Lowy Institute

Earlier this week The Australian reported that it had seen detailed specifications for the Scorpene-class submarine made by DCNS, which is also contracted to make twelve submarines of a separate  design for Australia. Shashank Joshi wrote on the regional impact: 

If The Australian’s investigative reporter is correct in asserting the raw data passed from French shipbuilder DCNS to companies in Southeast Asia and Australia, there can be little doubt that it is, or will soon be, in the hands of Chinese intelligence and, soon thereafter, Pakistan. Vice-Admiral A.K. Singh, a retired Indian submariner who served as head of the Eastern Naval Command, told The Wire that, in his view, 'this has saved the Chinese and Pakistanis 20-30 years of espionage'.

The Scorpene-class INS Kalvari being launched in Mumbai in 2015. Photo: Indian Navy

The Olympics wrapped up this week with Shinzo Abe in a Mario costume. Though often hyped for political effect, there was a noticeable disconnect between the Olympic success and the domestic politics of both the US and the UK, argued Nick Bryant:

Britain voted to leave the European Union partly because of fears about immigration. Yet its hero of the Rio games, as in London four years earlier, was Mo Farrah, a Somali-born athlete who has emerged over the past four years as the face of British multiculturalism…

Across the Atlantic, Donald Trump, in promising to make America great again, has repeatedly said that the US doesn’t win anymore. Yet Team USA dominated on the track, in the pool and at the gym. It came away with its biggest medal trawl since 1984, when its tally was artificially inflated by the Eastern bloc boycott.

Richard Lennane wrote a scathing critique of Australia’s attempts to derail a UN meeting in Geneva last Friday:

Australian diplomats called a vote they knew they would lose, split their already modest support base in half, and enraged more than 100 other countries that had been ready to agree to a painstakingly negotiated compromise. For its trouble, Australia gained precisely nothing, and seriously damaged its credibility and influence. If it sounds like a diplomatic train wreck, it was.

Last weekend saw the departure of campaign chairman Paul Manafort from Donald Trump’s presidential campaign. James Bowen:  

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As things stand, there is still plenty of wild conjecture on the nature of Trump’s end game and how it relates to his increasingly chaotic campaigning. After all, Manafort’s resignation – which we can safely assume was a wholly forced departure – was also attributed by many to Trump’s desire to more fully embrace his stream-of-consciousness electioneering style.

Would the election of Hillary Election represent US foreign policy ‘returning to normal’? Don’t be so sure, wrote Hugh White:

Clinton is after all a professional politician through and through. There is no evidence that she has ever allowed foreign-policy convictions to override political calculations, and no reason to think this will change now.

That means we should expect Clinton to shape her foreign policy to neutralise the threat to her nomination in 2020 from the left of her party. So forget Hillary the hawk. To consolidate her Democrat base, she will be even more cautious abroad than Barack Obama has been.

A new RAND Corporation report into how a hypothetical US-China war might play out was an admirable effort to analyse a scenario often considered taboo, but the study has some flawed assumptions, wrote Crispin Rovere:

The authors note that Chinese policymakers are one of their intended audiences. This aims to ensure that miscalculation owing to overconfidence in China’s military capacity is avoided. Unfortunately, in attempting to enhance the deterrent effect of America’s Pacific forces, RAND makes a number of assertions that paint an overly rosy picture for the US.

Adding yet another layer of complexity to the security situation in the South China Sea is the prospect of floating nuclear power plants. John Lee

China’s first floating nuclear power plant is expected to be operational by 2019, and will likely be deployed to the South China Sea to support China’s outposts and oil drilling operations.  CNOOC, the state enterprise which owns the mobile oilrig that deployed to disputed waters with Vietnam two years ago, has signed a contract for one such platform; another 20 are reportedly in the works. 

Susanne Schmeidl wrote on Afghanistan's slow decline:

Finding refuge in the country's urban centres is no longer the best survival strategy given the various insurgent elements (Taliban, splinter groups and Daesh) have proven their ability to infiltrate the heart of Kabul and other cities. The band-aid approach of international military forces seems to no longer be working and the peace process is on a road to nowhere. Those fleeing violence have few places to go.

Next month G20 leaders will meet in Hangzhou. Fergus Hanson wrote on why the G20 should consider encouraging global norms for online conduct:

The internet is now so central to the world economy (McKinsey estimates it contributed US$2.8 trillion to world GDP in 2014) we forget how weak the norms are governing behaviour online. In several areas these behaviours threaten to degrade and limit the internet’s future contribution to global growth…

The G20 now has the opportunity to build on some of the progress made in 2015 and expand its engagement into new areas. In the most recent G20 Monitor, I propose three issues it could usefully grapple with.

Hugh Jorgensen outlined how G20 leaders should go about adding migration to the agenda for next month’s leaders’ summit: 

I have co-authored a piece in the latest G20 Monitor that lays out some more specific options available to G20 leaders on migration issues at the upcoming leaders Summit in Hangzhou. In general, the piece argues that the G20’s engagement with migration matters should be discrete but clear, that the G20 Hangzhou Summit should seek to give the maximum possible momentum-boost to the UN Summit on Refugees and Migrants taking place in New York on 19 September, and that the G20 should consider how it can best support the outcomes of the UN Summit at the G20 Hamburg Summit in 2017.

And David Gruen and Sam Bide argued for a stronger stance from the G20 on global trade:

There are signs around the globe of rising protectionist sentiments. Partly, this reflects the perception that the gains from trade have not been broadly distributed, particularly in some advanced economies. China has elevated trade as a key issue for leaders to discuss at Hangzhou. G20 Trade Ministers have also called for improved communication of the benefits of trade and are seeking analytical support from relevant international organisations. A key part of this is improving the evidence for how trade lifts GDP, and also how key groups, industries and regions are impacted.

Earlier this month Indian PM Narendra Modi extended his greetings to the people of Balochistan, outraging Pakistan’s leaders. David Brewster examined the geopolitical implications of the move: 

Narendra Modi laid down the gauntlet to Pakistan, sending a clear indication that India may be prepared to destabilise Pakistan’s fractious Balochistan province in response to perceived threats. While this represents a very significant change in India’s public posture towards Pakistan, it is important to understand the message was also directed at China.

Finally, Emma Connors chronicled the political legacy of Roger Ailes:

In recent years the 76-year-old Ailes was usually discussed in the context of Fox News, the television empire he founded and where he was largely given carte blanche by Rupert Murdoch because Fox made money hand over fist. That autonomy ended last month, when suddenly Ailes had to go.

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China’s first floating nuclear power plant is expected to be operational by 2019, and will likely be deployed to the South China Sea to support China’s outposts and oil drilling operations.  CNOOC, the state enterprise which owns the mobile oilrig that deployed to disputed waters with Vietnam two years ago, has signed a contract for one such platform; another 20 are reportedly in the works. 

Since China has shown no sign of renouncing its jurisdictional claims within the nine-dash line, it will likely assert control over the maritime space surrounding such plants for their protection.  The recent arbitral award’s finding that several Chinese outposts in the Spratlys are artificial islands, not entitled even to a 12-nautical mile territorial sea, gives China added incentive to interpret expansively the law governing protection of offshore platforms. 

An artist's impression of a nuclear platform. Photo: China General Nuclear

The UN Convention on the Law of the Sea (UNCLOS) allows states to enforce safety zones around artificial islands or installations with a radius of 500 metres.  This is not adequate for protection against safety hazards or deliberate attack, as recognised in a recent report into the security of Australia’s offshore oil and gas sector; a speedboat loaded with explosives or armed men can cover that distance in around 40 seconds.  This is not a hypothetical threat: in 2008, Nigerian militants attacked a platform 120 kilometres from the coast, and  Southeast Asian terrorist groups have a demonstrated intent and capacity for offshore attacks.

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The prospect of a maritime catastrophe could be used by China (or indeed any country) to justify expanded safety zones around its installations.  This would be less controversial than an air defence identification zone over the South China Sea, particularly as safety zones would cover a smaller and non-contiguous area, which might only marginally impinge on commercial freedom of navigation.  Such a move would align with China’s assertion (alongside Vietnam, India and several other Asian states) of rights to regulate foreign navigation through its territorial sea and exclusive economic zone.  It would likely be justified through the same arguments made for a coastal state’s right to prohibit surveying and monitoring activity by foreign warships and aircraft beyond its territorial sea: that these provisions of UNCLOS derive from past state practice that is now out-dated due to technological advance, and that the final text of UNCLOS left the extent of coastal state rights unresolved.

