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2022 Indo-Pacific Supply Chains Series

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Introduction

Supply chain networks in the Indo-Pacific are selectively reconfiguring, not decoupling. Many factors are driving countries to think about supply chain resilience and diversification in the Indo-Pacific region. These factors include cost-related comparative advantages; growing awareness of vulnerabilities associated with an under-diversified supply chain due to black swan events such as the COVID-19 pandemic; and concerns about the weaponization of supply chains, rare earth materials and sensitive technologies. 

Cheaper labour costs in countries such as Vietnam, Nepal, Bangladesh, India and others are driving the selective diversification of supply chains with relation to cost-comparative advantages. These destinations typify selective diversification, but also the limits of decoupling owing to scale, logistical advantages and still under-developed human capital.

Selective diversification of supply chains related to vulnerabilities associated with black swan events acknowledges an over-concentration of supply chains in one country or region. Here, selective diversification manifests as diversification within and away from mainland China, to decrease the impact of another temporary or intentional shutdown in supply chains owing to an event such as a natural disaster, pandemic or large-scale industrial accident. 

Concerns about the weaponization of supply chains and sensitive technologies are also driving countries to think about supply chain resilience and diversification in the Indo-Pacific region.

Point 34 of the 2021 G7 Joint Communiqué stressed the need “to promote secure, resilient, competitive, transparent and sustainable and diverse digital, telecoms, and ICT infrastructure supply chains, recognizing the foundational role (of) telecommunications infrastructure, including 5G.”

A concrete example of sensitive technologies includes products produced by Taiwan Semiconductor Manufacturing Company (TSMC) that are used in civilian and military-grade technologies, such as Apple’s iPhone chips, Nvidia’s AI chips and semiconductors used in the cutting-edge F-35 stealth fighter jets. They are also found in automobiles produced by Japanese car manufacturers. This means that a disruption in chip production would negatively impact some of Japan’s largest corporations.

Canada and other car manufacturing centres would not be immune to this disruption, either. To illustrate, according to World’s Top Exports, in 2020 Canada was the 13th largest auto-producing nation in the world and seventh largest auto exporter by value, producing 1.4 million vehicles and exporting $32 billion worth of vehicles. Moreover, the automobile manufacturing sector accounts for approximately 10 per cent of manufacturing GDP and 23 per cent of manufacturing trade. The automobile industry directly employs more than 125,000 people in vehicle assembly and auto parts manufacturing and another 380,000 in distribution and after-market sales and service.

This is increasingly important in today’s high-tech and globalized trading regime. A bottleneck in the supply of semiconductors, intervention by the state (China) in technology firms, the selective use of supply chains to engage in economic coercion and vulnerabilities associated with an over-concentration of supply chains in one country (natural and manmade) should motivate like-minded countries to build beneficial, rules-based mutual dependency in their supply chains and intellectual property.      

Selective diversification and investing in resilience of supply chains is in the interests of states that prioritize a transparent, rules-based approach to regional governance and commerce. Sensitive technologies, rare earth materials and health-related technologies (hereafter health-related supply chains), such as personal protective equipment, vaccines and pharmaceutical components, as well as less value-added projects, are three core areas of selective diversification to build and invest mutually beneficial dependency in the Indo-Pacific.

Another concern related to supply chains, as evidenced by point 29 of the G7 Joint Communiqué, is the need to “strengthen cooperation and collective efforts towards eradicating the use of all forms of forced labor in global supply chains.” Point 29 speaks to the importance of inculcating human rights standards into supply chain usage and design, ensuring that workers are not exploited or subject to human rights violations in the production of goods for global export, such as solar panels and garments.

This is consistent with co-existing trade agreements, such as the CPTPP, which places a premium on labour and environmental standards, as well as commitments made to the ILO.

In line with Point 29 of the G7 Joint Communiqué and pre-existing commitments to human rights and labour standards, selective diversification is also taking place in certain sectors associated with forced labour in, but not exclusive to, China.

