Why a ‘Nixon moment’ in India–China relations is unlikely


Author: Raj Verma, Huaqiao University

India–China relations have hit a nadir after the recent clash between Indian and Chinese troops in the Galwan Valley. Although disengagement and de-escalation is underway, tensions remain high. Some argue that there has been a Chinese and Indian leadership failure in ensuring amicable ties, pointing to ‘a historical failure on both countries’ parts to initiate a Nixonian moment in their relationship’, a reference to the former US president’s promoting pragmatic coexistence with China.China's President Xi Jinping and India's Prime Minister Narendra Modi arrive for a signing ceremony during Shanghai Cooperation Organization (SCO) summit in Qingdao, Shandong Province, China, 10 June, 2018 (Reuters/Aly Song).

But calling for a ‘Nixon-in-China moment’ in India–China relations implies a set of false analogies in the relationships between India, China and the United States today, and those between the United States, China and the Soviet Union that prevailed when Richard Nixon landed in Beijing in 1972.

The dynamics within the US–USSR–China triad and the US–China–India triad are different. During the Cold War, the United States was the most dominant economic and military power globally and in Asia, followed by the Soviet Union and China. The United States and the Soviet Union were also on opposing sides during the Cold War.

After its establishment in 1949, the People’s Republic of China espoused Marxism-Leninism and consolidated an alliance with the Soviet Union. But bilateral relations hit rock bottom in the 1960s especially after the clash along their disputed border in 1969. It is in this context that the United States (the leading power) and China (the weakest power in the triad) established relations aimed at countering their common enemy, the Soviet Union.

Today, the United States is the hegemon, albeit in decline, and India is the weakest power in a US–China–India triad. China–US relations have gone from bad to worse, especially through the COVID-19 pandemic. On the other hand, India–US relations have blossomed in the 21st century. Political, diplomatic, economic, security and military ties between the world’s two largest democracies have strengthened and deepened.

For its part, India is wary of China’s assertive foreign policy, including attempts to curtail India’s rise as a great power. Beijing wants New Delhi to be enmeshed in South Asian affairs so that India’s political, diplomatic and military resources are not utilised to challenge China’s rise as the predominant power in Asia.

Unlike the India–China and China–USSR dyads, the United States and China are not neighbours. In 1969, at the height of the China–Soviet split the two countries had a seven-month border conflict, which ended in a ceasefire with the status quo ante restored. But the border dispute was not resolved and rivalry between the two countries was extended to countries in Asia, Africa and the Middle East. Bilateral relations only improved, slowly and steadily, in the 1980s.

India fought a limited border war with China in 1962, where the former was defeated and China captured Aksai Chin, a piece of territory claimed by India. The 1962 war exacerbated mistrust and led to the breakup of diplomatic ties between the two countries until 1976. The two countries also had border skirmishes at Nathu La, Sikkim, in 1967, and at Tulung La, Arunachal Pradesh, in 1975. In the 21st century, both have blamed each other for border transgressions along the un-demarcated Line of Actual Control (LAC). Tensions rose again in 2013 and 2014 when India blamed China for encroaching on Indian territory, denied by China. The matter was resolved when both sides withdrew troops.

In 2017, the two countries had a 72-day military standoff in Doklam at the China–Bhutan–India trijunction. There were fears of this spilling over between the two nuclear-armed neighbours. The standoff resolved after both sides withdrew troops and China agreed not to build a road in Doklam.

One explanation for recurrent border transgressions is geopolitical, in attempting to put pressure on India to kowtow to China and show India its place in the Asian hierarchical order. Another is domestic factors, such as Chinese expansionism and rising nationalism, which makes it difficult for leaders to compromise on territorial sovereignty. China is also anxious about India’s construction of roads, bridges, tunnels and other infrastructure along the disputed LAC. China is especially concerned over the construction of the 255-kilometre Darbuk-Shyokh-Daulat Beg Oldie (DS-DBO) all-weather road due to its tactical advantage along the LAC.

Government leadership in both countries is essential for strengthening India-China relations and to avoid clashes like the recent one in the Galwan Valley. But hopes for a ‘Nixon moment’ in India-China relations ignore how the protagonists would be starting off with legacies of historical tensions quite different from those which Richard Nixon was responding to in 1972.

Raj Verma is Associate Professor of International Relations and Foreign Policy at the College of International Relations, Huaqiao University, Xiamen. He is also Head of Research at the Intellisia Institute, Guangzhou, and Series Editor of the ‘Routledge Series on India-China Studies’.

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Vietnam rejects Chinese aggression in the South China Sea


Author: Nguyen Khac Giang, Victoria University of Wellington

As countries in the region are busy dealing with the COVID-19 pandemic, China is stirring the pot in the South China Sea. This includes harassing other claimants’ normal economic activities, conducting large-scale drills, consolidating military bases on artificial islands, and sending research ships into other countries’ Exclusive Economic Zones (EEZs). Vietnam — as one of the claimants and perhaps the most stubborn — has become the chief target.

Vessels from the U.S. Navy, Indian Navy, Japan Maritime Self-Defense Force and the Philippine Navy sail in formation at sea, in this recent taken handout photo released by Japan Maritime Self-Defense Force on 9 May 2019 (Photo: Reuters).

In early June, a Chinese Coast Guard patrol vessel rammed and looted a Vietnamese fishing boat operating in the Paracel Islands. This form of aggression is certainly not rare given Beijing’s fishing playbook. But it is important because this may be the first time China has enforced its unilateral fishing ban in the South China Sea. Beijing announced the annual ban many years ago, a ban that prompted strong protest from the Philippines and Vietnam. But China had not applied the rule to foreign vessels until this year with a new campaign called ‘Liang Jian (Flashing Sword) 2020’.

At the same time, the Chinese government survey vessel Haiyang Dizhi 4 is manoeuvring around the Vietnamese EEZ in a move believed to be aimed at pressuring Hanoi not to go ahead with its oil and gas exploration activities in the energy-rich Block 06-01 off the Vietnamese coast. Beijing has a track record of successfully coercing Hanoi to temporarily halt its strategically important projects in that area. But the timing of China’s recent maritime aggression could not be more sensitive for Vietnam.

