Thank you for that introduction. I acknowledge the Hon Michèle Flournoy, and what a warm welcome it is here in Washington today! I’m delighted to see my buddy Ambassador Joe Hockey here.  He’s settling in and I noted that he has been tweeting photos of the snow outside the residence – taking selfies or snelfies – or are they snowfies?  I am confident that my friend Joe Hockey will follow in the fine tradition of all Australian Ambassadors to the US particularly Kim Beazley, a great friend of the US, in enhancing our already deep and close partnership.

It is a pleasure to be here in Washington on this auspicious day – for 26 January marks Australia Day. My thanks to United States Study Centre and Centre for New American Security for co-hosting this event – which has become an annual fixture in our public diplomacy program G’Day USA. 

It’s particularly fitting to celebrate Australia Day here in Washington DC because it could be argued that this city’s namesake George Washington, created Australia.

Were it not for his military achievements in your War of Independence, depriving Britain of the prison hulks in Georgia and North Carolina and the subsequent overcrowding of jails back in Britain, Britain would not have had to look elsewhere to accommodate for those of its criminal class.

Thus the convict colony of New South Wales was established on 26 January 1788.  We too are the beneficiaries of the Boston Tea Party!

On each occasion that I have visited the US, and this is my 11th visit since becoming Foreign Minister two years ago, I am reminded of the strong bond between our two countries.  

In fact ours is an extraordinary alliance evidenced by the depth of our practical cooperation and in the ideals and the values we share. 

Our shared commitment to freedom and liberal democratic principles has shaped both our countries and how we view and react to global challenges.

Today I will specifically speak about the geostrategic challenges in our region which I call the Indo-Pacific, bound as we are by two vast oceans – the Indian and the Pacific – and how we respond through the use of hard and soft power.

This region takes in an arc of nations from India and Pakistan to the three Asian giants of Japan, China and South Korea, through to South-East Asia, Indonesia, the South Pacific, and all countries between.

The shift of the world’s economic centre of gravity from West to East is already well underway.

Our region will be of immense and enduring importance to global stability and prosperity.

By 2030, Asia will account for over one third of the global economic output, rising to over one half by 2050.

This represents a tremendous opportunity for countries like the US and Australia with our deep links into the region.

However, the years ahead will bring greater challenges than even those of the past few decades.

The capacity of the region to reap the benefits of greater wealth will depend on its ability to grow peacefully and manage effectively the emerging and inevitable tensions.

Today, competing maritime claims, resources competition and historically based matters of sovereign pride, all factor into the region’s stability.

Tensions in the South China Sea are a significant cause of concern not only because of its vital economic significance – more than US $5 trillion of world trade and about a third of the world’s maritime traded oil pass through the South China Sea every year.

Historically, rising national wealth leads to increasing expenditure on military capabilities.

Between 2004 and 2014, military spending in southern, eastern and northern Asia, and I’m excluding central Asia, rose almost 75 per cent in real terms.

This reflects national concerns about the strategic outlook for the region and an understandable desire amongst the countries of the region to help shape the strategic environment through stronger defence capabilities.

Let me share with you Australia’s perspective of our region, in the context of historical and current relationships, rising defence spending and the geostrategic implications for the region and thus the globe.

To understand Asia today, we need to have an understanding of its past.

The region is no stranger to periods of intense conflict, political unrest and strategic instability.

In the 13th century, as the fourth Crusade began in Europe, Genghis Khan and his Mongol army successfully invaded China and Korea, and might well have conquered Japan too, had it not been for bad weather.

In the past two thousand years, China has experienced numerous civil wars. It is estimated that China’s three most lethal civil wars – the Three Kingdoms War in 220-280 AD resulting in 40 million deaths; the An Lushan Rebellion of 755-763AD resulting in a further 36 million deaths; and the Taiping Rebellion of 1850 – 1864 with estimates of those killed ranging from 20 to 100 million – they are collectively responsible for the deaths of as many as 176 million people.

On a completely different scale, Americans are familiar with the tragic human toll of a civil war. However to put it in context, a war fought at around the same time as your Civil War – in the 1860s, China’s Taiping Rebellion – probably resulted in about 100 times more casualties than the American Civil War.

