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Japan FTA: realising our potential: speech to the Australian Institute of Export: Sydney.



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The Hon Warren Truss MP MINISTER FOR TRADE

DEPUTY LEADER OF THE NATIONALS

Speech to the Australian Institute of Export

Japan FTA: Realising our Potential 30 March 2007, Sydney

Introduction

Thank you, Angus Armour, Managing Director, EFIC

Good morning Ladies and Gentlemen:

I am going to speak this morning about the potential rewards from an Australia Japan Free Trade Agreement.

But before looking forward, let me go back to the time when Australia and Japan were negotiating our first major trade deal, the Commerce Agreement of 1957.

In many ways, it was remarkable that talks ever began.

Cabinet documents, now de-classified, show that the Australian Government faced a great dilemma.

Ministers and officials in Canberra were worried that an isolated Japan could re-arm or join a bloc with China and turn the Pacific into a so-called “Communist Lake”.

But public memories of the Second World War were still raw, and many ordinary people attacked the Government for being pro-Japanese, considered then a politically unpopular position.

Prime Minister Menzies answered his critics by saying: “…the happiness of the future depends upon the future and not nursing the bitterness of the past for cheap political gain.”

So for political and pragmatic reasons, my predecessor as Trade Minister, “Black Jack” McEwen, led the way and argued hard to develop trade with Japan by negotiating a new Commerce Agreement.

Preparations took many painstaking years. Formal face to face negotiations took around

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eight months but were held in a climate of personal goodwill.

Indeed, Australia’s chief negotiator Alan Westerman and his Japanese counterpart Ushibanot only eventually reduced trade barriers but reduced their golf handicaps as well.

It took just ten years after the Commerce Agreement was signed in July 1957 for Japan to become Australia’s biggest export market - and it has stayed that way ever since.

Trade ties

In fact, our goods exports to Japan are now worth more than our goods exports to the United States and China combined. Japan is Australia’s largest minerals and energy market and our largest agriculture buyer. And two-way trade in goods and services was worth around $55 billion in 2006.

Let me give you a few examples of the trade taking place between our two countries:

z In 1957, the trade in coal to Japan was worth $69,000 - the value of about 30 family

cars at the time. Fifty years later, the trade in coal to Japan is worth over $7 billion - the value of about 30 Boeing 747 jumbo jets! z Each year, as Japan’s second largest car export market, Australia imports enough

Japanese cars to sit bumper-to-bumper from Brisbane to Melbourne; and z Japan is the third-largest foreign investor in Australia represented by familiar names

such as Toyota, Mitsubishi, Hitachi and Mitsui.

Commercial and economic ties have been the ballast in relations between our two countries and have contributed to our mutual economic development.

But the relationship is now much broader than economic. It spans strategic co-operation and regional co-operation in areas such as counter-terrorism and disaster response. We work together in peacekeeping and continue to do so in Iraq.

Today, we can say with great confidence that Australia’s partnership with Japan is the strongest and most dynamic it has ever been. The Joint Declaration on Security Co-operation recently signed in Tokyo by our respective Prime Ministers underlines the reality that we have a common destiny in Asia. It is a practical demonstration of the shared commitment of both governments to strengthen our bilateral relationship.

It is therefore natural, that in the year of the 50th anniversary of the original Commerce Agreement, we seek to take our relationship to the next level.

Just as the Commerce Agreement helped secure our mutual prosperity during the past 50 years, we hope that an Australia-Japan Free Trade Agreement will assume similar economic

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and strategic importance over decades to come.

Free Trade Agreement

Australia and Japan will formally start negotiations on an FTA in less than a month. Both sides have formed negotiating teams. And in line with the importance that we place on the bilateral relationship, we have appointed as Australia’s lead negotiator Peter Grey, a former Ambassador to Japan and a Deputy Secretary of the Department of Foreign Affairs and Trade.

Australia and Japan will begin negotiations with all products and issues on the table. This reflects Australia’s long-standing approach to FTAs.

But I recognise that it is a significant step for Japan to begin negotiations without excluding sensitive agricultural products at the outset. Australia also has sensitivities.

However, as agreed by both our Prime Ministers, these sensitivities will be handled through the talks. And certainly, our talks will not be bound by arbitrary time lines.

