Pivot to Power: Australia as a Creative Middle Power

Over the last few years, Australia – a relatively isolated nation of 25 million people, surrounded by “friends and fish” – has positioned itself as a global middle power. Up to now, its national strategic interests with regard to defence policy have focussed on the continent itself, while its more far-reaching economic and foreign policy activities have had a global orientation. It has now defined and repositioned itself as a “creative middle power”. In terms of security and defence, Australia is broadening its gaze and focussing particularly on the South Pacific and Southeast Asia, while its foreign policy is setting its sights on the Indo-Pacific. This previously rather undefined space between Delhi and Tokyo has been gaining political importance over recent years. Alongside Australia, this is particularly true for Japan, as well as for the US and India – all important allies. European countries such as Germany, France, and the Netherlands have also been paying closer attention to the significance of this region. In September 2020, the German government published its “Policy guidelines for the Indo-Pacific”, in which it stressed the need for diversified relations, especially with countries with shared values such as Australia. With this strategic realignment, Australia is consolidating two areas: its ties to Western and like-minded partners and its integration into the Asian sphere.

Arena of Great Power Rivalry: The Indo-Pacific between Washington and Beijing

One of the reasons for Australia’s new policy direction is undoubtedly the increasing systems rivalry in the Indo-Pacific. Under President Trump, the US became an unstable ally, while China is trying to consolidate its status as a new superpower and expand its influence through diplomatic and paradiplomatic means. China’s territorial claims and military build-up in places such as the South China Sea have, in recent years, regularly challenged US supremacy in the region. Along with such territorial conflicts, China’s geoeconomic (and geopolitical) Belt and Road Initiative is fuelling the rivalry between the two great powers. With its megaproject of a global trading network from Guangzhou to Rotterdam, China is dangling the prospect of economic incentives in front of smaller countries in the Indo-Pacific and beyond. However, above all, China hopes that this key foreign policy project will shift the international order closer to its own ideas. Often described as a loan-to-own financing model, the Belt and Road Initiative is just one example of how Chinese trade, foreign and security policy is intertwined. So far, the US, European actors, and other guardians of rules-based systems have failed to offer a convincing alternative to the Belt and Road Initiative.

As traditional allies, the US and Australia still hold their alliance in high regard. Despite a bumpy start to bilateral relations during Trump’s tenure, under the 45th president they still compared favourably to relations with other like-minded countries – albeit marred by the derogatory rhetoric. However, American influence in Australia’s neighbourhood has clearly declined – which is not only due to Trump’s withdrawal from the Trans-Pacific Partnership – and China has not been shy about filling the gap. Yet, despite the rhetorical volatility, the US-Australia alliance remains on a firm footing. At the 2018 G20 summit, Donald Trump described it as “one of our oldest and one of our best”. Their shared values were reaffirmed at the Australia-United States Ministerial Consultations, for which Australian Foreign Minister Marise Payne and then Defence Minister Linda Reynolds flew to Washington in the midst of the pandemic to highlight the warm ties between the two countries. At the same time, however, Payne made it clear: “[W]e make our own decisions, our own judgments in the Australian national interests.”

