Competition and Cooperation in the South Pacific

by Jesse Barker Gale

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This brief addresses the malign influence of Chinese investment in the South Pacific and the evolution of U.S. strategy to build trust and remain competitive. It also highlights the ongoing contributions of U.S. allies and security partners and opportunities for greater regional cooperation.

The phrasing of the Australia, New Zealand, and United States Security (ANZUS) Treaty is unambiguous: “The parties to this treaty…desiring to strengthen the fabric of peace in the Pacific Area…declare publicly and formally their sense of unity, so that no potential aggressor could be under the illusion that any of them stand alone.”[1] The South Pacific lies to the northeast of the Australian landmass, directly across the maritime approaches between Australia and its historical trade and security partners in Northeast Asia and North America. Similarly for the United States, access to Australia (its premier regional security ally) and long-standing trade and security partners in Southeast Asia relies on a stable and sovereign South Pacific. A historic objective of the U.S.-Australia alliance has been to prevent the rise of a strategic military competitor in the South Pacific.

Among the litany of foreign policy crises to have occupied strategists over the past two years, the coercive role of Chinese investment and influence in the South Pacific has achieved the rare distinction of uniting partners across three distinct regions of the world. The most recent Shangri-La Dialogue included a session on geopolitical tensions in the Pacific Islands: “Strategic Interests and Competition in the South Pacific.” The Trump administration’s National Defense Strategy announced a return to great-power competition, setting the tone for the United States’ engagement with the People’s Republic of China (PRC). New Zealand announced a “Pacific reset,” Australia will “step up,” France has announced a “pivot,” Taiwan speaks frequently of a “values-based diplomacy,” and Japan developed the “free and open Indo-Pacific strategy.”

Strategies aside, these U.S. allies and partners have all been slow to act on deepening Chinese influence in the South Pacific. Although their reactive strategies all carry with them a tacit admission that the region has not received as much attention as it warrants, these shifts in strategy are significant. No longer will China’s presence and influence in the South Pacific go unchallenged.

This brief will address the malign influence of Chinese investment in the South Pacific and the evolution of U.S. strategy to build trust and remain competitive. It will also highlight the ongoing contributions of U.S. allies and security partners and opportunities for greater regional cooperation.

CHINA’S EXPANDING ROLE IN THE SOUTH PACIFIC

Prior to 2006, Sino–South Pacific relations were largely conducted in terms of the ongoing diplomatic contest for recognition between China and Taiwan. The Pacific Islands (along with several African and South American states) represent some of the last remaining states that recognize Taiwan over the PRC. In 2006, Wen Jiabao was the first Chinese premier to visit the Pacific Islands, where he announced an increase in aid to the region. In the same year, vicious anti-Chinese riots took place in the Solomon Islands and Tonga. The riots in the Solomon Islands were prompted in part by accusations that either China or Taiwan had bribed politicians to support the unpopular new prime minister, Snyder Rini, as they vied for diplomatic recognition.[2]

China sees the South Pacific as a low-risk, high-yield opportunity. The double-digit growth in Chinese defense spending, increase in gray-zone activities in the maritime domain, predatory economic lending practices, and overt influence campaigns in domestic politics have led states in Southeast Asia to push back against the coercive nature of the Chinese Communist Party’s political influence.[3]

The narrative China deploys in the South Pacific is effective because it contains enough truth to be plausible: Western states do not care about their South Pacific counterparts, whereas China is a developing state interested in helping other developing states, and the Chinese model of governance promotes international respect and economic prosperity. Left unsaid, of course, is that Chinese intentions in the South Pacific are no less nakedly self-serving than those of any other external power. As noted in a 2018 report from the U.S.-China Economic and Security Review Commission, a sustained Chinese presence in the South Pacific supports Beijing’s strategic and diplomatic priorities, reduces Taiwan’s international presence, and offers access to raw materials and other strategic commodities.[4]

THE MEANS OF INFLUENCE

As the global superpower, and with a long history of foreign interference and benign neglect, the United States does not have the luxury of the presumption of innocence or benevolence in its regional actions. Washington’s disproportionately low policy focus on and resource appropriation in Northeast and Southeast Asia, the recent tariffs imposed on allies, and continued uncertainty over the U.S. policy toward North Korea have undercut the United States’ regional image.

