Converging Regions : Global Perspectives on Asia and the Middle East 9781472436863, 9781472436856

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Converging Regions

The International Political Economy of New Regionalisms Series The International Political Economy of New Regionalisms series presents innovative analyses of a range of novel regional relations and institutions. Going beyond established, formal, interstate economic organizations, this essential series provides informed interdisciplinary and international research and debate about myriad heterogeneous intermediate level interactions. Reflective of its cosmopolitan and creative orientation, this series is developed by an international editorial team of established and emerging scholars in both the South and North. It reinforces ongoing networks of analysts in both academia and think-tanks as well as international agencies concerned with micro-, meso- and macro-level regionalisms. Editorial Board Timothy M. Shaw, Visiting Professor, University of Massachusetts, Boston, USA Renu Modi, University of Mumbai, India Isidro Morales, Instituto Tecnológico y de Estudios Superiores de Monterrey, México Maria Nzomo, University of Nairobi, Kenya Nicola Phillips, University of Sheffield, UK Fredrik Söderbaum, University of Gothenburg, Sweden and UNU-CRIS, Belgium Recent titles in the series (continued at the back of the book) Reconfiguring Global Climate Governance in North America A Transregional Approach Marcela López-Vallejo Re-mapping the Americas Trends in Region-making Edited by W. Andy Knight, Julián Castro-Rea and Hamid Ghany Exploring the New South American Regionalism (NSAR) Edited by Ernesto Vivares China’s Diplomacy in Eastern and Southern Africa Edited by Seifudein Adem

Converging Regions

Global Perspectives on Asia and the Middle East

Edited by Nele Lenze and Charlotte Schriwer National University of Singapore, Singapore

© Nele Lenze and Charlotte Schriwer 2014 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the publisher. Nele Lenze and Charlotte Schriwer have asserted their right under the Copyright, Designs and Patents Act, 1988, to be identified as the editors of this work. Published by Ashgate Publishing Limited Ashgate Publishing Company Wey Court East 110 Cherry Street Union Road Suite 3-1 Farnham Burlington, VT 05401-3818 Surrey, GU9 7PT USA England www.ashgate.com British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. The Library of Congress has cataloged the printed edition as follows: Lenze, Nele. Converging regions : global perspectives on Asia and the Middle East / by Nele Lenze and Charlotte Schriwer. pages cm. -- (The international political economy of new regionalisms series) Includes bibliographical references and index. ISBN 978-1-4724-3685-6 (hardback) -- ISBN 978-1-4724-3686-3 (ebook) -- ISBN 978-1-4724-3687-0 (epub) 1. Asia--Foreign economic relations--Middle East. 2. Middle East--Foreign economic relations--Asia. 3. Asia--Foreign economic relations. 4. Middle East--Foreign economic relations. I. Schriwer, Charlotte. II. Title. HF1583.Z4M6284 2014 337.5056--dc23 2014018157 ISBN 9781472436856 (hbk) ISBN 9781472436863 (ebk – PDF) ISBN 9781472436870 (ebk – ePUB) IV

Printed in the United Kingdom by Henry Ling Limited, at the Dorset Press, Dorchester, DT1 1HD

Contents Notes on Contributors   Introduction   Charlotte Schriwer Part I

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Finance and Investment

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China’s Economic Impact on Egypt   Ben Simpfendorfer and Mohammed al-Sudairi

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From the Middle East to the Far West: What Can Chinese Overseas Investments Tell Us About Law and Development and Global Regulatory Regimes?   Weitseng Chen



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Part II Resources, Territory, Hierarchy 3 4 5

Japan’s Pursuit of Gulf Energy Resources: Between US Dependence and Asian Competition   Yukiko Miyagi

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Geopolitical Shifts: Asia Rising, America Declining in the Middle East?   Michael C. Hudson

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No Spring for Migrant Workers: Split Labour Market Undermines Lebanon’s Fragile Identity   Elizabeth Picard

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Part III Nation-States, Sovereignty, and International Networks 6

Preventing the Emergence of a ‘Nested Security Dilemma’ in the Asian Maritime Domain: The Case of the Sino-Indian Relationship   Chietigj Bajpaee

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The Gulf Monarchies and Pacific Asia: Towards Interdependency?   Christopher M. Davidson

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The Indian Ocean: An Evolving U.S. Policy Agenda   Ellen Laipson

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Part IV Redrawing the Maps of the Future 9 10

New Connections Across Old Spaces: From Regional Worlds to World Regions   R. Bin Wong Connecting Oceans and Multicultural Navies: A Historian’s View on Challenges and Potential for Indian Ocean–Western Pacific Interaction   Barbara Watson Andaya

Bibliography   Index  

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Notes on Contributors Chietigj Bajpaee is a doctoral candidate in the Department of War Studies at King’s College London. He has worked with several public policy think-tanks and political risk consultancies, including Control Risks, IHS Global Insight, the Center for Strategic and International Studies (CSIS) in Washington, DC and the London-based International Institute for Strategic Studies (IISS). He obtained his Master’s degree in International Relations at the London School of Economics and completed his undergraduate studies in Economics and Political Science at Wesleyan University and the University of Oxford. His areas of interest include the Sino-Indian relationship, the evolution of the regional security architecture in Asia and issues of maritime and energy security. Weitseng Chen is assistant professor at National University of Singapore (NUS) Faculty of Law. He received his doctorate (JSD) in 2007 from Yale Law School where he was a Fulbright scholar. He worked as a Hewlett Fellow for the Center on Democracy, Development and the Rule of Law at Stanford University between 2007 to 2008. Before he joined NUS in 2011, he practiced law at Davis Polk & Wardwell, specializing in international capital markets and financial institutions. His recent research focuses on China’s institutional arbitrage in global capital markets, property rights transition, and China–Taiwan comparison on rule of law and political reforms. Christopher Davidson is an academic based at Durham University specializing in the political economy and state formation of the Gulf monarchies. He was previously based at a university in the United Arab Emirates, and also spent some time working at Kyoto University in Japan. He is the author of five singleauthored books, the latest being After the Sheikhs, published in 2013 by Oxford University Press. His journal articles have covered a number of topics ranging from the history of education in the Gulf to the politics of succession in dynastic monarchies, and he is currently writing a new article on the politics of expatriates in the Gulf states. His newspaper articles have been similarly diverse, and have been published, inter alia, by the New York Times, the Guardian, the Daily Telegraph, the New Statesman, and Foreign Policy. From time to time he serves as an expert witness in Britain’s crown courts, and was a witness in Britain’s longest-running extradition case. Michael C. Hudson is Director of the Middle East Institute and Professor of Political Science at the National University of Singapore. For many years,

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he was Director of the Center for Contemporary Arab Studies and Professor of International Relations, and Seif Ghobash Professor of Arab Studies, at Georgetown University, where he is now Professor Emeritus. He holds both an MA and PhD in political science from Yale University. Among Prof. Hudson’s publications are The Precarious Republic: Political Modernization in Lebanon (1968, 1985); The World Handbook of Political and Social Indicators (1972); Arab Politics: The Search for Legitimacy (1977); The Palestinians: New Directions (editor and contributor); and Middle East Dilemma: The Politics and Economics of Arab Integration (1999). His recent articles and chapters include ‘The Middle East in Flux’, in Current History (December 2011), ‘The United States in the Middle East’, in International Relations of the Middle East (Oxford, 2005, 2009); ‘Washington vs. Al-Jazeera: Competing Constructions of Middle East Realities’ (2005), ‘U.S. Policy and the Arab-Israeli Conflict: What Should and Can the Next President Do?’ Middle East Policy XV, 4 (2008); ‘America’s “Palestine Fatigue”’, in Transformed Landscapes: Essays on Palestine and the Middle East in Honor of Walid Khalidi (2009); and ‘The United States and West Asia’, in Perspectives on West Asia (2012). Ellen Laipson is president and chief executive officer of Stimson. She also directs the Middle East/Southwest Asia program. Ellen joined Stimson in 2002 after 25 years of Government service, her last post was Vice Chair of the National Intelligence Council (1997–2002). She also served on the State Department’s policy planning staff and was a specialist in Middle East affairs for the Congressional Research Service. Ellen was a member of President Obama’s Intelligence Advisory Board from 2009–2013. Ellen has an MA from the School of Advanced International Studies, Johns Hopkins University and an AB from Cornell University. Yukiko Miyagi is Research Fellow at the Institute of Middle East, Central Asia and Caucasus Studies, the University of St Andrews. Previously she was Lecturer in the School of Government and International Affairs, Durham University, and Research Fellow at the Centre for the Advance Studies of the Arab World. She specializes in Middle Eastern–East Asian relations, Middle East politics, and East Asian politics, with a focus on Japan’s cases. Her publications include Japan’s Security Policy in the Middle East: Theory and Cases (Routledge 2008), ‘Foreign Policy making under Koizumi: norms and Japan’s role in the 2003 Iraq war’, Foreign Policy Analysis, 5: 4, 2009, ‘Japan’s Engagement in the Gulf’ in Asia-Gulf Economic Relations in the 21st century, edited by Niblock and Malik (Gerlach 2013), and ‘Japan and the Middle East after the Arab Spring’, Middle East Review of IDE-JETRO, vol. 1, February 2014. Elizabeth Picard was senior researcher at the Institut de Recherches et d’Études sur le Monde Arabe et Musulman (IREMAM), Centre National de la Recherche Scientifique, in Aix-en-Provence, France, where she taught Middle East politics at

