Global, not Asian, focus is the key to growth

Australia’s success in the Asian Century should come from unilateral domestic reforms of trade policy, not preferential deals.

Asians love fireworks. So it was hoped the government’s Asian White Paper (WP) would be a cracker. Instead we got a fizzer, long on vague aspirations but short on good ideas.

Australia’s growing trade links with Asia are good. But so are our links with non-Asia. We should not be focusing policy attention in any particular direction, especially as the basis of reform. Our interests are to continue as a global player. Regional economic integration should be based on commercialism, and not be at the expense of global integration nor of policies that “place regional economic integration at the centre of decision-making processes”.

Remember the Asian financial crisis in the late 1990s. Our openness to the whole world enabled us to weather that storm as Australian exporters faced with declining regional competitiveness as the dollar appreciated against Asian currencies thankfully turned to non-Asian markets e.g. North America.

This global openness also undoubtedly contributed to Australia’s resilience to the GFC. When the next regional or global crisis occurs, or relative competitive positions change, Australian traders will hopefully again be able to respond accordingly. It is imperative that our businesses can quickly change markets globally as economic conditions change.

The WP’s national objective that “Australia’s trade links with Asia will be at least one-third of GDP by 2025” lacks sense.

Good trade policy is the opposite of that espoused in the WP, namely opening our market on a non-discriminatory (MFN) basis. That approach underpinned the Hawke-Keating unilateral trade-related economic reforms in the 1980s and 1990s which turned around our economic performance. MFN liberalisation is also the core of the WTO, which has stagnated as members, including Australia, rapidly embrace preferentialism.

Alarmingly, the WP drives yet another nail into the Hawke/Keating approach by endorsing discriminatory reform via preferential trade agreements (PTAs). The WP refers to the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) as a “high-quality, truly liberalising agreement”. Where is the evidence for this?

It also endorses the ultimate goal of regional integration to be an APEC free-trade area, which the Trans-Pacific Partnership (TPP) and the Regional Economic Cooperation Agreement (RECA) could become. This would depart from the non-discriminatory foundation on which Australia formed APEC. Worse still, the TPP is being negotiated under US influence in a way to ensure China will not join.

The WP’s prescription for Australia to become “more open and integrated with Asia through comprehensive regional agreements” shifts the responsibility for decision making away from our domestic institutions towards a non-transparent bargaining process with other countries which the record shows will not deliver genuine liberalisation.

Instead, it will slow our domestic reform by generating new excuses to do nothing e.g. to retain tariffs as “bargaining coin” in PTAs. The government’s willingness to surrender our domestic policy to foreigners is evident in the WP stating that tariffs will only be reduced on a non-MFN basis as part of negotiating future PTAs.

This ignores the Productivity Commission’s (PC) policy advice in 2010 that PTAs do not work as advertised and are oversold. It urged Australia to revive unilateral (MFN) reforms since these provide larger, more certain gains.

Instead, the WP has endorsed the “competitive liberalisation” model of the US, using PTAs as the basis of reform without any credible policy evaluation. It also calls for more PTAs, including possibly joining the Pacific Alliance. The inefficiencies of creating such a “noodle bowl” of overlapping PTAs with multiple memberships are obvious.

Sadly, the WP seems unaware that PTAs undermine the WTO’s effectiveness. With the WP further supporting PTAs, it is not credible for the WP to claim as it does that the “WTO is the government’s preferred vehicle for pursuing trade liberalisation”.

The mockery of WTO principles is extended by the WP’s enthusiasm for Australia and the US co-chairing efforts to form an International Services Agreement. As the US will insist this be non-MFN, Australia should “walk away” from the whole idea.

Australia will handle the 21st Century (in Asia and elsewhere) if it focuses its trade policy on unilateral domestic reforms. Unfortunately, the WP advocates a trade policy that takes us as far away from that strategy as is imaginable.

This article first appeared in the Australian Financial Review.

Mahathir’s regional legacy

Mahathir Mohamed’s legacy is fast unraveling.

Southeast Asia has seen its fair share of authoritarian leaders. Malaysia’s Dr. Mahathir Mohamed is one who still endures, albeit now on the sidelines. Ascending to the premiership of Malaysia in July 1981, and ruling until his forced retirement in October 2003, he reigned in impressive fashion.

