India, Japan, Australia keen to boost supply chain security by reducing reliance on China

India, Japan, Australia keen to boost supply chain security by reducing reliance on China

The Supply Chain Resilience Initiative will look to secure supply chains and reduce dependence on China in wake of the disruptions caused by the coronavirus. The supply chain initiative could also eventually be expanded to include the 10 members of the Association of Southeast Asian Nations (Asean)

Japan, India and Australia are moving towards a new trilateral effort to ensure global supply chains and reduce dependence on China in the event of another catastrophe like the coronavirus occurring in the future.

The coronavirus outbreak has brought to the fore the importance of diversification away from trade and supply chain dependence on China for many countries, particularly key partners like Japan, India and Australia.

Japan’s Ministry of Economy, Trade and Industry broached the idea with the Indian government around a month ago and informal talks have been ongoing, according to economists with knowledge of the discussions.
The Supply Chain Resilience Initiative (SCRI) is expected to be discussed further during the India-Japan summit in early September.

Joining the initiative would also be in line with Australia’s mission to diversify away from its trade dependence on China, especially at a time when trade links between the two countries are becoming increasingly strained.

Australia, though, has not formally agreed to the deal and discussions over their inclusion are still ongoing, with Canberra yet to respond to request for comment.

Japan is already making headway to bring some of its manufacturing back from China, setting aside US$2.2 billion in its Covid-19 economic stimulus package following disruptions in supply chains at the start of the pandemic.

Last month, it offered 57 companies 57.4 billion yen (US$542 million) in subsidies to invest in production in Japan, and more subsidies to another 30 firms to invest in operations in various Southeast Asian nations.

With trade and political tensions simmering between India and China, New Delhi is also keen to step up a supply chain shake-up by rolling out the initiative by the end of the year, added the economists who are close to the matter.

“Yes, the discussion is on and now the plans need to be executed,” said Jagannath Panda, the East Asia coordinator at the Manohar Parrikar Institute for Defence Studies and Analyses in New Delhi.

“The Covid-19 pandemic has acutely revealed to the three nations the need to lessen their dependence on China … the scope for the Australia-Japan-India trilateral [initiative] to take centre stage is ripe.

“With a guided framework of cooperation, the trilateral [initiative] can emerge as a stepping stone towards regional economic recovery and drive regional power redistribution away from China.”

The initiative is viewed as a direct response to the geopolitical tensions involving China, including the border skirmish between China and India in June which resulted in the deaths of at least 20 Indian soldiers.
But it also has wider implications for the Indo-Pacific region, according to Mark Goh, National University of Singapore Business School professor and director at the Logistics Institute-Asia Pacific.

It would also not only extend the India-Japan Industrial Competitiveness Partnership, which was established in December to help improve India’s industrial competitiveness, but it would open up opportunities for various countries in the Indo-Pacific countries to establish new “China+1” strategies for having backup supply chains outside China, Goh said.

The initiative, if fully implemented, would link up all the separate bilateral relationships between the countries, he added.

“Japan has a manufacturing presence in India, traditionally through the automotive sector, while India sees this as an opportunity to enter Australia and Japan through their pharmaceuticals, and serve as a hub for Australian and Japanese products into the Middle East and Africa, which should temper China’s trading presence in that part of the world,” said Goh.

The supply chain initiative could also eventually be expanded to include the 10 members of the Association of Southeast Asian Nations (Asean).

“For Asean, especially Singapore, joining SCRI meets the intent of China+1, to manage supply risk and improve resilience using a ‘just in case’ approach,” Goh said.
“For India to be linked with Asean means another access to China … but more [importantly access] into the markets of Asean. This must happen if India wants to create a China free supply chain without losing China as an indirect trading partner. For Australia, it is to allay domestic concerns of over-reliance on China.”

The inclusion of the Asean nations could then lead to a new trade-based quadrilateral alliance being formed, according to Goh, following in the footsteps of the Quadrilateral Security Dialogue, an informal forum between the United States, Japan, Australia and India.

The initiative could also allow India to find a way back into the region’s trade network after it withdrew from the Regional Comprehensive Economic Partnership (RCEP) multilateral trade deal between the members of Asean, Japan, South Korea, New Zealand and China that is due to be signed by the end of the year, Goh said.

Panda, from the Manohar Parrikar Institute for Defence Studies and Analyses, is confident that the initiative would not interfere with RCEP but only “add” to its functions.
Earlier this week, China initiated an anti-dumping investigation on Australian wine imports, after imposing tariffs on Australian barley following a similar probe and suspending beef imports from four Australian abattoirs in May.

Australia has been holding inquiries into supply chain diversification, and last month set aside funds to increase the resilience of its agrifood supply chain, while also supporting the Asia-Pacific Economic Cooperation Global Supply Chains Resiliency Survey conducted by the Global Trade Professionals Alliance.

Resilience against China also continues to be at the top of Japan’s agenda, although a complete decoupling is not the plan, experts said.
At the India-Japan summit in September, Japan is likely to discuss the possibility of some Japanese manufacturing units shifting to India as part of the initiative, diplomats said.

The two countries will also likely discuss India’s border tensions with China at the Line of Actual Control in Ladakh where the June skirmish occurred and sign off on the Acquisition and Cross Servicing Agreement, a military logistic pact which would allow the Indian military and the Japan Self-Defence Forces to use each other’s bases for logistical support.

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