Hanoi is preparing for the all-important Vietnamese Communist Party (VCP) National Congress next year, where the next generation of leaders are elected. Due to its inherently competitive nature of this Congress, leading candidates for the top posts must compete with each other to impress the selectorate — the VCP’s Central Committee. In a country where anti-China sentiment has run deep for centuries, showing a tough face towards Beijing can be a politically useful card to play.

During the Haiyang Shiyou 981 standoff in 2014, then prime minister Nguyen Tan Dung gained a huge boost in popularity by simply being the first Vietnamese leader in decades to publicly defy China in an ASEAN summit. This lent him immense support within the Central Committee, despite perceptions of his disastrous economic performance, and turned him into a solid candidate for the General Secretary post in the 2016 Party Congress. Although Dung was narrowly defeated by the Party Chief Nguyen Phu Trong, the 2014 incident made the VCP leadership reconsider its approach to its Northern neighbour.

While VCP General Secretary Nguyen Phu Trong was seen as a Party conservative amicable towards China, even Chinese scholars agree that Vietnam under his rule has made some strategic adjustments to challenge Beijing’s unilateral actions in the South China Sea. These include an incremental shift to the United States and the accelerating push for internationalisation of the South China Sea dispute. In a recent commentary, the Beijing mouthpiece Global Times dubbed Vietnam ‘the most significant partner of the US in Southeast Asia’. This viewpoint is noteworthy given the intimate party-to-party relationship between the Chinese and Vietnamese communist regimes.

This trend will very likely continue after next year’s congress, as some of the most prominent candidates for the top leadership positions — such as incumbent Foreign Minister Pham Binh Minh and Deputy Prime Minister Vu Duc Dam — have long been seen as open-minded reformists friendlier towards the West. The recently ratified European Union–Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership also allow Hanoi the opportunity to cultivate an economic development path which is less dependent on China.

Beijing’s increasing provocations further limit Hanoi’s viable options for compromise as the Vietnamese public will not tolerate actions seen as kowtowing to China. Indeed, anti-China protests could be said to pose the most serious threat to Hanoi’s political stability.

In 2018, a proposed draft law for Special Economic Zones (SEZs) was met with unprecedented unrest in Vietnam, will thousands of angry citizens burning down police cars and vandalising government offices. Although the SEZ draft law did not even mention China by name, many Vietnamese believed this would allow Chinese companies to occupy Vietnamese lands for 99 years. In a surprising move for an authoritarian regime, the National Assembly backed down and overwhelmingly voted to suspend the bill indefinitely.

Given similar anti-China protests and riots in 2014, Vietnamese leaders are smart enough to know that any public compromise with China over sovereign disputes will be political suicide for both themselves and the regime. The downfall of former general secretary Le Kha Phieu in 2001 — who was heavily criticised for leaning too much towards China and allegedly gave in to Beijing’s pressure on border issues — serves as a vivid example.

China might see the ongoing global pandemic as a golden opportunity to gain the upper hand in its sovereignty disputes and advance its positions aggressively in the South China Sea, the East China Sea, the Taiwan Straits and the Himalayan border. But as shown in the case of Vietnam, this opportunistic attitude might backfire because it unintentionally bolsters anti-China sentiments. Ultimately, China’s behaviour is likely to push Vietnam further away from Beijing’s orbit.

Nguyen Khac Giang is a senior research fellow at the Vietnam Institute for Economic and Policy Research, Vietnam National University, and a PhD candidate at Victoria University of Wellington.

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How global value chains will evolve in the post-COVID-19 economy


Author: Satoshi Inomata, IDE-JETRO

According to traditional trade theory, the direction and magnitude of product flows are principally determined by the comparative advantages of trading countries. These comparative advantages depend on endowments of production factors: labour, capital (including human capital) and land (or natural resources). Forces integrating the different factor endowments of various countries — especially capital and technologies from advanced economies and cheap labour from developing countries — drive the development of global value chains (GVCs).Workers are busy at assembling a vehicle along the production line at a workshop of Shandong branch of Chinese state-owned automobile and commercial vehicle manufacturer JAC Motors, Qingzhou county-level city, Weifang city, east China's Shandong province, 31 May 2020 (Reuters).

COVID-19 will likely accelerate the move toward ‘peer value chains’ among countries with similar institutional arrangements. In addition to traditional production factors, the quality of domestic institutions may become an important determinant of a country’s comparative advantage. Nathan Nunn conceptualises ‘contract-intensive’ products, which have complex supply chains that involve multiple transactions at various stages of the production process.

Just like a country with an abundant labour force has a comparative advantage in the production of labour-intensive products, the quality of a legal system may determine a country’s international competitiveness in ‘contract-intensive’ products. Indeed, Nunn empirically demonstrates that countries with superior legal institutions have an advantage in the production of products that require complex transactions, and are more likely to export such products.

A country with an appropriate legal framework to protect intellectual property rights has an advantage in knowledge-intensive industries. Likewise, domestic institutions that support fair and transparent economic activities can be complementary sources of competitiveness. These include competition rules, licensing and clear government procurement principles. Equally important is the institutional aspect of domestic technology development and use. Intellectual property rights for digital technologies, data localisation and cross-border data flows and commerce are emerging issues for global value chains.

Still, some less novel factors remain relevant. For example, what matters to a country for entering technology intensive GVCs is the extent that the country’s technological standards are compatible and harmonious with the global technology ecosystem. Even such basic institutional aspects account significantly for a country’s competitiveness, in addition to the level of physical infrastructure — or capital factors — and the availability of corresponding operational skills — human capital factors.

Multinational firms are also increasingly committed to corporate social responsibility like environmental protection and fair trade. Some pay strict attention to the relevant institutional schemes of sourcing countries in organising cross-border supply chains. The presence of appropriate environmental and labour standards enhances a country’s international competitiveness as a global supplier.

Why, then, will institutions matter more for GVCs?

