Australian Embassy

Ambassador Hayhurst’s interview with the Nikkei/Nikkei Asia

Australian Ambassador interview with Nikkei Shimbun (Ms Imahashi Ruruka)

17 June 2024

Interviewer: I would like to start with a contemporary topic. Today, the Chinese Premier is visiting Australia, so that is a timely topic. Australia is stabilising its relationship with China, and we may see the remaining trade sanctions lifted finally, after about four years. How would you envisage the relationship with China beyond stabilisation from now on?

Ambassador: Well, I think the Government has been very clear about its view on China – to cooperate where we can, disagree where we must and act in the national interest. I'm a little reluctant to speak about the relationship on the very day when our Prime Minister will be discussing it in Canberra. But like all countries, Australia needs to think about in a comprehensive way, all of its interests that are engaged with China. And the Government has to be very careful and very deliberate about its engagement and very clear about our security interests, but also the need to work with China on many issues. Some of them are trade issues, and some of them are international issues, like climate change. So, it's an important visit and it's still underway. So, I'm sure there will be lots more analysis and commentary from Australia, but my focus is on Australia-Japan.

Interviewer: Of course. A couple of follow up questions on the China-Australia relationship, if I may. Once all trade sanctions are lifted, do you think China will meet the high standards of the CPTPP and do you foresee, for example, a working group to discuss aspirant economies, given Australia is slated to be chair of the CPTPP next year. What is your take on that?

Ambassador: Australia is going to be the chair of the CPTPP next year. There are agreed principles between CPTPP members about how to consider new, aspirant economies. They relate to a demonstrated need to meet the standards, a track record of compliance with trade agreements, plus the requirement for consensus among all members.

I don't know, based in Tokyo, what the process will be for the CPTPP going forward. What I do know is that those standards will be considered very thoroughly and carefully, and that Australia and Japan will continue to work closely together on that issue. But I'm not really in a position to offer any comment about whether this visit makes any material difference to any individual accession application. So, we have the principles, we have the other countries, we’ll work on those issues together very carefully.

Interviewer: I would like to touch upon the topic of the Future Made in Australia policy. Australia aims to grow renewable energy and strengthen economic security under this policy. How will Australia create a competitive manufacturing sector while overcoming some difficulties, such as higher wages and distance to overseas markets? What sort of investments from Japan would Australia like to see?

Ambassador: Thank you. I read your article about this in the Nikkei recently. I think at the heart of the Future Made in Australia, a suite of policies, it's all about a net zero economy. How does Australia become a competitive net zero economy? And how do we partner with others in the shared task of reaching net zero?

Australia and Japan have very clear, very ambitious, very similar climate targets. Now, the source of competitive advantage changes in a net zero scenario. Australia's policies are about harnessing some of the world's best renewable energy resources. The International Energy Agency says Australia has nearly 340% production capacity. That is to say, 340% of our energy requirements can be met from Australia itself.

So, we have a huge surplus, and that surplus can be channelled in all sorts of ways. It can be channelled into production, for example, of clean fuels, synthetic fuels and the production of hydrogen and ammonia. Also in green metals, whether it's green steel or green alumina.

Like in every manufacturing or processing economy, there are a range of cost factors that go into it. You mentioned wages. Australia is proud to be a high-wage economy and a high-skilled economy, but we'll also be a net-zero economy, where green premiums, and the advantage of harnessing these vast renewable energy resources, will be open to partners and investment. Australia wants to attract that sort of investment.

As you know, on hydrogen, we're doubling the Hydrogen Headstart Program to $4 billion. That's to support early movers in this sector. There are some Japanese companies involved in the shortlisted projects. We're also introducing a tax production incentive of $2 per kilo for renewable hydrogen. It's a very attractive policy for a company to make investments in Australia. So, I think the issue is that this is not old industrial policy. This is not about manufacturing for the old economy. This is about processing, enabling the energy transition, and net zero economy and manufacturing.

