In the aftermath of the territorial dispute in the East China Sea and China’s subsequent decision to suspend export of rare earth metals to Japan, these metals have taken on renewed significance and Japan has been keen to secure an alternative supplier.
Japan’s export of high tech and energy efficient vehicles and devices makes Japan especially vulnerable to disruption to supply of rare earth, indeed Japanese politicians faced major pressure from industry groups during the dispute with China to either back down or find alternative reasonably priced supply.
Interest in Australian rare earth was piqued when the Foreign Investment Review Board shut down plans by the China Non-Ferrous Metal Mining Group to take a controlling interest in Lynas Corp. Last week this same company concluded an agreement with a Japanese trader Sojitz to supply up to 90,000 tonnes of rare earth to the Japanese economy over the next ten years. While Japan has not sought to acquire the company outright, Sojitz has backing from the Japanese government via the Japan Oil, Gas & Metals National Corp. While the usual commercial interests apply, Australia also is signalling its interest in dealing with Japan over China for these strategically important commodities.
A similar pattern is discernible also in the FTA game. The Australia-Japan Free Trade Agreement has been progressing slowly since negotiations begun in 2007. The Australia-Japan FTA was initially pitched by then Prime Minister Abe for strategic rather than economic reasons. The fact that the proposal for an FTA was followed by a defence agreement and later a military cooperation pact is evidence of this. Compared to Japan’s economic partners in Southeast Asia, Australia’s already low tariff schedule meant that there was little value in a traditional FTA for Japan except as a part of these wider strategic interests. Although Japanese domestic interests groups such as the agricultural lobby have been opposing the FTA and dragging out the negotiations, the fact is that the strategic factors which drove the initial offer are only intensifying over time. Japanese dependence on food imports from China (already its 2nd largest supplier) is rising, and one possible coping strategy for Japan is to preference Australian farm goods under an FTA.
In this regard, Australia has reason to be hopeful that Japan might conclude an agreement which takes in (to one extent or another) agriculture. The recently released Basic Policy on Comprehensive Economic Partnership identifies Japan’s inefficient agricultural industry as the cause of Japan ‘falling behind’ on FTAs. It also sets up a Coordination [J1] Office which the prime minister will chair to put in place domestic side agricultural reforms necessary for concluding FTAs with countries such as Australia. Of course, there is still every chance that this will either fail or simply take too long (the Action plan is due in October 2011).
Part of Japan’s haste in revitalising the Australia-Japan FTA may also be due to progress on the Australia-China FTA. Like the Australia-Japan FTA, the Australia-China FTA negotiations have been tortured — talks began in 2005 and last year stalling completely. But China’s decision to re-engage with Australia this year on the subject of an FTA maybe feeding into Japan’s calculations about the merits of concluding its own FTA with Australia. It is hard to believe that if one of these negotiations (either the Australia-Japan or the Australia-China FTA) were to succeed that it would not put significant pressure on the other set of negotiations to wrap up as well.
The growing strategic value that Japan is placing on Australia has meant that issues like Australia’s objections to scientific whaling are being isolated from important diplomatic agreements. Both Rudd and Maehara were quick to dismiss this issue in the press conference preferring to talk about the benefits of partnership. While Australia stands to gain from Japan’s renewed interest and ought to pursue cooperation with Japan rigorously, it would not be wise to forget the nature of Japan’s interests and to expect our deepening ties to be cost free.
Joel Rathus is a recent PhD graduate from Adelaide University and a regular contributor to the East Asia Forum. His other posts can be found here.