Australia and Japan have signed a landmark free trade agreement (FTA) in Canberra this week that will bring significant economic benefits to exporters in both countries.
The Japan-Australia Economic Partnership Agreement (JAEPA), which was finalized earlier this year after seven years of negotiations, was signed by Australian Prime Minister Abbott and Japanese Prime Minister Abe during Abe’s three-day visit of Australia, the first official visit by a Japanese leader since 2002.
Once JAEPA is fully implemented, more than 97 percent of Australia’s exports to Japan will enter duty-free or receive preferential access, making it the most liberalizing FTA ever signed by Japan.
“This agreement will give Australian exporters better access to the US$5 trillion Japanese market than Japan has provided under any other of its trade agreements. It is particularly encouraging to see Japan’s commitment, for the first time in any trade agreement, to provide Australian financial services companies guaranteed cross-border access in a number of areas, including the provision of investment advice and portfolio management services,” said Jennifer Westacott, Chief Executive of the Business Council of Australia.
Highlights of the agreement include the reduction of tariffs on Japanese electronics, major appliances and cars, which will make Japanese cars up to US$1400 cheaper in Australia. Japan will cut tariffs on all of Australia’s current minerals, energy and manufacturing exports and reduce tariffs on Australian fresh beef to 23.5 percent over 15 years and frozen beef to 19.5 percent over 18 years, giving an estimated US$5.15 billion boost to the beef industry over 20 years.
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Although JAEPA has been hailed for being the most liberalizing FTA ever signed by Japan, the terms are much more modest than those proposed by the U.S. for Japan, Australia and the ten other countries currently in negotiations regarding the Trans-Pacific Partnership (TPP). The TPP, which is on its way to becoming the largest and most ambitious free trade agreement in the world, aims to eventually eliminate all tariffs on all goods.
Despite having made notable progress last year, negotiations for the TPP have recently reached an impasse due to a deadlock between Japan and the U.S. regarding Japan’s ultra-sensitive agricultural import duties. Both Japan and Australia hope that JAEPA will help to drive progress in the TPP talks by pressuring the U.S. to agree to similar terms with Japan as Australia.
JAEPA is Australia’s second bilateral FTA with a major economic power in Northeast Asia following the signature of an FTA between Australia and South Korea in April. An Australia-China FTA is currently under negotiation and is expected to be finalized by the end of the year. China, Japan and South Korea are Australia’s largest, second largest and third largest export markets respectively and together these countries represent over half of Australia’s exports.
Australia and Japan have highly complementary economies and Japan was Australia’s biggest trading partner for more than four decades. Trade between the two countries amounted to US$66.5 billion in 2013, more than 10 percent of Australia’s overall trade.
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