We'll need partners for this, and Japan looms very large as a partner. We have an energy surplus. Japan has an energy deficit. You have a tremendous track record of investing successfully in Australia. We are trusted strategic partners. There's a lot to play for and one of my jobs at the moment is to go around, in Tokyo and other parts of Japan, talking about this big opportunity that comes from the Future Made in Australia, a suite of policies.

Interviewer: Indeed, $2 per kilo for hydrogen as an incentive is very large. I've met some Japanese banking companies and they are extremely grateful for this initiative. What kind of conversation have you had with potential Japanese investors in this sector?

Ambassador: Well, these policies are not very old, so we're still in the process of talking. I'm giving a speech tonight to more than 100 business executives focused on these policies. Tomorrow, the embassy is hosting a workshop with 120 Japanese companies about critical minerals and elements of the Future Made in Australia strategy. Here again, there are production incentives for processing. There's more money for mapping of Australia's critical minerals deposits.

There is billions of dollars’ worth of production incentives as well. Part of what we're doing is awareness raising. Part of what we're doing is connecting Australian experts to Japanese investors, so they understand the policy detail. The initial reaction is positive. You cited an example which is very encouraging, but I think there's a lot happening in Japan as well on green transformation, or GX.

We have still got some work to do to explain to Japanese investors how to take advantage of the opportunities, but they can clearly recognise this is a very serious, strategic policy shift by the Australian Government, including to position Australia as a competitive partner in the energy transition. I think not just today, not just tomorrow, but for the next few weeks and months, this is going to be our main conversation here in Japan.

Interviewer: On hydrogen – South Korea is also an active player in the field. How can Japanese companies compete with their potential rivals in investing in this sector, such as Korean companies, who are also shortlisted in the Hydrogen Headstart?

Ambassador: Well, I think Japanese companies are already very successful in the Australian market. So are South Korean companies. Those project-by-project decisions are based on commercial considerations and regulatory processes.

It's quite hard in the energy transition for all countries, because there is still some uncertainty about the technology. Sometimes cleaner forms of energy production are more expensive than traditional ones, so there's some risk. What the Australian government is trying to do is offset some of that risk with production incentives. It's really up to our partners or the companies, wherever they are in the world, to make their decisions. But what I would say, given we are already seeing so much successful Japanese investment in so many sectors, is that there's a big opportunity here, and we have the welcome mat out for Japanese investors.

Interviewer: You mentioned earlier about the critical minerals segment. The Australian Government recently announced its plan to renew the foreign investment framework. How will this affect Japanese businesses? Will it be more difficult for them to invest in the high-risk critical minerals sector? How can Japanese enterprises interpret these framework changes.

Ambassador: The foreign investment approval changes will make foreign investment approvals quicker, more predictable and more transparent. It will facilitate and enable trusted investors into Australia. We live in a world where economic and security interests converge. Japan is a close, trusted, special strategic partner of Australia.

These changes are going to facilitate and enable Japanese investment. That's the intention. That's my clear message. Now it'll be up to commercial entities both in Australia and Japan to make the transactions happen. I would say, at the moment, with so much Japanese investment in Australia, in so many sectors, that while there are some compliance processes, it's actually a very successful, very well established, very mutually beneficial investment relationship.

This process is designed to streamline investments into these strategic sectors, like critical minerals. And so, I can reassure investors that this is a very good story for Japan and for Australia.

Interviewer: On the other hand, there are some people saying maybe it would raise hurdles for some Chinese investors. Recently we saw some divestment decisions for a China-linked company from their related Australian entity. So, my question is can we interpret it that way? Also, even if Chinese investment is more difficult in the future in the critical minerals sector, they have high-level technology and skills. They are operating in Indonesia, for example, and boosting the production of nickel there. So, can we keep developing these critical minerals in Australia without their investment and technology?

