20/04/2021 - 08:00

Concerns over Asian trade strategy shift

20/04/2021 - 08:00

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Stakeholders are worried changes to WA’s Asian engagement strategy indicate a withdrawal from key markets.

Concerns over Asian trade strategy shift
Roger Cook accepting his commission as state development minister. Photo: David Henry

Australia’s trade dispute with China throughout 2020 provided a timely reminder of our heavy weighting of trade with a single market, and an incentive to ramp up engagement elsewhere in the region.

Even more so for Western Australia, which shipped $109 billion of merchandise to China in the 12 months to February.

Instead, the WA government signalled it would remove trade commissioner postings from India, Indonesia and South Korea, and then scrapped the Asian engagement ministerial portfolio; moves some stakeholders perceived as a retreat from the region.

Seven trade commissioners globally were axed in a September announcement.

They were replaced in February with four investment and trade commissioners in major hubs, who will each manage multiple countries under a hub-and-spoke model.

The agent general role in London was unchanged.

Business News can reveal the new commissioners could eventually take postings in Jakarta and Mumbai, contrary to concerns in the market that had existed in the weeks prior to the time of writing.

Former Asian engagement minister Peter Tinley was dropped from ministerial duties after the state election, with the role to be subsumed into State Development Minister Roger Cook’s portfolio.

Peter Tinley led the government's Asia charge. Photo: Gabriel Oliveira

Indonesia Institute president Ross Taylor told Business News the commissioner moves could impact the state’s perception among partners.

“The lost opportunities … the damage it does to long-term relationships and perceptions is enormous,” Mr Taylor said.

Indoshu founder Greg Johnson said the new hub-and-spoke model was flawed.

“It won’t work,” said Mr Johnson, who has transacted business across multiple Asian countries for 30 years.

“You can’t use a one size fits all for the Asian business model.

“Each region is culturally nuanced totally differently from each other region.

“[Asian nations] are culturally diverse, in terms of business practices they’re completely diverse, the legal systems are separate.

“This is a mistake many Western people make; they think [Asian cultures)] are similar. They’re not, they are dissimilar.”

Mr Taylor said the impact would be most keenly felt by small and medium businesses.

As a former WA government commissioner to Indonesia, Mr Taylor said effective commissioners on the ground could be invaluable for building relationships.

He cited the example of live exports nearly two decades ago, where he and others had worked to help a WA exporter crack the Indonesian market.

“In Asian markets, if you’re a senior government official, it opens doors,” Mr Taylor said.

“For new [small business] entrants, it’s complicated.”

The concern is that a new super commissioner won’t have the capacity to engage sufficiently across multiple countries at a high level, while their subordinates will not have the clout to engage at the top.

Both Mr Taylor and Mr Johnson emphasised the importance of relationships in Asian markets.

In Indonesia, WA’s trade representation will fall under the ambit of an investment and trade commissioner for the Association of South East Asian Nations region, initially based out of Perth as the pandemic subsides.

That commissioner will be Krista Dunstan, who has been a policy adviser to former Aboriginal affairs minister Ben Wyatt, a policy adviser at the Commissioner for Children and Young People, and a director of strategic planning at the Department of Planning, Lands and Heritage.

Australia Indonesia Business Council national president Phil Turtle said it was unclear as yet what the changes to the model would mean.

But a move away from Jakarta, which is the home of the ASEAN secretariat, would have an impact.

“People have interpreted that as a demotion for Indonesia itself,” Mr Turtle said.

Business News understands the WA government’s long-term intention is for the ASEAN representative to move to Jakarta, after first operating from Singapore, while the investment and trade commissioner for India-Gulf will be based in Mumbai, after operating in the near term in Dubai.

Jakarta is the ecapital of Indonesia, a country which is the world's fourth most populous. Photo: Tom Fisk

The Asian century?

Merchandise exports from WA to Indonesia were $1.8 billion in the 12 months to February, while exports to India were $2 billion.

Trade destined for South Korea was $11 billion, WA’s third biggest market behind China and Japan.

The relationship with China has been under pressure, however.

In May last year, China levied an 80 per cent tariff on Australian barley shipments as part of an ongoing international trade dispute, with coal, wine and beef among others hit by restrictions.

