PacNet #14 – South Korea’s Indo-Pacific pivot strategy

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2022 ended with South Korea adopting specific Indo-Pacific terminology with the Dec. 28 release of its Strategy for a Free, Peaceful, and Prosperous Indo-Pacific Region (SFPPIP). The key takeaway: The SFPPIP, and President Yoon Suk Yeol, signal an end to South Korea’s “strategic ambiguity” under the previous president, Moon Jae-in. Seoul pivoting away from Beijing and toward Washington—delicately, but clearly.

This “Free, Peaceful Prosperous Indo-Pacific” formulation from South Korea converges with the US and Japanese “free and open Indo-Pacific” (FOIP) formulation(s) enunciated since 2016-17. The key shared element is the SFPPIP assertion that “in realizing the vision for a free Indo-Pacific, the Republic of Korea is committed to partnering with like-minded countries that share the values of freedom, rule of law, and human rights as well as international norms.” This indicates a normative base for foreign policy.

Much of the SFPPIP was uncontroversial, such as cooperation across the Indo-Pacific on economic, environmental, counterterrorism, and international crime issues. The SFPPIP identified ASEAN as a “key partner” for peace and prosperity and noted wider formats for economic cooperation like Asia-Pacific Economic Cooperation, the Regional and Comprehensive Economic Partnership, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

However, the SFPIPPR also displayed sharpness of purpose on the security front. First, it announced that it would “pursue partnerships with minilateral groupings”; specifically, the South Korea-Japan-US trilateral, a future Australia-South Korea-US trilateral, and the AP4 (Australia-Japan-New Zealand-South Korea) NATO Partners format. Second, the SFPPIP singled out continued participation in (the US-led) RIMPAC, and Pacific Dragon (Australia, Canada, Japan, South Korea, United States) naval exercises. On the minilateral front, the SFPPIP announced South Korea would “gradually expand” cooperation with the Quadrilateral Security Dialogue (“Quad”) between Australia, India, Japan, and the United States.

In 2022 Chinese state media had attacked South Korea over such participation—warning in April with regard to the Quad; in July with regard to the AP4 format at NATO and trilateral cooperation with Washington and Tokyo; and in August regarding the Pacific Dragon exercises in the Western Pacific.

On the bilateral front the SFPPIP was careful but revealing. It stated that:

our inclusive Indo-Pacific Strategy neither targets nor excludes any specific nation. We will work with every partner that is aligned with our vision and principles of cooperation.

This is conditional inclusivity; China falls short in specific normative values enunciated in the SFPPIP vision and principles. Mounting distrust of China in South Korea cuts across the SFPPIP linkage that “our partnerships will be based on strong mutual trust.”

In bilateral relations, the SFPPIP focus was to “continue to strengthen our alliance with the United States.” It identifies Canada as “a comprehensive strategic partner with common values,” and Australia as “a comprehensive strategic partner” with whom South Korea further “deepen[s] our ties by identifying new cooperation agenda in the areas of national defense.” It made a similar pledge to “advance our special strategic partnership with India, a leading regional partner with shared values.” Concerning Japan, despite previous frictions, it aspires to “seek a forward-looking partnership that supports our common interests and values.” Security convergence with those countries is predicated by their shared values; namely democracy, the rule of international law, and norms embedded in the “free” component within the SFPPIP formulation.

In the wake of a strained Yoon-Xi Summit in November, the SFPPIP’s China section was one sentence. It proposed that with China,

a key partner for achieving prosperity and peace in the Indo-Pacific region, we will nurture a sounder and more mature relationship as we pursue shared interests based on mutual respect and reciprocity, guided by international norms and rules.

This language was limited and revealing. To hope for a sounder and more mature relationship in the future implies the current relationship is rather unsound. “A partner for peace” was strained given that the SFPPIP’s “peace” section pinpointed the South China Sea and Taiwan Strait as (China-related) flash points threatening peace, with freedom of navigation specifically called for. Talk of guidance via international norms and rules raises the question of a China not guided by universal norms and rules. “A partner in prosperity” pointed to potential economic cooperation; for which the SFPPIP advocated resuming the China-Japan-South Korea Summit, which last met in 2019, and reinforcing the CJSK Trilateral Cooperation Secretariat, to focus on green and digital transitions. This reflects the weakness and marginality of the CJSK mechanism.