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the graduate school of comparative politics. She lived and worked in the Middle East for several years and directed the French research center in Beirut and Amman in 1997–2000. She has written extensively about security and identity politics in the Middle East and is author, among other works, of Lebanon: A Shattered Country (2002) and La Question Kurde (1991). She also directed La Politique dans le Monde Arabe (2006) and Liban, une guerre de 33 jours (2007). Among her recent articles are ‘Nation building and minority rights in the Middle East’, in Power and Powerlessness: Minorities in the Middle East, edited by A.-N. Longva (2010) and ‘Lebanon in Search of Sovereignty: Post 2005 Security Dilemmas’ in Lebanon after the Cedar Revolution, edited by A. Knudsen and M. Kerr (2012). Ben Simpfendorfer is Managing Director and Founder of Silk Road Associates, a strategy consultancy based in Hong Kong with offices in Beijing and Melbourne. He was the former chief China Economist for RBS and senior China Economist for JPMorgan. His forthcoming book, The Rise of the New East, looks at managing growth and complexities in the Asia market and will be published by Palgrave Macmillan in mid 2014. His previous book, The New Silk Road, examined commercial ties between China and the Middle East. Ben speaks Arabic, Cantonese, and Mandarin. He has lived in Hong Kong for over a decade, but started his career in the Middle East, living in Beirut and Damascus. Mohammed Turki al-Sudairi received his undergraduate degree in International Politics from the Georgetown School of Foreign Service in Qatar. Since graduating in 2011, he has lived in Beijing, China, studying Mandarin and working for both Silk Road Associates and the Gulf Research Center as an affiliated researcher. His research focuses heavily on Sino-Middle Eastern affairs, as well as wider political issues in Saudi Arabia and the Gulf. He is currently enrolled in a double degree masters’ programme held jointly by Peking University and the London School of Economics. Mohammed is a native of Jeddah, Saudi Arabia. Barbara Watson Andaya is Professor of Asian Studies at the University of Hawai‘i and a former President of the Association of Asian Studies. She was educated at the University of Sydney, the University of Hawai‘i and Cornell University, where she received her PhD. Her career has involved teaching and researching in Malaysia, Australia, New Zealand, Indonesia, the Netherlands, and since 1994, Hawai‘i. She maintains an active teaching and research interest across all Southeast Asia, but her specific area of expertise is the western Malay-Indonesia archipelago. In 2000, she received a Guggenheim Award, which resulted in The Flaming Womb: Repositioning Women in Southeast Asian History, 1500–1800. In 2010 she was awarded the University of Hawai‘i Regents’ Medal for Excellence in Research. Her most recent book is the co-authored History of Early Modern Southeast Asia (2014) and she is currently working on a history of Christian localization in Southeast Asia, 1511–1900.

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R. Bin Wong is Director of the UCLA Asia Institute and Distinguished Professor of History. His work addresses Chinese patterns of political, economic and social change within Asian regional contexts and compared with more familiar European patterns. Among his books are China Transformed: Historical Change and the Limits of European Experience (Cornell University Press 1997) and, with JeanLaurent Rosenthal, Before and Beyond Divergence: The Politics of Economic Change in China and Europe (Harvard University Press 2011). He has also published some 80-odd articles in North American, East Asian and European edited books and journals, appearing in Chinese, English, French, German and Japanese. Editors Nele Lenze is a Research Fellow and Editor at the Middle East Institute in the National University of Singapore. She obtained her MA in Arabic literature from Freie University Berlin and PhD in Middle East Studies and Media Studies from the University of Oslo, where she also lectured on the Arab online sphere. Her research focuses on cultural online spheres in the Arabian Peninsula. Lenze’s recent publications include ‘Aspects of Arabic Online Literature in the Gulf’ (2011); ‘Short Stories and Interaction in Literature Online in the Gulf’ (2012); and Conceptualizing the Arab Uprisings: Catalysts, Dynamics and Trajectories (2014 forthcoming), edited by Fahed AlSumait, Nele Lenze and Michael Hudson. Charlotte Schriwer is Senior Research Fellow and Deputy Director of the Middle East Institute at the National University of Singapore. Her research has focused mainly on various historical studies of the Levant region (Jordan, Syria, Lebanon), in particular on agricultural history. Since joining MEI in 2011, she has started a project documenting the history of protest art in the Arab world, with a focus on the Arab Uprisings. She holds a PhD in History and an MA in Middle East Studies from the University of St Andrews, and an MA in Islamic Art and Archaeology from the School of Oriental and African Studies in London.

Introduction Charlotte Schriwer

Asia and the Middle East have enjoyed close trade and maritime relationships for over a millennium. Arab merchants arrived in East and Southeast Asia as early as the seventh century, many settling to form pockets of Muslim communities along scattered coastlines all the way from China down to Indonesia. With the revival of the Silk Road during the Mongol Period in the thirteenth and fourteenth centuries, interregional and cross-cultural relations over a vast area of land united widely diverse people and cultures. Arab seafarers from places as far as Arabia and North Africa continued to encourage economic prosperity in East and Southeast Asia, as well as cultivating intellectual and spiritual exchange between the two regions. Famous navigators such as Zheng Ho, the Ming court admiral who conducted numerous expeditions around the Indian Ocean, even reaching Arabia, helped to encourage a continuation of the already well-established Sino-Arab trading routes. With this flourishing commercial connection, the social and political influences that were brought with the exchange of ideas and beliefs gave shape to new and thriving societies in the Indian Ocean that eventually rose as powerful regional players in their own right. After centuries of political and economic growth, a new era of European expansion emerged in the early seventeenth century. This led to Asia and the Middle East becoming subjects to a substantial period of European colonial power. The regions once seen as conglomerates of autonomous sultanates, kingdoms, and polities were no longer independent. Vying for economic dominance, the British and Dutch East Indies Companies established trading posts and colonies across large regions of Asia; the Dutch took control of Indonesia, while the British Empire, which had established its strongest trading foothold in the Indian subcontinent engaged in a lucrative – though illegal – opium trade with China. Thus, in a matter of 1,000 years, a large region of the eastern hemisphere of the world underwent colossal economic, political, and social changes brought about by wars, maritime expansion, and increased global economic competition. In the nineteenth and twentieth century, the quest for territory in an age of expansion was not merely an economic one, but also political. Imperial expansion should not only be seen as the product of a search for wealth as much as it was a game of political thrones. Britain was at war with the Dutch over territories in the East Indies, and set up the Straits Settlements (Singapore, Pinang, Malakka, Dinding) to protect the very profitable opium trade route to China. Conflicts with the French ensued over the trade of opium, as well as over territories in India.

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British and French rivalry over North Africa, primarily Sudan and Egypt, resulted in the establishment of British sovereignty there, through the establishment of either protectorates or condominia by the 1890s. During this period the French took control over much of the rest of North Africa. The construction of the Suez Canal in 1869, which allowed for a dramatically shorter shipping route between Europe and Asia by bypassing the long journey south around the Cape of Good Hope in southern Africa, changed maritime shipping, security and global trade in the modern age, becoming the gateway between East and West, and beginning a new era of global connections. The borders that were established in the Middle East and in Southeast Asia in the first half of the twentieth century can be largely attributed to the vast exchanges of overseas territories between the Americans, Germans, Russians, Dutch, British, Ottomans, and French, either through conflict or negotiation. After World War I, the decline and dissolution of the Ottoman Empire resulted in the partitioning of a vast area of land stretching from Mesopotamia to Eastern Europe. Territories were divided mainly between the French and the British, who established Mandates in Syria, Lebanon, Palestine, and Mesopotamia. The Arabian Peninsula also saw British and French colonial influence, primarily in the Emirates, Oman, Yemen and Aden. This was also a period where colonies in the Middle East and North Africa, as well as Asia, began to assume decisive actions over their rights for self-determination. This was witnessed by the Arab Revolts of 1916–1918 and 1936–1939 in Arabia and Palestine, opposing Ottoman domination in Syria and British colonial rule in Palestine, giving rise to pan-Arab nationalism across the region. By the end of the 1960s, colonial rule in North Africa, which had begun to decline towards the end of World War II, had been replaced by a series of newly-independent nations. Britain’s withdrawal as protector of the Gulf States in 1971 left a tumultuous and uncertain future for these small Gulf states in the shadow of their dominant neighbour, Iran. As a result, fearing the possibility of serious security dilemmas, the United States eventually replaced Britain as a new ‘protector’ of the Arabian Gulf, a position it still holds today. In India and Southeast Asia, similar movements towards independence became established, resulting in the independence of India from British rule in 1947, while the French fought and lost the Indochina War, which resulted in the establishment of independence from the French in Indochina in 1954. In the decade immediately following the end of World War II in 1945, Indonesia, the Philippines and Burma (now Myanmar) had all gained independence from colonial rule. In Indochina, independence from colonial rule was, however, further delayed with the beginning of the Cold War in 1956. The threat of communism prompted further conflicts in Southeast Asia, the bloodiest and most notorious of which was the American war in Vietnam, which lasted from 1956 until 1975. This was followed by further conflict with the Cambodian-Vietnamese War of 1975–1989 and the Sino-Vietnamese War of 1979. Colonial rule finally came to an end in Southeast Asia with the end of the British Protectorate in the Sultanate

