Written by Corey Wallace.

When the Australian government registered its concern regarding China’s announcement of the ADIZ in November, questions were raised about the wisdom of the Abbott administration’s apparent prioritising of relations with Japan over relations with China in Asia. Abbott had after all described Japan as “Australia’s best friend in Asia,” and even as an “ally.” While it may well be the case that the Australian government’s diplomatic tone left something to be desired, there is a rationale for Australia placing Japan at the “forefront of Australia’s regional engagement,” at least in the short- to medium-term. The Australia-Japan relationship is one that the Trade Sub-Committee of the Joint Standing Committee on Foreign Affairs, Defence and Trade described in 2013 as one that was “underappreciated” and “overlooked as we [Australia] focus on the rise of other economies.” This article provides some reasons for greater appreciation.

In the security realm, Japan and Australia’s military-level collaboration progressed nicely from the Japanese Self-Defence Force’s (SDF) first UNPKO in Cambodia. Australia and Japan were the two major contributors to missions in Timor-Leste from 1999 onwards, and this naturally led to cooperation in disaster relief operations during the 2004 tsunami in and around Indonesia. Australian troops became the Japanese SDF’s security provider as Japanese forces engaged in noncombat reconstruction missions in Iraq in 2004.  These successful collaborations along with changing regional geopolitics lead to the two countries identifying each other as a good “strategic fit” for more intensive security relations.

Most notably, Australia and Japan begun ministerial-level “two-plus-two” consultations in 2007, the first outside the US-Japan alliance for Japan, and then in 2008 the two sides signed a Memorandum on Defence Cooperation in December 2008. This allowed for in depth exchanges across the full range of the Australian and Japanese armed services for the purposes of international cooperation. At the third ‘two-plus-two’ ministerial consultations in Tokyo in May 2010, Australia signed on to what would be Japan’s first Acquisition and Cross-Servicing Agreement (ACSA) with another nation other than the US. This would enable Japan and Australia to provide logistics and equipment to each other in any future operations involving their militaries. In May 2012, the two sides took the next step of signing a deal to share intelligence, with Foreign Minister Bob Carr brushing off concerns regarding China saying that “China [is] important to us economically [but this] is not a distraction from our relationship with Japan…Japan is a trusted friend.”

Australia and Japan have also undertaken bilateral military exercises focusing on interdiction as well as crucially “Under Sea Warfare.” The Commanding Officer of the HMAS Ballarat after one exercise noted that the exercises represented “excellent opportunities for the Royal Australian Navy to further hone our high-end warfare skills with Navies who share maritime interests similar to ours.” In 2013 the HMAS Sydney was embedded with the Seventh Fleet, strengthening the relationship in the context of the US alliance relationship with both countries. Both countries are also reaching out to other nations with similar maritime interests in the region, such as the Philippines and Indonesia. The two nations are putting into place the “soft” infrastructure required for future defence coordination that would enable them to quickly upgrade their relationship in the future should it be needed. This deepening of bilateral and regional defence relations was despite changes in governments in the interim period when both countries’ conservative administrations were out of power.

There has also been inter-governmental discussion on the potential for transfer to Australia of the back-end technology on which Japan’s Sōryū class submarines are based on to replace Australia’s troubled Collins-class submarines. These larger Air Independent Propulsion (AIP) diesel-electric submarines are highly regarded and appropriate for Australia’s defence, as well as for any regional role in the Southeast Asian littoral and archipelagic regions. As the Japanese government is almost certain to further loosen its arms export restrictions during 2014, this may be the perfect timing for the Abbott government to tilt a little closer to Japan to take advantage of greater defence cooperation. Any technology transfer deal that allows Australia to maintain and upgrade its submarine building capacity will be seen as a major achievement for the Australian government. The talks are ongoing, but it seems increasingly likely that the two sides will strike a deal. In this sense, the ADIZ criticism, in addition to “drawing a line in the sand” to set an important precedent (without taking sides on the decisively important issue of sovereignty), may assist the strengthening of the Australia-Japan strategic partnership at a crucial time.

The two countries also share significant amount of economic complementarities. Traditionally, Australia was a vital source of raw materials and energy for Japan and Japan was the critical provider of infrastructure, technology and high tech investments that enabled the modernisation of the Australian economy from the 1960s. Japan’s investment in Australia remains at around twice the levels of Chinese investment in terms of total FDI stock, and is still growing at an annual pace that matches Chinese investment in Australia.  In the past Japanese investment has been crucial in the development of many of Australia’s key export industries and many of Australia’s mines and gas fields now servicing overseas markets have had a Japanese hand in them. While Japan has fallen behind China in terms of exports, bilateral trade statistics do not show the wider impact of Japan’s economy on Australia given that Australian exports and other inputs are increasingly going to firms in countries where Japanese companies are prominent investors, most notably China itself. By moving from a “made-in-Japan model to a made-by-Japan model,” already 40 per cent of Japanese corporate manufacturing output takes place outside of Japan. The creation of Japanese-managed supply chains across the region has resulted in extensive trade and investment flows as semi-finished and intermediate goods move across borders. Japanese investment in Asia as well as in Australia, with its emphasis on engineering, design and value-added goods, will ensure continued benefits for Australia.

