Saturday, July 4, 2015
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Author: Raul (Pete) Pedrozo, United States Department of Defense

In a recent East Asia Forum article, Sam Bateman criticised a decision by the US Secretary of Defense Ashton Carter to develop military plans for more assertive freedom of navigation (FON) operations in the South China Sea (SCS). Specifically, Bateman asserts that ‘there are significant legal, operational and political risks involved with these operations’. While there may be risks associated with conducting FON operations in proximity of China’s man-made islands in the SCS, much of what Bateman states in support of his position is misplaced.

US warship SNS Safegurad is anchored at a port on the island of Palawan, western Philippines, 23 June 2015. The Philippines are holding separate naval drills with two of the country's top military allies, the United States and Japan, near the disputed South China Sea. (Photo: AAP)

First, Bateman alleges that the US is only concerned with China’s reclamation work in the SCS, which could give the impression that the US has abandoned its position of neutrality in the sovereignty disputes themselves. But, despite China’s assertive behaviour in the SCS over the past 40 years, starting with the 1974 invasion of the Paracels and culminating with its current reclamation activities encompassing more than 2000 acres (800 hectares), the US has maintained its neutrality regarding the sovereignty disputes. At both the US Pacific Command change of command ceremony and the Shangri-La Dialogue in late May, Carter stressed that ‘there should be an immediate and lasting halt to land reclamation by all claimants’.

Second, Bateman questions the legality of FON operations in the territorial sea, stating that ‘diverting from the normal passage route between points A and B just to demonstrate a right of passage’ does not constitute innocent passage. Bateman cites the provisions from the UN Convention on the Law of the Sea (UNCLOS) that innocent passage should be ‘continuous and expeditious’ and should not involve ‘any threat or use of force against the sovereignty, territorial integrity or political independence of the coastal State’.

There are a number of problems with Bateman’s analysis. To begin, nothing in UNCLOS suggests that a ship engaged in innocent passage must transit in a straight line between point A and B. All ships, including warships, enjoy a right of innocent passage through the territorial sea. Passage is innocent so long as it is not prejudicial to the peace, good order or security of the coastal state. Legally, it shall be considered prejudicial only if a foreign ship engages in any of the 12 prohibited activities listed in Article 19. Merely transiting the territorial sea is not one of these legally enumerated activities, a fact confirmed by the International Court of Justice in the Nicaragua v United States case.

Additionally, UNCLOS allows a coastal state to designate sea lanes and traffic separation schemes (TSS) in its territorial sea for safety of navigation purposes, which foreign ships exercising the right of innocent passage must use. But no such sea lanes or TSSs have been established in the SCS.

Moreover, as Bateman correctly points out, man-made islands constructed on submerged features are not entitled to a 12-nautical mile (nm) territorial sea. Therefore, US ships and aircraft can legally conduct operations within 12 nm of the feature. Furthermore, because the US maintains a position of neutrality over the sovereignty disputes, it does not recognise Chinese sovereignty over any of the SCS features.

Third, Bateman asserts that ‘FON operations are inherently dangerous’. Due to the risks involved, the FON program is administered with great caution. Since its inception in 1979, hundreds of FON assertions have been conducted by US ships and aircraft around the world. Each operation is deliberately planned, legally reviewed and approved at the highest levels of government. With a handful of exceptions, these operations have been conducted peacefully and professionally without interference from the coastal state.

Fourth, Bateman rebukes the US for criticising Chinese vessels for lacking professionalism and failing to follow the international rules for preventing collisions, indicating that that the ‘US Navy has experienced several accidents in recent years as a consequence of its own navigational errors and poor seamanship’. While US naval vessels have been involved in mishaps as a result of poor seamanship, the big difference is that poor seamanship by US officers is generally inadvertent, while poor seamanship and lack of professionalism on the part of Chinese officers has tended to appear deliberate.

Fifth, Bateman indicates that regional nations may not support increased US presence in the SCS, citing a statement by the Vietnamese foreign ministry. But this is at odds with the success of ongoing US engagement in the region. Singapore invited the US to forward deploy four frigates to the small country. Then, the US and Australia signed an agreement that will more than double the number of US troops training in northern Australia.

Similarly, the US and the Philippines signed the Enhanced Defense Cooperation Agreement that will enable US forces to access Philippine bases and facilities, as well as pre-position materiel in the Philippines for military and humanitarian missions. Of greater significance is the recent signing of the US–Vietnam Joint Vision Statement on Defense Relations, which opens new opportunities for enhanced US–Vietnamese defence cooperation.

Finally, Bateman claims that ‘by provoking China in such an aggressive and unnecessary manner, it can only make the current situation worse’. Politics aside, FON operations are a lawful exercise of navigation and overflight rights and freedoms, and other lawful uses of the sea and airspace, available to all nations under international law.

