Speech
Address to the Australia New Zealand Chamber of Commerce Japan
27 October 2009, At Shangrila Hotel, Tokyo
It is a pleasure to be back with you all again today. The last time I addressed you was in January of last year and we were in the Imperial Hotel and it was snowing outside. I am told you can see Mount Fuji over there through the window today, so it’s a contrasting climate, but exciting new times to engage Japan.
I have been coming here for close on 40 years. The first time was in 1981 as, interestingly enough, my union then had a sister relationship with a dairy manufacturing union, the Meiji Milk Workers’ Union. When one looks at where the synergies are emerging in manufacturing today, in food and beverage, it’s pretty prophetic. I came again in the mid 80s as part of the selling argument of the Hawke government in relation to the North West Shelf, a concern that Japan had, that the trade union movement was not reliable, it wouldn’t deliver on time. I came to not only reassure them about that, but to get a more important understanding, a deepened understanding as to how significant energy was in those days to Japan and the relationships that have grown from it.
I came again in 1991 as Science Minister, in fact, funnily enough, in those days, advocating that we cooperate on clean coal, amongst other things. Again, as Agricultural Minister, again as Employment, Education and Training Minister. So, in many ways I’ve had not just the breadth of involvement in portfolio terms and the corporate knowledge that goes with that in terms of where the Australian economy was at and where it’s come to, but also long and deep engagement in the Japanese side of politics. What’s exciting about this time is that for the first time I’ve been here, at least, we are talking to a different government and I always think that freshness breeds new opportunity.
Prime Minister Hatoyama said that he wanted to revitalise the Japanese economy. We see it as the perfect opportunity to also revitalise the relationship between our two great economies. Last night I spoke at the dinner of the Australia-Japan Business Council, the 47th occasion that they have met. That is testimony alone to the strength of the relationship at the B to B level. Your chamber shows a significant recognition of the importance of Australians operating within the Japanese economy and again, when one sees how deep that cuts across so many sectors, it’s a great tribute to the Australian presence abroad that we play such an important role.
But the real opportunity, I think, is to not just understand the strength of the relationship and where it’s come from, but really where it can go to from here. And that’s what we’ve been seeking to engage the government about. Not just in terms of the framework of the EPA, important as that is, but because it isn’t just a relationship that we want to foster at the bilateral level. We want to use the strength of a relationship that’s been established at the bilateral level to project out and work together to advance interests globally and regionally.
Globally, of course, in terms of the Doha round; regionally, in terms of the emerging architecture going forward for closer economic and strategic integration within the region. When I came here last January it was in advance to any of those discussions on Doha. I must say we had very good cooperation ultimately with the Japanese ministers in Geneva in trying to conclude Doha as it then was. Funnily enough it didn’t start out that way because we tried to engage Japan on a bilateral basis recognising the problems with agriculture versus METI’s agenda and Agriculture just wasn’t interested except in giving us the very hard line. I think that as the dynamics of the Geneva negotiations took place, there was a realisation that Doha couldn’t be done unless there was a realistic approach taken to agriculture not just by Japan, but of course by India and China. And so, that led me to not just understand it was still a difficult task, but that potentially there was flexibility in all of this, and that was with the previous administration.
When I came in January last year I also engaged the DPJ. And I met with now Deputy Premier Kan and we talked about the FTA then, and we got positive signals about the importance of it. And so, the importance of engaging them at that stage, I think, has also stood us in good stead.
Just on Doha, the other thing about Doha, and it’s not just a question of importance to Japan – and Japan has been strong in saying that we should conclude it – I think what’s also important emerging from the global financial crisis is the realisation by world leaders that concluding Doha is important. There are two reasons for it: Doha is the exit strategy, the economic stimulus you have that doesn’t give the budget a hit. And secondly, it is the most effective insurance against the spread of protectionism, which is of great concern to most governments. So, the preparedness on the part of leaders to get involved to conclude Doha is encouraging. It still hasn’t been enough, but what has been interesting is that in the last four months, because we have been able to engage a new administration in the US, a new government in India, we have had a lot of informal discussions at ministerial level to strengthen that political will, and that itself has built a new momentum. Clearly the opportunity to do that again here is crucially important and we’ll be having detailed discussions about that later on in the morning. I remain optimistic that we can conclude it. I think, out of the crisis there is a new opportunity to develop it.
