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07 Nov 2013

Agribusiness aspects of the Trans-Pacific Partnership negotiations

by Andrew Hay, Esteban Gomez

If it's finalised, the Trans-Pacific Partnership could lead to the elimination of tariffs on agricultural products and greater investment.

The Trans-Pacific Partnership (TPP) is a multilateral free-trade agreement that is currently being negotiated by 12 nations including Australia. The Australian Government has been participating in the TPP negotiations since 2008 with the aim of eliminating or at least substantially reducing barriers to trade and investment between these 12 countries. Overall, the TPP negotiations aim to eradicate tariffs on goods and services between member states and cover arrangements between member states in relation to, amongst other things:

  • competition;
  • customs;
  • e-commerce;
  • environment;
  • financial services;
  • government procurement;
  • intellectual property;
  • investment;
  • labour;
  • market access for goods; and
  • technical barriers to trade.

Agribusiness is being heavily considered in the context of these topic areas.

If the TPP comes into being and these arrangements are put in place, this will have a significant impact on trade and investment between the 12 member countries. The agribusiness industry is likely to be at the forefront of such changes.

Background to TPP

In 2005, the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) was entered into as a free trade agreement among Brunei, Chile, New Zealand and Singapore. This effectively liberated the economies of the Asia-Pacific region.

Since then, the TPP negotiations have taken place, with an aim for an expanded version of the TPSEP that will include additional Asia-Pacific countries (in excess of the current 12 members) to eventually cover a region that represents more than half of global GDP and over 40 per cent of world trade. Countries other than the current 12 member countries may join the group, with South Korea being one other country in the Asia-Pacific region considering joining.

The TPP negotiations gained significant traction when the US became involved in these discussions. The US sees the TPP as the best vehicle for it to advance its economic interests into the critical Asia-Pacific region. Other countries joined these negotiations as a result of this building momentum.

The countries currently involved in the TPP negotiations include Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. These countries currently represent nearly 40% of global GDP and about one-third of all world trade.

It should be noted that Australia currently has free trade agreements in place with New Zealand, Singapore, Thailand, the US, Chile, the Association of South East Asian Nations and Malaysia – five out of the other 11 TPP countries.

Because of the confidential nature of negotiations, there is limited material on the detail of the TPP negotiations. From the available public sources, it is known that there are 21 topic areas being negotiated, including those mentioned at the start of this article.

The agribusiness sector is at the core of these negotiations with rice, wheat, beef, dairy, sugar and fishing being considered in relation to the liberalisation of market access for goods.

How will this benefit agribusiness?

Given that many of the negotiating nations are not currently engaged in any free trade agreement with Australia, this expansion of trade partners will allow for a greater liberalisation of economies across the Asia-Pacific region.

Agribusiness is one of the key industries that will benefit from increased access and increased investment. The potential effect for agribusiness, if the TPP agreement is ratified, may see tariffs on such agricultural products eventually eliminated. This is expected to increase the export of agricultural products between the 12 member countries and Australian agricultural companies may be enticed to establish new businesses in other TPP member countries, or with increased activity, to acquire and invest in existing businesses in other TPP countries.

In particular, beef, dairy products and sugar are products in which Australia has the most to gain by an elimination of tariffs. Generally, if tariffs on such products are eliminated by a TPP agreement, the export in these products are likely to increase and the relevant Australian agricultural companies are likely to establish new businesses in other member countries.

Further, transparency and fair and effective competition in general investment is likely to encourage more direct investment to and from member countries. Many foreign industrial companies have strong desires to purchase Australian companies not only in the energy and resources sector but in the food and services sector. For example, each of the three largest Japanese beverage conglomerates (Asahi, Kirin and Suntory) have acquired significant subsidiaries in Australia and New Zealand (Schweppes, Lion Nathan and National Foods, and Frucor).

The current bidding war for, and the acquisition of strategic stakes in, Warrnambool Cheese and Butter could be an example of what is to come.

A recent push to finalise the TPP

There have been ongoing negotiations throughout 2013 to progress the more difficult issues of intellectual property, the environment and competition. In response to this and to accelerate negotiations for the TPP, ministerial meetings for the TPP will now be held at intervals between WTO ministerial meetings, to be held in Bali, Indonesia from 3 December 2013.

Generally, there has been a push by TPP member countries to conclude the TPP agreement this calendar year in order for business to benefit from the advantages the TPP will afford them.

In addition to the advantages the TPP will have on Australia's export markets, the TPP may also open up Australia to an influx of imported goods and further direct investment. Regardless, it will be interesting to see how the concluded TPP negotiations will impact trade in the Asia-Pacific region.

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.