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Shinzo Abe’s unfinished political legacy

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Author: John Nilsson-Wright, Cambridge University and Chatham House

Under the premiership of Prime Minister Shinzo Abe, Japan appears to have found its feet as a regional and global actor. By providing political stability and policy continuity at home, Abe’s governing Liberal Democratic Party (LDP), along with its Komeito ally, have secured the support of a Japanese electorate that values economic prosperity, is risk averse when it comes to foreign policy and has shown little confidence in Japan’s fractured opposition parties.

Japan's Prime Minister Shinzo Abe speaks at the ASEAN-Japan Summit in Bangkok, Thailand, 4 November, 2019 (Photo: Reuters/ Zeya Tun).

But does this record of success at the ballot box amount to proof of leadership ability? When it comes to diplomatic engagement and energy, few can match the hyperactivity of this peripatetic premier. Abe’s willingness to travel the globe to establish Japan’s credentials as a ‘proactive contributor to peace’ has given Japan an uncommon visibility and a sustained presence that has enabled him to establish a personal rapport with other national leaders.

On security policy, Abe’s credentials as a pragmatic realist are impressive. He has presided over a much needed increase in the country’s military capabilities and overseen the expansion of Japan’s strategic options beyond its traditional reliance on the United States.

By advancing a new vision of a ‘free and open Indo-Pacific’, Abe has shown an appetite to engage in the difficult process of laying out a long-term foreign policy plan that reflects Japan’s national interests. Recent efforts to improve ties with China such as Abe’s visit to Beijing last October and next year’s anticipated visit to Japan by President Xi Jinping also reflect Abe’s tactical pragmatism. By hedging, the government is shrewdly avoiding excessive dependence on the United States and anticipating the dangers associated with a more confident and regionally assertive China.

There are limits to what this inherently rational and forward-looking approach can deliver. The spread of populist politics, the re-emergence of nationalism and the growing strength of authoritarian regimes globally are all undercutting the multilateral norms and values that have served Japan so well.

Despite successfully hosting the G20 in Osaka in June 2019, for instance, the substantive achievements of the summit have been modest. The failure to make progress in key areas at Osaka has been striking, including: no explicit rejection of ‘protectionism’ in the summit’s communique and no formal re-commitment to a ‘rules-based international system’ despite Japan’s longstanding support for such a message.

For all of Abe’s considerable investment of time in establishing a personal rapport with Donald Trump, his approach has had little influence in insulating Japan from the US President’s brutal transactional approach to international diplomacy. The suggestion by John Bolton, Trump’s former national security adviser, that Japan increase five-fold its host-nation contribution to the financial costs of the bilateral partnership and Trump’s undiplomatic questioning of the US–Japan Mutual Security Treaty are deeply unsettling to Japanese officials.

Pressure from the White House for a bilateral trade deal with Japan under the threat of punitive tariffs is further proof of Washington’s heavy-handed approach and willingness to impose substantial political costs on Abe, who has already expended considerable political capital at home in seeking to internationalise and liberalise the Japanese economy.

Yet the country remains mired in a slow-growth, high-debt deflationary trap, reinforced by the latest downgraded gross domestic product growth statistics for 2019 of 0.9 per cent, down from 1.3 per cent.

In foreign affairs, Abe’s attempts to achieve breakthroughs with Russia, Iran and North Korea have yielded little progress. Despite the importance of the country’s Indo-Pacific vision, it is also not immediately clear that this adds up to a coherent strategy. As was often the case in the past, there is a gap between the policy ambitions of Japan’s elite and a sceptical Japanese public.

On one important foreign policy issue, however, the gap between elite and mass opinion has narrowed. The sharp deterioration in relations with Seoul, prompted by disputes over wartime Korean labourers and ‘comfort women’, and Japan’s decision to restrict exports of critical semi-conductor technology to South Korea has injected an unfamiliar emotionalism into the Abe government’s approach.

For Abe and his government colleagues, and not a small part of the Japanese public, something appears to have snapped. The forbearance and patient, legalistic approach of the past has been replaced with a new mood of irritation and anger.

This shift reflects the revival of identity politics and competing nationalistic impulses where politicians are grappling with highly contested and sometimes mutually contradictory notions of nationhood.

For some critics of Abe, especially on the political left, a more unapologetic and nationally confident posture by Japan’s conservatives is a problematic if not retrograde step. It helps to explain the increased salience of the issue of constitutional revision in Japan. Abe remains firmly committed to this goal and needs to confront the potential contradiction of advancing goals driven by emotional (and often deeply divisive) needs rather than rational, strategic objectives.

Ultimately, deciding how to resolve such contradictions requires an explicit and transparent public discussion about Japan’s own political values and how they should influence its foreign policy. Abe, to his credit, has called for more Diet debate on some of these themes. It is unclear whether Abe has the leadership capacity to lead this debate in a genuinely inclusive and unifying manner. If he does, this will help him build on his existing foreign policy achievements and establish his political legacy in ways that might prove unexpected.

John Nilsson-Wright is Senior Lecturer in Japanese Politics and International Relations in the Faculty of Asian and Middle Eastern Studies, the University of Cambridge, and Senior Research Fellow for Northeast Asia in the Asia Pacific Programme, Chatham House.

This article appears in the most recent edition of East Asia Forum Quarterly, ‘Japan’s leadership moment’, Vol. 11, No. 3.

 



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The puzzles of political reform in Vietnam

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Author: Pham Duy Nghia, Fulbright University Vietnam

Vietnam’s growing economy is one of a very few recent global success stories. With a population of 95 million people and with GDP approaching US$8000 per capita, Vietnam is home to millions of private businesses and has become an attractive destination for foreign direct investment. The lives of millions of Vietnamese have improved, poverty has fallen and by 2035 more than half of Vietnam’s population are projected to join the ranks of the global middle class.

