The Japan-Australia Economic Partnership Agreement (JAEPA) was signed on 8 July 2014 in Canberra. In this Alert we outline:
some key aspects of JAPEA; and
Businesses interested in trade between Australia and Japan should review the potential benefits available under JAEPA and, importantly, when those benefits will be available.
JAEPA at a glance
Japan is Australia's second largest trading partner. JAEPA has been described by the Australian Government as very positive news for Australian businesses. When JAEPA is fully implemented, more than 97 per cent of Australia's exports to Japan will receive preferential access or enter duty-free.
In addition to the duty outcomes, JAEPA:
Guarantees Australian service providers outcomes equal to or better than the best commitments made in any other of Japan's trade agreements. Australian service providers will be keen to explore opportunities this opens for them in the Japanese services sectors. There are particular benefits for financial, education and telecommunications services.
Promotes Japanese investment in Australia by raising the Foreign Investment Review Board screening threshold for private Japanese investment in non-sensitive sectors. This will require Australia to amend the Foreign Acquisitions and Takeovers Regulations 1989 (Cth) and to update Australia's Foreign Investment Policy. Once implemented, the monetary threshold for review will be aligned with that for private investors from the United States and New Zealand, and will promote further growth and diversification in the flow of Japanese investment into Australia. The treatment of Japanese investment into sensitive sectors (such as media, telecommunications and defence-related industries) will remain unchanged at this time and Australia has reserved policy space to screen proposals for foreign investment in agricultural land and agribusiness.
Contains commitments for protecting Australian intellectual property in Japan. JAEPA also deals with other intellectual property, e-commerce and competition issues. It is worth noting in this context that JAEPA does not affect Australia's Pharmaceutical Benefits Scheme.
Key Duty Outcomes
Australia and Japan have agreed to lower tariffs on a wide variety of goods, including many food products. For example, JAEPA offers tariff reductions on goods such as beef, wine, fruit, vegetables, wheat, barley, lobsters and shellfish.
The tariff imposed by Japan on Australia’s largest seafood export, tuna, and Atlantic salmon, will be phased out over 10 years. There will also be duty free-quotas for Australian cheese, preferential duty-free access for the trade in milk protein concentrates, lactose and casein.
On full implementation of JAEPA, tariffs will be removed on all of Australia's current resources, energy and manufacturing exports. A number of these tariffs will be removed immediately on JAEPA coming into force.
JAEPA provides suppliers with non-discriminatory access to each other's government market for listed government entities and covered supplies. Australian suppliers should check if their supplies and intended Japanese government customers fall within JAEPA. For Australian governments, the majority of JAEPA requirements are already reflected in existing procurement rules.
Limited defence procurements are covered for each State. Some Australian defence suppliers will have a keen interest in this given the Japanese government's recent decision to invest more in defence and change its defence policy to allow Japan to exercise collective self-defence.
No Investor State Dispute Settlement (ISDS)
ISDS provides that an investor may bring a claim in international arbitration against the State in which it has made an investment (i.e. the Host State) in the event that the State does not comply with the investment protections given in a Free Trade Agreement (FTA) or an investment treaty.
JAEPA, unlike other FTAs (such as the Korean-Australian FTA), does not include ISDS provisions. This means that Australian investors will not be able to commence international arbitration against Japan in order to enforce any of the investment protections provided in JAEPA. However, JAEPA does provide that Japan and Australia may review the investment chapter with a view to adding ISDS in order to improve the investment environment.
For more on use of ISDS in Australian trade agreements see our earlier client alert.
Trans Pacific Partnership (TPP)
JAEPA was agreed shortly before high level negotiations between the United States President and Japanese Prime Minister to progress the TPP. Each of these countries are struggling to move past some major impasses for the TPP (particularly Japanese tariffs on agricultural imports and United States access to Japan's major auto market). Once the TPP is finalised, it will be interesting to see whether this has any flow-on effect to JAEPA.
To bring JAEPA into force the following steps must now be completed:
The text along with a national interest analysis will be tabled in the Australian Parliament and will be considered by the Joint Standing Committee on Treaties.
Amendments to relevant legislation will be introduced to Parliament.
It is expected that Japan will undertake its own domestic treaty-making processes during this period.
The intention of both countries is to complete their domestic processes in 2014. The parties then exchange Diplomatic Notes certifying they are ready. JAEPA enters into force 30 days after the exchange of notes.