Japan-Australia Economic Partnership Agreement: Key outcomes for the energy and resources sector

In brief

  • Japan-Australia Economic Partnership Agreement (JAEPA) was signed on 8 July 2014 and has been tabled in Parliament for consideration by the Joint Standing Committee on Treaties.
  • The agreement delivers substantial benefits to Australian exporters in the energy and resources sectors.
  • As previously anticipated, the agreement does not include investor-state dispute settlement provisions.

Japanese Prime Minister Shinzo Abe and Australian Prime Minister Tony Abbott signed the Japan-Australia Economic Partnership Agreement,1 following the conclusion of negotiations on 7 April 2014, as discussed in our previous article.2 The text of JAEPA is publicly available on DFAT’s JAEPA website. JAEPA is the second free trade agreement the Coalition has concluded since coming into power in September 2013, having already concluded the Korea-Australia Free Trade Agreement in December 2013.3 Negotiations in relation to a free trade agreement between Australia and China are currently underway, with an agreement expected to be reached by the end of 2014.4

Benefits for Australian exporters and Japanese investors

The agreement is expected to deliver substantial benefits for the Australian economy, including in the energy and resources sector, which is a significant source of trade between the two nations, accounting for over 80% of Australia’s total exports to Japan in 2013. The key outcomes in this area on full implementation of JAEPA is the elimination of tariffs on all of Australia’s current minerals and energy exports. This includes:

  • immediate elimination of tariffs on non-crude petroleum oils,
  • locking in zero tariff rates where they currently apply to certain petroleum oil products (e.g. liquefied natural gas),
  • immediate elimination of tariffs on coke and semi coke of coal, aluminium hydroxide and titanium dioxide, and
  • phasing out of tariffs on unwrought nickel and ferro-manganese over seven years.

JAEPA also encourages Japanese investment into Australia through raising the screening threshold for Japanese investment from $248 million to $1,078 million.

No ISDS Provisions

Importantly for cross-border investors, as previously anticipated,5 JAEPA does not include investor-state dispute settlement (ISDS) provisions, which offer protections against political risks such as expropriation of investment assets or profits and discrimination as between cross-border and national investors.

The inclusion of ISDS provisions in free trade agreements has proven to be a controversial issue, and one in respect of which the former Labor and current Coalition Governments have adopted different positions. The former Labor Government refused to include ISDS provisions in trade agreements, stating that it would not support provisions that conferred greater legal rights on foreign businesses than those available to domestic businesses, or constrained the ability of the Government to make laws on public interest matters. In contrast, the Coalition Government has said that it will approach the inclusion of ISDS provisions on a case-by-case basis, and that the rights of governments to take decisions in the public interest can be protected provided that trade agreements include appropriate safeguards.

Despite this more sympathetic approach towards ISDS provisions, it seems that the Coalition did not consider JAEPA to be an appropriate context in which to agree to ISDS provisions. JAEPA does, however, include a review clause which provides for future consideration of an ISDS mechanism. In any event, to the extent that the Trans-Pacific Partnership (currently under negotiation) includes such provisions, Australian and Japanese cross-border investors may be able to rely on those ISDS mechanisms to protect their investments, as both Australian and Japan are participating in the Trans-Pacific Partnership.

JAEPA will come into force following domestic approval processes in Australia and Japan.