Australian EPA: Let them eat beef (but not cheese)

April 14th, 2014 by Philip Brasor & Masako Tsubuku

Stuck in the middle: Australian cheese competing in the dairy case with New Zealand and Switzerland

Stuck in the middle: Australia cheese competing in the dairy case with New Zealand and Switzerland

Though its participation in the Trans-Pacific Partnership seems to be dead in the water for the time being, last week Japan signed an Economic Partnership Agreement (EPA) with Australia that could revive Japan’s TPP hopes, but before we get to who lost and who won in the Australian deal, let’s talk about cheese.

Personally, we were looking forward to some sort or tariff reduction on Aussie cheese, not because we prefer Aussie cheese over other kinds, but because all so-called natural cheese — meaning not processed — is expensive in Japan owing to the dairy farmers lobby and their demand for high tariffs on imported milk products.

Japan is close to an EPA with the European Union, but the cheese tariff will likely remain. The Australian EPA only addresses natural cheese that is exported to Japan for purposes of being blended with other ingredients to make processed cheese. The tariff on such cheeses will be reduced from 40 to 0 percent over time, but the tariff on natural cheese that is sold to the public in stores will remain at 29.8 percent, so no cheap cheddar right away.

According to Asahi Shimbun, cheese consumption in Japan is steadily rising. Japanese bought 285,000 tons of cheese in 2012, twice as much as they did in 1992. The agriculture ministry predicts that consumption will increase by 40,000 tons over the next 10 years, and domestic production will not be able to satisfy this demand.

Nevertheless, dairy farmers insist on keeping the tariff at its current level, otherwise they say they’ll be wiped out. We’re talking small dairy farmers, not big companies like Meiji and Yukijirushi, which will probably benefit from the tariff since they deal in processed cheese. Naturally, Australian dairy farmers are disappointed that the tariff for natural cheese was not reduced, since the bulk of their export business is cheese for consumers, not cheese for processing.

On the other hand, beef producers are quite happy with the EPA. As a result of the agreement, beef exports to Japan are expected to increase by $5.5 billion (¥530 billion) over the next 20 years, which should give pause to American trade negotiators. Right now the tariff on beef is 38.5 percent, and that will decrease to 19.5 percent in 18 years for frozen beef and to 23.5 percent for refrigerated beef.

Vintners are even more encouraged by the EPA. In seven years the tariff on Australian wine to Japan will be reduced to zero, which means they’ll be more competitive with wines from Chile, which completed an EPA with Japan some years ago. Since then, sales of Australian wines in Japan declined by a third. Right now Australia claims 4 percent of Japan’s wine market and Chile 14 percent.

As with cheese, wine consumption in Japan is also on the rise, so Australian wine makers are confident they can regain the market share they lost when Chile signed its EPA with Japan. However, it should also be noted that in accordance with the aforementioned EPA that Japan is working out with the EU, European wine tariffs will also eventually be reduced to zero, so competition will likely get fiercer.

What does Japan get out of this? Mainly less restrictions for automobile sales in Australia. Half the goods and services exported to Australia from Japan is in the form of automobiles: 359,170 cars in 2013, second only to the U.S. — a far second, since American exported 1.7 million vehicles to Down Under. Japan was desperate to get a deal on cars because in accordance with a trade agreement with Korea, Australian duties on Korean cars will drop to zero by 2015.

For the record, 70 percent of Australian exports to Japan are in the energy and mining sectors — coal, natural gas, iron ore — and aren’t taxed because Japan no longer has much of a mining industry to protect and desperately needs these resources. However, it should be pointed out that Australia is No. 10 on the list of countries receiving Japanese exports, about ¥1.7 trillion a year; while Japan is No. 3 on the list of countries receiving Australian exports, about ¥5 trillion. So you decide who gets the better deal in this agreement.

Us? We’d rather have cheese.

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