The Effects of the Australia Japan Free Trade Agreement on the Automotive Industry

Source: SBS

Source: SBS

Following six months of negotiations the Abbott Government have sealed the deal of one of the biggest trading coups in Australia’s history.

What does the deal mean to Australia?

Trade Minister Andrew Robb confirmed the deal officially known as the Japan-Australia Economic Partnership Agreement on Monday afternoon in Tokyo. The deal is expected to be phased-in over the coming 15 years.

For Australia this means that it will free up exports of Australian dairy, beef, wine, sugar, horticulture, and a range of services. Meanwhile making Japanese cars, cameras, televisions and other high-tech goods cheaper in Australia.

How does it affect the automotive industry?

The latest tariff break means that an average $30,000 car (such as the Mazda3) should drop by about $1,500 according to the Abbott government.

After three years, three-quarters of Japanese cars will have the existing 5% tariff removed. The tariff was originally introduced to protect the Australian automotive industry, but considering the recent departure of Holden and numerous Australian automotive companies becoming insolvent it is no surprise that this deal was established to protect Australians in the long run.

Who loses from the agreement?

The big loses of the agreement are the Australian Government and the Australian automotive components makers.

The removal of the 5% tariff means that the Abbott government will lose billions in the future, it has been estimated to total around $400 million a year. This could potentially translate to revenue raising in another sector to offset the lose.

Additionally, the Australian automotive components makers will lose the protection of tariffs applied to Japanese competitors. This protection is expected to be phased-out over five-years to ensure that they can become globally competitive and latch onto the global supply chain.

Will there be any trade diversion effects?

Trade diversion is the amount of trade that wont take place because of a free trade agreement.

“With Japanese cars becoming cheaper that means we will import fewer cars from somewhere else. That means another country will miss out on potential exports to Australia. What will that mean for trade relations with other countries?” Dr Mark Melatos, a senior lecturer in trade economics at Sydney University

Will Australians actually see the price reduction?

Mazda came out and said that possible fluctuations in the Australian dollar and added specifications to vehicles may counteract the savings experienced by the tariff reduction. Hopefully Australians to get to see the savings from the removal of the tariffs; but if the comments made by Mazda are any indication then the savings may not actually be passed on.

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