Expansive safety zones in the South China Sea would serve the interests of two powerful constituencies in China: the state oil companies and the PLA.  When CNOOC’s oilrig entered waters disputed with Vietnam in 2014, a three-nautical mile exclusion zone was declared around it, and enforced to the point of collisions and sinkings.  The PLA already asserts ‘military alert zones’ around Chinese outposts in the South China Sea, and is the most plausible driver of China’s 2013 declaration of an air defence identification zone over the East China Sea.  PLA planners have strong incentives to continue deploying power-hungry equipment to the artificial islands in the Spratlys.  The proximity of nuclear plants would have the added benefit of complicating enemy targeting of these outposts in a conflict, given the risk of spreading radioactive waste across a sea that carries a third of world maritime trade and feeds several hundred million people

Such moves would likely be opposed by the US, which has blocked proposals in the International Maritime Organisation to accommodate safety zones wider than 500 metres as an infringement on freedom of navigation.  But US response options would be limited; freedom of navigation operations in close proximity to a floating nuclear plant would be risky, and unlikely to play well in the court of public opinion.  It could be argued that ‘artificial installations’ are properly classified as ‘ships’, which are not entitled to safety zones at all; but since UNCLOS does not define either term, another arbitration might be needed to settle the matter.  Treating a mobile nuclear plant as a ‘ship’ also raises thorny jurisdictional issues around its deployment into other countries’ exclusive economic zones, even leaving aside disputed sovereign rights.

Nor would the US be assured of international support in pushing back against China on this issue.  As noted above, many regional states assert rights to control maritime space beyond what UNCLOS expressly permits.  India reportedly has plans for five nautical mile safety zones around its’ offshore platforms, and Indonesia (which has a long record of disputing foreign navigational rights in its coastal waters) intends to buy its own floating nuclear plants.  The Australian government report cited above recommends a concentric safety zone system around offshore platforms, including a five nautical mile exclusion zone.  Expansive safety zones may well become a contentious issue between countries that see them as ‘creeping jurisdiction’ undermining the navigational freedoms enshrined in UNCLOS, and those viewing them a proper evolution of coastal state rights that were incompletely defined in UNCLOS.

Nonetheless, the first mover is likely to be China.  It is of course possible that foreign opinion could steer China away from its higher risk options around mobile platforms in the South China Sea, even if the artificial islands are here to stay.  Optimists can find a precedent in China’s approach to testing anti-satellite capabilities: international outcry over the results of the first test may have influenced the adjustment of subsequent tests to reduce collateral space debris.  But as for most aspects of dealing with China, effective engagement is likely to require some flexibility in approach.

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It’s been another grim week in Afghanistan, one in which the continued descent into chaos is likely to prompt more Afghans to flee their country even though they know competition for a satisfactory end to a refugee journey is tough and getting tougher.

An attack by gunmen on the elite American University in Kabul (AUAF) on Wednesday has left 12 dead, 44 wounded and many traumatised students. Nobody has claimed responsibility for this attack, though some in the Afghan government suspect the Haqqani wing of the Taliban. Zalmay Khalilzad, former US Ambassador to Afghanistan, Iraq and the UN, believe the attack was evidence of the Taliban's hostility to education, but it also fits with the Taliban's desire to rid Afghanistan of foreign invaders and influences (many of AUAF’s staff are foreign and the language of instruction is English). For Kabul residents it was one of many attacks this year, evidence the Taliban is specifically targeting densely populated areas to prove its superiority over Afghan government forces. It's a strategy that has created a great deal of uncertainty and stress in the lives of many.

As it happens, I can put a human face to the AUAF attack. One of those injured was a dear friend and long-term colleague, who once wrote (under a pseudonym) for the Lowy Institute in the Afghan Voices Series. A Pashtun from Kandahar province, part of the Taliban’s heartland, and deeply religious, he would fit the profile of many young men that might join the insurgency. Except he did not, he chose to become a journalist and researcher, using words to tackle problems, not arms. He studied at AUAF because he could not get the education he wanted anywhere else in the country. For me, he epitomises the indiscriminate war insurgency is waging on civilians in Afghanistan

While the AUAF attack was reported around the world, the international media misses much of what goes on in Afghanistan; and there is a lot going on. The International NGO Safety Organization (INSO) counted 16,287 security incidents (intimidations, robberies, abductions, improvised explosive devices/suicide bombings, small arms fire, etc.) across the country in the first six months of this year. That's an average of 77 such incidents every day. INSO ranks Afghanistan second in terms of incidents involving NGOs (the Central African Republic is first). Given this level of violence, it is not surprising the flow of Afghan asylum seekers has not slowed. They remain the second largest nationality (after Syrians) seeking a safer haven (or perhaps simply a more predictable life) in Europe.

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Consider recent events in Helmand, in Afghanistan’s South, the province that produces most of the country's opium poppy. Two years after David Cameron declared ‘Mission Accomplished’ in Afghanistan (Helmand used to be the under the auspices of British Troops), the Taliban has come close to re-taking nearly the entire province. On Tuesday, more than 100 US troops were sent in to support the beleaguered Afghan National Security Forces and prevent the province’s capital, Lashakar Gah, from being overrun. The ‘Support’ mission, which NATO transitioned into after closing the door on the International Security Assistance Force (ISAF) at the end of 2014, has been forced back into active combat. A day after foreign troops went back into Helmand, a US solider died in this profound mission-creep. How long this ‘temporary development’ will last is anybody’s guess. It is unclear if the Taliban timed its siege of Helmand to coincide with the 97th Anniversary of Independence from the British Empire, which featured on a Taliban website, or if this was simply a perfect coincidence. Either way, people are fleeing the violence. Some sources on Twitter say 30,000 have left.

Meanwhile, the northern city of Kundunz, briefly captured by Taliban last year, is once again on the verge of being overrun. The insurgency pushed its way into neighbouring Baghlan province, with districts being conquered and some lost again in the stand-off with Afghan forces. Hundreds of people have been displaced by fighting in neighbouring districts. 

The fighting also continues in various other provinces, such as Farah, Faryab in the West, Uruzgan, Zabul in the South, Loya Paktia provinces in the Southeast (Paktia, Paktika), and of course beleaguered Nangarhar in the East where Afghan security forces fight the Taliban and Daesh (the latter two are fighting each other). The Afghan army recently announced via Twitter that Shinwari tribesmen have pledged support to Afghan security forces, although it is unclear if they would be fighting as part of the Afghan army or alongside, as an increasingly large number of pro-government militias are doing. The latter course, of course, creates problems of accountability. This was demonstrated recently when the Junbesh militia, loyal to First Vice-President Rashid Dostum, was accused of human rights abuse against civilians during recent fighting in Faryab.

All of this demonstrates that the Afghan army is engaged in a multi-front war that it is not managing well. By enlisting help from an increasingly colourful array of militias, the army has made life more difficult for civilians, no longer between just one rock and a hard place but between many fighting groups. The major armed forces on either side of the conflict are weakening, Afghan National Security Forces are being outmanned by a rising number of militias – some with very lose affiliations – and the supremacy of the Taliban has been challenged by splinter groups and Daesh.

Finding refuge in the country's urban centres is no longer the best survival strategy given the various insurgent elements (Taliban, splinter groups and Daesh) have proven their ability to infiltrate the heart of Kabul and other cities. The band-aid approach of international military forces seems to no longer be working and the peace process is on a road to nowhere. Those fleeing violence have few places to go. Internationally, Afghans feel they are viewed as less worthy asylum seekers than Syrians, as the following image tweeted by @LPaktia illustrates. In a situation as volatile as this, no longer welcome in Pakistan , where can Afghans in search of safe havens turn? International actors who will gather in early October for the Brussels Conference on Afghanistan conference have much to consider.

 Photo by Haroon Sabawoon/Anadolu Agency/Getty Images

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Most participants in this Interpreter debate on the G20 agree the forum needs more committed political leadership and a doubling of existing efforts. 

But what if strategically minded political leaders aren’t convinced the G20’s agenda enhances their domestic standing? If leaders are expected to take time out of their busy schedules for annual discussions that they do not find to be especially pressing or productive, might they not be tempted to de-prioritise the G20? 

For example, recent political events in G20 member states like the United Kingdom (Brexit), the United States (Trump), Turkey (an attempted coup), alongside impending elections in France and Germany, have all been tainted by growing concerns about migration. Migration may be a geopolitical issue that lies outside the G20’s traditional agenda, but many of those fortunate enough not to live in G20-land may find it curious that world leaders could attend such a high-powered meeting and leave substantive discussion about migration (forced or otherwise) off the formal agenda. 

