Attracting FDI: Australian Government investment promotion in Japan, 1983-96

Abstract

The trading relationship between Australia and Japan has been traditionally based on commodity exports, and a key Australian policy goal in the past has been to encourage Japanese investment in this sector in the hope of stabilising commodity trade. A serious deterioration in Australia’s terms of trade from the beginning of the 1980s resulting from a number of events – the global recession, the restructuring of Japanese industry and changes in Japan’s relations with the United States and the European Community – showed the need to diversify exports to Japan away from a heavy reliance on commodities and raw materials towards higher value-added primary products, manufactures and services. The attraction of Japanese investment into these sectors was an important part of this strategy. Japanese manufacturing investment was distinctly lacking in the mid-1980s and the Hawke and Keating governments used various methods to inform Japanese business of investment opportunities, provided tax incentives and research and development support for transnational corporations, and created the Investment Promotion Section (IPS) within the Tokyo office of Austrade to help promote investment. This paper shows how the IPS, which was established in 1991 to attract Japanese investment in manufacturing, high technology and processing industries, proved particularly successful in facilitating investment. This was especially yes after its restructure in early 1994 when it moved away from broad educational efforts towards specific investment projects which matched potential investors with Australian firms. With a focus on areas in which Australia held comparative advantages, such as processed foods and further processing of raw materials, the effectiveness of investment promotion increased dramatically and Australian exports to Japan and the Asia Pacific region expanded considerably.