Decoupling from China: The Future of Trade?

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EVENT TRANSCRIPT: Decoupling from China: The Future of Trade?

DATE: 28th July 2020, 10:00am – 11:00am

VENUE: Online

SPEAKERS: Pascal Lamy, Bob Seely MP, Andrew Hastie MP

EVENT MODERATOR: Samuel Armstrong

 

 

Samuel Armstrong  00:01

Hello, and welcome to the Henry Jackson Society. We’re very pleased to have you here with this debate on decoupling from China and whether that is the future of global trade. I’m going to give everybody a couple of minutes to filter in and then we will start in about one minutes time. Well, hello and welcome to this Henry Jackson society event. We’re discussing today, one of the fastest moving moments or thoughts, I think it’s fair to say this popped up in global trade. And that is the sudden but resolute desire of policymakers and politicians from across the western world but the world at large to decouple or reduce strategic dependency on China. I’m honoured to say that, joining us today, we have a fantastic panel. We have Pascal Lamy, who was not only an EU Commissioner but also a two-time Director-General of the World Trade Organization, at exactly the moment that we were enhancing our trading partnership with China. We’re also joined by Bob Seeley, who’s the coordinator of the Huawei interest group in the British Parliament, he’s the MP for the Isle of Wight, and he sits on the Foreign Affairs Select Committee. And we’re joined by my good friend Andrew Hasty, who’s the Chair of the Joint Intelligence Committee on the Australian Parliament, and the federal member of the committee. Both Bob and Andrew wrote recently for us on our paper on reducing strategic dependency on China. I recommend the articles that both of those panellists today wrote for us, and I think I’m going to ask them in some detail about what they say, but I hesitate to point out that the report is available on our website. And if you want to jump on what they might be talking about, with Zoom in the background, it might be worthwhile turning to the web page and having a look at the report. But I’m going to start our conversation, if I may, with Pascal Lamy because Pascal was the Director-General of the World Trade Organization at exactly the moment that trade with China was increasing at pace. And he’s done, I think we were joking beforehand, every time he comes to speak at the Henry Jackson Society, we’re talking about erecting trade barriers in some way or another. He was here last to talk about Brexit. But he’s done more than anyone, I think, to reduce barriers to global trade. But I want to ask you, Pascal, if I may, there is a story at the moment that goes around and goes like this: that 2030 years ago we believed that by opening up to trade with China we could perhaps incentivize a middle class, but in any event, facilitate sufficient relationship with the Western world, so that they would not only grow more prosperous, but they would open up and begin to assume our values and play an active and full role in the global space international order. The thinking now is that that policy failed. But I want to ask you, was that how you saw trade with China? During your time at the World Trade Organization and indeed at the European Commission? You’ll have to unmute yourself, Pascal.

Pascal Lamy  04:45

I think there is some truth in that, although I will quantify this. I think, at the time when China joined the World Trade Organization, most of us needed that this was a moment in convergence, long-term convergence between the Chinese economy and the world economy. Not many of us really thought that this could have short term political consequences. Although true, the view was that by opening, by liberalizing, by joining the global capitalist market system, China would probably become long term a more liberal entity. This has proved not all wrong. After all, China re-joined the world economy. This was a desire from China, not so much a desire from us but the desire from the Chinese, including Deng Xiaoping. That was the way to go in order to reform the Chinese system. And this policy has not failed, as it has been beneficial to the world economy. And if not entirely to the developed world, it has been very beneficial to the developing world. So overall, China joining the world economy is a success. Not least if you look at numbers, the trade surplus with China 20 years ago was 10% of its GNP, it’s now zero, which means that Chinese imports have during this period grown much more than Chinese exports. Now, this being said, there was a moment where this view that convergence would be the name of the game on a sort of secular basis changed, and this is around 10 years ago, because of economic reasons, when China had to regrow its state-owned sector to cope with the oil financial crisis, and they did it big way. China has renationalized its economy from 10 years ago, largely because of the necessity to cope with the awaited crisis. And then came Xi Jinping, who, in many ways, is a very different leader than his predecessors. So we’ve had seen both an economic and a political divergence, which has raised serious problems, and which we now have to cope with. So all in all, there was a time of convergence. And this convergence was in a way derailed, 10 years ago, for both economic and political reasons. And the question now is how to cope with that. And this is where, and we will probably come back later in the discussion, to this issue. This is why I, although I agree with much of the diagnosis of this extremely good quality paper, and there are not that many good quality papers on the topic. So that’s a clear appreciation on my side. And you can guess I read quite a number of them. Although I do agree with some of the diagnoses and some of the recommendations, I also have, if not a total disagreement, but at least a serious one. So we’ll come back to that.

Samuel Armstrong  08:40

Indeed, we will, you can count on that. Andrew, if I may. I think it’s fair to say that you and Pascal might see a slightly different world. On the trade picture. I think the themes are the same or the events are the same, but you might put up fairly nuanced differences in the way you view those? What does the trade picture look for Australia? Why are you concerned? Just at the highest level with strategic dependency on China?