Introduction

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of Brunei in 1984, and in China, the release of Hong Kong from British rule ended the European colonial period in East Asia in 1997. How has this chaotic past influenced the great global connect that we see between Asia and the Middle East today? Although the complexities of historical events cannot be ignored, broadly speaking, history continues to repeat itself, although in slightly different patterns. While merchants from Arabia and China explored large parts of the globe in the thirteenth century, Europeans were still far from being capable of having the same experience. However, once they had caught up to the idea they dominated the world’s trade and commerce, eventually becoming politically sovereign. The decades following colonial disengagement and pro-independence movements across the globe have shown that the old schools of power – the US, Britain, France, Germany, and Russia – are facing new political and economic rivals, many that have modelled themselves on their former colonial masters. In more recent years, global relationships between established powers of the West and newly emerging polities of the East have again continued to see various political, social, and economic changes. The rise of China and India as world political and economic powerhouses, and the extreme upheaval across the Middle East, engendered by the Arab Uprisings since 2010, have prompted those in government and academia across the world to reassess the future of global relations and relationships in both East and West across the Asia-Pacific region. As the US embarks on a new economic era with the discovery of vast shale reserves, possibly ensuring their energy needs for decades to come, its political interest in the Middle East which has been almost primarily based on oil, may vane to a passing interest in the not so distant future; in turn, the Gulf – and much of the Middle East – has in the past few years begun to take on a ‘Look East’ policy, shifting its hitherto Western focus for economic and political growth to the up and coming East, mainly toward countries like China, India, and Japan. Within all of these economic and political drivers lies the discovery of oil, which is fundamental to understanding many of the conflicts of the pre-colonial and colonial periods, as well as the political and economic dynamics of the modern world. Of course, it is oil that has also positioned many of the Gulf states, especially Qatar, Saudi Arabia, and the UAE as huge global economic proponents, while the largest importing and refining countries can be found in Asia. The GCC (Gulf Cooperation Council) formed in 1981, and ASEAN (Association of Southeast Asian Nations) formed in 1967 were established to promote peace and economic union and stability in their respective regions, and today, the two organizations hold regular meetings to discuss economic cooperation, energy issues, food security, and education, among other current topics. As one result of this cooperation, Singapore signed a Free Trade Agreement with the GCC in September of 2013, reviving once again serious trade relations that existed already centuries ago. All of these historic connections have remained deeply embedded in the global political, economic and social languages of the contemporary world, particularly so in the rapidly growing relationships between Asia and the Middle East. While

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the spices and textiles were some of the dominant products dominating trade of the pre-colonial and colonial periods, the economy of these regions today is heavily driven by the energy market – not only oil and gas, but also electricity – as well as growing technology markets, real estate and investment. According to the New York Times, trade between Asia and the Middle East grew 700 per cent between 2000 and 2010.1 As the world enters a new stage of a global economic and political paradigm shift, the US may perhaps in future adopt an isolationist policy similar to that of the World War I era, due to the discovery of large shale reserves. A new ‘world order’, already on the rise, may continue to strengthen the ties between Asia and the Middle East. The impact will not merely affect the political and economic dynamics across the globe, but have an enormous influence on people and societies through increased social mobility in the form of imported labour and knowledge markets. About this Book Converging Regions: Global Perspectives on Asia and the Middle East deals with issues of connectivity, finance and investment, migration and trade, and international networks across two regions, which many analysts and scholars believe are rapidly merging into one. With contributions from major international scholars in the field of humanities, economics, and political science, this book aims to reveal the intricacies of the changing political, economic and social relationships between the West, Asia, and the Middle East – a region in continuous political flux. Offering analysis as well as policy recommendations, the individual papers assembled here present various views on today’s global connections, their impacts on society, and a future yet untold. The first part of the book takes a look at Finance and Investment in relation to Asia and the Middle East as two regions converging economically as well as socially. With rapidly integrating international markets building new global economies, it is argued that social and political change is inevitable. In China’s Economic Impact on Egypt, Ben Simpfendorfer and Mohammed al-Sudairi analyse Egypt’s economic relationship with China by studying the textile industry in both countries. China’s overall economic involvement in the MENA region has had a profound effect on Egyptian economy and society, and the paper addresses efforts by China to stem the negative consequences of its involvement in textile exports. The focus on China continues with an analysis by Weitseng Chen, who examines China’s aggressive pursuit of overseas mergers and its effect on global capital markets.

1 A Modern Silk Road between Asia and the Middle East, by Angela Shah and Stanley Reed, May 1, 2012. http://www.nytimes.com/2012/05/02/business/global/02ihtrme-overview02.html.

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Resources, Territory, Hierarchy, the second part of the volume, analyses the elemental importance of natural resources in determining national security and sovereignty in the Asia-Middle East political dynamic. In particular, oil – as the world’s most coveted energy resource – is discussed in Yukiko Miyagi’s paper on Japan’s Pursuit of Gulf Energy Resources. Miyagi argues that Japan’s rise as an economic power and its relationship with the US in the aftermath of World War II, and its geopolitical situation, are strong influencing factors of Japan’s relationship with the oil-producing countries of the Gulf. Contrary to this, Michael Hudson challenges the rising views on America’s purported decline in the face of Asian supremacy with his contribution Geopolitical Shifts: Asia Rising, America Declining in the Middle East? Questions over resources are further discussed by Elizabeth Picard, who examines the growing issue of migrant labour and workers’ rights, with a focus on Lebanon, arguing that various forces – such as the need to maintain cheap labour by the business community – result in a labor market that is stratified along ethnonational lines. Part III of this work, Nation-States, Sovereignty, and International Networks examines the political, economic and social implications of changing nation-states in the Middle East and Asia. Questions of state sovereignty, and the growing threat of international networks that seek to undermine legitimate authorities through violent state and non-state actors to advance a religious or political cause are brought to the forefront of debate in this section. To address these questions, security issues and policies in Indian Ocean and Gulf countries are investigated. Chietigj Bajpaee looks at the relationship between China and India and possible security implications concerning their common maritime domain, while Christopher M. Davidson examines the growing interdependence between the Gulf Monarchies and Asian countries. Davidson suggests that new relationships between the GCC states and the East Asian economic powerhouses – Japan, China, and South Korea – will grow into globally dominating trade and economic relations. With this in mind, Ellen Laipson, a veteran security expert on the Indian Ocean, discusses how US policy on maritime space is evolving in the light of changing relationships and growing powers in this region of the world. The final part of this book, Redrawing the Maps of the Future, discusses the implications of the rekindled historical connections between the Middle East and Asia in the contemporary world. R. Bin Wong reviews the historical links between Asia and the Middle East and suggests that the ‘old regions’ affected by the rise of Asian power bear a number of similar characteristics to many contemporary world regions. The historical analyses of links between the Middle East and Asia continue with Barbara Watson Andaya’s perceptions of a potential Indian Ocean–Western Pacific interaction, examining similar historic cooperations as far back as the fifteenth century, and considering the implications of rising nationalism in the twentieth century, particularly on maritime activities in the Asia-Pacific Region.