In contrast, since the beginning of 2020 at the latest, relations between Australia and China – its most important trading partner – have been more or less in free fall. For some time now, the Australian government has been openly critical of China’s territorial expansion and militarisation in the South China Sea. It also barred Chinese telecommunications provider Huawei from building its 5G network back in 2018, but it refrained from voicing broader criticisms in order to protect its trading relationship. However, positions hardened early on in the COVID-19 pandemic, triggered by the Australian government’s call for an independent international investigation into the origins of the coronavirus in China. China responded with a raft of measures, including restrictions on the import of vital Australian exports, such as barley and beef. Tensions ramped up still further when Prime Minister Morrison responded to the new Hong Kong Security Bill with visa concessions and simplified citizenship procedures for Hongkongers living in Australia and by suspending the extradition treaty with the Special Administrative Region. As a result, sales of Australian coal – the country’s biggest export product – collapsed in China, presumably because state-controlled power plants and steel manufacturers were instructed to stop buying coal from Australia. Australia also suspects that China is behind a wave of cyberattacks on its critical infrastructure. In November 2020, a Chinese diplomat in Canberra gave a document to Australian media outlets outlining 14 grievances and accusing the nation of “poisoning bilateral relations”. Prime Minister Morrison was unimpressed, and his visit to his Japanese counterpart Yoshihide Suga highlighted Australia’s efforts to work with partners sharing similar values so as to defend the rules-based, liberal democratic order. Along with trade policy tools, China is now also turning to methods that go beyond the remit of the World Trade Organisation. It tweeted a photo montage that (allegedly) showed an Australian soldier holding a knife to the throat of an Afghan child. In this way, the Communist Party provoked a statement from Prime Minister Morrison, who pointed out how war crimes are thoroughly investigated in democratic countries and demanded an apology from Beijing.

A New Era: Australia’s New Security and Defence Strategy

Australia finds itself in a fast-changing, highly complex environment, beset by uncertainty and sources of conflict. As a result, regional conflicts and the US-China rivalry in the Indo-Pacific region have a direct impact on the nation’s stability and security. Its national defence policy has to safeguard the country from these ever-changing risks. In addition to direct threats, the country increasingly has to deal with the weakening of the rules-based order and the emergence of “grey zone activities” including cyberattacks, external interference, economic pressures, and disinformation campaigns. The volatility of the region has led Australia to make ongoing strategic adjustments to its security and defence policy over the last few years, such as increasing its defence budget and ramping up its rearmament programme.

“[W]e need to […] prepare for a post-COVID world that is poorer, that is more dangerous, and that is more disorderly.” With these words, Prime Minister Morrison introduced the launch of the Australian government’s 2020 Defence Strategic Update and compared the current dimension of global economic and strategic uncertainty to the collapse of the international order in the 1930s. The coronavirus pandemic will have unprecedented consequences for the Australian economic miracle – a country that had not experienced a recession in the last 30 years. The allusion to 1930 symbolises the seriousness of the situation: A recession, coupled with an increased risk of military conflicts, necessitates a reorientation of defence policy, and a shift towards regionally deployable armed forces.

“The Indo-Pacific is the epicentre of rising strategic competition” – this is another key phrase used by the Australian Prime Minister, not only when launching the Strategic Update but in all his recent foreign policy speeches, including his UK Policy Exchange Virtual Address: “Now, in the 21st century, the Indo-Pacific will shape the destiny of the world.” The centre of global economic and military power now lies in the Indo-Pacific region. However, geopolitical challenges have intensified once again since the adoption of the 2016 Defence White Paper, and the pandemic has accelerated and accentuated trends, such as the prioritisation of the country’s immediate neighbourhood, particularly the South West Pacific and Northeast Indian Ocean.

The new defence doctrine sets out the country’s three new strategic objectives, as follows: “Firstly, to shape our strategic environment. Secondly, to deter actions against Australia’s interests. And thirdly, to respond with credible military force – when we require it.” Most importantly, the update provides clarity on how the Australian Defence Force will position itself and prepare for the aforementioned unprecedented challenges. The strategic objectives will “guide all defence planning, including force structure.” They will prioritise the “immediate region”, meaning the area ranging from the “Northeast Indian Ocean through maritime and mainland South-East Asia to Papua New Guinea and the South West Pacific.” The Strategic Update provides a balanced approach to risk management and a guarantee against uncertainty in the region.

It also reveals a gradual change in the narrative: While deepening the alliance with the US remains an important part of Australia’s security policy, it also seeks to expand its cooperation with regional partners, particularly India, Japan, the states of the Association of Southeast Asian Nations (ASEAN), and the Pacific Island countries – in the sense of concerted efforts to restore the strategic balance of the Indo-Pacific.