Some China-related barbs are discernible in the SFPPIP. On the one hand, the SFPPIP contained no reference to China’s Belt and Road Initiative, which South Korea has distanced itself from. On the other hand, the SFPPIP announced South Korean participation in the launching of the US-led Indo-Pacific Economic Framework (IPEF) in 2022 as “building economic security networks…in support of open and free trade,” an initiative denounced in China. The SFPPIP outlined that “to stabilize supply chains of strategic resources, we will seek cooperation with partners with whom we share values.” This values-driven rationale pointed to the Indo-Pacific supply chain initiatives developed by the Quad countries and, again, denounced by China. Trilateral cyber-security cooperation with the United States and Australia was another China-related issue arising in the SFPPIP.

Very different responses ensued from Washington and Beijing to the SFPPIP. US National Security Advisor Jake Sullivan immediately welcomed the whole SFPPIP and its focus on shared “universal values” underpinning cooperation. In contrast, China’s foreign ministry merely “noted” the SFPPIP while warning about Korea being involved in “exclusive coteries,” leaving its state media to criticize the SFPPIP as South Korea “pivoting towards the US.”

The biggest areas of ambiguity in the SFPPIP rest with South Korea’s reiteration of freedom of navigation in the South China Sea, and peace and stability in the Taiwan Strait. South Korea could, like Washington, consider raising those two issues at regional platforms like the ASEAN Regional Forum and the East Asia Summit.

Regarding the South China Sea, Seoul is unlikely to carry out freedom of navigation exercises, though it could consider giving verbal public support to such US operations. Seoul’s increasing deployments and exercises in the West Pacific with the United States and like-minded states like Japan, Australia, and Canada could also be extended into the South China Sea. Seoul calling for observance (i.e., by China) of the 2016 Permanent Court of Arbitration ruling on the South China Sea could advance the SFPPIP call for the rule of law in the South China Sea. Side-stepping the still-uncomfortable US-China confrontation, Seoul could quietly strengthen the maritime capabilities of South China Sea littoral states like Vietnam and the Philippines most under threat from China.

Regarding the Taiwan Strait, it is again unlikely for Seoul to deploy its naval units on transit operations there, though South Korea could consider giving public verbal support to such US transit operations. South Korea could strengthen some links with Taiwan, though. Military-to-military links are probably too much to expect, given the furor from China. However, they could maintain political-economic links, including supporting Taiwan’s application for membership of the Comprehensive and Progressive Trans-Pacific Partnership.

Seoul’s responses to Chinese actions in the South China Sea and Taiwan Strait during 2023 will show up the exact nature of South Korea’s delicate tilt signaled in its new Indo-Pacific strategy

David Scott ([email protected]) is member of the Center for International Maritime Security (CIMSEC) and is a prolific writer on Indo-Pacific geopolitics (www.d-scott.com/publications).

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged.

Photo: South Korean President Yoon Suk-yeol introduces his officials to U.S. President Joe Biden before their meeting at the presidential office on May 21, 2022 in Seoul, South Korea. (28 June 2022, The Heritage Foundation) by Jung Yeon-Je-Pool/ Getty Images

PacNet #10 – The inconvenient truth: Aspirations vs realities of coexistence between “the West” and China

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China is the center of the global production network. It is the largest trading partner for all its neighbors and has fueled economic growth in and out of the Indo-Pacific for decades. According to the McKinsey Global Institute, even during the COVID-19 pandemic, trade has deepened between China and the United States, Canada, Japan, Southeast Asia, and with the European Union.

Clearly, our economies and societies benefit from our trade relationship with China when we enjoy stable relations. Chambers of Commerce from various countries still want to be part of the China story. The American Chamber of Commerce in China for instance in its 2022 White Paper writes “We remain opposed to any effort at outright decoupling of the US-China relationship. The costs of decoupling from losing trade and foreign investment benefits for both countries would be significant and are unlikely to generate clear winners. To be globally competitive, American producers and service providers must be able to compete in the China market on a level playing field. Nevertheless, extensive market access barriers, protectionism, an opaque regulatory system, and discriminatory enforcement continue to hinder the operations of US business in China today.”

Similarly, the European Parliament’s report EU-China 2030: European expert consultation on future relations with China released in December 2022 states that in 2020, China became the EU’s largest trading partner for goods for the first time, surpassing the United States. This positive trade relationship, according to the European Business in China Position Paper 2022-2023, could be a platform for strengthening bilateral relations. Nonetheless, like their US counterparts, European trading partners have a lopsided trading relationship, as well as concerns about a lack of reciprocation in market access, supply chain resilience, and what Kevin Rudd describes as a strong tilt towards Marxist-Leninist market intervention and social organization based on a platform of nationalism.

