Article – Tony Abbott concludes free trade agreement with Japan

7 April 2014
David Crowe
The Australian

EXPORTERS will add billions of dollars to Australia’s economic growth under a trade deal struck with Japan tonight to give beef, dairy, sugar and other industries far bigger concessions than they expected.

Slashing barriers to Australian products, the Japanese government agreed to a dramatic increase in food imports — such as almost doubling the quota for dairy products — while also clearing the way for stronger trade in resources and services.
Australia has given ground in return to cut the price that consumers pay for Japanese cars, auto components, white goods and electronics, most of which will be free of tariffs within a year of the trade deal being ratified.
The Australian beef industry could grow by $2.6 billion over 20 years and others could post similar gains, according to the initial analysis offered by those close to the talks.
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.
But it includes a sharp increase in the threshold for Japanese investments that must be cleared by the Foreign Investment Review Board, lifting it from $248m to just over $1bn for deals other than farm and agribusiness acquisitions.
Tony Abbott announced the outcome with his Japanese Prime Minister Shinzo Abe in Tokyo, hailing it as a gain for both countries that ranks second only to their foundation economic agreement in 1957.
The two leaders sealed the agreement at a private dinner last night when the Japanese leader emphasised the importance of the outcome to a wider strategic relationship between both countries, including new talks on sharing military technology.
While optimism about the outcome had been building for days as Trade Minister Andrew Robb negotiated with his Japanese counterparts, the scale of the agreement goes well beyond initial expectations.
Mr Robb said the result was historic in terms of Japan’s willingness to liberalise trade even though rice was excluded from the talks.
Japan will begin cutting its tariffs on frozen and fresh beef within a year to give Australian producers a level of market access unavailable to any other country.
Australian beef exports to Japan are worth $1.4bn a year but are subject to a 38.5 per cent tariff that pushes up prices for Japanese consumers and limits sales.
The tariff on frozen beef will fall by 8 percentage points within a year and then drop to 19.5 per cent over time.
The tariff on fresh beef will be cut by 6 percentage points in the first year and then fall to 23.5 per cent over 15 years.
While industry experts had little time to analyse the economic impact of the changes, government sources said it could add $300m or more to annual exports and add $2.8bn to the size of the beef industry in Australia over two decades.
Australian cheese exports are worth $372m a year but are subject to an annual quota of 27,000 tonnes, but this will be expanded with a further 20,000 tonnes in stages over two decades.
Other milk exports will gain an immediate cut in all Japanese duties to expand sales worth about $53m a year.
While the full impact is yet to be studied, a government analysis in 2005 suggested that a deal would add between 0.66 and 1.79 per cent to Australian GDP in 2020. This was calculated to add $39bn to the economy over two decades.
The Australian concessions will be difficult for the government because they sacrifice tariff revenue just as Joe Hockey seeks to scale back the budget deficit.
The 5 per tariff on Japanese cars will be dropped within a year for three quarters of the vehicles that enter the market, with the remainder losing the tariff within three years. The 5 per cent tariff on components will fall over five years.
With Australians spending about $6.8bn a year on Japanese cars, the tariff cut costs $340m the government $340m a year.
“After seven long years of negotiation this historic agreement has been concluded,” Mr Robb said.
The outcome adds to the federal government’s recent conclusion of a free-trade agreement with Korea, which will be formalised tomorrow when Mr Abbott flies from Tokyo to Seoul.
The Japanese free trade agreement is similar to the Korean deal but is said to far exceed the concessions offered by Japan to other nations.
It also lays the groundwork for further trade talks on the Trans Pacific Partnership, a regional trade pact being discussed by more than a dozen countries including the US, Singapore, New Zealand as well as Australia and Japan.
Any concessions offered by Japan in the TPP talks, such as agreements on beef and dairy, will also be added to the gains made in the Japan Australia Economic Partnership Agreement.
Courtesy of the Australian