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Georgetown Journal of

ASIAN AFFAIRS POLICY FORUM

China’s Institution Building: Leading the Way to Asian Integration

Beijing’s Challenge to the Global Financial Architecture

Zheng Wang

Alignment Minus Alliance: India’s China Quandary on Alternative Institution-Building

Salvatore Babones

Robert Wihtol

Democratic Institutions and Taipei’s Future as a Global City

Jagannath P. Panda

The End Game for the Trans-Pacific Partnership

China’s Dual Neighborhood Diplomacy and the Role of Indonesia in Preserving ASEAN Centrality

Interview: Asian Regionalism as a Product of Power Dynamics

Yulius Purwadi Hermawan

Bernard K. Gordon

Michael Green

Alternative Perspectives

Institution Building or Breaking? with an introduction by Amitav Acharya

Published by the Asian Studies Program in the Edmund A. Walsh School of Foreign Service


Georgetown Journal of

ASIAN AFFAIRS Vol. 2 | No. 1 | Spring/Summer 2015

The Georgetown Journal of Asian Affairs is the flagship scholarly publication of the Asian Studies Program housed within the Edmund A. Walsh School of Foreign Service at Georgetown University. Established in 2014, the Journal aims to provide a forum for scholars and practitioners in the field of Asian affairs to exchange ideas and publish research that further the understanding of the world’s largest and most populous continent. The views expressed in this issue do not necessarily reflect those of the Journal ’s editors and advisors, the Asian Studies Program, the Edmund A. Walsh School of Foreign Service, or Georgetown University. Spring/Summer 2015 [i]


editorial board Editor-in-Chief Alex Rued Managing Editor Lara Crouch Associate Editors Joseph Goodman Anastasia Mark Jun Jie Phang

Assistant Editors Rebecca Kuang Brian Spivey Mengjia Wan

Publisher Daye Shim Lee

advisory board Amitav Acharya American University Charles Armstrong Columbia University Harley Balzer Georgetown University Carol Benedict Georgetown University Kurt Campbell The Asia Group Victor Cha Georgetown University

Philip Kafalas Georgetown University

Jordan Sand Georgetown University

David Shambaugh David Kang University of Southern California George Washington University Christine Kim Georgetown University

Gi-Wook Shin Stanford University

Joanna Lewis Georgetown University

Sheila Smith Council on Foreign Relations

Kristen Looney Georgetown University

James Steinberg Syracuse University

Mike Mochizuki George Washington University

Elizabeth Stephen Georgetown University

Andrew Nathan Bruce Dickson George Washington University Columbia University

Robert Sutter George Washington University

Michael O’Hanlon Brookings Institution

Andrew Yeo Catholic University of America

Irfan Nooruddin Evelyn Goh Australian National University Georgetown University Michael Green Georgetown University Touqir Hussain Georgetown University Christopher Johnson CSIS Freeman Chair

Lynn Parisi University of Colorado Saadia Pekkanen University of Washington

Send inquiries to: SFS Asian Studies Program, Georgetown University Box 571040, 37th and O Streets, NW Washington, DC 20057 Email: guasiajournal@gmail.com [ii] Georgetown Journal of Asian Affairs

Yuhki Tajima Georgetown University


contents

Volume 2 | Number 1 | Spring/Summer 2015

1

Editor’s Note

policy forum Alternative Perspectives: Institution Building or Breaking? 3

Introduction “Alternative” Regional Institutions in Asia? A Cautionary Note Amitav Acharya

7

Beijing’s Challenge to the Global Financial Architecture Robert Wihtol

16

China’s Institution Building Leading the Way to Asian Integration Zheng Wang

21

Alignment Minus Alliance India’s China Quandary on Alternative Institution Building Jagannath P. Panda

31

China’s Dual Neighborhood Diplomacy and Indonesia’s New Pragmatic Leadership How Can ASEAN Preserve its Centrality in a New Challenging Dynamic? Yulius Purwadi Hermawan

42

Will Taipei Be the Next Hong Kong? Democratic Institutions and Taipei’s Future as a Global City Salvatore Babones

50

The End Game for the Trans-Pacific Partnership Bernard K. Gordon

58

Interview: Asian Regionalism as a Product of Power Dynamics Michael Green Spring/Summer 2015 [iii]


research 67

Adhering, Distancing, or Waffling? Understanding a New Dilemma in the U.S.-Japan Alliance Ayumi Teraoka

98

Mutual Empowerment? Examining the Power Relationship between Overseas Filipino Workers and the Motherland Audrey Wozniak

interviews 123 Interview: Conceptions and Misconceptions about Kashmir Omar Abdullah

130 Interview: Political Violence and Terrorism in Southeast Asia Arabinda Acharya

138 Interview: Cybersecurity in Asia and the Role of U.S. Leadership James Lewis

[iv] Georgetown Journal of Asian Affairs


Editor’s Note

When the Editorial Board first considered “institution-building in Asia” as a potential theme for this issue in January 2015, American policymakers were becoming increasingly concerned about the China-led Asian Infrastructure Investment Bank (AIIB). However, Washington’s negative response to Beijing’s pronounced role in Asian regionalism was not surprising to us. Instead, we found the Philippines’s support of the AIIB more puzzling. Why would states that had formerly “hedged” against China’s rise by using the United States as a balancer now hedge their bets and favor institutions in which Beijing’s assumption of leadership is virtually inevitable? The prospective members who have signed on to the AIIB since then—particularly U.S. allies such as the United Kingdom—seem to confirm that this is, indeed, a topic well worth exploring. As the title Alternative Perspectives: Institution Building or Breaking? suggests, the Spring 2015 issue of the Journal features a Policy Forum in which international experts offer a spectrum of analyses on institution-building in Asia. Asia’s newly emerging institutions are often discussed exclusively in the context of the U.S.-China rivalry. While the U.S.-China relationship is fundamental to Asia’s regional architecture, small and middle powers have historically played an equally important role. Therefore, our Policy Forum seeks to offer a unique set of perspectives that give voice to regional powers such as India and Indonesia, while also considering the global implications of these new institutions. For example, will smaller Asian nations be able to reap the economic benefits of China-backed institutions without accepting China’s influential role in shaping the regional order? What do these new institutions mean for the existing multilateral mechanisms that are primarily molded by the West? Currently, there is little consensus regarding the broader significance of Asia’s newly emerging institutions vis-à-vis the nature of China’s rise, the balance of influence in the region, or the international order. In its most dramatic sense, institution-building in Asia could signal the demise of the Bretton Woods system and a shift in the U.S.-led world order. In its least dramatic sense, this phenomenon may simply reflect regional powers’ desire to play a role within the existing structure that is more commensurate with their global stature. Amitav Acharya’s introduction sets the tone for the level of debate within the Policy Forum by questioning its very premise: whether these China-led institutions are, in fact, “alternative.” Following the introduction is Robert Wihtol’s detailed account of the AIIB, the Silk Road Fund, the New Development Bank, and the related Contingent Reserve Arrangement. This article reminds us that regardless of China’s ambitions, plans for these institutions are rapidly moving forward, and whether these new institutions will remain integrated into the current system depends largely on the international community’s response. Meanwhile, Zheng Wang argues that Chinese leadership in this arena is a natural result of the nation’s rise to economic and political prominence. While regional powers appear willing to cooperate with China on economic matters, to what extent do some of these nations, such as Indonesia and India, view China as a strategic partner? Jagannath Panda discusses how India perceives China’s expanding role in regional affairs, while Yulius Purwadi Hermawan looks at Indonesia’s leadership Spring/Summer 2015 [1]


Editor’s Note

in maintaining “ASEAN centrality” amid changing regional dynamics. What about regional norms and values? Salvatore Babones turns our attention to the so-called “human factors” that steer institution-building and value adoption in Asia, and predicts that Taipei will become East Asia’s next “global city.” Finally, where does the United States fit in all this? Will the United States, as a non-resident Asian power, remain central to the balance of influence and norms in Asia? Bernard K. Gordon’s analysis of the current Trans-Pacific Partnership negotiations offers an optimistic take on America’s ability to reaffirm its economic influence in Asia, particularly as regional powers seek opportunities beyond China’s orb of influence. Our interview with Michael Green provides a powerful conclusion to the Policy Forum by revisiting the historical challenges to multilateralism in Asia and explaining the policy decisions of various actors involved, including the United States. In a continued effort to promote the research of young scholars, this issue also features two peer-reviewed papers. Ayumi Teraoka’s article introduces the term “strategic waffling” in order to explain the United States’s perplexing silence on Japan’s pursuit of autonomous strike capabilities. Audrey Wozniak’s paper disproves the Philippine government’s relationship with overseas Filipino workers as one of “mutual empowerment,” instead positing that the link is detrimental to both parties. Additionally, this issue highlights a set of timely interviews. Our interview with Omar Abdullah, the former Chief Minister of Jammu and Kashmir, sheds light on the India-Pakistan rivalry, the growing alliance between the BJP and the PDP, and Prime Minister Narendra Modi’s term to date. Our interview with Arabinda Acharya explores several myths surrounding the origin and evolution of terrorism in Southeast Asia. We also interviewed James Lewis to hear his thoughts on the role of the United States in Internet governance. This issue of the Journal would not have become a reality without the help of many individuals to whom I am deeply grateful. I would like to thank our authors, reviewers, editors, and advisors for their contributions as well as patience throughout this publication cycle. In particular, I would like to thank Daye Shim Lee, the Journal Coordinator in the Asian Studies Program, for her guidance, and Lara Crouch, our Managing Editor, for her incredible attention to detail and diligence. I would also like to thank Dr. Irfan Nooruddin, Jeh Tirodkar, and Ritika Singh for their support in preparing the interview on Jammu and Kashmir. Last, but certainly not least, I am very grateful for Dr. Victor Cha’s continued counsel and Dr. Michael Green’s contribution as both an interviewee and advisor. It has been a great privilege to serve as the Editor-in-Chief of the Georgetown Journal of Asian Affairs. I am excited about the varied perspectives herein, and I sincerely hope that you enjoy this issue. Alex Rued Editor-in-Chief [2] Georgetown Journal of Asian Affairs


Acharya | Introduction

policy forum

Alternative Perspectives: Institution Building or Breaking?

Introduction “Alternative” Regional Institutions in Asia? A Cautionary Note Amitav Acharya Asian regionalism is in a state of flux. Recent Chinese initiatives such as the Asian Infrastructure Investment Bank (AIIB), the new Silk Road, the Conference on Interaction and Confidence-Building Measures in Asia (CICA), and more broadly what some have called “China-led alternative institution-building in Asia,” could redefine the contours of Asian regionalism. China is not the only country to come up with new proposals and initiatives for Asian or Asia-Pacific regional cooperation. The United States has been pursuing its own idea of a Trans-Pacific Partnership (TPP), which has been joined by what some analysts see as a competing idea of Regional Comprehensive Economic Partnership (RCEP) that has the support of China and India. But the Chinese initiatives deserve particular notice for two reasons. First, they represent the first serious efforts by China to take the initiative and lead in Asian regionalism. Until now, most Asian regional institutions were proposed either by the Association of Southeast Asian Nations (ASEAN), or by other Western powers. For example, the launching of the Asia Pacific Economic Cooperation (APEC) in 1989 can be seen as a Japanese-Australia initiative, with the involvement of American, Canadian, and Asian academics and policy intellectuals. China was a major sponsor, jointly with Russia, of the Shanghai Cooperation Organization (SCO), but this is only a limited sub-regional grouping that began as an offshoot of the break-up of the Soviet Union. China had little to do with the establishment of the ASEAN Regional Forum (ARF) in 1994, the ASEAN Plus Three (APT) process in 1997, or the East Asian Summit (EAS) in 2005. If anything, China was quite nervous about joining the ARF. Second, during the early stages of its rise as an economic and military power, China was theoretically wedded to Deng Xiaoping’s famous dictum that “China should not lead” in world and regional affairs. This has already become obsolete in the last several years as evidenced by the growing number of Chinese regional and global initiatives, of which the AIIB is only the most recent. Financial institutions such as the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA), which are being set up by the BRICS (Brazil, Russia, India, China and South Africa), mark

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the further erosion—and perhaps the definitive phasing out—of Deng Xiaoping’s dictum. Of course, new Chinese initiatives may be seen to reflect not so much its leadership ambitions in Asia, but rather its desire to play a more active role in the region and the world, which is commensurate with its growing economic clout and status. These initiatives also reflect China’s frustration with existing regional and global financial institutions, especially the slow progress of reforming the International Monetary Fund (IMF), a process that has been significantly stalled by the U.S. Congress’s refusal to approve such proposals, including those put forward by the Group of 20 (G-20) nations in 2010. Moreover, by developing institutions aimed at financing infrastructure in Asia, China may be seeking to compensate for gaps in the infrastructure financing role of the Asian Development Bank and the World Bank. Notwithstanding the above, do these Chinese-led initiatives constitute an alternative form of regionalism in Asia? Historically, Asian regionalism has been marked by a significant role for the ASEAN countries. For a region with some of the most powerful nations in the world, it is remarkable that Asia’s weaker players have driven the process of regional institution-building. ASEAN, as the saying goes, is in the “driver’s seat” of Asian regional institutions, especially the ARF and EAS. The AIIB challenges the principle of “ASEAN centrality” in the Asian regional architecture. This development has assumed greater significance in recent years as ASEAN’s leadership of Asian regional bodies has experienced challenges due to intra-ASEAN divisions, the growing power of the region’s bigger Asian players, especially China and India, as well as competition among the major powers. However, calling this phenomenon an “alternative” form of regionalism may be going too far. The term “alternative” suggests a mutually exclusive relationship with existing regional institutions. But this is implausible given the overlap in the membership between China’s initiatives and existing institutions such as APEC, ADB, and the APT. “Parallel” regionalism might be a more apt description, but even here one has to keep in mind the fact of membership overlap. No Asian country is likely to withdraw from any of the existing regional institutions in order to participate in the AIIB. Unless Asian security order collapses due to Chinese expansionism and intensified Sino-U.S. competition, it may be more appropriate to view China’s new initiatives as “intersecting regionalism,” because they may end up in a roughly complementary relationship with existing regional and global institutions. For example, the AIIB is within the framework of Asia’s “open regionalism.” Participation in the AIIB is not only open to any country in Asia, but also to nations outside of Asia. Germany, France, the United Kingdom, and Italy (all four of which are Group of 7 members) have already signaled their intent to participate in the AIIB. Furthermore, the new Chinese regional initiatives are mainly in the economic arena. Even if these initiatives were to become highly successful, a Chinese takeover of Asian regionalism cannot be complete without a similar trend in Asia’s political and security [4] Georgetown Journal of Asian Affairs


Acharya | Introduction

regionalism. To this end, China has advocated the CICA, but this initiative has gained little traction. Its call for “Asian solutions to Asian problems” has evoked suspicion (although, in my view, rather prematurely). More importantly, through the CICA, China seems to be building upon existing notions of “cooperative security” and “comprehensive security,” rather than introducing something dramatically new or peculiarly Chinese. The prospects for the CICA taking off anytime soon are not bright, particularly given the prevailing territorial disputes between China and many of its neighbors as well as the mistrust and apprehensions about Chinese intentions and power in the region. China can, of course, take steps to reassure its neighbors. However, making significant concessions on its territorial claims and accepting a much greater level of transparency about its military posture will be required to create the level of confidence necessary to attract countries to a China-led security institution. Thus, a broader security institution led by China remains a distant possibility. China has also been a leading player in the SCO, but its influence is balanced by that of Russia. Finally, the success of these new initiatives is far from guaranteed. Much depends on the governance structure of these institutions. China must ensure that these organizations do not usher in a Chinese fiefdom in Asia, but rather conform to international norms and standards of transparency for such institutions. Success also depends on the level of trust between China and its neighbors, which are supposed to benefit from these institutions. And, as noted, China’s legitimacy as a regional leader faces many problems in this respect. Additionally, there is the question of how long China can sustain these institutions financially during a time of slower economic growth, as well as growing demands for increased internal social and welfare spending to satisfy its own people. Against this backdrop, what should be the role of the United States in the AIIB and other Chinese-proposed regional bodies? The Obama administration’s negative response to the AIIB has been widely criticized, both inside and outside of the West. Yet, the Obama administration’s response is not new. This response is reminiscent of the George H.W. Bush administration’s outright rejection of the Malaysian proposal for an East Asian Economic Grouping (later renamed the East Asian Economic Caucus) in 1990, and the Clinton administration’s fierce opposition to Japan’s Asian Monetary Fund (AMF) proposal in the wake of the 1997 Asian financial crisis. The situation with China, however, is quite different. Japan, a U.S. ally, could put up with Washington’s heavy-handed response and abandon the AMF idea, at least in its original form. Unlike Japan, China’s willingness and ability to resist American pressure is far stronger today. The United States and the West should abandon the liberal complacency that the existing international order founded and led by the United States after World War II can easily co-opt emerging powers like China. New initiatives in the region do not suggest that China is seeking to outright supplant the existing order. These initiatives do, however, indicate that China will demand changes and introduce new approaches that may significantly challenge the leadership and decision-making practices of existing global and regional institutions that have—until now—essentially served American and Western power and purpose. The Bretton Woods institutions and their regional Spring/Summer 2015 [5]


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counterparts like the ADB need to either readjust in order to accommodate the aspirations of the emerging powers, or risk obsolescence. Even if the United States continues to distance itself from these new initiatives, it can take a more nuanced approach towards new forms of Asian regionalism. The participation of its European allies actually creates a possibility of them playing the role of “good cop” to Washington’s “bad cop.” Washington should encourage its allies to use their participation in these new forums to ensure institutional transparency, accountability, and openness. In that way, the new bodies can be made “complementary” to the existing regional institutions, rather than creating “alternative” or “parallel” forms of regionalism that might lead to competition and conflict in Asia. Washington remains obsessed with the TPP, which is unlikely to ever become a truly pan-Asian trade group without Chinese or Indian membership (the prospect of which appears minimal at this point). Perhaps the TPP might be called an alternative form of regionalism because of the high standards it demands regarding trade liberalization and because it is cast as an element of America’s rebalancing strategy (which also renders it unacceptable to China and controversial for those who would like to stay out of the Sino-U.S. competition). The United States might do well to drop linking the TPP with the rebalancing agenda and start constructively exploring other complementary forms of regionalism, which the Chinese-proposed groups may turn out to be. If properly governed, the new institutions can have a positive effect, not only by picking up the slack in infrastructure funding from the ADB and World Bank, but also by putting more pressure on Western decision-makers, such as the U.S. Congress, to get serious about reforming existing global and regional institutions. These institutions also present a major test for China. In proposing such institutions, Beijing will be under intense international watch to deliver results. If China fails in this endeavor, its image and clout as an emerging global power will be seriously damaged for the long-term. Success in this case would require China to make significant adjustments to its regional policy by abandoning its expansive territorial claims and enhancing its military and economic transparency. If this happens, then Asia and the West, including the United States and indeed the entire system of global governance, will be the big winners from Asia’s new intersecting regionalisms.

Amitav Acharya is Professor of International Relations at American University, Washington, D.C. His recent books include: Whose Ideas Matter: Agency and Power in Asian Regionalism (Cornell University Press, 2009); and The End of American World Order (Polity, 2014).

[6] Georgetown Journal of Asian Affairs


Wihtol | Beijing’s Challenge to the Global Financial Architecture

Beijing’s Challenge to the Global Financial Architecture Robert Wihtol This year marks China’s emergence as a key player in the global financial architecture. It also marks a turning point for the architecture itself. On 12 March 2015, the United Kingdom (UK) jolted governments and international financial institutions (IFIs) around the world by announcing that it intended to join the China-led Asian Infrastructure Investment Bank (AIIB). Prior to the announcement, the Western donors and Japan, following the lead of the United States, had withheld their support from the initiative. The general assumption was that the AIIB would start out as a modest venture involving mainly Asian and Middle Eastern countries. The UK’s announcement triggered a spate of similar announcements by other major Western governments and virtually overnight turned the AIIB into a significant financial venture involving China, other emerging economies, and the developed economies. It was seen as a diplomatic triumph for Beijing, and a major setback for Washington, which opposed the bank. The chain of events leading up to the Western countries’ announcements started last year. In July 2014, at a summit held in the Brazilian city of Fortaleza, the BRICS countries (Brazil, Russia, India, China and South Africa) announced the establishment of the New Development Bank (NDB) and the related Contingent Reserve Arrangement (CRA), which will both be based in Shanghai. Three months later, Chinese President Xi Jinping announced the establishment in Beijing of the AIIB. And in November, China announced the establishment of the bilateral Silk Road Fund. These new institutions will be established this year. The AIIB will finance Asia’s rapidly expanding infrastructure, as will the Silk Road Fund. The need is enormous and cannot be met by the World Bank and the Asian Development Bank (ADB).1 The NDB is The annual need is estimated at $800 billion by Biswanath Battacharyay, “Estimating Demand for Infrastructure, 2010-2020,” in Infrastructure for Asian Connectivity, eds. Biswanath Battacharyay, Masahiro Kawai, and Rajat Nag (Cheltenham and Northampton: Edward Elgar, 2012). 1

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also intended to provide development finance, and the CRA will provide balance of payments support similar to that provided by the International Monetary Fund (IMF). The establishment of new IFIs reflects China’s and other emerging economies’ frustration with the slow pace of reform of the Bretton Woods institutions, particularly the World Bank and the IMF. “China feels it can’t get anything done in the World Bank or the IMF, so it wants to set up its own World Bank that it can control itself,” one participant in the AIIB negotiations explained.2 The fact that the new IFIs will be based in China marks a significant shift from the current Washington-centric architecture. China has a major stake in their success. The capital base of the AIIB is expected to be about $100 billion, with China contributing half.3 The initial capital of the NDB has been set at $50 billion, with China contributing $10 billion, and its share in the $100 billion CRA currency pool is $41 billion. Together with the $40 billion Silk Road Fund, in the past year alone China has committed $141 billion to international financial initiatives. How significant is China’s challenge? Many view the new banks as competing with the existing IFIs. The AIIB now also stands to divide the United States, Japan, and other Western countries. Will the new IFIs further fragment the financial architecture? Will they, as the United States has suggested, lead to a “race to the bottom” in lending standards? Or will China, the emerging economies, and the West find new ways to work together constructively? A Mixed Response The international response to China’s initiatives has been mixed. In public, China’s Asian neighbors have been positive, but in private several are wary of China’s motives. However, given the huge need for infrastructure in Asia, there is significant convergence between China’s interests and those of its neighbors. China sounded out the Western donors’ interest to join the AIIB at the ADB’s annual meeting in May 2014. Following an initial lack of enthusiasm from the West, China focused its efforts on Asia and potential creditors in the Middle East. However, it also continued to lobby with Western governments. The United States has been the most outspoken opponent of the AIIB. The U.S. Treasury Department has criticized the bank as both a deliberate effort by China to undercut the World Bank and the ADB and a tool to pull countries in Southeast Asia into its orbit. The United States lobbied hard with the countries being approached by China, including Australia, South Korea, the UK, and other European countries, not Jamil Anderlini, “Beijing Pushes for World Bank Rival,” Financial Times, June 25, 2014. To put this in perspective, the World Bank’s capital base is $223 billion, and the Asian Development Bank’s $163 billion. 2 3

[8] Georgetown Journal of Asian Affairs


Wihtol | Beijing’s Challenge to the Global Financial Architecture

to become founding members.4 On the eve of the Fortaleza summit, U.S. Treasury representatives reportedly asked their BRICS counterparts how the United States could avert the establishment of the new banks.5 The question came too late. Japan has also declined China’s invitation to join the AIIB. It questions the need to create a new bank, noting that its role would duplicate that of the ADB.6 The response of the existing IFIs has also been mixed. Consistent with Tokyo’s position, ADB President Takehiko Nakao was initially lukewarm, describing the establishment of the AIIB as “understandable.” A terse official statement in October 2014 noted that once the AIIB is formally set up, the ADB would “consider appropriate collaboration in areas of common priorities.”7 More recently, Nakao has indicated that the ADB is sharing its experience with the new bank.8 In contrast, World Bank President Jim Yong Kim has distanced himself from Washington’s stance. Kim recently indicated that the World Bank supports the AIIB, does not feel threatened by it, and has in fact “been working quite closely” to assist its Chinese colleagues in setting up the bank.9 The AIIB is Moving Fast By February 2015, twenty-seven countries had signed up to become founding members of the AIIB. In addition to China, these included ten countries from Southeast Asia (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam), six from South Asia (Bangladesh, India, the Maldives, Nepal, Pakistan, and Sri Lanka), five from the Middle East ( Jordan, Kuwait, Oman, Qatar, and Saudi Arabia), and Kazakhstan, Mongolia, Tajikistan and Uzbekistan. The only Organization of Economic Cooperation and Development (OECD) country to sign up was New Zealand. The situation changed dramatically in March 2015, when the UK broke ranks with the United States and, citing mainly commercial reasons, announced that it wished to become a founding member. In response, in a rare public breach of their “special relationship,” the United States rebuked the UK for its lack of consultation with the Group of Seven, and “a trend of constant accommodation of China.”10 Jane Perlez, “U.S. Opposing China’s Answer to World Bank,” The New York Times, October 9, 2014. The author’s personal communication with government officials, September 2014. 6 “Japan Reluctant to Join China-led Investment Bank,” The Japan Times, July 5, 2014. 7 “ADB Prepared for Co-Op with AIIB: Takehiko Nakao,” Xinhua, October 25, 2014, http://news.xinhuanet.com/english/business/2014-10/25/c_133741355.htm. 8 Minoru Satake, “ADB Could Work with China-led Infrastructure Bank, Chief Says,” Nikkei, March 17, 2015. 9 Guy Taylor, “World Bank President, Obama at Odds over China Global Lending Project,” The Washington Times, October 26, 2014. 10 Geoff Dyer and George Parker, “U.S. Accuses UK Over China Stance,” Financial Times, March 12, 2015. 4 5

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Within days, France, Germany, and Italy followed the UK’s lead. By the end of March 2015, which marked the deadline for founding members to sign up, a total of forty-seven countries had applied for membership. These included twelve European countries (Austria, Denmark, Finland, Luxembourg, the Netherlands, Norway, Sweden and Switzerland, in addition to the four mentioned earlier) as well as Australia, Brazil, Egypt, Georgia, Kyrgyzstan, Russia, South Korea, and Turkey. More countries are expected to follow in due course. Japan, however, did not change its stance, reiterating its concerns about the bank’s management and indicating that for strategic reasons it wished to support the United States.11 The AIIB is advancing faster than the BRICS-led initiatives and is expected to open its doors before the end of 2015. It differs from the NDB and CRA in two respects. First, China, as the lead shareholder, has led decision-making. China’s Ministry of Finance has set up a working group for the AIIB headed by Jin Liqun, a former vice president of the ADB and former chair of the supervisory board of China’s sovereign wealth fund. The group is working with the founding members to map out the bank’s structure and procedures. Second, China has been clear from the outset that the purpose of the AIIB is to finance infrastructure. This has kept the initiative focused. In contrast, the purpose of the NDB is less clearly articulated, and decision-making among the BRICS countries has been slow. So far, they have reached agreement on the toughest issues: the capital base, voting rights, location, and presidency. China wanted a large capital base, while the smaller countries wanted to ensure an equal split of shares. Eventually, they agreed on a modest capital of $50 billion, with equal contributions and votes. China and India reportedly haggled over the location and presidency up to the eve of the Fortaleza summit. China prevailed, and they agreed to locate the NDB in Shanghai, with the first president coming from India.12 A Long List of Issues The establishment of new IFIs has raised a raft of concerns. First, many have questioned whether the world even needs new IFIs. Since the Bretton Woods institutions were conceived in 1944, the number of IFIs has proliferated.13 As Indian economist Ravi Kanbur points out, from a global perspective, it is inefficient “for new institutions to be created when the old ones could in principle be reformed to reflect new realities and economic weights.”14 Comprehensive reform of the current institutions might indeed have been the best option, but given the Western governments’ failure to reform the architecture, the question is moot. Martin Fackler, “Japan, Sticking With U.S., Says It Won’t Join China-led Bank,” The New York Times, April 17, 2015. 12 Elliot Wilson, “AIIB struggles for lack of investment,” Euromoney, October 9, 2014. 13 Robert Wihtol, “Whither Multilateral Development Finance?” ADB Institute Working Paper 491 (Tokyo: Asian Development Bank Institute, 2014). 14 Ravi Kanbur, “India, the World Bank, and the International Development Architecture” (presentation, Center for Global Development, Washington, D.C., May 15, 2013). 11

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Wihtol | Beijing’s Challenge to the Global Financial Architecture

Second, the AIIB’s governance structures are still being worked out. Key issues include the management structure and distribution of seats on the board of directors. The major European countries have indicated that they want to be strongly represented in the bank, and South Korea is reported to have insisted on a senior management position as a condition for joining.15 The board of directors is a particular bone of contention. Contrary to the practice in most major IFIs, China is planning for the AIIB to have a non-resident board that would meet at regular intervals. Others, including Australia, are pushing for a full-time resident board that would provide “head-office scrutiny of investment decisions.”16 Third, concerns have been raised about China’s dominance in the AIIB. It is likely that China will hold 50 percent of the shares and votes. This far exceeds the major voting shares in other IFIs. In the ADB, Japan and the United States each have 12.8 percent of the votes. In the Inter-American Development Bank (IDB), the United States holds 30 percent of the votes, and in the IMF and the World Bank, it holds 16.75 percent and 16.5 percent, respectively. China’s large shareholding raises questions about the AIIB’s operational priorities. China’s largest policy bank, the China Development Bank, provides international loans as a quid pro quo for investments to secure raw materials and energy for China’s economy.17 The bilateral Silk Road Fund is intended to finance investment in transportation infrastructure throughout a “Silk Road Economic Belt” stretching across Central Asia to Europe, and a “21st Century Maritime Silk Road” across the South China Sea and the Indian Ocean to Africa and the Middle East. It will also finance China’s access to Central Asia’s energy sources.18 Some countries are concerned that the AIIB would play a similar role, rather than being genuinely multilateral. Fourth, China is not a member of the OECD Development Assistance Committee, which tracks the flows of official development assistance. China stresses that it is itself a developing country and so defines its support for developing countries as south-south cooperation rather than development assistance, and does not coordinate with other donors. The Western members, on the other hand, are likely to push for the AIIB to participate in international mechanisms to coordinate development assistance, and to operate within international principles established by the IMF and the World Bank to

Andrew Higgins and David Sanger, “3 European Powers Say They Will Join China-led Bank,” The New York Times, March 17, 2015; Testsushi Kajimoto and Ian Chua, “Australia Signals Approval of China-based AIIB; Japan Divided,” Reuters, March 20, 2015. 16 James Massola and John Garnaut, “Australia Ready to Join $US100 Billion China Bank,” Sydney Morning Herald, March 20, 2015. 17 Henry Sanderson and Michael Forsythe, China’s Superbank. Debt, Oil and Influence: How China Development Bank is Rewriting the Rules of Finance (Singapore: Bloomberg Press, John Wiley and Sons, 2013). 18 Tom Miller, “Quiet Empire Building Along the New Silk Road,” China Economic Quarterly (December 2014): 33-40. 15

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ensure the sustainability of debt in borrowing countries.19 A Race to the Bottom? Most importantly, how will the new banks relate to existing IFIs and the policies and standards that guide their lending? There are notable instances of China using bilateral financing to undercut the World Bank and the IMF, such as when borrowers were unwilling to address policy or governance concerns raised by the IFIs.20 Some worry that the new banks might do the same. The U.S. Treasury has expressed particular concern that the AIIB will fail to meet environmental standards, procurement requirements, and other safeguards applied by the World Bank and ADB, including those to prevent the forced removal of vulnerable populations from their lands. One senior U.S. official wondered, “How would the institution add value? How could the [AIIB] be structured so that it doesn’t undercut the standards with a race to the bottom?21 However, the fact that Western countries will now join the AIIB makes it more likely that the bank will adhere to standards similar to those applied by other IFIs. Jin Liqun also dispels these concerns, stressing that “[w]e have confidence that we can build a bank to high international standards, and we will do our best in project evaluation, environment protection, local culture conservation, promoting continuous economic growth and improving people’s livelihood.”22 When Germany, France, and Italy decided to join the bank, they stressed that they wanted to establish “an institution that follows the best standards and policies in terms of governance, safeguards, debt and procurement policies.”23 Market realities will also help to define the AIIB’s operations. In the early 2000s, China’s policy banks rapidly increased their exposure to high-risk borrowers such as Ukraine, Venezuela, and Zimbabwe. Several are now in arrears, with possible defaults on the horizon.24 Practical experience is teaching China’s banks the value of conducting due diligence and monitoring the financial housekeeping of their borrowers. As a result, China’s international lending has slowed markedly since 2012.25 These lessons are unlikely to be lost on the AIIB.

Scott Morris, “How China and the United States Can Come to Terms on the Asian Infrastructure Investment Bank.” Center for International Development, March 11, 2015, http://www.cgdev.org/ publication/ft/how-china-and-united-states-can-come-terms-aiib. 20 Stefan Halper, The Beijing Consensus (New York: Basic Books, 2010), 75-100. 21 Jane Perlez, “U.S. Opposing China’s Answer to World Bank.” 22 Zheng Yongpeng, “Multinational Asian Bank Plans Capital of $100b,” China Daily, June 30, 2014. 23 Andrew Higgins and David Sanger, “3 European Powers Say They Will Join China-led Bank,” The New York Times, March 17, 2015. 24 James Kynge and Gabriel Wildau, “With Friends Like These,” Financial Times, March 18, 2015. 25 “China’s Financial Diplomacy: Rich but Rash,” The Economist, January 30, 2015. 19

[12] Georgetown Journal of Asian Affairs


Wihtol | Beijing’s Challenge to the Global Financial Architecture

Finally, as a new bank, the AIIB will need to establish its credit rating. Like other IFIs, the AIIB will raise funds for its lending on the international capital markets. The rating agencies look not only at the IFIs’ financial profiles but also at their business profiles, including risk management policies, governance, and management expertise. To ensure that it can provide financing on competitive terms, the AIIB will need to manage its risk profile carefully. This further diminishes the likelihood of a race to the bottom. Lessons from History The challenges faced by the new IFIs are not new. The establishment of the regional development banks over half a century ago offers lessons on the underlying politics, the importance of multilateralism, and the benefits of networking widely when setting up a new bank. Latin American countries proposed an inter-American bank as far back as 1889, but had to wait seventy years to overcome U.S. objections. Initially the U.S. administration rejected the idea because the bank would compete with private banks. In 1940, the Roosevelt administration endorsed a proposal for a regional bank, but Congress was opposed.26 In the 1950s, there were several proposals for a regional bank. Again, the United States opposed them, on the grounds that the region’s financing needs could be met through bilateral funding and the newly established World Bank. It was only when the United States shifted to supporting the establishment institutions led by Latin American countries that it was possible for them to set up the IDB in 1959.27 When the African Development Bank was established in 1964, the two principal former colonial powers in the region, France and Great Britain, did not initially support the bank. Without their endorsement, the United States was unwilling to participate. As a result, the African bank was established with no participation from developed countries and a small capital base. It got off to a slow start and encountered difficulty in defining its role.28 In 1972, the bank set up a concessional fund with the participation of major Western donors and, in 1982, membership in the bank was opened to developed economies. This expanded its capital base and helped to align it more closely with the other IFIs. The establishment of the ADB in 1966 was more inclusive. At the time, the region’s developing countries badly needed capital to meet their investment needs and were dissatisfied with the World Bank, which lent mainly to India and Pakistan and paid scant attention to the rest of the region. To address this financing gap, the Asian countries wanted a bank of their own. Japan, wanting to strengthen its engagement in the region, took the lead, while the United States, in an effort to counterbalance its Henry Bloch, “Regional Development Financing,” International Organization 22, no. 1 (Winter 1968): 188. 27 John White, Regional Development Banks: A Study of Institutional Style (St. Albans: Overseas Development Institute, 1970), 141-144. 28 Ibid., 91-110. 26

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escalating role in Vietnam, willingly supported it. The other OECD countries were busy expanding their aid programs and were also pleased to join. Other IFIs have also played an important role. In the late 1950s, the World Bank’s president, Eugene Black, was openly hostile to the establishment of the IDB. He subsequently moderated his views on regional banks, and in 1965, President Lyndon Johnson appointed him as his special advisor on Southeast Asia. Black immediately contacted the consultative committee on the ADB. The ADB is to a significant extent modeled on the World Bank, which is attributed not only to Black’s influence but also to the fact that key staff, including the ADB’s first president Takeshi Watanabe, had previously served on the board of directors of the World Bank.29 The regional development banks are well regarded and successful. They coordinate closely with other IFIs and adhere to established standards of governance, due diligence, and safeguards, at times taking the lead in setting standards. Their genuine multilateralism, with wide global membership, is a key ingredient in this success. What Next? Bretton Woods was based on an ambitious vision to raise the industrialized nations from the ruins of World War II. Under the guidance of the British economist John Maynard Keynes and the U.S. Treasury’s Harry Dexter White, the Western allied powers agreed to open the global economy and established its key financial institutions. Seventy years later, the leading market economies lack a grand vision for the future of the financial architecture. China and the other emerging economies are driven mainly by a desire to increase their global influence, and have for years been pushing for reform of the governance structures of Bretton Woods. They have now lost patience and are establishing their own IFIs, a situation which some feel could have been avoided.30 The West should now move quickly to put the emerging economies on a more equal footing in the Bretton Woods institutions. This would help to ensure that they remain central to the architecture. A moderate reform of the IMF quotas was approved by other members in 2010, but has consistently been blocked by the U.S. Congress. As Scott Morris, a former U.S. Treasury official, observes, the United States now finds itself isolated and is paying the price for delaying reform in the IMF.31

Ibid., 45-46 and 144-145; also see Watanabe Takeshi, Towards a New Asia: Memoirs of the First President of the Asian Development Bank (Manila: Asian Development Bank, 1977), 9. 30 See, for example, Johannes Linn, “Realizing the Potential of the Multilateral Development Banks,” Brookings Institution, September 2013, http://www.brookings.edu/research/articles/2013/09/multilateral-development-banks-linn. 31 Matthias Sobolewski and Jason Lange, “U.S. urges allies to think before joining China-led bank,” Thomson Reuters, March 17, 2015. 29

[14] Georgetown Journal of Asian Affairs


Wihtol | Beijing’s Challenge to the Global Financial Architecture

The most effective way to influence new international institutions is to participate in their establishment from the ground up. Drawing from the lessons of the other IFIs, the AIIB would benefit from the widest possible membership. The Western countries that have not yet joined should consider doing so without delay. The situation is particularly challenging for the United States. Initially, the AIIB risked driving a wedge between China and the emerging economies, as a bloc, and the West. Now that major Western economies are joining the bank, the lingering risk is that divisions will emerge between these countries and those that remain outside, most notably the United States. Fred Bergsten of the Petersen Institute for International Economics describes U.S. opposition to the AIIB as a huge mistake and, reflecting a view shared by many, has called for the administration to reverse course and persuade Congress to provide the funds for a minority share.32 China is challenging the global financial architecture, but the outcome depends on how the rest of the world responds to the challenge. Several developed market economies have now decided to join the AIIB and influence its development from the inside. In due course, they may also have an opportunity to join the BRICS institutions. The rapidly changing financial architecture reflects a major shift in global economic realities. Western countries should acknowledge the new realities and grasp the opportunity to find new ways to work with China and other emerging economies.

Robert Wihtol is an international banking consultant and Adjunct Faculty at the Asian Institute of Management. He worked for the Asian Development Bank for twenty years, including as Country Director for China and Director General for East Asia. He holds an M.A. from the University of Helsinki and a D.Phil. from the University of Oxford.

