Shinzo Abe's Australia visit a strategic opportunity

Picture: Kremlin

Volume 5, no. 1, January 2017

Author: Shiro Armstrong, ANU

Japanese Prime Minister Shinzo Abe visited Sydney in mid-January to shore up Australian support in the uncertain world of incoming US President Donald Trump. The visit came months earlier than originally planned and demonstrated Abe’s proactive diplomacy.

The visit with Prime Minister Malcolm Turnbull deepened Australia-Japan security cooperation and kept up pressure on the United States to keep the Trans-Pacific Partnership (TPP) alive.

More than any time in recent memory Australia and Japan need to be at the core of a coalition for openness in the global economy.

Abe’s last state visit to Australia was in 2014 — the first state visit by a Japanese prime minister in over a decade — where the close personal relationship with then-prime minister Tony Abbott was a springboard for elevating the bilateral economic, political and security relationship.

That close personal relationship between Abbott and Abe was able to elevate bilateral ties because of the strong base built on decades of good will, people-to-people exchanges and investment in the relationship. The failure of the submarine deal struck between Abe and Abbott without having gone through proper processes demonstrated the limits to what can be achieved at the leadership level alone.

Turnbull and Abe have quickly formed a close bond but as the two countries deepen security cooperation they should not take their eye off the main game that underpins everything between the two countries: the economic relationship.

Four features define the deep and broad economic relationship between the two countries.

Australia supplies over half of Japan’s externally procured strategic raw materials.

First, and widely under-appreciated, Australia supplies over half of Japan’s externally procured strategic raw materials and is the largest single supplier of energy to Japan.

Second, Japanese investment has been important for Australia’s prosperity and is becoming more important. Japanese investment has helped develop Australian mining, real estate, tourism and agriculture. In recent years Japanese investment has become more diversified and is now bringing Japanese technology, know-how and capital to Australian retail, food and beverage, distribution, logistics, insurance and finance.

Third, the economic relationship is not narrowly bilateral. The former Australian CEO of Japanese trading house Mitsui openly lobbied for the China–Australia Free Trade Agreement which surprised many but should not have. Mitsui has invested over AUD$15 billion in Australia over the last decade — more than it has in North and South America combined — and now exports much more to China from its Australian operations than it does to Japan. That is only one example. Japanese branded manufactures sold in Australia are often made in China, Vietnam or elsewhere in Asia.

Fourth, the Japan–Australia Economic Partnership Agreement that came into effect in 2015 is the most liberalising agreement Japan has entered into and opens opportunities for both countries.

These factors point to a mature economic relationship indispensable to both countries. But there are underdone areas.

Australia’s investment in Japan is minuscule.

Australian investment in Japan is minuscule. Both sides share some blame in the under-realisation of its potential. The Japanese economy still has many sectors that are protected from foreign and domestic competition. Japan ranks dead last in the OECD as a recipient of foreign direct investment relative to the size of its economy. Breaking down barriers to new business is ostensibly a major part of Abe’s structural reform agenda.

Risk-averse Australian businesses have shown a preference for investing in the United Kingdom, New Zealand and the United States over Japan, China and their Asian neighbours where the dynamism in the global economy lies. Given the closeness, familiarity and established relationship, the mature Japanese market would seem the natural practice ground.

But the most underdone aspect of the relationship is the lapse in broader economic cooperation beyond the two countries. The bilateral relationship is a natural platform for broader cooperation in Asia.

Both countries have China as their largest economic partner and the United States as their most important security partner. Despite the uncertainties that a Trump presidency now bring, that should be the solid basis from which Australia and Japan can deepen cooperation in Asia.

Both countries need to be realistic now that Trump has withdrawn the United States from the TPP.

Both countries are members of the TPP, with Japan the first country to have ratified the 12-country pact. Yet both countries need to be realistic now that Trump has withdrawn the United States from the TPP. The TPP without the United States has no meaning.

More than any time in recent memory Australia and Japan need to be at the core of a coalition for openness in the global economy. Japan needs to extend the market opening made in its agreement with Australia to other countries. Australia and Japan need to lead efforts to secure ambitious liberalisation through the Regional Comprehensive Economic Partnership that is currently under negotiation in East Asia. That’s where the dynamism in the global economy is, and that might be the global economy’s best push-back against the protectionist forces that have been let loose in the United States and Europe.

About the author

Shiro Armstrong is co-director of the Australia–Japan Research Centre at the Crawford School of Public Policy at The Australian National University and Editor of the East Asia Forum.

Updated:  23 June 2017/Responsible Officer:  Crawford Engagement/Page Contact:  CAP Web Services Team