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NATO Parliamentary Assembly

POLITICAL COMMITTEE

THE GROWING STRATEGIC RELEVANCE OF ASIA: IMPLICATIONS FOR NATO

GENERAL REPORT

Ojars Eriks KALNINS (Latvia)Acting General Rapporteur

www.nato-pa.int 12 October 2013

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TABLE OF CONTENTS

I. INTRODUCTION 1

II. THE US “PIVOT” TO ASIA-PACIFIC 1

III. THE GROWING STRATEGIC RELEVANCE OF ASIA-PACIFIC 3

IV. ASIA-PACIFIC: TRANSATLANTIC PERSPECTIVES 6

V. NATO AND ASIA-PACIFIC 8

VI. CONCLUSIONS 10

BIBLIOGRAPHY 12

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I. INTRODUCTION

1. As a result of global economic, financial and demographic shifts, Asia’s strategic relevance has greatly increased over the past years. Consider for instance the People’s Republic of China, which is now the world’s most populous nation, has the largest army, consumes the most energy, controls the second largest economy and holds the third largest nuclear arsenal. Along with China, a host of emerging powers in Asia have become more active players on the international scene. As security in Asia remains fragile and the region lacks any effective regional security organisation, NATO’s biggest member state, the United States, is “pivoting” its security focus towards the area. At the same time, security issues emanating from Asia -including the proliferation of Weapons of Mass Destruction (WMD) and their means of delivery, terrorism, Afghanistan- are relevant to NATO member states. The report looks at the US security “pivot” towards Asia –primarily the Asia Pacific region - and interprets its possible implications for the Alliance. This updated report follows the earlier activities of the Committee and the Sub-Committee on NATO Partnerships which travelled to Japan, the Republic of Korea (South Korea) and China.

II. THE US “PIVOT” TO ASIA-PACIFIC

2. The United States has longstanding interests in the Asia-Pacific region that involve primarily economic as well as security concerns; it has therefore a range of commitments to regional security and regional free trade. The US military presence in the region dates back to the Second World War and was subsequently augmented by a Cold War ‘hub-and-spoke’ structure of defence alliances and partnerships based on bilateral security guarantees. US military engagement has thus been a key component of the Asia-Pacific security architecture and has played an eminent role for the stability of the region. Traditionally, United States’ principal allies in Asia-Pacific are Australia, Japan, the Philippines, the Republic of Korea and Thailand. However, military alliances have been just one element of a broader US strategy to promote its interests and to ensure regional stability. Equally important, diplomatic and economic policies have facilitated access to US markets and US development assistance has generally had a positive impact on the region.

3. The Administration of President Barack Obama has placed renewed emphasis on its engagement in the Asia-Pacific region, continuing a strategic trend that had started in the George W. H. Bush administration and was followed through by Presidents Bill Clinton and George W. Bush. Senior US officials noted that the Asia-Pacific region and the Middle East are now of "growing importance to the future of the United States with regard to its economy and national security", as former US Secretary of Defense Leon Panetta stated in his speech delivered at the Pentagon in January 2012. The policies of the Obama Administration towards the Asia-Pacific focus on five areas in particular. First, the administration aims at redefining and deepening the United States’ longstanding alliances with Japan, South Korea, Australia, Thailand and the Philippines. Second, the United States is developing partnerships with other Asian countries with which it has no formal security arrangements such as India, Indonesia, Malaysia, New Zealand, Singapore and Vietnam in areas where their interests converge. Third, Washington is trying to develop a comprehensive relationship with China while also balancing its support to China’s neighbours (many being US Allies) in territorial and maritime conflicts. Fourth, the United States also aims to work more closely with regional multilateral institutions thereby diversifying its regional military posture, promoting human rights and democracy and advancing US trade and business interests in the region. Finally, Washington is also undertaking major efforts to develop trade ties in the form of the Trans-Pacific Partnership, an agreement that will give US companies greater access to a host of Asian economies.

4. The “pivot” to Asia-Pacific does not yet include a major increase of US military personnel to the region. Furthermore, the increase in capabilities in the Pacific is estimated to be modest. Thus far, the pivot is limited to additional deployments of marines to Australia and littoral combat ships (LCS) to Singapore. Currently about 325,000 US military and civilian personnel are assigned to

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PACOM (US Pacific Command), with almost 40,000 in Japan, 28,500 in South Korea, 40,000 in Hawaii, and 5,000 in Guam. According to US Secretary of Defense Chuck Hagel, the US Navy will forward base 60% of its assets in the Pacific by 2020 while the US Air Force has allocated 60% of its overseas-based forces to the Asia-Pacific region. Moreover, the Air Force is focusing a similar percentage of its space and cyber capabilities on the region. What is more, the United States is pushing forward with plans for innovative rotational deployments in the region and is expanding the size and scope of military exercises, including with US regional allies, in PACOM.

