Australia and Japan have recently concluded negotiations on an economic agreement which will reduce tariff barriers on the majority of Australian exports to Japan. In contrast to the recently concluded Korea-Australia Free Trade Agreement, it does not include an investor-state dispute settlement mechanism. Partner Peter O'Donahoo , Senior Associate Hilary Birks and Lawyer Anna McMahon report.
How does it affect you?
- Australian exporters of beef, cheese, horticulture, wine and seafood should benefit from preferential access to the Japanese market, and tariffs for wool, cotton, lamb and beer will be eliminated over time.
- On full implementation of the Japan-Australia Economic Partnership Agreement (the JAEPA), Australian exports of energy and minerals and manufactured products will be free of duties upon entry into Japan.
- In contrast to the Korea-Australia Free Trade Agreement (the KAFTA), there is no mechanism in the JAEPA for an Australian investor in Japan or a Japanese investor in Australia (each, a foreign investor) to resolve disputes against the host state under an equivalent investor-state dispute settlement (ISDS) regime. This limits a foreign investor's options for resolving disputes against the host state.
On 7 April 2014, Australian Prime Minister Tony Abbott and Minister for Trade and Investment Andrew Robb announced that Australia had concluded negotiations with Japan for the JAEPA.1 The Australian Government's media release states that Australia is the 'first major agricultural exporting economy to conclude such a liberalising agreement with Japan'.2 The full terms of the JAEPA are not available but the Department of Foreign Affairs and Trade (DFAT) has published an overview of the agreed terms.3
The finalisation of the JAEPA closely follows the conclusion of the KAFTA, which was formally executed by the Republic of Korea and Australia at a signing ceremony in Seoul on 8 April 2014.4 For further information on the ISDS provisions of the KAFTA, read our earlier Focus: Investor-State Dispute Settlement under the Korea-Australia Free Trade Agreement.
Unlike the KAFTA, notably, the JAEPA does not include an ISDS mechanism.
In its published overview of the JAEPA, DFAT announced that a key outcome of the agreement is that, once fully implemented, the JAEPA will give a number of Australian producers and exporters a significant competitive advantage.5 More than 97 per cent of Australia's agricultural and industrial exports to Japan will receive preferential access or enter Japan duty-free and Australian services providers will also benefit.
Tariffs of up to 219 per cent will be eliminated or significantly reduced on many exports including beef, cheese, horticulture, wine and seafood.
Tariffs for wool, cotton, lamb and beer will be eliminated.
On coming into force, 99.7 per cent of Australia's exports of energy and minerals and manufactured products to Japan (by value) will be free from duty on entry into Japan, with 100 per cent benefiting from duty-free entry into Japan on full implementation.
Over 10 years, tariffs will be eliminated for resource products that do not already enter Japan duty free. This will include immediate tariff elimination for coking coal, petroleum oils, aluminium hydroxide and titanium dioxide.
The JAEPA is said to guarantee Australian services suppliers access to:
- the Japanese market in areas such as financial services, education, telecommunications and legal services; and
- the Japanese public sector procurement market.6
DFAT has announced that the terms of the JAEPA are equal to, or more favourable than, 'the best commitments Japan has made in any of its other trade agreements'.7
The JAEPA will reduce Australian tariffs on cars and household and electronic consumer goods manufactured in Japan. Furthermore, the JAEPA should promote Japanese investment in Australia by raising the screening threshold at which private Japanese investment in non-sensitive areas will be considered by the Foreign Investment Review Board, from $248 million to $1,078 million. There are expected to be carve outs for the review of Japanese investment proposals in agricultural land and agribusinesses, which are considered to be some of the more politically sensitive industries.
In a recent interview, Federal Trade Minister Andrew Robb confirmed that, in contrast to the recently concluded KAFTA, the JAEPA will not include an ISDS regime.8 This appears to reflect the Coalition Government's policy position that it will consider the inclusion of an ISDS regime in trade agreements on a case-by-case basis.9
The decision to exclude an ISDS regime from the JAEPA should be viewed in light of the ongoing negotiations between Australia, the United States, Japan and nine other Asia Pacific countries (not including the Republic of Korea) for the Trans-Pacific Partnership (TPP) agreement. The United States has been negotiating for the inclusion of an ISDS regime in the TPP agreement. Based on the Australian Government's current policy position, the Australian Government will consider the inclusion of an ISDS regime in the TPP agreement but has not yet committed either way. If an ISDS mechanism is ultimately included in the TPP agreement this would mean that both Australia and Japan would be subject to an ISDS regime within the scope of the terms of the TPP agreement, notwithstanding that it is not part of the JAEPA.
The JAEPA is likely to enter into force later this year following the necessary Australian and Japanese parliamentary approvals, offering Australian producers and exporters particular competitive advantages. While the exclusion of an ISDS mechanism from the JAEPA limits a foreign investor's options for resolving a dispute with a host state, the impact may be diluted if an ISDS mechanism is included in the TPP agreement. Whether this occurs remains to be seen, and is an issue which we will continue to monitor closely.
- See media release from the Department of Trade and Investment, 10 April 2014.
- See Japan - Australia Economic Partnership Agreement - Key Outcomes for an overview.
- See media release from the Department of Trade and Investment, 11 April 2014.
- See Japan-Australia Economic Partnership Agreement - Key Outcomes (see above).
- Andrew Robb, ABC Radio National interview, 10 April 2014.
- As outlined in The Coalition's Policy for Trade, September 2013.