Australia and Japan: A New Economic [and Legal!] Partnership in Asia

Emeritus Professor Peter Drysdale recently presented in Sydney a preview of his now-published consultancy report for Austrade, which urges (p3):
“a paradigm shift in thinking about Australia’s relationship with the Japanese economy. The Japanese market is no longer confined to Japan itself. It is a huge international market generated by the activities of Japanese business and investors, especially via production networks in Asia. It is a market enhanced by the economic cooperation programs of the Japanese government throughout the developing world, particularly in the Asian and Pacific region. And it is a market in which Japanese business now plays an increasingly important role from an Australian base in manufacturing, agriculture and services.”
The Australian Financial Review now confirms that Japan has led China and other Asian investors into Australia over the last year (“What Crisis? Asian Investors rush to our shores”, 24 September 2009). But many probably remain unaware of these facts highlighted by Drysdale’s report (pp 3-4):
“The stock of Japanese investment in Asia amounted to A$ 180 billion out of Japan’s global investment of A$ 772 billion at end-2008. The flow of export and import trade which Japanese business generates in Asia each year was US$ 690 billion in 2008. Procurements through Japanese corporate subsidiaries in Asia amount to A$ 1.2 trillion annually. In addition, Japan spent A$ 11 billion (901 billion yen) in Asia on Overseas Development Assistance programs and procurement through economic cooperation programs. Japanese business has now also established a platform for export to the region from Australia, with diversified investments across food, manufacturing as well as resources, that already delivers A$ 6 billion in Australian sales to Asian markets other than Japan. These are all large new elements in the economic relationship with Japan beyond the A$ 51 billion export trade and A$ 20 billion import trade that Australia already does each year with Japan itself.”
These pervasive economic ties are underpinned by very wide-ranging and stable relations between Australia and Japan at all sorts of levels: governmental, judicial, educational, working holidays, and so on. As pointed out in another recent report “Australia and Japan: Beyond the Mainstream”, by Manuel Panagiotopolous and Andrew Cornell for the Australia Japan Foundation, the GFC has led policy-makers as well as businesspeople to look again more favourably on relationships that combine lower risk with less return, compared to high risk/return ventures.
We can take advantage of these strong and still very profitable Australia-Japan bilateral relationships, as well as the investment and trading links each country (especially Japan) has developed in other parts of Asia particularly since the 1990s, by more actively joining Australian and Japanese partners for ventures throughout Asia. This spreads the risks typically associated with the possibility of higher returns, and also allows each partner to contribute goods or services in which that country has more of a comparative advantage. Thus, for example, Drysdale suggests (p25):
“partnership with Australian services firms in finance, legal services and engineering could be mutual productive. … In FTA talks with Japan the Rudd Government is trying to open the way for professional and financial services firms to set up in Japan, encouraging wider recognition of qualifications and the removal of barriers to obtaining licences in Japan”.
As an example of “legal and consultancy services”, Drysdale mentions that several Australian law firms have long experience in the Asian region, and gives the example of Mallesons Japan. But he concludes that “if we are serious about joining global supply chains and capturing service industry opportunities in Asia then Australian firms need to be there on the ground to capture the business”.