Andrew Hastie MP  09:20

Well, thanks, Sam, good to be with you all today. The headline out of your paper was that Australia is the most strategically dependent on China, out of the five eyes. And my starting premise is always that Australia must be a free and sovereign nation. That means we have strategic freedom of action. Our political institutions are transparent and have integrity. We have economic freedom, we trade with whom we want, and we also have digital sovereignty. Now, we’ve been advancing on a number of those fronts. We took the hard decision on 5G, excluding Huawei and ZTE, back in 2018. We’ve modernized our criminal code to deal with modern threats of espionage and foreign interference. But this paper identifies a real weakness and that is that we are economically very dependent upon China and the events of this year have borne that out. We’ve had thinly veiled threats of economic coercion from the Chinese ambassador to Australia. And also the pandemic has exposed critical vulnerabilities which this report discusses. So, key areas that were exposed is our resources sector, our construction sector, our agricultural and manufacturing sector, and of course, pharmaceuticals, fertilizers and medical supplies. So the approach I took in responding to your paper was, we need to, first of all, identify what our vulnerabilities are. And before we take any action, we actually need to identify exactly what we can afford to offshore and what we need to preserve as a domestic capability.

Samuel Armstrong  10:56

Thanks, Andrew, Bob, the UK picture: the British government have now launched a scheme called Project Defend, they’re desiring to bring back a lot of manufacturing to the UK more generally. They’re concerned about supply lines. They’re concerned about the UK’s inability to source stuff at the beginning of this pandemic. And they don’t want to be left in that position again. Where do you see the trade picture? To what extent is, in the UK seen, this about bringing back supplies resilience, generally? And how much is this a reflection of the new more authoritarian streak and the risks that causes from President Xi?

Bob Seely MP  11:42

So I think it’s a question of both actually, but firstly, morning, Sam, good morning to all the folks good enough to join us. And if there’s a poor connection here, I would jump on my Mac and re-join the course. So if you’re telling me my connection is poor, let me know, I’ll do something about it here. Just Good morning. Andrew and Pascal, I’m very well aware of the significant contributions both have made. And I think some over-dependence threatens our global trade. I don’t doubt the global trade has been good. And free trade is very much part of the traditional UK free trading mantra. And it’s been good for hundreds of millions of middle-class Chinese people, where before there was significant poverty. But overdependence threatens us. And we’ve seen it threaten us economically, in health terms and politically. So let me give you an example. We haven’t been able to control and to get our own supplies in, in the recent pandemic, in the recent emergency, firstly. And secondly, as Pascal was saying, you’ve had China becoming more nationalized in its industries and rather more authoritarian in its approach to the world, and with a mercantilist or authoritarian state like China, trade is a weapon in a struggle with the Western world which is pretty domineer and our view is: you’re not our friends, we’re going to have a transactional relationship with you. We want to be in your critical national infrastructure to have a lot of control over the political decisions that you make. And if you don’t let us into your critical national infrastructure, and you don’t give us what we want, we will punish you. I’m sorry. When you have a relationship on those terms, you’ve really got to be thinking that this is not where we want to be. And so powerful was the Huawei lobby in this country that actually it’s taken an awful lot of pushing both from conservative backbenchers, but frankly, also from the American government to persuade the government, and I’m delighted that the Boris’ government has moved on this, to persuade the government to move. But just on the Huawei point, I mean, it’s a question for Pascal, which would be great to hear from him. On one hand, why are we investing in Britain? Are those high-tech jobs good? Absolutely. But if they’ve come at the price of the deliberate collapse of UK and Canadian, and American industries because of the deliberate policy by the Chinese state to fund its national champions so that they can undercut us. Those jobs in the global free economy are coming at a very significant price because people aren’t obeying the same rules. So what we need just to sum up, I think what we need is a much wider rethink about our strategic relationship with China’s 10 point plan or the significant areas that we need to change, but not high-risk vendors and our critical national infrastructure, the creation of international standards in 5G and others for low-risk offenders and people who play by the rules. And in the UK, and I would suggest, elsewhere, a much clearer understanding of the assessment or assessment of our trade dependency on China, and indeed in future any high-risk countries.

Samuel Armstrong  14:57

Great. Pascal, I saw you slightly wincing when Bob said that, that China sees traders as a weapon. Do you accept that firstly, or do you disagree on that point? Can trade be used as a weapon?

