PacNet #23 – May is a major opportunity for US relations with Asia—especially economically

Despite Washington’s understandable focus on the Ukraine war, the United States and key leaders of Asia meet this month and the stakes are high. With timing that now looks skillful, the White House unveiled its Indo-Pacific Strategy 13 days in advance of Russia’s invasion of the Ukraine. But the welcome strategy was missing its key economic component. A subsequent announcement of the IPEF (Indo-Pacific Economic Framework) was an improvement, but contained little detail.

The problem is that key segments of each US political party now abhor trade agreements, whether beneficial or not. This is a serious impediment for the US policy of rebuilding alliances and strengthening partnerships, especially in Southeast Asia. ASEAN members all know well China’s power and influence and each has a significant trade relationship with China. But each worries that China’s economic and military strength may become too great. Most Southeast Asian countries, then, welcome US investment and its political weight balances outlooks and that poses no threat to anyone’s sovereignty. But ASEAN and most countries must not be asked to choose. Doubts about American attitudes remain, as do questions over whether the United States will be present if times become hard. Now Russia’s invasion of Ukraine—through soaring energy and food costs alone—means that geo-politics weighs much more heavily than it did last year.

Washington will seek to prove this month—despite the day-to-day pressures of supporting Ukraine after the Russian attack—that it can concurrently work on all the important issues. In mid-May, President Biden and his foreign policy team will meet in Washington for a special summit with ASEAN leaders from 8 of the 10 ASEAN members. The two absentees are the Philippines—in the middle of its election—and Myanmar’s power grasping army; Myanmar has missed ASEAN’s own meetings and is facing what amounts to a civil war. The ASEAN leaders in Washington—including Vietnam, Indonesia, and Singapore—will meet with President Biden in person as COVID-19 fears and travel restrictions diminish. Perhaps the United States will become a “Comprehensive Strategic Partner” of ASEAN, as was the case of China last year.

Following the ASEAN summit, President Biden will fly to Japan for a Quadrilateral Security Dialogue (“Quad”) meeting, a fine chance to meet with new leaders of Japan—Prime Minister Kishida Fumio—and South Korea’s newly inaugurated President Yoon Suk-yeol. But even more attention will focus Biden’s meeting with Prime Minister Narendra Modi of India. For various reasons, India has chosen not to join with the United States and European Union in providing arms to Ukraine and sanctioning Russia.

The world is truly multi-polar now, and many countries—often privately horrified—have not joined the West in opposing Russia’s attack. This is seen in not joining US-EU sanctions and in abstaining from UN resolutions. Some are leery of irritating China, always quick to punish middle countries that displease its “wolf warrior” officials. India has long seen itself as Russia’s friend and also wants to be seen as no one’s follower. Some of this is hard to swallow for Americans. But the period of what some saw in the 1990s as the “unilateral moment” is gone. On the possible Chinese domination of all of Asia, India and America have largely common views. But US-India cooperation is never smooth and always involves what some see as contradictions. The United States has to show patience, understanding and humility around India, as well as a helpful approach with other relationships. Nostalgia among too many Americans for a kind of early Cold War world influence is futile. Dreams of isolation from the world are worse.

In Southeast Asia no country has a more difficult task than Vietnam in balancing its foreign policies and diplomacy. A leader of ASEAN, Vietnam has been at the forefront of both security and economic issues, especially the South China Sea and China’s “Nine Dashed Line” assertions. Its relatively open economy has been growing slowly but steadily. Although Japanese and Korean investments have blossomed, “next-door” geography to China requires Vietnam to have major economic involvement with its giant neighbor. For Vietnam, China’s maritime claims as well as its developing outsize influence with Laos, Cambodia, and even Thailand are cause for concern. Every Vietnamese also knows of the centuries of disputes with China. There is a great opportunity for US-Vietnam relations to further improve.

All this underscores the importance of Vietnam’s Prime Minister Pham Minh Chinh, accompanied by a high level delegation, attending the US-ASEAN summit in Washington. Vietnam’s leadership role in ASEAN has grown and US-Vietnam relations have been improving since normalization in 1995. Relations are strong in many areas. Despite memories of the war, Vietnam is a prime choice for American companies concerned with interruptions in their supply chains. Vietnam has an educated workforce, youthful demographics, and an improving ability to move finished goods. High-technology producers are noticing. Tourism is a strong post-pandemic prospect for Vietnam, at several price points. It has great beaches and quality hotels. As Vietnamese cuisine becomes better known around the world, it can draw “foodie” travelers.

May offers a fine opportunity for Washington and its Asian allies and friends—none more so than Hanoi—to improve their mutual standings. This month is a chance to fill in details to Washington’s IPEF—such as digital economies. Perhaps Vietnam’s army may even wonder whether its Russian weapons supplies are still the best choice. With the world’s second-most proven reserves for rare earth metals—key to automobiles and other batteries—Vietnam also has other resources to impress the world.

Active diplomacy with Asia is on the calendar this month and the White House does not need to dominate headlines. But it can move forward in many ways—not everything, but real movement. First would be the Quad with a steady hand involving India. Could the Quad—formally or not—welcome South Korea as at least a party to discussions? As for ASEAN, the Biden administration will have reaffirmed its unshaken involvement—especially to Vietnam and Indonesia. Summer and fall will also require follow up with each ally and partner. Keeping our interests in sight—all the time—is what will bring meaningful diplomatic progress.

James A. Kelly (kellypacf@aol.com)) is chairman of the Pacific Forum Board of Directors, and the former US Assistant Secretary of State for East Asian and Pacific Affairs.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

Issues & Insights Vol. 22, WP5 — Shifting Supply Chains from China into India as an Effective Grand Strategy in the Indo-Pacific Region

Executive Summary

Between 2016 and 2020, nations of the Quadrilateral Security Dialogue (Quad) became patently aware of the risks posed by an authoritarian state such as China controlling much of global value chains. This realization among leaders of the Quad nations can be attributed to a general rise in populism around the globe—which ignited a debate on globalization—to the COVID-19 pandemic, China’s acts of economic coercion against Australia and aggression against India in the Galwan Valley. To prevent China from weaponizing interdependence, nations of the grouping have launched several supply chain diversification and economic security initiatives such as the Supply Chain Resilience Initiative (SCRI) and Economic Prosperity Network (EPN). While these initiatives are a step in the right direction, a larger reformatory initiative is needed to prevent diversification projects from becoming a flash in the pan. Shifting supply chains out of China and into India has the potential to be that much needed reformative initiative. This exploratory study of the challenges and opportunities associated with shifting supply chains into India tests this hypothesis by examining the domestic political economy in India and the complexities of the US-India relationship.

This study observes major impediments to a supply chain diversification project. One, trade protectionism is a common feature among Indian administrations. India’s diverse political landscape has warranted coalition governments, which has prevented administrations from taking reformative action on liberalizing the economy. Two, the US-India relationship historically had ups and downs. The two democracies even came to the brink of war in 1971, and 20 years later, the US unleashed economic sanctions on India for their nuclear tests. A concerted recalibration of the US-India relationship is required to solidify any form of economic partnership, short of an alliance.

