John Menadue. Tony Abbott in Japan

Apr 10, 2014

Tony Abbott has just completed his visit to Japan. The media has been full of  stories about the improvement particularly in agricultural exports from Australia to Japan. It should all be taken with a grain of salt. There have been some improvements particularly for our beef exports but the hype and spin does not obscure the fact that the so-called deal in Japan is only of marginal benefit.It is a third rate result. The best result would be a multilateral result. The second best result would be unilateral tariff reductions. Bilateral  Free Trade Agreements are third rate.

In my blog of March 29, I pointed out that the proposed FTA with Japan was more about hype than substance. I pointed out how FTAs are regarded as sub-optimal; they divert trade from one partner to another rather than create new trade; FTAs invariably benefit the larger and stronger partner in any negotiation, e.g. USA, Japan and China; they increase the cost of doing business because of complex ‘rules of origin’; most importantly they divert time and energy of governments, ministers and officials, from the more important issues of multilateral negotiations which, for us, as a small to medium size country is more likely to serve our interest.

The best way for Australia to secure freer trade is through multilateral negotiations rather than through hyped-up bilateral FTAs that are held up as political trophies when in fact they don’t achieve much of substance.

It is significant that the Abbott Government has now called this new arrangement with Japan an ‘Economic Partnership Agreement’ (EPA) and not an FTA. This suggests that there is now at least some understanding by the government that this agreement is not very much about free trade.

The business editor of the AFR, Alan Mitchell, yesterday put the problem of bilateral arrangements succinctly. ‘Both nations [Japan and Australia] deny their economies the bulk of the benefits of genuine trade reform whilst they spoon out market access to one trading partner after another in stupid, long drawn out negotiations.’

In the short term we will get some advantages over other food exporters to Japan, but there is no doubt that other food exporters to Japan, and particularly the US, will seek similar or greater concessions from Japan. As a result our short-term benefits will be largely eroded.This will happen in two to three years when the Trans Pacific Partnership promoted by the US is expected to take effect. We have a  brief window of opportunity.

The TPP negotiating group includesUS, Japan, Australia, Canada, Malaysia, Singapore, Mexico and Vietnam.

The President of the National Farmers’ Federation of Australia, Brent Finlay, said that the EPA had fallen short in several respects. At best it only marginally improves for dairying, sugar, grains, pork and rice.

The Cattle Council President of Australia, Andrew Ogilvie, expressed disappointment ‘that substantial tariffs will still exist on Australian beef’. The tariff reductions on beef are useful but they will not be fully implemented for up to 18 yeas.

There will be a 5% tariff reduction in Japanese autos exported to Australia, which should result in some reduction in the price of Japanese cars in Australia. But with the end of our own car manufacturing industry, it was only a matter of time before this 5% tariff was abolished on all car imports and not just from Japan.. We could do it unilaterally. It really is not a significant concession to Japan.

The Abbott Government has criticised the Gillard and Rudd Governments for the delay in completing an FTA/EPA with Japan. That is not surprising in lieu of the fairly meagre benefits from the present negotiations. Shinzo Abe was probably anxious to collaborate with his conservative colleague, Tony Abbott, but our Prime Minister severely weakened Australia’s stand by flagging in advance how desperate he was to conclude an FTA.That is a strange way to conduct negotiations.

The broad outline of the agreement with Japan will now need to be ‘lawyered’. There may yet be important details that will be revealed.

Apart from the trading and economic discussions, Tony Abbott referred to a shared commitment by the two countries to ‘democracy, freedom and the rule of law’. He also said that the relationship was about ‘respect, it’s about values’. Tony Abbott indicated approval for Japanese Government’s plans to reinterpret the pacifist constitution of Japan. At least in the media reports there was also no mention of the issues that Shinzo Abe has been promoting which have inflamed attitudes in the Republic of Korea and China. There is no indication that Tony Abbott raised Shinzo Abe’s visit to Yasukuni Shrine, ‘comfort women’ and acknowledgement of the massacre of Chinese by the Japanese army.

Time will tell whether this FTA/EPA with Japan is as unhelpful as the 2004 bilateral Trade Agreement that John Howard negotiated with the US and concluded despite the advice of officials that he should not sign. It turned out to be a dud.

Tony Abbott is the Chair of the G20. He could use that position and influence to restart the DOHA round of multilateral trade negotiations that have been stalled for years. It is in multilateral trade negotiations where Australia’s interests are best served – not in a string of bilateral FTAs that have more hype than substance. They will not “turbo charge” our trade with Japan as out Trade Minister has suggested.

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