China’s double standards: Frances Adamson on the other side of the trade war story

By Stephen Easton

Thursday September 20, 2018

Frances Adamson. AAP Image/Lukas Coch

Australian diplomats continue to strongly advocate free trade and multilateral diplomacy in response to Donald Trump’s revival of protectionism and the ensuing threat of trade wars, but that is only one side of the story.

The other side is China, a nation with a more ambiguous approach to trade and international investment that has benefited greatly from selling its goods overseas but remains a challenging market, now drawn into an escalating trade war with the United States.

The head of the Department of Foreign Affairs and Trade, Frances Adamson, made it clear that Australian officials take a dim view of Trump’s policies at a Trans-Tasman Business Circle luncheon this week, and fear the rise of “protectionist sentiment” taking hold here.

After the speech, however, she acknowledged that the main target of Trump’s trade war had often pursued its own narrow self-interest at the expense of other nations, too.

“Some people would say also that China’s own policies have also been very mercantilist.”

Having focused mainly on the global economic risks of Trump’s trade policy U-turn, and being a China specialist, one of her senior executives asked her to provide some insight into Xi Jinping’s views on free trade and multilateral diplomacy as well.

Adamson said the Chinese government supported trade liberalisation in some respects — as the nation had enjoyed the benefits as a big exporter of manufactured goods — but acknowledged an apparent “double-standard at work” when it came to removing barriers to foreign trade and investment in its own markets.

“Some people would say also that China’s own policies have also been very mercantilist,” she said, responding to Philip Green, a former high commissioner to Singapore who now heads the department’s US and Indo-Pacific strategy division.

“It does what it does in its own interest, and not just in its own interest, but often at the expense of others.

“And of course as it’s grown more powerful, it’s been able to exert more leverage on foreign companies doing business in China – including when it comes to intellectual property, when it comes to investment dollars, when it comes to a whole range of things.”

China joined the World Trade Organisation in 2001, and President Xi continues to pledge his nation’s commitment to free trade and a rules-based multilateral trade system, even as he matches Trump’s tariffs in the trade war.

The DFAT secretary recalled the Chinese President made this position very clear in a landmark speech to the World Economic Forum in January 2017, widely noted at the time as a sharp contrast to the rhetoric coming from the White House suggesting the US would pull back from a global leadership role.

“There was some high moral ground to be taken, and he marched up and he grabbed hold of it and took it,” she said.

Adamson did not mention the fact Xi skipped the 2018 WEF summit, but acknowledged that a lot of observers still  think that with China, free trade doesn’t seem to work both ways.

Business people enticed by the opening up of the giant Chinese market had consistently faced “tremendous challenges” for decades, she said. While the exact nature of the restraints has changed since the ’80s, DFAT still spends a lot of time assisting Australian businesses, “disentangling them from issues” or trying to get them a fair go in the Chinese legal system, according to its secretary.

Concerns about corruption and rule of law remain

Last year’s foreign policy white paper set increased trade and investment in the Indo-Pacific as an important strategic priority, but Adamson acknowledged “a gap between the overarching strategy and business’s willingness to engage economically and commercially in countries of our region” was widely perceived by most of her diplomats.

She said “Australia Inc” was not “as deeply engaged economically in the region as our economic complementarity and our overarching strategy would indicate that [it] should be” in her view. The host, PwC tax and legal services partner Stephanie Males, had asked for her thoughts on how business confidence might be improved.

The DFAT secretary said a desire for more Australian investment was “a constant refrain” at the last ASEAN regional summit, with almost all leaders throwing out the welcome mat, but concerns about stability, security and the rule of law remained key barriers to confidence.

“You can’t create confidence just by saying, ‘We should be confident,’ and some of the work we do, including through our aid program, is seeking to build better governance across the region,” Adamson said.

“We actually seek to address, through a number of other policies and programs, the sorts of deficiencies, if you like, that business draws our attention to.

“And another issue that is often raised, frankly, is around corruption, and levels of corruption and how … you can effectively abide by Australian law and still operate effectively.”

