Can a Tiny Country Make a Difference in the Indo-Pacific?

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Small, strategically located countries like Timor-Leste, also known as East Timor, can play an outsized role in shaping international affairs and alliances. A country strategically located between Indonesia and Australia, which gained independence from the former in 2002, can be a valuable partner in maintaining Indo-Pacific security. As the People’s Republic of China (PRC) seeks to undermine the United States’ influence in the Indo-Pacific region, the United States has an opportunity to creatively involve Timor-Leste in shaping the future regional order.. U.S. National Security Advisor Jake Sullivan has spoken of the need to construct a latticework of alliances and partnerships apt for 21st-century security threats. Dili can be a vital spoke in this hub model, strengthening U.S. regional partnerships and alliances. But Washington and its partners must do their part to help Timor-Leste fully integrate into a rules-based Indo-Pacific. 

Although one of the poorest countries in Asia, Timor-Leste boasts the strongest democracy in Southeast Asia by a wide margin. According to Freedom House, it is the only democratic nation considered “free” in Southeast Asia. It relies on its sovereign petroleum fund to generate most of its revenue from oil extraction in the Timor Gap. However, this fund will be exhausted within the next 10-15 years, which will cause earnings from its main export to plummet. Timor-Leste stands at an economic crossroads, with its prospects for future growth and development contingent on selecting the right international partnerships.

Like many other countries in the Indo-Pacific, Timor-Leste has a budding relationship with Beijing. The PRC has funded infrastructure development in Timor-Leste, including its roads,  government building, electric grid, and Tibar Bay port. China’s state-owned enterprises invest in Timor-Leste’s energy and connectivity infrastructure projects. Even though the PRC is not as big a development finance partner as the United States or Australia, these investments are carefully targeted and have more value in Timor-Leste, where Beijing’s state-owned enterprises function as development finance partners. Further, Australian development aid focuses on human development over much-needed energy infrastructure investments, forgoing political currency in Dili. More recently, the PRC and Timor-Leste upgraded ties to a comprehensive strategic partnership that translates into future high-level military exchanges, the training of military personnel, equipment technology sharing, and more military joint exercises.   

Through a strong relationship with the hegemonic power in Southeast Asia, Dili has leveraged the PRC’s economic might to source investment from China’s public sector to fund infrastructure projects in the country. If the United States seeks to enlist Dili in its Indo-Pacific partnerships, Washington will need to present an economic alternative to the PRC; a challenge given that Dili currently trades very little with the United States. It could do this by working with Indonesia, Dili’s top trading partner, to obviate the lack of complementarity in their economies. A proposal to establish a free trade zone between Indonesia and Timor-Leste would make Dili even more attractive as a partner. A free trade zone could bring together Indonesia’s ambition to become a leader in the electric vehicle (EV) industry with Timor-Leste’s mining potential, which could play a role in a burgeoning EV industry. This would also result in greater trading opportunities for the United States vis-à-vis Timor-Leste.

The Indo-Pacific is a vibrant hub of American alliances where Australia can play a valuable leadership role. Australia’s strong relationship with Timor-Leste will make Dili more amenable to the economic visions of other countries in the region. Specifically, Washington and Canberra could help Dili by making it more amenable to South Korea’s New Southern Policy and Taiwan’s New Southbound Policy; economic agreements that could give Timor-Leste a much-needed boost. Additionally, Dili could benefit from the institutional expertise its partners have in creating complete legal and land tenure systems and appropriate regulatory frameworks to allow its limited private enterprises to grow, considered essential when interacting with other highly-developed economies.

Further, Timor-Leste’s long-running effort to join the Association of Southeast Asian Nations (ASEAN) could attenuate Beijing’s more assertive approach in the region as it interacts with a more-or-less unified (see Cambodia) regional bloc — more important today because of the PRC’s forceful claims in the South China Sea where Indonesia, Vietnam, and the Philippines also have claims. Timor-Leste might feel more comfortable criticizing Beijing’s South China Sea claims within a multilateral forum. Particularly given that Timor-Leste is already familiar with the rules-based order, as it initiated a UN conciliation with Australia over the bordering oil-rich Timor Sea. Indeed, Dili has tried to nudge the United States to assist in the maritime dispute arguing that this would help counter the PRC’s aggressive claims in the South China Sea. This dispute is not enough to disrupt Australia’s warm relations with Timor-Leste and might benefit from having the United States shepherd a breakthrough. Once an ASEAN member, Dili would have an opportunity to be integrated into other international forums and frameworks. Timor-Leste already wants to join the World Trade Organization. The United States should recommit to this organization and help Dili gain admission. “Accession to the WTO and ASEAN blocs would represent a major qualitative boost to Timor-Leste’s trade and investment governance. It would cement the country’s commitment to a rules-based, open, stable, transparent, and predictable trade-policy regime,” according to World Bank experts. 

Timor-Leste’s inclusion in multilateral institutions is good for Timor-Leste, good for the regional economy, and good for the rule-based order. The U.S. latticework strategy will make this easier.  Furthermore, having a more economically integrated Indo-Pacific by way of a stronger ASEAN or an Indonesian free trade zone can help avert conflict because any party involved will have too much to lose by any shooting war that could imperil the regional economy; countries — even the PRC — would have incentive to cooperate. But if the worst comes to be realized and a conflict erupts in the region, U.S. military strategists should be cognizant of how Timor-Leste and other smaller countries could be used by Beijing to further its military aims.

To boost Indo-Pacific security, the United States and Australia should seek to incorporate this young country into a freer Indo-Pacific. As the PRC becomes more assertive and seeks to extend its influence in the region, even a small country located in the vastness of the Indo-Pacific matters. This is even more true as international relations become more multipolar, where small countries can influence the security outlook and where the latticework approach can pay dividends. Southeast Asia has autocratic and slightly bigger countries more beholden to Beijing, such as Laos and Cambodia, where U.S. strategy would benefit by focusing on loosening them from the PRC’s grasp. But with Timor-Leste, the United States has an opportunity to make inroads with a democracy in Southeast Asia.