Japan and Australia - Capitalising on the JAEPA
Announced as “the most liberalising bilateral trade agreement that Japan has ever concluded,” on 8 July 2014, Tony Abbott and Shinzō Abe signed the Japan-Australia Economic Partnership Agreement (JAEPA).
The signing of this agreement is historic. The JAEPA presents great opportunity. Japan is Australia’s second largest trading partner and the world’s third biggest economy.
The signing of the EPA comes on top of the radical efforts by Prime Minister Abe to move Japan out of its deflationary and slow growth period, providing the setting for Australian companies to look at Japan with a fresh set of eyes in terms of trade and also as a source of foreign direct investment.
Japan's economic size, technological and financial strengths are sometimes underestimated by Australian companies. During the past 10 or 15 years, Japan's economic influence has extended beyond its border to other parts of the global economy, including South East Asia. Japanese banks, for example, dominate the project finance space regionally and have an increasing role in the Australian corporate sector. Importantly, the broader political and strategic relationship between Japan and Australia - which was already strong - has reached a new level of maturity and respect and an ideal basis for trade and investment.
Australian companies will have unprecedented opportunity to take advantage of a level of access that Japan has not yet offered to any other trading partner.
What remains to be seen is how well Japanese and Australian businesses capitalise on its potential.
What are the major outcomes of the JAEPA?
In addition to the traditional areas of agriculture and resources the JAEPA improves the basis for trade and investment in increasingly important areas such as financial services and education.
- For beef (Australia’s largest export to Japan), the tariff on frozen beef will decrease from 38.5% to 30.5% and then gradually to 19.5 per cent over 18 years. The tariff for fresh beef will fall from 38.5% to 32.5% immediately and then to 23.5% over 15 years.
- Elimination of the 15% tariff on bottled and sparkling wine over 7 years, with the tariff on wine in containers over 150 litres eliminated immediately and containers between two and 150 litres eliminated over ten years.
- Duty free quotas for Australian cheese for processing and cheese for shredding.
- Immediate and preferential duty free access for milk protein concentrates, lactose and casein, as well as preferential Australia-only quotas for ice cream and frozen yoghurt.
- Tariff elimination on mangoes, dried grapes and a range of berries, asparagus, carrots, potatoes, truffles and other vegetables. Elimination of tariffs up to 10% for grapefruit, pears, apricots, peaches and plums over 5 years and elimination of the 17.5% tariff on apples over 10 years. Tariff elimination up to 6% on macadamia nuts, almonds, pecans and hazelnuts.
- Tariffs on lobsters, crustaceans and shellfish immediately eliminated and the tariff on Australia’s largest seafood export - tuna, and Atlantic salmon - phased out over 10 years.
- Immediate duty free and quota free access for wheat for feed and barley for feed, as well as streamlined export arrangements for some Australian wheat varieties.
- Immediate tariff elimination and reduced levies for high polarity (international standard) raw sugar.
- Elimination of tariffs on various pet foods from entry into force up to 10 years.
Resources and Manufacturing
- Elimination of tariffs for coke and semi coke of coal, non-crude petroleum oils, aluminium hydroxide, titanium dioxide, unwrought nickel and ferro-manganese.
- Elimination of tariffs for key apparel, textiles, woollen blankets and carpets, pearl jewellery, wood products (such as medium density fibreboard, particle board and structured laminated timber). Elimination of tariffs up to 6.5% on a range of plastic products of 4% on sausage casings.
- Duty free access will continue for pharmaceuticals and vitamins, medical instruments and apparatus, wood chips and paper products.
- Raising the screening threshold, at which private Japanese investment in non-sensitive sectors is considered by the Foreign Investment Review Board, from $248 million to $1,078 million. Australia has reserved policy space to screen proposals for investment in agricultural land of over $15 million and agribusinesses of over $53 million.
- Australia and Japan agreed not to include Investor-state Dispute Settlement (ISDS) mechanisms, and these are also expressly excluded from being imported by the most favoured nations treatment clause.
- Australian financial services providers to be able to supply specific financial services on a cross-border basis, without needing to open a full commercial presence. This includes trade in wholesale securities and advice and portfolio management services for investment funds.
- Guaranteed market access for Australian education providers to Japan’s higher education services market, including vocational and technical education.
- Commitments for Australian telecommunications providers on non-discriminatory treatment, regulatory transparency, competitive safeguards and fair and reasonable access to telecommunications networks and services.
- Australian professionals (including architects, engineers and accountants) to benefit from guaranteed existing market access and visa access arrangements, including for their spouse and dependants to enter and stay in Japan.
- Australian innovators and creative industries to enjoy high levels of intellectual property protection in Japan broadly equivalent to protections provided in Australia.
- Commitments to ensure that neither Australia nor Japan impose customs duties on electronic transmissions between the two countries as well as online personal data protection.
- Australian tariffs on Japanese imports will be eliminated on full implementation, including the 5% tariff on Japanese cars, electronics and white goods.
- For some of Australia’s sensitive sectors (our sensitive auto parts, steel, copper, plastics, chemicals and clothing, textiles and footwear) the 5% tariff will be phased out over periods of up to 8 years. The $12,000 specific tariff on Japanese used cars will be retained.
When does the JAEPA come into force?
Before the JAEPA comes into force, both Japan and Australia must complete their domestic treaty processes. For Australia, this includes approval of the agreement by parliament and amendments to relevant legislation. Both Australia and Japan aim to complete their processes by the end of 2014. Once this occurs, Diplomatic Notes will be exchanged and the JAEPA will enter into force 30 days thereafter.
The Road Ahead
For Australian companies, the JAEPA opens the door to Japan much wider than ever before. For many industries, particularly those described above, restrictions on business with and in Japan will be reduced and expect to see leading and innovative Australian companies capitalise with great reward.
Australian consumers and businesses will also benefit from lower prices and a greater choice of Japanese products.
Looking even further ahead, the JAEPA provides a good base for further opportunities to be realised in the negotiation of the Trans-Pacific Partnership and with any structural reforms that Mr Abe can introduce to the benefit of the Japanese economy.
For now, the importance of the JAEPA and the opportunities it presents for Australia and Japan to do business with each other should not be underestimated.
Duncan Marckwald is a Senior Associate currently seconded to one of Japan’s leading law firms, Nishimura & Asahi (N&A) as a Foreign Attorney. More information on N&A is available here.
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