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Australia-Japan Relations for the New Decade

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Speech

Speaker: Secretary, Dr Ashton Calvert to the Australia Japan Business Cooperation Committee

Perth

Consul-General Shidara, Hugh Morgan, Chris Renwick and other distinguished
members of the AJBCC, Ladies and Gentlemen

It is a great pleasure to have the opportunity to speak
to you today.

The Australia Japan Business Cooperation Committee has for
over forty years played a vital role in forging and strengthening economic
links
between our
country and Japan.

The relationship has benefited enormously from the
AJBCC's leadership in invigorating and enhancing economic and trade cooperation.
A large number of Australia's leading companies - including those represented
here today - have participated actively in this process. I look forward
to the Committee's continued contribution to the success of our bilateral
relations.

Ladies and gentlemen
Over the past decade we have all witnessed a sea-change in international
perceptions of Japan. We are all now very familiar with the economic
problems that have beset Japan since the early 1990s. Most of you will
also be familiar
with the political structures in Japan, and the difficulties any Japanese
leadership faces in
effecting
change
and reform. The media, in particular, has contributed to a perception
of Japanese malaise - of a Japan in seemingly inexorable decline - with
inevitable
and often
exaggerated comparisons with a rising China. This perception carries
with it the risk of a misperception of Japan's role and future - and of
misplaced policies on the part
of governments,
and missed
opportunities and poor decisions on the part of business. I think,
therefore, that it is worth putting into better perspective Japan's role
and influence in international affairs, and the state
of Australia-Japan
relations.

Japan remains a very important country - globally, in
the region, and for Australia. Japan's economy is still the second largest
in the world, and will be for some time. It is around 50 percent larger
than the next largest economy, Germany. Japan's economy is far larger than
other regional economies, accounting for almost two-thirds of East Asian
GDP. Indeed, if disaggregated, four of Japan's seven economic regions
would feature among East Asia's largest five economies. The Japan-US
alliance makes a fundamental contribution to the security and stability
of the Asia-Pacific region. Japan's military, while structured for self-defence
and heavily dependent on the United States, is formidable, and retains
a sizeable edge
in capability in East Asia. Japan also remains an active and
leading player in major international institutions, including the UN, the
WTO and the IMF, and is
the only Asian member of the
G8.

Ladies and gentlemen
As I stated at the outset, perceptions of economic influence
and power - even where they risk being misperceptions - can
be very
important. This is as much the case in the political and
strategic calculations of nation states as it is in decisions by capital
and equity
markets, and in business
and consumer confidence indices. There is no question that
the image and prestige of Japan, primarily as a result of its economic
problems, has declined
- particularly
in comparison
with the steady rise of China. China has major assets - its
huge land mass and population, its enormous market potential and the
growing skills of its
workforce. It has grown at an average of around 7 per cent
per year for the past ten years. Skilful diplomacy - making the most of
these assets - combined with a sophisticated calculation of its own interests,
has
rightly brought
China
considerable
success. All this means that China is closing the gap with
Japan.

But economics is not a zero-sum game, and increased opportunities
in China do not mean diminished opportunities in Japan.
Furthermore, trade and investment linkages between Japan and China themselves
are growing
strongly, and a deepening
process
of interdependence
is well
underway between these two important economies. Similarly,
in Australia's approach towards North Asia we are not in a position of
having to choose between Japan
and China. We enjoy now and will work to maintain in the
future excellent relations with both major powers.

At this stage, Japan's
economy is around 3.2 times the size of China's. And even at current
growth rates - where Japan's growth is less than one per cent, and China's
is
over 7 per
cent -
China's GDP
would
not catch up
to Japan's until around 2019. Even then, there would
still be large differences in per capita GDP, consumer purchasing power,
infrastructure
development,
and the maturity
and flexibility
of markets. But, as you will appreciate all too well,
we also have to recognise that Japan is grappling with the challenges
of
far-reaching
economic and political
change. Japan's most respected and astute commentators
will tell you that Japan has low growth potential for the next
few years. While growth was higher than predicted in
the first quarter, growth for this calendar year is still expected to be
just under one per
cent.

The reform effort clearly needs greater momentum. Japanese banks remain
heavily burdened with debt. Estimates of the total value of non-performing
loans range upwards from 11 per cent of gross domestic product.
Private-sector analysts will often argue that the figure is much higher.

Incremental
progress is being made on reducing the Government's presence in sectors
that we would see
as being the role
of the private sector
- for example, the public financial institutions
that compete unfairly with private
banks and insurance companies. Japan's services sector
remains protected, under-developed and inefficient, with productivity
levels well below
that of other
developed countries.

As we all know, Japan faces severe
long-term demographic challenges, especially because of its ageing population.
Provisional figures show that by the end of 2003, twenty-seven percent
of the Japanese
population will be beyond
retirement age, with the
workforce falling to under half the population, at
49 per cent. The total population is expected to
decline from 2007. The hardest decisions on reforming Japan's
overburdened pension and medical insurance schemes are yet to
be taken. It is clear that Japan is struggling with
the inflexibilities of its ageing population, established development
model and political system. Many in Japan are now
questioning whether the country's political system enables it adequately
to address
today's challenges.

