ROLE OF THE JAPANESE TRADING COMPANIES IN AUSTRALIA'S ECONOMIC DEVELOPMENT

Address by The Hon Tim Fischer MP, Deputy Prime Minister, Leader of the National Party, Minister for Trade, to CEDA, Sydney, 5 September 1997.

Introduction

Mr Dominguez, Ambassador Satoh, distinguished guests.

It gives me great pleasure to launch this important report, "The Role of the Japanese Trading Companies in Australia's Economic Development". The report provides a welcome examination of the significant role played in Australia's economic development by the Japanese trading houses - the sogo shosha.

CEDA, with its active Australia-Japan Committee has already produced a number of thought-provoking analyses on topical issues in Australia-Japan relations. These include reports on comparative labour-management relations and Japanese investment in Australia. This report, coinciding with the 40th anniversary of the Australia-Japan Commerce Treaty, is particularly timely and I congratulate CEDA and the team involved in the publication on this initiative .

I would like to talk to you today about the important role the large Japanese trading houses play in our economic relationship, firstly in underpinning our tremendous exports to Japan and secondly in contributing to Japanese direct investment in Australia.

The sogo shosha and Australia's exports

Sogo shosha translates literally as "all round trading company"- which doesn't really do justice to the scale of these companies' operations.

Let me put them into perspective: the Australian turnover of the nine major Japanese trading houses was over $22 billion in 1995, or almost 5 per cent of Australia's total GDP. Globally, they had total sales of $1227 billion, more than double the size of the entire Australian economy!

Moreover, Australia's two largest exporters, according to rankings published by Business Review Weekly, are the two largest of the sogo shosha, namely Mitsubishi and Mitsui. In fact, six of the nine major houses rank in Australia's top 20 exporters.

Put simply, the history of Australia's trading relationship with Japan is the history of the trading houses' involvement in this country.

Some of the earliest commercial contact between our two countries late last century was initiated by the Japanese trading houses. For example, our wool trade was established in 1890 by the Japanese trading company Kanematsu - a truly pioneering achievement, given that it preceded the establishment of official relations by several years.

The trading houses have, in fact, played the central role in acquiring the commodities from Australia that were an essential component of Japan's economic boom over the past fifty years. As the report underlines, the initial rationale for the trading houses' existence was to obtain raw material to enable Japanese industry to develop rapidly.

Mitsubishi and Mitsui were both established in Australia by the 1930s, and all the trading houses had established presences by the 1960s, when Japan became Australia's most important trading partner.

We have been a reliable supplier of high-quality commodities such as minerals, ores and wool to Japan for over thirty years. In fact twenty per cent of all of Australia's merchandise exports go to Japan, more than double the exports to any other destination.

CEDA's report underlines for us just how central the trading houses are to that trade. Two-thirds of our goods and services exports to Japan are a result of the trading houses.

Australian Bureau of Statistics figures show that our exports to Japan create - directly and indirectly - over 345,000 jobs, or approximately 4 per cent of total employment in Australia. It is clear then that these firms, as the main exporters of goods and services from Australia to Japan, play an important role in Australia's economic wellbeing.

Although Australia's trade with Japan has, in the past, generally involved the exchange of Australian commodities in return for Japanese manufactures, our trade has become increasingly sophisticated with a growing proportion of exports of food, manufactures and services, especially tourism.

By contrast, manufactures have fallen as a share of total trading house exports, as have services. I would urge the trading houses to examine closely this anomaly, and to look at possible measures to correct it.

Trading house investment in Australia

The trading houses have also, in recent times, begun to play a major role in Japan's investment in Australia.

The total stock of trading house investment in Australia more than doubled in the period 1988 to 1995, up from $1.4 billion to $3 billion in 1995, representing in the order of around one-sixth of total Japanese investment. This increase in investment is very welcome.

The importance of this kind of investment is evident when we consider the jobs created by major project investment. For example, as detailed in the CEDA report, Mitsui and Mitsubishi both provided an essential strategic brokering role in the development of the Northwest Shelf gas project - Australia's largest ever development project. The construction investment alone on this project resulted in over 6,000 new jobs, while production related to this project has created over 105,000 jobs.

However, trading house investment has been predominantly in commodity sectors, with 80 per cent of it in the mining, metals and energy sectors.

Australia Offers Further Opportunities for Business Development

Indeed the CEDA report has identified that the trading houses have focused primarily on the resources sector and not generally taken up opportunities in the broad domestic economy nor established joint venture operations in third countries. This contrasts with the trading houses' changing business strategies in other parts of the world.

The report notes, however, that this pattern of activity may be starting to change and diversify. The Government warmly welcomes this shift.

Since coming to office last year the Government has achieved a great deal in making the economy more efficient.

Fiscal consolidation has made possible the lowest commercial interest rates in decades. Changes to the regulatory environment for small business and industrial relations reform have also assisted business considerably.

Consequently, the economic outlook is now for strong growth, low inflation and faster employment growth. Real GDP growth is now forecast to accelerate to 3æ per cent in 1997-98, from an estimated 3º per cent in 1996-97.

But the Government is not resting on its laurels. We intend to press ahead with reforms to give Australia's competitiveness an even sharper edge. Vigorous microeconomic reform will increase productivity, including in key sectors such as telecommunications, transport and energy.

Australia is now a competitive market with plenty to attract broad Japanese investment. We welcome Toyota's announcement last month of its plans to invest a further $1 billion in its Australian operations with a view to doubling its exports over the next four years to around $600 million per annum. Toyota has recognised that Australia is headed in the right direction.

We therefore strongly encourage the trading houses to take another look at broad investment possibilities in a revitalised Australia.

Conclusion

To conclude, let me say that the CEDA report's findings demonstrate clearly how the nine Japanese trading houses have played a vital role in the development of Australia's economy, a role perhaps not widely recognised.

Japan will continue to be our most important export market for the foreseeable future and I am sure that the trading houses will not only retain, but will build on, their important position in Australia's economic development for a long time to come.