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

Along with the submarine replacement program, the size and scope of Army’s future fleet of protected vehicles under Project LAND 400 and the future of the surface fleet are the other big capability choices for the Abbott government. That’s why ASPI will be taking a hard look at both subjects this year, and will run major conferences on both topics. The first, from 30 March to 1 April, will discuss Australia’s future surface fleet. Registration will open in mid-February. In May, ASPI will run a separate event on the future structure of Army and the LAND 400 program.

The future of the Navy’s surface fleet isn’t simply about choosing the vessels. There has been much political, public and media attention on the impact of program decisions on Australia’s naval shipbuilding sector. While the factors determining Navy’s future surface fleet are (or at least should be) shaped by strategic considerations, unavoidably they’ve become entangled with questions of construction. Over the coming weeks, the Strategist will run a series of posts related to the strategic, operational, international and industrial factors involved in decisions about the future surface fleet. Read more

The Permanent Court of Arbitration (PCA) in The Hague is currently examining China’s South China Sea claims in a case brought by the Philippines. While China isn’t expected to take part in the case—indeed, it missed the deadline to lodge a defence this week—the Ministry of Foreign Affairs has nonetheless released a position paper outlining their legal objections, one of which is that the PCA lacks jurisdiction. A recent US State Department report into the legality of Beijing’s South China Sea claims refuted the validity of the nine-dash line as a maritime boundary. China rejected the US analysis claiming that it ‘ignores the basic facts and international legal principles’.

Human societies can only enjoy peaceful progress under the rule of law; the same is true of international society. If cooperation and orderly behaviour are to be advanced in the Asia–Pacific, we need strong global norms and legal rules to guide and govern relations among states.

The Asian strategic environment is witness to one of the most important power shifts in history—one that might produce a more cooperative Asia or a more competitive one. The biggest strategic question we face is not simply whether the future of our region will be one of war or peace, it’s also about the nature of that peace. Will it be a peace governed by rules and norms or a peace governed by power and coercion? Read more