First, the importance of labour in determining a country’s comparative advantage is declining. Wage differentials among countries were once major drivers of GVCs. But with the surge of new technologies, unskilled labour in developing countries — which is increasingly being substituted with machines — is rapidly losing its economic value. This has occurred as a consequence of the extensive installation of digitally automated production processes in advanced economies, empowered by autonomous robotics, smart sensors and artificial intelligence.

Second, there is a dramatic change in economic environments amid rising geopolitical tensions, particularly driven by the US–China trade war and security conflict. Firms are becoming highly susceptible to various forms of state intervention such as asset freezes and forced technology transfers. Robust institutions can provide predictability for firms’ international operations and serve as impartial guards against discretionary interventions by local governments into business activities. In expanding supply chains, risk-sensitive firms will look for countries with high quality institutions, or at least similar institutional attributes to their home countries.

Universal rule-making about the best forms of domestic institutions has been a key agenda of international organisations like the World Trade Organization (WTO) and the International Labour Organization. But not every country is a member of these bodies, and the influence of international organisations in the realm of domestic institutional rule-making has faded rapidly, compromising global governance on a multilateral basis.

But even in the absence of multilateral frameworks, countries may still find it beneficial to strive for institutional reform on a unilateral basis, reforming and improving domestic institutions to bolster their competitiveness. This has been seen with the unilateral tariff cuts on goods trade in many East Asian countries, far beyond their WTO bound tariff rates.

GVCs will evolve with the rapid advancement of transportation modes and information communication technologies, as well as the rising concern with diversifying production capacities after the COVID-19 pandemic. It is likely that GVCs will continue to expand geographically. But the reorganisation of value chains is no longer driven by the arbitrage forces on wage differentials between developed and developing countries because wages matter less in the era of robotics and artificial intelligence. Instead, GVCs will foster ‘peer value chains’ among countries with similar institutional attributes.

Satoshi Inomata is Chief Senior Researcher at the Inter-disciplinary Studies Center, Institute of Developing Economies (IDE), Japan External Trade Organization (JETRO).

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

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India’s statistical system just doesn’t add up


Author: Vikas Kumar, Azim Premji University

A series of economic shocks — including the demonetisation of high denomination currency notes in 2016, the introduction of Goods and Services Tax in 2017 and the COVID-19 lockdown — have exposed the growing incapacity of India’s official statistical system to meet the requirements of policymaking.Migrant workers crowd up outside a bus station as they wait to board buses to return to their villages during a 21-day nationwide lockdown to limit the spreading of coronavirus disease (COVID-19), in Ghaziabad, on the outskirts of New Delhi, India, 28 March 2020 (Photo: Reuters/Anushree Fadnavis).

Some of the major challenges facing the official statistical system are as follows. First, key government databases on population, household consumption, employment and national income have been in disarray for more than a decade due to delayed release and politicisation.

Second, the official statistical system — originally designed for a planned economy — has not adapted to the changing realities of post-liberalisation and the digital era. The inability of official statistics to adequately capture changing patterns of migration, employment and consumption is a case in point.

Third, the official statistical system has to compete with private survey agencies such as the Centre for Monitoring Indian Economy, NGOs such as Pratham and philanthropic organisations such as Tata Trusts, all of which have acquired the capacity to conduct their own large-scale surveys. Big data sources held by private entities are further undermining the government’s monopoly over data generation by making high volumes of data available at higher frequency.

Notwithstanding the emergence of non-governmental sources of data and newer types of data, conventional government statistics such as the population census will continue to occupy a key position in policymaking and public life for the foreseeable future. India’s Census Act was enacted in 1948, two years before the constitution was adopted. Several constitutional provisions link the census to power and resource sharing at different levels of government, as well as to various affirmative action policies.

Recent controversies have shown that the use of census data in policymaking remains politically sensitive and the quality of data has a significant bearing on decision-making. The choice of reference year for the delimitation of constituencies in the union territory of Jammu and Kashmir and a few north-eastern states has proven contentious. This is because of an uneven change in the relative population shares of various ethnic communities that is partly explained by poor quality census data.

The mandate of the Fifteenth Finance Commission — set up by the union government to give recommendations for devolution of taxes among other matters — to change the reference year and weight of population figures used in federal redistribution has also been questioned. It is likely to reduce the shares of more urbanised and economically vibrant southern states due to their lower fertility rates and poor accounting of the migrant population.

The most recent protests surrounding the hugely controversial Citizenship Amendment Act and the decision to link the National Register of Citizens with the decennial census have demonstrated that large sections of society continue to see a fair and conventional census as a guarantor of their constitutional rights.

Despite its continued relevance, the official statistical system requires substantive reforms. Recent changes to the system mostly involve mechanical solutions to fix data quality through the introduction of newer data collection tools such as Computer Assisted Personal Interviewing. But technological and legalistic solutions will only go so far in solving existing problems.

India’s ‘data deficit’ is embedded in a mutually constitutive relationship with its fraying democracy and deficient development in several respects. First, growing political interference has been a major problem facing official statistics on religion, caste, employment, consumption and national income.

Second, most government bodies entrusted with collecting data are struggling with a shortage of trained manpower to handle the volume of conventional data.

Third, biometric databases built by the government are deficient in underdeveloped areas where conventional databases have also been incomplete or flawed.

Fourth, adding punitive provisions to the laws governing the collection of data has in the past been followed by some of the most egregious instances of politically-motivated data manipulation.

A multi-pronged strategy is needed to holistically address India’s ‘data deficit’.

The government should start by helping to strengthen the independence of the judiciary, press freedom, the Right to Information Act and the autonomy of government statistical agencies. All of these are essential to ensuring the timely release and critical examination of data.

Statistical agencies should sensitise non-governmental stakeholders to secure their cooperation in the field to reduce non-response rate. This would also serve as a check on interference driven by political and economic considerations.

Statistical agencies should also trim unwieldy questionnaires to better utilise scarce resources and improve data quality. Nearly half of the questions in the census’ ‘House listing and Housing Schedule’ and a quarter in its ‘Household Schedule’ seek information on household amenities and assets, and employment, respectively. These questions can be dropped without impairing the constitutional and policy obligations of the census.