Fred Bergsten, “U.S. should work with the Asian Infrastructure Investment Bank,� Financial Times, March 15, 2015. 32

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China’s Institution Building Leading the Way to Asian Integration Zheng Wang China’s rise has been largely an economic phenomenon in the past twenty years. However, in the two years following the new leadership of President Xi Jinping, we have seen a series of major strategy adjustments in China’s foreign policy as China takes a more proactive role in international relations. This is particularly clear in the recent major initiatives and institution-building actions that Beijing has undertaken. China’s changing global role is no doubt an immense new variable in today’s international relations, and therefore it is imperative to understand the consequences of these actions, and what kind of outlook the international community should have in reaction to a greater leadership role from China. China’s New Moves One of the central criticisms of China in the last twenty years is the nation’s lack of global leadership action in respect to its abilities. For a long time, China has mainly focused on its own economic development, and has often been reluctant to take any major international role. During this period, China was never an active regional player, mediator, or facilitator; its foreign policy strictly involved trade and bilateral relations, not regional integration and multilateral diplomacy. This is the reason President Barack Obama once labeled China a “free-rider.”1 However, China is now taking a much greater interest in playing a larger role in regional leadership. In recent years, China has been working on several high-profile initiatives and building new institutions. These initiatives include the so-called “One Belt and One Road” (the Silk Road Economic Belt and the 21st Century Maritime Silk Road) project, which funds infrastructure construction across Asia and seeks to tie Central and Southeast Asia more closely to China. China plans to put forward $40 billion to Bree Feng, “Obama’s ‘Free Rider’ Comment Draws Chinese Criticism,” The New York Times, August 14, 2014, http://sinosphere.blogs.nytimes.com/2014/08/13/obamas-free-rider-comment-draws-chinese-criticism. 1

[16] Georgetown Journal of Asian Affairs


Wang | China’s Institution Building

create a Silk Road Fund to support regional countries in the construction of ports and highways, as well as oil and gas pipelines to connect with China. A series of new organizations is being created, including the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB). Beijing has also made headway in promoting the Free Trade Area of the Asia-Pacific (FTAAP) and has made major breakthroughs in free trade talks with Australia and South Korea. In the realms of security and politics, China is working to invigorate and strengthen the BRICS countries, the Shanghai Cooperation Organization (SCO), and the Conference on Interaction and Confidence-Building Measures in Asia (CICA). China’s new moves are sophisticated and progressive. The Chinese are trying to create platforms through which Beijing can create a new international environment that is more favorable to China. Beijing has taken a two-track approach in this endeavor. On one hand, China is creating new institutions, and on the other hand it is still actively participating in existing institutions such as the World Bank, the World Trade Organization (WTO), and the International Monetary Fund (IMF). Beijing hopes to utilize its new organizations in association with existing institutions rather than directly working against or undermining them. With this alternative diplomatic strategy, Beijing is trying to increase its control in regional operations or otherwise significantly enhance its influence. The FTAAP is a Chinese version of the Trans-Pacific Partnership (TPP), and the AIIB is a Chinese version of the Asian Development Bank (ADB) and the World Bank. Beijing is also trying to use the SCO and CICA to counterbalance U.S. military alliances in Asia. While China’s new institutions are open for all nations to participate, Beijing looks to maintain a centralized control over their leadership. As some scholars have noticed, China’s foreign policy has shifted from a “US first” policy to a “periphery first” policy. President Xi has also coopted the term of “free rider” to mean that he now encourages regional nations to do just that with China. Asia’s Integration and Leadership Problem In order to better understand China’s changing role and new diplomatic strategy, we should first situate China’s actions and policies in the context of Asia. Asia is characterized by a lack of both integration and effective regional institutions. There is no organization in Asia that includes most Asian countries, nor is there an equivalent to the European Union or the North Atlantic Treaty Organization. Due to Asia’s high diversity and complicated historical geography, as well as outside influences, Asian countries have suffered from poor connectivity for a long time. China and Japan are the two most influential countries in Asia, but their relations are deeply influenced by history—a history that has had a negative impact on their joint initiatives and actions in the region, so much so that the two states cannot work together to share a leadership role in Asia. Though not an Asian nation, the United States is an Asia-Pacific country, and maintains a bilateral security arrangement with several Asian states. This arrangement is referred to as the “fan relationship”; each state holds a bilateral relationship with the United States individually, and U.S. security agreements “fan out” over its Asian Spring/Summer 2015 [17]


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allies.2 The “fan” system of U.S. bilateral alliances is still a Cold War security arrangement and does not facilitate real integration within Asia. The United States has close bilateral relations with China and Japan, but there is a lack of effective triangular cooperation, as well as trilateral facilitation and integration. In Central Asia, countries have a deep historical relationship with Russia, but with Russia’s weakening economy, the recent crisis within Ukraine, and other points of tension in the region, Central Asian countries are looking to develop relationships with outside countries. In Southeast Asia, the development of the Association of Southeast Asian Nations (ASEAN) has significantly enhanced regional institution building, and in recent decades ASEAN has developed a major role in corporate expansion. ASEAN Plus Three (APT) and the East Asian Summit (EAS) have created a mechanism for cooperation between Southeast Asian countries and major East Asian countries. However, over the past few years, tensions in the South China Sea between China and several ASEAN nations, as well as territory disputes between China and Japan in the East China Sea, have generated major challenges and hindered further integration in this region. With souring relationships between Beijing and Tokyo, Seoul and Tokyo, and Beijing and Pyongyang, the situation in Northeast Asia has become more uncertain. With China’s rapid economic development, economic relations and trade with China has become a very important source of growth for many Asian countries. But many countries are also concerned about the increasing Chinese influence and presence in their own countries and in the region. Therefore, many states, especially ASEAN countries, have chosen a special “double-track policy” in which they work with China for economic development, but work with the United States for security purposes. Such a double-track arrangement is not stable, and many countries feel they have to take a side between the two large powers. With this background, we can better understand the importance of regional integration in Asia, and the importance of effective leadership. China’s recent actions, such as providing funding for infrastructure in neighboring countries, taking the initiative to provide public goods, and creating new platforms for regional cooperation, are much needed in Asia. These are moves that may be sudden and raise suspicions, but overall they must be acknowledged as positive for China as an international leader in Asia. For example, China is offering billions of dollars in regional infrastructure development aid to its neighboring countries, including the building of ports, pipelines, highways and railways, technological advancements, and human labor. Beyond infrastructure, China has been pumping money into these regional economies in order to expand their ability to spend on Chinese manufactured goods. This should also be seen as a positive shift. Since China is the largest economy in Asia, it is China’s unavoidable responsibility to take on a leadership role in the region. This is why some scholars describe China’s new initiatives as “China’s return to Asia.” Given the numerous benefits for Asian nations, The “fan relationship” of discrete alliances between the United States and its Asian allies is also referred to as the “hub and spokes system.” 2

[18] Georgetown Journal of Asian Affairs


Wang | China’s Institution Building

it should be seen as a great improvement that China is reaching out to help its neighbors. China’s Motivation As China becomes a major global leader, a vital question for the international society is how to understand and respond to China and its new global role. This enormous and rapid change has created difficulties in fully understanding China and its policies. There exists a misunderstanding and misperception towards China. Too often, people view China from the outside looking in and use their own institutional experiences and cultural frameworks to interpret China’s actions. For example, a routine question asked about China today is if the country is a status quo nation or a revisionist nation. From the perspective of the Chinese, however, a more apt question regarding its rise to power is how it should manage its relationships with the current international system and institutions. For example, Japan still dominates the ADB even though China has surpassed Japan as the largest economy in Asia. Japan’s voting share in the ADB is more than twice that of China’s, and a Japanese citizen has always headed the power structure. IMF reforms to increase Beijing’s influence have been proposed, but have remained delayed for years. From China’s perspective, the current situation is troublesome and hinders the country’s growth. China’s institution building strategy was made imperative by the current system, and in trying to establish new institutions and platforms, Beijing is creating a tool that allows it to become a leader with substantial influence, which it cannot do in the ADB or IMF. In this context, the international community is debating China’s real intentions behind its new sweeping initiatives, even though many of China’s neighbors can benefit from these initiatives. Any major aid and investment plan from an overseas power will naturally include that power’s own political and strategic purposes. The new initiatives and institutions like the “One Belt and One Road” that China has been creating are currently focused on economic cooperation, trade, and infrastructure construction in order to help market products “Made in China” across Asia. Though some analysts believe that China has political, security, or even military motives behind these economic initiatives and organizations, they are as of now being presented by Chinese officials as purely economic development organizations. Beijing has not yet attached any sort of preconditions, special commitments, or requirements from the nations it is working with. Even within institutions like the SCO, which is a political and security organization, China’s leadership provides an alternative for Asian states to work with a country other than Russia. In recent years, China has been taking a bigger role in the SCO and Russia’s influence has been waning. Beijing has also made clear that the SCO is not a military alliance and that China does not seek to forge a military coalition. In fact, too much pressure from the United States and the West may actually push the SCO into becoming an even closer partnership.

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A Positive Outlook Institution building is a long, interactive process. Beijing’s initiatives are still in the beginning stages, and it is therefore too early to cast judgment on them. They have been labeled everything from “China’s Marshall Plan” to Beijing’s preparation for a major Asian power struggle with the United States. Making assessments at this early stage may only further strengthen existing misconceptions and stereotypes, which may prove very difficult to change later. As such, it is wise to take a wait-and-see approach for the time being. International institution building is the key to mitigating the anarchic character of international relations. For Asian countries, institution building is even more important since the lack of integration and connection is the major hindrance for regional development. Good institutions can provide opportunities for joint development, improve relations, reduce tensions, as well as restore confidence in and even increase the legitimacy of national organizations. At the time of this writing, forty nations have already signed up to join the AIIB as founding members, including several allies of the United States. The fact that so many countries have jumped at this chance says quite clearly that they think the AIIB presents a good opportunity. With these efforts underway, a constructive approach for the United States would be to work with China in shaping this process, and to push regional institution-building and integration in a positive direction. Compared with the hardline realist stance, which assumes China has a master plan in mind, such cooperation reflects a more positive attitude, and is also in the interest of the United States. As the largest and most powerful nation in the region, China should be the major player: a role that it is finally stepping into. The international community should welcome a rising China that willingly takes on more global responsibility and leadership.

Zheng Wang is the Director of the Center for Peace and Conflict Studies (CPCS) and an Associate Professor in the School of Diplomacy and International Relations at Seton Hall University in New Jersey. He is a Senior Visiting Fellow of the China Center for Collaborative Studies of the South China Sea at Nanjing University, and a Global Fellow at the Woodrow Wilson International Center for Scholars. Dr. Wang is the author of Never Forget National Humiliation: Historical Memory in Chinese Politics and Foreign Relations (Columbia University Press, 2012). His book received the International Studies Association’s Yale H. Ferguson Award.

[20] Georgetown Journal of Asian Affairs


Panda | Alignment Minus Alliance

Alignment Minus Alliance India’s China Quandary on Alternative Institution Building Jagannath P. Panda The phenomenon of “India rising” has hitherto been overshadowed by “China rising.” A point of view has taken root that China, as an emerging economic powerhouse, is taking the lead to restructure and redesign the global financial and political order. Given its vision for greater leadership, China does not seem to be a traditional status quo power anymore. Rather, China aims to emerge more as a revisionist power. Perceived indicators of this trend are China’s propelling the establishment of the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) under BRICS (a concept which, incidentally, was first put forth by India), reviving the idea of a Free Trade Area of the Asia-Pacific (FTAAP), and taking the lead in the ASEAN-led Regional Comprehensive Economic Partnership (RCEP).1 Where does India stand in this picture? Between Bretton Woods and Alternatives Reforming the Bretton Woods institutions—particularly the International Monetary Fund (IMF) and the World Bank—has been a clearly enunciated objective of India’s foreign policy for some time.2 With its rising economic strength, the Indian dialogue on reforming these institutions has primarily focused on the role of the developing world, where India recognizes China as a partner. Three issues are central to India’s perspective on this matter. First, India has been demanding a reformed governance process in the IMF and the World Bank in order to provide more opportunity and representation for developing countries. For example, The five BRICS countries are Brazil, Russia, India, China, and South Africa. Ministry of External Affairs of India, “Speech by Foreign Secretary on Building Global Security at the Institute of Peace and Conflict Studies (IPCS) – Konrad Adenauer Stiftung (KAS),” April 16, 2012, http://www.mea.gov.in/Speeches-Statements.htm?dtl/19340/Speech+by+Foreign+Secretary+on+Building+Global+Security+at+the+Institute+of+Peace+and+Conflict+Studies+IPCS++Konrad+Adenauer+Stiftung+KAS. 1 2

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India has been advocating for a new application of the global financial institutions’ “quota formula,” which is supposed to be linked to the economic strength of a member country. Economic strength normally determines a member’s voting rights. For these reasons, India has been demanding a review of the quota formula for some time, given that the economic strength of the developing countries has grown substantially over the last decade or so.3 At the 2012 Group of 20 (G-20) summit in Los Cabos, Mexico, then-Indian Prime Minister Manmohan Singh expressed the view that “quotas must reflect economic weight, in a manner that is simple and transparent.”4 On this aspect, India is in agreement with China, which also advocates greater representation for the developing world in the IMF and the World Bank. Second, India’s advocacy is linked to its need for more loans, grants, and funding for infrastructural development and for other projects in developing societies. Regarding this issue, Indian discourse has a dual purpose. For one, India expects to receive more funding from the IMF and the World Bank. At the same time, New Delhi wants to explore new avenues and forums for obtaining development funding. To cite one instance, then-Prime Minister Singh said at the 2010 G-20 summit in Seoul that “multilateral development banks have a key role to play in investment and infrastructural development.”5 Third, from India’s perspective, the Bretton Woods institutions are heavily clouded by the “protectionist tendencies” of the industrialized countries. India’s position, also outlined by Prime Minister Singh at the 2010 G-20 summit, is based on four objectives: (i) avoiding competitive devaluation and resisting protectionism; (ii) ensuring advanced deficit countries follow the policies of fiscal consolidation; (iii) undertaking necessary structural reform of the global financial structure; and (iv) preserving flexibility in exchange rate and reserve currencies.6 The Chinese have also long been advocating against the “protectionist tendencies” of the developed countries in global financial institutions. Despite these areas of agreement, the perspective shared by India and China is temporal and conditional, essentially tempered by their differing foreign policy perspectives and distinct national interests. The Chinese outlook on reforming the Bretton Woods

“Manmohan Singh’s Speech at G20 Meet,” The Hindustan Times, November 16, 2008, http://www. hindustantimes.com/business-news/manmohan-singh-s-speech-at-g20-meet/article1-351916.aspx. 4 Ministry of External Affairs of India, “Prime Minister’s Statement at Second Plenary session of G-20 Leaders on ‘Strengthening the International Financial Architecture and the Financial System and Promoting Financial Inclusion,’” June 19, 2012, http://mea.gov.in/in-focus-article.htm?19805/ Prime+Ministers+Statement+at+Second+Plenary+session+of+G20+Leaders+on+Strengthening+the+international+financial+architecture+and+the+financial+system+and+promoting+financial+inclusionquot. 5 “Text of PM’s speech at G20 summit,” Business Standard, November 12, 2010, http://www.business-standard.com/article/economy-policy/text-of-pm-s-speech-at-g20-summit-110111200175_1. html. 6 Ibid. 3

[22] Georgetown Journal of Asian Affairs


Panda | Alignment Minus Alliance

institutions and forming alternative institutions is concomitant to Beijing’s vision of its own position in world affairs. Specifically, China seeks to maximize the strategic interests that are important to its rise and, most importantly, to check the prevailing American dominance regionally and globally. As for India’s perspective, Indian economic prominence has yet to reach a level where it can pursue a multiple vision of a Chinese parallel, nor does India aim to jettison its reliance on the IMF and the World Bank. The influence of the Western economy in India is too strong to allow for a singular reliance on emerging alternative institutions. Thus, the Indian perspective is more linked to the concurrent balance that India aims to uphold between the developing and developed worlds. In any case, India’s relationship with both the United States and the European Union (EU) is far too strong to be discarded lightly. NDB: India’s Presidency and China’s Premiership As discussed in the previous section, India views emerging economies as disadvantaged in terms of the treatment they receive from the current international trade and financial structure. Although, as noted by the Reserve Bank of India (RBI) Governor Raghuram Rajan, the NDB is not “meant to challenge the existing multilateral institutions,” the institution would nevertheless help emerging economies explore new opportunities and avenues for long-term risk-oriented project investment.7 RBI Governor Rajan also said, “One of the biggest lacunae in emerging markets is patient, risk-bearing money, so if we can have a bank which is willing to take junior stakes or equity stakes… that would be a really good thing.”8 In other words, India perceives the NDB as an alternative to the existing financial institutions—a source for funding crucial infrastructural development needs. Notably, this Indian perspective is congruent with the overall BRICS outlook. In calls for reforming global financial institutions, the BRICS have stressed the difficulty developing countries face in financing infrastructural development. This issue was aptly noted when the BRICS countries formally announced the NDB’s establishment with the 2014 Fortaleza Declaration, which emphasized the continuous “financing constraints to address infrastructure gaps and sustainable development needs” in emerging market economies and developing countries.9 The division of leadership within the NDB makes it a truly cross-continental institution. The Chinese succeeded in establishing the NDB headquarters in Shanghai; the presidency of the Bank remains with India for five years; Russia chairs the Board of Governors; Brazil chairs the Board of Directors; and South Africa holds the Africa regional center of the NDB. The NDB’s modalities of operation are yet to be finalized. But the bank, with an initial authorized capital base of $100 billion, promises to mobilize resources for infrastructure and other forms of development. The Fortaleza “BRICS Bank Not Aimed at Challenging IMF, WB: Rajan,” The Hindu, September 7, 2014, http:// www.thehindu.com/news/national/brics-bank-not-aimed-at-challenging-imf-wb-rajan/article6388363. 8 Ibid. 9 Ministry of External Affairs of India, “Sixth BRICS Summit - Fortaleza Declaration,” July 15, 2014, http://brics6.itamaraty.gov.br/media2/press-releases/214-sixth-brics-summit-fortaleza-declaration. 7

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Declaration notes that the opening subscribed grants of $50 billion will be equally shared among the bank’s founding members. With this equitable distribution of initial capital and shared responsibility among the BRICS member countries, one may be led to believe that the NDB’s governance process and operations will be based on principles of equality and equal distribution. Graph I. Contribution to WTO Budget, 2014

% Note: All the figures are approximate. Source: Trade Profiles, Statistical Database, WTO, Geneva, 2014.

In practical terms, however, this is not likely to be the case. China’s involvement in the NDB is linked to its strategy to increase its global power. In line with this goal, the structure of the NDB is likely to give China a definite edge in determining the bank’s operations. Several factors point to this potential development. First, the bank’s headquarters are within Chinese territory. China has more millionaires than other BRICS countries, and Shanghai has more millionaires than even Beijing. China may have greater say in influencing the bank’s day-to-day affairs, granting loans, or pushing particular projects by offering more capital or financial backing to the NDB. Unlike in democratic countries, the Chinese business community is heavily backed by the Communist Party of China (CPC) and the Chinese government. Second, China is the third largest contributor to the World Trade Organization’s (WTO) budget (see Graph I), surpassed only by the United States and Germany. This indicates Chinese economic supremacy over the other BRICS countries both in and outside of the NDB. Given its economic weight, it would not be surprising if China demands greater rights or privileges in the NDB. Third, the NDB’s Board of Governors and Board of Directors are chaired by Russia and Brazil, respectively. China maintains positive and stable relations with these countries. Fourth, China’s far-reaching trade and economic contacts with Russia, Brazil, and South Africa will contribute to limiting the Indian influence in the NDB. In terms of both commercial and merchandise global trade, China dominates the other BRICS countries (see Graphs II and III). Fifth, because China has emerged as a strong and influential factor in Africa, locating the NDB’s regional center in South Africa will likely help the Chinese to establish close ties between the regional center and the headquarters in Shanghai. One of the factors contributing to China’s ascendance in Africa is its strong advocacy of permanent African continental representation [24] Georgetown Journal of Asian Affairs


Panda | Alignment Minus Alliance

on the United Nations Security Council. In contrast with these concrete advantages, India’s presidency of the bank is more symbolic in nature. The NDB is still an institution in the making. Therefore, it is difficult to know whether and how the Indian presidency will eventually help India to increase its influence both in and outside of BRICS. But it is becoming clear that, because of Beijing’s economic supremacy, India’s influence will be secondary to China’s. Graph II. Share of World Commercial Trade, 2014

% Source: Trade Profiles, Statistical Database, WTO, Geneva, 2014.

Graph III. Share of World Merchandise Trade, 2014

Source: Trade Profiles, Statistical Database, WTO, Geneva, 2014.

China’s economic advantages may help Beijing to not only influence the NDB’s decisions, but also gradually dominate its proceedings, which may vex India. Two specific matters may aggravate this friction: (i) the type of infrastructure projects that the NDB will finance; and (ii) the source of funding for such projects. In regard to the first factor, India’s infrastructure development requirements are huge, and furthermore, they are different from those of other BRICS countries. Therefore, it may be difficult to reach consensus on the types of projects that will be implemented as well as their funding Spring/Summer 2015 [25]


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criteria. The second aspect regarding funding sources may also create friction. Given its economic authority, China may want to fund most of the NDB projects, which India may not find palatable. Due to the complex security situation between India and China, New Delhi has always been hesitant to accept funding from Beijing or support Beijing-backed projects. With the exception of the recent agreements on establishing industrial parks and sister city or provincial-level engagement at the bilateral level, India has been cautious with regard to China’s investment and financial proposals. In addition, will the NDB be open to the idea of funding loan proposals to carry out infrastructure development in disputed regions? It should be noted that India’s proposal for a loan from the Asian Development Bank (ADB) to carry out infrastructure development in India’s northeast region was sternly opposed by China on the basis that Beijing calls the state of Arunachal Pradesh—which is a part of India’s sovereign territory—a disputed region. If the NDB emerges as another arrow in China’s quiver in its quest for global prominence, as seems likely, the NDB may eventually facilitate the promotion of the Chinese currency as the most prominent currency in the world market. The Master Agreement on Extending Credit Facility in Local Currency and the Multilateral Letter of Credit Confirmation Facility Agreement between EXIM/Development Banks, two agreements under the BRICS Interbank Cooperation Mechanism, are important indicators of this potential. These agreements allow BRICS members to not only boost intra-BRICS trade cooperation, but to also facilitate the use of member countries’ currencies as the direct medium for intra-BRICS trade transactions.10 In brief, this would allow BRICS members “to reduce dependence on the U.S. dollar, cut trading costs, [and] increase trade and investment flows.”11 The dominance of the Chinese yuan within BRICS gives it an edge to emerge as the medium of exchange within BRICS and in the NDB. The approximate combined foreign exchange reserves of the BRICS is around $5 trillion, of which China holds roughly $4 trillion. China’s foreign assets comprise half of its gross domestic product, a ratio that no other country can match.12 China has been hunting for any opportunity to decrease the influence of the U.S. dollar in the world economy. The NDB may become instrumental in helping China realize this objective. If this happens, India’s growth strategy in terms of the value of its rupee will certainly be affected. The AIIB Alternative: Is India Conceding to China’s Authority? The NDB not only implies the potential beginning of a new global financial order, but also builds upon growing Chinese leadership in world affairs. Consonant with “Ministry of External Affairs of India, “Fourth BRICS Summit - Delhi Declaration,” May 29, 2012, http://mea.gov.in/bilateral-documents.htm?dtl/19158/Fourth+BRICS+Summit++Delhi+Declaration. 11 National Treasury of the Republic of South Africa, “Interbank Cooperation Mechanism,” http:// www.treasury.gov.za/brics/icm.aspx. 12 Kenneth Rapoza, “China’s Foreign Assets More Than Half its GDP,” Forbes, July 4, 2014, http://www. forbes.com/sites/kenrapoza/2014/04/07/chinas-foreign-assets-more-than-half-its-gdp. 10

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this trend is the Chinese initiative to establish the AIIB. How does India view the AIIB and its role in facing China’s ambition of establishing a regional economic order congruent with its aspiration for an improved position in the global financial order? As of yet, New Delhi has been quite cautious in expressing its views on the Beijing-proposed AIIB. A detailed perspective from Indian officials with regard to the AIIB is still missing. Politically, India has signed the Memorandum of Understanding (MoU) to join the AIIB, signaling to the world that it does not want to be left out of the emerging regional economic order. But diplomatically, there is a more nuanced significance attached to it. India’s stance has to be understood mainly in terms of the changing discourse of regional politics, in which China is now an influential power and factor. China proposed the AIIB against the background of the United States’s “pivot toward Asia” policy. Chinese President Xi Jinping made the proposal at the 2013 Asia-Pacific Economic Community Chief Executive Officer (APEC CEO) meeting in Bali, Indonesia, primarily aiming to promote infrastructure development and economic growth in Asia. China has advocated that the AIIB become a leading investment bank in Asia to facilitate regional cooperation and developmental partnership with multilateral and development institutions. The Chinese further reason that the AIIB will nurture and harness resources from within Asia as well as outside the region, while maintaining consistency with other leading multilateral development banks in the world. India signed the MoU on 24 October 2014 in Beijing, becoming one of the bank’s twenty-one founding members. This was a surprising move, as India often finds its strategic interests in Asia differing from China’s interests. Given the two countries’ conflicting stances on building infrastructure in various parts of Asia, including in both the maritime and land corridor domains, India’s political decision to join the AIIB prompts a debate: Is India conceding to China’s authority and influence both in Asia and elsewhere? India’s rationale for going forward with this initiative becomes even more puzzling due to the fact that India has yet to accept the Chinese-proposed Maritime Silk Road (MSR) and Silk Road Economic Belt (SREB). The AIIB MoU is not legally binding; it is so far just a political commitment to start the bank. Negotiations regarding the AIIB’s mode of operations, governance procedures, and the issues it would address will be carried out in 2015. It is also expected that the Articles of Agreement, which will be legally binding, will be signed in 2015. India’s approach to the AIIB is crucial, particularly given that the AIIB is linked to Asia’s regional architecture as well as global governance structure and economic growth. In deciding to join the AIIB, India has perhaps decided it does not wish to pass up the advantages and opportunities that the Chinese economy offers to Asia and the world—opportunities from which India can benefit. Pursuing trade and economic engagement and partnering with China in multilateral mechanisms have been stable aspects of India’s China policy and overall India-China relations. India’s engagement with China on the economic front demonstrates the pragmatism in India’s China policy. However, India’s decision to join the AIIB is most likely linked to the changing course of Asian and global governance. Three practical reasons may have induced India to decide to join the AIIB. First, the Spring/Summer 2015 [27]


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progression of India-China bilateral ties has been advanced as a “developmental partnership.” During Xi Jinping’s visit to India in 2014, and as noted in the Joint Statement of the two countries, India and China expressed an interest in shaping a “developmental partnership,” which would be an important module of their “Strategic and Cooperative Partnership.” The pledge to foster a developmental partnership is contextualized at both the bilateral and regional levels.13 This developmental partnership may have its limitations, and we may instead witness only a “limited partnership” as the strategic interests of the two countries clash at the regional level. Nevertheless, in regional and global economic engagement and interaction, there has been steady and progressive growth in India-China ties. India’s decision to join the AIIB seems to be a part of this trend. Second, India may foresee the AIIB becoming an important alternative institution that is beneficial to developing nations in Asia and beyond. It is in the common interest of India and China to work together in mutually beneficial multilateral institutions or structures. This approach has been seen in India’s association with China in BRICS and its institutions, the Russia-India-China (RIC) trilateral framework, the Bangladesh-China-India-Myanmar (BCIM) sub-regional mechanism, and the on-going trade liberalization negotiation of RCEP (where India is linked to China through the ASEAN+6 mechanism). Another indicator of this mutual benefit was also seen in China’s invitation to India to attend the APEC preparatory summit meeting in Beijing in 2014. Furthermore, India is now seeking membership in the Shanghai Cooperation Organization (SCO), where the SCO Development Bank is aiming to finance multilateral infrastructural projects connected to India.14 Third, aligning with China serves India’s interest in reforming the Bretton Woods institutions. It is well known that the IMF is largely dominated by the Europeans, the World Bank by the Americans, and the ADB by the Japanese. In proposing the AIIB, China wants to make a leadership statement in the regional and global financial order. Given India’s stable relations with Europe, America, and Japan, it is perhaps prudent for India to engage with China in this area. India’s main intention here is to engage with China economically, though not strategically. Because China has become the main driver behind numerous economic initiatives, India cannot ignore its influence in Asia. Chinese leadership of the RCEP negotiations and its recent proposal to revive the idea of establishing a FTAAP are additional testimonies to Beijing’s economic leadership, which leaves India without any other option but to engage with China. By building alternative institutions, Beijing is becoming a revisionist power and a Ministry of External Affairs of India, “Joint Statement between the Republic of India and the People’s Republic of China on Building a Closer Developmental Partnership,” September 19, 2014, http://www.mea.gov.in/bilateral-documents.htm?dtl/24022/Joint+Statement+between+the+Republic+of+India+and+the+Peoples+Republic+of+China+on+Building+a+Closer+Developmental+Partnership. 14 “SCO Development Bank ready to finance projects in India, Iran,” Russian News Agency, October 17, 2014, http://tass.ru/en/economy/754510. 13

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“banking country” with the distinction of being the largest manufacturer and exporter. With almost $4 trillion in international reserve assets, China aims to replace the United States as the largest economy in the world. China’s aims and objectives, with regard to Asia and the regional financial order, are part of its global aspirations and strategy. India is not a revisionist power. It is still progressing on the global stage and is still trying to bring about a balance between its economic attractiveness and political weight. Nevertheless, India’s decision to join the AIIB points to emerging facets of Asia’s changing regional order. India’s regional outlook is based on a nuanced and pragmatic approach. Even though India does identify its strategic interests as being congruent with the American “pivot to Asia” strategy, its outlook is different when it comes to economic undertakings. India does see the importance of China and identifies its own regional economic interests with those of China. The core goal of the AIIB is to build infrastructure in Asia, something that is also being propelled by the Chinese through the “One Belt, One Road” initiative. This “belt and road” initiative demonstrates Chinese ambitions are linked to building up key land and maritime corridors. It is not difficult to understand that this proposal is based on China’s grand design for regional and global objectives, which are detrimental to India’s overall strategic interests in Asia. Consequently, India’s response to this initiative has been reticent. India has neither supported China’s MSR project, nor has it welcomed the China-Pakistan economic corridor projects, which is a part of China’s SREB initiative. At the same time, India can better impede these Chinese financial projects from inside the AIIB, rather than outside of the institution. This is a strategy that China previously sought to employ vis-à-vis loans to India and project proposals from the ADB. Conclusion In brief, the Indian outlook toward the emerging regional economic order is fundamentally cooperative and driven by a desire to engage internationally. India is an important actor in RCEP negotiations and anticipates that the Indian economy will be more integrated into the regional economy once the RCEP negotiations conclude. RCEP will enhance India’s free trade agreement (FTA) with ASEAN as well as with Japan and South Korea, thereby improving India’s economic reach and regional trade contacts in areas such as banking, tourism, services, communications, and societal interactions. In other words, the Indian outlook is linked to the evolving regional order through the development of new institutions such as the AIIB, RCEP, and other agreements. Despite having this goal, given that China is the only country in East Asia with whom India is yet to sign a FTA, India’s backing of Chinese-led institutions or alternative institutions in Asia and elsewhere does not necessarily mean it is backing a Chinese-dominated order. Rather, India would like to engage with China in making an alternative order as long as it is not an entirely “China-centric” order. India seeks to associate and engage with China while making its own presence felt, rather than

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leaving everything to China’s authority. Ultimately, it all boils down to the fact that India believes in a “shared leadership” in Asia rather than a “single leadership.”

Jagannath P. Panda is Research Fellow and Centre Coordinator for East Asia at the Institute for Defence Studies and Analyses (IDSA) in New Delhi. He can be reached at jppjagannath@ gmail.com.

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Hermawan | Indonesia’s New Pragmatic Leadership

China’s Dual Neighborhood Diplomacy and Indonesia’s New Pragmatic Leadership How Can ASEAN Preserve its Centrality in a New Challenging Dynamic? Yulius Purwadi Hermawan The formation of the ASEAN economic community by the end of 2015 will be hailed as a hallmark of ASEAN’s fifty-seven years of passionate cooperation among regional leaders in Southeast Asia. While many consider this achievement as a milestone for ASEAN to pursue further integration, the challenges ahead are also evident.1 One of the serious challenges is China’s greater involvement in the region. Although China’s new neighborhood policy under President Xi Jinping’s strong and visionary leadership has delivered great economic opportunity for the region, it has also tested ASEAN’s credibility, particularly its ability to maintain the balance of influence between major powers in the region. China has been an ASEAN dialogue partner since 1996 and its contribution to supporting the economic development of ASEAN members has increased significantly ever since. China’s role will increase in the near future with its new commitment to deepen the ASEAN China Free Trade Area (ACFTA) as well as the establishment of the Asian Infrastructure Investment Bank (AIIB), which will contribute to vital interests of ASEAN member states. China has greatly helped ASEAN to grow economically through various cooperation frameworks, but its genuine support for ASEAN’s credibility and unity is questionable. This article addresses two major issues: the increasing influence of China in Southeast Asia and the role of Indonesia’s new, pragmatic leadership. To what extent will the post-2015 ASEAN be able to shape the changing regional economic and political architecture in a context where China is obviously attempting to strengthen its grip on the region? What role can Indonesia play to consolidate ASEAN centrality and respond to new regional dynamics? This article argues that maintaining ASEAN centrality is imperative for both ASEAN and its dialogue partners, particularly in terms of maintaining the balance of regional influence between the traditional major powers Rodolfo C. Severino, “Let’s Be Honest about What ASEAN Can and Cannot Do,” East Asia Forum, January 31, 2014, http://www.eastasiaforum.org/2014/01/31/lets-be-honest-about-what-asean-canand-cannot-do. 1

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and a rising China. ASEAN may lose its political centrality unless its leaders are able to forge a clear direction within this new dynamic. If the traditional great and middle powers want to navigate within the new Asian dynamic, they must help ASEAN to fortify its capacity, credibility, mutual trust, and unity. These nations must unceasingly and proactively back up ASEAN forums, norms and mechanisms, and prove that the cooperation frameworks they promote deliver as many tangible benefits as China’s economic initiatives do. ASEAN and China Relationship: Economically Strong, but Politically Shaky The rise of China as a regional power has received mixed responses from ASEAN member states. On the one hand, ASEAN member states need China to promote their economic development. On the other hand, they have had an uneasy and tense political relationship with China. This is particularly true with regards to the South China Sea dispute, where China tends to ignore ASEAN leaders’ vocal calls for a peaceful settlement. China is successfully emerging as an economic magnet that is able to draw in neighboring countries and build a concrete relationship. The economic relationship between ASEAN and China is formalized within the framework of the ACFTA. China first proposed the idea of forming a free trade area at the ASEAN+3 Summit in November 2000. The proposal was presented in November 2001 by then-Premier Zhu Rongji at the ASEAN-China Summit. ASEAN members initially responded cautiously to the proposal. However, a year later, ASEAN established the Framework Agreement on Comprehensive Economic Cooperation Between ASEAN and the People’s Republic of China, which became a legal instrument to guide overall ASEAN-China economic cooperation, including establishing the ACFTA.2 The ACFTA was eventually launched in 2010. The results have been remarkable. China has become ASEAN’s largest trading partner, while ASEAN is China’s third largest trading partner. Bilateral trade has increased by 11 percent per year, reaching $443 billion in 2013. A new commitment was recently signed to increase the trade up to $500 billion by 2015 and $1 trillion by 2020.3 China’s proposals also include the establishment of the AIIB. China is aware that Asian countries need large amounts of funding for their infrastructure development, and that existing financial institutions are not addressing this need. It is estimated that some $8 trillion will be needed between 2010 and 2020. The ADB’s capital base is only about $160 billion, while the World Bank holds only $223 billion.4 The AIIB is seen as Sheng Lijun, “China-ASEAN Free Trade Area: Origins, Development and Strategic Motivations,” ISEAS Working Paper: International Politics and Security Issues Series, no.1 (2003): 1-34. 3 Zhao Yinan, “China, ASEAN Set 2015 As Goal for Upgrading Free Trade Agreement,” China Daily, November 14, 2014, http://usa.chinadaily.com.cn/china/2014-11/14/content_18911804.htm. 4 “Why China is Creating a New “World Bank” for Asia,” The Economist, November 11, 2014, http:// www.economist.com/blogs/economist-explains/2014/11/economist-explains-6. 2

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a very strategic way to raise funds for infrastructure development in Asian countries.5 This explains why significant numbers of Asian countries, including ASEAN members, enthusiastically support the initiative. Twenty-one countries immediately welcomed the initiative by signing a Memorandum of Understanding (MOU) on 24 October 2014 as Prospective Founding Members (PFM). The original group of founding members included all ASEAN members except Indonesia and twelve non-ASEAN members. According to the MOU, the bank’s authorized capital is $100 billion, and it is expected that the bank will raise $50 billion in initial capital.6 The bank will be formally set up by the end of 2015. Indonesia eventually signed the MOU on 25 November 2014, a few weeks after President Joko Widodo met President Xi during his first official state visit to Beijing. Since then, several more countries both in and outside of Asia have joined as prospective founding members. The members are currently negotiating the draft of the AIIB’s Article of Agreement, with July 2015 as the expected completion date. The economic relationship between China and ASEAN is clearly growing. However, the political relationship is not as progressive as economic cooperation. Political tensions have visibly increased, particularly because China has repeatedly used provocative measures in securing its interests in the disputed waters in the South China Sea. Efforts made to find a beneficial and long lasting peaceful resolution of the dispute show very little progress.7 China agreed with ASEAN members to adopt the 2002 Declaration of Conduct (DOC) of Parties in the South China Sea, which became the main guide and foundation for all conflicting parties to seek a resolution. However, negotiations on the formulation of workable instruments to implement the DOC have produced very little progress as of yet. ASEAN’s credibility is undeniably at stake. China is very reluctant to fully respect the DOC and does not demonstrate an interest in accelerating its implementation. China has, for example, continued its military-backed oil exploration and land reclamation in the disputed waters.8 China conspicuously ignored ASEAN’s formal joint communiqués against China’s oil exploration and has made deliberate efforts to hamper any strides towards a collective resolution. In February 2015, China began major land Bai Ming, “Will Asian Infrastructure Investment Bank Become a Reality?” China Today, October 16, 2014, http://www.chinatoday.com.cn/english/report/2014-10/31/content_648247_3.htm2014-October-31. 6 Yang Yi, “21 Asian Countries Sign MOU on Establishing Asian Infrastructure Investment Bank,” Xinhuanet, October 24, 2014, http://news.xinhuanet.com/english/business/2014-10/24/c_133740149_2. htm. 7 Lynn Kuok, “Overcoming the Impasse in the South China Sea, Jointly Defining EEZ Claims,” East Asia Policy Paper 4 (December 2014): 1-22; David Scott, “Conflict Irresolution in the South China Sea,” Asian Survey 52, no. 6 (2012). 8 In June 2014, a Chinese state-owned oil exploration company deployed an oilrig to Vietnam’s exclusive economic zone. See Viet Long, “China’s Apparent Intentions Emerge One Month after Oil-rig deployment,” Vietnamnet, March 6, 2014, http://english.vietnamnet.vn/fms/special-reports/104065/ china-s-apparent-intentions-emerge-one-month-after-oil-rig-deployment.html. 5

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reclamation and construction at Fiery Cross Reef, Gaven Reefs, and Johnson South Reefs.9 These actions seem to prove that China does not entirely respect the joint statement declared by ASEAN at the ASEAN Summit in Myanmar. Another example of China’s aggressive behavior towards ASEAN states is the deployment of its largest and most advanced patrol vessel, Yuzheng 310, to the disputed Scarborough Shoal in June 2012.10 China’s actions undermine ASEAN’s political credibility, and eliminate confidence that ASEAN would take any collective action against China’s proactive and deliberative advances other than issuing rhetorical statements. Challenges for ASEAN Centrality To what extent does a closer relationship between China and individual ASEAN countries impact ASEAN’s effectiveness as a whole? Does it affect ASEAN centrality? The notion of “ASEAN centrality” is used by ASEAN leaders to suggest that ASEAN and its relationship with the wider world should be determined by the interests of the ASEAN Community. ASEAN centrality can also be seen as an ASEAN approach to navigate competitive relationships between major powers in the region, particularly to ensure that such rivalries do not endanger regional stability. ASEAN is not only a home for its ten member states, but it also has the central responsibility of “being in the ‘driver’s seat’ of larger regional bodies.”11 To carry out this central role, ASEAN leaders set up forums of dialogue such as ASEAN+1, ASEAN+3, the ASEAN Regional Forum (ARF), the East Asian Summit (EAS), and the ASEAN Defense Ministers Meeting Plus (ADMM Plus). These forums allow ASEAN and its dialogue partners to exchange ideas and share various concerns regarding the development of regional security as well all other related issues.12 ASEAN-initiated mechanisms have proven to be effective in maintaining regional stability.13 ASEAN centrality is thus positive for both ASEAN and its dialogue partners. ASEAN nations can determine regional architecture according to their views, while ASEAN dialogue partners can provide contributions to the building of this regional architecture. From the vantage point of the major powers, ASEAN-initiated forums provide opportunities for them to get engaged in shaping the rule-based order in Southeast Asia and the wider Asia-Pacific region. Alexander Smith, “China Builds Islands in Disputed South China Sea: IHS Jane’s Defense Weekly,” NBC News, February 19, 2015, http://www.nbcnews.com/news/china/china-builds-islands-disuptedsouth-china-sea-ihs-janes-defense-n308856. 10 Both China and the Philippines lay claim to the Scarborough Shoal, which is part of the disputed territory in the South China Sea. See Renato Cruz De Castro. “China’s Realpolitik Approach in the South China Sea Dispute: The Case of the 2012 Scarborough Shoal Standoff ” (paper submitted for the Managing Tensions in the South China Sea conference, CSIS, Washington DC, June 5-6, 2013): 2-14. 11 Amitav Acharya, “The End of ASEAN Centrality?” Asia Times, August 8, 2012, http://www.atimes. com/atimes/Southeast_Asia/NH08Ae03.html. 12 See Seng Tan, “Whither ASEAN Centrality in East Asia’s Defense Regionalization?,” http://news. ntu.edu.sg/SAFNTU/Documents/Panel%201%20-%20Assoc%20Prof%20Tan%20See%20Seng.pdf. 13 Mark G. Rolls, “Centrality and Continuity: ASEAN and Regional Security since 1967,” East Asia 29, no. 2 (2012): 127-139. 9

