Breakfast with Australia-New Zealand Chamber of Commerce in Japan

Well thanks very much Evan for that introduction and Ambassador Murray McLean and distinguished guests and ladies and gentlemen. Let me begin by saying what a pleasure it is for me to come to the breakfast organized by the Chamber today and to have the opportunity to meet with many members of the Australian business community here in Japan which I am delighted to do. But also to have the opportunity to meet some of the eminent representatives of the Japanese business community who do so much to promote Australia/Japan trade and help that relationship grow to our mutual benefit. And I want particularly to acknowledge here today Mr Hori the Counsellor of Mitsui OSK Lines and also Mr Nakazawa the President of Nakazawa Foods because you are great friends of Australia you do a lot of business with Australia and we are delighted to see you here.

I am making a very brief visit to Japan, just a couple of days. But it is an opportunity for me to reinforce some of aspects of our relationship with Japan that are so important to us and which have made so much progress in recent times. And in doing that to prepare the way for the Prime Minister's visit next month when he will be, if you like, following somewhat in my wake but with more efficacy no doubt.

This morning I am going to see the Prime Minster and this afternoon the Agriculture Minister - it should be interesting. And the METI Minister and obviously at the end of the day my counterpart the Foreign Minister with whom I will be having a meeting and a dinner. And tomorrow we are just going down to Hiroshima to have a look at that and meet with some business people there and obviously particularly to look at the museum there and have a bit of a think about that.

But today is for me just one of those days where I feel, we will see how the day goes, but where I feel it will be a bit of a symbol of how our relationship with Japan has gradually changed. In my view a bit more gradually than I would have liked.

You all know because you are business people, about the economic relationship and the way that has built up over the years. The relationship with Japan economically has not only been enormously important to the growth of modern Japan out of the ashes, almost literally, of the Second World War but it has also been very important to the growth of the modern Australian economy. Australia has done tremendously well out of Japan and even today it is worth noting whilst we have a little bit of a balance of payments deficit in Australia, with Japan we do have a substantial trade surplus and long may that last. That trade surplus has actually grown somewhat in the last couple of years so I have been delighted to see that, partly because of the growth of the Japanese economy which has happened at long last, and partly because of the improvements that have taken place in international commodity prices.

This economic relationship is well-known but we have been very much of the view in Australia that we ought to be able to extend the relationship with Japan. Make it a bigger and a more effective and a more wholesome relationship. Bearing in mind that we are both significant countries in what you might broadly call the East Asian hemisphere.

When I became the Foreign Minister I think it is fair to say that my predecessor had had that view as well. But we have found it difficult to make a lot of progress. We found it difficult in two areas both economically and if you like politically and strategically. First of all, economically it has been difficult because for all the great benefits there have been in the Australia/Japan economic relationship our relationship has been restricted by the problems that the Japanese political system has in dealing with its agriculture sector. Japan of course is not unique there. You find this in other parts of the world, particularly the European Union and in the Republic of Korea. But ambitions that we have had to try to extend the economic relationship have been frustrated by that simple fact that in Japan politically, even if not so much economically, but certainly politically there is a lot of concern about negotiating agreements with Australia which might be perceived to be undermining the interests of Japanese farmers or weakening the Japanese agricultural sector. Now whether that would be true or not isn't really the point. The point is that the politics of it are not very good from the perspective of any Japanese Government. Now being a politician and an economist I can understand the two sides of that argument. But we in recent times have been working very closely with the business community and the recent Australia-Japan Conference, which some of you participated in in Melbourne, is an illustration of this. I have been working with the business community in trying to find ways of stretching out the economic relationship and we set ourselves the objective of trying to persuade the Japanese Government to enter into something quite modest really, a feasibility study on a Free Trade Agreement between Australia and Japan. Now it is our assessment that this would be beneficial to the Japanese economy for Japan to enter into a Free Trade Agreement with a significant economy like Australia. Australia's economy is the third or the fourth largest in the Asia/Pacific region and Australia's economy is something like, it depends which figures you use, somewhere between the 11^th and the 14^th largest economy in the world. It would be very beneficial to Japan, and it could do better still if it had a Free Trade Agreement with say China or, if you could conceivably imagine it, with the European Union, I couldn't conceivably imagine it, but it would obviously be very beneficial to do that and a Japanese Free Trade Agreement with the United States would be clearly more beneficial. But after those countries, a Free Trade Agreement with Australia would be close to the best country Japan could do a Free Trade Agreement with in terms of Japan's interests. And obviously that sentiment is more than reciprocated by Australia. Our view is that if we were to be able to negotiate a Free Trade Agreement with Japan that would make a very significant contribution to Australian GDP. It would help, not so much build our access to agricultural markets, because our access to agricultural markets here in Japan is already very significant as Mr Nakazawa knows only too well, a great importer of Australian dairy products. So the gains that we could make through agricultural exports to Japan, I suspect, would be relatively limited. But the gains that we would make in terms of building our relationship, particularly in the services area could be very substantial and a lot of you here are representatives of the Australian services sector.

