To Hell with the Rule of Law, “My Dad is Li Gang”

Michelle Mengsu Chang, BASC Research Assistant

“Sue me if you dare, my dad is Li Gang.” Over the past month, this phrase has become ubiquitous on every Chinese website and online community.

It came from a 22-year-old man named Li Qiming, from a small city called Baoding in Hebei Province. On October 16th, Li Qiming, while drunk, drove onto the campus of Hebei University at high speed and ran over two female university students.  One of them died on the spot, and the other was badly hurt. Li Qiming did not stop the car but kept on driving toward his girlfriend’s dorm. On his way back he was forced to stop by students and security guards who had gathered around the dead girl. When he got out of the car he said only one thing: “Sue me if you dare, my dad is Li Gang.”

As it turned out, Li Gang was but a deputy police chief at a branch office of the Baoding police force, and Baoding is only a minor city in Hebei Province. Yet even with this low level of influence and connections, his son could boast impunity after taking the life of a girl and breaking the leg of another.

This is not the first time accidents like this have happened in China. Almost every month there is news in China about children of rich and powerful parents speeding down busy streets in luxury cars and killing pedestrians. But Li Qiming’s arrogance, total lack of remorse, and utter disrespect for the rule of law is unprecedented. Immediately, angry citizens took the incident to the Internet and the story spread like wildfire. Millions wrote long articles condemning the abuse of justice, while others made sarcastic comments about social ills in China. The feeling of outrage was universal.

Following the incident Li Qiming was temporarily imprisoned while awaiting trial. On October 22nd, China Central Television (CCTV) released a video showing Li Gang making an apology to the public. Li Gang wept in front of the camera, and bowed down for half a minute until the reporter stepped forward to stop him. However, the TV station did not even make an attempt to interview the deceased girl’s family. In fact, around the same time, all major news agencies were recalling their reporters who were reporting in Baoding on developments of the accident and banned further publication regarding the scandal. Critical articles and commentaries also started disappearing from the Internet. Furthermore, the attorney for the girl’s family reported that he was asked to terminate his representation in the case by the Bureau of Justice in Beijing. Meanwhile, legal experts in China revealed that Li Qiming would be sentenced to three years at most.

Today in China, people everywhere are expressing their anger at the Li Gang scandal. University students in China and abroad have been passing around petitions to be presented to the central government, demanding that the Administration take the matter seriously. Yet each of these attempts has been abruptly silenced. The right and wrong in this case is crystal clear and people’s demand is simple: that Li Qiming be severely punished, that the girl’s family be given a fair answer, and that the rule of law be upheld and respected. What an average Chinese citizen is most indignant about is not only that none of these demands have been fulfilled, but that an obscure little bureaucrat like Li Gang can trample on the sense of justice of an entire nation of people. The likelihood of people’s outrage at the scandal transforming into a major social unrest is rather small. In a few months’ time, most people will lose interest in the case, learn to live with reality, and move on to other things. But if this is indeed how the incident will come to end, a sting will remain in China’s collective consciousness.

When debates on the Li Qiming case had barely started to die down, on November 10th, a man named Zhang Lianhai in China was sentenced to two and half years in jail. Zhang Lianhai is the father of a victim during the tainted milk scandal in 2008. That year, tainted milk power produced by one of China’s most trusted companies resulted in the death of six babies while 50,000 other babies were hospitalized for serious kidney problems and 300,000 were sickened to various degrees. Each child diagnosed with kidney stones from drinking the milk was promised 2000 RMB in compensation, equivalent to $300—a  pathetic amount in China’s expensive healthcare system. Zhang Lianhai, a former journalist, represented thousands of parents to demand better healthcare packages for their sick children. He rallied legal support and wrote persuasive articles on his blog. While he won the sympathy of the Chinese population, the government still decided to seize him from his home and put him behind bars for “inciting social disorder.” Unsurprisingly, news reports on his sentence that were shared all over China’s online communities spurred an explosion of public anger.

 The impunity of Li Qiming and the incarceration of Zhang Lianhai are seemingly unrelated. But these two events, together with thousands of other controversial legal cases, are posing serious questions about the state of the Chinese society.

For years, as the West criticized China for absence of democracy, corrupt governance, and human rights violations, the Chinese government and defensive citizens have come up with many excuses. The country is too big. The people are too many. Most of the citizens are not educated enough to make informed decisions. You cannot lift 1.3 billion people out of poverty without hurting a few... But in some cases, where even the least informed of citizens can tell right from wrong, where every sensible person knows that something could be done, there is no more excuse.

Today, the legitimacy of the Chinese government depends on its ability to intoxicate its citizens with a 10% annual economic growth rate and appease them with illusions of a harmonious and affluent society. Every Li Qiming, every Zhang Lianhai that emerges is an invaluable opportunity for the government to win the trust and goodwill of its people by upholding the rule of law. Yet almost every time, the government has chosen to disappoint.

There might be a day where the Chinese economy will begin to slow down, where people’s demand for justice will have to be answered, and where another Olympics and World Expo and National Day parade will fail to distract them from the real problems in China. There will not be a Li Gang to save the Party. What will the Party do then?

For Business Interests, Republican Victory is a Mixed Bag of Tea

Robert Nelson, BASC Research Assistant

Free traders and business interests are usually ecstatic when Republicans win electoral victories, but this most recent triumph might be a change from the norm. While this new Republican majority in the House will likely prove to be just as anti-regulation and anti-taxation as previous Republican majorities there is reason to believe that in areas of international commerce this group will be far more protectionist.

Unlike previous conservative victories, this one was orchestrated by a populist Tea Party movement driven not only by an anti-government ethos, but also by a desire to return America to its glorious days as an industrial superpower. They feel like the country has taken a rapid change for the worse. And while most of blame lies with Obama and his progressive polices, some of the responsibility belongs to trade deals like NAFTA, the influx of illegal immigrants, and the profligate spending by both political parties. It is these other enemies of the Tea Party movement that might prevent Republicans from being as supportive of free trade as they normally are.

There are four areas of chief concern that might spell trouble for traditional Republican business interests: immigration policy, trade agreements, relations with China, and the debt ceiling. Tea Partiers have positions at odds with the establishment Republicans on all of these issues.

Illegal immigrants are the perennial bogeymen of the Tea Party movement. Business groups, on the other hand, tend to see them as important contributors to the American economy. This tension probably will result in a stalemate for the foreseeable future, as the Tea Party members of the Republican party will block any sort of immigration bill that creates a pathway to citizenship for illegal immigrants. A compromise on illegal immigration was not likely before the Tea Party movement took power, but with the Tea Partiers in greater number it will also be difficult to pass less contentious policies like an expansion of H-1B visas, something business lobbies directly support.

Trade agreements will also be an issue of contention for these new Republican members of Congress. While the Tea Party is nominally a free market movement, Tea Partiers are not exactly eager to outsource more jobs to Asia. The line here will probably depend on public awareness. If a trade deal like the Koreas-U.S. FTA can fly under the general public’s radar, then it will probably go through. If, on the other hand, it becomes a major issue, it will probably stall. The more complex and obscure a trade deal, the more able business interests will be able to co-opt Tea Partiers and get them to vote for it.