Yet in 2015, during the Turkish G20 presidency, there was resistance to a push led by Turkey and the EU to ensure migration was recognised as a global problem in the Antalya Summit Communiqué. While there are sound arguments against the G20 poking its nose into policy quagmires like global migration management, the idea that G20 leaders could assemble in Turkey, presently home to two million refugees from Syria, and not acknowledge the fallout from unregulated cross-border flows of people, is politically naïve. And although migration did eventually make it in to the Communiqué, it was through a fairly general and open-ended clause.

To that end, I have co-authored a piece in the latest G20 Monitor that lays out some more specific options available to G20 leaders on migration issues at the upcoming leaders Summit in Hangzhou. In general, the piece argues that the G20’s engagement with migration matters should be discrete but clear, that the G20 Hangzhou Summit should seek to give the maximum possible momentum-boost to the UN Summit on Refugees and Migrants taking place in New York on 19 September, and that the G20 should consider how it can best support the outcomes of the UN Summit at the G20 Hamburg Summit in 2017.

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Balancing the agenda at the Hangzhou Summit so that leaders can maintain a strong focus on pressing economic matters while still having time to discuss migration concerns (without getting bogged down) will not be easy. The difficulty in getting this kind of balance right is why it is common to see pieces calling for the G20 to simplify its work and stick to its original raison d'être: restoring global economic growth to pre-crisis levels and boosting the classical drivers of growth in order to stave off another global economic crisis. 

Yet if the G20’s important conversations about global economic challenges ultimately result in outcomes like the revision of technical financial standards and adjusted banking capital ratios (which appears to be the case in recent years), then it seems fair to question whether annual G20 summits are achieving economic results that could not have been attained by finance ministers and central bank governors working on their own. 

When Glenn Stevens writes that the G20 ought to adopt a ‘simpler’ and more ‘achievable’ agenda, as well as devote ‘at least as much energy to discouraging bad ideas’ as to ‘advocating good ones’, I am reminded of his concern expressed in 2008 (pre-GFC) that converting the G20 into a leader-led process would be a ‘mistake’; ‘if you’ve got a heads of state meeting … they’ve got to go home with some great triumph in their bag … it is less likely that you can actually work hard over a number of years on quite important fundamental things’. Whether Stevens’ still feels this way I do not know, and his premonition does offer a plausible diagnosis of the apparent malaise felt by many working on G20 issues.

Either way, the G20 is now a leader-level forum. And as former Canadian Ambassador and a key background player in the G20’s creation Paul Heinbecker has observed, leaders can only discuss technical matters relating to financial regulation for so long, or else ‘the G20 might die of boredom’. Given the Sisyphean task that is lifting the global economy out of its current rut, it should hardly be surprising that leaders occasionally want to put non-traditional items like migration onto the agenda. And even the legendary Sisyphus at least had the benefit of knowing the precise rock he was doomed to push up the hill before it inevitably crashed back down upon him. In contrast, the G20 cannot even agree upon which fiscal or monetary policy ‘rocks’ the global economy most needs to be pushed.

Yes, the G20 does have a ‘Christmas tree problem’ (whereby every new host wants to add a new bauble to the tree) and yes, the G20 should focus on promoting strong, sustainable and inclusive growth. But it is somewhat contradictory for G20 analysts to insist that the strength of the G20 lies in the unique political capacities of leaders, only to then insist that leaders ‘do not get distracted’ by the most pressing political issues of the day. There must be a space for leaders to do a little of both.

Photo: Getty Images/John Moore

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It seems that Trump’s lousy polling and chaotic campaign mean Clinton will win in November. Most assume we can then relax: we know Hillary Clinton from her time at State, and she will be reassuringly orthodox – more orthodox indeed than Barack Obama. US foreign policy will be back to ‘normal’: a strong military, robust alliances, free trade and decisive interventions wherever the US-led global order is challenged.

Well, maybe, but don’t bet on it. Predictions of the kind I’m about to make are inherently fallible, but there do seem good reasons to question our confidence here. The 2016 Presidential campaign has changed the landscape of US politics in ways that will resonate long after November, and impose big new pressures and constraints on Clinton’s approach to many issues, including foreign policy. We can see how these pressures will work if we put ourselves in Clinton’s shoes and reflect on what will most likely be her top priority from the moment she becomes President: re-election for a second term in 2020. 

The events of 2016 mean her biggest threat in 2020 will come from her own side. To see the scale of this threat, imagine what would have happened this year if her rival for the nomination had not been Bernie Sanders but, say, Elizabeth Warren. If someone as unlikely as Sanders could run Clinton so close, imagine what a more poised, articulate, electable, female Presidential candidate like Warren would have done. It’s a fair bet that she would have beat Hillary to the nomination, and, against Trump, be set to win the Presidency. She must be kicking herself. 

So already Clinton must worry that Warren, and others like her, will be thinking about challenging her for the Democrat nomination 2020. Normally, of course, an incumbent can expect to be nominated unopposed for a second term, but these are not normal times. And Clinton is not quite a normal candidate. If she proves as uninspiring and lacklustre in office as she’s been in the campaign, and if she sticks to polices which so many of her party so obviously reject, she will be very vulnerable.

No one will be more aware of this danger than Clinton herself, and from Day One it will shape her policies – including her foreign policies. She is after all a professional politician through and through. There is no evidence that she has ever allowed foreign-policy convictions to override political calculations, and no reason to think this will change now.

That means we should expect Clinton to shape her foreign policy to neutralise the threat to her nomination in 2020 from the left of her party. So forget Hillary the hawk. To consolidate her Democrat base she will be even more cautious abroad than Barack Obama has been.

And she will be able to do that all the more easily because of what’s happening on the Republican side of the aisle. Even if the GOP rebounds swiftly from the defeat that now looms, it will be a very different party, especially on foreign policy. Trump’s success has revealed how vulnerable the party’s Reagan/Bush/McCain orthodoxy is to his ‘America First’ brand of muscular isolationism.

Ambitious Republicans looking to 2020 must already be sketching for themselves a foreign policy stance that captures this appeal while avoiding Trump’s many negatives. So Clinton will face much less pressure from the traditional right on foreign policy than she ever has before.

So what might we see instead? On trade, we can assume her repudiation of the TPP is permanent, and the temptation to step back from free trade to protect US jobs will grow much stronger. It will mean lower defence spending, and less willingness to bear costs and risks to reassure allies. It might mean for example, that a President Clinton would disappoint those who hope and expect that she would reverse a last minute No First Use declaration by President Obama.

It would mean no big new initiatives or commitments in the Middle East, and great caution about allowing strategic rivalry with China or Russia to grow. It would mean, in other words, a continuing and perhaps even accelerating stepping back from the muscular global leadership which has been the core of what Obama so memorably called ‘the Washington Playbook’. It would mean that US allies like Australia would need to reassess their assumptions about American power – perhaps not as quickly as if Trump wins, but very thoroughly nonetheless.

We will need to remember that two very different kinds of bad outcome loom in Asia: one where the US and China becomes bitter rivals or even go to war, the other where America’s influence in Asia swiftly declines. The only kind of good outcome is one where America avoids both war and withdrawal. That’s got to be possible, but America’s next president seems less and less likely to be able to get there.

Photo by Melina Mara/The Washington Post via Getty Images

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This column will appear fortnightly on The Interpreter. 

National security 

If one thing is clear from the foreign investment debate after the rejection of Chinese bids for NSW power distributor Ausgrid it is that this issue can’t be treated like an 'on water matter'. That’s the phrase Treasurer Scott Morrison popularised in his old job as immigration minister when refusing to talk about the operational details of turning back of asylum seeker boats to Indonesia.  The sheer weight of money made from China by some of the Australia’s richest people from mining to property means Morrison’s old pull down the shutters approach can’t apply to the sudden sea change in what Chinese investment is now acceptable. But more significantly, two of the country’s top security strategists and protagonists in the China debate are both calling for more openness about the reasons for national security-based foreign investment decisions. Read the Australian Security Policy Institute’s Peter Jennings here and listen to Australian National University’s Hugh White on Radio National Saturday Extra here. When these security insiders want the public brought more into the discussion, Morrison’s comment at his press conference that he was the only person present cleared to know what was going on looks out of the money.

Refugees

 And on the subject of on water matters, 12 August may well be the day the ground shifted under 15 years of divisive and deadly debate about asylum seeker boats. That was the day an unusually introspective former prime minister Tony Abbott conceded in a speech he had been wrong to destroy the then Labor government’s proposed Malaysia refugee swap deal when he was the opposition leader. But on the same day in a joint op-ed piece four of the country’s highest profile advocates of the refugee cause – Frank Brennan, Tim Costello, Robert Manne, and John Menadue (again on his own blog separately here) – supported  the controversial, John Howard-era policy of turning back boats to Indonesia. The plan to swap asylum seekers for official refugees from Malaysia arose from the Houston report which, while dated, is still a good place to start charting a way through this mess. Abbott's mea culpa on the swap deal just as the Brennan group tells the liberal left the Australian community wants the security of turnbacks has paved the way for a new approach. That would see more regional cooperation, the resettlement in Australia of some people from the troubled and costly Manus Island centre in Papua New Guinea and less political sparring over firm action to deter the people traffickers.

