Key issues and committee view
The committee's inquiry was focused on the provisions of the proposed
legislation rather than JAEPA more generally. However, most submissions to the
inquiry raised broader issues which were not matters covered by the provisions
of the bills. Key issues raised included:
the context to the agreement;
a range of implementation issues;
trade outcomes and tariff reductions; and
rules of origin issues.
Context to JAEPA
The importance of Australia establishing a bilateral trade agreement
with Japan was stressed in a number of submissions. For example, in the case of
vegetable exports, AUSVEG observed that despite 'some favourable results from
Australia's FTAs of the last decade, international vegetable market remains
relatively distorted' with 'many trading partners [having] high tariffs on
vegetable imports'. It noted that while only 7 per cent of Australian vegetable
production is exported 'there is growing recognition that expansion to
international markets mitigates domestic market risks and increases the scope
for future growth'.
Japan's [economic partnership agreement (EPA)] negotiations
with Australia's competitors in the Japanese market, including the European
Union (EU), Canada and China, are ongoing. Successful completion of EPA's with
China, the EU and Canada will put pressure on Australia's current market share.
China's generally low cost of production and subsequent price to market give
the country a significant competitive advantage. Both Canada and the EU are currently
Australia's main competitors in export to Japan; with comparable vegetable
In this context, AUSVEG supported a pragmatic approach of targeting
trading partners such as Japan for comprehensive bilateral agreements, while
slower moving, multilateral trade policy reform takes place.
In relation to beef exports, the Australian Beef Industry Japan FTA
Taskforce considered that 'JAEPA is critical to the long term positioning of
Australian red meat, with a more liberalised import regime in Japan providing a
welcome boost in an environment characterised by increasing competitive
One large beef exporter, JBS Australia, noted that 'any negotiation on improved
access for Australian beef to Japan was always going to be difficult'. However,
it highlighted the absence of alternative paths to trade liberalisation for
Australian exporters, noting that the 'WTO Doha Round of trade negotiations has
been proceeding for well over a decade and we do not see any outcomes in the
near future being achieved, which are superior to the JAEPA'.
The Minerals Council of Australia also highlighted the importance of
JAEPA in the context of Australia's other trade agreements and relationships. It
No other option to JAEPA exists at this time to deepen the
Australia-Japan economic relationship. Waiting for [Trans Pacific Partnership]
negotiations to conclude would be pointless, as would waiting for the
conclusion of Regional Comprehensive Economic Partnership (RCEP) and Doha Round
negotiations. TPP negotiations could take several more years before an
agreement enters into force. RCEP negotiations are at an early stage, with key
decisions still to be taken on the scope and level of goods and services market
access. And Doha negotiations are in limbo (again).
Without JAEPA, Australia would gradually lose competitiveness
in important sectors of the Japanese market. Japan, like Australia, has
negotiated trade agreements with several countries and country groupings, including
some of Australia's competitors, and is negotiating new agreements with the
European Union and Canada among others. Trade diversion would be especially
damaging for Australia in areas like agriculture and services.
Doing nothing also would also carry non-negligible risks for
Australia's trade in minerals and energy.
A range of implementation issues were raised in submissions. These
issues included: timely entry into force of JAEPA; scrutiny of implementation; education
regarding JAEPA; and the infringement notice scheme.
Entry into force
The Department of Foreign Affairs and Trade (DFAT) website for JAEPA
notes that 'Australia and Japan are aiming to complete their domestic treaty
processes to allow entry into force in early 2015'.
A large number of submissions supported the swift passage of the bills to
facilitate the rapid implementation of JAEPA.
For example, the Australia-Japan Business Co-operation Committee commented that
an 'early date of entry into force would signal Australia's welcoming of the
policy shift and the long term structural reforms being initiated'.
Similarly, despite some concerns with JAEPA, Australian Pork considered it
was important that to ensure an early entry into force and implementation of
the agreement 'in order to secure maximum commercial value from the JAEPA'.
The potential for specific practical benefits of timely entry into force
were also frequently emphasised in submissions. For example, the Australian Lot
Feeders' Association urged that the bills be passed without delay. It noted:
If the Bills are passed and the Japan Diet also ratifies the
JAEPA, there is the possibility that Australian beef will benefit from two
tariff cuts next year. EIF in the period January-March 2015, for example, will
deliver the first tariff cuts on beef (as above) with the second tariff cuts
(1% chilled and 2% frozen) due on 1 April 2015 - coinciding with the
commencement of the Japanese fiscal year. This will provide a significant
preference to Australian beef over other imported product into the country.