To summarize, the Indian government should continue liberalizing its economy through the land, labor, and corporate governance reforms. The US should adopt a more conciliatory approach to India’s domestic issues to avoid fissures in the relationship. Subsequently, the US, Australia, and Japan will be able to capitalize on the opportunities the Indian economy and the Indo-Pacific economy at large present for supply chain diversification. These opportunities can be capitalized through creating a trade bloc exclusive for the Quad and establishing a wealth fund to fund investments in the wider region.

About the Author

Akhil Ramesh (IND) holds an M.S. in Global Affairs from New York University in New York, a Certificate in Business and Geopolitics from HEC Paris, France and a BBA from Amity University, India. He is currently a resident Lloyd & Lilian Vasey Fellow at the Pacific Forum.

PacNet #13 – What the Indo-Pacific sees in Ukraine

The capitals of the Indo-Pacific are closely watching the invasion of Ukraine. From Tokyo to Taipei, Hanoi to Canberra, and Bangkok to Beijing, Russia’s invasion presents a lucid lesson as to the tactics China could use in any forced re-unification of Taiwan, such as gray zone operations, lawfare, fake news, military might, and posturing.

But the Indo-Pacific faces numerous other areas where a Russian-style takeover with Chinese characteristics could happen. In the East China Sea, the Senkaku Islands face nearly daily incursions and challenges to Japanese sovereignty through lawfare tactics such as adoption of a Chinese Coast Guard Law in January 2021.

According to Lyle Goldstein, the Taiwan Strait remains ripe for invasion and in the South China Sea the Philippines has experienced Chinese swarming gray zone operations such as the April 2021 Whitsun Reef incident, as well as Chinaexplicitly rejecting the Permanent Court of Arbitration 2016 decisions against China’s claims. Today, China holds a set of artificial islands it has militarized, supposedly as an outpost for the delivery of emergency aid and humanitarian aid to Southeast Asian friends.

What the Indo-Pacific sees

Three concerns have emerged from Russia’s invasion. The first has to do with US security guarantees at the bilateral level. After the hasty withdrawal from Afghanistan, concerns have resurfaced as to whether the United States will come to the aid of Japan over the Senkaku Islands or Taiwan in the event Beijing seeks to unify it with the mainland.

Similarly, in the South China Sea critical sea lanes of communication, the major arteries of trade and import/export of energy are potentially at risk if China decides to engage in a forced acquisition of these territories.

Stakeholders in the region worry that a Russian-style contingency in the East China Sea, South China Sea, or Taiwan Strait would fundamentally collapse the regional security architecture, placing invaluable sea lines of communication and the First and Second Island Chain in the hands of authoritarian China, a regime with an established track record of economic coercion and weaponization of supply chains.

The second area of concern for Indo-Pacific stakeholders is the response of the United States and the international community. Stakeholders closely observe the tools that will be applied to penalize, discipline, and push back against Russia’s expansionism.

They should appreciate that the European Union has taken a collective stance including the EU’s first batch of Russia sanctions targeting 351 lawmakers, high-ranking officials, and banks. Germany has taken forceful actions by putting Nord Stream 2 on hold, and the United States has coalesced and strengthened NATO unity in the face of Russia’s belligerence. This includes comprehensive and collective sanctions such as “sweeping financial sanctions and stringent export controls that will have profound impact on Russia’s economy, financial system, and access to cutting-edge technology.”

The question for many Indo-Pacific states is: Will this be sustained? Will it be escalated, and will deterrence capabilities be deployed to prevent further expansion of Russian influence into Eastern Europe? And, perhaps most importantly, will this pay dividends?

This is critical for Tokyo, Taipei, Canberra, and Southeast Asian countries. They view enhanced deterrence capabilities as essential for pushing back against aggressive Chinese behavior in their region. This includes deterrence systems to “prevent low-intensity crisis scenarios like the landing of Chinese fishing crews or maritime law-enforcement officials on the Senkaku Islands,” according to Iwama Yoko and Murano Masashi.

In Japan’s case, Iwama and Murano also stresses the importance of enhancing the “MSDF’s capabilities to swiftly negate any Chinese efforts at escalation, thereby underpinning its national capability to handle situations arising in the gray zone.”

The logic of Indo-Pacific stakeholders is that anything less than substantial investment in deterrence and costly punitive measures against the Putin regime would result in Beijing drawing false conclusions about the resolve of the United States and its allies, and thus an end to the US Indo-Pacific Strategy.

The hope for capitals in the Indo-Pacific is that a robust defence of Ukraine will not distract the United States from sustained engagement at all levels in the region. In addition, they hope that confronting Russia will mean that the United States and its allies can draw lessons from Russia’s invasion, including the need to maximize deterrence capabilities within the Indo-Pacific. Ideally this will be integrated with economic sanctions as well as a blocking of potential aggressors’ ability to use the financial system and sea lanes of communications freely—key elements to maintain China’s economic prosperity.

Third, and relatedly, capitals in this region will watch for a shift of resources away from the Indo-Pacific and towards Ukraine. The Biden administration has been adamant that it will not intervene militarily in the conflict (notwithstanding the at least 7,000 troops that have been sent to “ reassure skittish NATO allies in Eastern Europe”). Capitals within this region will look at the investments NATO and the United States place in Poland, Hungary, and other countries vulnerable to Russian incursions or tactics including the weaponization of refugees.

They will be also look for a concrete example of resources directed at the Indo-Pacific. This includes a United States Indo-Pacific Economic Framework that not only competes with Chinese initiatives but offers new initiatives and frameworks for integrating the region. That includes inculcating a rules-based order, transparency, and good governance in the region to deal with emerging regional challenges.

What to expect

While Indo-Pacific capitals are concerned about the US position in the region, some like Japan will not wait for the United States to respond while others will vacillate in silence. They will likely begin their own bilateral and multilateral initiatives to strengthen deterrence capabilities. This will include more proactive cooperation in the Quadrilateral Security Dialogue (“Quad”) at many of the contested areas within the Indo-Pacific.

This proactive diplomacy will not only translate into Quad partners providing for their own maritime security but also into bringing in other partners into a Quad-plus formation to ensure that the Quad remains a nimble institution that can deal with ad-hoc regional problems.

AUKUS-based deterrence capabilities will likely accelerate within the region. Many Indo-Pacific stakeholders will welcome this. We are also likely to see contingency strategies to deal with challenges across the Taiwan Strait as well as South China Sea and the East China Sea. Tokyo has been at the forefront of this shift, articulating Japan’s security concerns over Taiwan, and with former Prime Minister Abe Shinzo stressing that a Taiwan security dilemma is a Japan security dilemma.

Indo-Pacific stakeholders, including China, will look at the failures and successes of Russia, but also the United States and its allies. China will look for cracks in the US-NATO armor, seeking leverage to pursue its geopolitical objectives across the Taiwan Strait and East and South China Seas. They will look for weaknesses in the Biden administration and commitment to sanctions, including removing Russia from the SWIFT system, which will have economic implications for the United States and the partners. One consequence, for instance, could be the acceleration of China’s attempts to adopt a digital currency to deploy throughout the Belt and Road Initiative (BRI) network of countries and potentially insulate China from future sanctions.

