Tariffs
2.1
According to the Department of Foreign Affairs and Trade (DFAT):
With the elimination of 98 per cent of tariffs, the TPP-11 tariff cuts will have a cost-saving impact on imported goods for Australian households and businesses, and deliver material gains for our exports. The TPP-11 will provide preferential access for more than $5½ billion of Australia's dutiable agricultural exports into existing markets as well as new markets, such as Canada and Mexico, working to expand opportunities for industries such as beef, dairy, sugar, rice, grains, seafood, horticulture and wine. The deal will afford new levels of market access for iron and steel products, ships, pharmaceuticals, machinery, paper and auto parts, to name but a few products.
2.2
The tariff arrangements in the TPP 11 are supported by many participants in the inquiry. The Export Council of Australia (ECA) states that the TPP 11:
…allows Australian businesses, for the first time, to access preferential tariffs and some service sectors in Mexico and Canada. It gives better access to some markets with which Australia already has FTAs. This includes lower tariffs for some Australian goods into Japan, and new access to some services sectors, particularly in Malaysia and Vietnam.
2.3
Benefits from tariff reductions extend beyond the simple provisions of trade agreements. The ECA cited the indirect benefits to Australian businesses that can flow from trade agreements.
2.4
For example, after the Korea—Australia Free Trade Agreement entered into force, a fruit exporter to Korea saw higher volumes because of lower tariffs. The higher volumes allowed the exporter to negotiate lower freight and logistics costs. This meant that not only did the exporter enjoy increased sales, but also increased margins on those sales.
2.5
A number of inquiry participants identify specific benefits they expect will flow from the TPP 11, particularly in relation to agriculture and resources.
Agriculture
2.6
Australia exports around A$12 billion worth of agricultural goods to TPP 11 Parties. This represents about 23 per cent of Australia’s total agricultural exports.
reduce and eliminate tariffs on beef exported to Japan, Mexico and Canada;
reduce tariffs and levies on sugar in Japan and Canada;
expand the quota for rice exports to Japan, and eliminate tariffs on exports to Mexico;
eliminate tariffs on cheese exports to Japan, improve butter and skim milk quotas for exports to Japan, and allow preferential access for all dairy produce in Mexico and Canada;
eliminate tariffs on wheat and barley on exports to Mexico and Canada, and reduce tariffs applied in Japan;
eliminate tariffs on the export of wine to Mexico, Canada, and Vietnam; and
eliminate tariffs on seafood exports to Canada, Vietnam, Mexico and Japan.
2.8
The National Farmers’ Federation (NFF) states that, based on trade figures for 2016–17, A$5.5 billion worth of agricultural exports to which tariffs currently apply would have been tariff free under the TPP 11.
2.9
The phase out of agricultural tariffs in TPP 11 countries, will, according to the NFF, make Australia more price competitive in the Pacific Rim.
2.10
According to Meat and Livestock Australia:
The agreement has … delivered on our priorities—via securing either a plurilateral reduction or elimination of import tariffs over various implementation timeframes.
2.11
Meat and Livestock Australia argues that the gradual removal of tariffs will improve the profitability of Australian cattle, sheep and goat producers, processors and exporters as well as alleviate prices paid for Australian red meat, livestock and associated products currently inflated by tariffs imposed by TPP 11 countries.
2.12
Although, according to Meat and Livestock Australia, the benefits are limited to a handful of TPP 11 countries:
For the remaining [TPP 11] members, existing bilateral and or regional agreements have, or are already delivering market access improvements.
2.13
Around one-third of Australian sugar exports, valued at more than A$510 million annually, are sold to TPP 11 countries. The Australian Sugar Industry Alliance believes that securing improved market access for sugar in the TPP 11 is a significant achievement and an important step forward.
2.14
The Winemakers’ Federation of Australia is also very supportive of the TPP 11 tariff reductions. The TPP 11’s specific tariff outcomes for wines are as follows:
the elimination of ‘nuisance’ tariffs on exports to Canada;
the removal of the 15 per cent tariff on packaged wine exports to Japan by 2021;
the removal of tariffs on wine into Malaysia over 15 years;
the elimination of the 20 per cent tariffs on premium wines into Mexico in three years; and
the removal of the 50–59 per cent tariffs on wine exports to Vietnam over 11 years.
Resources
2.15
Australian exports of minerals and energy resources to TPP 11 countries were valued at A$43 billion in 2016–17.