The US will not acquiesce in unilateral acts of other states designed to restrict the rights and freedoms of the international community in navigation and overflight and other related high seas uses.

Captain Pedrozo is former professor of international law at the Naval War College and is now a Deputy General Counsel for the US Department of Defense. He previously served as Staff Judge Advocate, US Pacific Command, and Special Assistant to the Under Secretary of Defense for Policy. The views expressed do not necessarily represent the position of the US Government or the US Department of Defense.

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Don’t go wobbly on freedom of navigation in the South China Sea

Author: Junya Nishino, Keio University

Many expected Japan–Republic of Korea (ROK) relations to be reset when the Shinzo Abe and Park Geun-hye administrations first came to power, but the past two years or so have seen further deterioration and pessimism.

June 2015 will mark the 50th anniversary of the normalisation of diplomatic relations between the two countries, offering a perfect opportunity to construct a shared long-term vision for Japan–ROK relations. Especially now, when challenges abound between the two, the achievements of the past 50 years since normalisation should be affirmed and a vision formulated for the future.

Endeavours to that end must begin with the following three points.

First, unceasing efforts must be made to restore trust between Japan and the ROK and deepen bilateral strategic dialogue, communication and mutual understanding. There has been a worrying halt of nearly three years in Japan–ROK summit meetings — the last one took place in May 2012 between former Japanese prime minister Noda Yoshihiko and ROK president Lee Myung-bak in Beijing.

A growing number of experts are abandoning any hope for a meeting under the Abe and Park administrations. But the deterioration in Japan–ROK relations is not due solely to the personalities of the two leaders. It stems in great part from changes in the international political structure and regional power balance in East Asia.

In particular, differing perspectives on the rise of China have destabilised relations. Japan views China as a military threat in part due to the Senkaku/Diaoyu Islands issue. The ROK in turn has seemingly begun to view Japan’s security posture vis-à-vis China as a potential threat.

In a 2014 opinion poll by Asahi Shimbun, the top responses in Japan to the question of which ‘country do you feel poses the greatest military threat’ were China at 55 per cent followed by the Democratic People’s Republic of Korea (DPRK) at 29 per cent. Respondents in the ROK put the DPRK first at 65 per cent, Japan second at 20 per cent and China third at 10 per cent.

When asked ‘which do you consider more important for your country, the US or China?’ in another 2014 joint opinion poll by Yomiuri Shimbun and Hankook Ilbo, Japanese heavily favoured the US (74 per cent) over China (14 per cent), while South Koreans were nearly evenly split between the US (47 per cent) and China (46 per cent). These disagreements are causing a divergence in security policy and mutual distrust between Japan and the ROK.

Political leaders and diplomats in both Japan and the ROK should, as quickly as possible, seek to enhance bilateral cooperation. This requires frank dialogue to foster understanding of each other’s foreign and security policies. Japan and the ROK should consider conducting the usual vice-ministerial strategic dialogues at a higher level by, say, holding regular meetings between top Japanese and ROK security policy officials, such as that held between National Security Council Secretary General Yachi Shotaro and National Security Office Chief Kim Kwan-jin in October 2014.

Second, gaining the understanding of the general public is essential to further develop Japan–ROK relations. Both countries’ leaders need to speak to their respective constituencies more enthusiastically and openly about the importance of good relations and cooperation. The deterioration in sentiment toward the ROK is especially serious in Japan, with a 2014 Cabinet Office poll showing the proportion of Japanese who do not feel an affinity with the ROK is at an all-time high of 66 per cent. The ‘fatigue’ they feel when the ROK raises historical issues continues to cause many Japanese to lose sight of just how important relations with the ROK are.

The time has come for political leaders to distance themselves from short-sighted, emotionally loaded arguments and to highlight the importance of good long-term relations with their neighbours. The Japanese cabinet made this clear in December 2013: ‘The ROK is a neighbouring country of the utmost geopolitical importance for the security of Japan. Close cooperation with the ROK is of great significance for peace and stability in the region’. Japan holds the same importance for the ROK. Therefore it is incumbent upon the political leaders of both countries to explain the vital importance of the relationship to their respective publics more candidly and persuasively.

Third, diplomacy on controversial historical issues is vital. Diplomacy is not a time for obstinacy but rather one when mutual compromises are made to gradually uncover points of equilibrium. But Japan must supplement bilateral diplomacy with persuasive arguments at home and clear explanations internationally.

Japan addressed the so-called ‘comfort women’ issue wholeheartedly in the 1990s by, for example, establishing the Asian Women’s Fund, but its communications on the issue both at home and abroad have proved insufficient. Unfortunately, Japan’s past efforts are almost entirely unknown and therefore unrecognised in the ROK. As the ‘comfort women’ issue has been treated as a human rights issue since the early 2000s, Japan’s approach needs to be even more conscious of the opinions of the international community.

