SCENESETTER FOR SECRETARY RICE'S VISIT TO PERTH,

S E C R E T CANBERRA 000721

SIPDIS
NOFORN

FOR THE SECRETARY FROM CHARGE DANIEL A. CLUNE

E.O. 12958: DECL: 07/17/2018
TAGS: OVIP RICE CONDOLEEZZA OTRA PREL AS
SUBJECT: SCENESETTER FOR SECRETARY RICE'S VISIT TO PERTH,
JULY 24-25

Classified By: CDA Daniel A. Clune. Reasons: 1.4(b),(d)


SUMMARY:
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1. (C/NF) Kevin Rudd, who was sworn in on December 3, 2007,
as the first Australian Labor Party prime minister in nearly
12 years, has moved quickly to implement domestic reforms and
to give substance to a three-pronged foreign policy based on
the primacy of the treaty alliance with the United States,
greater commitment to multilateral organizations, and deeper
engagement with Asia. Rudd has delivered on campaign
promises to roll back the previous government's controversial
industrial relations legislation, sign the Kyoto Protocol and
withdraw Australian combat troops from Iraq, while
maintaining Australia's combat commitment to Afghanistan "for
the long haul." He issued a historic apology to Australian
Aborigines on the first day of the new Parliament, announced
a new development pact with the Pacific Islands, and swiftly
dispatched troops to Timor-Leste in February after the
attempted assassination of President Ramos Horta. Eight
months into his administration, however, Rudd's record
popularity following the Australian Labor Party's (ALP)
resounding election victory over the conservative
Liberal/National Coalition government of John Howard has
begun to decline. Domestically, while the economy continues
into its 17th straight year of growth, Rudd is grappling to
prevent a resurgence of inflation along with the challenges
of a prolonged drought and the need to address climate change
by imposition of a complicated and politically fraught
emissions trading system beginning in 2010.


2. (C/NF) Despite his background as a former diplomat and
Opposition foreign affairs spokesperson, Rudd made some early
missteps with India and Japan, and his failure to consult
with international stakeholders, including the United States,
before announcing major foreign policy initiatives on
regional architecture and nonproliferation/disarmament
generated additional criticism. He signaled a determination
during the election campaign to be a more critical partner of
the United States than his predecessor, tapping into
widespread unease over the extent of U.S. influence on
Australia's foreign policy, particularly over Iraq. An
advocate of "middle power diplomacy," Rudd can be expected to
continue to challenge the United States to do more on climate
change, arms control and disarmament. Policy differences
aside, however, Rudd is strongly committed to Australia's
alliance with the United States, and his endorsement of
ongoing collaboration with the United States across the broad
range of shared interests highlights Australia's
determination to be a reliable partner. END SUMMARY

U.S. ALLIANCE
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3. (SBU) Support for the U.S. alliance, underpinned by the
1951 Australia-New Zealand-United States (ANZUS) Treaty, is
foremost among the three pillars of Rudd's foreign policy
(the others are cooperative engagement with multilateral
organizations such as the UN and engagement with Asia). Rudd
has made clear Australia's commitment to the alliance and was
quick to reach out to the United States in his election night
victory speech - the only foreign country he mentioned. As
you know, he met with President Bush in Washington, D.C. on
Qyou know, he met with President Bush in Washington, D.C. on
his first major international trip.


4. (C/NF) Rudd stressed in his election campaign that he
would be more independent from the United States than his
predecessor, John Howard, who was perceived by the Australian
public to have been in lockstep with President Bush over such
unpopular issues as Iraq. One area where the Rudd
government's policy diverges somewhat from ours is climate
change, a topic that resonates strongly in Australia where
many see a direct causal link with a series of recent, very
severe droughts. PM Rudd ratified the Kyoto Protocol within
hours of being sworn in, and is committed to implementing an
emissions cap and trade system beginning in 2010. Another
area in which there appears to be an emerging change of
emphasis is in arms control and disarmament. Rudd has
established an International Commission on Nuclear
Nonproliferation and Disarmament, co-chaired by Japan, with a
declared focus on nuclear disarmament that we have cautioned
should not come at the expense of nonproliferation efforts.


