Japan-Australia FTA hailed for fund firms

The free-trade agreement is seen as key to guaranteeing cross-border access for fund managers and may aid talks for Japan to join the proposed Apec passport scheme.
Japan-Australia FTA hailed for fund firms

The head of Australia’s Financial Services Council (FSC) has hailed the agreement of free-trade deal with Japan as vital to guarantee cross-border access for fund managers.

A pact was agreed between Australian prime minister Tony Abbott and Japanese counterpart Shinzo Abe in Tokyo this week. It is expected to be formally signed when Abe visits Canberra in July, to come into effect later this year.

While this is evidently important for the agriculture, manufacturing, resource and energy sectors, it is equally significant for the financial services sector, argues the FSC.

“This agreement is another step towards liberalised trade in our region,” says John Brogden, chief executive of the FSC, which represents asset managers, superannuation funds, life insurers, advisory networks and trustee firms.

“For the first time, Australian financial services providers will benefit from commitments made by Japan which will guarantee cross-border access for Australian fund managers providing investment advice and portfolio management services.”

He says both nations have a lot to gain from the removal of trade barriers in financial services. “Early indications suggest substantial progress has been made in opening up Japan’s financial services market to access by Australian financial services institutions.”

In a media address in Tokyo this Monday, Abbott highlighted the significance of the deal, saying it was the first time that Japan had negotiated a comprehensive economic partnership agreement or free trade deal with any major economy.

Asked whether the free-trade agreement between Japan and Australia could presage Japan joining the proposed Asia Region Funds Passport (ARFP) scheme, an FSC spokeswoman tells AsianInvestor: “The FTA is a positive step to establishing closer economic ties with Japan, which will provide a good platform for future discussions with Japan on the [ARFP].”

The deal comes after Australian trade minister Andrew Robb released the text of a similar free-trade agreement with South Korea in February, as reported.

Australia already has similar free-trade deals with Singapore, Hong Kong and Malaysia, alongside a close economic relationship with New Zealand.

Finance ministers from Australia, Korea, Singapore and New Zealand signed a statement of intent at the Asia Pacific Economic Cooperation meeting in Bali, Indonesia, last September to develop a passport to facilitate cross-border fund sales, as reported.

At a recent industry roundtable on fund passporting hosted by AsianInvestor (see April magazine issue), Lieven Debruyne, Hong Kong CEO of Schroder Investment Management, noted that if the ARFP scheme could get Japan to join, “overnight it would become an initiative with huge potential.”

Andrew Bragg, director of policy and international markets at the FSC, said at the time that it was the policy of Abe’s government to make Japan more exposed to international markets, a view outlined by Japanese government minister Yasutoshi Nishimura recently in Hong Kong, as reported.

“Japan would be an important market to join the [ARFP] scheme,” Bragg said during the roundtable. “As far as we know Japan is still debating whether to join. But realistically things move slowly.”

Still, he expressed confidence that further Asian jurisdictions would join “based on anecdotal information you glean from a number of conversations across the region”.

But during the debate, Masaki Taniguchi, head of product strategy and development for Asia Pacific at Goldman Sachs Asset Management, said there was a question over demand and Japan, as well as a lack of distribution infrastructure. He noted that Japan was already a very open market, with a capability to register almost any offshore fund.

“But importing offshore funds directly into Japan didn’t really take off because onshore distribution channels never had the infrastructure to distribute offshore funds, so that connectivity never developed and the market never grew,” Taniguchi said.

“Even if you had a passporting scheme, domestic distributors in Japan would not want to distribute any offshore funds because they do not have the technological infrastructure to distribute them.”

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