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Part I Finance and Investment

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Chapter 1

China’s Economic Impact on Egypt Ben Simpfendorfer and Mohammed al-Sudairi

This chapter examines how the economic effects of the rise of China over the last two decades has affected resource-poor MENA countries like Egypt. The authors are specifically interested in the extent to which China’s rising exports and their subsequent displacement of other countries’ export streams in the global supply chain (as opposed to internal structural problems) have influenced major industrial sectors in Egypt. Understanding the full extent of this impact is important due to the social and political ramifications it carries: after all, Egypt’s rising rate of youth unemployment is believed to have played a significant role in igniting the January 25th Revolution. If China’s rise over the past decade has indeed contributed to the structural economic changes underlying this shift in the political paradigm, as many media outlets suggest, any effective economic strategy in the future seeking to address Egypt’s current economic situation will have to take account of China’s impact on Egypt’s economic development. As the chapter shows, this does not mean to imply that the rise of China has been a wholly negative event for Egypt. While China’s exports have indeed displaced many other low-cost competitors for over a decade, more recent trends offer some reason for hope as China’s rising prices are weakening the country’s export competitiveness, and global retail and consumer companies have been looking at other low-cost exports as alternatives to China in response to rising prices. As the chapter discusses, the greatest changes have been observed in the textiles and clothing industry (henceforth T&C industry) relocating to countries in Southeast Asia and South Asia. The growing popularity of ‘near-sourcing’ has also encouraged a shift to buy from low-cost suppliers near home markets. In the case of Europe, this means buying from countries such as Egypt. The T&C industry is an appropriate venue for examining China’s economic impact on Egypt. The T&C industry is a historically large driver of Egypt’s economy: the sector makes up nearly 27 per cent of Egypt’s manufacturing base and 3 per cent of total GDP (2009,) and is a major source of foreign currency for the economy as it makes up nearly 10 per cent of all exports.1 The sector’s importance is magnified even further largely due to its labor-intensive character: its roughly 4,000–4,500 registered firms employ over 400,000–700,000 workers 1 Amirah El-Haddad, ‘Effects of the global crisis on the Egyptian textiles and clothing sector: a blessing in disguise?’ Egyptian Center for Economic Studies Working Paper 156 (2010).

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(with an additional 300,000 on an informal basis) or roughly 17 per cent of total employment in the manufacturing sector.2 In addition, the literature on the textile industry in Egypt is quite rich in comparison to other sectors, allowing us to navigate and understand the significance of the various milestones affecting the industry (the end of the Multi-Fiber Arrangement in 2005, the signing of the Qualifying Industrial Zones [QIZ] and Emerging Markets Payments [EMP] agreements … etc.).3 Furthermore, by focusing specifically on the T&C sector, we can control for the large number of externalities and factors affecting Egypt’s economic circumstances over the past decade (rising energy and food prices; the 2008 global economic crisis, the January 25th Revolution, etc.) many of which are not directly attributable to China’s economic re-emergence but are nevertheless influenced by it on some level or the other. In addition to traditional data sources, the chapter also takes a novel approach by including the insights from global sourcing specialists based in Hong Kong. Many of the world’s largest sourcing and retail companies issue purchase orders from offices in Hong Kong and their decisions determine the extent to which T&C products are purchased from factories in China or Egypt, among other countries. Although American and European offices are also responsible for purchase orders, Chinese suppliers are typically the global benchmark in terms of freeon-board prices and delivery reliability. While our interviews must be regarded as qualitative in nature, and we recognize their limitations, such conversations are crucial to providing the report with commercial relevance in a fast-changing global economy. The chapter will be organized as follows: it will first begin with a historical overview of the Egyptian T&C industry, before situating it within a larger global context in order to examine Egyptian competitiveness. This will be followed by a brief assessment of China’s global presence in the T&C trade, with particular emphasis on its direct and indirect impact on Egyptian T&C exports and domestic sales. The chapter will continue by examining how China’s rising production costs have more recently resulted in a marginal shift in T&C production to Southeast Asia and other low-cost countries, including Egypt. And finally, it examines how Chinese efforts to redress or minimize the negative consequences its textile exports have had on Egypt may support this change.

2 ‘Strategy and Action Plan Project for the Egyptian Textile and Clothing Industry–Inception Report’, Gherzi (Cairo, 2006), accessed March 5, 2014. http://www. imc-egypt.org/studies/FullReport/Textile%20Development%20Strategy%20Vision%20 2020_Part%202_EN.pdf. 3 While local language news reports have referred amply to the crowding effect Chinese exports have had on everything from steel production to traditional crafts and furniture-making, the lack of sufficient data and studies on non-major sectors of the economy makes an encompassing examination of China’s impact on Egypt somewhat hard. (Indeed, media hysteria over China’s economic impact can inflate the actual economic implications.)

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The History and Structural Evolution of the T&C Industry Early History The Egyptian T&C Industry can trace its origins back to the early nineteenth century when extensive cultivation of high-quality Egyptian cotton began to take place and a manufacturing culture began to emerge in the upper Delta around Mahalla al-Kubra, Alexandria, and Cairo, amongst other population centres.4 Benefiting from protectionist policies put in place by the Khedive-era government which largely remained in place until the al-infitah period, the T&C industry experienced a take-off in the 1920s and 1930s that included the establishment of several major enterprises such as Misr Spinning and Weaving (1927) and the Abu al-Sabaa’ weaving company (1936).5 Following the revolution of 1952, the T&C industry grew rapidly as Nasser’s government ‘adopted an inward-looking import substitution development and a tight control of the cotton market’ that was aimed at promoting a socialist economic model, including the provision of T&C products for consumers at affordable prices.6 In the long run, these policies proved to be disastrous for the T&C industry: government control of cotton prices ‘led to a massive misallocation of Egyptian high-quality cotton, which was wasted on the production of low quality fabrics and clothing’.7 The industry suffered from severe structural problems in terms of its bloated employment patterns, a persisting legacy with some public sector firms placing over-employment at over 40 per cent. It also skewed public subsidization over the years that encouraged waste and the production of low-quality goods. The industry was accordingly ill-equipped to deal with the de-regulatory and privatizing policies of the Sadat al-infitah era which began in 1974. It was assumed however that despite the problems that would certainly follow in the wake of al-infitah, liberalization would ultimately revitalize and breathe new life into the industry. The administration of this ‘shock’ was delayed at the very onset of the reforms. That same year, the Multi-Fiber Agreement (MFA) was signed establishing a system of quantitative restrictions on imports between developing and developed nations.8 The MFA’s purpose was to minimize the effects of short-term economic 4 Rawiah Abdallah et al., ‘The Textile Cluster in Egypt’, Institute for Strategy and Competitiveness (Harvard: 2012), accessed March 5, 2014. http://www.isc.hbs.edu/pdf/ Student_Projects/2012%20MOC%20Papers/Egypt_Textiles_Cluster.pdf. 5 ‘Sector Survey: Textiles in Egypt’, Alexbank, Economic Research Division (2011), accessed March 5, 2014. http://www.alexbank.com/Uploads/documents/research/ Textile%20in%20Egypt.pdf. 6 El-Haddad, ‘Effects of the global crisis on the Egyptian textiles and clothing sector’. 7 Ibid. 8 ‘The Textile Trade, Developing Countries, and the Multi-Fibre Agreement’, Overseas Development Institute, N.p., n.d. Web. January 27, 2014, accessed April 7, 2014. http://www. odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/6604.pdf.

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dislocations and help ‘developed’ nations adjust to rising competitive forces in the south whilst restricting the more competitive producers from dominating the market. Although this benefited the local T&C industry by compartmentalizing global economic linkages, it shielded it from competitive pressures that allowed for the perpetuation of the sector’s structural failings without any gains in productivity (which actually kept declining over the following decades). The social costs of this were severe to say the least: the T&C sector contracted steadily beginning in 1976, with the worst layoffs taking place in the 1980s and 1990s. This was compounded further by a significant decline in real wages even in comparison to other industries in Egypt. ERSAP and Egypt’s WTO Entry The beginning of the 1990s saw another round of ‘corrective’ restructuring within the T&C Industry, and this time in accordance with the IMF and World Bank backed Economic Reform and Structural Adjustment Plan (ERSAP) which was first enacted in 1991. ERSAP’s goals were to revitalize the T&C industry first by way of liberalizing the cotton industry sector and hence ending a minimum price ceiling. It was also intended to lift some quotas and import bans especially on ready-made garments, and privatizing state-owned T&C firms – the latter being the paramount goal. Although the reforms enabled Egypt’s admission into the WTO in 1995, and showed some success in the way of privatizing the sector, lifting traditional supports and barriers at that juncture in time, when competitive pressures were already being felt across the market, entailed a number of hefty economic and social costs that could have been avoided or mitigated in the least.9 Simply put, the T&C industry was not at all prepared to engage the global market: most T&C firms had no experience or in-depth understanding of it and thus had to rely on foreign entities which were more interested in buying up local capacities than in helping mould a more competitive industry as a whole. There was also another problematic development: the lifting of price controls over cotton led to stark increases in production costs since it was more lucrative for mills to export Egyptian cotton to such destinations as China, Turkey, the US, and Pakistan a development which was weakening the industry’s traditional comparative advantage in favour of its competitors. All this in turn led to further worker layoffs, igniting labour unrest, limited capital investments, and technology improvements that had become prohibitively costly – especially for textile production. As one study conducted in 2006 noted, Egypt’s most recent looms were purchased in 1988 and few looms have likely been purchased since 2006, meaning no material investment in the weaving industry

9 This occurred despite the fact that the Uruguay round’s Agreement on Textiles and Clothing (ATC) gave the quota-based global system another 10-year lease to adjust.

