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.
Friday, April 9, 2010
Friday, April 2, 2010
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.
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.
Friday, March 12, 2010
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.
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.
Tuesday, March 2, 2010
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.
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.
Monday, February 22, 2010
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.
Thursday, February 18, 2010
50th Anniversary of the US-Japan Security Treaty comes amid strains in the bilateral relationship
Ren Yi Hooi, BASC Research Assistant
The US-Japan security treaty turned 50 years old last month, but the bilateral relationship between these two countries currently faces a critical point as a result of several spats between the US and the new Hatoyama administration in Japan.
Although US President Barack Obama and Japanese PM Yukio Hatoyama share common goals and policies, including development in the Third World, measures to curb global warming and the prevention of nuclear proliferation, Hatoyama’s call for a “close and equal” Japan-US relationship since taking office has precipitated a rise in tension between the two countries.
Under the current treaty, the US is obliged to defend Japan in the case of an armed attack, but Japan is not obliged to defend America should the attack happen the other way around. Instead, the US is given access to facilities and areas in Japan "for the purpose of contributing to the security of Japan and the maintenance of international peace and security in the Far East." While this agreement yields both nations considerable benefit, its asymmetrical relationship has long been a cause of friction, and Hatoyama’s hope to see a “more equal alliance” has placed it under further strain.
More specifically, what Hatoyama wishes to see is a reduction in the “omoiyari” budget, the costs born by Japan for supporting the US forces here, and a revision of the Status of Forces Agreement governing the operation of the US military in Japan--issues which are not negotiable from the point of view of the US. The issue of the relocation of the US Marine Corps Air Station Futenma, in particular, has fueled dispute between the two countries over the last few months, and is currently still unsettled. Neither country wishes to give in to the other's demands, and it is difficult for either to push forward without incurring strong repercussions.
In addition, the US-Japan relationship is also seeing points of contention over non-security issues. Japan’s new incentives for eco-friendly cars, for example, have raised the ire of US auto-makers who found their cars largely excluded from Japan’s subsidy program. Despite the small volume of American cars exported to Japan, the US has been putting pressure on Japan to include more American cars in its environmental incentives, leading to a new potential cause for trade disputes between the two countries.
As the two nations review the past 50 years of their security relationship, their evaluations of the past will play a crucial role in determining the future direction of their alliance. While the US and Japan both agree that their partnership is indispensible and share hopes for it to be further deepened, the question of whether there is a change in the balance of power, and how the two countries react to it, will be the key factor that determines whether their alliance will be further strengthened or invevitably destabilized.
The US-Japan security treaty turned 50 years old last month, but the bilateral relationship between these two countries currently faces a critical point as a result of several spats between the US and the new Hatoyama administration in Japan.
Although US President Barack Obama and Japanese PM Yukio Hatoyama share common goals and policies, including development in the Third World, measures to curb global warming and the prevention of nuclear proliferation, Hatoyama’s call for a “close and equal” Japan-US relationship since taking office has precipitated a rise in tension between the two countries.
Under the current treaty, the US is obliged to defend Japan in the case of an armed attack, but Japan is not obliged to defend America should the attack happen the other way around. Instead, the US is given access to facilities and areas in Japan "for the purpose of contributing to the security of Japan and the maintenance of international peace and security in the Far East." While this agreement yields both nations considerable benefit, its asymmetrical relationship has long been a cause of friction, and Hatoyama’s hope to see a “more equal alliance” has placed it under further strain.
More specifically, what Hatoyama wishes to see is a reduction in the “omoiyari” budget, the costs born by Japan for supporting the US forces here, and a revision of the Status of Forces Agreement governing the operation of the US military in Japan--issues which are not negotiable from the point of view of the US. The issue of the relocation of the US Marine Corps Air Station Futenma, in particular, has fueled dispute between the two countries over the last few months, and is currently still unsettled. Neither country wishes to give in to the other's demands, and it is difficult for either to push forward without incurring strong repercussions.
In addition, the US-Japan relationship is also seeing points of contention over non-security issues. Japan’s new incentives for eco-friendly cars, for example, have raised the ire of US auto-makers who found their cars largely excluded from Japan’s subsidy program. Despite the small volume of American cars exported to Japan, the US has been putting pressure on Japan to include more American cars in its environmental incentives, leading to a new potential cause for trade disputes between the two countries.
As the two nations review the past 50 years of their security relationship, their evaluations of the past will play a crucial role in determining the future direction of their alliance. While the US and Japan both agree that their partnership is indispensible and share hopes for it to be further deepened, the question of whether there is a change in the balance of power, and how the two countries react to it, will be the key factor that determines whether their alliance will be further strengthened or invevitably destabilized.
Monday, December 14, 2009
Happy Holidays from the Berkeley APEC Study Center!
The Berkeley APEC Study Center would like to wish all of its friends and patrons a very Merry Christmas and a Happy New Year! We will be taking a break from our blog until January, but until then, please enjoy the Fall 2009 edition of BASC News, which is full of our latest announcements and analysis of the Asian region. Click here to download the Fall 2009 edition of BASC News.
We truly appreciate your continued interest and support. In particular, we would like to thank all of the generous contributors who have made our projects possible, including the Ron and Stacy Gutfleish Foundation, the Center for Global Partnership (part of the Japan Foundation), the East-West Center in Honolulu, the East Asia Foundation, the Kim Dae-jung Presidential Library Foundation, the Institute of European Studies at Berkeley, the EU Center of Excellence, and the Institute of Slavic, East European and Eurasian Studies.
Happy holidays!
We truly appreciate your continued interest and support. In particular, we would like to thank all of the generous contributors who have made our projects possible, including the Ron and Stacy Gutfleish Foundation, the Center for Global Partnership (part of the Japan Foundation), the East-West Center in Honolulu, the East Asia Foundation, the Kim Dae-jung Presidential Library Foundation, the Institute of European Studies at Berkeley, the EU Center of Excellence, and the Institute of Slavic, East European and Eurasian Studies.
Happy holidays!
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