Japan and the ROK should explain domestically and internationally that they respect the decisions and efforts made thus far and they will aim to resolve issues in accordance with internationally-agreed rules. They should also affirm that they will jointly, calmly and constructively address the destabilising impact of nationalism in East Asia.

Mutual criticism and persistent assertiveness are not conducive to joint action. At the same time, historical issues do not constitute the whole of Japan–ROK relations; the political leaders of Japan and the ROK should firmly commit to expanding exchange and cooperation in various endeavours. Even while earnestly addressing the past, we must not lose sight of 50 years of diplomatic cooperation designed to ensure future peace and prosperity.

Junya Nishino is an Associate Professor in the Department of Political Science, Faculty of Law and Politics at Keio University.

A version of this article was first published here by the Association of Japanese Institutes of Strategic Studies.

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Japan and South Korea must foster domestic support for bilateral relations

Author: Evelyn Goh, ANU

The recent 2015 Shangri-La Dialogue focused on China, the United States and maritime security. But those expecting fireworks in the wake of China’s new Defence White Paper and recent sharply worded speeches by US defence officials were left disappointed. 

US Defense Secretary Ashton Carter reiterated America’s vital role and continued commitment to regional security. The tone was deliberately softened by repeated references to America’s determination to create a regional security architecture ‘where everyone rises and everybody wins’ and US desire to ‘protect the rights of all countries, whether large or small, to win, to rise, to prosper and to determine their own destiny’. To ears familiar with Chinese rhetoric, this packaging sounded like ‘mutual benefit’ and ‘win-win cooperation’ — with American characteristics.

But Carter also took care to contextualise US concerns about the South China Sea disputes. He noted that all claimant states have been building structures on the disputed features, but he stated that it is the scale and speed of China’s reclamation works that spur concerns.

China’s Deputy Chief of General Staff Admiral Sun Jianguo stressed China’s continued restraint and commitment to freedom of navigation in the South China Sea disputes — the United States’ main concern. And he claimed that China’s reclamation and construction work on some islets was aimed at improving local communities’ quality of life, China’s disaster response capability, scientific monitoring and regional navigation safety.

The 2015 Shangri-La Dialogue might appear uneventful, but avoiding bad-tempered public pyrotechnics probably facilitated private meetings between defence ministers and their retinues — the main arenas for substantive exchanges.

Preventing a diplomatic fall-out between China and the US is itself a success. It helps to bring this annual dialogue back to an even keel after the 2014 experience, at which China launched an unsuccessful media campaign and the US delegation was perceived to have blatantly coordinated with its regional allies, especially Japan, to criticise China. A repeat of 2014 might have affected the tenor of the upcoming US–China Strategic and Economic Dialogues and the prospects for President Xi Jinping’s planned visit to Washington.

But drawing back from ‘full and frank’ public exchanges may reinforce a growing divide in Asia Pacific strategic dialogues. One of the Shangri-La Dialogue’s key challenges has always been how to secure substantive Chinese participation so that it can be a true dialogue about Asian security affairs. For the Chinese, the Shangri-La Dialogue tends to highlight the uncomfortable reality that the Asia Pacific is filled with American allies and friends, many of whom have superior resources. The largest delegations tend to be from the United States, Japan, Singapore, and the combined European countries.

China has recently increased the size (and vocality) of its delegations and media presence but has sent its defence minister only once, in 2011. Admiral Sun’s speech demonstrated China’s preference for diplomatic performance above substance in the Shangri-La Dialogue. This is consistent with Beijing’s efforts since 2014 to promote alternative China-led multilateral security forums, such as the Conference for Interaction and Confidence Building in Asia and the Xiangshan Forum. These forums have wider participation from Asia (including Central Asia and Russia), China-set agendas and discussions more critical of the US role in the region.

If this trend continues, Asia risks developing separate sets of multilateral security dialogues, one dominated by the US and the other by China, with each set talking in parallel and past each other. This trend is especially worrying given current tensions in the South China Sea.

Secretary Carter’s speech contained three key messages for China. First, the US is a ‘resident power’ in the Asia Pacific that intends to remain the most important security player. Carter emphasised the continuing ‘regional demand for persistent American engagement and the importance of the regional security architecture’. He also stressed how the US is helping its regional allies and security partners — including Japan, the Philippines and Vietnam — to improve their maritime domain awareness and capabilities.

Second, this widespread and growing regional support for US leadership is in part fuelled by China’s own actions. China appears ‘out of step’ with international rules and norms, and the regional consensus opposing coercion and in favour of peaceful resolution of disputes.

