Australia finalises trade talks with Japan

AUSTRALIA has sealed an historic trade agreement with Japan that should allow Japanese car-makers to dodge a five per cent import tariff on vehicles.

However, instead of cutting the price of vehicles in showrooms, the competitive advantage is likely to be soaked up in equipment upgrades and healthier margins for Japanese car-makers already hurting from free-trade agreements Australia has forged with other car-making markets, such as Thailand and the United States.

Under the terms of the proposed “economic partnership agreement”, announced yesterday after more than eight years of talks between the two countries and intended to give a big boost to Australia’s food producers and energy exporters, the tariff on Japanese industrial imports, including cars, will be cut to zero.

The agreement should provide a big boost to Japanese car-makers, which imported $5.8 billion worth of motor vehicles to Australia last financial year and accounted for almost 40 per cent of Japan’s total exports here.

However, an industry insider told GoAuto that while the five per cent tariff cut was welcome as it created a more level playing field, car buyers were unlikely to see the price of Japanese-imported vehicles fall in line with the tariff cut.

“Rather than reduce prices they’re likely to fit the car with richer features to make them more attractive to buyers,” the insider, who declined to be named, said.

“The other thing, too, is that some Japanese car-makers had been selling vehicles at a loss to keep them competitive in segments where a competitor already has a free-trade agreement advantage, so the tariff will help in terms of making that car competitive again.” Market leader Toyota, which currently accounts for one in five new vehicles sold in Australia, said it would wait to see the finer details of the agreement before it could comment on its effects.

Toyota Australia media and external affairs manager Beck Angel said while the announcement that the agreement had been finalised was welcome, it needed time to assess how it would impact on the Japanese car-maker’s business here.

She said the agreement would even have an impact on its export business, with parts imported from Japan fitted to vehicles sold mainly to the Middle East and accounting for 70 per cent of the car-maker’s Altona-based production.

Rising costs and the high Australian dollar’s impact on exports were labelled as the main factor in Toyota’s decision earlier this year to follow Ford and Holden out the door and quit manufacturing here.

Mazda, meanwhile, is Australia’s biggest full-line importer, sourcing all of its vehicles except the Thai-built BT-50 utility from Japan.

Mazda Australia public relations senior manager Steve Maciver said it was still too early to tell how the agreement would affect retail prices for Australia’s second-largest brand.

“Before we can say exactly what it means we need to see the agreement and any timelines (for tariff reductions),” he said.

“We just don’t understand whether the zero tariff is going to be applied immediately, or whether it is will be phased in over the next one to two years.

“But yes, there is potential for either savings or for value-add for customers.” However, Mr Maciver said expectations from motorist organisations such as the Australian Automobile Association that the agreement would strip thousands of dollars off the price of a new car were misguided.

“There’s been speculation that an average $30,000 car will come down in price by $1500 – that’s just not true,” he said.

“The way people have calculated that is that they’ve basically taken five per cent off the list price of a car, but that is not the way the duties apply.

“The duties apply on the landed cost of a car (when it rolls off the ship) to Mazda Australia or any other Japanese company, which is obviously less than the list price.

“The real potential saving or value-add that could come into play would be, if you take for example a mid-range Mazda3 at around $25,000, the value we’re looking at of that five per cent is roughly around about $800.” Mr Maciver said even a slight move in the value of the Australian dollar could erode that price advantage in an instant.

The Japanese economic partnership agreement follows closely on an announcement that Australia had settled on a free-trade agreement with South Korea, another major source of vehicles for the Australian market.

The Australia-Korea FTA is expected to be signed today, giving a major leg-up to Australia’s third-largest car-importing nation.

In the first three months of this year, Australia imported 84,118 vehicles from Japan, 50,839 from Thailand and 31,908 from South Korea. Another 10,757 have come from the US.

Of the 266,370 vehicles sold in Australia in the first three months of this year, 241,857 were imported, giving locally made vehicles a slim nine per cent share of the market.