Timor-Leste’s ASEAN Accession amid Global Power Rivalries
Navigating the Opportunities and Challenges Ahead

In the context of its ASEAN accession, how can Timor-Leste take advantage of increased economic integration through the ASEAN Free Trade Area?

ASEAN accession offers Timor-Leste access to a much larger regional market—over 600 million people—helping the country overcome the limitations of its small domestic economy and enabling it to pursue economies of scale. In addition, Timor-Leste will have the potential for more affordable and higher-quality imports from other ASEAN countries due to lower tariffs (ranging from 0% to 5%). This would allow Timor-Leste to import higher-quality inputs—such as construction materials and consumer goods—which are essential for national development. Currently, much of what enters the country’s market consists of low-quality or dumped products, which hinder rather than support development.

However, it is important to note that the benefits of the ASEAN Free Trade Area will not materialize automatically. The readiness of the domestic private sector is key. Local firms must be able to identify and seize regional opportunities. Timor-Leste will need to invest in enhancing local production capacity and export readiness. To protect nascent industries while they grow, it would be beneficial for Timor-Leste to pursue a phased approach to integration into the ASEAN Free Trade Area, which is similar to the paths taken by Laos, Vietnam, and Myanmar upon their accession. These countries negotiated gradual implementation schedules to safeguard and build up their domestic industries prior to fully opening to regional competition. Timor-Leste should adopt a similar strategy: “join first, then negotiate for phases,” allowing time to strengthen local production capabilities, improve know-how, and prepare exporters to compete regionally.

Timor-Leste remains one of the most import-reliant economies in the region. What strategies can the country adopt to strengthen domestic production while integrating itself into a competitive regional market?

The fact that Timor-Leste heavily relies on oil revenue has severely hindered its economy by discouraging innovation and weakening private-sector development. The petroleum fund continues to finance the state budget, making the public sector the dominant employer—responsible for around 90% of jobs. This dependence has created a distorted economic structure that stifles private enterprise and limits economic diversification.

To address these challenges and strengthen domestic production, there are three foundational reforms Timor-Leste must pursue: (1) physical security to ensure a safe environment for businesses and individuals through improved professional law enforcement and consistent public safety measures, (2) legal security to resolve civil and commercial disputes efficiently in a timely manner through improved courts and alternative mechanisms like commercial arbitration, and (3) property rights to establish a transparent and reliable land tenure system that protects investors from political interference and ensures long-term trust. While Timor-Leste has undertaken smaller-scale efforts, such as training programs for the private sector, it is important to create a public, comprehensive national strategy to support ASEAN integration.

How can Timor-Leste leverage its geographic position between Indonesia and Australia to foster inclusive regional trade and infrastructure development without compromising its sovereignty or development priorities?

Timor-Leste’s strategic geographic location offers an underutilized opportunity for inclusive regional integration. The foundation for regional cooperation must begin with ensuring peace, security, and stability, especially as a maritime state. Timor-Leste must avoid becoming a hub for transnational criminal activities, which could threaten its neighbors and regional partners, as well as undermine its own development.

On trade, Timor-Leste has a significant trade deficit with Indonesia, where shipping containers arrive full but return empty. This reflects a lost economic opportunity. Timor-Leste could collaborate with Indonesian businesses to develop its export capacity, not only to meet existing demand in Indonesia but also to supply regional markets such as China, Australia, and the European Union. Timor-Leste’s sovereign status and preferential market access could be attractive to foreign investors, including Indonesian firms, seeking to diversify their export channels.

Joint ventures that bring together Indonesian capital and Timorese labor, particularly in fisheries, agriculture, and light manufacturing, present a promising path forward. With abundant labor but limited capital and industrial expertise, Timor-Leste stands to benefit greatly from targeted capacity-building efforts. Recent initiatives have included sending Timorese workers to Indonesia for hands-on training in pearl farming, seaweed processing, and coastal fishing. Even communities from traditionally inland areas have been engaged, helping expand economic participation across regions.

In tourism, cross-border collaboration with eastern Indonesia holds strong potential. As popular destinations like Bali face overtourism, lesser-known spots such as Labuan Bajo and Kupang—together with Dili, Ataúro, and Jaco Island—can be positioned as part of a broader regional tourism hub. This integrated approach could enhance the appeal of Timor-Leste as a travel destination, especially if paired with a mobility regime that facilitates the easy flow of tourists and services across borders.

