THE Japan-Australia Economic Partnership Agreement (JAEPA) may have arrived in the nick of time to prevent Australia’s share of Japanese beef imports eroding below 50 per cent.
The progressive loosening of restrictions placed on imports of United States beef has been chipping away at Australia’s dominant share of its most valuable beef export market.
When it comes into effect, JAEPA will immediately give Australia a commanding price advantage on chilled and frozen beef.
Currently, Japan places a 38.5 per cent tariff of beef imported from Australia and the US alike.
In the first year of JAEPA coming into effect, the tariff on frozen Australian beef falls to 30.5pc, and the chilled beef tariff will drop to 32.5pc.
Over a period of 18 years, tariffs on frozen Australian beef fall to 19.5pc, and chilled beef will drop to 23.5pc over 15 years.
But Australia’s “front-loaded” tariff advantage, which delivers much of the benefit in the first few years, may be short lived.
Chairman of the Beef Industry’s Australia-Japan Free Trade Agreement Taskforce, Lachie Hart, observed that US President Barack Obama is visiting Japan on April 24 to work on the US-Japan bilateral agreement.
“We’re expecting that the Americans won’t be too happy if we have a competitive advantage over them as far as beef is concerned,” Mr Hart said. “It’s a big market for us both.”
If the US-Japan agreement stalls, Australia will enjoy “a fairly significant price advantage” in the first three years. But if Obama is able to conclude something in the next 12 months, then Australia may be back on an equal footing with the US.
Australia seized advantage in the Japanese market from the United States in the mid-2000s, after Japan suspended all US beef exports in 2003 because of the detection of bovine spongiform encephalopathy (BSE) in the US.
When Japan reopened to US beef imports, it was on the proviso that cattle were under the age of 21 months, which handicapped America’s ability to supply the market.
In February 2013, the age restriction was lifted to 30 months. Increasing volumes of US beef into Japan has pushed Australia’s market share down to the lowest level since opportunity knocked in 2003.
Mr Hart said the grainfed beef coming out of the US suits Japanese tastes, and plays to Japan’s post-WWII ties with America.
“As soon as they were able to get better access to the market, the Japanese trade influenced the market towards the US,” he said.
“It wasn’t necessarily the consumers demanding it, it wasn’t the Japanese government asking for more imports of American beef; it was really driven by the Japanese trade.
“They can import huge volumes of individual cuts from the US, which makes it easier for them to buy just the cuts that they require. Australia does more set-based business, where we have a number of cuts in one container.”
On the other hand, Mr Hart said, Australia is a one-stop shop for all Japanese beef requirements.
“We produce everything from manufacturing grade products for their very large hamburger trade, all the way through to very high quality grain-fed product for their five star hotel chains. And we can do that in a very competitive way.”
After inking JAEPA on Monday, Prime Minister Tony Abbott flew to Korea to sign off on the Korea-Australia FTA (KAFTA) on Tuesday.
Signing of KAFTA won’t automatically kick-start tariff reductions there, Mr Hart said, because there needs to be a ratification process. The progress of that process is being carefully watched by the beef industry.
“Once the Korean deal has been signed, the process has already started - it won’t allow the deal to be renegotiated, but it could slow the process down. It needs to be brought into force this year, otherwise the American competitive advantage in that market will be further widened.”
Commenting on how the Japanese deal progressed - the last-minute deal clinched for beef was better than earlier expectations - Mr Hart said:
“I remember a very senior Japanese politician visited us in the last month. He used the analogy of judo, which Japan is obviously very strong at. He said a judo match typically last from 3-5 minutes, but it’s in the last 30 seconds that the match is won or lost.”
“It’s a typical way of Japanese negotiation, too: the deal is done at one minute to midnight.”
What the deal means for beef
JAPAN currently imposes a 38.5 per cent tariff on beef imports.
The Japan-Australia Economic Partnership Agreement (JAEPA) will mean that annual Australian tariff payments of around $590 million will be cut almost in half.
The provisions include: The tariff on frozen beef will be cut to 19.5pc on full implementation. There will be significant front-end loading, with an eight percentage point cut in the first year, two in the second year and one in the third year. The tariff on fresh beef will be cut to 23.5pc over 15 years. The tariff will be cut by six percentage points in the first year, followed by two annual one percentage point cuts. For Australia, Japan’s 50pc global snapback tariff will be replaced with a discretionary safeguard. Japan’s imports of Australian beef offal, worth $153 million in 2013, will face reduced tariffs within a growing quota. JAEPA will reduce tariffs on imports of Australian preserved and prepared beef, worth over $20 million in 2013, under a growing quota.