Relations with China are not an obscure issue and Congress has always been more apt to be tough with China than the White House. This might be one of the few areas of bipartisan agreement in the next two years. Both sides were unrelenting in accusing each other of shipping jobs to China during the election. Long before the Tea Party movement began, Democrats were considering hitting China with a tariff to punish it for its currency suppression. This will not change in the new Congress, and Tea Partiers will be just as eager to get tough with China as their Democratic predecessors.

The area of largest concern and one where hopefully cooler heads will prevail is the national debt ceiling. This spring Congress will have to vote to approve a rise in the debt ceiling. This act is much like a family paying its monthly credit card bill, and Congress has historically passed the measure with bipartisan support. This year, however, was the first time in recent history that no Republican voted to raise the debt ceiling. If Republicans continue with this policy and either fail to pass a rise in the House or filibuster a rise in the Senate, the U.S. will default on its debt and a global financial crisis could occur. This is unlikely, as the Republican leaders will probably whip up enough votes to ensure passage along with the Democrats. But if one takes the Tea Party at its word, it is a possibility.

Overall, the next few years will probably be defined by policies favorable to business or at least a neutral stalemate. But in some areas, business interests will find more resistance than they are used to from Republican members of Congress and on some issues business leaders might experience outright hostility.

Hope for U.S.-South Korea FTA

Lauren Dansey, BASC Research Assistant

The new Republican Congress is predicted to take greater steps towards developing U.S. free trade deals. But will the new Congress be able to resolve the current issues blocking the U.S.-South Korea free trade agreement (FTA)? Reuters suggests the key to overcoming the barriers to the agreement maybe found in Rob Portman, the recently elected Republican Senator from Ohio. Senator Portman served as the U.S. trade representative (USTR) under the Bush administration from 2005-2006. While Portman was at the USTR office, he began talks with South Korea about signing a U.S.-South Korea FTA.  

The New York Times reported the newest roadblock to completing the FTA is White House concerns over the impact on trade sensitive sectors such as the auto industry. Labor Unions and car companies like Ford claim an FTA with South Korea will create an imbalanced trade where American car manufactures will suffer. Ford representatives argued that “for every 52 cars Korea ships here, the U.S. can only export one there.” 

Auto and union lobbyists have so far successfully delayed ratifying the agreement, but the incoming Congress will likely complete the South Korea FTA as part of their program to liberalize trade. Even Dave Camp—a Republican representative from Michigan, home of the auto industry—is advocating completing the FTA with South Korea. The GOP-run house will particularly focus on signing agreements with countries like South Korea to capitalize on the expanding Asian market. Moreover, politicians see the FTA as opportunities to increase U.S. involvement in Asia and counter Chinese regional influence. This new congressional agenda gives Senator Portman the opportunity to exercise his experience as the former USTR and complete the talks with South Korea he began five years ago.

For "Our" China Trade Emergency...

Do-Hee Jeong, BASC Research Assistant

Many politicians made the China debate a central component of their campaign platforms for the recent midterm elections, and Ohio Democratic Senator Sherrod Brown was no exception to this trend. Brown and others assert that since normalizing trade relations with China in 2000, the US bilateral trade deficit has increased dramatically (by 170 percent to be exact) because of China’s illegal subsidies and currency manipulation (for more information on China’s currency controversy, refer to this recent blog post by Professors Vinod Aggarwal and Simon Evenett). Senator Brown criticizes proponents of this bilateral relationship who emphasize the fact that exports to China have also increased as inaccurately telling only one side of the story. In his own words, it “is like reporting just one team’s score in baseball: the Cubs scoring five runs sounds good, until you hear that the Reds tallied 12.”

However, in his recent New York Times op-ed, Senator Brown also seems to fall victim to his own criticism, because isn’t trade a two-way relationship? Rather than focusing on just China’s actions that undermine free-market competition, why not focus on the US’ failed attempts to make its own industries competitive globally? The labor cost argument stretches only so far, as the US could have found other comparative advantages. Instead of developing industries that could be more competitive, the US government continues to bail out its uncompetitive automobile industry. As the US complains about its trade deficit, the rest of the world is already moving far ahead in innovative and sustainable technological developments, as Ren Yi Hooi describes here. 

Even if the US had not normalized trade with China a decade ago, it is questionable whether or not the US would have this trade deficit today without better developing its comparative advantages. Other countries with cheap labor sources would probably have taken China’s place. Similarly, even if Section 301--which allows Washington to respond with aggressive trade measures, including tariffs if investigations find that China’s support for clean-energy exports violates international trade rules--is implemented, there are still other countries that will probably replace China and continue to prolong the US trade deficit. The US would then still be pointing the finger at others for its unemployment and deficit, rallying its people to support protectionist measures to improve the trade deficit. The senator claims that the 1980s and 90s restrictive measures against Japanese and Korean subsidies and trade barriers led to more balanced trade relationships. But ironically, the US government still places blame on Japanese car companies for the demise of the American automobile industry and still brings up the asymmetrical automobile trade with Korea as a hindrance to the KORUS FTA. If trade restrictions are so effective, why do we still have similar problems with trade deficit in sectors that have been protected?  

I am not saying that the invisible hand should have been or be the sole solution, since every economic action is complicated by political ramifications. Furthermore, I am not arguing that the Chinese have not implemented unfair trade policies. But, I wanted to draw attention to the other aspect of the bilateral trade relationship that seems to be ignored in recent politically-charged criticism against Chinese trade policies. Instead of using China as a scapegoat to its domestic problems, the US should focus more on better developing its competitive sectors not only to assuage internal tensions but to provide a long-term solution to establish its competitiveness since trade restrictions, such as the Section 301 proposal provides only a temporary solution. This dramatic shift will not be easy and without public protest, but it seems to be a necessary sacrifice in order to secure America’s competitiveness in the long-run.  Perhaps, these trade restrictions are necessary to alleviate immediate trade deficit and unemployment. But, the government should take further steps beyond this temporary solution to continue developing its successful industries to establish long-term trade competitiveness.

I agree with Senator Brown that “‘made in America’… is more than an empty slogan.” It should definitely be more than empty political rhetoric and instrument to evoke patriotism amongst the American public. However, promoting “made in America” does not necessarily mean standing up for ALL American manufactures, but rather for those that can be made competitive.  

China: The Root of all Evil?

Cindy Li, BASC Research Assistant

With nearly one out of every ten Americans jobless, election campaigns have been buzzing with mentions of record-high unemployment and the “failed” stimulus plan. But of course, merely quoting the unemployment rate is no longer enough to incite anger and frustration from voters. The American people want answers. It used to be that fingers were pointed at the greedy investment bankers with their undeserved bonuses, but this year’s elections have shifted the spotlight to China.   

As David Chen noted in a recent New York Times article, at least 29 candidates have endorsed advertisements that attack opponents for being too sympathetic to China (watch a sample of these anti-China ads here). Videos range from a high-budget ad depicting an evil Chinese professor in a futuristic classroom chuckling villainously about the collapse of the US, to simple ads with cliché images of Chairman Mao looking approvingly towards a field of wind turbines while an authoritative voice accuses a candidate of fighting for jobs in China at the expense of American workers.  As Democrat Joe Sestak’s attack of Pat Toomey demonstrates, being a former Wall Street executive isn’t why we shouldn’t vote for Toomey; rather, it’s that he moved from Wall Street to work in China.  

So does this mean candidates have already forgotten about the sub-prime mortgage crisis and the ensuing credit crunch, and instead believe that China (and of course, those China-sympathizing politicians) are to blame for America’s continued economic woes?