To better understand the trends associated with selective diversification and investing in resilience of technology, health and low-value supply chains, this policy brief series has three objectives:

  • Issue/problem identification;
  • End-goal elaboration;
  • Instrument of diversification (QUAD/multilateral co-operation/bilateral and unilateral investment).

Through a one-time public webinar and this policy brief series, this project aims to promote a better understanding of the trends associated with selective diversification and investing in resilience of technology, health-related supply chains, critical minerals and rare earth materials and automobile supply chains, based on a discussion between experts examining supply chain diversification and resilience. 

This policy brief series and webinar target both foreign policy experts, such as government officials, think-tank researchers and academics, as well as lay citizens. The primary audience would be in Canada; however, the webinar would certainly be of interest to Japanese, U.S. and foreign policy experts, as well as scholars, think-tank researchers and policy-makers through the Indo-Pacific region.

The focus on a broad audience is fourfold. First, targeting foreign policy experts, the seminar aims to inject strategic and practical knowledge to understand the trends associated with selective diversification and investing in supply chain resilience.

Second, an open discussion that includes lay citizens and the media serves to educate the broader public about the most consequential region in the world for global economic growth, security and potential instability in both the traditional and non-traditional security domains. This is important for Canadians as the NIMBY approach to the Indo-Pacific is still prevalent.

Third, the open event is meant to highlight that the trends associated with selective diversification and investing in resilience of technology, health and low-value supply chains are important for Canada’s national interests. Our IT, AI, automobile and other industries, health-care system and day-to-day consumables are derived from, and dependent on, existing supply chains. Importantly, the event is meant to highlight that Canada’s support for selective diversification and investing in resilient supply chains is a continuation of Canadian interests in supporting a rules-based order through proactive engagement. 

Fourth, the open webinar is designed to highlight that the trends associated with selective diversification and investing in supply chain resilience are related to Canada’s engagement in the Indo-Pacific and deepening commitment to shaping the regional order.

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Papers

Supply Chain Resilience in the Indo-Pacific: Building Mutual Beneficial Dependency
Stephen Nagy

Investing in Supply Chain Resilience in the Indo-Pacific
by Kazuto Suzuki

COVID-19 and Supply Chains: Incentivizing Resilience for Strategic Industries
by Amitendu Palit

Critical Minerals Supply Chains between Canada and the Indo-Pacific
by Donald S. Bubar and Zeeshan Syed

Supply Chain Resilience Key to the Future of a Global and Local Automobile Market
by Sarah Goldfeder

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Translated Papers

La résilience des chaînes d’approvisionnement en Indopacifique : Construire des dépendances mutuellement bénéfiques

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A Word of Thanks

I would like to convey my gratitude to the Canadian Global Affairs Institute (CGAI) for their support in hosting this event – Supply Chain Resilience in the Indo-Pacific: Building Mutually Beneficial Dependency. This includes former president of CGAI Kelly Ogle for recruiting me as a CGAI fellow, vice-president of CGAI Colin Robertson and current president David Perry for their support in realizing this collaborative event. Special thanks to Charlotte Duval-Lantoine for all her behind-the-scenes efforts in co-ordinating this event, as well as Adam Frost for his editorial work in putting this policy brief series together.

The policy briefs themselves would not have been possible without the contributions of Sarah Goldfeder, Donald Bubar, Kazuto Suzuki and Amitendu Palit. I owe a great deal of gratitude to each of them for sharing their insights and keeping to my tight schedule.

I would like to also extend my gratitude to Claude Demers, Canadian ambassador to Côte d’Ivoire and Ambra Dickie, first secretary (Political Section) at the Canadian embassy in Tokyo for their support in organizing Indo-Pacific related events at the Canadian embassy in Tokyo. These have provided an enormous wealth of regional context to how Canada fits in the Indo-Pacific region and how regional stakeholders view Canada and concepts such as an Indo-Pacific vision. The views of experts and practitioners in the region have been instrumental in crafting these briefs and also in building a sustained network of researchers, practitioners and policy-makers who share the convergences and divergences in their thinking on the region.

