For a trade deal that Prime Minister Abbott says is the most significant since the 1957 post war-trade pact with Japan, there seems to be a lot of whinging.
The trade minister says it is a 'glass half full, glass half empty situation'. Good for some, even if there are not many benefits for others.
The biggest export winners from the trade deal with Japan are Australia's beef exporters. The trade minister says the deal has the potential to add $2.8 billion to the industry over the next 20 years. Some estimate even higher gains. But it is worth repeating the timeframe: 'over the next 20 years'. The gains for Australia's exports will come gradually. Japan's tariff on frozen beef will be cut from 38.5% to 30.5% within a year, and then reduced by another 2% in the second year, 1% in the third until in 18 years the tariff reaches 19.5%. It is similar for Australia's fresh beef exports, where the Japanese tariff will fall to 23.5% over 15 years.
On the face of it, this doesn't seem dramatic enough to justify popping the champagne corks. In 20 years time, Australia beef exporters will still be facing tariffs in Japan close to 20%. The president of the Cattle Council expressed disappointment that 'substantial tariffs will still exist on Australian beef after the phase out period, unlike previous free trade agreements'. The trade deal with South Korea, conversely, provides for the elimination of the 40% tariff over 15 years.
But even though they are complaining, the beef exporters are in the 'glass half full' side of the deal with Japan. The other winners are our horticulture, wine and seafood industries. However, there is little in it for Australia's dairy, sugar, grain, pork and rice exporters. One rice grower called the deal a 'bloody disgrace'. This is the 'glass half empty' camp.
For Australian consumers, the main benefit is the reduction in the 5% tariff on imported cars over five years. [fold]
Of course, Australia could give this benefit immediately to Australian consumers by reducing the tariffs. Unilateral trade liberalisation makes great sense, for the bulk of the gains to the domestic economy from these deals do not come from increased exports, but from the investment and productivity gains generated from more import competition. We don't have to wait for a trade deal to get these benefits.
Mr Abbott's response to criticism that the trade deal with Japan did not go far enough is to point out that at least Japan is reducing its tariffs on some agricultural goods, and the tariff reduction is the most generous Japan had offered to any of its partners. The trade minister's response is that this was the best deal that could be negotiated.
They may be right. As Matthew Linley pointed out in a previous post, perhaps the most important aspect of this deal is that at last the Japanese agricultural protectionist nut has been cracked. If Prime Minister Abe is going to succeed with structural reform (the third arrow of Abenomics) he is going to have to reform Japan's highly protectionist agricultural sector. You could take a negative view and say that if the modest and protracted reduction in Japan's beef tariffs contained in the trade deal with Australia is the best Abe can do, then there is little hope he will drive ambitious reforms under his third arrow.
However, once the protectionist fortress has been breached, the momentum usually leads to further reforms. Perhaps it will lead to more ambitious reductions in agricultural tariffs in the Trans Pacific Partnership (TPP) negotiations. Views on this seem to be mixed. Some see the deal with Australia as undermining prospects for a more ambitious deal in the TPP; others like Kurt Campbell see it as opening the door for more reductions.
Irrespective of the outcome of the TPP negotiations, the agricultural protectionist door in Japan has at last been opened and it is to be hoped that this means Prime Minister Abe will push ahead with domestic structural reforms that will help revitalise the Japanese economy. That outcome is significantly more important for Australia then any direct export gains from tariff reductions in a bilateral trade deal.
Of course the trade deal is as much, if not more, a political and foreign policy statement than a major breakthrough in Australia's trading relationship. This was also the case with the Australia-US trade agreement, signed more than a decade ago.
The deals with Korea and Japan has been very good in domestic political terms for Prime Minister Abbott as a demonstration of his 'can-do' government. They have also been important for Australia's broader relationships with both countries, just as a deal with China may have more symbolic value then representing a major trade breakthrough.
Bottom line: don't get carried away or too despondent by the size of any direct economic gains from these bilateral trade deals. The real benefits may lie elsewhere.
Photo courtesy of @TonyAbbottMHR.
