Japan gets serious about trade deal
The Australian, Canberra
Japan gets serious about trade deal
New Prime Minister Shinzo Abe has flagged ties with Australia ’a priority’ as Japan vies with China for our rich resources, writes Florence Chong
29 September 2006
When the idea of a free trade agreement with Japan was floated four years ago, there was not much enthusiasm in Tokyo.
That’s all changed.
As China and Australia make substantial progress on their FTA negotiations, Japan’s attitude has shifted. It has come to realise that it is competing with China for Australia’s attention, diplomatic sources say.
Japan’s two economic and political imperatives are: energy security and food security.
Sources in Tokyo say Japan is concerned with China’s economic rise and is keen to shore up its position and influence in the region and the world.
In recent months, government officials from Tokyo and Canberra have had intensive discussions seeking common grounds to launch an FTA negotiation.
They will meet again in Canberra in November to finalise their joint feasibility study, and are expected to recommend to their respective governments to proceed with negotiation.
Japan’s new Prime Minister, Shinzo Abe, has already named Australia as a "country of priority" for his administration’s foreign policy, and sources in Tokyo reckon an Australia-Japan FTA will have strong political support.
"Japan sees China as a keen competitor for the same resources from Australia," says a senior diplomat in Tokyo.
"It also sees Australia as a strategic partner both in regional diplomacy and a range of broader issues - not just trade," he adds.
For instance, Australia sent troops to Iraq to protect the Japanese personnel in the war-torn country.
"It made Japan realise that Australia is a serious country when it comes to security issues. We put money where our mouth is," says the diplomat. A former Australian trade official remembers how the idea of an FTA met with lukewarm reception when presented to the Japanese four years ago.
As a second best, Australia launched negotiations for what is known as a trade and investment framework agreement (TIFA), which does not have the depth and breadth of an FTA.
A comprehensive agreement for closer economic partnership will also have other strategic importance.
An official from Japan’s Ministry of Foreign Affairs says Japan decided to go into a joint study with Australia after the first meeting between former prime minister Junichiro Koizumi and Prime Minister John Howard in November 2005.
Officials from both countries met more than a week ago - the latest of a series of meetings this year. "We are impressed with the progress over the last 18 months," says Australia’s ambassador to Japan, Murray McLean.
The Japanese foreign affairs official says: "We have identified various issues in our meeting. We know that agriculture is a difficult issue. How to handle agriculture would determine whether we will start negotiations.
"I can’t tell you what we discuss, but I can tell you that Japan is carrying out reform of our agriculture policy. We want to move to a more efficient and competitive market.
"But it will take time to carry out these reforms," he adds.
McLean says Japan remains a highly significant market for Australian exports.
He says China will continue to grow over time and not just in the next year or two. However, Japan will remain Australia’s most significant market for the foreseeable future, he says.
Last year, Australia accrued a surplus of $11 billion in its trade with Japan, which imported $28.4 billion of Australian products. By contrast, China imported $16 billion; and Australia ran up a deficit of $5 billion with Beijing.
Japan is a major importer of coal and LNG from Australia. Last year, it imported almost $2.4 billion of Australian beef - making it Australia’s single largest market for that product.
"The Japanese see Australia as an island continent which has little by way of disease," says McLean.
Beef supply from the US and other countries has been disrupted from time to time owing to the break-out of diseases, but Australia has been able to maintain continuous supply.
Japan is the largest net food importer in the world, relying on other countries for 60 per cent of its food.
Although the relationship with Japan is strong, there has been a tendency to take Japan for granted. McLean says that an FTA would have a "head-turning effect" and would draw business into considering the prospects of doing more in Japan than in the past.
An agreement would not focus on merchandise trade alone.
Australia’s ambassador says Australia will seek a comprehensive agreement with Japan which would enhance services trade, covering issues such as protection of intellectual property rights, recognition of standards, qualifications and movement of people.
An FTA would also seek to streamline and smooth the way for investment decisions for Japanese and Australian companies.
It is timely, say Australian diplomats, because the situation in Japan has changed. Aside from resources and agricultural products, Australia has started to export more complex products.
As Japan reforms its economy, more sectors have been liberalised, making it easier for foreign companies to export to that market.
For instance, after many years of trying, Japan recently imported fast ferries from Australia.
Leading Japanese business groups have lent their support to an Australia-Japan FTA for security of supplies.
An official in the Japanese Ministry of Foreign Affairs said: "Australia and Japan share the same (democratic) values and are committed to the multilateral trading system.
"Now that negotiations have reached a difficult stage, nonetheless we are determined to make progress, but at the same time we look to FTAs as a complement to the WTO.
"Both Australia and Japan have concluded negotiations with various countries."
He says the Japanese Government is still uncertain whether to call it a free trade agreement or an economic partnership agreement (EPA).
"Whatever name we use, it will cover goods and services as well as investment and other bilateral activities," the official says.
Japan’s first FTA was with Singapore and it has since concluded FTAs with Mexico and Malaysia.
In Helsinki this month, Koizumi signed off an EPA with Philippines President Gloria Arroyo.
It has finished negotiations with Thailand and is awaiting ratification of the deal.
Both Japanese and Australian officials say it would be fitting if their two governments began negotiations for an FTA or EPA this year, 50 years after the two countries negotiated a treaty mapping out their post-war relationship.
