|To Further Develop Relations between Australia and Japan
Today, the subject given to me is what tasks lay ahead in securing the mutual growth of our two countries through the resource trade. So, I would like to first look back on the significant history of the trade between Australia and Japan, and then, based on the recent structural changes in the global economy, express my personal thoughts about some of the tasks ahead and suggest what future action should be taken - bilaterally - to further develop this important relationship, chiefly in the resource trade.
1. History of the trade between Australia and Japan
First, let us briefly examine the history of trade between Australia and Japan.
Fifty-two years ago, in 1957, the Australia-Japan Trade Agreement was signed, paving the way for the post-war development of trade between the two nations.
At the time, the total import-export trade volume between the two nations was about 400 million US dollars. During the period of fiscal 2007 to 2008, this trade amounted to about 54.6 billion Australian dollars, or around 50 billion US dollars at the current exchange rate. In just over half a century, trade has rocketed about 120-fold, a spectacular increase.
Even during the past decade, Australia’s exports to Japan increased from 17.5 to 34.9 billion Australian dollars, while Australia’s imports from Japan rose from 12.6 to 19.6 billion Australian dollars, twice and 1.5 times, respectively. The driving force behind this growth is Australia’s iron-making raw materials and steel-related products in which Nippon Steel has been deeply involved.
Australia mainly exports natural resources like minerals and energy sources as well as agricultural produce to Japan. Of these, the largest export commodity is coal, including metallurgical coal, followed by iron ore from Western Australia, comprising 31% and 14% respectively of total Japan-bound exports. In other words, coal and iron ore, when combined, represent almost half of the total exports to Japan.
On the other hand, Japan’s exports of steel products to Australia are modest, amounting to about 500 thousand tons in fiscal 2008. However, if we include industrial products using steel — for example, automobiles, motorcycles, and construction equipment such as power shovels and large trucks, as well as home appliances and so forth - these products represent a substantial 57% of the total exports from Japan.
In other words, Australia exports iron-making resources to resource-poor Japan, and Japan, exploiting its abundant human resources and technology, makes steel-related products which, in turn, flow back to Australia. This chain of steel supply has been expanded over the past half century, thereby boosting the economic development of both countries.
In summary, there is a natural complementary trade relationship between Australia and Japan, both of which are also blessed with relative geographical proximity.
2. Historical inevitability of the development of Australia-Japan trade
However, in a careful retrospect of this history, I feel very strongly that Australia and Japan go beyond this natural complementarily and are really tied together through a strong ideology that might be termed a “Strategic Trade Alliance.”
In the 1940s, an unfortunate period in history saw the two countries exchanging fire. Subsequently, however, sharing a firm commitment to respect freedom and democracy, the two countries have built and shaped this long-term, stable relationship, through combined efforts in both public and private sectors, in order to solve problems that have emerged periodically.
A representative example of those endeavours would be the lifting of the embargo on iron-ore exports. Amid the very tense international situation on the eve of the outbreak of World War II, and also with the aim of conserving iron-making resources, the Federal Government of Australia declared a full embargo on iron-ore exports in 1938.
For the succeeding 22 years, Australian iron ore remained dormant. Even at that time, however, the Government of Western Australia asserted, with determination and conviction, that the development and export of iron ore would boost the development of the regions and contribute to the finance of the nation. Since 1958, the Government of Western Australia aggressively lobbied the Federal Government, urging the lifting of the embargo.
In those days, Japan started rising from the wartime ruins, with the prospect of a dramatic expansion in steel production, and, accordingly, the need arose to secure Australia as a main source of iron ore supply. Thanks to the sustained efforts of both the Governments of Western Australia and Japan via diplomatic channels, the Australian Federal Government finally decided to remove the embargo on iron-ore exports in December 1960.
The existing state of development and export of iron ore business in Western Australia might be taken for granted now, but we should never forget that we owe all this to the efforts of our predecessors in both countries.
Another notable movement in Australia has been the reform of industrial relations. From around the 1970s up to the early 1990s, Australian mines were prone to strikes and labor disputes, and despite the country’s God-given iron-making resources, there was a time when the international competitiveness of the Australian mining industry seemed significantly undermined by management instability. However, following a radical revision of labor-related laws in Australia, and serious efforts for reform on the part of both management and employees, relations between the Australian workforce and management have improved and stabilized dramatically, with the result that the Australian iron-making resource industry is now the most competitive in the world.