Whether in Ottawa or Canberra, Paris or New Delhi, Washington or capitals in Southeast Asia, states around the world aspire to have cooperative and mutually beneficial economic, social, cultural, and security relationships with Beijing. The Canadian Indo-Pacific Strategy highlights this stressing Ottawa will “cooperate with China to find solutions to global issues such as climate change, biodiversity loss, global health and nuclear proliferation.” The EU Indo-Pacific Strategy similarly states that “The EU will also pursue its multifaceted engagement with China, engaging bilaterally to promote solutions to common challenges, cooperating on issues of common interest and encouraging China to play its part in a peaceful and thriving Indo-Pacific region.” Even Japan’s new National Security Strategy, a strategy that includes provisions for counter strike capabilities, articulates the view that:

global issues such as climate change, infectious diseases, energy, food problems, and the environment, which have a direct or indirect impact on Japan’s national security, Japan will expand the circle of cooperation not only to include its ally and like-minded countries (read China), but also many other countries and organizations, and then enhance international efforts.

Japan, Canada, and the European Union are not alone in their aspirations for cooperation with China. In a speech by Secretary of State Anthony Blinken on the Biden administration’s approach to the People’s Republic of China, “investing, aligning, and competing” remain the core principles of a constructive relationship with China. Blinken stressed like other states, combating climate change, non-proliferation, transnational diseases, and “global macroeconomic coordination between the United States and China is key—through the G20, the IMF, other venues,” to overcome the severe socio and economic consequences resulting from the COVID-19 pandemic.

Despite these aspirations for at least an awkward coexistence with China, there are many inconvenient truths to transforming aspiration into reality.

A track record of political interference in elections in the democratic process in Canada, Australia, and other countries suggests China wants to continue to weaken democratic institutions and countries aligned with the US.

In the report The Communist Party’s Coercive Diplomacy by the Australia Strategic Policy Institute, the authors outlined at least 152 cases of Beijing using coercion against Australia, Canada, South Korea, Japan, Taiwan, and others between 2010 and 2020. Coercion examples included arbitrary detention, trade restrictions, restrictions on investment, official travel, tourism, popular boycotts and state issued threats.

Both actions clearly violate China’s long standing Five Principles of Peaceful Coexistence, not to mention Beijing’s refusal to condemn Putin’s Ukraine war.

We also continue to see China and prominent Chinese academics such as Yan Xue Tong stress that:

China will work hard to shape an ideological environment conducive to its rise and counter Western values. For example, the United States defines democracy and freedom from the perspective of electoral politics and personal expression, while China defines democracy and freedom from the perspective of social security and economic development. Washington should accept these differences of opinion instead of trying to impose its own views on others.

In short, according to the Asia Pacific Initiative’s Naoko Eto, China sees the current rules-based order is not aligned with its domestic political system and its new interpretations of norms such as human rights, transparency, democracy, rule-of-law that have been the foundation for the post-World War II period of peace, stability, and development.

Seeking to selectively weaken international institutions, norms, and practices, China’s objectives conflict directly with not only the so-called West but also many countries in the Global South including those in Southeast and South Asia. By way of example, the ASEAN way of consensus-based decision making has been hijacked by Beijing in an effort to come to a code of conduct in the South China Sea.

We have also seen Beijing coordinate with other authoritarian states and Belt and Road Initiative partners in their decision-making in international institutions that affect the Global South, including religious and ethnic minorities. Recent examples include Beijing’s efforts to lobby and create a coalition of developing states to vote down a motion to discuss a UN report into China’s serious human rights violations in Xinjiang. We also saw Beijing brought together BRI members to abstain from a resolution on Russia’s “aggression against Ukraine.”

Domestically in China, in April 22, 2013, “A Communiqué on the Current State of the Ideological Sphere” was approved and released by the central leadership under Xi Jinping. Known as Document 9, the communique stresses guarding against seven political “perils,” including constitutionalism, civil society, “nihilistic” views of history, “universal values,” “promoting neoliberalism, attempting to change China’s basic economic system,” “questioning reform and opening and the socialist nature of socialism with Chinese characteristics,” and the promotion of “the West’s view of media.”