5. Throughout its first term in office, the Obama Administration has made clear -through both rhetoric and action- US strategic commitment to the Asia-Pacific region. Washington’s emphasis on its continued economic, diplomatic, and military commitment to the region is due to a number of factors. The United States (as well as Canada) has always been a Pacific power as much as an Atlantic one. The “pivot” or, more appropriately, the rebalancing of the US security focus is also due to the fact that Europe is stable and that there is less and less “unfinished business” on the European continent. With the North Atlantic Alliance and the European Union, European Allies have a robust framework in place to address any upcoming security challenges. In contrast to the Euro-Atlantic area, there is no multinational security network in place in Asia-Pacific. Although a variety of different regional, sub-regional and bilateral arrangements are in place which focus on dialogue and confidence building, their ability to foster regional stability remains limited. For example, the Association of Southeast Asian Nations (ASEAN), which is considered to be the most “successful” inter-governmental organisation in the developing world, remains dialogue-oriented, based on non-interventionism and sovereignty. ASEAN “spin-offs” such as the ASEAN+3, the ASEAN Regional Forum (ARF), ASEAN Defence Ministers Meeting (ADMM) and ADMM Plus have added clarity to regional strategic agendas but they still generally involve groups of states with different approaches to international security norms and sovereignty commitments that limit the potential for substantive outcomes. As such, region multilateral security co-operation in the Asia-Pacific region is still relatively weak, multilateral planning and operations are still new ideas and national armed forces have only limited multilateral experience. For example, the ARF only conducted the first ever real joint exercise on civil emergency (disaster relief) in May 2009.

6. The US rebalancing of its security commitments to Asia Pacific initially raised apprehensions in some parts of Europe that the United States would lose interest in a strong transatlantic relationship. Public opinion has voiced concern that the “pivot” reflects a dwindling interest in Europe and that the US commitment to the security of its European Allies could be waning. Moreover, European Allies regard US military installations as a symbol of US commitment to their defence. The announcement by the US Department of Defense in March 2013 not to deploy the last phase of the Missile Defence component (advanced SM-3 IIB interceptors originally due to be deployed in 2022) in Poland but to put interceptors in Alaska, to protect against a possible attack from North Korea has caused further concern, particularly among Central European Allies.

7. US officials have repeatedly stressed that the rebalancing does not mean a deviation away from Europe, which remains its most important partner. The focus on Asia-Pacific is an acknowledgment of the region’s growing strategic importance as well as the fact that it is facing considerable security challenges which, if unaddressed, would have a negative impact on the United States. As Leon Panetta stated at the 2012 Munich Security conference, “the US” military footprint in Europe will remain larger than in any other region in the world” and “that’s not only because the peace and prosperity of Europe is critically important to the US, but because Europe remains our security partner of choice,” he added.

8. The reduction of the military footprint of the United States in Europe is rather limited. The United States has currently deployed approximately 160,000 personnel at 50 major bases in 30 countries around the world; 25 bases and some 88,000 personnel are stationed in Belgium, Germany, Greece, Italy, the Netherlands, Norway, Portugal, Spain, Turkey and the United Kingdom. The US military posture in Europe includes a corps headquarters, four brigade combat teams, three fighter wings, an air mobility wing, an aerial refuelling wing, an Army special forces group and an Air Force special operations group. The US troop presence in Europe will be

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reduced by approximately 11,000 personnel. Reductions will include an Army corps headquarters, two Army brigade combat teams, and an Air Force fighter squadron from Germany (This will affect the V Corps Headquarters, 170th Infantry Brigade, 172nd Separate Infantry Brigade, 81st Tactical Fighter Squadron and the 603rd Air Control Squadron in Italy). However, the United States will increasingly contribute to the NATO Response Force by rotating a task force of 300 to 1,000 troops to the continent for training and exercises to maintain NATO forces’ interoperability and preparedness to act swiftly and at short notice. 9. Finally, it is important to note that the goal underpinning the rebalancing of the U.S. security focus is to devote more effort to influencing the development of Asia-Pacific’s norms and rules, particularly as the region’s strategic importance continues to grow while its security remains volatile. In particular, Obama Administration officials have spoken repeatedly of seeking to ensure that international law and norms be upheld and that freedom of navigation be unimpeded. In this context, the diplomatic and economic aspects of the rebalancing are even more relevant than the military one. Key elements of the rebalancing are the focus on completing and expanding the Trans-Pacific Partnership free trade agreement negotiations; an increase in emphasis on Southeast Asia in US diplomatic, economic, and military policies; and an increase in the United States’ dispatch of senior officials to Asia.

III. THE GROWING STRATEGIC RELEVANCE OF ASIA PACIFIC

10. The United States’ renewed focus on Asia, and Asia-Pacific in particular, is first and foremost an acknowledgment of the changing geopolitical realities of the twenty-first century. Asia is increasingly important for the world economy. The global economic crisis, while weakening Western economies and driving the Eurozone into a profound crisis, had less of an effect on most major Asian economies, many of which have experienced unabated economic growth. According to the International Monetary Fund (IMF), Asia’s share of global GDP reached 27.4% in 2010 and it could reach as much as 33.7% in 2020 according to the Asian Development Bank. In contrast, Europe’s and North America’s share of global GDP is shrinking (the US share was 19.5% and that of the EU was 20.4% in 2010; the IMF estimates that by 2017 their shares will shrink to 17.7% and 17.2% respectively). By 2030, about half of the population on the planet will live in Asia and the region will make up 43% of the world economy and conduct 35% of global trade, according to the National Institute of Asia Studies, a US think-tank.