Indo-Pacific stakeholders will also look to the strategies that the European Union and the United States develop to deal with the energy shortages and increases in energy prices as Russia will likely weaponize energy resources to pressure EU countries to step back from sanctions.

Working together, Canada and the United States may provide some energy relief in the short to mid-term, until the European Union further diversifies away from Russia as its primary energy supplier.

Russia’s invasion of Ukraine is the canary in the coal mine for many Indo-Pacific stakeholders. A forceful, collective, and effective response to Russia’s belligerence would do much to accrue the confidence of the United States allies and partners in the Indo-Pacific.

Dr. Stephen Nagy is a senior associate professor at the International Christian University in Tokyo, a fellow at the Canadian Global Affairs Institute (CGAI); a senior fellow at the MacDonald Laurier Institute (MLI); a senior fellow at the East Asia Security Centre (EASC); and a visiting fellow with the Japan Institute for International Affairs (JIIA). Twitter handle: @nagystephen1.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

Photo: A Chinese Coast Guard ship seen near the Senkaku Islands in February. Source: Hitoshi Nakaima/Kyodo

PacNet #10 – Is the US capable of shaping a rules-based international order?

An earlier version of this article was published in The Hill.

It is repeated endlessly: US foreign policy is about defending the “rules-based order.” That’s a codeword for the challenge from China, which is trying to rewrite the rules. Fine. But if the US can’t even design its own rules on, for example, the urgent issue of digital privacy or regulating Big Tech, how can it play on that larger stage?

No question, the wisdom that created the Bretton Woods system (the International Monetary Fund, World Bank, World Trade Organization, etc.) was based on well-conceived rules that were mutually beneficial. Relatively open trade and finance generated unprecedented wealth and power over the past 70 years. But as the rise of China demonstrates, the United States must now grapple with the dilemmas of its success. It is an increasingly multipolar world.

And it is not just about China. The European Union, with a very different approach to trade and tech rules than the United States, sees itself as the superpower of regulation, trying to leverage its $15 trillion economy and 516 million consumers to create global standards. Its General Data Protection Regulation (GDPR) has forced Big Tech to respect its privacy standards or face billion-dollar penalties. While the United States still lacks federal standards, several states, most notably California, have laws like GDPR.

More recently, the European Union is legislating a Digital Marketing Agreement (DMA) aimed mostly at US Big Tech to level the playing field for all digital companies. It is also launching a Digital Services Agreement (DSA) to regulate responsibilities of digital services to consumers in the European Union, and a new initiative to influence setting standards in emerging tech.

Why does this matter? We are in the midst of an unprecedented technology revolution (e.g. artificial intelligence, robotics, 5G, 3D printing, synthetic biology), and innovation will be the key driver of economic growth in the decades ahead. All aspects of our economy and lives are increasingly digitized. The Federal Reserve is even considering a digital dollar. Data and its cross-border flows have become the lifeblood of world trade.

The World Bank estimates that the digital economy is already 15.5% of global GDP. E-commerce hit $25.6 trillion in 2018. This trend was accelerated by COVID-19: From Zoom to telemedicine, digital services are rapidly growing in importance. The United States typically runs a massive trade deficit in goods but large surpluses in services—$290 billion in 2019. Combine that with US status as a leading global innovator in information and communications technology, and the United States may be well positioned to thrive in the digital universe.

That’s where the rules and standards, still wanting for new tech, come in. They will shape markets and facilitate growth and jobs. Yet, for all the public outrage at Big Tech, a deeply polarized Congress has so far failed to pass federal privacy or substantive anti-trust legislation. Not for want of trying: Over the past several years, there have been dozens of tech bills offered. But only a handful get very far in the dance of legislation.

Even bills that have strong bipartisan support have stumbled. Versions of the $250 billion America COMPETES legislation foundered over the past two years. The bill would boost high-end semiconductor manufacturing in the United States as well as tech research and development. Finally, last June, it passed the Senate with a solid bipartisan vote (68-32). The House haggled over it for months, attaching dozens of amendments, and finally passing it last week. Reconciling the different bills will drag the dance out to spring. This is not an inspiring way to compete with China.

package of anti-trust bills that would make it harder for Big Tech to buy or merge with smaller firms and level the playing field on apps passed House committees last year. But differences within and between the two political parties make it problematic for any to reach President Biden’s desk this year. And with Republicans projected to take the House in November, many assess that if anti-trust bills don’t pass this year, it will become more difficult to do so in the future.

Similarly with international technical standards in global standard-setting bodies like the International Telecommunications Union (ITU). China aggressively floods the zone with its own representatives, while Washington lags in mobilizing private sector stakeholders and US allies to push back against efforts to shape standards to Beijing’s preferences.

The picture is even more troubling regarding trade rules. As Europe and Asia sign a plethora of trade agreements, the United States has taken itself out of the game. In part because of a backlash to job losses to China earlier this century, both political parties are averse to the United States advancing new market-access accords and leaning in a protectionist direction.

Both the Bush and Obama administrations launched and negotiated the Trans-Pacific Partnership (TPP) accord, a 12-nation pact that would have covered 40% of the world economy. The idea was to fashion a high-standards regional agreement to gain leverage to write the rules and press China to reform or lose markets. China is the number one trade partner of all US Indo-Pacific allies and partners.

But President Trump withdrew from TPP during his first week in office. Japan carried the accord forward, and, ironically, now China has applied to join. In addition, the Regional Comprehensive Economic Partnership (RCEP) signed by 15 Asian nations—including US Asian allies—went into effect last month. The United States remains the outlier.

Some in the administration are trying to fashion a region-wide digital commerce accord, in effect regionalizing high-standards accords the United States already has in the United States-Mexico-Canada Agreement (USMCA) and US-Japan bilateral accord. But that effort has been blocked by divisions within the bureaucracy.

All told, unforced errors have put the United States in an awkward position to shape the rules-based order it seeks. One hopeful sign, however, is the recently formed US-EU Trade and Technology Council. It is an effort to coordinate positions on things such as WTO reform and emerging technologies like 5G and AI. To the extent that the United States and European Union can harmonize their positions, they will gain leverage with China to shape norms.

The situation is less than reassuring. But as tech legislation creeps its way through Congress and the United States and European Union intensify efforts to find policy consensus, I am reminded of the sardonic quip attributed to Winston Churchill that Americans can always be counted on do the right thing—after exhausting all other possibilities.

Robert A. Manning (rmanning@atlanticcouncil.org) is a senior fellow of the Scowcroft Center for Strategy and Security at the Atlantic Council. He was Director of Asian Studies at the Council of Foreign Relations (1997-2001), a senior counselor to the under-secretary of State for Global Affairs from 2001 to 2004, a member of the US Department of State Policy Planning Staff from 2004 to 2008 and on the National Intelligence Council (NIC) Strategic Futures Group from 2008 to 2012. Follow him on Twitter @Rmanning4.  

