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Feature Article - Australia's merchandise trade with Japan (Mar, 1999)
Japan is still Australia's most important trading partner although over the past 10 years its relative significance, both as an export destination and as a source of Australian imports, has declined.
In each of the years from 1989 to 1998, Japan was Australia's largest trading partner. The value of Australia's total trade (exports plus imports) with Japan increased by 34% – from $23 billion in 1989 to nearly $31 billion in 1998. Japan's share of Australia's total trade, however, has decreased significantly – from 23% in 1989 to 17% in 1998. While Australia's total exports increased by 89% over the period, our exports to Japan increased by only 40%. Similarly, while our total imports increased by 87%, our imports from Japan increased by only 27%.
In each of the last 10 years, Japan was Australia's most important export destination and the second largest import supplier, after the United States of America. In 1998 Japan was the destination for 20% of our exports and supplied 14% of our imports (see Graphs 2 and 3).
From Japan's perspective, Australia is significantly less important as a trading partner for both merchandise exports and merchandise imports. In the year ending June 1998, Australia was the destination for only 2% of Japan's exports and the source of 4% of Japan's imports – a small decrease over the corresponding percentages for 1989 of 3% and 5% respectively1.
AUSTRALIA'S BALANCE OF TRADE WITH JAPAN
Australia has recorded merchandise trade surpluses with Japan in each of the last 10 years. The surplus with Japan grew from $2 billion in 1989 to $6 billion in 1991 before declining to just under $4 billion in 1993. From 1994, the surplus steadily increased once again, exceeding $5 billion in 1997 before falling back 24% to a $4 billion surplus in 1998, due largely to increasing imports of passenger motor vehicles from Japan.
As a proportion of the value of total merchandise trade (exports plus imports) between Australia and Japan, the trade surplus with Japan increased from 8% in 1989 to peak at almost 26% in 1991. The surplus subsequently showed a steady decline to a little under 14% in 1993 and 1994, before steadily increasing once again to 21% in 1996. By 1998, however, the surplus had fallen to just 13% (see Graph 5).
The continuing trade surplus with Japan contrasts with Australia's persistent trade deficit with the rest of the world which grew 79% from a little under $7 billion in 1989 to $12 billion in 1998. Continuing trade deficits with the United States of America and the European Union have been only partly offset by surpluses with Japan as well as with the Republic of Korea (see Graph 6).
In the March quarter 1999, Australia's merchandise trade surplus with Japan was $600 million, a significant decline from the surplus of $1,155 million recorded for the corresponding quarter in 1998. The fall in the surplus since the December quarter 1998 is a result of a significant decline in Australia's total merchandise exports to Japan (mainly wool and coal). Between the March quarters 1998 and 1999, exports to Japan declined 8% – from $4,206 million to $3,879 million, while imports from Japan increased by 7% – from $3,052 million to $3,279 million (see Graph 7).
More details on the latest 3 months trading with Japan can be obtained by contacting any of the ABS offices shown on the back of this publication.
COMMODITY ANALYSIS OF TRADE WITH JAPAN
Tables D and E show Australia's trade flows with Japan for the two years 1989 and 1998 for major selected commodities, the share of total trade with Japan represented by each commodity in 1989 and 1998, and the proportion of Australia's world wide trade in each of the major commodities traded with Japan.
Some of the data in Tables D and E are affected by confidentiality restrictions. In making comparisons at the commodity level it should be noted that, in Australia's international trade statistics, confidential commodity data are not reported against the commodity, but rather are classified to SITC 98 – combined confidential items of trade. While confidentiality restrictions do not affect total import and export statistics, they do affect data comparability at the commodity level. In particular, it should be noted that Australia's export commodity statistics with Japan are significantly affected by confidentiality restrictions.
Over the 10 years to 1998, Australia exported mainly primary products to Japan. Mineral fuels and lubricants (SITC 3) was the largest group of commodities by value exported from Australia to Japan from 1989 to 1998, accounting for nearly a third of Australia's exports to Japan over the decade. In 1998, exports of mineral fuels and lubricants accounted for $5 billion (28%) of Australia's total exports to Japan – up 56% on the $3 billion (25%) in 1989, but down on the 35% share achieved in the early 1990's.
The main item exported under SITC 3 is coal (SITC 321). In 1998 exports of coal were valued at $4 billion, representing 24% of Australia's total exports to Japan in that year. Japan is Australia's most important coal export destination, accounting for 42% of Australia's world wide coal exports in 1998, down from 55% in 1989.
Australia's coal exports to Japan rose from 1989 to 1993 but fell 15% in 1994 due to falling demand and consequent falling contract prices. From 1995 onwards, base contract prices rose resulting in a recovery in the value of Australian coal exports to Japan2 (see Graph 8). It should be noted that some coal exports were subject to confidentiality restrictions during 1995, so the graph understates the value of coal exports to Japan in that year. Australia remained Japan's largest source of coal imports in volume terms over the 10 year period; imports from Australia accounted for 56% of Japan's total coal imports in 1998, up from 52% in 19893.
