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12 May 2021

With Greg Earl

Budget

The diversification of the Australian economy is the standout international relations theme of yesterday’s federal budget.

Measures supporting this objective will be undertaken by several departments, not just the Department of Foreign Affairs and Trade. This reflects the government’s new focus on creating cross-government responses to a more uncertain world.

Nevertheless, A$198.2 million of funding over four years (and A$33 million a year after that) will mainly go to DFAT for this purpose. The funding will support the diversification of Australian exports, World Trade Organization reform, the Free and Open Indo-Pacific Strategy and the expansion of Australia’s diplomatic network.

It says a lot about the new foreign policy zeitgeist that these measures are partly funded by winding back the New Colombo Plan, an initiative to support Australian students studying or training in the Indo-Pacific, which has been curtailed by the pandemic.

The prime minister’s department will also play a leading role in pushing for economic diversification: it will establish the Office of Supply Chain Resilience, which gets A$98.7 million over four years to “monitor vulnerabilities” and “improve ongoing access to essential goods”.

The diversification theme flows through a range of other new initiatives, including simplified trade, anti-dumping reforms, local vaccine manufacturing, boosts to domestic fuel supplies, critical minerals development and farm exports.

Since the pandemic, the Morrison government’s other major foreign policy theme has been foreign aid and neighbourhood health and resilience.

Last year, the government unexpectedly increased its A$4-billion-a-year aid program by roughly 10 per cent, or A$400 million a year for three years, when it announced it would provide special vaccine and economic support to the Pacific and South-East Asia.

According to the budget, base aid this year remains at A$4 billion, with the only increase being another A$37 million over two years for targeted pandemic support in India.

By contrast, funding for economic diversity programs amounts to at least A$500 million over four years, depending on definitions and the cost of some of its key parts, which has not been disclosed.

With an election looming, the government is focused on international relations spending that will have a domestic payoff.


Biden’s vaccine diplomacy

The United States has sought to accelerate the global distribution of COVID-19 vaccines by supporting the suspension of vaccine patents.

If the proposal is endorsed by the World Trade Organization, independent manufacturers could avoid negotiating intellectual property rights and rapidly increase vaccine supplies to developing countries.

Biden’s move breaks with the US tradition of supporting the powerful pharmaceutical industry in trade negotiations. It is another example of the new administration’s innovative global diplomacy.

But some Western countries, including Germany, are resisting the proposal, which the United States apparently failed to discuss before making it public. This would be at odds with its promise to consult more with its allies.

These countries, and some trade experts, say the vaccine shortfall is due not to patents but to a shortage of ingredients, a lack of manufacturing expertise and “vaccine hoarding” by wealthy countries, including the United States.

They also argue, as Australia did ahead of Biden’s announcement, that patent protection is necessary because it incentivises the development of new vaccines.

The Morrison government now says it supports waiving the patents, but it has been equivocal about how to implement this, even though Australia has committed to supplying vaccine to its South Pacific and South-East Asian neighbours.


Talking to China

Beijing has suspended the annual China–Australia Strategic Economic Dialogue, which may have provided a channel for the two countries to resume ministerial discussions.

China made the announcement last week, apparently in retaliation for the Morrison government’s axing of agreements between Victoria and China as part of the Belt and Road Initiative. A foreign ministry spokesperson told Australia “not to walk further on the wrong path”.

The economic dialogue, which was established in 2013, allowed the Australian treasurer and trade minister to meet annually with China’s National Development and Reform Commission, a key force behind the economic modernisation of China.

Due to diplomatic tensions, the dialogue has not been held since 2017, but its technical focus on economics could have made it a vehicle for stabilising relations.

Economic complementarity has been at the core of the Australia–China relationship since before 1972, when diplomatic relations between the countries were normalised. But the suspension of the dialogue suggests China is prepared to substantially reduce that bond despite benefitting from it.

The Morrison government responded to China’s statement on the matter by repeating its now standard mantra: it wants to restart ministerial meetings with China.

But it now seems more likely that the government will be forced to rely on third parties – such as international allies or the business and academic sectors – to achieve any sort of stability in its relations with the region’s most powerful country.


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