The Strategic Update 2020 is the start of a gradual transition and marks a historic milestone. With its new regional focus, it defines the Indo-Pacific as being central to Australia’s geographic positioning. The new strategy is not only a sign of Australia’s growing confidence, but its implementation is also linked to Australia’s increased trust in its regional partners.

Southeast Asia: A Key Region for Geostrategic Competition

The Australian government’s Foreign Policy White Paper, which was published in November 2017 and, alongside the recent Strategic Defence Update, forms the basis of Australia’s foreign, security and defence policy, places the regional focus on the Indo-Pacific as a whole. However, it also specifically emphasises the successes of ASEAN, which has contributed to security and prosperity in the region for the past 50 plus years. Australia is proud to be ASEAN’s oldest dialogue partner and has supported its vision of a rules-based, “inclusive” and economically integrated regional community of nations since 1974.

The geographical location of Southeast Asia explains Australia’s ambitions. For Australia, Southeast Asia is a key region for geostrategic competition because it connects the Pacific to the Indian Ocean and hosts vital trade routes. ASEAN plays an important role in convening regional forums, such as the East Asia Summit, to which Australia attaches particular importance in terms of strategic dialogue and maintaining peace in the Indo-Pacific. The White Paper highlights the importance of Australia’s bilateral relationship with individual nations in Southeast Asia and with the ASEAN Community as a whole, in order to increase engagement and create a more robust Southeast Asia. The ASEAN Special Summit, hosted by Australia in Sydney in 2018, can be described as a preliminary highlight in its relations with the neighbouring region. Beyond all the symbolism, the Summit also led to concrete action, such as measures to counter terrorism and extremism, and the strengthening of dialogue mechanisms relating to cybersecurity in the region.

Improving security cooperation is a key element of the comprehensive strategic partnership with the region. An example of this is the Strategic Partnership Agreement that Australia signed with Vietnam in 2018. Against the backdrop of a shifting environment, it also signed a new agreement on military training with Singapore, in March 2020, and recently renewed the Memorandum of Understanding (MoU) on Cybersecurity Cooperation that was signed in 2017. Close cooperation with Singapore and Malaysia through the Five Power Defence Arrangements is also an important component of Australia’s security engagement with Southeast Asia. On the Australian side, certain voices are now calling for the defence agreement to be expanded to include other Southeast Asian countries. Australia already works closely with the Philippines and Indonesia in the fight against terrorism in the region. And, as part of Australia’s International Cyber Engagement Strategy, the country signed an MoU with Thailand on Cyber and Digital Cooperation in early 2019.

Scott Morrison’s remarks at the 2019 Shangri-La Dialogue also made clear Australia’s continued commitment to the close integration of foreign and economic policy in the region, noting: “We have a vision of an open, inclusive and prosperous Indo-Pacific. This includes wanting to see an inclusive architecture for regional trade as Singapore, Australia and other partners work to finalise RCEP and that our existing trade arrangements keep pace with technological change, especially the digital economy.”

In her speech at the February 2020 ASEAN Defence Ministers’ Informal Meeting in Hanoi then Australian Defence Minister Linda Reynolds reaffirmed that the Morrison government also sees ASEAN as the most important regional organisation in terms of security and defence policy: “ASEAN sits at the heart of the Indo-Pacific and we will work with our ASEAN partners to achieve common goals and priorities and reflect shared values.” Cooperation will continue to be based on six fundamental principles: mutual respect; recognition of “ASEAN centrality”; supporting the resilience, independence, and sovereignty of individual member states; addressing areas of shared priority; transparency; and respect for international law and norms. The defence cooperation covers eight core areas:

1. training;

2. working to increase women’s participation in peace and security processes;

3. providing support for UN peacekeeping missions;

4. counterterrorism;

5. maritime security;

6. addressing common health challenges – something that takes on a whole new meaning in the context of the COVID-19 pandemic;

7. disaster relief;

8. promoting communication, new forms of cooperation and interoperability.

