Tuesday 25 Sep 2018 | 18:16 | SYDNEY
Tuesday 25 Sep 2018 | 18:16 | SYDNEY

Economic diplomacy: Japan, Indonesia and the TPP

Woolnorth, Tasmania, Australia (Photo: Brendon Thorne via Getty)

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COMMENTS

13 September 2018 14:30

Food for thought

In 2009 Japanese businessman Masaki Harada used a Lowy Institute appearance to outline some frank and ambitious plans for his company Kirin in Australia, in what was quickly interpreted as more than a usual business plan.

It was an exciting time for the Australia-Japan bilateral relationship with a new wave of non-resources investment flowing in from Japan on the back of a rapid firming of security ties that began under former prime minister John Howard.

An article on The Interpreter at the time observed after Harada’s speech “many of the factors leading people within Japan and outside to worry about (or celebrate) Japan’s declining power and relevance are also working to broaden and strengthen Australia-Japan relations”.

Harada was refreshingly open for a Japanese executive noting Australia was a less risky place to invest than Southeast Asia, and that Kirin planned to revolutionise the Australian food industry with its Japanese technology and marketing techniques.

And its then new, ambitious almost $4 billion investment in dairy, fruit juice and food businesses, in addition to a brewing business, did mark a tipping point in the bilateral relationship: the largest Japanese investment outside the older lower profile stakes in resources from trading houses such as Mitsui and Mitsubishi.

Kirin’s established trading networks into Asia also could have also potentially helped achieve the longstanding Australia trade policy objective of supplying more branded, value added food into emerging middle-class Asia rather than just raw farm products.

But these ambitions came crashing down to earth this week when Kirin’s Australian arm Lion put all the food and dairy drinks businesses under review for potential sale after having progressively written off about half their initial value.

After the even larger write-offs for the more recent but similarly aggressive and ambitious Japan Post takeover of transport company Toll, two of Japan’s iconic businesses have stumbled remarkably in Australia.
 

Retreating home

If we assume loosely the idea that substantial economic ties provide ballast to foreign relationships during political stress and a foundation for stronger security ties, these setbacks raise some interesting issues.

Chinese companies are seen to have paid too much for poorer quality assets (the Japanese already had the best ones) when they aggressively charged into Australia a decade ago. But the Japanese have recorded some big losses in Australia despite the deeper ties of commercial trust between the two countries compared with China.

The Japanese have recorded some big losses in Australia despite the deeper ties of commercial trust between the two countries compared with China.

In that time foreign investment has become a much more controversial part of national economic policy than trade. Recent studies have characterised the two-way investment flow between the US and Australia as a valuable underpinning of the ANZUS alliance – including the idea that dividends flows can be larger in value than trade.

However, the smaller but faster growing inward foreign investment from China is increasingly being presented as a security threat with the forthcoming federal government decision on whether Hong Kong-based private company CK Infrastructure can buy more gas pipelines looming as  a benchmark decision in this respect.

There is also a growing contrast between the Australian investors in Asia retreating home in recent times after generally modest losses, while Japanese and Chinese companies seem to have been taking a longer-term view of Australian investments after suffering some bigger setbacks.

Back in 2009 Harada was quite honest about how big Japanese companies had no choice but to go offshore given the anaemic population and economic growth at home, a point recently repeated by Japanese Ambassador Sumio Kusaka to a gathering of Japanese infrastructure investors in Sydney.

That suggests a continued inbound investment flow from Japan underpinning the broader bilateral relationship with the recent foreign investment figures showing growth and diversification in Japanese investment. But a decision by such well known company as Kirin to pull back from Australian food export development would nevertheless be notable.
 

Educating Indonesia

With three conferences over the next two months in Australia, this new Perth USAsia Centre report and the Lowy Institute’s own ANU Indonesia Update on Monday, there Is no shortage of information for interpreting the planned conclusion of the bilateral trade deal by the end of the year.

And there is going to be a need for some guidance about what the long-awaited liberalisation of Indonesia’s education system will actually mean for Australian players.

It is becoming clear that the real immediate opportunities are more likely to be for private training institutions in the vocational area than the more headline grabbing openings for foreign universities to operate in Indonesia.

The head of Indonesia’s Ministry of Research Technology and Higher Education Ainun Na’im has been in Australia this week making it clear that President Joko Widodo is determined to rebalance an education system that is producing too many university graduates and not enough technically skilled workers.

As a result, foreign controlled vocational training institutions can operate as for profit businesses under the Ministry of Manpower, while foreign controlled universities still have to operate under a notionally not for profit foundation structure under the higher education ministry.

There appears to be a lot of wriggle room with Ainum flagging minimal oversight of the exact partnership arrangement between Indonesian and foreign university owners within the foundation and less strict regulation of degree programs in parts of the country less well served by universities now.

But the basic liberalisation to foreign institutions is open to all countries rather than just Australia under the pending Indonesia-Australia Closer Economic Partnership Agreement (IA-CEPA) trade deal.

How successfully Australian institutions can leverage the trade deal agreement to gain a prime mover advantage will depend on what it details on mutual recognition of vocational certification and bilateral worker exchange arrangements.
 

Old Labor

It comes as no surprise that the Labor in opposition had a ritual party room debate about the revamped Trans-Pacific Partnership (TPP) and then agreed to back ratification of the awkwardly renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Support for multilateral trade liberalisation (after plenty of huffing and puffing) is one of the stronger links the party (which could take government next year) has with glory years of the Uruguay Round and the Asia Pacific Economic Cooperation (APEC) group in the 1980s.

But Labor, as flagged in the recent Federal Parliament Joint Standing Committee on Treaties report on the CPTPP, has outlined some new approaches to winding back Investor State Dispute Settlement provisions, promised rougher labour market testing and more public input and assessment of future trade deals.

This new modelling commissioned by the Minerals Council of Australia and other business groups argues for a broadening of the existing 11 member CPTPP to a 16 member group (including Korea, Indonesia, Taiwan, Thailand and the Philippines.)

It suggests that pursuing this broader TPP approach would produce larger income and export gains for Australia than the Regional Comprehensive Economic Partnership, which is now the next focus Australian regional trade liberalisation.

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