Since exports of liquefied natural gas (SITC 343) from the North West Shelf began in 1989, gas has also been a substantial export to Japan within the mineral fuels and lubricants group. Between 1989 and 1994, exports of natural gas increased 813% – from $112 million to $1,023 million (see Graph 9). By 1994, Japan was by far our most important market with natural gas exports representing 6% of our total exports to Japan. Since August 1995, Australia's gas exports have been subject to confidentiality restrictions and are now included in SITC 98 – combined confidential items of trade.
Another important export to Japan within SITC 3 is crude petroleum oil (SITC 333) with exports rising more than twenty fold from $35 million in 1989 to $715 million in 1992 (representing 5% of Australia's total exports to Japan). From 1993 onwards, export values declined due to falling world prices and declining Japanese demand. By 1998 crude petroleum exports were down to $336 million, representing only 2% of our total exports to Japan. Japan's importance as a destination for our crude petroleum exports has varied over the decade – in 1989 it was the destination for 5% of our crude petroleum exports; this grew to 40% in 1992 and then fell to 19% by 1998.
The second major category of Australian exports to Japan is commodities classified as crude materials (SITC 2). Some confidential commodities (principally nickel mattes and mineral sands) which would otherwise be classified to SITC 2, are included in commodities and transactions not classified elsewhere (SITC 9).
The most important components of crude material exports to Japan are iron ore (SITC 281) and copper ore (SITC 283), which together accounted for 12% of Australia's total exports to Japan in 1998. Exports of iron ore to Japan grew from $1,122 million in 1989 to $1,789 million in 1998 (see Graph 11). Exports of copper ores also increased over the 10 year period, from $142 million in 1989 to $381 million in 1998.
Japan is Australia's principal market for both iron and copper ores. Australian exports of iron ore to Japan accounted for 45% of our world wide exports of these goods in 1998 – down from 54% in 1989, while exports of copper ore to Japan accounted for 39% of our world wide copper ore exports – down from 81% in 1989.
Fluctuations in the value of iron ore exports to Japan over the 10 year period (see Graph 11) were caused by changing contract prices, reflecting changes in overall global supply and demand and increasing competition for market share, particularly from Brazil. However, Australia remained Japan's largest import source, accounting in volume terms for 51% of its world wide iron ore imports in 1998 – up from 44% in 19893.
Between 1989 and 1998, Australian exports of wool (SITC 268) to Japan declined dramatically in value. In 1989, exports of Australian wool to Japan were worth $1,004 million and accounted for 8% of our total exports to Japan and 20% of our world wide exports of wool. By 1998, Australian exports of wool to Japan were worth just $193 million, a decline of 81% over the ten year period (see Graph 12). Australian wool exports to Japan in 1998 represented only 1% of our total exports to Japan and just 7% of our world wide wool exports.
The fall in the value of wool exports to Japan was caused by a combination of factors including, high stocks of semi-processed wool, substitution of cotton and synthetic fibres for wool, falling world export prices and a decline in Australian wool production due to a drought in 19952 Despite the sharp fall in the value of wool exports over the 10 year period, Australia remained Japan's largest import source, in volume terms accounting for 79% of Japan's total wool imports in 1997-984 .
Over the period 1989 to 1998, Japan has consistently taken virtually all of Australia's exports of woodchips (SITC 246). In 1998, exports of woodchips to Japan were worth $609 million – up 61% on the 1989 figure of $378 million. In 1998, woodchip exports to Japan represented 3% of our total exports to Japan and 97% of our global woodchip exports.
Food and live animals (SITC 0) was the third largest group of commodities exported to Japan. The major export within this group is beef, fresh, chilled or frozen (SITC 011). Australia's beef exports to Japan almost doubled, from $773 million in 1989 to $1,341 million in 1998. In 1989 Japan's share of Australia's beef exports was 37%. Between 1992 and 1995, however, Japan's market share rose steeply and from 1993 onwards, Japan overtook the United States of America as Australia's largest export destination, taking 47% of Australia's beef exports in 1998 (see Graph 13).
The sharp rise in beef exports to Japan up until 1994 reflected the combined effect of increasing consumer demand, gradual tariff reductions and the continued strength of the yen. The downturn in exports in 1995 and 1996 was due, in large measure, to an appreciating Australian dollar and growing competition from the United States of America. Between 1996 and 1998, the value of beef exports to Japan rose once again due to slightly lower Japanese domestic production, a favourable exchange rate and higher US beef prices2 (see Graph 14).
Exports to Japan of manufactures classified by material (SITC 6) are also substantial, accounting for 9% of Australia's exports to Japan in 1998. The major commodity within this group is aluminium (SITC 684) with Japan being Australia's principal market.
In 1989, exports of aluminium to Japan were worth $1,405 million, representing 11% of Australia's total exports to Japan and 55% of Australia's world wide exports of aluminium. By 1998 exports of aluminium to Japan were 11% lower on $1,251 million, representing just 7% of Australia's total exports to Japan in that year and 37% of Australia's world wide exports of aluminium (see Graph 15).