On the regional front there was a lot of newspaper coverage yesterday about the outcome of the East-Asia Summit in Hua Hin in Thailand to the argument that there were differences between Prime Minister Hatoyama’s model for an East-Asia community and our Prime Minister’s proposal for the Asia-Pacific community. That hasn’t come through in the dialogue that we’ve had here to date. True that there are issues to be resolved about membership, but I think there is a realisation here, as with us, that it is far more important to talk about the structure going forward – what’s needed. And we are, in so many ways, on the same page with Japan in this. You only have to look at what we’ve been doing in that East-Asia Summit to take the free trade agreements that have been signed by many of us with ASEAN. Australia and New Zealand have just concluded theirs. It will come into force on 1 January next year.
But so, too, have China, Korea, Japan and India. And what’s now emerging is the challenge how best to get a convergence of the ASEAN plus those 6s. There is a debate going around as to whether it should be ASEAN plus 3 or ASEAN plus 6. We in Japan are on the same page along now with India in arguing very strongly it’s ASEAN plus 6 and that is huge potential. It’s a market of three billion people and it’s already a combined GDP of close to 17-18 trillion dollars. And that’s before you embark down the path of further trade liberalisation. So it’s very exciting. And the opportunity to work with Japan in this space again next year because they are hosting APEC, they are one of the original members of APEC – an initiative that the Hawke Government pursued with vigour as a complement to the Uruguay Round. A realisation that it is as important as the multilateral round is in trade liberalisation - because that is where the biggest benefits come from. You are never going to get all that you want and you’ve got to keep the momentum of the multilateral processes going through other forums. In those days APEC and the Bogor Declaration were terribly important to the liberalisation in this region. So next year Japan’s hosting. It’s 20 years now since APEC was established, and an important opportunity to work together again with Japan on the agenda going forward.
One important issue going forward in the region is logistics. And that becomes important when you think about trade and trade flows these days. What we’re tackling in trade negotiations is reforms at the border, increasingly now because we’re dealing with the services economy reforms behind the border. Logistics is really about reforms across the border. And if you look at the important new capacity, huge new capacity, coming into shipping, this is going to be really good for the movement of goods. It will provide competitive opportunity to move much more efficiently if we can break down the barriers, if we can get consistency built into the system. Big savings, big efficiency. Of course the other vehicle for transportation, if you like, is broadband, the telecommunications facilitator for movement of services. That, too, becomes an important agenda for going forward. So you can see that the opportunity to engage them on that front in crucially important.
So far as the bilateral relationship is concerned, we’ve never underestimated the importance of Japan to us. It still is our largest export market. It’s the country with which we have the largest trade surplus. In fact, last year, despite the global financial crisis, we posted the biggest ever trade surplus, not just with Japan, but any country anywhere last year. This was obviously because of the big resources demand and the high prices that were being commanded at the time. But Japan is not just important as an export and a trading destination and, in many ways in Australia - this is the debate that I’ve been having within the Labor movement for many years now - that they recognise, the labour union movement recognises trade is important.
Most of Australia thinks trade is important, but they think of trade only in terms of exports. Trade is also about imports and unless you’ve got imports you ain’t got exports. But for a country like Australia, that has a developed and sophisticated services economy, services also becomes the enabler of what we can do for elaborately transformed manufactures. It’s in our interest to be able to import the inputs cheaply, convert them and re-export. We do that in the automotive sector, for example, and it’s why we are one of the few countries of the world that has the capability in autos at all levels from design to showroom floor. It’s why China is interested in drawing on our capability as they move, not just now as the biggest manufacturer and market for autos in the world, but move away from the jointly branded to their own brand. And that’s why we’ve been spending a lot of time in China in that area alone.
