The Northern Horizon, May 9, 2014
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FCC Economic Update: A look at a possible template for the future Trans-Pacific Partnership FARM CREDIT CANADA MAY 2, 2014
by Jean-Philippe Gervais, chief agricultural econmist, Farm Credit Canada On April 7, 2014, Australia and Japan concluded an Economic Partnership Agreement providing preferential access in both markets. Japan agreed to reduce trade taxes on many Australian exports while Australia will allow greater access for Japanese manufactured goods – more specifically electronics and automobiles. This deal doesn’t directly involve Canada, yet it’s potentially extremely significant. Australia is the first major agricultural exporter to gain access to the Japanese economy. This trade agreement sends a clear message that Japan is willing to concede increased market access and lower tariffs for sensitive sectors such as agriculture. Under the EPA, Japan opens up access to Australian beef, pork, cheese, horticulture, dairy, wine and seafood exports. The specifics vary by sector and commodities. In the case of beef, the tariff reductions will be from 38.5 per cent to 19.5 per cent for frozen beef and to 23.5 per cent for fresh beef. Australia is also reported to have gained an additional 20,000 tonnes of duty-free access of cheese exports. Japan is a high-value market for agriculture exports and is the third largest economy in the world behind the United States and China with a population of nearly 128 million. Opening up the Japanese
border to agricultural trade is a major opportunity for countries like Australia. The conclusion of this free trade agreement is significant to Canada for two primary reasons. First, Australia competes directly with Canada in the export market for high-value agricultural products. Our most recent Ag Economist blog post details our trade environment with Japan. Second, the Australia-Japan EPA could confer a temporary advantage to Australia over Canada because of the preferential access conceded to Australia over commodities that are very important to Canadian agriculture. Japan is the second largest market for Canadian pork products accounting for 28 per cent of our exports. It’s the fourth largest market for Canadian beef products despite the tariff wall at its border. Japan is an important market for grain and oilseeds, accounting for 14 per cent of Canadian exports. Finally, it is the second largest market for Canadian greenhouse exports. We believe any Australian advantage may be short-lived. This deal signals Japan is willing to consider opening market access for agriculture commodities, a sort of template for future deals. And Canada is currently negotiating with Japan on two fronts: a bilateral trade deal as well as part of a multilateral effort to create an enlarged Trans-Pacific Partnership. Japanese president Abe and U.S. president Obama just finished an intense negotiation round to build a template for a future TPP. Progress towards a bilateral deal was reported for some commodities, but
hurdles remain, notably in terms of U.S. beef access to the Japanese market. Leadership from Japan and the U.S. would be all that is needed to let the dominoes fall and complete a TPP deal in the not-so-distant future. Completing a trade deal with Japan, either through a bilateral agreement or the TPP, would have major implications for Canadian agriculture. In the bilateral case, all of Canadian agriculture would benefit from increased market access. In the multilateral effort, which is the TPP, the treatment of sensitive products and the market access expansion will be critical to monitor. The last few years have certainly been a fertile period for trade agreements. Current trade negotiations, the Comprehensive Economic Trade Agreement with the European Union and the free trade agreement with South Korea will continue to change the landscape of market competition for agricultural producers and food processors in Canada.
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