Japan and Australia have agreed on a trade deal after seven years of negotiations. Japan is Australia’s second largest export market, accounting for 18% of total exports. The latest trade deal is rare as Japan seldom makes concessions on its rigid agricultural tariffs.
Under the new agreement, tariffs on Aussie beef will be reduced to 18.5% over the next 15 years, from 38.5% now. This is expected to boost the Australian beef industry by A$5.5 billion over the next two decades (the industry is currently valued at about A$7.4 billion). Horticulture and wine exporters were the other big winners, though very few concessions were made on sugar, dairy and grain exports. In return, Australia will abolish a 5% tariff on Japanese electronic goods and three-quarters of auto products; the remaining auto tariffs will be phased out over the next three years.
The gains to Australian farmers may be modest. Nevertheless, the move to ease trade restrictions opens the door for future negotiations. From a Japanese perspective, this is a tangible step towards a more-free market based economy. It also shows the government is willing to take on the powerful agricultural lobbyists, who are opposed to liberalisation.
Fred Gibson is an Associate Economist at Moody's Analytics.
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