Australia, India and the Indo-Pacific order
High Commissioner's address at IPCS 20th Anniversary plenum series
Tuesday 15 November 2016
Thank you Ambassador Salman Haider for your kind introduction. Thanks also to the Institute of Peace and Conflict Studies for the invitation to speak today. It is my pleasure to be a part of the 20th Anniversary Plenum Series.
I want to talk today about the idea of the Indo-Pacific and about its significance for Australia and India. Specifically, I’d like to consider how we can conceptualise the Indo-Pacific; what the challenges are; and how Australia and India can work together to shape this new order.
During her last visit to India in 2015, Australian Foreign Minister Julie Bishop observed that “we are living through an historic shift of strategic and economic gravity to the Indo-Pacific region.”
The story of the Indo-Pacific is a story of change and expansion.
In the past 20 years, China and India have almost tripled their share of the global economy and increased their absolute economic size almost six times over. By 2025, the region as a whole will account for almost half the world’s output. And will also be home to the majority of the world’s middle class.
We are faced with new dynamics in our region. Geopolitical and economic shifts open significant opportunities. But they are not without risk. Today, we need new ways of thinking about our strategic goals and regional architecture.
The Indo-Pacific region
We should tackle semantics first. I see the “Indo-Pacific” as a strategic concept, rather than a geographic definition. Each country has its own view of what this term means. For Australia, it captures a number of ideas.
First, it brings India into the strategic frame of Australia’s region of interest. This reflects India’s greater involvement in East Asian affairs, both directly and also institutionally through the East Asian Summit.
Second, the Indo-Pacific is a maritime concept, and captures our sense that the big strategic issues going forward will be maritime. Some 94,000 ships and $5.3 trillion in goods traverse Southeast Asian waters, for instance. Continued economic prosperity in Asia therefore relies on maritime stability and keeping open sea lanes which are vital for trade.
And finally, by linking the Pacific and Indian oceans, the Indo-Pacific construct recognises Australia’s distinctive geo-strategic position as a continent which faces both oceans.
Australia and India each have strong interests in the region.
Australia is a significant Indo-Pacific power in our own right. We are the world’s 12th largest economy and are now in the 25th consecutive year of positive economic growth. We have one of the world’s most capable and advanced militaries, and a highly educated, diverse and mobile population. Australian supplies of energy and resources have fuelled the growth of countries in the region – China, Japan and Korea among them.
Australia’s top nine trading partners are Indo-Pacific nations. It includes our strategic ally the United States, and our largest trading partner, China. It also comprises a number of other big Asian economies including Japan, South Korea and ASEAN member states.
Equally, the Indo-Pacific includes nine of India’s top 10 trading partners. Of the 26 million people in the Indian diaspora around the world, more than half live in the Indo-Pacific. This rises to over 22 million if you include the broader Indian Ocean region, including the Gulf and South Africa.
Managing Change in the Indo-Pacific
While we are seeing a shift of economic and strategic weight to the Indo-Pacific, it is also fair to say that we are witnessing shifts in power relativities within the Indo-Pacific region.
China’s GDP in Purchasing Power Parity terms has increased from around $14 trillion to $21 trillion in five years. To put this in perspective, if we exclude the United States, this is roughly equal to the next six biggest economies in the Indo‑Pacific combined. Despite slowing growth going forward, China is predicted to overtake the United States by 2030 as the world’s largest economy in market exchange rate terms.
India is also another part of the Indo-Pacific equation. India is currently the fastest growing big economy in the world, with an annual GDP growth rate above seven per cent. A 2015 PwC report, The World in 2050, predicted that India had the potential to be the world’s second largest economy by 2050.
Other relativities in the region are also changing. According to The Economist magazine, by 2050:
- Indonesia is predicted to leap from the 16th largest economy today into the top 10 economies;
- Vietnam may be one of the fastest growing large economies;
- Over the same period Japan, South Korea, and unfortunately Australia too, are forecast to fall in relative GDP rankings.
Economic strength translates into strategic weight over time. As we see in the case of China, a large economy will inevitably want to exercise commensurate strategic influence. And it will have every right to do so.
But the point here is that the story of the Indo-Pacific is not of one or two countries rising in power in an otherwise static environment. Rather, we are facing an extended period – some decades at least – where economic and strategic power relativities will be in constant change.
We do not know when, or indeed if, the shifts we see in the Indo-Pacific will reach a settling point.
Nor can we expect the trajectory along the way to be smooth. As China aims to shift its growth model to a consumption-led, services‑focused economy, there are questions over the pace and nature of its economic reforms. Slowing growth (albeit still on a very large base) and rising debt levels, industrial overcapacity, excess liquidity and property oversupply all present challenges for China’s leadership.
