Consider the Trans-Pacific Partnership as an economic hard power weapon.

The TPP can’t deal out death like the US 7th Fleet. But a lot of the language used about the TPP is more geopolitics than geoeconomics.

The TPP is an attempt to shape Asia’s strategic environment, a hedging device and a major expression of the US rebalance. The TPP is about boosting US power and excluding China’s power. The TPP is zero sum – members are supposed to win and non-members miss the benefits. Plenty of hard power in all that.

As previously argued, the TPP is about who rules and who writes the rules.

That was the proposition Barack Obama put in his State of the Union address, and repeated in his interview with the Wall Street Journal:

If we don’t write the rules, China will write the rules out in that region.

As an expression of US rule making, what will the TPP mean for Asian geopolitics if it comes into existence? Let’s make a few big assumptions. Assume the US Congress does give approval to the TPP fast-track. Japan and America would then quickly resolve their bilateral arguments.Tokyo and Washington are ‘very close to a deal,’ according to Yoshiji Nogami, former Vice-Minister of Foreign Affairs, and now president of the Japan Institute of International Affairs.

It’ll be a remarkable achievement if the US and Japan can agree on a deep and broad free trade agreement. China is a potent force, indeed, if it can produce such a deal between the world’s first and third biggest economies.

The joke used to be that the last free trade deal in Asia would be between Japan and the US, because it would be the hardest to get. Steven Wong, of Malaysia’s Institute of Strategic and International Studies, says he’s had to abandon that jest. Now he says the last free trade deal in Asia will be between the US and China.
With the TPP, the Asia-Pacific will have its first mega cross-regional free trade agreement. Obama will have delivered on his promise to be a Pacific president, whatever you think of the worth of the TPP.

Nogami told the Asia Pacific Roundtable in Kuala Lumpur that this new economic order will have significant geopolitical impacts:

Beyond the scope of economic benefits, this has important implications for political and security circumstances in this region.

The win-lose equation has some price tags. A study quoted by Nogami estimated the TPP would deliver gains of US$105 billon to Japan and US$77 billion to America by 2025; the loss for China is estimated to be $35 billion.

The direct Chinese pushback to the TPP would be the proposed Regional Comprehensive Economic Partnership, which includes everyone but the US.

Yoshiji Nogami says the TPP is much more ambitious and beneficial because it’s a higher quality deal than can be achieved with the RCEP:

One problem with the RCEP is it is seen as some sort of alternative to the TPP, with lesser standards, lower standards. That’s not going to boost the RCEP. If you have a regime with lesser standards, if you have a regime which is not so ambitious, who is going to push a sub-standard agreement in the face of higher standards? The economic response is that countries which promote the TPP will have no major incentive for pushing a sub-standard product.

Steven Wong told the Roundtable that economic partnership agreements like the TPP are:

The most important foreign policy instruments in the Asia Pacific region. This may seem like a bold claim to make given the many traditional and non-traditional sources of tensions and potential flashpoints throughout the region. While there are some awesome attempts to address these concerns, nothing yet approaches the sheer expansiveness and depth of economic partnership agreements. They are the most visible and tangible manifestations at managing inter-state relations.

Wong thinks economic partnership agreements carry potent symbolic value that may be ‘more important than their actual substance.’ On this reading, see regional economic integration as ‘creating zones of influence.’ Wong says the Asia Pacific will need to deal with ‘multiple partnership regimes.’ The power balance is shifting and complicated—and competing trade deals reflect the contest.

Some economists see the TPP making more sense as a power play than as good economics. The Australian economist Ross Garnaut disputes the claim that the TPP sets the gold standard. Because it excludes China, India and Indonesia, he says, issues of preference and exclusion will loom large:

The TPP will systematically discriminate against non members through preferential arrangements. Members of TPP will put up barriers to trade with excluded countries that they won’t have with included countries. There will be limits on the proportions of value-added that can come from the excluded countries. And so we’ll end up with two sets of value chains in the region – one for members and one for non-members. One unintended consequence could be that to be an efficient producer of a lot of products, you will have to become part of the excluded countries, because you will not then be forced to exclude low-cost components from China, India and Indonesia.

Getting Australian–Indonesian relations back on track is a politically sensitive issue and weighing it up may not be the prudent thing to do while there is still a lot of anger in the heart of many Australians and Indonesians.

But now I have been asked to answer the question: what will the state of bilateral relations be beyond the Chan–Sukumaran executions?

In my previous writing I stressed the need for the two countries to be able to see things from the other person’s point of view and reminded myself of the time when I was undergoing training to become a diplomat. We were told to cultivate the habit of two-handedness, to be able to say: on the one hand, this is how I see the issue, and on the other hand, you may have a point that I must consider.

