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Downer upbeat on Japan FTA talks

The Australian, Canberra

Downer upbeat on Japan FTA talks

Peter Alford, Tokyo correspondent

3 August 2006

Foreign Minister Alexander Downer ended a Tokyo visit yesterday confident that negotiations for a free trade agreement (FTA) with Japan, the most lucrative bilateral deal available to Australia, can start next year.

Mr Downer said he expected a joint scoping study, to be finished in October - some six months ahead of schedule - to show decisive benefits for both countries.

A comprehensive FTA would be worth at least $38.7 billion to Australia over two decades and $27.4 billion to Japan, according to an economic model produced before Prime Minister John Howard and Prime Minister Junichiro Koizumi agreed to the current study last April.

Mr Downer indicated the scoping study might now show even larger benefits and in that light, he told a business group yesterday "it would be particularly disappointing and rather surprising, as well" if the Japanese refused to start a formal negotiation.

He also signalled readiness to negotiate on phased removal of some trade barriers in sensitive areas, particularly the farm products that have long blocked an FTA negotiation with Australia’s biggest trading partner.

But Mr Downer said Australia would not negotiate any deal that excluded farm products: "We can’t possibly contemplate anything but a comprehensive negotiation."

Australian merchandise exports to Japan are booming, growing 28 per cent last year, and two-way trade totalled $45.5 billion in 2005. Services, an area both countries would hope to grow strongly within an FTA, accounted for another $5.1 billion.

Although Japanese officials remain timid about an Australian trade deal because of the risk to their feather-bedded and politically sensitive farm sector, they confirmed yesterday the scoping study would be finished early.

One official quoted Economy Trade and Industry Minister Toshihiro Nikai telling Mr Downer yesterday: "Whether to take the next step will be dependent on the study group’s conclusion."

This week, Mr Downer has also discussed the FTA with Cabinet Secretary Shinzo Abe, a red-hot favourite to succeed as prime minister in September who wants closer ties with Australia; and Economic and Fiscal Policy Minister Kaoru Yosano, another leadership contender.

The talks made him confident the post-Koizumi government would be favourable to starting formal negotiations with Australia next year.

Though Mr Nikai yesterday continued to stress domestic sensitivities and Mr Downer this visit did not meet Agriculture Minister Shoichi Nakagawa, whose department is a protectionist hornet’s nest, the Australians have noted a significant change in Japanese attitudes in the 15 months since Mr Koizumi agreed to the scoping study.

"On the whole they’ve certainly become more positive as this year has gone by," Mr Downer said.

"First of all, they (now) think we understand some of the sensitivities in regard to agriculture, so this will be a negotiation to see what we can achieve, rather than us being dogmatic."

He said the looming failure of the World Trade Organisation’s multilateral Doha round also had encouraged the Japanese to accept they needed to put more effort into bilateral and regional FTA agreements.

Japan is also being prodded forward by Canberra starting formal FTA negotiations with Beijing. There is a growing realisation in Tokyo that falling behind in trade deals has what Mr Downer called "negative strategic implications" in a region China is seeking to dominate.

Australian officials this year have noted a growing concern among Japanese counterparts about future "food security".

The Japanese, who are already locked in a global contest with China and increasingly India to secure energy resources, are starting to worry about those countries’ huge potential demand for high-quality agriculture products as they grow more prosperous.

This concern is particularly strong with regard to China, because many Japanese analysts believe the country’s mounting industrial pollution is quickly destroying its farming capabilities.