Aiming at freer trade

Via The Economist

By Z.G.

ONE of the trickiest targets for Shinzo Abe’s third arrow of structural reform was always going to be opening Japan’s agriculture sector up to international competition. Japanese farmers have a powerful political presence, and have long been heavily protected from trade with tariffs upwards of 100%.  Indeed, in the lead up to the Trans-Pacific Partnership (TPP) negotiations Mr Abe himself promised to protect five “sacred” commodities from the elimination of tariff barriers: rice, wheat, beef, dairy products and sugar. Will Mr Abe’s reformist resolve survive a confrontation with the farm lobby?

An early indicator of who might win this battle came last week with the signing of a bilateral trade deal between Japan and Australia. Australia is a major producer of beef, wheat, and sugar and already exports a significant amount to Japan. As such the deal represented an opportunity for Mr Abe to show his reformist zeal and liberalise Japan’s agriculture sector.

The results, however, are disappointing. Tariffs on beef, Australia’s third largest export to Japan, will be cut by less than half, from their current level of 38.5%, with the reductions rolled out slowly over the next 20 years. Even then, they will remain at an eye-wateringly high 20%. Wheat, sugar and dairy products saw only marginal concessions which are unlikely to help free up trade between the two nations. Rice tariffs were completely untouched. In short, it seems that Japanese consumers will have to continue to put up with uncompetitive food prices.

Australia for its part also failed to fully grasp the opportunity to liberalise, maintaining their prohibitively high tariffs on used cars. Given the recent announcement of the closure of Australia’s domestic car industry, the preservation of these trade barriers seems particularly perverse. Automobiles currently make up more than half of Japan’s exports to Australia and this figure is sure to rise as domestic production shuts down. Given this lack of liberalisation then it is perhaps apt that the deal was labelled an "economic partnership" rather than a free-trade agreement.

However, the (possibly) forthcoming TPP represents a second chance for an agreement on tariff reductions for both countries. Indeed it’s possible that the ongoing multilateral negotiations undermined the bilateral deal, as parties sought to shore up their negotiating positions and preserve their political capital ahead of the more valuable regional agreement. Furthermore, agriculture reforms could stand a better chance with America at the negotiation table, as they are a major food exporter with considerably more heft then Australia.

That's assuming that other TPP participants can take the American negotiating position seriously; without Congress' grant of Trade Promotion Authority it makes little political sense to give too much away to an American president who cannot promise amendment-free ratification of the final deal. However much Mr Abe’s might wish to loose his third arrow, it takes more than one reform-minded government to strike a trade deal.