2.16
Australia’s most significant minerals and energy resources exports were iron ore, coal and LNG. The most significant export markets were Japan, Malaysia and Singapore. Minerals and energy exports to these countries are already tariff free for the most part.
2.17
The most significant gain for Australia will be the elimination of tariffs on butane, propane, refined petroleum and liquefied natural gas to Vietnam.
2.18
The outcomes of the TPP 11 in market access gains for mining and energy resources commodities and mining services include:
Peru eliminating tariffs on iron ore, copper and nickel;
Vietnam eliminating tariffs on butane, propane and liquid natural gas; and
Vietnam eliminating 20 per cent of tariffs on refined petroleum.
2.19
The Minerals Council of Australia (MCA) also argues that the TPP 11 will also ‘lock in and preserve existing market access for Australia’s mining commodities in these countries.’
Forestry and paper products
2.20
While exporters are very supportive of the tariff reductions in the TPP 11, local industries facing tariff reductions have some concerns.
2.21
The Australian Forest Products Association (AFPA) is one of the few industry groups to discuss the risks to Australian industry from overseas competitors.
2.22
The AFPA states that it:
… supports the high-level principles of trade liberalisation to support global trade by removing unnecessary trade barriers and promoting greater efficiency, innovation and investment. However, these principles must be applied equitably and with comparable tariff reduction commitments from our major trading partners to deliver positive outcomes.
2.23
The AFPA is concerned that the changing nature of trade in paper products between Australia and other TPP 11 parties could involve significant risk to Australian producers.
2.24
The Association argues that:
A detailed analysis of the tariff outcomes overlayed by existing country trade flows, has indicated that TPP-11 will result in some asymmetric tariff outcomes for Australian companies (in both the tariff % concession amount and the differing length of tariff removal transition times) for specific wood and paper products.
2.25
The tariff outcomes in the proposed TPP 11 are primarily due to the concessions given to other TPP 11 nations in their tariff removal transition times, which can give other countries immediate advantage to compete in Australian markets, and no immediate collateral benefits or opportunities for exporting Australian businesses.
2.26
For example, Australia has a five per cent tariff in place for imports of sawn wood, board products, woodchip, and paper and paperboard. Under TPP 11, these tariffs will be removed on entry into force of TPP 11, except for fibreboard which will remain at a tariff of five per cent for three years.
2.27
In contrast Malaysia has a range of tariffs (10 per cent to 25 per cent) which will be removed between 3 and 6 years after entry into force. Packaging and industrial paper and paperboard products predominantly have tariffs of 25 per cent in Malaysia, which will be removed over three years.
2.28
The Association argues:
Given the fierce nature of competition in paper markets, Australian producers are very susceptible to asymmetric tariff reductions and adverse impacts from non-tariff barriers, including direct subsidies, potentially enjoyed by producers in other countries. Capital subsidies in those countries may be explicit or may be a result of poor financial or other regulation.
Effect of US withdrawal
2.29
A number of participants in the inquiry advised the Committee that the withdrawal of the United States from the original TPP would benefit Australia. The benefits are primarily a result of the fact that the United States and Japan do not have a bilateral trade agreement. This means that United States exports to Japan are still subject to tariffs that would have been removed under the original TPP.
2.30
GrainGrowers, for example, is ambivalent regarding the possibility of the United States re-joining the TPP 11. While it would send a positive signal regarding trade liberalisation, Australia will retain a competitive edge, particularly with regard to the Japanese market, if the United States remains outside the agreement.
2.31
Pork produces also expect to benefit from the absence of the United States from the TPP 11:
The new agreement, while not containing any additional market access for Australian pork when compared to the original agreement, has the benefit of excluding the US from receiving equivalent market access in key pork markets where we compete with US suppliers, such as Japan. In that respect, the TPP-11 without the US delivers a relatively superior outcome for Australian pork farmers.
2.32
The Australian Chamber of Commerce and Industry (ACCI) indicate that the TPP 11 without the United States provides Australian businesses with a significant advantage because the US is not able to take advantage of privileged market access to Japan.
Non-tariff barriers
2.33
There is no clear definition of non-tariff barriers. The Organisation for Economic Cooperation and Development (OECD) describes non-tariff barriers as:
… all barriers to trade that are not tariffs.
2.34
The TPP 11 contains chapters dealing with aspects of non-tariff barriers, including:
customs administration and trade facilitation;
sanitary and phytosanitary measures;
technical barriers to trade; and
transparency and anti-corruption.