Similarly, the Australian Grape and Wine Authority welcomed the earliest
possible entry into force of JAEPA and highlighted that 'entry into force prior
to April 2015 should guarantee two consecutive monthly reductions in the tariff
rate applying to Australian bottled wine entering the Japanese market'.
AUSVEG also stated that '[t]he relatively early conclusion of JAEPA is
reasonably expected to provide Australia with some level of advantage against other
competitors in the Japanese market.
Scrutiny of implementation
The Export Council of Australia (ECA) considered it important that the
agreement was implemented 'in a manner consistent with the terms of the JAEPA'.
It was concerned that 'many of the "Customs" provisions of the JAEPA
are being implemented by way of Regulations and not by the JAEPA Customs Bills,
although the Regulations have yet to be made available'. While it appreciated
the rationale for the use of the regulations, the ECA was concerned that the regulations
have yet to be made available for scrutiny and will not made available before
the JAEPA Customs Bills have passed through Parliament.
The Australian Customs and Border Protection Service (ACBPS) commented:
A number of provisions in JAEPA will be provided for by the
making of new Regulations pertaining specifically to JAEPA and by the amendment
of the Customs Regulations 1926 (Customs Regulations)...
In line with Parliamentary practice these Regulations were
forwarded to the Office of Parliamentary Counsel for drafting after the
introduction of the JAEPA Bills in the Parliament on 29 October 2014.
Under the provisions of the Legislative Instruments Act
2003 the Regulations (when agreed) are required to be registered on the
Federal Register of Legislative Instruments and tabled in both Houses of
Parliament for scrutiny.
The ECA recommended that ACBPS provide a table which refers to each of
the specific provisions of Chapters 3 and 4 of the JAEPA and that also
identifies where those provisions have been adopted or are proposed to be
adopted whether by the bills, otherwise in the Act by the regulations or by
ACBPS noted that, in response to a recommendation from the Senate Legal and
Constitutional Affairs Legislation Committee's report into the Korea-Australian
Free Trade Agreement (KAFTA) implementation bills, it had published a table
referring to each of the specific provisions of Chapters 3 and 4 of KAFTA and
identifying where those provisions have been adopted whether in the Bills, in
regulations or by procedure. It advised that a similar table is currently being
prepared for the JAEPA Agreement and will be 'available on the JAEPA web page
as soon as possible after the legislative processes are finalised'.
Education and awareness
The ECA noted research which identified that the complexity of trade
agreements poses some of the most significant impediments to adoption and usage
of those trade agreements. The ECA considered it was importance that the terms
of the JAEPA, and the legislation enabling the JAEPA, were communicated to the
trading community 'in a way which makes JAEPA readily accessible and
comprehensible to those parties'.
It recommended that 'that an education program be developed on the
benefits and access to the JAEPA to be funded either by DFAT itself or jointly
with other agencies using funding from Australian and Japanese Government
sources'. The ECA believed that the program should be focussed in a way to
ensure that SME importers and exporters and their service providers are best
able to benefit from the JAEPA.
ACBPS noted that it would continue to work with DFAT, other government
agencies and industry to improve access to free trade agreements (FTA) by improving
awareness of their scope and the requirements and processes for accessing
benefits under these agreements. It stated the Australia Government would 'also
keep working to reduce the complexity of these agreements by, for example,
promoting greater standardisation in their language and rules, whenever
In relation to JAEPA it advised:
ACBPS is currently undertaking an education campaign that
will provide industry with information on how to access the benefits of the
recently concluded JAEPA by holding seminars in major capital cities. These
seminars will be similar in content to those provided for the implementation of
other FTAs, including those scheduled in this week for the [KAFTA].
The seminars are aimed at customs brokers, freight forwarders
and other professional service providers and will provide information on how to
access preferential tariff treatment under JAEPA. They will include information
on how to identify the relevant tariff commitment rules of origin for imported
goods, including the Product Specific Rules. They will be underpinned by Instructions
and Guidelines and other material which will be available publically on the
ACBPS website before the commencement of JAEPA.
Infringement Notice Scheme
The ACBPS may issue infringement notices in certain circumstances rather
than prosecute a customs offence. The ECA argued that the administration of
JAEPA should be undertaken 'in a manner which is sympathetic to its
complexities especially in relation to the compliance with the Rules of Origin
It recommended that the guide associated with the Infringement Notice Scheme be
amended to address a number of its concerns. It noted that such changes would
reflect the practice adopted at the time of the introduction of the free trade
agreement between Australia and the United States.
