Opinion: Why Japan FTA criticisms miss the mark

Trent Thorne, McCullough Robertson, 11/04/2014

The negative responses from certain agricultural industry groups this week to the historic announcement of the Japanese Australia Economic Partnership Agreement (JAEPA) was disappointing to say the least. 

Trent ThorneThese negotiations were set in train by John Howard in 2007, however the talks seemed to enter a period of hibernation under the Labor Government.  Hindsight has shown that détente and economic credentials were not strong points for the former administration.  As a result, Australia has paid for this tardiness as our competitors have secured Free Trade Agreements (FTA) with our trading partners and consolidated their market shares.

Presumably no one is suggesting that reaching accord on a bilateral FTA is simple, otherwise an agreement would have been reached well before now.

But some commentators have suggested that more time should have been taken to extract further concessions from the Japanese, but this overlooks the reality of what some producers are currently facing because of this ‘hold out’ attitude.  The question needs to be asked – exactly how long does the wider Australian economy have to hold on for the sake of certain commodities?

By way of example, the US-Korea Trade Agreement came into effect in March 2012.  The subsequent two-year delay in finalising the Korean-Australian Free Trade Agreement (KAFTA) has meant that the US now effectively enjoys a tariff head start on a range of products. 

At the risk of sounding trite, bilateral negotiations of this type rarely deliver a ‘win-win’ outcome.  Concessions are inevitably made and, more often than not, both parties walk away feeling as though they may have conceded more than they would have liked.

Despite the innovation that Japan is well known for, the agricultural sector, in many respects, lags behind the rest of their economy in terms of its efficiency and scale.  For example, the ‘Genhan’ system has stifled innovation and kept rice prices artificially high, basically due to a subsidised incentive scheme for rice farmers not to farm.

Hence, the 778pc tariff on rice that presently exists is a direct outcome of the bloated and lazy practices of this industry.

It was reported in the New York Times earlier this year that the protection of the rice industry has little to do with protecting farmers; rather it is to protect the underlying ag co-operative bureaucracy, which has thwarted attempts at rationalisation in the sector.  The power of this lobby group is evidenced by the fact that there is one Japanese co-op employee for every two full time rice farmers.

With this in mind, rice was never going to form part of the JAEPA outcomes.  To this end, US trade representatives negotiating with the Japanese on the Trans-Pacific Partnership (TPP) (which involves the Australia, the US, Japan and nine other Pacific Rim nations and is attempting to create the world’s biggest free trade zone) have sought the scrapping of tariffs on all items in the five sensitive categories – rice, wheat, beef, pork, dairy products and sugar – save for rice as it has been recognised that this is a hurdle too far.  Like selling ice to the Eskimos if you will!

The reality is that no other major economic trading partner has been able to achieve what Andrew Robb and Tony Abbott have been able to achieve, namely being granted significant concessions from the Japanese in relation to their tariffs on agricultural products.

Significantly, the JAEPA provides us with ‘most favoured nation’ status, which contemplates that if another Japanese trading partner negotiates an outcome that is better than the terms of the JAEPA, the same tariff reduction is to be applied to Australian producers i.e. Australia will always be at the head of the queue.

US Trade Representatives and the American Farm Bureau have already acknowledged that they are jealous of Australia’s new trade deal with Japan as we have beaten them to the punch.

Further, the JAEPA is to be reviewed in five years time and critically, the momentum from this historic announcement can be applied to the multilateral TPP negotiations in securing positive outcomes for an even wider range of products. Given the number of parties involved in the TPP negotiations, and the different domestic political expectations of the countries involved, this process may continue to play out for some time before accord is reached. 

Whilst there have been vocal criticisms to the JAEPA from the Australian dairy, sugar and rice growing industries, this criticism should be shelved pending the resolution of the mooted Chinese-Australia FTA.

The demand for dairy and sugar from the powerhouse Chinese economy is well known. If we fail to gain concessions from the Chinese in relation to these commodities, then and only then, can there be reason to complain. 

Unfortunately, given the ‘sacred’ position that rice occupies in the psyche of many Asian countries, there is a high likelihood that rice will again be left at the altar.

Trent Thorne is an agribusiness lawyer with McCullough Robertson in Brisbane. (Follow him on twitter at @agintegrity)


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