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FTA Time for Japan and Australia?

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Pacific Money

FTA Time for Japan and Australia?

It seems Japan and Australia could be close to developing even stronger financial ties.

Japan is set to beat rival China to the punch in signing a free trade agreement (FTA) with Australia, cementing economic ties between the two U.S. allies. While Australian Prime Minister Julia Gillard’s recent China visit sparked talk of finalizing a trade deal with Beijing, a pact with Tokyo could be signed as early as this month, sources say.

Confirmation that an agreement is imminent came on April 8th, when Japan’s Kyodo newswire cited Japanese government sources in claiming a breakthrough on agriculture.

According to the report, Japan would be allowed to retain high tariffs on imports of some of its most “sensitive” farm goods in return for accepting a set amount of such products from Australia at lower rates, excluding rice.

The two nations aim to conclude the FTA talks “this summer” if disagreements on automotive tariffs can be overcome, the report said, with Japanese business media reporting a deal is likely by the end of April.

While agriculture was cited as being a major barrier since talks commenced in 2007, “Australia decided to compromise after Japan formally announced last month that it intended to join the talks on the Trans-Pacific Partnership [TPP] agreement,” it said.

According to the report, Japan had resisted slashing tariffs on beef, wheat, dairy products and sugar as well as rice, but Australia was keen for a deal to boost exports ahead of the TPP’s launch. The so-called “two-stage tariff system” would allow low tariffs for Australian exports of beef and dairy products until their quotas were filled.

Japan imports 60 percent of its food and policies aimed at boosting domestic “food security” have seen high farm tariffs imposed, including 778 percent on rice, 252 percent on wheat and 38.5 percent on beef. Japan’s previous FTA deals have excluded such agricultural products, with the 10-million strong farmers’ organization, JA Group, flexing its political muscles.

Australia runs a healthy trade surplus with Japan, for which Australia accounts for its third-largest source of imports. Under the deal, Tokyo could expect continued secure supplies of Australian coal and liquefied natural gas, along with a potential lift in auto-related exports.

Should the deal eventuate, it would mark a victory for Japanese Prime Minister Shinzo Abe, who with the backing of business lobby Keidanren has committed Japan to talks on the proposed Trans-Pacific Partnership (TPP) as well as launching FTA negotiations with the European Union.

For Australia, an agreement could open up its second-biggest market to further exports of agricultural and mineral resources in addition to services. However, it could also mean more difficulties for the nation’s automakers, with media reports questioning the viability of the heavily subsidized industry.

According to a 2006 joint study, an Australia-Japan FTA would make Japanese consumers A$68 billion wealthier over a 20-year period, with Australian consumers gaining A$19 billion. Due to the complementary nature of trade, GDP gains of up to 1.79 percent for Australia and 0.13 percent for Japan were forecast.

Hopes were high of a pact marking the 50th anniversary of the two nations’ landmark commerce treaty of 1957. However, the talks launched under Australian Prime Minister John Howard and Abe’s first cabinet stalled due to political instability and the impact of the March 2011 disasters.

‘Final stage’

An agreement covering A$76 billion worth of trade has been welcomed by Australian food exporters, given Japan’s position as Asia’s biggest beef importer and second-largest wheat buyer.

Meat & Livestock Australia’s regional manager for Japan, Melanie Brock, told The Diplomat that an FTA deal was likely in 2013, despite an agreement still pending on farm products.

“We’re entering the final stage of the talks. A lot of progress has been made, but some of the larger ticket items remain, such as agriculture,” said Brock, who also chairs the Australian and New Zealand Chamber of Commerce in Japan (ANZCCJ).

She said beef exporters were hopeful of a deal, which was expected to come before Australia’s proposed FTA with China.

However, Japan analyst Donna Weeks was more skeptical, expressing caution about the final form of any trade deal.

“It does appear the agreement will have some exceptions and caveats, so I wonder to what extent it will fulfil the ‘f’ part of the FTA. I'll be interested to see how the FTAs and TPP are going to work together,” she said. 

Should Abe succeed in finalizing a deal mapped out in his first stint as leader, the bigger TPP might not be so threatening for Japan’s farm lobby.