China also, in relation to urban design and development – I made the point last night, a fact that continues to astound me and staggers most audiences – China is going to have to house 400 million people in the next two decades. It’s huge, it’s the biggest urban development the world has known. And so when you look at Japan’s diversified interests in Australia now, property development, there is huge opportunity for both of us, not just in the bilateral relationship between both of our countries, but to really look at third markets. Third markets in terms of urban development, third markets even in terms of autos. Japan will be pretty offensive in that field in its own right, but given the strength of our position with Toyota in particular in Australia, there are some exciting opportunities.
The other interesting development has been Japan’s realisation in Australia’s strength in clean green nutritional quality food. Just look at the recent investment by Kirin in Lion Nathan and Dairy Farmers. You look at Schweppes. What they are buying here is the brand, they are buying the service, they are not just investing in the company because they are retaining the marketing dimension that is Lion Nathan. Not to market here because it’s a declining population, but to market in the rest of Asia, which is a growth market and for which the demand in terms of quality green nutritional food will be exponential as tourism develops. It’s not just the food, it’s the beverage as well. So there is exciting opportunity for both countries to really tackle third markets and to tackle them on so many fronts.
The other area is clean energy and we had a good symposium yesterday. Off the back of the report commissioned by Austrade, the Clean Energy Unit within Austrade, to take a strategic approach to how Australian companies can position better in this field. The report, written by the Nomura Research Institute, identifies the strengths here and where we can match that up. And again, think about it, Carbon Capture and Storage, clean coal, carbon sequestration in terms of Gorgon, the liquids/ gas to liquids and the photovoltaics, the whole range of these areas. And why is it important again? Both of our economies need to find clever solutions, in particularly on coal, clean coal solutions, because both economies are so dependent on coal going forward.
But Australia is blessed in the sense that it also has vast resources in gas and uranium: the cleaner fuels. It’s why we have to pursue the development of an emissions trading regime, a market-based mechanism that actually rewards good behaviour, gives premium to cleaner fuels. Not only is it a better selling point, but it creates a market instrument that positions our industries to take advantage of it. And that’s why we do persist with the argument that we need to be in the lead, taking a strategic approach to how this emerges. But clean energy, again, is important to both countries as they grapple with their own problems and how to handle the agenda going forward. But if the truth is that common but differentiated, in terms of the Copenhagen or the Kyoto negotiations going forward, is that developing countries won’t commit to targets but will commit to action. How are they going to undertake the action? They can only do it if they get the rapid infusion of technology and services that enable them to do it.
This is something that both of us can do, not just through the aid debate, but also through the trade debate by arguing that we should be liberalising the trade in the environmental goods and services, lowering cost by not having artificial barriers. This, too, is an agenda that we seek to pursue through the Doha Round. So, that is really the exciting potential for how we can revitalise the relationship. What’s needed, of course, is to try and conclude this elusive EPA with Japan. That has proven difficult because of agriculture. And the truth of it is that, in terms of what Japan has put on the table, it effectively excludes any access for our agricultural produce. We’ve made the point that we can’t settle on that basis, we need a comprehensive agreement. But we need to show as strong trading partners, committed to this broader agenda, that we’re serious. Quite frankly, if we can’t produce a comprehensive FTA, all this argument about us working together and leading in all those other fields that I’ve talked about is seen as aspirational, but no real true commitment to it because we’re not prepared to practice it ourselves. We have to make some hard decisions ourselves in terms of our manufacturing sector, not the least of which is the auto sector, and that is going to be a hard debate within our economy. But it’s a debate we should be prepared to have because it’s in the interests of both countries if we can get the comprehensiveness of this agreement together and tackle the really important areas of opportunity within the services. I think that is going to also be an important focus of our discussions with Japan.
When you think about the services sector, financial services, is terribly important, but not just in terms of banking. It now becomes increasingly important in terms of funds management. The strength of the Australian position in funds management, now the fourth largest funds management in the world, operated from Australia. We have great expertise in terms of managing people’s wealth. And that is something that Japan needs, especially with an ageing population. So opening up the economy and developing that expertise.
Similarly, in terms of infrastructure spending and the big money that Japan is putting into aid programs around the region, and also its challenges internally, how to be creative in financing options to develop that. Public-Private Partnerships, etc. But again, if we get that partnership right in terms of financial services it’s not just in this market it becomes important.