Pascal Lamy  15:15

And so this question is sort of an odd one out in the panel because, as you may know, I’m a citizen of the European Union. And no Member of the European Union anymore is a member of the Five Eyes. So I’m a bit different from both Andrew and Bob on this, the paradox being, by the way, that the country that has the closest trade relationship with China in the Five Eyes is Australia. It’s the only one together with New Zealand to some extent that has a free trade agreement with China, which says something, by the way, about the state of things. Now, I think, as a member of the European Union, that China and the EU said that three years ago, to the astonishment of someone on this planet, that China is both a rival and a partner. I’m saying this because there are different ways of diagnosing the situation. I do not agree that China cheated. When China cheated in the WTO, China was taken to dispute. And China lost a number of these you’d like, by the way, US, EU, Australia on others. So as far as the situation is concerned, I think we have to recognize that the Chinese hyper presence in some area results from a lack of trade rules, a lack of global disciplines. And this is something we need to address seriously. We’ll come back to that on the side of the solutions.

Samuel Armstrong  19:43

Okay, I can see Andrew and Bob bristling at the bit, but I want to ask one question first, which is, both Australia and the US have been saying for some time now, that China should no longer be considered as a developing nation at the WTO. Now I looked, in 2013, Pascal, you said that China shouldn’t be using its status as a developing nation as cover to avoid taking more international obligations. Now that was seven years ago. It’s still considered a developing nation. I think there’s still concern that it’s abusing that status. Is it right that China is still considered, by the WTO, a developing nation, and is it time for it to lose that status?

Pascal Lamy  20:34

Well, one of the many weaknesses is limited to, which is a formidable organization compared to other international organizations which see that they’re not the weaknesses, is that whether you’re a developing country or not, is a self-declaration by members of WTO. Which leads to the fact that Korea for instance, considers it is a developed country for industry, but it is a developing country for agriculture, which is a bit of a strange thing. And I remember I had a conversation with President Chirac at the time in France (he was not my best friend, by the way, for many, many reasons) and he asked me why couldn’t France for instance, do like Korea and decide it’s a developed country for industry and a developing country for agriculture because that would be great for us. Now, true. There are areas where developing countries have a special status, not very much, by the way, where China benefits from that, but it has allowed China to resist further opening commitments and further disciplines in the name that it was still a developing country. So it’s more about changing the rules. It’s not about resisting the establishment of discipline that would constrain China more than invoking the developing country status. And I’ve always said since I recovered my freedom of speech, that this notion that you self-declare whether you’re developed or developing country does not make sense we should have like in the IMF, like in the World Bank as sort of system of graduation, where what is the leader of countries, what is a middle income in the country, what is a developed country is something that comes from a common, sort of. taxonomy. That’s the way to go.

Samuel Armstrong

Just quickly is China a developing economy?

Pascal Lamy

It all depends for what purpose you have to answer this question. For instance, and this is a smaller section of this larger question, whether China is to be considered as a market economy for the purpose of damping regulation is something I believe, I believe China should be considered like others. And by the way, this is the way the European Union has changed its trade different system vis a vis China. And as you know, these disputes, which remains between the US and China, whether it’s a market economy status or not, does not exist anymore with the EU because we sort of vandalize the status of China in our trade defence system. But let’s not enter too much into technical details.

Samuel Armstrong  23:38

Andrew, what Pascal’s view is that it was Western failures as opposed to Chinese malfeasance. What’s your view on how China did take the dominance in this in great swathes of the global economy?

Andrew Hastie MP  23:57

So it’s a very tough question to answer. But I would say we can debate whether they play by the rules or not over the last 15-20 years. But I would say China’s fundamental problem now is that they have a trust deficit within the community of nations. And that, I think, began in 2016, when they started developing and then militarizing the South China Sea. I think over the last four years in countries like Australia, and other democracies, particularly in Europe, people have started waking up and that trust deficit has grown since the start of the pandemic. So, you know, I’m not qualified to get into a large discussion about whether or not China has played by the rules economically. But I think the fundamental strategic challenge of a trust deficit permeates all other spheres in which they operate including economics. And my point is, Australia has a very deep economic relationship with China, one in three of our export dollars goes to China, where we occupy a continental landmass twice the size of the United States with one 14th or so the people to our north is 1.4 billion Chinese people. That’s an amazing market. We produce huge amounts of natural resources, agriculture. We produce, you know, food for 75 million people for a country of only 25 million people. So there’s a huge benefit to our relationship. But the problem is there is a trust deficit. And at the moment, there is nothing being done to alleviate that fundamental lack of trust.

Samuel Armstrong  25:30

Bob, what’s your take on what Pascal said?

