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Economic diplomacy brief: ASEAN fans, TPP sans Australia, PNG hospital pass and more

Economic diplomacy brief: ASEAN fans, TPP sans Australia, PNG hospital pass and more
Published 6 Oct 2016   Follow @Greg__Earl

ASEAN: not all at sea

With the Philippines mired in drug executions, Malaysia caught up in corruption allegations and a broader impasse over China's maritime boundary claims, Southeast Asia's plans for regional economic integration have been facing some new scepticism. Sanchita Basu Das at the Institute of Southeast Asian Studies neatly wraps up the state of play here. But amid the many geo-political challenges at the regional and many individual country levels, Australian business on the ground is taking a remarkably upbeat approach to the economic future and, surprisingly, the outlook for integration. The first survey of Australian businesses across the 10 member Association of Southeast Asian Nations (ASEAN) zone by business group AustCham Singapore has lent weight to the many bullish reports on the ASEAN story recently from the likes of McKinsey and ANZ Bank.

More than half of the 2000 businesses which responded to the survey nominated regional integration as a reason for expanding their business. The growing consumer class was, not surprisingly, the top reason. But the third reason – improvement in infrastructure – was also quite a standout given the conventional wisdom that poor infrastructure is holding back growth in this part of the world. The bottom line is that 80% of these businesses plan to increase investment over the next five years and only 2% expect to pull back. That is up from the 60% who said they had expanded trade and investment over the past two years.  This will be welcomed by the Australian government which produced its own study last year exhorting business to pay more attention to the evolving ASEAN Economic Community (AEC). The government also created a new regionally-focussed Australia-ASEAN Council*  to replace pre-existing bilateral councils. Now HSBC and the Export Council of Australia are the latest to join the AEC opportunity bandwagon with this new 'ASEAN Connected' report.

TPP redux: 'Just leave Australia out'

The duelling parliamentary inquiries into the Trans-Pacific Partnership (TPP) trade deal which we first reported on here last month are getting under way with mixed views about renegotiating the whole thing. At the same time US trade officials have been on the move in the region calming loose talk about changes despite all the pressure in their own Congress. And Japan is also firmly rejecting any changes. But now one of the key advocates for a rewrite and the powerful US Senate finance committee chairman Orrin Hatch has a solution with a sting in the tail for Australia. He says there is a simple way to get the 12-year intellectual property protection for biologic drugs in the TPP that the US pharmaceutical industry wants, but which Australia has limited to eight years. 'There are countries that would renegotiate the deal if the Administration were to get on the ball and work on it,' Hatch told Politico. 'Australia may not be one of them, but I said: 'Tell Australia we'll deal with them later. They don't have to be part of TPP.' [fold]

Trade slump dissected

Global value chains (GVCs) have been the boiler room of globalisation for two decades and a key force in boosting trade as products are assembled with components from around the world. But as trade growth has slumped precipitously since the 2008 global financial crisis, the question increasingly being asked is whether the transformational GVC process has reached some sort of natural limit. Theories about GVCs (aka global supply chains) hitting a wall had focused on new developments such as reshoring of production, custom manufacturing closer to buyers or a higher personal services component in economic activity. The latest forecasts from the International Monetary Fund (also covered by Stephen Grenville here) and the World Trade Organisation have downgraded their respective world trade growth rates to the point where trade is close to growing slower than the overall world economy. This is a striking shift because normally trade has grown twice as fast making it a key driver of overall growth. The WTO remains unsure what is driving this slump. But the IMF economists have at least concluded that this is not really explained by either the outer limits of GVCs or the rampant protectionism on display in the US electionand elsewhere. They find that about three quarters of the slump in trade growth is due to the recent decline in investment and suggest it should recover with cyclical uptick in investment. On the face of it this is good news for those worried about some fundamental changes in protectionism and GVCs, but it does assume a normal rebound in investment in what seem like abnormal times.

PNG hospital pass

The Manus Island asylum seeker camp in Papua New Guinea may be on the way out, but the legacy of Kevin Rudd's desperate PNG solution with Australia's closest neighbour is set to dog bilateral relations for a long while yet.  Prime minister Peter O'Neill extracted a much needed new hospital for north coast port city Lae as part of the pay-off for Manus. Now Australia is going ahead with construction even though the refugee deal is ending. However cash-strapped PNG's share of the hospital bill is not yet forthcoming.  Dan Flitton reports builders have been told to take the $400 million masterplan and do their best with the available $270 million in Australian funds.  This looks like another worthy aid project doomed by an inadequate after care and maintenance program. The financial aspects of the original cash for refugees deal will be even more opaque if PNG now only closes part of the Manus facility which is the latest twist this week in this saga.

Photo by VCG/VCG via Getty Images

Disclosure: The author is a member of the Australia-ASEAN Council board

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