Speech by the Hon Alexander Downer, MP, Minister for Foreign Affairs, to the Australia Japan Business Symposium, Melbourne, 11 September 1997.
Introduction
I am delighted to be here today to open this Symposium which is designed to build an even stronger business partnership between Australia and Japan.
The Japanese delegation with us here today is the most senior business mission from Japan ever to visit Australia, and it is a great honour for the Australian Government to host this mission.
I would like also to welcome very warmly the distinguished Australian business representatives who are participating in the Symposium today. The Government deeply appreciates the efforts of the Business Council of Australia in making this gathering possible.
Today's luncheon will be held next door in the Sir Redmond Barry Room. I mention this because Sir Redmond -one of the Colony of Victoria's senior judges - met the first official delegation from Japan's Ministry for Industrial Promotion when it visited the Australian Inter-Colonial Exhibition in Melbourne in 1875. While Sir Redmond may not have been able to show his visiting delegation a view as spectacular as this, the long term vision and commitment to the bilateral relationship that he and the Japanese delegation displayed over 120 years ago remains an inspiration for all of us today.
This same prescience was evident in the signature forty years ago of the landmark Commerce Agreement between our two countries. This historic event laid the groundwork for our impressive trading relationship and, more generally, the sophisticated and modern Australia-Japan partnership we see today.
The White Paper on Foreign and Trade policy which the Australian Government released last month reaffirms that the depth and quality of Australia's relationship with Japan are vital to advancing the broad range of Australia's economic and security objectives.
I want to outline the Australian Government's perspective on the challenges and opportunities in the modern Australia-Japan commercial relationship and, more broadly, how Australia and Japan are cooperating closely on a wide range of other issues in the Asia Pacific.
Challenges and Opportunities in the Commercial Relationship Structural Change in the Japanese Economy -Implications for Australia
Far-reaching changes underway in the Australian and Japanese economies are creating new challenges and opportunities in the Australia-Japan commercial relationship.
The extraordinary two-way trade which grew out of the Commerce Agreement forty years ago was based on the export of Australian raw materials, which fuelled Japan's phenomenal post war economic growth. I understand that Mr Imai played a prominent part in the early stages of the development of Nippon Steel's commitment to this long-term relationship. The success of this trade saw Japan become Australia's largest trading partner and export market almost three decades ago, our third largest source of foreign direct investment and, more recently, our biggest services market, providing one fifth of the tourists coming to Australia each year.
But the Japanese economy is now undergoing fundamental structural change, including the relocation of segments of industry off-shore. The Japanese Government has embarked on an ambitious reform program aimed at reducing the cost structure of the Japanese economy, freeing up domestic markets and creating the conditions for the sustained competitiveness of new Japanese industries in the next century.
The changes underway in Japan will have major consequences for Australia. We are likely to see a continuing decline in the relative weight - and in some cases the absolute size - of the Japanese economic sectors for which Australia has traditionally been such an efficient supplier.
At the same time, there are exciting new opportunities opening up not just in Japan itself but in the third countries in our region to which Japanese industry is increasingly relocating. Yet the internationalisation of the Japanese economy is still at a relatively early stage when compared with several OECD countries. For example, it is estimated that only 10 per cent of Japanese capacity is located offshore, compared with 25 per cent in the case of the United States and 22 per cent in the case of Germany.
I believe the challenge we face is to make Australia more attractive to Japanese investors so that we can harness the internationalisation of Japan's economy for the benefit of both countries. We must also enhance Australia's performance in Japan's high growth import sectors and build effective collaboration in third country markets.
For its part, the Australian Government is committed to creating the conditions which will help Australian business to meet these important challenges.
Making Australia a More Attractive Investment Destination
I am well aware that, from time to time, some Japanese business leaders air concerns that Australia's relative levels of productivity and competitiveness can act as a disincentive for potential investors. My colleague, Industry Minister Mr John Moore, will be speaking to you over lunch on the Government's micro-economic reform agenda, so I will not go into lengthy detail now.
But I do want to emphasise that one of the Australian Government's top priorities is to make the Australian economy as competitive and productive as possible, and that we are making good progress. The Government is pressing ahead with a vigorous microeconomic reform program to free up key sectors such as telecommunications, transport and energy. We have made good progress in establishing a more efficient and flexible labour market and reducing the compliance burden and costs of business regulations. And just last week, the Treasurer announced major financial sector reforms arising from the excellent Report of the Financial System Inquiry chaired by Mr Wallis.
As important as anything is the Government's disciplined economic management, including its concerted attack on fiscal deficits, which has led to the lowest interest rates in Australia for many years - and all this while maintaining good economic growth.
The Government continues to consult closely with Australian industry about ways to improve our competitiveness and attractiveness to overseas investors. Industry feedback plays a large part in policy development and it informs our approach to microeconomic reform.
Toyota's recent announcement to commit an additional $1 billion to its Melbourne production centre in Altona is a very welcome vote of confidence. Toyota's commitment to Australia will double exports from the Altona plant, creating an extra 400 jobs to build the new six-cylinder Avalon. With this pledge, Toyota is supporting this Government's decision to freeze car industry tariff reductions at 15 per cent for five years from 2000, and then to reduce these tariffs to 10 per cent.
Toyota's announcement is also consistent with the positive trend in Japanese investment in Australia towards sectors capable of taking advantage of Japan's high-growth import areas - such as high-technology manufactures and processed foods - despite a drop-off in overall levels of Japanese investment. This investment is producing excellent results: Australia now exports Mitsubishi motor vehicles and sake to Japan - examples of what we hope will be a continuing diversification in our trade.