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There are reasons to be concerned about the possible decline of ASEAN centrality. ASEAN could maintain its centrality if its leaders were able to build unity and consensus. This challenge is closely related to China’s bid to break up ASEAN cohesion. As a partner in economic development, China seems to have more opportunities to influence ASEAN’s affairs. This was evident during the ASEAN Summit in Cambodia in 2012. China used Cambodia, one of its close partners within ASEAN, to block a joint statement protesting China’s violation of the 2002 DOC. China is Cambodia’s largest aid donor, as well as an increasingly important partner in trade and investment.14 Cambodia had few options, so it bowed to China’s pressure and refrained from joining an ASEAN consensus on the South China Sea. This action threatened the unity of ASEAN, and the ASEAN countries nearly failed to build consensus. Following the incident, other possible divisions haunted ASEAN Summits whenever the summit was held in those countries with strong economic ties with China. In addition to Cambodia, Laos and Myanmar greatly benefit from their economic relationships with China. Thus, although China has declared its full commitment to respect ASEAN centrality, such as during the ASEAN-China Summit in Myanmar in 2014, there is no guarantee that China will fully comply with its own commitments. China’s erratic position towards the South China Sea dispute has taught us all a practical lesson, namely that ASEAN cannot truly rely on China’s formal statements. As China’s involvement in the region increases, the commitment of ASEAN’s traditional partners to the region has become questionable. Indonesia and other ASEAN countries have developed relationships with the established powers since 1967 in order to promote a so-called dynamic equilibrium. ASEAN enthusiastically welcomed Japan, the United States and the European Union, as well as other middle powers, to establish partnerships with ASEAN countries. Besides bilateral trade and investment, security issues have been an important part of cooperation. These relationships have helped ASEAN to secure support from the major powers in maintaining regional stability and to generate a regional balance of influence. However, since the financial crisis hit the United States, Japan, and several European countries, ASEAN leaders cannot rely on the economic and political support of the global major powers. This shift in the power constellation provides room for China to increase its economic and political influence in the region.15 The visible absence of U.S. involvement in resolving the South China Sea dispute is one piece of evidence to suggest the United States finds it difficult to deal with these regional challenges. China is very confident that the United States’s relationship with its partners in East Asia is declining, and seeks to ensure that this situation helps China to attain dominance in the region.16 Heng Pheakdey, “Chinese Investment and Aid in Cambodia a Controversial Affair,” East Asia Forum, July 16, 2013, http://www.eastasiaforum.org/2013/07/16/chinese-investment-and-aid-in-cambodia-a-controversial-affair. 15 William W. Keller and Thomas G. Rawski, China’s Rise and the Balance of Influence in Asia (Pittsburgh: University of Pittsburgh Press, 2007), 3-13. 16 Ian Storey, “The South China Sea Dispute: How Geopolitics Impedes Dispute Resolution and Conflict Management” (paper presented at Global and Regional Powers in a Changing World FLACSO-ISA, Buenos Aires, Argentina, July 23-25, 2014). 14

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Other challenges to ASEAN centrality are internal. The primary internal issues are that ASEAN lacks both meaningful institutional integration and the bold, visionary leadership necessary to deepen ASEAN cooperation.17 The Jakarta-based ASEAN secretariat remains a bare-bones institution, which functions merely to deal with very technical administrative affairs without any supranational competence.18 Many regional leaders exhibit a parochial foreign policy vision, interested in promoting economic cooperation for their own national interests rather than the formation of a genuine and more consolidated ASEAN economic community. Without strong leaders who are highly committed to regional integration, the ASEAN Community will not enjoy well-consolidated institutions in the future. ASEAN leaders see ASEAN as the premiere forum for regional cooperation, therefore recognizing its potential as a foreign policy tool. However, because they have different views on the importance of ASEAN, ASEAN leaders seem to be unwilling to trade a high degree of autonomy for greater integration within the institution. Furthermore, ASEAN’s political competence and ability to solve regional disputes is at a standstill. For example, ASEAN member states prefer to appeal for support from the United Nations or other international organizations to resolve their border disputes. Some ASEAN countries individually build their strategic political cooperation with the United States in order to counter China’s moves in disputed South China Sea territories. This shows that ASEAN’s internal dispute mechanism does not work. Despite progress in economic collaboration, political trust among ASEAN leaders is very low. As a result of these external and internal challenges, ASEAN may face the risk of losing its central role as a driver of the changing regional dynamic. Indonesia’s Regional Role under New Leadership Indonesia has traditionally been regarded as the leading proponent of ASEAN integration since ASEAN was formed in 1967. Indonesia played a central role in this process. Every Indonesian leader has been very active in shaping the direction of ASEAN and has aimed for ASEAN to become a leading regional organization. In 1976, Indonesia put forward the Treaty of Amity and Cooperation (TAC), which institutionalized norms of conduct between ASEAN member states as well as with their dialogue partners. Indonesia also initiated and formalized ASEAN’s three community pillars in 2003. Under its chairmanship in 2011, Indonesia set the new direction for ASEAN to become an active member of the global community. Indonesia has also played a pivotal role in maintaining ASEAN’s unity and centrality.19 Every Indonesian president has held ASEAN to be primus inter pares in their foreign policies. For all these reasons,

Rizal Sukma, “ASEAN Beyond 2015: The Imperatives for Further Institutional Changes,” ERIA Discussion Paper Series: 1-28; Mely Caballero-Anthony, “Understanding ASEAN’s Centrality: Bases and Prospects in an Evolving Regional Architecture,” The Pacific Review 27, no.4 (2014): 563-584. 18 Joshua Kurlantzick, “ASEAN’s Future and Asian Integration,” Council on Foreign Relations. 19 Leonard C. Sebastian, “Indonesia’s Dynamic Equilibrium and ASEAN Centrality,” http://www.nids. go.jp/english/event/symposium/pdf/2013/E-01.pdf. 17

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Hermawan | Indonesia’s New Pragmatic Leadership

it can be argued that Indonesia was a true navigator behind forging a direction for ASEAN. The question today is whether new Indonesian leader President Joko Widodo will adopt a similarly traditional approach towards ASEAN as the cornerstone of Indonesian foreign policy. President Widodo’s position towards ASEAN has been a subject of speculation for some international affairs analysts.20 One analyst observes that under the new administration, Indonesia will turn away from ASEAN and focus more on bilateral ties that benefit its domestic-oriented policies.21 The government has a very strong interest in gaining concrete and tangible benefits from Indonesia’s international diplomacy in a short amount of time (a so-called quick harvest diplomacy). Additionally, having no strong experience in international affairs, President Widodo has to rely on his personal aides and allow the Ministry of Foreign Affairs and its diplomats to play a greater role in the conduct of Indonesian foreign policy. All Indonesian diplomats should be able to promote the main priorities of the government, including the protection of Indonesian citizens and legal firms abroad, the protection of Indonesia’s sovereignty, and the enhancement of economic and maritime diplomacy. But perhaps the most salient point is that under President Widodo’s leadership, Indonesian foreign policy tends to be more pragmatic than ideal-normative. From his perspective, the success of Indonesian diplomacy should be measured in concrete terms, such as the amount of foreign investment, the number of the international business agreements, and the numbers of Indonesian citizens with adequate protection while abroad. President Widodo holds a similar view towards ASEAN. In his speech at the ASEAN Summit in Na Pyi Taw, Myanmar, he showed his strong confidence and commitment to contribute to the ASEAN integration: In this 25th ASEAN Summit, which is my first Summit to attend, I want to re-emphasize our government’s commitment to promote ASEAN cooperation. For Indonesia, ASEAN is a forum for building cooperation which brings benefit for our people, for development in our countries, and for peace and stability in our region.22 President Widodo proposed that ASEAN should adopt three effective ways to deliver more concrete and tangible benefits, namely: the acceleration of infrastructure and connectivity development through the accelerated implementation of the Master Plan B.A. Hamzah, “Sinking the Ships: Indonesia’s Foreign Policy under Jokowi,” RSIS Commentary, no. 16-20 (2015); Jonathan Chen, Indonesia’s Foreign Policy under Widodo: Continuity or Nuanced Change? (Perth US Asia Centre, 2014), 68-100. 21 Emirza Adi Syailendra, “Consensual Leadership in ASEAN: Will it Endure Under Jokowi?,” Fair Observer, February 2, 2015, http://www.fairobserver.com/region/asia_pacific/consensual-leadership-asean-will-endure-jokowi-02487. 22 President Joko Widodo, Speech, 25th ASEAN Summit, Na Pyi Taw, Myanmar, November 12, 2014. 20

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on ASEAN Connectivity; the increase of cooperation in investment, industry, and manufacture among ASEAN countries; and the increase of intra-ASEAN trade.23 He is confident that if ASEAN follows these steps, the economy of ASEAN countries will grow by 7 percent in the following years. President Widodo also has serious concerns over the importance of the ASEAN centrality. In his view, ASEAN should enhance its capacity, build credibility, and strengthen unity if it wants to maintain its centrality in the region and play the role of, in the words of one scholar, “a node in a cluster of networks.24 Centrality should be the main character of the post-2015 ASEAN posture. In response to the South China Sea dispute, President Widodo reminded all conflicting parties to avoid using any military means, to respect the DOC, and to agree to accelerate the implementation of an ASEAN Code of Conduct to manage conflict. The speculation over President Widodo’s lack of interest in ASEAN is thus unfounded. Under his leadership, ASEAN may have a greater chance to transform from a talk-shop, as many critiques frequently claim, and to become an organization with real deliverables.25 Specifically, President Widodo aims for the post-2015 ASEAN to have the necessary attributes to serve its functions: credibility in the eyes of ASEAN members and the wider world community, unity among the leaders and the people, and the institutional capacity to respond to new regional dynamics effectively. Through pragmatic leadership, such as that demonstrated by President Widodo, the post-2015 ASEAN Community could become a results-oriented organization. One aspect of this pragmatism may involve ASEAN countries building closer relationships with China as a shortcut to achieving robust economic growth. President Widodo himself has visited China twice since his inauguration in October 2014. These visits indicate that President Widodo sees China as a strategic partner for achieving Indonesia’s vital interests, such as increasing foreign investment. As this paper has already suggested, such an approach may lead ASEAN into a difficult dilemma: greater economic dependence means wider room for Chinese interference. But it may also create a breakthrough if Indonesia can use its relationship with China as leverage to win a better position for ASEAN. In the short term, a pragmatic ASEAN may be necessary to assure all regional leaders that the institution delivers concrete economic benefits for its community. But ASEAN should not lose its long-term vision beyond 2015. ASEAN should be able to determine its own destiny and generate regional peace and prosperity without external interference. It is important to remind Indonesia and other countries that ASEAN, For information on the first priority in this list, see ASEAN Secretariat, Master Plan on ASEAN Connectivity (Jakarta, 2013). 24 Caballero-Anthony, “Understanding ASEAN’s Centrality: Bases and Prospects in an Evolving Regional Architecture,” 563. 25 A. Lin Neumann, “ASEAN: Talking-shop or Crucible of Power?” Asia Sentinel, September 9, 2012, http://asiancorrespondent.com/88987/asean-front-and-center. 23

[38] Georgetown Journal of Asian Affairs


Hermawan | Indonesia’s New Pragmatic Leadership

under Indonesia’s chairmanship in 2011, had defined a new visionary role as an active member of global community. ASEAN thus should not only carry out its regional responsibilities, but also a wider global mission. It is also important for ASEAN to formulate a roadmap beyond 2015 in order to contribute to the future global architecture. Priorities for ASEAN’s Post-2015 Agenda The previous sections highlight China’s attempts to test ASEAN’s credibility and centrality by using a variety of diplomatic, economic, and military means. China’s intention has been to increase its influence in the regional economic and political architecture in order to help Beijing pursue its interests in Southeast Asia and the greater region. Chinese interference divided ASEAN leaders during the 2012 ASEAN summit in Cambodia and seriously obstructed ASEAN’s preferred method of consensus making. The possible disunity of ASEAN leaders continues to haunt ASEAN summits, as China uses proxies to defend its viewpoints. ASEAN has tried to respond collectively to China’s interference by issuing joint statements that call for the use of peaceful means (as opposed to military intervention) to resolve all disputes.26 Yet, these joint statements do not satisfy all ASEAN member states, particularly those who are challenging China’s South China Sea claims. Furthermore, China has repeatedly ignored ASEAN’s joint communiqués that protest Chinese actions. ASEAN’s competence as a reliable institution with the ability to manage or mediate regional disputes is uncertain. The Philippines and Vietnam seem to be choosing stronger partnerships with the United States to protect their interests, as they feel they cannot rely on ASEAN. This trend could lead to a crisis of credibility for ASEAN. In light of this dilemma, we must answer several important questions. How can ASEAN balance economic and political interests in its relationship with China? How can the ACFTA deliver as many benefits as possible to ASEAN member states? How can ASEAN states participate in ACFTA and the AIIB but not allow China to drive the future direction of ASEAN? How can major powers help ASEAN in securing their political interests vis-à-vis China’s increasing political influence in the region? Several recommendations are proposed here. First, the consolidation of ASEAN ASEAN issued joint communiqués with language addressing tensions in the South China Sea in 2012 (Cambodia), 2013 (Brunei) and 2014 (Myanmar). For example, the 2013 communiqué stated, “We further reaffirmed the importance of peace, stability, and maritime security in the region. We underscored the importance of the Declaration on the Conduct of Parties in the South China Sea (DOC), ASEAN’s Six-Point Principles on the South China Sea, and the ASEAN-China Joint Statement on the 10th Anniversary of the DOC. In this regard, we reaffirmed the collective commitments under the DOC to ensuring the resolution of disputes by peaceful means in accordance with universally recognized principles of international law, including the 1982 United Nations Convention on the Law of the Sea, without resorting to the threat or use of force, while exercising self-restraint in the conduct of activities.” See Association of Southeast Asian Nations, Chairman’s Statement of The 22nd ASEAN Summit, “Our People, Our Future Together,” April 25, 2013, available at http://www.asean.org/ news/asean-statement-communiques/item/chairmans-statement-of-the-22nd-asean-summit-ourpeople-our-future-together. 26

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remains critical and urgent. It is very important to unite ASEAN’s position towards China and other major powers. ASEAN will not be able to steer the direction of emerging dynamics unless it has consolidated its stance. All member states have to value ASEAN as an organization and seek to make it a premier forum for political and economic cooperation in the region. Second, a more closely-knit ASEAN Community definitely needs a stronger institutional framework. The strengthening of ASEAN’s institutions is thus a must. A commitment to strengthening the ASEAN secretariat was made at the ASEAN Summit in Myanmar.27 The next item on the agenda should be the implementation of this commitment. All ASEAN leaders should gradually give the ASEAN secretariat a measured degree of authority in certain sectors of cooperation. Third, ASEAN member states should strengthen the concept of dynamic equilibrium. This model is crucial to maintaining ASEAN centrality and to guaranteeing that the new form of rivalries between global powers and a rising China will not endanger the security or development of the region. ASEAN should continue its various dialogue forums to ensure the United States, China, and other major powers maintain their commitment to keep stability in Southeast Asia. The ARF and the EAS should be designated as forums where global and regional major powers share the responsibility of securing peace and stability in the region. ASEAN leadership should develop a clear-cut collective interest and speak with the same voice within these forums. Fourth, the middle powers must prove that their economic cooperation with ASEAN brings maximum benefit to the ASEAN countries. ASEAN’s dialogue partners should also enhance the effectiveness of cooperation frameworks, which they have already agreed upon with ASEAN leaders. The ASEAN-Australia-New Zealand FTA, the ASEAN-Japan FTA, and the ASEAN-United States FTA deliver as many benefits as the ACFTA. If middle powers want to navigate within new regional dynamics, they need to support ASEAN’s centrality. In addition, the formation of the AIIB should be seen as a new complementary approach used by ASEAN countries to promote the development of infrastructure in the region. The best choice for the established major powers is to find room to make a positive contribution to the effective functioning of this new institution. This involvement will help ASEAN countries to alleviate their concerns about the possible dominance of China within the institutions it has sponsored. These steps, if taken, would be the beginning of a post-2015 ASEAN capable of addressing its future challenges.

Burmese Ministry of Foreign Affairs, “The Declaration on Strengthening the ASEAN Secretariat and Reviewing the ASEAN Organs, Nay Pyi Taw,” November 12, 2014. 27

[40] Georgetown Journal of Asian Affairs


Hermawan | Indonesia’s New Pragmatic Leadership

Yulius Purwadi Hermawan teaches in the Department of International Relations at Universitas Katolik Parahyangan in Bandung, Indonesia.

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Will Taipei Be the Next Hong Kong? Democratic Institutions and Taipei’s Future as a Global City Salvatore Babones Smart money is surging out of China. Slowing economic growth and a government crackdown on corruption have led to an outpouring of funds as China’s wealthy seek out safe havens for its accumulated wealth. No one knows just how much money is leaking out of the Chinese economy, but a 2013 IMF report predicts that full capital account liberalization will result in outflows of 15 to 25 percent of GDP.1 That amounts to between $1.2 trillion and $2.1 trillion looking for a new home. And it is not just money that is on the move. According to a 2012 paper by Cheng Li, Director of the John L. Thornton China Center at the Brookings Institution, an internal Chinese Communist Party report found that at least three-quarters of the senior executives from China’s major state-owned enterprises had acquired foreign residency or passports for members of their immediate families.2 Countries all around the world seeking to capitalize on this trend have investor visa programs designed to attract rich Chinese immigrants. Where will all these people and their money go? The surprising answer may be Taipei. There are good reasons to think that Taipei, the capital city of Taiwan, could become one of Asia’s most important financial centers and Greater China’s first truly global city, joining the top rank alongside London and New York. Chief among these reasons is that Taiwan’s robust civil society ensures continuing rule of law in a way that China’s autocracy and Singapore’s managed family democracy cannot. Taipei already has most of the institutional machinery necessary to become a major East Asian business services hub. Given the extraordinarily rapid pace of social and economic change in Asia, any future consolidation of Asian business in Taipei could happen very quickly.

Tamim Bayoumi and Franziska Ohnsorge, “Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China” (working paper, International Monetary Fund, 2013: 14). 2 Cheng Li, “The End of the CCP’s Resilient Authoritarianism? A Tripartite Assessment of Shifting Power in China,” The China Quarterly 211 (2012): 617. 1

[42] Georgetown Journal of Asian Affairs


Babones | Will Taipei Be the Next Hong Kong?

An international visitor to Taipei today might be forgiven for failing to see any potential for transformational change. By Western standards, Taipei can seem like a crowded and dirty city. It is not a major international financial center. English skills among the population appear to be relatively poor. The Globalization and World Cities Research Network places it as a fourth tier city alongside regional centers like Jakarta and Warsaw.3 International brands are available, but Taipei is no Hong Kong. And, of course, looming over it all is the threat from across the Taiwan Strait. But Taipei also has cultural, political, and societal advantages that are unique within Asia, and these institutional advantages will only strengthen over the next fifteen years. Modern Taiwan shares a language and a history with the mainland. Although Taiwan is permanently tethered to China, Taipei is effectively independent of the Chinese authorities. Taiwan’s freedom and democracy make it a safe haven from the vicissitudes of arbitrary government, which is practiced on the mainland and increasingly in Hong Kong. Furthermore, Taiwan’s robust civil society ensures that Taiwan will ultimately solve the health and safety problems that plague much of the region. Competitive liberal democratic countries like Taiwan are inherently better placed to deal with the complex problems that arise in modern society and economics than are countries ruled by a single party or that lack a full spectrum of political debate. Problems like corruption and the selective rule of law arise everywhere, but in countries with liberal institutions these kinds of problems can be exposed and dealt with openly. Businesses operating under liberal institutions may be wary of government regulation, but they do not have to operate in fear of uncompensated expropriation or arbitrary imprisonment. Taiwan is already a liberal democratic country and Taipei is by global standards a very rich city. Taiwanese companies are global high-technology leaders and Taiwan is host to a sophisticated business community with extensive international experience, but Taipei is not yet a global city. In the 2010s and 2020s, macro trends such as capital and human flight from China and Hong Kong, increased tension between China and Japan, and the repatriation of hundreds of thousands of experienced businesspeople from China to Taiwan will likely converge to position Taipei to become a global city. As Hong Kong, Seoul, Shanghai, Singapore, and even Tokyo become marginalized within East Asia as regional or niche economic centers, Taipei could emerge as Greater China’s and East Asia’s one truly global city. A Global City for All of China Sociologist Saskia Sassen influentially characterized global cities as the “command centers” of the world economy, coordinating activities that are widely dispersed in

Globalization and World Cities Research Network, The World According to GaWC 2012, (Loughborough University: 2012). 3

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geographical terms.4 Global cities are conduits for foreign direct and portfolio investment and serve as major centers of business services like banking, business consulting, insurance, investment advice, legal services, and trade finance. These cities are highly networked nodes of global economic activity. Beijing is the center of the Chinese universe. However, as a capital city that governs one-fifth of humanity, it hardly has the human resources to manage China’s economy—let alone China’s economic relationships with the other four-fifths of humanity. The city of Beijing is indubitably and indelibly Chinese, not worldly or global. Though Beijing is the governing city of the world’s most populous country, it ranks a measly thirty-fifth as a focus city for global producer services firms.5 Lacking an international commercial presence, it is not and never will be China’s global city. When people think of where China goes to meet the world, they think of Hong Kong and Shanghai. The internationalization of Hong Kong and Shanghai dates back to the 1842 Treaty of Nanjing, which ended the First Opium War and lasted nearly a century. Shanghai towered over Hong Kong before Japan’s invasion in 1937 and later Communist victory in the Chinese Civil War. In the second half of the twentieth century, especially after the 1997 handover, Hong Kong became China’s window to the world.6 The competition between Hong Kong and Shanghai in the twenty-first century is reminiscent of the competition between Amsterdam and London in the eighteenth century or between Boston and New York in the nineteenth century. In each case, a larger city with greater political power overtook a smaller, richer rival. The losing city continued to grow in absolute terms in each case, but was eclipsed by the much faster growth of the winner. Will twenty-first century China tell a similar story? The key difference between the Shanghai-Hong Kong rivalry and previous financial rivalries is that China is a one-party state that lacks basic freedoms and robust civil society institutions. Property rights are anything but secure and never will be so long as the Chinese Communist Party (CCP) administers a unified party state. Investment calculations in China must always factor in the possibility of political interference or outright confiscation, imprisonment, and even execution. Today, opaque CCP offices, rather than official state institutions, administer China’s anti-corruption campaign. These considerations seem to favor Hong Kong over Shanghai. The problem for Hong Kong is that it is slowly but inexorably coming under tighter Chinese government (and CCP) control, as China’s response to the 2014 Hong Kong pro-democracy protests Saskia Sassen, The Global City: New York, London, Tokyo (Princeton: Princeton University Press, 1991). 5 P.J. Taylor and D.R.F. Walker, World Cities and Global Firms, Globalization and World Cities Research Network, Loughborough University. 6 Stephen Chiu and Tai-Lok Lui, Hong Kong: Becoming a Chinese Global City (Oxford: Routledge, 2009). 4

[44] Georgetown Journal of Asian Affairs


Babones | Will Taipei Be the Next Hong Kong?

has made clear.7 Local business leaders often have no choice but to support this transition: their huge property investments in both Hong Kong and China proper require that they stay on good terms with Beijing. The simple fact is that Hong Kong assets are now domestic Chinese assets and are increasingly treated as such by the Chinese government. The result is that Hong Kong is morphing from a rich offshore financial center used as a conduit for foreign investment into China into a rich onshore business center managing financial assets that are no longer Hong Kongese but Chinese. If Shanghai is China’s New York, then Hong Kong will become China’s Boston. Singaporean pundits can see the opportunity created by hot money eager to find a home beyond China’s reach, and the Singapore government is actively courting Chinese investors with light-touch regulation and red-carpet treatment.8 Of course, countries as far afield as Australia, Canada, and even the United States are also active in courting Chinese money. But none of these jurisdictions are practical operational hubs for China-focused businesses. Singapore is often thought of as “Asia’s global city,” but Singapore is too far away (a six hour flight from Beijing), too foreign (culturally Southeast Asian and diaspora Chinese rather than unambiguously modern Chinese), and ultimately too risky (due to one-party, one-family rule) to become a permanent business base for China and the rest of East Asia. Of course, Singapore is already a major global financial center. But China accounts for half of Asia’s total economic output. For a city to become the Asian equivalent of London or New York, it must be the default location that companies use as a base for their businesses in China. It is hard to imagine major international corporations running their pan-China operations from Singapore. Singapore may continue to flourish as an offshore financial center and focal point for hot money escaping China, but it will not become China’s global gateway city. Nor will Seoul or Tokyo, as both are major cities that are outside of the Chinese cultural zone, ruled by governments that feel threatened by China, and that do not speak Chinese. Even North American and European companies do not run their China operations from Seoul or Tokyo. Seoul and Tokyo will forever remain national centers, rather than global ones. It is possible that China will remain a multi-centered economy with financial and economic power widely dispersed throughout the country. But the historical tendency Clare Baldwin, “China’s No. 3 Leader Warns Hong Kong Activists against ‘Crossing a Line’,” Reuters, March 6, 2015. 8 Lye Liang Fook, “Singapore’s Economic Involvement in China’s Reform,” in China’s Reform in Global Perspective, ed. John Wong and Zhiyue Bo (Singapore: World Scientific, 2010). 7

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in other countries has been for economic power to consolidate even as economic operations disperse. For example, many major American banks now have administrative centers and even headquarters buildings spread throughout the country. Nonetheless, real financial decision-making is ever more concentrated in New York. Economic power will consolidate in China too, but as long as China’s politics remain authoritarian and opaque, such a consolidation can only occur offshore. As Hong Kong transitions from an offshore to an onshore center, Taipei is well positioned to pick up both business and skilled professionals from Hong Kong. Taiwanese business networks are already highly developed both in the southeastern Pearl River Delta (PRD) region of China near Hong Kong and in the central Yangtze River Delta (YRD) region, which includes Shanghai City and the Jiangsu and Zhejiang Provinces. It is only a matter of time before these existing industry-based networks graduate to become advisory and services networks. Deepening Ties between Mainland China and Taiwan In thinking about the future of cross-strait relations between Mainland China and Taiwan in the long term, it is instructive to go back just a few years to the turn of the millennium. In 2000, there were no direct flights between Taiwan and the mainland. Trade was practically non-existent, while direct trade and cross-strait investment were both prohibited. The 2000 presidential victory of Chen Shui-bian of the independence-minded Democratic Progressive Party (DPP) led to fears of direct military confrontation across the Taiwan Strait. Fast-forward to 2015. There are currently 840 weekly flights between Taiwan and Mainland China, plus charters and unlimited additional flights over the Chinese New Year holiday.9 Taiwan airports collectively serve more mainland destinations (fifty-four) than Hong Kong (forty-four).10 An agreement to allow Mainland Chinese passengers to transit in Taiwan on their way to other overseas destinations was under negotiation at the end of 2014 and is expected to conclude soon.11 And Taipei’s Taoyuan Airport is the tenth busiest air cargo hub in the world.12 Of course, trade has also flourished. Mainland China is now Taiwan’s largest trading partner and Taiwan is the mainland’s fifth largest. Direct Taiwan-mainland trade of $197 billion (2013) is nearly 40 percent as large as U.S.-China trade of $521 billion, despite the fact that Taiwan has a population of just twenty-three million and much of Taiwan-mainland trade is still routed indirectly through Hong Kong. Mainland

Hsin-Yin Lee, “Unlimited extra Taiwan-China flights set for Lunar New Year,” Focus Taiwan, December 26, 2014. 10 Don Lee, “‘Stealing Our Jobs’: Taiwan Angry as Ties with China Deteriorate,” Los Angeles Times, April 4, 2014.; Hong Kong International Airport Fact Sheet, accessed January 28, 2015. 11 Shelley Shan, “Taoyuan Airport Plans Expansion,” Taipei Times, November 17, 2014. 12 “ACI Annual World Airport Traffic Report,” Airports Council International, December 22, 2014. 9

[46] Georgetown Journal of Asian Affairs


Babones | Will Taipei Be the Next Hong Kong?

China’s second, third, and fourth largest trading partners—Japan, Hong Kong, and South Korea—are all closely linked to Taiwan as well.13 Northeast Asia is a highly networked trading hub that, if not centered on Taiwan, has Taiwan at its center. Trade between Taiwan and the mainland is governed by the 2010 Economic Cooperation Framework Agreement (ECFA). The ECFA and its associated Investment Protection and Promotion Agreement (known as the IPA) is only a framework agreement for closer integration (not a full, detailed trade treaty), but it does include extensive “Early Harvest” lists liberalizing trade in major categories of goods and mostly non-financial services. The passage of the ECFA was highly controversial in Taiwan. In addition, the 2013 signing of the follow-up Cross-Strait Service Trade Agreement (CSSTA) was the spark for Taiwan’s Sunflower movement protests. The CSSTA remains unratified as of this writing. Even without the CSSTA, Taiwanese professional services firms are now mostly free to operate in Mainland China. They have already begun offering services to the 88,000 Taiwanese firms operating on the mainland.14 Once they develop sufficient expertise, these services firms will almost certainly extend their offerings to other overseas businesses operating in China. Taiwan’s longstanding commercial and historical ties with South Korea and (especially) Japan make it likely that businesses from those countries may prefer Taiwanese professional services firms over domestic Chinese ones. Although Japanese businesses often face extreme popular hostility on the mainland, they are usually warmly welcomed in Taiwan.15 Hong Kong firms may in the future become uncompetitive in the onshore market for services. The ECFA gives Taiwanese businesses much greater rights in Mainland China than the 2003 Closer Economic Partnership Arrangement (CEPA) between China and Hong Kong accords to Hong Kong businesses.16 Crucially, the ECFA and IPA also give businesses on both sides access to dispute resolution mechanisms, including formal mediation in cases in which government expropriation of investments is alleged. These rights also apply to investments via third party intermediaries. Thus, for example, a Mainland Chinese investor that “round trips” investment through Taiwan gains access to international mediation in cases of government expropriation. Round-tripping can be done by first sending funds offshore to Taiwan and then reinvesting in China through a Taiwanese company. The implications for Chinese investors seeking additional protections vis-à-vis their own government are obvious. Given that business in Taiwan is generally conducted in Chinese (not English), this kind of “Top 10 Trading Partners of the Chinese Mainland,” China Daily, February 19, 2014. “A Bridge over Troubled Waters: Taiwan, Japan and South Korea Employ Huge Numbers of Mainland Chinese,” The Economist, November 8, 2014. 15 Michal Thim and Misato Matsuoka, “The Odd Couple: Japan & Taiwan’s Unlikely Friendship,” The Diplomat, May 15, 2014. 16 Yun-wing Sun, “Comparing CEPA and ECFA: Economic Integration in the Asia-Pacific Region,” (paper, Hong Kong Institute of Asia-Pacific Studies, 2014). 13 14

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investment round-tripping has suddenly become very easy for non-internationalized local elites in Mainland China. This is not to suggest that Taipei’s financial destiny is to be an offshore haven for questionable Chinese investments. For better or worse, all large-scale investors now make regular use of offshore tax havens, opaque shell corporations, and all sorts of legal legerdemain involving cross-border financial flows. The point is that Taiwan—unlike Hong Kong—now has investment relations with Mainland China that are on par with those of most of China’s major trading partners. Taiwanese companies operate with a depth in China that is rivalled only by those of Hong Kong, Japan, and South Korea. Currently, protection for investments flowing through Taiwan is on par with those afforded to investments from Japan and South Korea (and much better than those from Hong Kong). Additionally, Taiwan conducts business in Mandarin Chinese, unlike Japan, South Korea, and even Hong Kong. If any city in East Asia is going to become a major offshore center for business services in China, the process of elimination indicates that Taipei may be the only option. Robust Civil Society in a Real Democracy When China’s Hurun Report rich list asked Chinese millionaires why they planned to emigrate, they gave three main reasons in roughly equal measure: child education, air pollution, and food safety.17 Like Mainland China, Taiwan in the 2010s has experienced controversies in all three of these areas. Unlike Mainland China, Taiwan is a robust democracy in which civil society movements can effectively influence government to promote positive political change. Taiwan’s highly engaged citizenry actively holds its government accountable for solutions. Taiwan President Ma Ying-jeou and the governing Kuomintang’s (KMT) attempt to push through ratification of the CSSTA in early 2014 over the objections of much of civil society (and even a faction of the KMT itself ) led to the blossoming of the Sunflower resistance movement and a three-week occupation of Taiwan’s parliament (the Legislative Yuan). As a result, President Ma’s popularity plummeted and the KMT suffered a historic defeat in the November 2014 local elections. While this can be read as a setback for cross-strait relations and the future of Taiwan’s economy, an alternative reading is also plausible. The robust civil society that checks government power and enforces the alternation of parties in office in Taiwan is the same robust civil society that will ensure that Taiwan’s education system is relatively cleansed of political biases, that Taiwan’s air pollution is brought under control, and that Taiwan’s food supply is secured from contamination. In the long run, democracy is much more important for the success of Taiwanese businesses and the Taiwanese economy as a whole than the ratification of any particular trade treaty. 17

Scott Cendrowski, “Why China’s Rich Are Leaving,” Fortune, June 5, 2014.

[48] Georgetown Journal of Asian Affairs


Babones | Will Taipei Be the Next Hong Kong?

Whatever happens to the CSSTA and whoever wins Taiwan’s 2016 elections, East Asia’s economic integration will continue—and Taiwan will be in the middle of it. Taiwan shares a language and a culture with the mainland, but has political and social structures that more resemble those of Japan and South Korea. The importance of these advantages can be seen by contrasting the fate of Hong Kong’s Umbrella movement with that of Taiwan’s Sunflower movement. As civil society in Hong Kong fights a losing battle for relevance (and even survival), civil society in Taiwan continues to have a decisive influence over major economic policy decisions. It is not preordained that Greater China must have a global city that integrates East Asia as London does with Europe and the Middle East and as New York does with the Americas and much of the rest of the world. Another completely credible scenario is a permanently fractured East Asian economy in which multiple regional centers dominate Mainland China, Seoul and Tokyo remain primarily national centers, and Japanese, South Korean, and Taiwanese companies operate in China via decentralized provincial-level operations. The general global tendency seems to be toward the consolidation of corporate control functions, but this is hardly an ironclad law of economics. Coming together may, however, be a tendency of human beings. Human factors are very difficult to measure and are thus often overlooked in business-focused media and academic research. Smart, creative professionals do not want to live in Beijing or Shanghai because they do not want to poison themselves every time they breathe. Successful entrepreneurs do not want to risk their businesses on the arbitrary judgments of a compromised and capricious court system. The success of global cities like London and New York is predicated on their embeddedness in the kinds of free and democratic societies in which people want to live and participate. Ironically, the ultimate effect of the repression of the pro-democracy Umbrella movement in Hong Kong may be to drive professionals (and their businesses) out of the city. Many of the movement’s activists are, after all, students at Hong Kong’s top universities. It is not inconceivable that there will soon be an exodus of educated people from Hong Kong seeking freer lives elsewhere, as was originally feared in 1997. Some of them may find their way to Taipei, and Taipei may become the richer for it—in more ways than one.

Salvatore Babones is a comparative sociologist at the University of Sydney and an associate fellow at the Institute for Policy Studies. He is the author or editor of ten books. His most recent book is Sixteen for ‘16: A Progressive Agenda for a Better America (Policy Press, 2015).

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The End Game for the Trans-Pacific Partnership Bernard K. Gordon There are five main things to know about the Trans-Pacific Partnership, which is usually referred to as the TPP: • • • • •

it is about much more than trade; it promises to be a genuinely big deal; it is soon to become a reality, either this year or next; it will change the rules of the road for the global economy’s major actors; it will introduce norms that are likely to have a profound impact on the Pacific region’s strategic environment.

Twelve nations are now involved in the TPP negotiations, though its roots are much smaller and date from late 2002. That is when three small and very open economies— Chile, New Zealand, and Singapore—agreed to form a “Common Economic Partnership,” in which open trade among them was the key feature. Brunei was quickly added, leading to a “P4,” which many regard as the TPP’s beginnings. Several nations gradually joined, and a big boost came in 2009 when President Barack Obama formally entered the United States into the TPP talks. Today’s members range from the very small, such as Brunei in Southeast Asia, to the very large, such as Japan and the United States. The others include Australia, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Together, these twelve nations represent almost 800 million people. Although this number amounts to only 9 percent of the globe’s population, in economic terms, those 800 million people account for nearly 40 percent of the world’s economy. There is also a growing interest in Beijing about joining the TPP, which would bring it to more than half of the globe’s economy, but it is too early to predict. Currently, the TPP is often referred to as the “centerpiece” of President Obama’s commitment to maintain a major American role in the Pacific region. Even without the TPP in place, there is already a very large U.S. trade involvement with the nations in the region. In 2013, 44 percent of America’s exports (worth approximately [50] Georgetown Journal of Asian Affairs


Gordon | The End Game for the TPP

$698 billion) were to those economies. While U.S. manufactured goods made up the majority of these exports, agricultural products to TPP nations were $59 billion, and exports of services, an important category that includes licenses, insurance, royalties, and other “intangibles,” were even larger. In 2012, they accounted for $172 billion, which represented 27 percent of all U.S. services exports that year.1 Those figures begin to suggest the magnitude of the present American economic stake in the TPP, and over the next several years all TPP members are expected to experience large economic benefits. For the United States, according to a report by the Peterson Institute of International Economics, by 2025 gains to the American economy would reach $77 billion each year, and some smaller economies, for example Vietnam, would see especially high proportional benefits.2 The main reason for these anticipated gains is that the TPP would break genuinely new ground, for the simple reason that it would establish a “Free Trade Agreement” among all its members. That is a fundamental point, though not often specifically highlighted. This is an odd omission because, from an American perspective, a central feature of the TPP is that it would establish a U.S. Free Trade Agreement with Japan. That goal has been something of a “holy grail” American objective since the 1980s, and the TPP means it is now close to being accomplished. The Japan Factor The Japan-U.S. trade relationship warrants separate mention because it illustrates some of the issues raised in the current TPP negotiations, and also because it sheds light on similar problems involving several of the other participants. Japan’s high-level interest in the TPP became evident in 2011 and 2012, under then-Prime Minister Yoshihiko Noda. At that time, both the gains and difficulties Japan would encounter if it joined the TPP were identified, especially in connection with its highly protected agricultural sectors. But it was not until Japan’s current Prime Minister Shinzo Abe took over that Tokyo decided to formally join the TPP negotiations in early 2013. One of Abe’s main goals has been to revitalize the Japanese economy, and a corollary has been his aim to introduce basic changes to Japanese agriculture. To do that he needed to break the back of JA-Zenchu, the Central Union of Agricultural Cooperatives, which he did in February of this year. That group for many years dominated Japanese agriculture, and The figures reported here are drawn from several reports on the TPP issued by the office of the U.S. Trade Representative. For example, see: Office of the United States Trade Representative, “The Trans-Pacific Partnership: Economic Benefits,” https://ustr.gov/about-us/policy-offices/press-office/ fact-sheets/2013/December/TPP-Economic-Benefits. 2 Peter A. Petri and Michael G. Plummer, The Trans-Pacific Partnership and Asia-Pacific Integration: Policy Implications (Washington, DC: Peterson Institute for International Economics, 2012), http:// www.piie.com/publications/pb/pb12-16.pdf; More recently, in a speech at the National Association of Counties Legislative Conference on February 23, 2015 in Washington, DC, Michael Froman, the U.S. Trade Representative, said the TPP would help the United States to increase its exports by $123 billion by 2025. 1

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its stranglehold was reflected for example in the tiny, 5-acre size of the average farm and the numerous restrictions on farmers that made their products uncompetitive, even within the country. The now much reduced role of JA-Zenchu brought new attention to the powerful political role of farming interests in Japan, an issue also found in most other democratic societies. Yet nowhere is it more starkly clear than in Japan, whose economy before World War II was dominated by an agriculture sector that also accounted for most of Japan’s employment. Even by the end of the war, half of Japan’s workforce was related to farming, but that ratio then began to sharply decline. Today, agriculture accounts for less than 1.5 percent of Japan’s GDP, while farm-related employment has likewise fallen from 2.6 million less than a decade ago to just 750,000 people today. Most of these workers, as the prime minister himself recently pointed out, are part-time workers, with an average age older than sixty-six. But the stubborn reality in Japan, as in France and elsewhere, is that a special place in the popular self-image, and in much of its culture, has been the original home village and its link to farming. That background has strongly affected U.S.-Japan trade discussions since at least the 1970s, in which issues of “market access” for America’s far more productive agriculture sectors have been a regular and often contentious feature. The case of rice is probably the best known because it has been protected by a nearly 800 percent effective tariff barrier. But other farm products, including Japan’s pork, sugar, and beef have also been involved. All this has come to a head in the current TPP negotiations, because if the TPP is to include what amounts to a U.S.-Japan “Free Trade Agreement,” most or all such limitations will have to come to an end. That need not happen in a sudden single step, but instead will probably be achieved in phases and over an agreed period of years. The good news is that by late 2014 and in early 2015, Tokyo and Washington appear to have resolved most of those agricultural market-access issues. One sign was a recent announcement from America’s pork producers that they were satisfied by what they had heard from the U.S. team negotiating the TPP with Japan. Nevertheless, other vocal American interests, especially those involved in the automotive industry, remain dissatisfied with the market-access provisions that affect them. The Ford Motor Company and its associated labor unions have been the most prominent, and their case has been very strongly reinforced by a sizeable number of congressional voices. Those issues, and other public and congressional complaints—particularly that the TPP negotiations have been conducted with too much secrecy—still have much potential to stop the Partnership from being established. The TPP’s Non-Trade Features Those concerns, which include what are sometimes referred to as the TPP’s “behind the border” issues, need now to be identified, for two main reasons. First, because they underline the point made earlier: that the TPP is about much more than trade. Second, [52] Georgetown Journal of Asian Affairs


Gordon | The End Game for the TPP

because the TPP’s ‘non-trade’ categories highlight specific problems one or another member faces in the negotiations. The talks have been organized around more than two dozen chapters, and include the following issues: • • • • • • •

state-owned enterprises; government procurement; small and medium businesses; labor and the environment; intellectual property rights; investment; telecommunications; and more.

