Key Concerns regarding Trade in Services Chapter in PACER-Plus

By Adam Wolfenden

The recent leaking of the draft text of the regional free trade agreement known as PACER-Plus confirms many of the fears that people have about it. PACER-Plus is being sold as a ‘development agreement’ but it not only misses mandatory flexibilities for the most vulnerable countries in the agreement but undermines the ability of Forum Island Countries (FIC) governments to ensure that their economy meets their development needs. To say that this is a “development text” is a gross misunderstanding of what is being asked of FICs.

No exceptions for Least Developed Countries (LDCs) to make few, if any, commitments

One of the most telling indications of what PACER-Plus means for FICs can be seen by the fact that the Pacific themselves failed to propose already agreed upon language that supported Least Developed Countries making less commitments.

In Article 4: Increasing the Participation of the Forum Island Countries it appears that it is in fact the FICs advised by the Office of the Chief Trade Advisor who have proposed the text of this chapter and have either missed, or actively watered down, the existing flexibilities that are contained in the WTO version of this Article, an article with flexibilities that Australia and New Zealand have already agreed to and should extend to FICs. The OCTA claims that the focus on PACER-Plus should be “whether [it] will overall improve the competitiveness of Pacific economies” but missing such flexibilities leaves the LDCs more vulnerable than able to compete.

Cargo and Port Services

The FICs have failed to include the paragraph that states “Particular account shall be taken of the serious difficulty of the least-developed countries in accepting negotiated specific commitments in view of their special economic situation and their development, trade and financial needs.”

What this means is that Australia and New Zealand would be mandated to accept fewer, if any, commitments from the LDCs in the FICs negotiating group. Fewer commitments means that countries are more flexible when it comes to applying public policy, so can implement regulations that direct support to local industries like tourism or protect public health etc.

Pacific LDCs like Vanuatu, Solomon Islands, Kiribati, and Tuvalu have been let down. Whilst Vanuatu has already, controversially, made extensive commitments under its WTO accession, the remaining Pacific LDCs have made few, if any commitments in Services and are now more exposed by the failures of this text to contain the bare minimum flexibilities for LDCs. Even though the Services chapter has been largely agreed, until the deal is signed there is the scope for change.


Undermining the ability of FIC governments to regulate

In trade agreements, the Services Chapters aim to establish the limits of what governments can and cannot do in regards to regulation of service sectors.  PACER-Plus contains a range of commitments that will challenge the ability of FIC governments to determine the developmental objectives of trade in services. In practice this means that government policy on health, education, environment, culture etc is determined more by what suits foreign investors than what is in the interests of Pacific communities.


Whilst some proponents of PACER-Plus will argue that FICs maintain the right to regulate, the text states governments are free to regulate “provided that such regulation is not inconsistent with this Chapter”. Unfortunately the rights to regulate in this paragraph are completely voided by the fact that they must be consistent with the commitments in the chapter. Such a paragraph sounds nice but is legally meaningless as it merely states that FICs are allowed to regulate how they see fit within the regulatory space defined by the commitments in the chapter. They can do what they want provided it doesn’t breach the chapter.

Even when agreements state that governments have the right to regulate in order to protect the public health or the environment, such as in the WTO, we have seen such rights overturned an astonishingly 96% of times challenged as being too trade restrictive.  Many regulations that have been used to protect the environment (like refusing mining permits due to environmental or cultural reasons) or human health (like banning unhealthy foods) have been overturned.

The greatest threat to the regulatory capacity comes through the commitments contained in Article 9: Domestic Regulation. This article relates to how FIC governments can regulate their service sectors and what obligations they have to investors.

The article means that all FIC regulation on services needs to “reasonable” (a term undefined and as such open to challenge by investors), based on a clear scientific “cause-and-effect” relationship and impartial. As interpreted through trade law all three characteristics are problematic for regulation aimed as social, cultural, or environmental protection as action taken to protect these may not easily have a direct cause-and-effect link (ie look at the complex issues around non-communicable diseases and import of mutton flaps etc) be ‘reasonable’ as determined by investors or trade lawyers, or impartial as determined by an independent body such as an ombudsman. Again, what is best for communities will be determined by the trade agreement, not the communities themselves or their representatives.

Article 9 also goes on to state that regulations are licensing and technical standards, including things like environmental regulations, “must not be more burdensome than necessary”. Despite sounding benign this allows such regulations to be challenged and overturned if there was a way to achieve the same objective that was less trade distorting, regardless of the cost to government. Thus trade begins to trump and define what government regulation should be.

As the text currently stands in PACER-Plus, FIC governments are being asked to make big commitments that undermine their ability to determine their own development future. This is not a development text and should be refused.

Adam Wolfenden is a campaigner with the Pacific Network on Globalisation.