I am delighted to have this opportunity to speak at the first conference
organised by the Lowy Institute.
I should like to congratulate Frank Lowy for the vision, public-spiritedness
and generosity he has demonstrated in establishing the Institute.
My purpose today is to describe from the perspective of a policy adviser
what I see as the main characteristics of the contemporary international
environment, and how these affect Australia’s interests.
I should also like to describe some of the strategies the Government
has developed to respond to this fluid and challenging environment.
As a preliminary step, let me make some general observations about
Australia’s interaction with the international environment.
First, I believe that successful execution of Australian foreign policy
must start from a realistic view of how the world works, and of Australia’s place in it.
Secondly, I believe we need to recognise that there is a close interplay
between Australia’s domestic strengths as a country and the success and effectiveness of our international
Thirdly, I think it is important to recognise that the Australian
national interest is something that is defined by the Australian Government
and the Australian people.
The national interest is not static, nor can it be defined in a mechanical
It depends in part on prior strategic choices we have made, and is
informed by the view we have of ourselves as a country, and by what we want
to stand for.
Finally, I believe we need to recognise that Australia’s
interests are global in scope and character, and that some of our interests
are defined by geography and some are not.
The following examples help remind us of the spread of Australia’s
interests around the world.
Australia has a long history of active political, military and economic
engagement with Asia.
Currently, around 56 per cent of our merchandise exports go to Asia.
The United States is by far our most important defence and intelligence
partner, and we see the United States' strategic presence in the Western
Pacific as making a vital contribution to regional stability.
Australia’s top five two-way trading partners
are the United States, Japan, China, the United Kingdom and New Zealand,
in that order.
The top three direct investors into Australia are the United States,
the United Kingdom and Japan.
And the top three overseas destinations for Australian direct investment
are the United States, the United Kingdom and New Zealand.
Over the past five years, China has been our fastest-growing major country market,
and the Middle East has been our fastest-growing regional market.
All these strands work together –and
combine with other linkages and interests –to define our stake in the international system.
In my view, one of the most important factors defining the contemporary
international environment is globalisation of the world economy.
We all know there have been past periods of high levels of interdependence
in terms of trade and investment flows, especially between Western Europe,
the Americas, parts of Asia and Oceania.
The decade immediately before World War I is often cited as a previous
peak of globalisation.
But by the year 2002, cross-border trade had reached 24 per cent of
world output, compared with 18 per cent in 1914.
And international financial flows have never been bigger as shares
Thanks to the computer-based revolution in information and communication
technology, another thing that distinguishes the current period from past
phases of globalisation is that we now have almost instantaneous flows of
information about market conditions and political events around the world.
And the geographical spread of globalisation is now much greater as
Russia, Central Europe and China become progressively integrated into the
international trade and financial systems.
Faster and cheaper transport and communications and high levels of
economic interdependence all combine to give a growing sense of connectedness
between many countries in the world.
At the same time, the ongoing process of globalisation can have profound
consequences for the international standing of countries.
Its disciplines of competition reward those with open policies and
sound political, legal and economic institutions –and disadvantage those without.
There are no grounds for Australia to be complacent, but our strong
economic performance over the past decade –in the face of the East Asian financial crisis and other international challenges –gives us confidence that we have the policy and institutional credentials to
succeed in an era of globalisation.
The strategic implications of globalisation are complex and, in my
view, warrant more careful analysis than they seem to receive.
There are several observations I should like to venture.
First, the unprecedentedly high levels of economic interdependence
among all but the least developed countries of the world generate an increased
shared stake in international stability and predictability.
This does not mean there will be no more wars between nation-states,
as indeed we have been reminded this year in Iraq, but the likelihood of
war between the vast majority of states that we might regard as being in
the international mainstream is probably significantly reduced.
Secondly, greatly improved communications mean that international
awareness of wars, civil strife, disorder, large-scale abuses of human rights,
and natural disasters in even the most remote parts of the world is much
greater than before.
In at least some cases, this increases the possibility of intervention
by the wider international community.
Thirdly, globalisation tends to break down the traditional distinctions
between foreign relations and domestic affairs.
For example, the European Union’s
Common Agricultural Policy has been developed for domestic reasons, but has
a profound impact on Australia’s agricultural trade interests.
And as protection recedes from the border, demand is growing to include
domestic regulatory issues such as competition and investment in international
And fourthly, despite all the benefits that globalisation undoubtedly
provides, the same process perversely increases, through its very openness,
our vulnerability to terrorism and other transnational crimes, and provides
easy access to technology and communications that increases the capabilities
of the perpetrators of these crimes.