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Going abroad

Despite Chinese investment into Australia grabbing all the headlines, there has been a flood of new research on that other sort of foreign money – outbound investment.  This is timely given how returns from offshore investment may play a greater role in national wealth given slower growth at home. It also raises questions about data collection and aid priorities under commercial diplomacy. The latest findings from the third International Business Survey run by Austrade, the Export Council of Australia and the Export Finance Insurance Corporation shows the most popular markets for international business are the US, China, New Zealand and the UK. But the countries with the best growth potential are China, US, India, UK and Indonesia. This survey is now a bountiful source of information about how Australian business sees the world. It follows this other very useful Austrade work which goes beyond Australian Bureau of Statistics numbers on offshore investment by looking at the results of 2000 companies. And rounding this out Ian Satchwell at the UWA/Curtin Centre for Exploration Targeting says in this study that government data doesn’t properly capture the scale of Australian mining interests abroad particularly in the equipment, technology and services area. He says these METS businesses are more resilient amid the commodities bust. And he says better understanding of this mining company global reach would help inform commercial diplomacy activity in countries needing help with sustainable mining and better governance.

Bougainville

Resource management now looks set to be the key to a peaceful self-determination vote in this province which has been estranged from PNG over three decades. Rio Tinto and PNG prime minister Peter O’Neill have injected new tension into the vote with Rio exiting the Panguna copper mine and O’Neill possibly undermining the prospect of it being revived under a new government. Australia will inevitably carry the can for a failed state if Bougainville tries to break away but can’t reap the benefits of its most valuable resource.  Dan Flitton reports Bougainville rebels are already demanding Australia pay the bill for remediation work for which Rio is refusing to take responsibility. O’Neill’s rhetoric about giving former Rio shares to landowners rather than a future Bougainville government is ironic given the tensions over paying LNG royalties to landholders closer to Port Moresby, including from Exxon.

Stepping up

Foreign minister Julie Bishop has been rattling the tin with business ever since she decided to make corporate participation a hallmark of her new commercial diplomacy. Now we have a scoreboard of sorts with the first round of joint government-business investments under the Business Partnerships Platform. Business has invested $10.2 million alongside $3.8 million from the government aid program in Indonesia, Papua New Guinea, Myanmar, Vietnam, Pakistan, Nepal and Kenya.  Look forward to some nice compliments from the foreign minister for Cotton Australia, Mastercard, Unilever, Base Titanium, Cotton On, Digicel, Pou Chen Group, TPS Food and Intrepid Group.

Photo courtesy of Ausgrid

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Iran’s relationship with Russia has been characterised as many things, ranging from a ‘marriage of convenience’ to a ‘long-lasting alliance’. In reality it's a  pragmatic working relationship forged between two countries that  have faced similar political and economic pressures from the West. The increasingly vitriolic exchanges of the past week, however, suggest that both are finding the relationship harder to manage.

As two leading anti-US states with an alternative vision of a world order, Russia and Iran developed ties in multiple sectors. For both countries, working with the other has been a useful counter-balance to US dominance. Economic ties between the two helped each to weather Western-imposed sanctions. In the military sphere, Moscow provided Iran with equipment it couldn’t get from the West and conducted joint-military exercises in the Caspian Sea. Shared foreign policy goals in the Middle East – including keeping Assad in power in Syria and pushing back ISIS in Iraq – led to intelligence cooperation. Russia is also Iran’s sole nuclear provider, committed to completing Iran’s Bushehr power plant and supplying fuel for its first 10 years of operation. A number of other plants are planned.

But now it seems leadership in each country is weary of the other.

The Russians are not perceived well in Tehran. In the nuclear field for example, Iran has repeatedly accused the Russians of being unreliable. Moscow also firmly supported efforts to prevent a nuclear-armed Iran, despite its feelings towards the West. In the military sphere, Moscow dragged its feet in the sale and delivery of the S300 air defence system: signing a contract in 2007 but not making its first delivery until April this year. Economically, and particularly in the energy sphere, the two countries are competing for a bigger slice of a shrinking pie. Both want to increase oil exports and Iran has long-term plans to boost natural gas exports to Europe in particular: traditionally, Russia’s market. Iran’s negative feelings toward Russia were part of the reason why it pursued the nuclear deal to begin with: it needed other partners.

But it was the conflict in Syria that simultaneously brought Russia and Iran closer together and highlighted the differences between them. Their shared goal of preserving the Assad regime saw them work more closely together; coordination and dialogue increased. But each sides perceived the relationship differently. Read More



Tehran thought it had the upper hand; that in Syria at least, it was dictating the terms of the cooperation. After all, it was Iranian men involved in the fight on the ground and gathering intelligence. From Iran’s perspective: Russia ‘only’ provided air cover for their fight. For its part. Moscow  felt it was useful to cooperate with Iran because it didn’t want to lose the privileged position it had pre-nuclear deal. But it firmly (and perhaps more accurately) saw its role as that of a bigger, more powerful and more capable friend coming to the aid of Iran, a regional powerhouse that needed help in its own backyard.

When it became apparent that Tehran wasn’t in charge, the Iranians were taken aback. They were surprised when Russia did not inform them that it had agreed to a ceasefire with the US, when Russia temporarily halted airstrikes against the al-Nusra Front in May, and again in July when Secretary Kerry and Foreign Minister Lavrov announced an agreement – the contents of which were not shared – to cooperate on respecting the ceasefire.

This trend was only reinforced when Russia announced that Iran had allowed it to use the Hamedan base for its bombers on the way to Syria. Given the Iranian constitution explicitly prohibits the establishment of a foreign military presence on its soil, some in Iran, including parliament, were less than impressed. Defense Minister Brigadier General Hossein Dehqan criticised Moscow for 'showing-off' when it leaked the news, and said that the decision to sign a treaty for strategic military cooperation with Russia was made by the 'system', and was none of the parliament's business. Various officials have since downplayed the event; the Foreign Ministry announced activities were halted, while the speaker of parliament Ali Larijani stated Russians were just refuelling their bombers.

Why, given Iran’s frustrations with Russia, did Tehran give Russia permission to use its base? Likely because it was counter-balancing recent Gulf Arab efforts to court Moscow into their camp and because, ultimately, Tehran knows it needs Moscow in Syria. But the very public spat following the leak demonstrates this is not an easy relationship.

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Earlier this month Aung San Suu Kyi, Myanmar's foreign minister and de facto leader, wound up her first state visit to China. During the five-day trip, Suu Kyi met with President Xi Jinping and other senior government officials, and discussed an agenda crowded with a range of pressing issues including trade, development cooperation, the resumption of the controversial Myitsone dam project, and the ethnic conflicts engulfing the two countries' shared border.

The most significant thing about the trip might well have been the timing ,and not the modest outcome of the talks (enshrined in a typically colourless official joint press release). The trip was Suu Kyi's first outside Southeast Asia since she led the National League for Democracy (NLD) to a stunning victory at last November's election. It also preceded her first state visit to the United States (slated for September), a country which has done much to encourage the political and economic opening that has transformed Myanmar since 2011. The decision sent a clear message about the priority Myanmar's new government places on repairing its frayed relationship with Beijing.

During Myanmar's decades of military dictatorship and international pariah-status, China enjoyed a privileged status in the country, dominating trade and investment. All that came to an end in 2011, when President Thein Sein's government initiated an ambitious program of political and economic reform, distanced itself from China, and opened a new era in relations with Western governments.

The turning point (arguably) was the government's September 2011 decision to suspend work on the giant Myitsone hydropower dam, a $3.6 billion Chinese-funded project that had provoked fierce and widespread public opposition. To Beijing's chagrin, other significant Chinese investments were later cancelled or put on hold. Investment from the mainland nosedived.

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Suu Kyi's China visit, however, put a seal on the NLD's slow but palpable 'rebalance' back towards the east. When the NLD government took office in April under Suu Kyi proxy Htin Kyaw, the first high-level diplomatic caller was none other than Chinese Foreign Minister Wang Yi, who pledged renewed Chinese support for vital infrastructure developments.

At the same time committed investments from China have rebounded, spiking to $3.3 billion in the fiscal year to April 2016, up from just $56 million in 2014. In December 2015, two consortia led by the state-owned CITIC Group Corp won bids to construct a strategic deep-water port and special economic zone at Kyaukphyu on the coast of Rakhine State.

