Follow The Money–It’s Going To China

February 19, 2010 by admin | Filed Under Asia, Barack Obama, China, Cold War, Economic issues, George W. Bush, History, International Affairs, Middle East, Money, National Security, Nixon Administration, Obama administration, Presidents, Richard Nixon, U.S. History | 1 Comment 

The other day, President Barack Obama met with the Tibetan Dali Lama in the White House—doing so in the Map Room as opposed to the Oval Office in an apparent attempt to mute any “official” aura for the meeting. It was sort of like trying to kowtow to one audience while powwowing with another. Likely the nuance was lost on the government in Beijing. Of course, past presidents have received the Tibetan leader—a man who has become a symbol for freedom and a persistent reminder of the oppression of his people at the hands of the Chinese regime.

It was 38 years ago this week that President Richard Nixon played the historic China Card—a geopolitical masterstroke during the Cold War. It was all part of a strategic view of the world and effectuated from a position of strength. We were powerful; they were backward—technologically, culturally, and with obvious political deficiencies. That moment remains a high water mark in Nixon’s presidency—a moment in time that even the most determined critics concede positively to his legacy.

But what would Mr. Nixon think now?

These days, admittedly, the whole issue of U.S.-China relations is a sticky one for our current President. It is one of many examples of how different things are when you are governing as opposed to campaigning for office—although it is hard to tell which is which in Washington these days. Mario Cuomo famously talked years ago about politics being “poetry” and governing “prose.”

Dealing with potential adversaries—and even some friends—is always best when you do so from a position of strength. It’s true in military and national defense (“peace through strength”) and it’s true in economics, as well. The scriptures remind us, “The borrower is servant to the lender.” And when one party is deep in financial debt to another a certain measure of leverage is ceded to the lender.

How this dynamic will play out in the immediate future is anyone’s guess, but owing nearly $800 billion to the Chinese should raise a flag—a red one. And it should come as no surprise if and when those to whom we owe such copious amounts of money begin to squeeze us on the international stage.

President Obama has been making great pains to try to change our image before the world, one that he believes George W. Bush perpetuated and that has led to our virtual “blackball” by many nations. But in fact, what he really should be concerned about is not “blackball,” but rather “blackmail.” The Chinese dumped $45 billion of T-bills a couple of months ago—wave of the future? And why shouldn’t one nation operating out of its own interests use such leverage? We would.

In fact, we have.

In 1956, there were two hot spots with the potential of blowing up into World War III, a revolution in Hungary—and a crisis in the Middle East involving the Suez Canal. Seen now in hindsight against the backdrop of the Cold War and as the moment when the last vestiges of old world colonialism gave wave to complete bi-polar hegemony pitting the United States against the Soviets, the Suez Crisis was as much about the exercise of economic clout as it was a diplomatic-military affair.

Gamal Abdel Nassar had emerged as a leader in Egypt as part of a 1952 coup overthrowing King Farouk and by 1954 he was firmly in place as that nation’s maximum leader. He immediately undertook a complete transformation of his country with massive public works and the progressive nationalization of industry. He was enamored of the Soviet system and soon it became clear that his nation would be taking that side in the Cold War. One project near and dear to his heart was the building of the Aswan Dam, which America at first agreed to help fund. But when Nassar sold arms to Soviet satellite Czechoslovakia and then recognized the People’s Republic of China, U.S. Secretary of State John Foster Dulles withdrew our dam dollars.

In reaction to this, Nassar announced on July 26, 1956 a Nationalization Law freezing all the assets of the Suez Canal—in effect, a seizure of that vital passageway.

Opened in 1869, this 119-mile long man-made waterway connects the Mediterranean and Red Seas. Originally financed by the Egyptians and French, Britain became a major stakeholder and stockholder in 1875, and eventually the canal became part of the United Kingdom’s imperial portfolio in the region. Following World War II, and with the decline of the U.K.’s empire, the canal gradually became a diplomatic football—not to mention thorn. And the creation of the nation of Israel in 1948 caused tensions about the vital waterway to further increase.

In the aftermath of Nassar’s July 26 speech, Britain—led by Prime Minister Anthony Eden—and France, represented by Eden’s counterpart, Guy Mollet, began to plot how to ensure their access to the Suez Canal. Eventually, and in an alliance with Israel (a nation with the most to lose if the canal was closed to them), military action was planned and initiated.