A list that long (and there are more!) would be challenging for even two nations aiming for a bilateral agreement, and the problem is compounded because the TPP often involves long-standing domestic policies of its dozen members. In the United States, for example, government procurement practices may be bound by the “Buy American” laws of individual states, which mandate that preference be given to locally made products. The impact of those laws would need to be alleviated if another TPP member hoped to sell its products in the United States. Another category is laws governing labor and workers’ rights, which are often less protective in some TPP members than in Australia, Canada, or the United States. Issues of child labor illustrate the point: goods produced in nations which allow or depend on child labor, as is alleged to be the case in, for example, Vietnam, raise obvious competitiveness issues in markets where child labor is prohibited. Or consider the TPP’s concern with workers’ rights in countries such as Malaysia, whose Bumiputra laws mandate preferences for workers of specific ethnic groups. TPP negotiators have also had to grapple with the broader question regarding products of state-owned enterprises (SOEs), which in some cases dominate whole economic and industrial sectors. Among the problems these SOEs raise is whether those products should be treated with the same openness as goods produced in economies based on private ownership, and which must therefore generate profits. All such questions stem from the conviction that in their trade activities, all TPP members should expect to encounter a level playing field. Another goal not seen in earlier trade agreements is the TPP provision to encourage foreign trade by SMEs—trade-speak for “small and medium enterprises.” Such smaller firms generally have little experience with the complexities of selling in foreign markets, and the SME category aims to assist them in dealing with issues such as licensing, shipping, customs, and the myriad of other practical tasks long familiar to large corporations, but not to small firms. Interestingly, and even without the TPP in place, recent American experience has shown that such assistance, for example by FedEx, has already resulted in new exports and greater involvement in foreign trade by smaller firms. Issues of this nature help explain why the TPP is often referred to as a “21st Century Trade Agreement”—a label much favored by TPP advocates in the United States. Spring/Summer 2015 [53]


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Washington’s negotiators have been frankly concerned to assure that the often highly specialized goods and services produced by the United States and some others will be accorded the same kinds of treatment found in, for example, the U.S.-Korea and U.S.-Australia Free Trade Agreements. Not surprisingly, leading pharmaceutical firms, many of them based in the United States, have been at the forefront of this goal because matters of worldwide drug prices are now a hot-button issue. Interested and affected groups worldwide, especially in the developing world, have issued many warnings that the TPP will institutionalize or “lock in” drug prices beyond what is affordable in developing economies. The broader issue concerns the rules affecting intellectual property, in particular the lengths of time during which patents and copyrights are protected from infringement. Here it has to be said that a prime force behind much of the TPP’s overall model is an American model, specifically Washington’s concern that the goods and services generated by America’s advanced and high-technology sectors will be protected from the activities of late-arriving “free riders” who produce similar goods and services. Japan, Singapore, and a few others are among those with similar advanced capabilities, making it likely that these aspects of the TPP as a “21st Century Agreement” will have support beyond the United States alone. Setting the Rules and The China Factor Because the TPP includes that range of issues, and includes the twelve nations whose economies comprise roughly 40 percent of global GDP, the norms established by the TPP will have a profound impact on how the globe’s economies operate and interact. It will be setting the rules of the road—a point now well understood by the United States. As President Obama recently said, “We have to make sure the United States—and not countries like China—is the one writing this century’s rules for the world’s economy.”3 Yet China was decidedly not a factor of concern when those first steps leading to the TPP were taken in 2002-2003 by Chile, New Zealand, and Singapore. Nor was China a matter of particular interest to then U.S. Trade Representative Susan Schwab, who in the last days of the George W. Bush administration first expressed an official U.S. interest in the TPP project. In a period when much U.S. attention was directed to the Middle East, her concern was instead with a declining American trade presence in the Asia-Pacific, and she saw the TPP as a way to ensure that the United States would not be “left out” of the region’s vibrant economies. Since then the TPP has both intensified its aims and expanded its membership, and it is often—though wrongly—described as the economic aspect of the United States “pivot,” or rebalancing move to the Asia-Pacific region. That view is not supported Barack Obama, “Writing the Rules for 21st Century Trade,” The White House Blog, February 18, 2015, https://www.whitehouse.gov/blog/2015/02/18/president-obama-writing-rules-21st-centurytrade. 1

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either by the TPP’s origins nor the circumstances of America’s initial involvement in 2009. Moreover, from its outset, the TPP has been open to any state that aims to meet its standards, a point stressed by President Obama’s National Security Advisor Susan Rice in her speech at Georgetown University on 20 November 2013. With regard to China her words bear repeating: “We welcome any nation that is willing to live up to the high-standards of this agreement to join and share in the benefits of the TPP, and that includes China.”4 China, for its part, has taken a leading role in a proposed alternative economic format for the region, known as the “Regional Comprehensive Economic Partnership,” or RCEP. Its initial concerns have emphasized traditional “free trade” arrangements among its sixteen proposed members: the ten ASEAN states, Japan, Korea, Australia, New Zealand, and India, but not the United States. Because of its size, the RCEP may initially appear to be an impressive grouping, but it is not analogous to the TPP nor is it likely to soon come into being. Even if it were, there is little reason to expect RCEP to accomplish much, for reasons that recall Pharaoh’s command in the Book of Exodus to “make bricks without straw.” Among those missing straws are (1) the continuing tense Korea-Japan relationship, which would mitigate against any close formal economic interaction; (2) the absence of a genuine Indian interest in the RCEP scheme and the likelihood that in practice India would oppose its goals; and (3) despite RCEP’s statement that it is based on something called “ASEAN centrality,” ASEAN will not anytime soon accomplish the sorts of intra-regional economic cooperation it has long promoted. As a highly experienced participant put it recently, “ASEAN integration remains an illusion.”5 Moreover, and despite China’s sponsorship of the RCEP, there is no single authoritative statement affirming which (if any) of Asia’s developing regional formats will ultimately include China. Indeed, beginning in mid-2013, the first signs emerged that Beijing was no longer dismissive of the TPP and might seek membership. In May China’s then-Commerce Minister Gao Hucheng announced “a serious study of the TPP,” and in June President Xi Jinping raised the issue with President Obama at their Sunnylands summit. Later in November, China held its very important Third Plenum, notable for its emphasis on the “decisive” role of the market and its calls for basic reforms to better connect China with the global economy. Other signs suggesting a genuine interest in the TPP then followed. For example, in January 2014 the prominent Peking University economist Yiping Huang reported that Susan E. Rice, “Remarks As Prepared for Delivery National Security Advisor Susan E. Rice” (speech, Georgetown University, Washington, DC, November 20, 2013), https://www.whitehouse.gov/thepress-office/2013/11/21/remarks-prepared-delivery-national-security-advisor-susan-e-rice. 5 Barry Desker, “Asean integration remains an illusion,” The Straits Times, March 4, 2015, http://www. straitstimes.com/news/opinion/eye-the-world/story/asean-integration-remains-illusion-20150304. Ambassador Desker until very recently directed the S. Rajaratnam School of International Studies in Singapore. 4

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“an increasing number of policy advisors are now urging the government to apply to join the TPP negotiations as early as possible,” and a few weeks later China’s former World Bank Senior Vice President, Justin Yifu Lin, openly called for Beijing to participate in the TPP.6 This interest likely stems from China’s leaders recognizing that if the TPP is established, then it will indeed set the rules for the next phase of global economic development, as well as from leaders’ belief that Beijing cannot afford to be left out. None of this means China now actively seeks TPP membership, and Beijing’s often assertive behavior toward Asia’s smaller states reflects long-standing concepts that evoke the traditional tributary relationship. In mid-2010, for example, Beijing’s Foreign Minister Yang Jiechi famously reminded its ASEAN neighbors that “China is a big country and other countries are small countries, and that’s just a fact.” Since then, China’s foreign policy has alternated between that hard line and a more relaxed posture, but the lesson has not been lost. It is reinforced by China’s continued insistence on dealing with each much smaller ASEAN member separately, rather than dealing with ASEAN as a group. In this context, a main strategic value of the TPP is that it holds out to Asia-Pacific nations the utility of a strong connection to the United States and the global economy—a system not inevitably tied to China’s role in the region. Will the TPP Happen? Aside from the issue of China, the TPP continues to face other major hurdles. The fact that its negotiating text has not been publicly available has remained a contentious issue in the U.S. Congress as well as among several TPP nations. Specific questions such as how disputes are to be settled have also reemerged as difficult sticking points. Yet major voices in both parties in the U.S. Congress have appeared to be sufficiently supportive. Senator Orrin Hatch, the Chairman of the Senate Finance Committee, has long been favorable and there is much similar sentiment in his party. Senator Ron Wyden, Senator Hatch’s Democratic counterpart in the Committee, is from Oregon, a state very concerned with Pacific trade, and he has long been more favorable to trade agreements than some in his party. But Senator Wyden has also been especially critical of the lack of openness associated with the TPP negotiations and the issue has generated much support among other Democrats. Additionally, Senator Elizabeth Warren’s recent, very critical statement on the dispute-settlement issue was a step that greatly encouraged the TPP’s domestic opponents. On balance, however, the TPP will come into being because of the fundamental fact that the United States is a market of more than 300 million people whose propensity to consume is matched nowhere else. It is a powerful magnet that none of the other For a discussion of this development, see Bernard K. Gordon, “China Belongs in the Pacific Trade Pact,” The Wall Street Journal, April 23, 2014, http://www.wsj.com/articles/SB1000142405270230366 3604579501300128204862. 6

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participants will be willing to ignore, a point well made by the Director of Export of New Zealand, who has written quite simply that her country “can’t afford to miss out on Trans-Pacific Partnership.”7 That was among the reasons that led a senior U.S. Chamber of Commerce official to predict that the TPP is likely to become reality by June of this year, and that is how the issue seems from here as well.

Bernard K. Gordon is Professor Emeritus of Political Science at the University of New Hampshire. He has authored numerous books and articles on East Asian trade and foreign policy, including America’s Trade Follies: Turning Economic Leadership into Strategic Weakness (Routledge 2001). He has also been a consultant to the National Security Council and the Office of the Secretary of Defense, and an invited expert witness before both Senate and House Committees. Dr. Gordon holds a Ph.D. in Political Science from the University of Chicago.

Catherine Beard, “NZ Can’t Afford to Miss Out On Trans-Pacific Partnership,” The New Zealand Herald, February 17, 2015, http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=11402940. 7

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Asian Regionalism as a Product of Power Dynamics An Interview with Michael Green

In the last several decades, Asia-Pacific nations have turned to multilateralism and the formation of regional organizations to facilitate cooperation and to debate the region’s economic and political future. The Journal sat down with Michael Green of Georgetown University and the Center for Strategic and International Studies to discuss major trends in institution-building in Asia. Dr. Green shared his insights on the underlying power dynamics that motivate nations’ participation in these organizations as well as the ways in which the United States can continue to shape the regional architecture.

Journal: Regional institutions have become an important tool of diplomacy in the twenty-first century. In your opinion, what are some major obstacles to effective institution-building in Asia? Of the institutions that currently exist in Asia, which do you see as having the most potential to overcome these obstacles and why? Green: The biggest obstacle to institution-building in Asia is the different political systems in the region. Scholars often point to Europe as the model of effective multilateralism. However, Europe is a continent of democracies from Portugal to Poland, whereas Asia has regime types that vary from robust democracies in Japan and Australia to more authoritarian regimes like China and dictatorships like North Korea. That is the biggest obstacle. The second obstacle is that Asia does not have a clear unifying theme like Europe does. Europe was exhausted after two World Wars. European countries recognized that their national survival depended on a cooperative approach, which started with the European Coal and Steel Community to ensure that there would be economic interdependence. And, of course, Europe has a long history of unity under Roman, Christian,

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and other frameworks, whereas Asia has no common identity beyond the Confucian traditions of the Sino-centric era. Today, most of the Asian states do not want to be unified under China. Moreover, the region also has very powerful players like the United States who are residents in Asia. When planning for the East Asia Summit began, the organizers struggled to find some common theme. They chose Buddhism, but even Buddhism was not a perfect fit. In more concrete terms, while there is a high level of economic interdependence within Asia, financial flows in and out of Asia are far higher than investment flows within Asia. Similarly, Foreign Direct Investment (FDI) in and out of Asia is far higher than FDI within Asia. These statistics demonstrate that, even as an economic entity, Asia is much more complicated and diverse than Europe, and lacks Europe’s single unifying theme. Additionally, even Europe is facing difficulties in maintaining the initially espoused visions for a common European identity and political entity. Journal: Both the United States and China demonstrated a willingness to use institutions as a platform for cooperation by signing the recent climate deal at the Asia-Pacific Economic Cooperation summit. Yet, the two nations’ visions for regional architecture in Asia often appear divergent. How do the United States and China differ in their assessments of the usefulness of regional institutions in Asia? Green: When it comes to institution-building, one thing that the United States and China have in common as big powers is that they do not like to tie themselves down to small powers. For example, during the Cold War and the early post–Cold War years, the United States was very hesitant to embrace proposals for multilateralism in Asia that might somehow weaken U.S. bilateral alliances. Eventually, when Clinton embraced the Asia-Pacific Economic Community (APEC) as a summit, the United States began to shift its position. Specifically, the United States began to actively support multilateralism that was transpacific—that bonded East Asia to North America and, eventually, to the global trading and financial system. The United States is still very hesitant about institutions that are exclusively East Asian, for these institutions might water down the norms and the rules that the United States and other leading economies and democracies need in order to make the overall system function. China was also very hesitant to embrace multilateralism. During the Cold War, China tried to co-opt the Bandung Conference, which was the North-South, third-world alternative to the United States and the Soviets. Since the Chinese were so big, the members of Bandung were hesitant to have China play a leading role. China was very happy to join APEC in the context of its initiation into the World Trade Organization (WTO) and economic reforms. In general, however, it has preferred lip service to multilateralism, especially on the security side. For example, within the ASEAN Regional Forum (ARF) or the East Asia Summit (EAS), which are multilateral forums centered on ASEAN, China has preferred not to give any credence to or even table issues relating to territorial or maritime disputes. Interestingly, the United States, which was somewhat hesitant about ARF at first due to concerns that it might water down bilateral alliances, is now becoming more enthusiastic about tabling security issues. Spring/Summer 2015 [59]


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Discussing these problems with ARF helps to shore up ASEAN solidarity to put more pressure on China to behave. Thus, the United States and China are both big powers, and thus look at multilateral institutions in ways that will advantage their national interests. Both countries’ views are emerging and evolving, and the subtext, of course, is the power competition and the rules. Who will write the rules? China prefers opportunities that advance an “East Asia only” definition of norms and rules, while the United States prefers opportunities that advance transpacific or global rules and norms. We both tend to position ourselves accordingly. On the whole, in APEC, the Six Party Talks, and other multilateral institutions, the United States and China cooperate reasonably well compared to their overall bilateral relationship, where the two nations have so many tensions. A large part of that is because both the United States and China want to look good in front of the ASEAN states. There is a competition for position and influence in which either China or the United States will pay a cost for engaging in behavior that is unilateralist or difficult. The United States paid that cost in the late 1990s when, after the financial crisis in Asia, we pressed hard for very tough International Monetary Fund (IMF) standards of conditionality in exchange for loans. China is now paying that price because of its aggressive posture on maritime disputes in the South China Sea. When one of the big powers (China or the United States) frightens the smaller powers in ASEAN, the ASEAN nations tend to align somewhat more with the other big power. This dynamic tends to moderate China’s behavior and, to some extent, the United States’s behavior. For that reason, the United States and China tend to work much better in multilateral forums than they do on purely bilateral issues, such cyber or trade. Journal: The United States’s response to newly emerging alternative institutions in Asia is likely to affect how the United States is perceived in the region. In your assessment, what are the United States’s options at this stage and which options would best serve U.S. interests? For example, what role could the United States play in shaping these institutions? Green: At the Center for Strategic and International Studies, I ran a series of surveys of elites’ perspectives in Asia, including their views on the future of regional order and institutions in Asia. In general, while there are diverse views, the trajectory of the region is towards accepting an open transpacific order—and not a closed Sino-centric one. In Washington, people sometimes get a little too panicked about new institutions and think that they might threaten the United States. Even the president’s pitch for the Trans-Pacific Partnership (TPP), which I strongly support, has been premised on the idea that in the absence of TPP some kind of Sino-centric institution will emerge. I think that is a bit of an exaggeration. The United States’s preference, as I said, is for institutions that are transpacific, that are not “East Asia only,” and that reinforce the global rules and norms that we are trying to advance through the Bretton Woods system. Therefore, we tend to be opposed to or hesitant about institutions that threaten to undercut this system. Every new proposal is viewed in that light. APEC obviously moves [60] Georgetown Journal of Asian Affairs


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us closer to transpacific and global norms, although it is not a binding institution. APEC is not a free trade agreement, but rather a forum in which views are exchanged. This regular exchange of views is supposed to facilitate trade, but APEC is not a trade liberalizing or rule-making institution per se. The TPP would be a more obviously trade-liberalizing and rule-making effort. The reduced barriers to trade and investment would create hundreds of billions of dollars of wealth. Ultimately, it would—if it is completed and ratified by the Senate—position the United States and Japan as well as other partners to begin negotiations with China and other countries in the region on reforming their economies and improving their transparency and rule of law so that they are eventually able to join this framework. According to the APEC members, the TPP is a building block towards a Free Trade Area of the Asia-Pacific (FTAAP), which could include all of the APEC members and, in time, China as well. In addition to APEC, the TPP is very critical because it binds all the key economies in a transpacific and global order. Eventually, it could be linked to the Transatlantic Trade and Investment Partnership (TTIP) with the Europeans, and it could recharge global trade liberalization in the Doha Round. In effect, the TPP positions us to have the coolest house party in town. The Chinese and others are going to want to be part of that in order to grow and reform their economies. Thus, the TPP also positions us to have a win-win discussion with China that is based on economic interdependence as opposed to the zero-sum competition towards which we currently seem to be heading. On the security side, the ARF was started after the Cold War as a form that would allow ASEAN to leverage its increasing cooperation to influence bigger powers and reduce tension among all the powers. However, the ARF is based on the so-called “ASEAN Way,” which is to say nobody has to try very hard because the “ASEAN Way” is based on consensus. For this reason, the United States for a long time viewed the ARF as a necessary but pointless exercise. That is changing. With China’s aggressive stance on the South China Sea, the United States now views the ARF as an important forum to deal with norms of non-coercion in Asia and to get some purchase on the China problem. When I was in the White House in 2004 and 2005, China was not acting the way it is acting now in the South China Sea. In that context, the ARF was seen as less important. In fact, Secretaries of State Condoleeza Rice and Madeleine Albright often skipped them. That is not an option anymore. The ARF has become an important arena for debating the rules of the road. It is not clear that anything will be resolved, but it is part of the shaping strategy that the United States must adopt to try and encourage better Chinese behavior. On the economic side, and despite the general affinity for a transpacific orientation that I mentioned earlier, there are economic institutions that are not transpacific per se. These are not necessarily premised on the Bretton Woods system, and they create a real conundrum for the United States. We have had them throughout our recent history. The Japanese proposed an Asian Monetary Fund after the 1997-1998 financial crisis that the Clinton administration largely stamped own because it was seen as a challenge to the Bretton Woods system. Then-Malaysian Prime Minister Mahathir bin Mohamad proposed the East Asian Economic Caucus in the early 1990s. In general, we have not been kind to these organizations. But we have to think Spring/Summer 2015 [61]


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about the fact that East Asians, like the Europeans and North Americans, are going to keep pushing for economic institutions or groupings that are their own, and that give them the kind of leverage vis-à-vis North America and Europe that we get from the North American Free Trade Agreement (NAFTA) and that the Europeans get from the European Union (EU). In other words, these organizations are not going to go away and the United States has to think about how it is going to position itself. As one example, some in the United States have viewed the Regional Comprehensive Economic Partnership (RCEP) as threatening. Most economists believe that RCEP alone would be a problem because tariffs will be low and we will not be in it. However, if both the TPP and RCEP go into effect, it could be a real boon for the United States in that it would create even more competition to lower tariffs. The TPP would give leverage to developed countries who are party to RCEP, like Australia or Japan, to push for higher standards. Finally and more broadly, it would create more momentum for liberalization. Since economic models show that the TPP plus RCEP is a big boon, the United States’s ability to coopt and shape these agreements will have big economic advantages for the United States. And it allows the United States to indirectly (through states like Japan and Australia) shape the economic policies of countries that are not in the TPP. The other major institution that is not transpacific is the Asian Infrastructure Investment Bank (AIIB). The Chinese have a current account surplus. They need to recycle their money from these large trade surpluses. The Chinese are going to spend this money anyway, just as the Japanese spent money on official development assistance (ODA) in the 1980s. Therefore, the question becomes, how can we shape it? Some critics say the administration should have said we were going to join the AIIB, but that is just plain ignorant. There is no way the administration can join the AIIB. In order to be a member you have to contribute money, and the U.S. Congress will not fund it. Given this, how can the United States shape the AIIB without actually being one of the founding contributors? Here I think the administration did make a tactical mistake. The Department of the Treasury became adamantly opposed to the AIIB and tried to press other countries not to join. They should have recognized several problems with that approach: first, that the developing countries, even nations like Vietnam who do not trust China, are going to join because they want the money; and second, that countries like Korea or Australia were going to be under huge pressure from their companies to join. Many of our partners joined, and the World Bank and the Asian Development Bank both endorsed it. Since the administration took this approach, the United States got out of step with some of its closest friends. What the United States should have done is raised a very high bar—and a very skeptical bar. Coordinating with countries like Australia, Korea, and Japan, we should have said that while we do not oppose anyone joining the AIIB, there are standards that we expect for anybody who gives money. In this way, we could have tried to align the advanced Organization for Economic Cooperation and Development (OECD) countries and the donor countries to the AIIB [62] Georgetown Journal of Asian Affairs


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around a set of common standards. This approach would have sent a very clear message that numerous countries were in solidarity on what the rules should be. We kind of lost control of that because we opposed countries signing on in the first place. We made a tactical mistake, and it has been embarrassing—especially when Britain joined. That was really bad because the United States was caught completely off guard by the British joining. Although it made us look weak and the Chinese are now feeling triumphant, it is not a real strategic setback. I think the Chinese are going to find that this bank is a really hard thing to run. And countries that do join, like Korea, Australia, and Britain, are going to be appalled at how poor the transparency and governance is. Journal: As you mentioned, several U.S. allies, including the United Kingdom, South Korea, Germany, and Australia, have all joined the AIIB. Japan, however, has opted to stand with the United States in opposition of this China-led institution. In your assessment, why has Japan refrained from joining the AIIB? Is Japan likely to reverse its position? Green: Japan views a lot of these issues through the competitive lens of Japan-China relations. Japan saw the AIIB proposal as an attempt to stake out a Chinese bank that could undercut the Asian Development Bank, and they are right. The Japanese have more experience with development assistance in China than anyone else. They know full well the level of corruption within the Chinese system, and the high likelihood of non-transparency. Furthermore, they have predicted—and are probably right—that the first few big deals in the AIIB will go to Chinese state-owned enterprises (SOEs) in a non-transparent way. Japan was also particularly hesitant because it is the co-partner with the United States in leading the Asian Development Bank. That said, there is currently a debate in Japan, like there is everywhere, and I think their position is shifting. When Great Britain, Australia, and Korea all started to join, Japan’s position became somewhat untenable. They are now reconsidering, and the Liberal Democratic Party (LDP) has set up a committee to look at the issue again. I think it would be fine for the United States if Japan joined. In my view, the United States does not have to be in every institution. We can shape these institutions if our likeminded allies and partners join them and we coordinate with them as well as continue to push the more important institutions like the TPP. In fact, I think Japan may well join the AIIB. That is probably good for the United States because Japan’s accession would mean another big financial player would join the organization, and that big player will be harder for the Chinese to ignore. Journal: Discussions of alternative institutions in Asia have generally focused on China. Yet, India has also been playing a major role in alternative institution-building, such as in the BRICS. Where does India fit into all of this, and how can Washington further engage with New Delhi? Green: India is going to be increasingly important for the balance of power and influence in Asia. Prime Minister Shinzo Abe of Japan is wise to develop such close ties with Prime Minister Narendra Modi of India, and this development will help us to Spring/Summer 2015 [63]


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establish a more favorable strategic equilibrium in the region. However, when it comes to multilateralism or institution-building, India is often on the side opposite from countries like the United States and Japan. India is a very large developing country with residual nonalignment sentiments. Moreover, it has a very limited capacity to shape institutions because its foreign ministry is so small and its domestic politics so contentious. India being in the East Asia Summit is a welcome step. India developing closer ties with Japan and Australia, and promising (as Prime Minister Modi did to President Barack Obama) to cooperate on security in the South China Sea—these are all positive developments. Even so, we should be a little more cautious in thinking that India is going to step into APEC and begin acting like Japan, or join the TPP and somehow start acting like Korea. India has been one of the biggest obstacles in the Doha Round regarding both trade liberalization and on climate change. I am very pro-India. When I was in the Bush administration, I was in charge of South Asia at the National Security Council, including India, and I worked very hard for the transformation of our relationship. But when it comes to multilateral institutions, I think we will find India is not quite where we would want the nation to be, and that it will take some time. When it comes to the BRICS, India did help set up the proposal for the BRICS bank. I am doubtful that the Indians, Chinese, Russians, Brazilians, and South Africans are actually going to cooperate as advertised. For one thing, under the surface there is some severe strategic rivalry between India and China. For another thing, these countries are all competing against each other for foreign direct investment and as natural resource exporters or importers. They are not naturally aligned. In addition, although they are bonded by a kind of historical resentment of the West, their political systems are pretty different. I think we will find that the BRICS bank has more bark than bite. Journal: Looking towards the future, how should we expect to see institutions in Asia evolve, and what factors do you think will shape these institutions’ development? Green: All of these multilateral institution-building efforts reflect underlying power realities. As long as rivalry, hedging, and uncertainty characterizes Asia, then a diverse and fluid institution-building process will persist. In an uncertain environment, countries are going to position themselves to have as much influence as possible. In some cases, a country like India may emphasize its democracy and its concern over China, which will lead the nation to cooperate with the United States and Japan. In other cases, India will emphasize its perspective as a part of the developing world. Australia at times will emphasize democratic values and its alliance with the United States, but at other times Australia will try to distinguish itself as an Asian country. Thus, because of the rivalry and the uncertainty regarding the region’s future, all of these countries are going to position themselves to develop new forums, to compete with each other, and to try to gain a strong position through multilateralism. However, none of them—not even China—is going to try to undercut the United States as the ultimate security guarantor. Not yet. China is challenging the United States to some extent, but not like the Soviet Union did during the Cold War or Japan did in the 1930s. Too many countries have too much of a stake in economic growth. They do not want to slip into [64] Georgetown Journal of Asian Affairs


Green | Asian Regionalism as a Product of Power Dynamics

a dangerous competition that will sap that economic advancement, but they are still hedging and positioning. Liberal institutionalists keep calling for a rational organization of institutions in Asia that looks more like the EU. It is not going to happen. There is too much uncertainty. Asia’s institutions are as much about power, rivalry, influence and hedging, as they are about finding some common vision of the future of Asia. That said, the United States should be playing a very active role in this game. We have to position ourselves like the others, of course. But we may also be able to leverage this competition into a system of rules, norms, and institutions that align the region with the transpacific and global architecture for which we have advocated.

Michael Green is an associate professor at the Edmund A. Walsh School of Foreign Service at Georgetown University. He is also senior vice president for Asia and Japan Chair at the Center for Strategic and International Studies (CSIS). He previously served as special assistant to the president for national security affairs and senior director for Asian affairs at the National Security Council (NSC), from January 2004 to December 2005, after joining the NSC in April 2001 as director of Asian affairs with responsibility for Japan, Korea, and Australia/New Zealand. His current research and writing is focused on Asian regional architecture, Japanese politics, U.S. foreign policy history, the Korean peninsula, Tibet, Burma, and U.S.-India relations.

Michael Green was interviewed by Lara Crouch and Alex Rued on April 13, 2015.

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Teraoka | Adhering, Distancing, or Waffling?

research Adhering, Distancing, or Waffling? Understanding a New Dilemma in the U.S.-Japan Alliance Ayumi Teraoka1

This paper attempts to explain the puzzling silence the United States has exhibited towards Japan’s potential development of autonomous strike capabilities. While welcoming a general trend for Japan to become a more active player, the United States also fears that some of Japan’s proactive security policies could cause a heightened risk of entrapment into an insecurity spiral in Northeast Asia. This paper seeks to improve the existing literature on how states respond to the risk of entrapment by arguing that before a state chooses either a distancing strategy (moving away from the ally) or an adhesion strategy (moving closer to the ally), it first engages in a strategy of inaction, or what this paper calls a “waffling strategy.” Additionally, this paper posits that international pressure, depending on where it originates from, can force a state to move from a “waffling strategy” to adhesion or distancing.

“Japan is back. Keep counting on my country.”2 This was the key message Prime Minister Shinzo Abe delivered in April 2013 to an audience in Washington, D.C., the capital of Japan’s sole and long-time ally. In turning his words into actions, the government of Japan has been engaging in a series of efforts to strengthen its defense posture. First, it established its first ever National Security Council (NSC) and published a National Security Strategy (NSS) in December 2013, replacing the 1957 Basic Policy for National Defense. Additionally, it replaced the ban on arms exports with the new “Three I would like to thank the experts who shared their time and insights on these complex issues. In particular, I would like to thank Professor Michael Green at Georgetown University for his infinite mentorship. The views expressed here and any mistakes made are my own. 2 Shinzo Abe, “Japan is Back,” (speech, Washington, D.C., 22 February 2013), http://japan.kantei.go. jp/96_abe/statement/201302/22speech_e.html. 1

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Principles on Transfer of Defense Equipment and Technology” in April 2014, allowing Japan to export its arms with much fewer restrictions. Finally, in July 2014, it reinterpreted the Constitution to allow for the exercise of the right to collective defense. As these changes in Japan’s defense posture unfolded, the United States expressed its support. The Joint Statement at the annual U.S.-Japan Security Consultative Committee (2+2) in 2013 stated that “[t]he United States welcomed these efforts and reiterated its commitment to collaborate closely with Japan.”3 Nonetheless, this list of Japan’s specific “efforts” did not include one particular issue that the Japanese side pushed to be included in the statement: the matter of Japan’s potential development of autonomous strike capabilities. According to media sources, U.S. officials at the 2+2 meeting did not even respond to their Japanese counterparts’ mention of potentially acquiring the capability to attack enemy bases.4 Given U.S. silence on this matter, this discussion has been significantly toned down. Consequently, Japan’s newly established National Defense Program Guidelines (NDPG), published on 17 December 2013, only vaguely stated that “Japan will study a potential form of response capability to address the means of ballistic missile launches and related facilities, and take means as necessary.”5 The United States’s decision to remain silent is striking since this development would mark one of the most significant shifts in the long history of the U.S.-Japan alliance, which spans more than six decades. If Japan were to possess autonomous strike capabilities against tekikichi (enemy bases) or sakugenchi (bases of operations), it would not only retain its traditional role as a “shield” in the alliance with the United States, but would also hold the role of a “spear,” which it has long depended on its ally to provide. Current U.S. behavior is even more puzzling if placed in a historical context. The United States has long encouraged a stronger, more capable, and more dependable Japan as an ally in the Asia-Pacific region, since this would allow Japan to better contribute to regional stability through more burden-sharing and less free-riding in the alliance. U.S. silence here also contrasts with its determined support for Japan’s other aforementioned normalization efforts.6 Why is the United States remaining silent on this issue? If the United States simply has not yet determined its stance on the issue, what is stopping it from doing so? This paper argues that its indecision is driven by a fear of entrapment: the fear of being “Joint Statement of the Security Consultative Committee: Toward a More Robust Alliance and Greater Shared Responsibilities,” Minister of Defense, October 2013, http://www.mod.go.jp/e/d_act/us/ JointStatement2013.pdf. 4 “ANALYSIS: Japan Seeks Tough Stance, U.S. Pushes Cooperation in Dealing with China,” AJW by The Asahi Shimbun, October 4, 2013, http://ajw.asahi.com/article/behind_news/politics/AJ201310040074. http://ajw.asahi.com/article/behind_news/politics/AJ201310040074. 5 “National Defense Program Guidelines for FY 2014 and beyond,” Minister of Defense, December 2013, http://www.mod.go.jp/j/approach/agenda/guideline/2014/pdf/20131217_e2.pdf. 6 See for example, “Hagel Welcomes Japan’s New Collective Self-defense Policy,” U.S. Department of Defense, July 1, 2014, http://www.defense.gov/news/newsarticle.aspx?id=122591; see also, “U.S. Welcomes Japan’s Easing of Weapons Export Ban,” Kyodo News International, April 2 2014, http:// www.globalpost.com/dispatch/news/kyodo-news-international/140402/us-welcomes-japans-easingweapons-export-ban. 3

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Teraoka | Adhering, Distancing, or Waffling?

dragged into an insecurity spiral in Northeast Asia, which may lead to high tensions or even an unwanted war between China and Japan. This fear is one that the United States is encountering for the first time in the history of the U.S.-Japan alliance. This paper is divided into four sections. In the first section, it discusses the historical significance of this new dynamic in U.S.-Japan relations. Next, it introduces existing alliance theories on how a state responds to the fear of entrapment, followed by the proposal of a new theory that better explains U.S. silence on Japan’s strike capabilities. Third, it presents cases of the United States’s recent behavior vis-à-vis Japan to demonstrate the proposed theory and its applicability to the issue of autonomous strike capabilities. Lastly, the fourth section addresses possible counterarguments. Historical Significance: Abandonment and Entrapment during the Cold War Alliances form between states that share similar security interests. Even so, allies can develop interests that are dissimilar, leading them to develop either fears of abandonment or entrapment. Michael Mandelbaum first coined these two terms, defining abandonment as the fear that an ally “will be abandoned in his hour of need” and entrapment as the fear that “he will be entrapped in a war he does not wish to fight.”7 Glenn Snyder further developed this concept in 1984, characterizing abandonment as “defection” and entrapment as “being dragged into a conflict over an ally’s interests that one does not share, or shared only partially.”8 If all alliances involve fears of entrapment and abandonment, then it is crucial to understand why the new development of a U.S. fear of entrapment in the U.S.-Japan alliance is important. The following section examines the significance of this development by looking at the history of abandonment and entrapment dynamics in the alliance. Abandonment Historically, fear of abandonment was a less significant variable than fear of entrapment in alliances during the Cold War. As Snyder explains, the Cold War polarized the world into two camps and made it hard for members of one camp to realign with the other, which alleviated fears of abandonment.9 This was certainly true in the case of the U.S.-Japan alliance. The strictly bipolar international system and the accompanying U.S. dominance in the alliance made it impossible for Japan to normalize its relations with the Soviet Union and China prior to U.S. reconciliation with those nations. For example, the attempts to normalize with the Soviet Union under Prime Ministers

Michael Mandelbaum, The Nuclear Revolution: International Politics Before and After Hiroshima (New York: Cambridge University Press, 1981), 151. 8 Glenn H. Snyder, “The Security Dilemma in Alliance Politics,” World Politics 36 no. 4 (July 1984): 466-467. 9 Snyder, “The Security Dilemma in Alliance Politics,” 483-484. 7

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Ichiro Hatoyama and Tanzan Ishibashi in the 1950s were blocked by the United States.10 Despite such inflexibility in regard to realignment, both the United States and Japan faced abandonment fears due to their mutual dependency in the alliance. However, their fears were more or less symmetrical. Nixon’s surprise visit to China in 1972 and the secretive manner in which it was carried out surely raised questions about the reliability of the United States as an ally, which naturally translated into heightened abandonment fears in Japan. Still, Nixon’s announcement that the United States would withdraw troops from Asia did not cause as much fear of abandonment in Japan as compared to the Republic of Korea (ROK), since the United States was more strategically dependent on Japan. Meanwhile, the United States also feared abandonment by Japan. This fear was not simply that Japan would defect should the United States be attacked, but also included a concern that Japan could possibly fall into the Communist bloc and then not come to help the United States when it was attacked. The “domino theory” (the concern that if the United States lost one state to the Communist bloc, the rest would fall like dominos) contributed to U.S. fear of abandonment. The intense yet limited wars in Asia, such as the Korean War from 1950 to 1953 and the Vietnam War from 1956 to 1975, were viewed within the “domino” context: if the United States lost these countries, it would eventually lose Japan. Kenneth Pyle explains that the United States viewed the Korean War as a “Soviet invasion…to approach Japan,” and that Japan was “the most desired prize” for the Communists and their “natural target for the desire to dominate the Far East.”11 John Foster Dulles, prior to serving as Secretary of State, wrote in Foreign Affairs in 1952: We heard the Soviet Delegation at San Francisco brazenly demand that Japan should be kept virtually disarmed, that all Western power should be permanently withdrawn, and that Japan’s surrounding waters and the straits which divide her own home islands should be open, for all times, only to warships based on the Sea of Japan, which means the Red Pacific fleet at Vladivostok.12 Losing Japan to the Communists meant losing the cornerstone of U.S. strategy in Asia. Numerous declassified U.S. documents on Japan’s domestic political situation in the 1950s and the 1960s indicate how carefully the United States monitored communist and socialist influences in Japan as a result of its fear. Japan’s geostrategic importance in the United States’s Cold War strategy not only created an abandonment fear on the U.S. side, but also provided Japan with leverage over its bigger ally and thus helped to Michael Schaller, Altered States: The United States and Japan Since The Occupation (New York: Oxford University Press, 1997): 113-126. 11 Kenneth B. Pyle, The Making of Modern Japan (Mass.: Cengage Learning, 1995), 234. 12 John Foster Dulles, “Security in the Pacific,” Foreign Affairs, 1 January 1952, http://www.foreignaffairs.com/articles/70931/john-foster-dulles/security-in-the-pacific. 10

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alleviate Japan’s fear of abandonment. Entrapment In contrast, the dynamics of the entrapment fear in the U.S.-Japan alliance were completely asymmetrical during the Cold War. The United States, in fact, never felt a fear of entrapment vis-à-vis Japan, while Japan was fraught with it. This is not simply because Japan was smaller and lacked the capability to entrap its much larger ally: the history of the U.S.-ROK and the U.S.-Taiwan relationships shows that entrapment by the weaker ally is a possibility.13 Rather, the key factor was that Japan possessed neither the intention nor any reason to entrap the United States. First, Japan’s focus on economic growth and its grudging resistance to rearm made it almost impossible for the Japanese to entrap the United States in any unwanted wars. Second, any direct attack on Japan was considered an attack on the United States itself in the context of the Cold War. Therefore, any war that Japan dragged the United States into would never be an unwanted or unrelated war. Opposite to the United States’s experience in the alliance, Japan has always been fraught with the fear of entrapment over U.S. engagement in global conflicts. Despite U.S. efforts to get Japan more involved in regional security, Japan’s fierce entrapment fears caused it to shrewdly reject such pressure.14 During the Cold War era, the United States wanted Japan to normalize—to free itself from the restrictions imposed upon it both directly and indirectly by Article IX— so that it could play a bigger role in countering the mounting Soviet threats in Asia. Even in the beginning of the 1950s, the United States was already regretting its creation of a pacifist Constitution for Japan during the occupation. Then-Vice President Richard Nixon explicitly called it “a mistake” in his speech at the America-Japan Society in Washington in 1953.15 However, Shigeru Yoshida, the post-war Prime Minister of Japan who signed the 1953 San Francisco Treaty, successfully rejected U.S. pressure to normalize so that his war-torn country could focus on its economic recovery. Pyle has argued that Japan’s post-war pacifist orientation was not rooted in “wartime trauma” or efforts to discredit pre-war militaristic policies, but was rather “the product of the pragmatism” of conservative politicians, as underscored by their undertaking of “an opportunistic adaptation to the international political-economic environment.”16 Henry Kissinger praised Japan’s diplomatic maneuver as “the most farsighted and intelligent of any major nation in the postwar era.”17 Yoshida’s conversation with Kiichi Miyazawa, who later also became Victor D. Cha, “Powerplay Origins of the U.S. Alliance System in Asia,” International Security 34 (2009): 158-96. 14 Of course, Japan has not been entirely exempt from having to make concessions in the alliance, a difficultly it faced due to its continuous free-riding under the U.S. security umbrella. Nonetheless, Japan did achieve some success in its continuous struggle to resist entrapment by the United States. 15 John Dower, Empire and Aftermath: Yoshida Shigeru and the Japanese Experience, 1878-1954 (Mass.: Harvard University Asia Center, 1988), 464. 16 Pyle, The Making of Modern Japan, 232. 17 Quoted in Pyle, The Making of Modern Japan, 232. 13