Ambassador: I don't want to pre-empt future investment approval decisions by the Australian Treasurer. We have a national interest framework that examines major, significant proposed foreign investments. Australia has a strong national interest in developing its critical mineral wealth and processing that wealth for input into secure and diversified global supply chains to support a global transition to net zero.

That's our interest and that will be at least part of the background against which individual transactions are approved. I know, reading newspapers in Australia, that there are lots of questions about this issue as it pertains to China. The Government has been very clear that there will be processes followed. I think the message in Japan for Japanese firms is that the changes made to foreign investment will facilitate and support and enable strong Japanese investment in these sectors. But we need not just Japan and Australia, but all countries, and probably some diversified, secure supply chains so they're not overly reliant on one country.

It's just whether it's a strategic risk or just a risk to do with economic disruption when you have overconcentration. We know we need to move ahead, for example, in the battery industry, to make sure that the production processes genuinely support net zero, that there are a range of suppliers and that the market has integrity and transparency. Australia wants to be a part of that process, and with Japan, we can make it happen. Again, we are trying to position Australia to be a key part of that global supply chain.

Interviewer: One huge example is Solar Sunshot and the domestic production of solar panels. But at the same time, we have growing concern of Chinese overcapacity and dumping of some products. In creating its own manufacturing sector, especially renewable energy related products, is this also a concern for Australia?

Ambassador: I think the Government's policies on the Solar Sunshot are designed to make Australian supply chains more resilient. There are already Australian producers – this is not creating something out of nothing. This whole conversation, in the end, revolves around the renewable energy production capacity of Australia. Having some redundancy and using Australian expertise in production makes sense. I don't think the intention is for Australian production of solar panels to account for 100% of the market. It's a way of Australia positioning itself for a future in which solar and renewable energy will become more important. It's just one of a suite of important policy measures.

Interviewer: Now I would like to talk about gas strategy. Australia recently published its Future Gas Strategy and said that new sources of gas supply are needed. We remember last year that some Japanese companies were critical about Australia's gas policy. I wonder how has the dialogue since then evolved, and how will this strategy help foreign investors to keep investing in gas projects?

Ambassador: The Future Gas Strategy is a very important document. It's agreed by the Cabinet in Australia and was produced by all government agencies in the government system. It's based on a lot of data. It's a very strong and clear recognition that gas will play a role in the energy transition and the future energy mix for our partners, and that energy security of our partners is important.

It also shows that some gas will be required in Australia in the future, and new production will be required to bring that supply into the market. So, it's an important document. It's a very clear policy statement. It's been very well received in Japan. Since it was announced, there have been no announcements of new decisions or contracts, but those have all been signed. There are many new arrangements and investments being announced in advance. I think, already, it’s very clear that while companies, from time to time, have issues – and you mentioned that some concerns were expressed last year.

The fact is, in that period, both then and since, there have been major new Japanese investments and financing of investments in LNG production in Australia. So, clearly, it's a long-term proposition for Japanese investors and it's a long-term proposition for the suppliers based in Australia. What the gas strategy tells us is that Japan and Australia, in that domain, as well as the new net zero domains, are going to have a lot of trade and a lot of investment. And our partnership in energy security is going to remain very strong into the future. Japanese companies, at least in the discussions I have had, have reacted very positively to that strategy specifically.

Interviewer: That is good to know. JBIC this year made a large investment loan decision to Woodside. It's a very surprising announcement in Australia. As you say, we continue to see some investment decisions from Japanese companies into the gas sector in Australia. So, I think it's a very fair assessment of the state of play in Australia.

Ambassador: Yes. Australia is absolutely committed to net zero. So, the future supply of gas will have to be consistent with that objective. But, in a world of turbulence and disruption – for example with Russia's aggression against Ukraine – there are some sources of LNG that are difficult to rely on strategically. But you can rely on Australia. We are a stable country, and we have a long history of partnership with Japan.

Interviewer: How was this strategy accepted domestically by the Australian people, given that Australia is aiming for renewable energy to account for more than 80% by 2030? I wonder if there could be some backlash. How has this policy been accepted in Australia?