No, alas campaign ads do not change the biting reality of economics. Rather, they reflect voters’ biggest concerns. The American people want hope. The continued increase in unemployment in the first half of 2010, even with the $787 billion stimulus package and significant regulatory changes, raises concerns that the American economy may never be restored to its previous glory. Naturally, the politician who can provide the solution will win the heart of his or her district. And of course, pointing at an external enemy is much more popular than telling voters to accept that the effects of the financial crisis will take more than a couple of years to ripple through the economy.  Until then, political campaign ads will likely continue to rely on blaming over-paid CEOs and Chinese manufacturers for all our problems.  

The Chinese Government and Anti-Japan Protests: Some Food for Thought

By Michelle Chang, BASC Research Assistant

As the diplomatic crisis between China and Japan over disputed territories in the East China Sea drags on, thousands have mobilized in both countries to protest what each side calls the violation of their country’s sovereignty by the other side. Particularly in China, protesters took to the streets in every major city and in cities like Chengdu attracted more than 10,000 participants. While all reports of the protests in China make note of angry youths boycotting Japanese products and in some cases of Japanese properties being demolished by protestors, what attitude the Chinese government has taken towards the protests has been obscured by conflicting pieces of evidence. 


On the one hand, the government has been very careful not to let public anger get out of control. Particularly in Beijing, demonstrators outside the Japanese Embassy were tightly managed by the police and were often outnumbered by police forces. Moreover, notices, comments, photos, and videos of anti-Japan protests were quickly taken down from the Internet in China. An article in TIME Magazine speculates that the Chinese state is fearful because anti-Japan protests in China have a history of turning against the Chinese government after a while, drawing a parallel between the current crisis and the 1919 “May 4^th Movement” that started as a reaction against the Treaty of Versailles but in the end sealed the demise of Imperial China. 


On the other hand, however, there are reasons to believe that the Chinese government has also indulged the protests to some degree. According to an article in the Washington Post, the government publically described the protests as “understandable.” Moreover, it seems rather unlikely that a state capable of silencing both the Tibetan and the Uighur independence movements would have been incapable of stopping the mob gatherings that reduced to waste so many Japanese shop windows, showcases, and even Toyotas on the streets. What attitude the Chinese government takes towards the protests, therefore, is an interesting question to think about. As domestic tensions over various social issues have built up over the years, a foreign enemy seems to be an easy outlet for public anger. But keeping that anger under control is difficult business.

Let's Go, G20

Do-Hee Jeong, BASC Research Assistant

Twenty celebrity singers in South Korea recently released a collaborative G20 campaign song, “Let’s Go,” to mobilize young Korean citizens for the upcoming G20 Seoul Summit as part of a larger campaign to promote the G20 not only in Korea, but internationally as well. The active campaigns, reminiscent of those during the quadrennial World Cup hype in South Korea, emphasize the great weight the November summit holds. So why is this upcoming summit so important?

The November summit’s importance is two-fold. First, it will establish the legitimacy of the G20 as an organization that produces concrete solutions to global economic problems. Second, as the first summit hosted by state that was not a member of the G8, the summit will test the ability of non-G8 members to successfully manage a global forum and make significant contributions.

The Seoul Summit will be an important follow-up from the previous summit in Toronto. It will have to provide a basis for an international framework for strong, sustainable, and balanced growth focusing on macroeconomic policy coordination; reform of international financial institutions, mainly the IMF and World Bank; and reform of financial regulation during this aftermath of the global financial crisis. It is important that the G20 deliver real outcomes not only to avoid a double-dip recession, but also to solidify the legitimacy and effectiveness of the G20 as a premium forum for international economic cooperation.

Korea is also the first non-G8 country to host the G20 Summit, and therefore carries the importance of setting the precedent for other non-G8 members to play central roles in the future. Korea plans to promote the creation of a global financial safety net that will provide insurance mechanisms in case of another liquidity problem created by future global financial crises; development that will take many lessons from Korea’s unprecedented transformation from aid-recipient to donor country; and a business summit that will provide an official avenue for the private sector’s voice on global matters. Seoul’s success in promoting its agenda and hosting the two-day summit will legitimize and open more doors for the involvement of non-original G8 members in the G20.

Although the campaign song—along with the numerous promotional videos created by Korean celebrities and popular street events that inform the public about the G20—may be just mere displays of Korean pop culture on the surface, they nevertheless demonstrate the great significance of the upcoming Seoul G20 Summit.

(Source: The information is based on Secretary General of the Presidential Committee for the G20 Summit Changyong Rhee's speech during the 2010 MacArthur Asia Security Initiative Annual Meeting in Seoul)

Reframing Trade: Obama, Democrats, and Trade Liberalization after the Midterm

Kathy Bowen, BASC Research Assistant 

  

With all but a cadre of Obama loyalists predicting a thumping for the Democrats this November, does the Administration have much, if anything, to look forward to after the midterm elections? The good news for liberals - of the Ricardian variety - is that a GOP majority in Congress may be more likely to approve bilateral deals with South Korea, Columbia, and Peru, a Trans-Pacific Strategic Economic Partnership agreement, and a final settlement to the Doha Round. Obama has thus far seen little movement on any of these initiatives, in part because many Democratic incumbents were elected with the support of organized labor, a group traditionally opposed to trade liberalization. Notwithstanding the outcome this November, future Democratic administrations may not have to sacrifice their party’s majority to achieve victories on trade. With an improved rhetorical packaging, the Obama Administration may be able to reframe the trade debate to make new agreements a winning issue for Democrats.

Pressure from labor unions and skyrocketing unemployment has increasingly shifted the Democratic Party’s rhetoric from ambivalence to antagonism on trade-related issues, manifested most recently by a wave of Congressional China-bashing. However, Democratic-led protectionism is not a new phenomenon. Trade liberalization has divided progressives for decades, splitting the party largely between politics and policy – or between traditional constituents and a ‘forward-looking’ economic agenda (Mishel and Teixeira, Economic Policy Institute). The former has dominated far more often than the latter, as blue collar workers and organized labor, empirical bastions of Democratic support, have fervently denounced new trade initiatives. This dynamic was evident during the Clinton years, with the Midwest and industrial Northeast heavily against ratification of the North American Free Trade Agreement (NAFTA), and reappeared again during George W. Bush’s fight over the Central American Free Trade Agreement (CAFTA). Non-college-educated middle-class workers, historically a significant source of Democratic electoral support, opposed NAFTA because of its potentially detrimental effects on American manufacturing jobs and wages; CAFTA debates recycled many of these same arguments, with the agreement ultimately passing by an incredibly narrow party-line vote.

The pressure is especially pervasive this session, with many incumbent Democrats facing tough reelection races and desperately needing the vote-gathering and financial potential of organized labor. According to Jagdish Bhagwati, senior fellow at the Council on Foreign Relations, this crop of Democrats is particularly ‘indebted to trade-fearing unions,’ inhibiting the otherwise pro-trade Obama Administration. United States Trade Representative Ron Kirk captured the Democrat’s bind in a speech to Arkansas farm interests this month, admitting that it was “only politics” that kept him from submitting free trade agreements with South Korea, Columbia, and Peru to Congress (Truitt, Ag Today).