Follow the money.

Meanwhile, the American President, Dwight D. Eisenhower, in the midst of a reelection bid, had already had a rough year in 1956—physically and politically. And shortly following election to a second term in the White House, he played some power politics of his own. Now, I should state here that I am not of the number in agreement with what he did in the Suez matter, anymore than I am about how we abandoned the freedom fighters in Budapest earlier that summer. I am simply using this story to describe a reality in all of life and politics—like it or not.

There is a golden rule in geo-politics: He who has the gold makes the rule.

Mr. Eisenhower did not want Britain, France, and Israel—all stated allies of the United States—creating a situation that might not play well with the Soviets and that had the potential to instigate a larger war. Here was the hero of Normandy putting the pressure on British Prime Minister Eden—a man who had worked closely with Ike while serving in Churchill’s War Cabinet.

“The borrower is servant to the lender.”

To apply pressure on Eden’s government to cease and desist, Eisenhower instructed U.S. Treasury Secretary, George M. Humphrey, to begin to sell off some of our government’s British bonds. Some of these bonds were holdovers from the U.K.’s World War II debt; others had been sold to us to help that nation’s economy rebound after the war. Eden’s Chancellor of the Exchequer, future P.M. Harold Macmillan, told him that the results would be devastating to the British economy.

Checkmate.

Anthony Eden was a broken man. He fled to a vacation-exile in Jamaica, spending time at Ian Fleming’s (of James Bond literary fame) estate there, but his health quickly deteriorated. He was taking amphetamines—had been for years under doctor’s orders after a botched gall bladder operation—and the drugs magnified his problems with insomnia and unraveling mental health. Soon, Mr. Macmillan took over at 10 Downing Street, but by then the Suez episode had hastened the sunset on the British Empire—and the Cold War morphed from a multi-national tag-team match into a virtual two-nation standoff.

Follow the money.

We are potentially in big trouble as a nation. Our security is threatened not only by Islamist terrorism—but also by some who have a lien on our title deed. Certainly, throughout our history we have dealt with nations and regimes in pragmatic and realpolitik ways, even having to hold our collective noses because of the stench of tyranny and oppression on the part of some of our momentary allies in a larger cause. But we have managed, for the most part, to deal with it—ugliness and all—because of the ability to approach everything from a position of strength: morally, militarily, and economically.

Now though, we not only depend on others for much of our energy, but we also owe an astronomical amount of money (the interest alone is unfathomable) to powerful entities. We should not be surprised that other nations no longer dance on cue—nor should we ever be surprised if and when some big bills come due with humiliating strings attached.

Or worse.

Pacific President, Ctd.

December 1, 2009 by Jonathan Movroydis | Filed Under Asia, China, Richard Nixon, Vietnam | Leave a Comment 

Former New York Times military correspondent Richard Halloran posted an article over the weekend in which he asserts repeatedly that President Obama’s Asia policy — hinting at a carefully and competently molded  Obama Doctrine — is poised to weld cross-Pacific relations and reinvigorate U.S. power in the region after decades of decline.

Halloran — naively and very absurdly — cites RN’s Guam Doctrine (Nixon Doctrine) as the source of declinism:

In contrast, President Obama has reversed course in meetings in Asia with the leaders of Japan, South Korea, Indonesia and nine other Southeast Asian nations, and with the leader of India in Washington this week. The president is scheduled to see Prime Minister Kevin Rudd of Australia in the White House on Monday. With all, the president has reaffirmed America’s security commitments. In addition, he had a frosty visit with leaders of a potential adversary, China, in Beijing.

After the Nixon Doctrine had been decreed, the US withdrew in defeat from Vietnam, let the Southeast Asia Treaty Organization wither, and forsook Taiwan to recognize China. Okinawa was reverted to Japan with restrictions on US forces, New Zealand was booted from a treaty with the US and Australia in a dispute over nuclear arms, and US bases in the Philippines were abandoned after a volcanic eruption.

RN’s aims were just the opposite. He would re-affirm all security commitments, and provide allies with a nuclear deterrent should they get bullied by a major nuclear power. He would also help furnish economic and military assistance for nations willing to accept the responsibility for their own security, a strategy that is working in Iraq and would have proven successful in Vietnam, if not for Congress’s decision to cut off aid and leave the South vulnerable to a conventional invasion from the North.