In light of today’s global challenges and the regional geopolitical situation, consideration is being given to institutionalising the hitherto informal format. During the virtual ASEAN Defence Ministers’ Meeting Plus (ADMM Plus) in December 2020, then Australian Defence Minister Reynolds reiterated the importance of regional security cooperation based on the Strategic Update: “COVID-19 has altered the region’s economic and strategic landscape dramatically and accelerated the geostrategic trends that affect Australia’s interests. The 2020 Defence Strategic Update reinforced Defence’s focus on our immediate region, including Southeast Asia, and the value of working with our partners to shape the future of the region.”

The Pacific Step-Up

In addition to the focus on Southeast Asia, another region is central to Australia’s foreign policy: the Pacific. The new Pacific Step-Up policy was highlighted in the Foreign Policy White Paper and has gathered momentum since Scott Morrison became Prime Minister in August 2018. He is keen to open a new chapter in relations with the “Pacific family” in light of China’s growing influence in the region: “Australia has a long history of cooperation with our Pacific neighbours. We want to work with our Pacific Islands partners to build a Pacific region that is secure strategically, stable economically and sovereign politically.”

Australia’s Pacific Step-Up is guided by strategic interests. The Pacific Island countries are on Australia’s doorstep, and the South West Pacific in particular is Australia’s natural sphere of influence. Australia is the most powerful member of the Pacific Islands Forum (PIF) and the largest donor of development aid to the Pacific countries.

Australia has also established an Office of the Pacific within the Department of Foreign Affairs, a whole-of-government institution, to enhance coordination with the Pacific Island countries. A new infrastructure bank for the Pacific has also been set up. This strategy, which encompasses both regional economic integration and strategic interests, also includes efforts to conclude a free trade agreement (FTA) with the Pacific Island countries. The Pacific Agreement on Closer Economic Relations (PACER) Plus was ratified in December 2020. The only fly in the ointment is that Papua New Guinea and Fiji have not yet signed. Strengthening ties with the Pacific also involves deepening security cooperation, such as through the new Australian-sponsored Pacific Cyber Security Operational Network. All these developments are accompanied by an increase in Australia’s military presence. COVID-19 has exposed the already fragile “democracies” of the Pacific region to an even higher risk of internal instability. The pandemic has increased competition for spheres of influence in the region and prompted the Australian government to reaffirm its commitment to the region. This was accompanied by an increase in Australian development aid and large deliveries of medical supplies – not least because China had been ramping up its activities in this respect with its “coronavirus diplomacy”.

However, analysts and leading diplomats fear that the step-up policy in the Pacific could be accompanied by a step-down policy in Southeast Asia. This is because Australia has simultaneously slashed its development aid programmes in Southeast Asia in favour of the Pacific. However, in light of current political developments in the region and the associated geostrategic challenges, there are good reasons to assume that Australia will continue to attach great importance to Southeast Asia in terms of its foreign, security and defence policy.

Australia’s Commitment to the Quad

The intensification of cooperation between Australia, India, Japan, and the US against the backdrop of increasingly aggressive power claims by China in the Indo-Pacific raises the question of whether, from Australia’s perspective, the Quadrilateral Security Cooperation (known as the Quad) could be an effective instrument for restoring the strategic balance of power in the region. Since 2017, the Quad has been undergoing something of a revival with the goal of a “free, open and inclusive Indo-Pacific region”. Although all four Quad countries have different threat perceptions, military capabilities, and strategic priorities, they all have a common interest in maintaining a stable balance of power in the region, freedom of the sea-lanes, and a rules-based economic order. Particularly in the military sphere, the Quad could counter Chinese attempts to alter the status quo.