Kirk’s moment of candor demonstrates the extent to which the Democrats' rhetoric is damaging to Obama’s trade agenda, independent of members’ actual voting record on trade issues. First, vocal Democratic opposition to trade initiatives creates the perception of future legislative hurdles, dissuading the Administration from submitting already completed agreements to Congress and from negotiating them in the first place. Second, protectionist posturing transmits a broader signal that does not go unnoticed by Washington’s trade partners. Negotiations for what is arguably Obama’s top trade priority, the Trans-Pacific Partnership (TPP), have been put on hold until after the midterm elections because of uncertainty regarding Obama’s ability to muster sufficient Democratic support. Alex Frangos writes in the Wall Street Journal that “in Asia, the impression is also that any trade pact will require the political atmosphere in Washington to change.” Moreover, former ASEAN secretary-general Ruodolfo Severino was quoted as suggesting that the current mood in Congress would make it impossible to enter into a free-trade area like the TPP. He suggested that if Obama cannot get a bilateral deal with Korea approved, which has been in the works since 2007, it is unlikely he would get Democrats to move on a deal involving many more parties.

Thus, Democrats are contributing to Washington's turn away from trade. Can policy overcome politics, or will Democratic administrations be perpetually forced to play up protectionism? While it remains unlikely we will see a push for trade-friendly initiatives prior to the midterm, Obama may be able to sell his own party on trade come January.

First, the immediate political pressures on Democrats to appease organized labor will have dissipated. Empirically, political pandering has been the largest proximate cause of Democratic protectionism.

Second, Obama has already begun to refashion the trade debate in his favor, and bolder steps in this direction could yield political pay-offs. While pundits have gone so far as to brand Obama’s trade agenda as “anemic” (Wolverson, CFR) and even a “contradiction in terms” (Drezner, WSJ), the National Export Initiative at least takes the right approach at framing the issue. By setting the goal at doubling US exports over the next five years, Obama officials can tout trade initiatives as a means to an end for American business. The language of keeping America competitive vis-à-vis exporters like China will make it difficult for opponents to capitalize on trade politically, and will allow Obama and Democrats to take the moral high-ground on Chinese trade and currency policy. While most Democratic China-bashing can be chalked up to an attempt at developing a winning issue for the midterm, this kind of rhetoric is unproductive at best, catastrophic at worst. Trade as a means of securing foreign market access and bolstering export-led growth can be spun as a way to beat China at its own game while avoiding its use of unfair fiscal and monetary practices. This framing may also create a longer-term political niche for Democrats between free-market liberalism and economic populism.
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Finally, Obama should tacitly pursue labor protections in accordance with trade initiatives. While a persuasive argument exists to forgo muddying trade agreements with Christmas tree-like provisions, political realities require an acknowledgment of labor’s grievances. Obama should make concessions to organized labor as a means of currying favor with rank-and-file Democrats. In exchange, Democrats may be more willing to move on the Administration’s trade priorities. Labor standards can either be conditioned on the FTA itself, or can be disaggregated from the larger deal. The latter method could be adopted in contentious bargaining contexts, in order to avoid creating the perception among foreign governments that labor standards are a deal-breaker. Beyond its short-term political benefit, promoting labor protections alongside trade liberalization could help to avoid a broader public backlash to globalization.

With the midterm quickly approaching, and a presidential election in the not-too-distant future, any successful movement on the Administration’s trade initiatives will require a bolder effort to reframe the issue. Trade liberalization and a Democratically-controlled Congress do not have to be inimical objectives for the Obama Administration, but achieving both in the longer-term will necessitate a shift in the rhetoric surrounding trade. Democrat’s don’t have to tank their traditional sources of electoral support to champion a progressive trade agenda; however, Obama does need to more aggressively frame trade as a means to achieve export-led economic growth while simultaneously making side-deals to build up political capital with organized labor.

China’s Clean Energy & Climate Change Dilemma

Ren Yi Hooi, BASC Research Assistant

            For years, China has been heavily criticized for its massive energy consumption and colossal volume of carbon emissions, the inputs and outputs of its rapid growth. Recently, however, China has made impressive strides in green energy development and pollution reduction – even surpassing the United States as the leader in clean energy investment for the first time in 2009. This has ironically resulted in a backlash of US sentiments against China’s ‘unfair’ trade dominance in the green energy sector.

           

Through the end of 2009, China—the largest industrializing nation— was castigated by the United Nations and in particular the United States for being the world’s leading carbon emitter. Indeed, China consumed over three billion tons of coal in 2008 and 2009, more than triple the amount used by the United States, and total energy consumption in China doubled in less than a decade this century. And at the Copenhagen climate change conference last December, China took much of the blame for the breakdown in talks.  However, with China taking effective action to capitalize on other sources of energy, global attention has shifted from the damage it has caused to the immense progress it is making in the arena.

            China invested over double the amount that the United States expended on clean energy technology, spending a total of $34.6 billion as compared to $18.6 billion in the US in 2009. More specifically, it has not only become the world's largest market for wind turbines, but also established itself as the largest global manufacturer of solar panels. As Chinese officials recently announced a plan to spend $75 billion a year on clean energy, China’s swift progress in the industry does not appear to be stalling anytime soon. Of course, China’s development of green energy does not necessarily mean that it will actually reduce its usage of coal or other conventional energy sources – but one should at least give it points for trying. Moreover, China has made efforts to assume a leadership role in global environmental cooperation. It is hosting a UN conference on climate change this week. Although little tangible progress is expected to ensue from this conference, it demonstrates China’s realization of its responsibilities as a major world player as well as its emerging desire to create change on the global forefront. China’s investment in green technology has appeared to pay off, as its exports increased over 500% to around $27 billion between 2004 and 2008. However, this has also incurred heavy political cost. 

            US lawmakers and trade unions alike have criticized China’s moves in the green energy industry, saying that it employs “predatory trade practices…to give its manufacturers an unfair advantage in the green technology revolution." In addition to a letter from 180 congressmen, the USTR also received a 5,800-page petition from the United Steelworkers union. This document accuses China of using billions of dollars in subsidies, performance requirements, preferential practices and protectionist and predatory activities to dominate the solar and wind industries and other clean-energy sectors. The USTR has until October 24^th to decide whether to accept the petition, which could mean a WTO-level dispute if accepted. China flatly rejected the complaint, stating that such comments were hypocritical when China is under pressure to cut greenhouse gas emissions. Despite the litany of new trade-related complaints the US has generated about China, the old criticisms remain in place. At the ongoing climate change conference, both countries again disagreed over the issue of whether developed or developing countries should bear more responsibility for carbon emission reductions, and the possible establishment of a mechanism to verify such reductions. All of these developments reflect the mounting tension between China and the United States over China’s new green energy policy.

            What insights can we draw from this state of affairs? First, the United States should perhaps take the time to think about long term considerations before pressing other countries to take up any course of action. As seen from this example, US criticism of China’s energy consumption caused it to turn towards alternative sources of energy, yet that again fueled the ire of the United States. Should the US decide to pursue its complaints against China’s green energy developments, it could result in severe bilateral conflict with China. Worse still, it could affect the green initiative on a global scale by making other countries question how seriously they should commit towards environmental responsibility given the US reaction to China’s efforts. Next, even if even if it was a mistake for the US to point fingers a little too early, this example still highlights the ease with which noble causes like climate change can be used as a screen behind which unfair trade or protectionism lurks. We should not just be aware of this possibility, but also begin to think about how such developments can be mitigated. Lastly, the spat between China and the United States reminds us that the critical issues of global warming and climate change really require genuine global cooperation, not the pushing of responsibility or a race for individual limelight. If only each country could focus on doing what is best for the earth, instead of what it is best for its interest groups, we would be able to see a far greener world. 