11. Asia’s rise is to a large degree due to the astonishing progress of its most populous country, China. The Chinese economy showed an annual average growth of approximately 10% over the last 30 years up to 2010. By that year China had become the world’s second largest economy (surpassing Japan), the world’s largest exporter and the second largest trade partner for the United States and Europe. Moreover, China’s trade with Asia-Pacific nations has steadily increased over the years. By 2010, the volume of its trade with Asia-Pacific nations was almost twice the size of that with the United States. China and the United States have a close economic interconnectedness and the United States hopes that China will take on a more constructive role in tackling shared challenges, both traditional (regional nuclear proliferation, territorial disputes) and non-traditional (climate change, transnational crime and energy security), thus becoming a “responsible stakeholder” in the international community. In the near term however, China’s rise and how it expands its role in the regional and global relations will likely depend on its internal dynamics. Given China’s need for continued economic growth to sustain domestic stability, the administration of newly-elected President Xi Jinping is likely to maintain its international focus on ensuring the flow of resources and trade.

12. The increasing economic, political and strategic importance of Asia, and of South East Asia in particular, has put existing regional conflicts higher on the priority list of the Allies, notably the United States. The rapid regional economic development over the last three decades and dynamic demographic developments (as well as related domestic concerns over welfare and wealth gaps, food security, degrading environment etc.) in many Asian countries have generated an insatiable

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appetite for key commodities. Given their limited supply, this race for resources has intensified competition among numerous regional actors. Such developments have highlighted the changing environment in Asia-Pacific, among the most important being the new strategic dimension of the South China Sea - a stretch of approximately 1.4 million square miles in the Pacific Ocean. This sea encompasses an area from Singapore and the Malacca Straits to the Strait of Taiwan, spanning from the west of the Philippines, north of Indonesia and east of Vietnam. Six Southeast Asian countries: China, the Philippines, Vietnam, Taiwan, Malaysia and Brunei all claim, sovereignty over several territories including the Spratly Islands, Paracel Islands, Pratas Islands, the Macclesfield Bank, and the Scarborough Shoal. The disputes are not limited to land however, as the 1982 United Nations Convention on the Law of the Sea (UNCLOS) provides each country with the right over an Exclusive Economic Zone spanning onward 200 nautical miles from the coast. As such, each country claims access to resources and energy exploration and production, which offer tremendous economic opportunities for the Asian nations. However, all these zones are contested by China, which claims historical legitimacy over its so-called 9-Dash line.

13. The immediate source of conflict is competition over resources, especially hydrocarbons (the South China Sea is believed to hold at least seven billion barrels of oil and an estimated 900 trillion cubic feet of natural gas) and fisheries. Moreover, the South China Sea is strategically important as it is located at the crossroads of major sea lines linking Northeast Asia to the Indian Ocean, encompassing navigation routes worth more than USD 5 trillion in annual trade, one third of the world’s shipping (three times more tanker traffic than the Suez Canal and over five times that of the Panama Canal) and 80% of China’s oil imports transits. Thus, maintaining freedom of navigation in the South China Sea is of crucial importance to the world economy – and NATO Allies too, have a vested interest in this issue. Against this backdrop of territorial disputes and competition for energy resources and fish stocks, the South China Sea is a potential military flashpoint. Occasional skirmishes, diplomatic standoffs and disruptions affect global prices, intensify nationalist postures in some countries involved (especially in Vietnam and the Philippines) and increase regional tensions.

14. China has increased its pressure on the Philippines and Vietnam over their respective claims. At the same time however, despite tensions over the South China Sea, within the framework of a “Comprehensive Strategic Partnership” China and Vietnam have conducted joint exercises and naval patrols and there has been increase in diplomatic exchanges between the two. China recently deployed a naval task force to waters just off Malaysia, underscoring their claims to the James Shoal and thus sending a message to Kuala Lumpur. The deployment of Chinese naval vessel marks a significant escalation in Chinese pressure, as past shows of force have involved civilian law enforcement vessels.

15. While the territorial disputes in the South China Sea have received more international attention disputes in the East China Sea could be even more consequential than conflict scenarios in the former. One of the most dangerous standoffs currently is between China and Japan, the world’s second and third-largest economies, over the sovereignty of a group of islands, known as the Diaoyu in China and the Senkaku in Japan. Responding to the Japanese government’s move in September 2012 to purchase three of the disputed islands, China dramatically stepped up patrols in an area previously administered by Japan. While both countries share the desire to avoid a military clash, the standoff is likely to be long-term and fraught with risks of a serious security incident. A military conflict between China and Japan over the Senkaku/Diaoyu islands could pull the United States into the confrontation. It is longstanding US policy that the Senkakus are covered by the US-Japan Security Treaty, which stipulates that the United States is bound to protect Japan.