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prime minister, illustrates Japan’s strategy: The day [for rearmament] will come naturally when our livelihood recovers. It may sound devious, but let the Americans handle [our security] until then. It is indeed our Heaven-bestowed good fortune that the Constitution bans arms. If the Americans complain, the Constitution gives us a perfect justification.18 Theoretical Framework: “A Fear of Entrapment Leads a State to Waffle First” Whereas responses to abandonment fears are generally more predictable, as Snyder notes, a state response to the risk of entrapment can be complicated.19 One school of thought makes the case that a state responds to the risk of entrapment by distancing from the ally through “a weak or vague commitment,” such as “failing to support the ally in specific conflicts.”20 Various alliance theories argue that a state generally responds to such situations through “distancing” or “hedging” strategies vis-à-vis the ally, such as (1) withholding material support from the ally; (2) castigating the ally’s overzealousness; (3) appeasing the adversary; or (4) abrogating the alliance.21 The other school of thought makes the case that under certain conditions, states choose “adhesion” strategies over “distancing” strategies. For example, Victor Cha argues that allies will choose adhesion “when entrapment fears (1) are intensely held, (2) are accompanied by power asymmetries (i.e., the larger power seeks control over the smaller one), or (3) when the smaller power has a revisionist agenda.”22 Snyder also argues that in some cases, a firm commitment or an “adhesion” strategy is “a better safeguard against entrapment,” as it increases deterrence against the adversary, and also provides a needed assurance to the ally that enables it to “feel safer in conciliating its opponent.”23 Both of these theories are compelling. Nonetheless, this paper argues that there is an unexamined dimension of states’ behaviors when facing the risk of entrapment. Before a state makes a decision on whether to distance itself from or adhere to an ally, or until it is pushed to do so, a state fearing entrapment will engage in a “waffling strategy,” meaning that the state simply maintains a state of silence or ambiguity.24

Kiichi Miyazawa, Tokyo-Washington no mitsudan [The Secret Conversations Between Tokyo and Washington] (Tokyo: Jitsugyo no Nihon-sha, 1956), 160. See also Tetsuya Kataoka, The Price of a Constitution: The Origin of Japan’s Postwar Politics (New York: Crane Russak, 1991), 118. 19 Glenn H. Snyder, Alliance Politics (Ithaca, New York: Cornell University Press, 1997), 182. 20 Snyder, “The Security Dilemma in Alliance Politics,” 467. 21 Cha, “Powerplay,” 195. Note that Cha adds that accommodating the adversary and nullifying the alliance are too risky to be realistic options, and therefore, the weaker commitment is the most plausible actions for a state with entrapment fear. 22 Cha, “Powerplay,” 195. 23 Snyder, Alliance Politics, 185. 24 I would like to thank my academic advisor, Professor Victor Cha, for this terminology. 18

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The paper argues that when a state faces the risk of entrapment, it responds first by waffling. It does not attempt to either distance itself from or adhere to the ally until it willingly determines or is forced to determine whether distancing or adhering would be preferable to maintaining a waffling strategy. This paper argues that a state prefers to waffle when it risks emboldening the ally by providing it with unconditional support or when it risks weakening the solidarity of the alliance by opposing the issue. In this case, states hope that the issue at hand will come to a resolution without their involvement. In asymmetrical alliances, such as the U.S.-Japan alliance, there are three main actors: a defender, a protégé, and a challenger (an adversary). While both the defender and the protégé can exhibit waffling behavior when facing a fear of entrapment, this paper places a particular focus on the entrapment fears and resulting waffling strategy from the perspective of the defender. Future scholarship should examine waffling from the perspective of a protégé. In practicing a strategy of waffling, a state neither criticizes nor supports its ally in certain conflicts or on certain issues. This gives a state some time and flexibility to consider each option as they calculate the costs and benefits of distancing, adhering, or continued waffling. Distancing may undermine deterrence against the adversary and cause the adversary to engage in a “wedge” or de-coupling strategy.25 By contrast, adhering may embolden the ally to provoke the opponent and increase the risk of entrapment. Continued waffling can help a state to prevent these negative consequences of distancing and adhesion. This not only allows a state to show a stronger loyalty and commitment to the alliance than if it were to distance itself, but it also allows the defender to avoid unnecessarily emboldening an ally, as compared to adhering. Waffling is also a preferable option for a state that does not want to make a topic of conflict problematic in the alliance. Once the defender takes a position, an issue between the protégé and the challenger becomes an issue among the three parties, automatically increasing the chances of entrapment for the defender. Thus, waffling is a form of ambiguity within alliance structures. A number of scholars have discussed the use of ambiguity as a tool of alliance management. Snyder and Diesing outlined the “deterrence-versus-restraint” dilemma to describe a key conundrum when it comes to defense commitments in alliances.26 Frank Zagare and Marc Kilgour called the use of ambiguity a state’s “mixed strategy” of defending and abandoning the protégé in order to maximize the deterrence effect on the adversary while also restraining the protégé.27 However, compared with these previous works, waffling introduces a new dynamic within alliance behavior. For example, only a limited number of works reveal the relations between the classical entrapment and abandonment For more on “wedging” strategy, see Yasuhiro Izumikawa, “To Coerce or Reward? Theorizing Wedge Strategies in Alliance Politics,” Security Studies 22 no. 3 (2013): 498–531. 26 Glenn Herald Snyder and Paul Diesing, Conflict Among Nations: Bargaining, Decision Making, and System Structure in International Crises (Princeton University Press, 1978), 432. 27 Frank Zagare and Marc Kilgour, “The Deterrence-Versus-Restraint Dilemma in Extended Deterrence: Explaining British Policy in 1914,” International Studies Review 8 (2006): 646. 25

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dilemmas and the “deterrence-versus-restraint” dilemma.28 Moreover, there exists no written analysis that reflects the changing nature of the alliance dilemma in U.S.-Japan relations and explains U.S. ambiguity towards recent issues in the alliance and Japan’s recent actions regarding its defense and military capabilities. By addressing this gap, this paper seeks to build on the existing literature on the U.S.-Japan alliance as well as discuss in general terms how states respond to the risk of entrapment through indecision. The concept of “waffling” differs from the already established concept of “strategic ambiguity,” a concept often used to describe U.S. policy towards Taiwan.29 There exist several key differences between waffling and strategic ambiguity. First, under strategic ambiguity, the United States takes a firm position on the issue in question, but remains ambiguous regarding what it would do if its interests were threatened. For example, the United States’s official and coherent stance on Taiwan has been that it “insists on the peaceful resolution of cross-Strait differences, opposes unilateral changes to the status quo by either side, and encourages dialogue to help advance such an outcome,” but the Taiwan Relations Act does not spell out what kind of response the United States must take if Taiwan were to be threatened.30 On the other hand, when pursuing a waffling strategy, the United States often chooses not to take any position on an issue or, at least from the perspective of its ally, is ambiguous as to whether it has a position. Second, “strategic ambiguity” implies a deliberative and purposeful nature in a state’s ambiguous behavior. By making it unclear whether it will defend an ally, the defender simultaneously achieves its twin goals of deterring an external challenger as well as restraining the protégé from actions that the challenger may perceive as aggressive. However, a state might waffle deliberately both for strategic reasons or simply as a default when it has not had time to fully consider the issue. In the absence of a position, it is unclear to both allies and challengers as to whether a state has decided on a position and is purposefully not revealing it, or if the state is simply being indecisive.

One account that does explain the relations between fear of entrapment and ambiguous commitment is by Brett V. Benson, Constructing International Security: Alliances, Deterrence, and Moral Hazard (Cambridge: Cambridge University Press, 2012). 29 Some scholars, such as Ambassador Joseph S. Nye. Jr., have called for the United States to shift its current policy of strategic ambiguity to a conditional commitment to defend Taiwan only if China attacks without provocation. For more information about the U.S. policy of “strategic ambiguity” towards Taiwan, see for example Nancy Bernkopf Tucker, “Strategic Ambiguity or Strategic Clarity?” in Dangerous Strait: The U.S.-Taiwan-China Crisis, ed. Nancy Bernkopf Tucker, (New York: Columbia University Press, 2005). 30 U.S. Department of State 2015, “U.S. Relations With Taiwan: Fact Sheet,” http://www.state.gov/r/pa/ ei/bgn/35855.htm; On U.S. strategic ambiguity in its Taiwan policy, see Taiwan Relations Act of 1979, Public Law (96-8), 96th Congress. The Taiwan Relations Act obliges “the United States…[to] make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability.” However, it also provides policy leeway by stating, “The President and Congress shall determine the nature and quantity of such defense articles and services based solely upon their judgment of the needs of Taiwan.” 28

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Third, based on a state’s cost-benefit calculus, “strategic ambiguity” may end up becoming a permanent strategy, especially in cases where the protégé and the challenger also share an interest in the defender’s ambiguity.31 Waffling, however, is often a transitional strategy due to the external pressures on states to take a position. In particular, a waffling state is compelled to take a clear stance when pressured to do so either by its ally or by changing negative external circumstances, such as the rise of a potential challenger. When such pressure arises, the state’s transition away from waffling and towards either adhering or distancing is determined by which actor is responsible for the changing negative circumstances. If the state sees that its ally is exacerbating tensions, it chooses distancing. If it perceives that the challenger is the source of tensions, the defender chooses to adhere to the ally.32 Table I. Differences Between Strategic Ambiguity and Waffling Strategy Strategic Amiguity

Waffling Strategy

Behavior

Takes a position on an issue, but remains ambiguous on what it will do if interests are threatened

Does not even take a clear position on the issue; perceived as indecision by others

Purpose

Deliberate; aims to both deter a challenger and restrain a protégé

Could be deliberate as in the case of strategic ambiguity, or accidental, if the state has not had time to consider the issue

Permanence

Relatively permanent, especially if both a protégé and a challenger support the ambiguity

Often transitional, because international pressure from a protégé or a challenger may force the state to take a stand

Key Examples

U.S. position on Taiwan

U.S. ambiguity over the position it has previously taken on the Senkakus; U.S. non-position on visits by Japanese leaders to the Yasukuni Shrine (until recently); U.S. non-position on Japan’s strike capabilities

For example, if a protégé or a challenger is not satisfied with the defender’s ambiguity, it could create tensions and pressure the defender ally to make its stance clear. The permanency of “strategic ambiguity” indicates relative satisfaction among the related parties. Further study is needed on this topic. 32 Brett Benson also argues that states choose ambiguous defense commitment to their allies when “it is simply not possible for the third party to determine whether a conflict occurred because the protégé was aggressive or because the adversary was aggressive.” Benson, Constructing International Security, 12. 31

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The following section examines two case studies that demonstrate transitions in U.S. behavior from waffling to either distancing or adhesion, as well as a third case study that explores the United States’s ongoing waffling strategy: (1) U.S. responses on visits to the Yasukuni shrine by Japanese leaders; (2) U.S. security commitments regarding the Senkaku Islands; and (3) Japan’s potential development of autonomous strike capabilities. Within each case study, the paper addresses how the fear of entrapment into unnecessary instability has led the United States to waffle on recent developments in the U.S.-Japan alliance. In three cases, international pressure obliged the United States to choose distancing or adhesion after determining whether its ally or a challenger was responsible for raising tensions or aggravating a situation. The final case—the ongoing U.S. waffling on Japan’s potential to acquire autonomous strike capability—is a clear demonstration of its initial reaction to the fear of entrapment. Case Studies: Distancing, Adhering, and Waffling The United States has recently employed all three options—distancing, adhering, and waffling—in response to the risk of entrapment, due mainly to increasing tensions between China and Japan. Along with Japan, China has a great stake in the issues described in these case studies. What stance the United States takes shapes both the nature of U.S.-China relations as well as the future order of the region. First, this section demonstrates U.S. distancing behavior by examining the U.S. response to Prime Minister Abe’s visit to the Yasukuni Shrine, an incident that further aggravated hostility between China and Japan. Here, U.S. behavior transitioned from waffling to distancing, as it determined that Japan was the party responsible for aggravating tensions in the region. Second, the paper turns to U.S. behavioral change from waffling to adhesion over the defense of the Senkaku Islands by examining the evolution of U.S. officials’ changing statements, including an unprecedented presidential statement in April 2014. The United States decided to adhere to Japan as it witnessed China’s increasing assertiveness, such as its establishment of the Air Defense Identification Zone (ADIZ) in November 2013 and its continuous provocations in both the East and South China Seas. Finally, this paper tackles the United States’s silence on Japan’s potential development of offensive capabilities, which demonstrates its waffling strategy. This case study also shows the circumstances in which a state is permitted to continue waffling. Waffling To Distancing: Castigating Japan for Creating Unnecessary Regional Tensions In the last several years, the United States exhibited distancing behavior toward Japan in several circumstances. The most apparent case was its public castigation of Abe’s December 2013 visit to the Yasukuni Shrine. This instance of U.S. distancing was demonstrated through “castigating the ally’s overzealousness,” as Snyder puts it. Specifically, the United States intervened during a period of tension stemming from historical animosities in the region. On 26 December 2013, Prime Minister Abe visited the controversial Yasukuni Shrine, where fourteen convicted Class-A war criminals are enshrined. This occurred despite relentless opposition by neighboring countries and active U.S. efforts to dissuade the Prime Minister [76] Georgetown Journal of Asian Affairs


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from going. After the visit, the United States made a public statement that it was “disappointed” by the visit.33 This negative public statement indicated a clear change from the United States’s stance on this issue during the Bush administration. The United States has long been concerned that visits to the Yasukuni Shrine would hurt Japan’s position in Asia and therefore would not serve the interests of the alliance. This concern rose as the issue became more politicized in Asia due to the Chinese government’s criticism of Japan as well as anti-Japanese demonstrations. Even so, prior to the Obama administration’s unprecedented statement, the United States waffled on the Yasukuni Shrine issue. In previous instances, former governmental officials such as Joseph S. Nye Jr. discouraged such visits.34 Some senior U.S. officials may also have used back channels to discourage their Japanese counterparts from visiting the shrine. Nevertheless, the U.S. government still maintained that the circumstances were not appropriate for the United States to take a position on this issue, making waffling a logical choice. The following episode is a revealing example: When then-Prime Minister Junichiro Koizumi visited the Yasukuni Shrine on 15 August 2006, one of the most sensitive dates in the region, then-President George W. Bush decided not to take a public position on the issue.35 As then-National Security Council official Michael J. Green later explained, “President Bush decided that one of the worst things the United States can [sic] do would be to publicly threaten or criticize such a trusted ally as Japan, given the expanding confidence of China in Asia and its efforts to delegitimize and isolate Japan.”36 In contrast to Bush’s calculation, the Obama administration saw distancing as more advantageous than strategic silence. This transition is a reflection of U.S. frustration over the increasing regional tensions caused by the Yasukuni Shrine visits. In addition to causing problems between China and Japan, the visits also hurt ties between U.S. allies Japan and the ROK at a time when trilateral U.S.-Japan-ROK defense cooperation was becoming more important, particularly given China’s increasing assertiveness and North Korea’s nuclear activities. While the United States initially avoided taking a public position on this issue, international pressure in 2013 no longer allowed the United States to waffle and compelled

Embassy of the United States in Tokyo, Japan, “Statement on Prime Minister Abe’s December 26 Visit to Yasukuni Shrine,” December 26 2013, http://japan.usembassy.gov/e/p/tp-20131226-01.html#. UrvL5Q2UkS4.twitter. 34 For example, in a 2001 interview with the Asahi Shimbun after he had left government, Nye stated that visits to the Yasukuni Shrine are not in the interest of Japan. Quoted in Yasuaki Chijiwa, Hazuki Sasaki, and Chisa Taguchi, “Koizumi Junichiro syusyo yasukuni mondai sanpai mondai—Taibei kankei no bunmyaku kara, [Prime Minister Koizumi Junichiro’s Visits to Yasukuni Shrine-A Perspective from Japan’s Relations with the United States],” Kokusai Kokyo Seisaku Kenkyu 12, no. 2 (2008): 145-159. 35 This date is sensitive because 15 August 1945 is the date on which Japan announced its surrender to the Allies, ending World War II. 36 Michael J. Green, Press Conference with Kurt M. Campbell, Japan National Press Club, July 16, 2013. 33

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it to get involved in the controversy by taking a stance. Thus, over the course of several years, there has been a clear transition from “waffling” to “distancing” by the United States towards Japan on this contentious historical issue. It is also notable that this public castigation over the Yasukuni visit came about in the context of already existing U.S. frustrations that Japan was creating unnecessary tensions in the region. About a year before Abe’s Yasukuni visit, his predecessor Yoshihiko Noda decided to purchase three of the eight disputed Senkaku Islands from a private Japanese owner in September 2012.37 During the consultation process, the United States explicitly told the Japanese side “not to go into this direction” because it could “trigger a crisis” with China.38 Japan’s decision to do so despite such warnings was not well received in the United States, although it did not at that time result in public castigation. The response to Abe’s visit to Yasukuni clearly indicates an increasing U.S. concern over regional tensions and the fear of possible entrapment into a regional insecurity spiral caused by Japan. These incidents marked a definite change in U.S. perceptions of Japan, diverging from the old perception of Japan as the United States’s “favorite son” in Asia.39 Waffling to Adhesion: A Path to Presidential Defense Commitment over the Senkakus On 24 April 2014, President Obama made history by becoming the first U.S. President to publicly announce that U.S. defense commitments to Japan included the Senkaku Islands, stating that “our treaty commitment to Japan’s security is absolute, and Article V covers all territories under Japan’s administration, including the Senkaku Islands.”40 This adhesion strategy was brought about after almost two decades of Japan pursuing a clearer and stronger defense commitment from the United States. Long years of pressure from Japan pushed the United States to transition from waffling behavior to adhesion. The Obama administration had been notably reluctant to make any statements on the Senkakus for several months, despite Japanese efforts to encourage affirmative statements through public media and official channels. Additionally, this silence occurred while the popular narrative of the “Group of 2”—a term used to describe a potential bipolar condominium between the United States and China—was on the rise, which

Chinese name for these islands is the “Diaoyu Islands.” U.S. Warned Government against Buying Senkaku Islands: Campbell,” The Japan Times, April 10 2013, http://www.japantimes.co.jp/news/2013/04/10/national/u-s-warned-government-against-buying-senkaku-islands-campbell. 39 This term comes from Cha, “Powerplay,” 194. 40 “Joint Press Conference with President Obama and Prime Minister Abe of Japan,” The White House Office of the Press Secretary, April 24, 2014, http://www.whitehouse.gov/the-press-office/2014/04/24/ joint-press-conference-president-obama-and-prime-minister-abe-japan. 37 38

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increased Japan’s fear of abandonment.41 Obama’s presidential statement, which marked a significant shift in the United States’s commitment regarding the Senkakus and territorial disputes in general, illustrates how a state that fears entrapment waffles first before taking a definitive stance. The dispute between China and Japan over the Senkaku Islands has existed for decades, but significantly intensified after the trawler collision incident of September 2010. In order to measure U.S. commitment in defending its ally over this conflict, this paper analyzes both public and private statements made by top U.S. government and military officials on this issue from 1996 to 2014 (see appendix enclosed after the conclusion). Four main themes can be found in these statements: (1) the United States does not take a stance on sovereignty; (2) the U.S.-Japan Security Treaty’s Article V applies to the Senkakus because they are under Japanese administrative control; (3) the United States objects to any unilateral actions that seek to change the status quo by force; and (4) the United States urges the reduction of tensions and seeks a peaceful solution to the dispute.42 Statements highlighting the first and fourth themes made Japan wary because they conveyed a sense of neutrality on the part of the United States. On the other hand, statements emphasizing the second and third themes were assuring for Japan, especially since the country does have administrative control over the Senkaku Islands under the status quo.43 In 1996, then-U.S. Ambassador to Japan Walter Mondale was quoted in the New York Times as stating that the United States would not fight in a conflict over the Senkakus.44 However, then-Assistant Deputy Secretary of Defense Kurt M. Campbell refuted this statement, and since then the official U.S. stance has not changed: Article V of the U.S.-Japan Security Mutual Cooperation and Security Treaty applies to the Senkaku Islands, as they are under the administrative control of Japan. Nonetheless, this study proves that inconsistent U.S. government statements created uncertainty in See for example, Zbiegniew Brzezinski, “The Group of Two That Could Change the World.” Financial Times, January 13, 2009. 42 I would like to thank Nicholas Szechenyi for his suggestion to analyze these four themes in U.S. government statements. Article V of the Treaty Of Mutual Cooperation and Security Between Japan and the United States of America reads, “Each Party recognizes that an armed attack against either Party in the territories under the administration of Japan would be dangerous to its own peace and safety and declares that it would act to meet the common danger in accordance with its constitutional provisions and processes. Any such armed attack and all measures taken as a result thereof shall be immediately reported to the Security Council of the United Nations in accordance with the provisions of Article 51 of the Charter. Such measures shall be terminated when the Security Council has taken the measures necessary to restore and maintain international peace and security.” “Treaty of Mutual Cooperation and Security between Japan and the United States of America,” Ministry of Foreign Affairs of Japan, http://www.mofa.go.jp/region/n-america/us/q&a/ref/1.html. 43 I define “assurance” as a strategy directed at allies, while “reassurance” is directed at adversaries. See Jeffrey W. Knopf, “Varieties of Assurance,” The Journal of Strategic Studies 35, no. 3 (June 2012): 375–399. 44 Nicholas D. Kristof, “An Asian Mini-Tempest Over Mini-Island Group,” The New York Times, September 16, 1996. 41

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Japan regarding where the United States stood on this conflict. The inconsistency of the aforementioned four themes included in these statements illustrates a lack of clear top-down communication on the issue, which is far from assuring to an ally. Unlike U.S. strategic ambiguity on Taiwan, the inconsistency of the U.S. statements gave an impression that the United States was either backing away from the position it took in 1996 or ambiguous as to whether it had a clear position on the issue. Some top government officials made statements that only included the fourth theme. From Japan’s perspective, this implied that the United States was distancing itself from Japan by maintaining neutrality and “castigating the ally’s overzealousness” regarding the dispute. The way these statements were made is also telling. Until Hillary Clinton explicitly told then-Japanese Foreign Minister Seiji Maehara in 2010 that the Senkakus were covered by the Japan-U.S. Security Treaty, U.S. government officials had only passively made statements about the Senkaku Islands when questioned about the issue at various fora.45 Making statements voluntarily is an indication of how willing a government is to demonstrate its commitment.46 Although Obama’s statement was reassuring, the fact that it took two decades for any U.S. president to make such a statement, even when tensions were on the rise, indicates years of waffling behavior on this issue. Also, the fact that the U.S. president himself had to publicly assure the ally of the United States’s commitment shows that the U.S. government was aware of the extent of Japan’s concern over U.S. waffling. In addition to waffling by officials, unofficial voices also demonstrated the existence of waffling. Pundits in Washington, including former top U.S. government officials, made statements suggesting a lack of importance of U.S. commitments to an ally involved in a territorial dispute. For example, former National Security Advisor Stephen Hadley argued in October 2013 that one should be “cautiously optimistic” about the future of Sino-U.S. relations because “there are no competing territorial claims between China and the United States today.”47 Although this is technically true, this type of analysis reduces the credibility of the United States’s commitment to the U.S.-Japan Security Treaty. Patrick Buchanan, a pundit and former Republican Congressman, questioned why the dispute over the Senkakus should be “America’s quarrel.”48 Furthermore, there are numerous articles in popular publications quoting anonymous U.S. veterans saying that the United States “would not be excited to go to war over a bunch of rocks.”49 “Clinton: Senkakus Subject to Security Pact,” The Japan Times, September 25, 2010. “Obama bei daitouryou ga rainichi ajia antei ni muke doumei kyouka [Obama Visits Japan: Strengthening the Alliance for Stability of Asia],” Nikkei, April 23, 2014, http://www.nikkei.com/article/DGXNASFS2301W_T20C14A4000000. 47 Stephen J. Hadley, “US-China: A New Model of Great Power Relations,” Atlantic Council, http:// www.atlanticcouncil.org/blogs/new-atlanticist/us-china-a-new-model-of-great-power-relations. 48 Patrick Buchanan, “Are The Senkakus Worth A War?” Human Events, December 13, 2013, http:// humanevents.com/2013/12/13/are-the-senkakus-worth-a-war. 49 “Geopolitics: The Decline of Deterrence,” The Economist, May 3, 2014, http://www.economist. com/news/united-states/21601538; Ely Ratner, “Learning the Lessons of Scarborough Reef ”, The National Interest, May 3, 2014, http://nationalinterest.org/commentary/learning-the-lessons-scarborough-reef-9442. 45 46

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The United States finally took an irrefutable stance on the Senkakus after two decades of waffling, thus demonstrating the power of international pressure in causing a defender state to shift its position. Ever since Sino-Japanese tensions over the Senkakus intensified in 2010 and thereafter, the United States has felt pressure to make its stance clear on its defense commitment. In other words, before 2010, the international pressure was not strong enough to compel the United States to make a clear stance, thus allowing room for the United States to waffle. Waffling: Japan’s Potential Development of Autonomous Strike Capabilities 1. Japan’s Discussion of Autonomous Strike Capabilities While the discussion of autonomous strike capabilities occasionally appeared starting from the 1950s, the current exploration of acquiring offensive capabilities arose from Japan’s fear of abandonment after North Korea’s Taepodong missile launches in 1998. Green has argued that in the beginning of the 1990s, Japan started to view autonomous defense production “as a hedge against abandonment by the United States.”50 This development may also have put more pressure on the United States to take actions that would enhance the alliance. As Snyder argued, a state with a fear of abandonment may build up internal capabilities or bolster its commitment to the alliance “in order to get the ally to reciprocate.”51 A more recent move that added fuel to this discussion was a report published on 4 June 2014 by the ruling Liberal Democratic Party’s (LDP) Committee on National Defense. The report proposed that “the Government should launch a study on the Self Defense Forces’ capabilities to strike enemy bases (which has been regarded as legally admissible) and immediately draw a conclusion, while taking into consideration neighboring countries’ development and deployment of nuclear weapons and ballistic missiles.” The report further stated that the government should undertake this initiative “with a view [towards] further solidifying the credibility of alliance extended deterrence.”52 Then-Minister of Defense of Japan Itsunori Onodera said in a July 2014 media interview that he would consider the option of acquiring autonomous strike capabilities.53

Michael J. Green, Arming Japan: Defense Production, Alliance Politics, and the Postwar Search for Autonomy (New York: Columbia University Press, 1995),157. 51 Victor Cha, “Abandonment, Entrapment, and Neoclassical Realism in Asia: The United States, Japan, and Korea.” International Studies Quarterly 44, no. 2 (Spring 2000): 268. 52 “Shin ‘boei keikaku no taiko’ sakutei ni kakawaru teigen [Proposal with regards to formulating new National Defense Program Guidelines],” Liberal Democratic Party of Japan, trans. Bradley Roberts, June 4, 2013, https://www.jimin.jp/policy/policy_topics/pdf/pdf106_2_1.pdf; English translations are from Bradley Roberts, “Extended Deterrence and Strategic Stability in Northeast Asia,” NIDS Visiting Scholar Paper Series no. 1, http://www.nids.go.jp/english/publication/visiting/pdf/01.pdf. 53 Yuka Hayashi, “Shinboei taiko de tekikichi kogeki noryoku no fuyo kento: Onodera boeisyo [Capabilities to Attack Enemy Bases in New Defense Guidelines: Defense Minister Onodera],” The Wall Street Journal, July 17, 2013, http://jp.wsj.com/articles/SB10001424127887324802804578610582603569200. 50

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Contrary to the active discussion in Japan, the United States responded to this issue with silence. Not only was the issue of autonomous strike capabilities left out of the joint statement in the 2013 2+2 meeting, but there have also been no official comments on the United States’s stance. Whenever the issue was raised in press briefing question and answer sessions at the Department of Defense (DOD), officials answered ambiguously. For example, during a September 2013 press conference, a senior DOD official from the DOD skillfully skirted the issue by saying: At the core of the defense guidelines is a discussion about both the current and the future roles, missions and capabilities of the U.S.-Japan alliance. And that’s a discussion that we have yet to have, that we will have as part of the defense guidelines review process.54 In addition to these ambiguous statements, in a conversation with this author, one Department of State official revealed that the United States has “not made its stance clear yet.”55 It is clear that the United States is in the stage of waffling on this particular issue. 2. Why Not Distance Unlike the issue of visits to Yasukuni, the United States certainly is not distancing from Japan on the issue of autonomous strike capability by opposing or castigating the idea. Former Deputy Secretary of Defense Bradley Roberts, who served during Obama’s first term, acknowledged in his report that from a purely military point of view, Japan acquiring offensive capabilities would be positive for the United States. This development would enhance the deterrence and capabilities of the U.S.-Japan alliance as a whole. Roberts further argued that Japan’s development of offensive capabilities would strengthen regional deterrence (especially in gray zone conflicts), as well as add protection in case of deterrence failure.56 The positive effects of Japan gaining a strike capability seem to preclude the possibility that the United States would distance itself from its ally by criticizing this development. In addition, such behavior vis-à-vis its ally involves fundamental risks, as distancing can be exploited in the adversary’s wedging strategy. Mandelbaum explains this dynamic with a classic example: “The Corinthians, the enemies of Corcyra, warn the Athenians that accepting the Corcynians as allies will lead to entrapment: You will force us to hold you equally responsible with them, although you took no part in their misdeed.”57 Chinese strategic culture gives another example. Ancient Chinese strategist Sun Tzu

“Department of Defense Background Briefing on Secretary Hagel’s Upcoming Trip to the Republic of Korea and Japan in the Pentagon Briefing Room,” U.S. Department of Defense, September 27, 2013, http://www.defense.gov/transcripts/transcript.aspx?transcriptid=5309. 55 Non-attributable discussion with the author, October 8, 2014. 56 Roberts, “Extended Deterrence and Strategic Stability,” 22-23. 57 Mandelbaum, The Nuclear Revolution, 151. 54

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illustrates China’s wedging strategy: “When [an enemy] is united, divide him. Sometimes drive a wedge between a sovereign and his ministers; on other occasions separate his allies from him. Make them mutually suspicious so that they drift apart.”58 In line with this thinking, Chinese Ambassador to the United States Cui Tiankai, along with other Chinese ambassadors around the globe, engaged in a series of negative campaigns against Japan after Abe’s 2013 visit to the Yasukuni Shrine.59 Later in May 2014, referring to the visit of Japanese nationalists to the Senkaku Islands and the visit of Japanese cabinet members and ministers to the Yasukuni Shrine, Cui also pointed out, “[t]he U.S. side should stay alert against the recent provocative actions taken by Japanese political leaders.”60 As China’s Minister of Defense Chang Wanquan said to then-U.S. Secretary of Defense Chuck Hagel in April 2014, “[w]e hope that the U.S. could stay vigilant against Japan’s action and keep it within bounds and not to be permissive and supportive.”61 Exacerbating the entrapment fear of an enemy’s ally is a classic strategy in international politics. U.S. distancing strategy vis-à-vis Japan’s acquisition of autonomous strike capabilities would weaken deterrence and create more opportunities for China to employ a wedging strategy. 3. Why Not Adhere From the U.S. perspective, an adhesion strategy regarding autonomous strike capabilities is not desirable under the current circumstances. This can be illustrated by comparing the autonomous strike issue with the Senkakus issue. Although the presidential statement confirming that U.S. defense commitments covered the Senkakus certainly assured the ally through a strategy of adhesion, it also had the effect of reassuring the adversary (in this case, China) by reiterating that the scope of the U.S.-Japan security treaty was purely defensive. Thus, through this statement, the United States was also able to ensure that the ally would not become overly risk-tolerant. This echoes Snyder’s argument that “one way to restrain an ally from aggressive initiatives is to point out that [the] alliance is defensive only.”62 Because of this unique dynamic, adhesion did

Sun Tzu, The Art of War, trans. Samuel B. Griffith (London: Oxford University Press, 1963), 69. For example, see Cui Tiankai, “Shinzo Abe Risks Ties with China in Tribute to War Criminals,” The Washington Post, January 9, 2014, http://www.washingtonpost.com/opinions/shinzo-abe-risks-tieswith-china-in-tribute-to-war-criminals/2014/01/09/dbd86e52-7887-11e3-af7f-13bf0e9965f6_story. html. 60 “China Warns US of Increasing Japanese Nationalism,” The Japan Daily Press, May 2, 2013, http:// japandailypress.com/china-warns-us-of-increasing-japanese-nationalism-0228124. 61 This comment was a response to a question to Minister Chang on Secretary Hagel’s previous statement in Japan that the Senkakus fall under the U.S.-Japan security treaty and that the United States supports Japan’s exercise of its right to collective self-defense. Even so, it reflects how China is likely to respond if discussions of Japan acquiring autonomous strike become more prominent. Chuck Hagel and Chang Wanquan, “Joint Press Conference with Secretary Hagel and Minister Chang in Beijing, China,” U.S. Department of Defense, April 8, 2014, http://www.defense.gov/Transcripts/Transcript. aspx?TranscriptID=5411. 62 Snyder, Alliance Politics, 323. 58 59

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not significantly raise tensions in the region. However, the same logic cannot simply be applied to the issue of strike capabilities. By adhering to the ally on this issue, the United States would essentially welcome and actively engage in discussion on Japan’s strike capability, or even encourage Japan to accelerate such discussion. In this situation, unlike the case of the Senkakus, it is hardly possible for the United States to simultaneously reassure China. To the contrary, such an act would likely encourage a further arms race and destabilize the region, specifically because Japan’s possession of the physical capability to initiate preemptive or preventive strikes would never be in China’s interests. To make matters worse for China, the current interpretation of Japan’s constitution, which calls for sensyu boei (an exclusively defense-oriented military posture), has never eliminated the option of preemptive strikes. As then-Prime Minister Ichiro Hatoyama once said, “If no other suitable means are available, Japan is not obligated to merely sit and wait to die but can engage in offensive action within certain limits.”63 Japan’s use of preemptive or preventive strikes is also problematic for the United States, as the security treaty does not specify what level of defense commitment the United States would need to provide Japan in such scenarios. Japan’s strike capabilities increase the risk of U.S. entrapment into an armed conflict in which it does not wish to take part. Furthermore, by encouraging the ally’s development of autonomous strike capabilities, the United States would face the risk of undercutting the credibility of its extended deterrence to its allies in the region because U.S. extended deterrence, if sufficiently credible, should have obviated Japan’s need to develop its own strike capabilities. Richard C. Bush III, a senior fellow at Brookings Institution, attributes the difference in U.S. reactions to the Senkaku Islands problem versus autonomous strike capabilities to the scope of the issues and the potential for escalation. According to Bush, the presidential statement on the Senkakus was only made possible due to the limited scope of the issue: the United States either pledges to defend the islands or it does not. On the other hand, “the issue of offensive strike capabilities is more general and ambiguous,” which means there is a great amount of uncertainty as to what impact it will have on “escalation.”64 4. Waffling and Fear of Entrapment The United States’s waffling strategy is driven by its fear of entrapment into the regional insecurity spiral that could arise from Japan’s potential acquisition of autonomous strike capabilities. Distancing could not only damage deterrence against the adversary and create room for China’s wedge strategy, but it could also exacerbate Japan’s fear of abandonment and encourage Japan to speed up military development. The latter

Sugio Takahashi, “Dealing with the Ballistic Missile Threat: Whether Japan Should Have a Strike Capability under its Exclusively Defense-Oriented Policy,” Boei kenkyujo kiyo 1 (October 2005): 80. 64 Richard C. Bush, interview by the author, The Brookings Institution, Washington D.C., November 10, 2014. 63

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development could provoke an arms race in the region. Adhering could also embolden the ally to take more risks against China, which may lead Japan to be more inclined to use their strike capabilities. Another key U.S. ally, the ROK, has exhibited concern over this possible development, which further complicates the potential repercussions in the region. Thus, choosing either distancing or adhesion would heighten the risk of entrapment, which would likely arise from negative regional reactions. Supporting this view, Bush stated in an interview that “if the United States had a problem with this, it would be because we would worry that Japan would be too prone to escalate if there were some kind of a danger of attack or threat of attack.”65 Indeed, the aforementioned U.S. government official indicated to this author that the concern over regional stability is the most likely reason for U.S. silence on Japan acquiring autonomous strike capabilites.66 Based on this calculus, the United States has determined thus far that it is not yet time for them to distance or adhere, making waffling the best possible strategy with regard to Japanese development of strike capabilities. Counterarguments This section addresses possible counterarguments. Some may say that U.S. silence on Japan’s strike capability is due to (1) U.S. indifference; (2) financial concerns and opportunity costs; or (3) concerns about proliferation. These are all plausible arguments, but fail to capture the whole picture. U.S. Indifference Some may argue that U.S. silence regarding Japan’s development of autonomous strike capabilities is simply due to Washington’s indifference. Previous studies on this issue suggest that even with such capabilities, Japan would still depend on U.S. satellite systems to detect and target enemy bases, especially for missiles launched from mobile launchers.67 Consequently, Japan will not be technically independent unless it developed a satellite system as capable as the one the United States possesses. Consequently, until this occurs, Japan is both unable and unlikely to attack China without U.S. help, thus making Japan’s possession of autonomous strike a non-issue. This argument is plausible, particularly considering the fact that it was only with the return of the LDP to power in December 2012 that this discussion on autonomous strike capability was allowed to resurface. During the three years when the Democratic Party of Japan (DPJ) was in power, there was little, if any, media coverage of the issue. Indeed, in September 2014, Reuters quoted an anonymous U.S. official, who stated that Washington’s lack of a position on the issue was “in part because the Japanese have

Ibid. Non-attributable discussion with the author, October 6, 2014. 67 Takahashi, “Dealing With the Ballistic Missile Threat,” 91-92. 65 66

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not developed a specific concept or come to us with a specific request.”68 This indicates that the discussion is in too early of a stage to draw U.S. attention. In addition, the relative lack of attention may well be because the United States has been distracted by other international issues, such as instability in the Middle East, as well as by the recent domestic deadlock that induced the 2013 government shut-down and, consequently, led Obama to cancel his attendance at the Asia-Pacific Economic Cooperation (APEC) forum. This explanation, however, is clearly flawed. Obama’s “rebalance to Asia” strategy directly contradicts the possibility that U.S. leadership is indifferent to Asia in general and Japan in particular. If the United States views Japan having a “spear” capability as a positive development that serves U.S. national interests, there is no reason to believe that it would not give its support to Japan just as it did on collective self-defense and Japan’s increasing defense budget. Thus, U.S. indifference solely on Japan’s offensive capability itself is puzzling when examined in the context of the U.S. rebalance to Asia. Financial Concerns and Opportunity-Costs Another alternative argument is financial concerns and the opportunity costs of the issue. As sequestration will force the U.S. Department of Defense to continuously cut its defense budget by almost $1 trillion over the next ten years, the United States may be concerned about the potential financial costs if Japan were to develop such a capability. Due to Japan’s limited discussion of how far it would develop its strike capability, including enhancement of its satellite systems to strike mobile launchers, the United States may be uncertain regarding the potential breakdown of burden-sharing. Green explains U.S. reluctance on this issue, arguing that “even if Japan possessed the capability to attack enemy bases, it would be limited so it would be the United States that would have to deal with any counterattack.”69 The United States may also have been concerned about opportunity costs. Roberts writes that the United States is concerned that “investments in these capabilities would come at the expense of investments in other capabilities important to the alliance, [which are] perhaps of higher priority.”70 This concern is plausible as Japan has had a self-imposed regulatory cap to limit its defense budget for decades, and an increase in the national defense budget was not proposed together with the discussion of strike capability. These alternative arguments, however, do not offer a complete explanation for U.S. silence. Such severe financial constraints, in fact, could give the United States an incentive to support Japan’s development of autonomous strike capabilities. By supporting or even pushing Japan’s strike capability development further, the United States could

Nobuhiro Kubo, “Exclusive: Japan, U.S. discussing offensive military capability for Tokyo,” Reuters, September 10, 2014, http://www.reuters.com/article/2014/09/10/us-japan-usa-military-idUSKBN0H500B20140910. 69 “Analysis,” AJW by The Asahi Shimbun. 70 Roberts, “Extended Deterrence and Strategic Stability,” 23. 68

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acquire more financial or technical support from Japan to aid in U.S. satellite programs, as Japan’s strike capabilities are likely to rely on U.S. satellite systems that are far superior to those of Japan. As for opportunity cost concerns, there are many possible ways that the United States could negotiate with Japan to invest in other capabilities necessary for the alliance, while also developing Japan’s autonomous strike capability. After all, the 1 percent cap on Japan’s defense spending is not a law but a Cabinet resolution. Therefore, it can be changed depending on circumstances. Thus, these arguments do not explain why the United States does not simply approach this issue in a way that serves its financial interests and limits its opportunity costs.71 U.S. concerns about proliferation might explain U.S. silence to some extent, as nonproliferation issues have been a main source of tension in U.S. alliance networks. The United States appreciates stronger allies and greater those allies’ greater commitments to their own national defense, but it also has a long history of committing to the principle of nonproliferation. Still, previous cases have shown that U.S. commitment to nonproliferation becomes a secondary priority when the United States determines that regional stability is better served by strengthening an ally’s capability through proliferation. For example, in 2012, the United States allowed the ROK to extend the range of its missiles up to 800 kilometers from the prior cap of 300 kilometers. This example shows that U.S. concerns about proliferation can change depending on the situation and thus should not be considered the sole factor preventing U.S. support for Japan’s offensive capability. Conclusion Alliances need meticulous care from both sides in order to be maintained. As Mandelbaum stated, entrapment and abandonment fears are “the heart of any alliance.”72 In the U.S.-Japan alliance, the dynamics of entrapment and abandonment have evolved as the alliance and the two nations within it have changed. The peculiar absence of a U.S. fear of entrapment in its alliance with Japan during the Cold War indicated the asymmetries of the U.S.-Japan alliance. Throughout those decades, Japan possessed neither the ability nor the intent to entrap its counterpart. However, that situation has changed. The alliance has become a more symmetrical alliance as a result of Japan’s normalization and its very different international standing compared with the immediate post-war period. To a great extent, this growing symmetry demonstrates the trust built up between the United States and Japan and the increasing maturity of the alliance. However, this symmetry will not be without its challenges given this newly introduced undercurrent of a simultaneous U.S. fear of entrapment and Japanese fear of abandonment. To ensure the continued strength and robustness of the alliance, the United States and Japan will need to pay careful attention to managing this double-layered dilemma.

