Speaking notes

'Australia and Japan: How distance and complementarity shape a remarkable commercial relationship' - Launch of Economic Analytical Unit Report

Parliament House, Canberra

5 December 2008

Minister Kinefuchi; ladies and gentlemen:

Mr Crean, Minister for Trade, is unable to be here today following the death of his father. Given his keen interest in relations between Australia and Japan, I know he was very supportive of this project and is pleased it has come to fruition.

It is my pleasure this morning to launch this excellent new report on the nature of trade between Australia and Japan, prepared by the Economic Analytical Unit in the Department of Foreign Affairs and Trade.

Sometimes, the best relationships come to be taken for granted. Some might say this can happen in the case of business relations between Australia and Japan. This report is both useful and timely: it contains some very important messages about the importance of our relationship with Japan, which is worth pondering at this time of international crisis and uncertainty. I commend the report to you.

The report prompts me to make a few observations this morning. First, to keep things in perspective. Fast-moving events shouldn't distract us from things that are fundamentally important.

We know about the very rapid growth in trade between Australia and China, and between Australia and India. These have been excellent developments, and the long-term trend is highly encouraging.

But how many people know that our trade surplus with Japan is bigger than our total trade with India?

Second, we shouldn't just look at aggregate figures when making judgments about the importance - or potential - of trade relationships. We know Japan's economy has been growing slowly in recent years. But how many people realise that, since the early 1990s, the Japanese services sector alone has grown by an amount which is larger than the whole Australian economy today? We cannot afford to ignore the opportunities for new partnerships created by such growth and structural change.

Third, the nature of world trade is changing: we can no longer measure the importance of trading partners by the volume of direct, bilateral trade and investment flows.

Look at the phenomenon of regional production networks. In recent years, Japan's income from offshore investments has exceeded its trade surpluses: restructuring of the Japanese economy has resulted in many of its companies establishing operations in Asia.

This means that a significant number of Australian imports are manufactured by Japanese companies operating in other countries in the region. And these operations are creating demand for Australian exports to other countries, and as well as opportunities for our companies to collaborate with Japanese partners in Asia.

We need to move beyond thinking of this as a purely bilateral relationship, and start thinking in terms of its regional possibilities. Let's remember a fundamental point: this is a very healthy economic relationship, and one that is highly valued by the Australian government.

The figures in this very thorough report demonstrate that, but let me also point out that Australia's merchandise exports to Japan for the first nine months of 2008 have already exceeded the total for 2007 - which itself was a record year.

At the same time - and recalling what I said at the outset - we need to be conscious that even the best, longest established relationships need work to maintain them and help them adapt to new circumstances and opportunities.

This report points to areas where there is potential for the trade relationship to expand, as Japanese society and economy evolve, particularly in relation to services trade, and Australian participation in the regional production networks which are often driven by Japanese investment.

While traditional industry sectors will remain the bedrock of the relationship, there's real potential for growth in areas of emerging economic significance resulting from change in both countries.

But to grasp these opportunities, it's clear that we can't just rely on the complementarities that have driven the relationship in the past. We need to be flexible and creative. We need new institutional measures - such as the free trade agreement currently under negotiation - that are intended to address ongoing barriers to bilateral trade and investment

At the same time, as the report argues, we need more active promotion of people-to-people links, including through education, high-level business missions, and tourism.

The government is determined to work with business to ensure this vitally important trade partnership evolves to allow both sides to take advantage of new opportunities.

Thank you.