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for 25 years.10 In addition, there had been virtually no investments in dying or finishing modes of production for over two decades.11 In terms of the wider global context, Egypt’s share of newly installed spinning capacity between 1995 and 2004 was about 0.33 per cent.12 These developments had serious ramifications on the industry’s productive capacities overall: according to al-Haddad ‘productivity in the Egyptian textile industry was actually lower in 1999 than in 1985’.13 This decline in production continued well into 2004, with the industry shedding at least $3 billion in its productive value from 2000 alone.14 End of MFA Quota System and China’s Re-emergence The dislocations mentioned above cannot be disassociated from the wider changes occurring throughout the global trade system. The abolition first of early phase quotas in 2002, and then the whole MFA quota system in 2005, brought India, China, Pakistan, Bangladesh, Indonesia, and Turkey into direct competition with Egypt. It also, had considerable consequences on the T&C industry’s export-market prospects, especially since it aimed to liberalize 49 per cent of the T&C trade and end most restrictive quota categories, raising fears of another round of contraction. This was underlined by the fact that, according to a 2004 study conducted by the American Chamber of Commerce in Egypt, 98 per cent of all Egyptian apparel exports and 83 per cent of textile exports were destined to quota-specific markets.15 It was clear therefore that the anticipated end of the MFA regime in 2005 made for an unsettling prospect for policymakers in Egypt who were concerned with the economic and social fallout. Indeed, it was estimated that the Egyptian T&C industry stood to lose some $500–600 million in export/domestic sales and would be forced to shed over 150,000 jobs (15 per cent of the total workforce) as a result of the abolition of the MFA.16 During the first year quota phase-out, Egyptian T&C exports decreased by 10 per cent, validating many of these fears. The abolition of the MFA barriers itself was not the major factor behind this reversal, but one could say a facilitating variable. Rather, it was the emergence of China’s T&C industry – which had been growing at a breath-taking speed since the 1990s – that was the primary catalyst behind this development. Indeed, China’s T&C exports rose from $46 billion in 2000 to $97 billion in 2005 and 10 Gherzi, ‘Strategy and Action Plan Project for the Egyptian Textile and Clothing Industry’. 11 Ibid. 12 Ibid. 13 El-Haddad, ‘Effects of the global crisis on the Egyptian textiles and clothing sector’. 14 Ibid. 15 ‘The Textile and Clothing Industry in Egypt’, American Chamber of Commerce in Egypt (Cairo: 2004). 16 Vikash Yadav, ‘The Political Economy of the Egyptian–Israeli QIZ Trade Agreement’, Middle East Review of International Affairs 11 (2007).

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$218 billion in 2011.17 By the end of 2011, China dominated roughly 36 per cent of all global cotton fabric exports and 41 per cent of all clothing and apparel exports. The figure increases to 48.6 per cent if one adds Hong Kong, through which a large share of China’s clothing and apparel goods are shipped. Hong Kong itself has virtually no domestic T&C industry today.18 This massive growth in China’s global T&C shares has been driven by a number of factors including the existence of a sizable, low-salaried and skilled workforce; relatively advanced technological installations; vertical supply chains with the country product not only textiles, but also buttons, zippers and labels; and a sophisticated logistics infrastructure that enabled factories to make rapid and reliable delivery. Supplementing these factors has been the gradual collapse of trade barriers – beginning with China’s formal accession into the WTO and the subsequent two-phased dismantlement of the MFA – which helped propel Chinese growth even further. In 2002, when the first phase quotes were lifted, China quickly managed to enlarge its share in the US from 31 per cent to 59 per cent.19 Similarly, in the EU, China quickly increased its share of the market from 12 per cent to 30 per cent during that same period.20 In many other quota free markets, China became the dominant provider of textiles and apparel goods, controlling nearly 70.4 per cent, 77.5 per cent and 56.3 per cent respectively of the Australian, Japanese, and South African markets.21 During the second phase starting in 2004, China and India alone captured nearly 85 per cent of all increases in apparel trade between 2004 and 2005.22 Qualified Industrial Zones (QIZ) and Free Trade Agreements (FTA) Egypt’s local T&C sector was not completely defenceless and did enjoy some protections that arose as part of a pre-emptive policy approach adopted by the authorities and concerned foreign governments to ‘soften’ the industry’s landing in the post-MFA world. The ratification of the Qualifying Industrial Zones (QIZ) scheme with the US and Israel in 2004 (initially entailing 11.7 per cent of direct inputs from Israel but changed in 2008 to 10.5 per cent) and the EuroMediterranean Partnership Agreement with the EU in 2005 have been the most significant, and gave the T&C industry ‘duty and quota free access to these markets 17 Drawn from UN COMTRADE Data. 18 Abdallah et al., ‘The Textile Cluster in Egypt’. 19 Dan Magder, ‘Egypt after the Multi-Fiber Arrangement: Global Apparel and Textile Supply Chains as a Route for Industrial Upgrading’, Institute for International Economics Working Paper Series WP05-8A (2005). 20 Ibid. 21 Ibid. 22 Michael F. Martin, ‘U.S. Clothing and Textile Trade with China and the World: Trends Since the End of Quotas’, CRS Report for Congress (2007).

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conditional on rules of origin … Hence, Egypt [… benefited] from the fact that other previous beneficiaries of the MFA are losing market share’.23 According to UN COMTRADE data for the period 2002–2012, the US and the EU (namely, the UK, France, and Germany) accounted for nearly 80 per cent to 85 per cent of all Egypt’s ready-made garment exports (knitted and non-knitted) from 2005 to 2011.24 While these agreements facilitated increases in T&C exports to the EU and the US and helped shelter the industry from potentially larger losses,25 the increases they brought were quite modest in comparison to the gains made by China. For instance, while Egypt’s T&C exports to the US grew at an average 8 per cent after the QIZ was ratified,26 Chinese exports to the US shot up by 270 per cent.27 These developments suggest that although Egypt has tried to shield its traditional T&C outflows by policy arrangements with foreign markets, Chinese competition has had an overwhelmingly disruptive effect both directly in its capture of formerly Egyptian T&C space in the global market or indirectly in the form of limiting and curtailing growth opportunities.28 The 2008 Financial Crisis and January 25th Revolution The 2008 financial crisis (and the subsequent fallout in 2009–2010) coupled with the dramatic increase in food and energy crisis, precipitating a slump in global demand, and a sharp inflationary rise of nearly 40 per cent for input costs, have hurt the T&C sector’s productivity.29 Admittedly, similar effects were felt by T&C industries all over the world, including China where exports of these products fell some 10 per cent in 2009.30 Nevertheless, in the case of Egypt, imports from foreign T&C competitors rose relatively steadily in 2009, during the worst phases of the crisis, underscoring the weak state of the industry and its inability to hold its ground in the domestic market. Egypt’s T&C trade balance, as to be expected, also worsened during this period as a result of rising T&C imports and falling T&C exports. Reductions in weighted tariffs that are estimated to have declined from 14 June in 2005 to 5 May in 2009 also contributed to this.31 23 Alexbank, ‘Sector Survey: Textiles in Egypt’. 24 Drawn from UN COMTRADE Data. 25 Mona El Fiqi, ‘QIZ threads big hopes’, Al-Ahram Weekly Online, September 2007, accessed March 5, 2014,. http://weekly.ahram.org.e.g./2006/810/ec3.htm. 26 Drawn from UN COMTRADE Data. 27 Magder, ‘Egypt after the Multi-Fiber Arrangement’. 28 Jose R. Lopez-Calix, Peter Walkenhorst and Ndiame Diop (eds), Trade Competitiveness of the Middle East and North Africa: Policies for Export Diversification (Washington, DC: The World Bank, 2010). 29 El-Haddad, ‘Effects of the global crisis on the Egyptian textiles and clothing sector’. 30 Drawn from UN COMTRADE Data. 31 Abdallah et al., ‘The Textile Cluster in Egypt’.