Image courtesy of http://venturebeat.com/2009/12/28/china-makes-nice-after-copenhagen-passes-green-energy-law/.

Cyber Security: A New Frontier for the U.S.-Japan Alliance?

Kristi Govella, BASC Project Director

Last week, American and Japanese officials announced that they will join forces to combine Internet-based attacks that disrupt the operations of firms and governments. The agreement came in a meeting between communications minister Kazuhiro Haraguchi and Julius Genachowski, chairman of the U.S. Federal Communications Commission.

This announcement may mark a move in a direction that has long been discussed by U.S.-Japan alliance managers—the broadening of the relationship beyond strict definitions of military security. Given the restrictions on Japan’s military activity due to Article 9 of its constitution, the two countries have often found themselves at odds over the appropriate amount of burden-sharing. While the U.S. was relatively happy to provide for Japan’s protection during the Cold War, when the island nation represented a bulwark against communism, such expenditures have become harder to justify in an era where many wonder what the alliance is targeted against. Moreover, Japanese domestic politics have made the relocation of the Marine Corps Air Station Futenma on Okinawa extremely controversial, creating further tensions in the alliance.

Given these problems, cyber security seems to represent an important area that the U.S. and Japan can cooperate on with relative ease. In the current information age, cyber security is an issue of critical concern, but one that is often discounted—partly because current leaders have been relatively slow to understand the impact and insecurity that new technologies have brought to their countries. These issues made headlines earlier this year, thanks to the accusations made by Google about attacks from Chinese hackers, with the possible support of the Chinese government itself. If these allegations are true, they suggest an interesting intersection of traditional and cyber security, illustrating that the two are not as different as we might (like to) think. Given the importance of this issue and continuous comments that Japan does not contribute enough to the U.S.-Japan alliance, cyber security seems like a perfect area for Japan to focus its attention—it certainly has the resources and knowhow to do so, and since its participation would not require “military” contributions, Article 9 does not represent a constraint.

This proposition is not uncontroversial, however. Some alliance managers believe that adding new dimensions to the alliance may only serve to distract the two countries from what should be their top priority: ensuring the military security of Japan and the Asia-Pacific region as a whole. From this viewpoint, cyber security should be dealt with in other forums, and Japan’s contributions on the cyber security front should not be taken as substitutes for traditional military cooperation.

While the latter perspective raises important concerns about keeping bilateral priorities straight, cyber security seems less of a distraction than environmental cooperation or a host of other things that have been suggested as potential areas of growth for the U.S.-Japan alliance. As illustrated by the previous Chinese example, cyber security is intimately intertwined with national security. As Japan and the U.S. continue to work on information sharing and greater military coordination, it will be important to make sure that this information is safeguarded from would-be aggressors. And it seems like Japanese leadership on the issue would represent an area of real contribution.

Japan and the U.S. agreed to lead discussions on the issue when they attend an APEC ministerial meeting on telecommunications and information in Okinawa in October, so we will have to wait to see what kinds of goals the two countries will set for themselves. Japan seems to be moving forward with steps to increase its own domestic cyber security. Yesterday, a government panel worked out a set of information security strategies featuring steps against Internet attacks to be taken by the public and private sectors over the next four years, including training to minimize the damage of attacks against vital infrastructure (computers at railways and financial institutions, for example) and developing a damage prevention system. So perhaps Japan is taking this matter seriously. In any case, both the U.S. and Japan seem to be recognizing that the world has changed—it remains to be seen if they will redefine their military alliance in response to these new realities.

Image courtesy of http://www.flickr.com/photos/23905174@N00/ / CC BY 2.0

U.S.-China Naval Rivalry over Oil?

Do-Hee Jeong, BASC Research Assistant

Not even a decade ago, China was totally absent from competition over oil, but today this emerging global power’s efforts to obtain long fought-after resources is a commonplace topic making headlines everyday. Propelled by its rapid economic development and rising competitiveness, China has become a central player in the global race to find oil deposits and gain self-sufficiency. This strategic move is perhaps not very surprising given the fact that industrialization and development accompanied by rising consumption have increased China’s demand for oil, putting pressure on the government to seek out more resources. It also seems natural then that the growing importance of oil and natural gas has led the government to secure its economic interests through military naval power.

Last week, the Chinese military announced that it will seek to project naval power beyond the Chinese coast to the Pacific shipping lanes that connect China to its oil ports in the Middle East, an area where the United States Navy has until now been the only dominant force. Chinese admirals want warships to escort commercial vessels from as far as the Persian Gulf to the Strait of Malacca in Southeast Asia to protect Chinese interests. In March, two Chinese warships made their first appearance in the Middle East at Abu Dhabi. Last month, Chinese officials told the Obama administration that the South China Sea was now part of its “core interest” of sovereignty and that China also intends to extend its reach to the Philippines, a zone that overlaps with the U.S. Navy’s area of supremacy.

The modernization of China’s navy has also been dramatic and unprecedented. Currently, the Chinese navy receives more than a third of China’s military budget, with the total budget estimated to be around $105 to $150 billion by the Pentagon. As part of its “far sea defense” strategy, China has tested long-range ballistic missiles that could be used against aircraft carriers. It plans to deploy aircraft carrier groups within the next few years and is developing a modern submarine fleet that can better protect vital transport of key resources. Already, a base in Yalong Bay on the southern coast of the Hainan Island has submarines that are able to reach deep water in the South China Sea within 20 minutes. A 2009 Pentagon report also estimates that China has a naval force of about 260 vessels and more than 60 submarines.

This growing assertion of economic interests is a marked change from China’s traditional policy of defending its own coasts and governing Taiwan. This is the first time China has ever asserted its “core interest” of sovereignty outside of Tibet and Taiwan. Chinese officials told senior American officials that it would not withstand any foreign interference in its territorial issues in the South China Sea, and both sides have clashed over the definitions of each country’s “exclusive economic zone” in the region. Although the Chinese have until recently been focused on domestic development and stability, its growing dependence on oil and other resources has shifted its attention outward. Not only is China seeking to extend its sphere of influence in other developing countries - most notably in Africa and Latin America - but is also now fortifying its sea lanes to further secure its vital economic interests.

Although the Chinese claim this expansion of naval power is for self-defense, these moves not only exacerbate its tensions with the United States but also create instability and anxiety across the Asian region. This announcement coincides with President Obama’s proposal to expand exploration in the United States coastline to reduce foreign dependency on oil and natural gas. Both countries are now competitors in the race to secure self-sufficiency in energy and gain control over oil deposits to maintain dominant positions in the global market. Furthermore, in the midst of U.S. pressure for Chinese currency revaluation, the announcement of extending naval influence in traditionally U.S. dominated sea lanes seems to be a symbolic move to show China’s growing self-confidence. China is asserting its own interests by changing the rules of the game initially established by the United States.