16. Currently, the most immediate security threat in Asia emanates from the policies of the Democratic People’s Republic of Korea (DPRK – North Korea). The DPRK presents the greatest challenge to global non-proliferation efforts. The only country to have withdrawn from the 1968 Non Proliferation Treaty (NPT), North Korea is uniquely defiant of international norms. It is the only country to have tested nuclear weapons in the 21st century, it is estimated to have enough

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plutonium for about eight nuclear weapons and it is now pursuing a partially hidden uranium enrichment programme. Moreover, the DPRK has the third largest chemical weapon stockpile in the world and it is believed to be pursuing an active biological weapons programme. In addition, the DPRK also has hundreds of short- and medium range ballistic missiles and the regime is also developing longer-range missiles which could be capable of carrying nuclear weapons.

17. North Korea’s ongoing proliferation of WMD and missile technology is of enormous concern to the United States and the Allies as well as to the international community at large. Pyongyang has sold nuclear and missile technology to other states including Iran, Syria and Pakistan over the past two decades. Korea is likely to continue doing so as it obtains considerable financial benefits from such illegal activity, even if this trade has diminished as a result of the imposed sanctions. Moreover, the DPRK has also carried out numerous attacks including an artillery bombardment of Yeonpyeong Island in November 2010 and the sinking of a South Korean vessel during the same year. Furthermore, Pyongyang is massively investing in cyber warfare capabilities, according to General James Thurman, the commander of US Forces Korea. Reportedly, the DPRK is recruiting and forming highly skilled teams of hackers to be engaged in offensive cyber operations against hostile governments and in cyber espionage activities.

18. Tensions on the Korean peninsula have increased further since North Korea launched a missile in December 2012 and tested a third nuclear device in February of 2013. The United Nations responded with tightened sanctions but North Korea has maintained a more intransigent position. In early 2013, the situation on the peninsula became even more volatile following the DPRK’s belligerent rhetoric. In March of that same year, under the new leadership of Kim Jong-Un, Pyongyang threatened to attack the United States and its Asian allies as a response to joint South Korea-US military exercises being held in the Korean Peninsula.

19. Another longstanding regional security issue, also affecting US-Chinese relations, is the status of Taiwan. The 1979 Taiwan Relations Act commits the US to providing arms to Taiwan. Over the last five years, the relationship between the PRC and Taiwan has been improving, with co-operation replacing confrontation as the economic interaction between Taiwan and the PRC continues to expand. Nonetheless, the PRC has not abandoned its goal of unifying with Taiwan on its terms, and the status of Taiwan continues to constitute a potential military flashpoint.Washington is officially opposed to unilateral efforts by either side to alter the status quo.

20. Smaller Asia-Pacific nations are more and more concerned about China’s behaviour. Existing regional tensions, territorial and maritime disputes, as well as China’s increasing military clout has led to a significant increase in military spending among Asian countries. Many are overhauling their defence strategies and military capabilities. Vietnam and Malaysia for instance have substantially progressed in their military build-up. According to the London-based International Institute for Security Studies (IISS) “Military balance 2013”, South-East Asia countries increased their defence spending in real terms by 7.85% in 2011 and 6.89% in 2012. The largest real increases have been in Vietnam (16.9% in 2012), Cambodia (8.14% in 2012) and the Philippines (37.1% in 2011 and 5.1% in 2012). These increases do not necessarily indicate an arms race and may be due to several factors, particularly modernisation of outdated equipment. However, continuing increased military spending, coupled with regional tensions and the absence of any overall security framework along the lines of those that exist in Europe (such as the OSCE), are a possible cause for concern for all NATO Allies.

21. As a result of the disputes the relationships among Asian countries and between the United States and its Asian partners have become increasingly complex. For example, Japan and South Korea have close economic relations, but historical animosity and territorial disputes over the “Takeshima” in the “Sea of Japan” and “Dokodo” in the “East Sea” islands still hinder their relationship. Overall, however, there has been more high-level diplomatic activity and co-ordination between the two especially in the context of North Korea’s nuclear proliferation. In 2010, following the shelling of Yeonpyeong Island in the Yellow Sea, South Korean military observers participated in US-Japanese military exercises for the first time. Japan and South Korea

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have announced plans to sign an agreement on the peacetime exchange of military goods and services. They also have a trilateral dialogue with the United States and one with China. Likewise, South Korea and China have sought to normalise relations upgrading their relationship to ‘strategic co-operative partnership’ in 2010. However, contention remains about South Korea’s alliance with the United States and China’s policy towards North Korea. Japan’s maritime territorial disputes with Russia over four islands in the southern tip of Russia’s Kuril Island chain, or the Northern Territories in Japanese terms, directly involve the Unites States which supports Japan’s claims. However, the United States has not extended the US-Japan mutual cooperation and security treaty (1960) to cover over those islands claiming that legally they are not under Japan’s effective administration.

