Thursday, 12 December 2013

Despite economic woes, Europe appears on the mend, EU diplomat says

Eurozone optimism has dissolved, despite signs of strength in the UK and Germany. After a three-year wait, the UK’s economic recovery appears to have finally taken hold. This is no ordinary recovery and it has required the coalition government to take the bold step of releasing household credit from the strictures of tight bank regulation to help it along. Aggregate inflation and growth - once the weaker economies of southern Europe are included - paint a picture that worries politicians and bankers. They fear renewed pressure could again test political and monetary union in Europe, setting the stage for additional bailouts and extended austerity. The countries of northern Europe also appear to demonstrate high levels of entrepreneurial activity, so the region is likely to maintain an economic advantage over their southern and eastern neighbours in Europe. Despite tremendous opportunities for growth, however, a number of obstacles block the Continent from reaching its full potential. 
Michalis Rokas, Chargé d'Affaires for the EU
Delegation to New Zealand (left) with NZ Foreign
Minister Murray McCully (right)

All this bodes well for the EU-NZ trading relationship as Michalis Rokas, Chargé d'Affaires for the European Union Delegation to New Zealand, points out in an interview with INTEL and Analysis.

How does the ongoing EU crisis affect New Zealand trade with the union? What measures are being implemented by Brussels and Wellington, if any, to insulate the trade partnership with NZ and ensure the worst of the effects of the crisis do not hurt our exports?

Let's first address the successes of the EU in response to the crisis. Firstly, the Eurozone did not break up – both the single market and in preserving the common currency were upheld. The EU will also expand when Lithuania will become the 18th member state to complete the transition to Economic and Monetary Union by adopting the single currency in 2014.

Throughout the crisis, the EU maintained its strong trading relationship with New Zealand as New Zealand's third largest trading partner after China and Australia. The EU's trade in goods and commercial services with New Zealand has increased every year since 2010, the peak of the economic crisis. Trade between us is now valued at NZ$12 billion, representing 26% of New Zealand's total trade. The EU is also New Zealand's third-largest source of foreign investment, with stocks worth nearly NZ$9 billion at the end of 2012.

The key lesson from the crisis was the need to strengthen the mechanisms and policies of Economic and Monetary Union in the EU. Important strengthening measures are being formulated and will only bolster trade with all partners, including the already strong EU-New Zealand trading relationship.

As things improve in Europe, the opportunities for New Zealand exporters will continue to increase. With the EU's increasing banking sector stability, the timing is also good for New Zealand firms to look at investments, mergers, or acquisitions in Europe.

The regional picture is mixed. Germany continues to be the engine of economic growth in the eurozone, even though it continues a hurtful trade surplus. France is flat lining. In Spain and Greece, austerity measures have reduced expenditures and led to economic stagnation. Policy prescriptions might be quite different if each country still had its own currency; but since they all use the euro, the ECB is in a quandary. What is the right path forward for the EU at this point in the crisis? How can we expect the EU to evolve in the next 5 years?

Economic growth has returned to the euro area: Germany and the UK posted better-than-expected positive growth figures, mirrored in other northern European countries; while Ireland has managed to secure an imminent exit from the international bailout programme.

The way forward for Europe is more Europe in well-designed and targeted areas. The EU has made the political commitment to strengthen Economic and Monetary Union. The logistics of that decision involve three interrelated elements in order to sustain economic recovery and ensure against a repeat of the crisis.

Firstly, the crisis highlighted that, in the long term, monetary union cannot work without steps towards a fiscal union. A fiscal union, as proposed by the European Commission, would ensure sound public finances across Europe and solidarity mechanisms for extenuating crisis situations. These include indicators that can alert policymakers to incipient threats which may require timely responses.

Secondly, while banks in Europe have been operating increasingly across borders, oversight of their activities has remained a national responsibility. A shared currency and close financial integration make the euro area particularly vulnerable to banking crises spilling over from one EU country to another. As part of a wider banking union, the European Commission recently proposed a single supervisory mechanism which would give the ECB new powers to monitor the performance of the 6,000 banks in the eurozone. If a bank breaches – or is at risk of breaching – capital requirements, the ECB would be able to ask the bank to take corrective action. Meanwhile, national supervisors would continue to carry out day-to-day checks. A single rulebook on capital requirements, standardised deposit protection schemes, and new recovery and resolution provisions – all proposed earlier in the year – would complete the ‘banking union’.

