Mix-up almost put Japan FTA on ice

Marathon talks on Japan free-trade agreement were almost derailed on Sunday.

The marathon talks on a free-trade agreement with Japan were almost derailed last Sunday when a misunderstanding put the entire deal on hold.

Trade Minister Andrew Robb waited hours to restart the negotiations as he tried to get in touch with Japanese Agriculture Minister Yoshimasa Hayashi, who had left Tokyo to return to his home three hours away.

Thankfully for both sides,­ ­Hayashi was on a bullet train, the one way to travel where arrivals can be timed to the split second.

At 6pm on Sunday, the Aus­tralian officials were finally able to put Robb back in touch with ­Hayashi by phone to ensure both sides were clear on the fine print of the agreement.

A few hours later, Tony Abbott and his Japanese counterpart, Shinzo Abe, walked into a private dinner in Tokyo confident a deal was done.

Those involved in the talks told The Australian that the two prime ministers confirmed the broad agreement over dinner but referred some of the details to officials to be wrapped up on Monday morning, knowing the result could be announced that night.

The agreement took almost a decade of work by Coalition and Labor governments but the final days were vital to the outcome.

Hayashi’s participation was crucial because of his background as an opponent of trade liberalisation. As the Agriculture Minister, he had to be satisfied with any concessions given to Australian food exporters.

Robb had a five-hour meeting with Hayashi on Saturday to get a consensus on the cuts to tariffs on Australian beef, in particular the timetable for the reductions.

The Australian side — including negotiators Frances Lisson, Jan Adams and Peter Roberts — had been pushing hard for a “front-end loading” of the tariff reductions so beef producers would see an immediate increase in their Japanese sales.

The other aim was to add a “most favoured nation” provision so that Australia would automatically receive any improvement in the tariff cuts if Japan offered a better deal to anyone else, such as the US.

Late on Saturday, both aims were reached. Robb felt he had secured an outcome that gave Australian beef exporters something like a 10 per cent price advantage over their US competitors because of the difference in the tariffs applied to each country.

While the US had stolen a march on Australia by signing a free-trade agreement with South Korea a few years ago, giving its beef producers a price advantage in that market, Robb had now secured the same sort of victory in Japan.

Then came a catch. On Sunday afternoon it emerged that there was a misunderstanding over Australia’s position. Those involved won’t name the specific problem but say it was about the different treatment of fresh and frozen beef and could be resolved at the top only.

Hayashi had boarded a bullet train for a three-hour journey back to his electorate in Yamaguchi Prefecture, on the southern tip of Honshu.

At the last minute, a phone hook-up was arranged so that Robb could hold another round of negotiations just before 6pm on Sunday.

Insiders say Robb put Australia’s case for the preferred outcome and Hayashi “graciously accepted” there had been a misunderstanding. Given the domestic pressure on Hayashi from the country’s farm lobby, there was a substantial political risk in agreeing to any cuts to tariffs at all.

Abe is popular among voters and has a strong position in both houses of parliament but he risks a backlash from voters in rural electorates.

It was no surprise, then, that the Japanese Prime Minister decided there would not be any questions from the press after he and Abbott made their statements to the cameras on Monday night.

When The Australian spoke to Japanese journalists as the TV crews packed up, some expressed surprise at the extent of the concessions offered on beef and diary products.

This is a very different view to that offered by some in Australia, where parts of the dairy industry have attacked the outcome for not cutting trade barriers fast enough.

The National Farmers Federation has welcomed some of the agreement but bemoaned the inability to get bigger concessions.

US trade negotiators described the Australian deal as “basic” when the first reports emerged on Monday. But if the Australian deal is basic, things are worse for the US.

Japan will begin cutting its ­tariffs on Australian beef, both frozen and fresh, within a year to give Australian producers a level of market access unavailable to any other country.

It may take the US years to catch up. If it does, the “most favoured nation” provision means that Australia will not lose out.

Australian beef exports to Japan are worth $1.4bn a year but are subject to a 38.5 per cent tariff. Once the trade deal is ratified, the tariff on frozen beef will fall by eight percentage points within a year and then drop to 19.5 per cent over time. The tariff on fresh beef will be cut by six percentage points in the first year and then fall to 23.5 per cent over 15 years.

These changes alone could add $300m or $400m to annual beef exports fairly soon, judging by what Australia’s beef industry has told the government.

Dairy industries are not so lucky. Australian cheese exports are worth $372m a year but are subject to an annual quota of 27,000 tonnes. This will be expanded with a further 20,000 tonnes but the changes will take two decades.

Other milk exports will gain an immediate cut in all Japanese duties to expand sales worth about $53m a year. Companies exporting dairy products such as yoghurt also have a chance to build up their sales.

Rice was never going to be part of the Japanese deal and was not part of the Korean free trade agreement concluded in recent months and signed on Tuesday. It is unlikely to be touched in the Chinese agreement that Aus­tralia wants to finalise in the next few months.

Nufarm chairman Donald McGauchie warns against setting unrealistic expectations in these agreements, which cannot satisfy every industry.

“Everybody would like to have the silver bullet from day one. We’ve had a long time since we’ve had as much progress as this in trade negotiations,” he told The Australian.

“And it’s not just incremental in some industries. It’s not what we would have fully wanted, but it is significant movement and next time we deal with Japan there’ll be more movement.”

Industries that do not gain ­directly from the deal, like resources, see it as a boost for the broader national interest.

There were no trade barriers to Australia’s gas exports to Japan but having the new economic partnership will help companies sign up big customers and investors.

“The free trade agreements with both Korea and now Japan really cement our position,” said Woodside chief executive Peter Coleman.

In theory, the Japanese free trade agreement might add 0.66 to 1.79 per cent to Australian GDP after a few years, or roughly $39bn over two decades according to the last government modelling. But this was done in 2005 and based on loose ideas of what the deal might look like, rather than the deal actually done.

The key point is that most industry groups and some of the nation’s biggest companies back the outcome, even if some industry sectors did not get what they wanted.

Related Articles