Australian Chamber of Commerce and Industry May 2006

Issues Paper

AUSTRALIA-JAPAN ECONOMIC AND

TRADE RELATIONSHIP

F
rom an Australian perspective the importance of the Australia-Japan relationship is enormous. Japan
is Australia’s single largest trading partner and has been our number one export market for more than
forty years. Two-way trade between Australia and Japan topped $A44 billion in 2004, with Australian
exports to Japan worth $A26 billion.

Australia supplies some 60 per cent of Japan’s coal and built on several solid pillars.
iron ore needs and 13 per cent of its LNG requirements.
Last year (2005) we were able to deliver more than 90 per The most important of these pillars is the Australia
cent of Japan’s beef imports. - Japan Agreement on Commerce, also known as the
Commerce Treaty, which was signed almost 50 years ago
On the services front, Japan is our second largest source in 1957.
of tourists, with over 700,000 Japanese visiting Australia
in 2004. The Agreement normalised bilateral trade and economic
relations and saw Australia extend Most Favoured Nation
Foreign investment is another important bridge between status to Japan (at the time only the second country in the
Australia and Japan. world, other than the United States, to do so).

Japan is the third largest source of foreign investment into The Commerce Treaty was complemented twenty years
Australia (with a total investment stock of some $A45 later (1976) by the Treaty of Friendship and Co-operation
billion) and is the fourth largest destination for Australian (also known as the Nara Treaty) which emphasised our
investment abroad. mutual interests in maintaining stable trade relations.

All of these figures can be distilled down to one essential Another important, and more recent, building block is the
number - Japan takes one dollar in every five of Australia’s Australia - Japan Trade and Economic Framework (TEF)
exports, which is equal to China and the United States signed by Prime Ministers Howard and Koizumi in Tokyo
combined. in July 2003.

JAPAN’S REGIONS The TEF reflects the desire to further strengthen bilateral
relations by, amongst other things, working toward the
To give a sense of perspective, several of Japan’s liberalisation of trade and investment between our two
individual regions constitute large economies in countries.
themselves and dwarf the total Australian economy.
It also usefully sets down a number of important areas
Few in Australia would be aware the Kyushu region is the for enhanced co-operation for the mutual benefit of both
same size of the Australian economy, the Chubu region countries.
twice the size and the Kansai regional economy four times
the size. These include:

Looked at another way, these three Japanese regions • information and communication technology;
- Kansai, Chubu and Kyushu – are seven times the size of
the Australian economy. • investment promotion;

BUILDING BLOCKS • mutual recognition of professional qualifications;

The Australia - Japan economic and trade relationship is • regulatory co-operation in securities markets; and

LEADING A U S T R A L I A N B U S I N E S S
 Australian Chamber of Commerce and Industry May 2006

• expanded information exchanges in areas such as While some are inclined to place the question of a JAFTA
intellectual property and government procurement. in the ‘too hard’ basket, in some areas like merchandise
trade there is not a great distance to travel.
While official documents and trade have their place, the
most important linkages are often those between people At present, around 80 per cent of Australian exports to
- the bridges built by strong people-to-people relations. Japan enter duty free and 87 per cent of those goods
subject to duty are at rates of less than 10 per cent.
In this area, Australia and Japan are also doing well.
At the same time, we should not be daunted by the
Around 700,000 Japanese people visit Australia each year, challenges in a few sensitive sectors. Such matters can
more than 300,000 Australians are currently learning the be handled where there is the necessary political will, and
Japanese language in our schools and universities and leadership, and pragmatism in terms of the phasing of
there are almost 100 sister city relationships between commitments.
counterparts in Australia and Japan.
The Joint Study Group, the body tasked with examining
Lest we think the flow is all one way, the Australia - Japan a potential JAFTA, has held a very fruitful third round
Foundation is providing education materials on Australia of discussions in Tokyo and has resolved to complete a
to every one of Japan’s 11,000 junior high schools and feasibility study by the end of 2006 - four months ahead
through them to hundreds of thousands of Japanese of the original timetable. Assuming that the study reaches
schoolchildren - the business and political leaders of conclusions favouring an FTA, from that point a political
tomorrow. decision will need to be made as to whether negotiations
should be undertaken.
JAPAN - AUSTRALIA FTA FEASIBILITY STUDY
OTHER RELATIONSHIPS
As we would all be aware, the Australian and the Japanese
Governments are currently actively engaged in a feasibility While the Australia - Japan relationship is important to
study examining the potential for a free trade agreement both countries, each has active foreign, trade and security
between our two countries. relations elsewhere in the Asia Pacific region and around
the world.
An Australia - Japan Free Trade Agreement (JAFTA),
if realised, would take the already strong commercial In the trade area, both Australia and Japan have
and economic relationship that exists between our two maintained a strong commitment over a long period of
countries to a new, higher, level. time to the multilateral, rules-based trading system in the
form of the World Trade Organisation.
Econometric modelling undertaken by DFAT in 2003
pointed to the substantial gains for both Australia and for We have also worked together in creating and nurturing
Japan from the liberalisation likely to flow from such an the Asia Pacific Economic Co-operation (APEC)
agreement. processes and appear to be of a like mind on the nascent
East Asia Summit (EAS) initiative.
In present value terms, over a 20 year period, a high
quality JAFTA could add as much as $A39 billion to Both countries are also looking to cement various
Australia’s national output, while the gains for Japan could bilateral economic and trade relations through free trade
be around $A27 billion (or some Yen 2.2 trillion). These agreements with important trading partners.
estimates are likely to be on the conservative side.
Australia already has high quality FTAs with New
Mathematical-economic modelling undertaken by the Zealand, Singapore, Thailand and the United States. We
Australian Chamber of Commerce and Industry as part are negotiating with ASEAN, China, Malaysia and the
of our contribution to the JAFTA processes also shows United Arab Emirates, amongst others.
high degrees of trade complementarity between our two
countries. We are also doing preliminary studies with Mexico, India
and prospectively South Korea. Australian business
That is, each is producing and exporting to the other what would like to see Indonesia added to this list.
the other wants to buy and import - a solid springboard
for a JAFTA. Japan is also building its stock of bilateral trade
agreements with countries such as Mexico, Singapore and

Issues Paper 
 Australian Chamber of Commerce and Industry May 2006

the Philippines and is talking to Malaysia, South Korea,

Thailand and the ASEAN grouping as a whole.

As the Australian Deputy Prime Minister and Minister for

Trade, Mark Vaile, rightly observed when addressing an
Australia - Japan business forum in Melbourne last year:

“With such a long and strong history between us, it would be

unfortunate to see our bilateral ties fall behind our ties with others in
the region.”

CONCLUSION

The Commerce Agreement negotiated almost 50 years

ago, amidst difficult political winds at the time, has
underpinned economic prosperity for both our countries.

The 1976 Nara Treaty took the Australia - Japan

relationship to a new level, helping to promote cultural
awareness and exchanges.

The Aichi World Expo last year helped to lift Australia’s

profile in Japan and the Year of Exchange, currently
underway in both countries, can only further strengthen
our awareness of each other.

However, we cannot afford to rest on our laurels and

must look to take more steps of the magnitude and the
significance of the Commerce Treaty.

ACCI looks forward to participating in ongoing

discussions on a high quality Free Trade Agreement
between our two nations to enhance our trade relationship
throughout the first half of the 21st century.

Issues Paper