Recent estimates place the South Pacific’s infrastructure needs at $20 billion over the next decade.[5] Due to decades of underinvestment, economic mismanagement, and natural disasters, the economies of the regional nations remain fragile. Infrastructure investment in the Pacific Islands is thus critical, especially funding that supports local growth and meets local needs

A recent report from the Kiel Institute highlighted the fact that 75% of China’s direct aid loans are distributed via two state-owned financial institutions, the Export-Import Bank of China and the China Development Bank.[6]Given the high demand for infrastructure investment and renewal across the Indo-Pacific region, new investment partners are always needed. The main issues causing pushback against Chinese financing are the opacity and conditions of the contracts, the cost effectiveness of investment, and the lack of accounting for the recipient’s ability to repay the loans.

A recent, relevant example is the Santo Island wharf in Vanuatu. The Export-Import Bank of China attached conditions granting a 5-year loan repayment grace period, an interest rate of 2%, and a 15-year repayment schedule. By contrast, a similar infrastructure project in Port Vila, Vanuatu, completed by Japan, grants a 10-year loan repayment grace period, an interest rate of 0.55%, and a 40-year repayment schedule.[7] From a Western perspective, Sri Lanka’s Hambantota port is a prominent example of what might befall a South Pacific country unable to repay a debt incurred from direct aid loans. More relatable for South Pacific nations and their leaders is the example of Ecuador. As payment for an enormous, unworkable dam meant to address Ecuador’s energy needs, China is entitled to a staggering 80% of Ecuador’s annual oil revenue.[8] A scenario in which a South Pacific country is required to forfeit a portion of its natural resources in recompense for a similarly gargantuan and unviable infrastructure project is readily imaginable.

Additionally, the Espiritu Santo Island contract is entirely subject to the laws of China (as are all development projects sponsored by Chinese-owned entities), and any arbitration must be undertaken via the China International Economic and Trade Arbitration Commission (CIETAC). As a government-sponsored body, CIETAC, like the other judicial organs of the Chinese state, is subservient to the interests of the Chinese Communist Party, making a fair and impartial decision nearly impossible.[9] Japan’s loan, by contrast, is facilitated through the Japan International Cooperation Agency (JICA), a government agency analogous to the U.S. Agency for International Development (USAID). A standard feature of contracts facilitated by JICA is the establishment of a three-person dispute board—chosen by both parties but independent of any ties to either of them—to be a continuous point of reference for the duration of the contract.[10]

EVOLVING PARTNERSHIPS IN THE SOUTH PACIFIC

Despite extensive media coverage on both sides of the Pacific Ocean, it is a mistake to regard Chinese expansion in the South Pacific as just the latest move in the ongoing U.S.-China competition. To do so would diminish the important and long-standing contributions from regional partners. In addition to the United States, Australia, New Zealand, Japan, and Taiwan, France and the United Kingdom have both employed resources and strategies to counter Chinese influence in the South Pacific. Chinese tactics in this region are not new but mirror the strategies it previously employed in East Africa and Southeast Asia.

In the United States, the Trump administration has recognized the shift in strategic realities in the South Pacific and restructured the National Security Council (NSC) to create a dedicated office of Oceania and Indo-Pacific Security. This is a welcome sign of engagement. In addition to visits by Vice President Mike Pence, Randy Schriver (the assistant secretary of defense for Indo-Pacific security) and Matthew Pottinger (the senior director for Asian affairs at the NSC) have both made trips to the Pacific Islands to consult with regional leaders. Furthermore, President Donald Trump hosted the leaders of Palau, the Marshall Islands, and Micronesia at the White House for the first time in history. The joint statement from the meeting pledged cooperation on combating illegal fishing, deepening economic development, and supporting the Pacific environment, key issue areas for all South Pacific countries.[11]

Recent bipartisan legislation such as the Better Utilization of Investments Leading to Development (BUILD) Act more than doubles the U.S. government’s commitment to overseas development financing to $60 billion and replaces the Overseas Private Investment Corporation with the International Development Finance Corporation, which is better equipped to develop cooperative funding with allies. Similarly, the Asia Reassurance Initiative Act (ARIA) goes some way to addressing the noted absence of U.S. attention to the broader Indo-Pacific region. ARIA requires the Trump administration to develop a strategic framework to engage the Association of Southeast Asian Nations (ASEAN), support young leaders, and promote good governance and human rights initiatives.