Existing sources of data should be used intensively. The continued neglect of state counterparts of the national sample surveys is a case in point. Governments at different levels should better utilise administrative statistics instead of adding to the growing pool of sample surveys of questionable quality. Moreover, digitisation of administrative statistics will improve access to data and allow for greater scrutiny and use of that information.

Lastly, the government should shed its self-image as the only source of large-scale data. It must engage non-government players as sources of ideas and solutions, particularly in the case of big data, because its manpower and technological constraints cannot be overcome overnight.

Vikas Kumar is Assistant Professor at Azim Premji University, Bengaluru, and is co-author of Numbers in India’s Periphery: The Political Economy of Government Statistics (Cambridge University Press, 2020).

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Lifting the veil on Thailand’s COVID-19 success story


Author: Wannaphong Durongkaveroj, ANU

Thailand has been internationally praised for avoiding a COVID-19 disaster. Despite recording the first case of the virus outside of China on 13 January 2020, Thailand managed to avoid its first death until almost seven weeks later. Its peak of new daily COVID-19 cases was 188 in late March — a low figure compared to many Western countries.

A promoter wears a face shield during the 41st Bangkok International Motor Show, after the Thai government eased measures to prevent the spread of the coronavirus disease (COVID-19), in Bangkok, Thailand, 15 July, 2020 (Photo: Reuters/Silva).

But it is unclear why Thailand has done better than other countries. It could be due to genetic factors, the widespread use of face masks or the Thai culture of greeting others with a wai (bow with palms pressed together) instead of an embrace or handshake. Or perhaps government data is simply understating the scale of the problem.

There is a lot of suspicion about Thailand’s officially reported number of cases, especially because of the way that infections are counted. While total cases are below 3500, Thailand has had more than 300,000 people under surveillance as potential carriers. Some studies show that the presence of COVID-19 antibodies among medical personnel and the general population is higher than what has been officially reported.

Another issue is how many tests Thailand performs each day. Thailand’s testing rate sits at only 0.03 tests per thousand people, a relatively low figure compared to other developing countries such as India and Vietnam.

Thailand’s success story would not have been possible without the continued state of emergency, a nationwide nightly curfew, lockdown rules, border restrictions and school closures. Yet all these measures have come at the expense of the economy.

The Thai economy has been the hardest hit among ASEAN countries and is estimated to contract by 6.5 per cent in 2020. The outlook for the Thai economy was already poor before the pandemic. While the country has posted modest growth of around 4 per cent every year, the poverty rate rose from 7.2 per cent in 2015 to 9.8 per cent in 2018, increasing the number of people living below the national poverty line to over 6.7 million.

Yet policymakers do not face a straightforward trade-off between pandemic control and the economy, which would likely shrink during the pandemic regardless of domestic policy. With the Thai economy heavily reliant on tourism and other exports, a downturn may not have been avoided even in the absence of COVID-19 restrictions.

Independent of economic considerations, the public health challenge Thailand faces is highlighted by data on excess mortality from COVID-19. Excess mortality is the difference between deaths from all other causes during the pandemic and deaths that we would expect to see in the absence of the pandemic.

Use of the excess mortality metric addresses concerns that deaths caused by COVID-19 might be underestimated by only looking at the number of direct deaths.

The number of COVID-19-related deaths could have been miscounted as a result of misdiagnosis or under-reporting, especially at the beginning of the pandemic when knowledge about the disease was limited. The death toll from COVID-19 is potentially more than 50 per cent higher than reported in some countries.

But statistics on excess mortality are only available in a few countries because they require accurate, high-frequency data. Thailand’s mortality data is taken from the Bureau of Registration Administration. The average number of deaths from all other causes in the weeks during the outbreak is higher than those in the same period between 2009 and 2019.

Excess deaths far outnumber the death toll announced by the government. There have been about 13,000 excess deaths since the start of March, about 8.5 per cent higher than normal. Thailand’s 58 reported COVID-19 fatalities are only 0.45 per cent of total excess deaths — spectacularly low compared to countries like the United Kingdom, Italy and France. But there is some variation in calculating excess deaths. There are excess deaths measured against the historical average and excess deaths that are not attributed to COVID-19. Since deaths from COVID-19 in Thailand are low, there is no significant difference between these two measures.

Why does Thailand show excess mortality? During the pandemic, excess mortality results from hospitals having to prioritise patients with COVID-19 and the postponement of non-emergency healthcare. COVIDSurg Collaborative researchers estimate that over 28 million operations were cancelled or postponed in 190 countries during the 12 weeks of peak disruption.

Are these dynamics present in Thailand? Excess deaths in Thailand may stem from hospital overload. One of the largest and best equipped hospitals in Thailand has been forced to limit the number of daily outpatients. While there is nothing wrong with resource reallocation during the pandemic, there is a cost for every decision.

Public health measures to reduce the transmission have also impacted working parents, patients with chronic diseases and those with occupations affected by lockdown.

It is crucial to balance the costs and benefits of policy decisions when taking action against the pandemic. More importantly, measuring success against the pandemic should go beyond recording total cases and deaths to capturing the ‘net benefit’ of policies. That is, their cost to mental health, social stability, education and excess deaths relative to their effectiveness in controlling the virus.

Wannaphong Durongkaveroj is a PhD candidate at the Arndt-Corden Department of Economics, Crawford School of Public Policy, The Australian National University.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

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The COVID-19 squeeze on South Korea’s labour market


Author: Vladimir Hlasny, Ewha Womans University

In the densely populated South Korea, just a hop away from China, COVID-19 hit early and strongly. By mid-February, South Korea had the second highest number of infections in the world. Since then the number of cases has been slowed down to a trickle — but clusters keep resurfacing in blind spots such as church congregations, fitness classes, night clubs and warehouses.

South Korean medical staff members wearing facemasks and protective clothing while on duty at Keimyung University Daegu Dongsan Hospital in Daegu, South Korea, 19 March 2020 during the coronavirus outbreak (Photo: Reuters/Lee Young-ho).