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #2 Balancing accessibility and quality in Blue Dot Network infrastructure finance

An earlier version of this article appeared in East Asia Forum.

While US-led Bretton Woods Institutions have supported infrastructure projects since the 1940s, there has been criticism in recent years that the United States has been inadequate in responding to China’s Belt and Road Initiative (BRI). The Biden administration should utilize the Blue Dot Network (BDN) to incentivize private investments in sustainable infrastructure projects in conjunction with the existing Bretton Woods Institutions.

By striking the right balance between accessibility and quality, the BDN would create a unique opportunity to narrow the infrastructure gap while also responding strategically to the BRI through coalition building.

In November 2019, Australia, Japan, and the United States launched the BDN, a voluntary program aiming to certify infrastructure projects that would meet high standards of transparency, sustainability, and developmental impact to help countries pursue quality infrastructure investments. Given that there is currently no certification process to assess quality infrastructure projects, the BDN could also be used by the Bretton Woods Institutions to evaluate existing projects, including those under the BRI.

The BDN is seen as a way to provide project finance alternatives to China’s BRI. One of the major differences often highlighted between the Bretton Woods Institutions and the BRI relates to the lower than optimal lending criteria of the BRI. Since Chinese government-owned banks have the backing of the state, BRI partner countries can receive loans even if the projects are not expected to be profitable.

Even before the COVID-19 pandemic, the World Bank estimated that nearly one-third of BRI partner countries were at high risk of debt distress. However, the low emphasis on environmental and social impact assessments by the BRI has meant the World Bank and other lending institutions have struggled to promote high-quality infrastructure projects. The BDN certification process must be a driver for projects with better commercial lending viability while still maintaining an openness that will invite a critical mass of private investment to guide quality infrastructure goals.

While the BDN has received $2 million from the US State Department, no specific projects for certification have been announced. The undersea fiber optic cable to Palau has been the only project that has attracted financing from all three BDN countries Still, it is unclear whether it will be a test case for receiving certification by the BDN.

The Center for Strategic and International Studies has pointed out that the United States does not have the appetite to compete on a dollar-to-dollar basis with the BRI, and should instead focus on promoting rules that reflect US values. But efforts to promote “the highest standards” have been criticized for only reflecting the values of developed countries. To avoid such criticism, the BDN will have to be implemented in a way that captures the characteristics and needs of recipient countries rather than applying a one-size-fits-all standard.

Given that the BDN is expected to invite private investment, the emphasis on accountability might be more focused on the investors seeking a better rate of return than the people affected by the policy. Therefore, It is imperative to see how the BDN will balance promoting high-quality infrastructure projects while also being accessible enough to shrink the infrastructure gap, which is projected to be about $94 trillion over the next two decades.

In recent years, there has been exponential growth in environmental, social, and governance related assets, with approximately one-third of global assets in sustainable investments. Norway, the world’s largest sovereign wealth fund, recently released its plan to impose stricter ethical and environmental guidelines on its investments and stated that it would not be adding more emerging markets to its portfolio. While surveys show that a certification program for quality infrastructure projects would increase the likelihood of private sector participation in infrastructure projects, the standard-setting efforts will need to be structured in a way that promotes infrastructure projects in places of need as well.

These factors underscore the importance of standard creation through a multi-stakeholder mechanism. The OECD has provided technical support by building a multi-stakeholder design process for the BDN certification framework. The aim is to build in sustainability as an objective both at the design and the implementation phases, signaling to the financial markets that the risks have been managed, which would make it more attractive for private sector investment.

While the OECD indicated that BDN certification would be based on existing criteria such as the G20 Principles for Quality Infrastructure Investment, the OECD stated that stakeholders from 96 countries had been engaged in finalizing the BDN certification framework, including China as an observer. Given that the Biden administration has shown a keen interest in mobilizing allies and like-minded countries for various standard-setting initiatives, the BDN is a great opportunity to showcase US commitment to multilateralism.

Even though the BRI has been criticized for being poorly coordinated and too fragmented, the Trump and Biden administrations have perceived the BRI as a tool for achieving Beijing’s geopolitical goals. Countries, especially in Southeast Asia, have often shown reluctance to align with either the United States or China. However, some ASEAN members have expressed interest in pursuing financing opportunities with the trilateral partners.

The Biden administration needs to emphasize to developing countries that the BDN will be utilized for the common objective of achieving Sustainable Development Goals, rather than being perceived as another means to contain China.

John Taishu Pitt (jtp82@georgetown.edu) is a foreign associate at a law firm in Washington DC and a Fellow in the Institute of International Economic Law at the Georgetown University Law Center.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #1 The limits of a securitized Japanese FOIP Vision

Critics of Japan’s Free and Open Indo-Pacific (FOIP) vision conflate it with an anti-China containment strategy. They see it as an extension of the former Trump administration’s Indo-Pacific strategy. Others see the “free and open” aspect of FOIP as hypocritical as Japan actively courts non-democratic states to support its FOIP vision, such as through the recent Japan-Vietnam summit and activities with countries considered flawed democracies, such as India.

These interpretations misread FOIP’s strategic imperatives. First, conceptualizing FOIP as an anti-China containment strategy overlooks deep and mutually beneficial Sino-Japanese economic ties. To illustrate this, in 2020, a year in which China’s unfavorably ratings remained at record lows in Japan, we saw deepening Japanese exports to China, equivalent to $141.6 billion (and 22.1% of total Japanese exports).

If we include the $44.4 billion (6.9%) of Japan exports to Taiwan and the $32 billion (5%) of exports to Hong Kong, exports to greater China represent at least $218 billion or 33.1% of Japan’s total exports, nearly twice that of the US at $118.8 billion (18.5%). Economic decoupling is not possible nor desirable, a sentiment shared by most of China’s trading partners.

We have also seen Japan’s willingness to cooperate with China on infrastructure and connectivity in third countries based on the principles of transparency, fair procurement, and economic viability, to be financed by repayable debt and to be environmentally friendly and sustainable.

In surveys conducted by the Japan Bank for International Cooperation (JBIC), China returned to its position as the most promising country in terms of trade in FY2020 survey. Its return to the top of the JBIC survey ranking was related to COVID-19 policies that kept supply chains mostly intact and operational, allowing for the resumption of economic activity. China compared very favorably to India, which experienced a severe nationwide lockdown and the associated disruption in the economy.

Second, FOIP’s “free” and “open” do not reference democracy or freedom of press advocacy; they refer to trading regimes, sea lines of communication, and the digital economy being rules-based, transparent, and arbitrated by international law and/or multilateral agreements. Japan has a long track record of working with partners regardless of their political system, commitment to democracy, or human rights track record. Japan-Iran, Japan-Vietnam, and Japan-China energy and economic cooperation are cases in point.

Participating in the Regional Comprehensive Economic Partnership (RCEP) agreement alongside China further illustrates Japan’s reticence to sever its economic ties with its largest trading partner.