Election council members decorate a polling station at Tan Xuan village, outside Hanoi, Vietnam, 19 May 2011. (Photo:Reuters/Kham)

Deeply integrated into the global economy, Vietnam is party to many new generation free trade agreements, including with the EU, Japan and the regional CPTPP. Unusually for a country with such a large population, Vietnam ranks fifth among the most open economies in the world, with total trade more than double the size of GDP.

But political reform in the country is uncertain and less visible. Vietnam remains an authoritarian regime with a single ruling party. The party controls the elective body, the government, the judiciary, the media and the surrounding mass organisations. For each the party selects, trains and rotates its apparatchiks to ensure their loyalty to the party.

Economic growth, improving government efficiency and facilitating citizen participation can liberalise a society. In Vietnam, a process of democratisation within the party and society is going on alongside economic liberalisation. The redesign of elective bodies is one of such political reforms demonstrating the party’s increasing efforts to include the people’s voice in political life and to ensure bureaucratic oversight. The party is now experimenting with these changes to see if it is possible to create a functioning representative democracy within a single-party system. If successful, Vietnam will be a rare example of democracy without political pluralism or a multi-party system.

Formally, free elections, a free media, the freedom to associate and the right to express and to demonstrate are granted by Vietnam’s constitution. But while elections in Vietnam have changed little since 1946, elective bodies —particularly the National Assembly (NA) — have been transformed from simply rubber stamp institutions into ones that discuss policy and provide oversight. Although 92 per cent of NA members belongs to the party and 75 per cent serve on a part-time basis, Vietnam’s NA still holds controversial debates, takes the lead in the legislative process and may reject proposals presented by the government, as it did recently with a high-speed railway project.

Live broadcasting of NA question sessions is common practice. Votes of confidence have been introduced to measure the degree of trust that NA members have in the country’s political leadership. Low confidence in a leader may pressure them to improve their performance. If they do not, the party may sanction internal measures forcing them to resign.

At the local level, the party is experimenting with a new government model — the urban government model. It is intended to keep people councils at only the city or provincial level. Elective bodies at district and ward levels will be dissolved. This controversial policy was piloted in 2008 and revoked in 2013. As waves of urbanisation intensify, cities are calling for new government models to fit their urban needs. Ho Chi Minh City, Hanoi and Danang may dissolve the councils at lower levels to reduce the size of the public sector and to simplify bureaucracy.

Local councils are inefficient and redundant. 300,000 deputies are serving in 700 districts and 12,000 wards throughout the country. Three out of four council members work part-time. They do not have time for representative duties and do not appear in council meetings. The council approves the decisions of the local party. For these reasons, dissolution may save money, time and create momentum for imposing accountability on local leaders.

The absence of free elections and a meaningful separation of power between the legislative and executive has led to the inefficiency of local councils. Instead of dissolution, critics argue that the government should reinvent local councils to make them more suitable for representing constituencies and supervising the local government. It is possible to reduce the number of deputies substantially, but deputies must then devote more time to their representative work. At the commune or ward level, local autonomy should be reinstalled. A representative body has always existed in Vietnam’s villages.

The examples of parliamentary reform and dissolution of people councils at the local level demonstrate the ability of Vietnam’s government to adjust and redesign. But the outcomes and sustainability of such experiments are uncertain. There is a possibility that a rule-of-law society may emerge in Vietnam. Driving forces for this transformation include the pressure on the party to reinvent itself and Vietnam’s international commitments which will continue to require deeper institutional reform in terms of good governance and transparency. The Vietnamese people are also becoming more aware of their political rights and are pushing to have them recognised.

Pham Duy Nghia is Professor at the Fulbright School of Public Policy and Management, Fulbright University Vietnam.



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ASIAN (H)

Challenges facing a cashless Japan

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Author: Soichiro Takagi, University of Tokyo

The Japanese government is determined to promote cashless payments and has set a policy target to reach 40 per cent use of cashless payment by 2027, up from 18.4 per cent in 2015. This still lags far behind other countries such as South Korea and China, each with a higher rate of cashless transactions totalling 89.1 per cent and 60 per cent, respectively.

Starbucks Coffee Japan employee demonstrates cashless payment with Japan’s SNS giant LINE’s account on a mobile phone, Tokyo, Japan, 8 April 2019 (Photo: Reuters/Yoshio Tsunoda).

The government’s outlook on promoting a cashless society includes the issuance in 2018 of a policy document titled ‘Cashless Vision’ and the start of a massive subsidisation program to promote cashless payments in October 2019. This subsidy aims to promote the transition to cashless payments while also mitigating a drop in consumption caused by the consumption tax hike from 8 per cent to 10 per cent that came into effect the same month.

Parallel to government initiatives, Japanese consumers are witnessing fierce competition among cashless payment providers. This particular market has seen the entrance of a significant number of smartphone-based payment providers such as PayPay, LINE Pay and Merpay. This is in addition to traditional cashless methods such as Suica or Pasmo card for public transportation, and various brands of credit cards.

This raises the question of why the Japanese government and providers are so eager to promote cashless payment, and how likely it is that their attempts will succeed?

Since its rapid growth in the 1970s, Japan has enjoyed a strong reputation as a country at the forefront of high-tech innovation. This reputation is a result of a successful manufacturing industry, especially in automobiles and electronics.

In contrast, the services sector has been regarded as a less competitive division of the Japanese economy. For example, the Japanese economy failed to foster technology start-ups in the global software and IT services industry. In another example, despite the cutting-edge innovations that led to the first internet-connected cellphone architecture ‘i-mode’ in 1999, the system has never become a global standard. In contrast to Japan’s high level of scientific research, social adaptations and global business strategies have been long-standing challenges to Japanese innovation.