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The 2011 Revolution and the fall of the Mubarak regime further exacerbated existing difficulties by scaring away investors. While a weaker Egyptian pound should have attracted further investment, worries about stability and the quality of the labor market have delayed critical capital investments into an industry already suffering from low productivity and limited domestic procurement capacities. Political and social protests within the workforce and subsequent debates on the minimum wage have also played a role in deepening the industry’s losses. The post-Mubarak government, acknowledging the importance of the industry to job growth has attempted to address some of these issues by extending temporary subsidies and funding to weakened sectors as well as exempting certain categories of goods from duties and tariffs.32 It has also sought to encourage further FDI in the industry’s upstream operations. China Suffers from a Loss of Export Competitiveness Nevertheless, even as Egypt faced an increasingly challenging backdrop between 2005 and 2010, China’s textile and garments sector has also faced more recent threats to its low-cost export model. Most damaging is the country’s youth labor supply, which has shrunk dramatically over the past decade. China’s youth demographic is expected to decline by 44 million between 2010 to 2020, according to the United Nation’s population projection division. Indeed, the average Chinese national is 35-years-old, compared to the average Cambodian (23 years), Bangladeshi (24 years) or Egyptian (26 years).33 The result is massive labour shortages. One example demonstrating the effects of this crisis is of a major manufacturer of butane lighters based near the southern city of Guangzhou who recently remarked to us that in spite of automating part of his factory floor and cutting his employee numbers in half, the average age of his staff has gone from 20-years to 40-years as he struggles to find enough labour.34 Labour shortages have contributed to rising wages. Today, China’s average manufacturing wage ranges from $200 to $550, and often higher. Moreover, the total monthly salary is usually higher again as benefits – such as starting bonuses, performance bonuses, and holiday bonuses – are rising faster than wages. The result is that China’s wages are now on par, or significantly higher, than wages in the rest of the region. For instance, monthly wages in Bangladesh are around $80 per month and almost equally low in Cambodia ($85) and Vietnam ($125). China’s government has added to the pressure by hiking minimum wages in an effort to reduce income inequality, thus adding to wage cost pressure. Minimum 32 Ibid. 33 ‘World Population Prospects: The 2012 Revision’, United Nations, Department of Economic and Social Affairs, Population Division, Population Estimates and Projections Section (2013). 34 Interview by author in Guangzhou, China, in July 2013.

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wages have, on average, risen from $59 a month in 2000 to $166 a month in 2011. (The figures are calculated at constant 2011 USD/CNY rates; otherwise the increase in wages would be even larger, from $45 to $166.)35 In many ways, this represents a major opportunity for countries like Egypt. The risk of course is that Egypt’s wages for unskilled workers are also rising, as the new government focuses on income inequality. Indeed, Egypt finally raised its minimum wage in mid 2011 to 700 Egyptian pounds ($114) per month – the first time the rate had been hiked since 1984.36 Nonetheless, these wages are still below comparable figures in China. Moreover, currency depreciation will most likely see the $-value of these wages fall sharply in the coming months. Importantly, the appreciation of the Chinese renminbi has been steepest against other low-cost competitors with the renminbi appreciating nearly 50 per cent against the currencies of Bangladesh, Cambodia, India, Laos, and Vietnam. The appreciation against the Egyptian pound has been 28 per cent during the period and may be sustained if the pound continues to fall in value as a result of economic and political risks. Such rapid appreciation appears to be slowing as the currency nears its fair value as a result of a falling trade surplus and steady inflation. Nevertheless, even in the event that nominal appreciation slows, real appreciation will persist against many currencies owing to the country’s faster increases in production costs, including Southeast Asia and to a lesser extent Egypt. The result is that manufacturers are either leaving China for other low-cost destinations, or global buyers are sourcing directly from factories already located in other low-cost destinations. In this case, comparisons with ASEAN are most instructive for Egypt, given that ASEAN is a useful early warning signal for changes in China’s T&C industry that may affect Egypt, albeit with a time lag and to a lesser degree. Importantly, ASEAN has started to do increasingly well in two highly-competitive export sectors: apparel and footwear as well as consumer electronics. Cambodia and Indonesia, for instance, saw their apparel exports (HS Code 61, 62, 62, 64) grow at an average annual rate of 37 per cent and 39 per cent, respectively between 2008 and 2011, as against a slower 30 per cent in China.37 Other low-cost countries, such as Vietnam are also enjoying rapid growth, offering hope for China. Of course, China is still a much larger exporter, shipping more than all of ASEAN combined ($1,900 billion versus $950 billion in 2011). Indeed, for all the excitement about Cambodia’s apparel and footwear sector, its exports of these products ($4 billion) barely register when compared to China’s $207 billion in

35 ‘The 22nd Survey of Investment Related Costs in Asia and Oceania: FY 2011 Survey’, Japan External Trade Organization (JETRO) (2012). 36 Marwa Hussein, ‘Half a million public servants will get minimum wage: Official’, Ahramonline, March 12, 2012, accessed March 5, 2014. english.ahram.org.e.g./ News/36314.aspx. 37 Drawn from UN Comtrade data.

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2011, a figure significantly larger than Cambodia’s GDP.38 The implication is that ASEAN is not a simple substitute for China as the region would struggle to absorb a large influx of factories. Moreover, such an influx would result in steady upward pressure on wages and other production inputs with the result that the price difference and competitive advantage versus China would narrow. Much the same is true for Egypt given that the country’s T&C exports are only worth $3.2 billion.39 Further, labour costs alone do not dictate national competitiveness, and China still has plenty of compelling competitive advantages. For example, the country’s sophisticated logistics sector is key to its ability to deliver rapidly, and helps global retailers manage their inventories more efficiently, thus lowering working capital costs. Unsold inventories, not factory wages, are one of the biggest costs for a retailer, especially at a time when consumer demand is so uncertain. Crucially, China’s total port container capacity, including Hong Kong, is greater than that for the rest of non-Japan Asia combined. Indeed, single Chinese ports have vastly more capacity than do many Asian countries. The container ports in southern Shenzhen, for instance, have 24 million TEUs of capacity.40 Much the same is true for Egypt where the country’s largest container port, Port Said, has a total capacity of 4 million TEUs. Most low-cost competitors also lack the vertical supply chains that are so important in China. That means factories must either source their production inputs such as buttons, zippers, non-adhesive labels, etc. locally, or be prepared to import them from China. The UN Comtrade data shows that ASEAN’s imports of buttons, zippers, and non-adhesive labels from China rose from $45 million in 2005 to $184 million in 2011. Egypt’s imports of such goods from China also rose during the same period from $8 million to $13 million, underscoring that the country faces a challenge similar to ASEAN in creating vertical supply chains. For foreign buyers and manufacturers, the decision to relocate to another low-cost country is thus largely a choice between price and size – China has the economies of scale to offset rising prices, as well as a large domestic market. But for those looking to either buy or produce at the cheapest possible price in a specific category, then ASEAN or Egypt are a good alternative. It is for this reason that buyers talk of a ‘China +1’ strategy, or continuing to produce the bulk of their product in China, but also importing a select amount from other low-cost countries that have a niche capacity. Cambodia, for instance, has a niche capacity in the footwear sector where it enjoys strong growth in certain product lines but not others, often depending on a single factory relocating to the country. Similar

38 ‘World Economic Outlook Database (2013)’, International Monetary Fund (2013). 39 Drawn from UN COMTRADE Data. 40 ‘AAPA World Port Rankings (2009)’, American Association of Port Authorities (2009), accessed March 5 2014. http://www.aapa-ports.org/.

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arguments were made about Egypt by major retail and sourcing companies in our interviews.41 Tariffs and Near-sourcing Matter Egypt also enjoys two major competitive advantages over China and its other Asian low-cost competitors. The first is Egypt’s FTAs with Europe and QIZ agreements. These provide the country with a significant free-on-board (FOB) price discount to other competing products, especially as China’s prices rose relative to the early mid 2000s when Egypt’s QIZ and FTA agreements were first signed. Indeed, in our conversations with global retail chains and buyers in Hong Kong, FTAs can be a major driving force for sourcing decisions. Cambodia’s success is in part due to its low labour costs, but also because the European Union imposes a zero per cent tariff on imports from the country. Sri Lanka, in contrast, recently lost its GSP (Generalized System of Preferences) Status, which provided lower duty access to Europe, with the result that many buyers switched orders to Bangladesh. Further, the geographical proximity to Europe is a major competitive advantage. There is a tendency for many buyers to look only at the FOB price of a good and delivery reliability in their sourcing decisions. However, unsold inventories, as earlier noted, are a major financial cost. Shipping from lower-cost producers near to the home market, a trend called ‘near-sourcing’ allows buyers to order smaller quantities and expect faster delivery, and so maintain lower inventory levels. In this case, the risks of unsold inventories are reduced. Further, if shipments from Egypt to Europe take only 30 days on a 90 day payment term, then a retailer can sell three sets of orders before having to pay for the first order, a major benefit in terms of working capital. And We See the Results in Egypt Partly for these reasons the growth of Egypt’s T&C industry has exhibited remarkable tenacity over the past decade, despite long-standing structural problems, especially in labour quality and its continued neglect of the public sector and the cotton industry. Indeed, although export growth would have been faster if not for China’s competitive challenge, the numbers are nevertheless still firm: according to the UN Comtrade data set, exports in all T&C categories increased from $1.2 billion in 2002 to $3.3 billion in 2011. Moreover, exports recovered quickly after the crisis, rising from $2.6 billion in 2008 to $2.8 billion in 2010, after a brief 41 Interviews by authors of Hong Kong-based sourcing executives working for MNC and mid-sized European retail companies. Interviews conducted in Hong Kong throughout 2012 and 2013.