Third, Japan’s expanded defense procurement continues to be incremental both in terms of budget but also capabilities. For example, according to Janes Defense Budgets forecasts an increase to $49.6 billion in 2022 is slightly larger than 1% of Japan’s GDP. Compared to China, spending approximately $209.16 billion in 2021 (approximately 1.34% of GDP), Japan’s spending increase remains modest and focused on the acquisition of cyberspace, electromagnetic, and over-the-horizon radar capabilities, as well as satellites to enhance space and maritime domain awareness. Beyond these capabilities, the 2022 defense budget aims to secure funding for the deployment of around 570 Japan Ground Self-Defense Forces (JGSDF) and to deploy surface-to-air and anti-ship missile batteries on Okinawa’s Ishigaki Island.

 In contrast, while China is committed to expanding its nuclear arsenal and testing hypersonic delivery systems, Tokyo is still wrangling over constitutional reform and whether it should increase defense spending to 2% of GDP.

If FOIP was a containment strategy, we would see a substantial increase in deterrence capabilities, including submarine acquisitions, lethal autonomous weapon systems (LAWs), and the acquisition of mid- to long-range missile systems that would be able to target threats in the region.

Instead, Tokyo’s FOIP vision continues to be multifaceted. Key features continue to include trade promotion, development, the expansion of infrastructure and connectivity, and investment in resilient supply chains. Together, these core features are inculcating a rules-based predictability into critical sea lines of communication (SLOCs) through an adherence to international law.

For Tokyo, the focus on SLOCs, trade promotion, development, the expansion of infrastructure and connectivity and investment in resilient supply chains is tangentially related to Japan’s economic security. A disruption in SLOCs through a regional conflict, incident, or Taiwan contingency would cut off Japan’s economy from the critical arteries for the import and export of goods and energy resources.

Trade promotion, development, the expansion of infrastructure and connectivity and investment in resilient supply chains is about enmeshing Japan into the Indo-Pacific’s economy, its burgeoning institutions, and its rules-making process. Tokyo wants to lock itself into the region’s political economy to ensure that it evolves in a form favorable to Japanese interests. This means strategic partnerships, multilateral cooperation and agreements, and socio-economic tools rather than military tools being the primary means Tokyo wishes to achieve its strategic priority.

The Japan-EU Economic Partnership, Japan-EU Infrastructure and Connectivity agreement, and the Resilient Supply Chain Initiative (RSCI), which include Japan, India, and Australia, are all examples of Tokyo’s efforts to enmesh itself in a series of multilateral agreements that anchor Japan into the national interests of other regions and countries and to anchor those countries and regions into the Indo-Pacific.

This multilateral approach does not eschew strategic partnerships, defense agreements, and the centrality of the Japan-US alliance in Japan’s FOIP vision. Japan is continuing to deepen its relationship with the US while moving towards a defense treaty with Australia.

Discussions are also on their way towards the Japan-UK Reciprocal Access Agreement, 2+2 ministerial security talk between Japan and France, and on May 3, 2021 Japan and Canada announced their “Shared Japan-Canada Priorities Contributing to a Free and Open Indo-Pacific.”

The latter announcement stresses cooperation in six key areas including: 1) the rule of law; 2) peacekeeping operations, peacebuilding, and humanitarian assistance and disaster relief; 3) health security and responding to COVID-19; 4) energy security; 5) free trade promotion and trade agreement implementation; and 6) environment and climate change.

This is an agenda that speaks to Japan’s comprehensive approach to achieving a free and open Indo-Pacific region. It also illustrates the limits of a securitized Japanese FOIP vision focused on confronting or containing China directly.

Policymakers in Washington should understand that Japan’s FOIP approach resonates with many regional stakeholders in the Indo-Pacific as it aims to invest in regional institutions such that they are more resilient, transparent, and rules-based. Critically, Japan continues to engage with China economically from a position wedded to both multilateral engagement and deepening cooperation within the US-Japan alliance.

Dr. Stephen Nagy (nagy@icu.ac.jp) is a senior associate professor at the International Christian University in Tokyo, a senior fellow with the MacDonald Laurier Institute (MLI), a fellow at the Canadian Global Affairs Institute (CGAI) and a visiting fellow with the Japan Institute for International Affairs (JIIA). Twitter handle: @nagystephen1.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #52 – The Growing Crisis of Illegal, Unreported, and Unregulated Fishing

A recent conference, in which Pacific Forum joined the Navy League’s Indo-Pacific Maritime Security Exchange (IMSE), the East-West Center, and the Daniel K. Inouye Asia Pacific Center for Security Studies, focused on the problems of IUU fishing and potential solutions to counter its recent dramatic growth. The author was one of the organizers of the conference, whose proceedings and session videos can be found at https://imsehawaii.org.

Illegal, unreported, and unregulated (IUU) fishing has become a major problem worldwide and particularly in the Pacific. According to the US Coast Guard, “IUU fishing has replaced piracy as the leading global maritime security threat. If IUU fishing continues unchecked, we can expect deterioration of fragile coastal States and increased tension among foreign-fishing Nations, threatening geo-political stability around the world.”

The National Oceanic and Atmospheric Administration states that approximately 60% of fish caught worldwide come from the Pacific Ocean. Over half are species that are unsustainable if fishing at current rates and methods continue. As fishing fleets have grown they have outstripped the oceans abilities to replenish stocks. The Peoples Republic of China (PRC) is estimated to catch approximately 35% of fish, according to NOAA statistics. Dr. Carlyle Thayer of the University of New South Wales stated in his address to the Indo-Pacific Maritime Security Exchange’s recent conference on the subject that the PRC is also the no. 1 nation for IUU fishing. Others have been complicit in IUU fishing, including Taiwan and Vietnam. Vietnam, after receiving a warning from the European Union that its fish exports would be barred from its market formulated a high-level task force to work against such practices. Taiwan for diplomatic reasons has done the same. But IUU fishing tends to be a low-risk/high-value activity as penalties for IUU fishers consist mostly of modest fines.

There are many aspects to the problem.

  • Illegal fishing is conducted in waters under the jurisdiction of a state but without the permission of that state.
  • Unreported fishing involves a catch that has not been reported, as required.
  • Unregulated fishing occurs where there are no management measures and is conducted in a manner inconsistent with treaty responsibilities.

Besides over-harvesting of species, IUU fishing takes money from legal fishers and out of local economies. Fisheries are the primary source of income for many Pacific and Oceanic states. It is projected by the Nature Conservancy that many Pacific Island nations will not be able to meet their local food needs in a few years given their population growth and continued IUU fishing. The Nature Conservancy also estimates that over 95% of IUU fishing activities by the Pacific Tuna Fleet involve legally licensed boats that misreport their catch, not by so-called unregistered dark boats.”

IUU fishing also destroys habitat. Bottom trawling damages corals and sea grasses. The losses of sea grasses are important regarding COand climate change. It is estimated the loss of grasses has a greater effect than the CO2 emissions from Germany or the international aviation industry.

