MercoPress. South Atlantic News Agency

Japan/Australia trade agreement cracks tariffs on frozen and chilled beef

Prime Minister Shinzo Abe plans to visit Australia later this year to sign the deal

United States beef shipments to Japan may drop after the largest Asian buyer inked this week a deal with Australia to begin reducing import tariffs as early as next year, the Japanese agriculture ministry said.

 Japan agreed to gradually lower tariffs on imports of frozen beef from Australia to 19.5% and cut duties on chilled beef to 23.5% in a bilateral accord reached Monday. The levies are now 38.5%, and the reductions will take place over 18 years and 15 years, respectively.

The deal will give Australia an advantage over the U.S. in a market worth over 2 billion dollars last year, according to Marubeni Research Institute in Tokyo. American beef exporters could lose as much as 80% of their sales in Japan unless the U.S. government is able to secure a similar deal, the ministry said.

The bilateral agreement is expected to take effect early in 2015 as Prime Minister Shinzo Abe plans to visit Australia later this year to sign the deal, said Kenji Morita, director at the ministry’s meat and egg division. President Barack Obama will visit Japan this month and discuss plans for the TPP with Abe.

Japan imported 535,495 tons of beef last year, of which 286,946 tons, or 54% was from Australia, 186,164 tons from the U.S. and 29,459 tons were from New Zealand, according to data from the ministry.

Frozen beef represented 58% of the meat from Australia and was used mainly for processed food, including hamburgers. Chilled beef is sold at supermarkets and served at restaurants in thin strips.

The agreement, when fully exercised, will effectively slash Australia’s current 590 million annual tariff bill in Japan by close to half.

The key aspects of the FTA deal relating to Australian beef access are as follows: Frozen: Tariff reduction from 38.5% to 19.5% over an 18-year period.

Significant ‘front loading’ will occur, meaning the rate of tariff decline will be greater earlier in the adjustment period, but lesser later on. Year-one, for example, will see frozen tariffs decline from 38.5pc to 30.5% – a huge single year drop of 8 percentage points. Year-two will fall to 28.5%; year-three, 27.5% and then a lineal decline to 19.5% in year 18.

For chilled beef, reduction from 38.5% to 23.5% over 15 years. Year-one will see a 6 percentage points decline from 38.5% to 32.5%, then a further drop to 31.5% the next year, and 30.5% in year-three, with lineal decline then to year 15 to 23.5%.

The agreement will has ‘safeguard’ contingencies built in designed to protect the Japanese industry from being ‘swamped’; on frozen beef exports, the safeguard trigger point will be 195,000 tons, with any Australian exports above that figure in the first 12 months automatically ‘snapping back’ to 38.5%. Growth will be built into the frozen safeguard trigger-point of about 1500 tons each year, over 10 years.

On chilled beef exports, the safeguard trigger point will start at 130,000t, with the same 1.500t addition to the figure each year for ten years.

The agreement also contains significant review clauses: Should another exporter country get a better deal on beef with Japan under another bilateral agreement, Australia will automatically ‘upgrade’ to that deal; There are reviews scheduled for five years’ time, to potentially re-negotiate better outcomes under the agreement, should circumstances change.

Australian Beef Industry Japan FTA Taskforce chairman Lachie Hart said modeling was suggesting the agreement would benefit Australian cattle producers to the tune of 2.84 billion over 20 years, while Japanese consumers would benefit by about 6.1 billion.

“For every 100 worth of Australian beef sold into the market, 38.50 is currently paid to the Japanese Government in tariffs,” Mr Hart said. “That represents an annual tariff impost of around A590m dollars, the burden of which is borne by the Australian beef industry and Japanese consumers.”