Ag the lynchpin for TPP
Stock Journal | 16 Dec, 2013
Ag the lynchpin for TPP
JOHN KEHOE
TRADE and Investment Minister Andrew Robb occupies an influential position in the complex and secretive world of wheeling and dealing on international trade deals.
Robb is a key participant in the bargaining over the much-vaunted Pacific Rim regional free-trade agreement known as the Trans-Pacific Partnership (TPP). He will have a serious say on the success or failure of the US-led agreement that would cover 40 per cent of world trade.
Australia, a US ally, a historical champion of free trade and a middle power in the Asian region, is in the thick of bridging divides over crucial unresolved issues between the 12 participating countries. And of course, there is self-interest at play.
"We are in a position to hold up the whole TPP to advance agriculture," says Alan Oxley, Australian APEC Study Centre chairman.
World trade ministers from 12 nations (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam) last week failed to clinch a final deal at TPP talks in Singapore. US President Barack Obama had set an ambitious, if slightly unrealistic, deadline of the end of this year for a deal.
Instead the joint ministerial statement mentioned identifying "landing zones" – whatever that means – and agreed to meet again in January.
Much of the focus among the international trade fraternity in Singapore was the emphasis Australia and its agricultural-exporting neighbour New Zealand placed on getting increased access to other countries’ home markets.
"While the TPP can be a truly 21st century agreement, there are also issues from the 19th century that should be addressed," Robb says.
There is myriad complex and competing interests to reconcile among the dozen participating countries, but at the heart of the negotiations is a relatively simple equation.IP protection in return for better access
The US wants to secure stronger protections for its major export – intellectual property – particularly for its world-dominating entertainment, medical, pharmaceutical and technology sectors.
In return, trading partners including Australia want improved access to the US, the biggest capitalist consumer market with more than 300 million people.
Leaked draft chapters of the TPP show the US pushing a hard line for its corporations, such as Walt Disney, Google and Rupert Murdoch’s 21st Century Fox.
"The US is pretty good at using its overall might in the world to get what it wants, while giving as little as it possibly can on market access," an experienced former Australian trade negotiator says.
Indeed, many trade experts believe the Bush administration out-negotiated Australia in 2004 over the Australia-US free trade agreement, which controversially omitted sugar and gave limited initial access for Australian beef.
The then US president George W. Bush agreed to a free trade agreement with prime minister John Howard to ostensibly reward Australia for its military support in Iraq.
At one point, the then deputy prime minister and leader of the Nationals, John Anderson, threatened to walk away from a deal that did not include sugar.
In the bilateral deal that took effect in 2005, the US was rewarded by extending copyright to 70 years after the death of an author, in what became known as the "Walt Disney" clause to protect its iconic Mickey Mouse.
Australia also agreed to open up and be more transparent on pharmaceutical pricing. The agreement also helped non-discrimination in most areas of bilateral trade in services, government procurement and foreign investment for both countries.
The domestic political settings at the time of the Australia-US negotiations may have contributed to Australia extracting less in order to expedite a deal.
Mark Latham was federal Labor leader and Howard was trying to depict Latham as anti-American.
Australian National University associate professor of law Matthew Rimmer says there is a lack of independent empirical assessments on trade deals and suggests the Productivity Commission play a larger role to inform negotiating positions and avoid "buyer’s remorse".
"It is important that we also do a post facto analysis of what occurred after the agreement," Rimmer says.
Benefits from previous deal with the US
A former federal director of the Liberal Party who entered Parliament during the Howard government’s final term in government, Robb would never admit Australia got the raw end of the deal with the US eight years ago.
The Department of Foreign Affairs and Trade says there were many positives. By 2022, 98.4 per cent of US tariff lines, accounting for 99.9 per cent of Australian exports to the US, will be duty free.
"On balance each side got something they thought was valuable," Oxley says. "Sugar was never going to [be] granted.
"Agriculture access is always difficult. Typically, the strategy is to get and slowly expand the access.
"I always thought one of the most important benefits for us was making it easier for the Americans to invest."
The threshold for takeovers by American corporations requiring Foreign Investment Review Board approval increased to $1 billion from $240 million.
Still, that didn’t help American food processing giant Archer Daniels Midland. Its proposed $3 billion takeover of east coast grain handler GrainCorp was rejected by Treasurer Joe Hockey this month on national interest grounds. The surprise decision to reject US foreign investment for the first time led to the powerful US State Department publicly expressing its disappointment. It may complicate Robb’s task to convince US Trade Representative Mike Froman to tear down barriers in the US.
Agricultural access to USA is crucial
Against that background, Robb has made it abundantly clear Australia will not be inking the TPP without genuine better market access for agriculture to the highly protected US and Japanese markets. His predecessor, Labor’s Craig Emerson, pushed a similar line.
