U.S. Third Offset (Part 2)

By Brendan Thomas-Noone

As I outlined in part 1, America and, by extension, Australia are losing their military-technological edge in the Indo-Pacific. A new type of great-power competition is emerging throughout the region—one that involves a race to develop strategic technologies and integrate them into military forces.

But there are policies and innovative initiatives that Australia can pursue to help balance that trend. One path is to take further advantage of our close defence relationship with the U.S. while it pursues its ‘third offset’ strategy.

For Australia to get the full benefit from this still-developing initiative—in both the short and long term—the engagement should be broad. We should be looking for ways not only to maximise our limited resources in defence science and innovation, but also to improve coordination in research and development with the U.S. and other partners. And we should also be seeking to participate in and learn from the wargaming and simulations that the U.S. will use to help shape third offset operational concepts.

New developments in legal statutes in the U.S., such as Australia’s recent promotion to the national technology and industrial base (NTIB), may provide the basis for deeper linkages and coordination on specific third offset programs. The NTIB is the U.S. legal frameworkthat defines the ‘persons and organizations that are engaged in research, development, production, integration, services or information technology activities’ in the UK, Canada and, as of this year, the UK and Australia. It effectively embeds Australia’s defence industrial base within the Pentagon’s legal structures and purview.

The NTIB provides for a range of potential activities. For instance, through the NTIB, Australia’s defence industry is now included in the Pentagon’s annual assessments of the U.S. defence industrial base and its capabilities, which are factored into the U.S. national defence strategy. A recent study from the Center for Strategic and International Studies on Canada’s inclusion in the NTIB highlighted the framework’s promotional and legal role in facilitating defence integration and coordination between Ottawa and Washington, particularly among small and medium enterprises.

While a similar in-depth study is needed to understand the nuances of the Australia–U.S. defence industrial relationship, the CSIS report found that product-related contracts dominated the Pentagon’s spending in the Canadian market, compared to science and technology research and late-stage development work. Given the similarities between the Canadian and Australian markets, it’s worth exploring whether Australia is also underutilised for R&D-related work for the Pentagon and, if so, what policy settings can be changed to improve the situation. The report offers some practical recommendations that could easily be applied to the Australia–U.S. relationship and our efforts to engage with the third offset, including aligning our defence innovation and science initiatives and prioritising specific technologies that are relevant to the strategy.

Australia’s inclusion in the NTIB could also lead to new forms of defence technology funding and coordination. For example, Australia would make a good trial location for the first international Defense Innovation Unit Experimental (DIUx), an organisation set up by former U.S. defence secretary Ash Carter as an outreach and funding office to Silicon Valley. DIUx provides a pathway for small emerging technology start-ups to engage with Pentagon procurement. It’s also an investment vehicle for the government in critical technologies. While DIUx has only recently expanded outside of Silicon Valley, the existence of U.S.–Australia defence export agreements and extensive defence industry cooperation, and now Canberra’s membership of the NTIB, make Australia an appealing international location on legal, technological and national security grounds.

Despite Canberra’s attention to defence R&D in the 2016 defence white paper, which has created bodies such as the Next Generation Technology Fund, funding models like DIUx or DARPA are still largely absent in Australia. A DIUx office in Australia—co-funded or co-operated by the U.S. and Australia—could fill a gap in our own defence industry, providing easier access for Australian companies to Pentagon procurement and funding. At the least, Canberra should be exploring the possibility of seconding Australian personnel to DIUx or similar offices in the U.S., to build experience that could underpin the creation of a similar Australian organisation.

Finally, Australia should be focusing its engagement with the third offset on the wargaming and simulations that will eventually form its operational concepts. Aside from technological developments, those activities are arguably the most important for allies that want to understand the direction of the strategy and the role they may be expected to play. Much of this development is occurring in joint-warfare centres in the U.S.

As additional third offset capabilities are introduced to the U.S. military, Australia should be actively involved in trialling them through joint operations with allied forces. Even parallel wargaming programs in other allied countries might create a ‘competitive marketplace of ideas’ on new operational concepts and strategies. A surge in American wargaming resources provides an opportunity for Australia to gain insights into the direction of U.S. thinking on the third offset, informing our own defence planning and strategic outlook.

Brendan Thomas-Noone is a research fellow at the United States Studies Centre at the University of Sydney.