Economic diplomacy: burning down the house
Follow the money
Forget the Extinction Rebellion, the carbon border adjustment mechanisms, and the wives of doctors in liberal downtown headquarters.
When Prime Minister Scott Morrison locked onto the existential message in this week According to the United Nations report on climate change, it appears to be about how foreign capital markets might exploit this national birthright – a mortgage.
In addition to his usual tech-not-tax refrain, Morrison noted: “I am also very aware of the important changes taking place in the global economy. The financiers are already making decisions independent of governments on this… I want to make sure Australians can access the funding.
The initial five themes in a broader approach to economic diplomacy than the academic norm have turned out to be gifts that continue to give.
While China’s rise to power has naturally elevated military spending and values in discussions of international relations, Morrison’s latest shift on climate change underscores how business remains a force in policymaking. international despite declining enthusiasm for globalization.
This column on economic diplomacy began on The interpreter five years ago this week, in an effort to follow the unfolding of the rhetoric led by then-Foreign and Trade Ministers Julie Bishop and Andrew Robb on shifting from a paradigm of “peace and security ”to a new world of“ peace and prosperity ”.
Foreign Minister Marise Payne has since brought a more pragmatic and focused trade diplomacy column to the IR seminar room’s eternal struggle between Manichean evil and sunny economic determinism.
And now Morrison has put a new twist on it by to call one of the nation’s largest Telstra companies to do national service in the battle for influence in the Pacific with China.
But the initial five themes in a broader approach to economic diplomacy than the academic norm have turned out to be gifts that continue to give.
The enigma of China
Morrison, in his former guise of treasurer, blocked the sale from New South Wales electricity distributor Ausgrid to Chinese investors on the day this column was first published, paving the way for what has turned out to be the most dramatic change in Australia’s international economic relations since Britain joined the European Common Market.
That says a lot about how bad the official relationship is now that some businessmen are until you hope that the Beijing Winter Olympics next February could be an opportunity to find common ground given that Brisbane won the 2032 Games.
But these are the same Winter Olympics that some members of the government want to boycott because of China’s treatment of Muslim minorities.
Exporters have unexpectedly managed to offset China’s coercive trade restrictions so far, suggesting that diversification may not be as difficult as it seemed when China took a third of their products.
But Australia’s risk of not lining up when it comes to dealing with the world’s second-largest economy (in market value) was highlighted last year when the stock of foreign direct investment Australian in China halved as did China almost overwhelmed the United States as the world’s largest recipient of global foreign investment. (Note: Provisional figures from UNCTAD show China has overtaken the United States).
The ongoing Santos takeover of Oil Search is mainly a big problem in the gas industry. But it is also important for relations with Papua New Guinea since Oil Search has long been Australia’s largest company and operates the largest private development assistance program.
Santos has endeavored to make this a positive point in his commercialization of the merger to investors by stating that “Oil Search’s unique social programs in PNG” would fit well with Santos’ broader environmental and social governance commitments.
This quasi-development finance institution is created on the run amid an independent assessment of the effectiveness of aid spending.
Five years ago, Oil Search had just lost a large gas transaction in PNG but nevertheless doubled its funding for the Oil Research Foundation to $ 72 million over five years.
This type of business support for Australia’s wider interest in some countries in the region is under pressure as some well-known businesses have pulled out just as conventional aid spending was also reduced in many places.
The new approach has been to give Export Finance Australia additional capital and responsibilities to encourage Australian businesses to return to regional businesses that are considered to be in the national interest.
But like the merger of AusAID with the Department of Foreign Affairs and Trade, this quasi-development financial institution is created on the run amid an independent assessment of the effectiveness of aid spending.
Five years ago, an innovative partnership between leading trade groups in Australia and Indonesia had just delivered the latest report in a kind of exploration of a side trade deal they had conducted alongside the formal negotiation of the government.
This was timely as Indonesia’s trade minister had just been dumped, casting another cloud over the decades-old quest for a closer economic relationship between the two close neighbors.
Despite these ambitions and the occasional political rhetoric associated with them, the old reality was that the two countries were largely competing commodity exporters rather than easy economic partners, beyond Australia’s once-large aid program.
This is changing with services playing a larger role in trade, the much-vaunted consumer market evident in Indonesia and the opportunities for joint ventures, even expanding into third countries.
The trade agreement has now been in place for a year, a new program was launched to foster economic cooperation and the Morrison government is about to launch a trade and investment plan draw attention to new opportunities.
This new era of trade ties that stretch beyond an investment deal in the 1970s has caught in a new emergency with the need to diversify China’s trade and the need for deeper economic ballast for a strong government-to-government relationship.
When then trade minister Steve Ciobo joined a meeting of Southeast Asian economic ministers five years ago, he was first accompanied by representatives of the Australian companies at this event.
Business groups from some other ASEAN partner countries, such as the ASEAN American Council, had done this before, but the fragmentation of Australia’s Asian-focused business councils meant that they did not did not have this access.
While two-thirds of Australian exports go to Asia, less than 10% of investments go there. Last year, a survey showed that only 22% of Australian-owned offshore subsidiaries are located in this fast-growing region, which is the same as 15 years ago.
While the Productivity Commission is best known for its controversial studies on disability insurance or vocational training, it has also quietly made an effort to try to highlight often opaque trade and security policies.
The idea of greater business-to-business cooperation with government on regional expansion has been launched for years with the Singapore Economic Development Council and Japan’s JETRO seen as role models. But this comes up against competitive impulses.
It is therefore interesting to see how the term Team Australia appeared in the current government’s trade diplomacy agenda following its advocacy in a report on Asian Affairs from the Business Council of Australia and the Asia Society Australia.
Coincidentally, Brand Australia has took a hit of the poorly received new logo that shows how Singapore’s corporate model of economic diplomacy is not so easy to replicate.
Telstra appears to have been co-opted to join the bid for Digicel Pacific, but if that deal goes through it is sure to be hailed as the Australian team at its best so far.
Guns or butter
It is more difficult to measure the impact of using the various hard, soft, economic or diplomatic levers of power in international relations than in other areas of government policy making due to the lack of agreed benchmarks and often long-term delays.
This has been at the heart of the long-standing struggle in Canberra between economists and security analysts over China, where the balance of power has shifted towards China in the years between the White Paper of the Asian Century of 2013 and the Strategic Defense Update of 2020.
While defense spending is now ten times aid spending and is expected to exceed the cost of retirement for the elderly, there is a need for a more transparent benchmarking. While the Productivity Commission is best known for its controversial studies on disability insurance or vocational training, it has also quietly made an effort to try to highlight often opaque trade and security policies.
Five years ago, this was a case involving the value of building new submarines in Australia and the use of investor-state dispute settlement provisions in trade agreements.
These days, the Commission is at the forefront of the debate on the relocation of manufacturing and storage driven by pandemic toilet paper queues and waning enthusiasm for globalization with a supply chain report that needs to be published.