Australian Farmers Pleased that the U.S. Pulled out of TPP
February 28, 2018 9:07 PM
Malcolm Turnbull, the Australian prime minister, was in Washington recently to meet President Trump and also gave a speech to the National Governor’s Association. In his remarks, he lauded the U.S. for its leadership in the Asia Pacific region and said he hoped those days weren’t coming to an end.
For his part, Trump repeated his opposition to the Trans Pacific Partnership, the once sprawling trade agreement that he pulled the U.S. out of after years of negotiations. At that point it appeared doomed, but the other 11 nations persisted and hoped they had reached a breakthrough last year. Then Canada got cold feet but elected to stay the course.’
The latest version of the deal is called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The 11 country partners are set to actually sign it in Chile this March. Turnbull told the governors that he doesn’t expect the U.S. to consider rejoining anytime soon, but will be welcome if that day ever comes.
What’s different about this agreement? The 11 nations have negotiated new trade rules to make it easier and cheaper to export and invest. The aim is to cut tariffs and have common laws and regulations, but there are also a few side deals. For example, Canada has a range of separate deals in addition to the main agreement.
The impact on consumers in these countries is not likely to be significant, so don't expect to see a sudden drop in prices at the supermarket or department store. But the Australian government, for example, says more trade and exports will create more jobs. Australia played a leadership role in continuing negotiations after the U.S. dropped out, determined to keep trying to strike this deal, despite the setbacks because it argues there will be economic benefits. But working out how much economic growth can be attributed to a free trade deal is complicated and always challenged. Critics want the government to prove this deal passes muster by showing the economic modelling.
The big benefit appears to be for farmers. It should help Australia sell more beef, sugar, rice, dairy and wheat. It should also be easier to export wine and seafood. Australian farmers will still have to compete against other nations who are also hoping to capitalize on the more open trade, but they won’t have to compete with powerful American famers who Trump took out of the mix.
John Droppert, a senior analyst with Dairy Australia, says the elimination of tariffs on cheese products into Japan will be a big highlight. "We put about 80,000 tons of cheese into Japan every year," he said. Japan's also a big buyer of Australian wheat for making udon noodles.
Tony Russell, executive manager of the Grains Industry Market Access Forum, thinks U.S. farmers will be fuming that Australians and Canadians now have an edge over them in the Japanese market.
"I suspect the whole trade agenda from President Trump and the protectionist trade agenda of President Trump would be of great concern to the American grain grower," Russell said.
Most of Australia's resources and energy exports to the other 10 countries are already duty free, but there will be some gradual changes. Vietnam will get rid of its tariffs on liquefied natural gas over seven years.
Other changes will take up to a decade to happen. For example, Peru will drop the duty it applies to paper imports over 10 years and Mexico will also take a decade to drop the tariffs on pharmaceutical products, machinery and car parts. It's up to each country to implement the changes, so there's no formal start date for the deal to be introduced. It is likely a bill will be introduced to Australia's Parliament within months.
The deal is worth less without the U.S. It would have covered about 40 per cent of the global economy and a quarter of world trade if the U.S. stayed in. The Australian Industry Group says it would have naturally been stronger with the participation of the U.S. But Dairy Australia says the absence of the U.S. is a positive for the Australian dairy industry. "In past years, the U.S. has been a real cost competitor into Japan. They tend to compete on price, so of course the more tariffs and barriers they face, the more difficult it is for them to do that. It's only a good thing for us that the U.S. has excluded themselves from that agreement," Droppert said.
Prime Minister Turnball said it would be possible for the U.S. to return to the trade group in the future, but Trump seemed to pour cold water on that possibility, repeating that the deal was a bad one for the U.S. He doesn’t explain why. One objection might be the provision where private companies can sue national governments over market access issues. Australian trade negotiators retort that those complains are “scare tactics.”
Meanwhile 40 Republican senators sent Trump a letter asking him to bring the U.S. back into TPP. They are still waiting for a reply.
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