I would also ask you to bear in mind the enduring factors that make Australia an attractive destination for investment and base for regional headquarters. Australia is a stable and sophisticated society with a well-educated workforce. Commercial and residential accommodation and other business overheads are cheaper in Australia than in many other regional capitals; our culturally diverse population provides natural linkages to all parts of the Asia Pacific region and beyond, with which we maintain first-rate communications links; and, last but certainly not least, Australia is a very pleasant and safe country for expatriates to live.
Encouraging Australian Business to Grasp New Opportunities in Japan
Building a stronger business partnership with Japan will require some parts of Australia's business community to refocus on the opportunities offered by a changing Japanese market. These opportunities are highlighted in a major report on Japan recently produced by my Department's East Asia Analytic Unit - "A New Japan: Change in Asia's Megamarket".
The Government is working closely with peak industry organisations such as the BCA to correct outdated perceptions that the Japanese market is 'too hard'. We are alerting companies to new opportunities in the Japanese market and encouraging them through the use of positive examples.
With the focus this year on the 40th Anniversary Celebrations of the signing of the Commerce Treaty, I have been taking every opportunity to say to the Australian business community - 'please rethink Japan'.
I believe there are many reasons to 'rethink Japan'. The 'New Japan' that my Department's report so comprehensively describes is evident in many areas. It is clear from the report that companies should focus more on Japan's striking rate of import growth than on its overall GDP growth rate. Because with economic deregulation and implementation of its Uruguay Round commitments, imports into Japan are booming: in 1996, for example, imports grew by 21 per cent in contrast to GDP growth of 3 per cent. The economic reforms underway in Japan are reducing costs and making entry into the Japanese market easier; a more positive attitude towards foreign goods has developed among consumers, and market access is improving. Liberalisation in the financial sector is a good example of an area where we hope foreign companies will increasingly have the opportunity to establish a stronger presence, including in areas such as pension fund management and insurance.
More than that, Japan's import and investment patterns are moving towards more sophisticated goods and services, offering Australian suppliers new opportunities, not only for exporters of high-value-added goods, but also for providers of such services as research and development, and information technologies. We are seeing flatter, more streamlined distribution networks in Japan, with a greater focus on consumers, more direct importing by major retail chains, and active importing by many players. These changes offer exporters more direct access to end-users, thereby saving time and money.
The Japanese Government is also making a significant effort to reduce prices in specific areas such as housing; this has led to dramatic growth in the use of imported Australian housing materials and foreign-made kit-houses.
I should also mention the importance of Japan's regional economies. Good infrastructure and increasingly outward-looking policies - coupled with Australian and Japanese government assistance - mean that exporters and investors have attractive alternatives to the congested Tokyo gateway. The sheer size of Japan's eight regional markets is often under-appreciated. Kanto, Kansai and Chubu, centering on Tokyo, Osaka and Nagoya respectively, are each larger than China, the next biggest economy in East Asia. Kanto, on its own, is larger than the British or French economies, and is almost as large as Germany's. And the smallest regional economy in Japan, Shikoku, is still larger than the economies of either Hong Kong or Malaysia. The sheer size of these regional economies means that even if Australian companies achieve only a small market share in particular sectors, the rewards can be rich. Australia's long-established trading channels and networks with Japan, including Austrade's regional network of offices, offer an invaluable resource for companies taking their first steps into regional Japan.
Natural Partners in the Asia Pacific
The Australian Government's determination to enhance Australia's commercial links with Japan is part of our strong and enduring commitment to the total relationship. Australia and Japan are natural partners in the Asia Pacific. Our cooperation extends across an extraordinary range of activities and fore.
The Australian Government came to office last year committed to making the great potential of the Australia-Japan relationship a practical reality. I am pleased to say that, in a relatively short period, the Howard and Hashimoto Governments have not only underlined their shared commitment to the relationship, but have put their distinct stamp on it. For example:
our Prime Ministers agreed earlier this year to meet annuallyand last month in Tokyo, an impressive total of 17 Australian and Japanese Ministers gathered for the first meeting under the Howard and Hashimoto Governments of the Australia-Japan Ministerial Committee (or AJMC) and finalised a "Partnership Agenda' which codifies and advances our co-operation in eighteen areas.
More broadly, just as both our countries' commercial interests will increasingly be found in third countries, so too Japan and Australia are building a broader regional partnership.
A Shared Commitment to Trade Liberalisation
Our shared commitment to trade liberalisation is a good example. Both countries believe that freer and more open trade and investment encourages a more efficient allocation of resources. We both appreciate that it is the best means of sustaining the sort of economic growth that produces new jobs and improved standards of living for all.
Australia and Japan were among the first countries to promote the concept of closer regional economic cooperation and trade liberalisation, which eventually led to APEC. Our Prime Ministers recently reaffirmed our shared view that APEC is of central importance, and we will continue to work closely together to advance this vital regional forum. We have greatly appreciated Japan's strong leadership in advocating that Australia participate on the Asian side in Asia-Europe Meetings, which they clearly see to be in their interests.
Conclusion
Both Australia and Japan are dealing with enormous challenges in restructuring and reforming their economies in profound and long-lasting ways. This process is creating exciting new opportunities to deepen and diversify our commercial ties, and to extend our cooperation more generally in the wider Asia Pacific region, both at the business and government levels.
That is why this visit by the Keidanren to Australia is so important - it is a vital opportunity for us to focus on finding ways to seize the opportunities opening up in the commercial relationship.
With such a pre-eminent gathering of people from both Australia and Japan, I have no doubt that this symposium - organised by the Australian Government as a contribution to the "Friendship Anniversaries" between our two countries - will add new depths of mutual understanding and respect to the dynamic business partnership between our two countries.
I have great pleasure in declaring this Symposium officially open.