The non-Chinese world is a crack in the Marxist-Leninist system the Communist Party of China (CPC) wishes to imprint in Chinese society. As a result, the party works through the United Front activities to delegitimize, stigmatize and weaken the norms outlined in Document 9 abroad.

The inconvenient truth is that Xi Jinping’s Community of Common Destiny for Mankind and the post-WWII rules-based order—which has been based on US leadership but supported by developed and developing nations alike—are an uncomfortable fit at best or incompatible at worst.

Establishing an awkward coexistence between China and like-minded countries will require transforming aspirations into pragmatic, realistic initiatives. Lyle J. Goldstein advocates for “cooperation spirals” in which confidence is developed through tit-for-tat compromises that spiral up towards more significant cooperation. His focus was Taiwan, economic relations, environmental issues (most critically climate change), the developing world (Africa in particular), the Middle East, the Korean Peninsula, Japan, Southeast Asia, and India.

Japan’s late Abe Shinzo took a different approach prior to the pandemic through engagement in third country infrastructure cooperation and trade agreements such as the Regional Comprehensive Economic Partnership to reform the Belt and Road Initiative and Chinese trade practices from within.

Abe’s and Goldstein’s approaches to China are based on realistic assessment of the parallel paths China and “the West” are traveling on and realism about the prospects of convergence and changing China. Based on the principles of engagement, resilience and deterrence, each conceptualized a non-zero sum approach to engaging with China firmly wedded to working with like-minded countries

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged.

Dr. Stephen Nagy ([email protected]) is a senior associate professor at the International Christian University in Tokyo, a Senior Fellow with the MacDonald Laurier Institute, a fellow at the Canadian Global Affairs Institute and a visiting fellow with the Japan Institute for International Affairs.

Photo: Chinese President Xi Jinping delivers a speech during the opening session of the 20th National Congress of the Communist Party of China in Beijing, October 19, 2022 (Lintao Zhang/Getty Images) 

PacNet #64 – The Biden-Xi summit: Not revolutionary, but still necessary

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US President Joe Biden’s Nov. 14 meeting with Chinese President Xi Jinping in Bali, Indonesia was never supposed to be a historic breakthrough between the world’s two greatest powers. Too many core issues, from Taiwan and the South China Sea to trade and technology, currently separate the two powers for the exchange to produce major achievements.

US and Chinese officials know this, of course. Neither side works for a dramatic improvement in ties, but rather they search for an opportunity to inject some stability into a relationship in desperate need of it. National Security Adviser Jake Sullivan said as much when he previewed the sit-down, emphasizing that Biden and Xi will have the chance to be frank and firm about where they disagree, clear up misunderstandings that may exist, and explore how US-China relations can be managed responsibility.

This is what Biden and Xi did during their over three-hour confab. The official US and Chinese readouts of the exchange were notably similar on one key point: the need, if not urgency, to ensure the strategic competition between the two powerhouses does not veer toward a conflict neither country wants. That the session adjourned with a number of working groups established, as well as the resumption of climate talks and US Defense Secretary Lloyd Austin’s second face-to-face meeting with his Chinese counterpart, Gen. Wei Fenghe, about a week later, provided a cautiously hopeful signal that positive momentum remained a possibility.

US-China relations in the era of Biden

If Xi and the rest of the Politburo Standing Committee thought President Biden would be more amenable to China’s rise than his predecessor, they were quickly disabused of that notion. To Donald Trump, China fleeced the United States economically and attempted to exceed it militarily. Yet to Biden, China is a multidimensional problem and the metaphorical tip of an authoritarian spear working to replace the US-dominated order with one run from Beijing. The Biden administration’s policy documents are careful to mention collaboration with China when interests converge, but as the US National Security Strategy states, “Beijing has ambitions to create an enhanced sphere of influence in the Indo-Pacific and to become the world’s leading power.” The phrase “world’s leading power” is instructive; in Washington’s view, China is not merely content with superiority in its neighborhood but covets the status of global hegemon.

