Speech to the Japan Studies Association of Australia Fifteenth Biennial Conference
The future of Australia-Japan relations
3 July 2007, Canberra
Introduction
Thank you Professor Drysdale.
It is a great pleasure to be here among the experts on Australia-Japan relations.
Australia’s relationship with Japan is one of our closest and most important. We are both liberal democracies. We share the same views on key issues even if Japan does not play cricket or Aussie Rules Football. When I became Minister for Trade last year, my first overseas visit was to Japan. It was a natural choice to go to the country that has been Australia’s largest trading partner for 40 years.
Japan is still Australia’s largest export market by far – no matter what some media reports say. In fact, Australia sells more goods to Japan than it does to China and the United States combined.
The relationship goes beyond trade and into our significant and strengthening political and security ties.
In March this year, our Prime Ministers signed a Joint Declaration on Security Cooperation and last month, my colleagues Alexander Downer and Brendan Nelson met with their Japanese counterparts for the first-ever Australia-Japan Joint Foreign and Defence Ministerial Consultations. Later this year, after the APEC meeting, Australia will host a visit from Prime Minister Abe. He will be the first Japanese Prime Minister ever to address a joint sitting of Parliament. This event will take our relationship to a new level.
Two-way trade
But my job as Trade Minister is to support the commerce flows. Trade between Australia and Japan took off in the 1960s. The strong increase in trade followed the signing of the Australia-Japan Commerce Agreement by Australia’s then Minister for Trade, John McEwen and Prime Minister Abe’s grandfather, Japanese Prime Minister and Foreign Minister Kishi. That Agreement showed the benefits of looking forward. This Friday – the sixth of July – will be the 50th anniversary of the signing.
There was, of course, trade between Australia and Japan before the 1957 Agreement but by 1967, only 10 years after the agreement was signed, Japan had become Australia’s largest export market.
Japan’s exporters of steel and manufactured goods could make investment decisions knowing that they had a steady supply of raw materials.
Australian companies in the 1960s could invest huge sums of money to establish and develop mining projects knowing that Japan was a reliable long-term customer.
Fifty years ago, the signing of an agreement between Australia
and Japan laid the foundation for a rapid expansion of
Australia’s mining sector and we are still benefiting from
that development today.
Bilateral Trade
Japan does not always get the headlines in Australia because our economic and political relationships run so smoothly. Sometimes, people lose sight of just how important Japan is to Australia.
The Australian Government has worked hard to develop the relationship in recent years.
Japan is the largest buyer of our primary products – including agricultural and mining products. It is our top market for a number of specific products too – coal, LNG, beef, aluminium, copper, woodchips and dairy products. These are the industries on which much of regional and rural Australia relies.
Our exports of goods and services to Japan reached $35.5 billion last year – a vital contribution to our record total of $210 billion in exports.
Japan is the third-biggest foreign investor in Australia. Japanese investment provides thousands of jobs in the manufacturing sector in Victoria and South Australia.
Trade and investment – in both directions – is still growing strongly but we have to keep pushing ahead. We have to support our businesses as they look for more opportunities to trade with each other.
That is why the Australian Government is pleased to have begun negotiations on a bilateral Free Trade Agreement (FTA) with Japan.
The 1957 Agreement showed just how important these policy decisions can be. They provide business communities with an important signal that both countries want to encourage more trade. These policies spur countries to reform their internal markets and, of course, they raise everyone’s standard of living.
Both governments believe we can deliver more opportunities for business through an FTA. For example, services account for more than two-thirds of our respective economies, but they are a relatively small part of our total trade. By addressing regulatory barriers and improving access, an FTA could help us increase trade in this sector.
The first negotiating round for an FTA was held in late April in Canberra. The talks began well, setting the framework for the negotiations.
We reaffirmed our mutual goal of concluding an FTA that is comprehensive, WTO-consistent, delivers benefits to both sides, and is concluded through a single undertaking. The meeting also restated the agreement by our Prime Ministers that negotiations would begin with all products and issues, and options for flexibility on the table.
At the first round we also agreed on a comprehensive list of issues that will be discussed as part of the negotiations – including agriculture, manufactured products, services, investment, intellectual property and e-commerce.
We recognise that the negotiations will be tough. Both countries have sensitivities that require careful handling.
We have a history of close cooperation and we are confident we can reach a win-win agreement. We are currently discussing the date for the second round of negotiations in Japan, where the issues I have mentioned will be developed further. That progress will lead into the development of the draft text of an agreement in the third and later rounds.
Regional and Global
Economic growth in Australia and Japan shows the benefits of the free flow of goods, services and investment between countries. Both Australia and Japan are much better off today because we have been able to sell our goods freely to each other and on the world market.