The fact that naval units from all four Quad countries joined in the Malabar naval exercises in November 2020 reflects a new level of cooperation. Albeit informal, the Quad could nonetheless develop into a serious instrument for containing China’s hegemonic aspirations via, inter alia, greater military engagement from Australia. Operation Malabar has made it clear that the Quad is willing to be involved in concrete, visible military exercises. Over the last few years, Australia has clearly encountered policy strategies in the region that threaten the liberal rules-based order or attack the integrity of Australia’s liberal democratic political system. The Quad gives Canberra the opportunity to collaborate on economic and military initiatives and diplomatic positions in cases of shared values being threatened – and avoids the need for Australia to stand up to China alone.

A New Geoeconomic Reality? Australia Joins the RCEP

Australia is set to become the world’s 12th largest economy and, as a commodity-based exporting nation, enjoys a trade surplus. China is Australia’s biggest trading partner for both imports and exports – but even here, Australia has a trade surplus and high reciprocity. In the words of Deputy Prime Minister Michael McCormack: “We need China as much as China needs us.”

Although it has yet to be ratified, since November 2020 Australia has been part of the Regional Com-prehensive Economic Partnership (RCEP), the largest FTA in the Indo-Pacific. RCEP negotiations were originally launched by ASEAN countries (including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) along with Australia, China, India, Japan, New Zealand, and South Korea. The FTA has now been signed by all these countries, except India.

Fig. 1: Australia’s Trade Ties in the Region.

The RCEP covers a market of 2.2 billion people and a trade volume of 26.2 trillion US dollars. These figures are certainly impressive but is the agreement really the “coup for China” that was initially touted in the media? It is worth taking an objective look and focussing on what is missing from the agreement. The 20 chapters of the agreement set uniform standards, provide for simplified bureaucratic processes, and create a framework for investment. They also enhance value chains in the Asia-Pacific region by determining the origin of products and setting rules of origin. The agreement regulates tariff reductions down to zero tariffs, which sounds significant. Yet, at a time when basic tariffs are already low and countries regularly impose politically motivated punitive tariffs, its main impact lies in the enormous volume of trade. Moreover, long transitional periods of up to 20 years have been agreed for these tariff reductions. Complex issues such as state subsidies, labour law, and environmental standards are nowhere to be found, and the agricultural sector is also largely excluded. For Australia, the RCEP builds on its existing FTAs with the other 14 nations (see Fig. 1). More specifically, this means, for example, that iron ore – Australia’s main export to China – is already duty-free, regardless of RCEP. In principle, the RCEP agreement would eliminate China’s import tariffs on Australian coal in 2021 – though this will have little benefit if China refuses to grant unloading permits to Australian cargo ships, as is the case in the current dispute. Pursuant to RCEP, import tariffs on Australian wine should also fall in 2021. Yet, China has now imposed punitive tariffs of 200 per cent on Australian wine and officially called it an anti-dumping measure. These actions weigh particularly heavily on Australia in the midst of its first recession in 30 years.

Nevertheless, the RCEP shows that the Indo-Pacific is no longer primarily looking to Western trading partners but increasingly building a regional structure. The European Union, which is currently negotiating FTAs with Australia and New Zealand, thus runs the risk of being gradually sidelined when it comes to trade and regulatory issues.

Quo Vadis, Down Under?

In his first major foreign policy speech, Prime Minister Morrison elucidated Australia’s view of itself as a creative regional power. In an age of growing rivalries between the great powers, China’s increasingly aggressive stance, and the effects of the coronavirus pandemic, Australia not only wants to be involved in developing a regional security architecture but also desires to be a serious player – and not just to play the “deputy sheriff” in tensions between the US and China.

As a result, the Australian Government is increasingly seeking to forge partnerships in the region and to exert greater influence in regional and international organisations, as well as in forums such as ASEAN, the ASEAN Regional Forum, ADMM Plus, PIF, the Asia-Pacific Economic Cooperation Forum, the G20, the East Asia Summit, the Quad Dialogue Forum, and as a partner in the Organization for Security and Co-operation in Europe (OSCE) and the NATO. However, as far as Australia is concerned, this is not so much an expression of a confrontational approach towards China as a sign of greater political responsibility, a pragmatic realignment of its foreign policy, and also a desire “to manage China” without compromising national security or its basic values.