A significant decline in the value of aluminium exports to Japan from 1989 to 1992 was caused by a decrease in the world aluminium price, reduced Japanese demand, and strong competition from the United States of America, Brazil and the USSR. Despite the overall fall in the value of exports to Japan over the 10 year period, from Japan's perspective, Australia remained one of its major import sources. In volume terms, Australia supplied 24% of Japan's aluminium imports in both 1989 and 1998, although in the intervening years Australia's share was generally 15% to 17%4 .
Exports of non-monetary gold (SITC 97) to Japan doubled between 1989 and 1994 – from $686 million to $1,372 million. In 1994, exports of non-monetary gold accounted for 9% of Australia's total exports to Japan and 29% of our world wide exports of non-monetary gold. However, between 1995 and 1998, the value of Australia's non-monetary gold exports to Japan declined by 71%, to $394 million, representing just 2% of our total exports to Japan in 1998 and 5% of our world wide exports of non-monetary gold (see Graph 16).
By far the largest group of commodities by value imported by Australia from Japan is machinery and transport equipment (SITC 7). Imports of these goods accounted for 78% of Australia's total imports from Japan in 1998. Japan was the source for 23% of Australia's total imports of machinery and transport equipment in 1998. The largest single component of this commodity group is road vehicles (SITC 78).
Over the last 10 years there has been a dramatic rise in the relative importance of road vehicle imports from Japan. In 1998 imports were $6,361 million, representing 48% of total Australian imports from Japan, up 75% on the 1989 level of $3,638 million (or 30% of imports from Japan) (see Graph 17). Japan continues to be the major source of Australia's road vehicle imports, although its relative importance has declined in recent years, falling to 54% in 1998 after peaking at 74% in 1991.
Within the road vehicle group, imports of passenger motor vehicles (SITC 781) are the most significant single component. In 1998, passenger motor vehicle imports were worth $3,573 million, nearly double the 1989 level of $1,806 million. In 1998, imports of these goods accounted for 27% of Australia's total imports from Japan and 55% of our total imports of passenger motor vehicles. In contrast, imports of motor vehicles for transporting goods (SITC 782) have remained fairly steady over the 10 year period; in 1998 imports of these goods were worth $1,591 million, accounting for 12% of Australia's total imports from Japan and 72% of Australia's world wide imports of these goods.
Australia's imports of motor vehicle parts and accessories (SITC 784) from Japan have increased by 82% over the last decade, from $485 million in 1989 to $881 million in 1998 (see Graph 17). Japan has remained Australia's dominant supplier over the 10 year period, accounting in 1998 for 42% of our total imports of motor vehicle parts and accessories.
Imports of automatic data processing machines (SITC 752) from Japan rose by 52% over the 10 year period, from $401 million in 1989 to $609 million in 1998 (see Graph 18). Imports of these goods from Japan accounted for 4% of our total Japanese imports in 1989 compared with 5% in 1998. However, as a source of Australia's world wide imports of automatic data processing machines, Japan's share fell from 20% in 1989 to 14% in 1998.
In the last 10 years, imports of computer parts and accessories (SITC 759) from Japan have fallen in both value terms and as a percentage of Australia's total imports of computer parts. In 1989, imports of Japanese computer parts were worth $350 million and Japan's market share of Australian imports was 31%; by 1993, imports of computer parts had risen to $455 million but subsequently suffered a significant decline to just $257 million in 1997. In 1998, imports of computer parts and accessories rose slightly, to $285 million (see Graph 18), but Japan's world wide market share of Australia's imports has fallen to 12% due to increasing competition from Singapore, Taiwan and the United States of America.
In 1998, imports of general industrial machinery and equipment (SITC 74) were worth $769 million and accounted for 6% of Australia's total imports from Japan in that year. Heating and cooling equipment (SITC 741), pumps for gas (SITC 743) and mechanical handling equipment (SITC 744) were the major items imported; imports were valued at $159 million, $194 million and $167 million respectively (see Graph 19). Australia's imports from Japan in 1998 of general industrial machinery and equipment accounted for 13% of Australia's world wide imports of these goods.
Imports of telecommunications and sound recording and reproducing apparatus (SITC 76) are also significant contributors to the value of Australian imports from Japan. In 1998, imports of these goods were valued at $655 million, down from $806 million in 1989 (see Graph 20). In 1998, Australia's imports from Japan accounted for 16% of Australia's world wide imports of these goods compared with 43% in 1989.
Imports of manufactured goods classified by material (SITC 6) from Japan in 1998 were valued at $1,213 million and accounted for 9% of Australia's total imports from Japan in that year; Japan was the source for 9% of Australia's imports of these goods.
The statistics in this article have been sourced from ABS publications and other data as footnoted. Clients interested in obtaining more details about Australia's trade with Japan or about other aspects of Australia's international merchandise trade can contact ABS Client Services on (02) 6252 5400.
1 Source: IMF Direction of Trade Statistics, December 1998.
2 Source: ABARE, Australian Commodities Forecasts and Issues, various issues
3 Source: ABARE, Minerals, Energy and Resources Branch.
4 Source: ABARE, unpublished data.
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