In addition, another factor that has encouraged leaders to take a bold step towards a cashless society is Chinese competition in technological innovation. Since 2010, the Chinese tech industry has exhibited massive advancements in the adoption of cutting-edge technology in various services from cashless payments to ride sharing and Online to Offline (O2O) retail.

One particular service that attracted Japanese attention was the use of the QR code (originally invented by a Japanese company), provided through Alipay or WeChat Pay. This innovation coincided with a rapid increase of inbound tourists from China into Japan — now, the logos of Alipay and WeChat Pay can be observed in many Japanese retail stores. The exposure to Chinese cashless payment options has caused a sense of crisis in Japan and a fear that the Japanese economy is falling behind.

Driven by this sense of crisis and expected business opportunities, cashless payment has become key to reviving Japan’s reputation as a leader in cutting-edge technology. The Japanese government has decided to invest 280 billion yen (US$2.5 billion) to subsidise retailers and consumers who use cashless payments.

Although there is an expectation that cashless payments present unique business opportunities, there are several key barriers Japan must overcome before it becomes a cashless society, and these factors also explain why Japan has been so heavily cash dependent.

The first challenge is the high cost of adoption for retailers. One of the reasons for the success of QR code based payments in China is the low cost of investment and transaction fees. It requires only conventional smartphones or paper QR-codes for retailers. In contrast, contactless-card payments in Japan require a significant investment in equipment and payment of transaction fees. It is unclear whether government subsidisation will sufficiently lower costs to ensure the transition to cashless payments is a sustainable option.

Another barrier to the penetration of cashless payments is perceived inconvenience. Cashiers in retail stores are well trained and can complete a payment with cash in just a few seconds. On the other hand, smartphone-based systems require several steps to finalise payments. The benefits of cashless payments need to be desired and will involve integration with other internet services.

The consumer perception of risks associated with cashless payments is another key challenge. Research has shown that a significant portion of Japanese consumers prefer cash because they fear overspending with cashless methods. Security is also a practical barrier and concern for consumers given that security breaches and improper use of personal data are frequently reported.

Soichiro Takagi is Associate Professor at the Interfaculty Initiative in Information Studies at The University of Tokyo.



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ASIAN (H)

Breaking the North Korean nuclear stalemate

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Author: Chung-in Moon, Yonsei University

A rollercoaster pattern of crises and peace has characterised the Korean Peninsula for the past three years. In 2017, anxieties were heightened after North Korea conducted its sixth nuclear test in September and test-fired 15 ballistic missiles — including a Hwasong-15 ICMB — in November. Tensions worsened when the Trump administration responded with rhetoric about ‘fire and fury’.

U.S. President Donald Trump shakes hands with North Korean leader Kim Jong Un as they meet at the demilitarized zone separating the two Koreas, in Panmunjom, South Korea, 30 June 2019. (Photo: KCNA via Reuters)There was a dramatic reversal in 2018. The Pyeongchang Winter Olympics in February led to a series of summits — the Panmunjom summit in April, the first North Korea–US summit in Singapore in June and the Pyongyang summit in September. All three summits underscored an improvement of inter-Korean relations, commitment to a lasting peace regime and pledges to complete denuclearisation of the Korean Peninsula. Most Koreans strongly believed that peace was near.

This optimism was shattered when the Hanoi summit between North Korean Chairman Kim Jong-un and US President Donald Trump in February 2019 failed to produce any tangible outcome. In Hanoi, the United States proposed a deal under which North Korea would first dismantle nuclear and bio-chemical weapons and missiles. In return the United States promised a bright future for the North Korean economy.

But North Korea rejected the offer, instead adhering to the principle of incremental simultaneous exchange framed around ‘action for action’. It counter-offered the final and complete dismantling of all nuclear facilities in Yongbyon while demanding the partial relaxation of five UN Security Council sanctions that have affected its civilian economy since 2016. North Korea’s proposal was concrete, and it was desperate to make a deal. But the gap between the two sides was huge, and the summit broke down. Pyongyang suffered much from the Hanoi trauma, which severely strained both US–North Korean and inter-Korean relations.

A surprising Trump–Kim meeting in Panmunjom in June 2019 opened another window of opportunity. US–North Korea working-level talks were held in Stockholm in October, but assessments of the talks contrasted. North Korean representative Kim Myong-gil declared that the talks failed because the United States came without a new approach and it would be ‘sickening’ to have further discussions. The United States refuted this in a press release, stating that it had ‘brought creative ideas and had good discussions’. The United States also accepted an invitation from the Swedish government to attend another round of talks with North Korea.

What went wrong in Stockholm? There may have been a hostile protocol gesture by North Korea. Trump’s earlier rejection of Kim’s proposal on the Yongbyon deal and abruptly cancelling the planned luncheon in Hanoi was a great insult to North Korea’s supreme leader. A retaliatory gesture might have been calculated to repay the Hanoi humiliation. Such protocol retaliation is not uncommon in Pyongyang’s diplomatic behaviour.

The scope of denuclearisation must have been another contentious issue. According to several reliable sources, including a Yomiuri Shimbun report, the United States demanded North Korea’s commitment to transfer all nuclear weapons, materials and ICBMs to the United States and dismantle all facilities related to the production of nuclear or biochemical weapons and ballistic missiles. Complete dismantling of all nuclear facilities in Yongbyon, declaration of and commitment to the elimination of clandestine nuclear facilities elsewhere and freezing all nuclear activities were also required. Such demands were unacceptable to North Korea. At most, Pyongyang could have counter-offered the Yongbyon card raised at the Hanoi summit.

Divergent expectations on corresponding measures were also a source of friction. The United States reportedly offered temporary relief from the export ban on coal and textiles, resumption of humanitarian assistance and the adoption of a declaration to end the Korean War. It was also rumoured that the United States showed a blueprint for the development of Galma tourist complex — Kim’s signature project — with a plan to mobilise international capital. Pyongyang rejected them outright by arguing that the United States had not yet even reciprocated North Korea’s goodwill efforts such as a freeze on nuclear and ICBM tests since 2018.

