With a little help from our friends

Australia’s 2024 federal budget earmarked AUD$22.7 billion for the “Future Made in Australia” plan–an ambitious agenda with the goal of revitalising manufacturing in Australia and greening the country’s resource exports.

The policy is not designed to be entirely government-funded, however, with Treasurer Jim Chalmers instead describing federal government funding as the “key” that will “unlock the hundreds of billions of private capital we’ll need to deploy.” It is increasingly evident that much of this private capital will flow from overseas sources, as it has during Australia’s previous economic transformations. This means that when it comes to funding a future made in Australia, we need trusted partners that share the same vision.

Economic allies

Unlike trade relationships, which are somewhat transactional, building long-lasting investment ties means engendering trust on both sides of a bilateral relationship. This is a challenge for Australia, especially in the Asian context, given that our trade relationships are much stronger than our investment links throughout the region. Trust is even more important in cases where industries for clean technologies are underdeveloped, such as hydrogen.

Unless Canberra works to improve these relationships now, our trading partners will increasingly choose alternative suppliers in looking to build out these industries. Recently Japan and South Korea announced they will work together to develop hydrogen supply chains with energy-rich nations such as the UAE and India. Australia is notably absent from their plans. This suggests that it is time for us to stop worrying about getting left behind, and start thinking about how to catch up.

Given this, the Albanese government must enhance its efforts to sell the Future Made in Australia policy as good for Australia and our trading partners. While looking to compete with “sharper elbows” is one thing, Australia should also seek “strategic complementarity” in its economic relationships wherein value-adding objectives are pursued alongside the supply chain security considerations of our trading partners.

Old friends, new challenges

In the case of South Korea, one of Australia’s perennially undervalued Asian allies, there is perhaps no better time to begin developing these closer ties than the present. The South Korean midterm elections held earlier this year left conservative President Yoon Suk-yeol with a parliamentary minority, rendering him a “lame duck” president. This likely means that Yoon will direct more of his focus towards foreign policy until the end of his term in 2027, an area where the president has more direct agency.

While this has not yet led to any meaningful deeper engagement between Canberra and Seoul, renewable energy cooperation provides a clear avenue where such engagement would be mutually beneficial. Australia’s goal of becoming a renewable energy superpower is highly complementary with South Korea’s search for reliable clean energy inputs to power its manufacturing economy.

Despite this synergy, bilateral energy ties between Australia and South Korea have remained surprisingly shallow since the signing of a Memorandum of Understanding on clean energy in 2021. This can partly be attributed to the fact that Yoon and Albanese do not seem to share a particularly close personal relationship; a factor which has heavily influenced Australia-South Korea ties in the past. Leadership compatibility isn’t the only factor that influences bilateral ties, however, with other recent incidents hinting at the trust deficit that exists between the two countries.

A particularly glaring example of lacklustre ties in early 2024 saw a political ally of Yoon installed as South Korean ambassador to Australia in order to flout travel restrictions imposed on him as part of an ongoing criminal investigation. The Korean president’s use of Australia, an important regional ally, as a politically expedient solution to a domestic problem was an unfortunate reminder of the weak foundations on which Australia-South Korea ties rest. Further, a lack of protest of the move on the Australian side underscores the general air of indifference that often prevails in this bilateral relationship.

Similarly, the very public fallout from the safeguard mechanism incident in 2022, stemming from a failure by the Albanese government to brief the South Korean and Japanese governments on major changes to Australia’s climate policy, provides an example of where Canberra must improve its international communication in order to cast itself as a reliable partner for the energy transition.

This is not to say that Australia’s trading partners should expect to have a say in the direction of Australian climate policy. Rather, it highlights the importance of consistent and transparent communication in bilateral energy relationships; something that should be front-of-mind for Canberra as it seeks to recruit Korean and Japanese companies in the development of Australian renewable energy industries.

From fair-weather to forever

There are many small but meaningful ways in which mutual trust between Australia and South Korea could be reinforced, in turn leading to concrete developments in clean energy cooperation. For one, there is a pressing need for international standards in many emerging renewable energy industries that would simplify export and import processes while also enforcing strong environmental governance.

Australia has a proven track record in developing world-leading standards for resource extraction, and could use this as a basis to encourage further cooperation with South Korea in developing a framework for renewable energy trade. Further, the two countries could work together to support smaller Asia-Pacific states in their transition away from fossil fuels, providing both the resources and technologies needed to ensure timely, sustainable, and equitable transitions across the region.

To catalyse this cooperation, the closer ties that exist between Korean companies and many of Australia’s state governments should be replicated at the national level. Doing so would ensure that commercial and geopolitical goals are better aligned across long-term horizons. At present, domestic fragmentation creates the risk of a “race to the bottom” in Australian clean energy industries, wherein state governments compete for overseas funding.

Canberra has already signalled its broad willingness to redress this by developing what the government has called a “single front door” for overseas customers interested in Australia’s energy resources. Additionally, Canberra should work to increase the visibility of clean energy-focused cooperation already underway. Particularly within the often overlooked Australia-South Korea relationship, this would increase the status of successful bilateral endeavours; something that industry experts have argued could spur deeper cooperation in the energy transition.

The mutual understanding required to encourage deeper investment ties between Australia and South Korea will not be built overnight, and recent diplomatic incidents reflect the scale of the trust deficit that still exists in this relationship. This deficit constrains the Albanese government’s efforts to crowd-in funding for its economic agenda and hinders the development of stronger ties with our key allies at a time of increased geoeconomic competition.

For the Future Made in Australia policy to pay off, Canberra needs to invite friends to the table. In a rapidly changing economic climate, trying to host a party for one may only leave Australia out in the cold.

This article was published by the Australian Institute for International Affairs.