Third, the US intends to uphold freedom of navigation and overflight in maritime East Asia, and will ‘continue to fly, sail and operate wherever international law allows’ — which in Washington’s view includes the areas surrounding the artificial islands China is building in the South China Sea. Just before the Shangri-La Dialogue, a CNN reporter aboard a US Poseidon surveillance plane flying over these structures released a voice recording of a Chinese military officer warning the aircraft to stay out of China’s ‘military alert zone’. The US Department of Defense is reportedly considering sending military ships and aircraft within the 12 nautical-mile radius of China’s artificial islands — either unilaterally or together with regional allies — to test freedom of navigation.

While the US spoke relatively softly, it seems to be carrying a big stick. But exactly how big is the stick? Secretary Carter’s visit to Vietnam following the Shangri-La Dialogue has already generated disappointment at the limits of defence cooperation, and worries that the Vietnamese could not be persuaded to sign up to halt construction in the South China Sea.

Meanwhile, the insecurity spiral continues: China is unlikely to cease or slow down its program of island construction and might declare an air defence identification zone over parts of the South China Sea; the US will find it hard not to test freedom of navigation without damaging its own credibility.

Both sides may find opportunities to negotiate mutual restraint. But it is equally possible that it will take a crisis or accident involving American and Chinese personnel in the South China Sea to force them to come to some mutual understandings about conflict avoidance and management.

Evelyn Goh is the Shedden Professor of Strategic Policy Studies at the Australian National University.

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Regional divisions simmer beneath the surface at Shangri-La

Author: Sanchita Basu Das, ISEAS

As the ASEAN Economic Community’s (AEC) December 2015 deadline approaches, most observers feel that the initiative’s deliverables — an integrated production space with free movement of goods, services, and skilled labour — will not be achieved. This may be true. But the AEC should be seen as a work in progress. To simply say it will miss its deadline is to ignore other crucial facts about the AEC’s role and circumstances.

Thai office workers walk past advertising promoting the ASEAN Economic Community in Bangkok on 13 January 2013. The AEC is unlikely to be ready by its deadline. (Photo: AAP)

While lessons have been derived from the European Union, the AEC was not developed on the basis of this model. Since ASEAN’s inception, the sovereignty of nation-states and non-interference in domestic matters were key principles guiding the organisation. Economic cooperation was sought in areas where it was deemed necessary. This included allowing for economies of scale and multinationals doing business in Southeast Asia, and anchoring production networks that were already developing in the broader Asian region. Economic cooperation was seen as a gradual process, with long-term aspirations, rather than a mechanism in which strict rules apply irrespective of the nature of member economies and changing global conditions.

Although the AEC is a regional initiative, it is implemented by national economies. Domestic law and policy is required to do things like cut tariffs, remove non-tariff barriers and liberalise the services sector. This can be difficult because each initiative is not the sole preserve of any one body but involves multiple ministries and other agencies. That some domestic economic actors stand to gain or lose from integration means that the AEC generates proponents and opponents. And this slows down the pace of implementation further.

But the AEC is not the sole cause of increasing competition in domestic economies. The AEC vision was developed with an awareness of current global economic trends. The 10 ASEAN countries realised that their own WTO ascension would not lead to quick outcomes in a forum of 150 other countries at different stages of economic development. There the concerns and objections of small economies, like the ones in Southeast Asia, are not likely to be heard.

In contrast, ASEAN and the AEC are small enough to consider the interests of all and may also accord short-term flexibility. While this is likely to slow down the establishment of the AEC, advanced member countries — such as Singapore, Malaysia and Thailand — are not restricted to only this framework. All of them have pursued bilateral free trade agreements with their key trading partners. So, for any single country, heightened competition is a part of the globalisation process. And there are other frameworks — be they bilateral, regional or multilateral — that can further economic liberalisation.

ASEAN economic cooperation is a top-down initiative and hence awareness among stakeholders is low and uneven. The association was instituted in 1967 to promote peace and stability. It took another decade for economic cooperation to make the agenda. But economic cooperation has become a form of diplomacy that is often carried out by foreign ministries in consultation with  commerce or trade ministries.

Some have observed that economic regionalism in Southeast Asia is the subject of political elites, with almost no involvement from other stakeholders. This has been accompanied by a low level of awareness of relevant economic cooperation measures, particularly among the final users.

But with the looming 2015 deadline, the private sector is now being listened to. And advocacy for trade initiatives by the private sector is not unanimous. It is often driven by the relative strength of particular firms that bring foreign direct investment into the country.