Of course, the expansion of the Chinese navy currently does not pose a significant threat to U.S. military hegemony. Although China’s navy may not be 20 years behind the United States’ anymore, its capabilities still lag behind those of the United States’ and China’s military spending is still relatively miniscule in comparison to the U.S. However, even if the Chinese navy poses no real threat to the U.S. and this military expansion is purely for defensive purposes, China’s recent actions still create growing tension and instability in the international community. Although the threat is not yet real, the possibility of China’s navy to challenging the dominant American presence in the Pacific is unsettling for many.

Map courtesy of The New York Times

Leaving China: How Smart is Google?

Michelle Chang, BASC Research Assistant

One month ago, on March 22nd, Google decided to step out of China and end four years of censoring the web for the Chinese government. Thus exited the world’s most powerful Internet company from the world’s most populous country. While only maintaining some R&D and advertising activities in China, Google shifted mainland Chinese users from “google.cn” to “google.com.hk”. The company kept to an earlier statement it made in January that it would stop filtering information from Chinese Internet users.

Over the past four years, Google had been cooperating with the Chinese government to filter out sensitive political information and pornography from the web. While attracting intense criticism for compromising freedom of expression, Google argued that the benefits of allowing more of the Chinese population access to Internet information outweighed the costs. However, in mid-December 2009, Google started to detect cyber attacks from China on its corporate infrastructure. While the attacks were initially traced to a small vocational school, Google insisted that the level of sophistication of the attacks made it almost certain that the attacks were overseen by the government and the military. Furthermore, the attacks were directed at the Gmail accounts of Chinese human rights activists.

The cyber attacks exceeded the limit of how much Google was willing to compromise in order to stay in China. In a statement issued in January 2010, Google took a firm stance against censorship of information and refused to comply with the Chinese government. Over the following months, bitter verbal conflicts took place between Google and the Chinese government, and there was much speculation and debate about whether Google would eventually forsake the biggest Internet market in the world in defense of freedom. And in March, Google irreversibly decided to end its operations in mainland China.

To most people, leaving a country with one-fifth of the world’s population seems like a huge sacrifice on Google’s part. In fact, however, Google will suffer little commercial loss from the pullout. Google’s annual revenue in China is estimated at $300 million to $600 million, only a fraction of the company’s $24 billion annual sales worldwide. Instead, the biggest victims are likely to be Chinese companies. Two of China’s largest mobile companies, China Mobile and China Unicom, were forced to scrap lucrative deals with Google under political pressure. Moreover, many small startup companies who used to make their living through advertising opportunities on Google now have to find other alternatives.

Not only does Google not suffer much commercial loss from exiting China, its decision could actually be a smart business strategy in the short run. Indeed, over the past few years, Google’s compliance with the Chinese government attracted much unwanted criticism from the West. By taking a stand against an authoritarian government and defending freedom of expression, Google manages to evoke a positive corporate image in many people’s minds.

However, several problems await Google in the long run. First of all, the relationship between Google and the Chinese government has risen to such a point of hostility that it is now virtually impossible for Google to re-enter the mainland Chinese market. Secondly, by taking a stance against censorship, Google sets a high standard for itself that it might not always be able to meet, thereby opening itself up to future criticism. Indeed, if it refuses to censor information in China, how should it conduct itself in other countries that also allow censorship, such as England? In the future, Google might face a lose-lose situation in which its only options are to compromise its corporate image or forsake more lucrative markets.

While leaving China has relieved much political and social pressure from Google, the future looks rather ambivalent for the Internet giant.

Photo:

http://www.flickr.com/photos/antonis/ / CC BY-NC-SA 2.0

Letting China See the Light

Robert Nelson, BASC Research Assistant

This has been a week for deft diplomacy. Though the new Strategic Arms Reduction Treaty has been grabbing all the headlines in foreign policy circles, it is Treasury Secretary Geithner’s skillful handling of the Chinese currency crisis that deserves praise.

It seems all but certain that China will revalue its currency upward, and even let it float to some degree. Geithner pulled off his coup by keeping the whole problem at a distance and letting the situation develop under its own momentum. It would have been foolish for the Secretary to directly threaten China with a tariff or declare it a “currency manipulator.” Wisely, he let Congress do the dirty work. Meanwhile he constantly insisted that China’s currency policy was its choice, not his. By handling it in this way he managed to keep a stick on the table in the form of Congress, while also keeping an escape route open for China that would allow it to save face. Still, a question arises. Did Geithner force China into taking a position that will cause it pain, or did he accomplish the often all too difficult task of forcing a country to do something that is in its benefit?

It appears that he helped the Chinese help themselves. China’s policy of pegging the yuan to the dollar has become a bigger and bigger burden for the country to bear. Already the government spends 9.2 percent of its economic output on keeping the yuan and the dollar in line. If the dollar depreciates any further, this will become a much more outrageous expense.

Allowing the yuan to increase in value will also let China’s central bank more effectively respond to economic slowdowns, by giving it room to cut interest rates. In addition, letting the currency float, even a little, will allow the government to better respond to inflation. China’s inflation rate increased continually before the economic collapse, reaching a peak in 2009 of almost 6 percent. If China returns to growing anywhere near the rate that it did before the recession—and it seems likely that it will—the the government must be able to raise interest rates in order to cool down the economy. An increase in the interest rate will also keep high-risk speculative investments out of China.

Those in China who are skeptical of yen revaluation worry about the effects of an increase on Chinese exports. They argue that China’s economy is largely based on heavy industry and that an increase in the rate will make Chinese goods less competitive overseas. This argument ignores the fact that China’s economy is dependent on heavy industry and exports because of its low exchange rate. If the yuan were allowed to rise, the purchasing power of the Chinese consumer would also increase. This would result in a Chinese economy that is less dependent on demand from foreigners and a shift from heavy industry to the service sector.

Ironically, it appears that for the U.S., Geithner’s win will be a victory without spoils. The increase in the yuan is bound to be small and not enough to vastly decrease America’s trade deficit with China. The increase in the yuan will also not dramatically impact the cost of doing business in China, because while yuan revaluation would augment the already increasing price of labor, China’s investments in infrastructure have dramatically reduced communication and transportation costs. This means that any increase in wages will largely be offset. Nonetheless, if China continues to let its currency rise, U.S. industry will benefit in the long term.

Despite the lack of an obvious short-term gain for American industry, Geithner’s victory achieved the much more important goal of avoiding a trade war. A tariff on Chinese imports would likely not have resulted in China caving and changing its currency policy. Rather, the Chinese would have become more nationalistic and countered with a tariff of its own. We saw this tit-for-tat reaction when the U.S. imposed a tariff on Chinese tires last year.

Some may argue that Geithner does not deserve credit for China’s impending change in policy. They believe that China would have been forced to change on its own, if not out of logic, then due to pressure from other developing countries like India and Brazil who have been hurt by China’s devaluation policy. Essentially, they believe Geithner did nothing, but that’s exactly why he deserves praise. He was under immense pressure domestically to “get tough” with China, but he wisely saw that reality would force China to adjust its currency and that a bombastic U.S. Treasury Secretary would just put an arrow in the quiver of the Chinese industrialists who oppose revaluation. By holding firm, Geithner has managed to secure a deal that will benefit the United States, China, and the world.