It should also be noted that, as a consequence, dealing with terrorism,
people-smuggling and other transnational crimes is increasingly becoming
part of core business in contemporary foreign policy.
Another important characteristic of the international environment
is the economic and military pre-eminence of the United States in world affairs.
The United States accounts for around one-third of global output;
its defence budget exceeds that of the next nine countries combined; and
there is nothing to suggest that it will lose its technological edge any
This is hardly a new phenomenon, but the distance we have travelled
since the end of the Cold War helps set United States ascendancy into sharper
The terrorist attacks of 11 September 2001 have galvanised the United
States into a much more assertive posture in responding to threats to its
own and international security, as we have seen in the war on terrorism and
the war in Iraq.
Given the prospect that the pre-eminent position of the United States
is likely to hold for a long while into the future, it is not surprising
that the outlook for strategic relations between the United States and other
major powers is relatively stable and favourable.
There is still scope, of course, for serious diplomatic disputes and
tension between the United States and other major powers.
We saw that earlier this year in the serious disagreement between
the United States and the United Kingdom, on the one side, and France, Germany
and Russia, on the other, over the question of how to deal with the challenge
posed by Iraq.
But what distinguishes our times from the periods of strategic confrontation
that characterised the Cold War is a relatively stable and favourable outlook
for relations between the United States and other major powers at the basic strategic level.
A further characteristic of our times that I should like to highlight
is China’s growing economic, political and strategic weight.
This has been rightly described as the single most important strategic
trend in the Asia-Pacific region.
And, as the recent course of our bilateral relationship with China
shows, this is clearly a positive development for Australia.
China’s accession to the WTO, its support for the
war on terrorism and its key role in the North Korea six-party talks are
all positive signs that it takes seriously its international responsibilities
as a major power.
China also recognises that a constructive relationship and economic
engagement with the United States are vital to its efforts to build its economy
and international influence.
While China competes with the economies of South-East Asia for foreign
direct investment, it is also becoming an increasingly important market for
On current trends, China will, in the next few years, overtake Japan
as the world’s third largest trading nation.
Certainly the current, relatively favourable outlook for US-China
relations provides an optimum context for the advancement of Australian interests
in East Asia.
Some commentators have suggested that the United States and China
are merely undergoing a pause in their strategic competition.
Time will tell whether competition will resume in a serious way, but
for my part I have been impressed over the past several years by the commitment
of both Washington and Beijing to manage their relationship responsibly and
constructively, including with regard to the difficult issue of Taiwan.
Set against these underlying positive trends in the international
environment, there are three major challenges which are central to the Government’s current concerns: international terrorism, the proliferation of weapons of mass destruction, and
the instability and threats caused by weak and failing states.
Terrorism has, of course, been with us for a long time and has had
What distinguishes Al-Qaeda and associated groups motivated by Islamic
extremism is their ruthlessness, the sophistication of some of their attacks,
the international spread of their networks and activities, and the ambition
of their apparent agendas.
The Al-Qaeda attacks on the United States on 11 September 2001 gave
the fight against terrorism an urgency and prominence that it had long deserved,
but had not received in the past –to our great and common misfortune.
The Bali terrorist attack in October last year removed any residual
complacency that we or our region might somehow escape this threat.
And the recent appalling attacks in Istanbul demonstrate again the
virulence of the terrorist threat and the indiscriminate nature of the death
and suffering it causes.
There is strong international resolve to wage war on terrorism.
Globally, Al-Qaeda has been disrupted and diminished, but not
It still has the capacity to finance, plan and launch attacks, either
on its own or in support of surrogates.
In two years, over 3000 terrorist suspects have been detained in more
than 90 countries, and nearly USD 200 million in terrorist assets have been
In our own region, cooperation with our neighbours has seen terror
attacks prevented, terror networks disrupted and terrorists arrested and
convicted –including many of those responsible for the Bali bombings.
But even though we have achieved this important progress, victory
in the war against terrorism is going to require a sustained effort over
a number of years.
And in South-East Asia in particular, disrupting the activities of
regional terrorist groups like Jema’ah Islamiyah will be a long and difficult process.
Interest on the part of terrorists in acquiring weapons of mass destruction
has also given the cause of non-proliferation a new urgency.
In Australian foreign policy, contributing to the international effort
to check the spread of weapons of mass destruction has been a long-standing
We have recognised all along that the more states there are that acquire
these weapons, the greater the incentive for others to acquire them, and
the greater the likelihood that they will eventually be used, including by
An overriding objective of Australian policy has been to do everything
possible to avoid the introduction of weapons of mass destruction into our
We recognise, of course, that proliferation, like terrorism pays no
respect to international or regional borders.