Japan's consensus-style politics,
so important in the post-war period to Japan's economic and social
development,
nevertheless
makes it
extremely difficult for any leadership to push
through fundamental change. In effect, powerful constituents are able to
block change with relative ease, but reformers are largely
unable
to coalesce in sufficient
strength to carry
through necessary changes. Compared with the system
we know here in Australia or in Britain or the United States, in Japan
political
power
and authority
are diffused
and
so often
is responsibility. Whether Japan is able to harness
its strengths to arrest the perception of decline will depend
on reform
of
the Japanese economy, and of
the political
process in Japan.

But much of the negativity around
the outlook for Japan assumes that it will never overcome the economic
problems
of the
past decade, and that it has
no assets to field in projecting its power and
influence. That is by no means the case, and
one message I would like to leave with you is that we should
recognise
that Japan
remains a major
global economic
power, with significant underlying strengths
such
as large foreign
currency reserves, high savings and a highly
skilled labour force.

And change is taking place
in Japan. Prime Minister Koizumi has made a start, and
there is now widespread recognition in his
government, and more
widely,
of the need
for far-reaching reform. Economic and financial
sector reform and restructuring, though uneven and - many argue - insufficient,
have begun to take
effect. At least we can say that these tasks
are now firmly on the national agenda. Prime Minister Koizumi has established
beachheads of reform in many areas; in fiscal policy;
financial policy;
deregulation
of industry;
and in
reform of public corporations. He is also
changing the way economic policy is determined within the government, which
could
improve prospects
for reform. Parts of Japan's export sector,
the major buyer of Australia's resources, remain world
class. These include well known names such
as Toyota and Canon. Independent of government reform, this sector
is changing the way it does business - in
the way
it makes decisions;
in its
relationships
with suppliers;
and how it uses its labour force.

Japan is
also becoming more open to foreign direct investment which is a major
catalyst for industrial
restructuring
and changing business
practices. Japan is putting more emphasis
on attracting inward tourism, another sign of its acceptance
of the
need to open its
economy. The economic rewards of change
for Japan are large. McKinsey's have estimated that, if Japan
were to undertake necessary reforms, its
growth
rate could
be as high
as four per cent per
annum. But the agenda for reform is enormous,
and as I have already mentioned, resistance
from
vested
interests
is fierce. This translates into Japan's
external economic policies as well. Japan's politically powerful - although
economically inconsequential - farming
lobby, for example,
makes it extremely difficult
for Japan to exercise leadership
in international trade diplomacy, least
of all in agriculture. Multilaterally,
Japan has dragged its feet in the Doha Round of global trade negotiations
at
the
WTO, especially on agriculture. Rather than seek ways to
advance the progress made in the Uruguay round, Japan's agricultural
lobby
wants to
wind
back what little
opening up
it had agreed earlier. Regionally, as I
have described, similar vested interests
have impeded Japan's willingness
to engage regional
economies on
trade and investment
liberalisation. As a result, although Japan
has commenced discussions on FTAs with Thailand, Korea,
the Philippines
and Malaysia it is restricted
in what it can realistically
achieve.

Where does all this leave Australia? While the United States is now Australia's
biggest two-way trading partner if goods
and services
are counted together,
Japan is
still our largest
merchandise trading partner. And Japan
has long been, and is likely to remain for a considerable period,
our largest
export
market. In 2002, Japan accounted for
19 percent of total merchandise exports - or $22.2
billion
- almost
double that of
our next largest export
market, the
United States. Around 60 per cent of
these exports are mineral and energy resources. Japan is our largest market
for coal, iron ore and LNG. And it is from here, in Western Australia,
that the greatest contribution to our
resource exports
to
Japan has taken
place. Japan is our second-largest source
of imports, valued at $15.7 billion last
year, or 12
per cent of total
imports. In contrast to our overall trade
relations, however, the Australia-Japan investment
relationship is
relatively weak Australian total foreign
direct investment to Japan as at June 2000 (the latest
available year)
was
the strikingly
low figure
of $340
million, compared to FDI to the United
States of $90 billion, and to the UK
of
$40 billion. And while Japan remains
our third-largest source of foreign direct investment,
investing a total
of $19
billion in
Australia as
at June 2002, foreign
direct investment flows to Australia
in recent years have been insignificant.

While our export performance in resources remains strong, we are not doing
as well
as we should
be in services
trade beyond
tourism
or trade
in products
of newer industries. Bilaterally, we
have put great store in our current effort to reinvigorate
the
economic
relationship
through a new
trade and
economic arrangement
with Japan. We have made no secret
of Australia's long-term interest in negotiating a
comprehensive free-trade agreement
with Japan,
assuming some
future Japanese
Government would be willing to do so.
Such an initiative would generate considerable
benefits for both countries. But much
to Australia's regret, Japan is not yet ready to engage seriously
in a
discussion on the
liberalisation
of
agricultural
trade.