Bob Seely MP  25:36

I mean, I don’t think there’s that much. I think to the positives, there’s not there’s certainly some difference between what Andrew and I and Pascal are saying, but we shouldn’t exaggerate it. We’re basically saying, mistakes have been made on both sides. We’re not where we want to be with China. How do we get where we want to be with China? On the WTO Pascal is exactly right, as Liam Fox was explaining the intricacies of the WTO because I hope he’s going to have a good chance of becoming the next leader of that great organization. And we’re all rooting for him. Liam was explaining that you self certify. And the fact is that China in a lot of things is self-certifying developing nation. In some areas it’s now certifying as a developed nation when it’s in its interest. Is China a developing nation? For sure. You could say, that China is still a developing nation because there are still peasants, farmers in some parts of China. I mean, you could say bits of Britain that didn’t get the Industrial Revolution are still a developing nation. I mean, you could say the back end work just in the developing nation, I don’t know. The second biggest economy in the world cannot be a developing nation, because it skews everything so dramatically. So China has to see itself regardless of internal differences between Shanghai and Xijiang province. It has to see itself as a developing nation. If it wants to rear the trust that Andrew very astutely pointed out. It also has to do stuff and IP theft and really moves to deal with. And not just because it’s in its interest because it has to recognize what’s in our interest. And it has to do stuff on subsidies. And I know that the Americans aren’t perfect on subsidies. But they play a lot more by the rules when it comes to subsidies. But nobody’s perfect with subsidies, not even us. But when you’re using subsidies, because trade is strategic and as a strategic tool for your dominance of your neighbours. And your trade, for example, in 5G is part of your desire to get a strategic hold on the political classes of other peoples and other nations by getting your companies to enter their critical national infrastructure that goes beyond just trade, regulations and rules, and is part of China’s desire to be a mercantilist nation in terms of how it sees its own trade. It sees trade as a weapon. It is an authoritarian state at home, increasingly, sadly an authoritarian state abroad and for trade as we’ve seen from them threatening to punish Australia, Australians don’t do what they’re told they will be punished, their trade will be punished. That is not something which then is going to engender trust with other nations as entry points are, and China needs to understand that, and we need not be played off. So the free nations of the world need much more to act together to form a united front so we protect our own industries or allow them not to be collapsed by China, so 5G. When Pompeo was here last week, I said, Look, Australia or you need to lead on setting new international 5G standards for both for firefighters but then to the European Union, to NATO countries that want to sign up not to have to High Risk vendors, we need to abide by a single set of common rules. So we encourage free trade. So we encourage Nokia, Ericsson, an NBC and Fujitsu and Samsung and new players in the UK and the US, because comms is going to be software-based much more in the future. We encourage these new players into the market, but we protect this market, not because we’re protectionist, but we’re protecting it from people who have a mercantilist, aggressive trade or strategic policy like China.

Samuel Armstrong  29:28

Um, lots of interesting topics were brought up. I think the consequences of China’s ignoring of the international tribunal the Law of the Sea ruling is fascinating. I think, Bob, you’re right to bring up IP theft. We might come back to base of these as areas in which rules that do exist, do appear to have been breached, but I want to turn, if I might, to Andrew now and ask him the question of what is to be done. Because I think this is again an area in which there’ll be some agreement and some disagreement. But where do we start, Andrew, in restoring this position to one that’s in the interests of both sides?

Andrew Hastie MP  30:18

So I don’t think we can disentangle the economic and the political, and the strategic questions. They’re all intertwined. And I’d like to get back to basics. What we’ve been doing over the last few years, is resetting boundaries in our relationship with China. As I said at the start, we’re a free and sovereign nation, we wish to remain so. And so in our personal relationships, we have boundaries, and it’s also true at the national level. And particularly when you’re dealing with an authoritarian regime, who doesn’t share your values. And so, you know, we go into our trade relationships with our eyes wide open, but we certainly want to preserve and uphold our interests and our values as we enter into those relationships and the decisions we’ve made over the past four years. In 2007, we didn’t ratify the China extradition treaty, as I mentioned, the 5G decision in 2018, and also the introduction of a whole suite of new laws to protect our sovereignty. And, you know, this year as well, arguing the case for transparency by co-sponsoring the motion of the world, both organizations to have an independent inquiry into the origins of COVID-19. These are decisions we’ve taken and although you can argue whether there is a connection between the tariffs that have been slapped on our barley, which is our second-biggest grain export, an 80% tariff, and four of our beef processes have also been, you know, damaged in all of this. So, targeting two really big producers in our country. It hasn’t been without consequence, but I guess the key takeaway I want to make here is that we’ve reset our boundaries. And that also includes our economic relationship, ultimately, I think because they’re all intertwined.

Samuel Armstrong 32:11

Bob, I can see you. (inaudible)