Among the many titles that were bestowed on this poor boy from a Malaysian backwater were ‘respected Muslim’, ‘Third World leader’, and ‘spokesman for developing nations’. Within the country, as overseas, he was both loathed and loved. In his quest to transform Malaysia into a ‘developed nation’ he used all possible means, both domestic and external, to achieve his grand vision. Seven years since his departure, what has been his legacy?

Mahathir gave Malaysia a new profile through his larger than life personality, ambition and action. He developed the role of ‘Third World leader’ when he took on Malaysia’s colonial masters through his ‘Buy British Last’ policy. He regularly attacked the West while encouraging developing nations to work together through his frameworks of ‘Asian Values’, the ‘Look East Policy’ and ‘South-South Cooperation.’ He weighed in on international issues such as the global environment, Antarctica and even what he termed a ‘New World Order.’ He also stood up for the Islamic ‘Ummah’ by speaking out against its perceived opponents, and provided strong support for Palestinian and Bosnian Muslims in their struggles.

His actions in the region were more pragmatic. Mahathir—alongside other ASEAN leaders from Indonesia, the Philippines, Singapore and Thailand—saw ASEAN within the framework of regional security and as an expanding market for Malaysian goods and services. In ensuring regional security, Mahathir continued Malaysia’s longstanding hybrid form of neutrality.

Since independence Malaysia has relied on Britain, Australia and New Zealand to underwrite its security but has concurrently endorsed the view that ASEAN should be free of big power influence. Mahathir continued this awkward tradition. It has now been revealed that in 1984 Mahathir signed a secret defence agreement with the United States; an agreement which he deemed beneficial to Malaysia. It vastly expanded military cooperation between the two nations. This revelation contradicts the vehement public statements that Mahathir made about not indulging foreign, especially US, influence in Malaysia or the wider ASEAN region. This was classic Mahathirism: pragmatic to the point of hypocrisy.

To further strengthen ASEAN both in regional security and economic terms, Mahathir encouraged the consolidation and expansion of the organisation. He strongly supported the ASEAN-UN International Conference on Cambodia that eventually led to a negotiated settlement between the warring sides. Mahathir also played a key role in promoting the membership of Burma through the much-maligned policy termed ‘constructive engagement’. During the Mahathir era, ASEAN eventually came to include all ten countries of the region.

With the end of the Cold War and the rise of China, Mahathir and ASEAN realised that a new platform was needed to ensure regional security and to contain China. Mahathir therefore took an active role in the shaping of the ASEAN Regional Forum (ARF), ASEAN’s post-Cold War regional security apparatus. The ARF brought together the regional powers and the United States in an effort to guarantee regional peace.

In expanding its markets and in response to the formation of the European Union (EU) and the North American Free Trade Association, Mahathir and ASEAN responded with another free trade agreement called the ASEAN Free Trade Agreement.

Notwithstanding these contributions, Mahathir’s legacy seems to be fading. This began with his treatment of Anwar Ibrahim, his able deputy whom he humiliated. Mahathir’s credibility as an Islamic leader was damaged forever with that action. Malaysia celebrated his resignation by giving his replacement, Abdullah Ahmad Badawi, the biggest-ever mandate for an incoming prime minister. Furthermore, since his departure, the effects of his authoritarian rule are increasingly felt. The use of democratic institutions to protect corrupt leaders and to attack the opposition, the unprecedented rise of religious bigotry, and the weakening of the country’s economic fundamentals all point back to Mahathir’s years in charge.

On the regional front, Mahathir tried his best to keep Australia and the US out of the region to satisfy his own prejudices. While the US was too powerful to be ignored, Mahathir relished vetoing Australia’s involvement in ASEAN-related forums. Since his departure, Australia has been granted its relevant memberships and Malaysia is now more closely aligned to both Australia and the US than ever before.

While Mahathir held sway over domestic and global politics for 22 years as a courageous Third World leader, his departure was welcomed, not only by Malaysians but also by Malaysia’s neighbours. Malaysians now have the task of cleaning up the messes he left behind.

This article first appeared in East Asia Forum.