To greener pastures?

To greener pastures?

Silhouetted against the backdrop of Australia’s recent free trade agreements (FTAs) with Asia is the ailing – yet equally important – concerns of the manufacturing industry. The bright future of our agricultural industries is juxtaposed with the demise of the car industry, a sector that requires urgent attention. What does this contrast mean for Australia’s economy?

FTAs can stimulate the economy

The Abbott government recently completed exciting FTA deals with three of Australia’s biggest Asian trading partners: China, Japan and the Republic of Korea. On the 15th January 2015, the deal with Japan finally took effect. Japanese consumers of beef can enjoy the benefits of substantially lower tariffs on both frozen and fresh beef in the next fifteen years. They will enjoy an attractive 8% drop in the first year alone.

Lower tariffs on beef imports to Australia may appear detrimental to our farmers (at least, at first). The now lower price of beef imports from Japan will mean that Australian consumers will find foreign beef more attractive. However, the disease free status and traceability of the Australian beef industry gives local producers a competitive advantage. As such, the superior quality of Australian beef to their Asian counterparts may negate a consumer shift away from locally produced beef.

Furthermore, lowered tariffs mean that Australian exporters can provide a relatively cheaper product to foreign consumers. Australia will have a significant comparative advantage over competitors like the United States in terms of prices in Japan, as explained by Cattle Council president Howard Smith. Hence, there should be an expansion in demand for Australian beef in overseas markets. The increase in sales volumes will be welcomed by our exporters, as well as the economy through an easing of Australia’s current account deficit.

FTAs fail to address manufacturing industry concerns

Indeed, the future of Australia’s agricultural sector looks rosy, with potential to become our new competitive advantage in the global economy. Such hearty news, however, will fall upon deaf ears within Australia’s struggling manufacturing sector.

Australia has long been known to have a two-speed economy. While Western Australia experienced economic growth from the mining boom, Victoria was in recession during the 2012 year due to an ailing manufacturing sector.

In February 2014, Toyota announced that they would stop producing cars in Australia by 2017. This event signals the end of car production in the country. Victorians stand to lose the most due to the flow-on effects to other manufacturing companies. For example, suppliers of car parts – an essential complement to the car industry – will suffer significantly. Exide Batteries, a supplier to Holden and Toyota, has been laying off workers since November 2013.

Steps should be taken to ensure the job safety of those currently working in the car industry. Australia already has an increasing trend in unemployment since mid-2011, as the ABS has examined. Education incentives, like apprenticeship grants, to car manufacturing workers could manage this unemployment issue. The grant could act as a gateway for laid off workers, opening doors to more productive sectors as the importance of the car manufacturing industry diminishes.

Before being too optimistic about the recent exciting FTA deals with Japan and Korea, we need to be aware of what may slow down GDP growth too. Indeed, we should continue building close and mutually beneficial relationships with our Asian trading partners to stimulate growth in the long term. Simultaneously, however, we must find appropriate compensation for those working in our ailing manufacturing sector too. Nevertheless, the signs are positive for future economic growth. In Prime Minister Tony Abbott’s own words, “Australia…is once more open for business.”