Both nations have a great deal to gain from a close relationship. Myanmar's rich mineral deposits and geographic proximity (the two countries share a 2,204 kilometer border) make it a logical and necessary part of China's sphere of influence in mainland Southeast Asia. Myanmar's access to the Bay of Bengal also offers a shortcut for oil and gas imports from the Middle East, potentially reducing Beijing's reliance on seaborne shipments through the Straits of Malacca.

Aung San Suu Kyi, more of a pragmatist than some of her Western admirers might wish, has likewise expressed a willingness to accept Chinese help in realising her domestic goals. Chinese cash, distributed via bilateral loans and grants or multilaterally through the new Chinese-led Asian Infrastructure and Investment Bank, could help rebuild Myanmar's moribund infrastructure and jumpstart economic growth.

Beijing's cooperation will also be vital if Suu Kyi is to achieve what she has described as her top priority: ending the state of near-permanent conflict between the central government and Myanmar's raft of ethnic armed groups and rebel militias.

In practice, Suu Kyi faces thorny challenges in handling what is probably her country's most important and most delicate bilateral relationship. Anti-Chinese sentiment has been a simmering constant in Myanmar since the country's independence from Great Britain in 1948, a tendency that has been inflamed in recent times by perceptions of Chinese high-handedness and the lack of accountability surrounding Chinese mega-projects signed by the old military government. During a visit to Kachin State in May, local residents told me of their deep resentment over Chinese involvement in the rampant trade in jade and timber from conflict zones in Shan and Kachin states; an opaque business that has done little benefit to the people of Myanmar and has arguably perpetuated the conflicts there.

Suu Kyi's challenge is encapsulated by the question of what to do about the suspended Myitsone dam. Of the three main options (cancel the project, resume construction, or do nothing), none are immediately palatable for Suu Kyi. Halting the project outright would be a popular move, but would risk jeopardising Chinese support on economic development and the peace process. Likewise, resuming construction risks provoking a domestic backlash. Veteran Myanmar watcher Bertil Lintner has described such a move as 'political suicide for any Burmese government'.

But Suu Kyi's trip to Beijing showed that the two sides are slowly beginning to wiggle out of the impasse. Just before her departure, the state counsellor appointed a 20-member commission to review the dam's suspension and scrutinise other large-scale hydropower projects, communicating to Beijing that she will evaluate the project on its merits. China has also softened its stance on the dam, raising the prospect that China might agree to a mooted fourth option, in which the dam is cancelled but replaced with other smaller projects of benefit to both sides.

As an incentive, China has also shown that it is willing to help promote peace and stability along its border with Myanmar. During the talks in Beijing, China persuaded a number of stubborn rebel groups, including the armed-to-the-teeth United Wa State Army, to join a peace conference that Suu Kyi will convene in Naypyidaw on 31 August. In remarks reported by Xinhua, Xi Jinping promised Suu Kyi that his government 'will continue to play a constructive role in promoting Myanmar's peace process and work with the country to safeguard peace and stability in their border areas'. This came on top of a $3 million donation made by China to the peace process earlier this year; a recognition that peace and stability in Myanmar's borderlands are in both countries' interests.

Despite the warm tenor of the talks, Myanmar is unlikely to slip fully into China's orbit. While China is a reality that Myanmar's leaders can't afford to ignore, good relations with Beijing are merely one part of a balanced diplomatic diet that also includes strong ties with powers like the US, Japan, and the European Union. How Myanmar manages to balance these ingredients will form one of its main long-term foreign policy challenges.

Photo: Getty Images/Pool/Rolex Dela Pena

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By David Gruen, Deputy Secretary, Economic and Australia’s G20 Sherpa, and Sam Bide, Economic and G20 Policy Adviser at the Department of the Prime Minister and Cabinet

When the Prime Minister goes to the G20 Leaders’ Summit in Hangzhou late next week, it will be against the backdrop of an underperforming global economy. A key indicator of this is the marked slowdown in global trade. In the two decades before the global financial crisis (GFC), international trade grew at roughly twice the rate of economic growth. Since then it has barely kept pace (see Figure 1).

Figure 1: Average Global GDP and Trade Growth Source: IMF World Economic Outlook (September 2011 and April 2016)

This matters not only because trade is a driver of global growth, but also because it is a key contributor to economic development. Many emerging economies owe their high growth rates to their participation in an open global trading environment. Trade is a harbinger of globalisation. Where trade goes, investment, ideas, new technologies and poverty alleviation tend to follow. But few countries have as much riding on maintaining an open global trading environment as Australia.

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Weakness in global economic growth since the GFC is part of the reason why trade growth has been so sluggish. During the GFC, trade volumes plummeted and have since failed to return to their pre-GFC growth rates. Yet a lack of demand cannot explain all of the trade slow down. Since the GFC the global economy has returned to modest growth, but trade growth has remained unusually subdued (see Figure 2).

Figure 2: World Merchandise Trade Volume*

*2005=100, seasonally adjusted. (Source: World Trade Organisation and UNCTAD)

This may partly reflect the fact that investment goods are traded more across national borders than consumption goods (see Figure 3), and investment in advanced economies has been particularly weak. Yet investment as a share of global output was steady during the rapid growth of the 1990s – if investment can’t explain the earlier rapid trade growth, it’s hard to see how it can now explain the slowdown. Some of the slowdown may reflect difficulties in measuring services relative to goods trade, as services become an increasing proportion of global trade.

Figure 3: Investment and Consumption Shares of Global GDP and Goods Imports, 2014

Sources: UN COMTRADE, World Bank

If we want a more convincing explanation for the global trade slowdown, we need to also consider ‘supply-side’ explanations. Some important economies – particularly emerging economies – appear to be turning inward to domestically generated sources of growth. China’s growth is shifting towards domestic consumption, and is thereby less dependent on exports. As its economy moves up the value-added chain, China is likely to produce a lot more of the things their consumers want to buy.

Further, the effects of previous rounds of substantial global trade liberalisation have probably worked their way through the global economy by now. The Uruguay Round of multilateral trade negotiations and the subsequent creation of the World Trade Organization (WTO) date from 1995, China acceded to the WTO in 2001, and the expansion of the European Union from 15 to 25 countries happened over a decade ago. And since then, the GFC has spurred protectionist pressures that have been difficult to resist.

The G20 is the premier international forum for cooperation on global economic governance and trade is a key driver of global economic growth. Trade is – and should be – central to the G20 agenda. The G20 represents around 85% of the world economy and more than three-quarters of global trade. G20 members are making trade commitments as part of their growth strategies, including measures to reduce barriers in trade-enabling services (such as transport, logistics and port services) and measures to finalise or ratify free trade agreements, and reduce non-tariff barriers. Given the longevity of the global trade slowdown, the G20 needs to vigorously prosecute the case for an open global trade regime.

There are signs around the globe of rising protectionist sentiments. Partly, this reflects the perception that the gains from trade have not been broadly distributed, particularly in some advanced economies. China has elevated trade as a key issue for leaders to discuss at Hangzhou. G20 Trade Ministers have also called for improved communication of the benefits of trade and are seeking analytical support from relevant international organisations. A key part of this is improving the evidence for how trade lifts GDP, and also how key groups, industries and regions are impacted. Such evidence helped Australia open up our trading system in the 1980s and 1990s, and to develop policies to help those most affected.

Improved economic modelling and analysis can help prioritise those trade reforms that make the greatest contribution to raising output and make sure trade reforms are inclusive. Understanding how much we benefit as nations, and also how those within our nations are affected, will help ensure we all benefit from a more open trading environment. 

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In May this year, the INS Kalvari – the first of six French-built Scorpene-class submarines – was put to sea for the first time, marking the first step in the long journey to rebuild India’s depleted and creaking undersea fleet.

Diesel-electric submarines like these are typically quieter than their nuclear-powered counterparts, with particular advantages in shallow littoral waters – such as the waters off Pakistan’s port of Karachi or chokepoints like the Malacca Strait. 'The albacore shaped hull', boasted the Indian Express, 'is ideal for silent operations'. Television channel NDTV declared that 'they are so silent underwater that they are extremely difficult, if not impossible to detect'. France’s embassy in New Delhi hailed the boat as 'virtually undetectable'. 

But these acoustic advantages of the boat, along with others, might be somewhat blunted after a massive leak of technical data, running to over 22,000 pages, revealed by The Australian this week:

The leaked DCNS data details … what frequencies they gather intelligence at, what levels of noise they make at various speeds and their diving depths, range and endurance — all sensitive information that is highly classified. The data tells the submarine crew where on the boat they can speak safely to avoid ­detection by the enemy. It also discloses magnetic, electromagnetic and infra-red data as well as the specifications of the submarine’s torpedo launch system and the combat system. It details the speed and conditions needed for using the periscope, the noise specifications of the propeller and the radiated noise levels that occur when the submarine surfaces.