The third component lies in deeper and wider political integration. The sovereign debt crisis exposed the unsustainable economic policies pursued by some euro area countries. An integrated economic policy framework is necessary to guide the policies of member states towards strong and sustainable economic growth and employment. In the absence of exchange rate adjustments, a well-functioning EMU requires efficient labour and product markets. This is essential to fight large scale unemployment, and to facilitate price and cost adjustments.

The crisis exposed weaknesses in the original policy framework of the EMU. However, rather than dwell on these deficiencies, the EU is seizing the opportunity to both strengthen policies and mechanisms to bring the wider EU closer. We are confident that the euro will return to its position of strength and stability in the global economy and that the EU will extend its role as a pre-eminent global actor.

In the United States and the UK, a program of quantitative easing and low interest rates delivered a turnaround. In Japan, a combination of currency depreciation, stimulus and asset purchases has produced a current GDP growth rate of 2.7 percent. Some economists have articulated concerns that the ECB is not doing enough and should consider following the example of United States and Japan. Should the ECB purchase bonds directly and introduce a greater scheme of quantitative easing and lower interest rates? How would this help the ECB?

The European economy is the largest economy in the world. Unlike the United States or Japan, the EU is a unique political entity - although each of the 28 member states are independent countries, each has agreed to pool sovereignty in some areas in order to gain strength and the efficiencies of size. In this way, some decision-making powers, such as trade, are delegated to the shared institutions so matters of joint interest are resolved at the European level, while other decisions reside with the governments of the member states.

The question of the European Central Bank purchasing bonds directly and introducing a greater scheme of quantitative easing and lower interest rates, for example, tests the delegation of powers within the EU’s structure. The ECB has independent control over monetary policy and its overriding objective is to maintain price stability within the euro area. At the same time, however, the ECB is forbidden from creating money to finance public debts directly in order to maintain its political independence. In this way, member states must decide whether it will be the Commission or the finance ministers who determine whether schemes such as quantitative easing should be used to stimulate the economies worst affected by the crisis.

The EU is a vitally important market for New Zealand, second only to Australia in importance as a market for New Zealand goods. Two-way trade is approximately NZ$12 billion annually. What can the New Zealand government do to retain these numbers? What can they do to boost trade? How are NZ businesses encouraged to set down roots in the EU?

The EU is a predictable market for New Zealand. Our commitment to a rules-based trading system means, for example, that we do not arbitrarily shut our borders; we engage in a thorough process with our exporting partner to check the extent of the problem. For example, the EU did not shut its borders to New Zealand dairy products at any stage during the recent whey protein contamination scare. The European Commission was in early and close contact with the New Zealand regulator and was able to quickly determine that the scare posed no health risk to European consumers.

Trade remains very important but the wider political and economic relationship has broadened considerably in scope over the last years. Areas of cooperation and common concern include climate change, openness of world trade, security and development in the Asia Pacific regions, and promotion of human rights. In all these areas, the EU and New Zealand endeavour to help reinforce one another’s positions at international meetings.

Lots of gloomy news reaches us from the EU. At the same time NZ is bombarded with public relations material touting our blooming relationship with China. The general feeling is that New Zealand is an Asia Pacific country and our concerns should be with our immediate neighbours. Why does the EU still rate very highly on our trade numbers? How long will it be until trade with China and the ASEAN nations overwhelm trade with the EU? Will this even happen?

As the world's largest single market, Europe is home to half a billion people representing 7% of the world's population and producing 25% of global output. While the United Kingdom remains New Zealand's first export destination in the EU, other countries, such as Germany and the Netherlands, have become more important. In 2012, over 73.3% of EU imports from New Zealand were primary products for a total of NZ$3.3 million, and 24.4% manufactures (NZ$1.1 million). While 87.6% (NZ$6.4 million) of EU exports were manufactures and only 8.2% (NZ$690,000) primary product. Although the primary focus of New Zealand's trading relations may currently lie in the Asia Pacific region, the size of the European economy and the important historical links with New Zealand ensures that the EU will always remain an important trading partner for New Zealand.