Finally, the AEC should not be seen in isolation from, but rather in conjunction with, the ASEAN Political-Security Community and ASEAN Socio-Cultural Community. A political security community works towards regional peace and stability, while a socio-cultural community encompasses regional cooperation in areas like environmental protection, limiting the spread of contagious diseases, transnational crime and cooperation when responding to natural disasters. It is hoped that, when combined, these initiatives will help to cultivate a sense of regional identity.

The AEC is a work in progress. Some promises have been met, but significant challenges also remain. Awareness among policymakers and final users is growing. ASEAN is often criticised for weak institutions, which has also made AEC implementation difficult. But only time will only tell how much of this can be changed. With the AEC and ASEAN Charter, the region has already evolved as a rules-based association.

Now is the time for ASEAN countries to come together to strengthen the economic community. The global economy has been in a constant state of flux since the 2008 economic crisis. While the AEC may not deliver on a fully integrated single market and production base for ASEAN stakeholders in 2015, it will help ASEAN members to withstand the next global crisis with confidence.

Sanchita Basu Das is an ISEAS Fellow and Lead Researcher on economic affairs at the ASEAN Studies Centre, ISEAS, Singapore.

A longer version of this article was published here as an ISEAS Perspective.

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Slow but steady for the ASEAN Economic Community

Author: Peter Martin, APCO Worldwide

The relationship between China and India will be one of the most important of this century. Their ability to cooperate will be crucial on international issues ranging from climate change to multilateral trade negotiations. Yet for all of its future significance, the relationship remains shallow, unbalanced and stuck in the past. As Narendra Modi visits Beijing this week, there are signs of change but progress will likely be slow, piecemeal and pragmatic.

India's Prime Minister Narendra Modi receives a floral bouquet from a young Chinese child on his arrival at Xi’an Xiangyang International Airport in Xi’an, 14 May 2015. (Photo: AAP)

Gradually and from a low base, India is creeping up Beijing’s list of diplomatic priorities. Li Keqiang’s first foreign visit after becoming premier in 2013 was to India and Modi’s trip to China this week follows a highly-publicised India trip undertaken by Xi Jinping in September 2014.

India’s increasingly prominent global role — especially through the BRICS group and the G20 — has given it a more serious spot on Beijing’s geopolitical map. And the countries have also found common ground in a weariness of Western-dominated international institutions, with India featuring prominently in China’s efforts to build alternatives, such as the Asian Infrastructure Investment Bank, the BRICS Bank, and the Shanghai Cooperation Organization.

More than politics, it’s the prospect of making money that’s nudging Sino–Indian relations in a positive direction. Annual trade has ballooned to US$66 billion from just US$3 billion in 2000. Chinese companies, such as the high-tech firms Huawei and Xiaomi, are beginning to think big about India. And India, in turn, has high hopes for its software and pharmaceutical companies in China. In a way that would have seemed implausible even a few years ago, Chinese and Indian businesspeople are dreaming in rupees and renminbi.

But there’s still a long way to go before China considers India a peer. Since its victory in the countries’ brief 1962 border war and mindful of its economic heft, China has often treated India dismissively. As Zhu Feng, a leading Chinese commentator and professor at Nanjing University, puts it, ‘we don’t consider India a very successful contender and I don’t think Modi can change that’. India, for its part, has viewed its neighbour with suspicion, fixating on the ongoing border dispute to the exclusion of closer economic or social ties. These attitudes are deeply entrenched among the political and bureaucratic elites of both countries; they will take a long time to change.

Turning economic enthusiasm into political goodwill is also no easy task — not least because the economic relationship remains deeply unbalanced. India runs a US$37.8 billion trade deficit with China and its exports to the country are overwhelmingly composed of raw materials rather than finished goods, a fact that accentuates Indian insecurities about China’s economic success.

These trade imbalances are accentuated by the shallowness of China and India’s investment relationship. Despite its decade-long overseas spending spree, China’s investment in India totals just US$500 million, less than Malaysia, Canada and Poland have invested in the country. Indian investment in China is also relatively feeble at around US$470 million. Without strong investment ties, the relationship is deprived of an important lobby with a vested interest in strong bilateral relations: investing in overseas firms involves businesspeople putting down roots in foreign countries, making investors vulnerable to downturns in bilateral ties.

Much of this reflects the way that Chinese and Indian firms struggle to succeed in each other’s markets. Chinese companies in India are often ensnared by the Indian bureaucracy’s fears of over-dependence on China or of espionage. Indian firms in China struggle to gain market access in information technology and pharmaceuticals. They also deal with deep-seated perceptions that they have little to offer. When companies run into trouble, they have few organisations or experienced compatriots to turn to for help. Indian firms in China, for instance, must rely on an embassy with just 30 diplomats, nominal representation by Indian industry associations, and a small Indian diaspora that lacks any political clout.

