FRAN KELLY: Australia has landed a free trade agreement with Japan in a deal hailed by both countries as the most significant advance in economic relations in almost 60 years.
Tariff barriers will be reduced or removed on 97 per cent of Australian exports to Japan which could add billions of dollars to economic growth and boost particularly for our agriculture producers. And when it comes to imports, well, Australian consumers will benefit from a fifteen hundred dollar reduction in the price of Japanese cars as the tariff comes off, though Australian component manufacturers are unlikely to be so happy with those tariff cuts.
Trade Minister Andrew Robb is now on his way to Seoul to sign another free trade agreement with South Korea. I spoke to him just before he jumped on the plane.
ANDREW ROBB: Thanks very much Fran
FRAN KELLY: Andrew Robb, two down, one to go. Your target was free trade agreements with South Korea, Japan and China within your first year of government, you’ve now finished two of those, when will Australia start to see the benefits of the end of these tariffs with Japan?
ANDREW ROBB: Well, both of the completed negotiations should take effect before the end of the year. There’s still formal processes through respective parliaments and there is a lot of technical work and hopefully the one settled yesterday can be signed in July when Prime Minister Abe comes to Australia and then it will take just a few months to come into force and we should see the benefits before the end of the year.
FRAN KELLY: The deal requires parliamentary scrutiny by both countries. Labor has said it will have a very close look at this agreement do you expect any hitches?
ANDREW ROBB: No, I don’t. I think the agreement yesterday is another really significant one. It is the first time that a major agricultural country has achieved a breakthrough on the protection that has been afforded so much of agricultural in Japan. For the first time we have unlocked that protection and there will be benefits worth hundreds of millions of dollars in the first year.
FRAN KELLY: I think the beef producers by and large welcome this cut but they were hoping as they told us on the program yesterday, and I’m sure they’ve told you, they were hoping for a complete elimination of tariffs, zero tariffs, that hasn’t happened. They will be halved from 38.5 per cent to 19.5 per cent, but that’s over 15 years. That’s a very long time, isn’t it?
ANDREW ROBB: Well, the important feature is that the first year we have negotiated a very major drop in the tariff, eight per cent, the second year another two per cent, the third year, another one per cent so well over half of the cut happens in the first three years. So it will provide, on the industries own modelling something of the order of 400 million dollars plus in the first year. It’s a most significant development and the beef industry who I have been conferring with have told me that they are absolutely delighted. I think many of them had no expectation of the front end loading of the benefits and also the depths to which the tariff will fall.
FRAN KELLY: Why do we get a much better deal on beef with South Korea than we do with Japan? On South Korea I think it does go to zero tariffs over 15 years?
ANDREW ROBB: Well, in fact in Korea, which is about the best quality deal I think t we’ve ever done. Korea goes down to zero, again over a fair period of time, on nearly every agricultural product except for rice. Korea is in a different situation with less dependence, if you like, on its agricultural sector. Japan has not moved on rice, grain, sugar, dairy and beef, with any other country ever. Korea, in contrast has been progressively adjusting its industry over several years and there is quite a qualitative difference, but Japan now has recognised the importance of adjustment within their economy and we’ve been the beneficiary of that first move.
FRAN KELLY: On cars, Australia had to give something in return, we gave up the five per cent tariff on cars, which mean 75 per cent of Japanese cars, by the time this kicks in I think at the end of the year, will be immediately cheaper. But, what does that do to our component makers because they’ve also, going to lose the protection they have? They’ve had the double whammy of seeing the car industry go from Australia and now also any kind of tariff protection. Are they sort of suffering by not being a noisy lobby group?
ANDREW ROBB: Well firstly, the car benefit will provide a reduced price for the average Japanese vehicle of about fifteen hundred dollars, so immediately this takes effect, so there is a huge benefit straight away to consumers. For the component manufacturers, we struck a quite deliberate deal where their protection goes away over five and six years. So, they’ve got more time to transition. A 100 million adjustment fund that we’re going to apply over the next few months, that will kick in as well. We are very very conscious of the position of the component manufacturers and so many of them if they are given the time, the opportunity and the capital, will be able to transition into global manufacturers and compete in the global supply chain for motor vehicles, in the same way that they’ve been competing and supplying Australian manufacturers in recent decades.
FRAN KELLY: You’re listening to RN Breakfast. We’re speaking with Trade Minister Andrew Robb. Andrew Robb I know you’re about to jump on a plane to go to Seoul to sign the next free trade deal or the one you have already negotiated with South Korea. But just looking at that, this agreement with Japan does not include the investor state dispute settlement clauses; unlike the South Korean agreement that you will sign today. Why not? Is that an acknowledgement that this clause could be harmful to Australia’s interests, especially given Japan’s major mining interests in this country?
ANDREW ROBB: No, no. We said we would look at it on a case-by-case basis. And that’s exactly what we’ve done. In the case of Japan, like the United States, and like New Zealand, where we haven’t got an ISDS – an investor state dispute mechanism – they are countries which we are very familiar with their legal systems and we have total confidence that if there is a dispute, that companies will be able to go through the local legal system with absolute confidence.
Now in the case of Korea, again their legal system is quite strong, but they were particularly adamant for local political reasons to have that provision. But in the main, we have got it with 28 other countries around the world. There has only ever been one case in thirty years, so it is not exactly the sky falling in because we’ve signed up to these things. But they are typically with countries where the legal system is not known well to us or our companies and it’s an added protection in those cases.
FRAN KELLY: Just finally, the Japan deal also lifts the investment threshold for Foreign Investment Review Board scrutiny from $248 million to just over a billion. That’s the same as the South Korea deal. Now you’re on your way to China to try and further negotiations there with the Free Trade Agreement. Given these two have both lifted that investment threshold to one billion dollars, that’s what China are after. Could China fairly look at that and think, well, we’ll get that too?
ANDREW ROBB: Well we have to work through the issue with China. In the case of Korea and Japan, with SOEs – State Owned Enterprises – the threshold is zero. That didn’t change with this agreement. In China, they’re very interested in the investment outcome. But, of course, they’ve predominantly got state owned enterprises. They’ve got quite a lot of private enterprises, and they’re moving to that, but they’ve got predominantly a majority of state owned enterprises.
We’ve got to work through with the Chinese, and negotiate some issues. But the fact of the matter is, wherever you have seen a major trading relationship develop in history, always it is followed with a major investment relationship.
So it is going to be more difficult with the Chinese, but we are going to have to work through it a sensible and constructive way which is mutually satisfactory because the investment component in all of these countries is very important. I think the Japanese deal will guarantee that we go to another level again, like we did in the sixties with the development of iron ore and gas and coal off the back of Japanese investment. I think we’re going to see another wave of major investment in Australia from Japan as a result of this Free Trade Agreement.
FRAN KELLY: Andrew Robb thank you very much for joining us.
ANDREW ROBB: Thank you very much Fran.
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