22. China’s increased confidence and assertiveness in regional territorial disputes and the lack of transparency in the country’s military build-up have raised concern among regional neighbours about its future policies. Japan, South Korea, and the countries of Southeast Asia increasingly regard the United States as a potential counterweight to Chinese assertiveness, even if they carefully avoid making this point in public. In short, US Asian Allies have to balance their interests towards both China and the United States. Their security depends on the United States but their socio-economic development is closely linked to the Chinese market and Chinese investments (estimated as being 10 times higher than US investments in the region). 23. In summary, the Asia-Pacific region has become the most dynamic area in the world. This is the result of the security issues mentioned above but also because of the threats posed by violent extremists in Indonesia and Philippines for example. Groups such as Abu Sayyaf in the Philippines and Jemmah Islamiyah in Indonesia are believed to have links with al-Qaeda and continue to conduct terrorist activities in the region. However, strong efforts by the respective governments, often with the support of the Unites States, have much reduced their capabilities. The US regional alliances with Asia partners have focused primarily on traditional security challenges such as territorial conflicts. However, significant emerging security challenges and resource constraints, whether related to water, food or energy, now require the United States to diversify both traditional and emerging partnerships to include non-traditional challenges.

IV. ASIA-PACIFIC: TRANSATLANTIC PERSPECTIVES

24. Because of the close – and increasing - interconnectedness of today’s world the developments in the region impact on the interests of NATO member states. The rise of Asia, and of South-East Asia in particular, has implications for international security, and it is in the interest of NATO member states to monitor developments there. Because Asia has become so important for the world economy and the international financial system, NATO member states have a stake in Asia’s stability and security. In fact, recognising the increasing relevance of Asia-Pacific, NATO Allies, as well as the countries of the European Union, place the development of closer relations with the countries in this region higher on their respective national agendas.

25. The US pivot has already prompted other transatlantic allies to further their own process of rebalancing and to pay more attention to Asia. Canada for instance has recently shown a greater interest in the security of the Asia Pacific, possibly even considering something akin to the “pivot” of the United States. Among US non-Asian allies, Canada has been most engaged in the region, not least through its membership of the Asia-Pacific Economic Cooperation (APEC). In its 2010 Defence White Paper, Ottawa has acknowledged the importance of enhancing security relations with key regional nations and listed several Asian security concerns as important threats to national security. Canada already has close defence ties with Australia and New Zealand and is developing stronger relations with nations like Japan and Singapore. Moreover, there is a longstanding relationship between the Canadian and South Korean militaries which dates back to Canada’s involvement in the Korean War. Canada is also greatly concerned about the security of the Korean peninsula.

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26. The United Kingdom has also started to devote increased diplomatic resources to the Asia-Pacific region and to pursue new political and commercial relationships with emerging economies, as stated by Secretary of State for Foreign & Commonwealth Affairs William Hague in its speech to the House of Commons in May 2011. The UK’s 2010 “National Security Strategy” recognises that the relative weight of economic activity around the world is shifting from the developed economies of Europe towards the rising economies of Asia, Latin America, and the Gulf. This trend was accelerated by the financial crisis which demonstrated the level of interdependence and the depth of integration of economies across the world. The French Paper on National Security and Defence issued on 29 April 2013 states the importance the US rebalancing has had for France as an actor involved and interested in the security of the Indian and the Pacific Oceans. In the context of debating the US rebalancing to Asia, the French White Paper goes even further stating the need for European Allies, counting on US support, to take over a greater share of responsibility in emerging crises in Europe’s immediate Middle East and North Africa neighbourhood.

27. While the United States has been the predominant security player in Asia-Pacific since the Cold War, the European countries have largely aligned their positions on Asia-Pacific via the EU’s contacts with the region and their engagement has been largely bilateral and commercial in nature. The relations between ASEAN and the EU date back to 1972 and are centred almost exclusively on commercial, economic and technical co-operation with limited reference to political or security co-operation. However, since 2003 the scope and nature of co-operation has expanded to human rights and democracy-promotion, as one of the key priorities in EU relations with Southeast Asia. The EU has also promoted its relationship with China through a “strategic partnership” which seeks to integrate China into the world economy, to build co-operation on global issues (climate change and global governance) and support processes of political, economic and social reform in China. Nonetheless, a number of issues, including the EU arms embargo on China, an expanding trade deficit and politically sensitive issues such as the status of Tibet- have hampered co-operation within the EU and bilateral EU-China ties over the last decade.

