Australia, Japan Reach Free Trade Accord

April 8, 2014 03:11 AM

via a special arrangement with Informa Economics, Inc.

Agreement could complicate US-Japan issues relative to TPP talks | US beef shipments to Japan may drop

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Australia and Japan announced they will sign a bilateral economic agreement with Japan reducing but not eliminating some of its agricultural tariffs, with Australia eliminating some of its tariffs on Japanese cars. Australia and Japan are leading members of the 12-nation TPP talks and their agreement is seen as carrying weight with other TPP members, including the United States.

The agreement was reached after a summit between Australian Prime Minister Tony Abbott and Japanese Prime Minister Shinzo Abe in Tokyo and announced today (April 7). A Japanese spokeswoman said the two countries would strive to complete the signing and ratification process by year's end. The bilateral agreement is expected to take effect early in 2015 as Japanese Prime Minister Shinzo Abe plans to visit Australia later this year to sign the deal, said Kenji Morita, director at the ministry’s meat and egg division.

Australia would abolish its 5 percent tariffs on Japanese compact and subcompact motor vehicles immediately and abolish tariffs on larger vehicles within three years; abolish tariffs on machinery and electric appliances immediately; and abolish tariffs on steel products within five years. In its bilateral Trans-Pacific Partnership talks with the US, Japan is demanding that the US abolish its 2.5 percent tariff on cars and its 25 percent tariff on trucks.

Under the accord with Australia, Japan would lower its tariffs on Australian beef, now at 38.5 percent, to 19.5 percent for frozen beef and to 23.5 percent for chilled beef. The tariff reductions for frozen beef would be phased in over 18 years while the reductions on chilled beef would be phased in over 15 years. Japanese tariffs on wheat and cheese would be either lowered or eliminated.  Japan can return beef tariffs to 38.5 percent if imports from Australia exceed certain limits. The ceiling for Australian frozen beef was set at 195,000 tons for the initial year of the agreement, which will be raised to 210,000 tons over a decade. The limit for Australian chilled beef was set at 130,000 tons for the initial year, which will be expanded to 145,000 tons.

Of note,  Japanese import duties on rice, milling wheat, sugar, butter and milk powder were maintained.

The two countries agreed that they would refrain from exercising export curbing policies against each other, accord each other most-favored nation status as to investments; and protect intellectual property rights without discrimination and in the most transparent manner possible.

Abbott said in a statement that the agreement "represents a major windfall for Australian beef, our biggest agricultural export to Japan, currently worth (Australian) $1.4 billion." Cheese, fruit, vegetables, and canned products, are also big winners, he said.

Potential impact on US beef exports. US beef shipments to Japan may drop after the largest Asian buyer agreed with Australia to begin reducing import tariffs as early as next year, Japan’s agriculture ministry said. The deal will give Australia an advantage over the US in a market worth 267 billion yen ($2.6 billion) last year, according to Marubeni Research Institute in Tokyo. American beef exporters could lose as much as 80 percent of their sales in Japan unless the US government reaches a similar agreement, according to the ministry. "Japan and Australia reached a general agreement in a satisfactory way for both sides," Economy Minister Akira Amari said. "I hope TPP negotiations with the US will accelerate." The pact is a "major windfall" for Australian beef, the country’s biggest agricultural export to Japan, currently worth A$1.4 billion, Abbott’s office said in a statement.

"We welcome the trade agreement as it will help lower costs for us to purchase supplies," said Naoya Hirotani, a spokesman for Tokyo-based Zensho, the operator of restaurant chains including Sukiya, Cocos and Big Boy. "As tariffs on Australian beef come down, our purchases will increase."

Facts and figures. Japan imported 535,495 tons of beef last year, of which 286,946 tons or 54 percent was from Australia, 186,164 tons were from the US, and 29,459 tons were from New Zealand, according to data from the ministry. Frozen beef represented 58 percent of the meat from Australia and was used mainly for processed food including hamburgers. Chilled beef is sold at supermarkets and served at restaurants in thin strips.  Australian beef typically competes in Japan with locally produced meat from dairy cows and other cattle, which represents 31 percent of total Japanese production, according to the agriculture ministry. Premium beef from wagyu cattle account for 46 percent of the total Japanese output and won’t be threatened by the trade deal, according to Morita at the ministry’s meat division.

Meanwhile, Japanese and US senior government officials on Monday reopened their TPP negotiations in Tokyo. US Trade Representative Michael Froman is expected to visit Tokyo later this week, likely meeting his counterpart, Economics Minister Akira Amari, on April 9 or 10, Japanese officials said. Reports note that Japan maintained its position of refusing to eliminate tariffs in the five sensitive agricultural areas while demanding that the US abolish its tariffs on Japanese automobiles.

Comments: Some US farm groups are insisting that Japan eliminate their tariffs in any TPP accord. US-Japan talks have been at odds over tariffs on farm trade, with Japan wanting to keep some tariffs at reduced levels. Some Washington observers say that if Japan does not go far enough on market access in farm and auto markets, the result will be more lawmaker opposition against any final TPP. "The outcome in the Australia-Japan agreement is significantly less ambitious than leaders agreed to seek in the Trans-Pacific Partnership," said a spokesman for US Trade Representative Mike Froman, a clear signal that more will be needed from Japan relative to ongoing trade talks with the United States.

In a likely signal to the United States negotiators, Japanese Agriculture Minister Yoshimasa Hayashi said his country "made an accord that won’t undermine domestic agricultural production. Australia showed flexibility in the negotiation." JA Group, Japan’s largest farm lobby and the biggest source of opposition to the TPP, acknowledged the agreement with Australia as "the result of tough negotiations by Japanese government officials," according to Chairman Akira Banzai.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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