Unfortunately for Halloran’s argument, RN was the one accused by his critics of prolonging the war in Indochina. Halloran is in fact right that RN would end the war, but peace in Asia was conducted on his terms, and would be artfully correlated with the rise of American prestige in the world that culminated during his historic trip to China in 1972.

RN was fully aware of the interminable misinterpretations of his speech in Guam (p.394-395):

The Nixon Doctrine announced on Guam was misinterpreted by some signaling a new policy that would lead to total American withdrawal from Asia and from other parts of the world as well. In one of our regular breakfast meetings after I returned from the Senate Majority Leader Mike Mansfield articulated this misunderstanding. I emphasized  to him, as I had to our friends in the Asian countries, that the Nixon Doctrine was not a formula for getting America out of Asia, but one that provided the only sound basis for America’s stating in and continuing to play a responsible role in helping the non-Communist nations and neutrals as well as our Asian allies to defend their independence.

RN’s Asia policy — most notably his diplomatic triumph in China — would establish strong bonds and allow America to further its interests in the region.

When diplomatic relations were formally restored in 1979, bilateral trade rose to $2.4 billion from zero in 1971. A three year Chinese-America trade relations agreement was also signed, each side granting one-another favored nation status. By the mid 1980’s, China was ready to engage the rest of the world.

It would also bring the Soviets back to the peace table and fasten the end of the Cold War, establishing the United States as the sole surviving superpower by the end of the Reagan administration.

In a joint press conference with Japanese Prime Minister Yukio Hatoyama, President Obama said: “I intend to make clear that the United States is a Pacific nation.”

As he brought the Vietnam war to a close, RN would fulfill his legacy after proclaiming similar words:

the United States is a Pacific power and should remain so.

Who Was America’s First “Pacific” President?

November 21, 2009 by Robert Nedelkoff | Filed Under Asia, Barack Obama, China, Presidents, U.S. History | Leave a Comment 

George Will’s latest column in Newsweek discusses President Obama’s much-disputed claim, during his just-concluded trip to Asia, that he is America’s “first Pacific President” because he was born in Hawaii and raised there and in Indonesia. Other pundits in recent days have discussed twentieth-century Chief Executives in this regard – Richard Nixon’s status as a California native, William Howard Taft’s years a century ago as governor of the Philippines, Herbert Hoover’s years as a mining engineer in Australia and China. But Will looks into the relationship of nineteenth-century Presidents to Asia.

Now, it is true that, from the very earliest days of the Republic, the nation’s leaders have had Asia in mind, long before any American territory had a Pacific coastline. George Washington was often in communication with businessmen like Robert Morris about trade with China. Thomas Jefferson took the step of acquiring the Louisiana Purchase territory from Napoleon so that the United States could one day develop ports from which ships could cross the Pacific without bothering, in those pre-Panama Canal days, with Cape Horn.

But, as Will indicates, the resident of the White House who really undertook the first sizable effort to establish America as a significant power in the Pacific was Millard Fillmore. The thirteenth President has, of course, long been a figure of fun, perhaps best known to some Americans for lending his name (with the Millard changed to Mallard) to the web-footed right-wing journalist in Bruce Tinsley’s comic strip.

But Fillmore was a man of several considerable achievements. Born, like Lincoln, in a log cabin in upstate New York, he pursued his education in country schools and law offices, and worked his way up the ladder of the legal profession in Buffalo. A few years before being elected Vice-President on the ticket headed by Gen. Zachary Taylor, he founded a college which ultimately became the State University of New York at Buffalo, now the biggest school in the biggest higher-education establishment in the nation.

(It was for this achievement, as well as his deeds as President, that Oxford University wanted to award Fillmore with an honorary doctorate of laws degree when he visited England after leaving office in 1855. But Fillmore declined the honor on the grounds that his achievements and educational attainments did not merit it. He also said that he had never learned Latin and felt that a man should not accept a degree that he could not read himself. As we all know, President Obama was quick to say his achievements to date did not merit a Nobel Peace Prize, but that’s not stopping him from receiving it next month.)

Just after Fillmore took office, California joined the Union, followed soon after by Oregon. With trade to China increasing, Fillmore decided, in 1852, that the time had come for the nation of Japan to emerge from nearly two centuries of isolation in which it had traded only with China and the Netherlands. Therefore, he directed Commodore Matthew Perry to go to that land. Perry led his group of what the Japanese called “black ships” to the city then known as Edo (now Tokyo) and there told the Japanese emperor’s representatives that the United States wished to open relations with the nation, and would not take no for an answer.

