FTA opens Japanese doors for Australian business

When Japanese Prime Minister Shinzo Abe arrives in Australia to talk trade and investment in Canberra and sign a free trade agreement between the two countries, it will kickstart a relationship first formed in 1957.

The Japanese Trade Minister Abe (the current prime minister’s grandfather) signed the Commerce Agreement with John “Black-Jack” McEwen, Australia’s Country Party deputy prime minister and trade minister, that enabled Australia to finally embrace its geography and take commercial advantage of the industrial giant that Japan later became.

Back in 1957, with the memory of the Pacific war still in everyone’s mind, and with cold war tensions afoot, it took great courage to negotiate the deal, and as it turned out, great foresight given Japan’s subsequent economic development.

Now, Abe knows he needs Australia as an economic partner to achieve his current goals to revive Japan’s growth and the Japan-Australia Free Trade Agreement (JAFTA) has plenty on offer for both countries, particularly in agriculture and services.

For its part, Australia has been seeking cuts in tariffs and non-tariff barriers and more openness in Japan’s previously closed rural and services markets for some time, while Japan needs energy security from Australia – particularly in terms of liquefied natural gas (LNG) given stiff competition from both South Korea and China.

But there are a number of other potentials. The first one is foreign direct investment. A more open Japanese economy will give Australian companies better opportunities to work in-market in Japan. According to the Australian Bureau of Statistics (ABS), only 3053 Australian businesses export to Japan (a number that has fallen by over 500 companies since the GFC) and according to Sensis, 14% of all Australian exporting small and medium enterprises (SMEs) sell to Japan.

Fewer than 100 Australian businesses have offices or investments in Japan (compared to over 3000 in China for instance) despite Japan having a long-held position as Australia’s number one export destination until very recently.

Another opportunity is finance. In a paper for the Lowy Institute, Huw McKay and Malcolm Cook point out that Australia and Japan are both regional leaders when it comes to the size and sophistication of their financial markets. China may be growing but their market is still in its early stages of development. Particularly as there have been frequent calls for reform of the world’s major economic institutions, Japan and Australia could play a key leadership role in financial issues facing the Asia-Pacific region.

While Australia-Japan trade flows are dominated by resources, there’s clearly room for expansion in trade in services between the two nations. During his term, former Prime Minister Koizumi introduced a number of reforms in areas like education, healthcare and government services which were regarded as “untouchable” parts of the Japanese economy.

According to a local services sector expert, Professor James Kondo of Tokyo University, Australian exporters have a comparative advantage in many areas that will open up: “The healthcare, wellbeing, education and the lifestyle sectors have traditionally been closed in Japan, but this will soon change to Australia’s benefit”.

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