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ASIAN (H)

Thai prosperity depends on smarter education reform

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Author: Peter Warr, ANU

Thailand is in temporary limbo. The current government, which came to office in May 2014 via the country’s 12th military coup, has promised elections in February 2019. The Thai people wait in uncertainty for the outcome. Many major economic decisions, both private and public, remain on hold.

Students exercise at a school in Bangkok, Thailand. (Photo: Reuters/Athit Perawongmetha).

Thailand’s economy is the eighth largest in Asia and the second largest in Southeast Asia, after Indonesia. During 2018, the Thai economy grew moderately at just under 4 per cent in real terms, about the same as in 2017, and GDP per capita reached just under US$7000.

The Thai economy is heavily export-dependent, with gross exports accounting for two-thirds of GDP. Economic performance is thus dependent on global economic activity, especially in the major markets of China, Japan, the United States and Europe. Exports are dominated by manufactured goods such as electronics, vehicles, machinery and foodstuffs.

Private investment, the most volatile component of aggregate demand, is driven by business expectations regarding domestic stability and export demand. Both remain highly uncertain. The upcoming election could produce a stable political outcome, restoring business confidence and promoting growth, but it could also bring a return to the political turmoil of the pre-coup decade.

Bans on political activity and restrictions on press freedom were instituted by the military government following the 2014 coup. These bans are only now being relaxed in the lead-up to the election. The lack of open political discussion during the tenure of the military government has contributed to the uncertainty about Thailand’s future.

Export demand is threatened by global events over which Thailand has no control. The possibility of an escalating US–China trade war is especially concerning because Thailand’s manufactured exports are enmeshed in complex production networks that involve both China and the United States. The country’s short-term economic prospects are sufficiently worrying that private investment remains at around a quarter of GDP, not enough to raise growth above 4 per cent.

On the other hand, Thailand’s long-term future depends on factors that are very much within the country’s control. Although the coup leaders promised to ‘restore happiness’ to the Thai people, the junta’s reform agenda does little to address the country’s long-term economic problem — its archaic and ineffective public education system.

For decades, successive Thai governments of all persuasions have attempted to reform the education system. But these attempts have been successfully blocked by the Ministry of Education and teachers’ unions. The result is poor standards of literacy and numeracy among young Thai people, leaving them ill-equipped to provide the skilled workforce that an industrialising economy requires.

Consider Thailand’s manufacturing export industries and in particular the automotive industry. Exports of both vehicles and automotive parts have grown impressively. But the automotive industry is largely foreign-owned, especially in the final assembly stage, which consists almost entirely of Japanese firms. All design and major managerial decisions occur in Japan. According to the manufacturers, their main difficulty in upgrading their activities within Thailand is the lack of an educated workforce that can readily be trained to a high level of skill.

The proliferation of private schools is another manifestation of education failure. For middle-class Thais who can afford them, private schools provide an escape from the failures of the public school system. Private schooling is a thriving business. One such school, a Singapore-based for-profit enterprise, was recently listed on the Thai stock exchange — the first such listing for a private school. This is perfectly legal in Thailand, but it is not the solution to the country’s education problems because so few Thais can afford to attend.

For most Thais, the result of an inadequate public education is a lifetime of unskilled or semi-skilled employment, dooming them to the lower rungs of the economic ladder. For the country, the result is the much-quoted but little-understood ‘middle-income trap’.

The experience of many developing countries, including Thailand, is that a development strategy relying on cheap labour and a business-friendly economic environment has elevated them to middle-income levels, virtually eliminating mass poverty in the process.

These are commendable achievements. The economic growth that underlies them is based on private investment in physical capital, supported by an efficient financial system and public investment in complementary physical infrastructure such as roads, ports, electricity supplies and law enforcement. But this process cannot get countries from middle-income to high-income levels.

Typically, as a country reaches middle-income levels, growth rates steadily decline as low productivity labour is absorbed. Upgrading beyond cheap-labour manufacturing and services requires upgrading skills, which in turn requires massive investment in human capital. The private financial system cannot finance that form of investment because unlike investment in physical capital, investment in human capital does not produce an asset that can be used as legal collateral.

The tenure of the military government could have been used as an opportunity to address this fundamental development problem. Tragically, education reform was ignored. It remains to be seen whether the restoration of democracy can produce a better outcome.

Peter Warr is the John Crawford Professor of Agricultural Economics Emeritus, The Australian National University.

This article is part of an EAF special feature series on 2018 in review and the year ahead.



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HISPANIC (H

American Telemedicine Association Letter Offers Recommendations on DEA Special Registration for Telemedicine Prescribing of Controlled Substances

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On January 9, 2019, the American Telemedicine Association (ATA) issued a policy comment letter to the U.S. Drug Enforcement Administration (DEA), advocating for provider-friendly changes to federal controlled substance prescribing rules. Note: the firm’s Telemedicine & Digital Health Industry Team participated in the ATA’s special workgroup to develop the recommendations.