Other crimes are associated with IUU fishing, including forgery of records and fraud, corruption, false vessel identity and flagging, licensing avoidance and deception, human rights abuses (e.g., forced labor, human trafficking, and child labor), illegal transshipments of catch and fuel, smuggling of drugs and protected species, black marketeering and money laundering, and the evasion of penalties.

Finding potential solutions to counter IUU fishing was the principal focus of the Indo-Pacific Maritime Security Exchange conference in early September.

Heretofore surveillance of territorial waters and Exclusive Economic Zones relied on a nation’s patrol ships and aircraft and active transmissions, such as from the Advanced Identification System (AIS) and vessel monitoring system (VMS), mandated by nations to monitor ships in their areas of responsibility. But IUU fishers often turn off these transmitters—and increasingly spoof their signals—to hide illegal activities.

Sea-based aerial drones are proving to be a valuable adjunct to ships and aircraft for covert surveillance, according to the US Coast Guard, which employs the ScanEagle drone from its newer cutters. Satellite electro-optical imagery has been available commercially for years, but is limited by field of view, resolution, and weather. When cued by other sources, however, it can help identify suspicious vessels.

Newer forms of imagery include the Visible and Infrared Imaging Radiometer Suite, from NOAA’s Joint Polar-orbiting Satellite System, which detects the bright nighttime lights used by many purse seiner and ring net fishing boats to attract squid and other species. Another is synthetic aperture radar (SAR). It allows surveillance in all-weather conditions as it penetrates clouds and darkness. Many nations have orbited SAR satellites, and commercial companies have recently entered the marketplace for SAR imagery.

The collection of radio frequency emissions by commercial satellites is a new capability. Several US and European firms have entered this market and can pick up navigation radar and other radio emissions from boats at sea even if the boats turn off their required AIS or VMS broadcasts.

In development are unmanned vessels that tow underwater hydrophones that can detect, classify, and report via satellite vessels by type and activity through analysis of sonograms.

While there are many sensor sources, they can produce an overwhelming amount of data and any one source is rarely sufficient to determine many kinds of IUU fishing. The integration of data from disparate sources and the analysis of those data is therefore critical. The data glut is a challenge requiring various advanced analytical techniques, including artificial intelligence and machine learning.

Several organizations analyze data related to IUU fishing. Best known is Global Fishing Watch, a nongovernmental organization that tracks in near-real time fishing around the globe. Australia’s Commission for the Conservation of Antarctic Marine Living Resources is the responsible overseer of fishing in the broad Southern Ocean surrounding the Antarctic continent. The Pacific Islands Fishing Forum Agency, the International Maritime Control and Surveillance network, and several universities and commercial firms are also involved in aspects of analyzing IUU fishing to provide scientific insight, risk management judgments to companies, or assist in investigations of organizations and individuals behind such illegal activities.

IUU fishing knows no national boundaries. It is a growing global problem. No one nation is capable of enforcing fishing laws and regulations. Countering IUU fishing will require multi-state collaboration, information sharing, and multilateral agreements between regional fishing management organizations, of which there are a plethora. To date, however, information sharing has not always gone well.

There are approaches to IUU fishing beyond law enforcement that organizations are pursuing. These include eliminating national subsidies for fishing. The PRCs subsidies, the most generous of any nation by far, estimated at approximately $7.2 billion in 2018, make otherwise unprofitable fishing profitable, according to Prof. Tabitha Mallory of the China Ocean Institute and the University of Washington. Certification of catches assures buyers of fish that they were caught legally. Publicity about IUU fishing and the deceptive practices associated with it is seen as an important step in depressing market attractiveness of illegally caught fish. Finally, the promotion of aquaculture—farm-raised fish, in which the PRC is deeply invested, is seen as a potential solution for future food needs.

Peter Oleson (peter.oleson@yahoo.com) is a former senior defense official and professor.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #47 – China’s Challenges and Effective Defense: America’s Conundrum

This assessment draws from the major revision of his assessment of United States-China relations in the forthcoming volume US-China Relations: Perilous Past, Uncertain Future: Fourth Edition (Lanham MD: Rowman & Littlefield 2022).

For more from this author, visit his recent chapter of Comparative Connections.

This writer’s forthcoming book underscores the breadth and depth of challenges to the US-supported open economic and political order posed by the headlong drive of the authoritarian Chinese party-state for ever greater wealth and power at the expense of others. China is determined to have its way in leveraging impressive economic and military power and using many controlling features of the Chinese party-state to carry out intimidating, coercive, and predatory measures at the expense of other countries. Beijing effectively exploits and manipulates the openness of international markets and the social and political order of developed and other countries in seeking regional dominance and ever greater global influence.

The challenges can be grouped in three categories.

First is the challenge posed by over three decades of rapid development of Chinese modern military power tipping the balance in the Indo-Pacific, supporting Chinese territorial expansionism and undermining US alliances and partnerships in seeking dominance in the region.

Second is the challenge posed by China’s similarly longstanding efforts using state-directed development policies to plunder foreign intellectual property rights and undermine international competitors having increasingly profound negative impacts on US and Western interests. Beijing does so with state-directed economic coercion, egregious government subsidies, import protection, and export promotion using highly protected and state-supported products to weaken and often destroy foreign competition in key industries. In this way, it recently seeks dominance in major world high-technology industries and related military power.

Third is China’s challenge to global governance. More than any other major power, Beijing leverages economic dependence, influence operations including elite capture, and control of important infrastructure to compel deference to its preferences. In the Indo-Pacific, these practices are backed by intimidating Chinese military power. China’s preferences include legitimating the predatory Chinese economic practices and territorial expansionism, opposition to efforts promoting accountable governance, human rights, and democracy, opposition to US alliances seen as impeding China’s rise, and support for the forceful foreign advances of Vladimir Putin’s Russia and the rule of other authoritarian and often corrupt world leaders unaccountable to their citizens.

America’s defense

Over the past five years, US government decisionmakers with full support from bipartisan majorities in Congress have shown ever clearer awareness of the challenges that China poses to the interests of the United States and the open world order it supports. A variety of approaches have been tried, but coming up with an effective strategy to protect America and its partners with a stake in the existing order remains a work in progress.

Perhaps the largest impediment to effective US defense against China’s challenges is an unanticipated result of US policy of engagement begun actively in the 1990s. The Clinton administration endeavored to reduce tensions in US-China relations—no longer bound by common opposition to the Soviet Union and divided by the Tiananmen crackdown and, most notably, by the acute tensions of the Taiwan Strait crisis of 1995-1996. In particular, US proposed engagement—often seen as a type of enmeshment—served to build interdependence that made China less likely to undertake disruptive measures against the United States. As the United States pursued this engagement, Chinese leaders saw a similar advantage in enmeshing the United States, thereby reducing the likelihood that the United States would take actions provoking China. In general, the results seemed to meet these expectations.