COVID-19 has wreaked havoc on the South Korean economy and labour market. The outbreak scared customers away from the streets, stores and entertainment venues. Businesses shut down both as a preventative measure and in response to declining demand. Exports fell by nearly a quarter year-on-year in April and by nearly a half in May, highlighting South Korea’s heavy reliance on foreign trade and its vulnerability to shocks in China and the United States, its largest trade partners.

Workers have been hit hard by the drop in job opportunities — particularly because the country’s factor markets remain severely fragmented between the industry and services sectors. When one sector undergoes mass layoffs, those dismissed have trouble finding vacancies that match their skill set.

In March alone, 1.6 million workers were furloughed or laid off following business closures. During April, 467,000 workers lost their jobs and an estimated 830,000 became underemployed or transitioned to insecure jobs, resulting in a jobless rate of 14.9 per cent. The additional score of workers sidelined to less preferred positions and those receiving a pay cut or pay freeze could be in the millions.

Fresh graduates and those lacking job experience and employable skills face dire prospects. As job opportunities dried up and firms struggled to accommodate their regular-contract workforce, temporary hiring fell dramatically — by half a million in May. Approximately 9.3 per cent of young workers are now unemployed and another 17.3 per cent are in precarious jobs.

Given the existing structural obstacles in accessing decent jobs, women and young people will face challenges re-entering the job market. Pockets of underutilised workers are likely to endure long-term hardship due to the mismatch between their deteriorating skill sets and increasingly competitive openings. This will lead to a further divergence of economic fortunes across society.

The pandemic has exposed structural faults and vulnerabilities weighing down the South Korean economy. These are giving rise to a state of dualism across the ‘primary’ and ‘secondary’ sectors.

The primary market consists of business conglomerates (chaebol) and their subsidiaries engaging in manufacturing and industry. These firms have been sheltered from COVID-19 impacts by their cash holdings and cross-ownership, and their long-term relationships with government, which in some cases have resulted in eyebrow-raising bailouts. The secondary market is populated by small and medium sized enterprises (SMEs) and ‘mom-and-pop’ merchants. These businesses are mostly service providers and subcontractors to chaebol.

SMEs, being ultra-competitive on cost rather than on product quality, are unable to finance innovation or transformation — or even pay the ever-rising minimum wages — amid market changes. That leaves them at the mercy of the business cycle.

Workers in primary-sector firms have been weathering the storm relatively unscathed, certain they will have a position to keep. By contrast, secondary-sector workers find themselves without job prospects for the months to come.

This state of market dualism is maintained by inconsistent unevenly-enforced regulations, inadequate social protections and unbendable norms of employer–worker and chaebol–subcontractor interaction. Such norms are grounded in Confucian culture as well as in structural realities hindering the productivity of SMEs and irregular workers. Government does little to empower entrepreneurs or promote the integration of non-mainstream workers. A lack of employment protection and weak anti-discriminatory provisions perpetuate the precarious existence of secondary-sector workers.

The depth of the crisis calls for a significant government response to alleviate suffering, keep the economy in a gear and boost the recovery. But this response should not come at the expense of fiscal solvency. The government should also take advantage of the slowdown to tackle structural problems. A prudent response should supplement broad crisis alleviation measures with targeted relief to vulnerable socio-economic groups.

The South Korean government responded to COVID-19 with large-scale public health and economic-stimulus programs. The Bank of Korea reduced borrowing rates twice and introduced a 270 trillion won (US$232 billion and 14 per cent of GDP) fiscal stimulus package. This included rolling out ‘basic anti-disaster income’, a system of targeted vouchers of 400,000–1,000,000 won (US$360–900) distributed to two-thirds of all families.

But the voucher program has been too broad and insufficiently progressive, making it wasteful. A large bulk of voucher purchases simply substituted existing spending by middle-class households while failing to help the poor cover their basic needs.

The voucher program failed to save many SMEs from shutdown. Job growth has not rebounded. The most vulnerable workers remain stuck with no job prospects. And the government has shied away from long overdue reforms to usher in more fluidity, transparency and healthy competition among firms and workers. While some workers vie for a diminishing number of jobs in their pre-assigned market segments, others are systematically overlooked because they do not fit the industry fold.

The near-universal cash transfers are a half-hearted attempt to supplement a weak social-protection system. A more effective way to reignite growth would be to promote innovation and fresh investment by underutilised firms and workers.

As part of the Korean New Deal being pursued by the Moon administration, government and civil society should help SMEs overcome bottlenecks in supply chains and financing currently holding them back, and should assist workers with retraining and upskilling. South Korea needs better market-integrating and equalising reforms to carry out these necessary changes.

Vladimir Hlasny is Associate Professor in the Department of Economics at Ewha Womans University, Seoul. 

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

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IA-CEPA will not solve Indonesia’s FDI problem


Authors: Krisna Gupta and Andree Surianta, ANU

The Indonesia–Australia Comprehensive Economic Partnership Agreement (IA-CEPA) came into effect on 5 July 2020. It is intended to facilitate less restrictive movement on goods, services and investment between the two countries. As attracting foreign direct investment (FDI) is a top priority for Indonesian President Joko ‘Jokowi’ Widodo, a freer flow of investment from Australia is certainly welcomed. But while IA-CEPA holds promise for trade, there are issues that will undermine its effectiveness in helping Indonesia attract increased FDI.Stacks of containers are seen at Tanjung Priok port amid the coronavirus disease (COVID-19) outbreak in Jakarta, Indonesia, 3 August 2020 (Photo: Reuters/Ajeng Dinar Ulfiana).

The biggest reasons why foreign investors avoid Indonesia are institutional quality and regulatory uncertainty. Unfortunately, IA-CEPA seems to do little to address these concerns. Article 14.14 allows both countries to specify non-conforming measures to favourable treatments. This essentially means both countries maintain the ‘right to restrict’. While Article 14.11 prohibits both countries from expropriating investment, this is also accompanied by caveats around national interest and public morals.

Importantly, IA-CEPA’s investor-state dispute settlement (ISDS) mechanism has also been watered down with many exclusions to its applicability. This could be significant, as investors in the mining industry learned the hard way in Indonesia. The watered-down ISDS provisions stem from Indonesia’s past experiences of being subject to costly ISDS proceedings. Indonesia also has a poor track record of honouring international arbitration processes, as Indonesian courts issue decisions on cases in the middle of international arbitration proceedings.