Perry then went home, and, the next year (with Franklin Pierce now in the White House), came back to Edo to hear the Japanese government’s response. The emperor agreed to open his nation to the outside world, and thus began the process that ultimately made both nations among the world’s most important commercial powers – and which ultimately led to Hawaii, our current President’s home, becoming part of the United States.

So let’s give old Millard a little credit.

11.19.69

November 19, 2009 by Frank Gannon | Filed Under Asia, Cold War, History, International Affairs, Nixon Administration, Nixon Administration figures, Richard Nixon | Leave a Comment 

Forty years ago, on 19 November 1969, RN welcomed Japanese Prime Minister Eisaku Sato to the White House at the beginning of what would be a significant few days in the history of US-Japanese relations. Typically, the meeting was the result of long planning and negotiations; and, while there was room for spontaneity in the dealings between the two leaders and the two delegations, the general outline of the trip’s results were known before the Prime Minister’s limousine pulled up to the South Portico.

POTUS and Japanese Prime Minister Eisaku Sato review an honor guard during the arrival ceremony at the White House on 19 November 1969.

The twenty-seven year occupation of the island of Okinawa, and the presence of American nuclear weapons on it,  had been an issue bedeviling relations between the two nations for some time.  As the Japanese economy began to revive and flourish, the desire to shake off American what was increasingly seen as an American yoke became focused on the island.  Such sentiment was easily provoked by left-wing parties and politicians, and Sato’s Liberal Democratic Party increasingly felt that its survival could depend on some kind of Okinawa settlement.

But the LBJ White House, State Department, and Defense Department, while turning over the Bonin Islands as a token of bona fides, were unable to do more than promise to study the reversion of the Ruyuku Islands of which Okinawa was a part.

“Moving from one’s position now is filled with difficulties”: A Christian Science Monitor cartoon depicted the US-Okinawa negotiations during the Johnson Administration.

In his seminal “Asia After Vietnam,” article in the Fall ‘67 edition of Foreign Affairs, RN mentioned Okinawa as a problem that would have to be addressed.  From his first days in the White House, in order to clear the diplomatic decks in order to prepare for an approach to China, he moved the resolution of the Okinawa issue to a front burner.  By the end of April, he had decided that Okinawa would be returned if the Japanese government guaranteed approval for US forces to remain based there and would undertake to carry out regional defense.

19 November 1969: RN in the Oval Office with Prime Minister Sato.  RN said that these three days of White House meetings “will probably be the most successful talks that have been held between our two governments.”

In one of the most egregious leaks of national security documents that plagued the administration’s first year, on 5 June, Hedrick Smith of The New York Times reported on a leaked Top Secret NSC document — NSDM-13: Policy Toward Japan — that gave away the ultimate US negotiating positions for the upcoming talks with Japan:

With respect to Okinawa, the President has directed that a strategy paper be prepared by the East Asia Interdepartmental Group under the supervision of the Under Secretaries Committee for negotiations with the Japanese Government over the next few months on the basis of the following elements:

1. Our willingness to agree to reversion in 1972 provided there is agreement in 1969 on essential elements governing U.S. military use and provided detailed negotiations are completed at that time.

2. Our desire for maximum free conventional use of the mlitary bases, particularly with respect to Korea, Taiwan and Vietnam.

3. Our desire to retain nuclear weapons on Okinawa but indicating that the President is prepared to consider, at the final stages of negotiation, the withdrawal of the weapons while retaining emergency storage and transit rights, if other elements of the Okinawan agreement are satisfactory.

Two career diplomats —U. Alexis Johnson at  the State Department and Ambassador Armin Meyer in Tokyo— played important parts in working out the details of the agreement that would be signed at the White House in November.

Foreign Minister Kiichi Aichi had sworn off smoking as long as Okinawa wasn’t under Japanese control.  As Secretary of State Bill Rogers and Prime Minister Sato watched, RN gave the Foreign Minister a pack of Japanese cigarettes to celebrate the agreement.

A fifteen-point joint communique covering the matters of mutual interest discussed during Prime Minister Sato’s visit was issued on 21 November at the conclusion of the visit (Points 6-15 dealt with Okinawa).