New Zealand is also important in the Asia Pacific region, which is currently the fastest growing region in the world. In recognition of the economic importance of this region, the EU has stepped up involvement in east and southeast Asia, through political presence at meetings such as ASEM, in bilateral cooperation, with humanitarian aid, and in bilateral trade deals, including with Singapore, Japan, South Korea, and China. Strong relations with New Zealand inherently strengthen the EU's engagement with the Asia Pacific region.

Very quickly in the timeline of the crisis after 2008, the problem for the EU moved from a fiscal issue to a political problem. Many of the countries on the continent still harbour animosity for other European cultures. What needs to change politically in Europe to pull the eurozone out of this serious quagmire? How can the eurozone survive with so much pushing and pulling from different directions among the members?

The sovereign debt crisis exposed the unsustainable economic policies. Current trade imbalances between member states might also be harming economic recovery of the euro area.

However, the crisis has taught us that it is simply not enough to try to solve each country's situation in isolation. Rather, the crisis revealed our deep interdependence. Member states have had to pull together like never before and so the solution to full economic recovery will come from the Union as a whole working together. Accordingly, the EU has made the political commitment to strengthen the policies and mechanisms of Economic and Monetary Union within the EU.

The major divergences in the effects of the crisis and in the rate of economic recovery between member states highlights the pertinence of an integrated economic policy framework to guide the policies of member states towards strong and sustainable economic growth and employment. In the near term, it is essential to complete the Single Market as it provides a powerful tool to promote growth.

The solution to economic recovery is not through dwelling on the deficiencies in policy or divergences between member states, but rather through bringing the wider EU closer and strengthening the policies and mechanisms in the euro area.

Because unemployment will remain at seriously high levels in most EU member countries for the foreseeable future, the gap between the rulers and the ruled will not narrow anytime soon. The position of the ruling elites is weakening, but the anti-establishment groups which seek to replace them are not strong enough to take over. How long till a double digit unemployment rate last in many EU countries and is it a time-bomb waiting to explode in regards to trade?

We do not underestimate the social and political risks incurred by widespread high unemployment. It threatens growth and trade in the short term by weakening demand, as well as our relationships with our major trading partners. However, as the crisis of the last three years revealed the depth of our economic and financial interdependence, it also revealed our social dependence, rather than our independence.

Overcoming the existential threats to the euro was the first step towards recovery. Next year, economic growth is projected for all but one of our 28 countries. In 2014, consumer spending is expected to rebound by 1.5% in the EU and 1.3% in the euro area, as labour market conditions start improving more visibly and the recovery gains strength. As a result, the economic outlook is promising.

Yet employment remains weak and uneven and the social situation is precarious in a number of countries, with a rise in poverty, inequality and lack of access to basic healthcare. We cannot wait for economic growth to eventually lead to jobs and for these jobs to improve social conditions. Growth is a necessary condition for job creation, but it is not an end in itself. Our social objectives extend well beyond employment and the strength of our labour markets to include guaranteeing adequate social protection, combating social exclusion and ensuring a high level of education, training, and protection of human health.

Accordingly, it is essential that our continued economic recovery addresses not only economic and fiscal solutions, but also the social dimension of Economic and Monetary Union. After all, social cohesion is a feature that distinguishes European society from alternative models. Stability, fiscal consolidation and reforms are not an aim in themselves but instruments to create well-being and jobs. Our objective is in essence social: employment is the social dimension.

Which parts of Europe will struggle more with protests than others?

Before the introduction of the euro, the average unemployment rate in the EU was 10.7% for the years 1994-1998, with an economic growth rate of 2%. In 2008, despite artificial economic growth based on rapid expansion of private and public credit in many countries, unemployment stayed at around 9%.

Although unemployment figures have reached unacceptably high levels of 10.9% in the first half of 2013, these figures indicate that despite the crisis making action more urgent, we are facing longstanding structural problems. The labour market is a national competence, and therefore a national responsibility. Some countries have managed to reduce structural unemployment substantially, and others not at all. While unemployment fell by 3.6% in Latvia in the first half of the year, it rose by 4.3% in Cyprus and by 4.1% in Greece. This concerns us all both collectively and individually.