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fall in 2008. Ironically, for all the worries about social instability and spillover to the real economy, the global financial crisis was the bigger challenge for the sector. That noted, the figures disguise an important structural change within Egypt’s T&C industry, largely as a result of public sector neglect of the industry, and especially state-owned firms. The Egyptian T&C industry’s exports growth has made a qualitative shift, as noted by one authoritative World Bank study, from being driven by intensive margin growth (i.e. growth dependent on established export outflows) towards being driven by extensive margin growth (i.e. growth via new export outflows).42 This means that clustered producers have made adjustments – largely in response to global competition and demand – in the type of differentiated-products they were producing and the destinations to which they were exporting them. This shift to extensive margin growth is necessarily connected to the industry’s exposure to foreign competition and the discipline this has imposed on leading T&C firms to shift their product mix, improve productivity, and market more successfully; the formation of new market and cluster linkages such as those created with the US following the ratification of the QIZ; and, most recently, China’s rising production costs and the relocation of T&C production, at the margin, to other low-cost countries, as well as a renewed interest in nearsource production from markets in close proximity to Europe. This process, one should add, had been ongoing since the late 1990s despite the abovementioned contractions and difficulties experienced by the T&C industry. On the other hand, there are several things to take note of: success has been largely confined to exports and is certainly not reflected in the balance of trade where Egypt lies at a disadvantage with a total loss valued at $1.2 billion in 2011.43 In addition to this, the export data overlaps with periods – particularly during the early 2000s – in which severe contraction in T&C domestic sales and production values had taken place. Similarly, it does not suggest that improving conditions facilitated a rebound for the industry as a whole, but only the success of some sectors – i.e. those that were export-oriented. Indeed, one could argue that the makeup of imports is indicative of the growing success of export-oriented growth with over two-thirds of Egypt’s $3.7 billion imports made up largely of rawtextiles needed for the production of domestic garments and apparel.44 Indeed, Chinese imports have made the largest gains in the Egyptian domestic market, particularly in the area of knitted and non-knitted ready-made garments. For knitted garments, where China’s influence is most visible, imports increased from $54 million in 2003 to $762.5 million by 2011. Non-knitted garments, while far smaller in value, were still dominated by China, and increased from $41 million in 2003 to $153 million in 2011.45 The upshot is that while Egypt’s leading T&C 42 Lopez-Calix et al., Trade Competitiveness of the Middle East and North Africa. 43 Drawn from UN COMTRADE Data. 44 Ibid. 45 Ibid.

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firms have managed to grow, in the authors’ view based on the data, the sector overall has been hit hard by the emergence of China, especially the predominantly state-linked T&C firms selling to the domestic sector. A Two-tier Industry It is possible therefore to speak of two sub-groupings within the industry within which two contradictory micro-trends have taken place. The first grouping is largely made up of consolidated clusters of increasingly efficient and globallycompetitive extensive-margin producers targeting particular markets where they enjoyed defined comparative advantages such as the US and EU. Much of the export-based growth has occurred within this segment of the T&C industry while in the meantime offsetting losses from foreign competitors. The second grouping is made of residual industries – especially state-owned enterprises – that have undergone steady decline in their production capacities and sales since the 1990s resulting from disruptions to their original outflows and access to traditional markets both foreign and domestic. This argument is supported by the fact that the heaviest losses experienced by the industry since the late 1990s were in raw and non-cotton textiles, areas of production clearly dominated by the public sector such as spinning, weaving, and ginning. It is interesting to note that while SOEs represent only 22 per cent of gross cluster production value and have experienced an overall contraction in favour of private firms, the support they have received – both official and unofficial – has given them an inflated influence over the T&C industry resulting in a crowding-out negative effect on private industries.46 It is therefore not surprising that the T&C cluster’s output has declined by 2.9 per cent annually during the past decade, in spite of the fact that certain leading private sector firms have performed relatively well when supplying foreign markets.47 China’s Investment in Egypt Another significant factor to consider is the attempt on the part of both the Chinese and Egyptian governments to address the serious trade imbalance that exists between them by encouraging Chinese FDI and outsourcing into the Egyptian economy.48 Such attempts were long in the making with talks held about replicating China’s Special Economic Zones (SEZ) experiences as early as 1994. These negotiations bore fruit in 1998 with a Memorandum of Understanding entrusting the Tianjin 46 El-Haddad, ‘Effects of the global crisis on the Egyptian textiles and clothing sector’. 47 Ibid. 48 ‘Chinese Investments and Employment Creation in Algeria and Egypt’, African Development Bank (Abidjan: AFDB, 2012).

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Economic-Technological Development Area (TEDA) Investment Holdings, in a consortium with the China–Africa Development Fund and Egyptian interests to develop Section 3 of the North-West Suez Canal Economic Area. Existing structural impediments, miscommunications, and business-related challenges derailed further developments leading to the launch of a (Chinese-backed) private initiative in 2000 aimed at attracting Chinese Small and Medium Enterprises (SME) to the ‘Egypt Suez Cooperation Zone’, a ‘Special Economic Zone’ set up by the Egyptian government with the explicit aim of generating jobs within what was hoped to be a favourable business environment. The initiative did not achieve any great success, although TEDA did establish an SME park in 2003.49 Conditions began to quickly change however following the Chinese government’s announcement of a new zouchuqu or ‘getting out’ policy in 2006 under the auspice of the 11th Five Year Plan which forwarded the goal of establishing over 50 overseas economic cooperation zones.50 Two rounds of bids were launched for interested Chinese parties hoping to receive incentives and support from both the Ministry of Commerce and the EXIM Bank. In 2007, TEDA managed to win a bid for overseas zones during the second tender. With new funding, TEDA acquired additional lands for Sector 3 and began to implement a cluster-based industrial policy that sought to concentrate on four key competitive areas of manufactory: T&C, petroleum equipment, automobile assembly, and electrical equipment. As it stands, the venture has around 30 or so Chinese enterprises involved in a variety of activities, including apparel production. This number nonetheless represents only a slice of the total number of Chinese companies found around the country’s many economic cooperation zones and which have already exceeded 1133 (as of 2012).51 Interestingly, the formal expansion of the Egypt Suez Cooperation Zone may signal a new shift or change in Chinese investment patterns, with nearly 90 per cent of all newly reported Chinese FDI primarily pouring into the zone, due in part to existing incentives and in part to political channelling.52 Of course these developments still remain small in the context of the T&C industry present situation. Annual Chinese investments barely exceed $60 to $90 million, and while these increasing amounts are mainly funnelled towards manufacturing projects, they are widely dispersed and not all concentrated in the T&C sector.53 Even in terms of generating employment – and despite a government requirement for foreign firms to maintain a 90:10 ratio in favor of Egyptian 49 Deborah Brautigam, and Tang Xiaoyang, ‘Africa’s Shenzen: China’s Special Economic Zones in Africa’, Journal of Modern African Studies 49:1 (2011). 50 Ibid. 51 ‘Minister of Investment: 1122 Chinese companies operating in Egypt, mostly small’, Masrawy Online. August 30, 2012, accessed March 5, 2014. http://www.masrawy. com/news/Egypt/Economy/2012/August/30/5310326.aspx. 52 Brautigam, ‘Africa’s Shenzen’. 53 AFDB, ‘Chinese Investments and Employment Creation in Algeria and Egypt’.

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nationals in their workforce makeup and government promises to provide 40,000 jobs through such enterprises – Chinese companies in the Egypt Suez Cooperation Zone have only created about 1800 jobs, according to the first phase of the plan.54 Nonetheless, the increasing significance of Chinese FDI to the T&C sector is not linked to its current size or immediate impact. Rather, it indicates a general shift in how China is evolving economically and what this implies in terms of potential future growth for the Egyptian T&C industry. The change is especially relevant given rising production costs in China and the relocation of factories to other low-cost countries. For the most, Chinese factories are following global buyers, rather than setting up factories independently and only later looking for buyers. Nevertheless, the possibility that TEDA’s project will create a cluster of Chinese factories will assist those Chinese companies looking to invest in Egypt at the prompting of global buyers. Conclusion The economic rise of China has clearly contributed to job losses in Egypt’s T&C industry. The timing of the shock was also unfortunate coinciding as it did with a peak in the country’s youth population, and ultimately the 2011 revolution and subsequent political unrest. However, China’s rising production costs and the current shift in production to ASEAN and other low-cost production destinations underscores that there are opportunities for Egypt’s T&C sector to seek a new competitive edge, especially exploiting both its FTA and QIZ agreements with Europe and the US (much as Cambodia exploits its duty-free access to Europe in order to capture T&C production capacity from China) in addition to benefiting from the country’s proximity to Europe and its ability to supply more rapidly and with shorter-delivery times, a major attraction for European retailers focused on working capital constraints.55 This chapter has focused specifically on the T&C industry. However, similar arguments could be made about the electronics sector given that the low-cost ASEAN producers have similarly enjoyed rapid export growth in their electronics goods relative to China. The caveat, of course, is that the electronics sector is more reliant on a large supply chain, and so ASEAN and other low-cost producers are likely to remain limited to assembly and other low-value-added activities. Nevertheless, in so far as this implies job creation, it should be welcome. The possibilities for Egypt in this scenario largely relate to the country’s duty-free access to Europe in the event of trade tensions between China and Europe over the

54 Brautigam, ‘Africa’s Shenzen’. 55 Interview by authors with Hong Kong-based sourcing executives working for two large-sized European retailers. Interviews conducted in Hong Kong throughout 2012 and 2013.

