Already an IBA member? Sign in for a better website experience

Landmark defence pact has implications for both trade and future of the West

Stephen MulrenanMonday 29 November 2021

In mid-September, Australia, the UK and the US took the world’s intelligence communities by surprise when their leaders announced a historic security pact in the Indo-Pacific region, known as Aukus. The three countries say it’s a permanent military alliance.

Although the pact is initially focused on the building of nuclear-powered submarines for Australia using US technology, more importantly it also embraces cyber warfare, space and the development of artificial intelligence (AI) and quantum computing for defence and security.

The deal marks the first time the US has shared nuclear propulsion technology with an ally besides the UK, suggesting it’s increasingly concerned by Chinese expansionism in the South China Sea and aggression towards Taiwan. China has condemned the agreement, saying it ‘seriously undermines regional peace and stability and intensifies the arms race’.

Together with Association of Southeast Asian Nations members Indonesia and Malaysia, China has questioned Australia’s commitment to nuclear non-proliferation, arguing there’s no such thing as acquiring nuclear-powered submarines without the prospect of acquiring nuclear weapons in the future.

Nuclear armament has been ruled out by Australia’s Prime Minister Scott Morrison, yet the country will eventually become the only non-nuclear state with submarines powered by highly enriched uranium fuel that could be used to build nuclear weapons.

The nuclear watchdog, the International Atomic Energy Agency, has said it’ll investigate whether the deal is in breach of the nuclear non-proliferation treaty. But six countries already use this technology to power their submarines – including China.

Singapore Prime Minister Lee Hsien Loong hoped that Aukus would ‘contribute constructively to the peace and stability of the region and complement the regional architecture’. But there are concerns across Southeast Asia, including in Singapore, that the pact’s announcement was intended as a show of US power in the region after its disastrous exit from Afghanistan.

The timing has also created resentment in Europe, coming on the same day that the EU published its Indo-Pacific strategy, which articulates the bloc’s ambition to increase its profile and activity in the region. The wholly military focus of Aukus suggested that Washington was ignoring the EU’s more balanced approach in favour of Cold War-style deterrence and nuclear competition with China.

As a result of this pact, Australia has ended its 2016 contract with France to build 12 diesel electric-powered submarines – a decision that French foreign minister Jean-Yves Le Drian described as ‘a stab in the back’.

‘This has not helped the relationship between Australia and France and, in extension to that, the EU,’ says Nico Ooijevaar, Vice-Chair of the IBA International Trade and Customs Law Committee and a partner at McMan & CO in Amsterdam. ‘And France and the EU’s relationship with the Americans is not helped by these kinds of secret negotiations […] but this is the world we’re living in – it will get worse before it gets better unfortunately.’

The odds aren’t great that China will be admitted to the Comprehensive and Progressive Trans-Pacific Partnership as its accession would need to be approved by all the current parties

Matthew Kronby
Senior Vice-Chair, IBA International Trade and Customs Law Committee

Given that nuclear-propelled submarines have a longer range, are quicker and are harder to detect, it could be argued that this agreement was simply too good to refuse for Australia. However, given the reaction in France, it’s possible the diplomatic fallout could represent the increasing fragmentation of the West.

With the US’ European allies feeling blindsided by the latter’s hasty withdrawal from Afghanistan, Aukus has inevitably fuelled calls for greater strategic autonomy. Bruno Le Maire, France’s Minister of the Economy and Finance, declared that the Europeans need to build their own defence because the pact clearly demonstrated that Europe could no longer rely on the US.

‘The French have always wanted to have an EU national army or something similar, and this development helps them promote that idea’, says Ooijevaar. ‘NATO wouldn’t like that. But when we talk about NATO we’re talking mainly about the EU and the US, so maybe this will help other countries agree with France that the EU needs its own defence development.’

Ooijevaar says that although there are lots of unknowns to the agreement, the impact on trade is unlikely to be beneficial. ‘These developments are not very helpful for the already deteriorated relationship between Australia and China, for instance’, he says.

Trade tensions between Australia and its largest trading partner have been rocky ever since the former banned Chinese telecom company Huawei from its 5G wireless network in 2018. The situation was aggravated by Canberra’s call for an international inquiry into the origins of Covid-19.

That China is the biggest trade partner for all of Australia’s regional neighbours has led many to conclude that prospects for better trading relations more generally are slim at best.

The pact is certainly aligned with the new global ambitions of a post-Brexit Britain, however, and complements recent trade deals with the likes of Australia, Japan and South Korea.

China, meanwhile, has recently been at pains to improve the regional narrative around itself. Just hours after Aukus was announced, Beijing declared its formal bid to join the only major trading bloc in the region it’s not currently a member of: the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

China portrayed its CPTPP bid as evidence of its commitment to promoting a rules-based approach to trade across the Asia-Pacific region. It follows the conclusion of an even wider trade agreement, the Regional Comprehensive Economic Partnership (RCEP), which seeks to promote improved regional trade flows and supply chain connectivity.

The US is not a member of either agreement. So, although China’s coercive security posture may be inconsistent with its espousal of multilateral economic cooperation in the region, Washington’s non-engagement in these initiatives makes it difficult for the US to effectively challenge Beijing’s approach.

Matthew Kronby, Senior Vice-Chair of the IBA International Trade and Customs Law Committee and a partner at Toronto-based Borden Ladner Gervais, says that the ‘odds aren’t great that China will be admitted to the CPTPP as its accession would need to be approved by all the current parties’.

‘The agreement was negotiated to counter China’s influence in the Asia-Pacific region and contains disciplines – for example, on the conduct of and government support for SOEs [state-owned enterprises] – that it’s doubtful China could comply with in the first place’, he adds.

‘Some current parties may also be sceptical that China would abide by its CPTPP commitments’, adds Kronby. ‘That’s especially true of parties like Australia and Canada, which China has punished with trade restrictions seemingly in retaliation for other policies or actions that displeased it.’

Kronby says that even if China was successful in its bid, the US is more likely to look to create a separate trading bloc than seek to join CPTPP. ‘That’s what we’ve seen signalled so far from the Biden administration, which has continued to rule out joining the CPTPP while proposing some sort of as yet vaguely defined Indo-Pacific economic framework with its allies in the region’, he says.

Image: Roman_studio/ Shutterstock.com

Download the IBA Global Insight app

Access expert analysis on international rule of law, business and human rights