Japan’s steel industry also contributed significantly for the Australian mining companies to develop iron-ore and coal mines. In the development and expansion of new and existing mines, we have supported the mining companies for their execution of “bankable” development and expansion plans by entering into long-term agreements for taking deliveries, synchronized with the pace and phase of the steel production expansion. The phrase “the same boat, the same crew” describing the iron ore trade between Australia and Japan reflects these histories.
Also, as the need arose, we have sought to further strengthen the ties with our suppliers by holding interests in the same. In seeking these interests, it has been our consistent policy that the Australian suppliers should remain at the centre of the mine management, with support provided from us as minority equity-holders. I think that in this process, it has become clear that holding interests has helped tremendously in establishing the strategic, long-range and forward-looking relations between the Australian suppliers and the Japanese mills because we have gotten involved in production more closely.
In the case of Nippon Steel, which came into the equity participation in Robe River in 1977, we have now come to hold interests in a total of eight iron ore and coal mines in Australia. Let me say that we take pride in having been the forerunner in structuring such strategic relations.
Earlier, I mentioned a “crisis” in Australia, so I should also touch on the “crisis” experienced by the Japanese steel industry. Just like the crisis experienced by Australians, Japan has also experienced a series of nasty jolts such as the two oil crises in the 1970s, the yen appreciation in the 1980s, and the collapse of the bubble economy in the 1990s. However, we have overcome them all by vigorously pushing through drastic rationalization and technological innovation, and regaining and enhancing our international competitiveness. In this sense, I view the current crisis triggered by the monetary crunch as just another surmountable crisis and also as an opportunity providing the impetus for us to become even more competitive.
Today, ladies and gentlemen, when we look back at such a history of the Australia-Japan chain of steel supplies, I would say that this all-important bilateral relation goes beyond the framework of the “trade relations” of just selling and buying alone and should be re-defined as an “alliance” in which an indomitable will towards the free market, free trade and a long-range vision combined with the ability to execute such a will is strategically shared by both partners, namely, in the form of the “Strategic Trade Alliance.”
3. Structural changes in the global economy during the past several years
Now, I turn to the changes in the global economy. Over the past several years, structural changes have occurred in the global economy, at breakneck speed never previously experienced.
Of the structural changes currently unfolding, three points should be noted.
First: The economic development of East Asia, including the rapid expansion of the presence of China.
Second: The current economic crisis and the widening volatility of industrial activities.
Third: The worldwide progress of oligopolies. Since the industrial revolution, the global economy has evolved around the Atlantic sphere, namely, Europe and North America.
Naturally, the economic power of Europe and North America combined is enormous even now. However, economic development in the East Asian sphere in recent years, mainly in China, has been simply spectacular. Since the economic crisis last year, in particular, China has been the driving force behind the recovery of the global economy. This economic development in East Asia represents a tremendous opportunity to the countries located in this region including Australia and Japan.
Nevertheless, the rapid and substantial expansion of the presence of China seems to have the potential to create intense strain. One of the reasons is the fact that China is based on a system unlike those of Australia and Japan, namely, the mixed economy. Already, the state-owned enterprises of China have been, and still are, obtaining interests in Australian resources. We, purely working in the market economy, must monitor with great concern how the Australian Government and the industrial community in Australia intend to handle these cases and how the global economy might consequently be affected.
Next, the details of the current economic crisis are already familiar to you, so need not be repeated here. The only thing I would like to emphasize here is the fact that the crisis this time is characterized by the speed of spreading and the breadth of volatility for the industrial activities. Of the factors contributing to this crisis, one is the fact that the Internet and other advanced means of communication enable the whole world to share the same information simultaneously and take similar actions all at once.
Needless to say, advances in communication methods are wonderful, and this trend is sure to further accelerate in future. Now, what is required of us in the business world is not to avert our eyes from these realities but to devise ways to deal with them, or somehow ease them, assuming the inevitable continuation of great speed and great breadth of volatility in future business and economic environment.
Perhaps, in attempting to respond to the expansion of volatility in the economy, there will be a need for industry to seek yet greater efficiency, and, as one of the best available prescriptions, individual enterprises will inevitably be required to resort to international integration and reorganization. In the steel industry, reorganization is an unavoidable and ongoing process, as already evidenced by the emergence of Arcelor Mittal. Likewise in China, with the rough-and-tumble of a great many steel mills, without reorganization and integration, the future of the steel industry not just in China but in the world has to be viewed as considerably doubtful.
Thirdly, as discussed here, corporate integration provides the advantages of greater efficiency and profitability on a microscopic level of individual enterprises; however, if taken too far, integration might trigger the development of oligopolies, which have a negative impact on the market mechanism; becoming an impediment to the macro-level economic growth.