The ECA stated:
Given that the provisions of the JAEPA and especially its [rules
of origin] and the Certificate or Declaration of Origin regime may be
complicated, the ECA is concerned that Customs does not adopt an unnecessarily
strict approach to compliance by penalising inadvertent errors using the strict
liability provisions of the Act or its associated Infringement Notice Scheme.
The ACBPS told the committee:
The new Infringement Notice Scheme (INS) which commenced on 1 February
2014 is applicable to specific strict liability offences that are listed in
Schedule 1ABA of the Customs Regulations 1926. A person may be given an
infringement notice in relation to any contravention of a provision of the
Customs Act that is subject to an infringement notice under this Schedule. In determining
whether an infringement notice is an appropriate enforcement response, the ACBPS
takes into account a broad range of factors.
The ACBPS also indicated that the circumstances where is was more likely
to give an infringement notice rather than prosecute for an offence included:
where the alleged offence is isolated or non-systematic;
where remedial or risk mitigation action was taken following
ACBPS bringing the issues of concern to the person's attention (for example,
through a formal warning);
where the facts that led to the alleged offence are straight
forward and are not in dispute;
where the alleged offence does not pose a significant risk to the
border or the collection of revenue; or
where the ACBPS considers the infringement notice is necessary to
form part of a broader industry or sector compliance and enforcement program.
Trade outcomes and tariff
A number of industry submissions indicated that, while not all
Australian goals in relation to the trade agreement had been reached, significant
gains had been made in relation to trade outcomes and tariff reductions. For
example, the Australia Japan Business Co-operation Committee described JAEPA as
the 'most ambitious and comprehensive trade agreement Japan has concluded to
Its scope encompasses not only goods but services,
investment, movement of people, government procurement, intellectual property,
etc. The conclusion of the agreement with Australia represents a seismic shift
in Japan's traditional protections of many of its sectors and the recognition
that in Japan's national interest, there is a need for the sectors to be
globally competitive, not protected.
The Australian Lot Feeders' Association noted that under JAEPA the
tariffs on frozen Australian beef entering Japan will drop from 38.5% to 19.5%
over 18 years (with an 8% cut on entry into force) while the tariffs for
chilled beef will fall from 38.5% to 23.5% over 15 years - including a 6% cut
on entry into force. It stated:
Whilst falling short of the beef industry's tariff elimination
objective, modelling suggests that the tariff reductions will benefit
Australian beef export sales by around $5.5 billion over 20 years and annual
gross value of Australian beef production by up to 7%.
Further, JBS Australia noted that, under JAEPA, Australian beef
producers will not face 'snap back' tariffs on beef of up to 50 per cent. It
also outlined that '[i]mportantly, there are also provisions for a 'Most
Favoured Nation' (MFN) clause and timeframes for renegotiation of the agreement
should competitors secure better market access to Japan'.
Mitsui & Co stated:
JAEPA incorporates provisions to eliminate or reduce Japanese
tariffs on a wide range of Australian goods, and improve access and protection
for Japanese corporations seeking to invest in Australia. These arrangements
will certainly boost the ability of companies like Mitsui to increase
Australian exports to the Japanese market, and stimulate further investment
The Minerals Council of Australia outlined that many minerals and energy
products enter Japan duty free already, however it nonetheless considered that
JAEPA should 'have a positive impact by creating a more favourable climate for
trade'. It noted that there were a number of commodities where tariffs will be
eliminated under JAEPA which 'account in aggregate for Australian exports of
around $310 million' and would provide a significant boost to Australia's
The Australian Grape and Wine Authority (AGWA) highlighted that
Australian wine has lost market share in Japan to wine from Chile. It noted
that Chilean wine has attracted a preferential tariff rate since 2008 as a
result of the free trade agreement between Chile and Japan. Under JAEPA, the tariff
on Australian bulk wine exported to Japan will be eliminated upon entry into
force, and the tariff on Australian bottled wine will decrease in instalments
over a seven year period.
Despite JAEPA, the AGWA noted that 'Australian wine producers attempting to
access the Japanese market face a number of technical barriers associated with
authorised wine production techniques'.