India, Indonesia and ASEAN have been touted as key opportunities to diversify WA’s economic relationships. India has a population of around 1.4 billion and, unlike China, the population is young, with a median age under 30.

About 20 per cent of the world’s working age population will be Indian by 2025, according to Australia’s 2018 India Economic Strategy report, which also estimated GDP growth in the subcontinent would range from 6 per cent to 8 per cent annually.

Indonesia is the world’s fourth most populous country with 270 million people, and projections by PwC in 2017 suggested the archipelago would be the world’s fourth largest economy by 2050, worth $10 trillion.

Mr Turtle said Indonesia would be a potential growth market for WA.

“Look at the size of Indonesia’s economy and population … going up the development and urbanisation curves China has been going through,” Mr Turtle said.

“It just makes sense.

“There’s a great opportunity.”

China’s urbanisation led to a lift in steel consumption, a trend that has played out across economies as they develop.

Steel consumption per capita in 2016 was 316 kilograms in the US, 506kg in China, and 269kg in Australia, according to the Department of Industry.

The comparable figure in Indonesia was 58kg, and in India (albeit 2017) 73kg. Australia could have a readymade export opportunity with its existing main commodity, iron ore, used as the major input in steelmaking, although India does have domestic sources.

It was reported last year that Indonesia planned to spend $US430 billion on infrastructure by 2024, potentially generating steel demand. Indonesia’s needs extend beyond iron ore.

Education, health care and aged care were all highlighted in the recent Indonesia-Australia Comprehensive Economic Partnership free trade deal.

Mr Turtle said Indonesian stakeholders had been frustrated in the past by Australia’s focus on China.

“COVID aside, Indonesia on any day is an emerging economy on our doorstep [about] which Australians don’t have as much knowledge as we’d like to see,” he said.

Mr Turtle added that the US and Europe would be economic competitors for WA in Indonesia and the region broadly.

“Some of those countries have become more comfortable doing business in Asia and have adjusted their risk profile to match,” he said.

Clarity calls

The abolition of the ministerial posting in the second McGowan government is considered a significant signal.

MinterEllison North Asia team partner Adam Handley said the withdrawal of the Asian engagement ministry had raised eyebrows with some of WA’s partners in Asia.

Mr Handley, who is the immediate past president of the Australia China Business Council WA Branch, said clarification of the state’s priority focus on Asia would be important for the state.

“Some of our Asian stakeholders are querying if the removal of the Asian engagement portfolio signals a shift away from Asia as a priority for the state,” he said.

“Of course, the economics of such a move wouldn’t make sense for WA, so it is probably more a case of it being desirable to reassure our most important Asian economic partners that nothing has changed in terms of the state’s desire to continue to look for mutually beneficial trade and investment outcomes that create jobs and economic advancement for WA.”

By way of his responsibility for trade and state development portfolios, Mr Cook will be leading WA’s engagement with Asia.

“The commitment and overall strategy have not changed for the re-elected McGowan government,” Mr Cook told Business News.

“The only difference is I will now be leading it as part of my new, expanded portfolio which includes State Development, Jobs and Trade.

“I will be making sure the state’s engagement with Asia will have an even stronger focus.

“This will include growing trade and investment within key sectors, diversifying the economy and creating quality jobs.

“Engaging with Asia will be front and centre … as I pursue the best opportunities possible for Western Australians and WA businesses in our region.

“We are also introducing a more effective system for how our trade commissioners operate right across the region.”

Business News understands some stakeholders were unhappy they had not been consulted on the changes to the commissioners, nor had they received clear briefings on how the newly amalgamated portfolio would operate. Others are more optimistic about the changes.

Australia India Business Council president Michael Carter said he expected activity with India would only continue to grow.

The state’s office in India was not closing, and the Asian engagement strategy released in 2019 was remaining, Mr Carter said.

“Because there is no minister for Asian engagement doesn’t mean the strategy is going away,” he said.

“It’ll only be magnified. “I can only see [engagement with India] going in one direction, and that is increasing.”

Mr Carter was trade commissioner to India for eight years until 2015, and said he was comfortable with the hub-andspoke model.

“It’s a new model, let’s give time to see how it performs,” he said.

“Business will still be doing business, and government will still be facilitating. I think there’s probably a bit of an overreaction.

“From where I sit, the interactions we have, it’s business as usual.

