The signing of a security agreement on Tuesday March 13 between Australia and Japan indicates the strength of the two countries' relationship but the real test may come in April when free trade negotiations are formally launched.
Prime Minister John Howard, in Japan for four days of talks with Japanese counterpart Shinto Abe, welcomed the signing of a security pact with Japan saying, apart from the US, no other country had a closer security arrangement with Australia than Japan.
"Bear in mind we have a Trilateral Security Dialogue with Japan and the United States and we are, the three of us, great Pacific democracies," Mr Howard told reporters in Tokyo, "We therefore have an enormous amount in common."
Mr Howard said the agreement illustrated how far the Australia Japan relationship had come adding: "It's important to remember that, despite the rise of China as an important customer for Australia, Japan remains our best customer."
Japan is presently Australia's largest export market, bringing $31.6 billion into the Australian economy in 2005 – an increase of 24 per cent and larger than Australian exports to China and America combined.
Detailed negotiations for a Free Trade Agreement (FTA) with Japan will begin in Canberra in April, but Mr Howard said they will not be easy.
"It will be long, it will be difficult, there will be sensitivities on both sides," he told the ABC.
Australia has stressed that all products and issues must be on the table for discussion but Japan had been pushing to have some items like beef, grains and dairy products removed, expressing concern that the Japanese agricultural sector will be unable to compete with Australian products.
However, Mr Howard said on ABC that Japan had agreed in December to put all products on the table, including agriculture and this had been a "huge breakthrough".
A joint feasibility study into the pros and cons of an FTA, released in December last year estimated that a deal could see Australia add $39 billion to its gross domestic product over 20 years while Japan could gain $27 billion over the same period.
The study outlined key areas of interest for Japan which include a relaxation in investment restrictions for Japanese businesses in Australia; assuring reliable energy supplies, (Australia is presently Japan's major supplier of energy); and cutting tariffs on Japanese auto parts and cars (presently at 5 per cent).
Australians will be hoping for a reduction of tariffs on agricultural goods which, the Australian Financial Review says, presently stand at 360 per cent for butter, 777 per cent for rice and 251 per cent for wheat.
Australia will also be seeking to increase trade in goods and services, tourism and financial investment.
Japan already has economic partnership agreements (referred to as EPA's and understood to be the same as FTA's) with Singapore, Malaysia, Mexico and the Philippines.
Japan are also holding negotiations, in various stages, with Thailand, Indonesia, Brunei, Association of South-East Asian Nations (ASEAN), South Korea, Chile, Vietnam and India.
Australia has FTA's with the United States, Thailand, Singapore and New Zealand and is presently in negotiations with China, Malaysia and ASEAN.
A willingness by both countries to negotiate FTA's is in line with proposals outlined at the Aisa-Pacific Economic Cooperation (APEC) forum's annual summit in November last year. At that meeting, leaders of the 21 members of APEC agreed to consider negotiating a Free Trade Area of the Asia Pacific and promised further efforts on ways to promote the initiative so that it may be addressed at the next APEC meeting, due in Australia this year.
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