15 Oct 2015
What the Trans-Pacific Partnership means for the agribusiness sector
by Andrew Hay, Scott Girdler
The newly agreed Trans-Pacific Partnership will reduce or eliminate tariffs on a wide range of agricultural commodities, increasing export and investment opportunities.
On 5 October 2015 member states reached a consensus on the Trans-Pacific Partnership (TPP) after more than five years of negotiations.
What is the TPP?
The TPP is a free trade agreement that covers the Asia-Pacific region with the member states comprising of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. The 12 states currently represent approximately 40 percent of the global economy and a third of the world's trade, with an intention to allow for further member expansion to other Asia-Pacific economies.
The text of the TPP has not yet been made public and at this stage there is little information regarding the exact terms of the agreement. However the TPP is expected to cut 98 percent of the tariffs on a range of commodities and services and open substantial new trade and investment opportunities in Australia.
What does the TPP mean for agriculture?
In 2014 around 40 percent (approx. $14bn) of Australia's agricultural exports were to TPP countries.
The introduction of the TPP will see:
- tariffs on more than $4.3 billion of Australia's exports of agricultural goods eliminated; and
- preferential access through increased quotas and a reduction of tariffs on another $2.1 billion worth of agricultural goods.
It is estimated the TPP could add an extra $3.67 billion to Australia’s agricultural exports within a decade. In particular, the TPP is a significant boost for Australia's trading relationship with the three countries for which Australia does not have trade agreements in place ‒ Canada, Mexico and Peru.
Highlights for Australian agribusiness
Generally, the TPP provides a common set of rules among 12 member countries which will greatly support Australian food exporters’ participation in regional and global supply chains.
The highlights for Australian agribusiness include:
- Beef: adding to the benefits of the Japan-Australia Economic Partnership Agreement, the TPP will further reduce tariffs on Australian exports of beef to 9 percent, while the tariffs in Mexico and Canada will be completely eliminated within 10 years. Also, the TPP eliminates the AUSFTA beef safeguards, which set out quotas and increased tariffs on Australian beef exported to the US in excess of those quotas.
- Lamb and Mutton: elimination of entry tariffs for all TPP countries other than Mexico.
- Sugar: Sugar was one of the primary concerns during the final negotiations of the TPP. The end result will see Australia being granted an effective doubling of access into the US, with an additional 65,000 tonnes. This could see Australian sugar exports reach as high as 400,000 tonnes within five years. Also, the TPP eliminates tariffs on high polarity sugar into Japan and refined sugar into Canada.
- Rice: For the first time in over 20 years, Australia will be able to export more rice to Japan and tariffs to Mexico will be eliminated.
- Dairy: In relation to Japan, tariffs will be eliminated on a range of cheeses covering over $100 million in existing Australian trade, and there will be new quota arrangements for butter and skim milk powder. In relation to the US, tariffs will be eliminated on milk powders, ice cream, infant formula and selected cheeses, and there will be increased quota access for 9,000 tonnes of Australian cheese. In addition there will be tariff elimination for Swiss cheese and milk powder. and Australian producers will also receive preferential access to markets in Canada and Mexico.
- Cereals: Tariffs will be eliminated on wheat and barley exports into Canada and phased out over 10 years to Mexico. Further, the mark-ups applied in Japan on wheat and barley will be reduced and new quota arrangements will be applied.
- Wine: Tariffs will be eliminated into Mexico (within three to ten years), Peru (within six years) and, Canada (upon entry into force). For the first time, Australian wine will be allowed into Malaysia and Vietnam.
- Wool and Cotton: tariffs on raw wool and cotton exports to all TPP countries will be eliminated.
- Horticulture: elimination of import barriers on Australian fruit, vegetables and nuts to Mexico and Canada.
- Seafood: Canada, Vietnam and Peru will cut tariffs on seafood once the TPP is in force, and Japan and Mexico will cut tariffs within 15 years. Australia's sustainable fisheries should reap a competitive advantage from the TPP, with subsidies for fishing that negatively affect overfished stocks and subsidies for vessels engaged in illegal fishing to be prohibited among member states.
The TPP includes various measures to lower the costs of trade. Assistance in this regard for agricultural producers includes streamlined customs procedures, more co-operation on technical regulations and simplified rules for products including wine (where exporters will be able to use the same label on bottles exported to all TPP countries).
While the Australian sugar growers and dairy farmers had hoped for better access into the restricted markets, the deal is being hailed as an overall winner for Australian agriculture. The reduced tariffs and greater certainty on rules will open up market opportunities and facilitate greater investment.
While the general Foreign Investment Review Board screening threshold for foreign investments from TPP member states will increase from $254 million to $1,094 million, the lower screening threshold for investments in agricultural land and agribusiness will be preserved (other than for US and New Zealand investors, where the higher thresholds from existing free trade agreements remain).
What happens next?
The signing of the TPP after years of negotiations between the member states is the first step to implementation. To become effective, the deal needs to be formally ratified through the Australian parliament and by each of the other member states.
However, ratification of the TPP is already looking shaky in member states such as Canada, where farmers are pressuring the government to reject the TPP leading up to the national elections to be held this month and the US, where leading presidential candidates and corporations are speaking out against it.
If the TPP is passed in Parliament it will be the largest multilateral free trade agreement of its kind. The effective implementation of the agricultural provisions of the TPP into Australian law and regulation will require various legislative changes, including amendments to the quota legislation and regulations for industries such as the beef and dairy industry.