After an extended engagement of seven years,
Japan and Australia consummated their relationship by signing trade pact.
It is a milestone in the sense that it is Japan's first trade agreement with a
significant agricultural producer.
The big prize, however, is not this, it is the
Trans-Pacific Partnership--the multilateral trade agreement including a dozen
countries. Japan (mistakenly) hopes that the agreement with Australia
demonstrates it willingness to compromise, including the relaxation of
protection of Japan's agriculture sector. This has been a
particularly vexing issue for US negotiators.
However, in most of the press coverage, what
appears to be a more significant obstacle to getting more concessions out of
the negotiators, is hardly included, and when it is, it is almost an afterthought.
For example, in the Financial Times coverage of the TPP at the end of last
week, one does not learn until the second to the last sentence in a piece that
discusses US criticism of Japan trade stance, that members of President Obama's
own party are blocking an essential part of all successful modern trade deals. This is,"trade promotion authority"
also known as "fast track authority."
The TPP negotiations were struggling at the
end of last year, when it was initially hoped that a deal could be finalized.,
but this often happens with such negotiations. The months, if not
years, of hemming and hawing, are quickly resolved in a couple of weeks.
This time it is proving elusive, not so much, we would argue, because of the
tough negotiating position Japan took, especially in terms of protecting its
agricultural sector, but because of doubts that the US was sufficiently
serious. The inability of Obama to secure trade promotion authority
just about dooms the TPP, almost regardless of the concessions from other
countries, including Japan.
The lack of Congressional support for Obama
undermines the US negotiating position and makes other countries more reluctant
to antagonize domestic constituencies without being able to show concessions by
the US. By striking an agreement with Australia, even
though it is not as ambitious as the US seeks, Japan sends a strong signal that
it can compromise.
Both houses of Japan's Diet had instructed
negotiators to exclude beef, poultry, rice, wheat, sugar, and dairy from
concessions. Yet in the bilateral agreement with Australia,
Japan made some concessions in these areas. To be sure, they are not as
dramatic as the US is pushing for, but they are in the right
direction.
For example, Japan's tariff on frozen beef
imports from Australia will be immediately cut in half to 19.5% from 38.5%
presently. The tariff on fresh beef will be cut to 23.5%, but over
the next 15 years. Until the US and Japan reach an agreement,
US beef exports will be at a disadvantage to Australian producers.
Cheese, which is Australia's largest dairy export to Japan will no longer have
any tariff. Japanese tariffs on fruit, vegetables, nuts, canned fruits
and vegetables and their juices, will be eliminated.
Australian livestock farmers wanted larger
cuts in Japan's tariffs on imported meet. However, reports suggest
that a clause was inserted into the agreement that got their reluctant
support. The clause essentially guarantees Australian farmers as good of
a deal from Japan as anyone gets. In effect, Japan will have
to match any deeper concession that might be granted to the US under the TPP
negotiations, for example.
In return, Australia will eliminate tariffs on
Japanese cars and electronics. Australia also
concluded a trade agreement with South Korea. Korea will eliminate
tariffs on Australian beef over 15 years. Australia will reduce tariffs
on all Korean cars within three years though some gasoline-fueled models will
be scrapped immediately.
The other point that does not come out in most
of the press coverage that what is at stake with the TPP is not simply about
the trade particulars. For Japan, it is part of Abe's reform efforts.
Japan's Economic Minister Amari acknowledged this:
"Japan's agriculture is now regarded as a fresh growth industry and stands
at a point where it needs to reform the way it thinks."
There is arguably even more at stake for the
United States. The purpose of the trade agreement was not just about
economics. There is a large, if not larger, political component. It
compliments the US "Asia pivot." It is meant to address the
rise of China. It is to demonstrate the US engagement and commitment.
The failure to conclude an agreement will deal the US
a significant setback. Some US politicians have argued that if Japan is
not sufficiently ambitious, the US should complete TPP without them. This
seems particularly short-sighted as the US pressed hard for Japan to join and
Abe, reluctant at first, conceded and in some ways, is a good example of the
old saw about the converts sings loudest in choir.
Tactically, it may be self defeating for the
US to make the good the enemy of the perfect. A failure would
unhinge the US Asian strategy. It would raise questions about the US
commitment. It would weaken the reform efforts in Japan. It would
have a cooling effect on other trade agreements. It would create new
opportunities for China.
Yet the political realities suggest that there
is little chance that Obama will be given trade promotion authority before the
November election. If the Democrats lose the Senate, which is
possible, there is little reason for the Republicans to help Obama complete his
agenda. If the Democrats win, there is no guarantee that they will concede
the authority to Obama.
Trade Agreement: Australia and Japan Can, but the US and Japan Can't
Reviewed by Marc Chandler
on
April 08, 2014
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