India will not be immune to challenges. The ‘demographic dividend’ of India’s young and expanding labour force will require education and training. And India will need to sustain economic reforms, continue to streamline regulations and keep pursuing economic liberalisation to attain its full potential.
Despite rumblings among commentators about its decline, it is very likely that US primacy in the region will continue. The United States is still predicted to be a top three economy by 2050. Its military, and particularly its navy, maintains a technological edge. And its immense soft power – its promotion of democracy, rule of law and individual freedoms and human rights – will prevail into the future.
The Indo-Pacific region is also affected by other global pressures and challenges.
Climate change is bringing significant impacts as sea levels rise and weather patterns change, affecting agriculture, industry and critical infrastructure. Policies to address climate change, for example expanding renewable energy sources, will also drive changes in the structure of economies in the Indo-Pacific.
The pace of technological change and the internet have political and social effects, as well as economic ones. News just travels faster. World leaders communicate by mobile phone and text message. Information is more fragmented. People are less likely to be influenced by large institutions, the government or the mainstream media, and political outcomes are less predictable.
The threat of terrorism is pervasive, unpredictable and highly adaptive. Curbing and fighting terrorism now preoccupies every government and absorbs tremendous resources. Sadly, our region is far from immune. This century has seen India, the United States and Indonesia face terrorist attack on their soil.
The global economic slowdown since 2008 has driven some countries to look inward. There is less support for open trade and economic cooperation than before. Economic insularity is a recipe for individual and global economic weakness. It also reduces incentives for countries to work cooperatively and may raise the risk of conflicts.
And social changes brought about by development and globalisation – rising education levels, the expanding role of women and the growth of the middle class – will also place pressures on the domestic politics of countries in our region.
(Re)conceptualising the Indo-Pacific order
Former Australian High Commissioner to India and later Foreign Secretary, Peter Varghese (who will be known to some of you here) said recently:
“Times of transition change policy. We face trends we can identify but only dimly project. We can never know the end point – challenging us to think creatively about how we manage change.”
The challenges I have outlined ask us to think differently about the strategic order in the region.
Traditional models try to reach for a way to achieve a new status quo. The Westphalian model, aimed at settling a European ‘Balance of Power’ to preserve equilibrium and accommodate occasional conflict, is one example. Similarly, when we talk about ‘multi-polarity’ we tend to think of it as an end-point for a new geopolitical order.
But as I have already pointed out, we may be decades away from a settling point. So it may be more useful to consider what kind of order will best meet our needs in the meantime. In a practical sense, we need to do three things:
- Peacefully manage change to minimise the risk of conflict over time
- Address transnational as well as regional threats effectively; and
- Protect our shared values, notably the rule of law, a liberal economic order and open societies.
We need institutions and habits of dialogue and cooperation that can deliver to these objectives. Given the pace of change, we should place a premium on speed, agility and flexibility.
The importance of dialogue is often underrated. There is a tendency to see it as the soft end of strategic policy. But history shows that it can be the most effective way to build understanding, avoid miscalculation and resolve differences while they are still small. The network of bilateral and trilateral dialogues which are developing in the region are well suited to this task.
This is not to discount the importance of established global and regional institutions. They have their place, as we have seen in the South China Sea. But I am arguing a case to bring bilateral, trilateral and small group mechanisms closer to the centre of our strategic thinking. We will need all these to be able to shape developments and to respond to challenges and threats quickly and effectively.
Australia and India – an Indo-Pacific model
The Australia - India relationship can provide a model for how we can work effectively in the region.
Australia has placed India at the forefront of our international priorities. Our relationship has been on an upwards trajectory since it was elevated to a Strategic Partnership in 2009. This was followed by two-way Prime Ministerial visits in 2014 which mapped out an ambitious agenda.
Our defence and strategic cooperation has surged ahead. We held our first bilateral maritime exercise ‘AUSINDEX’ in 2015. We have just held our annual bilateral maritime dialogue a few weeks ago – part of a comprehensive bilateral architecture which covers issues as diverse as counter-terrorism, energy security and science and technology.
Our civil nuclear cooperation agreement has entered into force, enabling the export of uranium to India. We are moving to build a reliable basis for commercial uranium sales to India. As new reactors come online, we hope to supply a good part of India’s 2,000 tonne demand per year.
We are building closer trade and investment links, including through negotiating a Comprehensive Economic Cooperation Agreement. In 2015, we had our largest business delegation comprising over 450 private sector leaders visit for Australia Business Week in India. Preparations are underway for the next ABWI to be held in early 2017.