Bob Seely MP  32:15

Just on that point. I mean, I wish that the UK and its attitude to China would be more like Australia because their attitude, I think, is a really good one. On one hand, you can say the Trump administration is a little bit too bombastic. I think a lot of the at the official level. at an administrative level, I think Trump or the Trump government, as is a good republican government. A lot of Trump’s rhetoric doesn’t help. On the other hand, the Brits have been to mealy-mouthed about China, because we’ve been tied into the whole Golden Age, which was at best, hopelessly naïve. I think the Australians have got it much better. They said no to Huawei, no to ZTE. These were big decisions. They are kicking off about the South China Sea, as they are absolutely right to do so. They are wanting blunt answers on COVID. So, they are exercising time and time again political independence whilst at the same time saying that we want to trade with you. And I wish more countries would separate that and say we welcome trade in non-sensitive areas with China because it’s good for China, it’s good for us. We like free trade and global trade. But there are clear rules and we’re going to defend our independence as a sovereign nation. And I think that’s a good model. And I wish it was one that New Zealand was going to have a little bit more. Speaking to some New Zealand lawmakers last night and they, I think, are slightly feeling under the cosh because so much of their exports, like Australia’s, go to China, but because it’s a much smaller country, they feel they don’t have the options. So one of the options and I know it’s something that gets a bit poo-pooed in this country is going to be UK free trade deals with Australia and New Zealand, as soon as we can get them, because effectively that will increase our trade. It’s not to offset the European Union. That will increase our trade, but it will also send a very strong signal that people in New Zealand but also Australia have choices. And so do we about who and how we trade, because we’re not going to start to threaten each other if we fall out over, you know, cricket or something.

Samuel Armstrong  34:11

Just before I come to Pascal to ask sort of where he agrees and where he disagrees with the recommendations in the paper. I know there’s, there’s a bit of both. I just want to say that there is a Q&A box down the bottom. Do get questions in, particularly keen to get as many as possible from our friends in the press. And closer to the end, I will call you and you’ll have a chance to ask the panel but do submit them there and we will come to them in due course. But Pascal, where do you agree, whee do you agree a little less?

Pascal Lamy  34:49

Well, I agree is that measuring overall dependency, reviewing, debating, numbering is the right way to go. And I think, for instance, the criteria that have been used in the report in order to determine whether or not there is overall dependency are well done, well crafted and can lead to a fruitful public debate. And again, this is probably what’s behind this openness, strategic autonomy notion by the European Union. And on this, I agree. Where I disagree is on the overall strategic stance that we also have to weaponize our trade relationship with China. And the reason for that is the lesson we have to draw from the Trump administration. I personally believe that a more autonomous China, a China which would be more closed and this is what will happen if we behave the way Trump does and by the way the reports of this we do. A less autonomous China is a more dangerous China. So, in strategic terms, I still believe that engaging China into the conversation, engaging China into recognizing that for instance this concept of competitive neutrality, which they use at home, should be used in our economic relationship with it. Engaging China in the recognition that we cannot co-exist in free trade, open trade system with a country that subsidizes 30% of its economy. This is, I think, the way to go. And we need, in my view, to have a more balanced attitude both rival and partner and probably be better at leveraging the bargaining position we have, which is access to our market. After all, this is something, which we have in common, this is something which China needs. And, I think, moving further into engaging China into a reciprocities’ conversation is the way to go. Engaging China in the more global route, more global standard. For instance, 5G security, and I do recognize there are some doubts here and there, in other words, I would prefer the road which takes China with responsible stakeholdership rather than isolating China and ourselves. Weaponizing, mercantilising our trade and economic and political relationship. That’s where I have a serious difference. Whereas I totally agree ​​on the sort of industrial policy with you, which we need to do in order again to address this fragility, which I think the Covid crisis has revealed in some areas.

Samuel Armstrong  38:35

Bob.

Bob Seely MP 38:38

I just wanted to very quickly ask Pascal. I mean, I’m not trying to disagree with anything he said. But the devil is in the detail and the understanding of the language. Where do you get?.. Okay, let’s park some of Donald Trump’s more effusive comments to put it politely. What is the difference between, I don’t believe one should weaponize trade because free trade is free traders you know, etc. So if one is not weaponizing trade, but one is building barriers to prevent other people from undermining your economy through or undermining your industries through a deliberate act of policy. Where does weaponizing end and defending free and fair trade begin? And that is the nuance in this debate. And I think you’re assuming I’m saying this will take the arguments. I agree, respect very much what you’re saying. I don’t disagree with what you’re saying, I just think one has to be more robust in defending our interest. That is not necessarily weaponizing it.

Pascal Lamy  39:37

My view, Bob, is the following one. We have to help China understanding, which may not always be the case among the Chinese leadership, part of which is not that familiarized with a liberal, free trade open market economic system. On public procurement, whether it’s on specific sectors. So I think building a  less defensive and more leveraging our bargaining position with China is, I think, where we should go. And this, of course, entails some changes, like, for instance, a stricter vetting of Chinese investment, which is what’s happening, and which is a serious problem for them. This signal was received five on five by the Chinese system. This is, I think, the way to go.

Bob Seely MP  41:40

Okay, related to that briefly, Sam, if I may just come back here, Pascal, when that’s the economic question. Effectively, if we can act together to persuade the Chinese to be more reasonable, it’s good for them and good for us. What happens if they just don’t want to play ball? So for example, what is happening in the South China Sea is very nearly is an act of open aggression and it’s very nearly an act of war, which is to turn so much of the South China Sea, pretty much all of it into a Chinese Lake, which will threaten, allow a far more aggressive posture to Indonesia, to the Philippines, to Malaysia, Brunei, to Vietnam, to Australia, to US interests clearly, absolutely surrounding Taiwan. If the Chinese just saying, actually, we’re just not listening, because we’re powerful enough to do what we want. Do we continue to engage and embolden their ability to pay for this very, very significant expansion both of influence in the West, but also military influence around their neighbours? What do we do about that?