Put simply, economic ties are not yet deep or substantive enough to overcome decades of political suspicion.

But perhaps the largest obstacles to a burgeoning relationship are the Chinese and Indian people themselves. The Chinese and Indian publics do not know each other well — and what they do know is coloured by historical baggage. This, combined with strong nationalist strands in both countries, makes it difficult for the political relationship to progress.

According to a July 2014 Pew Global poll, just 30 per cent of Chinese hold a favourable view of India and a mere 31 per cent of Indians hold a favourable view of China. This is partly because there is little interaction between the two populations. Of the 100 million Chinese who travelled overseas in 2013, just 160,000 ended up in India. By contrast, 1.4 million visited France. Of the 270,000 Indian students studying abroad in 2013, just 9200 were in China; at the same time, only 2000 Chinese students were studying in India. On top of this, the visa process is cumbersome and direct flights are limited: only one airline, Air China, covers the Beijing–Delhi route and no direct flight links the commercial hubs of Shanghai and Mumbai.

Narendra Modi and Xi Jinping clearly understand the potential of the Sino–Indian relationship. They have emphasised the countries’ shared history of trade along the ancient Silk Road, their shared ties of Buddhism and the nations’ past economic glories. They will no doubt reemphasise them this week. But to move forward the leaders need to deal with more recent history. This means encouraging creative thinking to alleviate the border dispute, eliminating bureaucratic hurdles to the bilateral business relationship and, above all, working to improve attitudes on both sides through academic exchange and people-to-people contact. The obstacles may be formidable, but the outcomes will be critical to regional — and global — geopolitics.

Peter Martin is Associate Director, India, at APCO Worldwide. He was previously based in Beijing.

This article was adapted from a longer version published here in Foreign Affairs and is reprinted with the permission of the Council on Foreign Relations.

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How to heat up lukewarm India–China relations

Author: David Dollar, Brookings Institution

To understand the impetus for launching the Asian Infrastructure Investment Bank (AIIB), look no further than China’s concern that the governance structure of existing international financial institutions was evolving too slowly. An important agreement to increase the resources of the International Monetary Fund and to raise the voting shares of fast-growing emerging markets, ratified by other nations, has been stalled in the US Congress. It is ironic that one of China’s frustrations with the US-dominated institutions is that China sees a need for more resources and is willing to contribute, whereas the different parts of the US government cannot agree to this expansion.

China’s frustration is not just about the size of the institutions and its weight within them. In the case of the World Bank, China has argued for years for more focus on infrastructure and growth.

Several years ago, Ernesto Zedillo, former president of Mexico, chaired the High-Level Commission on Modernization of World Bank Group Governance. This was a serious effort by a distinguished international committee, including Zhou Xiaochuan from China and other emerging market heavyweights.

The Zedillo report is quite critical of the current World Bank arrangement of a resident board that approves all loans. The resident board is both a large financial cost to the bank (US$70 million per year) and an extra layer of management that slows down project preparation and makes the bank less efficient. Slowness of project preparation is one of the main criticisms of clients concerning the poor performance of the multilateral development banks.

The Chinese officials charged with developing the AIIB are looking at the Zedillo report for ideas. It is likely that the bank will have a non-resident board that meets periodically in Beijing and also by videoconference. Given the newness of the bank, a likely compromise among the countries that have signed up is that the board will approve many of the initial projects and eventually delegate more decision-making to management.

The Zedillo report recognises the importance of environmental and social safeguards but argues that the World Bank has become so risk averse that the implementation of these policies imposes an unnecessary burden on borrowing countries. In practice, developing countries have moved away from using the existing multilateral development banks to finance infrastructure because they are so slow and bureaucratic. The enthusiastic response of developing countries in Asia to the AIIB concept reflects their sympathy with the idea that a bank can have good safeguards and still be quicker and more efficient than the existing banks.

Some of the Western commentary on the AIIB expresses a fear that China will use the bank for narrow political or economic ends. Now that a diverse group of nearly 60 countries have signed up, it would be difficult for China to use the bank to finance projects in favoured countries over the exclusion of other members.

The idea that AIIB projects would help absorb China’s over-capacity problem does not make sense. If the bank is very successful, then in five years it might lend US$20 billion per year, on a scale with the World Bank’s International Bank for Reconstruction and Development lending. In the steel sector alone, China would need US$60 billion per year of extra demand to absorb excess capacity. Add in excess capacity in cement, heavy machinery and other sectors — the point is that the bank is just way too small to make any dent in the excess capacity problem, even if China were the sole supplier for these projects, which it won’t be.