However the more important question for Australia is, I believe, how will it live with a richer and more confident Indonesia? As part of ASEAN since 1967, Indonesia has benefitted from the external security and stability. As a result its economy is now one of the emerging economies. Indonesia’s economic output was $706.6 billion in 2010, up from just $95.4 billion in 1998 when the nation was embroiled in the Asian Financial Crisis.

In 12 years going up from $95.4b (1998) to $706.6b (2010) then to $1 trillion in 2013. Economic and political reform in the world’s fourth most populous nation made that possible.

Another important question is, how will Australia live with Indonesia situated in an East Asia that has become both the new political centre of gravity and a centre of struggle among rival major powers? And the only tool Indonesia can wield to deal with this situation is an over-structured regional architecture—partly built by ASEAN over the past two decades—and comprising a multiplicity of forums and platforms for dialogue.

As part of ASEAN, Indonesia has both contributed to and benefitted from the external security which helped promote its internal stability. Since 1967, ASEAN has been constructive in its role to maintain sub regional and regional peace and stability.

But Indonesia’s current geopolitical environment is both fluid and increasingly difficult to manage—and becoming more unpredictable by the day.

Nationally speaking, Indonesia needs economic growth, and for that to happen it needs continued internal stability and external security borne from the cooperation of all its neighbours. For Indonesia, putting its domestic political and economic houses in order will be the foundation of its foreign policy. It is important for Australians to appreciate that Indonesia—in fact, our region—is going through an uncertain period.

Australia needs Indonesia as a partner. Indonesia equally needs Australia both as a partner and as a collaborator in its regional architecture building. It is better to look to the future, rather than be prisoners of the past.

That is why I believe that both sides should not let themselves become bogged down by the wounds of recent controversy. But there could be more friction in future.

During the years that I served in the foreign ministry and dealing with Australia, I learned that indeed, in this age of information, countries scrutinise each other. That is a fact of international life.

But the developed countries of the West are doing most of the scrutinising, as the developing countries are more often distracted by their own domestic problems. Observation breeds criticism, and when officials express their views on issues through the mass media, they tend to address the gallery and to play to the grandstand. This generates a lot of heat without shedding light on the issues to be addressed. If Western countries over-scrutinising Indonesia’s situation means putting themselves on a pedestal, reactions from Indonesia will be less manageable and relations will become more difficult.

Governments and their leaders are of course important, but there are other players, such as the media which is sometimes part of the problem. By providing information and commentary on issues, the media shape public perception. Politicians and public officials must deal with these perceptions that are often stripped of nuance and reduced to their most simplistic forms. The traditional media have always tended to be sensational, but today the most sensational of them all are the social media. So much misperception, so much prejudice and so much hatred is being perpetrated through social media.

The impact of irresponsible media reportage and commentary is further complicated by the cultural traits of peoples. It is my impression that we Indonesians are a more emotional people compared to Australians and other Westerners who are more cerebral in their approach to issues.

We tend to deal with others on a heart-to-heart basis, while Australians do it head-to-head. So in the case of a controversy such as the recent executions, statements coming from Australia, which were meant to be simply sensible and practical, were received in Indonesia as hard hearted and cold blooded.

Responsible and knowledgeable people on both sides of our relations need to keep their emotions in check and to look for the right ideas to rebuild the relationship.

It would greatly help the relationship if we spent more time learning about each other instead of debating who is right wrong. And there should also be a more robust manifestation of mutual respect. While we are so unlike each other in terms of culture and traditions, the fact remains that we are neighbours—we are stuck with each other.

One of the most prudent things we can do is to invest in cross-cultural communication—in a way that shows respect for one another’s views. We can disagree while still showing respect for the person we disagree with. We must avoid the blame-game and refrain from speculation. Above all, we must avoid inflammatory language. We must shun megaphone diplomacy.

We must do more to promote our social-cultural relations. Our cooperation in the field of education must continue. At the same time we must make our economic partnership work for our peoples. They must feel and enjoy the benefits of that partnership.

We must work together to form a robust regional architecture through the ASEAN-led processes, especially the East Asia Summit.

These are the ballasts of our bilateral relations. If we keep on enlarging and strengthening them, if we keep on learning about each other and showing respect for each other, our bilateral relations will grow from strength to strength in all the years ahead.

A month ago, Stewart Patrick from the Council on Foreign Relations described the move by France, Germany, Italy and the UK to become founding members of the Chinese-led Asian Infrastructure Investment Bank (AIIB) as a ‘body blow to the US-led international order created in the wake of World War II, which is crumbling before our eyes.’