North Korea announced in October 2019 that it was not interested in returning to the negotiating table unless ‘the United States takes substantial steps to make complete and irreversible withdrawal of the hostile policy’. Pyongyang does not want small concessions, but a major one involving the end of enmity through diplomatic normalisation and lifting sanctions.

The gap between Pyongyang and Washington is huge. Both states need to change the negotiation pattern of ‘giving less and taking more’ to reach a compromise.

Trust-building seems most essential in this regard. Trust can be built only on the basis of success stories, no matter how small they are. Pyongyang can invite international inspectors to the demolished Punggye-ri test site, dismantle the missile engine test facility and launching pad in Tongchang-ri, eliminate all nuclear facilities in Yongbyon, and declare and commit to dismantle additional hidden nuclear facilities. The United States should reciprocate by offering an exchange of liaison offices, suspension of joint military exercises, peace accord negotiations and a partial relaxation of existing sanctions — including the reopening of the Kaesong Industrial Complex and the Mount Kumgang tourist project.

Only then can a comprehensive agreement on complete and verifiable denuclearisation in exchange for complete and irreversible withdrawal of hostile policies be reached, along with a concrete roadmap and timetable. The rhetoric of promising ‘a brighter future for the North Korean economy’ cannot move Pyongyang. Security assurances such as diplomatic normalisation and non-aggression treaties should be presented first, rather than at the end of negotiations. And it seems highly unlikely that North Korea will make any significant concessions without corresponding measures on sanctions relief.

Reaching such compromise will not be easy amid Trump’s impending impeachment process and Kim’s immense domestic disappointment. But the strong political will of both leaders is cause for optimism.

Chung-in Moon is Distinguished University Professor, Yonsei University and Vice Chairman and Executive Director, Asia-Pacific Leadership Network for Nuclear Non-proliferation and Disarmament.

This article appears in the most recent edition of East Asia Forum Quarterly, ‘Economics and security’, Vol. 11 No. 4.



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ASIAN (H)

Getting economic and national security policy right

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Author: Editorial Board, ANU

The United States and China are locked into a trade war and strategic rivalry that complicates international policy choices for the rest of the world. How do countries like Australia, Japan or the ASEAN countries balance their security interests alongside their economic interests and avoid seeing them as a trade-off? Can countries avoid a binary choice between the United States and China?

A cargo ship loaded with containers to be shipped abroad berths on a quay at the Port of Qingdao in Qingdao city, east China's Shandong province, 15 May 2017 (Photo: Reuters).

Economic policy was never separate from security considerations. The recipe for a secure country — a strong economy that’s globally integrated through trade and investment and cooperation — hasn’t changed. But economics and security are increasingly entangled in a way that is damaging to both, creating a dangerous trade-off and a negative feedback loop.

Economic engagement between countries strengthens national security by reinforcing and habituating a rules-based order that creates a bigger and broader plurality of interests. This is the mutually beneficial win-win trade and investment relationship that is the basis of economics. It’s about building national wealth and power but also broadening the range of strategic policy options available to policymakers. There are market-based solutions, mixed interest games and ways to have risks borne by those other than government or society that can avoid binary all or nothing security decisions.

Economic exchange always involves risks, including national security risks and sometimes the possibility of coercion. ‘If you open the window for fresh air, you have to expect some flies to blow in’, warned Deng Xiaoping. Those risks have been managed and minimised under a US-led multilateral rules-based system that allowed decades of deepening economic ties, including for China with the rest of the world.

The risks of international exchange are beginning to dominate the calculus for some policymakers as the world has become more complex and uncertain. There are three main reasons for this: the rise of China, the rise in protectionism in the United States, and new technologies for which international rules don’t exist.

The United States underwrote a rules-based order over the past 70 years that helped manage risks from economic engagement and reduced the costs of national security. President Trump’s America First protectionist agenda and the US–China trade war are the biggest threat to the multilateral trading system on which the world relies for both prosperity and security.

The difficulty in managing China’s rise as the world’s largest trader and its second largest economy has been further complicated by President Xi’s consolidation of power domestically and a more assertive foreign policy.

New technologies like 5G telecommunications and the growing importance of digital trade raise new economic opportunities and security challenges for which no clear rules exist. Multilateral rules in the WTO may cover trade in goods adequately but are mostly non-existent for a large proportion of international commerce in the 21st century as services, investment, data flows and new forms of technology proliferate. The patchwork of rules from smaller agreements leave major gaps at best and cause economic fragmentation at worst.

If countries don’t get the frameworks right to manage strategic policy making in these new circumstances, there will be a return to economic and security policy of the interwar period. That was a period of unilateralism and bilateralism centred on protectionism and raw national power. The multilateral system born at Bretton Woods moved the world to cooperative outcomes with rules that avoided the prisoner’s dilemma or lose-lose outcomes.

Economic policy deployed for geopolitical purposes, sometimes called geoeconomics, inevitably produces misguided policies that damage both economic and national security. Economic exchanges are then thought of as tools for zero-sum or negative-sum outcomes instead of creating mutually beneficial outcomes. The most brazen recent example is the US tariffs on steel and aluminium, and tariffs threatened on automobiles in the name of national security, that makes the United States poorer and weaker.

China’s supposed deployment of economic coercion for geopolitical purposes has been checked by multilateral rules in the case of the rare earths dispute with Japan. But the economic sanctions deployed against South Korea over the Terminal High Altitude Area Defense (THAAD) system largely lay outside the discipline of multilateral rules.

In the pursuit of national power and security, governments need to be able to operate in a world beyond binary choices: security or economics; and China or the United States. Agreement and commitment to principles and rules that avoid lose-lose outcomes and taking interactions and engagement beyond bilateral interaction to those that necessarily include compromise and a broader plurality of interests help to expand the policy space and options available.

