G20 Executive Talk Series

September 2016

South Pacific

Authored by: Edward Mortimer

Labor Market Integration in the South Pacific:
Lessons from the Australian—New Zealand Experience

Since 1973, Australia and New Zealand have rapidly opened their labor markets to citizens of either country under the Trans-Tasman Travel Arrangement.

Through the Pacific Islands Forum – the main multilateral organisation in the South Pacific – Australia, New Zealand and a number of less developed small island states (known as the Forum Island Countries) are approaching the final stages of negotiations on a comprehensive trade deal under the umbrella process established in 2001: the Pacific Agreement on Closer Economic Relations (PACER Plus). The deal aims to build on the existing agreements – chiefly the South Pacific Regional Trade and Economic Co-operation Agreement – that both Australia and New Zealand have with Forum Island States. The intent is to further reduce (in many instances without reciprocal obligations for the poorer countries) trade barriers on a wider range of goods and services.

Both Canberra and Wellington accept that PACER Plus has both an economic and development rationale. Yet if development is a key part of PACER Plus, there is a definite need to consider labor – disappointingly absent from serious discussions – as being one part of the solution. This is a major challenge for Australia and New Zealand as labor market access involves much more than striking high-level agreements with the Pacific islands on mobility and work rights; policymakers should not forget the key role of technocratic cooperation. Australia can play a leading role here by including the Pacific Islands in existing governance mechanisms which address these issues, usefully drawing on the experiences of labor market integration with New Zealand.

While progress has been made on liberalising the regional market for goods and services, negotiations on labor have lagged behind. This has not gone unnoticed by Forum Island Countries which have had comprehensive labor market access to the two richest economies of the South Pacific on their agendas for years – the Fijian Prime Minister, Frank Bainimarama, stated earlier this year that his country was seeking ‘binding commitments on labour mobility’. Given the region’s substantial population growth, high unemployment and low levels of economic development, there is a strong argument for allowing workers in Pacific island states to relocate – even temporarily – to these richer states so that employment income can be remitted and invested in their home countries. Indeed, the Australian and New Zealand seasonal workers schemes – which allow Pacific island countries access to these labor markets for short periods of time to work mainly in primary industries – have shown some success. According to a 2012 report by Paul Merwood, the New Zealand scheme – which is the more established of the two – enjoys high worker return rates for subsequent seasons, and delivers economic benefits both for the host country and the home workers’ states. This was further supported by John Gibson and David McKenzie in a 2014 contribution who also noted that overstay rates for the scheme were very low.

In Australia’s case, the focus to date has been overwhelmingly on access for low- or unskilled labor from the Pacific islands to meet sector-specific shortages. The case for broadening the scope of the Australian program and for reducing the administrative barriers for employers, in particular, is not new – it has already been noted by a number of researchers, such as Joanna Howe and Alexander Reilly who argued extensively for regulatory reform in this area. However, if labor markets are ‘opened up’ at some point, all countries in the region will need to cooperate in a very granular, technocratic manner beforehand – a problem largely overlooked.

Such cooperation is vital to ensure that the benefits of labor market access are realised efficiently and effectively. As the Pacific region’s labor market steadily upskills, harmonization and mutual recognition will become substantial problems – a story familiar to policymakers aiming to develop effective regional labor markets. The most successful large, comprehensive cross-border labor market – the European Union – is the result of decades of negotiations and planning. While the scope and scale of this challenge might be less in the South Pacific, the region’s countries should be planning now for this future by developing the necessary governance arrangements.

Australia, in conjunction with Pacific Island states, will need the right mechanisms to address the technical, ‘hidden’, barriers which will prevent the effective operation of a cross-border labor market. The complexity and sheer volume of issues that need to be addressed mean that ad hoc approaches are likely to be inadequate and inefficient – a permanent mechanism through which Canberra, Wellington and the Forum Island Countries can reach agreements would yield greater benefits. This would allow the region’s states to co-ordinate policies on a range of matters – everything from the mutual recognition of qualifications to occupational health and safety.

Australia has previous experience in this area which could inform its engagement on labor markets with the Pacific. Since 1973, Australia and New Zealand have rapidly opened their labor markets to citizens of either country under the Trans-Tasman Travel Arrangement. Labor market cooperation between these two states has deepened to the extent that the vast majority of workers of all skill levels – trained under different systems and possessing different national qualifications – can easily work in either country without the need for retraining. While high-level, government to government discussions were needed to agree the Trans-Tasman Mutual Recognition Arrangement, much of the subsequent progress on labor market integration has been a technocratic exercise greatly facilitated by inviting New Zealand to permanently participate within the Council of Australian Governments (COAG) – the Australian forum tasked with resolving similar issues between the Australian federal government and the country’s state and territory governments.

On the face of it, New Zealand’s participation in a formerly Australian structure seems like it places Wellington in a lesser position; however, it largely reflects the pragmatic approach both countries take when it comes to their economic relationship: choosing the most effective place for cooperation based on the specific technical needs. Wellington participates in almost all (exceptions are made in areas such as transfer payments between the Australian federal government and state and territory ones) COAG councils – and on any issue relating to mutual recognition of products and skills, the Handbook for COAG Councils provides for New Zealand’s full membership and voting rights in the relevant council. In a sign that COAG could become even more open, individual COAG councils are welcome to invite other governments to participate, though not on a permanent basis like New Zealand.

While an open labour market may not yet be a reality in the South Pacific, now is the time to prepare the ground. By establishing the right governance mechanism, preparations for harmonisation and mutual recognition in the regional regulatory environment can be made prior to the liberalisation of the labor market itself. The case of Australian—New Zealand cooperation in Australian federal processes is instructive and largely successful. It therefore makes sense for the Forum Island Countries to be permanently represented – either as individual countries or as a single entity – in COAG in some capacity. This novel approach avoids the need for any new institutional structures. And by doing so, the region will be well prepared for the next steps in regional economic integration.