Dr Geoff Raby

Sharing the FTA experience: An Update on the Feasibility Study into a Bilateral FTA

Address to the 44th Australia-Japan Joint Business Conference by Dr Geoff Raby, Deputy Secretary, Department of Foreign Affairs and Trade

The Sofitel Wentworth, Sydney, 16 October 2006

Introduction

Mr Murofushi, Mr Adler, thank you for your kind introduction and the invitation to speak today.

I am very pleased to address this gathering.  I know how much the bilateral economic cooperation committees contribute to the Australia-Japan relationship and we recognise and greatly value your support for an FTA between Australia and Japan.

Having heard your repeated calls for governments to move to an FTA as a matter of urgency, I am glad to say that we have come a long way towards beginning negotiations on an FTA.

I’d like to share with you today some of the results emerging from the joint study.

The FTA feasibility study was initiated by Prime Minister Howard and Prime Minister Koizumi in April 2005.

Since then a joint government study group has met five times and canvassed all of the issues, chapter by chapter, that we would expect to arise in negotiating an FTA.

Importantly, the study group has heard from the private sector, under the Chatham House rule, at two of its sessions.  The views of the private sector have been invaluable in highlighting the benefits an FTA could bring, and such views will inform the joint study group’s report, which is now being drafted.

At the beginning of November, I will meet with my counterpart, Deputy Minister Yabunaka of the Japanese Ministry of Foreign Affairs to finalise our report to Prime Ministers, which they will consider later in the year.

Benefits from integration

The joint study’s work is showing that Australia and Japan stand to gain considerably from a bilateral agreement.

Not only are the benefits significant but they are unique, reflecting the particular nature of the bilateral relationship.

We are both developed economies – the two most developed economies in East Asia. And for Japan this will be its first opportunity to negotiate an FTA with another developed country.

In this context, it is worth noting that FTAs between developed countries are of a different order than FTAs between developed and developing countries.

A bilateral FTA would drive deep integration between us by creating a common economic space, one in which goods, services, money, people and ideas can move freely.

Such an FTA would foster economic reform in both our countries and deliver major economic gains for Australia and Japan – more than the gains that could be expected from FTAs with most others.

Like Japan, over 70 per cent of Australia’s GDP derives from services.  Our trade statistics suggest there is untapped potential in areas such as financial services, telecommunications, health and aged care, manufacturing-related services and professional services.

And opportunities in these areas will continue to be expanded by demographic change, especially in Japan.

Moreover, the study group’s work suggests that at a time when both countries are actively pursuing preferential arrangements with other trading partners, an FTA would play an important role in addressing current discrimination against each other’s export goods.

But to realise the full gains from an FTA, we need to tackle a broader range of issues than just goods and services.  An FTA between us would be much more than simply removing border protection.

An FTA between us would also address cross-cutting issues such as investment, business mobility, government procurement, standards and regulatory issues.

By addressing issues such as competition policy, intellectual property, transparency, and non-tariff barriers we can aspire to create a common business space that is easier and cheaper for business from both sides to operate in.

Australia and Japan share more in common than our respective prosperous market economies.

Our partnership is stronger than ever and it is based on shared democratic values, mutual respect, deep friendship, and shared strategic views.

Our unity of purpose in responding to the irresponsible acts of North Korea of last week is an excellent example of our ever closer strategic relationship.

Our governments are committed to the highest level of ambition in the future development of our relationship.

A bilateral FTA has a key role to play in nurturing that ambition, binding our two countries ever more closely together.

What is more, an Australia Japan FTA would foster economic integration in the region based on market principles and be an important step in the two countries’ shared aspiration to build an East Asian community.

Australia and Japan as we well know are two natural, highly complementary economic partners.

We have made a profound contribution to each other’s development.

The economic relationship between Australia and Japan has its genesis in the long-standing contribution of Australian natural resources to the development of Japanese industry.

Distinguished delegates here today have played a key role in creating a virtuous cycle of trade and investment between our two countries.

Japanese demand, backed by capital, has dug Australia’s mines and tapped Australia’s resources.  In turn, the resources that flow to Japan from Australia power Japan.

Measuring the energy produced, for example, Australia outstrips Saudi Arabia and Kuwait as the number one supplier of energy to Japan.  Australia supplies more than 60 per cent of Japanese steel makers’ iron ore needs.  I could continue, and list a further seven minerals, from zinc to titanium, of which Australia is Japan’s number one supplier.

As you know well, demand for minerals and energy is at record levels, and considerable latent demand remains.  Demand for energy in our region is predicted to rise by 50 per cent by 2030.

An FTA with Australia could help secure Japan’s access to vital commodities well into the future through providing Japan with treaty-level assurances of a sort that Australia has not given before, and would not give lightly.

An FTA must be about smoothing the way for the operation of the market, not managing it, so we agree any measures adopted must confirm and strengthen the market’s fundamental role.