Few other analysts have been quite as gloomy. Most accounts of Australia’s belated decision to dip a toe in the water suggest the benefits of getting involved will outweigh the costs of not participating. According to that logic, the more Western shareholders with ‘seats at the table’ from the start, the less risk the new bank will adopt opaque governance structures or support Chinese political and business interests. A multilateral commercial bank like AIIB that makes bad lending decisions due to poor procedures would find itself in trouble faster than alternatives like China’s Silk Road Fund. The bank might even give Beijing a responsible stake in international public goods where there’s an $8 trillion need.

Australia’s last-minute scramble to make the AIIB’s cut-off date was inelegant. But while following the herd wouldn’t have burnished our reputation with either Washington or Beijing last month, at least it underlines to both where we sit. Hugh White’s ‘China Choice’ is principally a matter for Washington, not Canberra. There’d be little to be gained in trying to act as a trusted bridge between the two countries: inserting ourselves wouldn’t assist their clear communication but would imply an unhelpful equivalence.

Hugh regards the AIIB’s fairly graceful lift-off as a more significant milestone than do most, especially given America’s awkward effort to prevent it. He calls the AIIB debacle a ‘wakeup call for Washington’ as America’s China consensus slowly unravels. The episode fits the stark choice he sees between the US acknowledging China as an equal and yielding commensurate space or else trying to contain it in order to preserve American primacy.

I’d agree that the AIIB’s launch was significant. Sure, its US$50 to US$100 billion capital isn’t about to dominate international finance flows; America’s Bretton Woods institutions are far from the only basis of US predominance; and even rusted-on allies like Australia have failed to follow the US lead before (Graeme Dobell points approvingly to John Howard’s rejection of the IMF’s harsh medicine during the 1997 Asian Financial Crisis). It’s rare, though, to see so many close friends reject US overtures so quickly and utterly. Beijing’s success attracting donors over Washington’s objections may be ‘mainly symbolic’ but symbolism counts in the race for global influence—zero sum or not.

Still, I’d describe Washington’s ‘AIIB fiasco’ as more of a snafu than a watershed, and expect the upshot will be a case of America doing the right thing—after exhausting every alternative rather than radically changing policy direction.

As the US measures the harm it’s inflicted on itself, some blame the ‘imperial hubris’ of an administration that should have learned not to make such rigid demands after its experience with its Syrian red-lines. But there’s been more hand-wringing than finger-pointing as the chief cause is ultimately a level of gridlock no one can be too proud of. Since 2010 Congress has blocked reforms that would have allowed China to play the larger role it sought in the World Bank and IMF. While that mightn’t have prevented Beijing from wanting to establish an AIIB, it could have at least provided the US with a leg to stand on in opposing its creation. Instead, stymieing the reforms can only have strengthened China’s ‘if you can’t join ‘em, beat ‘em’ logic.

It’s tempting, then, to view the US government as so bitterly divided that it’s ‘on the verge of ceding the global economic stage’ and legitimacy it built at the end of the Second World War to the rising powers. The sharp drop-off in treaties being approved by the Senate during the current administration, reckless intransigence of Tea Party insurrectionaries, and recent spectacles such as sequestration might seem to support that concern. Yet neither US exceptionalism nor robust partisan wrangling are at all unprecedented. Presidents have grumbled about the Senate obstructing the executive’s foreign prerogative since George Washington’s time. The Senate famously rejected Woodrow Wilson’s Versailles peace treaty because it might bind Congress’ war-making powers to League of Nations decisions rather than because it seemed overly punitive. And during the George W. Bush era, the Senate twice refused to approve the UN Convention on the Law of the Sea (which the US follows in practice, and might provide useful normative leverage against China’s maritime claims) despite strong administration support.

Although none of those examples offer cause for cheer, they remind us that domestic politics always shape the foreign commitments of democracies, and that US power has continued to grow through periodic past reverses. While it’s unrealistic to expect an end to political dysfunction anytime soon, President Obama has used executive agreements as effective tools to move his agenda forward. And there are signs Congress is getting closer to granting Trade Promotion (‘fast track’) Authority where it really counts: for Trans-Pacific Partnership (TPP) negotiations at the heart of the rebalance.

Rather than hoping the AIIB episode will spur Washington to seek a grand settlement with Beijing, we should expect regular historical jiggling to continue apace—between businesses, unions and parties, among others, domestically, and states, corporations, and competing trade blocs internationally. There we’ll have much to be thankful for, given the importance of accommodating China’s rise, if America’s AIIB-rout encourages it to play its strong hand a bit smarter.