The letter offers recommendations for DEA’s forthcoming Ryan Haight Act special registration regulation to allow psychiatrists and physicians to prescribe controlled substances via telemedicine without the need for an in-person exam. The special registration is one of the seven “practice of telemedicine” exceptions under the Ryan Haight Act, but to date it has not been activated.

The ATA’s recommendations follow the President’s signing into law the Special Registration for Telemedicine Act of 2018, part of the larger SUPPORT for Patients and Communities Act. The law requires the DEA to promulgate final regulations specifying: (a) the limited circumstances in which a special registration under this subsection may be issued; and (b) the procedure for obtaining a special registration under this subsectionThe law sets a deadline of October 24, 2019 for promulgation of these new regulations.

To Congress’ credit, the final version of the SUPPORT Act notably changed a clause contained in one of the initial drafts. The draft bill originally required the DEA to issue interim final regulations. Had that version been signed into law, the DEA would have been directed to simply publish the rule with an arbitrary specified effective date, without a “first draft” in the form of a proposed rule and without considering public comment in response to a proposed (which is exactly what happened 10 years ago when DEA published interim final regulations implementing the Ryan Haight Act on April 13, 2009). Fortunately, the final version of the bill signed into law instead sets a one-year deadline for DEA to promulgate final regulations. And the law affords DEA ample time to issue proposed rules, allow a 60 or 90-day period for the public to submit comments, and then promulgate the final regulations after considering those comments.

The recommendations are designed to strike a balance between the country’s great need for additional behavioral health resources, commonly accepted clinical practices, the evolving landscape of telemedicine technologies, and DEA’s charge to protect the safety and wellbeing of citizens via drug diversion. The letter proposes five key recommendations:

  1. Update the current DEA registration process to specify distinctions between traditional and telemedicine prescribing privileges.
  2. Allow both sites and prescribers to register for telemedicine.
  3. Allow for a public comment period within the one-year timeline for special registration activation.
  4. Ensure that telemedicine special registration is not restricted to any single discipline.
  5. Allow telemedicine prescribers to apply for DEA registration numbers in multiple states at once.

The ATA letter notes: “The telemedicine community has long advocated for activation of special registration to relieve the regulatory impasse that confronts many telehealth prescribers.  Activation of the special registration provision will not only allow additional prescribers to use telemedicine to combat the opioid crisis, but also provide the broad range of medical disciplines an avenue to expand access to quality care.”

We will continue to monitor progress of the DEA special registration and other developments on the Ryan Haight Act, so please check back for updates.

For more information on telemedicine, telehealth, virtual care and other health innovations, including the team, publications, and other materials, visit Foley’s Telemedicine & Digital Health Industry Team.



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ASIAN (H)

Can Japan do better than muddle through?

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Author: Editorial Board, ANU

Shinzo Abe is into his sixth year as Japan’s prime minister and is poised to become the longest serving in Japan’s history if he serves out his term to 2021. His leadership has brought a stability to Japanese politics that was absent prior to 2012 with a revolving door of political leaders, including a disastrous one-year term for Abe from 2006. His economic leadership, at least in rhetoric, has been the difference this time around.

Japanese Prime Minister Shinzo Abe leaves an Upper House judicial committee session at the National Diet in Tokyo, 6 December 2018. The Abe cabinet and ruling coalition try to pass the controversial immigration bill on 7 December while opposition parties demand dismissal of the committee chairman (Photo: Reuters/Yoshio Tsunoda/AFLO).

The Abenomics reform package on which Prime Minister Abe campaigned was the right one to lift Japan out of two decades of anemic growth. But he hasn’t really committed the political capital needed to take on the vested interests for the reforms that matter most. He continues to do just enough on the economic front to keep the Japanese economy on a stable course but his main political aim is the normalisation of Japan’s military.

The mandate that Abe gave Bank of Japan Governor Haruhiko Kuroda checked Japan’s deflation but it hasn’t lifted prices to the target 2 per cent a year. Much of recorded economic growth has come from crude Keynesianism — fiscal and monetary expansion — instead of structural reforms to lift Japan’s growth potential.

Two big structural challenges still loom over the Japanese economy. The first is the ageing and shrinking population and the other is the unprecedented gross government debt that is running at 240 per cent of GDP.

As Masahiko Takeda explains in this week’s lead essay, ‘Japan’s economic conditions continue to be neither too hot nor too cold’. But nor are they — in Goldilock’s territory — ‘quite just right’.

The consumption tax will be raised in September, from 8 to 10 per cent, and the Abe government has formally opened up Japan to immigration for the first time. Both measures involve significant compromise. The consumption tax rate will remain at 8 per cent for some food products, introducing a ‘serious distortion’ in consumption, and distorting subsidies will also be introduced. The same food will be taxed differently depending on where it is eaten. It’s administratively messy and poor policy. The more serious risk is the rushing through of the changes to the immigration law. The opening up of Japan to foreign labour that de facto can stay indefinitely has rightly been hailed as a watershed for Japan — a Japan whose total refugee intake in 2017 amounted to only 20 people — but there will need to be much more change if Japanese social cohesion is to withstand the shock.