Pascal Lamy  42:42

No, I agree, we have a problem. And I read when China violates international law, which they probably do in the South China Sea following the Law of the Sea, the Court of the sea determination whether what they do in Hong Kong with this new legislation is a violation of the international treaty which they signed with the UK. I think, this is an issue we have and, by the way, we don’t have it only with China. We have it with Russia in Ukraine and we do sanctions against Russia following what they did in Crimea and UK. I think this pertains to another department for international relations which is exerting pressure with sanctions, whether these are political sanctions, whether these are economic sanctions I think we have to be ready to do that. But this should not lead to the Chinese economy decoupling from the global economy which, again, I think would be making China more dangerous than it is now.

Bob Seely MP  44:02

Okay. I mean, you could argue that sanctions is another form of weaponizing trade.

Pascal Lamy  44:11

Except that it’s in very specific circumstances with very targeted measures, which have to do with correcting the behaviour. It’s not weaponizing the whole of the economy and trade and technology relationship.

Samuel Armstrong 44:32

If I may, unusually for the Henry Jackson Society, I’m going to move us on to an area of more positive form of international engagement and talk about the alliances that we can build. Andrew, there’s a lot of people talking about the detail at the moment in the paper, we talk about, given the failure of the Trans-Pacific Partnership, the opportunity for, at the very least, a Five Eyes trading relationship in which we think there is some mutual interest in boosting trade together. I know that there are some big announcements coming down the road, from the governments of the Five Eyes in terms of strategic supplies of minerals. Where’s their scope here for more trade between the members of the free world, which in itself acts as a buttress against overreliance on China?

Andrew Hastie MP 45:34

So great question. I think once we review our supply chains in Australia and establish our vulnerabilities and I trust the other Five Eyes countries will do the same. Hopefully, other like-minded nations across the world will be undergoing the same sort of work. That’ll give the basis for understanding where we can mitigate each other’s weaknesses and build on our strengths and, yes, there is potential for a trade bloc. So, I think, we should be doing everything that we can to build out that network. Many of you would be familiar with the inter-parliamentary coalition on China, that’s expanded very rapidly and it covers a multitude of nations, and it just shows how much goodwill there is out there. And so if that’s just a hint of what could be achieved, then I’m actually quite optimistic about building trade relationships, you know, not just with the Five Eyes but beyond.

Samuel Armstrong  46:35

Just before I come to questions, should I ask Pascal lastly, does that fill you with hope for trade? Is that a good thing for like-minded countries that share values to reduce barriers amongst themselves as a sort of more positive form of decoupling some people have referred to this, I think I did, in our recent paper as a positive decoupling, reducing barriers amongst those who do observe the rules of the game.

Pascal Lamy 47:12

I think the concept is okay. The problem is that it’s implementation does not happen for very, very deep structural reasons. To put it very simply, opening trade in the future is not about removing the protection of domestic producers. Opening trade in the future is about harmonizing the protection of consumers. And this is a very different ballgame. This is what I call precautionism as opposed to protectionism. So opening trade in the West, which by the way, we tried to do with this Transatlantic deal that was negotiated at some stage, is mostly 90%, about harmonizing safety security standards. What you have to do, what you have to clear to market a medicine, the size of bumpers on Gaza, pesticide residues in flowers and the rest. The problem being is that addressing these issues takes you immediately to values, to things that people believe is good or bad. And where the West basically disagreed. If it’s about GMOs, or is if it’s about chlorinated poultry, and sorry to enter into logistical issues, but there are clear obstacles to levelling the playing field within the West. And, by the way, doing this without engaging the rest of the world, not only China, by the way. Lots of countries in Southeast Asia or even India, who at some stage will be part of that. So this, this is what we have to consider. And I think so far, minds are too much focused on those three planks of classical protection, tariffs and so on. Whereas the real issue is discrepancies in the way you admit the way you fix, and the way you administer standard. And by the way, we have with Brexit under our eyes, a perfectly good example of the problems of such mini de-globalization. I mean, we have a very common civilization on both sides of the channel. And yet the notion that it would be good to diverge on the standards at some cost is the real issue of Brexit. So good to think about something like this. Let’s face it, getting there in the future will necessitate a lot of attention. And by the way, this is mostly to do with not trade negotiators, but regulators, which makes this equation even more complex. I think, including the relationship with China, we have to look at this standardization. Levelling the playing field in the future is much more different than it was the case for the last 50 years.

Samuel Armstrong  50:34

The moment I hear Brexit, I try and move on having had more than enough discussions on that, but I’m going to ask a question from the audience now. And it’s from Paul Boateng, who has asked a question, I think, that puts us to it to another important issue that we’re at risk of forgetting that discussion between France, Australia and the UK.