The initial success of AIIB is a diplomatic victory for China. The US diplomatic response has not been adroit, playing into the narrative of US decline in the Asia Pacific. But that perception could change quickly. Infrastructure is the necessary ‘hardware’ of economic integration. But trade agreements such as the Trans-Pacific Partnership (TPP) are the ‘software’. If the US and its partners can negotiate and implement this agreement for deeper integration, that will provide a large boost for the members and re-establish US importance to the Asia Pacific economy.

China pursuing the AIIB and other initiatives that do not include the US, while the TPP negotiations do not involve China, creates a risk of competing blocs and institutions. But the most likely outcome is that the world ends up with a more robust and inclusive set of institutions. The AIIB is likely to make the other development banks more effective and become a part of the global architecture. China and other Asian countries not now involved in TPP are likely to join if it is successful. Bringing the hardware and the software together, the outcome could be a more integrated Asia Pacific economy.

David Dollar is Senior Fellow, John L. Thornton China Center, Brookings Institution. He was the former World Bank Country Director for China and Mongolia in the East Asia and Pacific Region.

This article was originally published here for the Brookings Institution.

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What the AIIB can learn from World Bank shortcomings

Author: Rupakjyoti Borah, India

Indian Prime Minister Narendra Modi’s recent visit to Seychelles, Mauritius and Sri Lanka reflects New Delhi’s changed foreign policy priorities. It signals that India is no longer willing to be outmanoeuvred in the Indian Ocean region — its strategic backyard.

Modi’s visit was also part of the prime minister’s efforts to reach out to India’s neighbours. This started with his inauguration when he invited the heads of state of all the member nations of the South Asian Association for Regional Cooperation.

Modi was also scheduled to visit Maldives during this trip. But it was dropped from his itinerary in a not-so-gentle rebuke of the Maldivian government, which had arrested the former Maldivian President Mohammed Nasheed. New Delhi considers Nasheed to be pro-India. Nasheed has now been convicted on a terrorism charge and sentenced to 13 years in prison, showing the limits of India’s influence.

On the first leg of his trip to Seychelles, Modi unveiled the first Indian-built Coastal Surveillance Radar System. And, in a very significant move, Assumption Island in Seychelles was leased to India. In Mauritius, Modi commissioned an India-built offshore patrol vessel, Barracuda, into the Mauritian National Coast Guard. This will help Mauritius patrol its vast exclusive economic zone.

But it was on the last leg of his trip to Sri Lanka that Modi gained the most attention. It was no secret that under former president Mahinda Rajapaksa, Sri Lanka was titling towards Beijing. This has been exacerbated by the fact that no Indian prime minister had paid a visit to Sri Lanka in the last 28 years. But the India–Sri Lanka relationship has begun to change following the election of President Maithripala Sirisena.

Sirisena made India his first foreign destination after taking office. During his visit India and Sri Lanka signed a civilian nuclear deal.

During Modi’s visit to Sri Lanka, he announced that India would be providing a new US$318 million line of credit to Sri Lanka to upgrade its railway infrastructure. He also paid a historic visit to Jaffna city in Sri Lanka’s Tamil heartland. During the Sri Lankan civil war, India sent troops — the Indian Peace Keeping Force — to Sri Lanka and the Tamil heartland had seen heavy fighting.

In the past, central governments in India have found it difficult to articulate a clear foreign policy towards Sri Lanka. Shaky coalition governments in New Delhi have relied on support from political parties in the south Indian state of Tamil Nadu for their survival. They have therefore found it extremely difficult to take a strong stand on issues related to Sri Lanka, which is home to a significant Tamil minority. As Modi leads a majority government in New Delhi, he can afford to make strong decisions on Sri Lanka without succumbing to pressure from interest groups in Tamil Nadu.

One of the reasons why India has reached out to these Indian Ocean nations is China’s Maritime Silk Road initiative, which is seen by many in India as an attempt to undercut New Delhi’s influence in the Indian Ocean region. Beijing has aggressively courted countries like Sri Lanka, the Maldives and Seychelles in the past. The Maldives are viewed as having openly snubbed India. For example, the Maldivian government overturned a contract to expand its international airport in Male that had been awarded to an Indian infrastructure company and later gave the contract to a Chinese company.

While Modi’s visit has been successful, there is no denying that the Indian Ocean will be a new playground between New Delhi and Beijing. India will no longer have the luxury of being the unchallenged power in the region (with the sole exception of the United States). This will call for some nimble-footed diplomacy from New Delhi. Beijing has asked India to collaborate in the Maritime Silk Road initiative, a move that has put New Delhi on the diplomatic back foot.

But New Delhi’s problems do not seem to have ended. Many Indian Ocean nations are wary of aligning with either India or China and will therefore try to get the best out of both of these powers. India’s reticence in reaching out to these countries in the past led them to open up to Beijing. This trend will continue as Beijing, flush with both economic and military muscle, tries to secure sea-lanes to carry minerals and energy resources from the Middle East and Africa to China.