This is the so-called “fallacy of composition.” In the natural resource industries, particularly since the 1990s, due to the continued depressed state of the economies in developed countries, compounded by the Asian crisis and other adverse factors, a bleak period has persisted. As a result, the past two decades have seen global reorganization and integration in these industries.
However, in my view, many of the global resource industries have already long reached the oligopolistic stages. To my mind, this situation makes it necessary for those responsible in both public and private sectors to mutually execute their respective responsibilities in a carefully balanced way in order to maintain a healthy market mechanism. In other words, it is vital to ensure that self restraint is exercised by resource companies and that the monitoring and regulatory responsibilities are taken on by the governments of the relevant countries.
4. Main issues in the development of the Australia-Japan relationship and action priorities
Finally, in the context of the future development of relations between Australia and Japan, please let me highlight some important issues I need to address and some measures we would need to take regarding resource industries and trade.
As I see it, there are currently three grave risks lurking behind the resource trade.
First: “Resource Nationalism”, with resource countries going to pursue their self-interests alone.
Second: what is termed Resource Enclosure, with resource-using countries, in the sole pursuit of their own interests, taking to enclosing resources overseas - a risk that may be described as “Resource Colonialism.”
And Third: Resource Oligopoly, which I touched on earlier, with resource industries, based on the strength of oligopolies, continuing to siphon off the world’s wealth. It may also be termed “Resource Imperialism.”
History has taught us the words “nationalism, colonialism and imperialism”. However, these words do not belong to the past, but are very much part of the present and future.
Needless to say, these behaviours will impede the rational distribution of resources within the framework of the global economy, accelerate the mal-distribution of wealth, and lead the global economy to uncertainty and instability.
I myself am a firm believer in the market economy and place my trust in the fairness of the redistribution of wealth through the market mechanism. At the same time, I adopt the position that behaviours in this market should be guided by strong discipline in the order of the market. From this standpoint, the parties concerned in the public and private sectors in both countries must deal with such risks by upholding the clear principles of the free and fair market and by combining our collective wisdom to benefit the global economy and the sound development of the Australian and Japanese relationship. Despite the obstacles that may lie ahead, I would like to suggest some working approaches.
First, in the public sector, the Japanese and Australian governments need to accelerate action to expedite the signing of the Australia-Japan EPA/FTA. There are areas in which mutual concessions might be called for, but I am certain that both countries’ moves toward further liberalization, perhaps in progressive stages, will be of tremendous benefit to both countries. In addition, as I mentioned earlier, it is a sensible time for me to stress here the term “Fair Trade” in the segment of resources in particular, and expect the fair trade authorities to strongly crack down against behaviour inclined toward excessive oligopoly with a view to maintaining the open and competitive market.
Secondly, in the private sector, particularly in the steel supply chain from iron-making raw materials to steel products, I have a feeling that we should perhaps refresh our memories back to when our trade relationship first started. Both seller and buyer must engage in discussion in a sincere and serious manner as to the desirable nature of the Strategic Trade Alliance, which is mutually beneficial on a long-term and stable basis, without being dazzled by short-term or one-sided profits. Furthermore, I consider it very useful and important for both seller and buyer to enhance the perception that structuring strategic relations, including investments by buyers, is a useful tool to mitigate mutual risks.
So, here in Western Australia, the birth place of iron-ore on which we have been deeply dependent for so long, I have discussed my views about how the economic relations between Australia and Japan could best develop in future, chiefly in the segment of resources.
Needless to say, my interest is not confined to the resource sector alone. Australia and Japan hold real and enormous potential for an extension and enhancement of the Strategic Trade Alliance, far beyond resources and steel products.
We should not remain static. Yes, until now, we have constructed the firm infrastructure of the Japan-Australia Strategic Trade Alliance through resources. However, the infrastructure will be easily deteriorated if we simply enjoy the present and don’t make any effort to maintain and improve it. Only by challenging the new frontiers, will our infrastructure be strengthened.
However, to enhance relations even in the new areas, there should be a firm discipline that needs to be commonly recognized. This is the “free and fair trading” in business behaviour that I mentioned previously.
To enhance the Australia-Japan Alliance in resources and further establish it beyond the resource segment in many other areas, I would like to continue in-depth cooperation with the people of Western Australia and the leaders of the business community in Australia.
I am a businessman, not a scholar. I need to provide answers. I need to get results. It is my responsibility. I would like to contribute, in however small a way, to ensuring the optimal state of this Alliance at the earliest possible date. And to do so, I need your cooperation.