The administration’s assessment of the China challenge, combined with China’s expansive claims in the East and South China Seas, its treatment of minorities in Xinjiang, and active military modernization drive (among other issues) all contribute to US-China ties devolving to their lowest point since the two established formal diplomatic relations in 1979. Interactions between officials early in the Biden administration did not help. While Biden and Xi did not waste any time communicating—their first call occurred on Feb. 10, 2001, about three weeks after Biden’s inauguration—their subordinates spent meetings reciting well-worn talking points. Talks in Alaska in March 2021 degenerated into heated lectures, with Secretary of State Antony Blinken lauding the rules-based order and State Councilor Yang Jiechi chiding the United States for meddling in China’s internal affairs. US Defense Secretary Lloyd Austin was repeatedly prevented from getting through to Gen. Xu Qiliang, vice chair of the Central Military Commission. The United States and China spent 2021 sanctioning one another’s officials and issuing travel restrictions on one another’s diplomats.

The bilateral relationship’s downward trajectory reached new lows in August, when House Speaker Nancy Pelosi’s trip to Taiwan—the first visit to the self-ruled island by a speaker in a quarter-century—prompted the Chinese government to adopt stern military and diplomatic measures that raised tension in the region. Militarily, the People’s Liberation Army (PLA) greeted Pelosi’s travel with cruise missile tests, numerous incursions across the median-line by fighter aircraft, and what can only be described as a dress rehearsal for a hypothetical Taiwan blockade. Diplomatically, China severed contacts with the United States on multiple fronts, suspending talks on climate, defense, crime, counternarcotics, and risk reduction.

Don’t bet on a big improvement 

At its core, the Biden-Xi summit belatedly attempted to bring US-China relations back to where they were prior to August. Relations weren’t stellar before Pelosi landed in Taipei, but the two powers were at least engaging across multiple issue sets. Dialogue between Pelosi’s trip to Taiwan and the Xi-Biden meeting was lackluster. Opportunities for US Ambassador Nicholas Burns to get an audience with key Chinese policymakers is limited, and Qin Gang, China’s ambassador in Washington, reportedly faces his own restrictions on access to US officials. A single phone call in July has been the extent of the contact between Chairman of the Joint Chiefs Gen. Mark Milley and PLA Chief of the Joint Staff Gen. Li Zuocheng. It took Defense Secretary Lloyd Austin over a year before he spoke with Gen. Wei Fenghe, China’s minister of national defense—and only after Austin gave up on reaching Gen Xu Qiliang, the PLA’s highest-ranking officer.

To the strongest hawks in Washington and Beijing, this spotty dialogue isn’t all that worrying and may even have been something to cheer. However, it is one thing for the United States and China to possess starkly different foreign policy strategies, objectives, and perceptions of how the world should operate (one would expect such differences). It is another thing entirely for those differences to fester unmanaged. In situations where competitors or adversaries have strong, conflicting paradigms, clear, durable, and consistent communication—particularly at the senior levels—is an absolute prerequisite to mitigating conflict. Biden and Xi rightly concluded that the lack of communication channels made responsible competition—a goal both leaders profess—virtually impossible.

The question naturally arises: will more communication necessarily result in more rapprochement? The answer varies by issue. For instance, it’s difficult to envision a scenario whereby the United States and China arrive at a general understanding about Taiwan; Xi is as committed to reunifying the island with the mainland as Biden is to ensuring Taiwan can make a PLA invasion contingency prohibitively costly. Biden’s suggestion that the United States would come to Taiwan’s defense if the PLA launched a military operation, followed with subsequent clarifications by his advisers that US policy toward Taiwan hasn’t changed, just adds to the confusion in Chinese policy circles about whether Washington is still abiding by the “one China” policy. The “one China” policy, which states in part that Washington recognizes the PRC as the sole government of China and acknowledges (but does not recognize) the PRC’s claims to Taiwan and opposes any unilateral moves toward Taiwanese independence, has governed U.S.-Taiwan relations for more than four decades. PLA military exercises around Taiwan and periodic US freedom of navigation operations in the Taiwan Strait likely give more ammunition to hardliners in both capitals pining for a full decoupling.

A ceasefire in the technology and trade wars is also unlikely in the short-term. Tariffs remain in effect, with neither side willing to make the first move toward lifting them. Like the Trump administration before it, the Biden administration uses Commerce Department rules to stop advanced semiconductors and chip-making machinery from reaching China, which Beijing detests as a deliberate US attempt to kneecap Chinese technological development. The United States rejects those complaints wholesale, arguing that US technology should in no way bolster the CCP’s internal surveillance and military modernization.

Even if those big agenda items remain unresolved, two superpowers who hold more than 40% of the world’s GDP and account for more than half of the world’s military spending don’t have anything to gain by completely isolating each other. If Biden’s meeting with Xi puts a stop to a deeper deterioration in relations, it will have been worth the effort.

