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

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Speech

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

The Sofitel Wentworth, Sydney

Missing media.

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.

Last Updated: 19 September 2014
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