In the Rose Garden: On Prime Minister Sato’s last day in Washington —21 November 1969— RN announced plans for the return of the Ryukyu Islands —including Okinawa— to Japan.  The reversion took place on 15 May 1972.

In an extensive and fascinating 1996 oral history interview, US Ambassador to Japan Armin Meyer described a conversation with RN shortly after the above photo was taken:

While I’m thinking of it, one thing that always affected me, was on that very first November day, when we, when Nixon and Sato, concluded that treaty, that statement that was issued, communiqué, which we had spent three months drafting, because that was the heart of the whole Okinawa negotiations, Nixon and I walked Sato back to his car and on the way back Nixon told me… I mean he never saw ambassadors the way earlier presidents had, he just didn’t have time for them, but there was one brief period there when he and I were chatting and he said… “You know our job is to keep the LDP in power, that’s your job, to keep the LDP in power.” And that was really what was moving him on going ahead with Okinawa, on going ahead… because he realized that the election was coming up, that the treaty arrangement was up in another year, and so on. Well, as I mentioned, I went down to Okinawa three days after I presented my credentials, looked around, came back, and wrote a telegram that said, “as Okinawa goes, so goes Japan.” It was preaching to the converted, obviously, because Nixon was way ahead of me on it, but it helped a lot. In that connection, I might say, that among the non-converted, usually, were the military. One time when I came back, one early time, I remember Henry saying, “now Armin, don’t you dare talk to the military, they’re my people, I don’t want you talking to them.” Because he was keeping them in line on this whole Japan policy.

At the Rose Garden farewell ceremony on the last day of the Prime Minister’s visit —21 November— the President said:

There have been many meetings between the heads of government of Japan and the United States over the past 25 years. I am confident that history will record that this is the most significant meeting that has occurred since the end of World War II.

It is customary on such occasions to say that a new era begins in the relations between the two countries involved. I believe today, however, that there is no question that this is a statement of the fact that a new era begins between the United States and Japan, in our relations not only bilaterally in the Pacific but in the world.

As the joint communiquй which will be issued at 11:30 indicates, we have resolved the last major issue which came out of World War II, the Okinawa problem. And further, we have made significant progress in the resolution of other bilateral issues in the economic field, as well as in the field of investment and trade, not only between our two countries, but in the Asian area.

Kissinger: Global Mayhem If PRK Not Stopped

June 8, 2009 by Jonathan Movroydis | Filed Under Asia, Barack Obama, China, International Affairs, North Korea | Leave a Comment 

Dr. Kissinger believes that if Kim Jong-Il’s nuclear program is not stopped, a global nuclear showdown will ensue:

China faces challenges that are perhaps more complex than even those facing the United States. If present trends continue, and if Pyongyang manages to maintain its nuclear capability through the inability of the parties to bring matters to a head, the proliferation of nuclear weapons throughout Northeast Asia and the Middle East becomes probable. China would then face nuclear weapons in all surrounding states in Northeast Asia and an unmanageable, nuclear-armed regime in Pyongyang. But if Beijing exercises the full panoply of its pressures without an accord with America and an understanding with the other parties, it has reason to fear chaos along its borders.

Reconsidering The Raptor?

May 28, 2009 by Jonathan Movroydis | Filed Under Asia, Military, North Korea | Leave a Comment 

While Defense Secretary Robert Gates decision to end the F-22 program is based on his opinion that America needs to ration its defense resources to fight counter-insurgencies, the recent North Korean provocation does give heed to the conventional argument. Ironically enough, the USAF will deploy 12 Raptors to Okinawa in a move that follows the PRK’s nuclear test last Monday:

The U.S. Air Force will deploy 12 advanced F-22 Raptor fighters in the coming days to a base in Okinawa, Japan. The move had been planned in advance and was not related to recent rumblings from Pyongyang, a U.S. Forces Japan spokesman said.

The South’s largest newspaper Chosun Ilbo quoted defense sources as saying the South has been preparing for contingencies such as artillery or missile strikes near a contested sea border off the west coast of the peninsula.

There are 183 Raptors in the current fleet. Only four more will be built for fiscal year 2010.

Clemons: Patience Is Prudent

May 26, 2009 by Jonathan Movroydis | Filed Under Asia, China, International Affairs, North Korea | Leave a Comment 

Steven Clemons, who used to direct the Nixon Center, believes that Obama should continue his patience so as to avoid a stalemate with the P.R.K. during a potentially destabilizing leadership crisis.