Foreign labour will be able to enter Japan on a five-year guest worker visa with family, and extend that visa indefinitely. But, as with any successful immigration program, it’s what’s done behind the border that matters most. For foreign-born workers to succeed in Japan, and for Japan to be able to attract the best talent from abroad, immigrants must be accorded equal rights, equal access to services and the chance to succeed in society.

The risk is that a new foreign-born population in Japan, eventually with Japanese born children, will be marginalised and discriminated against in society. It is widely recognised that third generation Koreans, or Zainichi, do not get equal treatment in Japan today.

Immigration reform done right would require more preparation for Japanese businesses and the community to accept an influx of foreign talent. Japan is prosperous, safe and an attractive destination for migrants but can’t expect to attract the best automatically without providing language and other support for assimilation and the chance of success in Japanese society.

The change in Japanese migration policy is most welcome but its opportunistic and slapdash implementation could cruel otherwise good reform.

Externally, Takeda reminds us that the USChina trade tensions could also cause strong headwinds for the Japanese economy. The US approach to dealing with trade problems with China is holding the WTO trade regime hostage to having its way with China and threatens Japanese prosperity and global trade.

It may appear that Japan is helpless in the external challenge of a USChina trade war but Japan is president of the G20 at this key moment. The G20 communique in Argentina late last year opened up the opportunity of reforming the WTO.

Japan has assets to deploy in finding ways to resolve the China–US tensions in a multilateral setting. In a region where leaders are coming and going or challenging the global status quo, Abe and Japan have provided stable leadership that led to the conclusion of the TPP without the United States, and has seen a breakthrough in improving the difficult China–Japan relationship.

Abe’s never been shy about his long-cherished aim of revising the Article 9 peace clause of the Japanese Constitution to allow for a more normal military. But his legacy will be more likely determined by how Japan manages its new immigration program and its G20 presidency.

Muddling through on immigration reform and the G20 presidency in full view of the world will hardly be enough.

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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ASIAN (H)

Japan braces for economic headwinds

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Author: Masahiko Takeda, Hitotsubashi University

The Japanese economy’s Goldilocks state continues, in which everything seems ‘just right’: modest but steady growth, a tight labour market, high corporate profits and elevated share prices. But there have also been notable developments on the ‘three bears’ that threaten to come home and disrupt the good fortune that Japan is still enjoying. An ageing population, the risk of a fiscal crisis and the need to open up the country for a supplementary source of labour all present significant risks.

The Metropolitan Expressway bridges are seen with the construction site of the Athletes’ Village for the Tokyo 2020 Olympic Games in the background, Tokyo, Japan, 14 November 2018. (Photo: Reuters/Issei Kato).

Japan’s economic conditions continue to be neither too hot nor too cold. Growth momentum decelerated somewhat in 2018, but going forward there are reasons to believe that it might pick up again. Construction activities related to the 2020 Tokyo Summer Olympic Games are gearing up. The planned consumption tax hike will create a temporary pre-hike consumption upswing in the coming months. The labour market is still tight but wages are growing only moderately and inflation is still weak, justifying the Bank of Japan’s loose monetary policy despite the US Federal Reserve’s policy normalisation.

Turning to the bears, two important developments are unfolding.

First, the Abe administration seems to have made up its mind to implement the second leg of a two-stage consumption tax hike in September 2019, this time from 8 to 10 per cent. The second hike has already been postponed twice for fear of repeating the slump that occurred after the first step up in the tax in 2014.

Second, the administration has at last come up with a plan to formalise the intake of foreign workers. An amendment to the country’s immigration law was recently approved by the Diet, against fierce resistance by opposition parties. Unlike the existing Technical Intern Training Program that has been used — and sometimes abused — to supplement the dwindling labour supply, the amended law officially recognises that Japan will accept medium- and low-skilled foreign workers. Along with the migration law amendment, the government has specified the scope and quantity of intake over the next five years starting from April 2019.

Both are a step in the right direction as they ease the demographic and fiscal pressures Japan is facing. But unfortunately ― perhaps as is always the case ― both are also being distorted by politics.

The most serious distortion related to the consumption tax hike is the decision to keep the tax rate on food items at 8 per cent. It has a seemingly innocent justification: to protect the poor, basic needs must be kept outside of the tax hike. But multiple tax rates not only impose a heavy administrative burden on shops that sell both food and non-food items, they also give rise to many anomalies — some of which are, in practice, ridiculous.

If shopping at a convenience store, for instance, a customer will be asked whether they intend to eat the sandwich that they are buying inside the shop (taxable at 10 per cent) or take it home (taxable at 8 per cent). The clerk needs to charge the right amount of tax based on the answer. This is poor administration.

The government is also planning to introduce a host of subsidy schemes to attenuate the after-tax consumption slump. While their need and effectiveness are questionable, they will certainly eat into the revenue increase from the tax hike.

The main concern about the amended immigration law is the way the government waited until the issue’s breaking point was nearing, then quickly proposed an amendment and pushed it through the Diet. Implementation will occur just as fast, within a few months. Opposition parties rightly expressed concern about the amendment’s ramifications, including for Japan’s social security system and lack of preparedness on the part of receiving firms, regulators and society in general. Still, somewhat hasty action is better than no action at all, and there will be plenty of time for Japan to learn to welcome foreign workers as indispensable colleagues and neighbours.