The non-conforming measures and caveats in IA-CEPA’s investment chapter suggest that the ease of investing would change on a case-by-case basis, and may well end up requiring the ISDS mechanism.

The idea that IA-CEPA will increase trade in goods should also be met with scepticism. While there are chapters regulating non-tariff measures, caveats in these chapters mean dispute settlement may be required. Recent WTO dispute settlement cases in horticulture and chicken cases also reflect poorly on Indonesia.

Chapters on trade in services in IA-CEPA is relatively new for Indonesia. These chapters focus on non-discriminatory market access for firms established in both countries.

Article 11.4 on telecommunications suggest that Australian providers will have the same access to public telecommunications networks and services as Indonesian providers. Article 13.12 on e-commerce allows Australian firms to operate in Indonesia without having to locate their data centres in Indonesia, which has been a problem for investors. Article 10.3 on financial services allows Australian firms to sell new financial services to Indonesia under Australian permit.

Since most regulations concerning trade of goods and services are under central government authority, IA-CEPA implementation in these areas in Indonesia appears to be more promising compared to FDI. If the market access provisions for goods and services are effectively implemented, it is possible that firms would be better off establishing themselves in Australia to export to Indonesia.

Indonesia’s list of investment restrictions is twice that of Australia’s. There are nearly 100 sectors in which Indonesia limits Australian ownership to just 30–67 per cent, and others that stipulates no ownership limits but still imposes a local partnership requirement. Australia specifies no such restrictions for Indonesia.

Notably though, Australia did not increase its FDI review threshold. Indonesia is a large consumer of Australian agricultural products, and a potential agricultural investor. But the AU$15 million (US$11 million) and AU$55 million (US$39 million) threshold for agricultural land and agribusiness, respectively, may deter potential Indonesian investors. Still, it should also be noted that Indonesian investment in Australia thus far has been marginal, with direct investment reaching just AU$17 million (US$12 million) in 2019. It is clear Indonesian investors will have an easier time setting up in Australia rather than the other way around.

Australia has a long history of running a current account deficit, suggesting a long experience of net capital inflows. Comparatively, the Indonesian government is obsessed with limiting current account deficits. If Australian-based firms can’t readily access Indonesia’s young and growing consumer base, setting up in Indonesia becomes less attractive. Third-country investors deterred by Indonesia’s unfavourable FDI conditions may instead want to invest in Australia.

Australia is ranked 14th in ease of doing business, according to the Doing Business 2020 report. Australia is placed 6th in enforcing contracts, making it attractive to investors seeking legal certainty. Credit information is also easy to retrieve and financing investment is much easier in Australia compared to Indonesia. And it takes only two days on average for firms in Australia to register and participate in the market.

Indonesia’s performance, according to the same report, is not as rosy. Its contract enforcement is ranked a distant 139th, highlighting the low quality of its legal institutions. With limited capital depth, getting credit in Indonesia is cumbersome. Despite efforts to reduce red tape, it still takes 13 days and 11 different procedures to start a business.

Without serious reform domestically, IA-CEPA might not bring the FDI inflows that Jokowi hopes for, at least in the short term. But Jokowi should not overlook other benefits. Economic integration via trade has been shown to improve domestic productivity through many channels. Australian firms and consumer protection regulations would bring the relatively high standard of goods and services that Australian consumers enjoy. Better talent exchange through freer movement of people, as well as officials working together daily to implement IA-CEPA, will certainly help improve the two countries’ relationship.

Greater Indonesia–Australia collaboration should have happened much earlier, but there is no better time than the present.

Krisna Gupta and Andree Surianta are doctoral candidates at the Crawford School of Public Policy, The Australian National University.

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Political crackdowns follow Cambodia’s COVID-19 lockdown


Author: Sorpong Peou, Ryerson University and Emma-Jane Ni, McGill University

Amid the COVID-19 pandemic, Cambodia is enjoying considerable success compared to its Southeast Asian neighbours despite its relatively poor healthcare system — recording just 240 cases and no deaths by early August. While critics argue that these remarkably low numbers are due to underreporting, the government’s restriction measures for public safety have genuinely succeeded in containing the pandemic. Its crackdowns on the opposition, on the other hand, remain problematic.

An activist is detained by police during a protest where activist groups urged the government to release and drop charges against a union leader Rong Chhun who was arrested last week in Phnom Penh, Cambodia 3 August, 2020 (Photo: Reuters/Lach).

Behind Cambodia’s impressive — albeit questionable — number of cases is a surprising turn-around in its pandemic response. In the early stages of the outbreak, Prime Minister Hun Sen took a cavalier attitude to the virus by downplaying public concerns, chastising the use of medical masks, maintaining close ties and travel with China, and permitting the docking of the MS Westerdam. This contrasts greatly with Cambodia’s stringent response strategy recently. The switch may be explained by Hun Sen’s attempts to maintain diplomatic efforts and bolster his image domestically and internationally.

Still, the turnaround in Cambodia’s pandemic response has demonstrated success for several reasons. The country’s Ministry of Health allocated some US$30 million towards the fight against COVID-19. In early March, Hun Sen issued a directive for relevant ministries to cut expenditures by 50 per cent in preparation for the government’s preventative and monitoring measures, medical training, treatment, and drug procurement, among other material acquisitions.

The government has also received assistance from other countries — most notably China — and worked with partners like the US Centers for Disease Control and Prevention, the World Bank, the Asian Development Bank, and the World Health Organization (WHO). The Cambodian government’s close collaboration with the WHO is especially notable considering efforts over the last decade to build capacity through Cambodia’s health surveillance mechanisms. The WHO is supporting health facilities in Phnom Penh and several other provinces, and helped the government implement a ‘National Master Plan for COVID-19’ aiming to mitigate the health, social, and economic impacts of the virus.