71 72

Roberts, “Extended Deterrence and Strategic Stability”, 24. Mandelbaum, The Nuclear Revolution, 151.

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As this paper argues, the United States is responding to its fear of entrapment into an insecurity spiral in Northeast Asia through a waffling strategy. In cases where it faces strong international pressure, it has transitioned to distancing or adhesion in order to maintain stability. The recent discussion of Japan’s autonomous strike capabilities, as well as U.S. silence on the issue, arises from this dynamic alliance dilemma. Japan will never have a “spear” capability unless both sides succeed in assuaging each other’s fears. Furthermore, as a note of caution, states should also be warned that waffling can create counter-productive results in the long run by undermining credibility and loyalty. Waffling, an essentially passive behavior, may appear rational to a state that plays the primary defending role in an alliance. However, from the perspective of the protégé, waiting for international pressure in order to respond indicates a lack of leadership. History has revealed that while making ambiguous commitments may be an optimal strategy for a period of time, it is ultimately not the best strategy to deter against aggression from a determined challenger in the long run.73

Ayumi Teraoka holds an M.A. in Asian Studies from Georgetown University and a B.A. in Law from Keio University. Her research focuses on Japan’s foreign policy in East Asia and the U.S.-Japan Alliance. She has worked at multiple think tanks both in Tokyo and Washington, D.C.

Appendix. U.S. Government Officials’ Statements on the Senkaku Islands 1 = The United States does not take a stance on sovereignty of the Senkaku Islands 2 = Article V applies to Senkaku Islands as they are under Japan’s administrative control 3 = The United States opposes unilateral actions to change the status quo through coercion 4 = The United States urges the reduction of tensions and peaceful resolutions to disputes O = present; X = absent; # = Implied but not explicitly stated Date

Administration

11/27/1996

Clinton

U.S. Official

Occasion

Walter Mondale Quoted in (U.S. Ambassador The New York Times to Japan)

1

2

3

4

X

X

X

X

Zagare and Kilgour, “The Deterrence-Versus-Restraint Dilemma in Extended Deterrence”, 637; See also Paul M. Kennedy, “The Tradition of Appeasement in British Foreign Policy 1865-1939,” British Journal of International Studies 2 (October 1976): 198. 73

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Date

Administration

U.S. Official

Occasion

1

2

3

4

11/27/1996

Clinton

Kurt Campbell (Deputy Assistant Sec. of Defense)

Interview with Yomiuri Shimbun

X

O

X

X

03/24/2004

Bush

Adam Ereli (Dep. of State Spokesperson)

Press Conference

X

O

X

X

No responses to the inquiries made by the Government of Japan and other Japanese media regarding the U.S. stance on the Senkaku Islands 03/04/2009

Obama

Dep. of State

Interview with Yomiuri Shimbun

X

O

X

X

08/16/2010

Obama

Philip Crowley (Assistant Sec. of State)

Press Conference

X

O

X

X

09/23/2010

Obama

Hilary Clinton (Secretary of State)

First Summit with Japanese Foreign Minister

X

O

X

X

10/27/2010

Obama

Hilary Clinton Joint Press Confer(Secretary of State) ence with Japanese Foreign Minister

X

O

X

O

10/30/2010

Obama

Hilary Clinton (Secretary of State)

Remarks with Vietnamese Foreign Minister

O

O

X

O

07/10/2012

Obama

Victoria Nuland (Assistant Sec. of State)

Written response to Interview with Yomiuri Shimbun

X

O

X

O

09/17/2012

Obama

Leon Panetta (Secretary of Defense)

Remarks with Japanese Minister of Defense

O

#

X

O

11/15/2012

Obama

Tom Donilon (National Security Advisor)

Interview with Nikkei Shimbun

X

X

X

O

11/29/2012

Obama

U.S. Senate

2013 National Defense Authorization Act

O

O

O

O

01/18/2013

Obama

Hilary Clinton (Secretary of State)

Remarks with Japanese Foreign Minister

O

O

O

O

02/06/2013

Obama

Leon Panetta (Secretary of Defense)

Remarks at Georgetown University

X

X

X

O

04/14/2013

Obama

O

O

O

O

Remarks with John Kerry (Secretary of State) Japanese Foreign Minister

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Date

Administration

U.S. Official

Occasion

1

2

3

4

04/30/2013

Obama

Chuck Hagel (Secretary of Defense)

Remarks with Japanese Minister of Defense

X

O

O

X

06/08/2013

Obama

Tom Donilon (National Security Advisor)

Press Briefing

O

X

X

O

06/14/2013

Obama

James Zumwalt (Deputy Assistant Sec. of State)

Press Conference in Japan

O

O

X

O

09/17/2013

Obama

Daniel Russel (Assistant Secretary of State)

Interview with Nikkei Shimbun

X

X

X

O

09/19/2013

Obama

Caroline Kennedy (Nominee for Ambassador to Japan)

Confirmation Hearing at the U.S. Senate

X

O

X

O

10/03/2013

Obama

Chuck Hagel (Secretary of Defense)

Remarks with Secretary Kerry and Japanese officials

X

O

O

X

10/03/2013

Obama

Remarks with SecJohn Kerry (Secretary of State) retary Hagel and Japanese officials

O

O

O

O

11/20/2013

Obama

Susan Rice (National Security Advisor)

Remarks at Georgetown University

X

X

X

O

11/27/2013

Obama

Chuck Hagel (Secretary of Defense)

Conference Call with Japanese Minister of Defense

X

O

X

X

12/03/2013

Obama

Joe Biden (Vice President)

Joint press conference with Shinzo Abe

X

X

O

X

12/13/2013

Obama

Joe Biden (Vice President)

Remarks with Chinese President Xi Jinping

X

#

X

X

03/04/2014

Obama

Daniel Russel (Assistant Secretary)

Congressional Hearing

X

O

O

O

04/06/2014

Obama

Chuck Hagel (Secretary of Defense)

Remarks with Japanese Minister of Defense

X

O

O

O

04/08/2014

Obama

Chuck Hagel (Secretary of Defense)

Remarks with Chinese Minister of Defense

O

#

X

O

4/23/2014

Obama

Barack Obama (President)

Written response to questions submitted by Yomiuri Shimbun

X

O

O

O

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Date

Administration

U.S. Official

Occasion

1

2

3

4

4/24/2014

Obama

Barack Obama (President)

State visit to Japan

O

O

O

O

4/25/2014

Obama

Barack Obama (President)

U.S.-Japan Joint Statement

X

O

O

O

Source: Nikkei Shimbun, Yomiuri Shimbun, The New York Times, Reuters, Whie House, U.S. Department of State, U.S. Department of Defense, and the Ministry of Foreign Affairs of Japan.

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Mutual Empowerment? Examining the Power Relationship Between Overseas Filipino Workers and the Motherland Audrey Wozniak

The relationship between overseas Filipino workers and the Philippine government is often portrayed as one of “mutual empowerment.” However, the comparison of the effectiveness of recent policies intended to enfranchise overseas Filipino workers (OFWs) and the economic consequences of reliance on OFW remittances questions the validity of this depiction. Rather, the relationship between OFWs and the Philippine government is best described as one of “mutual enabling.” The political measures intended to benefit OFWs are often ineffective or may even limit OFWs’ civil liberties, while a remittance-based economy fuels massive consumption spending and entrenches a culture of political inertia that impedes long-term sustainable development at the national level.

Superficially, the Philippines seems to be thriving economically: the national economy grew 7.2 percent in 2013, and in the last decade the country’s gross domestic product (GDP) growth has closely mirrored trends in prosperous South Korea.1 However, a closer look reveals a country struggling to stay afloat, where poverty affects one in four citizens and weak government and infrastructure inhibit industrialization.2 In fact, such tremendous overall growth would be impossible without the nearly 15 million Filipinos residing overseas, whose reported remittances ($25.1 billion in 2013) “Philippine Economy Posts 6.4 Percent GDP Growth,” Philippine Statistics Authority, August 28, 2014, http://www.nscb.gov.ph/sna/2014/2nd2014/2014qpr2.asp. 2 “Stock Estimate of Filipinos Overseas as of December 2010,” POEA Annual Report 2010, Philippine Overseas Employment Administration, http://www.cfo.gov.ph/pdf/statistics/Stock%202010.pdf. 1

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Wozniak | Mutual Empowerment?

contribute approximately 10 percent to the national GDP.3 Throughout the most recent wave of Philippine labor migration, the Philippine government has implicitly and explicitly presented conflicting stances on whether sending Filipino workers abroad is a provisional or permanent economic measure. Philippine presidents’ declarations of their intentions to guide the economy away from a remittance-based system indicate that the government views Filipino labor migration as a temporary phenomenon. Nonetheless, the establishment of agencies, policies, and laws apparently intended to protect the rights and benefits of overseas Filipino workers (OFWs) displays the Philippine government’s engrained reliance upon an exported labor force. In fact, indicators such as pervasive human rights violations of OFWs abroad and low OFW voter turnout suggest that the Philippine government’s efforts to support OFWs are extremely ineffective. Moreover, the economic benefits the Philippine government derives from OFW remittances engenders political inertia in creating and implementing domestic reforms for poverty and unemployment alleviation. The relationship between OFWs and the Philippine government is widely portrayed to be one of “mutual empowerment,” in which OFWs’ remittances stabilize the Philippine economy and the Philippine government in turn enfranchises OFWs through rules and regulations on labor migration. However, given that empowerment can be understood as the increased ability to advance one’s status or position, this paper suggests that the relationship between OFWs and the Philippine government is best described as one of “mutual enabling”: political measures intended to benefit OFWs are often ineffective or may even limit OFWs’ civil liberties, while a remittance-based economy fuels massive consumption spending and entrenches a culture of political inertia that impedes long-term sustainable development at the national level.4 This paper’s first section provides an overview of the scholarship on labor migration and remittances in relation to the Philippines, and the second section explains the historical legacies of overseas Filipino workers and the current situation of Filipino labor migration. The third section contends that the Philippine government’s apparent efforts to promote the rights and benefits of OFWs are inadequate. Specifically, this section surveys recent rules and regulations on OFWs, noting disparities between their stated intentions to serve the interests of migrant workers and their shortcomings in practice. The fourth section explains the long-term economic implications of a remittance-based economy, and the final section concludes by reviewing the detrimental effects of the present system.

“Highlights of the 2011 Stock Estimate of Filipinos Overseas,” Commission on Filipinos Overseas, January, 13, 2013, http://www.cfo.gov.ph/index.php?option=com_content&view=article&id=1834:describing-the-2011-stock-estimate-of-filipinos-overseas&catid=108:cfo-press-release&Itemid=839; “Overseas Filipinos’ Cash Remittances By Country, By Source For the Periods Indicated in Thousand U.S. Dollars,” Bangko Sentral Ng Pilipinas, http://www.bsp.gov.ph/statistics/spei_2013/Table%2012. pdf; Unreported remittances, such as goods, cash converted upon return to the Philippines, or money sent via unofficial methods, if tallied would likely boost the official count significantly higher. 4 Merriam-Webster Online, s.v. “empower,” http://www.merriam-webster.com/dictionary/empower. 3

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Literature Review Scholars have examined labor migration and remittances in the Philippines from various angles. E. San Juan argues that the neocolonial global diaspora of Filipino workers has impeded the formation of a cohesive Filipino nation-state outside of the Philippines.5 Filipinos working abroad are thus outsiders in the societies they enter: they are disenfranchised, vulnerable to rights violations, and without a unified system of support. He attributes this cycle of exploitation to the Philippines’s colonial legacies left by Western powers, and in particular the United States, which created a “retrogressive regime of comprador-bureaucratic (not welfare-state) capitalism articulated with tributary/semi-feudal institutions and practices.” He writes that the “Philippine state-machinery (both sending and receiving states benefit from the brokerage transaction) is viewed in fact as a corrupt exploiter, not representative of the masses, a comprador agent of transnational corporations and Western powers.”6 San Juan asserts that the oligarchic Philippine state directs the continued “commodification” of Philippine citizens, which buoys unsuccessful trickle-down economic initiatives and the chronic underdevelopment of infrastructure, particularly in the countryside.7 Mark Rupert and M. Scott Solomon also discuss this theme of OFW commodification in their discussion of the wave of Filipino migration to the Middle East in the 1970s.8 They describe former President Ferdinand Marcos’s strategy for stabilizing the country’s balance-of-payments as a literal exchange of workers for oil.9 Nonetheless, they write more optimistically than San Juan about the prospects of what they term Filipino “deterritorialization,” or the lack of a unified front in the global Filipino diaspora.10 They consider the creation of the Migrant Workers and Overseas Filipinos Act of 1995 (Republic Act 8042) following the outrage over the human rights abuses of overseas domestic helpers in the 1980s and 1990s an indication of overseas Filipinos’ ability to form a “global polity.”11 Rupert and Solomon also praise the passing of the Absentee Voting Bill in 2003 as an opportunity for overseas Filipinos to take significant formal political action, despite acknowledging the numerous barriers for OFW voting and consistently low voter turnout rates. R. Rodriguez considers the nationalism and identity of OFWs and discusses the social and political implications of OFWs’ official representation as part of the Philippine

E. San Juan, Jr., “Overseas Filipino Workers: The Making Of An Asian-Pacific Diaspora,” The Global South 3 (2009): 105-106. 6 Ibid., 117-118. 7 Ibid., 104. 8 Mark Rupert and M. Scott Solomon, Globalization and International Political Economy: The Politics of Alternative Futures (Lanham: Rowman & Littlefield, 2006), 87. 9 Ibid., 87. 10 Ibid., 102. 11 Ibid., 102. 5

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nation.12 She notes that with the Philippine government’s economic reliance on OFWs’ remittances, OFWs have become a critical component of the Philippine national identity (for example, OFWs are portrayed as “new national heroes”).13 She argues that in response to their valorization and incorporation into the Philippine national identity, OFWs have come to expect full citizenship rights from the Philippines, which in turn inhibits their ability to assert their rights in their host countries. She writes: “Because they must file labor complaints in the Philippines, Filipino workers’ citizenship, and the rights and obligations it implies, becomes in effect a source of labor control as workers’ contracts provide mechanisms by which workers avoid confronting their employers or even their host states…because the Philippine state intervenes in accepting responsibility for its workers rather than demanding that host governments extend increased rights to foreign nationals it, in effect, helps to facilitate the disciplining of Filipino labor as foreign states import workers who lack the political, economic and social rights that their own citizens enjoy.”14 Rodriguez also describes the alternative notion of Filipino citizenship perpetuated by migrants and represented by organizations such as Migrante International, which seeks to promote the rights of OFWs and advocate against their exploitation.15 This alternative nationalism portrays the state as an agent in forcing Philippine emigration and thus uniting overseas Filipinos in a shared desire to extend citizenship rights beyond the Philippine national borders. More generally, there has been significant study of the microeconomic and macroeconomic effects of labor migration and remittances on receiving countries. Hillel Rapoport and Frédéric Docquier explain that remittances can aid poverty reduction when used to invest in education and development of human capital, and can bolster overall economic growth if coupled with “sound government policies”; however, remittances can also de-incentivize development of the labor market and foster “Dutch disease,” which strengthens the domestic currency to the extent that it undermines the receiving country’s competitiveness as an exporter.16 Veronica Bayangos and Karel Jansen explore this topic further, developing a macroeconometric model that uses the Philippines as a case study to assess how remittances affect the economy and

Robyn Magalit Rodriguez, Migrants for Export: How the Philippine State Brokers Labor to the World (Minneapolis: University of Minnesota, 2010), 75-79. 13 Rodriguez, Migrants for Export, 75, 79. 14 Robyn Magalit Rodriguez, “Migrant Heroes: Nationalism, Citizenship, and the Politics of Filipino Migrant Labor,” Citizenship Studies 6 (2002), 350. 15 Rodriguez, Migrants for Export, 76. 16 Hillel Rapoport and Frédéric Docquier, “The Economics of Migrants’ Remittances,” IZA Discussion Paper Series, No. 1531 (2005), 64-75. 12

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competitiveness.17 Based on their findings, they validate the view that remittances can have a positive effect on consumption, investment, labor productivity, and economic growth, but also hinder the production and export of traded goods, potentially causing even greater reliance on remittances. They also confirm that labor migration and remittances reduce the labor force while increasing the unit labor cost (an effect they attribute both to Dutch disease as well as nominal exchange rate appreciation and the central bank’s monetary policy response). This paper seeks to contribute to the existing scholarship through synthesizing the social and economic implications of Philippine labor migration and juxtaposing analysis of the effectiveness of recent policies intended to enfranchise overseas Filipino workers with the economic consequences of reliance on OFW remittances. By analyzing the shortcomings of the political measures meant to serve the interests of OFWs as well as the problems arising from Philippines’s remittance-based economy, this paper aims to demonstrate that neither the Philippine government nor the OFWs on which it relies are substantially benefitted by the current Philippine labor migration system. Instead, this process, which has been falsely described as “mutually empowering,” enables a cycle of human rights violations and economic stagnation. Filipino Migration: History and Current Situation External migration of Filipinos as foreign labor is a centuries-old phenomenon that harkens back to Spanish colonization of the Philippines. During the Spanish Manila-Mexico Galleon trade, which began in 1565, Spanish colonizers forced Filipinos to work as seamen for trade ships to the New World.18 In the last century, there have been three waves of Filipino migration, the first two primarily to the United States. After annexing the Philippines in 1899, the United States became the most accessible destination for Filipinos in this earliest wave of migration. Amongst labor migrants, most migrated to pursue agricultural and service-related work. Even after the Immigration Act of 1917 severely limited the flow of foreign laborers from Asia to the United States, exceptions permitted continued Filipino migration (if not naturalization). By the 1930s, around 50,000 Filipinos had left the Philippines to work on crop farms in Hawaii and on the West Coast; by the end of the decade there were 108,424 Filipinos in all fifty states working in jobs ranging from fruit packing to kitchen and hotel service.19 The aftermath of World War II and recognition of the Philippines’s independence in 1946 spurred a second wave of Filipino migration. Of the migrants at that time, 45 percent were skilled professionals, predominantly in military and medical fields, while 55 percent migrated through newly established family reunification policies (which especially affected military personnel who had married abroad and wanted

Veronica Bayangos and Karel Jansen, “Remittances and Competitiveness: The Case of the Philippines,” World Development 39, no. 10 (2011): 1834-1846. 18 Joaquin L. Gonzalez, Philippine Labour Migration: Critical Dimensions of Public Policy (Singapore: Institute of Southeast Asian Studies, 1998), 25-26. 19 Ibid., 26-31. 17

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to bring back their foreign wives). After the 1972 establishment of martial law under then-Philippine president Ferdinand Marcos, concern about massive economic instability grew, and applications for out-migration from the Philippines increased by 671 percent.20 The most recent wave of Filipino migration was triggered when many oil importing countries, including the Philippines, experienced major economic setbacks as a result of increased oil prices in 1973 and 1978. Companies across sectors shut down operations, and thousands of Filipinos lost their jobs in the cutbacks. Conversely, oil producers in the Middle East used this capital influx to expand production and infrastructure. Rapid expansion in the oil industry created a labor market on which Marcos was keen to capitalize, especially in light of the enormous national debt, which grew from $360 million in 1962 to $28.3 billion in 1986.21 Marcos went so far as to issue Executive Order 857 in 1982, which required overseas Filipinos workers to remit 50 to 70 percent of their earnings; however, the policy was quickly retracted after major protest.22 Currently, of the approximately 10.44 million Filipinos living abroad, 47 percent are permanent migrants: immigrants, dual citizens, or those who legally have permanent residence abroad. The remaining migrants are classified as either temporary migrants (43 percent) whose residencies abroad rely on work contracts, student status, et cetera, or irregular migrants (10 percent), known as tago nang tago (TnTs), who are overseas illegally.23 OFWs leave the Philippines at the rate of 4,624 per day in the hopes of making higher wages and escaping the shortage of domestic employment.24 Approximately one in three of these 2.3 million workers is unskilled; notably, over half of female OFWs are unskilled workers between the ages of 25 and 34. Nonetheless, men remit nearly twice as much as women, on average sending back 103,000 pesos (approximately USD $2,300) for every female OFW’s 58,000 pesos (approximately USD $1,300) in 2013 (see Table 1).25 Saudi Arabia, the United Arab Emirates, Singapore, and Hong Kong employ the largest numbers of OFWs, though OFWs seek employment in over two hundred countries (see Table 2). Household service workers, professional nurses, and caregivers are

Ronaldo Munck, Globalisation and Migration: New Issues, New Politics (London: Routledge, 2009). Bayangos and Jansen, “Remittances and Competitiveness,” 1834-1846; Gonzalez, Philippine Labour Migration, 33-35; James K. Boyce, The Philippines: The Political Economy of Growth and Impoverishment in the Marcos Era (Honolulu: University of Hawaii in Association with the OECD Development Centre, 1993), 4. 22 Odine De Guzman, “Overseas Filipino Workers, Labor Circulation in Southeast Asia, and the (Mis) management of Overseas Migration Programs,” Kyoto Review of Southeast Asia 4 (2003), 3; Executive Order No. 857, Republic of the Philippines, 1982, http://www.gov.ph/1982/12/13/executive-order-no-857-s-1982. 23 Commission on Filipinos Overseas, “Highlights of the 2011 Stock Estimate of Filipinos Overseas.” 24 “2013 Survey on Overseas Filipinos,” Philippine Statistics Authority, National Statistical Coordination Board, 2014. 25 Ibid. 20 21

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the most common occupations of land-based OFWs, while almost 340,000 OFWs hold seafaring positions. Unskilled laborers make up 30.8 percent of all OFWs, predominantly working in service professions such as childcare and sales. In 2013, they provided the largest aggregate remittance of all OFWs at 22.9 billion pesos (approximately USD $515,600) or 19.2 percent of total OFW remittance; however, they have the lowest average remittance per worker at 38,000 pesos (approximately $850) per worker annually.26 Table 1. Breakdown of OFWs by Sex Men

Women

Ages Between 25 and 34 (percent)

42.1

53.8

Unskilled (percent)

10.4

51.4

Total OFW Population (percent)

50.3

49.7

Average Remittance per OFW (percent)

103

58

Source: “2013 Survey on Overseas Filipinos,” Philippine Statistics Authority

Table 2. Top Ten OFW Destination Countries Country

Number of OFWs

Saudi Arabia

316,736

United Arab Emirates

235,775

Singapore

146,613

Hong Kong

129,575

Qatar

100,530

Kuwait

65,603

Taiwan

41,896

Italy

31,704

Bahrain

18,230

Malyasia

16,797

Source: “2011 Overseas Employment Statistics,” Philippine Overseas Employment Administration 26

“2013 Survey on Overseas Filipinos,” Philippine Statistics Authority.

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Government Policies on OFWs: Intention vs. Consequence Since the beginning of the most recent wave of OFW deployment, the Philippine government’s official stance on its reliance on OFW remittances has been ambiguous, coupling outright support for OFWs with non-endorsement of labor migration. Perceiving the demand for laborers overseas as both a potential solution for national retrenchment as well as an opportunity for the country to demonstrate the value of “human” natural resources inherent to many developing countries, Marcos issued Presidential Decree 442, amending the Philippine Labor Code to establish the Overseas Employment Development Board, the Bureau of Employment Services, and the National Seaman’s Board.27 The creation of these agencies, which were later combined into a single entity called the Philippine Overseas Employment Administration (POEA), signified a national reorientation toward labor export. Between 1979 and 1980, the number of Filipino overseas contract workers grew nearly 76 percent. This pivot toward labor exportation was intended as a temporary measure to alleviate the Philippine debt, which was 37 percent of the national budget in 1988, but as domestic underemployment continued to inhibit economic reform, Marcos’ successors have sustained the campaign by encouraging Filipinos to find work overseas.28 Philippine presidents Corazon Aquino, Fidel Ramos, and Joseph Estrada reiterated Marcos’ assertion that official promotion of overseas employment would be provisional, and pledged that the Philippines would avoid long-term reliance on remittances. Current President Benigno Aquino declared in 2013, “Soon, our people will no longer have to suffer separation and loneliness just to make ends meet; we shall strive so that overseas work becomes an option and not a perceived necessity to move forward in life.”29 On the other hand, Corazon Aquino’s designation of December as “The Month of Overseas Filipino Workers” in 1988 and Ramos’ ratification of the Migrant Workers and Overseas Filipinos Act of 1995 only signaled a deeper entrenchment of labor export orientation. In 2001, President Gloria Macapagal-Arroyo acknowledged that the national economy would continue to heavily rely on overseas Filipino workers’ contributions “for the foreseeable future” until it stabilized, and hailed migrants as “investors” abroad.30 This official attitude prevails to this day; indeed, the government celebrates overseas Filipino workers as the country’s bagong bayani (“new heroes”).31 Despite apparent government efforts to regulate and protect Filipino migrant workers, some doubt the legitimacy and intention of these measures. Critics charge that these measures are an obligatory formality, representing and serving OFWs in name Rodriguez, Migrants for Export, 12. Bayangos and Jansen, “Remittances and Competitiveness,” 1836. 29 “Message of President Aquino to the Handog sa Pamilyang Filipino Jobs and Livelihood Expo 2013,” Official Gazette, Republic of the Philippines, September 28, 2013, http://www.gov.ph/2013/09/28/ message-of-president-aquino-to-the-handog-sa-pamilyang-filipino-jobs-and-livelihood-expo-2013pamilyang-ofws-investment-and-business-expo-2013-and-10th-filipino-seafarers-family-expo-september-28. 30 Quoted in De Guzman, “Overseas Filipino Workers.” 31 De Guzman, “Overseas Filipino Workers,” 4-7. 27 28

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only.32 Republic Act 8042 indicates the ambiguity, and perhaps unwillingness, of the Philippine government to take full responsibility for OFW welfare. Sections 2c and 2i of the act demonstrate a seemingly contradictory stance on the Philippines’s commitment to overseas employment: Section 2c: “…the State does not promote overseas employment as a means to sustain economic growth and achieve national development. The existence of the overseas employment program rests solely on the assurance that the dignity and fundamental human rights and freedoms of the Filipino citizen shall not, at any time, be compromised or violated.” Section 2i: “Nonetheless, the deployment of Filipino overseas workers, whether land-based or sea-based, by local service contractors and manning agencies employing them shall be encouraged.”33 This ambiguity illustrates the Philippine government’s preference that OFWs remain seen but not heard. On one hand, political leaders are keen to take advantage of the financial relief remittances would provide for an ostensibly indefinite period of time. Yet the encouragement of deployment of Filipino overseas workers, despite non-promotion of overseas employment for sustaining economic growth and further national development, implies that overseas employment is merely an interim measure. The language of the act is effectively a non-endorsement of export migration that positions the government to both take credit and deny liability for OFWs’ employment process and welfare. Despite the economic cushion that OFWs’ remittances provide the Philippines, the Philippine government does not explicitly endorse migrant labor policies. However, it has taken apparent political steps to protect the rights and benefits of Filipino labor migrants. As mentioned above, Marcos pursued “development diplomacy,” promoting overseas employment as an interim measure for addressing Philippine unemployment and debt. Issuing Executive Order 857 in 1982, Marcos went so far as to mandate that overseas workers remit 50 to 70 percent of their earnings, withholding passports or denying contract renewals for noncompliant workers. His successors continued to refer to overseas employment as a temporary measure. Subsequent president Corazon Aquino attempted to ban labor migration outright, while President Fidel Ramos aimed for the Philippines to reach newly industrialized country status so as to provide a domestic alternative to labor migration; these policies failed in implementation and thus did little to improve the labor market in the Philippines.34 As the number of overseas

San Juan, Jr., “Overseas Filipino Workers,” 99-118. Republic Act No. 8042, Migrant Workers and Overseas Filipinos Act of 1995, Republic of the Philippines, Senate and House of Representatives, http://www.poea.gov.ph/rules/ra8042.html, emphasis mine. 34 De Guzman, “Overseas Filipino Workers,” 5. 32 33

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migrants rose, so too did reports of abuses of OFWs by employers, including contract violations, poor working conditions, and sexual assault. In 1988, after a series of exposés in the Philippine and international media of Filipino maids escaping households in which they faced physical abuse and sexual violence, Filipino President Corazon Aquino announced a prohibition on citizens going abroad to work as maids until other countries took measures to protect these workers. However, this only prompted Filipino maids seeking work overseas to obtain tourist visas, sidestepping the pre-departure orientations the Philippine government offered to OFWs and thus causing many to experience shock or difficulties as they acclimated to working abroad.35 In the case of Singapore, amidst accusations that Filipino workers there frequently faced injustice or danger to their well-being in the workplace, the Philippine government in the late 1980s declared that a larger share of the burden of regulating and protecting foreign workers fell on the government of their destination country.36 The Singaporean government in turn argued that private recruiters of OFWs should bear the greatest responsibility for OFWs’ welfare, which demonstrated how it regarded foreign workers as a transient and temporary workforce.37 Despite bilateral efforts to regulate labor export, the number of cases of illegally recruited and abused Filipino workers continued to rise.38 In 1995, the steady stream of news describing abuse of OFWs reached a crescendo with the execution of Flor Contemplacion in March of that year, which ignited public outrage. Contemplacion, a Filipino maid in Singapore, was tried and hanged abroad for allegedly killing another Filipino domestic helper and the child of that helper’s employer. Filipinos condemned the harsh capital punishment the Singaporean government dealt Contemplacion given the evidence challenging her guilt, and demanded the Philippine government take greater measures in safeguarding the well being of its workers abroad. After the rights of overseas Filipinos became a major focus during that year’s political elections, as well as the subject of numerous protests, incumbent Philippine government officials pushed for new steps to assure the welfare of OFWs. The result was the Migrant Workers and Overseas Filipinos Act of 1995 (RA 8042), which for the first time specified the rights of overseas workers, condemned illegal recruitment and abuse, and pledged to provide basic services including health centers, repatriation support, and legal services to migrant workers. Later amendments (including RA 10022 in 2010, which amends RA 8042 and reiterates that “the State does not promote overseas employment as a means to sustain economic growth and achieve national development”) have made provisions for government-sponsored training, recruiting, and education programs, as well as checks against corrupt government officials who approve labor migration to dangerous destinations.39 “Manila to Ban Maids From Overseas Work,” The Globe and Mail, January 21, 1988. Gonzalez, Philippine Labour Migration, 3-4. 37 Shirlena Huang and Brenda S.A. Yeoh, “Ties that Bind: State Policy and Migrant Female Domestic Helpers in Singapore,” Geoforum 27, no.4 (1996), 485. 38 Gonzalez, Philippine Labour Migration, 3-4. 39 Ibid., 9-11; Omnibus Rules and Regulations Implementing the Migrant Workers and Overseas Filipinos Act of 1995, Republic of the Philippines, July 8, 2010. 35 36

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Although the stated intentions of such political measures as the Migrant Workers and Overseas Filipinos Act of 1995 and the Overseas Absentee Voting Bill are to enfranchise or “empower” Philippine citizens abroad, in practice such policies fall short and may even infringe on the rights of OFWs. Official statistics and publications of non-governmental organization (NGO) report a pervasive disparity between the rights and benefits that the Philippine government guarantees OFWs and those they actually receive. This is largely due to the government’s disproportionate reliance on outside agencies and organizations (including the over 1,000 government-licensed private recruitment services) as well as reliance on receiving countries to execute the policies it has enacted.40 The POEA facilitates two government-sponsored direct recruitment programs: the “Name Hire” program and the Government-to-Government Hiring Program. The former is a general job placement service, while the latter organizes direct OFW recruitment to specific countries via official bilateral agreements, such as with Saudi Arabia, Japan, South Korea, and Taiwan. Republic Act 10022 in 2010, which amended the Overseas Filipinos Act of 1995, declares that the Philippines will only allow migration of OFWs to countries where their rights will be protected.41 The agreements with Saudi Arabia and the Taipei Economic and Cultural Office pledge that the receiving countries will promote the rights of OFWs, while the agreement with the United Arab Emirates declares that any disputes between employers and OFWs will be settled by UAE authorities.42 As bilateral agreements and RA 10022 tend to shift the onus of safeguarding OFW rights onto private recruiters and receiving countries, the POEA thus takes on the role of a referee rather than a defender. Furthermore, while the 2010 POEA Annual Report lauds the administration for being “in the forefront of helping our countrymen find gainful work in foreign lands,” it later acknowledges, “Admittedly, the number of OFWs under the Government-to-Government placement program is miniscule.”43 In 2010 the Government-to-Government Hiring Program served 6,519 Filipinos, less than 2 percent of that year’s new hires. The Name Hire program similarly found overseas jobs for a minority of 2010’s new Filipino migrants, serving less than 2 percent.44 The POEA’s in-house job placement service assisted 1.3 percent of new land-based OFWs (a decrease of nearly 10 percent from the previous year), which the POEA attributed to “temporary suspension of recruitment for medical workers for the Ministry of Health-Kingdom of Saudi Arabia.”45 Under Philippine law, recruiting agencies cannot charge placement fees exceeding one Ann Stewart, Gender, Law and Justice in a Global Market (Cambridge: Cambridge University Press, 2011), 181. 41 Omnibus Rules and Regulations Implementing the Migrant Workers and Overseas Filipinos Act of 1995, Republic of the Philippines, July 8, 2010. 42 Memorandum of Understanding (MOU), Philippines-Employment Placement Service Korea, POEA, July 26, 2011; MOU, Philippines-United Arab Emirates, POEA, April 9, 2007; Agreement on Domestic Worker Recruitment, Saudia Arabia and Philippines, POEA, 2013. 43 Philippine Overseas Employment Administration, POEA Annual Report 2010, 7, 10. 44 Ibid., 11. 45 Philippine Overseas Employment Administration, POEA Annual Report 2011, http://www.poea. gov.ph/ar/AR2011.pdf. 40

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month’s wages, but many overseas Filipino migrants pay more, knowing that there are more applicants than foreign jobs.46 Given the fees for recruiting and placement, transportation, and government health and travel documents, OFWs often incur large debts in the overseas employment process, and the cost-prohibitive nature of labor migration conceivably contributes to the significant number of Filipinos who work abroad illegally. The POEA also mandates that OFWs obtain exit clearances, and immigration officers in the Philippines often require Filipinos leaving the country to produce their income tax returns, bank accounts, and employment certificates to determine whether they are “legitimate tourists.”47 Former Philippine Ambassador to Greece Rigoberto Tiglao voiced concern in a 2011 op-ed about the mandatory exit clearances for OFWs, asserting that exit clearances are an unnecessary hardship and a violation of the human right to leave any country.48 Tiglao cited the United Nations Convention on Human Rights of 1948, the International Covenant on Civil and Political Rights of 1966, and the Philippines’s own Bill of Rights, which states, “Neither shall the right to travel be impaired except in the interest of national security, public safety, or public health, as may be provided by law.”49 Mandatory exit clearances are not the only contentious demand of OFWs. Currently, debate over House Bill 3576, now pending in the Philippine House of Representatives, has also called into question the constitutionality of the requirements that the Philippine government places on migrant workers. If passed, HB 3576 would require OFWs to “remit regularly a portion of their foreign exchange earnings to their family or legal dependent recipient in the Philippines.”50 Additionally, HB 3576 would authorize “Ambassadors, Consul Generals, Chiefs of Mission, or Charge d’ Affaires…to withhold the renewal or approval of the passport of an erring OFW unless proof of compliance of the remittance requirement of his financial support is submitted” and prohibit noncompliant OFWs from future eligibility for overseas work.51 Representative Roy Señeres, who filed the bill, asserted that its aim is to prevent OFWs from financially neglecting their dependents in the mainland, as “the bill recognizes the responsibility of the state to protect the welfare of families or dependents of OFWs who have been neglected and abandoned by their OFW families.”52 However, critics, including chairperson of Migrante Sectoral Party Connie Bragas-Regalado, have compared the bill to Marcos’ 1982 mandate that OFWs remit 50 to 70 percent of their salaries, which sparked massive

Philip Martin, “Migration Costs and Maximizing Human Development” in Global Perspectives on Migration and Development: GFMD Puerto Vallarta and Beyond, ed. Irena Omelaniuk (Springer, 2012), 44. 47 Rigoberto Tiglao, “OFW ‘Exit Permits’: Unconstitutional?,” Philippine Daily Inquirer, July 14, 2011. 48 Section 6, Article III, Bill of Rights, Republic of the Philippines; as quoted by Rigoberto Tiglao, “OFW ‘Exit Permits’: Unconstitutional?” 49 Tiglao, “OFW ‘Exit Permits’: Unconstitutional?” 50 House Bill 3576, Sixteenth Congress, First Regular Session, House of Representatives, Republic of the Philippines, January 14, 2014. 51 Ibid. 52 Ben Rosario, “Solon Eyes Sanction vs Negligent OFWs,” Manila Bulletin, March 19, 2014. 46

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backlash from migrant workers. Bragas-Regalado said the Marcos remittance requirement was “draconian” and “further drove OFWs in[to] deeper debt. It gave rise to the proliferation of loansharks and lending institutions that fed on the desperation of OFWs.”53 She recalled that Señeres had previously opposed Marcos’ mandate, but with the filing of HB 3576, “Señeres is toeing the line of the BS Aquino regime in institutionalizing state exactions and more taxes on OFWs to salvage the ailing economy. Like Marcos, BS Aquino is now banking on revenue from OFW remittances to cope with alarming fiscal deficits and huge external debt, alongside the government’s incapacity to generate much-needed income due to massive corruption and misgovernance.”54 The ongoing debate over the bill highlights concerns that rules and regulations on overseas labor migration presented as protecting the rights of Filipinos are in fact thinly veiled attempts at extorting OFWs. Furthermore, the rise of NGOs such as Migrante International, which offers many of the same services RA 8042 asserts that the Philippine government provides to Filipino migrants, indicates that official programs have proven insufficient or ineffective. The 18 percent budget cut to governmental agencies serving OFWs in 2011 meant that roughly 261.83 pesos ($6.37 dollars) was spent annually per capita for 15 million Filipinos overseas.55 The dwindling funding indicates that the Philippine government currently cannot or will not take a leading role in following through with all the allowances for OFWs stipulated in RA 8042, whether due to financial difficulties, a lack of pressure from public, or the perception that its services are sufficient (and that NGOs will pick up the slack when they are not). Migrante International has branches worldwide and, like RA 8042, was created after the execution of Flor Contemplacion drew attention to OFW mistreatment. Migrante International’s 2009 initiatives included advocating on behalf of stranded and trafficked migrants, as well as helping OFWs imprisoned or on death row in Saudi Arabia who had been tried without legal representation (in some cases for crimes that were reportedly in self-defense). Although RA 8042 includes a Repatriation Bond and Legal Assistance Fund, which pledges funds for OFW repatriation and legal services, the NGO circulated reports of the lack of official aid for Filipino workers accused of crimes abroad, and in 2009 assisted in the return of 1,342 migrants to the Philippines.56 Migrante International’s 2012 issue of Tinig Migrante (“Migrants’ Voice”) contends that continual job scarcity at home drives Filipinos to look for work overseas and migrate regardless of whether the government will protect their rights, which eliminates motivation for major reforms in migration policy.57 Some activists and scholars, including San Juan, equate labor exportation with neocolonialism, declaring that the Philippine state thrives on a system that deprives millions of Matikas Santos, “Forced Remittance Bill Smacks of Marcosian Law,” Philippine Daily Inquirer, March 5, 2014. 54 Rosario, “Solon Eyes Sanction vs Negligent OFWs,” 2014. 55 “SUMA: Summing-up of the State of Migrants Under Aquino,” Tinig Migrante, July 4, 2012, http:// nafconusa.org/wp/wp-content/uploads/2012/05/SUMA-summary.pdf. 56 “The Current State of the Human Rights Situation of Migrant Workers,” Tinig Migrante, July 10, 2009. 57 “SUMA,” Tinig Migrante, 4. 53

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employment and forces them to leave their homes to serve foreign masters, often in inhumane conditions.58 Likewise, the Overseas Absentee Voting Act is touted as a major step in protecting the rights of OFWs; however, consistently low voter turnout has indicated that the system thus far has been ineffective in giving a political voice to millions of overseas Filipinos. In 2003, overseas Filipinos achieved suffrage via absentee balloting through the Overseas Absentee Voting Act. Since its passage, nearly one million citizens have registered to vote from abroad. In early 2013, a new amendment simplified and digitized the absentee voting process. Current Senator of the Philippines, Aquilino “Koko” Pimentel III, asserted that this streamlining change could generate an overseas voter turnout of ten million by 2016.59 By Pimentel’s estimate, the overseas Filipino vote may soon become a major bargaining chip for OFWs, and thus a crucial one for political candidates to capture. Nevertheless, low voting rates abroad despite the number of Filipinos registered to do so still precludes any movement for sweeping reforms. In fact, voter turnout of overseas Filipinos has consistently declined since the first elections in which overseas Filipinos could vote in 2004. During the 2013 midterm elections, 25 destination countries for Filipinos recorded no voters.60 Migrante International cites a dearth of voter education for Filipinos abroad as well as demanding registration procedures, which inhibit greater turnout and render many unable to vote.61 Moreover, factors such as ethnic, religious, regional, and geographic disparity undermine the ability of overseas Filipinos to form a unified front.62 Media attention on stories of injustice toward OFWs abroad has effectively sparked discourse about migrant workers’ rights overseas; however, it remains difficult for a critical mass of individual migrants to form a cohesive faction to advocate for themselves and connect with mainland politics. A mere 117,383 out of the 1 million Filipinos living abroad participated in the 2013 midterm elections, meaning that nearly 90 percent of overseas Filipinos did not cast votes.63 Unless overseas Filipinos can transcend their geographic separation and personal political loyalties to unite as a single solidarity movement bound together by a shared alien identity, the Overseas Absentee Voting Act, like other government-sponsored programs and policies intended to empower OFWs, will likely remain a ritual procedure rather than a meaningful democratic practice. In this regard, the Philippine government has failed to protect its citizens’

