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Tim Harcourt
Chief Economist
Australian Trade Commission
Email: tim.harcourt@austrade.gov.au
14 March 2007
Whilst Prime Minister John Howard is currently in Tokyo to discuss a bilateral security pact with Japan, now is a good time to examine the economic dimensions of Australia’s relationship with Japan as well.
Australia’s trade with Japan is in a healthy state. Japan is Australia’s number one two-way trading partner and has been our number one export destination been since the mid-1960s. And we’re not talking small sushi here – our exports to Japan were worth over $35 billion last financial year and imports were over $19 billion. Even with China and India looming on the horizon, Japan still matters, particularly as it has recaptured its macroeconomic health after the years of deflation.
But even in a strong, healthy relationship, more can be done.
First of all, there’s the free trade agreement (FTA). The potential gains from the FTA are substantial – estimated to be A$39 billion and A$27 billion to the GDP of Australia and Japan respectively. However, there is still little awareness about the FTA. According to a new DHL survey only 13 per cent of Australian businesses knew that there was a Japan FTA under negotiation, compared to 44 per cent who knew about the pact with China.
Second, there’s clearly room for expansion in trade in services. During the era of ‘Koizuminomics’ a number of reforms were proposed for the ‘untouchable’ parts of the Japanese economy like health, education and government services. If this can continue under Abe, it is good news for Australian services exporters. According to services expert, Professor James Kondo of Tokyo University, Australian exporters have a comparative advantage in many areas that will open up: “The healthcare, wellbeing, education and the lifestyle sectors have traditionally been closed in Japan, but this will soon change to Australia’s benefit.”
Third, Japan’s unique demographics - an ageing but wealthy population with little immigration – work in Australia’s favour as well. Japanese tourism is changing as intense short ‘tour bus’ holidays are being replaced by longer, more health conscious, reflective activities from Japan’s new class of retirees. Japan is also becoming more feminised as a population with an interest in health and well being, education and creative based activities instead of the just the old ‘golf and karaoke’ routine of the salary-men of long ago. If you think Bill Clinton’s ‘soccer moms’ were important in 1996, just wait until you see the economic and political influence of Japanese women in future years.
Fourth, with a more open Japanese economy there should be more opportunity for Australian businesses to work in-market in Japan. Whilst over 3,600 Australian businesses export to Japan very few base themselves there. Austrade Tokyo estimates that fewer than 100 Australian businesses have offices or investments in Japan, despite its economic might.
In conclusion, whilst the Australia-Japan economic relationship may be healthy - just like preventative medicine – there is always room for improvement.
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