However, the EU has identified this problem and is undertaking measures to boost both economic growth and employment. The European Commission has recently published a report on the problems of the labour market in the EU: onerous taxation on low-income workers, low transition rates to more permanent forms of work and continued growth in youth unemployment and in undeclared work.

In response, the EU has launched a number of programmes, particularly ones designed to increase youth employment - programmes such as the Youth Employment Initiative, Entrepreneurship 2020 Action Plan, the PROGRESS Microfinance Facility. But more skills will not be enough on their own. The overall conditions also need to be right: this implies a well-financed economy, especially when it comes to small and medium-sized enterprises.

Good progress has also been made in relation to lifting the retirement age and making adjustments to minimum or public-sector wages. Employment will remain the cornerstone of the European Council's work. But, as most employment policies are determined at national level, the real challenges involved in implementing them rapidly are first and foremost a matter for the member states. It is a question of working together – a joint effort which also involves social partners at all levels. It is also a question of credibility and only concrete results will convince Europe's citizens and Europe's major trading partners.

New Zealand and 12 other countries are supposedly in the final throes of sorting out the details of the TPP. The EU and the United States are also moving down the path of their own free trade deal with TTIP. Together, these partnerships appear to give quite a bit of benefit to the United States. How do these kinds of deals affect bilateral trade partnerships with existing links, say between New Zealand and the EU? Will they succeed in the long term?

Together Europe and the United States are the backbone of the world economy. It is only logical to move towards bringing these two economies together through agreements such as the proposed TTIP. The benefits and opportunities for businesses and consumers not just of our economies, but also those of our trading partners, make such an agreement particularly attractive.

Although an agreement between the EU and the United States would create the largest free trade zone in the world, the EU will always remain focussed on preserving and strengthening existing trading relationships, including with New Zealand, through the multilateral trading system. The expansion of the TPP agreement would only increase New Zealand's presence in trading relations in this region.

Assessing Afghanistan and Central Asia in a Post-ISAF/US environment

Security in Central Asia could take a turn for the worse when the United States and the NATO International Security Assistance Force (ISAF) remove the bulk of their combat troops next year. Afghanistan is still the current main centre of gravity for Islamic radicalism in the region, but other countries are experiencing their own struggles with home-grown militant movements.

On top of the diplomatic foot dragging, Afghanistan’s poppy harvest is still churning out phenomenal amounts of opiates each season. Despite almost US$7 billion spent by the US government in attempts to eradicate the poppy harvests in the country since 2001, the production of black tar heroin (a less refined version of its better-known cousin, white heroin) threatens to reach historic highs.

This is having destabilising effects in downstream trafficking destinations such as Russia and Iran. Iran has fought hard against the trafficking of heroin into their country. According to estimates by the UN Office on Drugs and Crime, in 2008 Iranian youth consumed almost half of the total 2,800 tons of heroin produced in Afghanistan that year.

This has lead to a disturbing rise in HIV and AIDS infection in the Islamic Republic over the years. Official estimates place the numbers of addicts today between 2 million and 3.5 million heroin users in the country, with that amount quickly growing. While their government has devoted impressive resources to fight traffickers, with over 3,200 Iranian soldiers dead in the struggle to date, the supply of heroin keeps coming.

Afghanistan is still the major growing platform and ground floor for heroin production, although Mexico’s drug cartels are trying close that gap. The Taliban use the profits gained from selling opiates abroad to finance their battle against international troops.

Given these dynamics, working to limit the spread of heroin could be something Iran and the US may wish to cooperate on in the future. This will, of course, depend on whether some US forces are allowed to stay in the country after 2014.

Afghanistan's defence minister could sign a security pact allowing some US troops to remain in the country after 2014, US Secretary of State John Kerry suggested December 3. Afghan President Hamid Karzai has been reluctant to sign such a deal, saying he might not do so until after elections in April 2014. Both al Qaeda and the Taliban are eager to exploit any power vacuum while other groups around the region will be ready to join the battle for ideological supremacy should the Americans leave for good.

