Labour mobility may be in the headlines but when Kevin Rudd stepped off the plane in Niue for the Pacific Island Leaders forum this week, he had just one thing on his mind: markets. And not the colourful Pacific handicraft kind.

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 Pacific Agreement on Closer Economic Relations (PACER Plus) is the free trade agreement that Australia and New Zealand are currently negotiating with the Pacific island countries (PICs).

At $5 billion, annual trade with the Pacific is relatively small from Australia’s perspective. But for most PICs, Australia remains their largest trading partner. Australia’s dominance in the Pacific is, however, increasingly under threat from Asia’s emerging economies and most recently from 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 PACER Plus a key priority for the Rudd Government.

The PICs are, however, wary of PACER Plus – and with good reason. Reducing tariffs in line with this agreement will make it very difficult for local producers to compete with Australian imports, especially on products such as textiles, clothing and footwear.

Moreover, according to a recent report by the Washington DC-based consultants Nathan Associates, some PICs stand to lose as much as $10 million in government revenue under a PACER Plus styled agreement, very little of which could be recouped through other means.

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

Australia is of course under pressure both at home and in the Pacific not to make its labour mobility scheme conditional on a PACER Plus outcome. Nevertheless, the not-so-subtle message behind the ‘trial’ nature of the scheme will be obvious to all Pacific leaders. Play ball on PACER Plus or go it alone.

It’s an approach that strongly resembles the controversial ‘aid for trade’ deals seen at the WTO. 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 would have been provided anyway.

The PICs have seen 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 PACER agreement. In July 2003, after PACER 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 PACER Plus is squarely in Australia’s sights, funding is magically re-appearing. This time, the money is earmarked for trade advisors 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 negotiators.

It will also be assisting by funding national studies for the PICs to demonstrate the benefits PACER Plus can potentially bring them.

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

In addition to the $300 million Australia will spend specifically on aid for trade this year, Australia’s broader aid program is increasingly being linked to 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?

Aside from prompting further claims of ‘bullying’ from the Pacific, Australia’s aid for trade antics fly in the face of our aid program’s stated focus on promoting ‘good governance’ and alleviating poverty in the region.

Fast-tracking PACER Plus negotiations just as the PICs are struggling to come to terms with their own internal trade zone, WTO 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 government income. Reducing cash-strapped governments’ finances in this way is hardly going to facilitate effective governance and will directly affect the capacity of Pacific countries to provide basic health care, education and essential services. Moreover, the most probable solution – value added taxes or a GST – are recipes for increasing inequality and will only further exacerbate social tensions, something the Pacific already has its fair share of.

Managed carefully, a labour mobility scheme has clear potential to help Australian farmers and aid development and poverty reduction in the Pacific. However, using such a scheme to pressure the PICs into a free trade agreement which is blatantly opposed to their interests is only likely to increase resentment, instability and poverty 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

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