Japan and Australia, which share common values in the form of freedom and democracy, are two major industrialized nations in the Asia-Pacific region that have built up excellent relations over a long period of years. Looking ahead, it is also important for Japan to maintain and develop good bilateral relations with Australia for the purpose of fostering the economic integration of the Asia-Pacific region as a whole.
Our two countries have a mutually complementary relationship, Japan importing primarily natural resources and foodstuffs from Australia, and Australia importing industrial goods such as cars and machinery from Japan. In view of this, the development of the commercial relationship between the two countries is beneficial for the industries and consumers in both countries. Of particular note is that Australia is a producer of important natural resources, including energy resources, and foodstuffs that are vital to Japanese industry and the Japanese consumers, for example, coal, natural gas, iron ore, and beef. For Japan's resource and energy security, as well as its food security, it is essential to ensure the ongoing strengthening of the relationship with Australia.
Australia has already entered into Free Trade Agreements (FTAs) with New Zealand, Singapore, Thailand, and the United States. Of particular note is the fact that since the FTA with the United States came into effect in January 2005, Japanese companies doing business in Australia have been placed at a competitive disadvantage relative to U.S. companies in respect of tariffs and investment conditions. Once the FTAs currently under negotiation between Australia and ASEAN, China, Malaysia, and the United Arab Emirates are concluded, their situation is expected to become even more serious. Furthermore, China's demand for resources and energy is expected to increase sharply, and it is a matter of concern that if an Australia-China FTA were to incorporate provisions to secure their supply by Australia, that would have an impact on the resource and energy security of Japan if it does not have a similar agreement.
What Japan wants is the conclusion of an EPA with Australia that is not limited simply to trade liberalization, but is comprehensive in character, further enhancing bilateral economic relations, and eliminating disadvantages relative to other countries. It is essential that the golden opportunity presented by Australia's strong desire to conclude an EPA with Japan not be missed, and that an early start to negotiations be made.
Australia is a supplier of natural resources including energy resources that are important to Japan, including coal, natural gas, iron ore, and uranium. In anticipation of the future increase in demand for resources and energy as a result of the rapid growth of countries such as India and China, it is essential that Japan secure their stable supplies. At present, this business is transacted smoothly within the market mechanism on the basis of long-standing relationships of trust between private-sector companies, but a Japan-Australia EPA could be expected to institutionally guarantee those smooth business relationships over the medium to long term, by such means as prohibiting restrictions on the export of energy and other natural resources from Australia, and improving the investment environment for Japanese companies in the resource and energy fields in Australia (e.g. by raising the threshold above which investment is subject to government approval, and making screening criteria transparent).
It is important for Japan to maintain and raise its food self-sufficiency ratio, but it must simultaneously secure the stable supply from overseas of the portion that cannot be supplied domestically. Japan's food security would be assisted by a Japan-Australia EPA that included provisions to prohibit restrictions on the export of foodstuffs, and improved the environment for investing in food production in the same ways as explained above.
Among the principal products exported from Japan to Australia, tariffs are levied on automobile and auto-parts (passenger cars 10%, commercial vehicles 5%), engines (5%), tires (5-10%), and televisions (5%). These tariffs are only at the 5-10% level, but if they were to be removed by a Japan-Australia EPA the competitiveness of Japanese products would be enhanced commensurately, and an increase in exports from Japan could be expected #1. As a result of the FTA between Australia and the United States, tariffs on U.S. products have already been reduced to zero or are in the process of being lowered in stages, and thus there is an urgent need for tariffs on Japanese products to be lowered so as to place Japan on a level playing field for competing with U.S. companies.
The application of a transfer pricing tax system gives rise to double taxation between Japan and Australia. In such cases, the tax treaty between the two countries require their respective authorities to resolve them through mutual discussion, but since these are only non-binding best-effort provisions, in reality there are many cases in which agreement is not reached, and burdens are imposed on companies. In order to protect companies from suffering in this way, a Japan-Australia EPA should ensure that the mutual discussions between the two countries' authorities are conducted smoothly.
Australia is not a party to the WTO Government Procurement Agreement, and therefore procurement by the Australian government is not subject to any legal obligation to observe conditions such as most-favored nation treatment or national treatment. If these conditions were to be committed in a Japan-Australia EPA, they would be guaranteed legally, and access to the Australian government procurement market, said to be worth some ¥5 trillion, would be improved.
Under the Australia-U.S. FTA, within the services field Australia has pledged to implement liberalization to a greater degree than it has committed under the WTO General Agreement on Trade in Services (GATS), including for the telecommunications and audiovisual services. These are fields in which Japanese companies are competitive, and if a Japan-Australia EPA yields a similar result, that could be expected to lead to the creation of new business opportunities.
In addition, under the Australia-U.S. FTA, a joint committee has been established for the purpose of studying the mutual recognition of qualifications with respect to professional services such as lawyers, accountants, and engineers. We believe that it would also be valuable for Japan and Australia to give similar study to the mutual recognition of qualifications and standards.
The proportion of Japan's imports from Australia accounted for by dutiable agricultural, forestry, and fisheries products stands at 13% (2005), the principal items being beef (8%), dairy products, wheat, barley and sugar, etc.
There is a massive disparity between Australia and Japan in terms of the scale and efficiency of their agriculture. If Japan's agricultural sector were to be exposed to competition from Australia as a result of drastic liberalization, the structural reforms currently under way in the sector might be brought to a stalemate. In view of this, it will be essential for the negotiations on a Japan-Australia EPA to give full consideration to the sensitivity of the agricultural, forestry, and fisheries sectors.
Japan is a producer of nonferrous metals such as copper, zinc, lead, and nickel, which attract tariffs of approximately 3%. Australia has considerable export competitiveness in these products. In addition, Japan's nonferrous-metals sector is subject to environmental management obligations that are stringent relative to those of other countries, placing it at a competitive disadvantage compared with Australia. It will also be necessary to give consideration to the sensitivity of this sector in the negotiations for a Japan-Australia EPA.
Indeed the handling of items that are sensitive for Japan should be addressed appropriately, and due consideration should be given to factors such as the state of progress of agricultural structural reform. Still, a Japan-Australia EPA would benefit the two countries' industrial sectors and consumers, and help to further strengthen the economic relationship between Japan and Australia. Accordingly, we request most strongly that in the joint study currently under way between the two governments, evaluation be given in a prompt way to the merits and demerits of an EPA, and that the negotiations for a Japan-Australia EPA be commenced as soon as possible.