This is yet another issue Australia can’t solve on its own, “but the voice of business is quite a powerful voice” that can add considerably to the pressure for reforms that improve governance across the region, Adamson said.

It was clear to the DFAT boss when Donald Trump was elected that his trade policies would be a major point of disagreement between the United States and Australia; speaking immediately after his victory in 2011, she said responding to “the forces of protectionism” was foremost in her mind.

As Trump’s trade war ramps up, alarm bells are now ringing much louder in Canberra.

With the US pulling back from an international leadership role and increasingly pursuing a more narrow, self-interested foreign policy, and China at least expressing a desire to move in the other direction, Australia will keep trying to work together with both superpowers whenever our policy positions align.

One example of the changing tides was drafting the leaders’ declaration at last year’s APEC meeting in Vietnam. The US delegates opposed the inclusion of what Adamson called “the traditional language about the benefits of trade liberalisation and open markets that has been completely uncontroversial in APEC circles for decades” while the Chinese and Australian delegations negotiated the inclusion of “the barest minimum of that language, which would enable APEC to continue to be credible”.

“So we do make common cause with China in those areas,” concluded Adamson.

“But,” she added, “China increasingly is finding itself in a position where it will be able to at least shape rules — including, I think, rules in the international trading system – not unilaterally, necessarily, but already when you look at ‘Made in China 2025’, China’s approach to lifting its competitiveness in some key sectors over the next seven years, and when you look at China’s record of actually achieving that, I think there are some broader concerns that go beyond the superficial language that’s being used.”

In the prepared speech, she pointed out it is “in the nature of things” that the most powerful nations act unilaterally at times. That goes for both China and the US.

The WTO ‘in trouble before Trump’

“It’s a very, very challenging time and there’s a huge amount at stake.”

Adamson took the final question from Australian National University economics professor and East Asia specialist Peter Drysdale, who brought the focus back to protectionism. Drysdale commented that support from the private sector for Australia’s diplomatic efforts to open markets through the multilateral system was “absolutely essential” at the best of times. Adamson agreed with his observation that the current situation is a long way from normal.

“We have our major ally, our major security ally … systematically putting extreme pressure on the WTO, the institution which provides critical political and economic security for us, not only globally but particularly in our region, in dealing with China, in dealing with Japan, in dealing with India, and so on,” Drysdale said.

“Under these circumstances what are the key priorities we have in representing our interests in a multilateral system, and through which agencies? And what steps can we effectively take to prosecute effective representation of those interests, around the fact that our major ally is … our biggest difficulty … in this respect?”

Time was short and the DFAT chief said she could not give the professor’s question the detailed answer it deserved, but she made the point that not all problems with the multilateral trade system stem from the recent dramatic changes to US policy, and said Australia could still find common ground with our great and powerful friend.

“The WTO was in trouble before Donald Trump,” she said. “You know that; it’s been struggling for a very long time to produce the sort of gains from multilateral trade rounds that we experienced decades ago.”

In some ways, she said the US had “simply highlighted problems already there” in the fractious system. Achieving multilateral agreements between well over 100 nations has always been extremely difficult; plurilateral agreements between smaller groups have proven more realistic.

Adamson pointed out that at the 11th WTO ministerial conference, the US got behind Australia’s push for new digital trade and e-commerce rules. “So it’s not impossible to do good things within the WTO, but of course the WTO has to continue to function,” she said, adding that the body’s dispute-settlement panel was “in strife” in large part because the US was blocking the appointment of new judges.

“So yes, there are problems, but it is not without hope and the way to do it is for countries like Australia [to work within the multilateral system] — and the EU is taking a lead, and Canada is taking a lead; we’re working with both of them.

“You’re right, it is not a normal time,” Adamson said. “It’s a very, very challenging time and there’s a huge amount at stake — and I’ve got some confidence at least that if we continue to do what we’ve always done well, which is to provide leadership, sometimes from the front, sometimes with other countries at the front, there are ways in which we can sort this out.”

Top photo: DFAT boss Frances Adamson. AAP Image/Lukas Coch

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