ECONOMY
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5. (SBU) Rudd's extended political honeymoon with the public
has begun to fade as his government confronts some of the
more contentious political and economic realities. Rudd's
principal economic challenge is rising inflation, attributed
mainly to capacity constraints, particularly labor, as
Australia continues its 17th consecutive year of growth,
thanks largely to a commodities boom fueled by China and
India. The Reserve Bank of Australia raised interest rates
for the fourth time in eight months at the beginning of
March, part of a trend that has pushed up variable rate
mortgages and exacerbated the problem of housing
affordability for Australia. Moreover, sharply rising gas
prices -- now more than six dollars a gallon -- have
contributed to declining consumer confidence. Nonetheless,
unemployment is still near 33-year lows, labor participation
is at all-time highs, and all signs point to significant
increases in resource prices that will ripple through the
Australian economy.


6. (SBU) The centerpiece of our close bilateral economic
relations is the U.S.-Australia Free Trade Agreement, which
went into effect in January 2005. The U.S. enjoys a $10
billion trade surplus with Australia, our third-largest in
the world. We are Australia's largest economic partner - the
third largest trading partner (after China and Japan),and by
far the largest foreign investor in Australia. Australia is
our 14th-largest trading partner, and the bulk of Australian
overseas investment flows to the United States.


SOME MISSTEPS ON FOREIGN POLICY
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7. (C/NF) While Rudd served as a diplomat early in his career
and is the only Western world leader who is fluent in
Mandarin, his government has made some early misjudgments in
the foreign affairs area. Foreign Minister Smith angered
India with his public announcement, made while standing next
to his Chinese counterpart, that Australia would no longer
support a Quadrilateral Strategic Dialogue with India -- a
short-lived offshoot of the Trilateral Strategic Dialogue
(U.S.-Japan-Australia) -- in deference to China's
sensitivities. Rudd irritated Japan with his government's
threats to take legal action against Japanese whaling,
coupled with release of GOA photographs of Japan's whaling
activities, and his failure to include Japan, a major
security and trade partner, on his first major overseas trip.
Moreover, Rudd encountered criticism and raised eyebrows for
the hasty manner in which he rolled out two major foreign
policy initiatives in June. His vision for a European
Union-style Asia Pacific Community by
2020, unveiled on June 4, and his June 9 announcement that
Australia would establish an International Commission on
Nuclear Nonproliferation and Disarmament and host an
international conference to shape the outcome of the 2010
Nuclear Nonproliferation Treaty Review Conference, were both
launched without internal vetting or consultation with the
international stakeholder countries whose support would be
needed for the success of these undertakings. Senior
officials have ascribed the lapse to Rudd's rush to fulfill
foreign policy promises made during the election campaign and
Qforeign policy promises made during the election campaign and
the "talismanic" importance of nuclear disarmament to the
Australian Labor Party, but Rudd's inclination to rely on his
small inner circle of advisors rather than on his
bureaucracy, and his evident need to dominate the headlines
may also explain his actions.


COMMITMENT TO MULTILATERAL ORGANIZATIONS
--------------

8. (C) To further the GOA's engagement with multilateral
organizations, the second pillar of his foreign policy, PM
Rudd announced Australia would seek a seat on the UN Security
Council for the 2013-2014 term, and he has traveled to
Brussels to reinvigorate Australia's ties with the European
Union. While in opposition, the ALP supported international
military action to overthrow the Taliban in Afghanistan in
2002 but opposed the invasion of Iraq, partly because the
latter action lacked a UN mandate. Rudd's vision for an
EU-like Asia Pacific Community by 2020 also builds on his
commitment to address international challenges through
multilateral fora.


DEFENSE COOPERATION
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9. (C/NF) The Rudd government has ordered a comprehensive
review of defense policy, including the review of some major
defense acquisitions from the United States, that has slowed
or postponed bilateral cooperation in some areas, such as
missile defense. While the Defence White Paper will not be
completed until at least March 2009, we have been assured
privately not to expect surprises in the overall strategic
assessment, and we expect defense cooperation to proceed with
little interruption. We can expect Australia's continued
contributions to military operations targeting the Taliban
and al-Qaeda in Afghanistan, and a continued non-combat role
in Iraq. The small size of its military - 52,000 personnel -
which is beset with recruitment and retention problems, and
demands of deployments elsewhere mean Australia will be hard
pressed to increase substantially the level of its
deployments for some time to come. Despite this, we are
confident Australia will remain one of our closest allies and
most reliable security partners for the foreseeable future,
and expect the GOA to remain the large consumer of U.S.
defense hardware and technology in the Asia-Pacific area.