It is possible to find ways to mitigate and spread risks by deepening engagement, not avoiding engagement.

If security concerns and policies dominate economic choices, the policy space is narrowed significantly and leads to binary choices. It is the important job of security agencies to look for and mitigate risks but not their job to balance those against society-wide benefits.

As Gordon de Brouwer explains in this week’s lead essay, ‘mitigations to a security risk might lie in economic or social domains.’ For example, ‘strengthening domestic governance, market systems and people-to-people connections support cooperation rather than confrontation’.

The world has changed and de Brouwer suggests ‘the challenge is to draw on the full toolkit to assess risk clearly and mitigate risk creatively and strategically. It is time for countries to engage rather than withdraw’.

Different countries are grappling with these challenges in different ways. Japan’s National Security Secretariat in the Prime Minister’s Office has created an Economic Group and its key ministries have new economic security divisions whose challenge will be to attempt to integrate economic and security policy. The structure of interests and decision making in these are yet to be seen.

Getting the balance in strategic policy right involves recognition that economics and security are linked but that they can enforce a positive or a negative feedback loop. The world is in danger of sleepwalking into a negative feedback loop.

Economic engagement enhances national security but inevitably involves some security risk. That risk can be mitigated through international cooperation, multilateral rules and strong domestic laws. More economic engagement and integration into markets increases the costs of harmful behaviour. International rules prohibit the harmful behaviour. A priority is to work towards the creation of those rules where none currently exist.

Reducing trade or investment to avoid security risks is not the right answer in a world of integrated markets and economies, unless countries want to be poorer, weaker and live in a less certain and stable world.

These are shared challenges and opportunities for countries navigating a more complex world. This week we launch the latest issue of the East Asia Forum Quarterly on Economics and Security which explores what is happening, why, and how to respond to these challenges and opportunities.

The experience of economic and political cooperation in Asia offers insight into how to navigate the new diplomacy.

Both China and the United States naturally prefer to deal with countries bilaterally because they are larger, forcing the world into even harder choices. The United States and China left to their own devices may try to decouple their economies and fracture the global economy. But it’s the response of the rest of the world that will be important to how that threat pans out.

Small and middle powers will need to get the balance of economics and security right in strategic policy making and work together to avoid a binary world of zero-sum or negative-sum outcomes. Acting strategically and plurilaterally, beyond bilateralism, is the sensible way forward.

Strategic deployment of regional and plurilateral coalitions can help create rules from the bottom up that engage both China and the United States. At a time when the multilateral system is under threat, regional and plurilateral initiatives and agreements need to complement, preserve and strengthen multilateralism, not substitute for it.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.



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Managing risk in Asia when security and economics collide

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Author: Gordon de Brouwer, ANU

For over a generation, economics and security have been viewed as essential but largely separate elements of national interest. Two global developments have changed this: nationalist multipolarity and digitisation. The US–China relationship is characterised by growing strategic competition in both the security and economic domains. Meanwhile, digital technology, including quantum computing, machine learning and 5G, is radically transforming most domains of human activity — from the way people interact with each other and obtain information and learn, to goods and services and the way firms and markets operate, to defence and security. The extensive and increasing digitisation of economic and social interactions appears to leave states vulnerable to cyber intrusion and attack by both state and non-state actors.

A Chinese mobile phone user looks at the icons of the mobile apps of (from top left) Toutiao, Tiantian Kuaibao, Phoenix News and NetEase News on a smartphone in Ji'nan city, Shandong, China, 9 April 2018 (Photo: Reuters).

Two principles can help countries in thinking about the interaction between economics and security.

First, thinking needs to be framed from the start in terms of national prosperity, security and social harmony. All three matter and reinforce each other. Security underpins prosperity, prosperity pays for power and security, and social harmony reduces economic and security risks.

Second, analysis needs to explain risks to the national interest and identify practical ways to mitigate them. Risks often affect both security and prosperity — mitigations can be found by thinking beyond a single domain. It is generally in a country’s interest that other countries which pose a security risk have other strong interests to balance. This raises the cost of conflict, creating an incentive to find an enduring solution.

Mitigations to security risk might lie in economic or social domains. For example, strengthening domestic governance, market systems and people-to-people connections support cooperation rather than confrontation.

Defence and security are public goods typically provided by governments. Risk mitigation, in contrast, need not always be directly provided by governments. The actions of other parts of society — especially business and civil society — can help mitigate risk over time. In this sense, the responsibility of government is to enable and create incentives for others to mitigate risks. This is typically achieved by strong domestic laws, markets and governance institutions supported by effective monitoring, compliance and enforcement.

Scenario analysis with a wide range of participants is another useful way to frame risk and look for solutions. Scenario analysis is a feature of Singapore’s national strategising, for example. These exercises bring insights into the global interplay of forces in the domains of the economy (technological change and the impact of digitisation), security (the multipolar order, non-conforming nations and proliferation) and society (trust in institutions, belonging and social media). This analytical framework challenges conventional habits of thinking and supports integrated strategic thinking.

Consider the concern that China is using the Belt and Road Initiative as a strategic play to gain leverage over governments and acquire critical infrastructure, especially in cases when countries cannot repay debt. How should a recipient country address this? Simply refusing foreign investment deprives the country of what might be economic and social infrastructure important for its prosperity. It also deprives China of an opportunity to support others’ development commensurate with its economic size and power.

All donor countries use aid and financial assistance as an instrument of foreign policy, so the interest of the recipient country is best served by engaging with a variety of donors and organisations so that it is not hostage to dependence on a single large donor. Meanwhile, strong governance — including objective cost-benefit analysis, competitive, open and non-discriminatory bidding, and independent dispute resolution — is an essential condition to secure the benefits of investment.