2.35
According to AI Group:
Our experience with some FTAs has been that non-tariff barriers have increased post ratification, negating the benefits of tariff reductions and market access. We are pleased to see that negotiators have taken the pragmatic steps to include mechanisms to address non-tariff barriers within the agreement, ensuring that it is a dynamic and practical tool for ongoing trade access.
2.36
The Australian Dairy Industry Council is a strong supporter of the non-tariff barrier provisions in the TPP 11:
While tariffs and quotas are generally transparent and declining over time, the growing range and diversity of behind the border (non-tariff) measures have a major impact upon the incentive to and profitability of exporting.
2.37
In relation to dairy products, examples include product labelling, age and testing requirements, certification of dairy products and food safety rules and more broadly, a lack of adherence to sound science principles in the regulatory decision-making process.
2.38
The Australian Dairy Industry Council advises that provisions in TPP 11 address these non-tariff barriers, though work needs to be undertaken by respective regulatory agencies post implementation, to put in place measures to systemically resolve them.
2.39
The Winemakers’ Federation of Australia’s submission points out that non-tariff barriers are more costly for Australian wine exports than tariffs.
2.40
The Federation argues that the imposition of technical requirements, particularly in countries where wine is not produced, results in unnecessary costs to wine exporters.
2.41
The significant advantage of the TPP 11 for winemakers is that for the first time it addresses wine related technical barriers to trade through a Wine and Spirits Annex.
2.42
According to the Winemakers’ Federation of Australia the Wine and Distilled Spirits Annex (Annex 8-A of Chapter 8 of the TPP 11) clarifies, streamlines and removes technical barriers to wine exports to TPP 11 countries.
2.43
The specific provisions considered most useful by the Federation are:
streamlining certification requirements;
mutual acceptance of winemaking practices;
labelling requirements; and
traceability and fraud commitments.
2.44
On the other hand, some inquiry participants were concerned that TPP 11 might cause Australia to weaken non-tariff barriers related to dumping (importing products at a price lower than their market value) and product quality.
2.45
The Australian Forest Products Association is concerned to maintain strong non-tariff measures to ensure a fair competitive Australian market, including:
… a strong anti-dumping and countervailing measures regime, and maintenance of trade safeguard provisions to ensure a level playing field …
2.46
The Construction, Forestry, Maritime, Mining and Energy Union (CFMEU) is also concerned about the maintenance of trade safeguards:
Maintaining the availability of trade defences through a strong trade remedies system, is more vital now than any other time in Australia’s history …
Technical Barriers to Trade
2.47
The TPP 11’s Technical Barriers to Trade Chapter (Chapter 8) attracted interest from participants in the inquiry.
2.48
Chapter 8 builds on the World Trade Organisation’s Agreement on Technical Barriers to Trade.
2.49
The aim of the Agreement on Technical Barriers to Trade is to encourage the development of international standards for technical regulation and to prevent technical regulations from creating unnecessary obstacles to trade.
2.50
Under the Agreement on Technical Barriers to Trade, a technical regulation is defined as a document which lays down the product characteristics with which compliance is mandatory, including such matters as symbols, packaging, marking or labelling requirements.
2.51
The objective of the TPP 11 Technical Barriers to Trade Chapter is to:
… facilitate trade, including by eliminating unnecessary technical barriers to trade, enhancing transparency, and promoting greater regulatory cooperation and good regulatory practice.
2.52
This may take the TPP 11 in a different direction in relation to technical barriers to trade than the Agreement on Technical Barriers to Trade. The Agreement on Technical Barriers to Trade is viewed as being directed towards addressing regulatory protectionism, but the TPP 11 is aimed at positive integration and harmonisation between parties.
2.53
Chapter 8 requires the establishment of a Technical Barriers to Trade Committee, which will have membership from each TPP 11 Party. The purpose of the Committee is to resolve technical trade issues.
2.54
The Australian Fair Trade and Investment Network (AFTINET) is concerned that the Technical Barriers to Trade Committee provisions in Chapter 8 may put pressure on Australian testing authorities to accept overseas testing regimes and mutual recognition arrangements:
Mutual recognition of regulatory standards across countries with different standards raises the question of how to maintain and improve Australia’s relatively high standards in areas like food regulation and building product standards. Harmonising standards may not be in the public interest.
