Australia Outfoxes US Over Japan Trade

Australia Outfoxes US Over Japan Trade

Australia has secured a significant competitive advantage in the lucrative Japanese beef market over its main rival, the United States.

After seven years of negotiations, Japan and Australia have reached a broad agreement on a bilateral free trade agreement aimed at eliminating import tariffs on most products traded between them. The deal came during a meeting in Tokyo yesterday evening with Japanese Prime Minister Shinzo Abe and his Australian counterpart, Tony Abbott.

The two countries are expected to formally sign the FTA, officially called the Japan-Australia Economic Partnership Agreement, as early as this summer, paving the way for its entry into force sometime next year.

Japan has so far seen its FTAs with 12 countries and the 10-member Association of Southeast Asian Nations as a whole going into effect, but Australia is the first major agricultural exporting country to secure an FTA with Japan.

Japan and Australia reached the broad agreement on the FTA after resolving the dispute over Japan’s import tariffs on Australian beef, the biggest sticking point in the negotiations. Tokyo has agreed to lower its tariffs on Australian beef in stages from the current 38.5 percent. The tariff on frozen beef, which is mainly used for processed foods for restaurants, will be cut to 19.5 percent in 18 years, while the tariff on chilled beef, which is mainly sold at supermarkets, will be cut to 23.5 percent in 15 years.

U.S. containerized exports of beef to Japan have risen every year since 2007.

Australia is the biggest beef exporter to Japan, but the U.S. is fast gaining on Australia in the Japanese market. U.S. containerized exports of beef to Japan have risen every year since 2007, reaching nearly 25,000 TEUs in 2013, according to PIERS, the Data Division of JOC Group. Japan’s market share of U.S. containerized beef exports has also increased from 26.9 percent in 2007 to 36.5 percent in 2013.

Canberra, Australia’s capital, initially called for an elimination of Japanese import tariffs on Australian beef, but it softened its position and accepted lower tariffs apparently in the hope of gaining a competitive advantage over the U.S.

The Australian government described the FTA with Japan as “historic” in a press release and said that better access to the Japanese market for key agriculture products, including beef, “will give Australia a head start over our competitors in this market.”

“JAEPA represents a major windfall for Australian beef – our biggest agricultural export to Japan,” the Australian government said. “This includes a halving of the tariff on frozen beef from 38.5 percent to 19.5 percent, with deep cuts in the first year.”

The FTA with Australia will also benefit Japan as Canberra has agreed to eliminate its import tariffs on Japanese cars. Canberra has also agreed to exclude rice, Japan’s most politically sensitive item, from tariff elimination or reduction.

American beef will continue to be subject to Japanese import tariffs of 38.5 percent. Japan hopes the trade deal with Australia will put pressure on the U.S. to soften its position in bilateral negotiations over the proposed Trans-Pacific Partnership free trade agreement. The TPP is a U.S.-led regional free trade initiative currently being negotiated among the U.S., Japan, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The overall TPP negotiations have stalled due largely to sharp differences between Japan and the U.S. over farm trade. Japan wants to protect five domestic agricultural products, including beef and pork as well as rice, from foreign competition, but the U.S. is calling for Japan to remove its import tariffs on foreign products.

Akira Amari, Japan’s state minister in charge of the TPP talks, is expected to hold negotiations with U.S. Trade Representative Michael Froman in Tokyo tomorrow in an attempt to achieve a breakthrough in the deadlocked bilateral negotiations ahead of U.S. President Barak Obama’s planned visit to the Japanese capital later this month.

Contact Hisane Masaki at yiu45535@nifty.com.