Trade deal and comparative advantage in agriculture

Prime Minister Tony Abbott and Prime Minister Shinzo Abe signed the Japan-Australia Economic Partnership Agreement (JAEPA) on 8 July 2014 in Canberra. According to the Department of Foreign Affairs and Trade’s official website:

“More than 97 per cent of Australia’s exports to Japan will receive preferential access or enter duty-free when JAEPA is fully implemented. JAEPA is by far the most liberalising trade agreement Japan has ever concluded.”

One of the Australian agriculture sectors that is predicted to gain benefits from trade is the livestock sector. Beef is Australia’s largest export to Japan worth $1.3 billion in 2013.

Melanie Brock from the Meat and Livestock Australia as reported by the ABC’s Olivia Garnett argued that the trade deal which means lower tariff for Australian products would help Australian beef to be more competitive compared to its competitors especially the United States:

“The American product does not have this tariff reduction in play which will mean our product is cheaper, so of course any benefit to the consumer has got to be good for our industry.”

This implicitly brings back long-debated topic on whether bilateral trade agreements such the JAEPA is stepping stone or stumbling block towards multilateral trade agreements. One of the main criticism for bilateral or regional trade agreements is that they may lead to trade diversion- that is when trade is diverted from a more efficient producer to a less efficient one due to the formation of bilateral or regional trade agreements.

A recent benchmarking report suggested that Australian beef remains competitive.

However, to maintain its market share in Japan in longer term, Australian beef producers are therefore required to continue to increase their efficiency. This would ensure that the trade creation effects from the trade deal with Japan exceeds the trade diversion effects.

The remaining challenge is how to make this trade deal compatible with multilateral liberalization”.




This entry was posted in Current issues and tagged , , , , , . Bookmark the permalink.

Comments are closed.