Unfortunately, unlike the major US and European law firms, neither Mallesons Japan nor any other Australian law firm has yet taken sufficient advantage of the now fully-liberalised and growing market for international legal services in Tokyo (described in a recent lecture by IBA Vice-President and ANJeL Advisor, Mr Akira Kawamura). A major opportunity opened up especially when full profit-sharing partnerships between Japanese and international lawyers were permitted from 2004, and many young Australian law graduates are now directly joining the Tokyo offices of US or UK law firms rather than going first through their head offices. If Australian law firms could also establish offices in Tokyo, they too would not only access burgeoning markets there, but also be better placed to pursue opportunities in other parts of Asia. For example, they could use their home client base to help link up Australian firms with firms in Japan interested in joint ventures in Asia. And the Tokyo office could liaise, for example, with an office say in Shanghai when its Australian client found itself dealing with a joint venture in China that in fact involves significant Japanese interests.
Educational services is another area where Australia has significant expertise as well as demonstrated export market potential, and this extends to legal education. For example, through the Australian Network for Japanese Law Sydney Law School partners primarily with Ritsumeikan Law School to offer intensive Kyoto and Tokyo Seminars comparing Japanese law. These are offered not only to Australian and Japanese students, but also to students travelling from other parts of Asia (especially Hong Kong and Singapore). Through its 400-strong membership, ANJeL coordinates lecturers comprising professors and practitioners from Australia and all around Japan, not limited to those at or already known to Ritsumeikan.
As another recent example, the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS) worked with our Research Institute for the Asia Pacific (RIAP) to bid for a United Nations “legal technical assistance” project to support a South-East Asian government interested in implementing judicial sector reform. The government was particularly interested in comparing Japan, China, Indonesia (for all three of which CAPLUS has particular expertise), Korea (where CAPLUS has close contacts) and Russia. Again in conjunction with ANJeL, we were able to bring in some Japanese partners to assist with the criminal justice aspects of the report on Japan. Those Japanese partners alone, again, would have been unlikely to have attempted such a project. Combining Australian with Japanese expertise therefore opens up another possibility for exporting legal education services to another part of Asia.
In sum, developments are already occurring in some law-related fields that illustrate Drysdale’s thesis very well. But there is certainly scope for doing much more, for example through more direct engagement with the legal services market in Tokyo on the part of Australia’s law firms. The key now is to think regionally (and globally), not just bilaterally.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.

3 thoughts on “Australia and Japan: A New Economic [and Legal!] Partnership in Asia”

  1. An Australian law firm has now announced it will venture into the burgeoning legal services market in Tokyo: see “Blake Dawson first to open Japan office” via (Friday 23 October) or (reproduced below):
    Blake Dawson will become the first Australian law firm to officially move into Japan after announcing today that it will open a new office in Tokyo.
    The new office will strengthen the firm’s regional presence across Shanghai, Singapore, Indonesia and Papua New Guinea. It is also a natural extension of its strong North Asian practice which has a market leading reputation and longstanding client relationships with many of Japan’s foremost trading houses, financial institutions, energy and resources, infrastructure and consumer products companies.
    The Tokyo office is expected to begin operating in early 2010. The office will be headed by Natsuko Ogawa, who has been appointed an International Partner of the firm’s Asia practice. Natsuko acts for a broad cross section of Japanese clients in M&A, joint ventures, energy and resources projects.
    Commenting on the overseas move, Blake Dawson’s Managing Partner John Carrington said: “Opening an office in Tokyo is an exciting step in our international strategy. It will provide dedicated support to our Japanese clients and will further strengthen our regional network.”
    Head of Blake Dawson’s North Asia Group, Ian Williams said: “Blake Dawson has led the way in acting for Japanese clients in Australia, Indonesia and PNG over the last 15 years. The opening of the Tokyo office will deepen our existing relationships with many Japanese companies, as well as open up new opportunities for the firm and its lawyers with an interest in Japan.”

  2. Both the Australian Commonwealth and Japan have been keenly aware that a kind of common market or regional community in the Asia and Pacific region is necessary. It was again proposed by the Japanese Prime Minister, Mr Hatoyama, at the recent Asian Summit and rather enthusiastically echoed by Mr Rudd. But a common market may never be realistic without common legal services and the dominant legal service providers are no other than Australian lawyers in our region. Australian law schools bear a heavy responsibility for making this vision a reality.

