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Economic diplomacy brief: Foreign policy split, ASEAN links and Japan commerce 60 years on

Relying on commercial ties to add ballast to bilateral diplomatic relations can quickly come undone if the deals start going wrong.

Photo: Christopher Jue/Getty Images
Photo: Christopher Jue/Getty Images

Paper cuts

The prospect of the foreign policy White Paper emerging as a longer term bipartisan framework must be in doubt after the Labor Party demanded this week that its Asian Century document be treated as the key foundation.

This is more than simple political point scoring because the Gillard government’s Asian White Paper took a fundamentally economic determinist stance. It was built around the optimistic that economic integration can help ward off darker nationalistic forces that lead to conflict.

In some ways, the specific Asia focus of the document framed this approach but it also meant less emphasis on developments like the Washington Consensus melting at the behest of a US president, new China risks or the challenged state of democracy in South East Asia, despite its economic success.

Until now there’s been an air of polite constructiveness over the latest broader foreign policy paper which is notable given Labor’s legitimate frustration over the way the Australia in the Asian Century document was unceremoniously dumped when the Coalition came to office. There’s been communication between the Opposition and the White Paper drafters with Foreign Minister Julie Bishop obviously keen to leave a legacy.

But shadow Foreign Minister Penny Wong now says: 'If the White Paper fails to build in the themes identified by Julia Gillard’s White Paper, it will simply fail as a guide to a transformational foreign policy.' See Primrose Riordan on Bishop’s response here.

Wong’s harder edged speech to the Australian National University’s Australia 360 conference came after softer, more philosophical remarks on issues such as values and interests, including to the Lowy Institute here.

This week’s effort seems aimed at making foreign policy more contested. Labor's demands to take China’s Belt and Road Initiative more seriously and to elevate climate change into a national security issue would certainly cause angst on the government backbench.

But there is also an apparent move to own the economic determinist high ground where Prime Minister Malcolm Turnbull was once most comfortable, before he had to refocus on a traditional rules-based diplomatic order and challenges like cybersecurity.

For example, Wong argues that:

The emergence of geo-economic power as an alternative to geo-strategic power rather than its complement challenges traditional mindsets and traditional ways of doing business. Comfortable assumptions that military strength constrains global ambition are challenged by the way in which economic power is being focused and organised.

This seems to be the broader strategic framework for this more tactical point in the earlier Lowy speech:

If our core policy focus is on ensuring that the benefits of economic prosperity, productivity growth and international trade are equitably distributed, nationally and internation­ally, then our security policy interests become more manageable.

The practical policy implication of all this seems to be that Labor will embrace new international economic rules or institutions such as China’s Belt and Road Initiative and economic development provisions in trade agreements. This would favour the Regional Comprehensive Economic Partnership over the Trans-Pacific Partnership.

Of course, criticising the government is easier than hardening up the alternatives especially if we are in for some more partisan debate. This is underlined by Wong’s vague support for more development aid spending when the big aid cuts actually started under the last Labor government.

Business delivers the goods

Australian companies in South East Asia have provided Prime Minister Malcolm Turnbull with just the talking points he needs when he gets down to business with regional leaders at next year’s historic ASEAN-Australia summit in Sydney.

While the nearest part of Asia is often not top of mind with Australian-based business, those that are in the region already are positive about the future, according to a new survey.

Some 62% of businesses say they have expanded over the past two years. Only 6% have reduced their presence. These findings are consistent with the first survey of this sort conducted last year.

While regional cooperation over terrorism seems more likely to be the pointy end of the March summit - especially given events in Marawi - boosting commercial ties with Australia’s closest Asian neighbours is crucial to having the ballast to ride out periodic diplomatic differences.

The interesting thing about this survey by the newly established pan regional Austcham ASEAN (and the various country business chambers) is the relatively positive view that emerges of economic integration within the ten member Association of South East Asian Nations. This is at odds with the broader foreign scepticism about ASEAN’s effectiveness as a regional group just as it marks its 50th anniversary.

The survey found 42% of firms say the ASEAN Economic Community (AEC) is good for the their business, compared with 28% who say it is not important.

While it is not surprising the rising consumer market is the biggest drawcard for investment, the integration process is also seen as very important at equal second.  But the other very positive and surprising attraction is improved infrastructure.

The survey provides the data to underpin the two key tasks Turnbull will need to address in producing some business outcomes from the summit.

For the Australian participants at the business summit he can point out that firms on the ground are quite positive about the overall economic outlook in ASEAN but feel they don’t have much support or influence back home at head office.

And for the ASEAN leaders, Turnbull can show that Australian businesses are quite enthusiastic about the AEC and would be even more so if it was explained better, and if various bottlenecks like services regulation can be liberalised.

This all points the way to joint summit initiatives to better publicise existing trade agreements, explain the AEC process and look for services trade liberalisation prospects.

Milestones and millstones

If Australian economic diplomacy has a birthplace it is hard to go past the 1957 Commerce Agreement with Japan which demonstrated how finding mutual economic interests can quickly repair the damage from the most severe exercises in hard power.

This week's 60th anniversary events at Parliament House were heavily populated by former and serving Coalition figures, a reminder the agreement was the bedrock Asia policy moment for the conservative side of politics. See the Prime Minister’s comments here.

This agreement transformed Australia economically and also to an extent culturally. It paved the way for Australia’s participation in much of Asia’s diplomatic architecture, often alongside Japan. And it fostered the trust that allowed the now deep newish bilateral military relationship.

Austrade has produced this detailed report on how the commercial relationship has diversified away from resources in the past decade with Japanese companies expanding into Australia below the radar of the higher profile Chinese boom. My account of this new Japanese business wave is here.

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But the 60th anniversary year has been marred by the rolling revelations (The Australian here and The Australian Financial Review here) about how disastrous the biggest of these new investments has been in the case of Japan Post’s apparently overpriced $6 billion takeover of transport company Toll. And this is having an impact on plans for the further privatisation of Japan Post in a country that desperately needs new Budget revenue.

Ironically China is now claiming success in winding back offshore investments by its companies because of concern they have been adding to the national debt burden by paying too much just as Japanese companies did back in the 1980s - and perhaps again now.

The Toll example shows that despite the historic success of the Commerce Agreement, relying on commercial ties to add ballast to bilateral diplomatic relations can quickly come undone if the deals start going wrong.   

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