Last month, Minister of Foreign Affairs Marise Payne cancelled Victoria’s Belt and Road Initiative (BRI) agreements with China on the basis that the arrangement was either inconsistent with Australia’s foreign policy or adverse to Australia’s foreign relations. The decision to tear up the agreement was an exercise of the Government’s new power under Australia’s Foreign Arrangements Scheme which has been in operation since 10 December 2020.
The decision came after a review of over 1,000 existing and proposed foreign arrangements entered into by states and territories, local governments and Australian public universities. Two older Victorian Education Department arrangements with Iran and Syria were also cancelled by the Minister.
The move by the Government to tear up Victoria’s BRI agreements comes at a time when Australia-China political and economic relations are at a tipping point.
What is the Belt and Road Initiative?
The BRI, formerly known as the ‘One Belt One Road initiative’, is a global infrastructure development strategy that was introduced by PRC President Xi Jinping in 2013. Through cooperation with nearly 70 countries and international organisations, the initiative seeks to build a network of land and maritime trade routes across the globe in order to improve regional integration, increase trade and stimulate economic growth. To date, more than sixty countries have either signed, or proposed to sign, projects as part of the initiative. The estimated cost of the BRI is estimated to substantially exceed $US1 trillion over its lifetime.
The Victorian BRI arrangement involved two separate agreements: an initial MOU signed in 2018 and later framework agreement signed in 2019. The substance of the arrangement was to “increase the participation of Chinese infrastructure companies in Victoria’s infrastructure construction program”. Specifically, the arrangement provided for cooperation in high-end technology, biotechnology, agriculture technology and ageing population services. It also sought to enhance market access for food, cosmetics, agricultural goods and nutraceuticals.
However, neither of these BRI agreements were legally binding and no projects had been initiated as part of the arrangement. A ‘Cooperation Road Map’ was set to be finalised in March last year, but this was delayed due to the pandemic. Over the course of the past year, as the status of the arrangement became subject to increased scepticism, Victorian Premier Daniel Andrews continued to defend the deal, arguing that it was important for the creation of jobs, infrastructure investment and economic opportunities in Victoria.
Why did the government cancel the arrangement?
Victoria’s BRI arrangement with China was cancelled pursuant to the Government’s veto power under the Foreign Arrangements Scheme. The Scheme, which commenced on 10 December 2020 through the enactment of Australia’s Foreign Relations (State and Territory Arrangements) Act 2020 (Cth), provides the Foreign Minister with the power to declare a foreign arrangement as invalid and unenforceable, required to be varied or terminated, or not in operation to the extent specified in their declaration. The Foreign Minister can make such a declaration if satisfied that the arrangement either: adversely affects Australia’s foreign relations; or is inconsistent with Australia’s foreign policy.
Whilst the Foreign Minister is required to provide written notice as soon as practicable after making a declaration, there is no requirement that they provide reasons for their decision. So in the case of the BRI arrangement, whilst it is known that Ms Payne cancelled the deal on the basis that it was either inconsistent with Australia’s foreign policy or adverse to its foreign relations, little official reason has been provided by the Government for the decision.
Given the political tension between the two countries, the move has been viewed by some as Australia targeting China to further embitter bilateral relations. Indeed, the Chinese Embassy voiced criticism that the decision “shows that the Australian government has no sincerity in improving China-Australia relations”.
However, there are reasons to be concerned with the BRI which, since its inception, has been widely viewed as a vehicle to grow Chinese economic power and influence across the globe. In particular, the BRI has been labelled as ‘debt-trap diplomacy’ whereby China has extended excessive credit to impoverished nations with the intention of obtaining economic or political concessions from the debtor country once they are unable to meet their repayment obligations. Sri Lanka is often cited as a prime example of this, where after defaulting on a $1billion debt to construct the Hambantota Port pursuant to a BRI arrangement, the Sri Lankan government subsequently granted a 99-year lease to China in place of the payment.
The initiative has also been criticised for being premised upon validating China’s claims to the islands of the South China Sea, expanding its overseas military capabilities and exerting control over local markets, labour and export policies.
These concerns were alluded to by Prime Minister Scott Morrison in his comments following the announcement of the decision, “We will always act in Australia’s national interest to protect Australia, but to also ensure that we can advance our national interests of a free and open Indo-Pacific and a world that seeks a balance in favour of freedom”.
How has China responded?
The decision to cancel the BRI comes after months of speculation that the arrangement would be one of the first foreign agreements to be torn up under the Government’s veto power, as well as a year of pronounced deterioration of economic relations between Australian and China.
The Chinese Embassy in Australia immediately responded to Ms Payne’s announcement, describing the decision as “another unreasonable and provocative move taken by the Australian side against China”, and was “bound to bring further damage to bilateral relations”.
Since then, China’s economic planner, the National Development and Reform Commission, indefinitely suspended the ‘China-Australia Strategic Economic Dialogue’, which was intended to provide for regular, high-level economic dialogue between Canberra and Beijing. However, it should be noted that the last Strategic Economic Dialogue was held in 2017, and alternate channels remain open for dialogue, such as through the countries’ respective embassies and multilateral bodies. As such, China’s announcement has been widely viewed as being symbolic rather than having a significant effect on economic relations.
Much attention now turns to the China-Australia Free Trade Agreement (ChAFTA) which, if revoked, could substantially erode the already fragile bilateral partnership between the two countries and have devastating economic consequences for Australian businesses. The business community has already been wounded by a series of tariffs, restrictions and bans imposed on Australian exports following the Government’s call for an international inquiry into the origins of coronavirus in April last year.
However, it appears there is not yet much concern over the ChAFTA, as a move to terminate the agreement would have material consequences for the Chinese economy. This reflects the fact that, whilst diplomatic relations between Australia and China are potentially at an all time low, there are strong economic and trade complementarities between the two countries which neither are keen on severing.
What to expect ahead
The Government continues to insist that the decision to cancel the BRI agreements was not an effort to target China. Ms Payne has stated, “It’s about ensuring that we have a consistent approach to foreign policy across all levels of government, and it isn’t about any one country, most certainly not intended to harm Australia’s relationship with any countries”.
With the Foreign Minister continuing to review foreign arrangements notified under the Scheme, in the expectation that the overwhelming majority of arrangements will be unaffected, it will soon be evident whether any other deals with China fall victim to the Government’s new veto power.