Taiwan-China Relations: Debates over the Economic Cooperation Framework Agreement (ECFA)

Michael Chang, BASC Research Assistant

Since the ascension of the Kuomintang (KMT) and President Ma Ying-jeou into power in 2008, efforts to restore cross-strait relations in transportation, commerce and communications have been the subject of negotiations between the Communist Party of China (CPC) and the KMT. The Economic Cooperation Framework Agreement (ECFA), a limited free trade agreement between the two entities that has yet to be signed, marks another chapter in the development of Chinese-Taiwanese relations. Propelled by the global financial crisis and steep declines in economic growth, President Ma has actively pushed for the passage of the ECFA as the best option for reviving the Taiwanese economy. Moreover, in the face of increased bilateral free trade agreements between ASEAN nations and Japan, Korea, and China, Taiwan seeks to remain competitive in the global market. On the other hand, through the ECFA, China strives to develop a closer economic relationship with its Taiwan compatriots while enhancing its international reputation as a responsible economic player in the region.

The limited free trade agreement is not without controversy, particularly in Taiwan, where it touches on the country’s most volatile political issue: unification with mainland China versus political sovereignty. This issue is reflected in Taiwanese partisan politics. While the KMT supports eventual unification with the mainland through the “One China Principle”—which stipulates that the PRC and Taiwan are one unified country and that the ROC is its legitimate government--the party has moderated its position by advocating the status quo. On the other hand, its opposition party, the Democratic Progressive Party (DPP) favors a distinct Taiwanese identity and independence from China.

Debate about the ECFA takes place within this larger partisan debate about Taiwanese sovereignty. The DPP argues that the ECFA is a cover for unification with mainland China. Moreover, it argues for the negative impacts the agreement may have on the Taiwanese economy. Local businesses and workers may be harmed by the reduction of manufacturing jobs and capital outflow and brain drain of management and expertise brought on by the ECFA. The opposition party also fears that Taiwan may lose its sovereignty and be relegated to the same political status as Hong Kong and Macau.

Interestingly, the ECFA does not enjoy popular support among Taiwanese. On March 22, opinion polls published in the China Times, a pro-KMT establishment, revealed that less than 43 percent of people said they approved of the KMT’s plan to sign the ECFA with nearly 34 percent opposed and 24 percent unsure. Similarly, a DPP survey found that around 35 percent approved of passing the ECFA with a 45.8 percent disapproval rating. In addition, on May 17, 2009, a mass rally of approximately 600,000 demonstrators organized by the DPP demanded a national referendum about the ECFA, which was quickly rejected by the Ma administration and the KMT as unnecessary. Given this shaky support, the KMT and President Ma need to face the inconvenient reality that unless the administration can persuade the Taiwanese people of the ECFA’s necessity and ensure the political independence, the passage of the ECFA will be seen as illegitimate.

While President Ma has continuously pushed for the passage of the ECFA, it has often been vague about the actual content of the agreement. Moreover, its refusal of the nationwide referendum and open political debate with the opposition party may present the government with a potential legitimacy problem. Although the KMT and Ma argue that the ECFA is purely economic and would not touch on Taiwan’s autonomy, it refuses to openly debate the issue with the opposition party. Economic benefits can be cited; however, when a policy runs the risk of eroding Taiwanese political sovereignty, it will be fiercely challenged in Taiwan. A policy debate, which would better inform the general Taiwanese public, would be of utmost importance given the delicate political nature of the ECFA and its implications for Taiwanese economic and political sovereignty.

Given the precarious nature of the cross-strait problem since 1949, measures need to be taken to address the improved relations and undeniable economic ties between China and Taiwan—and while the ECFA may or may not allow Taiwan to remain globally competitive, it represents an attempt to address these important issues.

The Greek Question

Ivy Ngo, BASC Research Assistant


Photo courtesy of REUTERS/John Kolesidis

Greece has never seemed so far removed from its prehistoric glory as the civilization that brought us Hercules, Aristotle and the origins of democracy. Already in dire straits due to a national debt that exceeds gross domestic product, the Greek government is now battling widespread strikes that have effectively shut down all social and public services. On March 11, 2010, 20,000 protestors took to the streets, quickly escalating an already tense situation into an all out urban battleground by fighting police, smashing storefronts, torching cars amidst a frenzy of tear gas and stun grenades explosions. The rest of the European Union has thus far only observed the devolution of Greece, hesitating on a course of action. Greece’s desperate situation reveals the deep tensions underlying even strong regional identities like the European Union. In large part, Greece’s survival, along with that of the EU, will greatly depend on the resolution of the current debate on the limitations—if any—of regional obligations.

The financial crisis of 2008 ravaged Greece, which was especially vulnerable due to overspending, speculation, and failed attempts at fiscal austerity. The country’s deficit is currently at 12.7% with a national debt that surpasses the national economy at $413.6 billion. Greece’s credit rating slipped precipitously and by December of 2009 was the lowest in the eurozone. The government of George Papandreou was forced to abandon its campaign promises of social assistance to the poor and has instead proposed antithetical and steep budget cuts. However, analysts and investors were still doubtful that these cuts will solve any problems, as they were not seen to be sustainable. A new plan introduced in January of 2010 was highly criticized by unions who immediately organized strikes, which gradually intensified through February.

Greece’s situation has caused somewhat of a crisis of confidence for the European Union. Although Greece’s problems are largely domestic, the fact that Greece is a member of the EU means that the repercussions of the crisis reach beyond Greece’s borders. Greece’s poor credit rating and lack of confidence has also negatively impacted the euro, which has dropped steadily since Greece’s crisis began. There have been calls for the IMF, traditionally the lender of last resort, to assist Greece. Others have suggested that this is an opportune moment for the EU to flex its collective might to assist one of its own through the creation of a European Monetary Fund.

That said, the concept of a European Monetary Fund is extremely tenuous and would require a huge overhaul of EU structure. Critics of the fund have argued that it would effectively function as a crutch, weakening moral hazard by granting offenders a safety net. In addition, any changes to the existing structure of the EU face an uphill slough—the Lisbon treaty was only ratified after years of delays.

Some have encouraged Germany, as the strongest member of the EU, to come to Greece’s aid. But Germany has chafed at the idea of being the one responsible to dig Greece out of its self-made hole. More alarmingly, social cleavages have bubbled up to the surface, dragging up World War II memories. Germany’s Bild Newspaper has led attacks that are increasingly prejudiced, for instance contrasting hard-working Germans against lazy Greeks. In retaliation, one Greek lawmaker has suggested German reparations for Nazi occupation during World War II—a decidedly low blow that did little to assuage tensions. This sheds light upon one of the unresolved tensions of the European Union: inequality within the eurozone between large states and small states, north and south, or as one editorial termed it “grown-ups” and “children”.

Regardless of the disparities between member countries, the task at hand is a collective one. The Euro has inexorably intertwined the political economies of its member states. The implications for the entire eurozone have brought into question the limits of EU obligations and regional responsibilities, namely who, if anyone, should be helping Greece, and what type of aid should be utilized. This can be evidenced in the possible response measures being discussed: the formation of a brand new European Monetary Fund to deal as a personal lender of last resort or an IMF bailout for Greece similar to the ones it has given numerous other beleaguered nations. These appear to be the two extremes, but there are also numerous shades of grey in between. A European Monetary Fund may seem too drastic, but closer integration and more fiscal maintenance through existing structures like Eurostat have been proposed, and French President Nicolas Sarkozy has argued that a bailout plan should be supported by all member states.