28. The March 2007 EU-ASEAN Nuremberg Declaration for an Enhanced Partnership was meant to provide a more cohesive basis for expanding co-operation between the EU and ASEAN in political, security, economic, socio-cultural and development areas as well as in the fields of energy security and climate change. In Asia, the EU has widely been recognised as a useful partner for addressing “soft security” issues within ASEAN, such as promoting and assisting economic development, good governance, human rights and democracy. The EU has also played the role of “peace facilitator” in regional conflicts like the one in Aceh, Indonesia. The EU-Chinese strategic partnership has also identified the regional conflict in the Korean Peninsula and WMD proliferation in Asia-Pacific as key threats to European security. By continuing to play the role of “peace-facilitator” in Southeast Asia, the EU could be filling an existing security gap in Asia, despite serious efforts by ASEAN: that of an objective multinational forum promoting a “softer” side of security promoting and contributing to regional security. 29. However, while the EU’s overall influence on the geo-strategic transformation of the region remains rather limited, Europe-Asia economic interdependence is extending into the security realm as all sides rely on smooth functioning of international trade routes, the global energy market and the global information technology infrastructure, which facilitate rapid and reliable commercial and financial flows. Today the Asian market is the destination for almost one-third of EU exports and offers European firms rapidly expanding market opportunities. The EU’s trade with Asia now accounts for a third of the global trade, surpassing the EU’s trade with NAFTA (North American Free Trade Agreement). China alone is the EU’s second biggest trading partner after the US with bilateral trade in 2011 reaching €428.3 billion; Japan and ASEAN as a group also rank in top five economic relationships for the EU. In terms of investment, arguably more than 26% of European outward investment is going to Asia while inward investment has been growing fast. Chinese overseas direct investment is projected to run as high as USD 2 trillion in Western economies by 2020. In turn, Asia’s growth depends on access to European markets. The Euro-crisis has underlined this basic interdependence and the shared interest for EU and Asia to concertedly

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promote global recovery. The share of Euros in the foreign exchange portfolio of Asia’s major central banks has grown dramatically with euro-dominated assets accounting, on average, for around 25-27% of the holdings of Asia’s major economies in 2012, reaching over 30% in China. Furthermore, the EU Member States remain the largest overall donors of official development aid to Asia with around €53 billion per year. This makes the Euro the second most important reserve currency in Asia- after the dollar but ahead of the Yen. As such, the European Allies too have a vested interest in the security and stability of the Asia-pacific region

V. NATO AND ASIA-PACIFIC

30. NATO’s profound - and continuing - transformation has provided it with over 40 partners in four continents outside the Euro-Atlantic area. NATO’s relationships with these countries have developed rapidly in the past few years, with co-operation in Afghanistan driving this development. Countries like Australia, New Zealand and Singapore have been troop contributors to the International Security Assistance Force (ISAF) in Afghanistan. Others, like Japan and South Korea, have made direct and indirect contributions to NATO’s effort there.

31. The NATO-led operation in Afghanistan has provided NATO the opportunity to integrate the militaries of several Asian-Pacific countries through their supplying of troops and other military personnel to ISAF. At the end of June 2013 ISAF’s total strength is 97,920 personnel, with Allies providing 93,995 and 50 non-NATO nations contributing 3,925. Non-member countries deployed in Afghanistan under ISAF include the following Asia-Pacific countries: Australia (contributing 1,096 troops), the Republic of Korea (contributing 350 troops), Malaysia (contribution two soldiers), New Zealand (contributing 155 troops) and Singapore (contributing 39 troops).

32. There are also many non-troop contributions from South-East Asian countries to NATO’s operation in Afghanistan. For instance, by May 2011 Japan had given USD 2.49 billion worth of assistance to Afghanistan. Since 2007 Japan has also provided financial support to human security projects in numerous regions in Afghanistan and has deployed more than 100 aid workers. Additionally, Japan has made generous contributions to a NATO/PfP (Partnership for Peace) Trust Fund project in Afghanistan with a view to enhancing stockpile management and physical security of ammunitions. Japan has also made valuable contributions to the ANA (Afghan National army) Trust Fund aimed at equipping and sustaining the ANA, including USD 20 million for literacy programmes, in addition to procuring medical supplies.

33. Each Asia-Pacific partner country has a different set of motivations regarding its relationship with the Alliance. Overall they all perceive NATO as an influential security actor. Japan, it has been argued, uses NATO as an additional venue to raise international, particularly European, awareness of Asian security matters. Japan, for instance, has previously publicly declared its appreciation of the statements made by the North Atlantic Council condemning nuclear tests of the DPRK. Moreover, working alongside the Alliance and its partners offers Japan a way to increase interoperability, experience and training. When the NATO PA Sub-Committee on NATO Partnerships visited Japan in 2010, the delegation learned that the Japanese Self Defence Forces (JSDF) considered NATO as one of its most important partners. The scope of the NATO-Japan dialogue has expanded considerably and now encompasses not only respective regional issues in Europe and Asia, but also non-proliferation, WMD, missile defence, counter-terrorism and counter-piracy. During a visit to Japan in mid-April 2013, NATO Secretary General Anders Fogh Rasmussen and Japanese Prime Minister Shinzo Abe signed a Joint Political Declaration. This first NATO-Japan joint declaration provides a framework for the further development of the relationship, notably by listing areas of concrete co-operation, such as closer co-ordination in managing crisis situations, disaster relief, counter-terrorism, counter-piracy and cyber defence.