The Australian government has committed an additional $1.4 billion toward regional infrastructure needs as well as $1 billion to support Australian businesses operating in the Pacific.[12] The Morrison government has also pledged to extend Australia’s diplomatic presence to the Cook Islands, French Polynesia, the Marshall Islands, Niue, and Palau, giving Australia a diplomatic presence in every member country of the Pacific Islands Forum.[13]

New Zealand, under its Pacific Reset policy, has made financial assistance to its Pacific neighbors a key priority. It has announced $500 million in additional foreign aid and also agreed to purchase four Boeing P-8A Poseidon aircraft to increase its capabilities to conduct maritime patrols and provide disaster-relief assistance.[14] The P-8 is the same aircraft operated by the United States, Australia, and the United Kingdom and is compatible with the Kawasaki P-1, the Japanese equivalent.

Japan has been a long-standing partner to Pacific Island states, including hosting the triennial Pacific Islands Leaders Meeting since 1997. At the most recent meeting, in addition to pledging $460 million in development assistance to the region, Prime Minister Shinzo Abe stated that “it is the rule of law that gives protection to the nations, big and small, for their inherent rights.”[15]

As noted, Taiwan has likewise been a long-standing and important partner to Pacific Island states, spending over $225 million on aid projects since 2011. Despite the headlines about China’s large-scale infrastructure investments across the Pacific, Taiwan’s investment is focused on sustainable projects like horticulture and health.[16] These intensely local projects are targeted to alleviate dependence on imported food and the devastating toll of noncommunicable diseases, building on Taiwan’s strong people-to-people relationships.

Due to the presence of its overseas territories—French Polynesia, New Caledonia, and Wallis and Futuna—France has historically maintained a strong regional presence. More than 500,000 French citizens reside in the Pacific, and the French naval presence at Nouméa comprises two surveillance frigates, four patrol vessels, two multi-mission ships, five maritime surveillance aircraft, four tactical transport aircraft, and several helicopters.[17] However, despite its clear long-term interests in the region and consistent military presence, France has not been active in regional stability operations (in either the Bougainville or Solomon Islands).

The United Kingdom, eager to establish its post-Brexit presence, has made a recent return to the Indo-Pacific by participating in military exercises with Japan and re-establishing diplomatic posts in Tonga and Vanuatu.[18]Further, in March 2019 the UK signed a pacific agreement with Papua New Guinea and Fiji to continue post-Brexit trading relations. The agreement also includes provisions for other Pacific states to join. However, given the current low levels of development and diplomatic engagement, it remains to be seen whether Britain’s eastern ambitions will be realized.

POLICY OPTIONS

While it is true that a growing number of South Pacific states resent China’s coercive influence activities, this resentment could easily be applied to the heavy-handed approach of any external state in the region.[19] The lesson here is to approach the strategic challenge to countering China’s influence by seeking to earn and build trust. President Trump’s recent meeting with the presidents of Palau, Micronesia, and the Marshall Islands is a promising step forward in building and extending the basis for trust.

The 50th Pacific Island Forum Leaders Meeting will be held in Tuvalu in August 2019. The Trump administration should take advantage of this gathering of leaders and send a high-level delegation to represent the United States. Sustained attention to the South Pacific is long overdue, and attendance at the region’s premier forum would be an important demonstration of U.S. resolve, values, and purpose, not just to the countries in the Pacific but across the entire Indo-Pacific.

The U.S. Congress, for all of its faults, remains the most powerful legislative body in the world. Recent week-long congressional hearings assessing China’s growing influence and coercive behavior in Asia, Europe, and the Middle East (timed to coincide with the visit of Vice Premier Liu He to Washington, D.C.) highlight the seriousness of Congress about determining the course and content of future U.S. policy toward China. Bipartisan concern over the actions of the Chinese state is one of the few opportunities for policy advancement between Congress and the White House during the current administration.

The United States’ key allies and security partners in the region, committed as they are to ensuring that the broader Indo-Pacific remains free from coercive overtures, must continue to promote their shared values of transparency, accountability, support for the international rules-based order, and respect for the sovereignty of Pacific Island countries. The U.S. National Security Strategy has declared a new era of great-power competition; it needs to commit the resources and build enduring partnerships to match its ambition.

The U.S. and Australian approach to competition and cooperation with China in the South Pacific will be managed through the existing structures that undergird the U.S.-Australia alliance. Fundamentally, the alliance provides Australia with access to high-end defense equipment and technologies as well as joint military exercises, intelligence sharing, and bilateral consultations at the top levels of government. These structures underwrite successful joint efforts against transregional and emerging threats, such as terrorism, natural disasters, and fragile democracies. The South Pacific offers the opportunity for the United States and Australia to engage in creative forms of regional alliance cooperation not only to challenge the perception that the United States’ influence is waning but also to provide a blueprint for long-term regional strength.