New Trade and Aid Paradigm Needed for China and Pacific Relations

When Julie Bishop became Foreign Minister 9 years ago, one of her first steps was to reinvigorate Australia’s development aid and trade program to the Indo-Pacific region by announcing a range of new initiatives in order to boost cooperation and stability in the Indo Pacific region.

Given the flying start of Foreign Minister, Penny Wong, to the Indo Pacific region, the initial meeting of Defence Minister, Richard Marles, with his Chinese counterpart, and initial attempts by new Trade Minister, Don Farrell, to also meet with the Chinese Minister of Commerce, I suggest the time is again ripe for a fresh approach to aid and trade – one which aims to restore strong relations with our Pacific neighbours, as well as thaw the diplomatic freeze with China on trade.

This paradigm would include four components.  Firstly, the pursuit of firm but soft diplomacy with both China and the Pacific Islands - diplomacy that is strategic, less reactive, and at once more conscious of regional sensitivities, our core business, trade and sustainability interests.

Whether or not China overtakes the No. 1-ranked U.S. economy it is vital that Australia deals strategically with the fact China will remain one of the world’s economic and political super-powers well into this century.

New Zealand has effectively managed soft diplomacy approaches with China and whilst no doubt sharing common security concerns with Australia, has remained relatively free of China’s trade and tariff barriers. Even Japan, despite historical tensions, has managed a path of duality of economic and security relations, and remains relatively free of economic sanctions from its largest trading partner.

As a former trainer of Chinese trade officials in the lead up to the signing of the China Australia FTA (CHAFTA), and with much time spent in Beijing, it is clear to me that Chinese trade officials well understand the benefits of multilateral trade rules and market access opportunities. By drawing on this understanding, and focussing on areas of mutual trade and economic interest with China, Australia can not only avoid - as Hugh White so eloquently puts it - ‘sleepwalking to war’ with China, but can proactively reassert the opportunities and benefits of a close economic relationship.

Foreign Minister Penny Wong should be commended for taking a lead in this process with her recent meeting in Bali with Chinese counterpart Wang Yi.  The four conditions put forward by China for restoring good relations with Australia, while initially rejected by Prime Minister Albanese, are not at all insurmountable if a diplomatic and strategic approach is employed.  China’s request to be ‘treated as a partner not a rival’ is in our mutual interest, as are ‘seeking common ground and building public support for positiveness and pragmatism.’ 

Whilst Australia can and should take exception to their request to ‘reject manipulation by a third party’, and assert the right for mutual and respectful constructive criticism, there is plenty of room here for a nuanced and strategic diplomatic response from Australia – one that can move Australia forward toward the restoration of close working relations with China.  As Prime Minister Albanese has said he wants Australia to build cooperation with China wherever we can - and this is more than possible with diplomatic good will and compromise around sensitive issues.

Secondly, and as a sign of good faith, Australia could offer qualified support for China’s entry into the Comprehensive Trans-Pacific Partnership Agreement (CPTPP) based on China giving assurances that it would undertake the necessary reforms required for example on cybersecurity and data laws.  China’s potential involvement would be based on a clear commitment to the underlying rules-based trade fundamentals, just as Vietnam and others have undertaken. 

Trade Minister, Don Farrell, upon meeting with counterpart, Minister Wang Wentao, is well placed to advance this new trade paradigm of relations based on mutual respect – and one which China would be economically wise to embrace.  China’s growth has declined in the last quarter and the economy has been hit badly by COVID sanctions, while future growth relies significantly on access to supply chains, including mineral resources investments especially in the Indo-Pacific region – and Australia. 

As Arthur Kroeber, founding partner of Dragonomics, a China-focused economic research consultancy states in a recent interview on “China’s Economy: What Everyone Needs to Know”, if China is not able to generate enough productivity from internal technology investment, they will need more market-oriented reforms to promote productivity and stimulate consumer demand, or else their economy will stagnate.

In return for this support from Australia, China would need to either restore or update the original trade conditions of the CHAFTA with its tariff reductions on wine, barley, meat and seafood products.

Thirdly, with respect to the Pacific Islands, Australia needs to reinforce the value of the recently established Pacific trade and development agreement PACER Plus, by expanding the agreement to include Fiji and PNG, and by including additional support for the modernisation of trade related technology, increased labour mobility opportunities and a focus on small enterprise development.

Australia has a timely opportunity to restore Pacific relations not only through a real increase in aid, but also through the reinforcement of PACER Plus.  While most Pacific countries have already acceded or are in the process of so doing, Fiji and PNG have so far resisted for various political reasons.  There are increasing signs that Fiji is warming to the substantial trade and investment opportunities the agreement presents, while PNG may come on board following their upcoming election.

Australia can incentivise both Fiji and PNG to accede to the agreement, with an expansion of labour mobility opportunities as well as an increase in specific Aid for Trade support – expanded to Pacific members of the agreement.

Despite concerns about the recent engagement between China and the Solomon Islands, Australia should note the significance of the Pacific Island rejection of a regional security agreement with China. This signals a widely shared concern across the Pacific to protect their cultural values, being closely aligned with democracy, Christianity and freedom of speech.

Australia’s advantage is our stronger approach to people-led development, commitment to institution building and the upskilling of the Pacific’s younger generation - around 50% of the Pacific’s population.  Australia already has strong inward migration from the Pacific, much more so than China, and is right to further expand currently temporary work schemes for Pacific Islanders.  In contrast, China tends to use its own labour for major infrastructure projects across the Pacific which neglects the importance of upskilling local workers and use of local supply chains.

Finally, Australia should seek to re-establish the spirit of cooperation with China through joint aid and trade projects in the Pacific – previously considered a norm with some excellent precedents. In the recent past for example, China has supplied mosquito nets and medical infrastructure to PNG highland and coastal communities whilst Australia provided medical personnel and trainers to ensure effective implementation. Similar projects utilising the resources and skills of both nations would not only help to defuse tensions with China, but also increase the effectiveness and outreach of Pacific aid and trade programs.

It is now timely for Ministers Penny Wong and Don Farrell to take the lead on a re-invigorated paradigm of soft diplomacy through trade and aid cooperation. Negotiations with China will no doubt be complex and sensitive, but by advancing mutual interests and a strong, but much more nuanced, strategic approach, much could be achieved not only for Australia business, trade and regional security but importantly, for the people of the Pacific.

Jim Redden, Trade and Development Expert, Institute for International Trade, University of Adelaide

Photo by Rafik Wahba on Unsplash