None of this was likely foreseen when the US government decided to intervene in Central Asian affairs back in 2001. But changing the status quo revealed the barely healed rifts between tribes and ideologies which have proved impossible to repair since.

Picking up the broom to sweep the Taliban and al Qaeda from the country was meant to be a short-term mission. Al Qaeda has been eviscerated in the past decade and is now only a shadow of its former trans-national self, yet the Taliban has proven to be a different beast altogether.

They were far more resilient than their international terrorist friends and enjoyed a deep interaction with the Afghan populace, which they exploited for their own gains. The current and future strength of the Taliban was in their ability to melt convincingly into the surrounding cities and countryside when the Americans and ISAF launched their campaign. In the face of overwhelming force, the group decided that discretion was the better part of valour.

Only when the combat had calmed down did the Taliban regroup. They returned to the battlefield in far larger numbers to wage a brutal guerrilla war against the international forces. That battle has been cycling through ups and downs of violence for over a decade and the United States is only marginally in a better strategic place today than it was in 2001. The future for the broken country remains bleak, and there are few tangible results to show for more than ten years of fighting.

The high dispersion of tribes, ethnicities, and religion – and their almost ritualistic preference for combat - was never going to easily cohere with the Western model for centralised government or our common understanding of a nation-state. So there is little surprise Afghanistan is today only a semi-functioning state.

Afghanistan and many of the other “stan” nations (Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkmenistan and Uzbekistan) have certainly benefited from US military presence and diplomatic interaction. Yet they remain very worried about their precarious security situations. And each will require continued support once the US departs.

Ironically, Western support for a few ethnic groups has proven to be a double-edged sword. Not only has the strange mix of repressive and pseudo-democratic governments of the “stan” countries been bolstered, militant groups such as Tehrik-e Taliban Pakistan (TTP) and the Haqqani network (HQN) has grown in strength for similar reasons.

Although each group shares a vague Islamic religious affinity, coordination between the groups is probably unlikely to develop.  It is not clear whether the various group’s goals are built to destabilise their own governments or whether they are looking only to carve out autonomous zones.

How the security forces of these weak countries intend to achieve long-term safety when the Americans leave the region is still unknown. Few of them possess sufficient resources to divide between day-to-day responsibilities and fighting militants.

Russia and China would be happy to offer their services, because controlling the spread of militancy is in all of their national interests. However, the result of encouraging two massive rival countries into further competition in Central Asia could itself undermine the security of these states.

US General Douglas MacArthur cautioned for decades against the folly of attempting to fight wars in Asia. He was referring at the time to the lessons he learned in Korea, but the message is worth pondering today. Those campaigns never end very well for the larger powers. The horrible Russian and British experiences should have been instructive for US planners before they committed so much treasure and personnel to the Afghanistan effort.

Central Asia and Afghanistan especially, are poised to experience significant economic growth should they develop their large energy fields and mineral deposits. But the threat of militancy could deter foreign investors and economic development if it cannot be shown to be under control.

There is a growing feeling of urgency among American and NATO strategists to create a more robust and longer-lasting presence of security in Afghanistan before their expiry is up. Using Afghanistan as a base of operations takes obvious advantage of the existing network of military bases and a decade-long history of interaction with the people on the ground.

However, if a good plan for security is not implemented by the close of 2014, instability could begin to grip the region earlier than expected and undo even the small advancements made by the international effort. The clock is ticking for Kabul, Washington, and Brussels to come up with a plan.

Friday, 6 December 2013

A strong South Korea plans for future maritime security

The Korean peninsula sits in the middle of two much larger powers in the northwestern Pacific - Japan and China. Both of those countries vie for influence with ever more dangerous tactics even though trade ties remain strong, and will likely continue to be strong into the future.

Competition between the two heavyweights has stunted South Korea’s growth in the past, but an evolution is already well underway and the peninsula is set to grow both economically and militarily.

But the same cannot be said for South Korea. The country is a buzzing economy primed to take early advantage of a global trade recovery. It is also quietly upgrading its own naval forces to better protect its regional interests. Assuming nothing significant changes in the current system, North Korea is not going to include itself in the international system in the near term. This gives Seoul at least a bit of breathing room.

