Japan FTA Aug14

The new free trade agreement is a big deal for Australian business. As big as we want to make it, that is. Australia’s trade relationship with Japan has been likened to that of an old married couple: committed, reliable, but a bit stale.

But Japan has rediscovered its passion for growth. The Abe government has set ambitious economic goals for the country in the lead-up to the 2020 Olympics, and is pursuing an aggressive reform agenda.

So the signing of a new free trade agreement comes at a good time for Australian businesses. It’s a chance to rekindle the lost spark with our second biggest trading partner.

Japan has also given Australian businesses a unique opportunity and competitive edge to participate in its growth. Australia is the largest trading partner to have signed a bilateral trade agreement with Japan.

The impetus, however, rests with Australia. Businesses must take the time to work through what the 1,100-page deal means for them and their industries.

Key elements of Japan’s growth agenda:

Release of capital

Innovation and robotics

Clean and efficient energy

Training and management education

Institutional transformation

Health sector reform and deregulation

Corporate tax reform

Foreign workforce

Multiple opportunities The good news is that in addition to lowering tariffs on specific goods and services, the Free Trade Agreement (FTA) covers many general business matters such as electronic commerce, government procurement, intellectual property and business travel.

This means there are opportunities for a wide range of Australian companies to benefit from the FTA, and they should not be discouraged if they don’t immediately see their good, service or industry in the spotlight.

The other part of the puzzle lies in understanding how the Japanese economy is changing as a result of both government reforms and shifting consumer trends.

Any business interested in Japan should familiarize itself with the Abe government’s growth agenda. It identifies sectors and areas planned for a shake-up, pointing the way to opportunities for Australian companies to participate more broadly in the Japanese market.

Japanese consumers too are changing. Once considered highly predictable in their savings and spending patterns, consumers are now more diverse.

Playing to our strengthsTo really make the most of the FTA however, Australian businesses should focus on those areas where Japan’s needs closely match our strengths.

Profiting from the Japan FTAwww.pwc.com.au

HealthJapan has an ageing population and a growing demand for healthcare. Australia has an outstanding track record in medical R&D and innovative service delivery, that may match well to Japan’s needs.

FinanceJapan’s ageing population is also relatively wealthy. With more than 50 per cent of investible funds in cash, Japanese consumers will be increasingly looking for reliable and secure wealth management products to fund their old age.Australian financial service providers can use their expertise to design wealth and pension products for distribution in the Japanese market. And this extends to property investment products such as REITS, in which Australia has an advanced market but Japan has only recently introduced these products.

EducationThere is also a growing demand for management education as Japanese companies under pressure to transform themselves recognize the importance of global business thinking, as well as English competency.

InfrastructureWith the 2020 Tokyo Olympics only six years away, Japan is undertaking a major investment program to update its existing infrastructure, much of which dates back to the 1960s when the country last hosted the games.

Food productsJapan has historically protected its domestic agriculture industry with sky high tariffs of up to 219%. However, Japan has opened the door to Australian agricultural exporters by substantially lowering its tariffs on beef, sugar, horticultural produce, wine and seafood.

Minerals and energyTo feed its economic growth, Japan has agreed to eliminate its tariffs on the A$17 billion worth of Australian minerals and energy it imports annually. These tariffs cost Australian exporters A$119 million in 2013.

And these opportunities extend beyond the domestic Japanese economy. Japan is significantly ramping-up its activities and direct investment into foreign markets and looking for partners to assist.

Importers and distributorsAustralian businesses acquiring Japanese manufactured products will also benefit from the FTA. Under the FTA, a broad range of tariffs on Japanese goods will be eliminated upon the agreement’s implementation. However, certain sensitive industry sectors will be subject to tariffs which phase to zero over a number of years. The benefits offered by the FTA will only be available to businesses that satisfy certain transformational tests and evidentiary requirements. These requirements are complicated and differ from product to product, but once satisfied, can enable businesses to make substantial savings and the ability to reduce the landed cost of goods in Australia.

Setting up for success in JapanDoing business in Japan is not difficult, just different. And the FTA provides the incentive for Australian business to re-engage with our second-biggest trading partner at a time when both our countries are sharply focused on growth. An opportunity there for the taking.

• Get to know the Japanese market.• Find your niche.• Partner to grow in third markets.• Focus on innovation and service not price.• Utilise the FTA.

For further information contact:

Steve BillinghamPartner, Consulting Asia Leader

+61 (2) 8266 3417 [email protected]

Richard GruppettaDirector, Consulting Asia


Gary DuttonPrincipal, International Trade and Excise


Alexander MaronSenior Manager, Consulting Asia


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Japan FTA Aug14

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