A new bear is threatening not just Japan’s future but that of the entire world: the trade tensions between the United States and China. Although the estimated negative impact on Japan is smaller than that on the two warring nations, it is sizeable compared with Japan’s potential growth of less than 1 per cent.

What is perhaps more unfortunate than any output loss is that the United States is resorting to unilateral bully diplomacy to settle its conflict with China and many other international disputes. The United States’ dwindling legitimacy as the world’s leading power is a source of unease in Tokyo, which must readjust to a world in which trade liberalisation is no longer a priority shared with its closest ally.

Masahiko Takeda is a professor in the School of International and Public Policy, Hitotsubashi University.

This article is part of an EAF special feature series on 2018 in review and the year ahead.



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ASIAN (H)

Why Southeast Asia still bothers with ASEAN

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Author: Mathew Davies, ANU

ASEAN leaders came together for the 33rd time between 11 and 15 November 2018. They made statements and agreements and they released declarations. They met with their various dialogue partners and hosted the East Asia Summit, drawing in leaders from the wider Indo-Pacific. They waved for the cameras, the photos of which were dutifully relayed around the region online and in print.

ASEAN leaders gather for a group photo during the opening ceremony of the 33rd ASEAN Summit in Singapore, 13 November 2018 (Photo: Reuters/Edgar Su).

Yet, despite the pageantry, nothing much appears to have changed.

ASEAN still struggles to exert its influence in the South China Sea despite the agreement on a draft code of conduct. Its members are deeply split about how to handle a rising China and a declining United States. ASEAN’s own commitments are widely violated by the same members that created them. Member states are increasingly looking beyond ASEAN as they seek to take on a more global role. There is even evidence of an arms race within Southeast Asia. This suggests that even the most traditional of ASEAN’s aims, regional peace, is under threat.

Such apparent failures and contradictions prompt the question of what role ASEAN plays in regional affairs. The easy answer is that it plays almost no role and is obsolete for the world in which it finds itself. Yet this assessment ignores what is arguably the most important thing about ASEAN — that the politically savvy elites of the region continue to invest their time, prestige and often-limited resources of their countries in the regional project.

The ASEAN summits give us a window into the real role that ASEAN plays and why it is so important.

Consider the event. Twice a year, ASEAN leaders assemble for a carefully choreographed occasion that exhibits the values that ASEAN documents claim are central — unanimity, consensus, regional peace and security, and mutual respect. They line up on the stage and smile, waving to the audience. Behind them, the country flags of ASEAN members are arrayed in order, with the ASEAN flag prominently displayed. The ASEAN Emblem (10 stalks of rice bound together) is omnipresent. The ASEAN anthem plays as the audience watches on.

ASEAN summits are the performance of ASEAN regionalism — a dense network of symbols (the flag, the anthem and the stage setting) and ritual (the orchestration of ASEAN’s leaders). They are ASEAN members’ shared experiences of a ceremonial fealty to regional standards, routinely performed by national leaders and played out in public.

These ceremonies, and the blending together of symbol and ritual that they involve, are vital to ASEAN’s endurance and value. They are moments of order in a sea of disorder, an emblem of trust amid so much mistrust. They bring elites together and ask them to act out the values of the organisation.

This is why ASEAN works. It is why elites continue to bother with it. The symbols and rituals represent reassurance to member states. Yes, there will be more competition and more failures to comply. But there will also be the next summit where member representatives stand alongside those with whom they are competing and pay formal respect to ASEAN and all it stands for.

For a few days, symbols and rituals obscure the weaknesses of ASEAN. These moments of unity keep regional elites vested in the ASEAN project. Reassurance limits competition and fear and serves the purpose that ASEAN has always had — to make its comparatively weak members more independent, more resilient and more secure than if there was no ASEAN.

ASEAN’s symbols and rituals are not a magic solution to regional ills nor do they guarantee future relevance. They obscure, but do not fundamentally address, the sources of tension.

ASEAN members continue to harbour suspicions about each other and the regional body, including even worries about possible war between members. Most recently in December 2018, Singapore and Malaysia confronted one another over maritime intrusions. China and the United States also continue to compete within and beyond Southeast Asia, pulling ASEAN members in different directions. If tensions between Beijing and Washington ever turn violent, would ASEAN’s symbols and rituals be sufficient to stop the conflict spilling into Southeast Asia? Surely not.

The symbols and rituals of ASEAN unity overlay, but do not replace, underlying disagreements and competition. As such, they help keep all those tensions from dissolving the regional project entirely. They serve as integrative and stabilising forces holding in check the forces of disintegration that constantly dog ASEAN.

The ingenuity of ASEAN is not in its ability to resolve the tensions that plague Southeast Asia but in the way that those tensions are managed. Leaders recognise that ASEAN limits their competition, and this is why they persist with it.

ASEAN is a regional body built on sand, but symbols and rituals buttress it against collapse.