In the last century in the late 1930s and early 1940s, the Sino-Japanese War resulted in the deaths of tens of millions of people. Such history continues to be reflected in the tensions between Korea, China and Japan 70 years on.

History, and how it is recorded, is a powerful influence on how countries behave towards each other.

The Second World War has been viewed as a Western, European conflict – the seeds of which lay very much in the fallout from the First World War. However it was also an Asian and Pacific conflict triggered by tensions and rivalries within Asia - many of which remain today.

While military leaders in Europe may have discussed the ‘Pacific theatre’ of WWII, in Asia the war was viewed primarily through the prism of overturning Japanese militarism and colonisation.

The end of that war, through the US deployment of nuclear weapons against Japan, has resonated throughout the decades.

In the case of Vietnam, while there were five wars in the twentieth century, the most well-known – and lethal – conflict ended in 1975, just 40 years ago.

In Myanmar, the Karen National Liberation Army has been fighting Burma’s central government for the past 60 years, making this the world’s longest running contemporary civil war.

Although the Korean War lasted from 1950 to 1953, the two states on the Korean Peninsula remain technically at war, with North Korea’s nuclear ambitions, an additional element for deep concern, demonstrated by another nuclear test only three weeks ago.

European colonialism added a further layer of strategic complexity. The ASEAN grouping came into being, in part, as an Asian organisation united against colonialism.

It is in the context of this complex and volatile history that we must, at least in part, consider the rising military spending across Asia.

In terms of sheer hard power, consider the following:

In 2012, the Stockholm International Peace Research Institute reported that the volume of arms transfers into Southeast Asia had grown by 200 per cent since the end of the Vietnam War, with naval weapons forming the bulk of purchases.

China is now the world’s second largest military spender, after the US.

Recent estimates are that China’s total military expenditure in 2014 was US $216 billion, an increase in real terms of 200 per cent since 2005.

India is expected to spend US $100 billion over the next decade on defence modernisation, including eight new maritime patrol planes, six indigenously built conventional submarines and a second indigenously built aircraft carrier.

Russia is talking up its so called ‘pivot’ to Asia. On current planning, a large-scale revamp of its Pacific Fleet will see it grow from Russia’s smallest to its largest naval deployment over the next decade.

As part of an overall military build-up, to cost about US $600 billion, this fleet will have new ballistic-missile submarines, attack submarines and upgrades to its surface fleet.

Vietnam boosted its military spending by over 100 per cent in real terms between 2004 and 2014, the largest increase among Southeast Asian countries.

This is being played out across Asia to a varying degree.

Together with rising territorial tensions, particularly in the South China Sea, has led to speculation that we are witnessing an arms race taking place in Asia.

While it is prudent to take a clear-eyed view of developments, it would be wrong to assume that we are headed for an inevitable regional conflict.

First, while countries in the region are spending more on military and defence in real terms, I believe that is as much a function of economic growth as it is about strategic hedging.

Economic integration is a powerful buffer against conflict.

As liberal theorist and political economist Frederic Bastiat noted back in the 19th century, "when goods cannot cross borders, armies will.”

In the past 20 years, China and India have quadrupled their share of the global economy.

A report released in early 2015 by Price Waterhouse Coopers projects that Indonesia’s economy in 2030 will be larger than the UK or France currently the 5th and 6th largest global economies.

ASEAN’s combined economy quadrupled in size from 2000, and if it were treated as a single economic entity, its GDP in 2014 would have sat between France, at 6th place and Brazil in 7th.

Within a few years, barring some kind of security disaster, Asia will not only be the world’s largest producer of goods and services, but it will be the world’s largest consumer of them.

So when we consider military spending as a proportion of GDP for countries across the region, it is not that straightforward as there has actually been a downward trend over the past 40 years.

Let me take some examples: In 1974 South Korea spent 4.3 per cent of its GDP on military. In 2014, it was 2.6 per cent despite regular provocations from the North.

Thailand spent 2.7 per cent in 1974 – 40 years later this had almost halved to 1.5 per cent.

Japan consistently spends one per cent or less of its GDP on military.

Singapore has the most modern military in Southeast Asia, but it reduced military spending as a share of GDP between 1974 and 2014 from 5.2 to 3.3 per cent.