So we see ourselves as we look at it objectively, mutual benefit that could be demonstrated through doing a feasibility study on a Free Trade Agreement and a feasibility study would also be able to look at some of the difficulties that might be involved in negotiating that agreement.

I make one other point about it and that is that Japan is one of our very biggest economic partners, it is the third largest foreign investor in Australia. It is our largest export market. I think it is our third largest source of imports. So it is one of our very biggest economic partners and we don't want relationship to, if you like, stagnate. We want that relationship to continue to grow, to be creative and interactive yet the risks, the downside risks we have at the moment in terms of the economic relationship with Japan are that we are now negotiating these Free Trade Agreements with a number of other countries and groups of countries. We have already a Free Trade Agreement with New Zealand which goes back 22 years, we have a Free Trade Agreement now with Thailand and with the United States. Those Free Trade Agreements entered into force on the 1^st of January this year. We have a Free Trade Agreement with Singapore which entered into force a year or so ago. There is the prospect that during Abdullah Bedawi, the Prime Minister of Malaysia's visit to Australia in three weeks/two and half weeks time we could begin negotiations on a Free Trade Agreement with Malaysia. We very importantly, are talking with the Chinese about entering into negotiations for a Free Trade Agreement between Australia and China and in a more plurilateral sense we have begun negotiations with the whole of ASEAN to create an ASEAN/Australia/New Zealand Free Trade area. So what is missing from all of that is a Free Trade Agreement with Japan. And we would like to feel that it was possible that the economic relationship with Japan could have that same kind of spirited dynamism injected into it again that we saw in 1957 when Australia and Japan negotiated the famous Commerce Agreement which has been so much the foundation of the relationship.

I want to finish my remarks by saying that other than the trade and economic relationship and go back to where I began, we have been very ambitious about building a broader political relationship with Japan. I made this a point in many speeches before. But Australia and Japan are natural partners in the Asia-Pacific region. Our two countries are liberal democracies. Our two countries are developed economies. We are aid donors in the region. Japan is, of course, a much bigger aid donor than Australia but we are easily the biggest aid donors from the region into the region. Australia and Japan are both allies of the United States of America and we are crucially important of America in this part of the world. So bearing those commonalities in mind and the fact that we share a region, albeit Japan right at the top of it and we right at the bottom of it, or the other way around depending on how you look at the world. Nevertheless, what hasn't always been a relationship which has reached its potential either but is now beginning to reach its potential.

I think increasingly as we see the Koizumi being more outward looking, and engaged in international affairs, we are finding that those common interests that I have just articulated are translating into common activities. I don't think there will be a better illustration of that - probably hasn't been a better illustration of that in the last 60 years than the decision that our government took recently to provide some troops to go to Al-Muthanna Province in Iraq and help to provide a secure environment for the Japanese engineers and humanitarian troops who are working there at the moment. This is an illustration of the point that I am making. We are two countries that believe very much in the same sorts of things. That have very similar objectives. We are two countries that understand only too well that if America and its allies and its partners in Iraq and the Iraqi people who voted in such vast numbers on January 30^th were to lose and the insurgents and the terrorists, in particular the terrorists were to succeed, this would be a catastrophe for the Iraqi people, a catastrophe for the Middle East, a catastrophe for the war against terrorism and a catastrophe for our alliance with the United States because it would be a catastrophe for the United States.

