On 21 October 2016, Corrs Partner and CEO John W.H. Denton AO participated in a panel discussion at the International Chamber of Commerce (ICC) Conference, Asia-Pacific: Transforming the Future. John is also the First Vice Chairman of the ICC.
John spoke and offered his views on the trade and investment challenges facing the Asia-Pacific region.
Read the notes from his remarks below.
No region has taken better advantage of the expansion of global free trade than our Asia-Pacific region.
But we now find ourselves at a global tipping point. Support for free trade is in danger of decline and even collapse.
It’s a trend around the world. Neither candidate for the next president of the United States has expressed support for the Trans-Pacific Partnership.
In the absence of strong and effective advocacy, there is a growing and aggrieved sense of globalisation’s shortcomings, while the clear benefits of globalisation are being under-estimated or taken for granted. Meanwhile, the regressive politics of high walls, closed borders, and protected industries has won endorsement at the ballot box.
So our meeting here, and now, is a timely one.
Because there is a tide, not just of protectionist sentiment, but of protectionist action, rising around the world.
Countries are using tactics like localisation requirements, export taxes and restraints, non-tariff measures and public procurement policies to promote protection.
Some countries are making it more, not less difficult, for foreign companies to invest in local property or businesses, or to establish new businesses within their borders.
We are seeing a range of regional and bilateral trade and investment agreements in play, and these may or may not make contributions to global peace and prosperity. But the smaller scale of these agreements makes it easier for the larger, more powerful governments to exert undue influence. And in such circumstances, industry sectors are more inclined to demand favours before they will become part of negotiations. The risk is that these processes will undermine rather than complement the vision for broad-based trade and investment agreements.
Artificially devaluing currencies is another way in which nations seek advantage at the expense of others.
And there are trade sanctions and financial penalties – more protectionist measures - deployed as one-off elements of broader geo-strategic power plays.
Let me say a few words about short term investment flows, where expectations are fairly pessimistic.
According to the United Nations Conference on Trade and Development (UNCTAD), global foreign direct investment flows are expected to decline by up to 15 per cent in 2016.
This reflects the fragility of the global economy, sluggish demand, lacklustre growth in some commodity exporting countries like Australia, and a slump in the profits of multinational enterprises in 2015.
If we look region by region, Africa is a bright spot. Inflows to Africa are likely to return to a growth path as a result of liberalization measures and planned privatizations. Globalisation will facilitate investment.
But flows to developing Asia are expected to decline in 2016 to 2014 levels. Latin America and the Caribbean may see investment flows slow down further as challenging macroeconomic conditions persist. And increased foreign investment in developed economies is unlikely to be sustained.
Here in our part of the world, flows to APEC members are expected to fall by 15 to 20 per cent to $760–810 billion, but this will be a reversion to normal patterns after unusually high expansion in a number of economies in 2015.
The good news is that global investment flows are projected to resume growing in 2017. They should surpass $1.8 trillion in 2018, but they will still remain lower than the pre-crisis peak.
As we know from the Brexit decision, globalisation and economic integration do raise public questions and even broad resistance to the potential loss of national sovereignty. In Australia there is undoubtedly resistance to new foreign investment partly because of the perception that this represents another step in globalisation’s destruction of national identity, land ownership and sovereignty. If these ideas take hold, then it becomes very hard to argue for the manifest benefits of foreign investment to facilitate jobs, growth and enhanced national security.
How do we manage these issues as we proceed? Well, I look forward to our discussions this afternoon, but here are a few preliminary thoughts.
First of all we need to respect the legitimacy of the concerns about globalisation. Certainly in Australia political and business leaders have for too long wrongly proceeded on the basis of a permanent citizens’ consensus in support of an open economy. But that consensus has weakened considerably.
It’s very difficult for people to be told to embrace open economies and foreign investment when they see fewer jobs for their children, lower wages for themselves, and when they have a growing fear that an open interconnected economy is paid for by a loss of local sovereignty, culture and community.
We need a revised global architecture that leads to a new global consensus, one that re-engages citizens in the process and ensures the benefits of a globalised world are more fairly distributed. We have reason to be confident about the prospects of success. A revitalised G20 was capable of dealing effectively with the crisis in 2008.
At the most recent G20 meeting in Hangzhou, the US and China ratified the Paris agreement to deal with climate change. So we know it can be done. But it will take enormous will and leadership, and a sense of common purpose for common goals.
In their final communiqué in Hangzhou, the G20 leaders committed themselves ‘to work harder to build an open world economy, reject protectionism, promote global trade and investment, including through further strengthening the multilateral trading system, and ensure broad-based opportunities through, and public support for, expanded growth in a globalized economy.’
That reference to ‘public support’ is significant.
All of us with leadership roles in our own countries need to be honest in recognising that there have been major winners and significant losers from globalisation so far. Income inequality is a huge issue. We need to be advocates for excellent regulatory systems and a fairer distribution of economic benefits, because otherwise we risk seeing support for globalisation disappear altogether.
And finally, we need to accept that change will not go away.
Look at Australia. Australia has stopped making white goods (refrigerators, washing machines and other household appliances) and will soon stop making cars.
We no longer contribute significantly in the construction of offshore platforms and other equipment for the oil and gas industry. Steel-making and heavy engineering have declined and can be expected to continue shrinking.
We are in a challenging and uneven transition but it’s underway. We are switching to education, tourism, legal and other services, high-end food, advanced manufacturing, and lowering the production costs of mining.
But we are still grappling with the sort of protocols and protections around foreign investment that will enable us to make this transition with the backing of foreign capital. And the word ‘globalisation’ itself has become loaded with all kinds of negative connotations.
Each nation must make its choices and every one of them will require careful, reasoned argument. Trying to avoid the hard issues around globalisation or letting strategic issues or other matters creep into the free trade agenda will lead to failure all round.
If the free trade agenda is to make further significant progress, I believe everyone must be more honest about what is being done and what the long-term implications are.
And any actions we take from now on must be clear about one thing – the benefits must be shared by all citizens.