These figures compare to US spending on military, which decreased from 6.1 per cent of GDP in 1974, to 3.5 per cent 40 years later.

Australia’s military spending followed a similar trend from 2.7 per cent in 1974 to 1.8 per cent in 2014.

Chinese defence spending, which accounted for half of Asia’s total-spend in 2014 was still less than one third of US military spending that year.

Secondly, there are upsides to more modern, sophisticated militaries.

It’s not just about buying bigger bombs or smarter delivery systems. Much of what we’re seeing is a professionalisation of national defence and vastly improved capacity for different military forces to communicate.

Through economic growth, countries in the region are able to better address maintenance and logistics and increase capability.

Capable militaries can add to regional stability, with countries better able to manage security challenges, reducing the need or compulsion for external intervention.  

The military is often the first responder to the natural disasters that regularly afflict nations on our so-called Rim of Fire.

Military modernisation also offers enhanced opportunities for cooperation on military and strategic matters between states, the importance of which cannot be overstated.

Japan’s recent announcements are examples: the greater defence cooperation with the UK, and developments in US and Vietnamese military cooperation. 

While some relationships are still shaped by their historical context, and are a long way from being solved, there have been positive developments.

The recent progress by Japan and Korea in trying to resolve the very difficult  and sensitive issue of “comfort women” is one example.

Another is the sixth trilateral summit between China, Japan and South Korea late last year, in which leaders vowed to strengthen ties between the North Asian economic powerhouses.

Nurturing this cooperation and dialogue is essential to regional – and global – stability.

That stability – and prosperity - depends a great deal on how relationships between major-powers evolve, in particular among China, India, Japan, and the US.

Institutions like the East Asia Summit will, of course, continue to be important – as critical places for Asian nations to discuss thorny issues, and to resolve them collaboratively.

Australia and the US have been working with regional partners to support the EAS as an institution that can help the region deal seriously with its strategic challenges.

The 2015 East Asia Summit Leaders issued an unprecedented number of statements on key security issues, including countering violent extremism, maritime security, cyber security, health security. 

Other regional bodies are also increasingly important, and new partnerships and collaborations are emerging – even some unlikely ones.  

Through the new grouping of MIKTA, first formed in 2013, Australia collaborates with Mexico, Indonesia, Korea and Turkey on a range of regional and global issues, including counter-terrorism, climate change and the promotion of more open trade.

The Trans-Pacific Partnership Agreement is a further example of the benefits to come from intra-regional partnerships.  

I do digress but the Australian Government urges Congress to look favourably on ratifying this agreement.

Indeed, a successful TPP will be crucial to establishing a prosperous Indo-Pacific economic order into the future.

This highlights how the region today is far more interdependent than it has been in the past.

Like Australia, the US is, of course, no stranger to Asia.

For decades, the US has provided a security guarantee in this region, which has contributed to its economic growth.

The US was instrumental in contributing to efforts to rebuild the region post-WWII, and continues to assist countries across the Indo-Pacific through support for governance, humanitarian assistance and infrastructure.

Over more recent times, we’ve seen reinvigorated US engagement in the region through the “rebalance” to Asia.

Hillary Clinton, as Secretary of State, said in 2011, that building the kind of institutional bridges with Asia that the US had in place with Europe, was paramount.

Australia is not the only country with strong links to, or knowledge of the region, however I believe we do offer a different perspective.

Over the years, Australia has positioned itself as a reliable partner in Asia.

For example, supporting the campaign for independence of our nearest Asian neighbour, Indonesia. In fact we remained steadfast in our support for its hard-fought independence from the Dutch in the 1940s.

So we have strong economic, defence and political ties and generations of personal ties with Indonesia.

We work closely together on shared strategic and security issues - counter-terrorism, foreign terrorist fighters, maritime security and defence. 

We have in fact developed real military cooperation with a number of countries in our region, including China.

Such cooperation is an important confidence building measure, and adds to regional stability.

While China’s military spending has attracted considerable attention, for many years our bilateral defence engagement with China has included strategic dialogue, practical cooperation activities and exercises, and personnel training.  

We hosted Exercise KOWARI, the first trilateral exercise between the defence forces of Australia, China and the United States.

In November last year, our Navy conducted a port visit and naval exercise with the Chinese navy in southern China.

