There is no easy answer here. The use of international commitments to guide policy reform is notoriously difficult; it is the great gap in the WTO process. FTAs try to pick this up, but commitments are not consistent across agreements. Yet, without some leverage, domestic reform will continue to be held hostage to vested interests.

Three current examples of the challenges Australia is facing in its FDI initiatives are pertinent here.

First, the Australia-New Zealand food company Goodman Fielder is expecting a takeover bid from a Singaporean company, Wilmar. If this bid goes ahead, there may not be any restriction imposed by either Australia’s Foreign Investment Review Board (FIRB) or competition authorities. But a FIRB review is still required for projects valued at more than $244 million (unless the investor comes from the US, in which case under the Australia-US FTA the baseline for reviews is $1062 million). There are some calls for an even tighter limit, for example around $20 million, on the grounds that doing so would contribute to Australia’s food security.

The Australian Bureau of Agricultural Resource Economics and Science argued the contrary in a recent report, noting that foreign investment is in fact good for food security. A seminar on the same topic at the University of Adelaide last month also concluded that the issue was not the availability of goods, but access to them and their subsequent utilisation. Supply chain management is part of the solution and FDI in agribusiness, and therefore the supply chain, will improve its operation. Trade Minister Craig Emerson has also argued that ‘overseas investment could help make Australia the food bowl of Asia’.

Second, the ANZ Bank, in a submission to the Asian Century White Paper Taskforce, identified a series of barriers to growth in its international business due to FDI policies in host countries. These include restrictions on foreign ownership of banks in China and Malaysia; a ‘positive list-based’ regulatory regime in South Korea which restricts a foreign bank’s ability to conduct new product business; restrictions on the temporary entry of bank staff in Indonesia and the requirement that work permits for foreign bank personnel are first approved by Indonesia’s Central Bank; and restrictions on the number of branches a foreign bank can own in India. These domestic policies may all be inhibiting growth in financial-sector FDI.

Third, Qantas has pulled out of its joint venture with Malaysia Airlines, which would have seen them operate a high-quality service offshore. Qantas’ options are constrained by caps on foreign ownership that operate to establish a ‘rule of origin’ for market access, according to the arcane regulatory system that applies to international aviation. So shifting offshore, as part of a strategy to respond to a loss of competitiveness due to operation out of an Australian base, requires that a joint venture be set up. But if prospective joint venturers cannot raise the cash for a new project, which appears to have been the case here, then Qantas is stymied even if it could raise its own contribution.

So there is a complex and wide-ranging set of measures that constrains FDI flows in the region and which involves significant cost. In such an environment, how can we progress? As mentioned, consistent and high-quality global and regional commitments are difficult. Three suggestions can be made.

First, some innovation in negotiating modalities is worth considering. Negotiators on trade in services are trying one route that is relevant to investment: a plurilateral agreement in the WTO. This agreement should not be discriminatory, but should provide all WTO members with access to policy changes.

Second — since the success of international processes ultimately depends on the level of interest at home — a ‘public policy strategy’ to engage and strengthen domestic public interest through a series of relevant questions should be explored. For example, what is the stocktake of current policy? What is the problem the current policy is designed to solve? What are the options and what is the best policy choice? Backing this up with substantial research on how FDI fits into the business strategy portfolio could lead to progress. Capacity-building work around the region that analyses this sort of policy might also serve as a parallel step.

This second suggestion sounds like an APEC agenda item. APEC last year reissued its Non-Binding Investment Principles, and under the Indonesian leadership of APEC in 2013, Australia could work on a plan for their implementation — particularly in key services sectors of mutual interest, like health, education and logistics.

Third, Australia could set the tone and multilateralise its commitment to the US of only requiring a FIRB review for those projects worth more than $1062 million.

Increased flows of FDI could offer Australia and the region significant opportunities in the Asian Century, but the policy barriers outlined above must be tackled if we are to take advantage of them.

Christopher Findlay is Executive Dean at the Faculty of the Professions, University of Adelaide.

This post is part of the series on the Asian Century which feeds into the Australian Government White Paper on Australia in the Asian Century.