Peter Lloyd reported this story on Thursday, September 29, 2011 18:31:00

MARK COLVIN: After the Prime Minister's announcement of a major review of ties with Asia, there are calls today for a re-think of the cornerstone of Australian strategic policy, the ANZUS (Australia, New Zealand and the United States) alliance.



It was the first major foreign policy pronouncement for Julia Gillard, who said last October that foreign policy was not her passion.



The former Treasury secretary Ken Henry will report to government on the review of ties with Asia at the start of next year.



The Foreign Minister Kevin Rudd appears to have been left out of the process entirely. He didn't attend the announcement and the review will be conducted under the control of the Prime Minister's department, not foreign affairs.



Peter Lloyd reports.



PETER LLOYD: After more than a year as Prime Minister Julia Gillard is finally giving foreign policy attention to how Australia should respond to the rapidly changing circumstances of the neighbourhood.



The backdrop to this review is the conventional narrative about the rise of India and China.



JULIA GILLARD: In 20 years, China and India have grown so fast they've almost tripled their share of the global economy and increased in absolute economic size almost nine-fold.



PETER LLOYD: From business and industry the announcement received a generally positive reaction.



The Australian Chamber of Commerce and Industry's Greg Evans says the sort of moves required are already well known.



GREG EVANS: We simply need to be more competitive and a lot of those policy initiatives in order to deliver a more competitive Australian economy are ones that can be done now rather than awaiting the determinations of a white paper. And that means doing those sorts of reforms, such as taxation reform, in the area of regulation reform and ensuring we have suitable infrastructure.



PETER LLOYD: And it was a similar wish list from Graham Bradley from the Business Council of Australia.



GRAHAM BRADLEY: The importance of investment in infrastructure in Australia and the settings we have here for moving projects forward from conception to delivery and bringing in behind that the necessary infrastructure, those are the sorts of things which Asian countries, particularly our major export partners, such as China, Japan and Korea, are looking to Australia to do more effectively in the future.



So hopefully those are the sorts of things that will come out of this process.



PETER LLOYD: While the Henry White Paper won't set out to review the decisions of the Defence White Paper, there are some key strategic minds who believe a defence rethink is now essential if Australia is to navigate a safe passage between the rising ambition of China and our decades-old alliance with the United States.



Professor Hugh White, from the ANU's College of Asia and Pacific Studies.



HUGH WHITE: Now Australia, really throughout its history, has framed its international relations around the expectation that a great and powerful friend, first Britain, then America, was going to dominate Asia and was going to make Asia safe for us and since the Second World War that idea of American primacy as the foundation of Australia's security has been the very centre-pin of our foreign policy.



But China's rise changes that and I think what's important about Gillard's speech is that she went a long way towards acknowledging that. What's tantalising and disappointing about it is that she didn't quite get to acknowledge that core issue. She's still in her speech spoke about her expectation that America would continue to play in the future the role it's played for the last 60 years and frankly, because of the argument she herself marshalled about how significant China's growing power is for changing the strategic balance in Asia, I think the idea that America's role is going to continue unchanged is hard to sustain.



PETER LLOYD: Indeed, in the speech Ms Gillard said that the US absolute lead in military power will remain for some time to come. I guess what you're saying is you don't agree with that?



HUGH WHITE: Well it's a half truth. That is, if you look at the list of stuff then America is going to have a bigger navy and a bigger air force than China for a long time to come. But if you look at what they can do and what that means for their relative position in the western Pacific, which is where it matters for us, I think that's a very simplistic and rather complacent estimate.



The fact is that China has capacities to limit American military options in the western Pacific have expanded very rapidly in the last decade and will continue to expand very rapidly for the next decade. So the idea that America can exercise the same kind of military power in Asia today or 10 years from now, as it could 10 or 20 years ago, is I think simply wrong.



PETER LLOYD: What sort of demands might the US place on Australia in the future?



HUGH WHITE: If America continues to try and maintain primacy, to dominate the region, as it has in the past, then it's going to need to face down China militarily. It no longer has the capacity to do that alone. It will look to its allies like Japan and Australia to help it do that. And that will demand a lot more of Australia as an ally of the United States than we've been used to really since the days of the Vietnam War.



PETER LLOYD: Is there an emerging paradox for us in maintaining the ANZUS alliance while our chief minerals customer is also our chief prospective enemy?



HUGH WHITE: The aim for us must be to avoid that becoming a paradox, which means we have to encourage the United States to define its role in Asia and therefore what it expects of us as an ally in terms which are consistent with us having a huge and very beneficial trading relationship with China.



And the problem for Australia's position in Asia at the moment is that those two things are pulling us in opposite directions. Our biggest trading partner, not just today but in the future, is an active strategic competitor of our great ally. And in the long run, that simply can't work for us.



PETER LLOYD: Julia Gillard say the Henry White Paper will provide a national blueprint and promised specific policy responses by the middle of next year.



The Prime Minister's foreign policy credentials depend on it.



MARK COLVIN: Peter Lloyd.