Daniel R. DePetris ([email protected]) is a fellow at Defense Priorities and a foreign affairs columnist at the Chicago Tribune and Newsweek.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged.

Photo: Chinese President Xi Jinping shakes hands with U.S. Vice President Joe Biden (L) inside the Great Hall of the People in Beijing December 4, 2013 by REUTERS/Lintao Zhang/Pool//File Photo

PacNet #59 – How the new National Security Strategy transforms US China policy

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The United States has transformed its policy toward China.

This shift is not plain from the language of the National Security Strategy, released this week, even though that document identifies China as a country with “the intention and, increasingly, the capacity to reshape the international order in favor of one that tilts the global playing field to its benefit.”

Rather, the change becomes visible with the study of speeches by top administration officials, recent presidential executive orders and other actions by the US government.

Previously, the US, along with allies and partners, focused on preventing China from acquiring technology that would improve its military capabilities. The ambition is now much grander: The goal is to constrain the development of China’s high-tech economy, to thwart its rise as a challenger to US (and Western) technological supremacy.

It is a risky strategy and may instead accelerate developments it seeks to thwart.

During the Cold War and the period after, the US approach was one-dimensional—it sought to deny adversaries access to technologies that could better their military capabilities. The policy defined threats narrowly and focused on acquisition through trade.

That perspective reflected the limitations of America’s rival, the Soviet Union, which was unable to muster a challenge beyond that posed by its armed forces.

Today’s primary concern, China, poses a more formidable threat. It is not only a potential military adversary but it can compete with the United States (and the West) economically, in soft power, diplomacy and development aid, and in the contest to develop the most advanced technologies.

It is that latter capacity that is most alarming since leadership in the high-tech arena will determine which country leads the 21st-century economy.

Also worrying is the use of those technologies to construct surveillance systems capable of empowering autocrats or undermining human rights. The technologies strengthen regimes that reject democratic ideals and promote opposing ideologies.

China’s economic success allows it to evade traditional means of controlling tech transfer. China has lots of money, which it can use to invest in or buy companies, or as venture capital to set them up.

The desire by others to crack China’s huge domestic market gives the Beijing government leverage to demand tech transfer as a term of engagement. And the skills of its scientists embed them in the international collaborations that set the frontiers of technology.

US administrations have been tightening the screws for some time. One marker was the adoption, as part of the 2018 National Defense Authorization Act, of the Export Control Reform Act and the Foreign Investment Risk Review Modernization Act. They expanded and strengthened regulations of strategic trade and foreign investment in the US.

The “entities list” that the Commerce Department uses to restrict destinations of goods and technologies has grown steadily longer as more Chinese companies are added. Companies that make technologies that can be used for surveillance or repression are being added, too.

Recent decisions have made clear that the US is going further to block China’s ability to compete.

In early October, the Biden administration announced new rules to limit Chinese access to advanced computer chips and chip-making equipment. Enforcing the foreign direct product rule (FDPR) means that any company that sells advanced chips to Chinese firms or organizations working on artificial intelligence and supercomputing will require a US government license if the company uses US technology to make the chips.

Almost all significant semiconductor companies do. A Boston Consulting Group analysis concluded that there are at least 23 types of chipmaking equipment for which US companies control more than 65% of global supply, making this restriction a powerful chokepoint in the semiconductor supply chain.

That status prompted Gregory Allen of CSIS, the Washington-based think tank, to conclude that the rule signals “a new US policy of actively strangling large segments of the Chinese technology industry—strangling with an intent to kill.”

A second landmark is an executive order issued by President Biden last month that provides direction to the interagency Committee on Foreign Investment in the United States to “ensure that it remains responsive to evolving national security risk.”

This executive order, the first issued since CFIUS was established in 1975, identifies five risk factors that the committee must weigh as it evaluates a transaction: 1) supply chain resilience, 2) US technological leadership, 3) aggregate investment trends, 4) cybersecurity and 5) US persons’ sensitive data.

The second factor is the key. CFIUS must now consider a transaction’s effect on US technological leadership in sectors vital to national security—a category that currently includes microelectronics, artificial intelligence, biotechnology, quantum computing, advanced clean energy, climate adaptation technologies and parts of the agricultural industrial base with implications for food security.