  3. Another major Australian law firm – Allens – appears to be taking to heart Prof Drysdale’s report for Austrade, expanding its presence in Tokyo partly to service better other Asian markets (as well as increased/diversified FDI from Japan into Australia).
    Reproduced respectively below:
    Allens strikes alliance with Japanese law firm
    * Rick Wallace
    * From: The Australian
    ALLENS Arthur Robinson is aiming to capitalise on the rapidly growing trade between Australia, Japan and the rest of Asia.
    It has struck an alliance with a top Japanese law firm Nagashima, Ohno & Tsunematsu.
    Allens already has a strong presence in Asia with offices in China, Indonesia, Vietnam, Singapore and other regional capitals, but not in Tokyo.
    In joining forces with NO&T, Allens believes it can add new business and better service Australian clients with Japanese interests and vice versa.
    Under the alliance, Allens will second lawyers to NO&T’s Tokyo office and NO&T to Allens offices with both firms working together on marketing and training projects in the region.
    Both firms will retain their structural and financial independence.
    Direct investment from Japan into Australia has risen recently as Japanese firms facing a depressed domestic market look for fresh opportunities in faster growing economies abroad.
    Allens hopes to position itself well for the expected growth in Japanese investment into developing Asian nations, some of which may be done as joint ventures with Australian partners.
    “There is significant Japanese in-bound investment into Australia, Indonesia, Vietnam and other Southeast Asia countries, not to mention into North Asia,” Allens chief executive partner Michael Rose said.
    “Given Allens’ extensive presence and experience in the region, and NO&T’s superb client base in Japan, we see significant advantages in working together to offer more to Japanese clients.”
    Allens’ Japan practice lead partner Tim Lester said an example of how the alliance would work might be “a cross-border transaction where, say, a Japanese company is acquiring a business that has manufacturing facilities scattered through Vietnam, Thailand and Jakarta”.
    “That would require due diligence and documentation in each jurisdiction and this structure allows the client to be serviced by both us and NO&T,” he said.
    For an Australian-initiated transaction, he said Australian clients in the financial services industry may look at investing in Japan or partnering with a service provider.
    “Rather than going to Japan and using a firm they have no relationship with, we can service them,” he said. “They don’t have to step into the unknown.”
    Mr Lester said the idea was borne out of an Allens study of economic flows in the region, particularly out of Japan into Asia, and had been reinforced by clients’ requests for recommendations for Japanese law firms.
    The move comes at a time of renewed focus on Japan among top law firms.
    Earlier this year, Blake Dawson opened an office in Tokyo, becoming the first Australian law firm to secure a licence to practise and have an office in Japan.
    NO&T said it had had relations with Allens stretching back 30 years and the alliance would play to both firms’ strengths.
    Allens forms alliance to enter Japan
    Posted Sep 30 2010, 09:07 PM by Lawyers Weekly
    Allens Arthur Robinson has entered into a strategic alliance with a Japanese firm instead of opening their own office in the region in order to form a more “credible” Japanese presence, according to the Allens partner leading the new relationship.
    The alliance with the Tokyo-based Nagashima Ohno & Tsunematsu (NO&T), announced today (1 October), is built off a cooperative framework developed by the two firms to service two-way trade and transactions between Australia and Japan. Both firms will retain their existing structures and financial independence.
    According to Tim Lester, the Perth-based partner heading up the Allens Japan practice and the cooperative alliance, it made more sense for Allens to form an alliance instead of opening a Japanese office as NO&T could offer the scale and reputation needed to be successful in the region.
    “You need to be credible in each market in which you operate and to be credible, you need to have appropriate size and you need a credible mass,” said Lester.
    “If you open up, especially as an Australia-based law firm, with just one or two partners and a few associates, it’s really difficult to effectively service clients appropriately … We think this is a much better way for an Australian firm – especially a firm with our footprint in Asia – to enter the Japanese market.”
    Lester said the alliance comes off the back of a desire by both firms to take advantage of “changing circumstances in the region and greater opportunities”, recognising that although the Chinese export market is still growing for Australia, Japan will be remain an important trading partner long into the future.
    The alliance includes a structured committee to assist with support arrangements the two firms have put in place for service delivery, as well as a structured secondment program.
    Australian law firms have progressively been extending their reach and presence in Japan, with Blake Dawson opening a Tokyo office earlier this year.
    NO&T boasts 330 Japanese lawyers in Tokyo as well as a small New York office, alongside 11 foreign-licensed lawyers.
    Lester joined Allens in 2008, following a stint as managing partner of the Lovells Tokyo office. He said he worked extensively with NO&T during his time in Japan.

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