San Juan, “Overseas Filipino Workers,” 110-113. Republic of the Philippines, Senate, “With Amended OAV, Koko Sees 10m Votes Cast Abroad in 2016,” February 9, 2013, https://www.senate.gov.ph/press_release/2013/0209_pimentel1.asp. 60 Joey Aguilar, “Only 10% of expat Filipinos voted,” Gulf Times, May 13, 2013; Louis Bacani, “No overseas Filipino votes from 25 countries,” The Philippine Star, May 15, 2013. 61 Rupert and Solomon, Globalization and International Political Economy, 88, 103; Kristine L. Alave, “Comelec Urged to Fix Glitches in Automated Election System,” Philippine Daily Inquirer, March 7, 2010. 62 E. San Juan, email message to author, April 28, 2013. 63 “Philippines: Comelec, DFA target registration of 1M add’l overseas absentee voters for May 2016 polls,” Asia News Monitor, April 29, 2014. 58 59

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enfranchisement rights through the Overseas Absentee Voting Act. An Exported Workforce and the Economy From an economic standpoint, one can rationalize why the Philippines might export its workforce. Still reeling from the yoke of Spanish colonialism and marked by defeat and forced democratization by the United States, the Philippines faced tremendous obstacles on the path to development. Corruption and debt inhibited the Philippine government’s ability to improve infrastructure and create jobs. The oil boom in the Middle East provided the Philippines with the chance to take advantage of being the twelfth most populated country in the world, sending citizens out to earn livelihoods and acquire skills they could then bring back to augment the nation’s global status. Marcos foresaw that the Philippines could ride a wave of growth that would create a balance of payments surplus, thus pulling the country out of destitution and into the economic arena of its neighbors South Korea and Japan. In practice, however, the “exported workforce” business model propagates a cycle of inertia that inhibits national development. Labor migration in the Philippines enables a cycle of long-term economic stagnation obscured by short-term remittance-driven growth. Remittances are the largest earner of foreign exchange and do serve to relieve the domestic financial burden; the GDP growth rate grew from 2.9 percent in 2001 to 7.2 percent in 2013. However, because remittances to higher income households tend to be larger than those to lower income households, they in fact substantially increase the already wide income gap, and can contribute to complacency in receiving households (whereby dependents are discouraged from working).64 Efforts to mitigate the national debt (39 percent of GDP in 2013) have come at the expense of social programs and have had no effect on reducing poverty, yet the Department of the Treasury still proposed that 34 percent of the 2014 national budget go toward debt servicing.65 In 2009 over 40 percent of the domestic population lived on $2 a day or less, and Social Watch Philippines indicators show that the poverty situation worsened between 2000 and 2012.66 Furthermore, the Philippine economy is nearly 75 percent consumption-based, supporting Puri and Ritzema’s as well as Azad’s argument that in many remittance-reliant countries, money sent home primarily funds “basic subsistence needs” rather than “productive investment” (such as savings or entrepreneurial activities).67

POEA, POEA Annual Report 2010; E. San Juan, email message to author, April 28, 2013; Edgard R. Rodriguez, “International Migration and Income Distribution in the Philippines,” Economic Development and Cultural Change 46, no. 2, 1998): 329-50; Ernesto M. Pernia, “Migration Remittances, Poverty and Inequality: The Philippines.” Discussion paper no. 0801, (2008): 18. 65 “Philippines Government Debt To GDP,” Trading Economics, 2012; Zinnia B. Dela Peña, “Gov’t Allocates P791.5 B for 2014 Debt Servicing,” The Philippine Star, August 12, 2013. 66 “Winning the Numbers, Losing the War: The Other MDG Report,” Social Watch Philippines, 2010. 67 “Shivani Puri and Tineke Ritzema, “Migrant Worker Remittances, Micro-finance and the Informal Economy: Prospects and Issues,” Working paper no. 21, The Global Development Research Center, 2001; Abul Azad, “Importance of Migrants’ Remittance for Bangladesh Economy,” Paper presented at the International Conference on Migrant Remittances, 2003: 7. 64

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Remittances appear to prolong a passive dependence on remittances to buffer economic shock, eliminating the motivation to industrialize and modernize infrastructure. The fact that agriculture employs 33 percent of Filipinos, yet contributes a mere 12 percent to national GDP despite the constant call for agrarian reform, also reveals deep-seated inefficiencies that, without the influx of capital from OFWs, would be forced to either evolve or yield to directed industrialization.68 In this manner, remittances in the Philippines de-incentivize improvements such as updating agricultural technologies, creating domestic jobs, addressing government corruption, and undertaking projects to improve infrastructure or shift toward manufacturing and heavy industry. In particular, low public investment has inhibited agricultural productivity, thus causing higher prices for food and agriculture inputs that in turn increase minimum wages and production costs in the agricultural sector, manufacturing, and services. The result is a higher cost of living and lower employment rates.69 This spending pattern sustains the economy but does not fund activities that would contribute to national development in the long term. In a sense, the Philippine government’s heavy reliance on remittances to counter its debt is a large-scale manifestation of this phenomenon, as the capital influx goes primarily toward furnishing immediate expenditures and debts rather than financing projects benefitting the entire population and future generations. Remittances in the Philippines substantially bolster the national economy without laying the foundations for productive long-term development and economic growth. As mentioned above, the population’s consumption-dominated spending patterns stemming from remittances discourage public investment in infrastructure, while the economic buffer allows for a lethargic government response to high levels of unemployment and poverty. The challenges that remittances pose to economic growth, coupled with a transient workforce (in the form of OFWs) and restrictive foreign ownership rules (including clauses in the constitution that require that Philippine citizens have 60 percent ownership of local firms), discourage foreign investment.70 Potential investors are hesitant to take risks in a nation with high government corruption and an established pattern of under-investment in domestic development; however, remittances solidify the Philippines’s developmental lethargy and allow for a policy of inaction because money sent back from overseas supplements (and may even increase) national GDP. Scholars frequently describe the Philippines as suffering from the “Dutch disease” in that the flood of money into the country has strengthened the value of the peso and raised domestic wages, which undermines the country’s competitiveness as an exporter.71 In short, remittances are not used to fund initiatives that would mobilize the Philippine workforce domestically, engender sustainable development, encourage foreign investment, or develop public infrastructure and address unemployment and poverty. Instead, remittances enable artificial GDP growth, which prolongs inertia. World Bank, World Development Indicators 2012 (Washington D.C.: World Bank, 2000): 1836-1837. World Bank, Philippine Development Report: Creating More and Better Jobs (Washington, D.C.: World Bank, 2013). 70 Bayangos and Jansen, “Remittances and Competitiveness,” 1834; San Juan, “Overseas Filipino Workers,” 112-113. 71 Bayangos and Jansen, “Remittances and Competitiveness,” 1834. 68 69

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Assuming that a fundamental shift away from an exported labor force and the remittances it generates would most likely ensure sustainable domestic development, what circumstances would trigger a massive recall of OFWs to the Philippines? It is difficult to envision reform of the remittance system originating domestically. State-led reform is highly unlikely because government elites are the greatest beneficiaries of the remittance model. It is in their best interest to ensure its longevity, which guarantees the stability of a development structure that favors their prosperity. San Juan writes that OFWs “keep the neocolonial system afloat and the elite relatively safe in their gated luxury enclaves,” referring to Philippines as “a capitalist state regulating the sale/ exchange of labor-power as commodities in the world market.”72 After it came to light last year that dozens of legislators in the Philippines had siphoned over 10 billion pesos ($23.81 billion dollars) from public coffers for their personal gain, activists called for OFWs worldwide to participate in a “Zero Remittance Day.” They estimated that if every OFW were to not remit their earnings, the Philippines would lose an average of $63 million dollars per day, since a previous Zero Remittance Day protest in 2008 resulted in the loss of hundreds of millions of dollars.73 Nonetheless, the intention of the protest is perhaps a more powerful gesture than the actual economic shock. Achieving full OFW participation in Zero Remittance Day Protests is highly unlikely because the consequences of non-remittance for OFW families are much more immediate and potentially severe than those for the Philippine government. Social pressure from the bottom up has effected some change in Philippine policy on OFWs, notably demonstrated by the introduction of the Migrant Workers and Overseas Filipinos Act of 1995 following public anger at the execution of Flor Contemplacion. Nonetheless, grassroots movements have empirically not had enough clout to compel the government to offer more than superficial or palliative solutions. Highly publicized human rights scandals abroad have dampened OFW out-migration to some extent, but given the Philippines’s absence of a secure domestic job market, many Filipinos still feel that there is no alternative but to seek employment internationally. Contemporary Philippine society is constructed around the expatriate labor force, and so the most probable scenario for fundamentally reforming the country’s neoliberal economic policies is one in which external or macro-level factors impede overseas employment, whether it be an avian flu pandemic that forces the repatriation of hundreds of thousands of OFWs or the rise of a cheaper labor market in a different country. In fact, various iterations of this scenario seem to already be in motion. Taiwan’s cooling of diplomatic relations with the Philippines and freezing of further hiring of OFWs in May 2013 following the Philippine Coast Guard’s shooting of a Taiwanese fisherman put the estimated 81,815 Filipinos currently working in Taiwan at risk of expulsion. This has forced the Philippines to search for alternative destinations for Filipinos

E. San Juan, “Overseas Filipino Workers,” 121-123. Janess Ann J. Ellao, “Migrants call for Zero Remittance Day vs pork barrel on Sept 19,” Alipato Media Center, September 4, 2014; Odette Keeley, “Q&A: Overseas Filipinos Threaten to Withhold Remittances to Protest Corruption,” New American Media, September 12, 2013. 72 73

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seeking employment abroad.74 Likewise, Saudi Arabia’s crackdown on illegal and undocumented foreign workers, which began in early 2013, led to the deportation of over 40,000 Filipino workers and caused the country’s employment growth to drop to 50.2 points in April of that year (less than fifty points indicates a contracting job market).75 Because Saudi Arabia employs over one-fifth of OFWs from the Philippines, decreased demand for foreign labor could irreparably damage the Philippines’s remittance-driven economy. Racial hostility, political conflict with the Philippines, and a desire to reduce foreign competition in Singapore and Malaysia are lowering demand for Filipino workers in both countries. As a result, both nations, which in total are home to 1,050,000 Filipinos and 206,800 registered OFWs, recently announced policies to de-incentivize the hiring of migrant workers.76 Department of Labor and Employment officials in the Philippines have encouraged OFWs laid off in Taiwan, Saudi Arabia, Singapore, and Malaysia to seek employment elsewhere, including the Philippines; however, as international demand for foreign labor decreases, especially in top OFW destination countries, the option to do so may soon vanish. If overseas employment opportunities were to substantially decrease, a critical mass of Filipinos would face the absence of a viable job market at home. Whether this confrontation would take the form of an organized movement or social instability, the Philippine government would be forced to enact reforms and develop policies promoting long-term equitable economic growth. Otherwise, the government would face potentially irreversible economic decline, national turmoil, or even deterioration of the state. If inflows from OFW remittances suddenly dried up, the Philippines would undoubtedly suffer a massive economic shock; it is not difficult to imagine the Philippines in a state of protest or unrest as a result. Families in the Philippines, no longer able to rely on a cash buffer, would be even more acutely confronted with the lack of employment opportunities and the high cost of living. In this scenario, the current Philippine government would be held actively accountable to its citizens for their welfare, and compelled to create jobs and lay the foundations for domestic development—before Filipinos at home and abroad radically reformed or overturned the government. Perhaps the most important question is not whether the Philippines would have to rethink its reliance on remittances, but rather whether the current state apparatus would adapt or perish in the process. Conclusion Overseas Filipinos are a massive international investment of human capital, and should

“Taiwan Flexes Muscles; OFWs Barred from Markets,” The Philippine Star, May 17, 2013; Willard Cheng, “Gov’t finds other markets for OFWs as Taiwan halts hiring,” ABS-CBN News, May 17, 2013. 75 “Protecting OFWS a Priority in 2013,” Targeted News Service, January 6, 2014; “Saudi Employment Growth Plummets amid Crackdown on Illegal Workers,” Al Arabiya, May 7, 2013. 76 E. San Juan, email message to author, April 2013; Andrei Medina, “Nearly 150,000 Pinoys in danger of losing jobs with new Singapore policy,” GMA News, April 13, 2013; Recto Mercene, “Malaysia labor tack may cut OFW deployment,” ABS-CBN News, May 13, 2013; National Statistics Office, 2011. 74

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be regarded as major stakeholders in the Philippines’s national, political, and economic affairs. The remittances they send back to the Philippines have stabilized the country’s economy for decades, and in turn the Philippine government has taken political measures to valorize and promote the rights of OFWs. However, upon close examination this apparent “mutual empowerment” is not symbiotic for either OFWs or the Philippine nation-state. Rather, it enables a cycle of disenfranchised workers and economic stagnation. The under-utilization of government policies and programs, including the Overseas Absentee Voting Bill and government-run OFW placement services, highlights their ineffectiveness and limitations. In addition, government-imposed red tape for departing OFWs and proposed regulations on mandatory remittance levels suggest that the Philippine government is not actively promoting the interests of OFWs. OFW and lawyer Oscar Franklin Tan succinctly assesses the situation: “OFWs remain treated as the perfect docile cash cows, voiceless in government as fee upon inane fee and procedure upon inane procedure are heaped upon us. It is not an option but a constitutional imperative to find a rational way to protect those who need protection while respecting the general population’s right to travel.”77 At the same time, the remittances that apparently benefit the Philippine economy sustain a consumption-based economy and cause currency appreciation that undermines the country’s competitiveness as an exporter. The Philippines’s reliance on remittances has enabled the government to overlook domestic underdevelopment of infrastructure and education. Repatriation of OFWs would likely force the Philippine government to enact major reforms to address poverty, underemployment, and low productivity across sectors. The deficiencies of both political measures meant to promote OFWs’ civil liberties as well as the Philippines’s remittance-based economy suggests that rather than mutually empowering each other, the Philippine government and the Filipino migrant labor phenomenon are breeding a culture of rights violations and economic dysfunction that, if not radically reformed, prevents the Philippines from making significant progress to advance its status in the global sphere.

Audrey Wozniak graduated from Wellesley College, where she double-majored in East Asian Studies and Music. She is currently a Thomas J. Watson Fellow. Previously, she was a Fellow at the Madeleine K. Albright Institute for Global Affairs, an intern with the Beijing Bureau of ABC News, and an intern with the U.S. Department of State in Guangzhou, China.

77

Oscar Franklin Tan, “Second Class Citizens,” Philippine Daily Inquirer, December 31, 2011.

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References Aguilar, Joey. “Only 10% of Expat Filipinos Voted.” Gulf Times, May 13, 2013. http://www.gulf-times.com/qatar/178/details/352536/%E2%80%98 only-10%25-of-expat-filipinos-voted%E2%80%99. Alave, Kristine L. “Philippines: Comelec Urged to Fix Glitches in Automated Election System.” Philippines Daily Inquirer, March 7, 2010. http://newsinfo. inquirer.net/breakingnews/nation/view/20100703-279002/Comelec-urged to-fix-problems-in-automated-election-system. Aning, Jerome. “POEA Awakes After ‘OFW’s nightmare.” Inquirer Global Nation, July 9, 2011. http://globalnation.inquirer.net/5625/poea-awakes-after %E2%80%98ofw%E2%80%99s-nightmare%E2%80%99/. Azad, Abul K. “Importance of Migrants’ Remittance for Bangladesh Economy.” Paper prepared for The International Conference on Migrant Remittances: Development Impact and Future Prospects, London, October 9-10, 2003. http://web.worldbank.org/archive/website01040/WEB/IMAGES/O_A_ AZAD.PDF. Bacani, Louis. “No Overseas Filipino Votes From 25 Countries.” The Philippine Star, May 15, 2013. http://www.philstar.com/election-2013/2013/05/15/942632/ no-overseas-filipino-votes-25-countries. Bangko Sentral Ng Pilipinas. “Overseas Filipinos’ Cash Remittances By Country, By Source For the Periods Indicated in Thousand U.S. Dollars.” 2012. http:// www.bsp.gov.ph/statistics/spei_2013/Table%2012.pdf. Bayangos, Veronica, and Karel Jansen. “Remittances and Competitiveness: The Case of the Philippines.” World Development 39, no. 10 (2011): 1834-1846. Boyce, James K. The Philippines: The Political Economy of Growth and Impoverishment in the Marcos Era. Honolulu: University of Hawaii in Association with the OECD Development Centre, 1993. Cheng, Willard. “Gov’t finds other markets for OFWs as Taiwan halts hiring.” ABS-CBN Interactive, May 17, 2013. http://www.abs-cbnnews.com/ global-filipino/05/17/13/govt-finds-other-markets-ofws-taiwan-halts hiring. Dela Peña, Zinnia B. “Gov’t Allocates P791.5 B for 2014 Debt Servicing.” The Philippine Star, August 12, 2013. http://www.philstar.com/business/ 2013/08/12/1079181/govt-allocates-p791.5-b-2014-debt-servicing.

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De Guzman, Odine. “Overseas Filipino Workers, Labor Circulation in Southeast Asia, and the (Mis)management of Overseas Migration Programs.” Kyoto Review of Southeast Asia 4 (October 2003). http://kyotoreview.org/issue-4/overseas filipino-workers-labor-circulation-in-southeast-asia-and-the mismanagement-of-overseas-migration-programs/. Ellao, Janess Ann J. “Migrants call for Zero Remittance Day vs pork barrel on Sept 19.” Bulatlat.com, September 4, 2014. http://bulatlat.com/main/2013/09/04/ migrants-call-for-zero-remittance-day-vs-pork-barrel-on-sept-19/. Gonzalez, Joaquin L. Philippine Labour Migration: Critical Dimensions of Public Policy. Singapore: Institute of Southeast Asian Studies, 1998. Huang, Shirlena, and Brenda S.A. Yeoh. “Ties That Bind: State Policy and Migrant Female Domestic Helpers in Singapore.” Geoforum 27, no. 4 (1996): 479-493. Keeley, Odette. “Q&A: Overseas Filipinos Threaten to Withhold Remittances to Protest Corruption.” New American Media, September 12, 2013. http://newamericamedia.org/2013/09/qa-overseas-filipinos-threaten to-withhold-remittances-to-protest-corruption.php. Martin, Philip. “Reducing Migration Costs and Maximizing Human Development.” In Global Perspectives on Migration and Development: GFMD Puerto Vallarta and Beyond, edited by Irena Omelaniuk, 27-52. Dordrecht, The Netherlands: Springer, 2012. Medina, Andrei. “Nearly 150,000 Pinoys in Danger of Losing Jobs with New Singapore Policy.” GMA News Online, April 13, 2013. http://www.gmanet work.com/news/story/303720/pinoyabroad/news/nearly-150-000-pinoys in-danger-of-losing-jobs-with-new-singapore-policy. Mercene, Recto. “Malaysia Labor Tack May Cut OFW Deployment.” ABS-CBN News, May 13, 2013. http://www.abs-cbnnews.com/global-filipino/05/12/13/ malaysia-labor-tack-may-cut-ofw-deployment. Migrante International. “SUMA: Summing-up of the State of Migrants Under Aquino.” Tinig Migrante, July 2012. Migrante International. “The Current State of the Human Rights Situation of Migrant Workers.” Tinig Migrante , July 10, 2009. Munck, Ronaldo. Globalisation and Migration: New Issues, New Politics. London: Routledge, 2009.

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Ogena, Nimfa. “Policies on International Migration: Philippine Issues and Challenges.” In International Migration in Southeast Asia, edited by Aris Ananta and Evi Nurvidya. Singapore: Institute of Southeast Asian Studies, 2004. Pernia, Ernesto M. Migration Remittances, Poverty and Inequality: The Philippines. Discussion paper no. 0801. Quezon City: University of the Philippines School of Economics, 2008. Philippine Statistics Authority, National Statistical Coordination Board. “Philippine Economy Posts 6.4 Percent GDP Growth.” August 28, 2014. http://www.nscb.gov.ph/sna/2014/2nd2014/2014qpr2.asp. Philippine Statistics Authority, National Statistical Coordination Board. “2013 Survey on Overseas Filipinos.” http://web0.psa.gov.ph/tags/2013-survey overseas-filipinos. Puri, Shivani, and Tineke Ritzema. Migrant Worker Remittances, Micro-finance and the Informal Economy: Prospects and Issues. Working Paper no. 21. The Global Development Research Center, 2001. Rapoport, Hillel and Frédéric Docquier. “The Economics of Migrants? Remittances.” IZA Discussion Paper Series, No. 1531, 2005. http://ftp.iza.org/dp1531.pdf. Republic of the Philippines, Commission on Filipinos Overseas. “Highlights of the 2011 Stock Estimate of Filipinos Overseas.” January 13, 2013. Republic of the Philippines, House of Representatives. House Bill 3576, Sixteenth Congress. January 14, 2014. Republic of the Philippines, National Statistics Office. “Total Number of OFWs Is Estimated at 2.2 Million.” July 11, 2013. Republic of the Philippines, Official Gazette. “Message of President Aquino to the Handog sa Pamilyang Filipino Jobs and Livelihood Expo 2013.” September 28, 2013. Republic of the Philippines, Official Gazette.“Omnibus Rules and Regulations Implementing the Migrant Workers and Overseas Filipinos Act of 1995, as Amended by Republic Act No. 10022.” July 8, 2010. Republic of the Philippines, Overseas Employment Administration. “2011 Overseas Employment Statistics.”

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Republic of the Philippines, Overseas Employment Administration. “Agreement on Domestic Worker Recruitment Between the Ministry of Labor of the Kingdom of Saudi Arabia and The Department of Labor and Employment of the Republic of the Philippines.” 2013. Republic of the Philippines, Overseas Employment Administration. “Memorandum of Understanding, Philippines-Employment Placement Service Korea.” July 26, 2011. Republic of the Philippines, Overseas Employment Administration. POEA Annual Report, 2010. Republic of the Philippines, Overseas Employment Administration. “Memorandum of Understanding, Philippines-United Arab Emirates.” April 9, 2007. Republic of the Philippines, Senate. Republic Act No. 8042, Migrant Workers and Overseas Filipinos Act of 1995.’ Republic of the Philippines, Senate. “With Amended OAV, Koko Sees 10m Votes Cast Abroad in 2016.” February 9, 2013. Rodriguez, Edgard R. “International Migration and Income Distribution in the Philippines.” Economic Development and Cultural Change 46 (1998): 329-50. Rodriguez, Robyn Magalit. Migrants for Export: How the Philippine State Brokers Labor to the World. Minneapolis: University of Minnesota, 2010. ———. “Migrant Heroes: Nationalism, Citizenship, and the Politics of Filipino Migrant Labor.” Citizenship Studies 6 (2002): 341-356. Rosario, Ben. “Solon Eyes Sanction vs Negligent OFWs.” Manila Bulletin, March 19, 2014. Rupert, Mark, and M. Scott Solomon. Globalization and International Political Economy: The Politics of Alternative Futures. Lanham: Rowman and Littlefield, 2006. San Juan, E., Jr. “Overseas Filipino Workers: The Making Of An Asian-Pacific Diaspora.” The Global South 3.2 (2009): 99-129. San Juan, E., Jr. “Consulting You Re: Overseas Filipino Voters.” Message to the author. April 28, 2013. E-mail. Santos, Matikas. “Forced Remittance Bill Smacks of Marcosian Law.” Philippine Daily Inquirer, March 5, 2014.

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Stewart, Ann. Gender, Law and Justice in a Global Market. Cambridge: Cambridge University Press, 2011. Tan, Oscar Franklin. “Second Class Citizens.” Philippine Daily Inquirer, December 31, 2011. http://opinion.inquirer.net/20199/second-class-citizens. Tiglao, Rigoberto. “OFW ‘exit permits’: Unconstitutional?” Philippine Daily Inquirer, July 14, 2011. http://opinion.inquirer.net/7600/ofw-%E2%80%98ex it-permits%E2%80%99-unconstitutional. World Bank. “Philippine Development Report: Creating More and Better Jobs.” Washington, D.C., 2013. https://www.worldbank.org/en/country/ philippines/publication/philippine-development-report-2013 creating-more-and-better-jobs. World Bank. World Development Indicators 2012. http://data.worldbank.org/sites/ default/files/wdi-2012-ebook.pdf.

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CALL FOR PAPERS The Journal welcomes original social science research papers written on issues relevant to politics, security, economy, culture, and society of contemporary Asia, including Pakistan and Afghanistan. “Contemporary� is understood broadly as recent, but not necessarily as current. We are pleased to consider articles with historical background sections so long as such analyses are crucial for advancing core arguments. SUBMISSION GUIDELINES Submissions should be emailed to guasiajournal@gmail.com as MS Word documents. Please do not submit in PDF format. Authors should include a short bio in the email text, but must avoid any self-identification in the manuscript as we send our articles out for anonymous review. Document: Manuscripts must be typewritten and double-spaced in Microsoft Word, with 1-inch/2.5-centimeter margins on all sides. Length: Manuscripts should be 5,000-7,000 words in length. Style: Authors must follow The Chicago Manual of Style, 16th ed. Citations: All citations must be formatted as footnotes. Please also include a full bibliography at the end. Abstract: Authors must include an abstract (100-200 words) that effectively and concisely summarizes his/her study. *Submissions must not be plagiarized, copyrighted, or under review elsewhere.


Abdullah | Conceptions and Misconceptions about Kashmir

interviews Conceptions and Misconceptions about Kashmir An Interview with Omar Abdullah

Omar Abdullah served as Chief Minister of Jammu and Kashmir from January 2009 to December 2014. After representing the National Conference Party in a close election at the Jammu and Kashmir Assembly last year, he resigned as Chief Minister. He continues in his capacity as Working President of the National Conference Party, currently the main opposition party in the region. Mr. Abdullah delivered a speech at Georgetown University in April 2015 and took time to sit down with the GJAA to discuss issues ranging from the recent political alliance between the Bharatiya Janata Party and the People’s Democratic Party to Prime Minister Narendra Modi’s term in office thus far.

Journal: What are some emerging political, economic, and social developments in Jammu and Kashmir ( J&K) that are important to its future, but have not been prominent in international discussions? Abdullah: The most significant development has been the new political alliance formed by the sitting government that brought together the ultra right-wing Bharatiya Janata Party (BJP) with the People’s Democratic Party (PDP) which has espoused, for want for a better term, “soft separatism.” A political conflict that seems to be emerging out of that alliance is that the two parties have proposed completely opposing solutions to the Kashmir problem. The BJP calls for the complete assimilation of J&K into the national mainstream, and the PDP, which is the regional party, has been espousing far greater devolution of power to the state of J&K itself. It is a very strange relationship. The alliance is hardly a few weeks old as of today, and the beginning has already been very rocky. That obviously does not bode well for the future. In terms of the security environment, I do not think enough credit has been given for the actual improvement in the situation on the ground. If you were to compare levels of Spring/Summer 2015 [123]


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militancy and violence now to let’s say 1996, when the democratic process restarted in the state, levels of violence are about 70 or 80 percent less. That is a huge drop in terms of civilian casualties and in terms of actual incidents of violence. On the international front, unfortunately, there is not as much good news as we would have liked to have had. There was a positive development when Prime Minister Modi took over and invited the leadership from all the countries in the region—so he was with the prime minister of Pakistan, the president of Sri Lanka, and so on—and we were very hopeful that the presence of the prime minister of Pakistan would signal the resumption of a long term sustained dialogue between the two countries. That is what is required if we are going to put this problem to rest once and for all: a sustained dialogue that is able to withstand the shocks that would otherwise derail the dialogue process. But that hasn’t happened. Incidents like the attack on the Indian parliament and the 26/11 terrorist attacks in Bombay have had a very negative impact on the sustainability of the dialogue process.1 And you have a government in Delhi that has a majority all of its own. Whereas previous governments have had to depend on whimsical allies, this government does not. Therefore one would hope that it would have more room to maneuver politically. But so far we haven’t seen enough evidence of that, which is disappointing. Journal: You mentioned that the BJP and the PDP alliance is only a few weeks old and has already gotten off to a rocky start. If that’s the case, then for what reasons did they cooperate to begin with? Abdullah: Simply getting into government. There is no other reason why parties with such a different agenda would come together. The BJP has never been a part of the state government in J&K and therefore wanted to correct that. And the regional party was out of power for nine years prior to this, which made them rather restless. They grabbed at the first opportunity that came their way—and that was this one. Again, it is still in its early days, but the beginning has not been very smooth. Journal: What are some common misconceptions that a typical “outsider” has about J&K? Abdullah: I think the most common misconception that people have about J&K is that the right to self-determination was denied to the people of J&K because of India. This is not true. If you were to read the United Nations Security Council Resolution of 1948, it states very clearly that the invading Pakistanis—be they in uniform or not—had to withdraw from the territories that they occupied, following which India was to scale down its own troop presence, and then a plebiscite would be carried out. We all know that the withdrawal on the part of the Pakistanis never took place, and therefore the next step—which was the scaling down of the Indian presence—also did not happen, and therefore the plebiscite did not happen. But somehow over the years, 1

26/11 refers to the date on which these terrorist attacks began: November 26, 2008.

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an impression has been created that it is India’s reluctance to allow a plebiscite that has denied the people of J&K the right to make their own choice, which is not the case. I think this misconception is part of Pakistan’s diplomatic success. That is, they have been able to spin their own inability to fulfill the first condition of this UN Security Council Resolution as somehow being India’s fault. Journal: Do you think that narrative is changing at all? Abdullah: I think too much water has flowed under the bridge now. The circumstances or conditions that would be required for such a plebiscite to take place simply do not exist. When the United Nations resolution was passed, China was not a player in this, but since then Pakistan has even ceded territory to China. So, it is not as if it is just Pakistan that has to withdraw. Now they would have to convince China to withdraw from territory that they occupy as well. Given the strategic importance of that area, I do not see that happening. Plus, the ethnic makeup of the Kashmiris on the Pakistani side has changed quite dramatically, which is something for which the Indians cannot be faulted. We have very strong state subject laws. If you are not a bona fide, by birth, Kashmiri, as in a member of the state, you cannot buy property there. To put it even more clearly, as a person from J&K, I can go to Bombay and buy land and build a house, but someone from Bombay can’t go to J&K and do the same there. This has allowed J&K to protect its ethnic makeup, but that is not the case on the Pakistani side. If you theoretically gave the right to self-determination on the Pakistani side, you would be giving it to people who are not bona fide residents of the state, which defeats the purpose. Journal: Could you elaborate on how China’s presence in the region changes the dynamic in regards to J&K? Abdullah: China is not much of a player on the Indian side of J&K, largely because of India’s reluctance to allow China to establish any sort of foothold in the area economically. From a strategic point of view, whatever they do on their side of the border is their business and India does not get to say anything on that score. But on the Pakistani side, China is a big player. They are very much involved in infrastructure projects, particularly route connectivity and hydroelectricity generation, dam construction, and things like that. There is also some talk about a rail link through the areas of J&K that have been ceded to China, which makes the Indian government rather uncomfortable. In any case, our relationship with China is not quite as difficult as our relationship with Pakistan. Even though there are unsettled border issues on both sides, they do not flare up into violence on the border. Of course, it causes some tensions, but it is not a “hot border.” We are not shooting at each other. So, the relationship is a lot more comfortable on that account. Journal: It has been speculated that there is a growing rift between the Hindu-majority Jammu region and the Muslim-dominated Kashmir Valley. Do you agree that there is an increasing polarization along those lines?

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Abdullah: If you just look at the most recent assembly elections and the way in which people have voted, there is a clear divide. The Hindu-majority in parts of Jammu went lock, stock, and barrel with the BJP, while the Muslim-majority parts of the state were pretty much carved up between my party, the PDP, and the Congress. I am hopeful that this was more of a result of the whole Modi factor rather than real, hard-core communal politics at play. Even though we have seen polarization in the elections, it has not manifested into any sort of violence on the streets—you do not see riots between Hindus and Muslims and that sort of thing. I think it was largely political and I hope it stays that way, because it is much easier to claw back from a situation where the division is political rather than one where it is religious. Journal: Could you elaborate on what you mean by the “Modi factor”? Abdullah: Prime Minister Modi, before he became prime minister, created this huge air around him—this wave of enthusiastic support for what he was going to bring. This had an effect in J&K as well, but it stopped where the Hindu-majority population ended. The Muslim-majority population of the state did not identify with Modi as this great savior of the country in the way that the Hindu majority did. The voting along religious lines had a lot to do with identifying with Prime Minister Modi as a sort of great savior who was going to come and save the state from all the troubles that Pakistan causes. Journal: What is your personal assessment of Prime Minister Modi’s term in office thus far? What are some strengths and weaknesses of Modi’s policy towards J&K? Abdullah: I think his policy towards J&K was largely governed by his desire to do well in the elections. We have not seen much engagement with the state since the elections, particularly in the areas that matter to us immediately. You may recall that J&K went through a terrible flood in September of last year, causing enormous damage to property and infrastructure. The state does not have the financial resources to reconstruct and compensate people for those losses. We were looking towards the government of India for that package, which has not come as of yet. That is something that we would fault Prime Minister Modi for. Others would tell us that we are not even a year into his fiveyear term, and so we are being hasty. On broader policy issue, we are willing to accept that it is not long enough to have the sort of dialogue or initiatives required. At least on this one fundamental area, which is to help people rebuild their lives after devastating floods, we have not seen nearly as much as we would like. On the national front, I think it is fair to say that a certain amount of the sheen that was attached to his government has started to wear off. That is always the problem when you win an election having promised so much—delivery becomes very difficult. This is a prime minister who literally promised the moon during and up to the elections, particularly in terms of how he would deal with Pakistan, how he would deal with the neighborhood, and how he would bring money that is illegally stashed abroad back to the country and distribute it to people—all sorts of promises that so far have not seen the light of day. Even on the business front people are beginning to question. The [126] Georgetown Journal of Asian Affairs


Abdullah | Conceptions and Misconceptions about Kashmir

business community had attached a lot of hope to this current government in terms of doing away with some of the red tape and bureaucratic hurdles, which would make investment easier and cheaper, but that has not happened either. Journal: In what ways has the Armed Forces Special Powers Act (AFSPA) impacted governance and conflict management in J&K?2 Abdullah: The biggest fallout of the AFSPA is the inability of the state government to drive accountability for any misuse of force. Ordinarily, in the absence of the AFSPA, the local courts would take note of any unlawful use of force and then apply normal civil law to the situation. But because of the application of the AFSPA, this is not the case. Permission has to be sought from the government of India for the prosecution of security forces operating in J&K, and that permission is almost never given. Even when it is, any prosecutions take place under military law, so you have court-martials rather than civil trials. That makes accountability more of a challenge than it should be, which is why successive governments have been pressing the government of India to do away with the AFSPA. My government took that line and the subsequent government has taken that line as well. On the one hand, we are going around the world telling everyone how much the situation on the ground has improved and how levels of violence have gone down. Yet we still want to hold on to the laws that we felt were necessary when the levels of violence were so much higher? It is difficult to explain logically how you can claim an improvement in the situation on one hand and on the other want to hold onto the laws that have outlived their utility and usefulness. Journal: Do you think it is unlikely that those laws will be repealed? Abdullah: At this point in time, it is unlikely because the army in particular is very reluctant to let go of the umbrella that the AFSPA provides. Legally, the army has to be given some sort of mandate to operate, because otherwise the army is only for external operations. If you are going to use the army for internal security duty, then some sort of legal cover has to be provided. The AFSPA not only provides the legal mandate, but it also provides a sense of immunity from prosecution—and that is where the problem lies. While giving security forces the mandate to operate, we need to take away the sense that the security forces are immune to any sort of legal retribution. Journal: Given political exigencies on both the Indian and Pakistani sides of J&K, you previously recommended removing the “Line of Control” in Kashmir through a socalled South Asian Free Trade Area (SAFTA). Could you elaborate on this proposal and its relevance to solving the J&K issue? Abdullah: The SAFTA is actually part of government policy. It is something to which all the countries in the neighborhood would like to aspire. They look at the European

The Armed Forces Special Powers Act (AFSPA) was a law passed by the Parliament of India in 1958 to grant special powers to the Indian Armed Forces within “disturbed areas.” 2

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as the model that they would like to see take shape in the neighborhood. What this means is that you could, in an ideal world, get into a car or train somewhere in Afghanistan, travel through Pakistan, into India, and end your journey in Bangladesh, without having to worry about passport control, customs, visas and so on. Someone living in India could take a job in Pakistan, or someone living in Sri Lanka could take a job in Nepal. That is what one would like to see happen. The problem is that relations in the neighborhood are not exactly conducive to the creation of this sort of borderless alliance of countries, which is largely the product of the continued hostility between India and Pakistan. The way I see it, a solution to the problem in J&K will not be possible if it involves any sort of territorial “give and take” between India and Pakistan. If either India or Pakistan has to cede territory that they control, then no solution is going to work. And the only way that would happen is by accepting the “Line of Control” as the de facto border, and then making it irrelevant so that people are allowed to move freely. That really would be the only way we would make any forward movement on this problem. Otherwise, if we stick to stated positions, wherein Pakistan wants the part of J&K that is with India and India wants the part that is with Pakistan, then this problem that has festered since 1947 will continue the way it is. Journal: Is there popular support for SAFTA in the region? Abdullah: There is popular support. People would like to see an end to this problem. But there is not uniform acceptance for what I am proposing. At a certain level, it will be a difficult sell both in India and in Pakistan because you are talking about generations of people who have been brought up to believe that the other side belongs to them. For both sides to turn around and accept that they will have to give up what they have coveted or aspired to have—this is a hard sell. So far, the leadership of neither country has been willing to bite the bullet, stick their necks out, and say, “Look, this is as much as we can do, let’s accept it.” Journal: The governments of India and the United States recently exchanged the “administrative arrangements” for guiding their civilian nuclear deal. What are the implications of this deal for the future of India-U.S. relations? Abdullah: I think it is important because it puts the Indo-U.S. relationship back on the right trajectory. For a while after this agreement was signed, with much hope and enthusiasm, things sort of fell apart, particularly on the issue of civilian liability, because our laws and the American laws were not compatible. The fact that we have been able to address some of these difficulties is a huge step forward. We will hopefully also see American private sector investment in the Indian nuclear sector. I think that it is important economically, but it is also very important symbolically for how far the relationship between the two countries has progressed. No greater sign of that was having the American president at our Republic Day celebrations, which had never happened since India was formed in 1947.

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Abdullah | Conceptions and Misconceptions about Kashmir

Journal: How would you describe your own political philosophy? What are some of the driving principles that have led to certain decisions you made while you were in office? Abdullah: Obviously, I am a product of this violence, so to speak. My political career started after violence erupted in J&K, and therefore I have no pre-violence experience to which to compare the current work. Therefore, for me, the driving force was to try and normalize the situation as quickly as possible, and to try and give the people some amount of a peace dividend. J&K is a state whose economy has been largely dependent on tourism, which completely dried up in the face of the violence that erupted in the early nineties. A lot of effort was made to try and convince people to start visiting J&K again, and we met with a considerable degree of success with that. Economically, I have always felt that J&K was far too dependent on the center for economic sustenance, and we do not have much in the form of natural resources. What J&K does have is an abundance of potential in hydroelectric power generation. Therefore, there was a concerted effort during my six years in government to try and realize some of that potential. It is very expensive and the gestation period for these projects is much longer than it would be for thermal and other forms of power generation. It is the one area of the economy that will turn the state’s finances around. I would like to believe we have laid the foundations, which in a decade or so, will start showing results.

Omar Abdullah served as the Chief Minister of Jammu and Kashmir from 2009 to 2014. From 2001 and 2002, he was India’s Union Minister of State for External Affairs. Currently, Mr. Abdullah is the working president of the J&K National Conference and a member of the Legislative Assembly.

Omar Abdullah was interviewed by Brian Spivey and Alex Rued on April 14, 2015.

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Political Violence and Terrorism in Southeast Asia An Interview with Arabinda Acharya

The Journal sat down with Arabinda Acharya to discuss his recent book, Whither Southeast Asian Terrorism? (Imperial College Press, 2015), which examines the origin and evolution of terrorism in Southeast Asia.

