Australia says the UK needs to do more to engage with Asia

Dr Martin Parkinson PSM, Secretary to the Australian Treasury, and HE The Hon Alexander Downer AC, who was appointed Australian High Commissioner to the UK in May this year, gave a private briefing exclusively for Asia House corporate members, on 21 July 2014, which was held under the Chatham House Rule, followed by a roundtable discussion.

Topics discussed included Australia’s relationship with China, the USA and Japan; Australia’s Free Trade Agreements with various Asian nations; the South China Sea and other territorial disputes; the UK relationship with Asia; the importance of Asia’s role in the new global economy; and emerging market economic models and institutions.

Corporate members that attended included Diageo, Rio Tinto, Barclays, Anglo American, BG Group, BP, Standard Chartered and AMEC.

In a separate interview held after the briefing with Asia House Web Editor Naomi Canton, Dr Parkinson encouraged the UK to do more to engage with and build relationships with Asian governments and businesses.

He said: “I want the UK to see Asia as a geostrategic and geopolitical system and to engage with the region rather than seeing it simply as a set of countries to trade with.”

Whilst trade with Asia was important, he said the UK also had to consider the future growth of Asia and how Asia is going to shape the world over the next century.

So was he saying that the UK should take a greater role in helping to diffuse security tensions in the region, particularly in the South China and East China Sea?

“I would not narrow it down to security,” he said. “The UK is one of the most important economies in the world and Europe as a grouping is too. What develops in Asia is going to influence the rest of the world and if the UK and Europe see it just as a region to sell products to, and occasionally invest in, then developments that occur in that region will catch everyone out. It is the dynamic driving force of economic growth globally, but given the potential for strategic friction, it is incumbent upon all of the world’s big players to have an interest.”

He also warned that the US, Australia and Europe could find themselves shut out of new bodies that are being formed in Asia that will play an increasingly significant role in the new global economy.

“The failure of the US and Europe to facilitate the reform of the existing international architecture to create space for emerging economies like China, India and Brazil,” he said referring to the International Monetary Fund (IMF) and World Bank, “is what is leading to a tendency to create new institutions where existing powers will have less influence. He cited the Asian Infrastructure Investment Bank, the New Development Bank (formerly known as the BRICS Development Bank) and the Regional Comprehensive Economic Partnership free-trade area as examples. Dr Parkinson said that anyone who “wrings their hands about the facts that the BRIC nations or the Chinese are establishing new institutions” should perhaps ask themselves why these countries were not allowed more influence on the governance of existing institutions. “The US Congress [which has a blocking minority of votes at the IMF] won’t allow IMF reform and Europe is unwilling to cede its historical but now excessive influence,” he said.

“If this continues, it will present a challenge for achieving cooperation on global issues and will place countries like Australia in an increasingly challenging position to balance our geostrategic interests,” he added.

He would not comment directly on Australia’s stance on the territorial disputes in the South China Sea and East China Sea, but he said: “We are interested in stability in the region and there are existing mechanisms to resolve disputes and we would expect that all countries would utilise them rather than taking unilateral action.”

Australia recently signed bilateral accords with Japan including a defence deal to enable the transfer of defence equipment and technology to Japan as Japan bolsters its defence spending and reinterprets its pacifist Constitution.

Yet China, which has a population of 1.3 billion, is Australia’s largest trading partner and Australia, which only has a population of 23 million, is China’s seventh biggest partner.

When asked if Australia, was taking a new direction and focusing on its relationship with Japan, he said: “We are strengthening our ties with the region more generally, we are strengthening our economic ties with Japan and Korea and China.”

He insisted that Australia was not shifting attention away from China. “It is not a zero sum game. Economic and strategic relationships are not zero sum. Our focus is to deepen the relationship with all of our partners in the region,” he said.

“We are doing defence exercises with China also and there are joint efforts in a wide range of areas.”

He then explained that the search for the Malaysia Airlines MH370 plane [which disappeared on 8 March 2014], being coordinated by Australia, involved Chinese military assets. “There is no evidence to date that the plane is in the region where we were originally searching. We are now doing a large area ocean mapping exercise to determine the most prospective search areas in order to find out what may have happened to it,” he added.

Australia signed Free Trade Agreements with Japan and South Korea this year and is working on creating one with China which should be firmed up by the end of this year.

“The reason [we escaped the 2008 global recession] was that the exchange rate dropped dramatically, our economy is very flexible, and we  provided fiscal stimulus and monetary stimulus. This was bolstered by China’s own stimulus, which created additional demand that flowed to Australia,” Dr Parkinson said.

Regarding the shooting down of the MH17 plane over Ukraine on 17 July 2014, and whether there were plans to block Russia from the November Brisbane G20 meeting for its alleged involvement in the incident, he said: “As our Prime Minister said there is a lot of water to flow under this bridge before we get to the G20 meeting. We will wait and see what happens.

“This is a terrible tragedy and the way it was initially handled was truly appalling. However, the Prime Minister has been very clear about his expectations about what Russia should do, and cooperation has improved subsequently.”

He said a number of key topics would be discussed at the meeting which would have a “much more tightly-focused agenda than previous G20 meetings” focused on a number of core issues. These issues were finding ways to get more of a focus globally on energy efficiency, employment and the need to improve female participation in employment in parts of Asia and youth unemployment, especially in Europe. Another was supporting the trades and services initiative from Bali [a landmark deal on trade, the first ever trade agreement agreed by World Trade Organisation members in Bali last year to streamline customs and cut red tape] and removing the behind the borders barriers.” The Bali trade facilitation agreement is due to be ratified at the end of this month.

Australia, which currently holds the presidency of the G20, also wants each country to commit to a set of initiatives to collectively boost growth by an additional two percent over the next five years by the time they get to Brisbane – an agreement the countries’ finance ministers signed up to at a meeting in February. Dr Parkinson said issues of implementing more resilient financial systems and tackling shadow banking, over-the-counter derivatives, base erosion and profit shifting would also be addressed at the G20.

The next Asian countries to watch, he said, were without doubt, Indonesia and Vietnam. “Vietnam has seen a significant amount of reforms and is going through change and the question there is – are they able to use those changes to put themselves on a growth path that other countries in the region are on? Indonesia is a vibrant democracy, the world’s largest Muslim economy, it has big challenges but also massive opportunities if they get their policy mix right,” he added.

He added that there was no guarantee that emerging economies would adopt a Western model of development and may instead choose an economic model that incorporates state-owned enterprises, regulated capital allocation and controlled foreign investment.

naomi.canton@asiahouse.co.uk

The next Asia House private briefing for corporate members will take place on 29 July 2014 when Richard Rekhy, CEO, KPMG India and Jaspal Bindra, CEO, Standard Chartered Bank Asia, will analyse India’s 2014 Budget and look at how it will affect UK companies. 

For more information about corporate membership click here.