Written by Paul Madden CMG, Senior Adviser, Stonehaven Global
If you’re thinking the world trade scene is suddenly looking a lot more complicated, you’re not alone. For most of my career, world trade was moving in the direction of globalisation, liberalisation and multilateralism. But the landscape has changed - with much bigger differences among politicians, voters and consumers about the future direction of travel. The nature of trade, the complex supply chains that support it, and the political context appear to be evolving faster than international rules can keep pace with. The UK and Australia have many shared interests in trade, as demonstrated by the early negotiation of a new Australia-UK Free Trade Agreement soon after the UK had an independent trade policy platform. This is an opportunity to build on the two countries strong historical links, in the new trading context.
As I discussed over lunch with Australia British Chamber of Commerce members in Sydney earlier this year, against this backdrop, businesses can seize the opportunities and navigate the challenges around six key themes:
Dissatisfaction with the impacts of globalisation. Workers were hit hard by the 2008/9 global financial crisis, and their incomes had barely recovered before COVID delivered another economic blow. This led to a push back against globalisation, exemplified by the Trump Administration’s trade wars with China, whose effects were felt around the globe. Deglobalisation is now a significant trend. Business needs to understand the forces driving this and be part of the debate.
Resilient supply chains. Companies were already becoming concerned about over-reliance on key suppliers in a “just in time” world of complex supply chains. COVID made us even more aware of just how dependent we were. There is now a renewed focus on resilience, including on-shoring or re-shoring, to bring key components closer to home. Companies need to become even more familiar with differing standards and sometimes obscure regulations on “rules of origin” (the criteria which determine where a product is deemed to be made, and thus its eligibility to benefit from free trade deals), in order to maintain their complex supply chains that criss-cross overlapping trading blocs.
Concerns about security of sensitive technologies. Governments are increasingly concerned about sensitive technologies leaching out unchecked through business and universities. Just this year, the UK has, for the first time, introduced a new system for reviewing investments in sensitive sectors – like Australia’s long-standing Foreign Investment Review Board. Meanwhile in the new AUKUS security partnership, Australia, the UK and US committed to share with each other key technologies relevant to security, including cyber and quantum computing as well as submarines. A number of countries, at American prompting, have in recent years decided to remove Chinese manufacturer Huawei from their 5G supply chains – a pivotal moment. Companies need to understand the political forces driving these decisions, including the evolving definitions of sensitive sectors. For example, companies with considerable interests in both Chinese and US markets face tough decisions on how to insulate their global operations from future uncertainties. The swift and far-reaching international response to Russia’s brutal invasion of Ukraine, including government-led sanctions and individual corporate decisions, further demonstrates the increasingly close interplay between business and security issues.
New regional trade deals. With the World Trade Organisation unable to progress new global trade rounds, and its dispute settlement system in disarray, countries are turning towards regional trade deals instead. The Indo Pacific region has been particularly pro-active and Australia has been pursuing regional and bilateral deals, including most recently with India. Australia as a founding member of the CPTPP (Comprehensive and Progressive agreement for Trans Pacific Partnership) is supporting the UK’s application to join the 11 member trade bloc, which constitutes 13% of global GDP. The CPTPP is a high standard agreement with strong rules. Another new trade deal, the Regional Comprehensive Economic Partnership (RCEP) has relatively weaker provisions and doesn’t cover services. But with the major economies of China, Japan, Korea and Australia joining their ASEAN neighbours, RCEP represents over 30% of global GDP. Companies can influence the outcome of trade deals by working with governments to ensure negotiating priorities reflect their commercial ambitions. To do this, they need to understand negotiating processes, timetables and the domestic priorities of trading partners.
Digitalisation. Australia’s trade is now increasingly delivered digitally. We are all consuming more digital services, from video streaming to online shopping and banking, while many industrial goods contain significant digital service packages. So the rules governing how data flows across borders and is stored, as well as how digital services are taxed, are increasingly important. Australia’s recent trade agreement with the UK includes ambitious commitment for free, open and trusted data flows. Both countries have a clear interest in driving the development of globally recognised rules and standards for digital technologies. In a fast evolving environment, companies concerned with emerging technologies and financial services, can play an important role in developing the new rules by sharing best practices with government.
Avoiding the undermining of climate change commitments. As we saw at the COP26 Climate Change summit in Glasgow, countries are making deeper commitments to cut greenhouse gas emissions. They don’t want this to be undermined by emissions simply shifting to production locations with weaker regulatory regimes. So, there will be more calls for border measures to prevent this, whilst avoiding introducing new protectionism. An effective private sector response to legislation, and to investor and consumer pressures, is essential to achieving COP’s ambitious climate change goals. Companies will need to promote consistency in their sustainability strategy across operations in developed and emerging economies.
With such a rapidly changing trade scene, companies must understand how these new trends are going to affect them, how they can adapt their businesses, and how they can influence the regulatory and trade negotiation processes. Trade policy is not just for wonks now.