The newspaper noted that it had 'seen' – rather than 'obtained' – the documents, indicating that its access might have been limited. But this is little reassurance to the French or Indians. If The Australian’s investigative reporter is correct in asserting the raw data passed from French shipbuilder DCNS to companies in Southeast Asia and Australia, there can be little doubt that it is, or will soon be, in the hands of Chinese intelligence and, soon thereafter, Pakistan. Vice-Admiral A.K. Singh, a retired Indian submariner who served as head of the Eastern Naval Command, told The Wire that, in his view, 'this has saved the Chinese and Pakistanis 20-30 years of espionage'. This is a serious blow for New Delhi, but it also presents problems for Malaysia and Chile, which operate the Scorpene-class, Brazil, which will soon, and Australia, which chose DCNS over Japanese and German rivals to build its next generation of submarines.

Why have these document been leaked? After all, they have no public interest aspect whatsoever. The Australian reveals no design flaws, corruption, or other wrongdoing. Indian Defence Minister Manohar Parrikar has blamed 'hacking', and China has a long, successful, and well-known record of cyber-espionage in the defence sector. But it would be highly unusual for state actors to acquire and then publicise military secrets that could more usefully be kept private and exploited in wartime or to enhance intelligence collection at sea. DCNS itself has hinted, darkly, of corporate espionage – 'the competition is … hard and all means can be used' – and this certainly can’t be ruled out. France boosted its own measures against this activity in May, and both the German and Japanese intelligence agencies, among others, have in the past spied on private-sector targets, though almost always with the intention of aiding their national firms in private rather than the public revelation of information.

While the Scorpene documents are labelled 'restricted', a comparatively low level of secrecy in most official classification systems, this is likely a designation by the shipbuilder DCNS rather than either the French or Indian governments, and probably doesn’t reflect the value of the data. Some of the parameters listed here – acoustic and IR signatures in particular – would normally be held by sub-operating states at Top Secret or above, with a very small number of people in the loop. As my RUSI colleague Peter Roberts, a former Royal Navy officer, told the Hindustan Times, 'acoustic intelligence – the fingerprint of a submarine – is the Holy Grail' of anti-submarine warfare (ASW). But he also warned that pre-construction design data would be imperfect. 'Modelling might provide the parameters that you expect, but the hulls and internal equipment are usually different in reality, and actual noise ratios, frequencies and signatures will be different once built'. In line with this, NDTV has reported that, following an overnight review by the Indian Navy, Parrikar was told 'the specifications in the leaked documents didn't match' those of India’s submarine. It is unclear whether this is accurate, or an effort at saving face over an issue that the opposition has already latched onto.

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At the very least, this leak will probably torpedo (sorry) any order for three more Scorpenes, as had seemed likely in December. This comes at a time when India’s submarine fleet has dwindled to dangerously low levels, worsened by a series of accidents, while Chinese naval activity into the Indian Ocean has grown substantially. India has built up its maritime surveillance capability on the Andaman and Nicobar Islands, close to the Malacca Straits, explored the possibility of cooperating on a sound surveillance sensors (SOSUS) chain with Japan and the US, and signed an agreement with Germany to bolster the ASW weapons on its older diesel-electric submarines. Any erosion in the stealthiness of the Scorpene class will complicate these efforts, which India sees as crucial to the maritime balance of power in the region.

Photo courtesy of Flickr user Keerthivasan Rajamani

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Among US analysts, war with China is no longer a taboo subject. RAND Corporation has now tackled the issue head on, publishing a lengthy analysis titled: 'War with China: Thinking through the Unthinkable'. So far, Paul Dibb and Mike Scrafton have provided two excellent assessments on what this means for Australia. This review evaluates RAND’s assessment itself.

RAND presents four conflict scenarios over two different time periods: low-intensity and high-intensity, short and long duration, and occurring either in 2015 or 2025. The low-intensity conflicts are fairly straightforward; however, RAND’s high-intensity 2025 scenario draws a number of contestable conclusions, namely that:

  • Escalation to the nuclear level in any US-China conflict, however intense, is very unlikely;
  • War would be far more devastating for China, with an estimated 25%-35%  reduction in GDP after one year, as opposed to a 5%-10% reduction for the US;
  • A long conflict would test the internal stability of the Chinese state; and
  • The prospect of major land operations is low, unless the war was on the Korean peninsula.

RAND’s ultimate conclusion is summed up by this quote: 'China could not win, and might lose, a severe war with the United States in 2025.'

The authors note that Chinese policymakers are one of their intended audiences. This aims to ensure that miscalculation owing to overconfidence in China’s military capacity is avoided. Unfortunately, in attempting to enhance the deterrent effect of America’s Pacific forces, RAND makes a number of assertions that paint an overly rosy picture for the US. It must be stressed that these criticisms can only be made due to RAND’s willingness tackle this important subject.

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1. RAND seriously underestimates the probability of a high-intensity conflict escalating to the nuclear level

The authors all but exclude the possibility of nuclear use from either side, especially if the US avoids targets that would threaten China’s nuclear deterrent. In reality, China would have significant incentives for nuclear use if it was greatly disadvantaged in a conventional conflict. For instance, China could use nukes as counterforce weapons against US staging areas in the Western Pacific, calculating the US won’t respond at the strategic level. In extremis, China could even detonate a strategic warhead over a civilian population of a non-nuclear US ally (such as Japan) as a direct challenge to US nuclear assurances and to demonstrate absolute resolve, without forcing America’s hand by attacking the homeland directly. Indeed, I would argue that these outcomes are far more likely than what RAND assumes: China accepting total military defeat. 

In other words, the fact that America enjoys overall nuclear superiority appears to have led to dubious assumptions about US-China nuclear dynamics. It would have been better for RAND to simply assume a high-intensity conflict that does not escalate to the nuclear level, without attempting to justify that assumption. After all, it is just as dangerous for US decision-makers to be presented with an unrealistic appraisal of nuclear risk as it is for Chinese leaders having unjustified confidence in their conventional forces.

2. RAND’s assessment of US economic resilience is unrealistic

RAND calculates the relative harm inflicted on each economy based on the estimated disruption to trade, and the relative reliance on imports for each belligerent. The study notes that China is more reliant on imports, and that trade would be severely curtailed during wartime throughout the Western Pacific. Bilateral trade between the US and China would broadly cease.

While it’s true that China is dependent on seaborne imports and that, from a military standpoint, energy disruption would be a severe hazard for China, RAND’s economic assessment is incomplete. 

First, in addition to the cessation of bilateral trade with China, US trade would be adversely affected with every other country whose own economy is dependent on Chinese trade. Moreover, it is not only the raw value of bilateral trade, but the total value of American goods for which Chinese manufacturing is an indispensable component. This would hardly be made up domestically, as any resurgence in domestic manufacturing in the long term would likely to be directly supporting America’s war effort.

Second, and more important, is the impact of cyber attacks. It is impossible that America’s own cyber weapons would deter such threats if China faced kinetic attacks on its own territory. It must be assumed, therefore, that China would successfully disrupt critical American infrastructure on a large scale, including (but not limited to) transportation, energy, telecommunications, financial services, and research. 

The safest assumption (which RAND does make) is that in 2025 China’s cyber capability will be broadly equivalent with that of the US. While the US would be able to respond in-kind, the relative economic impact of cyber warfare would not be the same. America’s economy is larger than China’s due to the productivity afforded by widespread access to high technology. Unrestrained cyber warfare would therefore disadvantage America’s economy disproportionately. Accordingly, it is not possible to accurately predict the relative impact on each country’s GDP after one year of warfighting (as RAND attempts to do), but the overall gap in economic effect between China and the US is likely to be narrower than RAND has assumed.

3. Disruption of China’s internal stability is wishful thinking

RAND’s supposition that a prolonged conflict could precipitate a crisis of stability for the Chinese leadership is unsubstantiated. Certainly a severe military defeat resulting in a harsh peace would present a major crisis of legitimacy for the Communist Party. Indeed, this could militate against the cessation of hostilities, even when faced with a ruinous military situation, and increase the probability of nuclear use. In my view it is highly unlikely, however, that even a prolonged conflict would sufficiently embolden separatist forces in ways that could undermine the integrity of the state while such a war was still ongoing. To the contrary, faced with the memory of ‘the century of humiliation’, the will of the Chinese to resist demands of external powers would likely overwhelm any internal dissent for the foreseeable duration of any conflict. 