We have seen incredible global economic growth in the last 30 years. Australia and Japan are working together, regionally and multilaterally, to push for trade liberalisation.
Figures put together by APEC show that per capita real GDP in APEC economies grew 26 per cent between 1989 and 2003, compared to only eight per cent in non-APEC economies.
As Professor Drysdale well knows, it was the close cooperation of Australian and Japanese academics, business people and officials over some two decades that led to the eventual creation of the Asia-Pacific Economic Cooperation Forum (APEC) in Canberra in 1989. We recognised the potential for greater cooperation around the Pacific Rim. I think that we can be pleased with the success of APEC and the vital contribution is making to prosperity and community building in the Asia Pacific region.
Australia and Japan continue to work very closely together in APEC today – in fact, I am due to meet Japan’s Minister of Economy, Trade and Industry, Mr Akira Amari, later this week at the APEC Trade Ministers Meeting in Cairns.
We also think APEC can do more. Australia and Japan agree that we need to strengthen APEC as an institution. It needs a better-resourced secretariat and a capacity to undertake analytical work in support of its trade and economic agenda. Without more resources, APEC will struggle to deliver to its potential across its increasingly diverse agenda.
Japan and Australia are both founding members of the East Asia Summit. The EAS is still evolving but it is already making an important contribution to regional relations and has developed a forward work program of practical activity.
For instance, the EAS work on enhancing regional financial integration and cooperation has the potential to deliver tangible benefits to EAS members and contribute to East Asia’s long-term stability and development.
Australia supports Japan’s EAS proposal for a non-government study on a possible Comprehensive Economic Partnership in East Asia – essentially an FTA involving the 16 EAS member countries.
Beyond our immediate region, it is crucial that we continue to push for progress in the Doha Round of multilateral trade negotiations. Australia and Japan are both committed to a comprehensive outcome for the Doha Round.
The recent break down of negotiations in Germany between the G4 – the United States, the European Union, Brazil and India – was a real disappointment.
It will be tough going over the next few months. But we can not throw in the towel as there is a lot at stake. A multilateral round still offers the best way to get real improvements in market access for Australia’s exports. Completing the Doha Round is also crucial to strengthening the global rules-based system, which has played such an important part in driving prosperity in both Australia and Japan.
Australia and Japan agree on the principle that freer trade is good for everyone. We work closely together in the G6 – Australia, Japan plus the G4.
My view continues to be that we can only strive to successfully conclude this Round with an ambitious result on agriculture, industrials and services. To do this, everyone has to make a contribution – developed and developing countries alike. Major players like Japan, which have more at stake than most, need to show leadership.
Challenges Ahead
It is crucial that we get our trade policy settings right but economic prosperity depends on other factors too.
Australia has undergone decades of domestic economic reform and we are seeing the benefits. Our economy is the sixth most competitive economy in the world. Our unemployment is at a 33-year low. Inflation is low and the Australian Government is running a healthy budget surplus.
We realise that reform is an ongoing process, as does Japan. It is heartening to see Japan’s economic recovery continuing and it is expected to keep growing this year. Given the importance of Japan as a market for Australian exports, we have a vital interest in the health of the Japanese economy.
Japan will face some significant challenges in the years ahead. With its population ageing, Japan will face a shrinking workforce. Government income will be under pressure and government expenditure could rise.
Japan will need to continue with its public sector and fiscal reform programs to meet these challenges.
I do not want to overstate the risks for Japan. Japan is still the world’s second-largest economy. Its manufacturing sector continues to dominate in many fields internationally. Japanese firms have a world-wide structure of investments. Even as Japan’s population ages, its per capita GDP will remain among the highest in the world for the foreseeable future.
Conclusion
Fifty years ago it took vision and commitment by people in Australia and Japan to push for the Commerce Agreement. Some people were uninterested in the idea. Others were downright opposed to it. Looking back now, the logic in favour of the agreement seems inescapable.
I am sure that in another 50 years, people will look back at the FTA negotiations in the same way. They will marvel at the fact that some people questioned the idea.
I want to leave you today with a few key messages. First, Japan is of crucial importance to Australia’s economic well-being. It remains our largest trading partner. Our economies are naturally complementary. Australia enjoys a substantial trade surplus with Japan. Trade binds our countries together and provides a basis for the close political relationship we have. Secondly, the trade we have is good for both countries. It has been for the last fifty years and it will be for the next fifty years. And, last of all, the Australian Government remains fully committed to building our relationship with Japan.
I want to thank you again for the chance to speak today. I hope that your discussions on the future of the relationship are fruitful and I look forward to hearing about them.
I wish you all well and hope that you enjoy the rest of the conference. Thank you.
Ends