Mathew Davies is Head of the Department of International Relations in the Coral Bell School of Asia Pacific Affairs, The Australian National University. This article is based off research for his latest book Ritual and Region: The Invention of ASEAN, Cambridge University Press, 2018.



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ASIAN (H)

South Korea steps up on the Korean Peninsula

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Author: Sarah Teo, RSIS and University of Sydney

Under President Moon Jae-in’s administration, South Korea is proactively drawing North Korea out of diplomatic isolation and onto the path of international engagement. From facilitating North Korean participation in the 2018 Pyeongchang Winter Olympics to conveying Pyongyang’s commitment to denuclearisation at the United Nations General Assembly, South Korea hopes to establish permanent peace on a denuclearised Korean Peninsula.

South Korea's President Moon Jae-in addresses the 73rd session of the United Nations General Assembly at UN headquarters in New York, US, 26 September 2018 (Photo: Reuters/Caitlin Ochs).

If the strength of bilateral ties are gauged by the number of meetings between leaders, then relations between North and South Korea were rosy beyond measure in 2018. Moon and Chairman Kim Jong-un met three times within a single year, and there are expectations for a fourth summit.

While the current level of dialogue between North and South Korea is unprecedented, Seoul’s efforts in reaching out to Pyongyang are not without challenges. South Korea must navigate the hurdles posed by broader regional dynamics and Pyongyang’s major power relations. South Korea’s position on the issue is made more difficult by its power disparity with regional neighbours and the United States, all of whom want to protect their own interests on the Peninsula.

South Korea’s recent engagement with its northern neighbour reflects two tenets of its middle power diplomacy. First, given that South Korea’s main security challenge continues to stem from instability on the Korean Peninsula, the Moon administration is employing an approach that seeks to maximise Seoul’s diplomatic influence. For middle powers like South Korea, niche diplomacy is particularly important — it is about focussing their limited resources and attention on a specific matter critical to their interests. Considering that the North Korea nuclear issue has a global security dimension, South Korea’s efforts to make the world a safer place in this area also bolsters its own international standing.

South Korea’s middle power diplomacy leans towards a functional strategy that is premised on managing the North Korea challenge. This is contrasted against a normative strategy, which sees middle powers focussing more on establishing broad behavioural standards and norms in the region. While the two strategies are not necessarily mutually exclusive, such a typology of middle power behaviour points to how differences in levels of resources and threat perceptions can shape the foreign policies of regional middle powers.

Second, South Korea may have seized the initiative to engage North Korea, but its efforts still require the support of major powers such as China and the United States — both of which have their own stakes in the development of the issue. Because of this, Seoul has conducted briefings with Beijing and Washington following its meetings with Pyongyang to keep them updated on developments. Moon has also stressed that South Korea still needs to work closely with the United States on its North Korea strategy. In this regard, South Korea aims to balance its alliance ties with a more conciliatory approach towards inter-Korean relations.

The Moon government also assumes a mediating role between North Korea and the United States. It was South Korean National Security Advisor Chung Eui-yong who, back in March 2018, relayed to White House officials Kim’s eagerness to meet with US President Donald Trump as soon as possible. And when Trump called off the US–North Korea Summit planned for June, Moon promptly sent officials to Washington and held a surprise meeting with Kim in the demilitarised zone. Two days after the Moon–Kim meeting, the Trump–Kim summit was back on track.

This is not to overplay South Korea’s influence on the issue. Without US and North Korean willingness to negotiate, there would be little that Seoul could do. Moon himself has acknowledged that US–North Korea denuclearisation talks are not a matter on which South Korea can take the lead. South Korea’s role is rather that of a facilitator and mediator. Its value lies in shaping a conducive environment for North Korea and the United States to hold discussions. This is reflective of middle power roles in most regional and global issues — rather than being the single most influential player, middle powers help to lay the groundwork for action.

Ultimately, whether South Korea can achieve its desired outcomes on the Korean Peninsula depends on its ability to seize the opportunities offered by the prevailing circumstances. That South Korea was able to conduct middle power diplomacy on the issue in 2018 was thanks to a fortuitous culmination of factors. These included the presence of a more progressive government in South Korea that sought to assume ‘the driver’s seat’ in the North Korea issue and open dialogue with Pyongyang, the pragmatic policy of the Trump administration towards North Korea and Kim’s pledge for dialogue with the South in his 2018 New Year’s message.

While there may still be a long way to go before concrete agreement on denuclearisation occurs, South Korea’s prolific diplomacy is not only enhancing Seoul’s standing on the global stage but also contributing to a more peaceful Korean Peninsula.

Sarah Teo is Associate Research Fellow with the S Rajaratnam School of International Studies (RSIS), Nanyang Technological University and a PhD candidate at the Department of Government and International Relations, University of Sydney.



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ASIAN (H)

Keeping China–US cyber conflict off the cards

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Author: Lyu Jinghua, Carnegie Endowment for International Peace

Cyber relations between China and the United States have always been an integral part of the bilateral relationship. As debate on whether the two countries are entering a new Cold War intensifies, similar concerns about their cyber relations are arising: are the two destined for rivalry in the cybersphere? If so, how can cyber conflict be prevented or limited?