34. Australia’s and New Zealand’s relationships with NATO have developed largely based on their troop contribution to ISAF. As a result, operational co-operation has been the main pillar of Australia-NATO and New Zealand-NATO relations, unlike in the case of Japan’s relationship with

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NATO. For Australia and New Zealand, co-operation with NATO supplements their bilateral alliances with the United States. For its part, Australia is interested in deepening its co-operation with the Alliance. In February 2013, NATO and Australia signed an Individual Partnership and Cooperation Programme (IPCP), following the Joint Political Declaration between NATO and Australia which was signed by the NATO Secretary General and Prime Minister Julia Gillard in June 2012. Beyond co-operation on global challenges, the two sides also agreed to work closely on crisis and conflict management, post-conflict situations, reconstruction, facilitating humanitarian assistance and disaster relief. Earlier, in 2012, NATO signed Individual Partnership and Co-operation Programmes with South Korea and New Zealand.

35. Since their core strategic interests remain in the Asia-Pacific region, the Asian partners do not seek NATO membership, but they do see value in engaging with NATO on emerging security challenges. Co-operation has already progressed in this respect. Australia, New Zealand, and Japan increased their technical co-operation and dialogue with the Alliance on anti-terrorism, technology and logistics, arms control, disarmament and non-proliferation, disaster relief and crisis management. In 2006, New Zealand and NATO signed an agreement on the protection of classified information, which permits the exchange of classified operational information on a regular basis. Japanese Defence forces and civilians have participated in NATO activities such as civil emergency planning and crisis management. In addition to its contribution to NATO-led missions in Afghanistan and – earlier - in Bosnia and Herzegovina, New Zealand co-operates with NATO on areas such as arms control, disarmament and non-proliferation, disaster relief, crisis management, and education and training. New Zealand also participates in a number of technical activities, primarily focused on areas related to peace support operations.

36. In the context of NATO’s engagement in Afghanistan, other Asian nations have shown interest in collaborating with the Alliance. Since 2002, China has gradually developed a political dialogue with NATO, focusing on the exchange of information and on issues of co-operative security including terrorism, maritime piracy, international security, WMD proliferation, and crisis management. Contact between NATO and China has gradually developed on the political level. NATO values China’s contribution to the counter-piracy operations in the Gulf of Aden and off the coast of Somalia. However, NATO has not established a formal partnership with China.

37. Until now the focus of NATO’s relations with partners in Asia-Pacific like Australia, New Zealand, Japan and South Korea has been on operational co-operation, primarily in the context of their participation in ISAF. Even if ISAF meetings have been mostly concerned with operational requirements in Afghanistan, they have provided a form of sustained partnership contact. However, with NATO’s combat operations due to end in 2014, unless a new forum for engagement is created, implementing partnership activities will be possible only on a bilateral basis. As such, the question that now needs to be addressed is how these partnerships can be maintained and, if possible, further developed beyond 2014. Particularly in times of financial austerity, NATO’s ability to maintain and further develop a comprehensive global network of reliable and capable partners is critical for the implementation of the 2010 Strategic Concept which identifies “co-operative security” though maintaining a global outlook and partnerships, as one of the three core tasks of a 21st century NATO.

38. NATO Allies generally agree that partnerships are essential to tackle security challenges. However, not all Allies necessarily hold the view that the Alliance should deepen its engagement in the region. In the run-up to the Riga Summit in 2006, several Allies suggested to establish an institutionalised “global partnership forum” with partners like Australia and Japan. Other Allies, however, did not agree, arguing that such a global reach was too ambitious and thus preferred limiting these relationships to practical co-operation in operations. Given the different motivations these countries have in developing their relationship with the Alliance, however, it is now evident that NATO needs a clearer idea of what it wants to achieve through the development of these potential new partnerships under the New Strategic concept.

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39. As well-proven for the past 10 years, engaging with partners is particularly relevant in operations which were previously considered “out of area”, such as Afghanistan or counter-piracy operations off the Horn of Africa. Asia-Pacific partners are making substantial contributions to the stabilisation of Afghanistan and their engagement will also be crucial for the post-2014 period, too. Moreover, if operation Unified Protector in Libya (OUP) is to be the model for future NATO operations, not all Allies will decide to participate, particularly in the sharp end of the operation. The key to future operational success may be to place the NATO command structure, communications and planning at the disposal of Allied coalitions of the willing increasingly relying on the support and participation of partners. The Alliance will need to scan the international environment more systematically and with more inputs from partners and external experts for assessments and policy planning. Consequently, NATO will thus need to broaden and intensify its political consultation with partners, including global partners, to better anticipate crises and to identify options for actions at earlier stages of crisis management. In short, considering the likely role of partners in future operations and policy planning, Allied nations should take into greater consideration the need to institutionalise NATO’s relationships with partners in Asia-Pacific and, in the long term, the possibility of a new partnership model to be developed.