Both countries would benefit from an FTA that reduced barriers to investment in minerals and energy.  Japanese companies could make decisions with greater certainty about prospective investments that can ensure Japan’s future needs are met.

Australia’s existing FTA with the United States already provides US investors with preferential access to the Australian market.  US investments of up to $A800 million, and all green-fields investments, are no longer subject to the Australian government screening that currently applies to any Japanese investments in Australia of more than $A50 million.

In addition to such investment provisions, the joint study has discussed other practical ways to ensure Japan can buy the resources it needs, such as whether an FTA could include provisions committing Australia not to impose export taxes or export restrictions on the minerals and energy Japan needs.  Provisions to ensure transparency in resources trade and provisions requiring consultations in certain circumstances might also be on the table.

I have often heard that agriculture is the deal-breaker in an FTA between Australia and Japan.

That view does little credit to the Japanese agriculture sector, whose value is three times Australia’s agricultural production – and that’s before we had the drought.

The joint study has looked with new eyes on the economic relationship in agriculture.  We see opportunity for both sides in integrating our economies more closely together here also.

Australia is a reliable supplier of safe, high-quality food in volumes and at prices determined by the Japanese market.  That is a plus in our relationship, not a minus.

Under Japan’s food policy, which calls for increasing domestic supplies, Japan will always need to import around 50 per cent or more of its total food needs, even with the ongoing reform of the agriculture sector.

Just as demand for minerals and energy is ever growing, future demand for food is set to rise strongly along with living standards in emerging markets such as China and India.

Such countries may be net food exporters now.  China, for instance, currently supplies more food to Japan than does Australia.

China now consumes more beef each year than the United States. As China’s urbanisation continues demand for food will increase, with greater demand for dairy, meat and fruit in particular at the same time as the capacity to supply its needs will diminish.

That will present export opportunities for both Japan and Australia. 

At the same time, securing supplies of safe food from reliable suppliers such as Australia will be an essential component of Japan’s food security, while Australia would benefit from assured and improved access with our best market.

We see potential for an FTA to contribute to these goals through freer investment and possible assurances not to impose export restrictions or taxes.

Notwithstanding the significant benefits of an FTA, Australia recognises there are sensitivities on both sides, as there always are.  The joint study group has deepened our understanding of Japan’s sensitivities.

Such sensitivities, however, should not delay negotiations.  Indeed, the best way to handle them is through negotiations, with both sides taking a flexible, constructive approach. 

We know finalising an FTA will be difficult, that it will require considerable flexibility and that it needs to make economic and political sense to our respective governments.

And given Japan's importance to Australia, we would not want to do anything that would harm this important relationship.

It is important that negotiations should begin with all products and issues on the table.

But in order to handle sensitivities appropriately Australia has proposed equally and in a balanced way that all options for flexibility should also be on the table.

The key role of business

In concluding, I would like to recall the title of this speech’s title: “Sharing the FTA Experience:  An update on the feasibility study”.  That title suggests that I will update you on the joint study - and I have endeavoured to do that.  But it also recalls that we - the AJBCC, the JABCC, and the governments of Australia and Japan - have shared the experience of moving together towards a bilateral FTA. 

After 6 years, we have, together, come further than many could have foreseen.  That is a real achievement already in the relationship.

As recently as January 2005, scepticism was widespread.  In those days one would often hear that an FTA was just too hard.

We have now come to a point where there is a real possibility that we can begin negotiations on an agreement that would bring real economic benefits and commercial returns to business and further the national interest of Australia and of Japan.

I want to take this opportunity of thanking you formally for your important contribution.  The JABCC and AJBCC have done a great deal in bringing us this far.  In fact we would not be where we are today without your collective efforts.

I want to take this opportunity also of asking for your continued support in advocating an FTA. Your role remains crucial.

I hope you will continue to tell us what you want and need from an FTA.

The joint study, with the help of the private sector, has mapped the parameters of real benefits to be gained from an FTA. 

Australia and Japan have a strategic and economic partnership that promises a unique package of benefits from an FTA…

…including the tremendous economic gains from integrating our two developed economies... 

…the benefits of binding more closely two democracies who share values and interests…

…the benefits of putting in place an essential building block for an East Asian community…

…and the benefits, to both sides, of an FTA that helps ensure Japan’s future supply of minerals and energy, as well as food.

Those who forged the Commerce Agreement almost 50 years ago established a framework for our highly successful economic partnership.  We have the chance now to bring that framework up to date to reflect our current aspirations.

And we certainly hope we can mark the 50th anniversary of the Commerce Agreement with the formal launch of negotiations.

Our countries are strong and prosperous, but we must prepare for coming challenges.

As was the case with the Commerce Agreement, negotiating an FTA will prove difficult and complex.

But we know that such challenges are tractable, given the goodwill that exists on both sides.

This is the right time to ensure that our bilateral economic relationship achieves its full potential, and continues to make its significant contribution to the economic well being of both our countries.

This is the right time to begin our negotiations.