TRADE AGREEMENTS START TO PAY DIVIDENDS – TPP LOOKS PROMISING

The Trans-Pacific Partnership (TPP) has passed its fi rst major hurdle, however, it may not be its biggest. The US House of Representatives recently voted for a six-year renewal of trade promotion, effectively giving the president fast-track trading authority. The Bill was ultimately passed by the Senate following a number of bruising skirmishes, with the Democrats seemingly against the proposed multi-country free trade deal.

The proposal, which would cover up to 40% of global trade and also involves Canada, New Zealand, Malaysia, Vietnam, Singapore, Brunei, Mexico, Chile and Peru has the potential to deliver enormous benefi ts to Australian agribusiness but would be dead without US support.

WHAT IS THE HOLD UP?

One of the stumbling blocks (and there have been many, the deal has been in the making for close to a decade), has been America’s sugar lobby. The United States has had a sugar protection scheme since 1794, giving sugar producers who are growing the product in 17 states across the country enormous political power. They have been using that power to try to carve sugar out of the deal, a move that is aimed at Brazil but would also be a blow to Australia’s sugar industry.

Hopefully some other big guns in the USA, such as the US Chamber of Commerce, representing major sugar manufacturers and confectioners including Mars, will get through to US President Barack Obama, who is keen to make the deal his legacy.

The Chamber of Commerce and other employer and manufacturing groups say the raised cost of sugar is costing Americans jobs, claiming 30,000 have been lost in Chicago alone as confectioners move their operations to Canada where they can use imported sugar.

Americans are massive consumers of sugar, but most don’t realise they are paying a high price for protections and trade restrictions on their locally grown product. The confectionary manufacturers are hoping increasing awareness among consumers (another powerful lobby group) will give President Obama the ammunition he needs to convince a reluctant and sometimes hostile Congress.

The deal simply won’t work unless all tradable commodities are on the table. It is hard to understand how this one commodity, or any other, could be carved out of the agreement. Doing so would leave the door open for every country to pick and choose the commodities to protect and effectively keep us parked where we currently are now.

The length of time being taken to fi nalise the TPP is a concern, with likely Democrat Presidential candidate Hilary Clinton indicating she may not support the deal.

Security has also been raised as a concern by some groups opposed to, or nervous about the TPP. The presence of China in the global market, while not a signatory to the TPP, poses a potential security case for the agreement.

In the Washington Post on 7 May 2015, Daniel W. Drezner (Professor of International Politics at Tufts University) stated that ‘while free trade agreements tend to reduce security tensions between members, they can exacerbate tensions between signatories and non-signatories if they reduce exports from non-signatory countries.’

His fi nal take on it all, is that the security narrative is more complicated than international trade considerations and the overall effects of the TPP are still ‘on the whole, a net positive.’

It seems that the Australian public, from consumers to producers, don’t yet appreciate that the TPP is sitting out there ready to go and the signifi cant potential for Australian companies and agribusiness. It really is a game changer.

Much of the rhetoric to date has been around the apparent ‘secrecy’ of the negotiations and a perceived lack of transparency i.e. every detail isn’t being played out in the media or public arena. But it is standard practice in international negotiations that the parties agree that draft negotiating text should not be made in public.

In accordance with all treaty making processes, there will be an opportunity for full public and parliamentary discussion before the government enters into any fi nal agreement.

WHAT IS THERE TO GAIN?

The potential gains for Australia are signifi cant. Australian exports to partner countries are currently worth over $100 billion and more than 70% of our trade is with the Asia Pacifi c. The TPP will support trade liberalisation throughout the Asia-Pacifi c region, creating a better trade environment for Australian companies and ultimately increasing economic integration into the region.

In addition, the TPP will open the doors to three new markets we don’t have free trade agreements with (Canada, Mexico and Peru) and will further improve access and benefi ts under existing FTAs with countries, which are also signatories to the TPP, such as Japan. The TPP will provide the opportunity to negotiate improved outcomes where current FTAs fall short.

The agreement will result in fewer barriers for Australian exporters of goods and services and also for Australian investors. Supply chains can be improved and new trade issues which have not been previously addressed in trade agreements, such as strengthening regulatory coherence and the promotion of economic development can also be included.