Other submissions also highlighted ongoing concerns. For example,
AUSVEG's view was that, on balance, the JAEPA tariff outcomes represent a
favourable outcome for Australian vegetables, particularly the removal of the
tariff on key commodities such as asparagus. It noted that the vegetable tariff
outcomes were as favourable (if not more) as those provided for in the
However, AUSVEG also argued that 'improved market access for vegetable
commodities will, to a significant extent for vegetables, remain unrealisable
unless improved phytosanitary access is also achieved'. It stated:
The existence of phytosanitary non-tariff barriers diminishes
the potential of vegetable trade liberalisation under Australia's FTAs.
Competitive market access for vegetables can only be achieved by phytosanitary
access under commercial conditions. AUSVEG urges the Australian Government to
increase its focus on achieving phytosanitary access to ensure that the
vegetable industry can realise the full benefit from FTAs/EPAs.
In relation to beef offal, JBS Australia outlined its concerns around
Under the JAEPA it has been agreed that Japan will reduce
tariffs immediately by 40 per cent for beef offal under a growing quota
starting at 17,000 tonnes and growing to 21,000 tonnes over ten years. Based on
a long run average Australia has exported between 21,000 and 24,000 tonnes of
beef offal to Japan per year.
The net impact is that based on historical performance
volume, exported over the 17,000 tonnes in year one will attract the existing
12.8 per cent tariff. Therefore, the impact will be that this disadvantages
those such as JBS who produce high quality and high value offals to supply Japan
52 weeks of the year as opposed to other who export into this market on a
Under JAEPA the 'quota to Japan will be treated as a country to country
quota allocation administered...through the Department of Agriculture, Fisheries
and Forestry (DAFF)'. JBS Australia stated that '[t]his was not clear to
industry at the end of the JAEPA negotiations'. JBS Australia recommended:
In order to maximise the economic value of the quota to Australia and
the Australian beef producer that the offal quota be in the hands of those who
both own the processing assets and also ship the product to add maximum value
to that product.
- The basis for annual offal allocation including the year one of the
JAEPA quota for offal must be allocated at a company level based on performance
over the past 3 year rolling average of offal into Japan.
While supporting the implementation of JAEPA, Australian Pork raised two
concerns with the trade outcomes achieved for its industry. Firstly:
[Australian Pork] questions the need for an arbitrary quota
of 14,000 tonnes when there has been no application of tonnage restrictions to
date. Moreover, with recent annual Australian exports to Japan only a fraction
of this quota, pork exports from Australia to Japan pose no threat to the
profitability of Japanese pork producers. Given the JAEPA has already been
signed, Australian Pork seeks that the Australian Government requests the
abolition of the quota following the conclusion of the implementation period. 
Secondly, Australian Pork highlighted that the continued application of
the gate price system 'remains a barrier to full commercial uptake of exports
to Japan under JAEPA'. It wished the Australian Government to continue to
advocate for its removal 'for example, at the general review of JAEPA set for
the sixth year after entry into force'.
Some submissions also stated that the reduction of tariffs on Japanese
goods coming to Australia would also provide benefits. For example, the Minerals
Council of Australia noted:
JAEPA may also encourage more competitively priced imports of
some items used by the mineral industry, especially capital equipment. For
example, the 5 per cent Australian tariff on dumpers and medium-large goods
vehicles is to go to zero on entry into force. This will also be the case for
the tariff on imports of iron and steel railway or tramway track construction
material. Provided such tariff reductions are not offset by increases in other
taxes, they will benefit the Australian minerals and energy industry. In mining,
as in other sectors, success in exporting depends on being an efficient
importer of inputs to production as well.
Rules of origin
Rules of origin determine the country of origin of a product for the purposes
of determining whether the product can benefit from a preferential tariff rate under
a trade agreement. In JAEPA, the rules of origin are contained in Chapter 3 and
are implemented in the provisions of the Customs bill. The Australian Customs
and Border Protection Service (ACBPS) outlined:
In terms of origin documentation, JAEPA provides two options
for Australian traders: a certificate of origin issued by an authorised body
(currently the Australian Chamber of Commerce and Industry (ACCI) or the
Australian Industry Group (AiGroup), or an origin certification document
(self-declaration) completed by the importer, the exporter or the producer.
There is a strong international trend towards self-declaration of origin in
FTAs. Self-declaration is supported by a broad range of Australian industry
sectors including agriculture. It is particularly beneficial to small and
medium-sized enterprises seeking to cut red tape and costs.