Despite some differences in cyberspace, convergent interests have generally been greater than divergent ones between the largest (China) and the most advanced (the United States) cyber powers. Both are tempting targets for malicious actors and vulnerable to destructive cyber attacks. So both have vested interests in fighting against cyber crimes, countering cyberterrorism and promoting cyber norms. These overlapping interests facilitated the successful completion and release of United Nations Group of Government Experts (UN GGE) consensus reports in 2013 and 2015.

But with the rapid deterioration of bilateral relations, there are signs of cyberspace behaviour following suit: less cooperation, more confrontation and higher risk of conflict. Among the potential developments, such as a new technology Cold War or failure to agree on cyber rules, the most worrisome are in the security domain.

US concerns over Chinese military modernisation and issues in the Taiwan Strait, East China Sea, South China Sea and beyond are growing. China holds similar concerns over the United States’ recent assessment that China is its primary security challenge both in a general sense and in cyberspace, and over the change in US policy direction from its ‘pivot to Asia’ to the Indo-Pacific strategy.

If conflict erupts, one of the earliest and most destabilising venues would be conflict in cyberspace. Cyber actions are more inclined to be escalatory due to the difficulties of differentiating intentions and predicting consequences. To prevent such a scenario, several precautionary measures can and should be implemented.

Although there are channels for bilateral communication and coordination, such as the High-Level Joint Dialogue on Cybercrime and Related Issues, the Law Enforcement and Cybersecurity Dialogue, and cooperation between computer emergency response teams (CERTs), they all lack the involvement of militaries. Because of this, they are far from sufficient to avert potentially explosive incidents in the security sphere.

An ongoing bilateral coordination mechanism is urgently needed. The Ministry of National Defense–Department of Defense telephone link was once used to discuss tensions in the South China Sea by the US and Chinese navies. It could be given the same function for communication in cyber crises.

To enhance information sharing and mutual understanding, it is also worth considering how to apply the Memorandum of Understanding on Notification of Major Military Activities in cyberspace. The two sides could explore similar ways of increasing transparency such as briefing each other on their cyber strategy publications, interpreting their cyber doctrines and inviting one another to observe cyber exercises.

The United States and China should exercise self-restraint in cyber conflicts and encourage similar responses from other countries as the foundation for establishing accepted rules of behaviour. To this end, rules prohibiting the use of escalatory, cross-domain deterrence measures — such as the computer worm Stuxnet that was used against Iranian nuclear facilities and the ‘Left of Launch’ cyber efforts to disable the launch of North Korean missiles — require further discussion. As do rules forbidding attacks on specific targets such as critical infrastructure, and rules regarding after-use damage control such as the function of self-destruction mechanisms.

The United States and China already have several agreed crisis management principles in place, such as sending clear signals, avoiding commitment traps and making proportionate responses. Now it is time to think about how to apply these principles in cyberspace. Cyber crisis management should become an important topic in security dialogues at all levels. To start with, think tanks can explore crisis scenarios and management measures by conducting tabletop exercises and relevant discussions.

More importantly, China and the United States need to develop a deeper understanding of one another’s critical interests in cyberspace. Both sides must behave cautiously and maintain strategic constraint to avoid eroding those critical interests, leaving enough space for either side to make concessions and ease tensions.

No matter what suspicions and differences remain, China and the United States can and should seek to cooperate, even as rivals, on conflict prevention in cyberspace.

Lyu Jinghua is a Visiting Scholar in the Cyber Policy Initiative at the Carnegie Endowment for International Peace and a retired colonel from the Chinese People’s Liberation Army.

The author greatly thanks Ariel E Levit, Senior Fellow at the Carnegie Endowment for International Peace, for his invaluable advice and insights.



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ASIAN (H)

Khan’s PTI muddles through its first innings

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Author: Michael Kugelman, Wilson Center

The big story in Pakistan last year was political transition. After a long, intense electoral campaign, the country held national polls in late July 2018. The election brought to power a party, Pakistan Tehreek-e-Insaf (PTI), which had never held power on a national level.

Supporters of Imran Khan, chairman of the Pakistan Tehreek-e-Insaf (PTI) party, celebrate a day after the general election in Peshawar, Pakistan, 26 July 2018 (Photo: Reuters/Fayaz Aziz).

The closing months of the year and of the opening period of PTI rule exposed the party’s inexperience. But they also showcased the bold new form of governance that it had promised.

The first seven months of the year marked a desperate effort by a beleaguered ruling party, the Pakistan Muslim League (Nawaz) (PMLN), to reassert itself on the campaign trail. It had been weakened by corruption scandals for years and cut down to size by a powerful Pakistani military unhappy with the government’s policies towards militancy and India.

The PMLN suggested that the military was using a variety of tactics — including arrests of PMLN leaders, crackdowns on pro-PMLN media outlets and efforts to convince PMLN members to switch parties — to exploit the electoral playing field in the PTI’s favour.