Ambassador: I'm based in Tokyo. I think you're based in Sydney, right? So, you might have a better handle on it. I think there's obviously been very lively and vigorous debate about the strategy. I think that's fair to say – as there is about climate and energy policy in general in Australia. But the point about the strategy is that it articulates government policy direction consistent with the broader energy transition in Australia.

Even as we move towards net zero by 2050, what the strategy says is that there will be a role for gas, including, for example, to ensure firming capacity and reliability of the electricity network in Australia. The other thing about Australia on these policies is that we are relevant to energy transition efforts more broadly in Asia. We've been talking before about how harnessing the surplus of energy produced in Australia, including through renewable power, how that's relevant to the Australia-Japan economic partnership.

The gas strategy is partly also about energy security and not just about Japan, but also other economies, South Korea and Taiwan, for example. So, I think there's a lot of debate, but this strategy is based on data, and it's designed to make sure that the Australian economy has the energy it needs to ensure the prosperity of the Australian people. That will mean a role for gas, but not a preponderant role. It's a subordinate and subsidiary, but essential, role. While the bulk of electricity, according to the government's plan, will be produced by renewable resources.

So, the strategy is consistent with the renewable energy target. The strategy is long-term and is focused both on supply to Australia but also supply to other economies going through their own energy transitions.

Interviewer: One key area of Australia-Japan cooperation in recent years is the defence sector. In April, we heard an announcement that Japan is considering participating in AUKUS Pillar Two projects. In what areas are AUKUS Pillar Two members hoping to have input from Japan and what can we offer to AUKUS members, in your view?

Ambassador: I think you're absolutely right that the defence partnership is growing and very important. In fact, there's tremendous momentum behind our defence engagement with Japan. This includes direct engagement between the armed services, but also in defence industry and defence science.

So, the AUKUS Pillar Two process is very important. As you know, it's about high-end defence technology. It's about bringing together the production bases and technical expertise of Australia, the United Kingdom and the United States. Right from the beginning, those governments have made clear that on specific projects they are open to collaborating with other countries.

As you said, recently we announced that we’re open to consideration of that type of cooperation with Japan, with Japan specifically identified. It’s the first country so identified. What specifically, that is a matter that the governments will discuss. As Australia's Deputy Prime Minister and Minister for Defence Richard Marles has said is that Japan is a close partner of each AUKUS member and getting closer. The Japan-US alliance is very strong.

The Australia defence partnership is very strong, with an RAA, a reciprocal access agreement - the only other country with one is the United Kingdom. So, there's a strong and growing connection there. That's very important.

The second is that Japan is a high technology country with valuable expertise. The discussion between the governments is about how to try to align those things. Now, I can't share with you at this stage details about what specific projects or what specific defence-related technologies might be worked on, but the governments have clearly recognised the potential. It's not the only avenue that Australia is looking to engage Japan in on defence technology. There's a lot of work happening bilaterally as well.

Interviewer: For example?

Ambassador: For example, Mitsubishi Electric – you probably have known this from your time in Australia – has a facility in Australia looking at defence industry opportunities. We have some engagement and there's potential for a great deal more. Japan is going through a defence transformation. So is Australia. We're often looking at similar defence equipment, or defence technologies.

We have very aligned strategic views and now we have a great deal of engagement and communication between Defence Forces. It's very logical, therefore, that in the coming years there will be more cooperation between defence industries. This is another priority for me. We know this will take some time because, as you know better than I do, there are some restrictions in Japan on defence exports and this kind of engagement. But the potential is very clearly there.

Interviewer: One thing we are very interested in with Australia is Australia's new naval ships and which company are going to supply them. A Japanese company is one candidate. But there are some difficulties for Japanese companies, as you mentioned.