2.55
According to the CFMEU:
Australia has a poor record when it comes to the issue of technical barriers to trade (TBT). It is a record chequered by failure to erect barriers and implement procedures effective and efficient enough to defend Australia, Australians and our legitimate objectives. Recent spectacular failures have highlighted the threat to two of Australia’s most important industries; the agriculture industry (the white spot disease outbreak in the prawns sector) and the construction and building products industry (the widespread prevalence of imported non-conforming building products).
2.56
The CFMEU argues that Chapter 8 will not address its concerns in relation to Australia’s technical barriers to trade.
2.57
According to the CFMEU:
… of grave concern is that the TBT chapter in TPP 11 contains ‘WTO plus’ obligations around conformity assessment procedures. What this means is that Australian testing authorities will be under pressure to enter Mutual Recognition Arrangements with overseas testing authorities resulting in us being required to accept their test results when determining whether the imported product is allowed entry.
Alcohol labelling
2.58
The impact of Chapter 8 on alcohol labelling has been extensively examined in the Committee’s 2016 inquiry into the TPP and the current inquiry.
2.59
Globally, the burden of alcohol harm is substantial and alcohol health warning labels are an important public health strategy as they promote health messages in ways that other health initiatives do not, at point of sale and at point of consumption.
2.60
The foundation for Alcohol Research and Education identifies that alcohol is responsible for nearly 6,000 deaths and 157,000 hospitalisations in Australia each year.
2.61
Research evaluating experience with labelling as currently implemented internationally emphasises that the effectiveness of alcohol warning labels is dependent on the content, format, and presentation of the message.
2.62
According to Paula O’Brien, Senior Lecturer as the Melbourne Law School, the Agreement on Technical Barriers to Trade provides scope for the use of well designed, non-discriminatory, evidence based, health warning labelling.
2.63
However, Dr Deborah Gleeson argues that Annex 8-A of Chapter 8 of TPP 11 contains a novel set of provisions for wine and spirits that require parties to allow suppliers to place country specific labelling information on a supplementary label.
2.64
Paragraph 5 of Annex 8-A states that if a party requires a supplier to indicate information on a distilled spirits label, a party shall permit the supplier to indicate that information on a supplementary label that is affixed to the distilled spirits container. Similar provisions are made for supplementary labelling of wine.
2.65
The rules on supplementary labelling in Annex 8-A of TPP 11 is the first appearance of a supplementary labelling requirement in an international trade treaty.
2.66
The functional purpose of the supplementary label is to save suppliers from having to redesign their standard product labels to accommodate different labelling requirements for different countries.
2.67
Dr Gleeson’s submission argues that these provisions potentially create challenges for countries wishing to introduce effective health warning schemes and other types of health information on alcohol containers.
2.68
Dr Gleeson argues that it is important that a state’s right to introduce evidence based health information on alcohol is preserved.
2.69
Paula O’Brien’s analysis of the alcohol labelling provisions in Annex8-A:
… suggests that the new rules negotiated in the TPP potentially create some challenges, though probably not insurmountable ones, for countries wishing to introduce new labelling regimes to display health information on alcohol containers.
2.70
There is no definition of ‘supplementary label’ in Annex 8-A. However, Paula O’Brien suggests that the Annex’s requirements may be met if a TPP 11 Party introduced a mandatory alcohol labelling scheme that includes the layout, design and placement of the label, and permits suppliers to use a supplementary label.
2.71
This reading of the TPP 11 fits with the purpose of the TPP 11, which is to strengthen the competitiveness of business, develop regional supply chains, and decrease technical barriers to trade.
2.72
Paula O’Brien suggests that TPP 11 Parties might be able to defend this on the basis that an additional label can be added after manufacture but before sale, enabling manufacturers to access economies of scale in labelling their products while retaining the right to oblige the application of a health warning.
Conclusion
2.73
Support for the tariff reduction measures in TPP 11 is widespread, and the tariff reductions are highly likely to benefit Australian business in general.
2.74
The potential impact of the United States re-joining the TPP 11 in the future is discussed in Chapter 6. In the meantime, the current position of the United States towards the TPP 11 will have some unexpected benefits for Australia, particularly in relation to trade with Japan.
2.75
The quality of Australia’s legitimate non-tariff barriers relating to the quality of products imported and Australia’s anti-dumping measures are becoming more of a focus for concern in Australia, and concerns remain in relation to the impact of the regulatory harmonisation provisions in Chapter 8 of the TPP 11.
2.76
The Committee believes that the Australian Government will need to be vigilant in these policy fields to ensure public support for free trade continues into the future.