Several submissions commented on the approach to rules of origin under
JAEPA. For example, AUSVEG stated that the 'initiative to cut red tape and
costs for Australian horticulture producers and the implementation of a system
of preferential treatment with either self-certification or a certificate of
declaration that the product is Australian is strongly supported'.
Similarly, Toyota Australia supported the flexible approach taken by JAEPA in
regards to the application of rules of origin and origin procedures:
The inclusion of criteria for two approaches to verify that a
good can qualify as 'originating' (change of tariff classification and
qualifying value content) will minimise compliance burden for businesses taking
advantage of JAEPA. Further, the provision of allowances for traders to either
self-certify their own products or utilise a third party to validate on their behalf
to obtain preferential tariff treatment will also be beneficial.
The ECA encouraged the use of the ongoing consultation processes in
JAEPA to further streamline and improve the rules of origin processes in JAEPA
which it noted can form a barrier to full utilisation of a trade agreement. It
highlighted this could occur through Article 3.28 of JAEPA which provides for
the establishment of a 'Subcommittee on Rules of Origin' which will commence a
review within one year following entry into force.
ACBPS acknowledged that concerns expressed by 'industry bodies regarding
the complexity and lack of harmonisation of the rules of origin processes
across Australia's FTAs have been noted'. However, it stated:
The approach to rules of origin in JAEPA is consistent with
the approach taken in Australia's other preferential trade agreements. A key
criterion used to determine origin is the change of tariff classification
approach, which is based on the World Customs Organization (WCO) harmonised
system (HS). How these rules are presented in the Product Specific Rules
schedules differs from one FTA to another. Some agreements are more complex
The Department of Foreign Affairs and Trade is working
closely with ACCI and the AiGroup to ensure the smooth implementation of
processes relating to certificates of origin issued by Australian authorised
bodies. Both the Japanese and Australian customs authorities are familiar with
implementing preferential origin requirements under existing FTAs.
Japan is a major economic, political, and security partner of Australia.
It is Australia's second-largest export market and second-largest trading
partner, with over $70 billion in two way trade in 2013. This close
relationship makes JAEPA an historic outcome. As noted during the inquiry, this
is the first trade agreement of this kind which Japan has signed with a major
agricultural producer and the most liberalising agreement Japan has negotiated with
any of its trading partners. For Australia, the tariff reductions achieved
through JAEPA are particularly important given the competitive market for many
key goods exported to Japan. Tariffs and quotas have also been identified as an
important barrier to trade with Japan for Australian businesses.
Negotiations with Japan regarding this trade agreement have taken place
over a long period of time. Accordingly, like Minister Robb, the committee
acknowledges the contributions made by previous Trade Ministers to reaching
this trade agreement.
The committee recognises that Australian exporters did not get everything
they hoped could be achieved by JAEPA. This is to be expected from a negotiated
trade agreement between two countries with priorities which reflect their own
national interests. For example, the committee notes the beef offal and pork
quota issues raised in submissions, as well as the point made by AUSVEG that
trade liberalisation must also be accompanied by improved phytosanitary access.
However, it is clear that JAEPA has been structured with a view to further
strengthening trade ties between Japan and Australia in the future. The
committee urges the Australian Government to continue to work with local
exporters and Japanese authorities to resolve any outstanding issues which may
be obstacles to increased trade.
Further, the committee notes the concerns of the ECA which relate to a
lack of clarity in respect of how JAEPA will be implemented. The committee urges
the Australian Government to take measures to ensure that the implementation of
JAEPA does not inappropriately disadvantage local exporters. In particular, the
committee welcomes the commitment by the ACBPS to provide a comparison table of
the specific provisions of JAEPA and related legislation, regulations and procedures.
The provisions of the bills before the committee provide the rules for
determining whether goods are Japanese originating goods and provide for the
preferential entry of goods which meet these rules. They also impose necessary obligations
on producers and exporters of Australian goods to Japan. As such, the bills
implement core aspects of JAEPA, and their passage is vital to the timing of
the entry into force. Submissions to the inquiry have highlighted that the
timely entry into force of JAEPA will have significant benefits for Australian
exporters in terms of phased tariff reductions as well as providing a
commercial advantage in an increasingly competitive marketplace. In this
context, the committee's view is that the bills should be passed as soon as possible.
The committee recommends that the Senate pass:
the Customs Amendment (Japan-Australia Economic Partnership
Agreement Implementation) Bill 2014; and
the Customs Tariff Amendment (Japan-Australia Economic
Partnership Agreement Implementation) Bill 2014.
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