The global financial crisis in 2007/8 affected South Korea slightly as its GDP declined only briefly. It managed to recover relatively quickly due to a mix of direct government intervention, speedy central bank action, and a valuable overflow from proximity to the Chinese fiscal surplus.

However, as the rest of the world wallows in the economic doldrums, South Korea has had a loss of momentum since the worst periods of 2008. Growth in the peninsula averaged just 3.2% from 2008 through to today, which is well below the 4.8% averaged in the seven years to 2007.

The finger of blame has been pointed at weakening consumer expenditure growth and export growth, coupled with a dip in construction deals. A government boost to the economy in 2013 pushed the GDP growth rate up to 4.4%, the highest in two years. Their technology sector - especially in mobile phones and semiconductors - has been the key driver of Korea’s export strength and was relatively untouched by the yen depreciation - and concurrent won strengthening - which occurred as a result of Japan’s aggressive monetary stimulus.

The Korean won today remains around 35% below its 2007 peak. But according to a recent Goldman Sachs analysis, only 30% of Korean exports are affected by a weakening Japanese yen, whereas 70% either benefit or are only slightly affected. The report suggested that at the macro level Korea will be less affected by the yen depreciation that many at first assumed.

Other countries in the Asia Pacific have a lot of faith in the South Korean model. Australia and South Korea finished negotiations on a free trade agreement, the two nations announced December 5, Kyodo reported. Seoul and Canberra spent four years negotiating the deal, which was finalized December 4 during a meeting in Indonesia between the countries' trade ministers. The countries' parliaments now must ratify the deal.

Even while the economy seems to be on a balanced keel, investors are still a bit worried about Korea. The country’s export dependence is the main concern, accounting for 54% of GDP in 2013 - up from 44% before 2008, 30% in 2003, and significantly higher than the 23% figures of 1997. This high export performance is also influencing domestic demand and could become more detrimental to the health of the Korean economy as both domestic and external demand wanes.

So although South Korea’s economy is vulnerable to exchange rate appreciation and sluggish emerging market growth, its exposure these problems is probably less than many analysts think.

The same could be said for the perceived dangers of a depreciating Japanese yen to hurt the Korean economy. All of which places the country in a good position to tackle other problems emerging around the region. For instance, there is a great opportunity for South Korea’s to develop a competent blue water navy.

Reports in recent media highlight the South Korean ambitions to build its own true blue water navy are moving into the fast track. Such a fleet will be able to both project force from its peninsula and embrace the responsibility of protecting its trade routes and sea lines of communication. But even though their economy might be able to afford the expected significant and expensive upgrades to their fleet, South Korea will have plenty of obstacles to overcome on this route.

Seoul is encountering similar problems to Japan in regards to their long-term security guarantee with the United States. Washington is looking to create a more inclusive partnership with its allies in the region by dividing the responsibility of security between them all.

The US is likely to remain in strong control of the whole dynamic, but there’s still a lot that countries like Japan, the Philippines and South Korea could be doing themselves. Washington would like to encourage independence as much as they can but there are obvious limits. If the US can remain as the military strong-point in the region, other countries will not need to shoulder 100% of their security burden.

This is the way Washington wants it to be for as long as possible. The US probably wants to avoid its partners becoming too independent too quickly. So the exact percentage split between the various partners is still largely an unknown. In the past, South Korea has spent a lot of its military efforts in defending the demilitarised zone with North Korea. But it is geographically constrained to be more of a sea power because, like Japan, it is highly dependent on the oceans for trade and interaction with other nations.

And while Seoul prioritised its land forces, South Korea is so much further advanced compared to their northern neighbour today that it now feels it can begin to focus on shipbuilding without too much worry about ceding important ground to Pyongyang. To this end, Seoul plans to commission at least three more highly capable destroyers by 2023 and add larger, more powerful submarines. There are also ideas to build two 30,000-tonne light aircraft carriers between 2028 and 2036.

In addition, the larger 3,000-tonne submarines they plan to build will be far better suited for blue water operations than the 1,800-tonne vessels currently active.