4. RAND’s conclusion about the use of land forces is incorrect

RAND assumes that a major land conflict is unlikely,  occurring only in the event of a war breaking out on the peninsula. RAND bases this on the (correct) assumption that North Korea no longer has the capacity to overrun the South on its own, and because South Korea is likely to avoid being dragged into a war against China otherwise. 

Nevertheless, RAND underestimates the likelihood of conflict breaking out on the peninsula during war. This is irrespective of whether hostilities commenced over the South China Sea, East China Sea, or Taiwan. 

This is because the North Koreans, seeing their opportunity, would invade the South knowing the Chinese will have no choice but to support them. Were North Korea to be defeated, China would be faced with the intolerable situation of US forces on their border during a time of war.

The correct military decision for China would be to place enough pressure on the South to force America to commit large scale forces to the defence, without overwhelming it immediately and presenting the US with a fait accompli. Once committed, the US would be in a diabolical military situation. Hundreds of thousands of US land forces would be engaged against an enormous number of enemy combatants, supported by vulnerable supply lines in highly contested waters near the Chinese mainland. Indeed, it is perfectly likely a war that started in the Spratlys could be lost by the US at Busan. 

Of course the US could simply abandon South Korea, but doing so would end its alliance credibility in the Western Pacific. Here even a military defeat could prove a major strategic victory for China, while occupation of Seoul would be a significant bargaining chip in negotiating a favourable peace.

Conclusion 

In addition to these four key areas, RAND makes a number of other assumptions that seem overly generous for the Americans: the willingness of European NATO allies to deter Russian aggression; the extent to which China’s capacity to replenish early losses would be constrained; and the presumed incapacity of China to manage shortages created by disruptions to regional trade. Moreover, other likely Chinese responses have not been considered, such as sponsoring non-state actors hostile to the US, or threatening American interests overland in the Middle East. Finally, the ability of the US to sustain offensive operations in the Western Pacific is questionable given the vulnerability of US aircraft carriers and bases located within the first island chain. 

Having said this, it is hard to argue with RAND’s assessment of the overall military balance in 2025. America will enjoy decisive advantages in undersea capability for the foreseeable future, and China’s surface fleet would be unlikely to survive. If China’s primary military objective was to control the South China Sea or the East China Sea, then war with the US would not be successful. 

Nevertheless, it is entirely possible that in a lengthy high-intensity conflict, economic losses would be equivalent, decisive military engagements would be elusive, and China’s post-war recovery would be faster. Combined with the benefit of regional proximity and a weakened allied presence in the Western Pacific, this means the possibility of a Chinese strategic victory in 2025 or beyond cannot be excluded.

Photo: Getty Images/Kevin Frayer and Chung Sung-Jun 

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By Harriet Smith, an intern with the Lowy Institute's Melanesia Program

  • The PNG Supreme Court has ruled both PNG and Australian governments are responsible for closing the asylum processing centre on Manus Island, after deeming the centre unconstitutional in April. Last week the two governments announced they would close the centre but gave no timeline or suggestion on what would happen to the detainees. The joint statement came five months after PNG’s Prime Minister Peter O’Neill called for the centre to close. 
  • PNG’s opposition leader Don Polye has described a government decision to raise the cost of election nominations fees ‘ridiculous and undemocratic’. The cost will rise from 2000 kina to 10,000 kina, or more than $A4000. 
  • Students in PNG have prioritised reconciliation with the University of PNG management in preparation for the resumption of studies next week. Classes had originally been cancelled for the year after the bloody conflict between students and police in June, but were reinstated after the university council opted to lift the suspension. 
  • Fiji’s Prime Minister has announced that plans to change Fiji’s flag have been postponed in order to prioritise the continuing recovery from Tropical Cyclone Winston.
  • New books featuring local stories have also been created to assist Fijian children traumatised by the disaster.
  • In light of Fiji’s Olympics rugby gold, The Economist attempted to explain why Pacific Islands nations have a particular talent for rugby.
  • Pacific Island countries have condemned ‘misleading’ statements on the PACER Plus trade deal which allege it will diminish sovereignty.
  • Tony Hiriasia from ANU has released a paper on kin-based politics in the Solomon Islands. It looks at how kin relationships are more central to political alliances in rural constituencies than gifting.
  • Australia has selected Tanna, a drama set in Vanuatu, to be its entry in the Oscar's foreign-language section. The film, made in the Nauvhal language, won the audience prize at Venice Critics Week last year.
  • A recent episode of ABC's Q&A featured heated debate on the issue of climate change but, as newly elected Federal MP Linda Burney pointed out on the program, the Pacific Islands nations are already seeing the impact, a reality highlighted in this news report from PNG.

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On 1 August, the new president of Taiwan, Dr Tsai Ing-wen, offered an apology to Taiwan’s indigenous peoples. In the presidential building, the apology began with a rite of offering of millet and spirits. Bunun community elder Hu Jin-niang blessed the ceremony, and Taiwanese religious leaders followed with an interfaith prayer. In Tsai’s speech, she said:

Let me put in simple terms why we are apologising to the indigenous peoples. Four hundred years ago, there were already people living in Taiwan. These first inhabitants lived their lives and had their own languages, cultures, customs, and domains. But then, without their consent, another group of people arrived on these shores, and in the course of history, took everything from the first inhabitants who, on the land they have known most intimately, became displaced, foreign, non-mainstream, and marginalised.

The apology to Taiwan’s indigenous peoples comes as the culmination of many decades of political and legal activism. A modern indigenous rights movement began in the 1980s, in the final years of Taiwan’s authoritarian era from 1945 to 1987 under the Chinese Nationalists (KMT). Activists campaigned on many specific issues, such as the cultural stereotyping of indigenous peoples in school curricula, the nuclear waste site on Orchid Island, home of the Yami people, and the expropriation of the traditional lands of the Taroko people by the Asia Cement Corporation. They also campaigned for legal and constitutional changes to protect and support indigenous rights. In 1994, Taiwan’s legislative assembly passed constitutional amendments that accorded Taiwan’s indigenous people specific protections under law and, in response to a long and vociferous campaign, institutionalised the term in Chinese 原住民 to refer to indigenous peoples, instead of the prevailing pejorative terms 山胞 and 山地人.

In 2002, the Council of Indigenous Peoples was established and an indigenous public television service begin in 2005. Later that year, the legislative assembly passed the Indigenous People’s Basic Law, which further supported indigenous rights.

The history of activism that led up to President Tsai’s apology has been in response to the long history of dispossession of Taiwan’s indigenous peoples that has left a legacy of damaged communities and high rates of social, health and economic disadvantage.

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Indigenous Taiwanese have inhabited the island for at least 6000 years, and are part of a diverse group of societies known evocatively as the Civilisation of the Voyaging Canoe, after the huge ocean-going canoes that enabled migration to the islands across the Pacific Ocean. In 1624, a colonial outpost was established on Taiwan by the Dutch, bringing guns and missionaries and drawing it into the trading economy of the Dutch empire in Asia. Through politics and violence, the Dutch subdued indigenous resistance, creating the conditions for permanent settlement by people from southern China.

The Dutch were themselves expelled by the Ming loyalist naval commander Zheng Cheng-gong in 1662, fleeing the advancing Manchus, before Taiwan was incorporated into the Qing empire. Through the next two centuries, Taiwan was settled from Fujian, and indigenous Taiwanese lost their ancestral lands as they were forced higher into Taiwan’s extensive mountain regions or were assimilated into the settler communities.

In 1895, in its final years, the Qing empire ceded Taiwan to Japan. The Japanese colonial government was notably focused on what it saw as a civilising mission for Taiwan’s indigenous peoples. There were extraordinary periods of conflict, such as the 1930 Wushe Incident when 300 Seediq warriors began a guerrilla campaign against the colonial government that escalated until Japan deployed the full force of its military against them. Indigenous Taiwanese, the Takasago Volunteers, later fought in the Japanese imperial army in WWII. The last 'holdout' after the war, Private Teruo Nakamura, discovered in Indonesia in 1974, was actually Attun Palalin, a member of the Amis people.

Under the KMT from 1945, Taiwan’s indigenous peoples suffered discrimination and patrician indifference as the new government implemented aggressive anti-Communist and industrial development policies. During the 1947 Anti-Chinese Nationalist uprising, Tsou tribal leader Uyongu Yatauyungana protected many local non-indigenous Taiwanese from mainland KMT troops, and was executed in 1954 after he formed an organisation promoting indigenous autonomy.

