News

Australia reaches historic FTA deal with Japan, in big ‘win-win’ for both countries

Jon Condon, 07/04/2014

 

The full details and implications for beef

 

Japan and Australia reached an historic bilateral Free Trade Agreement late this afternoon, announced jointly by Prime Ministers Tony Abbott and Shinzo Abe just minutes ago.

The crucial beef component of the deal (full details below) is towards the upper-end of Australian industry expectations, especially for chilled beef, industry and trade personnel told Beef Central just minutes ago.

Amid high expectation from industry and government across both countries, the historic deal has gone through after eight years of painstaking, often glacially slow negotiations.

Beef was always earmarked as one of the really big stumbling blocks for Australia to achieve big access outcomes on, because of the powerful Japanese farm lobby and Japan’s deeply entrenched desire to protect its beef farm sector.

The agreement, when fully exercised, will effectively slash Australia’s current $590 million annual tariff bill in Japan by close to half.

The key aspects of the FTA deal relating to Australian beef access are as follows:

Frozen:

Tariff reduction from 38.5pc to 19.5pc over an 18-year period.

Significant ‘front loading’ will occur, meaning the rate of tariff decline will be greater earlier in the adjustment period, but lesser later on. Year-one, for example, will see frozen tariffs decline from 38.5pc to 30.5pc – a huge single year drop of 8pc. Year-two will fall to 28.5pc, year-three, 27.5pc, then a lineal decline to 19.5pc in year 18.

Chilled:

Tariff reduction from 38.5pc to 23.5pc over 15 years. Year-one will see a 6pc decline from 38.5pc to 32.5pc, then a further 1pc drop to 31.5pc the next year, and 30.5pc in year-three, with lineal decline then to year 15 to 23.5pc.

The agreement will have ‘safeguard’ contingencies built in, designed to protect the Japanese industry from being ‘swamped’ with massive spikes in Australian exports in any one year.

On frozen beef exports, the safeguard trigger point will be 195,000 tonnes, with any Australian exports above that figure in the first 12 months automatically ‘snapping back’ to 38.5pc. Growth will be built into the frozen safeguard trigger-point of about 1500 tonnes each year, over 10 years.

On chilled beef exports, the safeguard trigger point will start at 130,000t, with the same 1500t addition to the figure each year for ten years.

Based on Australia’s recent annual export performance to Japan, the year-one trigger levels are below our record export volumes, but higher than our recent years, in volume. Last calendar year, for example, Australian exports to Japan were back 6.5pc on the year previous, comprising 115,000t chilled and 173,000t frozen. Over the past five years, our exports to Japan have fallen 24pc.

Given the built-in ‘growth-factors’ in both safeguard trigger points, and the current export environment with heavy demand conditions out of the US and China and emerging markets, stakeholders hold few concerns over the safeguard protection clauses won by Japan in the FTA deal.

The agreement also contains significant review clauses:

  • Should another exporter country get a better deal on beef with Japan under another bilateral agreement, Australia will automatically ‘upgrade’ to that deal
  • There are reviews scheduled for five years’ time, to potentially re-negotiate better outcomes under the agreement, should circumstances change
  • The safeguard protections designed to protect Japan from one-off large surges in exports are also discretionary, meaning they do not have to be applied if circumstances do not require it

$2.84 Billion benefit to Australian industry

Australian Beef Industry Japan FTA Taskforce chairman Lachie Hart said modelling was suggesting the agreement would benefit Australian cattle producers to the tune of $2.84 billion over 20 years, while Japanese consumers would benefit by about $6.1 billion.   

“For every $100 worth of Australian beef sold into the market, $38.50 is currently paid to the Japanese Government in tariffs,” Mr Hart said earlier in the discussion phase. “That represents an annual tariff impost of around A$590m, the burden of which is borne by the Australian beef industry and Japanese consumers.”

The agreement will also ultimately benefit Japanese consumers by alleviating the 54.8 billion Yen per annum import tariff burden which in turn is expected to stimulate increased demand for beef – both domestically-produced and imported.

Mr Hart admitted that the Japan task force was expecting a worse outcome for beef, particularly during the latter stages of negotiations.

“Our expectations on both chilled and frozen was that it was not going to be this good,” he said.

“There was a growing feeling that the political process was unstoppable, and that beef might be one of the sectors less favoured in the outcome,” he said.

“But the very fact that Australia has concluded an agreement shows that that political will certainly was there, to achieve for beef. This is a good outcome, by any standards, and the Federal Government has done an excellent job in a very difficult negotiating environment, on the beef industry’s behalf.”

Mr Hart agreed that the Japan FTA was a far tougher negotiation process than the parallel agreement reached last year with Korea, because of the sheer range of issues involved.

While the Australian industry line was always pitching for complete tariff elimination, the feeling among key industry stakeholders this evening was that it was a solid, if not outstanding result for beef.

“We just knew that total tariff elimination was always going to be an impossible feat with Japan,” Mr Hart said.

“Where we’ve got to is a pretty good deal. We’re viewing this as a stepping stone into concluding better beef tariff elimination, trade liberalisation, agreements going forward in other bilateral and multi-lateral trade agreements like TPP.”

Asked whether the Japan FTA result could impact negatively, on the earlier agreement pending with Korea, where tariffs will decline from 40pc to zero, Mr Hart said it was still a concern to the beef industry.

“However the embassies and government are all giving us the confidence to say it won’t. But until the Korean FTA is ratified by both governments and enforced, we’re always going to be nervous about it,” he said.

In a surprise, the new agreement does not include an Investor State Dispute Settlement regime that might have given foreign companies a forum to sue the Australian government, a concept opposed by the Greens and questioned by Labor.

 

  • More industry reaction, analysis on Beef Central tomorrow.

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