After seven years of tough negotiations, Tokyo and Canberra signed a free trade agreement (FTA) on July 8, paving the way for Australia to gain a significant competitive advantage in the lucrative Japanese beef market over its main rival, the United States.
Under the FTA, which is officially called the Japan-Australia Economic Partnership Agreement (JAEPA), Japan and Australia will eliminate or at least drastically cut import tariffs on most products traded between them.
According to the government-affiliated Japan External Trade Organization (JETRO), Japan exported $17.06 billion worth of products to Australia and imported $51.36 billion worth of goods from Australia in 2013.
Japanese Prime Minister Shinzo Abe and his Australian counterpart, Tony Abbott, signed the FTA during their meeting in Canberra. The trade deal is expected to enter into force as early as the first half of next year.
Japan has so far seen its FTAs with 12 countries and the 10-member Association of Southeast Asian Nations (ASEAN) as a whole going into effect. But Australia is the first major agricultural exporting country to sign an FTA with Japan.
Japan and Australia signed the FTA after resolving the dispute over Japan’s import tariffs on Australian beef, the biggest sticking point in the negotiations.
Tokyo will 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 that on chilled beef, which is mainly sold at supermarkets, will be cut to 23.5 percent in 15 years.
Australia is the biggest beef exporter to Japan, but the U.S. has been fast gaining on Australia in the Japanese market. Canberra 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.
American beef will continue to be subject to Japanese import tariffs of 38.5 percent. Japan has hoped the trade deal with Australia will put pressure on the U.S. to soften its position on farm trade in bilateral negotiations over the proposed Trans-Pacific Partnership (TPP) free trade agreement.
The TPP is a U.S.-led regional free trade initiative currently being negotiated among the U.S., Japan and 10 other Asia-Pacific countries — Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
Japan is expected to eventually cut its import tariffs on American beef as part of the overall TPP agreement. But it is unclear when the multilateral trade deal will be reached, due to sharp differences among the 12 nations involved in the hectic negotiations.
Australian Minister for Trade and Investment Andrew Robb said in a statement on July 8, “This is the most ambitious trade deal Japan has ever concluded with anyone and affords Australia major concessions across a range of areas, most notably services and agriculture, an area of traditional sensitivity for the Japanese.”
“JAEPA represents a strong outcome for Australian beef, our biggest agricultural export to Japan, as well as for fruit, vegetables, nuts, wine, seafood, processed food and other commodities, with many tariffs eliminated on entry into force,” Robb said.
The FTA with Australia will also benefit Japan, as Canberra agreed to eliminate its import tariffs on Japanese cars. Australia also agreed to exclude rice, Japan’s most politically sensitive item, from tariff elimination or reduction.
Cars account for nearly half of Japan’s overall exports to Australia in terms of value.
Japanese Minister of Economy, Trade and Industry Toshimitsu Motegi also said in a statement, “I firmly believe we have achieved positive results which will be of mutual benefit for both countries.”
“Specifically, in the automotive sector, which accounts for approximately half of all exports, of which the tariff rate is currently 5 percent, tariffs on approximately 75 percent of exported whole vehicles will be abolished immediately. Tariffs on the remaining exported whole vehicles will be abolished in the third year, and a massive improvement in market access will be realized,” Motegi said.
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