40. To conclude, the critical challenge for NATO will be to preserve these partnerships, to redirect them towards new areas of collaboration, of joint interest, such as emerging security challenges and to maintain interoperability at the level of military engagement. As countries like Australia or New Zealand do not have troops permanently deployed in Europe, and considering the costs of organising joint exercises at such distances, the Alliance will need to show ingenuity and flexibility to devise cost-effective solutions such as command-post exercises, virtual activities or adding a NATO dimension to bilateral exercises. Building trust and legitimacy, maintaining contacts and interoperability, with these new key actors in a multipolar world will not be easy, as they too seek to more actively promote their interests and increase their defence spending. Yet, NATO has the necessary structures to develop these partnerships, whether at bilateral level or within a structured partnership framework, and, as outlined above, NATO has also a significant interest to prevent an erosion of ties with these global Asian-Pacific partners.

VI. CONCLUSIONS

41. The response of the European NATO Allies to the US rebalancing its security focus to Asia-Pacific could be threefold. First, if the European NATO Allies want to avoid running the risk of becoming geo-strategically irrelevant, they must give much more consideration to their own defence and security and implement the decisions made at the 2012 Chicago Summit. US Allies cannot expect to be taken seriously if they continue to diminish their often already low defence budgets. Even though they face a serious financial crisis, European Allies must not engage on a path which leads them to become introverted. The operation in Libya demonstrated the limited capabilities of Europe’s armed forces, and the extent to which they rely on the United States for support. As such, more consideration must be given to interoperability of Allied forces, and the overall level of funding set aside for military expenditure, which remains insufficient. But OUP has also become a possible model for future operational engagement based on “coalitions of the willing” with significant support and participation of partners. By promoting interoperability, military capacity building and information sharing with and among NATO’s global partners and, in the long-term perspective, other Asian key actors such as China and India, the Alliance is more likely to benefit from their support to future NATO operations and activities- whether politically, in capabilities, finance or expertise.

42. Second, Allies, and European Allies in particular, should consider enabling NATO to develop an Asian outreach of its own. They, too, have a vested interest in the stability and security of the region and it would be short-sighted if they would not step up their engagement. The countries of Asia-Pacific, the EU and the US are highly interdependent economically and they play a defining role in global economic management. Their interdependence extends into the security realm as all three sides rely on smooth functioning of international trade routes, the global energy market and

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the global information technology infrastructure, which facilitate rapid and reliable commercial and financial flows. As the EU’s role remains primarily limited to the economic realm, there is a need for a more institutionalised security dialogue between the Allies and the countries of the Asia-Pacific region. As outlined above, both sides share a host of common security challenges, including maintaining stability in Afghanistan, WMD proliferation, failed and failing states, international terrorism, maritime piracy etc. Greater transatlantic co-operation in the region would help improve security and economic relationships, especially as two European Allies have retained a certain level of military involvement in the area. The United Kingdom for instance is still a member of the Five-Power Defense Arrangements (FPDA), a military consultation agreement with Australia, Malaysia, New Zealand and Singapore. France also maintains an operational military presence in the Indian Ocean and the South Pacific, with troops available for deployment in Asia at relatively short notice. What is more, as a result from the complexity and duration of operations like ISAF, NATO Allies are increasingly dependent on the military and non-military contributions from partner countries, including from Asia-Pacific. It would only be appropriate that NATO as organisation appreciates the security concerns of contributing partner countries from the region. Thus, in the view of your Rapporteur, there is a role, albeit limited, for the Alliance and NATO member states to consider how they could initiate a permanent security dialogue with the Asia-Pacific region. It is important to note, however, that any increase of NATO’s engagement would not include any military presence in the region but would rather focus on harmonising mutual positions on potential and actual regional crisis, on confidence-building measures and binding partners into a structured security community though consultations, exchanges of information, training and interoperability.

43. Third, the Allies should actively embrace the US “pivot” to Asia-Pacific. Greater US engagement in the region does not mean that Washington has lost its interest in Europe and in European security. European Allies (and Canada) still remain the staunchest allies and the most important economic partners of the United States. An important and active contribution, in the view of your Rapporteur, towards “embracing” the rebalancing has been made by the NATO Parliamentary Assembly. The Assembly has been following security developments in the Asia-Pacific region which are relevant for the member countries of the Alliance. In addition, the NATO PA has engaged in parliamentary diplomacy with the countries of the Asia-Pacific region. Several Committees have visited Japan, the Republic of Korea (ROK – South Korea), as well as China recently. In this context, they have discussed regional security issues as well as issues of common concern. Moreover, the NATO PA has developed institutional ties with global partners and Australia, Japan and the ROK and their parliaments send parliamentary observer delegations to the Assembly’s Annual Sessions. The NATO PA should continue monitoring the developments in Asia-Pacific and consider ways to expand existing contacts, possibly by having more frequent exchanges with parliamentarians from the region.

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