Rupakjyoti Borah is a former Visiting Research Fellow at the Japan Institute of International Affairs.

A version of this article was first published here by Global Asia.

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India’s renewed push into the Indian Ocean

Author: Tridivesh Singh Maini, Jindal School of International Affairs

Ever since former prime minister P.V. Narasimha Rao reshaped India’s foreign policy in the 1990s under the so-called ‘Look East’ policy India has strengthened ties with Southeast Asia. The current government of Prime Minister Narendra Modi has unequivocally said that it is keen to progress from the ‘Look East’ policy to ‘Act East.’

The post-Cold War world has compelled India to reshape relations with important countries, such as the US and Japan. India’s increasing economic clout has also meant that the outside world has paid greater attention to it.

Since the 1990s, India has moved from being a sectoral partner of ASEAN to being a dialogue partner. Trade between India and ASEAN is tipped at US$76 billion (as of 2013–2014), which — while far below its potential — is up more than 20 per cent compared to a decade ago. This has been facilitated by the India–ASEAN free trade agreement (FTA) in goods. Bilateral trade is likely to increase further, with both sides setting a target of US$100 billion by this year.

In the strategic sphere too, India has strengthened ties with Vietnam and Singapore. India has been carrying out joint naval exercises with Singapore near the Andaman Islands for two decades. India signed a military agreement in 2003, which includes joint exercises and training. And in September 2014 the two countries decided to strengthen cooperation in the context of counterterrorism.

India has extensive strategic ties to Vietnam, which include interactions between defence services and assistance in the maintenance of defence equipment. During Indian President Pranab Mukherjee’s visit to Vietnam, a US$100 million line of credit was signed between the EXIM Bank of India and Vietnam’s Ministry of Finance, specifically for defence procurement.

India is also no longer ambivalent about its role in Southeast Asia, especially in regards to the South China Sea dispute. This was evident in Modi and US President Barack Obama’s joint statement. Modi also stated: ‘We have a shared interest in maritime security, including freedom of navigation and commerce, and peaceful settlement of disputes in accordance with international law’.

India has begun to place special emphasis on Cambodia, Myanmar, Laos and Vietnam. It has ramped up financial aid and development assistance, and has set up a special desk at the Ministry of External Affairs. India is now assisting these countries in areas like information technology as well as English-language training.

Steps are also being taken to enhance both land and sea connectivity with Southeast Asia. Myanmar is the only gateway through land to South East Asia. A trade zone connecting Behiang in Manipur with Myanmar’s Chin province is being discussed, while a land customs station at Zawkhatar in Mizoram is also likely to be inaugurated soon. Chief ministers of north Indian states are involved as key stakeholders, not just in the context of ties with Myanmar but the overall Act East policy.

India is also seeking to build closer maritime links with Southeast Asia. The Shipping Corporation of India initiated a bi-weekly container shipping service to Myanmar in October 2014. It is likely that similar services will also be launched to Vietnam and Cambodia.

But if India wants its Act East policy to be successful it needs to take a number of further steps.

First, India must strengthen important infrastructure projects such as the trilateral highway linking India–Myanmar–Thailand and infrastructure on land borders with Myanmar.

Second, India needs to utilise its diaspora more effectively. So far, it has engaged only with the Indian diaspora in Singapore, Malaysia and to some extent Thailand. India needs to pay greater attention to the Indian community in Myanmar.

Third, there is scope for greater engagement with countries like Indonesia and the Philippines. There is immense potential for strengthening India–Indonesia relations not just due to their common past, but also due to the similar backgrounds of Modi and Indonesian President Joko Widodo, who were both strong regional leaders before becoming heads of state.

Finally, a large number of Indian states are beginning to engage with Southeast Asian countries, especially Singapore and Malaysia. While it is logical to make northeastern states key stakeholders in the Act East policy, it is also important to rekindle ties between other Indian states and ASEAN countries.

Indian cities that share a common history and heritage with countries in ASEAN can deepen relations on the basis of religious history. For instance, the Buddhist site of Sarnath near Varanasi receives a large number of tourists, many from Thailand. There are a number of sites in Madhya Pradesh such as Mahurijhari that can similarly be linked with ASEAN countries. Links between cities in states such as Kerala, which were part of the Spice route, can also be built. Already, UNESCO and the government of Kerala signed an agreement in 2014 to revive the Spice Route Project.

There is immense potential for India finally to play a greater role not just in South Asia but in Asia as a whole.

Tridivesh Singh Maini is a Senior Research Associate with the Jindal School of International Affairs, Sonepat, India.

A version of this article was first published here on Global Asia Forum.

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Why India needs to ‘act’ East