Last, I would like to convey my support to the Japan Institute for International Affairs (JIIA), the Macdonald-Laurier Institute (MLI), the East Asia Security Centre (EASC) and my colleagues throughout the region for their support, guidance and encouragement.  

Stephen R. Nagy
Senior Associate Professor
International Christian University (ICU), Tokyo, Japan
Fellow, Canadian Global Affairs Institute
Senior Fellow, Macdonald-Laurier Institute
Visiting Fellow, Japan Institute for International Affairs (JIIA)
2018 AIF Fellow, Center for Strategic and International Studies (CSIS)

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About the Authors

Nagy.jpg   Stephen R. Nagy

Stephen R. Nagy is a senior associate professor at the International Christian University in Tokyo, a senior fellow at the Macdonald-Laurier Institute, a fellow at the Canadian Global Affairs Institute (CGAI) and a visiting fellow with the Japan Institute for International Affairs (JIIA). He is the director of policy studies for the Yokosuka Council on Asia-Pacific Studies (YCAPS). He is working on middle-power approaches to great-power competition in the Indo-Pacific.

His latest publications include:

  • With Hanh Nguyen, “Asymmetric Interdependence and the Selective Diversification of Supply Chains,” Journal of Contemporary Eastern Asia. vol. 20, no. 2, DOI: 10.17477/jcea.2021.20.2.0 ISSN 2383-9449;
  • “Indo-Pacific Resilience, Prosperity and Stability: Canada’s Capabilities-led Approach to Strategic Free and Open Indo-Pacific Engagement,” in Canadian and Japanese FOIP Visions, Policy Perspectives, Canadian Global Affairs Institute, March 3, 2021;
  • “Sino-Japanese Reactive Diplomacy as Seen Through the Interplay of the Belt and Road Initiative (BRI) and the Free and Open Indo-Pacific Vision (FOIP),” China Report, 1–15, 2021;
  • “Quad-Plus? Carving out Canada’s Middle Power Role,” Journal of Indo-Pacific Affairs, Special Issue, Quad Plus: Form versus Substance, vol. 3, no. 5: 179–195, 2020.
 
KazutoSuzuki.jpg   Kazuto Suzuki

Kazuto Suzuki is a professor of science and technology policy at the Graduate School of Public Policy at the University of Tokyo, Japan. He graduated from the Department of International Relations, Ritsumeikan University, and received his PhD from Sussex European Institute, University of Sussex, England. He has worked for the Fondation pour la recherche stratégique in Paris, France as an assistant researcher, as an associate professor at the University of Tsukuba from 2000 to 2008 and served as professor of international politics at Hokkaido University until 2020. He also spent one year at the School of Public and International Affairs at Princeton University from 2012 to 2013 as a visiting researcher. He served as an expert in the Panel of Experts for Iranian Sanction Committee under the United Nations Security Council from 2013 to July 2015. He has been the president of the Japan Association of International Security and Trade. His research focuses on the intersection of science/technology and international relations and on subjects including space policy, non-proliferation, export control and sanctions. His recent work includes Space and International Politics (in Japanese, awarded the Suntory Prize for Social Sciences and Humanities), Policy Logics and Institutions of European Space Collaboration and many others.