We in Japan understand that. We understand that we must succeed in Iraq and that we are gradually, slowly but surely, with a lot of difficulties we are succeeding. But we do between us understand the importance of making an effort to ensure that we do succeed not just leaving it to the Americans or the Americans and the British to do the job alone. I know it has not been popular in Australia and those of you, be you Japanese or Australian here, might not feel too comfortable about it in either respect, in respect of Australia or in respect of Japan. But this is one of those situations where when you are a government you cant necessarily just do popular things. You must work out what the important issues are, you must make sure you are on the right side of resolving those important questions. This work we are doing together on Iraq follows the emergence of greater Japanese participating in dealing with security issues in the region. There were Japanese troops that went to East Timor and Japan was quite an active participant in the UN team that helped to set East Timor up after the events of 1999. Japan was involved in the Cambodian crisis. So we are seeing Japan becoming much more involved and much more activist in regional architecture. That, by the way, is something that is very warmly welcome by us in Australia and I really want to emphasise that. We don't take the view that we can just keep reliving history. We have to live in the present and look to the future. I remember, of course, the history of the Second World War, my father was involved with that as many families were. But I also know that in 1915 when the Australian troops went off to Gallipoli they were protected by Japanese warship, a Japanese destroyer. So there is a history sometimes of non-cooperation to say the least but there has been a history of security cooperation as well between Australia and Japan. But this isn't about history it is about the present and the future and about building that cooperative relationship between Australia and Japan.

So what would my conclusion be. My conclusion is that this is the sort of relationship I like to deal with where Australia and Japan believe in the same things, we are working together to achieve the same objectives. Japan is setting aside some of the baggage of the past and becoming a more active participant in the affairs of the region and the world. I hope very much Japan gets into the United Nations Security Council as a Permanent Member. It is only appropriate that that should happen.

But having said those things there is still a long way to go in the relationship. It is a relationship which is mature but is not a relationship which is old. It is a relationship if you like that we can really build on and that is why I began my remarks with quite a lot of discussion about something which frankly I regard as a reasonably modest objective but an important one and that is to try against a fair amount of opposition from the agricultural sector to get the Japanese to agree at least to a feasibility study into a Free Trade Agreement so that then perhaps at some time in the future we could negotiate such an agreement on the basis of much more information rather than necessarily scare campaigns run by vested interest groups.

It is a great pleasure to be with you today to have the opportunity to well talk at you but also to meet with you and hear what you have to say. I am very pleased to see the Australian business community here in Japan active. I would like to see still more Australian investment and involvement in Japan and perhaps if we are successful with some of our ambitions we will see that greater involvement by Australian business here in Japan. Thank you very much.

Questions and answers

Ladies and gentlemen, Minister Downer has very kindly agreed to take a small number of questions so any - please take off.

Q. I am Anthony Fensom from the Daily Yomiuri newspaper, Japanese newspaper. I just wanted - Australia's support for Japan in Iraq. Do you think that is going to help our economic relationship in terms of say getting a Free Trade Agreement in the future?

A. Well, I think it would be entirely undiplomatic and wrong to say that we would automatically link our security policy with trade policy. You know we don't put people's lives on the line in order to get access to markets. My view is that governments shouldn't do that. You have to look at these issues on their merits. But I think, I have a sort of broader view. What I think is that our political relationship with Japan has for a lot of different reasons - people could argue with me about this I suppose and as a politician you always have to be wary of hyperbole - but I think our political relationship with Japan is probably better than it has been at any time since 1945. You could perhaps take that 1957 period when the Commerce Agreement was signed, but of course there wasn't the broad support for the relationship in Australia that there is today for obvious and well-known reasons. But I think in many respects it is better today than it has ever been. The fact that we would even think of providing that support for the Japanese in Iraq, knowing it wouldn't be too popular with the Australian public - I mean we have absolutely, the Prime Minister and I have talked about this, you can imagine, day in and day out and you know are obviously waiting for quite a negative public reaction. But the fact that we would be prepared to do that illustrates the point about how we feel about the relationship. The way the Japanese have gone out of their way to argue. I mean particularly in the last year or so to argue much more robustly for Australia to be involved in the broad architecture of East Asia is another illustration of the way the political relationship has matured so much. So what does that mean, that means that of course if you have a closer political relationship it is often easier to deal with difficult commercial issues. I don't think, to be honest with you, that it is going necessarily to be easy to persuade the Japanese to even agree to establish a feasibility study into a Free Trade Agreement, I have no illusions about that and look maybe it wont happen but we like to set ourselves these objectives and it is probably easier to do that when we have a strong bilateral political relationship.

Q. Minister Downer I have a question, in terms of the negotiation of Free Trade Agreement with Japan, is there any perception as to the time it may take to succeed in those negotiations?

