Summary

Australia has secured a free trade agreement (FTA) with Japan, signifying an historic move toward greater economic and investment relations with our second-largest trading partner.

Japanese investment in Australia continues to grow with a range of high-profile investments, M&A and business development. This deal represents a key part of the Australian Government's broader economic strategy to lower barriers to trade and investment in order to improve economic performance and productivity in Australia.

In this eBulletin we discuss key features and potential implications of the FTA. 

Background

Negotiations for an Australia-Japan FTA have been running since 2007. The latest round of negotiations was led by Trade Minister Andrew Robb in Tokyo with the outcome confirmed yesterday by Australian Prime Minister Tony Abbott and Japanese Prime Minister Shinzo Abe. The deal is likely to be formally signed in July when Mr Abe visits Australia, and will be ratified by each nation to enter into force by the end of 2014.

The announcement comes just before Tony Abbott travels to South Korea to sign another FTA agreed with that country in late 2013.

Key features of the Australia-Japan FTA

The features of the FTA to note at this stage are:

  • the removal of Australia's 5 percent tariffs on Japanese electronic, household and white goods;  
  • the phased removal of tariffs on imported Japanese vehicles;  
  • the removal of rules preventing fund managers in Australia from offering financial services directly to Japanese clients;  
  • increased opportunity for direct access to Japanese customers in other service areas, including legal services and telecommunications;  
  • significant tariff reductions, and preferential access to Japan's agricultural market for the Australian agricultural sector. Australia has been granted its own dairy category which will significantly increase its duty free quota, and tariffs for beef exports will drop to floors of 19.5% for frozen beef and 23.5% for fresh beef over 15 years;  
  • gains in sugar, horticulture, wine, and fruit and vegetable exports; and  
  • a significantly higher threshold applicable to investment proposals required to be referred to the Foreign Investment Review Board (FIRB). The threshold will increase from A$248 million to just over A$1 billion for private investors and be set at A$15 million for purchases of certain agricultural land or agribusinesses.

Implications of the FTA

While the FTA has not yet been signed, and some of the tariff reductions have long lead-times, the terms of the deal are expected to stimulate trade and investment in the short and long term by unlocking Japanese markets for Australian suppliers and decreasing tariffs.

The increase in the FIRB reporting thresholds is also a promising sign for a resurgence of Japanese investment in Australia.

The FTA was also accompanied by an agreement between the two Prime Ministers to strengthen the countries' bilateral defence and security relationship in the region by engaging in talks on sharing military technology.