Stability the hallmark of Japan-Australia trade


Iron ore from Australia has helped fuel Japan's industrial growth for 30 years

By Geoff Hiscock
CNN Asia Business Editor

SYDNEY, Australia (CNN) -- The talks between the leaders of Japan and Australia this week puts the focus on a $23 billion a year trade partnership that is unusually stable and long-lived.

Both Prime Minister Junichiro Koizumi and his Australian counterpart John Howard say they want even closer ties, leading possibly to a free trade agreement.

While that may be some way off given the opposition of Japan's highly protectionist farm lobby, there is no doubting the value of a relationship that has seen Japan stay as Australia's biggest export market for more than 30 years.

From the late 1960s onwards, Australian coal, iron ore and other raw materials helped Japan create the world's second largest economy.

In the 1980s and 1990s, services such as inbound tourism began to add to Australia's trade surplus. The initial trickle of Japanese visitors built to 720,000 last year, making Japan second only to New Zealand as a source of tourists.

Steady buyer


Howard and Koizumi both say they want a closer relationships

In return, Australia has been a steady buyer of Japanese motor vehicles and electrical and electronic goods such as computers and telecommunications equipment.

Japan is also the third biggest investor in Australia, with key investments in the motor industry, mining, agriculture, property and tourism.

Even with Japan in recession or stagnation for much of the past decade, Australia's role as a stable supplier has barely faltered.

Along with raw materials for Japanese industry, Australian meat, wine, dairy products and other foodstuffs have become part of the Japanese diet.

The two strategic agreements that underpin the business ties are the 1957 Commerce Agreement and the 1976 Basic Treaty of Friendship and Cooperation.

Something better

At a landmark Australia-Japan conference in Sydney last year, some participants expressed the view that the relationship needed to be reinvigorated -- that it had grown too dull, comfortable and complacent over the years.

Now Koizumi has told the Australian media that he wants something better. Just before he left Tokyo last week, he said the two nations should aim for a free-trade agreement.

That prompted a supportive response from Howard, who said last Friday that Koizumi's comment was a signal that the Japanese leader wants an even closer relationship between the two countries.

"Let me reciprocate by saying I want an even closer relationship between Australia and Japan," Howard said.

Analysts say the political reality is that the farm lobby in Japan, and a segment of the Tokyo bureaucracy that is captive to agricultural protectionists, will work to ensure this does not happen.

As HSBC chief economist John Edwards noted in a report Monday, the chance of achieving free trade in agriculture is zero.

Way into broader talks

"But this should not preclude either a negotiation or an agreement," Edwards said.

"Japanese protection against Australian farm exports is so high that any reduction in them as a result of the negotiation will be helpful -- and particularly helpful for rice and beef."

Edwards said that the major attraction of free-trade talks with Japan was that they offered Australia a way into broader interlocking negotiations with other Asia-Pacific trading partners.

This is a reference to Koizumi's push for Australia and New Zealand to be included in trade talks involving the 10-member ASEAN group and the other key East Asian economies of Greater China, Japan and South Korea.

"Mr Koizumi may not be able to get the regional negotiation going, but Australia should certainly be urging him on," Edwards noted.