As grim a situation as this is for Greece, it could prove to be the proverbial rock bottom, from whence the only direction is up. This is the EU’s chance to truly commit itself to being a regional community not just in terms of monetary policy, but also in terms of political economy. In addition, there is also the threat of aftershock defaults in nearby indebted states like Spain, Portugal and Italy. The resolution of the Greek economic crisis—whichever path it ends up following—will have important ramifications for the future identity of European Union. For now, the only thing that seems certain is that the status quo will have to change.

Global Korea 2010: Is South Korea Emerging as a Global Leader?

Do-Hee Jeong, BASC Research Assistant

South Korea has been the subject of great international attention during the past few weeks. In addition to Yuna Kim’s momentous recording-breaking victory in figure skating at the 2010 Winter Olympics, South Korea took the lead in a joint research project with Japan and China to push for a tripartite free trade deal; started free trade agreement talks with Turkey, Colombia and Mexico; further developed North Korea talks with China; and hosted its first set of meetings for the G-20 Summit this November. But most importantly, Korea embarked upon a new foreign policy direction by announcing an increase in foreign aid during the Global Korea 2010 conference held last Wednesday in Seoul commemorating President Lee Myung Bak’s second year in office. This coincides with Korea’s movement towards greater international leadership as the host nation for the 2010 G-20 Summit.

Although once a recipient of international aid itself, Korea introduced a campaign to increase its official development assistance during the recent Global Korea 2010 conference. In his keynote speech President Lee vowed that “Korea will not spare any efforts” for greater development assistance and urged “reducing development gaps between developing and advanced countries should be an integral theme for the world economy’s sustainable growth”. President Lee hopes to share the unique development expertise that Korea accumulated during its dramatic economic development with other members of the exclusive club of heavyweight international donors in the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD). Korea became an official member of the DAC last November, and as such, has an increasing obligation to extend overseas aid. In addition, the Lee administration used the Global Korea 2010 conference to showcase Korea’s new role as a global leader by announcing an increased commitment to foreign development assistance. Korea hopes that its rapid development and quick recovery from the financial crisis can serve as examples for currently developing countries. South Korea also plans to expand its economic policy advisory service by increasing the number of advisory-recipient countries. The four current countries include Vietnam, Indonesia, Uzbekistan and Cambodia, but the administration plans to expand to seven countries by 2011 and ten countries by 2012.

Furthermore, the Korea International Cooperation Agency, the government’s main body for official development assistance, has already increased its annual budget by 20 percent this year. The agency’s goals are two-fold: to increase overall contribution level, and to extend more interest-free grants than loans. The agency also plans to expand overseas development assistance to 0.25 percent of its gross domestic income by 2015; assistance currently remains at 0.1 percent (other members of DAC give an average of 0.3 percent). The agency stresses the interconnectedness of today’s world, claiming that the collapse of other countries will have dramatic impact on export-dependent Korea. The agency also emphasizes that increasing overseas aid will help to raise Korea’s international status.

However, these philanthropic efforts are probably not without self-interested motivations. Korea hopes to gain more access to the global market, and the country is actively pursuing a number of bilateral and regional agreements. Foreign aid will provide Korea entry points to many new markets and investment opportunities around the world.

Although Korea has been successful in gaining international attention for its plans to increase foreign aid, whether or not these measures will improve the global status of Korea and further legitimatize its role as a global leader by the G-20 Summit is open to debate. Although these initial steps seem hopeful, the issue of South Korea’s protracted burden of providing North Korean aid, its domestic problems, and the question of whether or not the “Korean” model of economic development can be generalized to other developing countries cast a shadow on the optimism of the Global Korea 2010 conference. Time will allow us to better evaluate these initial steps in Korea’s path to becoming a global leader.

The Trans Pacific Partnership (TPP): A Panglossian Endeavor

Peter Volberding, BASC Research Assistant

On December 14, 2009, President Barack Obama and USTR Ron Kirk officially notified Congress of the administration’s intention to enter into negotiations for the Trans Pacific Partnership (TPP). Currently, the TPP is a multilateral FTA composed of four members—Singapore, Brunei, New Zealand, and Chile—and endeavors to have full free trade between member countries by 2015. The United States enters into negotiation with the four current members, as well as three other nations—Vietnam, Peru, and Australia.

While the intentions of international free trade are laudable, the negotiation process is likely to be wrought with difficulties. In fact, given the heterogeneity of the eight negotiating countries, the TPP is inevitably headed to turbulent waters. Observers have noted that the current system only functions because of the small size and disparate interests of each member. However, with the addition of the United States, the world’s largest economy, Vietnam, a large export-oriented economy, and Australia and Peru, two large agricultural exporters, the prospects look increasingly grim. USTR Ron Kirk has already acknowledged that the negotiation process will take at least 18 to 24 months, longer than the average time for a bilateral FTA.

The one bright spot comes from an unlikely source—Congress. As Kirk highlighted just this week, there is surprising political will, or perhaps political acquiescence, for the US’s involvement in the TPP. This largely stems from the political cycle. Since a Congressional vote would take place following the 2010 midterm elections, there is less political risk. Moreover, broad industrial and agricultural support for the TPP has precluded immediate opposition.

Despite initial Congressional interest, the TPP faces numerous challenges. House Representatives Rangel (D-NY) and Levin (D-MI) have flagged Vietnam as a potential obstacle. They specifically cite Vietnam’s failure to adhere to international labor standards and lackluster enforcement of intellectual property rights. Rangel and Levin also note the Communist Party’s limitation of free speech as an impediment to negotiations.

Additionally, domestic industries have started to lobby Congress and the USTR for industry-specific provisions, occasionally pitting entrenched interests against one another. According to Inside U.S. Trade, an international trade news service, more than 100 submissions were made in late January by various industry and interest groups to the USTR office. Most concern was placed on rules of origin (ROO) and intellectual property rights (IPR), but the requests ranged widely.

Manufacturing groups, such as the National Association of Manufacturers (NAM), Philip Morris, and Ford have pushed for stronger enforcement of IPR in the TPP. Pharmaceutical groups, led by the industry association PhRMA and companies such as Novartis, have been particularly aggressive in pursuing IPR regulations in FTAs generally to limit foreign production of generic versions of patented drugs. However, Oxfam has voiced opposition, positing that the TPP should not impose strict IPR, which would increase the cost of medication.

The food and agriculture industry has also been extremely vocal, especially with ROO requirements and tariffs rates. For example, the National Milk Processors Federation (NMPF), the American Sugar Alliance (ASA), and the US Dairy Export Council have all proposed strong ROOs, especially with regards to New Zealand. The Corn Refiners Association and the Meat Importers Council, among others, want more liberalized trade and fewer tariffs. More specifically, ConAgra Foods and the American Potato Trade Alliance have cited the need to reduce import tariffs on US-produced frozen french fries.

Disagreements over the “yarn forward” ROO, which requires the TPP nation to use a TPP member-produced yarn in textiles in order to receive duty-free access, has pitted the National Council of Textile Organizations, who support the requirement, against the US Chamber of Commerce and Wal-Mart.

With the TPP’s mission in mind—an elimination of all tariffs by 2015—the prospect that the US will expeditiously join is simply Pollyannaish. Industry disagreements will promote inaction. US politicians will continue to exploit political issues, such as Vietnam’s human rights violations, to stall progress. In the case that a negotiated deal is signed, Congressional ratification will still be necessary. And while the 2010 elections will have already passed, the 2012 elections will be right around the corner.