Lord Boateng  50:58

China’s challenge to our supply change extends to Africa. How do we reverse the Western democracies’ tendency to continue to regard Africa as primarily a focus for philanthropy? This has left China free to develop its trading infrastructure relationship largely unchallenged. They support their firms to do business in Africa. We do nothing of the sort.

Samuel Armstrong 51:33

I would say that, Bob.

Bob Seely MP 51:35

Hello, you raised an incredibly valuable and important point. I think, certainly the way it plays out domestically in UK politics, we spend far too much time talking down to Africans and not talking on the level with them. Africans, okay. I mean, Africa first is very many countries, very many of which are making remarkable progress in developing and we need to be supporting them rather than just seeing them as recipients of aid. And I’m really hoping one of the things that we’re going to do that this government has pledged to, is to develop our trading relationships much more deeply because we have a lot of really strong cultural and historic relationships with, with many of the most significant African countries, including Kenya, Nigeria, South Africa, etc. I mean, I’m concerned about what you say about China because actually, I think a lot of Chinese activity in Africa is pretty nefarious. I think it’s about learning about countries with debt. I think it’s about bribery and officials, I think it is not a healthy way to go. One of the things maybe not to make myself popular on this, one of the things I would like to do is to see the ODA rules, the development assistant, please tweet, I’m happy to stick with 0.7. But one of the things that we need to be doing is throwing a lot of money at the BBC World Service, TV and radio to develop the BBC World Service, frankly, to take on Russia today and CCTV so the Chinese state television and actually become the global broadcaster of integrity, which it already is, but really strengthen and build out that role because Africa isn’t just about basic humanitarian aid or life-saving aid. It’s actually about in many countries now even advanced level of civic development and I think the BBC can really help with that. Because if you have a gold standard of media content, you have a gold standard of integrity, what everyone thinks of the BBC domestically, the world service’s different kettle of fish, when you have that gold standard, that is something really valuable that we could do, not only for developing nations but frankly, in parts of Africa, which are pretty well-developed parts of South Africa, parts of Kenya, parts of Nigeria, Malawi, Namibia and other countries that are actually doing pretty well.

Samuel Armstrong  53:44

Great, unless anyone else has got something to say. Andrew, I wonder if I can ask a little bit about the Australian situation in that. Where do you think Australia is? I mean, Bob praised, I think quite rightly the way Australia has been seeing China with clear eyes as the UK Government likes to say that we see China with clear eyes. Quite what that means, I don’t think they’re sure. But where does the Australian picture differ because you are so comprehensively integrated with China? And do you think it is because you are so far along the road of integration with China that you’re the ones who are now rather like the canary in the coal mine who have stopped singing?

Andrew Hastie MP 54:35

Yeah, so Steve Bannon called us the canary in the coal mine. Professor Wang Yi came to Australia last year and said, I’m sponsored by the Chinese Embassy said that we would be the first sacrifice in a Cold War, in the next Cold War. And indeed, I made the comparison of Australia to Melos from the Peloponnesian War where Athens demanded that Melos pick a side, Melos, refused to go with the Athenians and that were crushed in 416 BC. So, since, you know, geography is destiny, we’re a small country on a large continental landmass in the Asia or Indo-Pacific region. We’re deeply integrated economically with China, one in three export dollars. And so the stakes are very high for us, and we don’t want to be a tributary state. We want to be free and sovereign. And so the things that we’ve done over the last four years, which haven’t necessarily been economic, although we’ve introduced you offences on our statute books, the theft of trade secrets, for example, and things we’ve done over the last four years has been preserving our political and strategic freedom of action to avoid economic coercion. And you could argue that the hit to our barley and beef this year is an attempt to make us second guess our decisions over the last year and beyond.

Samuel Armstrong  55:58

Bob, I can see you bouncing this

Bob Seely MP  56:00

Just came to come in on Andrew again, you know, Australia’s done really good stuff on the most important things they’ve done in 2018 was the foreign transparency influence scheme act. It’s a bit of a mouthful, but everyone correct me on the name if it needs to. We need to do a bunch of things in the UK. And actually, we need to do a bunch of things internationally. And one of the big learnings from all the stuff that AIPAC, so the inter-parliamentary alliance of China, which Andrew mentioned, me giving a heads up to now as well, is actually getting people talking internationally. So we have a common shared agenda. And I think that is so important because there is strength, and Pascal’s nodding, which is great, there is strength in numbers. And the more that we work with Australia, with Canada, and with the United States. The United States is massive it doesn’t have to work with people. But actually, the more we collectively work together and in the European Union, and the leaders of France, and Germany, the leaders of the European Union, the better. In the UK, specifically, as well as working with others to lobby China or to work on the China issue collectively, we need to have our own foreign lobbying act because of our lobbying laws, the UK is in peddlers paradise, we’ve seen that with both Russian oligarchs, and we’ve seen it with firms. We have massive lobbying operations. Well, we still just about beat them. But that’s another matter. We’ve got to be. Just very briefly to sum it up in 30 seconds, we need to have much tighter and preferably shared rules with others, about having only low-risk vendors, so no high-risk vendors in our critical national infrastructure. But beyond that, we should all, you know, welcome global trade, as long as you don’t have high-risk vendors in sensitive areas. In the UK, we need much clearer rules in Chinese investment in sensitive areas, artificial intelligence, supercomputing, defence stuff again, and again, if we can have a common set of standards with NATO, that a good for us and be sent a really clear message to China that we are beginning to act collectively and internationally. And what China is doing, it’s not good for its own future. It’s not good for its relationship with us.