“If anything, it’s business getting better.”

Paula Rogers Consulting principal and former Committee for Economic Development of Australia WA chief executive Paula Rogers said it was unclear as yet what the lack of a dedicated minister would mean.

Ms Rogers said it could be positive to have responsibility spread across multiple ministers, which would create leadership on the issue in more parts of government.

She agreed with the sentiment among almost all those who spoke to Business News that engagement with Asia would help diversify the state’s economy.

The strategy was still relevant, regardless of the ministerial portfolio, Ms Rogers said. Priorities would need to include schools teaching Asian languages and more Asian representation on company boards, she said, adding that WA needed to foster a two-way relationship.

“We think everybody should know about us; but do we do enough to demonstrate we have a curiosity?” Ms Rogers said.

Spacecubed founder and managing director Brodie McCulloch also advocated for prioritising engagement with Asia.

“There are 2 billion [people] in the middle class across Asia, in the next 10 years that goes to 3.5 billion,” Mr McCulloch said.

The consumer middle class will drive growth, particularly in the ASEAN region, Mr McCulloch said, and could help diversify trading partners.

He echoed the sentiments about the importance of relationships, which he said would require a presence in those markets.

“It’s going to take long-term relationship building, actual deals getting done,” Mr McCulloch said.

“There’s not a huge number of examples of that.”

Spacecubed has worked with similar providers in Indonesia, Vietnam and Singapore, enabling its members to access and engage with those economies.

The state’s Asian engagement strategy needed to be better resourced, he said, and having a minister for the portfolio had signalled it was a priority.

“I think it’s still a priority, but where is that focus going to come from?” Mr McCulloch said.

Scandal

While it has been reported the abolition of the Asian engagement portfolio was mostly an issue of internal Labor Party politics, the trading of commissioners follows some major controversy.

In 2019, the Corruption and Crime Commission published a report on the former trade commissioner to Japan, alleging he had double dipped on expenses to the tune of more than $500,000.

The CCC offered an opinion of serious misconduct.

The report dragged politicians into the controversy, with allegations the commissioner had assisted two Liberal parliamentarians to visit a soapland brothel in Japan, using state government resources.

Audits

Two reviews of the trade office system were undertaken.

In October 2019, WA’s Overseas Trade and Investment Offices Review reported that about $10 million was spent across eight offices in the 2019 financial year (see graph).

While WA operated eight offices with 51 staff, the report said NSW had 11 locations with 20 staff, Victoria 22 with 90 staff, and Queensland 15 offices with 66 staff.

The review said that, before decisions were made on the best model for office locations, the state needed to: undertake a trade and investment business plan; consider resource allocation; and improve the efficiency of the system managing commission offices.

“That said, the panel is strongly of the view that the state should consider each overseas office on its merits and steer away from a one-size-fits all approach,” the report said.

“It also cautions against closing any of the offices prior to careful evaluation, as closing an office could be seen as lack of interest in the country concerned.”

A hub model may be appropriate as an interim method for introducing new offices, if a new office needed to be introduced before business planning across the system was finished, the report said.

The review recommended the most weight, when selecting commissioners, should go towards understanding WA’s industry opportunities, as well as trade and investment expertise.

The review also said it was apparent there were problems across the Department of Jobs, Tourism, Science and Innovation’s (JTSI) trade and investment attraction system.

“The critical alignment between the offices overseas and central office in Perth was not strong and the information flow in both directions was inadequate,” the report said.

“Central office lacked a coordinated governance framework that could guide the system as a whole, and operating arrangements of the offices varied widely as a result.

“Altogether there was a lack of clear process and proper accountability across the system.”

An audit of trade offices by KPMG warned there was a high risk associated with inadequate expense control approvals and inadequate fraud and corruption awareness.

When Premier Mark McGowan announced the new model in September, he said it would be more flexible.

While some stakeholders have been concerned about a lack of communication, the department said it had written to business councils, chambers of commerce and other parties in February about the four new commissioners.

Business News understands JTSI wrote to all consulates with a presence in Perth to request an introductory meeting with the new investment and trade commissioner for their market, and to discuss priorities.

JTSI has since met with a number of the consulates and continues to undertake this engagement, Business News understands.

For now, the new commissioners are based in Perth, leading teams remotely, and undertaking an onboarding program.

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