10. (SBU) The United States Senate is currently reviewing the
U.S.-Australia Defense Cooperation Treaty and accompanying
Implementing Arrangements, although the parallel U.K.
agreement leads any progress on the Australian document. The
Australian Defence Materiel Organisation estimates a 50
percent reduction in export licenses required following
treaty implementation.


11. (S/REL AUS) As discussed with the Howard government
during your visit to Sydney with President Bush in September
2007, and as reconfirmed during the 2008 AUSMIN meeting, our
two governments have agreed to strengthen combined
capabilities and U.S. military access to Australia, referred
to as Enhanced Defense Cooperation. Both sides subsequently
agreed to focus on three areas: enhancing the Joint Combined
Training Capability; prepositioning equipment for
Humanitarian Assistance and disaster relief (HA/DR)
operations in the region; and strengthening Intelligence,
Surveillance and Reconnaissance (ISR) access and cooperation.

IRAQ
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12. (C/NF) The approximately 515 Australian combat troops
comprising the Overwatch Battle Group in southern Iraq, plus
the 100-strong Australian Army Training Team, were withdrawn
in June, leaving in place approximately 1,000 defense
personnel, including a 100-man security detachment for its
diplomatic mission in Baghdad, and naval and air patrol
assets based in neighboring countries that support operations
in both Iraq and Afghanistan. Beyond the redeployment of the
combat element, the Australians plan to remain engaged in
Iraq in reconstruction and other non-combat roles, and the
Australian government is considering possible additional
training and technical assistance. We have asked Australia
to contribute specialists to serve in U.S. PRTs, for example.
Despite the withdrawal of Australian combat forces from
Iraq, PM Rudd agreed in July 2008 to allow Australian
exchange officers serving in units of other countries
including the U.S. to deploy to Iraq in combat and combat
Qincluding the U.S. to deploy to Iraq in combat and combat
support roles with those units.

AFGHANISTAN
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13. (C/NF) Unlike Iraq, there has been bipartisan support in
Australia for its troop commitment in Afghanistan, and the
Rudd government has reaffirmed that it plans to remain in
Afghanistan for the "long haul." Support for Australia's
combat role in Afghanistan is linked in part to the presence
of al-Qaeda and the Taliban, who trained bombers that killed
202 civilians, including 88 Australians, in Bali in 2002; the
impact of the Afghan drug trade on Australia; and to the fact
that Australia's military engagement in Afghanistan was
authorized by UN Security Council resolutions. The
Australian government has agreed to deploy an Operational
Mentoring and Liaison Team (OMLT) to help train the Afghan
National Army and to provide additional civilian development
assistance beginning in September, but is not currently
contemplating increasing its combat forces. Six Australian
soldiers have been killed in Afghanistan since 2002,
including three Special Air Service Regiment (SAS) troops
from the Campbell Barracks in Perth, a site you will visit on
July 25. The most recent casualty was Sean McCarthy, a
signaller serving with the Special Operations Task Group,
killed by an IED while on patrol in southern Afghanistan on
July 8. (Another Perth-based SAS soldier died in Kuwait
during a training exercise in 2005.)

U.S.-INDIA CIVIL NUCLEAR DEAL
--------------

14. (C/NF) Rudd has declared Australia will not export
uranium to India because it has not signed the Nuclear
Nonproliferation Treaty. He has privately signaled to us,
however, that Australia likely will support an exception for
the U.S.-India civil nuclear agreement in the Nuclear
Suppliers Group and IAEA, an assurance he repeated to the
Indian Foreign Minister in June.

CHINA
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15. (C/NF) An important dynamic in the U.S. relationship with
a new Labor government is China. China is now Australia's
largest trading partner and Rudd views the Chinese export
market as a critical component of Australia's growth now and
well into the future. PM Rudd's background as a
Mandarin-speaking former diplomat who served in Beijing has
led some to believe that he might be overly sensitive towards
China, but he has demonstrated a balanced view. Rudd shares
our position that China needs to be encouraged to be a
responsible stakeholder in the international system, but
cautions that the international community needs to be
prepared for the possibility that China's rise might take a
"malign" turn. Moreover, the GOA shares our concerns about
China's military modernization, transparency, and human
rights abuses. Rudd spoke out strongly to protest China's
crackdown in Tibet during his first official visit to China.


CLUNE