5 July 2016
The TPP comes at a critical time for Australia as the country continues to stumble in its attempts to navigate away through the end of one of the biggest mining booms in history. As it welcomes its latest and fifth Prime Minister in eight years, the country is characterised by a political community in denial about the end of the boom, a business community threatening to usurp government and set its own direction, and a population growing increasingly incredulous at the dysfunction of government and fearful about the effects of the end of the boom. Coming on the back of outstanding successes in trade agreements with China, South Korea and Japan, the TPP is a landmark deal that could bind business and government together in the drive for a new, growing economy. Critically, it needs to be sold well to the public by the new Prime Minister’s team, with support from the business community. This comes at a time when the Government is already struggling to push through the China–Australia FTA. Overall, the negotiations announced this week are being seen as a success for Australia with 98 per cent of tariffs on Australian exports in the region being eliminated.
This is a massive step when you consider that in 2014, a third of Australian goods and services exports, worth $109 billion, went to TPP countries. Australian Trade Minister, Andrew Robb remarked to the closing plenary session negotiating the TPP that the agreement could be “transformational” and would deliver “unprecedented new opportunities in the rapidly growing Asia Pacific region, with its rising middle class, for our businesses, farmers, manufacturers and service providers”. The TPP goes beyond the dismantling of traditional tariff and service barriers. It includes chapters on intellectual property, competition practices and minimum environmental standards. While Free Trade Agreement negotiations are almost always conducted behind closed doors, the far reaching nature of the TPP has led some, including Australia’s Productivity Commission, to question the transparency of the negotiations. However, it is clear that Australia will emerge from the TPP negotiations with significant gains in key sectors – notably, food and agribusiness, and new rights to supply services sectors in which Australian companies already enjoy a world–class reputation.
Potential Winners in Australia Food and Agribusiness
The big winners here are beef, dairy, sugar and wine – with significant tariffs to be slashed when the agreement comes into force and as it progresses. The sugar industry was a clear winner with final outcomes from the deal anticipated to see Australia’s market access to the US double for local sugar producers, starting with a base increase of 65,000 tonnes. In the US, the higher price paid per pound of sugar, comparative to Asia, equates any increase in US market access of more than 500,000 tonnes a year to a benefit of around $100 million to the Australian industry.
The agreement also includes an option to increase access for Australian domestic producers should there be a US shortfall – a provision which could see Australian export volumes reach up to 400,000 tonnes by 2020.
Healthcare and Pharmaceuticals
On the matter of healthcare and pharmaceuticals, negotiations extended into the early hours of the morning as representatives from Australia and the United States sought a compromise over patent protection. Australia paved the way for a group of countries objecting to the US position of allowing pharmaceutical companies keeping data for biologics, advanced medicines made from living organisms, under data protection for twelve years. During that period, companies would have the ability to block the manufacture of biosimilars – generic versions of their drugs by competitors – and set prices accordingly. Concerns stemming from public health advocates and members of the Labor Party had stemmed around the rise in cost the of the Pharmaceutical Benefits Scheme (PBS) this provision could imply, with critics warning that the move could herald an increase in price of subsidised medicines. Under the compromise promoted by Australia, data protection will last a lesser five to eight years and will establish a two–track approach where one track would set the Australian system as the standard and provide for a five–year protection period — an outcome which would not lead to any change to the Australian health system. The compromise means there will be no increase to the costs of medicine in Australia under the PBS. Additionally, and driven by Australia, tobacco companies were excluded from the controversial Investor–State Dispute Settlement (ISDS) process that allows firms to sue governments over regulatory changes that disadvantage them. It is understood Australia led the charge in backing a proposal that would stop tobacco firms from taking action against TPP nations for implementing tobacco–related regulation.
With Australia’s export of services about to overtake our exports in minerals, it was critical that the TPP crack open some markets that have been closed or limited to our best and brightest companies. There are some big market access wins for financial services (including insurance), telecommunications, health and education services. The Agreement also now levels the playing field for Australian companies to bid for Government work in many of the TPP countries. This is significant, as many of the TPP countries have enormous state–owned sectors, such as Vietnam.
Potential Losers in Australia
It’s early days and until the full details of negotiations are released in coming weeks there will be lots of speculation. Interestingly, while eCommerce was another sector to come out on top following the negotiations, new rules that promote and protect internet–based commerce could impact Australian bricks and mortar retailers, a sector already under intense pressure in Australia due to economic headwinds. Under the TPP framework, signatories will no longer be able to place customs duties on electronic transmissions.In addition, the Australian government will no longer be allowed to force localisation on global companies, which is in effect the requirement by domestic governments that businesses establish local infrastructure (such as data, servers etc.) to host their local customer data and legitimise their access to foreign markets. This will slash the costs of foreign retailers accessing Australian consumers and presents huge savings for groups such as Google, Uber and [soon to launch] Amazon in Australia. Ultimately, the deal was structured to allow US technology and service giants access global markets for less money, so while it’s difficult to say who could lose,Australian retailers and local service providers should expect even more competition. What should Australian companies do now? For individual companies, it’s important not to get hung up on the headlines. When the TPP text comes out, companies should be combing through the fine detail to see how it impacts their particular product or service line. Now is the time to assess how you can leverage the agreement for new investment, new export markets, and better relations with Governments who will be looking to make the most of this new landmark agreement.
Nic Jarvis – Head of Public Affairs, Edelman Australia
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