AIIB: Australia does the smart thing, finally | Law

AIIB: Australia does the smart thing, finally

OPINION: Professor Ross Buckley, The Sydney Morning Herald, 24 March 2015.

On Monday, the federal cabinet approved Australia's membership of the Asian Infrastructure Investment Bank. We were invited to join more than six months ago. Treasurer Joe Hockey and Trade Minister Andrew Robb supported the idea, Tony Abbott and Julie Bishop, heavily influenced by United States opposition, were against it. The expressed reason for their opposition was that without proper governance procedures in place the bank could be used by China as a tool of foreign policy. Of course it will - precisely as the World Bank has been used as a tool of US policy.

The Washington consensus promoted by the World Bank and Asian Development Bank has had a patchy record in promoting development in recipient countries, and a much stronger record in supporting the interests of US multinational corporations. Why would anyone expect anything different? The World Bank has always been headed by an American and the International Monetary Fund by a European, and the location of these two institutions in Washington, DC, has meant a great deal of informal influence of the staff as a result of where they live and a considerable amount of formal influence from the US Treasury, located just down the street.

The US opposes the AIIB precisely because its being headquartered in China will afford China some of the same opportunities. However, this is absolutely no reason for us not to join. More investment in infrastructure in East Asia is wonderful news for Australian engineers, architects, investment bankers and lawyers. We still tend to think about commodities exports but our future lies in services exports. Opportunities on AIIB projects will go to its member nations, as is the way of these things. 

We should strongly support any move by China to establish multilateral institutions. To date, China has not engaged strongly with the institutions of international finance. In part this is due to China not being given voting rights even remotely approaching its economic significance. In part this is due to China's unwillingness to accept the premises of the current system. And why should they? Why would China accept a financial system predicated on the US dollar as the global reserve currency, with all the exorbitant privileges that brings? Why would it accept a system in which the two most significant institutions of governance are headed by an American and a European and located in Washington, DC? Why would China accept a system it never would have participated in designing? 

It is more sensible for China to begin to construct a parallel system, centred in China, serving China's interests. Last year, along with the AIIB, China led the establishment of the BRICS Development Bank, of which the five members are Brazil, Russia, India, China and South Africa, and which is also based in China. These two new banks are part of this new architecture, together with China's many bilateral agreements to begin to denominate trade between China and its principal trading partners in the currencies of either Chinese or the trading partner (but not US dollars). 

Throughout history, great powers have acted in their own interests. The new great power is doing the same. Certainly neither the Americans, nor the British before them, acted otherwise. So, given these developments are inevitable, our participation in them becomes all the more important as it gives us an opportunity to influence and shape their future direction.

While it is better to join now than not, we have lost something by procrastinating for six months on this issue. Our decision was prompted by the recent decisions of Britain, Germany, France, Italy and New Zealand to join. It would have been far better for us to accept the initial invitation some six months ago and be seen as a leader in this regard rather than a somewhat embarrassed follower. Such symbolism matters more in China than it does here. It matters enormously to Beijing to be treated as a leading power and be respected, and has throughout China's history. 

Australia tends to think of itself as relatively unimportant. We don't really expect to be listened to or followed. These traits are not shared by the giant to our north. Early participation in this initiative would have garnered us greater respect and capacity to influence. The idea that we should have held out until China improved the governance standards, using the prospect of our membership as some sort of leverage, is not the way things are best done in Asia.

At the individual level Australia does well in our region. The willingness of individual Australians to listen, rather than lecture, and not take ourselves so seriously, tends to go down well. Collectively, at the governmental level, we behave rather less effectively, but in the end, the decision to join the AIIB is better late than never.

This opinion piece was first published in the Sydney Morning Herald.