Another example of risk is foreign investment in digital and telecommunications infrastructure. The primary digital security risk is a cyberattack by malicious state or non-state actors that disables key digital and telecommunications infrastructure. Foreign investment rules focus on ownership, but ownership is not the fulcrum of risk. It is widely judged that cyber risk can be reduced but not eliminated. Reducing cyber risk includes strong defences in firms and organisations against cyberattacks and enforcement of strong laws against cyberattacks.

Market structure is important for risk mitigation. The more participants and the more diverse the structure of the market, the lower the risk associated with any one firm. Policies that encourage product innovation and the creation of new firms, along with policies and laws to protect market contestability, help mitigate security risks. The debate about foreign ownership of 5G networks might be different if the sector was competitive and diverse, rather than concentrated in a small number of highly integrated firms.

Risk associated with digital technology depends on whether potential cyberattacks are conducted by large state actors. Analogous to the nuclear arms race, the cyber capabilities of major powers have reached the stage where a cyberattack by one would likely lead to a cyberattack by another. Mutually assured digital destruction (MADD) changes the risk of cyberattacks between the major powers and their allies outside of war.

There are also concerns that international firms may be particularly susceptible to theft of personal data, including information about a person’s health, finances or behaviour. Again, cyberattacks are the core risk. Primary risk mitigation properly focuses on the cyber defences of firms, supported by the enforcement of strong laws around corporate transparency and the protection of privacy, and resilience when breaches occur.

The world has changed and the challenge is to draw on the full toolkit to assess risk clearly and mitigate it creatively and strategically. It is time for countries to engage on these issues rather than withdraw. They need to work together and engage directly with the United States and China on practical and mutually beneficial steps to mitigate, rather than exacerbate, US–China strategic competition.

Gordon de Brouwer is Honorary Professor at The Australian National University and was formerly the Secretary of the Australian Department of the Environment and Energy. 

This article appears in the most recent edition of East Asia Forum Quarterly, ‘Economics and security’, Vol. 11 No. 4.



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How immigration will change Japanese politics

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Author: Nobuhiro Aizawa, Kyushu University

The Japanese government has revised the Immigration Control and Refugee Recognition Law that could expand the entry of non-skilled foreign workers into the Japanese workforce. The law introduces the Specified Skilled Worker Category 1, opening up new professional fields for unskilled foreign workers. It is expected to attract around 345,000 workers in the next 5 years.

Workers from Thailand work at Green Leaf farm in Showa Village, Gunma Prefecture, Japan, 6 June 2018 (Photo: Reuters/Malcolm Foster).

Fourteen professional sectors suffering from labour shortages were chosen for the scheme, including aged care, construction, agriculture and tourism. The law also entitles these non-skilled workers to a path to permanent residency should they pass professional testing and successfully renew their status.

The Liberal Democratic Party (LDP) finalised a draft law after electing Abe as Chairman for his third term in September 2018. It passed through parliament — where the LDP holds a majority — in December 2018 and took effect in April 2019.

Chief Cabinet Secretary Yoshihide Suga emphasised the urgency of the new policy, explaining the need to save ailing but strategic industries and address the aging local economy. But the revised immigration control act was much more than an economic policy, and it divided public and political opinion.

Objections to the law came from both the opposition and from within the LDP itself. According to The Nikkei polls, the law garnered more backing from supporters of the Constitutional Democratic Party of Japan than from LDP supporters. Hidden disagreements were evident among party members — between generations and regions. These political fault lines signalled the beginning of a new politics of immigration in Japan and could become a critical turning point in Japanese politics. There are three areas that will likely become key battlegrounds.

First, the terms ‘foreign workers’ and ‘immigration’ have become selling points in Japanese politics. The more strongly the government refused to frame the revision act as an ‘immigration law’, the more it stimulated strong anti-immigration platforms and silent social discontent towards the issue.

An unprecedented five-day scrutiny by the legal commission of the LDP in October 2018 attempted to address various concerns. These included Japanese nationals having to compete for jobs against foreigners, the lack of necessary social arrangements and legal protection to prevent an increase in illegal workers, and the absence of social security for foreign workers. With these questions left unanswered, the government has been pushed onto the defensive and any violation, abuse or misconduct by foreign workers can be politicised as a weapon to attack the leadership.

Second, this opened up new political fronts for central–local and local–local government relations. The purpose of the law is to meet the needs of small- and medium-sized enterprises in some regions and to maintain their political support by addressing their needs. Local LDP branches from prefectures such as Gunma, Shizuoka and Akita gave significant input to convince LDP executives of the demand for unskilled foreign workers. Yet the rules outlining administrative and social burden sharing in accepting foreign workers are yet to be determined.

This increased some local governments’ concerns about the policy’s feasibility despite the main beneficiaries being regional businesses. Regions with high demands for foreign workers also lacked sufficient budgets to provide public services for these new migrant workers. The government needs to find a new equilibrium between power and burden sharing. This process of striking a suitable power arrangement will also become an important part of the political agenda in the coming decades.

Third, the law marked the emergence of an inescapable new foreign policy issue. Japan will now increasingly be ‘tested’ in its responsibility to protect foreign workers on home soil. This requires information sharing and administrative harmonisation between the sending and receiving countries. Overseas worker joint management will become a reoccurring topic of negotiation in all bilateral and regional talks. For example, in July 2019, in signing a memorandum of cooperation on overseas workers with Indonesia, Japan committed to following Indonesian systems for placement and administration services for Indonesian migrant workers.

Evidently, Japan is willing to be led and evaluated by its counterparts on foreign worker management. The growing interdependency between the demand for foreign workers and appropriate administrative standards could become a new platform through which to integrate Asian countries. Yet it could also become a liability as countries may need to balance domestic xenophobia with friendly bilateral relations. It will take diplomatic savviness on the Japanese side to achieve this balance.

