Australian Chamber of Commerce and Industry
Issues Paper
AUSTRALIA-JAPAN ECONOMIC AND
TRADE RELATIONSHIP
F
rom an Australian perspective the importance of the Australia-Japan relationship is enormous. Japan
is Australia’s single largest trading partner and has been our number one export market for more than
forty years. Two-way trade between Australia and Japan topped $A44 billion in 2004, with Australian
exports to Japan worth $A26 billion.
Australia supplies some 60 per cent of Japan’s coal and
iron ore needs and 13 per cent of its LNG requirements.
Last year (2005) we were able to deliver more than 90 per
cent of Japan’s beef imports.
On the services front, Japan is our second largest source
of tourists, with over 700,000 Japanese visiting Australia
in 2004.
Foreign investment is another important bridge between
Australia and Japan.
Japan is the third largest source of foreign investment into
Australia (with a total investment stock of some $A45
billion) and is the fourth largest destination for Australian
investment abroad.
All of these figures can be distilled down to one essential
number - Japan takes one dollar in every five of Australia’s
exports, which is equal to China and the United States
combined.
JAPAN’S REGIONS
To give a sense of perspective, several of Japan’s
individual regions constitute large economies in
themselves and dwarf the total Australian economy.
Few in Australia would be aware the Kyushu region is the
same size of the Australian economy, the Chubu region
twice the size and the Kansai regional economy four times
the size.
Looked at another way, these three Japanese regions
- Kansai, Chubu and Kyushu – are seven times the size of
the Australian economy.
BUILDING BLOCKS
The Australia - Japan economic and trade relationship is
LEADING A U S T R A L I A N B U S I N E S S
May 2006
built on several solid pillars.
The most important of these pillars is the Australia
- Japan Agreement on Commerce, also known as the
Commerce Treaty, which was signed almost 50 years ago
in 1957.
The Agreement normalised bilateral trade and economic
relations and saw Australia extend Most Favoured Nation
status to Japan (at the time only the second country in the
world, other than the United States, to do so).
The Commerce Treaty was complemented twenty years
later (1976) by the Treaty of Friendship and Co-operation
(also known as the Nara Treaty) which emphasised our
mutual interests in maintaining stable trade relations.
Another important, and more recent, building block is the
Australia - Japan Trade and Economic Framework (TEF)
signed by Prime Ministers Howard and Koizumi in Tokyo
in July 2003.
The TEF reflects the desire to further strengthen bilateral
relations by, amongst other things, working toward the
liberalisation of trade and investment between our two
countries.
It also usefully sets down a number of important areas
for enhanced co-operation for the mutual benefit of both
countries.
These include:
• information and communication technology;
• investment promotion;
• mutual recognition of professional qualifications;
• regulatory co-operation in securities markets; and
 Australian Chamber of Commerce and Industry
• expanded information exchanges in areas such as
intellectual property and government procurement.
While official documents and trade have their place, the
most important linkages are often those between people
- the bridges built by strong people-to-people relations.
In this area, Australia and Japan are also doing well.
Around 700,000 Japanese people visit Australia each year,
more than 300,000 Australians are currently learning the
Japanese language in our schools and universities and
there are almost 100 sister city relationships between
counterparts in Australia and Japan.
Lest we think the flow is all one way, the Australia - Japan
Foundation is providing education materials on Australia
to every one of Japan’s 11,000 junior high schools and
through them to hundreds of thousands of Japanese
schoolchildren - the business and political leaders of
tomorrow.
JAPAN - AUSTRALIA FTA FEASIBILITY STUDY
As we would all be aware, the Australian and the Japanese
Governments are currently actively engaged in a feasibility
study examining the potential for a free trade agreement
between our two countries.
An Australia - Japan Free Trade Agreement (JAFTA),
if realised, would take the already strong commercial
and economic relationship that exists between our two
countries to a new, higher, level.
Econometric modelling undertaken by DFAT in 2003
pointed to the substantial gains for both Australia and for
Japan from the liberalisation likely to flow from such an
agreement.
In present value terms, over a 20 year period, a high
quality JAFTA could add as much as $A39 billion to
Australia’s national output, while the gains for Japan could
be around $A27 billion (or some Yen 2.2 trillion). These
estimates are likely to be on the conservative side.
Mathematical-economic modelling undertaken by the
Australian Chamber of Commerce and Industry as part
of our contribution to the JAFTA processes also shows
high degrees of trade complementarity between our two
countries.
That is, each is producing and exporting to the other what
the other wants to buy and import - a solid springboard
for a JAFTA.
Issues Paper
May 2006
While some are inclined to place the question of a JAFTA
in the ‘too hard’ basket, in some areas like merchandise
trade there is not a great distance to travel.
At present, around 80 per cent of Australian exports to
Japan enter duty free and 87 per cent of those goods
subject to duty are at rates of less than 10 per cent.
At the same time, we should not be daunted by the
challenges in a few sensitive sectors. Such matters can
be handled where there is the necessary political will, and
leadership, and pragmatism in terms of the phasing of
commitments.
The Joint Study Group, the body tasked with examining
a potential JAFTA, has held a very fruitful third round
of discussions in Tokyo and has resolved to complete a
feasibility study by the end of 2006 - four months ahead
of the original timetable. Assuming that the study reaches
conclusions favouring an FTA, from that point a political
decision will need to be made as to whether negotiations
should be undertaken.
OTHER RELATIONSHIPS
While the Australia - Japan relationship is important to
both countries, each has active foreign, trade and security
relations elsewhere in the Asia Pacific region and around
the world.
In the trade area, both Australia and Japan have
maintained a strong commitment over a long period of
time to the multilateral, rules-based trading system in the
form of the World Trade Organisation.
We have also worked together in creating and nurturing
the Asia Pacific Economic Co-operation (APEC)
processes and appear to be of a like mind on the nascent
East Asia Summit (EAS) initiative.
Both countries are also looking to cement various
bilateral economic and trade relations through free trade
agreements with important trading partners.
Australia already has high quality FTAs with New
Zealand, Singapore, Thailand and the United States. We
are negotiating with ASEAN, China, Malaysia and the
United Arab Emirates, amongst others.
We are also doing preliminary studies with Mexico, India
and prospectively South Korea. Australian business
would like to see Indonesia added to this list.
Japan is also building its stock of bilateral trade
agreements with countries such as Mexico, Singapore and

 Australian Chamber of Commerce and Industry May 2006

the Philippines and is talking to Malaysia, South Korea,

Thailand and the ASEAN grouping as a whole.

As the Australian Deputy Prime Minister and Minister for

Trade, Mark Vaile, rightly observed when addressing an
Australia - Japan business forum in Melbourne last year:

“With such a long and strong history between us, it would be

unfortunate to see our bilateral ties fall behind our ties with others in
the region.”

CONCLUSION

The Commerce Agreement negotiated almost 50 years

ago, amidst difficult political winds at the time, has
underpinned economic prosperity for both our countries.

The 1976 Nara Treaty took the Australia - Japan

relationship to a new level, helping to promote cultural
awareness and exchanges.

The Aichi World Expo last year helped to lift Australia’s

profile in Japan and the Year of Exchange, currently
underway in both countries, can only further strengthen
our awareness of each other.

However, we cannot afford to rest on our laurels and

must look to take more steps of the magnitude and the
significance of the Commerce Treaty.

ACCI looks forward to participating in ongoing

discussions on a high quality Free Trade Agreement
between our two nations to enhance our trade relationship
throughout the first half of the 21st century.

Issues Paper