Roger Morris On Obama In Wartime

February 26, 2009 by Robert Nedelkoff | Filed Under Afghanistan, American Politics, Asia, Barack Obama, China, International Affairs, Iran, Iraq War, Middle East, Nixon Administration, Nixon Administration figures, Nixon in the News, Obama administration, Presidents, Richard Nixon, Russia, Terrorism, U.S. History, Vietnam | Leave a Comment 

Since January 16, the New York Times has had on its site a group blog, “100 Days,” in which five presidential biographers take turns comparing the initial stages of the Obama Administration to five presidencies.  Jean Edward Smith does the comparing to the first hundred days of Franklin D. Roosevelt, Richard Reeves to John F. Kennedy, Robert Dallek to Lyndon B. Johnson, Lou Cannon to Ronald Reagan….and it falls to former National Security Council staffer Roger Morris, author of a massive book about Richard Nixon’s life and career up to 1952 (which appeared in 1991, seemingly the first of a series of volumes, but never continued), to draw parallels between the forty-fourth President and the thirty-seventh.

In his first post on February 4, “The President Behind The Mask,” Morris offered not much more than the usual liberal boilerplate about the contrast between the “bring us together” rhetoric of the 1968 campaign and what he views as RN’s divisive style of governance.  But in the post which went up a few minutes ago, “How Not To End Another President’s War,” Morris draws on his own experience in the NSC in 1969 and 1970. (He quit in April of the latter year because of his objections to the incursion of American forces into Cambodia.)

The overwhelming majority of media coverage of the Obama White House has focused on the stimulus bill, the new budget, and other economic and domestic initiatives, but Morris is among those who keep in mind that Obama has inherited two wars, and that the verdict of history on his presidency will, in large measure, take into account how he handles them.  So far there has been a lot of vague discussion about concentrating on the Afghan war, and today CNN reported that the President has told Congressional leaders that all combat troops will be pulled from Iraq by August 2010, with support troops to stay until the end of 2011 under the agreement the Bush Administration reached with the Iraqi government.

But Morris is aware that saying there will be a withdrawal is one thing, and being able to do it within the timetable outlined is another, especially given the unpredictable nature of Persian Gulf realpolitik.  He refers to the days of the winter of 1969-1970, when Dr. Henry Kissinger met with North Vietnamese representatives in Paris for the initial series of top-secret talks apart from the official peace negotiations in that city, and says that Kissinger’s conversations “got far nearer a settlement than any account has ever indicated.”  Morris states that the promise of these negotiations was shattered by the coup that overthrew Prince Sihanouk in Cambodia and the events that ensued.  (I have to admit that I wish Morris would explain just how such a settlement could have been reached in the days before the improvement of American relations with China and the USSR gradually pushed North Vietnam into a situation where it had to become less recalcitrant about a negotiated peace.)

Morris’s post concludes:

Exorcised or not, ghosts of Vietnam hover over the Obama foreign policy, not least in key officials like former National Security Adviser James L. Jones Jr. and the special representative to Afghanistan and Pakistan, Richard Holbrooke — men whose formative career experiences were in Vietnam, and who have not yet told us what they think of the chilling relevance of that history to what they now face.

One comparison that is relevant here is that when America sought to extricate itself from Vietnam, it had to deal with just one opponent at the negotiating table, the Hanoi government – and that was an opponent that, for all its intransigence, was generally willing to talk.   In Iraq, the struggle for the last six years has been to not only subdue the savagery of al-Qaida, but to combat the baleful influences of Iran and Syria, which will pose a problem throughout the Obama presidency.

It’s worth mentioning that at one point Morris remarks that the Cambodian invasion of 1970 was “what a later era might call a ’surge.’”  That may be more telling than he knows. The “surge,” widely denounced by Democrats (and some Republicans) at the time, was the key to gaining the degree of peace Iraq enjoys now. The Cambodian incursion, hated though it was by antiwar activists, did neutralize the supply lines and gave a breathing space to American and South Vietnamese forces at a time when it was needed.

