In issue 3 of Cultivate, Con Boulougouris, Shane Bilardi, Anthony Latimer and Crystal Png considered 'Is Australia open for business?'. As described in their article, there are mixed messages as to Australia's current foreign investment policies, particularly in relation to regulatory approvals and foreign investment laws. In contrast, there can be no doubt that Japan is open for business; Norton Rose Fulbright's Tokyo office is currently seeing increased inbound and outbound activity by Japanese companies in the agribusiness space into Australia and Asia Pacific. Here, we consider modern Japanese foreign investment policy and the implications for the food and agribusiness sector.
The enthusiasm and increased focus on agribusiness has, in part been, driven by the attention given in recent months to the Japan-Australia Economic Partnership Agreement (JAEPA) which was executed by Japan's Prime Minister Shinzo Abe, and Australia's Prime Minister Tony Abbott on 8 July 2014. The JAEPA is only the latest in a series of Economic Partnership Agreements (EPA) that Japan has sought to enter into and follows the policy of Japan's Ministry of Foreign Affairs for the country to 'play a leading role in actively promoting bilateral EPAs'.
Recent Japanese Policy and recent EPAs
On 6 November 2010, Japan's Ministry of Foreign Affairs released a policy note that, in the face of dramatic growth in emerging markets, 'Japan ...[was] falling behind'. In order to achieve growth in the economy, the Japanese government stated that it was absolutely resolved to 'open up the country' and 'pioneer a new future'.1 To achieve this, Japan's Ministry of Foreign Affairs sought to focus on enabling Japan to 'create a seamless Asia-Pacific region'. Japan has, in recent times, been increasingly focused on regional trade agreements which, as noted by commentary, have departed from mechanisms for the movement of goods across borders towards 'instruments for economic regulations at a supranational level and a tool of international relations within the emerging global economic order'.2
To achieve its goals, Japan has been successful in finalising EPAs with various jurisdictions throughout the world.
EPAs with various jurisdictions throughout the world
We continue to monitor the terms of EPAs that Japan has successfully negotiated and we have extracted a summary of the impact of recently finalised EPAs on specific agribusiness sectors. As noted below, tariffs on beef and rice have been maintained by Japan, there being limited commitment (until the JAEPA) to open up that market. While there remain some restrictions for politically sensitive agribusiness sectors, the general trend is that Japan is opening its borders for imports of agribusiness products.
Agribusiness sectors and recently concluded Japanese EPAs
In contrast to the terms of the above EPAs, the terms of the recently concluded JAEPA would certainly indicate that Japan has taken the firm position of further opening its border to Australian produce.
The central terms of the JAEPA
The JAEPA has been described as the 'most liberalising bilateral trade agreement that Japan has ever concluded'.3 Given that:
- Japan is Australia's third largest source of foreign direct investment (in excess of A$126 billion).
- Australia is Japan's third largest source of imports (trade with Australia exceeding A$70 billion), the conclusion of the JAEPA is strategically important for both countries.
The following table briefly summarises the changes to the existing tariff regime for Australian agricultural goods:
Implications of recent Japanese economic partnership policies
While there is no doubt that there will be broad economic benefits for both Japan and Australia, economic partnerships of this nature come as a double edged sword for Japan, with domestic agribusiness reacting negatively. On one side of the argument, farmers and organisations in the domestic Japanese agribusiness-space have expressed very strong opposition to the partnerships on the grounds that:
- Domestic agriculture/agribusiness in Japan will see a serious downturn as a result of cheap produce coming from other countries.
- It will decrease Japan's selfsufficiency to feed its population (which is already low ~ 39 per cent (calorie based)).
- It will threaten food safety in Japan (e.g. agricultural chemical issues, genetically modified foods and additives are issues of concern).
Conversely, arguments which support economic partnerships of this nature include:
- That such agreements generally support Japanese industrial and energy markets and include benefits to boost Japan's stagnant economy.
- Academic researchers are opining that economic partnerships are an opportunity for Japanese agriculture/agribusiness ventures to expand and adopt to the global market.
- More importantly, such economic partnerships present significant investment opportunities for Japanese companies to invest in overseas agribusinesses.
With the liberalisation of markets (particularly in light of the recent JAEPA) there is an increased impetus for Japanese companies to invest in the agribusiness space. In recent months, Norton Rose Fulbright's Tokyo office has seen increased outbound deal-flow by Japanese enterprises investing in the agribusiness space (particularly Japanese companies looking to acquire overseas agribusiness related entities and assets to take advantage of the favourable economic conditions). Further, throughout the course of this year, there has been significant commentary by Japanese trading houses that there is a shift in focus to agribusiness and this has been demonstrated by a number of trading houses investing in the Asia-Pacific region in the last six months. Opinion suggests that there will be increased activity by Japanese trading houses in regions where economic partnerships have been finalised. We continue to monitor developments.
1Comments from the Japanese Ministry of
Foreign Affairs (2010): http://www.mofa.go.jp/policy/economy/fta/
2Backer (2013) – The Trans-Pacific Partnership: Japan, China, The U.S and the Emerging Shape of a New World Trade Regulatory Order.
3Press release: Australian Department of Foreign Affairs and Trade (2014) – 'Japan-Australia Economic Partnership Agreement'.