There remains a great deal of untapped potential in our economic relationship. While India is Australia’s 5th largest export market, our trade with India is only one-tenth of that with China, a comparable sized market. There are very significant complementarities between our two economies which suggests we could do a lot more. We should actively look at ways of reducing barriers to doing business together, so we can both benefit.
A fundamental link in the relationship is common values. We share an interest in developing a rules-based system in our region and in regional security, including freedom of navigation and sea lanes of communication. We care about expanding economic opportunity and about democracy, human rights and individual freedoms.
We have the right ingredients to work together in the region.
Working together in the Indo-Pacific
There is considerable momentum and interest in greater collaboration.
There is sizeable acceptance within India and growing expectation outside it that India will play a greater role in the Indo-Pacific.
Let me share with you some data. In a 2013 poll of Indian citizens’ attitudes towards the future of the world, Australia’s Lowy Institute for International Relations found:
- 94 per cent of Indians polled agreed India should have the strongest navy in the Indian Ocean;
- 89 per cent thought India should do more to lead cooperation in the region;
- 72 per cent considered it important that India develop strong partners;
- 72 per cent agreed the United States would be an important partner in the region; and
- almost two-thirds of Indians polled thought Australia would be an important partner for India in the maritime region.
So Australia and India are natural partners in the Indo-Pacific. And we are putting this partnership into action. I’ll give you a couple of examples.
We are both active members of the East Asia Summit (EAS) and the Indian Ocean Rim Association (IORA).
In the EAS, we are focusing closely on maritime security. Australia participated in the 2nd EAS Conference on Maritime Security and Cooperation hosted by India in Goa last week. It was an important opportunity to exchange information, define regional challenges and identify opportunities to cooperate. It was another step forward.
India and Australia re-energised IORA as respective chairs. We now have an active and increasing agenda of cooperation. I was delighted to see us work so well together at the recent IORA Council of Ministers Meeting.
At that meeting, India and Australia co-sponsored the IORA Declaration on Gender Equality and Women’s Economic Empowerment. Our two countries are working towards expanding IORA to include cooperation on counter‑terrorism and countering violent extremism. Through this work, we are shaping IORA better to meet the strategic challenges of this century.
And we have recognised the importance of smaller groups in our strategic cooperation. Australia and India have this year held our second trilateral dialogue with Japan at Foreign Secretary level. We have agreed to hold a Defence and Foreign Secretary-level 2+2 meeting. And we are prepared to consider working with India on other small group dialogues in the region.
As I have said earlier, small group diplomacy will matter more over time in the Indo-Pacific. Small groups, overlapping groups and so-called ‘minilateralism’ are important because every strategic issue we face is different and will engage different countries in different combinations.
Crises and transnational issues don’t respect the boundaries of UN groupings or stay neatly in a single region. We just have to think about what we have faced in recent times – SARS, the Zika virus, the threat posed by ISIL or Daesh and the 2008 Global Financial Crisis. Each of these has been addressed using a variety of mechanisms – including coalitions of likeminded countries, institutions like the G20 and a whole network of bilateral or small group engagement.
What I’m putting forward is an argument for a better toolkit. We need new and different combinations of countries to come together so we have the right connections in place to deal with issues swiftly and effectively. But we also need to use these groups to ensure that we protect our interests and preserve our values in the process.
And Australia and India are already well on the way to developing this toolkit.
Australia has dramatically expanded our efforts on small groups. We have established a variety of trilateral groupings such as the Australia-Japan-US trilateral dialogue. We also helped found the MIKTA grouping of ‘pivotal powers’ – Mexico, Indonesia, Korea, Turkey and Australia – which crosses regions, opens up new ways of thinking and builds new links among these countries.
India’s participation in the BRICS grouping, its role in BBIN and BIMSTEC are similar examples. I would encourage India to continue along this path and also to consider widening these efforts beyond the South Asia region.
There remains considerable scope to shape the Indo-Pacific strategic environment, as we navigate multiple threats, risks and opportunities. The question is whether it will be shaped in a way that suits Australian and Indian interests and values, or not.
This will not happen out of thin air. It will require work and energy.
Australia recognises this and this has driven our active interest in the region.
India has an enormous role to play. As India’s economic weight grows, it should also look to expand its constructive engagement in the region.
I started with a quote from our Foreign Minister so l will conclude with a quote from Prime Minister Modi. In his speech to the US Congress in June 2016, he said:
“In this world full of multiple transitions and economic opportunities; growing uncertainties and political complexities; existing threats and new challenges; our engagement can make a difference by promoting:
- Cooperation not dominance;
- Connectivity not isolation;
- Respect for Global Commons;
- Inclusive not exclusive mechanisms; and above all
- Adherence to international rules and norms”
I can’t think of any way to put it better. I look forward to working with India to take forward our Indo-Pacific diplomacy into the future.