US officials also had expectations that the engagement would lead to moderation and greater conformity by China to US values and goals, which turned out to misjudge Chinese intentions to avoid such changes. For their part, Chinese officials steadily advanced and repeatedly exploited enmeshment of US businesses, universities, and other groups more closely interacting with China. These entities’ dependence on China added to the impressive support China received from developed countries and the international financial institutions directed by leaders from developed countries. The support for China involved economic assistance, financing, technology, and market access. Business and other US organizations dependent on China also guarded against the United States taking stronger actions targeting often illegal and exploitative ways China acquired technology and other intellectual property as well as China’s state-directed international economic practices, protectionist measures, industrial policies, and trade practices out of line with China’s commitments to its agreement in joining the World Trade Organization in 2001. They also guarded against the United States taking stronger actions as Beijing, in the past decade, became more assertive with expansionist ambitions in Asia.

The symbiosis between US and international businesses, universities and others dependent on China and Chinese businesses and specialists has had a bearing on recent US curbs on Chinese access to US high technology. Chinese entities and specialists were often so enmeshed with US enterprises that it was hard to guarantee that breakthroughs achieved as a result of US government billions of dollars of expenditure on high technology innovation would not easily become known by Chinese authorities.

Today, US businesses dependent on China remain influential in US policymaking and argue for greater moderation in dealing with China; they seek exemptions from various administration and legislative restrictions designed to counter Chinese challenges. Many US universities with involvement in China and other American groups and experts with involvement with China also argue for greater moderation. The Council on Foreign Relations is leading efforts by influential foreign policy specialists seeking greater moderation and warning of the dangers of growing tensions in US-China relations.  A common thread in these arguments is that the China threat is exaggerated and that the negatives for the United States flowing from Chinese behavior can be better dealt with through more nuanced approaches featuring negotiations and dialogue.

How US policymakers can create a strategy that counters Chinese challenges and also takes account of significant domestic opposition to such tough measures remains to be seen. Adding to the conundrum facing the Biden administration, its purported strategy of close collaboration with allies and partners to deal with China’s challenges from a position of collective strength faces countervailing pressures. One reason is that most of these countries have similar business and other interests that oppose measures to counter China. Many also do not share the sense of danger and urgency about China’s challenges now seen in Washington.

Robert Sutter (sutterr@gwu.edu) is Professor Practice of International Affairs at George Washington University, USA.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #33 – Kim Jong Un’s Failures Could be Washington’s Gain

At North Korea’s Eighth Party Congress in January, as state-run media reported ebullience among participants and extolled the virtues of Kim Jong Un’s leadership, external news noted a peculiarity: Kim’s admission that almost all sectors of the DPRK’s economy failed to meet their objectives. That Kim openly acknowledged such shortcomings during such a major gathering should be taken as tacit recognition of the ghastly state of the DPRK economy.

Kim’s resurrection of the phrase “Arduous March” during an April 8 conference also hints at the DPRK’s difficulties. Food security has become increasingly problematic and, with North Korea seeing its worst economic performance in two decades, Kim appears to be rolling back steps toward market liberalization.

North Korea has certainly grappled with events beyond the control of its leadership, including the severe summer floods of 2020 and the devastation wrought by COVID-19. The former exacerbated an already precarious food situation, while the latter reduced trade across its northern border to a soupçon of its usual volume. However, two issues loom for which Kim cannot escape responsibility: those diplomatic and those economic.

Failures of Diplomacy

Kim played a central role in planning the US-DPRK summits of 2018 and 2019, extending a direct invitation to then-President Trump and opting for high-level dialogue. He also placed himself in the limelight during summits with his South Korean counterpart.

Not since the Clinton administration had diplomatic relations offered such horizons. Then it was North Korea obtaining US cooperation in the Agreed Framework in 1994 and the Kim Dae-jung-era Sunshine Policy with South Korea (1998-2003). This time, the presidency of Donald Trump promised to be unlike anything before, while South Korea’s Moon Jae-in made improvement of North-South relations a foundational piece of his platform.

Initially, it appeared both would pay off: Trump’s first summit with Kim in June 2018 ended with the joint signing of a document that contained rhetoric on a desire for peace, denuclearization, and other commitments to cooperation. Southward, Kim made history by becoming the first North Korean leader to cross into ROK territory.

However, dialogue in both realms fell flat. This began with the abrupt breakdown of the second Trump-Kim summit in February 2019, which ended in accusations from both sides that the other was unreasonable. Trump stated that the breakdown was due to DPRK demands that sanctions be lifted in their entirety, while North Korea insisted that the DPRK had merely insisted on a partial lifting.

As for inter-Korean dialogue, both parties agreed to several compromises, including one to restore Inter-Korean economic cooperation in the form of joint ventures such as the Kaesong Industrial Region and the Mount Kumgang tourism project. Nevertheless, such tokenism failed to produce tangible benefits, joint economic projects have yet to resume, and the DPRK’s destruction of the Inter-Korean Liaison Office in 2020 literally and symbolically dismantled a platform for improved inter-Korea relations.

A Miscarriage Five Years in the Making

Kim’s nonperformance in the diplomatic arena only compounded the failure of his five-year economic plan—and it was his economic plan, as he emphasized his role in the process in a way his father never had. A moribund economy is nothing new for the North, yet some forecast a sea change upon Kim Jong Un’s ascent. Having inherited a nascent nuclear weapons program, Kim enunciated his byongjin development policy, in which nuclear weapons would provide an environment secure enough to focus on economic development.

Kim crafted a development plan which included a softening of the collectivization of agricultural policies, a shift from heavy to light industry, and the energetic pursuit of special economic zones. The central authority afforded local governments a relatively free hand in their construction, with collaboration among private enterprises encouraged.

However, Pyongyang recently declared that factories will be left to their own devices to secure raw materials. The budget report out of the 2020 Parliamentary session for the first time in DPRK history noted that there had been flaws in the implementation of a national budget. Given the report’s modest growth goals for 2020, the state likely experienced significant hurdles in collecting revenue.

All of this leads back to the Eighth Party Congress. In sharp contrast to his father, Kim Jong Un bears the responsibility for a failure in policy implementation. His admission of failure at the Congress, therefore, speaks volumes.

Kim’s Reckoning

The same is true regarding the foundering of the Trump summits. Perhaps assuming that Trump would be more pliant than then-National Security Advisor John Bolton or then-Secretary of State Mike Pompeo, it appears Kim sought high-level talks to be in the spotlight. Yet, despite both sides’ claims of a personal rapport, Kim could not turn this to his advantage.

Staking so much on Trump’s instincts for deal-making appears an even worse decision following his lost re-election bid. Kim’s strategy with the Biden administration remains a mystery, with Pyongyang seemingly refusing diplomatic contact and welcoming the new US team with a perfunctory missile test in March. In that same month, Biden confirmed his unwillingness to “sit down,” shutting the doors on a repeat of the Trump-Kim summitry. Meetings with the South have also failed to produce results, and Kim’s positioning as architect of the economic plan ensured that self-exculpation would be an impossibility.

Whether the reported malcontent among the DPRK’s elite is significant enough to alter Kim’s behavior is unknown, but as long as he remains unwilling to bargain away nuclear weapons, sanctions will continue to weigh down the North Korean economy.