Ultimately though, Japan and South Korea are very aware that protecting their national interests is best left to the US Navy. Because no matter how well their economies are flourishing, maintaining a strong naval fleet is very expensive and will inevitably ratchet up tensions between the powers by increasing the amount of military traffic in the region.

While the tensions rise between Japan and China over the Senkaku/Diaoyu islands and the controversial proper demarcation of each country’s historic territory, it is easy to forget that South Korea has quite a bit to lose as its two neighbours duel for supremacy. Neither China nor Japan has historically been long-term friends with the various owners of the Korean peninsula, even going so far as to occupy the peninsula on occasion.

On top of this, the growing close relationship between Japan and the United States is giving South Korea further incentive to build up its naval capabilities. So long as Seoul can hold onto its economic good weather, the country might be able to return to its historic position as a regional sea power within the next few decades.

Wednesday, 4 December 2013

In Thailand, anti-government protests turn violent

At least four people have been killed and another 57 have been wounded during clashes between pro- and anti-government protesters – numbering between 30,000 and 70,000 - near Rajamangala Stadium in Bangkok's Bang Kapi district on November 30-December 1, Bangkok Post and Reuters reported...At least five people received gunshot wounds and five others were injured by knives or rocks...It is unclear who fired the gunshots...The protestors attacked government buildings demanding that Prime Minister Yingluck Shinawatra resign...Mrs Shinawatra has reportedly been moved to a secure location as a result of the demonstrations...Riot police and rapid deployment forces will take "peaceful steps" to clear all government premises in Bangkok of anti-government protesters, Xinhua reported, which will inevitably mean force...The speed of escalation in these protests underlines the fractured political landscape in Thailand which has already reached dangerous levels and could result in a military crackdown if violent protests continue...Despite its past interventions in protests, the military may want to stay on the sidelines if involving themselves could weaken their own political influence...Mrs Shinawatra’s government remains highly popular despite the unrest and she would probably win if a new election were to be called...However, many foreign interests in the region have an economic stake in Thailand’s government, and Bangkok is developing a new outlook for its affairs which could make any rushed political transition messy...Mixed in with the political strife is Thailand’s economic problems, especially with a growing credit bubble, which will only worsen the political crisis.

How China’s Air Defence Zone changes Asia’s geopolitical outline

Tensions between three intrinsically linked powers – China, Japan, and the United States - escalated appreciably in the western Pacific following China’s sudden declaration of an “air defence” identification zone (ADIZ) in the East China Sea on November 23.

The announcement changes the geopolitical framework in the western Pacific by positioning China as the lone provocateur, bonding regional nations together against China, alleviating Japan as China’s sole target, and reconfirming the United States as the critical preserver of peace and stability in the region.

At first, China’s new zone included only an economically strategic group of islands administered by the Japanese – known as Senkaku in Japan and Diaoyu in China. The declared zone itself might not have been so unusual or dangerous if it excluded these disputed islands, but now Japan feels threatened, and by extension, so does the US.

Beijing’s unilateral move was immediately condemned by both Tokyo and Washington as a destabilising step, making tensions much harder to manage. Neither of these powers has officially recognised the new zone, with US defence officials aggressively reminding Beijing that it does not accept other nation’s requirements on its military aircraft.

And in a show of both strength and defiance, the US dispatched two B-52 strategic bombers to fly through the area last week without complying with any of the rules outlined by China. Japan plans to also maintain its air patrols and told its civilian aircraft to ignore the rules.

The new zone falls on the eastern fringes of China’s claimed exclusive economic zone and overlaps parts of both South Korea’s and Japan’s own extended ADIZ.

What was striking about the official Chinese announcement was that it went on to say that “China will establish other Air Defense Identification Zones at the right moment after necessary preparations are completed.” That seemed to warn of more extensions to come. Then, as if to confirm this, Beijing announced on December 1 it now wishes to extend the zone over the entire disputed island chain. Such a move would constitute a substantial part of the South China Sea, and it sounds like it won’t end there.

