Political Insights Series | The Subtle Art of Trade Diplomacy

Steve Lewis, Senior Adviser with Newgate Australia shares insights from a recent interview with Dan Tehan, Minister for Trade, Tourism and Investment on trade and investment opportunities for Australia across the globe amidst geopolitical tensions.

There are days when Dan Tehan must feel like a high-wire trapeze artist.

The affable Liberal MP from regional Victoria holds one of the most demanding, challenging and vital portfolios in the Morrison Government.

As the Minister for Trade, Tourism and Investment, Tehan has watched the global economy contract as COVID-19 ran rampant, resulting in the closure of international borders and forcing governments, large and small, to prop-up teetering economies. Closer to home, the level of foreign direct investment (FDI) into Australia has been slashed by half with the Productivity Commission blaming the pandemic. With many tourism operators on life support, he has spent countless hours negotiating rescue packages and trying to keep the battered aviation sector afloat.

And then there’s China.

Tehan’s tenure as Minister for Trade (he was appointed last December) has coincided with a steep decline in Australia’s relationship with its largest trading partner. As evidence of this, Tehan reveals he’s not heard from his Chinese counterpart – Minister Wang Yi – for the past seven months, despite sending a lengthy letter setting out a range of areas where he hoped the two nations could cooperate on trade matters.

“There’s still no response to the letter that I sent in January detailing…why we should sit down and talk about the areas where we could cooperate, and that there might be areas where we would agree to disagree,” Tehan says, matter-of-factly during a wide-ranging interview.

The deterioration in Australia’s key bilateral relationship has been well documented. But it could not have come at a worse time for Australian producers who have seen a range of commodities – beef, barley, lobsters, wool, wine, to name just a few – punished by an angry Chinese Government.

And yet – and here’s the paradox – exports to China remain strong overall, underpinned by the Communist superpower’s seemingly insatiable appetite for our iron ore and coal.

So, how does the Minister in charge of our trading relationship, balance Australia’s economic needs against the Morrison Government’s hardening political stance against Beijing?

“I think the message that all countries are sending is that we want everyone adhering to the global rules, whether they be the global trading rules, whether they be the law of the sea, whether they be United Nations’ requirements,” he says. “We want all countries adhering to these rules.

The message to Beijing is unmistakeable, albeit couched in suitably diplomatic language.

No country more so than China has benefited from the rules that have been in place since the Second World War, he argues: “And so that is the message that we are trying to send. That we have got an existing system that has worked well for all countries, and we want everyone to continue to adhere to those rules, play by those rules and that is the way we can all benefit from the stability that would provide, particularly in the Indo-Pacific.”

Just a few short years ago, Australia signed a free trade pact with China, paving the way for supposed stronger bilateral ties and opening up major opportunities for a freer flow of capital and investment. But now Australia has been put in the diplomatic naughty box, is CHAFTA effectively dead?

“No, not at all,” he says, adamant that CHAFTA “continues to provide a very important framework” for the bilateral trading relationship. “You would have that seen from our exports to China; in certain areas, they continue to strengthen and overall, the numbers remain strong. It’s just that we have seen a severe impact in areas where there have been disputes.”

And while Minister Wang remains unwilling to return Tehan’s letter – or pick up the phone and call his Australian counterpart – he remains determined to maintain a “constructive relationship” with the world’s second largest economy.

“We do want to sit down and work through our differences and work on the things that are of mutual interest. My hope is that that will happen sooner rather than later but while we are waiting, we’ll continue to engage and explore all the other opportunities that are there around the globe.”

These opportunities obviously include further mergers with some of the world’s leading tech companies. The interview with Minister Tehan takes place on the same day American payments giant Square announced a $39 billion deal to acquire Australian buy now, pay later darling, Afterpay.

The Minister has little hesitation in declaring this a major win for Australia’s tech sector – and predicts it will bring an even greater global focus on our capability.

“I think the globe will look to us and say, ‘well okay, where else does Australia have these strengths?’ he says. “Hopefully, there will be more eyes on Australia and what we’ll see is a greater interest in investing in these areas.”

With Australia and other nations reviewing global trade rules in the e-commerce and digital technology space, Tehan believes there will be “more and more interest in this area; commercially, as well as governments making sure that we have got the right regulations in place for countries to be able to trade in these areas”.

All of which augurs well for our tech sector’s hopes of becoming a more dominant global player.

“We are unique in the mindsets (of foreign investors) when it comes to start-ups. Our garages are incubators for ideas like no other place in the world.”

Of more immediate concern though is helping Australian business trade out of the pandemic. The huge drop in FDI – 47 per cent since the pandemic began – is one of the most tangible examples of how the pandemic has changed the global trading environment. Clearly, says the Minister, our inability to travel internationally is “no doubt one of the things that is holding back a very strong rebound in foreign direct investment”.

Given this, does the Minister see a need to tweak Australia’s foreign investment rules to further encourage offshore investors in our economy?

Not at this stage, he says. However, he does see the need to “continually monitor” these laws to ensure they are fit-for-purpose. “And that is something that we will do over the coming twelve to twenty-four months,” he says. “We want to make sure that our foreign investment laws are achieving what we want them to achieve, that is to screen properly and to make sure that investments are in the national interests. But also make sure that those companies that have been trusted investors in Australia for a long time… can continue to invest seamlessly into Australia.”

Of course, Tehan is one of the few Australians with a passport to travel internationally during COVID-19 and in recent months he’s travelled to Europe, the United States and Asia with a clear unambiguous message: “That we are open for business, that we want foreign investment, and to make sure that their companies are getting in touch to make sure that we can facilitate that.”

Asked to nominate specific sectors, he nominates energy as an area of “enormous potential” citing a recent trip to Germany where the focus was on Australia’s potential supply of liquid hydrogen.

“I was there three months ago, and all Government ministers were focused on what the future energy supply looks like for Germany,” he says. “They understand that 70 per cent of their energy is imported to power their industries and as the global economy transitions, they need access to fuels which are going to keep their industries going. They see Australia as a real partner in this regard and I think the opportunities in this space are enormous for further German investment.”

More broadly, the Minister is hopeful of inking a free trade deal with the European Union. Australian negotiators have just concluded the eleventh round of talks. “I am hopeful that the twelfth round will put us in a position then to move to finalise the negotiations. I think we are going to run out of time to get that done this year, but my hope would be by the middle of (2022), we would be looking to conclude.”

Traditionally, the biggest obstacle to a trade pact with Europe has been EU insistence on protecting its agricultural sector. Mr Tehan concedes it will be “tough” to remove existing farming subsidies but is still positive about the overall benefits: “There is a broad suite of opportunities in this free trade agreement, whether it be in services, investment, agriculture – right across the board – government procurement. So, we will be looking to get a very good balance as part of this agreement, and we’ve really started to make some inroads which has been great.”

Finally, the Minister believes private capital can play a key role in helping Australia and the world recover from the ravages of the pandemic. “A lot of businesses – particularly those outward-looking businesses – have been hugely impacted by the pandemic so there is a key role for (private capital) to help recapitalise those businesses, help them get back on their feet and then to help them expand.

“So, I see a key role for capital going forward and especially for those who will be looking to those private capital providers and equity partners because there will be a need for business to be able to get access to capital.”

The Australian Investment Council will be meeting with Minister Tehan in the coming days.