 
AmitenduPalit.jpg   Amitendu Palit

Dr. Amitendu Palit is a senior research fellow and research lead (trade and economic policy) at the Institute of South Asian Studies (ISAS) in the National University of Singapore (NUS). He is an economist specializing in international trade policies, regional economic developments, comparative economic studies and political economy of public policies. He worked with the government of India for several years, with his longest span being in the Department of Economic Affairs in the Ministry of Finance. Prior to joining ISAS in April 2008, he was with the Indian Council for Research on International Economic Relations (ICRIER), a leading economic policy research institute and think tank in Delhi. His research focuses on the economic and political implications of India’s integration with the Asia-Pacific region, the impact of mega-regional trade agreements and the various determinants of external trade and integration policies of China and India. His books include The Trans-Pacific Partnership, China and India: Economic and Political Implications; China India Economics: Challenges, Competition and Collaboration; and Special Economic Zones in India: Myths and Realities (co-authored). He has also edited several books and published in peer-reviewed academic journals. He is a columnist for India’s well-known financial daily, Financial Express, and a regular contributor to the China Daily. He appears regularly as an expert on the BBC, Bloomberg, Channel News Asia, CNBC, Australian Broadcasting Corporation (ABC), Doordarshan (India) and All India Radio.

 
AmitenduPalit.jpg   Donald Bubar

Donald Bubar is a geologist with over 40 years of experience in mineral exploration and development in Canada. He is a graduate of McGill University (BSc. 1977) and Queen’s University (MSc. 1981). From 1984 to 1994, he worked for Aur Resources Inc. as exploration manager and later vice-president, exploration. Donald has been president and CEO of Avalon since 1995.

He served as a director of the Prospectors and Developers Association of Canada (PDAC) for nine years and chair of its Aboriginal Affairs Committee from its creation in December 2004 until retiring from the PDAC board in March 2013. Throughout his career, he has been an advocate for increased Indigenous participation in the mineral industry, first through the PDAC and later through the NWT and Nunavut Chamber of Mines. Donald serves on the advisory board to the Faculty of Science of McGill University and on the board of directors of PDAC’s Mining Matters earth science education program.

 
AmitenduPalit.jpg   Sarah Goldfeder

Sarah Goldfeder is a government relations and strategic policy professional with experience in both government and the private sector. She is part of the public policy team at General Motors Canada. Her high-level insight into the strategies of engagement with both the U.S. and Canadian governments, including how the two countries work together on important issues, was honed through experience in both the public and private sectors. Sarah was a principal at the Earnscliffe Strategy Group in Ottawa for more than five years, focused on advising clients on trade, supply chain and issues of industrial policy. Previous to that, she served as special assistant to two U.S. ambassadors to Canada, fostering bilateral relationships at the most senior levels.

Sarah is a North American nomad, with a father from Brooklyn, a mother from Chicago and a life lived in eight states, six countries and three continents. She calls the American West her home, having studied at the University of Oregon in Eugene, Oregon and Colorado State University in Fort Collins, Colorado. 

https://www.cgai.ca/sarah_goldfeder

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Moderator

AmitenduPalit.jpg   Colin Robertson

A former Canadian diplomat, Colin Robertson is vice-president and fellow at the Canadian Global Affairs Institute and hosts its regular Global Exchange podcast. He is an executive fellow at the University of Calgary’s School of Public Policy and a distinguished senior fellow at the Norman Paterson School of International Affairs at Carleton University. A member of the Department of National Defence’s Defence Advisory Board, Colin is an honorary captain (Royal Canadian Navy) assigned to the Strategic Communications Directorate. He sits on the advisory councils of the Alphen Group, Johnson-Shoyama School of Public Policy, North American Research Partnership, the Sir Winston Churchill Society of Ottawa and the Conference of Defence Associations Institute. During his foreign service career, he served as first head of the Advocacy Secretariat and minister at the Canadian Embassy in Washington, consul general in Los Angeles, as consul in Hong Kong and in New York at the UN and Consulate General. A member of the teams that negotiated the Canada-U.S. FTA and then NAFTA, he is a member of the deputy minister of International Trade’s Trade Advisory Council and the North American Forum. He writes on foreign affairs for the Globe and Mail and he is a frequent contributor to other media. The Hill Times has named him as one of those who influence Canadian foreign policy.

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