An ADIZ is a unilateral means for a country to monitor aircraft approaching its territory and requires aircraft to report their flight plans and identify themselves when travelling through the zone, whereas airspace is the sky above a territory plus 22 kilometres of coastal waterway. These zones are something many nations have used in contested airspace to enhance air security since the early 1960s. In theory, an ADIZ does not constrain aerial passage as long as the aircraft – whether civilian or military – gives advance notice and follows all the rules.

The United States on December 4 called on China to lift its ADIZ procedures due to the risk of accidents. Later, a Chinese Foreign Ministry spokesman stressed the difference between the ADIZ and China's territorial airspace, saying the zone will not affect the normal flight of other countries' aircraft.

If China’s motive with the ADIZ was about genuinely wishing to prevent risky accidents in the disputed seas, it could have found a more diplomatically friendly way of talking to Japan and surrounding nations. After all, Beijing has emphasised publically that it wishes to craft effective “confidence building measures” with Washington and Tokyo especially. Instead, China has overplayed its hand in trying to isolate Japan in this particular dispute.

Whatever historical reasoning leftover from World War II compels China’s aggression against Japan, they are now more likely to be viewed as an unreasonable and dangerous provocateur in the eyes of Japan, South Korea, Taiwan, Australia, New Zealand, and the United States. Also helping to tilt the region away from China and towards a regional pseudo-alliance against Beijing’s advances is the blurry territorial lines claimed by China all over the place. No one quite knows where China will lay claims next.

The notorious “nine-dash line” is a perfect example of the vagueness of China’s claims to sovereignty. It roughly loops nine unconnected dots across the South China Sea, straight through multiple nations’ own internationally recognised economic zones. Other territory disputes with India, Vietnam, Myanmar, and the Philippines follow a similar pattern.

However, the newly announced ADIZ is different because it is exact and precise. And it portends more demarcation steps elsewhere which must be worrying nations like India, Myanmar, and the Philippines. It also changes the status quo regarding the string of islands by directly challenging Japan’s de facto control.

China wants to find both a balance which benefits their interests in the region while testing the resolve of the United States’ security agreement with their allies. Beijing, just like the rest of Asia, has noticed that US President Barack Obama’s policy of a “pivot” both embraces and encounters China’s rise. Mr Obama’s strategy has had its fair share of obstacles and feels like it’s rolling on too slowly for major US partners in the region. Over time, a gradual transfer of defence responsibilities has been falling on Japan and South Korea and away from the US military.

So Tokyo, sensing it might not be able to rely completely on US protection, has built an impressive naval force to protect its interests in the crowded space while the United States drags its diplomatic feet in the Middle East. What makes this latest move from China so interesting is the opportunity it offers for Japan, South Korea, and the US to mend some fraying defence ties.

Asian nations had their reasons for being equally wary of Japan’s rise as they are of China’s, now the tables have turned somewhat. The question is: will they reach out to the United States as mediator and security guarantor and keep a wary eye on both Japan and China?

Or is the perceived US reluctance over the past year forcing them to align together against China? Either way, the US has its work cut out for them. Defense Secretary Chuck Hagel’s hard-line statements condemning the move indicates Washington intends to step in front of Tokyo to deal with the fallout of China’s new zone itself, rather than let the situation deteriorate by allowing Japan to take the lead.

Other US actions following the ADIZ announcement reaffirmed America’s defence commitment to Japan and South Korea. Sending B-52 aircraft over the zone put only American pilots in danger instead of Japanese, and reminded all players that the US is the effective third party to the dispute.

Overall, the ADIZ debacle could have been handled better if Beijing had just talked to its neighbours rather than announcing its controversial plans unilaterally. Dealing with the reality of the zone will probably not lead to outright conflict – as there’s simply too much to lose for all sides - but the potential for mistakes compound with each escalation and anything is possible.

And in a bizarre way, the situation has breathed new life into Mr Obama’s pivot strategy. He can now take this opportunity to display to his allies in the region how crucial the United States Navy really is for preserving peace and security in the troubled waters. It also offers Washington another chance to show Beijing how vast the huge gulf of military capability really is separating the US from China.

Ratcheting up the tensions is causing all players to readjust their behaviour. China’s increasingly hostile actions will push other claimants around the western Pacific to seek the support of the United States, which will place the role of the US military in an influential pole position in the coming months.