We have had restrictive policies on exporting defence equipment in the past. So, we don't have a notable track record of selling equipment overseas. Other countries may prioritise a track record of selling such equipment. How can Japanese companies compete and overcome these handicaps and appeal to overseas markets?

Ambassador: So, you're referring to the tender process for frigates for the Australian Navy. I just want to be very explicit that there is a Defence-led independent process to look at that tender, and that will run its course. The Ambassador of Australia to Japan doesn't get to have a vote. I don't have any input.

What I would say, for context, is that that process is really about the production, the co-production of, defence capability in Australia. In the beginning, there's some export, but really, it's a co-production process. There are criteria against which the various exporters, including those from Japan, will be assessed. And it's in that context that this is about, if you look at the publicly available information, it is about the acquisition of some capability leading to the production of that capability in Australia.

I don't know whether Japan's restrictions inhibit that or not, but that's a matter for Japan to work out. At the moment, Japan is in the process - it's very clearly committed. We strongly welcome that interest. Then the process will run according to the rules of the tender process.

Interviewer: As for defence equipment overall, how can Japanese companies compete.

Ambassador: I don't really have an answer to how individual Japanese companies can compete, but the strategic play for Japan and its partners is to integrate our defence industries and our defence science and technology capability development. Individually, we're all quite good, but we're of limited scale. The more that Australia and Japan can work together, the more we can work together with America, the more we can work together with other trusted capability partners, we will achieve the scale required for effective deterrence and the capability and technological level required to maintain a technological edge.

How an individual country can play into that will involve, no doubt, some complicated issues. In Japan there's a very particular history and it's a matter for the Japanese system and government and political parties to work through. But, without the capability to work together with partners, we're all going to be very constrained in what we can do. So, integration and partnership are the names of the games when it comes to defence industry. There's a big opportunity there for Australia and Japan.

Interviewer: Lastly, I would like to touch upon the Pacific region. In the region, China is actively seeking more security arrangements and policy agreements. Some say China is even exporting its governance model in the region. This year, Tokyo is slated to host the PALM10 Summit in Tokyo. As the largest donor and also a traditional partner to that region, how can Australia, together with Japan, collaborate to secure, for example, democracy and our shared values in the region.

Ambassador: Well, the PALM10 meeting is very important and it's a Japan-led process with a long history. Japan has long been a very effective and valuable partner in the Pacific. This is the 10th PALM meeting. It really does have a long history. Australia and Japan work well together on this issue, like we do on so many. The key issue for Australia is that we, as Australia, support Pacific priorities and the Pacific 2050 vision. We are a responsible member of the Pacific Islands Forum that helps deliver those priorities – a regional vision of Pacific countries and their leadership.

We can see that the government of Japan, in preparing for the PALM meeting – including through the February meeting in Fiji of PALM Foreign Ministers – that Japan is very much about framing the meeting and the discussions and its assistance in terms of that 2050 agenda. So, how do we operate effectively in the Pacific? By supporting Pacific priorities. That's the way to be effective partners. That's what we want to do and all partners, all members of the Pacific Islands Forum. I think, and the Australian Government thinks, that this PALM meeting is a very important one, and we look forward to supporting it in any appropriate way.

We continue, ourselves as the Australian Government, to engage very extensively in the Pacific. There's so many visits happening at the moment, including a very large ministerial delegation traveling for discussions in Papua New Guinea, for example. So, this is a top foreign policy priority for Australia and because our partnership with Japan is so close, it is naturally something on which we seek to work closely with Japan in support of Pacific priorities.

Interviewer: Yes, Australia was very quick to provide aid for Papua New Guinea to respond to the mudslides.

Ambassador: Yes. It was such a shocking, terrible tragedy. Australia did respond, but so did Japan. And we hope that those affected communities can recover. And that's the sort of partner we have to be – one that's ready to act and very responsive and quick to move, but also quick to work with others. We thank Japan for its involvement in that, as well.

Interviewer: Thank you very much, Ambassador. Thank you for the fruitful conversation.