties cannot reach a mutually agreed outcome within 60 days of request being made, the developing country Party may proceed with modification/withdrawal of tariff concessions Any Party with substantial interest may request the Joint Committee to constitute a panel of experts to determine the level of compensatory adjustment to be made A/NZ not supportive of unilateral action. Would like the developing country to modify or withdraw its tariff concessions only after the Panel had circulated its interim report.

Transitional Safeguard Measures A TSM may be applied by a developing country Party during the transition period, where due to the reduction or elimination of duty there is: increased import of originating goods in absolute terms or relative to domestic production, which causes or threatens to cause serious injury to domestic industry producing like or directly competitive goods. FIC : A transition period in relation to a particular good, means the period from the entry into force of this Agreement until two years after the date on which the customs duty on that product is to be eliminated in accordance with Annex 1 (Schedules of Tariff Concessions).]

Transitional Safeguard Measures To remedy serious injury and facilitate adjustment, a Party may: Suspend further tariff reduction Increase duty to a level not exceeding MFN or non-preferential applied rate at the time the measure is adopted. A/NZ: either the MFN or non-preferential applied rate as at the time the measure is applied or the MFN rate in existence on the day immediately before the entry into force of the Agreement

Standards for Transitional Safeguard Measures TSM to be maintained only for period necessary to prevent or remedy serious injury or to facilitate adjustment; Initial duration of TSM not to exceed 2yrs (1 year : AU/NZ) – may be extended for an additional 2yrs (AU/NZ: for LDCs) (3yrs for developing countries or LDCs and SIS, respectively) TSM not to be maintained beyond the expiration of the transition period. OCTA proposal – two years after the end of the transitional period

Standards of TMS To facilitate adjustment, where the expected duration of TSM is more than a year, Party applying TSM to progressively liberalise during period of application On termination of TSM, Party applying to revert to duty in its schedule of commitments TSM not to be applied again on the same product for a period equal to the duration of previous TSM or 2yrs at the minimum

Investigation Procedures and Transparency Requirements TSM to be applied only following an investigation by a Party’s competent authority, in accordance with the WTO Safeguards Agreement, incorporated into PACER Plus, mutatis mutandis

Notification and Consultation Party to notify other parties when it: initiates transitional safeguard investigations, Makes a finding of serious injury or threat of serious injury, Takes a decision to apply TSM Takes a decision to modify TSM previously undertaken

Compensation Compensation is payable by a Party extending a TSM by way of mutually agreed trade liberalisation compensation in the form of concessions that have substantially equivalent trade effects or equivalent to the value of additional duties expected to result from a TSM Australia and New Zealand opposed to the FIC proposal. They want compensation to be immediately payable as is the case most FTAs Obligation to provide compensation terminates on the termination of the TSM

Industry Development Developing country which can only support low standard of living and in early stages of development may suspend reduction of custom duty or raise the rate of customs duty to promote the establishment of a particular industry to increase living standards of its people No need to establish an increase in imports etc, as under the provisions on global or bilateral safeguards Measure may be applied as follows: Initial period 7yrs + 3yrs extension – developing country Initial period 10yrs + 5yrs extension – LDCs/SIS

Industry Development Interested parties and Joint Committee to be provided with relevant information required for a thorough examination of the situation and negotiation to be undertaken to reach a mutually agreed outcome Mutually agreed outcome and any compensatory adjustment to be notified to the Joint Committee Panel of experts may determine compensatory adjustment where parties unable to achieve mutually agreed outcome within 60 days of request to modify/withdraw tariff concessions Compensatory adjustment to be implemented only after 3yrs of the findings of independent experts Measure cannot be applied at the same time in respect of a product which is subject to a transitional safeguard measure or whose tariff has been amended under the modification of tariffs article. A/NZ opposed to the FIC proposal. They support an infant industry clause if invoked by the WTO-FIC Parties in the context of Article XVIII:C of the GATT 1994. The non-WTO Parties can use their discretion in applying their non-preferential tariff rates

Discussion Points 1.Will liberalisation of trade in goods benefit only Australia and New Zealand ? The essence of the argument is that since the FICs already have duty-free, quota-free access to A/NZ markets under SPARTECA and as such they will not gain enhanced market access for trade in goods under PACER Plus. Argument ignores the fact that preferences under SPARTECA are unilateral and can be withdrawn at any time by A/NZ. It does not give the security and predictability that business operators need to make the necessary investments to expand production and take advantage of a larger market. Under PACER Plus, A/NZ have agreed to bind their tariffs at zero for all products and undertaken not to increase them even if they face economic hardships PACER Plus also provides an opportunity that is not available under SPARTECA for a comprehensive modernisation and review of product specific rules of origin. Critics do not address the benefits that could flow from a competitive business environment following the liberalisation of trade. FIC firms can have access to cheaper inputs which would facilitate value addition and exports. Consumers would benefit from varied, high quality and cheaper products which would generally benefit the economy with the increased spending.

Discussion Points 2. Will the provision of public services by FIC Governments be threatened as a result of the tariff cuts they will be making in PACER Plus? Too early to make a detailed estimate of revenue losses as parties are in the process of tabling their offers. OCTA estimates that most FICs will lose between 1-4 per cent of government revenue after fully implementing their tariff commitments over periods ranging from 25 to 35 years. Some FICs, such as Kiribati, will lose no revenue at all. The total revenue forgone will be around AUD100 million as opposed to USD200 million (AUD 270 million) put forward by some NGOs, assuming they eliminate tariffs on 80 per cent of their trade with Australia and New Zealand. From the draft offers submitted by the FICs, they have excluded high-generating revenue items from liberalization.

Discussion Points Under the current draft modalities, LDCs (Solomon Islands, Tuvalu, Kiribati* and Vanuatu) will not have to commence tariff reductions until they graduate from this category, at which time they will have up to 25 years to phase out their tariffs. In effect, tariff reductions would be gradual and spread over many years, so the effects would not be sudden and companies would have ample time to adjust to the new competitive environment, which should reduce trade costs, create more business opportunities and lead to better paying jobs. Under WTO rules, the transitional period for eliminating tariffs should normally not exceed 10 years, but in giving the FICs between 25 and 35 years to reduce and eliminate tariffs, PACER Plus has been responsive to FIC concerns. The revenue losses can be easily offset by the gains from increased labour mobility and development assistance, and by more effective internal taxation and the advantages of a more competitive economy.

Discussion Points 3. Will PACER Plus lead to business closures and job losses in the FICs Over time, PACER Plus will lead to a more competitive and dynamic economic environment in the region, meaning more business opportunities, greater incomes, and more jobs.  In any market economy, firms have to adapt to evolving circumstances – not only trade-related ones – to be successful. In that context, adjustments may in certain cases be required as a result of tariff liberalization. As noted, FICs will have between 25 and 35 years to reduce/eliminate their tariffs. They will also be able to exclude sensitive and high-generating revenue items from liberalisation. Protectionism not a long-term solution, as it increases costs and promotes inefficiency stifling growth and economic opportunities.