Hill’s Folly

July 4, 2008 by Jonathan Movroydis | Filed Under Asia, International Affairs | Leave a Comment 

In his article in the National Review, James Rosen explains that in accepting North Korea’s partial declaration of its nuclear program, the Bush administration has capitulated to conditions less favorable than earlier proposed concessions dismissed by Undersecretary of State Christopher Hill:

Time and again, the top State Department official on the North Korean account, Assistant Secretary Christopher Hill, insisted the United States and its allies in the Six-Party talks would accept nothing less. “We can’t go with something that’s 80 percent or 90 percent,” Hill told reporters at the Okura Hotel in Tokyo this past January, when the deadline for the declaration’s submission had already passed. “We really need to go with something that’s complete.” “Frankly speaking,” Hill added at the Japanese Foreign Ministry, “a partial declaration is really no declaration at all.” Asked about the lapsed deadline, Hill exalted comprehensiveness over timeliness: “We felt it was better for them to give us a complete one and correct one even if it’s going to be a late one.” The following month, Hill reiterated, in testimony before the Senate Foreign Relations Committee, that “we cannot accept a declaration that is incomplete or incorrect.”

Half a year later, the declaration we have accepted is by all accounts far from “complete” or “correct.” First, it omits the number of plutonium-based bombs produced at the massive and aging reactor at Yongbyon, which the North Koreans, having tested a nuclear device in October 2006, have now begun to disable. Equally concerning, the declaration also fails to provide any data on two other key issues: the regime’s secret highly enriched uranium (HEU) program, which the U.S. intelligence community judges with “high confidence” to have existed, and with “moderate confidence” to be ongoing; and the North’s proliferation of nuclear technology to other state sponsors of terrorism. This latter issue came to the fore last September, after Israeli fighter jets destroyed a nuclear facility North Korean workers were building in the deserts of northeastern Syria.

If You Can’t Get Olympics Tickets

April 28, 2008 by John H. Taylor | Filed Under Asia, Nixon Library | Leave a Comment 

News of our upcoming ping pong diplomacy rematch.

Fear and Loathing at CFIUS

April 28, 2008 by Joshua Treviño | Filed Under Asia, China, International Affairs | Leave a Comment 

Cross Posted From Joshua Trevino.

This is an extended version of this piece, which originally appeared in the Wall Street Journal Asia on April 28th, 2008.

Japan isn’t the only place flexing its regulatory oversight of foreigners these days. Now, the U.S Treasury Department wants to look at transactions involving stakes of less than 10% of the acquired American company.

But before Treasury does that, how about first explaining the criteria bureaucrats use to weigh the transactions they already review? That step – so obvious that it’s surprising it hasn’t been done yet – would offer much greater benefits to U.S. and foreign companies and investors, not to mention the American economy overall.

The Committee on Foreign Investment in the United States, or CFIUS, has existed in its present form since the late 1980s. This intergovernmental panel is empowered to review any acquisition of more than 10% of a U.S. company by a foreign entity when the U.S. company does business important to national security. But only this year, on April 8, did Treasury, which coordinates CFIUS, announce it will release clear guidelines on how CFIUS conducts these reviews. That will likely happen sometime next month.

Meanwhile, CFIUS remains a regulatory black box, issuing contradictory rulings with abandon — and without meaningful explanation. Unfortunately, what explanation exists is too often nakedly political.

The political nature of CFIUS becomes especially stark when considering the China National Offshore Oil Corporation’s 2005 effort to acquire Unocal. The proposed acquisition was scuttled by vigorous political opposition within the United States that included the employment of CFIUS as a bureaucratic obstacle. CNOOC’s leadership grasped that American security concerns would have to be assuaged for Unocal shareholders to approve the bid, and so it voluntarily submitted to CFIUS review. Incredibly, CFIUS refused to conduct that review until after Unocal accepted CNOOC’s buyout. CFIUS’s withholding of review was a major factor in the erosion of CNOOC’s bid, which thus ultimately failed.

By contrast, during the 2006 fracas over the United Arab Emirates-based Dubai Ports World’s bid for port operations contracts within the United States, it approved the firm’s doomed bid. CFIUS was right in that case, but it’s notable that the argument against its decision had some objective merit on national-security grounds. The argument against the CNOOC/Unocal deal, by contrast, was more tenuous — and, troublingly, rests upon an assumption of China as a power hostile to the United States.

Major policy decisions should not be implicit, and certainly not in the hands of an inter-bureaucratic committee; and CFIUS should strive for consistency rather than present the appearance of politicization. It is difficult to avoid the conclusion that CFIUS approved the DP World deal because the American Executive branch supported it.