“Leadership” is a broad signifier, and the sectors themselves aren’t part of “national security” as traditionally defined. National Security Advisor Jake Sullivan hammered this point home in a speech last month. First, he noted that “Preserving our edge in science and technology is not a ‘domestic issue’ or ‘national security issue.’ It’s both.”

This merging of economic security and national security has become routine and is a pillar of the national security strategy issued this week.

More intriguing is the claim that “we have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies. We previously maintained a ‘sliding scale’ approach that said we need to stay only a couple of generations ahead.”

But, Sullivan went on to say, “That is not the strategic environment we are in today. Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.”

The US is now alert to deals “that could undermine America’s national security by blunting our technological edge.” This is the context that informs the statement in the National Security Strategy that the United States will “prioritize maintaining an enduring competitive edge over the PRC.” It signals the move away from “traditional national security concerns” that focused on military capabilities toward strategic competition more generally.

To be clear, that does not represent a complete decoupling with China. That is neither possible nor desirable. It is, however, a call to decouple at the high end, on the frontiers of new technologies where potential impacts of advances and breakthroughs are greatest.

It is risky, nevertheless. It assumes that the United States can identify technologies that are key to leadership. It assumes that the United States won’t be disadvantaged by losing access to Chinese skills and successes. (The impact of cutting off Chinese researchers could be greater than feared: if governments in Europe or Asia do not align with the United States, then their projects will be off limits to American scientists.) It also denies, to the United States, insights into what the Chinese are doing.

This policy will confirm to Chinese that their longstanding complaint that the United States seeks to block their rise is correct. Chinese officials criticized the new rules as “sci-tech hegemony” that aims “to hobble and suppress the development of emerging markets and developing countries.”  It will animate the drive to promote indigenous development and production in China. It will harden divisions between China and the United States.

The policy has no chance of success if the United States goes alone. It must have allies and partners in this effort. This has been a pillar of Biden administration policy and the National Security Strategy hammers home this simple truth.

It is not clear how far allies share this outlook, however. The European Union Strategic Outlook toward China, issued in 2019, called that country a “strategic rival,” but there are disputes among members—and even within countries—when distinguishing between “competition” and “rivalry.”

So far, however, the US and chief allies in Asia and Europe appear to be working together. It isn’t clear if that solidarity will be maintained as the new US policy becomes sharper and better defined.

Brad Glosserman ([email protected]) is deputy director of and visiting professor at the Center for Rule-Making Strategies at Tama University as well as senior adviser (nonresident) at Pacific Forum. He is the author of Peak Japan: The End of Great Ambitions (Georgetown University Press, 2019). This article is drawn from a forthcoming book on the new national security economy. 

An earlier version of this article was published in Asia Times.

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

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged.

PacNet #39 – Abe Shinzo’s legacy in Southeast Asia

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The murder of Abe Shinzo on July 8 was a profound political shock to Japan and to the world. He was not the incumbent prime minister, and his death did not directly affect the current decision-making process of the Japanese government. Yet, he was the living legend who significantly shaped Japan’s domestic and foreign policy during the 2010s.

Domestically, he led the largest faction in the Liberal Democratic Party, and his word influenced Japan’s diplomatic and security discourse, notably his remarks on “nuclear-sharing” and “doubling the defense budget.” Internationally, his diplomatic visibility was also strong, as he was the norm entrepreneur who facilitated the “Indo-Pacific” narrative through Japan’s “Free and Open Indo-Pacific” (FOIP) concept from 2016.

Located at the center of the Indo-Pacific, Southeast Asia was a region Abe consistently engaged, considering it vital for Japan’s peace and prosperity.

Japan has engaged with ASEAN and each individual Southeast Asian state continuously since its adoption of the Fukuda Doctrine in 1977. Abe made his mark, however, by increasing Japan’s diplomatic visibility and commitment. Once Abe assumed his second prime ministership at the end of 2012, he enthusiastically conducted comprehensive engagement with Southeast Asia. In 2013, the 40th anniversary of ASEAN-Japan Friendship and Cooperation, Abe made visits to all ASEAN member states, hosted summit meetings, and successfully concluded the ASEAN-Japan Commemorative Summit Meeting in Tokyo. In 2014, Abe made a speech at the 13th IISS Shangri-La Dialogue on “Peace and prosperity in Asia, forevermore,” pushing for stronger international maritime stability, particularly in the East and South China Seas, where China’s assertiveness was growing. In 2014 and 2015 he focused on summit diplomacy to reassure Southeast Asian states that Japan’s constitutional reinterpretation of Article 9 (allowing Japan to exercise a right to collective self-defense) would not be a threat or a destabilizing factor to East Asia.

