TPP has benefit for beef
Australia will have a significant tariff advantage over the US for beef exports to Japan as a result of the TPP.
WHEN President Trump formally withdrew the United States from TPP (Trans-Pacific Partnership) negotiations immediately after his inauguration, many thought this bold trade initiative was destined to go no further.
However the remaining 11 Pacific-Rim countries of Australia, New Zealand, Singapore, Malaysia, Brunei Darussalam, Vietnam, Japan, Canada, Mexico, Chile and Peru elected to press on without the US with the result that a revised deal was to be signed and sealed at a meeting in Da Nang, Vietnam, on November 11, 2017.
Unexpectedly and without explanation, Canadian Prime Minister Justin Trudeau decided at the last minute not to attend the signing but this appears to have been only a temporary setback.
On January 23, Australia’s Department of Foreign Affairs and Trade (DFAT) reported all 11 countries (including Canada) had reached final agreement at an officials-level meeting in Tokyo, Japan, on what is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
It is expected the agreement will be signed in March in Chile.
Over the many years of its gestation, the TPP attracted criticism for lack of transparency in detail and even now on what would seem the eve of its fulfilment there is little in the way of analytical evaluation of what the deal means to Australia.
Obviously the breadth of the deal is enormous but each sectoral interest is only concerned with how it affects them.
For beef, the concern all along for the Australian industry has been that the deal would provide little additional benefit over existing Free Trade Agreements with key trading partners but rather would likely be of significant benefit to our competitors by giving them equivalence in tariff reduction and associated market access benefits.
Japan of course, as Australia’s major beef export destination is the market in question.
As it has turned out for the time being at least, the good news for Australia is that the US, as Australia’s major competitor in the Japanese market, is not part of the deal.
That means to the anguish of US beef exporters, they remain at the general tariff rate of 38.5pc (with a snapback to 50pc if safeguard volumes are triggered) while TPP countries capable of exporting beef to Japan will enjoy a tariff reduction to 27.5pc in the first year of the deal for both fresh and frozen product.
In specific terms the TPP provides for a reduction in tariff on both chilled and frozen beef from 38.5pc to just 9pc over 16 years.
This is significantly more generous than the tariff reductions negotiated in JAEPA (Japan Australia Economic Partnership Agreement) which commenced on January 15, 2015.
In that agreement Australia secured a first-year reduction for chilled beef from 38.5pc to 32.5pc falling to 23.5pc after 15 years and a first-year reduction for frozen beef to 30.5pc falling to 19.5pc over 18 years.
Come April 1, (five years into JAEPA), Australia’s chilled/frozen tariff rates will be 29.3pc and 26.9pc respectively so the Year 1 rate of 27.5 under TPP would have to add up to a good deal despite what Mr Trump seems to think.
Compare this to the situation with Korea where Australia followed the US by a couple of years in securing a Free Trade Agreement and because of the timing difference in implementation sits at an ongoing 5.3pc tariff disadvantage to the US in that market.
Unfortunately Australia will not get a five-year start on other countries on the TPP tariff reduction schedule because of the existence of JAEPA but it is expected that to the extent that Year 1 TPP is better than Year 5 JAEPA and vice versa, the better rate will prevail.
Then, of course, the end point of the TPP tariff reduction schedule for chilled and frozen beef at 9pc compared to 23.5 for chilled and 19.5pc for frozen under JAEPA are significant gains.
Another aspect of TPP which may bestow some benefit on Australia is the Safeguard Measure for Beef.
Instead of country-specific trigger levels, the TPP safeguard will work on the aggregated volume of imports from all parties to the agreement.
The trigger point will be 590,000 metric tonnes in Year 1 rising to 696,200t in Year 10 followed by 5,900t annual increments to Year 15 and 11,800t annual increments thereafter.
The safeguard will trigger if the nominated aggregate volume is exceeded prior to January 31 in any fiscal year (April to March) and continue until the end of that fiscal year.
Japan may then apply specified increases in tariff.
For Years 1 through 3, the tariff may revert to 38.5pc as is the case now for Australia under JAEPA.
But unlike JAEPA where the snapback is fixed at 38.5pc, TPP reduces the snapback to 30pc for Years 4 through 10, 20pc for Years 11 through14 and further reductions thereafter.
Some further benefit may fall Australia’s way in consideration of the existing safeguard trigger volumes under JAEPA.
The current settings which started at 130,000 tonnes for chilled and 195,000t for frozen in Year 1 of JAEPA were always considered restrictive when compared to 2012 trade levels of 127,000t of chilled and 181,000t of frozen beef.
Furthermore, these trigger volumes were scheduled to rise by only 15,000t over a period of 10 years.
Now under TPP, Australia can exceed its JAEPA trigger volumes and not face a tariff increase provided the aggregate trigger is not exceeded.
On the other hand if Australia does not exceed its JAEPA trigger volumes in a year when the aggregate volume is exceeded then it would appear to be quarantined from the TPP tariff increase provisions.
All this is good and meaningful to some extent but the big ticket item is the 11pc tariff advantage over the US while ever it chooses to stay out in the cold.
What odds the US is back in the tent before TPP is ratified in individual member-country legislation?