Amid these failures, the United States may have an opportunity. While the Trump-Kim summits have ended in failure, they exhibited that a break from tradition may open new doors. The Biden administration should begin exploring new paradigms, one being the de facto recognition of the DPRK as a nuclear-armed state. The Administration could negotiate recognition as a jumping-off point to curtailing ballistic adventurism and beginning arms control negotiations. Given the state of its economy and Kim’s leadership, Biden might find Pyongyang receptive to agreements it usually would not entertain.

Daniel Mitchum (daniel@pacforum.org) is a resident Kelly Fellow at the Pacific Forum. He has spent the last 12 years living and working in South Korea. He holds a dual BA in Global Politics and East Asian Studies from State University of New York, Albany and an MA in International Cooperation from Yonsei University’s Graduate School of International Studies, Seoul.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #31 – The Structural Limits of the Supply Chain Resilience Initiative

As a hub of global economic activity and great power tensions, the Indo-Pacific is home to an increasing number of minilateral arrangements shaping the future of the region. Groupings like the Quadrilateral Security Dialogue (Quad), as well as the Japan-America-India, Australia-Japan-India, and France-Australia-India trilaterals demonstrate this trend. The Supply Chain Resilience Initiative (SCRI), launched in April 2021 and complementing the Australia-Japan-India trilateral, is the latest such venture.

China’s deep integration in the international financial system and status as “factory of the world” make global supply chains unsustainably China-centric. COVID-19 revealed many states’ over-dependence on China-centered value chains, and the SCRI seeks to reconfigure global supply chain networks to overcome such vulnerabilities.

The SCRI seeks to ensure global supply chains remain resilient to future “black swan” events, such as pandemics and geopolitical tensions. With several states prioritizing supply chain risk diversification, the SCRI can also further Indo-Pacific economic security dialogue between like-minded nations. Importantly, the SCRI can help balance against China’s rapidly expanding influence, including through the Belt and Road Initiative.

Yet, despite its merits, the SCRI faces considerable structural limitations.

Firstly, although primarily a geo-economic mechanism, the SCRI risks losing focus amid the intensifying regional power rivalry. The initiative is a product of strategic necessity brought about by the pandemic, yet this emphasis on supply chain management is frequently ignored in media and scholarship in favor of strategic positioning vis-a-vis China. Yet, like Japan’s Expanded Partnership for Quality Infrastructure and India’s Act East Policy, the SCRI is not necessarily an anti-China venture.

China-dependent supply chains are a major concern for both smaller and major powers across many critical sectors, including essential pharmaceutical products, food, and industrial raw materials. However, the SCRI does not aim to entirely re-route existing supply chains; this would require complete economic decoupling from China, an unfeasible (and undesirable) goal considering Beijing’s economic clout. Instead, it seeks to build alternative, resilient supply chains to reduce over-dependency, diversify risk, and enhance ability to absorb future market disruptions. Rather than isolating China, the aim is to ensure national economies can withstand adversity. The focus on enhancing cooperation with like-minded nations is drawn on the imperative of building “a free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment.” The focus on inclusivity implies openness to dialogue (or participation) with all nations committed to similar ideals—even China.

Secondly, the SCRI remains far-fetched, even overly ambitious. Despite their broad-based synergy on China (or matters relating to China), the main proponents of the SCRI—Australia, India, and Japan—have gaps in their global multilateral practices, including trade and economic outlooks. This will limit the progress of the SCRI. For instance, Japan’s reluctance to support the expansion of the G7 to include India and Australia highlights how national interest considerations supersede any prospects of regional cooperation. Japan is a trading economy, and supply chains are critical to its growth. This is not true for India, which prioritizes manufacturing and innovation, even while aspiring to enhance integration with other economies before it can emerge as a trading nation. These differences could impact the SCRI’s direction and the importance each state gives it.

Thirdly, no clear vision currently exists among SCRI founders on how to shape their initiative. To succeed, a clear plan or charter is vital. The lack of a guiding document risks hampering cooperation, as has been the case with the Quad and Quad-plus, which has only picked up steam over the past year amid increased tensions with China. A similar problem emerged with the Asian Infrastructure Investment Bank and Regional Comprehensive Economic Partnership. Although India and Australia became AIIB members, Japan and the United States opposed it. With RCEP, Japan and Australia could not continue engaging (or supporting) India, displaying a lack of coordination and resulting in New Delhi’s withdrawal from this mega-trade deal.

These examples show the need for a common understanding, agreed framework, and concentrated dialogue to shape and implement the initiative. A charter would be useful in laying down expectations and requirements for the SCRI. As founding members consider the SCRI’s expansion “based on consensus” and acknowledge the importance of business and academia in further developing it, a charter could be critical in coding and committing to an “inclusive” outlook. A formal document would also mitigate criticisms that the initiative is a cartel or “anti-China,” potentially opening the door to induction for Beijing (or even to countries aligned strongly with Beijing) and allowing the Australia-Japan-India trilateral a rulebook to regulate China’s actions.

Fourthly, the SCRI remains limited to its founding members. With its focus on recalibrating global supply chains, expansion to include the United States must be explored. This would make the SCRI a derivative of the Quad, strengthening the Indo-Pacific concept and furthering their supply chain goals. President Biden’s recent comprehensive supply chain review outlined Washington’s need to build “resilient, diverse, and secure” supply chains; SCRI integration could be a productive move forward.

Similarly, the SCRI must consider full/partial participation of key economies and economic blocs—including ASEAN, the European Union (especially France, given its Indo-Pacific focus), and the United Kingdom. Several such entities, including the United States and ASEAN, have sought to reconfigure supply chains to reduce dependence on China and increase resiliency, but made no concerted effort in this direction. While the SCRI might be an Asian exercise, its ambition to create diverse, expansive, inclusive, and resilient supply chains mandates involvement by other major and middle-ranked economies everywhere. Moreover, the participation of technologically advanced actors beyond Asia would prove crucial given the SCRI’s focus on digital technologies. 

The SCRI’s success will depend on inroads it can make with ASEAN. With Australia-Japan-India at its core, the SCRI promotes inclusivity and multipolarity, but also seeks to build Asia-driven (or Indo-Pacific-driven) supply chains. Japan and India are key East Asian and South Asian economic powers; Australia is a major Indo-Pacific actor closely connected to Asia. In relative comprehensive national power, the Lowy Institute’s 2020 Asia Index placed Japan third in the region, India fourth, Australia sixth, and the United States first (with China a close second). Connecting with ASEAN will be economically lucrative and promote the SCRI’s “Asian” vision.

Despite its merits, the SCRI is structurally limited right now. Yet with economic transformation and post-pandemic recovery shaping regional power distribution, the expectations for the SCRI are immense. To meet expectations, the Australia-Japan-India trilateral must acknowledge the challenges and shape the initiative adequately to overcome them.

Dr. Jagannath Panda (jppjagannath@gmail.com) is a Research Fellow and Centre Coordinator for East Asia at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Dr. Panda is the Series Editor for “Routledge Studies on Think Asia.”

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.