THE TTALK QUOTES 

On Global Trade & Investment

 

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No. 25 of 2014 

TUESDAY, APRIL 8, 2014     

 

   

Filed from Portland, Oregon  

     

Click here for yesterday's quote from
Michael Froman on Congress and Trade Agreements.
 
AUSTRALIA'S FTA WITH JAPAN

"This agreement will be good for Australia, good for Japan, good for our region, and good for the world."

Tony Abbott
April 7, 2014

CONTEXT
Today's quote is from remarks the Australian Prime Minister made during his visit to Japan yesterday.  In Tokyo, he and Prime Minister Shinzo Abe announced that, after seven years of negotiations, they have reached agreement on a Japan-Australia Economic Partnership Agreement (JAEPA).

In Australia, the agreement is being hailed as an historic achievement.  In the language of a government press release, "Australia has broken new ground as the first major agricultural exporting economy to conclude such a liberalizing agreement with Japan."

Others have been markedly less enthusiastic.  A USTR spokesman, for example, was quoted by the Wall Street Journal saying that the Australia-Japan agreement  "is significantly less ambitious than leaders agreed to seek in the Trans-Pacific Partnership."  And indeed, there is a lot this new FTA doesn't cover.  It doesn't cover rice, for example, and it doesn't include provisions on Investor-State Dispute Settlement. 

Moreover, even where it significantly cuts tariffs, the agreement doesn't necessarily eliminate them.  This paragraph from an Australian government statement on the agreement is particularly interesting in that regard:

"JAEPA represents a major windfall for Australian beef - our biggest agricultural export to Japan, currently worth $1.4 billion [$1.31 U.S.].  This includes a halving of the tariff on frozen beef from 38.5 percent to 19.5 percent with deep cuts in the first year."

In the U.S., the National Pork Producers Council, which wants to see Japanese tariffs on pork and other U.S. farm products eliminated, had a more jaundiced view of the agreement. 

All of its imperfections aside, however, the agreement will give Australian ranchers a leg up in the competition for sales in the Japanese market, and even the Japanese are pointing that out.  Hiroshi Oe, Japan's ambassador to the TPP talks, put it fairly bluntly.  "This will be very difficult for the U.S. beef industry," he said, adding that "it would be good if that became an incentive for reaching an early agreement on TPP."

COMMENT
If anything, we suspect Ambassador Oe has understated the case.  We say this because we suspect Canada will not lag far behind Australia in concluding a deal with Japan, and they sell beef too.

There is a straightforward, matter-of-fact paragraph in Monday's statement from the National Pork Producers Council that bears repeating here.   The NPPC wrote:

"In its FTA with Japan, Australia did not get tariff elimination on a number of important products, but a clause in the agreement requires the Japanese to provide the same access to Australia that it provides to other nations.  Should the United States get better access to Japan in the TPP negotiations, Australia would get that same access."

We would like to parse that just a bit.  If in doing so we only reveal our own ignorance, we very much hope those who know better will correct us.

First, the "clause in the agreement" used to be called an MFN or most-favored-nation clause.  We are not thinking here of MFN in the WTO.  There, MFN means a concession to one is a concession to all.  In the earlier context, however, it was, as it is here, not a protection for the last participant but for the first.  In this case, it ensures that no one will ever have a better deal with Japan than Australia.  Interestingly, those old style MFN clauses seem to be showing up in more and more places. 

Second, the description of the whole TPP process in the NPPC paragraph suggests that, at least where market access is concerned, TPP is better understood as a series of bilateral agreements than as a true FTA among 12 countries.  We say that because, if NPPC is correct, Australia will not be relying on an MFN-like clause in TPP - presumably there won't be one -- but rather on the one in the new JAEPA accord.  If that is correct, it is worth keeping in mind in every discussion of TPP.

Certainly, one hopes that there will be an early conclusion to the TPP negotiations, but they have already missed one big deadline - the goal of concluding in 2013.  That history and the lack of anything like a pro-trade consensus in the United States mean that TPP countries will continue to pursue other options for improving their trading opportunities.

There are some costs to that.   One has to do with flexibilities, the openness to change of the countries in the system.   Japan's defense of its rice producers may be the first thing that comes to mind, but here is another.  The fact that Australia's new deal with Japan does not include investor-state dispute settlement has filled the Australian press anew with arguments against ISDS. Those arguments will, one assumes, make the Australians dig in their heels that much more when ISDS comes up in TPP. 

But all of this is premature.  There is a strong U.S. negotiating team in Japan now, and President Obama will be there for a state visit on the 24th.  And so, quoting Helen Kellogg again, "We shall see."
SOURCES & LINKS
From Eyewitness 10 News.  There is a clip from this news program embedded in a JEITA story from the Sydney Morning Herald.   Today's quote was taken from the TV news clip.  The link takes you to both the press report and the TV clip.

Historic Free Trade Agreement is a link to a statement on the agreement from the Office of Prime Minister Abbott.

Agreement Reached is a link to the Wall Street Journal article on this agreement quoted above.

U.S. Pork Producers Concerned is the April 7 statement from the National Pork Producers Council cited above.

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