Tsai Ing-wen faced this bitter history in her apology. She addressed specific issues such as the Orchid Island nuclear waste site, and of the need for further legal reform to protect land rights. She acknowledged the identity of the Pingpu ethnic groups, the indigenous peoples from western Taiwan who have been largely assimilated into Taiwan’s settler society over the last two hundred years.

She also spoke powerfully of the fundamental act of writing indigenous peoples fully into the history of Taiwan. This is at a time when all Taiwanese are addressing the legacy of their history as never before. The experiences of state terror under martial law, which have been held for years as unspoken secrets by countless individuals and families, have been moving into the public sphere through history-writing, memorialisation and art. In this way, the Taiwanese are rewriting their modern story of driving east Asian developmentalism into something quite different.

Tsai’s apology gave indigenous people a vital place in that process and vastly expanded its scope. Tsai said: 'I call upon our entire society to come together and get to know our history, get to know our land, and get to know the cultures of our many ethnic peoples.'

In the abstruse calculations of geo-politics, security and global trade in centres of power such as Beijing, Washington, Tokyo and Canberra, such a basic appeal may have seemed quixotic. Yet from it proceeds a reordering of social, economic and political priorities that affirms the singular course that Taiwan is on. The apology to Taiwan’s indigenous peoples will further the cause of indigenous rights, but also signals the distinctive modern society and polity that Taiwan has become. 

Photo by Ashley Pon/Getty Images

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By Bill Carmichael, former chairman of the Industries Assistance Commission, with the assistance of  economists named in the text below.

A debate has raged for a decade about what we have gained from Free Trade Agreements (FTAs). We are now able to assess their contribution to future prosperity.

The Productivity Commission developed an analytical framework to assess the economy-wide effects of the bilateral agreement with the US (AUSFTA) in 2010, but at that stage not enough time had passed to enable a reliable, evidence-based, assessment of the agreement's impact.

Shiro Armstrong, a respected ANU economist, has since used the analytical framework developed by the Productivity Commission, and the decade of performance data available since AUSFTA came into force, to conclude that 'the data shows that...Australia and the United States...are worse off than they would have been without the agreement.'

He has suggested that 'the agreement was responsible for reducing — or diverting — $53.1 billion of trade with the rest of the world'.

So the AUSFTA, so far from the picture painted by DFAT, has involved a substantial cost to Australia.

Along with other economists including the University of Adelaide's Paul Kerin and Richard Pomfret, Flinders University's Dick Blandy, and  the ANU's Glenn Withers, Greg Cutbush, Malcolm Bosworth and Martin Richardson, I believe a different approach is required.

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While we cannot now change how we negotiated the agreements with the US, Japan, Korea and China, we can ensure that it does not reflect how we approach future negotiations.

The governance model that should guide trade policy is based on Australia's conduct in the Uruguay Round of trade negotiations.

The negotiations in the Uruguay Round took place at a time when Hawke and Keating were liberalising our own barriers unilaterally, to secure the efficiency gains involved. These reductions were subsequently offered, and accepted, in Uruguay negotiations as our market-opening contribution to global trade reform. As a consequence, we secured all the gains available from trade negotiations – the major gains in efficiency from reducing the barriers protecting our less competitive industries, as well as those available from access to external markets.

That produced the win-win outcome we should be seeking from all trade agreements. It made a substantial contribution to the prosperity we have since enjoyed.

The opportunity to improve the performance of the economy in this way was missed in all FTAs concluded last year. In those negotiations our agenda was simply a market-access wish-list; negotiations were conducted in secret ; the outcome for domestic efficiency was determined solely by the market-access arrangements negotiators happened to agree on, rather than a central objective in deciding which domestic barriers to reduce ; and success was measured by whether the outcomes improved access to external markets.

When we fail to structure our market-opening offers to improve allocative efficiency, by reducing the barriers protecting our less competitive industries, we forgo the major gains available from negotiations. These efficiency gains strengthen the economy not by enabling us to 'produce more' (that is, not by doing more of what we are already doing) but because we move from things we do less well to those we do better.

There is no conflict between the need for secrecy during negotiations and a process that provides transparency and a negotiating agenda that secures the efficiency gains available. Both requirements can be met by following the model established in the Uruguay Round.

That would involve the Productivity Commission providing a basis for Australia's market opening offers, by conducting a public inquiry and report to government before future negotiations get under way. Its report would be released only when negotiations are complete.

This would preserve secrecy during negotiations while providing for parliamentary and public scrutiny of the outcome before ratification. It would reflect the transparency arrangements that prepared the way for the reforms of the 1980s and 1990s.

Most importantly, the modest change we suggest would allow the community into the debate about trade policy.

It deserves a place in any policy framework to facilitate the long transition from the resources boom to an uncertain future.

Photo James Morgan/Getty

A longer version of this article was published in The Australian 

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The internet is now so central to the world economy (McKinsey estimates it contributed US$2.8 trillion to world GDP in 2014) we forget how weak the norms are governing behaviour online. In several areas these behaviours threaten to degrade and limit the internet’s future contribution to global growth.

Happily the G20 has recently begun to weigh in. In 2013, the word ‘digital’ first entered a G20 Leaders’ communiqué (in relation to taxation) and in 2015 its communiqué referenced a wider range of digital issues.

The G20 now has the opportunity to build on some of the progress made in 2015 and expand its engagement into new areas. In the most recent Lowy Monitor, I propose three issues it could usefully grapple with.

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1. Commercial cyberespionage

State-led, or backed, commercial cyberespionage is imposing huge losses on business (a US Commission estimated US losses at US$300 billion annually) and threatens to lead to retaliatory sanctions or other disruptive measures such as the authorisation of offensive counter-attacks by the private sector.

In September 2015, China just managed to stave off US sanctions when a presidential-level agreement was reached to cease the practice. The G20 extended coverage of this bilateral deal to all its members when it endorsed the same prohibition against commercial cyberespionage in its 2015 communiqué.

Now that the norm against commercial cyberespionage has been agreed, the challenge for the international community is bringing state practice into line. It is here the G20 could fill a gap, encouraging compliance and maintaining political momentum for advancing the agenda. Although the G20 is not a naming and shaming venue, the Business 20 could report on overall levels of state-led, or backed, attacks with G20 Leaders responding to this in their communiqué. Leaders could also encourage a global body, such as the OECD, to provide regular reporting on state-backed, or led, commercial cyberespionage.

2. Peacetime state cyberattacks

State-led, or backed, cyberattacks during peacetime are also a potent challenge. They can impose huge costs on business and are a threat to civilian life.

Examples are numerous. For the G20, three developments make consolidation of this norm a recipe for chaos and a threat to the global economy. First, the threshold for acquiring offensive cyber capabilities is now so low, most states of a reasonable size can build them and strike back. Second, the growth of the ‘internet of things’ expands an already enormous range of targets. Finally, as the defence of government and critical infrastructure targets are improved, businesses and civilian institutions become the more attractive soft targets imposing large costs on businesses and civil society.

All G20 states have an interest in winding back this norm. I make a number of suggestions the G20 could consider, including measures to limit the operational freedom of the most egregious global offenders such as North Korea, endorsing various confidence-building measures (CBMs) and, more ambitiously, suggesting members implement domestic arrangements that allow them to sanction individuals or organisations that conduct or support cyberattacks as the US did after being caught unprepared in the wake of the North Korean attacks on Sony.

3. Free flow of data

Restrictions on data flows are another emerging impediment. They increase the cost of doing business, distort markets, and create inefficiencies.

Many states, including several G20 members, have begun to erect impediments to the free flow of data across borders. Data protectionism can take different forms including requirements that certain data categories (such as that relating to national security or healthcare) be stored and processed domestically or by imposing conditions on the cross-border transfer of personal data. For example, two Canadian provinces mandate that personal information held by public institutions be stored and accessed only in Canada.

This is justified using a range of reasons most of which are spurious, however, the consequences of this trend have far-reaching economic effects. Every business with an online presence is potentially affected, for example via increased data storage and processing costs, with multinationals most affected.

While several G20 members engage in data protectionism, limiting scope for wholesale reform, there are a few steps that the G20 could take to help wind back the trend. At an overarching level, the G20 should state a commitment to the free flow of data. To prevent every state developing unique flow-inhibiting standards that apply to its nationals’ personal data, the G20 could also endorse efforts to raise privacy protections to a global standard and extend mutual recognition of laws that reach this standard to achieve interoperability. To ease frictions arising from delays in processing legitimate government requests for data stored abroad (such as in criminal investigations), the G20 could explore options for improved sharing of information among authorities in G20 countries. This could include encouraging members to review domestic processes for handling requests from abroad with a view to improving responsiveness.

Photo courtesy of Flickr user Marcus Schwan

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