Free trade agreement with Japan secured, but does it go far enough?

Prime Minister Tony Abbott has secured a long-sought free trade agreement with Japan, managing to negotiate lower import tariffs for key agricultural industries such as beef.

The deal is considered the most significant advancement in the economic relationship of the countries since the 1957 post-war trade pact.

It’s being heralded by the government as a win for businesses, but some agricultural groups are saying the agreement falls short.

National Farmers Federation general manager of policy Tony Mahar told SmartCompany he hopes the agreement will be developed further with the Trans-Pacific Partnership.

“We recognise there are some gains through this FTA, and the beef sector was probably the highest priority in terms of the gains, but at the end of the day there will still be a tariff of almost 20%,” he says.

The Japan-Australia Economic Partnership Agreement will see the tariff on frozen beef reduced from 38.5% to 19.5% over time.

Other agricultural areas to benefit from the agreement include cheese, horticulture and wine.

Trade Minister Andrew Robb said in a statement Australia is the first major agricultural exporting economy to secure a liberalising agreement with Japan.

“Cheese, by far Australia’s largest dairy export to Japan at $372 million, will gain significant new duty-free access. Australian horticultural producers will gain from immediate tariff eliminations across a wide array of fruit, vegetables and nuts,” he says.

“The tariffs on canned products such as tomatoes, peaches and pears, as well as fruit and vegetable juices, will also be eliminated.”

The deal is the second FTA to be successfully negotiated under the Abbott government, with a trade pact with South Korea already secured.

 Japan is currently Australia’s second largest export market and through the deal tariffs will be reduced or removed on 97% of Australian exports to Japan.

The beef industry is expected to grow by around $2.84 billion over the next 20 years.

Mahar says this shows there will be significant benefits, but more is needed.

“Agriculture is a sensitive area in Japan, but we need to push for a more liberalised economy in Japan. We’re supportive of the government’s approach… I understand there is a provision for a review of the FTA in five years, so this will be a priority for us,” he says.

“Also, if the TPP is signed in the next year or two and there are preferential arrangements, we’d like to see Australia align with these arrangements.”

Founder of Dearin and Associates, Cynthia Dearin, told SmartCompany the deal is reasonably straightforward and has few downsides.

“The automotive sector in Australia won’t be happy because tariffs on imported cars have been scratched,” she says.

“But for Australians, they will have access to cheaper electrical goods and cars, so from the view of the consumer this is a positive.”

The confectionery sector is also set to benefit from the agreement, with approximately 95% of Australia’s chocolate exports now able to enter Japan duty-free or at a reduce tariff.

Australian Industry Group chief executive Innes Willox said in a statement businesses will need to adapt in the domestic market to Japanese goods having lower prices.

“Removing Australia’s remaining tariffs on imports from Japan will clearly adversely impact many businesses supplying domestic markets,” he says.

On the plus side, the indications are that the facilitation of investment and trade in business services should assist industry to better participate in supply chains linked to Japan including in the exchange of higher value-added goods and services.”

The Australian Dairy Industry Council has labelled the agreement a “dud deal”, as it estimates the industry will save just $4.7 million in the first year of its implementation.

Out of the total export market worth $511 million, the Council estimated the industry would save just $11.6 million a year by 2031.

ADIC deputy chair Robert Poole said the FTA was a disappointment to the sector.

“There has been no movement in this agreement on fresh cheese – the number one objective for Australian dairy, with tariffs to remain at 29.8%. A successful outcome on this tariff line would have delivered approximately $60 million in tariff savings,” he says.

“This deal sends all the wrong signals to our key trading partners and is particularly troubling in the context of the upcoming FTA negotiations with China.”