Samuel Armstrong  58:05

Great. We’ve got two minutes left. So I’m going to do two rounds of quick-fire questions if I might, which is the first one is slightly adapting. A question from Dr John Bruni: can China be both a threat to our values and a trading partner with whom we want to make ever-closer trade concurrently?

Bob Seely MP 58:35

Yes, but it’s a balance. We’ve got to get it right.

Samuel Armstrong 58:38

Let’s go. Yeah.

Pascal Lamy 58:40

same, same answer. China is both a rival and a partner. But the solution to this equation and it can change this time, China is more of a rival and lesser partner after what’s happening in Hong Kong, for instance. This has to be with a strategy about engaging China. Take Huawei, which I know is very sensitive, very delicate. Why don’t we, and I’m speaking again from within the European Union, why don’t we erect a standard of what we consider is safe 5G equipment. Why don’t we do in standards what we should do, i.e., level the playing field? For instance, moving the direction or more disciplines on state aid. Why don’t we go in this direction? After all, if we have a problem with Huawei equipment in 5G, we have to be able to explain why. If we have a standard that we believe protects properly, our safety and security cyber wise, we have to erect the standard and say like other standards on chemical products or whatever, those who want to sell their products on our market have to match the standard. If it matches, fine, if it doesn’t, it doesn’t. I think we miss this part of what has to do, including in this speech, which again, I recognize is extremely good quality in terms of numbers. But I think the strategic approach should be more in the direction of let’s say the way we want to level the playing field and condition, trade opening investment to these criteria.

Andrew Hastie MP  1:00:46

Very, very, very quickly. Is it possible to have China as a strategic rival and as a trade partner? Yes, it is. Australia does it every day. It requires a very elevated form of political leadership. And I think our current government is doing an excellent job in very trying circumstances. So to other democracies out there. Yes, it is possible. But the biggest risk to us is economic coercion. And I think, you know, being vulnerable to supply chain warfare, and that’s fundamentally where we started, Sam, that question, how do we solve that problem?

Samuel Armstrong 1:01:22

Yeah, and final last question, very quick fire. If you’re King for the day, what is the one policy you’d enact to fix this? Just one thing to do, Bob, I’ll start with you.

Bob Seely MP 1:01:37

For okay, I mean, because it’s my foreign lobbying act because I think we badly need that in the United Kingdom. But I mean, that’s, you know, basically working with other democracies.

Samuel Armstrong  1:01:48

Great Australian export by it was, I think, first written by Australia’s now High Commissioner to the UK, so maybe he can give us some pointers on how to fix that. Andrew one policy?

Andrew Hastie MP 1:02:04

We’ve done a range of things. But I think it’s not so much a policy. It’s a hope. And that is Australian civil society, including our business community, begin to appreciate the challenge of the problem and are committed to the journey the same way our political leadership is. I would say that critical to passing a lot of the legislation was the work of investigative journalists in Australia, a very strong press corps set the conditions for that to happen. And so, yeah, I’m a liberal so I don’t want to get involved with civil society, but it’s a hope that we will get on board.

Samuel Armstrong 1:02:42

And Australia’s defamation law changes, you’ve passed, was that helpful for that effort?

Andrew Hastie MP 1:02:50

We haven’t passed anything yet. It’s under review at the moment, but certainly having some sort of national security Colorado a public interest test makes sense in my view.

Samuel Armstrong 1:02:59

Fantastic. Pascal, one policy. You’re muted.

Pascal Lamy 1:03:05

The one policy: engage the Chinese so that they understand that open trade and investment will not persist if they intend to weaponize trade relationships.

Samuel Armstrong  1:03:24

Fantastic. There we are, three final policies. Thank you very much to our three fantastic panellists, Pascal Lamy, Andrew Hastie, and Bob Seeley. They’re all great friends of HJS’s, and we were very grateful to them for joining us. Thank you to everybody for joining us. Do you give the reports or reads the contributions from Andrew and Bob, and also check out Pascal’s work at the Delors Institute in Paris, which has done some fantastic work on trade, diplomacy and a great many other issues. But all that is left for me to say is thank you very much to everyone for joining us and keep thinking about these big questions.

HJS



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