These considerations have led Australia to be an active and consistent
supporter of multilateral non-proliferation regimes, underlined by the singular
contributions we have made over the years in support of critical normative
instruments such as the Comprehensive Test Ban Treaty, Chemical and Biological
Weapons Conventions, and the Nuclear Non-Proliferation Treaty.
It was against this background that we strongly supported the UN Security
Council’s 12-year effort to remove and verify the removal of Iraq’s weapons of mass destruction.
When the UN effort faltered, we joined the war in Iraq to remove the
Similarly, Australia has been active in supporting diplomatic efforts
to address international concerns about the nuclear programs of North Korea
And we are a leading participant in the Proliferation Security Initiative
which is designed to check illicit trade in weapons of mass destruction technology
and materials, and in the missiles that deliver them.
Another bitter lesson from 11 September 2001 is that the economically
developed world neglects at its own peril the impact that failed and failing
states can have on international security.
Afghanistan demonstrated the key role that such states can play in
providing shelter and support for terrorist networks.
But terrorists are not the only groups that find a home in failed
or failing states.
The smuggling of people, the laundering of money and the trafficking
of drugs and weapons are all made easier in states whose legal and political
systems have ceased to operate.
And even in cases where states are not on the verge of failure, weak
governance and institutions can have an impact on neighbouring countries
and regional security.
Australia’s Policy Strategies
Let me now describe briefly some of the main strategies with which
the Government is seeking to advance and protect Australia’s interests in the context of this environment.
The Government is making the most of the unprecedently close relations
we have with the United States to build the basis for an even stronger and
more vibrant partnership in the future.
Part of this effort involves steps to strengthen further the close
intelligence partnership we enjoy with the United States.
We also attach high priority to strengthening the inter-operability
of our defence forces with those of the United States, to enhancing ADF capabilities
through exercises and training with US forces, and to ensuring Australian
access to highly sophisticated US military technology.
At the same time, Australia and the United States are engaged in the
negotiation of a free trade agreement, which is one of the most significant
policy initiatives we have undertaken during the past decade.
If successfully concluded, the FTA will provide improved access and
greater certainty in the US market to Australian exporters, including agricultural
It will make Australia a more attractive destination for US investment,
and stimulate closer business alliances and synergies.
The Government is also active in looking for ways to further strengthen
our excellent relations with Japan, China and the Republic of Korea.
Japan remains our largest export market, and is a key interlocutor
in our diplomacy.
Last July, in Tokyo, Prime Ministers Howard and Koizumi signed a Trade
and Economic Framework which charts a course for the future development of
our trade and economic ties with Japan.
We welcome the responsible and more active contribution Japan is making
to international security, especially in East Timor and in the war on terrorism.
Last month’s visit to Australia by Chinese
President Hu Jintao confirmed the very positive outlook for the bilateral
relationship with China.
During the visit the two Governments signed a trade and economic framework
which includes the significant undertaking to conduct a joint feasibility
study into a bilateral free trade agreement.
Meanwhile, the Government is giving particular priority to supporting
the Australian LNG industry’s effort to expand its exports to all three major North Asian economies.
Australia has major security, economic and diplomatic interests in
This considerable stake in South-East Asia’s
future stability and prosperity is heightened by our interest in doing all
we reasonably can to help our neighbours defeat the scourge of terrorism.
Since February 2002 we have put in place a network of bilateral counter-terrorism
arrangements that have strengthened practical cooperation with regional partners
including Indonesia, Malaysia, Thailand, the Philippines and Cambodia.
In February next year, Foreign Minister Downer will co-host with his
Indonesian counterpart, Hassan Wirajuda, in Bali a regional ministerial conference
This conference will follow the excellent precedent set by the two
ministerial conferences on people-smuggling that were co-hosted by Australia
and Indonesia in 2002 and 2003.
More broadly in our bilateral relationships with South-East Asian
partners, we place priority on consolidating a positive and mutually beneficial
relationship with Indonesia, and developing further the strong links we already
enjoy with Singapore and Thailand, as evidenced by the free trade agreements
we have recently concluded with each of them.
Considered as a single entity, the European Union is Australia’s
biggest trading partner and second biggest investment partner.
Recognising the increasing importance of the European Union in terms
of its total political and economic weight and its ability to influence the
multilateral agenda, we attach priority to strengthening our policy dialogue
with Brussels and the major national capitals on a range of international
security, foreign policy, trade and economic, and regulatory issues.
One motivation of this dialogue is to find ways of developing more
influence on European decision-making on issues that directly affect Australian
There are two aspects of our policy towards the Middle East worth
The first is our contribution to the continuing effort to stabilise
and rehabilitate Iraq after years of oppression and dislocation.
