Australia signed a Free Trade Agreement (FTA) with Japan on Monday after seven long years of negotiation, and there have been varying reports about what it means for Australian consumers.
The Japan-Australia Economic Partnership Agreement (JAEPA) will deliver “a significant boost” to many parts of the economy, according to the government’s statement. And Australian consumers will be “major beneficiaries” of the agreement due to the elimination of tariffs on imported cars, household appliances and electronics from Japan.
But what does that mean? Will we see lower prices, better choice, and improved buying power?
Professor of Economics at Charles Sturt University John Hicks is one of those who expects the FTA to reduce the price and increase availability of “a whole range of goods”, especially electronics. Goods imported from Japan will be cheaper thanks to a reduction in import duties.
“For Australian consumers, there won’t be any disadvantages at all. Lower prices for the goods and services that they want to spend money on is a good thing,” he said.
“It’s going to reduce the price of goods and services that we would normally import from Japan. It may also result in a lot more imports from Japan, perhaps of other goods and services that we’re not currently importing because the price of those goods will also fall,” said Professor Hicks.
A reduction of the five per cent import duty on Japanese-made cars, which are extremely popular in Australia, will be one, but certainly not the only, area where consumers may benefit.
“I don’t think it would be limited to cars,” said the Professor, who envisioned price reductions on many types of electronic goods.
There’s a ‘but’
Professor of international business law at the University of Sydney Luke Nottage said that tariff protections for the Australian car manufacturing industry were the major stumbling block in the way of negotiating a free trade agreement in the past. The Government’s decision to no longer prop up the car manufacturing has cleared the path.
“It was easy for Australia to give up that tariff given that we’re no longer subsidising and supporting car assembly, and so we’ve been able to get around that negotiating block in the discussions with Japan,” said Professor Nottage.
CommSec chief economist Craig James said that car dealers are likely to keep car prices where they are, but offer better value for money.
“Car dealers don’t like to cut the price of a car because if you reduce the price of a new car by $1,500 it affects the resale value of all cars,” Mr James said. “But you might get a better stereo system or air conditioning system or reversing cameras – you might get the extras.”
For Luke Nottage, who has extensive experience in consumer protection law, there is nothing preventing car dealers from refusing to pass on cost savings
Dealers are “free to absorb that as extra profit. There’s nothing in free trade agreements that prevents them from acting in an anti-competitive way,” he said.
But you can fight back
But Professor Nottage is confident that “market forces” will force retailers to pass on the price reductions.
“If one retailer takes that attitude, then other retailers will come in and undercut them and reduce their prices by, say, four per cent. They’ll still pocket one per cent extra profit, but pass on most of that to consumers,” he said.
“I hope that organisations that I’m involved in, like Choice magazine, and politicians and so on are out there trying to persuade the industry to do the right thing and pass on those tariff reductions in the form of lower prices for Australian consumers.”
Consumers will have to negotiate harder to get a better deal, said Professor Nottage.
“If you’re buying a Japanese imported car, then say ‘Well, you were advertising that last year at $10,000. Give me five per cent off this year under the new FTA. And if you can’t, I’m going to go down the road’,” he said.
“Australian consumers and their organisations will have to step up and make sure they take full advantage of the FTAs.”