Japan and Australia ‘beef up’ relations

Author: Aurelia George Mulgan, UNSW Canberra

The Economic Partnership Agreement that Japan recently concluded with Australia (JAEPA) has everything to do with Japanese trade strategy and little if anything to do with agricultural reform.

Some of the commentary on the agreement has argued that JAEPA was the product of Abe’s reform agenda, but it is neither part of that agenda nor will it advance it. Other factors were at stake — chiefly relating to Abe’s trade strategy.

Australian Prime Minister Tony Abbott shakes hands with Japanese Prime Minister Shinzo Abe during the National Security Council in Tokyo on 7 April 2014. (Photo: AAP)

The big push factor for Japan was the TPP and the ongoing bilateral negotiations with the United States on agricultural market access. Nobutaka Ishida, researcher at Norinchukin Research Institute, refers to Japan’s ‘ulterior motive of gaining an advantage in the TPP negotiations by concluding the Japan–Australia EPA’. This was the ulterior motive Prime Minister Abe had in sending his TPP Affairs Committee Chairman, Koya Nishikawa, to Australia in the days leading up to Prime Minister Abbott’s visit to Tokyo. His job was to gauge how serious the Australian government was in its endeavor to conclude a trade agreement with Japan in the short term.

The concessions offered to Australia in JAEPA were designed to act as an alternative ‘model’ for dealing with farm commodities that Japan has nominated as exemptions from tariff abolition in the TPP (rice, wheat, beef and pork, dairy products and sugar). Under this model Japan rejects the principle of zero tariffs (the TPP and US template) but agrees to small, quantitative increases in imports by means of staged reductions in tariffs over one to two decades. This is what Australia achieved on beef, and in varying degrees on processed cheese, high polarity sugars and pork. However, these limited concessions were not replicated on other ‘sensitive products’ such as rice, other sugars, wheat, butter, fresh cheese and skim milk powder. Australia was pressing for better market access, but these products were excluded from the agreement.

Even beef was subject to safeguard provisions. The fine print in JAEPA reveals that if imports exceed certain quantities, tariffs on imports will immediately revert to the existing level (38.5 per cent). In the first year after JAEPA comes into effect, the tariff will be increased to this level if import volumes exceed 130,000 tonnes for chilled beef and 195,000 tonnes for frozen beef. This amount will be increased over 10 years. The Nikkei reports a government source as saying that the aim of combining an apparently bold concession on beef with safeguard provisions was to ‘save Australia’s face and achieve results’. Norinchukin Research Institute’s Ishida admits that ‘Japan went no further than essentially to implement a tariff rate quota for beef’.

Japan wants the United States to accept this restricted model of agricultural trade liberalisation in the TPP. Minister for Economic and Fiscal Policy Akira Amari is believed to have proposed lowering the tariffs on US beef instead of removing them — similar to the agreement on Australian beef in JAEPA. As an additional incentive, JAEPA gives Australia an immediate advantage over US exporters (a tariff advantage of 8 percentage points in the first year on frozen beef and 6 percentage points on chilled beef). Under these conditions, the United States will lose market share, and the longer it holds out for better access in the TPP, the more its beef exporters will suffer relative to their Australian counterparts. During the negotiation phase prior to Prime Minister Abbott’s visit to Tokyo last week, Japan’s Minister of Agriculture Yoshimasa Hayashi told Australia’s Minister for Trade and Investment Andrew Robb that ‘[Australian beef] will be given a great advantage in the Japanese market compared to American beef’.

The aim was to pressure the United States to compromise.

In this Japanese trade strategy, JAEPA puts America between a rock and a hard place: either accept some version of the Japan model of agricultural market opening or face the prospect of a TPP without Japan — which USTR Mike Froman has rejected. Japan’s ‘premium’ as a potential trading partner in the TPP has helped it to resist the United States’ considerable gaiatsu (external pressure) in the bilateral negotiations. America needs Japan in the TPP if it is to be a worthwhile enterprise economically, diplomatically and strategically for America’s Asia rebalance.

Japan, on the other hand, has at least two alternative trading agreements that it can use to advance its trade strategy in the East Asian region: the Regional Comprehensive Economic Partnership (RCEP) and the China–Japan–South Korea FTA, neither of which pose as great a threat to its protected agricultural sector and are more accepting of the principle of exemptions.

JAEPA also supports Japan’s use of trade strategy to complement its diplomatic and security strategy vis-à-vis China. During Abbott’s recent visit to Japan, there was talk of Japan and Australia ‘beefing up’ their special relationship and expanding their security partnership alongside the trade partnership, particularly in the area of defence cooperation. This continues the approach that Prime Minister Abe adopted in his previous administration in 2006–07 when he oversaw a subtle shift from exclusive bilateralism to modest minilateralism. The shift reflected his desire to take independent steps to shore up Japan’s security with key partners such as Australia and India.

The absence of an agricultural reform dimension from JAEPA shows Japan’s apparently successful defence of its ‘sacred’ areas from a market-opening onslaught. Dairy beef will be slightly affected by the tariff reductions but even here the impact will be muted by the availability of tariff revenue to fund compensation for dairy cattle farmers. No other areas of Australia’s increased agricultural market access to Japan pose a threat to domestic producers. For this reason, JAEPA cannot be considered as progress on structural reform, the ‘third arrow’ of Abenomics.

The response to JAEPA from Japan’s anti-TPP agricultural cooperative organisation (JA) has been ‘understanding’. JA-Zenchu Chairman Akira Banzai expressed his appreciation for the ‘hard work’ that MAFF Minister Hayashi and other government officials undertook in the negotiations and in achieving as much as they could based on Diet resolutions that demanded that tariffs on ‘sensitive products’ such as beef be exempted from abolition and reduction.

The Japanese government appears committed to a natural process of structural adjustment in the agricultural sector over some decades — not market- or trade-driven. It will be driven by the ageing of the farming population resulting in farm amalgamations as retiring farmers exit the industry, with some government-sanctioned institutional and financial assistance.

Aurelia George Mulgan is Professor at the University of New South Wales, Canberra.

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