Rethinking Australia's trade ties with Japan
Updated
Despite all the hype about China's booming economy, the biggest market for Australian goods is Japan. It's a trade relationship that's well-established, but according to a leading Australian observer, there's a shift underway, and Australia needs to rethink it's trade policy if it wants to make the most of a Japan that's engaged with Asia.
Presenter:Liam Cochrane
Speaker: Peter Drysdale, professor at the Crawford School of Economics and Government, Australian National University.
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DRYSDALE: Well, what's happened in Japan over the last decade or two Liam is that there has been a huge shift of Japanese business offshore and that's been done to make the competitiveness business of industry based in Japan internationally higher so that the production base of Japan now extends well beyond Japan into importantly into Asia where that business is now creating a large market out of Asia into a Japanese business outside Japan. So this is a big change and it's important for Australia to link into that.
COCHRANE: What sort of things have moved offshore in the production scheme of things?
DRYSDALE: Well, right across the range of the industrial activities. Over one third of production by Japanese businesses is now not in Japan, it's offshore and dominantly it's offshore in Asia. So of course the leading edge of that was electronics and that started about two and a half decades ago and was heavily focused on South East Asia then, but of course it has moved right around the region now and of course predominantly that base is in China, as well as all the other countries in East Asia.
COCHRANE: And what do you think Australia should do to capitalise on Japan's shifting trade dynamic?
DRYSDALE: Well, what we need to do is link into the new markets that this business in Asia is creating for suppliers outside Asia, including Australia or suppliers outside the base of production in Asia, including Australia. So that means linking into Japanese production chains more effectively than we have at the moment.
A positive development in recent times of course has been the huge increase in Japanese investment in Australia, including in a wider range of industries beyond the resource sector, beyond the traditional manufacturing sector in autos and so on into food stuffs and agribusiness. And that investment in Australia will provide an important base for linking into the Japanese market outside Japan and Asia as well.
COCHRANE: One of the other recommendations your recent report has made is that Japan and Australia should get back focused on their bilateral trade talks, but also set that up as something that other countries can later join into. Can you talk to me about that?
DRYSDALE: Yes, well bilateral trade agreements obviously are focused on particular issues to do with the bilateral trade arrangement. But if they are going to be effective in delivering real benefits beyond the narrow bilateral relationship, then they have to be open to other partners. And the third party relationships here are obviously very important, Japanese investment in South East Asia or China or in India, for that matter, means that it's not only business between Australia and Japan that is important, it's business between Australia, Japan, India or whatever in Asia and one or other of the partners. So an agreement which encompasses those third party relationships is important, important that the Australia-Japan bilateral agreement be one which provides the opportunity for other partners to be fully engaged in as soon as they are willing to sign onto the revisions of it.
COCHRANE: Now that is looking towards the next step, but a lot of analysts are pessimistic about the chances of Japan and Australia actually getting a trade agreement together. With the new government coming in, are you more optimistic about the prospect of a free trade agreement now?
DRYSDALE: Well, I think one of the points that my report makes is that now is a good time to be working with the Japanese Government on these interests we both have in the third country relationships in Asia. The Japanese Government is disposed to do that. It's focus is very much on engagement in Asia and we have an alignment of interest there. A bit more than that, there is also some shift in policy position on the nutty problem of agriculture, where at least important elements in the new government are arguing for a different approach to agricultural protectionism, which in the longer term would open up the prospect of more productive negotiations between us on those difficult issues. Those issues don't have to be solved, before we take advantage of these other opportunities, but they should be solved as a part of taking advantage of these other opportunities. And I think the election of the Hatoyama administration provides a very timely opportunity for engagement with Japan on that.