Strict travel bans have been central to the government’s response. In the early stages of the outbreak, the bulk of infections were ‘imported cases’ of foreign travellers and returning Khmer nationals. Amid fears that mass migration would exacerbate the spread of the virus, Hun Sen went so far as to cancel national celebrations of the Khmer New Year in early April. While travel restrictions have now eased, entry requirements remain stringent. In June the government implemented a steep fee (US$3000) on all international arrivals to deter foreigners from spreading the virus.

Despite relative success in dealing with COVID-19, the Cambodian government seems to be taking advantage of the pandemic to further consolidate its political power. In early March the UN High Commissioner for Human Rights Michelle Bachelet urged pandemic-hit countries to ensure human rights would be prioritised during the outbreak and to not abuse emergency measures.

The Cambodian government has ignored these calls. The National Assembly instead adopted the ‘Law on National Administration in the State of Emergency’ granting the government the power to execute unlimited telecommunications surveillance, control the distribution of information, restrict freedom of movement and assembly, seize private property, and enforce quarantines. Hun Sen claims these powers are necessary to contain the outbreak, and the legislation is premised upon Article 22 of the Cambodian Constitution which states that a state of emergency may be declared ‘when the nation faces danger’.

By tightening control over the spread of information, the emergency powers legislation may further enable the Cambodian government to crack down on political dissent. Evidently, crackdowns on opposition members have already occurred. Between January and June, for instance, 15 people were reportedly arrested and 80 more were released on bail but faced re-arrest. This political move was due to government concerns that the opposition may take advantage of the crisis to affect regime change. But the arrests reinforce a pattern of power consolidation since the mid-1990s.

While they exist even in democratic countries, emergency powers can be exploited by political elites who are prone to violating basic rule of law and human rights. Cambodia advanced itself as a successful post-communist transitional democracy in the early 1990s, but illiberalism and repression have since taken precedence. In a state dominated by one party like Cambodia, such an extraordinary set of powers serves only to deepen the scope of authoritarianism. The emergency legislation is clearly not limited to the pandemic, since this threat may provide the government with a new opportunity to advance its agenda for power consolidation and to justify the derogation of human rights.

Cambodia has done something right in mitigating the harmful effects of COVID-19, and emergency powers are justified to some extent given the severity of the pandemic threat and the country’s poor healthcare system. But the government should focus on improving healthcare quality for its people and not allow democracy and human rights to fall victim to draconian measures. Temporary lockdown measures for public safety are perfectly legitimate, but crackdowns violating democratic and human rights for political purposes are not and will only further delegitimise the ruling party.

Sorpong Peou is Professor of Global Peace and Security, Ryerson University, Toronto.

Emma-Jane Ni is a research assistant studying Political Science and International Development at McGill University, Montreal.

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COVID-19 undermines South Korean diplomacy


Author: Jeffrey Robertson, Yonsei University

South Korea attracted global attention from the beginning of the COVID-19 pandemic. In March, the BBC reported that Seoul’s ‘trace, test and treat‘ approach was saving lives while hospitals in Europe and the United States were overwhelmed. In April, the New York Times reported on South Korea’s capacity to hold democratic elections despite COVID-19, and by June, CNN reported on the lessons to be learned from South Korea’s public health success story.

South Korean Foreign Minister Kang Kyung-wha, wearing a face mask, arrives at a briefing for foreign diplomats on the situation of the coronavirus disease (COVID-19) outbreak, at the foreign ministry in Seoul, South Korea 6 March, 2020 (Photo: Reuters/Jung Yeon-je).

South Korea has promoted its image as a state which was not only successful but also willing to aid and assist those less capable. But underneath this public diplomacy success story, South Korea faces challenges that will impact its core foreign policy goals.

COVID-19 has precipitated changes to the foundations of modern diplomatic practice. Ceremony — the protocols, procedures and even drama that incentivise commitment and effort — has been transformed under COVID-19 to clicks and the accept buttons of webinars and Zoom meetings. Secrecy — the understanding that what is discussed in private will stay private, or at least be plausibly deniable — has been transformed to an acceptance that anything said online, will stay online forever.

With all conversations recorded, there is less opportunity for informal off-the-record conversations to gauge the likelihood of partner support or opposition. Online platforms do not allow such freedom. The ‘stock market’ of diplomatic reputation, built on professional engagement and personal judgements of achievement, trustworthiness and discretion, is considerably harder to ascertain in the ‘Zoomplomacy’ era.

COVID-19 has also contributed to the increasing role of executive government in foreign policy. Across the globe, diplomats are watching their policy role diminish and their administrative role increase. Diplomats cannot gain insight into policy implications if they are not in-country. Most embassies are only now getting back to regular staffing levels.

Over a period requiring consistent diplomatic interaction, these changes impact South Korea more than other states. In diplomatic practice, South Korea could be considered an ardent traditionalist. Seoul was slow to adapt to digital diplomacy despite its technological prowess and even with a growing array of alternatives, it shuns diplomatic innovation. South Korea remains wedded to tried (and all too often failed) approaches of crisis and summit diplomacy to address the core challenge of peace and security on the Korean Peninsula. Unfortunately for Seoul, such approaches are among the most impacted by COVID-19.

As COVID-19 spread, South Korea was in the middle of a number of diplomatic initiatives that relied heavily on the ceremony, secrecy, personal judgement and person-to-person linkages that are the mainstay of modern diplomatic practice.

Initiatives to progress and reinvigorate the diplomatic processes between North Korea and South Korea, and to encourage and support diplomatic processes between North Korea and the United States always required South Korea’s engagement with both the Pyongyang and Washington elite. The most dramatic evidence of South Korea’s reliance on person-to-person diplomacy to progress engagement with North Korea was glaringly apparent on the White House front lawn in March 2018, when the first announcement was made that US President Donald Trump would accept an invitation to meet North Korean leader Kim Jong-un.

South Korea became one of the largest foreign lobbying spenders in the United States to secure support for reciprocal visits, attract community support and directly influence US congressional opinion from the launch of the initiative. With COVID-19, the capacity to build upon these networks of support has diminished.

At the same time, South Korea’s perennial challenge to balance its relationship with its primary security partner, the United States, and its primary economic partner, China, has intensified. Person-to-person diplomacy allows diplomats who are trained for and specialised in facilitating understanding in a relationship to interact closely. In person, a diplomat can emphasise the positive and at worst hide the negative in ambiguity and obfuscation. Announcements from the capital or statements in Zoom meetings cannot replace the facial expressions and body language which build trust and confidence in person-to-person diplomacy.