In other markets, if what you are doing is convincing aid agencies or countries that they can get a bigger bang for their buck in terms of investing in infrastructure, not only is the opportunity there, but it also exists in the other stages associated with it. Think about it: logistics – what’s the point in building the roads and the bridges to get product to market if you haven’t got the efficiency or the expertise with which to move it. Again, Australia has particular expertise here and the toll purchase of the logistics company here recently is interesting testament to the other way investment back into this country. So, again, I think that the opportunity is to look at the services sector. This is an argument that the Chamber needs to be not just conscious of, but advocating, is to look at services not just as the sector in its own right, but as an enabler of other ability, whether it’s in manufacturing, whether it’s in construction, whether it’s in agriculture, land management, all of those sorts of things. And to also think of that sector in terms of third market opportunities. Why? Because the global financial crisis has also opened the window to developing countries to understand this fundamental fact. If they want to become developed, if they want to jump to developed stage quicker, they have to embrace more quickly a services dimension to their economy. That’s why it’s important to have India in the act for the East-Asia Summit – because they are a more diversified economy than China. And the services dimension and the realisation of the importance of attracting services is the reason that Malaysia and Korea are now so active in adopting an agenda to pursue aggressively conclusion of FTAs.
I am going to Korea after here. They genuinely want to conclude an FTA with US within a reasonably short space of time. And they’ve shown strong intent and endeavour to do it. Sure, we’re going to have our problems on agriculture again in Korea, but they understand the importance of trying to get to this next stage step up. So, if all of that is true, if that’s the emerging dynamic out of the ashes of the global financial crisis, this is the place to be and Australia and Japan are two bookends in the relationship that together really can develop not just an opportunity, but a solution and enablement for stronger development within the region. That’s the agenda that we’re trying to chart with them. It comes from a realisation of where Australia can position itself. Australia is, as you know, the only developed country in the world to have avoided a technical recession and is the fastest growing developed country in the world. Why did we get there? Our stimulus package worked because we had safety nets in place that meant consumption stimulus actually ended up in consumption and it was sequenced properly so it met the pre Christmas rush immediately, you then had a post Christmas injection again, you had the tax cuts in the middle of the year and now you’ve got the pension cuts. But 70% of Australia’s fiscal stimulus is going into the drivers of economic growth, into infrastructure, into innovation, into skills, and these are the things that can lift our productivity in the way in which it did it in the 90s as a result of the big structural reforms that we undertook in the 80s.
So the stimulus package worked, but it worked because we’d undertaken the fundamental structural reforms of our economy. This is a message we, too, need to convey to Japan as it emerges from this global financial crisis. And the final decision we took, which was important in terms of giving us this cushion was the decision back in the 80s, again, I talked about APEC, but the decision to engage much more actively with Asia, and hasn’t that paid dividends in terms of the trading relationship. So, there are three fundamental cushions.
The other one, of course, was the banking and the regulatory system, the underpinning of that, the security that’s in there, so in terms of financial services, we’re not just talking about the services themselves, but the platform, the regulatory framework that delivers it. These are our strengths. We know them. The rest of the world only comes to understand them when it has to engage with them. That’s why we’re embarking on this concept of Brand Australia, to actually identify a better understanding of what Australia stands for across the diversity of its product and services range, a concept that when you talk financial services, the fact that you say it’s Australian means something, the fact that when you talk clean food and nutritional quality food, whatever company it is, when you say it’s Australian, it means something. Not just the fact that it’s made in Australia with all the connotations, but that it is Australian and that Australia is much more than a tourist destination. It’s a place to live, it’s a place to set up your business, it’s a place to set your global headquarters up, let alone your regional headquarters because it has the infrastructure and the support and the capability, predominantly skills, innovation, creativity, all of those things. Whatever Australia does, and you know it, because you are part of us, whatever it does, it does through quality.