Nonetheless, the Government is
committed to looking at all possible options
that might be available
to strengthen
the
bilateral relationship,
so
that it continues to generate substantial
benefits
to Australia. We are advocating a
trade and economic framework arrangement which comprises
a strong facilitation
package and sets
a long-term goal
of comprehensive
trade and investment liberalisation,
and a work program to achieve this.
The support of the AJBCC to date has been key in getting us to where
we
are. Continued business support to
achieve our objective will be critical and
I should
like here to
acknowledge especially
the
work of
Hugh Morgan and
others in the AJBCC who have supported
these endeavours. We will continue
to advocate an ambitious outcome that reflects the scale of
the relationship and its enduring
importance
to both countries.

Ladies and gentlemen
Under the leadership of Prime Minister
Koizumi, there has been an increased
effort by Japan
to make a greater
contribution
to regional
and international
security. Australia welcomes these
moves. Japan's forthright response to
the 11 September 2001 terrorist
attacks
reinforced
our common
interests in our respective
security alliances
with the United
States, as has Japan's firm support
for coalition operations against
Iraq. Not surprisingly, the Bush
Administration warmly appreciates the willingness
of Prime Minister
Koizumi to show leadership
in the
international security
area. Japan has shown a greater
willingness to contribute to peacekeeping operations
-
such as the remarkable
sight
of Japanese and
Australian military personnel working together for stability
in East Timor. Australia's security
links with Japan are becoming more important,
as the
constitutional and political
constraints
on Japan's
security policies
are
gradually loosened. We have strengthened
our security cooperation with Japan,
including
through improved
and more regular
security
dialogue and military-to-military
talks.

Japan and Australia are also
working together with third countries in
the East Asian
region to address
common
security threats,
such as international
terrorism. Both governments have
appointed Ambassadors for Counter-Terrorism
to bring focus
and priority to this important
work. And recently we have begun,
with Japan and the United States,
a trilateral dialogue on security-related
issues in the
Asia-Pacific region.
This more forward strategic posture
on the part of Japan reflects
its desire to broaden
its security
role and
contribution in
the region. This is a significant
development - especially given the current
situation on the Korean
peninsula, and
the threatening
posture
of North Korea
toward Japan. The Government
has welcomed the responsible and constructive
reaction of Japan
towards North
Korea.

Ladies and gentlemen
Japan's strength, role and influence
- in the region and globally
- are matters of
first-order
importance
for Australia. We have a vital
interest in a prosperous and engaged Japan,
together with
a strong and outward-looking
Japan-US alliance. We support
Japan's playing a larger leadership role in
the
region -
and we think regional
stability would
benefit
as
a result. Australia enjoys
a close and distinctive relationship with
Japan which dates
back more than a hundred
years. We share similar values
and aspirations, for ourselves,
for our neighbours
in the region,
and globally. We have close
political ties, reflected in last year's visit
to Australia
by Prime Minister
Koizumi,
during
which he and
Prime Minister Howard
agreed to strengthen security
cooperation, and to explore
all options
for deeper
economic linkages between Australia
and Japan. We are both US allies
in the same region, who support
a
strong and
enduring US
strategic presence as
a force for
stability
and security
in the Asia-Pacific. We have
become intimately linked over the past fifty years in
a strategic economic relationship,
particularly
in energy
and
resources,
but
also in food and other sectors.
Last year over 715,000 Japanese
short-term visitors came to
Australia, an increase
of 6 per cent
over the previous year. The size of the Japanese
economy, the changes taking
place and
its long-term
prospects
- despite the
disappointing performance over
the past decade
and the challenges its faces
- mean there are still major
opportunities
for Australian
business.

Ours is a relationship
that has flourished in broad areas
of
activity - not
just in business and diplomacy,
but
also in
cultural exchange
and people-to-people
links. The Australia-Japan
conference process, which began in Sydney
in 2001 and
continued in
Tokyo last November,
demonstrated the strength
of
our relationship
and our mutual commitment
to ensuring it remains vigorous
and progressive. It is a
process in which I know the Business Cooperation
Committee
retains
a keen
interest and involvement
- a commitment I would
encourage you
to maintain.

Ladies and gentlemen
In concluding, I note that
Australia's White Paper
on Foreign and Trade
Policy, Advancing
the National
Interest,
which
was released
last February
stated
that: No other country
in Asia will supplant Japan's importance
to Australia's
prosperity for
at least another decade.
It is a statement that recognises Japan's continuing
importance
to Australia. And it is
a statement that also recognises the dynamic
of change
- in Japan,
and in the region,
that may
over time
affect the
nature and
degree
of Japan's
importance. Japan has the
assets and capacity to remain a cornerstone
of
global and regional prosperity
and stability. But how
well Japan plays this role
will depend very
much
on how seriously
its
political and business
leadership apply themselves
to the processes
of ongoing reform.

It is
certainly in Australia's
interests that they rise
to this responsibility.

Thank you.

Last Updated: 19 September 2014
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