Journal: What provided the impetus for your recent book entitled Whither Southeast Asian Terrorism? What issues and trends called for an updated examination of terrorism in Southeast Asia? Acharya: This book is the outcome of my more than twelve years of work in Southeast Asia before I came to the United States. I have also worked in India and conducted extensive research in countries like Pakistan, Bangladesh, Nepal, and Sri Lanka, and in other Central Asian countries, as well as in China. I came to Southeast Asia in 2002— almost eight months after 9/11. I joined the International Centre for Political Violence and Terrorism Research in Singapore. Then, the 2002 Bali bombings happened in Indonesia. I have studied almost all the major attacks in South, Central, and Southeast Asia as well as in various European countries. However, this book is not a handbook on terrorist groups or their leaders, attacks, tactics, and targets. In this book, I look at the conflicts in Southeast Asia broadly and those leading to political violence and terrorism particularly. I also look at counterterrorism measures by individual countries and the region as a whole, as well as the role of extra-regional powers like the United States. This book focuses on what I perceived to be a number of myths or misperceptions about terrorism in Southeast Asia. First, there was the labeling of the region as the “second front” in the global war on terror, even though almost all of the conflicts in the [130] Georgetown Journal of Asian Affairs


Acharya | Political Violence and Terrorism in Southeast Asia

region predated 9/11. Second, there were concerns that a number of Southeast Asian countries, especially those with a predominately Muslim population, could fall prey to religious extremism. This led to discourses like militant Islam in Southeast Asia or even the Talibanization of Southeast Asia. Third, the capability of some of these countries to deal with terrorism was suspect. Many of the countries were initially in denial mode regarding the existence of terrorism within their borders and were not interested in investing in security capabilities or networking with other countries to deal with the threat. More than ten years after the October 2002 Bali bombings, I found that if we look at how most countries in the world have dealt with Islamist terrorism, Southeast Asian countries could be considered among the most effective. The number of terrorist-related incidents is now low. In addition, countries in the region have managed to handle terrorism not only with kinetic means, including the use of military force and kill and capture strategies, but also with non-kinetic initiatives, which I will discuss later in the interview. Most significantly, the link between the groups in Southeast Asia, particularly Jemaah Islamiyah and al-Qaeda Central, has weakened significantly. This is critical, as the regional groups had looked to al-Qaeda for inspiration, strategic direction, training, logistics, and money. Additionally, I wanted to put in perspective how the conflicts in the region in general and terrorist threats in particular could be different in terms of orientation, objectives, tactics, and targets of the groups or individuals involved—both within the region and in comparison to other regions in the world. Contrary to conventional wisdom, and despite religious undertones, not all political contestations have produced violence and strife in Southeast Asia. In many cases, violence is associated with issues of political participation (Indonesia and the Philippines), communal relations (Indonesia), resource competition (Indonesia), or identity and quest for autonomy (Thailand, Indonesia, and the Philippines). Southeast Asia was also unique in that I saw peace talks leading to negotiated settlements. One such example was Aceh in Indonesia, where a group called Free Aceh Movement had been demanding an independent Islamic state, but ultimately settled down to negotiate a settlement and join the mainstream through political means. At the time of this interview, the peace talks between the Moro Islamic Liberation Front (MILF) and the Philippines government are on track, while Thailand has begun to engage the militants in negotiations. All these highlighted the varying nature not only of the conflicts in Southeast Asia, but also the nature and the role of Islam in Southeast Asia vis-à -vis the same in other regions like the Middle East or even South Asia. Thus, discourses like the second front, al-Qaeda brand, militant Islam, or the Talibanization of Southeast Asia are not as robust as they appear to be and could actually be rather problematic in respect to Southeast Asia. Instead, we need to look at the conflicts in Southeast Asia in their respective historical, political, and socio-cultural contexts, including the regions’ legacy of colonial past and the impact of democratization.

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Journal: Do the major terrorist groups throughout the region share similar grievances and origins? What are some misconceptions regarding the origin and kind of terrorism in Southeast Asia that you seek to address in this book? Acharya: Jemaah Islamiyah is the offshoot of Darul Islam, which was a post-independent struggle for establishing an Islamic state in Indonesia. It was not successful because Suharto, the supreme leader of Indonesia at the time, heavily put down the movement. Two leaders of Darul Islam, Abu Bakr Bashir and Abdullah Sungkar, were banished from Indonesia. They left Indonesia for Malaysia and set up Jemaah Islamiyah, which attempted to establish a pan-Islamic regional super state—a caliphate. Nobody had heard of Jemaah Islamiyah until 2001 when their plot to attack Singaporean and U.S. assets in the region was revealed, and the responsible members of the group were arrested in Singapore and Malaysia. Indonesia initially denied the existence of a group like Jemaah Islamiyah until the Bali bombings in 2002. By that time, Jemaah Islamiyah had already carried out a number of attacks in Indonesia, including the 2000 Christmas Eve bombings and more than fifty other bombings in different parts of the country. The point I am trying to make is why Jemaah Islamiyah, which was initially trying to set up an Islamic state in Indonesia, became globalized, internationalized, and then went on to pursue a super-objective. It was mainly due to the influence of al-Qaeda. Al-Qaeda carried out numerous activities in Southeast Asia, including plans for both the USS Cole attack in December 2000 and the 9/11 attacks. Some of those who were involved in 9/11 came to United States through Malaysia. Similarly, Osama bin Laden also sent his brother-in-law, Jamal Khalifa, to the Philippines to set up a number of businesses, Islamic charities, and non-governmental organizations to get money for the local groups like the MILF and Jemaah Islamiyah, as well as for al-Qaeda. Al-Qaeda also set up training camps in the Philippines and Indonesia. So, Southeast Asia was not and is not immune to al-Qaeda’s influence. But, currently—and in contrast to the early twenty-first century—its influence has significantly declined. Moreover, many local groups like the MILF in the Philippines and most militants in Southern Thailand shun al-Qaeda. In Southern Thailand particularly, the fight is not about a global jihad, but rather about protection of a minority community’s identity. This particular struggle is very interesting to study because here we are dealing with a dynamic in which a group of Muslims who are Malays are forced to live in a country that is predominately Buddhist and Thai. And, there is a heavy attempt by the government to integrate them into the Thai state. Two past examples include the 1921 Education Act and the 1939 Thai Customs Decree. The Education Act forced Muslims to attend state-run schools in which Buddhist monks taught Buddhist ethics. The Customs Decree prevented Muslims from adopting Muslim names or using the Malay dialect, even forcing them to participate in the public worship of Buddhist idols. These people are ethnic Malays who speak the Malay language, practice Islam, and dress differently. The Customs Decree dictated that these people dress and talk like Thais, and prohibited them from attending Islamic schools. These measures challenged the Muslims’ identity, especially their ethno-cultural and religious identity, which led [132] Georgetown Journal of Asian Affairs


Acharya | Political Violence and Terrorism in Southeast Asia

them to ultimately rebel against the central government. In fact, these measures transformed what were mainly sporadic protests by the local Muslims into armed resistance by organized groups. Another dynamic that I saw has to do with the nature of attacks. For example, Indonesia has many suicide attacks, but there have been none in other Southeast Asian countries. Even though the Philippines experienced a number of attacks, the attacks were not suicide attacks. The only time there was the possibility of a suicide attack in the Philippines occurred when Indonesians were going to the Philippines to carry out attacks. This has also been the case in Thailand. This is due to the differing nature of Islam within Southeast Asia, as well as the localized orientation and agendas of the militant groups in their respective historical and cultural contexts. Journal: Among the states in Southeast Asia, which nation’s counterterrorism efforts have been the most effective and why? In your assessment, which Southeast Asian countries have successfully focused their counterterrorism strategies on tackling the root causes of terrorism, rather than its symptoms? Acharya: There are several aspects of fighting terrorism that we must consider. One is the tactical aspect, which includes gates and guards, target hardening, and physical security measures. Second is the operational aspect, which includes killing and capturing terrorists, as well as destroying terrorists’ training camps, support structures, and funding sources. Third is the strategic aspect, which, for example, refers to fighting the overall concept of the Islamic state or independence, separatism, and so on. From operational and tactical perspectives, most countries, especially Singapore, Malaysia, the Philippines and Indonesia, have done very well. They have destroyed all of the major groups and the groups’ infrastructure. Singapore and Malaysia could achieve success as a result of their experience dealing with the Communist Malay insurgency and a very robust law called the Internal Security Act (a British era preventive detention instrument that allowed governments to detain militants indefinitely). The Internal Security Act is considered a successful piece of legislation to contain the terrorist threat in respective countries, even though there are some concerns that the governments have largely mitigated through strategic level initiatives like detainee rehabilitation, religious counseling, and community engagement. Indonesia’s success is the result of a dynamic and professional counterterrorism force—the Detachment 88—which was set up after the 2002 Bali bombings and give financial and training support from the United States, Australia, and others. While with the International Centre for Political Violence and Terrorism Research (ICPVTR), one of the projects I was involved in was countering radical ideology. I think the Centre is one of the first in the world to try to counter terrorists’ ideology. ICPVTR supported an agency called the Religious Rehabilitation Group (RRG). RRG, a voluntary body of Muslim clerics in Singapore, took a leadership role in re-educating and rehabilitating the Jemaah Islamiyah detainees in custody. The result has been that a majority of the detainees are released without recidivism, meaning they have not gone back to terrorism. Almost 50 percent of the ICPVTR staff is Muslim Spring/Summer 2015 [133]


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and many are religious scholars. The staff would analyze the Islamist radical narratives, statements, and justifications for violence, and then counter terrorists’ justifications with the same logic. Radicals and terrorists use perverted interpretation of Islamic concepts to justify violence. For example, the mastermind of the Bali attacks, Imam Samudra, wrote a book entitled Aku Melawan Teroris, which justified the Bali bombings using Quranic verses. My colleague at the Centre, Muhammed Haniff Hassan, responded with a book entitled, Unlicensed to Kill: Countering Imam Samudra’s Justification for the Bali Bombing, which used mainstream interpretation of Quranic verses to counter the violent radical narrative. So, in Singapore, success was due not only to the legislation, but was also the result of increased soft power and community engagement in the fight against terrorism. This approach was the essence of President Obama’s remarks at the Summit on Countering Violent Extremism in February of this year. Indonesia has also focused on this counter-extremism aspect since the country faces a lot of radicalization, especially in the prisons. Indonesia has counter-radicalism programs, but the initiatives are not successful because of a lack of focus and corruption. A number of clerics or militants are in prison, including Jemaah Islamiyah leader Abu Bakr Bashir. These imprisoned individuals continue to preach via mobile phones, and thus still indoctrinate criminals and other detainees in the prisons. When a training camp was discovered in Aceh in 2010, a majority of those arrested were ex-detainees. Thus, these individuals had been detained, released, and returned to militancy. Indonesia has created units within both the police and the military that are quite efficient in killing, capturing, and destroying the terrorist organizers. Yet, recruitment is not stopping. The threat has now refracted into multiple fronts consisting of smaller groups and individuals who are doing activities on their own. Overall, Indonesia’s counterterrorism strategy has been quite effective in terms of kinetic efforts like intelligence and law enforcement operations. But, such operational successes are often neutralised by the weak legal regime, ineffectual control over prisons, and inadequate counter-ideological initiatives such as rehabilitation and community engagement. Journal: What is your view on the debate over the importance and threat posed by organizations versus individuals? In your assessment, is it individual terrorism or terrorist organizations that still remain a serious concern for Southeast Asia? Acharya: Now actually, no group on its own is endangering Southeast Asia, but individuals are being mobilized. The Islamic State of Iraq and Syria (ISIS) at this point in time is in the limelight as a group, but its influence is limited to mobilization of recruits to fight in Iraq and Syria. If we look at the post-9/11 security environment, it is now very difficult for a group to maintain an organization and control territory for a long time. However, individuals whom terrorist groups like ISIS have recruited from other countries and indoctrinated are currently more dangerous and will be in the future. There is widespread concern that upon their return, recruited individuals could carry out attacks in their respective home countries. Although this has not happened yet in Southeast Asia, the concern remains high. Journal: One characteristic of Southeast Asian terrorism is the nexus between piracy [134] Georgetown Journal of Asian Affairs


Acharya | Political Violence and Terrorism in Southeast Asia

and terrorism. How does maritime terrorism differ from our traditional understanding of terrorism? How can states respond effectively to this particular type of terrorism? Acharya: Between 2004 and 2006, the number of piracy attacks in the Malacca Strait and in Southeast Asian waters was very high. This prompted the insurer Lloyd’s of London to declare it a “war zone.” The Malacca Strait is a very narrow channel, and approximately 60 percent of the cargo traveling to China or Southeast Asia goes through the Malacca Strait. So, there was a concern that a major terrorist attack could prevent transport through the strait or damage the ports. There was also a huge concern at that time about maritime terrorism, which is when the so-called nexus between piracy and terrorism came up. However, I do not believe in the nexus between piracy and terrorism. Pirates are criminals. They have been in the business for centuries. And, if you look at the type of piracy attacks in Southeast Asia, most are carried out by economically marginalized local fishermen. These actors were driven by a poverty and profit motive, rather than by a political motive. Moreover, there is little understanding about the difference between “maritime capabilities” of terrorist groups and their “maritime terrorist capabilities.” Given the archipelagic nature of Southeast Asia, numerous groups and organizations have maritime capabilities and assets, but they use these mostly for logistical purpose like transport of goods and people. The Abu Sayyaf group, Jemaah Islamiyah, and the MILF all have boats for transportation purposes, and the Free Aceh movement was believed to have engaged in acts of piracy. Yet, carrying out a terrorist attack is a different issue and requires different capabilities. One would need maritime terrorist capabilities, such as what the Liberation Tigers of Tamil Eelam (LTTE) in Sri Lanka possessed. The LTTE had a state of the art maritime terrorist organization. Its maritime unit—Sea Tigers—was equipped with attack crafts, patrol boats, suicide boats, and submersibles with a wide array of ammunitions, including floating mines and limpet mines for maritime use. With these assets and trained personnel, the LTTE was successful in destroying a large number of Sri Lankan naval vessels and had effective sea control over waters off of Jaffna in Sri Lanka’s northeast. Al-Qaeda did have maritime capabilities, but was using land capabilities against maritime targets like the USS Cole bombings. These kinds of attacks only differ from land attacks in that explosives are on a boat instead of, say, a vehicle. So, in Southeast Asia the whole concept of a nexus between terrorists and pirates was actually overblown. Journal: Southeast Asia as a region has generally focused on ad-hoc, issue-specific cooperation in response to the increasing threat of terrorism. However, you argue that the rise of transnational terrorism necessitates increased regional collaboration. What factors have hampered cooperative efforts to combat terrorism in Southeast Asia? For example, what role do regional norms and values, such as a strong belief in non-interference and absolute state sovereignty, play in counterterrorism efforts? Acharya: Let me give a brief introduction to cooperation in Southeast Asia. There are two multilateral security frameworks in the international system: collective security and cooperative security. Collective security is the kind of action we see in multilateral Spring/Summer 2015 [135]


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institutions like North Atlantic Treaty Organization (NATO) or the United Nations. There is also cooperative security, which takes into account local norms and culture. Collective security is based on military-centric initiatives, whereas cooperative security is based on military plus normative aspects. Southeast Asia is very amenable to cooperative security, but they are also sensitive to sovereignty and non-intervention norms. The whole concept of the Association of Southeast Asian Nations (ASEAN) includes the “ASEAN way of doing things.” The ASEAN way emphasizes consultation, non-interference, and accepting local norms, among others. ASEAN has been quite successful in managing disputes within the region without engaging in the use of force. So there is enough synergy among the countries to deal with these issues in a cooperative manner. However, sometimes the cooperative elements themselves are an issue. For example, the 2007 ASEAN Convention on Counterterrorism is weak because, due to concerns over sovereignty and the non-interference mindset, the states did not reach a consensus regarding the definition of terrorism. Instead, they proposed to use definitions from a number of other international conventions and treaties, which have often been mutually exclusive. This is problematic because countries are not obliged to cooperate on an activity if it falls under a convention that the country has not ratified. As a result, instead of cooperating in a holistic manner, ASEAN countries often pursue bilateral cooperation, trilateral cooperation, or sub-regional cooperation, as well as extra-regional cooperation with countries like the United States, Australia, the European Union, Japan, and India. So, Southeast Asian nations recognize that cooperation is necessary, but do not necessarily view cooperation as surrendering sovereignty. Instead, they cooperate according to the so-called ASEAN way, which stresses consensus and informality rather than formal or binding procedures. Informality is the cornerstone of cooperation in Southeast Asia, but this method can occasionally be a challenge. Journal: In your opinion, what is the role of the United States in Southeast Asia’s counterterrorism efforts? How would you assess the current Obama administration’s approach to terrorism in Southeast Asia? What recommendations do you have for future U.S. administrations seeking a strategy to combat Southeast Asian terrorism? Acharya: We cannot talk about Obama administration’s approach without talking about the same by President Bush. By the time the Obama administration came to the White House, the Bush administration had already put in place numerous cooperative initiatives—both multilaterally and bilaterally—with Southeast Asian countries, including engaging with the Philippines against the Abu Sayyaf group (even though U.S. forces were not allowed to fight directly). Due to the presence of U.S. Special Forces, the Abu Sayyaf group is very weak today. The United States is also engaging similarly with Thailand and Malaysia, even though Malaysia was initially very hostile to U.S. policies. The United States has intensified its engagement with Indonesia, particularly following the October 2002 Bali bombings. So, the United States is definitely heavily engaged in Southeast Asia. In terms of building capabilities for countries to fight terrorism, the United States has done a lot and countries have generally accepted it. In fact, U.S. counterterrorism engagement in Southeast Asia may have produced much [136] Georgetown Journal of Asian Affairs


Acharya | Political Violence and Terrorism in Southeast Asia

better outcomes than in other regions, particularly the Middle East and South Asia. But, that does not mean this cooperation has translated into enduring relationships or a very high degree of acceptance of Washington’s policies. Southeast Asian countries want some leadership from the United States, but not too much because this raises issues related to sovereignty and non-interference. Also, the United States has preferred to deal with countries bilaterally, rather than through multilateral institutions. The United States has engaged with ASEAN and other initiatives such as the East Asia Summit, but its engagement is not necessarily very intrusive. Instead, the United States has granted non-NATO ally status to the Philippines and Thailand, and has pursued other bilateral initiatives with Indonesia and Singapore. In this way, the United States deals with willing allies based on mutual interests in a bilateral manner, rather than creating a framework that holistically engages these countries together. From my perspective, this is acceptable as long as it works. This strategy takes care of each individual country’s sensitivities. However, working with countries bilaterally may also be a waste of resources because the United States provides training and funds for each nation through its numerous agencies and organizations, which often overlap. It may be that the United States finds it more acceptable or more effective to provide training on an individual country basis. But, I would say that ultimately the United States should keep Southeast Asian countries together, as well as conserve and optimize resources, which are the major benefits of cooperation. Though economic ties with Southeast Asia remain a priority from a U.S. perspective, an equally important focus for Washington is to strengthen its long-term counterterrorism policies and strategies, especially since a number of high-profile attacks and attempts against the United States have been linked to the region in the past. Overall, for Washington, maintaining a desirable balance in the region serves its diverse strategic objectives, which include securing energy resources, controlling commercial and military activities in the Indian Ocean Region and the Pacific, as well as fighting terrorists in the region—especially those that are hostile to U.S. interests.

Arabinda Acharya teaches international security affairs at the National Defense University and is the Editor of Counter Terrorist Trends and Analysis. Previously, he was Research Fellow and Head of Strategic Projects at the International Centre for Political Violence and Terrorism Research in the S. Rajaratnam School of International Studies at Nanyang Technological University, Singapore. The views expressed in this interview are his own, and do not necessarily reflect those of the respective institutions.

Arabinda Acharya was interviewed by Alex Rued and Mengjia Wan on March 17, 2015. Spring/Summer 2015 [137]


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Cybersecurity in Asia and the Role of U.S. Leadership An Interview with James Lewis

The Internet has emerged as a platform for social, economic, and even military interaction. As these interactions grow in number and consequence, states are grappling with how to translate policy intended for the physical world into the cyber domain. The Journal sat down with cyber expert James Lewis of the Center for Strategic and International Studies (CSIS) to discuss how the Obama administration approaches issues such as Internet sovereignty, multilateral cooperation, and governance in cyberspace. Additionally, Dr. Lewis provided insight into how the United States and China are currently managing their relationship as well as how recent events, such as the North Korean hacking of Sony Pictures Entertainment, fit into global trends.

Journal: What are the most pressing challenges related to cyber security that the United States currently faces? For example, what are the impacts of cybercrime and cyber espionage on U.S. economic interests and national security? Given these challenges, how prominent is cyber security in the Obama administration’s agenda? Lewis: One of the interesting things about a recent event CSIS held on cyber issues is that White House Cyber Coordinator Michael Daniel said, both publicly and in private, that the President takes a personal interest in this issue, so that is really great. And the administration has made a lot of progress in putting the pieces together for a more secure network environment for the United States. But, this environment is still by no means totally secure. It is easy to overestimate the losses, but cyber espionage clearly has some effect on competitiveness. It has an effect on competitiveness. It has an effect on international relations and the international community. There is a risk of attack on the United States—outside of crime or espionage—that could be disruptive. Overall, we have done an immense amount of work in the last seven years, but there is still a huge amount of risk. [138] Georgetown Journal of Asian Affairs


Lewis | Cybersecurity in Asia and the Role of U.S. Leadership

For example, the Obama administration laid out the doctrine and the chain of command for the military use of cyber tools, both offensively and defensively. That was in Presidential Policy Directive 20 (PPD-20). The Obama administration came out with an international strategy in 2011 that was largely on the right course, though it probably needs to be updated.1 They started an international process of trying to build norms and confidence-building measures with both the Chinese and the Russians, who are our most powerful state opponents, as well as multilaterally. They have had some success in the Organization for Security and Cooperation in Europe (OSCE), some success in the Association of Southeast Asian Nations (ASEAN), good progress with the Russians until Crimea happened, and good progress with the Chinese up until China adopted a new and more assertive Internet policy. Crimea is actually the event that has had the most effect, (not Snowden or anything else), on cooperation with Russia and China. Crimea has knocked cybersecurity cooperation with these countries off the rails. We will see if that changes. For now, it has affected discussions between the United States and China because previously this was a three-way conversation with two of the participants agreeing with each other—Russia and the United States, which put the Chinese in an awkward spot. Now the Russians are not there anymore, which has empowered the Chinese to resist. Internet security, particularly domestic Internet security, is clearly a priority for Chinese President Xi Jinping. So, China is more assertive and faces less external pressure. Journal: Looking forward to an upcoming benchmark, our second question concerns the transfer of stewardship of the Internet Corporation for Assigned Names and Numbers (ICANN), the organization at the center of the domain naming convention. In 2014, the United States committed to transferring stewardship of ICANN, which currently operates on a contract with the U.S. Department of Commerce, to a “global multi-stakeholder community.” What are the broader implications of this potential transfer? What are the main arguments for executing such a transfer? What concerns might cause a delay? Lewis: It is a widely held foreign delusion that the Department of Commerce uses ICANN to control the Internet. And, there are just so many errors in that statement that you really wonder about the sanity of people who think it. I worked at Commerce for a couple of years, and it is not the center of American hegemony. So, the transition of ICANN is, in that sense, not important. But, it is important for this reason: for about fifteen years, we had an environment where the United States dominated the Internet. It was our thing because we invented it. When we came up with our original policies, we really were not thinking of a global market. We were thinking of how this would play in the United States. We had expectations about how the world would evolve, and thought it would become a world of The White House, International Strategy for Cyberspace, May 2011. Accessible at: https://www. whitehouse.gov/sites/default/files/rss_viewer/international_strategy_for_cyberspace.pdf. 1

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peace where market democracies worked with each other under the rule of law. But, that turns out to have been wrong. We are now in a much more difficult environment in which you have new entrants (Brazil, India, China) saying, “Wait a minute, why do not we have a voice in this Internet thing?” These nations have said the same things about the Permanent 5 on the United Nations Security Council and similar types of institutions. These new entrants say, “Maybe this is a plot to preserve American hegemony. In any case, we need a bigger voice.” And the United States is struggling to deal with those requests because we are constrained by our ideology. We still have a very 1990s ideology when it comes to the Internet—and that ideology no longer works. Yet, we do not have a new line. And all of these countries are becoming more assertive. China in particular has decided ever since Xi came to office that China will play a larger, more dynamic, and more directive role in the Internet. That is the challenge of the ICANN transition: how does the larger transition to a globally governed Internet work out? ICANN was never a real lever to control the Internet, but it is becoming a symbol of how control of the Internet will change. The United States is kind of stuck. We say we believe in democracy, but a majority of the voters do not live in the United States. We say we believe in self-determination, but that means other countries get to pick their own rules. So, are we kidding or not regarding self-determination? And the United States gets that question explicitly from countries like India, China, and Malaysia: “What is it? This is what you say, but what you do is something else. What is the truth—democracy or control?” The Chinese have a monolithic approach to culture, and that puts them at a disadvantage in this debate. China’s other activities in the region put them at a disadvantage. And the Chinese do not have a very compelling story when it comes to what they want to do. That said, it has some appeal to these other countries that are now saying, “I do not want to do what the Americans want me to do, I want to do my own thing.” In that case, China is the place to go. A parallel there might be the Asia Infrastructure Investment Bank. People got tired of hearing the Americans tell them they could not have coal-fired or nuclear power plants, and the Chinese are not going to tell them that. The Internet is on the same path. We are seeing a challenge to the unipolar vision of the 1990s. Journal: Continuing on the point of China’s role, we have a question about the Chinese notion of Internet sovereignty. China has recently floated an “Internet sovereignty” policy in different international fora, which refers to governments monopolizing control of cyber activities inside their borders. Is this a reaction to the American 1990s ideology? What are the main components of China’s “Internet sovereignty” policy and what priorities are driving this policy? If such a policy were to gain traction internationally, what would it mean for the future of the Internet? Lewis: You had a very powerful Internet ideology that came out with the creation of the Internet, and that Internet ideology tracked closely with how people thought about foreign relations in the 1990s. It was one of the heydays of globalization, during which many believed there would be a world where governments would play a smaller role, [140] Georgetown Journal of Asian Affairs


Lewis | Cybersecurity in Asia and the Role of U.S. Leadership

borders would be less important, private actors would take the place of the state in performing many functions, and there would be less interstate conflict. That was kind of the vision. The End of History is the book that captures this, but it turns out to have been completely wrong.2 What happened regarding the Internet is that people said, “The Americans invented the Internet and they tell us there are no borders, so that must be true.” Then after a few years, people figured out that there are borders in cyberspace. It is a physical construct. And, if there are borders, then they can enforce their national laws on their national networks. The issue now is the division between sovereignty and extraterritoriality. I had this discussion with a senior Malaysian official, who said to me, “In my country pornography and gambling are illegal, but I have to put up with them on my Internet because America controls the Internet. Why does American law override my national law?” And I said, “It does not. You can do whatever you want on your national networks, but you cannot extend that extraterritorially and you cannot violate your international commitments, particularly your commitments to the Universal Declaration of Human Rights.” And the United States is advocating Internet sovereignty, too. There is agreement in the United Nations upholding that national sovereignty applies to cyberspace.3 Journal: Do you foresee big changes in the cyber realm as this concept of sovereignty in cyberspace becomes more prominent? Would it change the Internet as we know it today? Lewis: This is not clear. I do not think the Internet will fragment. Balkanization is one of these terms that the marketing department invented to defend incumbents. Nobody is going to Balkanize the Internet because the economic value is too great. But, figuring out how to extend sovereignty requires both new policies and new technology. The Russians are pretty far along on this with their System for Operative Investigative Activities (SORM) program, which is designed to extend Internet control. The Chinese and others are also looking at how to control the Internet for political purposes. So, we may be seeing a powerful counter to the idea that there are universal values that should govern everyone’s behavior. We see that in China and other countries. These countries believe these are not universal values, but rather Western values. I happen to think they are wrong. We know from good polling by the BBC and others that most of the world believes free access to information should be a fundamental human right. So, the most likely outcome is that we will see an Internet where national laws are more powerful and where governments play a larger role, but access to information will continue to drive public demand.

Francis Fukuyama, The End of History and the Last Man (New York: Free Press, 1992). United Nations, General Assembly, Group of Governmental Experts on Developments in the Field of Information and Telecommunications in the Context of International Security, June 24, 2013. Available at http://www.un.org/ga/search/view_doc.asp?symbol=A/68/98. 2 3

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Journal: How important is it to U.S. interests to identify the physical origin of cyber attacks? Does the United States possess tools, diplomatic or otherwise, to motivate other countries to take actions against cyber criminals operating within their boundaries? Lewis: Attribution is an overstated problem. I think the 2014 North Korean hack of Sony Pictures Entertainment was useful in that it may have persuaded some commentators that they had overestimated the difficulty of attribution. And that attribution will become easier over time. I wonder what the world looks like when you do have attribution. In some ways, some things will not change because the problem is not attribution. The problem is that there are some countries that are politically opposed to the United States and refuse to cooperate in law enforcement because the people engaged in cybercrime and cyber espionage are either proxies of the state or state employees. The May 2014 indictments against the five People’s Liberation Army (PLA) officials is a classic example. We have the goods on these guys: we have their pictures, their home addresses, and their phone numbers. But they will never go to trial. The issue is not attribution. The issue is agreement to enforce laws. The central issue for cybersecurity is coming up with an international agreement on what responsible behavior by a state looks like. We do not have that yet. Journal: Do you see potential mechanisms for forging international agreements on responsible behavior in cyberspace? Will it occur in a global forum such as through the United Nations Groups of Government of Experts on Information Security (UNGGE)?4 Or is this development more likely to occur at bilateral levels or be informed by state practice? Lewis: It is unclear. Part of it is that the United States is still relatively allergic to the United Nations. Some people have proposed the International Telecommunications Union (ITU), but the ITU was until recently dominated by the Russians.5 There are not really other mechanisms. People have said that we may be able to use the OSCE, the Organization of American States (OAS), or the ASEAN Regional Forum (ARF). That might work, but we have not found the right approach to gain broad international agreement. The Dutch are having a huge conference—it is the fourth global cyberspace conference. However, the three previous conferences have largely been busts. I expect the Hague Conference will do better, but we do not have a good mechanism for reaching an agreement yet. I do not know when that will change. I think that the logical place would be the United Nations, but there is a reluctance to say that.

The United Nations Groups of Government of Experts on Information Security is a “group of government experts” (GGE) from fifteen states tasked with studying existing and potential information security threats and possible cooperative measures. 5 The International Telecommunication Union is a UN agency responsible for issues concerning information and communication technologies. 4

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Journal: The 2013 edition of China’s The Science of Military Strategy outlines in its information warfare section the application of China’s “whole nation” war doctrine to cyber operations. The document references mobilizing entities outside of the public sector, including private corporations or citizens, for “network warfare operations.” In March of this year, a code developer’s website (Github) was hit by cyber attack affecting traffic intended for Chinese search website Baidu. The attack specifically targeted pages with links to websites blocked in China. Does this imply that China is employing “whole nation” warfare? Should we expect sites that China views as disruptive to experience increased attacks? If not, what do you think “whole nation” warfare might look like? Lewis: I thought “whole nation” was an effort by the PLA to claim dominance in this space. In other parts of the document, they say that the Ministry of State Security (MSS) and the Ministry of Public Security (MPS) should, in a cyber conflict, be subordinate to the PLA. I think they may have listed the Ministry of Industry and Information Technology (MIIT), too.6 I thought the “whole of nation” approach was an effort by them to say, “We are in charge.” I do not see the Github thing as being that different from how the Chinese normally operate. I had a Chinese diplomat tell me, “There is no such thing as the private sector.” For them, the private sector is a tool. This mentality happens to be consistent with the emphasis that President Xi has put on controlling the Internet to minimize its political effects within China. But, I think their recent attack was just a demonstration of what they consider to be another tool for defending the regime. They are not always good at calculating the damage it does to them globally. Suspicions arose regarding the Chinese government network’s administration, the China Internet Network Information Center (CNNIC), after the administration issued suspect “certificates” of the kind used to identify websites as legitimate, which could be used to trick Internet users. This may have been unintentional, but the effect is that the CNNIC has been compromised in the global market. They probably did not think about that. There is a little bit of a tendency to overestimate China’s power in this. I think in some ways they are separate issues. You have a PLA claim versus the traditional political action. Journal: Do you think that the approach of using sanctions versus that of using indictments is more likely to deter this kind of attack? Lewis: The model that some of us have been talking about for several years now is thinking about how approximate the methods that got China to change its behavior in proliferation. The parallel is not exact, but the general idea is the same: develop global norms; get like-minded nations to agree to them; and put in place penalties for bad behavior. We also have to engage the Chinese constantly to say that this effort is not just the Americans being crazy. The whole world believes this is inappropriate behavior. That strategy is, I think, the best one we have. The alternatives are insane. For example, The Ministry of Industry and Information Technology of China is a state organization responsible for regulating electronic communication technology, not content. 6

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are are going to hack back? Do we really want to start a war with the PLA? That is a bad idea. Are we going to make our defenses better? That could possibly happen before the end of the century. So, in a diplomatic engagement strategy, sanctions, indictments, engagement, and winning international agreement on norms of behavior are all a part of the strategy. Journal: Not only U.S. adversaries, but also many U.S. partners and other nations have started to raise cybersecurity issues on their national profiles. Have you seen any states, particularly in Asia, that you believe have made great strides in this area? Has the United States made strides in its cooperation with countries? What areas are ripe for cooperation, but remain underexplored at this point? Lewis: The Republic of Korea, Japan, China, India, and Australia have all played a much larger role in thinking about the Internet. Vietnam and Malaysia have also played larger roles. A lot of Asian countries have engaged and a lot of them are thinking about the issues we have talked about. For example, how should cyberspace be governed? How can we make it stable? What would responsible state behavior look like? Furthermore, cyber is not a thing unto itself. Cyber fits into the larger context of international relations, so these countries consider this fact in their relations with China, their attitudes towards the United States, and their trade requirements. Cyber is an aspect of their larger foreign policy. And, in that sense, the one that is been interesting to me is—and this, of course, goes back decades—the lack of some kind of regional security framework in Northeast Asia. There is nothing like the OSCE, there is nothing like the OAS, and there is nothing like ASEAN. If the international community could get something like the Six-Party Talks on cybersecurity, that might be interesting. But it seems too difficult to do now. The Chinese say they will play, but only if the Americans are not in. The Russians do not want to play, and the North Koreans are crazy. It is just messy. Northeast Asia is one of the flashpoints for cyber conflict. It would be useful to have something like the OSCE. There have been a couple efforts and none have worked out, but I am not exactly sure why. The Dutch are having a huge conference—it is the fourth global cyberspace conference. However, the three previous conferences have largely been busts. I expect the Hague Conference will do better, but we do not have a good mechanism for reaching an agreement yet. I do not know when that will change. I think that the logical place would be the United Nations, but there is a reluctance to say that. Journal: Disputes about hacking, industrial espionage, and intellectual property violations seem to dominate narratives regarding the U.S.-China relationship as it pertains to cyber security. You have previously stated, “There is a risk that we could find ourselves in a conflict, given the deep problems between the United States and China and the worsening public perceptions on both sides.” Is there any room for cooperation on other cyber-related issues in order to change the tone of the U.S.-China cyberspace dialogue?

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Lewis: No. We are at a very early stage in discussions with the Chinese. People think we would make more progress if we had a common lexicon, but the lexicon is not the issue. The issue is the fundamental differences between the two countries that are not only political in nature, but also have real military implications. It will take years of engagement to get to the point where we can approach something like the understandings we had with the Soviets before the end of the Cold War. The U.S. and Chinese positions are very far apart. Here is a good example: CSIS hosts discussions with Chinese scholars and Chinese officials. In the ninth and latest round of discussions, the Chinese participants said on day one that they wanted to cooperate. On day two, we had a tabletop exercise based on Sony. We said to them, “This is your chance to cooperate.” They replied, “We do not want to cooperate with you.” So, which is it? There is a general commitment to finding areas to cooperate, but when we get into the specifics there is nothing there. I have another funny story in which there was an agreement between the United States and Russia to establish a hotline for cyber incidents. Putting aside the utility of a hotline, which is open to question, it is a nice gesture. There is a phone in the Kremlin and a phone in the State Department and you could pick them up and say, “Hey, what is going on.” And in an earlier round of discussions at CSIS, a Chinese representative noted that the United States and China already have a hotline between the PLA and the Department of Defense (DOD). The DOD representative said, “Yes, but you have told us you want forty-eight hours notice through diplomatic channels before we call you on the hotline.” Even the Chinese burst out laughing at that one. The levels of distrust between the two governments are very high. If this were Chinese industry or China writ large, it would be much easier to find agreement because the differences between the two populations are not so great. However, because of the Chinese government’s limited access to information and its ideological controls, and given the fear that the anti-corruption campaign has created, the Chinese are not going to be doing any deals with the United States any time soon. Journal: You mentioned the Sony incident earlier and we would love to talk about that a little bit more. In a recent article for 38 North, you argued that “the challenge of the Sony attacks is not persuading skeptical amateurs but signaling to North Korea and others the limits of covertness in cyberspace and what lines they should not cross.” What steps might the United States take to successfully signal where these limits lie? Do you think the Obama administration has been successful in setting these limits? Lewis: There are three parts to the response to North Korea and two have been successful. The first part was signaling very clearly to foreign countries the strong ability of the United States to attribute attacks. Regarding the fact that numbskulls here are not persuaded—who cares? What matters is that Pyongyang, Beijing, and Moscow got the message. And they got this message from the United States: you are no longer invisible and you thought you could hide, but you cannot. And the second part of the response was, of course, putting in place punitive measures. The sanctions are part of that and I think they will have a good effect. Whether it will be enough of an effect Spring/Summer 2015 [145]


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remains to be seen. That speaks to the third issue, deterrence, which is the unsuccessful aspect of our response. We have had Admiral Michael Rogers, the Commander of U.S. Cyber Command, calling for stronger deterrence in cyberspace. I have started calling it “deterrence ancestor worship” because it is an idea from the distant past that was created for the Cold War. The Cold War ended twenty-five years ago, yet we are still trying to resurrect these aged concepts. The idea that somehow having a powerful cyber offensive will deter our opponents does not make sense. We have not figured out how to make deterrence work. We have been trying to energize cyber deterrence for almost a decade without success. Cyber deterrence has major limitations. A better approach—and this is where the rest of the U.S. effort comes in—lies in getting a multilateral agreement to build norms on responsible state behavior, identify penalties, and create a community of like-minded nations. That might be a more useful way to deter future attacks. But again, other countries make a political calculation when they think about cyber attacks. Had the talks with Iran failed, I think the Iranians would have been emboldened to do more against the United States. The Chinese have difficulty calculating the risks of their actions. The Russians are in a much more aggressive mood. It is just not a happy picture. The North Koreans hopefully got the message, but you never know with them. Journal: The executive order signed by President Obama on April 1 called on the Department of the Treasury to impose sanctions on actors that “engage in malicious cyber-enabled activities that create a significant threat to the national security, foreign policy, or economic health or financial stability of the United States.”7 What do you think of the executive order? Lewis: I think it is essential. You have to have penalties. Until the PLA indictments, you could count on one hand the number of people who have been punished for cyber crime. If you live in a Western country that enforces the law and you engage in cybercrime, you will go to jail within three years. In countries that do not enforce the law (like China and Russia), you run no risk. And the only time we have ever been able to arrest a cyber criminal is when that person was stupid enough to leave their home country of Russia and go on vacation in Thailand. If a known hacker decides to leave home, he or she will be caught. So, it is sort of a Darwinian thing for hackers. On cyber espionage, there was no penalty. I think the idea of creating penalties and linking that to attribution is key. Essentially, it is important to say, “We know who you are and we have the tools to punish you.” The indictments had a powerful effect in China. The Chinese were deeply upset by them, and I think that is okay if it is part of a larger engagement strategy and not a one-off. We need to recognize that it is not the 1990s, so the power relationship between the United States and China is different than it was in Barack Obama, “Executive Order: Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber-Enabled Activities” April 1, 2015. Accessible at: https://www.whitehouse.gov/ the-press-office/2015/04/01/executive-order-blocking-property-certain-persons-engaging-significant-m. 7

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the nonproliferation dispute. China is more powerful and more confident, and this will be a harder argument to win. Hard does not mean that the United States should give up, though, and so the executive order is a good step. Journal: From your perspective, are there cybersecurity threats or issues that are underreported or do not receive adequate attention? Lewis: Sovereignty. There are two forces at play. One is that countries have realized that you can embed cyber issues in the existing framework of interstate relations, and that framework is based on national sovereignty. That is a powerful trend. The other trend is that the nature of interstate relations is changing because of the Internet. And the discussion has been a little dishonest because people have a goal. Someone says, for example, “I want the Internet to be open and free.� What does open and free actually mean? Well, it means the status quo, and that people should buy American products where the business model really limits consumer control. That is not a persuasive argument in other countries. We have political forces changing interstate relations that we do not fully understand and we have states realizing that they can put cyber issues in the context of interstate relations, even as they are changing. So that is a hard dynamic to figure out because you have these orthogonal forces. The near-term effect is that sovereignty will reshape Internet politics, and the long-term effect is that the Internet will reshape global politics. It is complex, it is dynamic, and it does not receive adequate attention.

James Andrew Lewis is a Program Director at the Center for Strategic and International Studies (CSIS). Before joining CSIS, he worked at the Departments of State and Commerce. He was the Rapporteur for the 2010 and the 2013 United Nations Group of Governmental Experts on Information Security. Lewis is an internationally recognized expert on cybersecurity and has authored numerous publications.

James Lewis was interviewed by Lara Crouch and Anastasia Mark on April 3, 2015.

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Front cover photo: Martin Schulz, President of the European Parliament, in a meeting in Beijing with Chinese President Xi Jinping in the Great Hall of the People. ŠEuropean Union 2014 - European Parliament.


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