By Peter Cai, public policy analyst

Over the past decade, national security issues have gradually encroached on economic policy making and accelerated during the Covid-19 pandemic. Nowhere is this trend more evident than in the capitals of two competing superpowers, Washington and Beijing.  The US is turning back on its own liberal free market ideology in favour of more tariffs, subsidies and security influenced economic policy.   

In China, President Xi Jinping is making national security centrepiece of economic strategy from dual circulation to self-reliance focused Made in China policy aimed at reducing reliance on Western technology. The Ministry of State Security has emerged out of shadow to warn Chinese citizens about Western spies who want to steal everything from weather data to rare earth technology.  

Australia is not immune from this global trend.  China’s disastrous and blatant economic sanctions on many industries turbo-charged the process. At time of intensifying geopolitical competition, there is little doubt that national security considerations are paramount. However, the problem is when everything is a national security issue and then nothing is a national security priority.  

Four Australian and Asian business leaders grappled with the wider implications of this shift in their discussion of the challenges of doing business in Australia, and especially for Asian investors, in their contributions last week to the Asia Agenda series. 

Matthew Durban, a former senior trade official, shared his concern about increasing securitisation of Australia’s economic policy. University of Queensland chancellor Peter Varghese, also a former Department of Foreign Affairs and Trade secretary, expressed his concern at the parallel Australian Financial Review/Asia Society Australia Asia Summit too.

The even greater risk is when people want to cloak blatant protectionism and populism with the respectable cloth of national security.  It is easy to lose sight what has made Australia prosperous over last many decades, a free trading nation that is closely integrated with the most dynamic economic region in the world.

Australian Industry Group chief executive Innes Willox aired a long laundry list of grievances about industrial competitiveness and productivity.  One concern in particular that resonates with Asian investors is the exceedingly long and complex bureaucratic approval process across local, state and federal levels to build anything in this country.  

I recall an Indian investor shared his story about the bureaucratic nightmare he had to endure in order to build a major edible oil processing facility at a regional centre. The local council made his life almost impossible and refused to provide even the most basic amenities such as a paved road and water and electricity connection.  The environmental authority even asked for standards higher than that of the notoriously fussy European Union.

That saga is not an isolated case. Though Asian investors need to appreciate Australia’s federal system of government, it is nevertheless incumbent on the country to streamline the process and make it more palatable for investors who are more accustomed to one stop shop treatment in other jurisdictions. This is a pointmade by one of Australia’s leading businessmen Warwick Smith.

Last but not the least, Tatsuya Terazawa, from the Institute of Energy Economics, Japan, raised a number of important issues about Australia’s LNG export policy, support for a green hydrogen Carbon Border Adjustment Mechanism, and  carbon trading system.   

One interesting issue raised by Terawaza is the potential integration of Australian carbon credits market and Southeast Asia.  At the moment, Australia’s emission trading system is only limited to carbon credits development domestically.  Terawaza argues Australia should include carbon credits developed in Southeast Asia as part of the domestic scheme. This will provide export opportunities for the region and at the same time help Australian companies to meet their carbon caps.  

This potential has been recognised by the government’s Southeast Asia Economic Strategy report which says carbon trading represents an important economic opportunity for Australia and the region. Australian companies could import carbon credits from the region. But in order for that to happen, there is the urgent need to build a common standards of carbon accounting and market governance.  

The report recommends that the Australian Government could work with international and regional partners to build the infrastructure and technical capability. There is no doubt that technical capacity building is the foundational block for carbon market integration, but it is no substitute for bolder strategic moves like creating the Asia Pacific Economic Community, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or the Regional Comprehensive Economic Partnership. 

If the government truly wants to economically integrate with the region, it has to be willing to open up its domestic carbon credits to its partners in the region and especially at a time when it is much more tempting to pull up the drawbridge into a more protected economy. 

Peter Cai is a public policy analyst.  

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