The mainstream media is awash with glowing reports about the “free-trade agreement” with Japan. But these things are always more a win for politics than economics.
According to the Department of Foreign Affairs and Trade, the Japan-Australia Economic Partnership Agreement will “deliver a significant boost to Australian farmers and other agricultural producers, resource exporters, service providers and consumers”. The Australian Financial Review reports beef exporters will gain $2.8 billion worth of benefits over the next 20 years.
Under the agreement, the tariff on frozen beef (currently 38.5%) will be cut by 8 percentage points within a year and then fall to 19.5% over time. The tariff on fresh beef will also be cut by 6 percentage points initially and then fall to 23.5% over 15 years. Australian cheese exporters will also benefit from an increase in the quota from 27,000 tonnes currently to 47,000 tonnes in stages over two decades, whereas other milk exports will gain from immediate cuts to Japanese duties.
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But Australian farmers are unimpressed; the National Farmers’ Federation says it won’t improve market access and terms of trade for sectors like diary, sugar, grains, pork and rice. Meanwhile, the Australian Chamber of Commerce and Industry claims the recently signed Korean FTA was so poorly drafted that it was next to useless in a commercial sense, warning that the Japan FTA is headed down a similar path.
ACCI says technical problems inherent in most recent FTAs preclude Australian exporters from taking advantage of the deals, whereas in a different ACCI survey, fewer than 30% of the firms responding used the concessions available to them under FTAs.
ACCI’s concerns are not uncommon with FTAs, which typically include complex “rules of origin” that raise administrative costs for businesses (including complying with paperwork requirements) and custom services in administering and auditing the ROO, thereby undermining the benefits from such deals. Costs associated with ROOs tend to also be larger where there are a large number of FTAs each with different requirements, resulting in a “spaghetti bowl effect” of increasing complexity.
Still, the Japan-Australia Economic Partnership Agreement is admirable in its simplicity. Plans to include an investor-state dispute settlement (ISDS) mechanism were jettisoned, which would have given authority to Japanese corporations to challenge laws made by the federal government in the national interest in international courts of arbitration, and potentially sue Australian taxpayers in the process. And there are no damaging extensions to copyright or patents, as occurred under the Australia-United States FTA. In fact, the only meaningful non-trade clause in the JAEPA is an increase in the threshold for foreign investment scrutiny by the Foreign Investment Review Board, from $248 million currently to $1 billion — hardly anything to be concerned about.
Overall, the Japan FTA appears to be a fairly innocuous agreement. In exchange for reductions in automotive tariffs — which are likely to be eliminated anyway once the local car industry shutters — and the elimination of a small number of tariffs in other areas, Australia has secured some marginally improved market access for agriculture, not withstanding that some of the benefits will likely be eroded by complexities surrounding any FTA. Importantly, Australia has not caved in on ISDS, which means our sovereignty to set health and other policy in the national interest is maintained.
As usual with FTAs, they tend to be political and/or strategic documents rather than offering meaningful benefits for trade. Prime Minister Tony Abbott now has a talisman to hold aloft the next time he is criticised for ham-fisted diplomacy in Asia. At least in this case the nation won’t suffer for it.