A. That is a very hard question to answer because first of all just to persuade Japan to agree to a feasibility study that could take us quite some time, so if we succeeded in that and I have no idea whether we will or not. I think that could be fairly hard to do. We will then have to get to a point of a negotiation. Assuming a feasibility study is positive it could take, I don't know, it could take two or four years, you just wouldn't know. It would depend very much on how you handled some of the sensitive issues. How would the issue of services I referred to should have a big interest in how that would be handled. How easy would that be given that Australia is a developed economy. It is a bit different for a developed economy to negotiate with a developing economy but does a developed economy. It could be more complicated than perhaps people anticipate. The agricultural issue, you would have to find some solutions to that, so it could take a fair bit of time I would say. But you know we don't lack ambition when it comes to these things. I wouldn't be going out publicly and making these points if you know I was, how can I put if, if I was fearful that it would take just too long and be impossible. I mean I think it can be done but I think it is actually going to be very difficult. But at least you can see we are giving it a higher profile now though as an issue even if it takes 20 or 30 years never forget that we started to give it a higher profile as an issue if only to get the ball rolling.

Q. Mr Minister I appreciate your very in depth analysis of the present and future bilateral relationship between our two countries. As you rightly pointed out Japanese politics are very slow to move. However, even the agricultural systems as you know the Advisory Committee attached to the Ministry of Agriculture has recently come out with their final report on the future basic agricultural policies and this has been already sent to the Minister in charge and I understand that this report is to be approved by the Cabinet before the end of the month. So even the agricultural set up with Japan and Japanese economy is moved. So I would like to be as optimistic as you Mr Minister and also the Japanese are very very uneasy about the future of Japanese agriculture because this might be approaching storm to localize the whole economy and also Japanese feel uneasy about this and other situation in the Southern Iraq area. So it is not, how should I say, also to mix the politics, and diplomacy and agriculture economics. But I am sure the Japanese quite appreciated the recent developments in Australian diplomatic policies and also the fact that we have been making steady progress, slow but steady progress in modernizing the agriculture sector of the economy. Thank you very much.

A. Well, let me just say about agriculture specifically. I mentioned earlier we have got Mr Nakazawa here, who is a big importer of Australian agricultural products. Japan is an enormous importer of agricultural products from Australia. So the notion that somehow Japan doesn't want to import agricultural products from Australia is manifestly wrong because the reverse is happening but what are the areas of agriculture that Japan is particularly concern about? - well rice perhaps is most sensitive single agricultural issue here in Japan. But Australia is never going to be a very big rice exporter to Japan. I mean that is just not within the bounds of the possibility. There is a lot of controversy in Australia about our rice growing industry. It is a very good industry. We grow very high quality rice in Australia. But it uses a lot of water in a country which is pretty dry so there are limits to what we can ever do in that area. What we do, we do well but there are limits to what we can do. So I am not sure that some of the concerns that there are in Japan about Australian agriculture are necessarily particularly justified. And let's understand this. I mean we have in Australia we have some comparative advantages compared to Japan. Japan has some comparative advantages over us as well. I mean, I loyally own an Australian car but I also own a Japanese car and I am not saying which is the best. The Australian one is faster in any case but that is not to say it is necessarily that much better but you know, Japan does manufacturing extraordinarily well and has very very substantial access to the Australian market and increasingly unhindered access to the Australian market. There is less and less protection in Australia. So you know there are benefits to Japan and there are costs that have to be absorbed for all of us as we liberalise our trade. So I suppose in a more overall sense I don't want to see a great economy like Japan's marginalized in international trade negotiations because of the agricultural issue. I think, you know, they are legitimate political concerns and they have to be addressed, I don't deny that. I do know that we shouldn't be insensitive about how the government needs to address political concerns but my point is they need to be addressed not left unaddressed and the Koizumi administration is beginning to do that. So my last point in answer to your comment is that having dealt as the Foreign Minister with Japan for nine years there have been quite a lot of Foreign Ministers of Japan in that time and there have been a few Prime Ministers as well and of course many many Ministers in other portfolios. But what you have seen in recent times with the Koizumi Government is a much greater degree of stability. I mean you have had a Prime Minister there for quite some period of time. Somebody who is outward looking and a modernizer and a reformer and a stayer and that has made Japan a lot easier to deal with so if you say that the political process here moves very slowly I have made that same observation myself but I think with the Koizumi Government I am sure they are subject to plenty of domestic criticism as all governments are - even in Australia our government gets criticized occasionally, it is very rare. But of course the government here gets criticized a lot but I think there has been a much greater sense of stability and focus and policy consistency than we have seen from governments in earlier times so I have been very impressed with them.

Thank you.

Mr Downer thank you very much for your time this morning. We certainly do appreciate you fitting it into your tight schedule. The Australian business community in Japan is very much committed to the on-going development and strengthening of business ties and trade ties with Japan and certainly very interesting to hear that the work that Australian Government is doing is in support of that objective. We thank you for coming and on behalf of the members we have a small token of our appreciation.