The advantage with regard to the Indo-Pacific – and Southeast Asia in particular – is that Australia is perceived as a team player in the region rather than as an external actor. Australia and ASEAN can work together to address challenges, especially with regard to counterterrorism and cybersecurity, digital capacity building, and the digital economy. Having decided to exclude “risky” tech companies from the 5G network rollout back in 2018 citing national security concerns, Australia could set an example when it comes to protecting critical infrastructure. The same is true of Australia’s policy to combat the spread of COVID-19.

The partnership with the Pacific Island countries is not only designed to counter Chinese ambitions in the region but also to guarantee lasting relations with neighbouring states in the form of joint initiatives. For example, implementing the travel bubble between Australia, New Zealand, and the South Pacific could help the island nations that are so heavily dependent on tourism.

The Indo-Pacific region is characterised by rapid shifts in the geostrategic and geoeconomic balance of power and a steady increase in cross-border competition and conflicts at sea, on land, and in the air. These are highly complex, interrelated issues that require detailed analysis and potential actions have to be weighed carefully. The future of Australia and the region is not solely dependent on the behaviour of China or the US. New players with growing ambitions are entering the arena. Australia’s alliance with the US remains the most strategically relevant. Australia should try to feed its viewpoint into the Indo-Pacific strategy of newly elected US president Joe Biden, for example in terms of an increased naval presence in the region. Australia will only be able to increase its influence in the Indo-Pacific if it works with “like-minded” partners. Germany has also stepped forward as a potential partner within the framework of the so-called Alliance for Multilateralism and through its “Policy guidelines for the Indo-Pacific”.

Germany and the European Union: “Strategic” Partners of Australia in the Indo-Pacific?

German-Australian relations have a long history and the two countries have had a strategic partnership since 2013. Bilateral relations also reached a peak with the establishment of the Australia-Germany Advisory Group in 2015 and with reciprocal visits by leading politicians. The partnership between the European Union and Australia dates back to the 1960s and is guided by shared values and interests. Although this partnership was reaffirmed with the ratification of the EU/Australia Framework Agreement in 2018, the EU still lacks political visibility. Australia watches the crises within Europe and the risk of increasing fragmentation with concern. A speedy conclusion of the FTA currently being negotiated between the EU and Australia, its third largest trading partner, will, therefore, bring more than just economic opportunities. It is also about strengthening relations with a like-minded partner and working together to shape a globalisation that is rules-based, liberal, and sustainable.

Ultimately, for Australia, the perception of Germany and the EU “co-shaping” policies in the Indo-Pacific will be measured by their positioning vis-à-vis China. Closer cooperation between Germany and the EU and the Morrison government – coined by political realism – through the aforementioned interregional forums, along with joint support for regional processes such as the China-ASEAN South China Sea Code of Conduct, are potential instruments for building greater global resilience.

With its “Policy guidelines for the Indo-Pacific”, the German government claims, albeit cautiously, to be “helping shape the international order of tomorrow”. This raises expectations that must now be met with action. In a keynote speech in 2019, Defence Minister Annegret Kramp-Karren-bauer called for Germany to assume greater military responsibility: “Our partners in the Indo-Pacific region – such as Australia, Japan and South Korea, but also India – feel increasingly encroached upon by China’s claim to power. They would like to see a clear sign of solidarity, in support of applicable international law, inviolable territory, and free shipping routes. The time has come for Germany to give such a sign, to be present in the region together with our allies.” Accordingly, the announced deployment of a frigate to the Indo-Pacific region in 2021 sends an important signal from Germany to Australia that it is a credible strategic partner in maintaining a rules-based order and freedom of the sea-lanes.

– translated from German –

Dr. Beatrice Gorawantschy is Director of the Regional Programme Australia and the Pacific at the Konrad-Adenauer-Stiftung in Australia.

Barbara Völkl is Desk Officer for East Asia and the Pacific at the Konrad-Adenauer-Stiftung.