Based on your experience navigating foreign policy and ASEAN diplomacy, what lessons can Timor-Leste draw in shaping a productive, sovereign policy amid intensifying U.S.-China competition?

The shifting landscape in Washington, D.C., particularly decreased U.S. engagement in regional soft-power initiatives, has created uncertainty across the Indo-Pacific. Many countries have begun to question the reliability of the United States as a long-term partner. In this vacuum, China has expanded its presence not only through economic investments but also via development aid, soft-power initiatives, and regional infrastructure engagement. At the same time, Australia is actively reconfiguring its own foreign engagement strategy to fill the space left by the United States, especially in Southeast Asia and the Pacific.

In this context, Timor-Leste must seize this strategic opportunity. With multiple countries offering resources and partnerships, Timor-Leste can diversify its sources of development assistance and investment, particularly by engaging with Chinese firms that bring capital, technology, and skills transfer. These partnerships, if carefully managed, could strengthen Timorese domestic capacity and connect the country more fully to regional and global value chains.

It should also be noted that engagement must be balanced by strategic awareness. While welcoming investment from China and Australia, Timor-Leste must remain sensitive to the defense and security concerns of the United States and its allies. Despite pulling back economically, the United States continues to maintain military presence in the region. Maintaining positive relations with Washington and Canberra, especially in the security domain, will be crucial to avoiding geopolitical entanglements and preserving national autonomy.

How should Timor-Leste seek to shape its relations with Australia and the United States to safeguard its policy independence from overreliance on any major power?

Timor-Leste has successfully preserved strategic autonomy in a complex geopolitical environment by adopting a careful and balanced foreign policy. Several deliberate choices that demonstrate this independence include the decision to align with ASEAN instead of the Australia-led South Pacific bloc and the adoption of Portuguese as an official language, which reflects a conscious distancing from immediate regional pressures.

While Timor-Leste maintains strong economic ties with China, the country has avoided deep defense cooperation with Beijing. Instead, its military and security cooperation remain firmly with Australia and the United States. This includes years of joint military exercises, participation in U.S.-funded infrastructure projects, and formal defense agreements like the status of forces agreement.

The $484 million Millennium Challenge Corporation compact signed with the United States serves as a strong example of how meaningful development partnerships can be pursued without compromising national sovereignty. Centered on water and sanitation, the agreement was built on mutual respect and shared commitments to good governance and democratic values, demonstrating that principled cooperation can drive impactful progress.

Maintaining such room for maneuver—cooperating with China economically while aligning with Australia and the United States on security—allows Timor-Leste to protect its policy space and avoid dependency on any single power. The escalating U.S.-China rivalry presents real challenges, but smaller states need not choose sides. What matters most is cultivating respectful relations with all partners and making sovereign, balanced policy decisions that serve both domestic development goals and broader geopolitical interests.

Small states across the Pacific and Southeast Asia often collaborate to increase their collective voice. Are there particular models for regional alliances or diplomacy that Timor-Leste could study and learn from as a new ASEAN member?

Timor-Leste has maintained strong ties with the EU, especially through cultural exchange, scientific collaboration, and technological development. However, the progress of its relations with the EU has been slower than anticipated. While ASEAN is a powerful regional platform, it is also highly complex, with great diversity in religion, language, and historical alignment. The region is divided between Southeast Asia’s Indochinese countries, which tend to be closer to China, and the western ASEAN states, which are often more aligned with India and other regional actors. Despite these differences, ASEAN remains more advanced and integrated than other blocs such as MERCOSUR in Latin America or the Southern African Development Community.

More importantly, it is worth noting that ASEAN membership offers limited immediate economic benefits. For countries like Cambodia and Vietnam, joining ASEAN did not directly lead to growth; instead, it elevated their international credibility, which eventually helped them attract investments and gain access to development opportunities, often from China or other major powers. In this way, ASEAN is a gateway to long-term partnerships, not a short-term fix. For Timor-Leste, ASEAN membership offers a similar pathway. It places the country “on the radar” of regional and global powers, potentially unlocking new partnerships, development funding, and diplomatic visibility.

Fidelis Magalhães is President of Alternative Futures–Institute of Politics and International Affairs, a think tank based in Timor-Leste. He previously was the Minister of the Presidency of the Council of Ministers and played a direct role in the ASEAN accession process.

This interview was conducted by Ivo Ribeiro while a Bridge to Asia Fellow with the Technology and Geoeconomic Affairs group at NBR.

Photo credit: CC by Gunawan Kartapranata