Good Things Come in Threes: the AIIB, CHAFTA and the CSP



On 17 June Trade Minister Andrew Robb signed Australia's Free Trade Agreement with China, bringing to a climax a saga of negotiations going back to the Howard government. On 29 June Treasurer Joe Hockey put pen to paper with 56 other nations to finalise the terms of China's Asia Infrastructure Investment Bank (AIIB). Simultaneously, the Prime Minister formalised a Comprehensive Strategic Partnership with Singapore. While each of these deals obviously deserve further individual analysis, this article provides a quick wraparound of what is contained in these agreements and what they might mean at a larger level.

The AIIB

The Indo-Pacific requires an estimated $US3 trillion worth of infrastructure before 2020; with transport, energy and telecom infrastructure needed to facilitate development and improve living standards. Now that the mechanics of the bank have been formalised by its 57 members, operations will soon kick off. Australia will be contributing $US930 million over the next five years which will make it the 6th largest shareholder. This should ensure that Australia has significant clout in determining key operational appointments. Furthermore, membership should allow for preferential access to loans and enterprise contracts ahead of non-member states.

While the Chinese have been eager to emphasise that the AIIB is a purely economic creature, the strategic nature of this beast is unmistakable, as it is loaded with region-altering possibilities. Through the AIIB China will be able to expand its holdings of foreign assets, particularly those of rival states in its immediate region, giving it greater leverage over actors it has hitherto struggled to strong-arm. The AIIB also represents a significant pool of additional funds to fuel Chinese projects which are critical to maintaining China’s seminal growth rate. For example, the bank will allow China to accelerate its robust 'Silk Road' plan: a strategy to stimulate the industrialisation of Central Asian states from Mongolia to Turkey in an effort to bolster new markets and strategic relationships to China's West.

For other members, the bank also represents an avenue through which anxious South East Asian neighbours can convince China that the prosperity of China and the region are one in the same. As such, the AIIB has the potential to be one of the Indo-Pacific's most useful multilateral institutions in the years ahead. The pursuit of mutually beneficial enterprises between member-states will only deepen the economic interdependence and peer-to-peer interactions that are crucial to achieving peaceful dispute-resolution.

The China FTA

Coming off the bat of the FTAs with Japan and South Korea, the Australia-China FTA is the largest of the three and has been widely publicised. At its full extent, 95% of Australian exports to China will be tariff-free, with Australian mineral, dairy and meat producers to be the big winners from these reductions. The deal should also mean cheaper consumer goods imported from China. It’s an agreement that has been many years – and several governments – in the making and its strategic value should be in that it reassures China of Australia’s commitment to (and dependence upon) its relationship by deepening what is already a thorough reliance on Chinese consumption of Australian raw commodities. In this regard it may well compound the long term challenges of straddling our diametrically opposed trade and security partners, in the form of China and the US respectively. Economically speaking though, we would have been mad not to have pursued this deal.

Singapore Comprehensive Strategic Partnership (CSP)

While the expansion of this relationship is principally driven by pragmatic, mutual benefit, there is a sentimental air to this new arrangement, as articulated in the speeches that Tony Abbott delivered while in Singapore. He spoke extensively about the two nations' shared values and their affinity to the American-led regional order, and while there was a healthy deal of retrospection, this partnership is thoroughly focused on the future challenges and opportunities that are brimming in the Indo-Pacific region.

Already extensive military-to-military diplomacy will deepen as Singapore and Australia explore new opportunities for further joint training. The Singapore Armed Forces are one of the most technologically sophisticated in the region and they are the only near-neighbour to have the swanky new F35 in their arsenal. As such the SAF and ADF will be able to conduct the sort of high-level joint exercises we cannot conduct with less interoperable partners.

Intelligence-sharing and combined efforts to tackle cyber-crime, drug-trafficking and terrorism were also high on the agenda. However the economic aspects of the CSP are perhaps where the most excitement can be found. Singapore and Australia have remarkably compatible economies: the former being an import-dependent finance hub, with the latter being a commodities exporter in need of foreign capital. The CSP will grant Singaporean investors greater access to the Australian marketplace whilst also giving Australian firms the sought of access they have come to enjoy from New Zealand.

If the full extent of this CSP is realised it may well reflect the sought of 'spoke-to-spoke' alliance diplomacy the Americans are keen on and it might send the signal to others in the region that Australia has hedged its bets in the great Sino-US hegemonic struggle. However, we're not at that stage yet and, as demonstrated by the other aforementioned deals, Australia is keen to get the best of both worlds, at least for the time being.

The Australian government's vigour in pursuing these agreements shows both a tendency towards opportunistic pragmatism as well as ideologically-principled statesmanship. These three deals should help to diversify Australia's economic and strategic prospects in a manner that will ensure that Australia is well-placed meet the strategic challenges and opportunities of our rising region. The broadening of Australia's economic and security relationships will only diversify our strategic risk which will hopefully give Australia the flexibility to be the proactive middle power it aspires to be.

William Stoltz is the Australian Foreign Policy Fellow at Young Australians in International Affairs.

This article can be republished with attribution under a Creative Commons Licence. Please email publications@youngausint.org.au for more information.

Image credit: IQRemix (Flickr: Creative Commons)

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