The difficult security situation obviously poses major constraints,
but the work of our military personnel and civilian experts in various fields
is significant and worthwhile.
The second is the priority we attach to expanding Australia’s
already substantial commercial relations with the region, especially the
The most prominent example of Australia’s
effort to address the prospect of state failure and institutional weakness
in the South Pacific is the leading role we are playing in the Regional Assistance
Mission to the Solomon Islands.
This mission, which responds to a request from the Solomon Islands
Government earlier this year, is designed to restore law and order and a
better level of governance to that troubled country.
The early months of the operation have been highly successful, but
we do not underestimate the difficulty of some of the tasks that still lie
The Government is also making a major effort with Papua New Guinea
to improve its law and order situation, governance and financial management.
And more broadly in the South Pacific, we are actively supporting
efforts to strengthen regional institutions including, where appropriate,
promoting the pooling of resources, to ensure services are both deliverable
Reflecting in part significant changes in the overall international
trade policy environment, Australia is now engaged on the most active and
ambitious trade policy agenda in our history.
Compared with the commencement of the Uruguay Round in 1986 when the
GATT had 92 members, its successor, the World Trade Organisation, now has
Because most of these new members are developing countries, the current
Doha Round of multilateral trade negotiations quite naturally gives greater
prominence to developing country concerns and interests than did the Uruguay
The dynamics of the negotiations have become more complex with such
a marked increase in membership, and the agenda is further complicated by
the introduction of relatively new issues such as competition policy and
trade and investment.
In Australia’s trade policy, we accord primacy
to the WTO multilateral process because it has the capacity to deliver the
biggest and widest gains for international market access over time, and because
it is the only means by which to tackle the damaging farm subsidies of Europe
and the United States.
And, of course, the system of rules and disciplines that the WTO provides
for the global trading system is simply indispensable protection for a country
We are currently working hard with others in Geneva to achieve a positive
outcome in the Doha Round, particularly on agriculture, despite the major
setback at the September Ministerial Meeting in Cancun.
Past experience tells us that perseverance and commitment are necessary.
In line with a broader international trend, Australia is also pursuing
bilateral free trade agreements with selected partners where these offer
the prospect of significant gains ahead of what will be achievable in the
As already mentioned, we have recently concluded high-quality and
comprehensive FTAs with Singapore and Thailand, we are deeply engaged in
the negotiation of an FTA with the United States, and we shall soon commence
a joint study into the feasibility of an FTA with China.
APEC is another area of our trade policy activity which has evolved
in new directions.
The annual Leaders’Meeting has acquired
considerable vibrancy as a high-level forum for addressing current issues
with an increasing focus on terrorism and other security matters.
The Bangkok Declaration issued at the end of the last Leaders’Meeting
in October contained calls to defeat transnational terrorist groups, contain
the proliferation of weapons of mass destruction, and confront other threats
to regional security including bio-terrorism.
The Bogor Goals for trade and investment liberalisation are still
important organising principles for APEC, but negotiations to achieve the
goals need to take place in the WTO or through bilateral channels.
The organisation does valuable work in promoting trade facilitation
and in supporting open markets and capacity building.
In terms of regional architecture, a tacit complementarity is developing
between APEC and the ASEAN Regional Forum which have broader membership including
the United States, Canada, Australia and New Zealand, on the one hand, and
the ASEAN+3 grouping which is confined to East Asian membership, on the other.
Criss-crossing these groupings are trading arrangements such as that
China is promoting between itself and the ASEAN countries, the free trade
agreements that the United States has concluded with Singapore and is about
to begin negotiating with Thailand, the trade agreement that Japan and Thailand
are seeking to negotiate, and the various comprehensive free trade agreements
that Australia has in place or is pursuing.
In conclusion, let me say that I think Australia’s
international standing is currently high.
This reflects a combination of factors including a strong economic
performance over the past decade, our leadership role in East Timor, highly
professional contributions by our military personnel in the war on terrorism
and the war in Iraq, our active trade policy agenda, and the regional intervention
we are leading in the Solomon Islands.
Underpinning these particular outcomes are institutional and organisational
strengths which I believe give Australia a comparative advantage in responding
to a fluid international environment.
As I have already noted, we have the policy and institutional attributes
to succeed in an era of globalisation.
So-called whole-of-government coordination is much better than it
used to be, and we have made considerable progress in improving government-private
sector collaboration on international issues.
A further step in building Australia’s
institutional capacity is the establishment of the Lowy Institute.
I wish you every success in your work.