The period between 2002 and 2012, where China’s growing economy and hunger for mineral and energy resources propelled the Australian economy, was one of extraordinary strategic significance and alignment for both China and Australia. The intensity of this relationship during this period was, however, in many ways a fortuitous one deriving from “dumb luck.” China’s hunger for mineral growth, and in particular the expansionary monetary and fiscal policy pursued by the Chinese government during the global financial crisis (GFC), drove a spike in resource demand that is unlikely to be repeated. With China’s growth prospects slowing due to demographic and internal economic rebalancing, other developing nations, or developed nations making an economic comeback after the GFC, will play an increasingly important role in Australia’s economic vitality.

Clearly, China will remain an economic partner for Australia of the highest importance, and the Australian government would be wise to not go out of its way to antagonise Beijing without equal or greater benefits flowing back in return. It should not be assumed, however, that it is necessarily Australia who is the dependent party in the relationship in the post-boom era. China is arguably still dependent on Australia’s resources, especially as China runs into problems in lesser developed economies in Africa, while Australia’s options are increasing. Prime Minister Abbott, when confronted with the question of whether there would be economic fallout from his government’s remarks on the ADIZ, was therefore not necessarily being naive in arguing that he expected “China to be a strong and valuable economic partner of ours because it is in China’s interest to be a strong and valuable economic partner of ours,” and that this did not preclude Australia from speaking its mind when necessary.

Indeed, there are significant opportunities for Australia to provide its plentiful and available LNG to Japan as Japan becomes a more critical player in international energy markets post-3/11. Australia has a little less than two percent of world gas reserves, but it has the potential to become the second largest exporter when projects (some Japanese funded) currently under construction become operational, with production potentially tripling by 2020. Japan is the most likely purchaser of this new production, but it is also looking to the United States and even Russia and Africa to fill its medium-term energy gap. Australia, while an early starter, will need to remain mindful of the geopolitics of international energy markets as well as the economic aspects to benefit from these new developments.

There is also growing awareness that Australia needs to take action while its economy is still enjoying the afterglow of the resource boom to diversify both its international partners as well as rapidly increase productivity in sectors other than resources. This is where Japan plays a potentially important role. While there has been controversy and misgivings in Australia about the perceived rush of Chinese investment into country, it is important to pause and remember that Japan not only has more than double the FDI stock that China has in Australia, but that in many recent years FDI inflows have exceeded inflows from China, without so much as raising a peep. Japanese FDI is not only less politically sensitive for the Australian government compared to China, it is also more diversified beyond the resources sector. Ultimately, there appears to be some realisation among the Australian business elite community that China is still difficult for Australian corporations to deal with (whoever’s fault that may be).

Furthermore, the Australian government, perhaps optimistically, appears to believe that Abenomics will lead to the reinvigoration of the Japanese economy over the next decade. Prime Minister Abe is also one of the few prime ministers in Japan’s recent history willing to push back against domestic stakeholders in bringing to conclusion international agreements which he perceives of as having geopolitical significance for Japan. The recent rapid progress towards the conclusion of an Australian-Japan FTA is highly significant in this context. It could add up to 1.79 percent to Australian GDP on its own, and it would be one of Japan’s most important and “high quality” trade deals given the slow pace of the China-Japan-South Korea deal, and uncertainty over the EU-Japan deal and increasingly the TPP. The FTA will be Japan’s first agreement with one of its top six trading partners and its first with a major developed economy, placing Australia in an enviable position. The Australia-China FTA, on the other hand, is already in its ninth year of negotiation, and the prospects for the conclusion of a high-quality agreement in 2014 are not great.

Australia and Japan may not be allies in the narrow military sense. The governments and elites of both nations, however, are sensitive to the changing balance of power in the Indo-Pacific region, and see an eventual multipolarity as a future inevitability, and not the simple binary between China and the US that occupies far too much of the intellectual debate about the broader East Asia area.. Both are eager to bind and enmesh the great powers into a broader Indo-Pacific region, as well as their own economies and societies. The two countries share a similar multilateral impulse in terms of commitments to the United Nations and the construction of regional and global trading orders, and both are vocal advocates for global nuclear weapons non-proliferation. There is increasing awareness of the need to take advantage of Japan’s outreach to the broader Indo-Pacific region, which has been an operating concept in Japan’s foreign policy vocabulary under the label of the “expanded East Asia region” for some time. Such an outreach is critical to the stability of the broader region (compared with an isolated Japan) and also promises significant benefits for Australia if dealt with shrewdly.

In conclusion, critics of Australia-Japan closeness are correct to note that the emphasis on values between Australia and Japan that both countries’ current leaders like to emphasise is counterproductive. Not only is it unnecessary, but it strikes at the heart of what Beijing is most sensitive about, the Communist Party’s internal legitimacy. It would also certainly be wise for the Abbott administration to avoid communicating a broader commitment to providing military support to Japan in an East Sea Crisis, unless it truly means it. Nevertheless, it is ultimately not unreasonable for there to be greater recognition that Australia and Japan do share a comprehensive and genuine strategic partnership that requires occasional appreciation and reaffirmation.

Corey Wallace is a Lecturer in the Political Studies Department at the University of Auckland. He teaches courses on the international relations of the Asia-Pacific region and his research specialization is Japan’s evolving security policy.