China worked with Australia and other nations in contributing military assets to the search for missing flight MH370 in the Indian Ocean.

Together with the US, we also participate in a range of multilateral exercises that include China through various ASEAN meetings.

India is also an increasingly important security partner for us.

We held the first of what will be ongoing bilateral maritime exercises with India last September in the Bay of Bengal, with ships, submarines and planes from both countries.

We are also building new arrangements that link India with other key Asian partners.

Last June, foreign departmental secretaries from India, Australia and Japan met in a new format for the first time to compare notes on the strategic challenges we face.

They will meet again in Japan next month.

We have increasingly substantive defence cooperation with Vietnam, including engagement on issues such as maritime security, counter-terrorism and peacekeeping.

This cooperation with Vietnam is underpinned by its emergence as a key player in the regional economy – it is our fastest growing trading partner in ASEAN, and has been for the past decade.

I’m going through a list to demonstrate the depth of the cooperation that we will hopefully be able to draw upon should the improbable become the probable - that is, a major conflict in our region.

Australia’s history in the Indo-Pacific is in no small part defined by our geographical proximity and our great multicultural society.

More than one in four Australians was born overseas.

More than 40 per cent have a parent, or parents, who were born overseas. 

Our 24 million people include over two million Australians born in Asia.

Our largest source countries for migration today are India and China, with seven of our top 10 migration source countries in Asia.

Nearly 1.5 million Australians are fluent in one or more Asian languages.

In the 1970s, Australia became home to thousands of Vietnamese refugees fleeing war and hardship in their own country.

Today our vibrant Australian-Vietnamese community numbers now in the hundreds of thousands.

We have firm historical links with key Asian neighbours including Indonesia and Malaysia and are forging new ones through trade and investment links, development assistance, tourism and education.

In terms of soft power diplomacy, the US and Australia are effective practitioners.

A report by Portland Communications, republished by the World Economic Forum last year, found Australia to be the 6th most effective user of soft power globally, with the US ranked 3rd.

Australia does not underestimate the impact of what Professor Joseph Nye described as soft power diplomacy – the power to attract – to get others to want what you want, to frame the issues, the agenda.

As he said, “that attractiveness stems from credibility and legitimacy” and that “power in an information age, will come not just from strong hard power but from strong sharing… as we share with others, we develop common outlooks and approaches that improve our ability to deal with new challenges.”

I believe it is our commitment to freedom and open societies that make both our nations so attractive as countries with which to engage.

Free trade and open markets are vital. Last year Australia and China signed an historic free trade agreement, building on earlier trade agreements with Japan and South Korea.

Together, these three markets account for almost 40 per cent of Australia’s total trade, and almost half of our total exports. 

These complement free trade agreements we already have in place with Malaysia, Thailand, Singapore, and with ASEAN.

This year we’re working on trade agreements with Indonesia, our 12th largest trading partner, and India. And of course we are a founding member of the 12 state Trans Pacific Partnership.

We’re investing in the future of our engagement in the region by supporting thousands of young Australian students to live, study and work in the countries of our region – at their universities, in their workplaces, in their businesses.

Through this education exchange, our New Colombo Plan is forging deep community connections in 38 countries in our region and complements the hundreds of thousands of students from the region coming to Australia to study every year.

In fact, in 2014, 75 per cent of all international students in Australia were from Asia – almost 350,000.

Last Friday in New York I proclaimed Australia to be the world’s lifestyle superpower. This is already appreciated by the citizens of our region, as we attract an increasing number of Asian tourists.

Indeed last year, Asian tourists collectively spent $17.7 billion – more than half of the total tourism expenditure by all international visitors to Australia.

Last year one million Chinese tourists came to Australia.

So from sending koalas to Singapore as a 50th anniversary of its Independence gift – via Qantas ‘Koala’ class – to showcasing Australian fashion designers using our superfine wool in India; to expanding our diplomatic footprint with new posts in Ulaanbaatar, Phuket, Makassar and in PNG; to refocussing our foreign aid expenditure to primarily the Indo-Pacific, Australia is using all its diplomatic assets and resources – our hard and soft power capabilities and influence – to build a stronger, connected and more prosperous region.

The United States remains our indispensable partner in this shared pursuit.

- Ends -

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