We aim to have a comprehensive, high quality agreement appropriate to two developed economies, which further integrates Australia with the world’s second-largest economy. This would of course expand trade in goods.

But it would also address issues relevant to modern economies such as services market access, regulatory issues, intellectual property and competition policy. It would also facilitate the movement of people and the exchange of ideas.

Like all of Australia’s FTAs, it will be what is called “WTO-plus”; meaning it will be consistent with world trade rules, and indeed, aims to go beyond minimum standards to free up trade in key sectors.

Let me outline a few of our ambitions for the FTA:

We will seek to address tariff and non-tariff barriers facing Australian companies and create new, commercially meaningful opportunities across all industries.

We will seek to secure and expand export opportunities in our largest agricultural market.

And we will seek to include measures to promote two-way investment; improve opportunities for Australian services exporters; and secure and enhance our relationship with the largest buyer of Australian minerals and energy.

On this last point about energy, I am pleased that Japan shares our view that the best path

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to energy security lies in open markets. We have proven ourselves as a reliable long term energy supplier to Japan.

Japan is Australia’s largest LNG market with exports last year worth $5.4 billion. The value and volume of our LNG trade dwarfs the more high profile North-West Shelf project with China’s Guangdong province. There are still many more contracts between Australian LNG suppliers and Japanese utilities that will be delivered in the decades ahead, earning tens of billions of dollars of export income for Australia.

This market-led approach to development has worked well for Japan and Australia. I see no reason why it cannot inform progress across several other sectors like agriculture.

I appreciate that negotiations about agriculture will be hard but we are determined to make progress. We have a long standing good relationship and we want to build on that to secure and improve our markets for agriculture.

I should note though, that we are already doing well; our beef exports to Japan, for example, have grown on average by 11 per cent over the past five years. Last year they were worth $2.2 billion; that’s nearly half our total beef exports.

If individuals and groups would like to comment on issues relevant to the negotiation of the FTA, they are most welcome to send submissions to my Department through DFAT’s website.

Realising our potential

My point is that even though our trade is already substantial, both governments believe we can still develop more opportunities to realise our potential. In fact, some areas of our trade and investment are still emerging.

For example, services, which represent more than 70 per cent of our respective economies, are a relatively small part of our trade. There is also plenty of room for growth in our investment relationship, particularly with investment from Australia.

In Australia, Japanese products have been all the rage for many years: from Japanese cars as I’ve mentioned to more recently, I’m told, a growing appetite for Japanese Manga comics.

Each year, more and more Australians are also flocking to Japanese ski fields. As one father of three put it: “No jet lag, direct flights, fantastic powder, great food—the only problem is there seem to be more Australians than Japanese these days.”[1]

In Japan, family restaurants serve Australian steak and red wine for a very reasonable $20

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or so. And more and more young Japanese are adopting surfing sub-culture, as seen in last year’s film, Bondi Tsunami, the first Japanese “road movie” set in Australia. Now, Japan is Australia’s major market for water skis, surfboards and water sports equipment, a trade worth millions.

I believe that a deeper trade and commercial exchange between our two countries certainly complements other aspects of our relationship, not least in sport. Most recently Sydney FC played and drew 2-all with the

J-league champions Urawa Reds. Sporting events like this play a big part in bringing Australia and Japan together.

Conclusion

Australia’s football champions are competing in Asia—just like our exporters. But if there is one big opportunity in Japan that remains untapped it is the relatively small number of Australian exporters who are actually in Japan. There are around 4,000 Australian companies currently exporting to Japan but fewer than 100 have offices or investments on the ground there.

Austrade’s Country Manager in Japan, Phil Ingram, will tell anyone willing to listen that the key to maximising exports and capturing more business in Japan is to establish a local presence.

As many of you know, there are particular aspects of the Japanese market that demand attention by businesses on the ground. One of these aspects is the relentless demand for new products in Japan’s economy.

We have benefited from the complementary nature of our trade in the past 50 years. But as we look ahead, industries like information technology, financial services and medical and health services, will open up new opportunities for trade.

In government, we must not underestimate the opportunities. This is why we will work hard through an FTA to open up trade even more, so that our businesses and our exporters can make the most of new opportunities.

Thank you very much and I’d like to now hand you over to Austrade’s Chief Economist, Tim Harcourt.

[1] Australia-Japan: Friendship and Prosperity, Focus Publishing, 2007.

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