It is quality and that’s the brand concept that we want to promote. Having said all of that, thanks very much again for the opportunity to be with you. I know you carry the flag for us on many occasions, but we think it’s a pretty proud flag, and we in the Labor Party want to make you even prouder of it. And to remind you of the creative dimension that we bring to policy formulation and its execution, we hope that we are also able to convince our counterparts. But I think in the meetings that we’ve had yesterday, very encouraging signs of the path forward and we look forward very much to the relationship burgeoning. Thanks very much.
QUESTION:
….. The FTA with Korea will that put pressure on Japan to conclude an FTA?
MINISTER:
Well, we hope it sends some pretty strong signals, as it does to China because obviously Korea as our fourth largest trading partner, it’s very significant. But it’s a realisation by them as to where they want to be. It’s the aspirational dimension that they see through trade. And so their embrace of it is important because they are really saying that our future trade really matters. That’s the message that, in a sense, Japan gets, but in parts, and it does it out of necessity rather than necessary opportunity. I think Korea is looking at it from the other perspective. That’s a message that we have to hammer. And it’s a difficult pitch because, especially when the economies are turning down it’s odd because protecting jobs gets confused with protectionism. And we all know that protectionism and looking in on yourself causes the downward spiral, it just worsens the circumstances, but we’re not just excited by the prospects in Korea, but interestingly enough now as well in Malaysia. But the fact that we’ve concluded the ASEAN Free Trade Agreement, which is a comprehensive agreement - it’s 600 million people and its two-way trade now, before this free trade agreement, is 80 billion Australian dollars, so it’s actually bigger than Japan, bigger than China. So, you know, I think persistence gets the message, can get the message through, but you do need willing partners on the other side. I must say it’s encouraging so far here. But there seems to be a real commitment to trying to do this and that’s in discussions we’ve had with the Foreign Minister, the METI Minister and the Ag Minister.
QUESTION:
I want to pick up your point on the automotive industry and if I can comment about the problems that Bridgestone is having in Australia. You are going to Korea from here. Is it on your agenda to invite two of Koreas largest tyre manufacturers to invest in the Bridgestone plant and, at the same time, in your discussions here in Japan, has the question of commitment of Australian investment in Japan come up because in Japan … encouraging (inaudible).. the OECD.
MINISTER:
Just on the first point, interesting concept, I’ll get on top of it before I get to Korea as to whether there is any potential for them to come down there. Look, I think it is interesting, and you look at China’s investment in the transmission drive train plan in Albury Wodonga. It is the realisation that what we have is capability and skills and it’s not what they’ve got. I’m not too sure of what the position is with Korea in relation to its tyres. Maybe there is a potential there, but Australia’s strength in auto componentry isn’t trying to compete with low end manufacture. It’s got to be about the smarts. And interestingly, before I came away, I launched again an Austrade initiative, an auto link concept which was about clustering all of our strengths in auto design and capability, so it’s the manufacture, the internals of cars, but also smart manufacturing componentry, locking systems and the like. But to put it together as a job lot, to say we’re capable of doing this as part of global supply chain. So thanks for the tip. I’ll have a look at where the tyres might take us.
On the question of foreign direct investment, again, I think Japan does have to be much more open to this. Investment in many ways is the new form of trade. Because no longer is trade just about moving goods. Obviously it’s about services, and again the barriers of us getting into the services sector here, which in many cases goes hand in glove with investment because you can’t provide the services unless you get the bank license or whatever else, architectural design, law firms, all of those sorts of things. So, we are, this is the same argument that we are having with China. We’ve got huge investment into Australia from Japan. Japan’s investment in Australia is the third highest foreign direct investment in Australia, it’s now in stock 90 billion dollars. And last year, in the middle of the global financial crisis, it went up 40%, essentially because those things like property development, the food and beverage, some resources, but it’s been a big expansion. They understand the importance of investment. We’ve got to convince them about the two-way street dimension of investment. That in a way that enhances their capacity, we’ve allowed it in Australia, if you look at it in the resources sector, because we’ve wanted to expand our resources base. We’ve understood that from the very beginning. What’s taken a very long time here is to understand the importance of strengthening their services base and reaching out on the basis of drawing in the strengths. So, we’ve been making a very strong pitch, we’re arguing very strongly that within the FTA, the EPA there has to be a strong services and investment focus.
ENDS