The Japanese Parliament has given the green light to a free trade agreement with Australia, paving the way for the trade pact to take effect early next year.
Under the FTA, which is officially called the Japan-Australia Economic Partnership Agreement (JAEPA), the two countries will eliminate or at least drastically cut import tariffs on most products traded between them.
The trade pact will also give Australia a significant competitive advantage in the lucrative Japanese beef market over its main rival, the United States.
The House of Councillors, the upper house of Japan’s Parliament, approved the FTA by a majority vote at its plenary session last week.
The House of Representatives, the more powerful lower house, had approved the FTA at its full session on October 31.
Japanese Prime Minister Shinzo Abe and Australian Prime Minister Tony Abbott, signed the free trade agreement in July in Canberra after seven years of tough negotiations.
According to the government-affiliated Japan External Trade Organization (JETRO), Japan exported $17.06 billion worth of products to Australia and imported $51.36 billion worth of goods from Australia in 2013.
Japan has free trade agreements with 12 countries and the 10-member Association of Southeast Asian Nations. But Australia is the first major agricultural exporting country to sign an FTA with Japan.
Japan and Australia signed the FTA after resolving the dispute over Japan’s high import tariffs on Australian beef, the biggest sticking point in the negotiations.
Tokyo will lower its tariffs on Australian beef in stages from the current 38.5 percent. The tariff on frozen beef, which is mainly used for processed foods for restaurants, will be cut to 19.5 percent in 18 years, while that on chilled beef, which is mainly sold at supermarkets, will be cut to 23.5 percent in 15 years.
Australia is the biggest beef exporter to Japan, but the US is fast gaining on Australia in the Japanese market. Canberra initially called for an elimination of Japanese import tariffs on Australian beef, but it softened its position and accepted lower tariffs, apparently in the hope of gaining a competitive advantage over the US.
US beef will continue to be subject to Japanese import tariffs of 38.5 percent.
Import tariff on Japanese cars
The FTA with Australia will also benefit Japan as Canberra agreed to eliminate its 5 percent import tariff on Japanese cars within three years. Cars account for nearly half of Japan’s overall exports to Australia in terms of value.
Canberra also agreed to exclude rice, Japan’s most politically sensitive item, from tariff elimination or reduction.
The Australian Government introduced legislation needed to implement the agreement into Parliament on October 29.
China Free Trade Agreement
Trade Minister Andrew Robb introduced The Customs Amendment (Japan-Australia Economic Partnership Agreement Implementation) Bill 2014 and the Customs Tariff Amendment (Japan-Australia Economic Partnership Agreement Implementation) Bill 2014 and their explanatory memoranda into the House of Representatives.
JAEPA is Australia's second bilateral trade agreement to be concluded with a major trading partner in North Asia after an FTA with Korea was signed in April 2014. An FTA with China is currently under negotiation.
Together these three economies represent over half of Australia's exports.
Key benefits of JAEPA
- More than 97 per cent of Australia's exports to Japan will enter duty-free or will receive preferential access when JAEPA is fully-implemented
- JAEPA will slash prohibitive agricultural tariffs on a wide range of products to Australia's second-largest agricultural export market, including rapid tariff reductions for beef, Australia's largest agricultural export to Japan
- JAEPA eliminates tariffs on all of Australia's current minerals, energy and manufacturing exports
- JAEPA guarantees Australian service providers outcomes equal to or better than the best commitments Japan has made in any of its other trade agreements
- Under JAEPA, both governments will support work towards enhanced mutual recognition of professional qualifications
- JAEPA will promote Japanese investment in Australia by raising the screening threshold at which private Japanese investment in non-sensitive sectors is considered by the Foreign Investment Review Board
- Australian innovators will enjoy levels of protection for their intellectual property in Japan broadly equivalent to protections provided in Australia
Japan market snapshot
- GDP: US$4.902 trillion (2013)
- GDP per capita: US$38,491 (2013)
- GDP growth: 1.5 per cent (2013)
- Population: 127.3 million (2013)
- Trade with Australia: AU$70.8 billion (2013)