Considering the political climate in 2018, prioritising speed over consensus building might have been the only way to push this sensitive policy forward before it was too late to address labour shortages. Yet without public consensus and an adequate social safety net for foreigners, Japanese resilience towards immigration scandals is in doubt.

The abuse and misuse of foreign workers by Japanese enterprises, politicians exploiting the imperfect institutional arrangements, misconduct by foreign workers or a single terrorist act could sensationally fuel the anti-immigration movement in Japan. The strong leadership that pushed this historical law forwards has also pushed Japan’s politics on to a new tightrope.

Nobuhiro Aizawa is Associate Professor at the Department of Cultural Studies, Kyushu University, and a Japan Fellow at the Wilson Center, Washington DC.

This article is abridged from a version that appears in the most recent issue of East Asia Forum Quarterly, ‘Japan’s Leadership Moment’, Vol. 11, No. 3.



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India’s RCEP blunder

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Author: Sourabh Gupta, Institute for China-America Studies

Invoking the ‘talisman of [Mahatma] Gandhiji’ as well as his own conscience, Indian Prime Minister Narendra Modi opted effectively to pull India out of the Regional Comprehensive Economic Partnership (RCEP) at the 3rd RCEP Summit in Bangkok on 4 November. Thus New Delhi has ceded a golden opportunity to embed its trade liberalisation endeavour within a broader pan-Asian and Asia Pacific-wide agenda of cooperation and comprehensive integration. 

New Zealand's Prime Minister Jacinda Ardern, India's Prime Minister Narendra Modi, and Chinese Premier Li Keqiang attend the 3rd Regional Comprehensive Economic Partnership (RCEP) summit in Bangkok, Thailand, 4 November 2019 (Photo: Reuters/Athit Perawongmetha).

With text-based negotiations for all 20 chapters of the agreement now concluded among the other 15 participating countries, the decision to opt out of RCEP could not have been an easy one for Modi. His own hand-picked advisory panel had recommended just a few days prior that India opt in.

On the one hand, India registered a bilateral trade deficit with 11 of the 15 RCEP participating countries in 2018–19. There was reason to believe that these deficits — particularly the all-consuming goods deficit with China — would increase if India joined RCEP. A pattern is evident in India’s prior preferential trade agreements with Japan, Korea and ASEAN. An uptick in overall exports is overshadowed by a larger rise in manufactured goods imports that displaces many vulnerable domestic producers.

Indeed, in each of the three instances, goods imports from the relevant country grew at a much faster pace than imports from the rest of world. The scale of the deficit in electronic goods and related parts could have even tipped the economy towards a current account contingency.

In this thinking about trade strategy, India has fallen for the flawed logic of Mr Trump on trade deficits. The flip side of trade deficits is capital imports. And India is desirably a significant capital importer, with capital goods imports increasingly serviced by its major partners in the region.

Economists posit that plurilateral trade agreements such as RCEP are ‘welfare enhancing’ for India. But without the politically challenging reform of India’s factor markets that could enable its small and medium enterprises to slot themselves profitably within East Asia’s vibrant value chains, the likelihood of widespread displacement and steep unemployment was high and could not be glazed over.

On the other hand, India desperately needs to sign on to both an export-oriented growth model and a regional integration strategy if it is to ever stimulate its latent manufacturing prowess and overcome its steep development challenges. RCEP provided a gateway on both these fronts.

Export sophistication — the production of sophisticated tradable goods that are conducive to high productivity gains, spillovers and agglomeration effects — is the single most important determinant of sustained growth in late-developing and industrialising economies. To the extent that the other standard determinants of growth — such as human capital, institutions, financial development and trade openness — raise an economy’s growth potential, they  do so by contributing to increasing the economy’s production of sophisticated tradable goods. It is little wonder, then, that no major industrialising economy has maintained a 7 per cent plus growth rate without a sharp and sustained growth in manufactured goods exports or capital imports that both lift productivity.

Investment and exports acting in concert — ideally foreign direct investment steered towards labour-intensive and export-oriented manufacturing — must become a key foundation of India’s growth going forward. With Modi enjoying a huge political mandate, RCEP furnished a concerted liberalisation framework that could have both incentivised a bold political push to reform India’s factor market distortions and propelled the country towards his ‘Make in India’ target. No amount of tinkering with the ‘Ease of Doing Business’ rankings will achieve those in the same way.

The implications of joining RCEP on the regional integration front and for Modi’s ‘Act East’ policy were just as acute. India does not participate in the Asia-Pacific Economic Cooperation (APEC) forum, where best practices across a range of trade and digital economy endeavours are formulated. It is not a member of the Chiang Mai Initiative that has evolved from a bare-bones currency swap arrangement into an embryonic form of Asian financial regionalism. It was excluded from the Comprehensive and Progressive Trans-Pacific Partnership negotiations, and is only marginally attached to the region by way of the shallow economic partnership agreements with Japan, South Korea and the ASEAN countries.

RCEP afforded an opportunity for New Delhi to hitch its wagon to the global epicentre of ‘open regionalism’ at a time when protectionism and populism are casting a pall over India’s economic rise in the global system. The developing country-centric, pro-integration alternative that RCEP furnished could have also structurally reframed the economic and political character of the triangular China, India and Southeast Asia relationship.

Now without an economic integration strategy in Asia, India’s ‘Act East’ policy risks amounting to little more than becoming the naval doorman of the Indo-Pacific. India’s RCEP exit will also compound the less-than-high regard that it is held in by many of its Southeast Asia peers and does not bode well for the long-term durability of its ‘Act East’ policy.

By signing on to RCEP and instituting the accompanying structural reforms at home, Modi could have made an unequivocal break with the disappointing outcomes of past preferential trade agreements signed. That opportunity has now gone begging.

Sourabh Gupta is a Senior Fellow at the Institute for China-America Studies (ICAS) in Washington DC. A shorter version of this article appeared in The Hindu.



