Game changer? – APAC trio launch major supply chain initiative

August 2021 | FEATURE | RISK MANAGEMENT

Financier Worldwide Magazine

August 2021 Issue

In a bid to strengthen supply chain provision in the Asia-Pacific (APAC) region, a trio of countries – Australia, India and Japan – have joined forces to produce the Supply Chain Resilience Initiative (SCRI). This proactive effort is intended to reduce global and regional vulnerabilities, as well as lessen dependence on China.

The need for an enterprise such as the SCRI has largely been driven by the impact of the coronavirus (COVID-19) pandemic, which, like many jurisdictions across the globe, has severely disrupted the APAC region. Launched in April 2021, the SCRI aims to form new supply chains through joint business projects struck between the trio.

“Australia’s supply chains have generally proven resilient, but the pandemic has highlighted the need for greater international cooperation to strengthen supply chains,” said Dan Tehan, Australian minister for trade, tourism and investment. “Japan and India are important partners for Australia, and I look forward to working closely together to strengthen supply chain resilience in our region.”

Julian Chaisse, professor of law at City University of Hong Kong, concurs. “COVID-19 acted as a main catalyst in the trio’s action by repositioning supply chains within APAC,” he says. “The purpose of the SCRI is to build more resilient supply chains and put an end to future reoccurrence of problems by developing dependable supply and attracting investments.”

Certainly, the SCRI will help the APAC trio avoid direct interaction with China. “The aim of these middle-power countries is to highlight the importance of risk management and continuity plans for avoiding supply chain disruptions – a trilateral desire for a free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment,” adds Mr Chaisse.

“Unsurprisingly, perhaps, the SCRI has been heavily criticised by the Chinese, Beijing having decried the initiative as being an “artificial” programme which takes an “unrealistic” approach to the resiliency of the region’s supply chains.”

Unsurprisingly, perhaps, the SCRI has been heavily criticised by the Chinese, Beijing having decried the initiative as being an “artificial” programme which takes an “unrealistic” approach to the resiliency of the region’s supply chains.

“The formation and development of global industrial and supply chains are determined by market forces and companies’ choices,” said Zhao Lijian, deputy director of the Chinese Ministry of Foreign Affairs Information Department. “Artificial industrial ‘transfer’ is an unrealistic approach that goes against the economic laws and can neither solve domestic problems nor do anything good to the stability of the global industrial and supply chains, or to the stable recovery of the world economy.”

Cooperation and potential issues

How valid then are the Chinese allegations that the SCRI is “artificial” and “unrealistic”? Will the programme ultimately destabilise the global industrial supply chain as well as risk the recovery of the global economy?

“Both the Japanese and Australian economies are dependent on China and decoupling would not be a viable option for both,” suggests Mr Chaisse. “Although it is difficult to say whether the SCRI is an artificial programme, its impact on the Chinese economy could be significant. As China accounted for more than $4.6 trillion in exports and imports in 2020, any impact on it could potentially destabilise the global industrial supply chain and recovery of the global economy as well. Supply chains cannot be established overnight.”

Also complicating matters is the uncomplimentary nature of the trio’s economies, particularly India’s. “Recent laws in India are promoting only domestic manufacturing, which will limit the potential of India to stabilise global industrial supply chains,” points out Mr Chaisse. “Moreover, steps adopted by the Indian prime minister are distancing India from an open and flexible trade environment. Additionally, India’s non-participation in the Regional Comprehensive Economic Partnership (RCEP) is evidence of it not prioritising a regional free trade environment.”

Impacts and intentions

Going forward, the APAC trio have reaffirmed their commitment to enhancing the benefits that can be obtained from open trade and investment arrangements with other countries – building on existing domestic and international measures to ensure supply chains in the region remain functioning and resilient.

“From the perspective of the private sector, the SCRI focus on decoupling can only be justified by the presence of adequate compensation for relocation and higher benefit prospects,” says Mr Chaisse. “Decoupling could create employment in the APAC region and help Southeast Asian countries to overcome the contraction in the growth of GDP. India is aiming to counter this dependence by boosting domestic manufacturing through measures like the production-linked incentive scheme.”

Many practitioners, including Mr Chaisse, believe that Australia, India and Japan, as well as several other APAC countries, should include the Association of Southeast Asian Nations (ASEAN) in the SCRI – nations where trade practice is more flexible and transparent, thus making them ideal supply hubs.

“APAC countries could benefit if they are able to attract investments leaving China by offering better business condition and laws,” he says. “The long-term potential of the SCRI could be dependent upon the ASEAN countries joining it and all countries developing common rules for effective growth of supply chains.”

Fraser Tennant