Australian beef would lose out, big-time, under Japan’s latest FTA offer

Jon Condon, 05/02/2014


Beef industry stakeholders and the broader agricultural community are re-emphasising the importance of achieving complete elimination of tariffs as part of comprehensive liberalisation of the agricultural sector in current negotiations with major trade partners.

The message, delivered by the National Farmers Federation in a press release this morning (click here to view), comes as bi-lateral trade access discussions with Japan continue to progress, in parallel with broader Trans-Pacific Partnership discussions involving a basket of Pacific rim nations.

Reports coming out of Japan in the past 24 hours have indicated that the latest offer from Japan for beef access in the Japan-Australia FTA negotiation process falls alarmingly short of the Australian industry’s expectations.

An item in Japan’s Nikkei financial press yesterday has provided some insight into the extent of the current offer from Japan on beef tariffs. It suggests the tariff on chilled Australian beef imports would fall “from 38.5pc to about 30pc over 15 years”, which could equate to a reduction in retail price of “nearly 10pc less” in Japanese retail stores, Nikkei reported.

Implied in the Nikkei article was the suggestion that by negotiating a ‘softer’ tariff outcome on beef with Australia, Japan might be better able to “convince the US to lessen its pressure for drastic tariff concessions” proposed under the broader TPP process.  

“With Australia's new government, headed by Prime Minister Tony Abbott, said to be keen on concluding a two-way economic agreement with Japan, Japanese officials came up with the idea of playing the beef card last December,” Nikkei reported. “Japan sees it as a possible advantage to be gained over the US on a broader TPP trade pact.”

It’s on the public record that Japan’s original FTA offer to Australia made in May last year was for a tariff decline from 38.5pc to 30pc for frozen Australian beef imports over 15 years, but zero movement on chilled.

It was widely interpreted that this meant the Japanese saw chilled beef imports as competing more directly with domestic Japanese beef production, while frozen (mostly manufacturing meat) was less impactful.

Reliable Japanese government sources have told Beef Central this week that the significance of the latest offer is that it adds a chilled component to the earlier offer. It now appears that under Japan’s latest offer, the chilled beef tariff would drop from 38.5pc to just 32.7pc, while frozen would fall from 38.5pc to 27pc – both over 15 years.

That represents a tariff decline on frozen exports of 30pc from current levels, while the decline on chilled exports would be an insignificant 15pc.

What is concerning, if not alarming Australian export stakeholders, is how woefully inadequate such a proposed tariff decline would be.     

One reaction, when Beef Central put the suggested figures to a large export processor, was that it represented a token gesture on the part of the Japanese, and should be dismissed outright.

“A 5.8pc reduction in chilled tariff over 15 years is too ridiculous to contemplate,” a larger exporter said.

Because the chilled beef trade with Japan is biased towards grainfed product, Japan’s current tariff offer would be particularly harsh on Australian grainfed exports. One large lotfeeder said any acceptance of the terms by Australia could not be contemplated, under any circumstances.

A sense of unease is also evident within the export trade over how the Australia/Japan FTA negotiation might now play out.

A common feeling is that the view towards achieving an outcome might differ, between those with ‘skin in the game,’ and those charged with negotiating Australia’s result.

There’s no doubt that the stakes are extremely high. One calculation suggests the Australian beef industry is collectively paying a $700 million a year tariff bill for access to the Japanese market, on the basis of total export value of about $1.9 billion.

What grates with some stakeholders is the fact that those tariff funds paid by Australia are directed straight into Japanese agriculture coffers, in the form of farmer subsidies. Even worse, the $700 million ‘cost of entry’ for Australian beef into Japan is inevitably embedded within slaughter cattle pricing decisions made by Australian beef exporters.

Having said that, both current Trade Minister, Andrew Robb and his predecessors, have all made clear commitments that unless there was a ‘significant’ reduction in the agricultural tariffs, then any FTA with Japan would be difficult to be completed. Nothing has changed in that area.

But keep in mind that the Australian trade negotiation team has been talking with their Japanese counterparts since 2007. It’s been seven years, with no clear signs of a conclusion on the horizon, and it was only last year that any offer at all on beef tariff reduction was floated by the Japanese.

The risk perceived by some industry stakeholders is that ‘having something on the table’ could be interpreted as “any reduction is a good reduction.” Additionally, there is an obvious attraction in terms of political mileage for the Abbott Government to get an FTA with Japan over the line.

The unanimous view among those export stakeholders spoken to by Beef Central this week is that the template is in place: reduction to zero tariff over 15 years. If the Japanese are being realistic in embracing free trade, then that’s the template that must be followed, as was shown in the recent example set in Korea.

An important factor now being talked about in industry circles regarding Australia’s bargaining position with Japan is the dramatic shift in world trade flows that’s occurred in beef in the past year, particularly in relation to China’s emergence as a 150,000 tonne export market.

Options are present for Australian exports that essentially did not exist this time last year, and it may come into play in any further negotiation around the Japan FTA.

“It’s important that Japan understand the current realities of world beef markets; the realities around available product; and the realities of our recent successful FTA outcome with Korea,” one large grainfed beef exporter said bluntly.    

Fuelling recent speculation over possible developments in the Japan FTA is Japanese media suggestions that Prime Minister Tony Abbott may be heading to Japan around April or May.

While it’s likely that that visit was arranged well prior to Japan’s latest tariff offers, such visits are often linked with announcements on trade or other important matters.

Recently, trade minister Andrew Robb confirmed that talks on the Japanese FTA were ‘well advanced’ and said trade agreement negotiators from both countries had pursued the `difficult issues’ he had discussed earlier with his counterpart, Toshimitsu Motegi.

Mr Robb stressed the importance, and the remaining challenge, to use the FTA to obtain bigger opportunities for agriculture. “Negotiations are certainly well advanced with all the key issues on the table including agriculture, autos and investment.''

“All countries bring sensitivities to negotiations, but we will not conclude an FTA that does not deliver ‘commercially meaningful’ outcomes, particularly on agriculture,” he said.

Quoted in The Australian recently, JBS Australia director John Berry said the Australian beef sector’s interests needed to be “front and centre” in any FTA deal with Japan.

“We need, as we achieved in the Korean FTA, zero tariffs, zero quotas, over time. Anything else is not free trade,” Mr Berry said.

He said Japanese beef prices had increased significantly, and it would appear that expediting the lowering of tariffs would benefit Japanese consumers and importers alike.

Given the impact that the current Japan tariff clearly has on Australian cattle producers’ bottom lines, it is critically important that the entire supply chain carries a common view on what is considered to be an acceptable outcome from the current FTA negotiation process.

Equally important is the need to align bureaucrats’, politicians’ and trade negotiators’ expectations with those at commercial industry level, to avoid the risk of being sacrificed for political mileage. 


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