Connected to addressing the challenges of balancing relations with the United States and China, Seoul’s most innovative diplomatic initiative was building the foundations for stronger relations with ASEAN. But South Korea’s New Southern Policy replayed a standardised foreign policy initiative, similar to the initiatives of previous presidential administrations, such as the Eurasia Initiative or the Northeast Asia Peace and Cooperation Initiative. Both relied upon business, academic and cultural engagement, and from this built networks to further national objectives. Such initiatives can have lasting impacts on bilateral relations. COVID-19 impedes Seoul’s ability to build similar foundations for the New Southern Policy.

Most accounts of the impact of COVID-19 on South Korea’s diplomacy focus on the attention Seoul has gained as a result of its ability to rapidly contain and track the spread of the virus, and its capacity to limit negative economic fallout. COVID-19 added to the well-deserved and growing image of South Korea as an increasingly prominent and globally relevant international actor. But underneath this public diplomacy picture lies a number of growing challenges. COVID-19 and the inability to support a more innovative approach to diplomacy constrains Seoul’s capacity to pursue core diplomatic objectives.

Jeffrey Robertson is Associate Professor at Yonsei University.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

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US–China scientific cooperation faces an uncertain future


Authors: John P Haupt and Jenny J Lee, University of Arizona

Geopolitical tensions between the two largest scientific knowledge producers in the world are intensifying, and the Trump administration is now scrutinising scientific collaboration with China as a potential threat to US national security and economic prosperity. Chinese researchers and graduate students are being portrayed as potential spies who may steal intellectual property, while China’s ‘Thousand Talents’ program is characterised as a scheme allowing China to acquire US technology, intellectual property and know-how.

Chinese and US flags flutter near The Bund, Shanghai, China, 30 July 2019 (Photo: Reuters/Aly Song).

This scrutiny is resulting in investigations of US scientists with ties to China, raising concerns about the future of US–China research collaboration.

This concern recently increased due to three changes to US immigration policy. First, on 29 May, US President Donald Trump issued a proclamation suspending and limiting F and J visas for Chinese nationals with ties to China’s Military–Civil Fusion strategy. On 22 June, he then signed another proclamation temporarily suspending the entry of high-skilled temporary foreign workers under the H-1B program. More recently — although now reversed — on 6 July the Department of Homeland Security announced that international students on F-1 and M-1 visas attending schools that opt to go fully online during the autumn term must transfer to another university or leave the United States. The latest guidance is that only new international students are not allowed into the United States for an entirely online academic program.

The justification for these policies are that affected individuals pose a threat to US safety or economic security. But ultimately, they help strengthen Trump’s anti-immigration agenda that portrays internationals as a threat to his ‘America First’ platform.

Numerous US political, organisational and university leaders are voicing their resistance to the policies, arguing that immigrants and international visitors bring many economic and social benefits to US society. While several proposals and policies have been overturned, the disruptions they have caused to the formation and maintenance of transnational research networks will diminish future opportunities for collaboration between US and Chinese scientists.

International scholars and graduate students have long played vital roles in the US science and technology (S&T) enterprise. Over the last two years, approximately 85 per cent of H-1B approvals have been in S&T-related occupational categories.

The vast majority of H-1B workers come from India and China — in 2019, the figures were 71.7 per cent and 13 per cent respectively — and the proportion of Chinese nationals being approved for H-1Bs has steadily increased in recent times. Today, there are more H-1B holders from China employed in US private companies and public institutions, such as colleges and universities, than at any other time in history.

Chinese nationals also make up the largest portion of international graduate students in S&T fields within the United States. Their choice to study in the United States is at least partly motivated by obtaining professional and research-based experiences within the country upon graduation. From 2013 to 2017, 84 per cent of Chinese nationals who graduated from US S&T doctoral programs stayed in the United States for at least five years after graduation. Previous White House administrations have promoted this transition from graduate study to the workforce, as they recognised the valuable contributions these individuals make to US society.

The recent Trump administration policies threaten to reduce the number of internationals seeking employment through H-1Bs and other temporary work visas or applying for admission into S&T graduate programs.

With this decline comes a reduction in the number of opportunities for transnational networks to be formed and maintained between US and Chinese scientists. Chinese nationals who take research positions or study in the United States tend to maintain and establish ties with colleagues at Chinese institutions. They also serve as intermediaries between unacquainted US and Chinese scientists, helping to establish new opportunities for future research collaboration. Those who return to China after completing their work or studies in the United States are also likely to continue collaborating with US colleagues, resulting in long-term partnerships between the two countries.

Ultimately, these three immigration policies are part of a broader pattern of xenophobia that is creating an uncertain and threatening environment in the United States. If Chinese nationals anticipate unfavorable treatment in the United States, they may seek opportunities elsewhere — either in China or in other economically advanced countries with friendlier immigration policies.

This choice will likely have negative consequences for S&T in both countries. It will result in fewer opportunities for collaboration between US and Chinese scientists, limiting their chances to pool knowledge, skills and resources to engage in cutting-edge research. And significantly, the United States will lose access to highly-skilled foreign nationals that are crucial for its success in both commercial and academic S&T research.

For China, if fewer scientists receive training or gain research experience in the United States, it will accrue less benefits from its policies that promote international cooperation to help grow its S&T enterprise. And for both countries, collaboration enhances the growth of their S&T output — recent research shows that US growth benefits more from collaboration than China’s does.

To ensure that all forms of collaboration between the United States and China remain strong, the Trump administration must determine how to best leverage and facilitate collaboration with China to promote a win–win situation for all parties involved. Vilifying Chinese and other foreign nationals and concocting immigration policies to limit their entry into the United States will provide fewer benefits to the United States than remaining open and engaged with the world.

John P Haupt is a PhD student in the Center for the Study of Higher Education at the University of Arizona.

Jenny J Lee is Professor in the Center for the Study of Higher Education at the University of Arizona.

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