Uncertainty after TPP U-turn

The world’s confectionery and sweet bakery sector, as well as its suppliers, has been assessing the impact of President Donald Trump pulling the US out of the Trans-Pacific Partnership (TPP), the world’s largest ever regional trade deal.

The US confectionery sector, which had been an early backer of the agreement, is now facing an uncertain outlook, with producers concerned about the decision’s impact on their access to raw sugar.

According to the US’ Sweetener Users Association (SUA) president Richard Pasco, America currently produces about 8.5 million to 9m tons of sugar annually while consuming 12m tons. “We have a very tight supply of sugar in the US,” Pasco told Confectionery Production, observing that “the market is so out of whack that the price of raw cane sugar is higher than that of refined beet.” He stressed that for the US confectionery sector, “the TPP has always been about access to Australian raw sugar.”

And the industry is not just worried about the TPP. The US imports significant volumes of sugar from Mexico, which in addition to being a TPP signatory is also a member of the North Atlantic Free Trade Agreement (NAFTA), along with the US and Canada, an agreement that has also drawn the ire of President Trump.

If a NAFTA withdrawal slammed the door shut on Mexican sugar exports, clearly supply problems could ensue, but Pasco stressed that a renegotiation might not be all bad news. “It could be a good thing or a bad thing,” he said, arguing that sugar supplies from Mexico have been hampered by trade access restrictions executed under NAFTA and that a bilateral US-Mexico deal could possibly address this problem.

The National Confectioners Association (NCA), which is a member of SUA, said that it has just begun to study the new post-TPP trade environment, both from a sourcing and an export point of view. “We export about $2bn each year but sell about $35bn domestically, so we’re not that export driven,” stressed Christopher Gindlesberger, NCA vice president for public affairs. “It’s all new,” he told Confectionery Production. “There’s been 10 or 11 days of executive orders and we’re still going through them.”

Certainly, Australian sugar exporters are aware of the potential loss created by the fall of the TPP. The Australian sugar industry had hoped to be allowed to export an extra 65,000 tonnes of sugar annually into the well protected US sugar market. The Australian Sugar Industry Alliance had hailed the TPP as an historic pact which would improve access for Australian agricultural produce into important Asia Pacific regional markets, particularly the US, with the new access being worth A$13m ($9.9m) every year.

The Australian confectionery manufacturing sector, however, is less concerned, especially as the market access secured through the 2005 Australia-United States Free Trade Agreement (AUSFTA) will be maintained, noted the Australian Industry Group’s Tony Melville, who said the main change created by the TPP for the confectionery sector would have been on harmonised trading rules, rather than tariff-based market access.

Impact on import duties

But for countries that did not have such an existing deal with the US, such as Malaysia (which was the first country to ratify the TPP), there is also a real impact on import duties. Should the TPP have come into effect, 92 per cent of Malaysia’s tariffs on agriculture and food products would have been eliminated.

Given that current import tariffs for sugar confectionery and chocolate confectionery stand at 10 per cent and 15 per cent respectively, to be reduced to 0 per cent once TPP took effect, it is clear that the Malaysian confectionery and chocolate industry was going to have to fight off a lot of competition, including from the US. But similarly, it will close off some lucrative export markets that these companies might have wanted to tap.

“The failure of the TPP protects the short term interests of Malaysia’s confectionery and sweet bakery producers vis-à-vis their neighbours, but impedes their ability to export freely and cheaply to other markets in the medium to long term, most notably the US and Australia,” said James Dickinson, consumer analyst for UK-based market research company GlobalData. Without the TPP, Malaysia and neighbouring Singapore, might be better served by pushing for regional trade agreements that reduces trade barriers and harmonises customs procedures between themselves and other members of the Association of Southeast Asian Nations (ASEAN) and neighbouring countries, he suggested.

This, he added, might better serve their interests, “and also afford them the kind of collective bargaining power which could secure favourable access to the enormous Chinese market on their doorstep.”

There is a similar view in Japan, where there is also an appetite for a replacement trade agreement – although here a bilateral deal with the US is more attractive than local deals. Member companies of the All Japan Confectionery Association (AJCA) are, if anything, optimistic about the TPP’s demise. Their members are cushioned by their large domestic market and now the US has pulled out (and the Japanese government has said it seems little point in pursuing a TPP without America), there are hopes among the 200 AJCA firms that a US bilateral trade deal may be more beneficial to their business than the envisaged multilateral deal.

“We had little interest in the provisions of TPP because it would have brought virtually no benefit to our companies,” said Sumiharu Yamada, executive director of the organisation.

“The government has said that it will push forward on plans for a bilateral deal with Washington – Prime Minister Shinzō Abe has said that is his priority when he meets with Donald Trump this month – and we believe that sort of deal has more potential for us.”

Ichiro Ishijima, senior director general of the Japan Sugar Refiners’ Association, expressed more concern, primarily due to the uncertainties being seen in economies that were scheduled to take part in the TPP pact but now have to completely rethink their strategies.

“The comments that Trump is making are ambivalent and we cannot completely understand his plans or policies,” he said. “Our feeling was that TPP would have benefited the Japanese national economy and our sector, so it is disappointing that we have gone back to square one in the discussions.”

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