There’s a lot of talk about submarines again this week thanks to the SubSummit conference in Adelaide. Perhaps not surprisingly given the venue, much of the focus was on the local versus offshore build aspect. That’s all fair enough—we’re talking big dollars here, and the size of the program is such that all of the potential stakeholders have plenty of reasons to make their pitch. That’s a good thing—the more the various options are explained the better informed the discussion can be.

Clearly the government wants to keep ‘Option J’—a submarine sourced from Japan—open, which is why it settled on its ‘competitive evaluation process’ to allow for the possibility. Otherwise it would simply run a tender process similar to that for the Collins class for the Europeans to compete. The question then becomes how to weigh the positives and negatives of what are quite different options.

But one of the unfortunate downsides of this debate (in fact most debates) is the tendency to talk down the competition beyond what’s objectively true, thus muddying the waters and detracting from the quality of the discussion. There’s no shortage of criticism of varying quality of Option J out there—in fact it’s hard to find much support. In our new paper released today, we take a look at the case for Option J and find that there are indeed some real strategic positives as well as issues of concern.

Let’s take a look at the critic’s concerns. They fall into several distinct categories. The first are ‘strategic concerns’, with any or all of the following:

• Australia would be choosing sides in north Asian security and thus would risk being drawn into a future conflict in that region
• a submarine deal would be to the detriment of Australia’s important economic and security relationship with China
• Australia would effectively helping Japan to ‘remilitarise’.

We don’t buy any of those arguments. First, Australia would only find itself trapped into north Asian conflicts if it negotiated a submarine deal especially ineptly. If we get the support arrangements we need in place, Japan’s leverage—even if it decided to use it—would be much reduced.

Second, China has shown no tendency to punish Australia for being a forthright critic of its security policies to date, and it’s far from clear that they could effectively punish Australia in any case. Finally, Japan’s moves towards a normalised security posture falls well short of a region threatening militarisation.

We think it’s in Australia’s interests for Japan to be more, not less, engaged in regional security. As American power declines in relative terms, having allies and partners around the region that can carry part of the burden of maintaining order will be increasingly important. That’s probably why it’s widely thought that the US is firmly supportive of a possible Australia-Japan submarine deal.

Because of these factors, Option J has positives that simply aren’t there in the same way with France or Germany. Yes, they’re both like-minded liberal democracies, but neither has the proximity, the inclination or the regional capability to make a lot of difference in our part of the world. On the other hand, the Europeans offer a wealth of experience in arms exports, and both have successfully exported submarine designs to be built in foreign yards. After our experience with the AWDs, that’s a very strong selling point.

The other broad class of criticism are ‘industrial and economic concerns’:

• a Japanese submarine would offer much less work in Australian shipyards than a deal with European suppliers
• the project management with Japan would be prohibitively difficult given cultural factors and their lack of export experience
• the opportunity cost to Australia of taking the work offshore would be too high.

We don’t say a lot about that in this paper. (ASPI has commented here, here and here on these in the past.) But it’s almost certainly right to say that the ‘Eurosub’ option offers more local work.

Nor can we sensibly evaluate from publicly available information the capability issues that might arise, such as the suitability of the Soryu-class for Australian mission profiles and the difficulties that might be encountered in modifying the design for the RAN’s use. That requires government—through Defence—to do its due diligence. Of course, that’s also true of any European option.

Our paper shouldn’t be interpreted as an endorsement of Option J. This isn’t an ‘apples versus apples’ competitive evaluation and the two pathways have qualitatively different strengths. But it’s not right to say that Option J offers little in the way of positives. Apart from anything else, it’d signal a further deepening of the Australia–Japan defence relationship and a further underpinning of the US alliance framework, at a time of shifting major power relations in the Asia-Pacific region.

Two incidents so far this year have highlighted Australia’s inability to protect its sovereignty and discharge its responsibilities in Antarctica and the Southern Ocean.

In the first incident in January, three foreign fishing vessels were apprehended by the RNZN’s offshore patrol vessel, HMNZS Wellington, illegally fishing in Australia’s exclusive economic zone (EEZ) in the Southern Ocean in breach of the Convention for the Conservation of Antarctic Marine Living Resources (CCAMLR). While the vessels were initially detected by an Australian surveillance aircraft, Australia did not itself have the ability to respond to the sighting.

After that incident, NZ Foreign Minister McCully said that countering illegal fishing in Southern waters was ‘not straight forward’ and New Zealand needed the cooperation of other members of the CCAMLR Commission. The environmental action group Sea Shepherd criticised the Australian government for ‘leaving the New Zealand government stranded’. Read more