On 7 April 2014, Australia and Japan concluded negotiations for an Economic Partnership Agreement. The Japan-Australia Economic Partnership Agreement (JAEPA) is said to be the most liberalising bilateral trade agreement that Japan has concluded to date, with Australia being the first major agricultural exporter to unlock Japan’s high import barriers.

Value Of Trade

Japan is the world’s third-largest economy, and is Australia’s second-largest two-way trading partner. Trade with Japan was valued at AUD 69.2 billion in 2012-13, accounting for 11 per cent of Australia’s total trade. Australia is Japan’s tenth-largest export market, and Japan’s third largest source of imports.

Benefits To Australian Exporters

JAEPA is anticipated to give many Australian producers and exporters a significant competitive advantage, with more than 97 per cent of Australia’s exports to Japan to receive preferential access or enter duty-free once JAEPA is fully implemented.

In particular, we note that:

• exporters of agricultural goods are expected to benefit from the agreement, with Japanese tariffs on frozen beef to be halved from 38.5 per cent to 19.5 per cent under the agreement,
• Australian industrial exporters also stand to benefit from JAPEA, with 100 per cent of Australia’s industrial exports to enter Japan duty-free once JAEPA is fully implemented, and
• while many of Australia’s major resource exports already enter Japan duty-free, Japan will eliminate tariffs for all remaining resource products over the next 10 years.

Benefits To Japanese Exporters

Japanese exporters will also see reduced Australian tariffs on electronics, whitegoods and, importantly, cars, which are one of Japan’s major exports to Australia. JAEPA will also promote growth in the flow of Japanese investment into Australia by raising the screening threshold for private foreign investment from AUD 248 to AUD 1,078 million in non-sensitive sectors.

Investor-State Dispute Settlement Provisions

It has been reported¹ that investor-state dispute settlement (ISDS) mechanisms will not be included in JAEPA. If this is the case, the agreement will represent an interesting example of the Australian government’s new ‘case-by-case’ approach to assessing ISDS provisions in bilateral trade agreements, as we discussed in our previous article.² Nonetheless, it is still expected that the Trans Pacific Partnership (TPP), a regional free trade agreement currently being negotiated by twelve states including both Japan and Australia, will include ISDS provisions following pressure from the United States. As such, an absence of ISDS provisions in JAEPA will not be of serious concern to Japanese and Australian investors given that both countries will likely be bound by ISDS mechanisms included in the TPP in the near future. We discussed the possible inclusion of ISDS provisions in the TPP in our previous article.³

Next steps

JAEPA will come into force following domestic approval processes in Australia and Japan later this year. It is anticipated that Prime Minister Abe will sign the agreement on his planned visit to Australia in June.

Australian Prime Minister, Tony Abbott, and the Minister for Trade and Investment, Andrew Robb, have released media statements.⁴

End Notes:

1. SMH Article – ISDS: The trap the Australia-Japan Free Trade Agreement escaped
2. It’s official – the Australian Government’s position on investor-state dispute settlement
3. International trade in the Asia-Pacific: Navigating risks, rights and responsibilities
4. Prime Minister, Tony Abbott media release and Minister for Trade and Investment, Andrew Robb media release

For further information, please contact:

Leon Chung, Partner, Herbert Smith Freehills

[email protected]

Homegrown International Trade Law Firms in Japan