If the US does not give ground on sugar, Canada and Japan are unlikely to grant market access for their own sensitive sectors such as dairy and rice.
And why would Robb be bowled over? Australia already has free trade agreements with most of the 12 participating countries.
It is party to the ASEAN free trade agreement, as well as enjoying FTAs with the US, New Zealand and Chile.
"Our key direct economic payoff from an agreement will depend on whether the US and Japan open up market access for sugar, dairy and other agriculture," Australian National University public policy economist Shiro Armstrong says.
Yet the US claims agriculture is politically sensitive, due to the power of the local farm lobby. With Congress due to hold mid-term elections in November 2014, US politicians in farm-friendly states are getting edgy about lifting barriers.
Meanwhile, the US has copped flak from around the world for pushing the interests of its major corporations on IP and copyright, including from WikiLeaks, which has mounted a campaign against the US-inspired trade plan.
The US is seeking to go further on IP than what it extracted from Australia in the FTA.
Pharmaceutical products
It wants to extend so-called "evergreening" of pharmaceutical products, making it easier for the big American pharmaceutical giants to roll over patents after they expire by making changes to the original patent. Such a move would allow patents on drugs to be extended and delay the introduction of cheaper generic drugs.
Robb has vowed not to agree to anything that will jeopardise Australia’s pharmaceutical benefits scheme. Nor does he intend to cut a deal on copyright that would criminalise anything that is currently unlawful.
Critics have claimed local consumers and internet service providers could be charged with criminal offences for activities such as pirating movies or downloading video clips, under a US proposal.
Armstrong says it’s not unreasonable for the US to expect enforcement of IP rules around the globe. Indeed, in some countries such as China, which is not a party to the TPP, there is blatant plagiarism and ripping off of US IP and patents.
But strengthening IP rules further could stifle innovation.
Normally, "comparative advantage" trade theory suggests both countries gain from tearing down barriers such as tariffs.. Consumers gain access to better and cheaper products and businesses gain by exporting more of what they are good at making.
But IP provisions are more of a zero-sum game, or even "negative-sum", says Armstrong.
"You want enforcement of IP around the region but ramming down stronger provisions through trade agreements is really direct wealth transfers to the US," he says.
"It protects older established firms and it’s not congenial to innovation and new technologies."
Leaked documents suggest Australia has support in the US in some of its push for tougher IP rules. That is hardly surprising given some of these rules already exist in the Australia-US FTA.
Investor state dispute settlement
Robb has also hinted that Australia may be prepared to enter into an investor state dispute settlement (ISDS) process, whereby disaffected foreign companies in partner countries could resort to international arbitration to sue the Australian government.
The potential loss of sovereignty has enraged Sydney shock jock Alan Jones.
Separately, ISDS is already being used by tobacco giant Philip Morris in Hong Kong to challenge Australia’s plain packaging cigarette laws.
ISDS provisions, which were opposed by the Labor government, exist in 21 trade and investment agreements Australia is party to.
Leon Chung, a partner at Herbert Smith Freehills, says Labor’s concerns are overstated and out of step with the world.
"Australia is already a party to a number of bilateral investment treaties and FTAs with ISDS which investors can use."
Government sources say if Australia goes down the ISDS path in return for market access, it is likely to come with carve-outs to protect areas such as health, education and the environment.
What the leaks so far have omitted is other draft chapters of the TPP which may shed light on what the US is prepared to give up to Australia and other nations in return.
America’s original position in the TPP talks was that it would only negotiate market access issues with countries with whom it didn’t have an existing FTA.Japan’s role
But the belated entrance of Japan to the talks in July has created an opportunity for the US to revisit that position. Japan imposed punitive tariffs of up to 778 per cent on rice and 328 per cent on sugar.
If, and it’s a big if, Japan overturns decades of protectionist agricultural policy by giving the US and other countries some access, it may give the US the chance to revisit its stubborn protection of sugar, beef and other agricultural commodities.
"For Australia, what has changed the game is Japan joining the negotiations, because the Japanese are doing deals with the US on agriculture," Oxley says.
While there are still serious doubts the US and Japan will concede any meaningful ground on market access, the possibility provides Robb with at least some leverage to put Australian agriculture access as a non-negotiable bargaining chip on the table.
Robb has already swiftly finalised a free trade deal with Korea, and Prime Minister Tony Abbott has set a 12-month deadline for similar agreements with China and Japan.
The Trade Minister, also a former executive director of the National Farmers’ Federation, has talked a consistent game of getting a better deal for Australian growers.
Australia is a close ally of the United States strategically and economically in the region, but there would be little point in him coming home empty-handed over a TPP deal.