The PTI’s resounding victory only intensified allegations of pre-election rigging. The PTI rejected the accusations, countering that its campaign — driven by a singular focus on anti-corruption that resonated across a society sick of the country’s dirty politics — made it the more popular party.

In reality, both arguments have merit. The machinations of the military, which has a deep legacy of interfering in politics and had no interest in a PMLN victory, are difficult to deny. At the same time the PTI has cultivated a strong support base that ranges from young, middle-class urbanites to rural religious conservatives.

Immediately after the election, Prime Minister-elect Imran Khan promised to follow up his party’s longstanding pledge to practice a cleaner and kinder brand of politics. He also laid out an array of breathtakingly ambitious objectives that ranged from eliminating poverty to recovering offshore wealth harboured by previous governments.

Khan’s initial messaging was inclusive and conciliatory, raising hopes that he was ready to bridge Pakistan’s sharp and toxic partisan divides. But the PTI’s inexperience quickly came into play. Islamabad struggled to articulate a policy to address a deepening balance of payments crisis, something the new government had identified as a top initial priority. Islamabad ended up pursuing the same short-term, band-aid strategies as its predecessors: securing bailout funds from wealthy partners like Saudi Arabia and seeking a new loan from the International Monetary Fund.

Separately, the PTI suffered a major gaffe when it invited Atif Mian, a prominent Pakistani economist at Princeton University, to serve on a new economic advisory council only to ask him to step down a few days later because of pressure from religious hardliners. Mian is Ahmadi, a deeply persecuted religious minority in Pakistan.

The government did make some positive impressions during its early months in power. It took a hard line against religious extremists — a rarity in Pakistan, where hardliners often act with impunity. After a landmark Supreme Court decision that acquitted a Christian woman sentenced to death for blasphemy, members of Tehreek-e-Labbaik Pakistan (TLP) took to the streets in November 2018, calling on blasphemers to be executed and even imploring Pakistanis to assassinate judges.

After concluding an initial agreement to end the protests, Islamabad detained dozens of TLP members and in early December arrested the movement’s leader, Khadim Rizvi, on terrorism and sedition charges. Even critics of Khan who accuse him of being soft on militants acknowledged this bold move.

As the year drew to a close, the new government was presented with several challenges and opportunities that will play out in a big way in 2019. One major obstacle is the Chinese loans pouring into Pakistan for the China–Pakistan Economic Corridor (CPEC), and their deleterious impact on Pakistan’s rising debt. While CPEC is an important infrastructure project for Pakistan, Khan’s government is keen to ensure that CPEC loans are more financially viable without antagonising Beijing, a critical ally.

A major opportunity lies in geopolitics. Washington launched full-scale efforts to pursue a peace deal with the Taliban in Afghanistan in 2018. It has called on Islamabad, which Washington believes enjoys strong leverage over the Taliban because of the presence of the group’s leadership in Pakistan, to help bring the insurgents to the table.

US–Pakistan relations floundered in 2018, thanks in part to several bullying tweets from President Donald Trump. But a cordial letter from Trump to Khan in December 2018 requesting Pakistani assistance telegraphed a US desire to work with Pakistan on the goal of Afghan reconciliation. If Islamabad serves as a helpful peace partner, its relations with Washington and Kabul will improve in a big way.

Pakistanis will soon find out just how effective their new government will be in its efforts to tackle challenges and capitalise on opportunities.

Michael Kugelman is Deputy Director for the Asia Program and Senior Associate for South Asia at the Woodrow Wilson International Center for Scholars in Washington, DC.

This article is part of an EAF special feature series on 2018 in review and the year ahead.



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A reformed China is a stronger China, and such is the US dilemma

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Author: Joshua P Meltzer, Brookings

The United States ratcheted up economic pressure on China throughout 2018, raising tariffs on Chinese imports — US$250 billion so far — to which China retaliated by raising tariffs on US imports. Following the Trump–Xi meeting at the G20 in November, the United States agreed to a 90-day pause on further tariff increases. Both sides will use the time to address US concerns over Chinese trade practices, including those regarding intellectual property theft and market access.

Workers are seen on scaffolding at a construction site in Nantong, Jiangsu province, China, 1 January 2019 (Photo: Reuters/Stringer).

The immediate response to the G20 deal was one of relief, with stock market gains the following day. But given the complexity of the issues bedeviling the bilateral relationship, it is unlikely that much progress can be made in 90 days. There is no short-term prospect of a deal with China that would address all US concerns. Instead, US–China trade ties are likely destined for growing tension and disengagement.

The contours of any deal that China has offered so far are not close to addressing US trade and investment concerns. As articulated in the Special 301 Report in April 2018, these include issues with forced technology transfer, strategic investment by Chinese state-owned enterprises (SOEs) in US technology companies, and government-directed cyber theft of US corporate intellectual property. Addressing these issues would require fundamental reform of the Chinese economy, and there is no indication that this is on the table.

There is also a tension between US demands that China reform economically and US national security concerns. While access to the Chinese market remains commercially important, closer trade and investment increases US vulnerability by giving China opportunities to exploit access to US technology and intellectual property.