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Serious flaws in Japan’s new ‘Equal Pay for Equal Work’ law

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Author: Naohiro Yashiro, Showa Women’s University

Enacted in June 2018, Japan’s Work Style Reform Bill is a legal package amends eight of Japan’s labour laws. Some of the changes are welcome, such as a law that sets a legal limit on overtime working hours which came into effect this year. But the ‘Equal Pay for Equal Work’ regulation which is set to come into effect in 2020 is much more controversial — especially when examined in detail.

A worker of Japan Post Co, which has faced controversy for its different treatment of workers, collects postal items from a post box outside a post office in Tokyo, Japan, 2 November 2015 (Photo: Reuters/Toru Hanai).What the regulation says is quite simple — employers are prohibited from treating regular and non-regular workers differently within the same firm. ‘Regular workers’ here refers to those who have an employment guarantee up to the mandatory retirement age while non-regular workers are under a fixed-term employment contract.

But the definition of unreasonable treatment is not clearly specified. This is mainly due to the prevalence of seniority-based wages regular workers in Japan.

Seniority-based wages are generally interpreted to reflect the higher skill of a worker with longer experience at a firm — though this is becoming increasingly irrelevant with the rapid development of information and communications technologies. It is also a way to discourage skilled workers from shifting firms since this would entail losing promised wage increases.

Seniority-based wages are also a major factor behind the large wage gap between regular and non-regular workers in the same job. The new ‘Guidelines for Equal Pay for Equal Work’ indicate that employers are obliged to pay equal wages to regular workers and non-regular workers with the same length of work experience at the same firm.

Put another way, this aims to apply seniority-based wages to non-regular workers. But it will not be effective, as non-regular workers do not stay in the same firm long enough to get the benefits of long-term service to a single firm. It de-facto rationalises the current wage gap mainly based on the seniority wage of regular workers.

Alternatively, the logical consequence could be that it should have limited the seniority contribution to regular workers’ wage increases to be within the range of wage increases explained by productivity contributions.

The logic that regular workers are more qualified than non-regular workers — even when they work similar jobs — is not applicable to those non-regular workers who are re-employed in the same firm after mandatory retirement. In 2018, for example, some truck drivers who were re-employed after taking mandatory retirement appealed to the courts that their wages were far lower than the regular workers even though they were driving exactly the same distance as before.

Though the appeal was supported by the Tokyo District Court, the Supreme Court eventually rejected it as a decline in wages after mandatory retirement is widespread in Japan.

This ruling has been incorporated in the current Guidelines, which indicates that ‘Equal Pay for Equal Work’ in the Japanese style has exceptions such as this that compromise current seniority-based wage practices.

The ‘Equal Pay for Equal Work’ regulation is particularly biased when applied to dispatched workers. Like in other developed countries, Japan’s dispatched workers belong to a typical occupational labour market. As their wages are already based on the ‘Equal Pay for Equal Work’ principle, they are not consistent with the seniority-based wages of regular workers in the same firms. As a result, the government has simply decided to force the wages of dispatched workers onto seniority-based workers by providing a table of occupational wages according to seniority.

Overall, there are three problems with the Guidelines. First, seniority-based wages are not sustainable given Japan’s rapidly aging society. The introduction of ‘Equal Pay for Equal Work’ should be a good chance to move from a seniority-based system to flatter wages — but what the Guidelines intends is exactly the opposite.

Second, the Guidelines allows the government to de-facto regulate the occupational wages of dispatched workers. It contrasts with the traditional practice where private sector wages are determined based on negotiations.

Third, though the regulation will raise the wages of dispatched workers based on seniority, it will not benefit dispatch workers overall as their increased cost would lower total employment prospects. Rather, the regulation will protect regular workers with seniority wages.

The Work Style Reform Bill was originally planned to reflect Prime Minister Shinzo Abe’s speech in the Diet that he will abolish the concept of ‘non-regular workers’ to reduce wage disparities. But in order to achieve this he first has to abolish the practice of regular workers and reform traditional seniority-based wage practices and long-term employment guarantees established in Japan’s glory days of high economic growth and a pyramid-like population age structure. Japan’s recent Equal Pay for Equal Work regulation is not an effective means to reform the country’s traditional work style in response to changing economic circumstances, but rather protects this outdated work style.

Naohiro Yashiro is Professor at Showa Women’s University, Tokyo. He specialises in labour economics, social security and Japanese economics.



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StocExpo 2020

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Dates: 
Mar 10, 2020Mar 12, 2020

Opening hours: 
10:00 – 18:00

Venue: 
AHOY, ROTTERDAM

Country: 
Netherlands

Organizer: 
Easyfairs

Show URL: 
http://www.stocexpo.com

Major exhibits: 

The world’s leading international event for the tank terminal industry.

Show banner: 

StocExpo, the three-day exhibition and two-day conference, celebrated its 15th anniversary in 2019 as the leading event for the bulk liquid storage sector. The event gives visitors the chance to meet industry leaders in tank design, construction and maintenance, as well as innovations in metering & measuring, pumps & valves, automation, loading equipment and inspection, and certification services.

Hosted directly on the show floor, StocExpo’s conference will provide delegates with the tools to overcome market challenges and succeed in this competitive environment. This year’s CPD certified conference will focus on two fundamental themes: sustainability and innovation.

We will return to Rotterdam in 2020, so save the date for 10 – 12 March!

For more information, please visit www.stocexpo.com

Show Contact
Title: 

Marketing Executive

Name: 
Catherine Chin

Telephone: 

+44 (0)20 3196 4396 (Catherine Chin)

E-mail: 

catherine@stocexpo.com

Mailing address: 

2nd Floor, Regal House, 70 London Road • Twickenham TW1 3QS • UK

Country: 
United Kingdom



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