The Abe administration also intensified its economic, strategic, and defense engagement with Southeast Asia. In 2015, Abe launched the “Partnership for Quality Infrastructure” to provide financial assistance, mainly to Southeast Asia, for infrastructure development that would fully comply with international standards, while competing with China’s Belt and Road Initiative—which had alternative standards. After Abe announced the FOIP strategy in 2016, Japan has continuously emphasized the importance of ASEAN centrality and unity, culminating in “the ASEAN-Japan Summit on Cooperation on ASEAN Outlook on the Indo-Pacific” in 2020. In 2016, Japan launched the Vientiane Vision to enhance defense cooperation with ASEAN, which was later upgraded as Vientiane Vision 2.0 in 2019. Also, the Japanese Maritime Self-Defense Force consistently exhibited its defense presence in Southeast Asia, conducting military exercises with regional states through the Indo-Pacific Deployment every year since 2019.

These initiatives were not spawned as ad-hoc or one-shot diplomatic efforts that the then-prime minister created as ceremonial actions. Abe had a clear strategic vision that the future of the balance of power in East Asia, including Southeast Asia, would shift with the rise of an assertive China. Considering China’s growing presence in the East and South China Seas and increasing Chinese economic influence through the Belt and Road Initiative, Abe persistently highlighted the importance of stable maritime security, ensuring the sea lines of communication, the freedom of navigation and overflight, international law, as well as rules-based infrastructure development in line with the highest international standards. Although Japan was in relative decline vis-à-vis China—whose military expenditures surpassed Japan’s in the mid-2000s and whose GDP passed Japan’s in 2010—Abe was not intimidated and facilitated independent strategic thinking to defend his country’s national interests and regional stability. The FOIP was the embodiment of such thinking.

Abe’s diplomatic stance also contributed to promoting Southeast Asian states’ hedging strategy. As strategic rivalry was growing between the United States and China, Southeast Asian states aimed to “hedge”—avoiding taking sides and gaining economic and security benefits from both sides—including even those who tend to lean toward either China (such as Cambodia) or the United States (like Singapore). Japan’s relatively independent stance helped Southeast Asia pursue a hedging behavior by enhancing cooperation with Japan rather than the United States or China. The ISEAS Yusof-Ishak Institute Survey from 2019 to 2022 suggests as much, indicating that ASEAN considered Japan the best strategic option in 2020 and the second best in 2021 and 2022 after the European Union.

To be sure, Southeast Asian states did not always appreciate Abe’s strategic posture. On the contrary, they frequently expressed concerns about Abe’s strong anti-China attitude, which might destabilize East Asian peace and security. For example, Singapore expressed its regret about Abe’s visit to Yasukuni shrine in 2013, fearing that this would increase tension and ruin trust with regional states. In 2016 and 2017, when Japan launched FOIP and began to hold Quad meetings regularly, several ASEAN member states raised questions about Japan’s stance toward ASEAN and were hesitant to support its strategic initiative. However, Abe did not merely dismiss those criticisms. He incorporated them into his existing strategic thinking and attempted to strike a balance between Japan’s interests and Southeast Asia’s concerns. This is evidence of Abe’s willingness to hear ASEAN’s voice, which made Japan the most trusted major power for Southeast Asia, according to ISEAS Yusof-Ishak surveys from 2019 to 2022.

Unlike a traditional Japanese leader, Abe was not a consensus-builder but a strong believer in his own strategic and political vision, which polarized opinion, particularly in the domestic realm. However, his strategic posture produced positive outcome for Japan—making Japan diplomatically more visible in Southeast Asia and gaining more trust from regional states. He will be remembered as a proactive strategic leader who matched words with deeds, raising Japan’s diplomatic status in Southeast Asia.

Kei Koga ([email protected]) is assistant professor at the Public Policy and Global Affairs Programme, School of Social Sciences, Nanyang Technological University (NTU) and affiliated with S. Rajaratnam School of International Studies (RSIS), NTU.

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

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged.

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

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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 ([email protected])) 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

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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

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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?

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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.

A 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 ([email protected]) 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.  

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

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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 ([email protected]) 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.

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