Suppose that China agrees to all US demands: reforming its SOEs, opening its markets and expanding the role of the private sector in its economy. The outcome will be increased trade and investment between the two countries, as well as a more economically competitive and capable China. But a more economically capable China would present a sharper strategic challenge for the United States.

For one, economic growth underpins military strength. In 2016, China spent US$228 billion on its military, up from US$50 billion in 2001 — more than the combined defence spending of Japan, South Korea, the Philippines and Vietnam, and second only to the United States. And while this is an increase in military spending of over 350 per cent, it is sustainable because China’s economy has grown by around 950 per cent since 2001.

Second, as China grows, other countries — in Asia in particular — will become more economically dependent on China. China has already replaced the United States as the largest export market for countries such as South Korea, Thailand and Vietnam. China has demonstrated a willingness to exploit this economic dependence to achieve other goals. It restricted tourism to Taiwan following the election of President Tsai Ing-wen who is not in favour of close integration with China, for instance, and it enacted investment restrictions against South Korean businesses in response to the country’s deployment of the US Terminal High Altitude Area Defense (THAAD) missile system.

Finally, China is transitioning from an economy based on manufacturing to one based on services and innovation-led growth. This type of economic growth will continue to create strong incentives for China to use the tools at its possession to obtain the intellectual property of developed countries, legally or otherwise. China’s aim to dominate the heights of technology by 2025 effectively mandates such an approach.

While Chinese intellectual property theft and other practices created costs for the United States in the past, they were tolerated in part because the larger economic relationship generated net economic gains. But this calculation no longer seems to hold, and not only because the economic costs continue to rise. Once national security costs are taken into account, the status quo is no longer sustainable.

The US administration has yet to fix a particular outcome for the US–China economic relationship. But policies are being developed that will have the effect of isolating China economically. One of these is the US–Mexico–Canada Agreement (USMCA), which includes a provision that should another party enter into a free trade agreement (FTA) with a non-market economy, other parties can leave the USMCA and form their own bilateral agreement. It is the first time that the United States has included such a provision in an FTA, and it is widely seen as aimed at deterring other countries from increasing trade with China. Such commitments could be included in future FTAs with Japan, the European Union and the United Kingdom.

The Export Control Reform Act of 2018 (the Reform Act), replacing the Export Administration Act of 1979, also has potentially significant consequences for US trade and investment with China. Under the Reform Act, the Department of Commerce must create new export restrictions on ‘emerging and foundational’ technologies that are important to the defence community but not otherwise captured under the US export control regime. The outcome of this process will be tighter control over and the limiting of exports to and investment in China.

What these measures underscore is the tension between expanding US–China trade and investment, and the emerging US view that growing economic ties with China undermine national security. Instead of the United States and China being on the cusp of a deal, the two countries could instead be in for a prolonged period of economic tension and disengagement.

Arresting this slide and reconstituting sustainable US–China economic ties will require a new understanding between the two countries on acceptable forms of economic behaviour. This consensus will take time to achieve. The question is whether the Trump administration has the strategy and desire to see it through.

Joshua P Meltzer is Senior Fellow in the Global Economy and Development program at the Brookings Institution, Washington DC.

This article is part of an EAF special feature series on 2018 in review and the year ahead.



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DHHS Releases Guidance on Managing Cybersecurity Threats in the Health Care Sector

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data mining

The U.S. Department of Health and Human Services (DHHS) recently released Health Industry Cybersecurity Practices: Managing Threats and Protecting Patients (HICP). DHHS states that the purpose of the HICP is to:

  1. Raise awareness of cybersecurity;
  2. Provide vetted cybersecurity practices;
  3. Move organizations towards consistency in mitigating cybersecurity threats to the sector;
  4. Aid health care and public health organizations to develop meaningful cybersecurity objectives and outcomes.

The HICP discusses five current threats: (i) e-mail phishing attacks; (ii) ransomware attacks; (iii) loss or theft of equipment or data; (iv) insider, accidental, or intentional data loss; and (v) attacks against connected medical devices that may affect patient safety. The HICP then discusses ten cybersecurity practices to mitigate those threats. In addition to the HICP, DHHS released two technical volumes – one for small health care organizations and another for medium and large health care organizations – and various resources and templates. The technical volumes aim to provide practical guidance to health care organizations on implementing the ten cybersecurity practices. For example, the technical volumes provide a list of the specific policies that health care organizations should have to mitigate the risk of cyberattacks, as well as the specific information that should be captured in the inventory of IT assets maintained by an organization.

Note that although compliance with this cybersecurity guidance (and similar government guidance that has been previously released) is voluntary, courts and others may look to the guidance as setting the standard for “reasonable security” in the health care industry. Therefore, health care organizations should review their current cybersecurity practices against those outlined in the guidance and consider how to address any identified gaps.

DHHS is also expected to release a Cybersecurity Practices Assessments Toolkit, intended to help organizations prioritize their cyber threats and develop an action plan. The Toolkit is still under development but DHHS states an advance copy can be obtained by contacting CISA405d@hhs.gov​.

The HICP and related resources are available here.



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