Meaningful reform would entail the promulgation of definitive rules for CFIUS’s authority and operations. Under current law (50 U.S.C. app. § 2170), the factors purportedly affecting CFIUS decisionmaking are sufficiently vague as to be easily subjected to the politicization already noted. The law requires the CFIUS to “consider among other factors,” “domestic production needed for projected national defense requirements,” “the control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the United States to meet the requirements of national security,” and other similarly-worded criteria. With “national security” meaning nearly anything that a politician may wish it to, this must change.

A reformed CFIUS would restrict itself to the scrutiny of deals involving actual enemies of the United States — for example, states on the list of terror sponsors. Barring that, it would subject itself to judicial appeal, rather than operating as an economic Star Chamber with a capricious power over business and entrepreneurial life.

Until such a list comes out, expect more debacles like the thwarted merger between 3Com and Bain Capital, two American companies that wanted to merge with cash from Huawei, a Chinese firm that would have then owned a minority stake in the company. That deal failed last month when CFIUS refused its permission.

It is undeniable that 3Com is involved in the production of sensitive and advanced technology products. However, a Huawei minority stake under the proposed deal with Bain Capital would not meaningfully alter China’s access to those products. For starters, they are already freely available for purchase by private parties — and Huawei already participates in the manufacture of many of them. The 3Com facility in Hangzhou, China, at the Zhijiang Science Park, has operated under a partnership with Huawei for some time, to the apparent unconcern of CFIUS.

Were CFIUS genuinely concerned with foreign acquisition of critical national-security products, it would not have approved the 1995 sale of Indiana-based Magnequench, Inc., to a China-based consortium. Magnequench was and remains a key manufacturer of the rare-earth magnets needed for American precision munitions — and its entire production operation has since left Indiana for China. CFIUS apparently believes that 3Com’s routers, network intrusion-prevention systems, and network cards, available to any purchaser, are more vital to American security than actual advanced war materials whose sole market is the Pentagon itself. This is, to be charitable, a remarkable proposition.

Arguably worse than its rejection, though, is that CFIUS didn’t deign to tell the parties, or anyone else, precisely why it had rejected the deal. Given the costs involved, such an explanation was the least CFIUS could have done. Bain Capital shareholders are now out $66 million, which must be paid to 3Com as a termination fee for the deal.

Upon CFIUS’s scuttling of the deal, 3Com’s shareholders saw their company swiftly lose 12% of its market capitalization, with its stock dipping to its lowest level since the early 1990s. The prospects of the acquisition had driven 3Com’s total capitalization to approximately $1.8 billion in fall of 2007: as of this writing, it stands at about $960 million — barely half its prior value. That is a tremendous amount of havoc, in a few short months, for an unaccountable bureaucracy to wreak on an American company and its shareholders.

Indeed, that market reaction helps clarify exactly what is at stake here. America needs foreign trade and investment. By introducing an element of unpredictability into such trade and investment, CFIUS does more harm than good. And the problem appears to be getting worse just at a time when the U.S. economy appears to be wobbling and needs all the help it can get.

CFIUS defenders point to the potential threats to national security that would result from the sale to foreigners of a company manufacturing critical military technology. On its face, this is a good thing. Who wants an Iranian firm to purchase an American manufacturer of uranium centrifuges? Why should we allow a Venezuelan business to acquire American technical expertise that abets Caracas’s destabilization of Latin America?

Yet this noble-sounding purpose is confounded by the government’s failure to explain how it evaluates deals in practice. The number of “obvious” cases – an Iran buying centrifuges, say – is exceedingly rare. Among other reasons, this is because most of America’s post-Cold War state enemies are too poor to buy any American assets. So CFIUS does most of its work on “marginal” cases where there might be some grounds for concern but the potential threat to security interests isn’t clear.

And all too often those cases seem to get decided by politics. This should hardly be surprising, given CFIUS’ origins. The law creating the committee was passed in 1988 amid fears that newly wealthy Japanese companies were gobbling up America. Security concerns would hardly seem to have justified opposition to the bulk of those deals. Japan was then, and is now, a strong ally and a thriving democracy.

China presents a different situation. It’s neither a strong ally nor a thriving democracy. But given the history of CFIUS, the burden is still on the committee to prove that it’s making decisions that are rooted in national security rather than protectionism. The only way to do so, and take another step toward encouraging the foreign investment America needs, is for CFIUS to be clear and consistent about its standards.