The confidential documents show Pacific island countries could abandon trade talks at a regional leaders’ forum next week unless Australia stops pressuring the funding of Pacific trade negotiators.

Prime Minister Julia Gillard is expected to attend the leaders’ summit – her first foray into the prickly Pacific political scene since becoming the nation’s leader.

The documents obtained by The Age show the Pacific nations are also determined to leverage any trade deal to expand a guest workers scheme in Australia beyond fruit picking and agriculture, allowing islanders into other low-skilled jobs.

New Zealand has run a highly successful guest worker program for Pacific islanders since 2007, allowing more than 22,000 temporary workers a visa to find employment and send money home.

Australia set up a pilot scheme in 2008 to meet labour demand from the farming lobby but has failed to match the results seen in New Zealand, with just short of 550 workers in the program.

Canberra has tried to sell the talks on closer economic relations in the region as a development measure rather than a simple trade deal.

But the documents show Pacific nations believe any deal will not significantly improve their economies ”unless it results in greater integration of labour markets.”

The main sticking point in the talks is funding for an independent chief adviser to guide Pacific island nations in their negotiations – a position Australia and New Zealand agreed to pay for in 2009.

New Zealand has already signed a $NZ1.3 million ($A1 million) deal to continue paying its half for the position, known as the Office of the Chief Trade Adviser and based in Vanuatu.

A document from an officials’ meeting in May – marked ”for the eyes of island countries only” – states free trade talks ”could not continue without Australia and New Zealand entering into funding agreements with OCTA.”

A leaked draft contract between Australia’s aid agency, AusAID, and the trade adviser proposes $1 million in funding be split into $125,000 tranches, with the money to be released every three months subject to ”satisfactory progress” in the trade talks.

In lengthy comments on the draft contract the trade adviser’s office told AusAID the clause was ”totally unworkable” and demanded it be stripped from the contract and earlier plans for two $500,000 payments be reinstated.

Pacific nations are adamant the trade adviser office should be legally independent and not threatened with budget cuts.

A spokesman for Trade Minister Craig Emerson yesterday said Australia funded the first year of operation for the chief trade adviser until March this year. He said Australia had promised funding for the next two years and was finalising the contract.

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