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coming decade. Proximity to the market is less important if Egypt is still obliged to rely on importing large numbers of component parts from Asia. Indeed, a critical conclusion from this report is that Europe and the US could use trade policies to encourage job creation, and ultimately economic, growth in Egypt. Offering zero duty access, or other preferential policies, to a wide range of products would be a relatively effective and cheap option for generating job growth in Egypt. There will of course be losses in terms of reduced customs revenue, but these are negligible given the relative share of Egypt’s T&C goods as a share of Europe and the US’s total T&C imports). However, this would facilitate a greater degree of coordination between trade and foreign policy, as well as recognition among a wide array of officials and agencies of how China’s rising production costs are impacting global trade flows. Joining the dots between these subjects is not easy when they act across areas of expertise and departmental responsibilities. Moreover, and critically, Egypt’s government itself must aid the process by pushing ahead with economic reforms that revitalize the private sector and downplay the historical role of the public sector. We recognize though that such reforms are difficult to introduce at a time of political tensions and economic hardships. More likely then, the current trend will continue, with leading private sector Egyptian firms benefiting from the changes in the global T&C industry, even as the overall industry struggles and the balance of trade worsens. This would be a disappointing outcome, but at the very least, it holds out hope for change and an instructive lesson that the events over the past five years resulting from China’s economic rise will not necessarily be repeated over the coming five years as the country struggles with rising production costs and global T&C production once again responds.

Chapter 2

From the Middle East to the Far West: What Can Chinese Overseas Investments Tell Us About Law and Development and Global Regulatory Regimes? Weitseng Chen

When the newly-elected Pakistani Prime Minister Nawaz Sharif planned his first foreign visit in July 2013, he chose to travel to Beijing, where he met with leaders of major state-owned enterprises (SOEs), Chinese development banks and the mighty sovereign wealth fund China Investment Corporation (CIC). His guest list indicated the rising role of Chinese firms in the Middle East. Many countries in the Middle East, as well as Pakistan, are aiming to create new economic and political alliances with China. Chinese firms have received a warm welcome in this region saddled with poverty and conflicts with external powers. Some states also hope China will bring them out of American hegemony, an expectation similar to their perception of the role of the United States in the mid twentieth century vis-à-vis British colonialism.1 Developing economies in the Middle East, Africa, and Latin America are by no means the only targets in China’s portfolio; immense Chinese funds have been moving rapidly from the Far East to the Far West, to developed economies such as the United States and Canada. This trend is the opposite of what we have witnessed during the past century. Recent investments have created a great number of controversies in advanced economies, especially in the past three years.2 These controversies include concerns about corporate fraud, consequences for national security, the involvement of the Chinese government in overseas business transactions, and disputes between Chinese and foreign regulators.

1 Jon B. Alterman, “China’s Soft Power in the Middle East,” China’s Soft Power and Its Implications for the United States (2009): 75, accessed February 17, 2014. http://csis. org/files/media/csis/pubs/090305_mcgiffert_chinesesoftpower_web.pdf. 2 The amount has reached to US$6.5 billion in the U.S. alone in 2012, a 17 percent increase from the previous record of $5.5 billion in 2010. Thilo Hanemann, “Chinese FDI in the United States: Q4 2012 Update,” Rhodium Group, January 16, 2013, accessed February 17, 2014. http://rhg.com/notes/chinese-fdi-in-the-united-states-q4-2012-update.

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How are we to understand the contrasting images and impacts of outbound Chinese investment in the developing and developed worlds? How and to what extent is this Chinese investment model different from conventional thinking on law and economic development? What are the implications of the controversies surrounding Chinese firms worldwide for the global regulatory regime? I will discuss these questions in the context of international capital markets, a major source of Chinese funds that link their global investments in both the developing and developed worlds. This chapter is divided into five sections. In the next section (section II), I examine recent developments of Chinese firms in the Middle East by analyzing several cases in different countries. In section III, I switch focus to the increasing Chinese investment in developed economies, as well as recent controversies. To understand the underlying dynamic, I analyze the approach used by Chinese firms to dip into the international capital markets, raising immense funds for global expansion. In section IV, I explore the nature of the controversies caused by Chinese overseas investments in both the Middle East and advanced economies and what such controversies can tell us about law and economic development. In the last section I discuss a recent trend of increasing global collaboration and whether or not this predicts a regulatory convergence in the near future. II. Recent Developments in Chinese Investments in the Middle East As more than 50 percent of China’s oil imports come from the Middle East, the primary motivation of Chinese firms investing in this region is to secure sources of natural resources and energy imports. In order to operate in the Middle East, the most unstable region in the world, Chinese firms need to execute their investment projects wisely, smoothly, and collaboratively. In this sense, their operations in the Middle East demonstrate a Chinese overseas investment model based on a state-private alliance between the Chinese government and state-owned banks and companies. Below are a handful of Chinese firms’ investment projects in Pakistan, Afghanistan, and Iraq over the past five years. These cases provide us with interesting insights into China’s investment model and the dynamics of global regulatory regime changes. Afghanistan: Oil, Gas and Copper Mining In December 2011, the Chinese National Petroleum Corporation (“CNPC”), China’s largest oil and gas group, invested approximately US$700 million to develop the Amu Darya Basin in the Sar-e-Pul Province of Afghanistan in cooperation with its local partner Watan Group. This project would boost China’s energy security, as the basin was estimated to hold around 87 million barrels of oil. The Afghan state signed an oil exploration contract with CNPC for a period

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of 25 years wherein CNPC was to pay 15 percent in royalties on output and build a 44,000 bpd refinery by the end of 2015.3 The Afghan government appeared satisfied with this deal, because the state was to earn royalties of 15 percent from the oil output and a 20 percent corporate tax rate. It was also entitled to 50–70 percent of CNPC’s profits from this project and would benefit from the construction of a new refinery.4 In addition, three other Chinese firms—China Metallurgical Group Corp, Jiangxi Copper Corporation, and Zijin Mining Group Company—also won a joint bid worth $3.5 billion to develop the world’s second-largest copper field located in Aynak, in the Logar province of central-east Afghanistan. It has been estimated that the copper field may contain up to $88 billion worth of ore. While this project has boosted employment opportunities for the Afghans, it has also improved Chinese mining companies’ investment portfolios overseas in line with the “going abroad” policy set by the Chinese government. Afghan President Karzai described this deal as “one of the most important economic projects in Afghan history.”5 Pakistan: Port Facilities Similar mega-investments by Chinese firms have been carried out in Pakistan. On February 18, 2013, the Pakistani government transferred operational control of its deep-sea port at Gwadar in the Balochistan province to China Overseas Port Holding Ltd, which is believed to be an overseas subsidiary of an unknown SOE.6 The Gwadar port is situated on the Arabian Sea near the Strait of Hormuz, a key oil-shipping route, and it is reported that China paid about 75 percent of the initial $250 million used to build the port.7 From China’s point of view, the port serves as 3 “China gets approval for Afghanistan oil exploration bid,” BBC News, December 27, 2011, accessed February 17, 2014. http://www.bbc.co.uk/news/business-16336453. Hamid Shalizi, “China’s CNPC begins oil production in Afghanistan,” Reuters, October 21, 2012, accessed February 17, 2014. http://uk.reuters.com/article/2012/10/21/uk-afghanistan-oilidUKBRE89K07Y20121021; Graham Lees, “Chinese upstream efforts in Afghanistan ready to bear fruit,” NewsBase, March 28, 2013, accessed February 17, 2014. http://www. newsbase.com/newsbasearchive/cotw.jsp?pub=chinaoil&issue=437. 4 Raffaello Pantucci, “China in Afghanistan, a Tale of Two Mines,” Financial Times, December 4, 2012, accessed February 17, 2014. http://blogs.ft.com/beyondbrics/2012/12/04/guest-post-china-in-afghanistan-a-tale-of-two-mines/#axzz2E3UnMo00. 5 Ibid. Also, Monika Chansoria, “China is expanding its footprint in Afghanistan,” The Sunday Guardian, accessed April 29, 2013. http://www.sunday-guardian.com/analysis/ china-is-expanding-its-footprint-in-afghanistan. 6 Sampath Perera, “Pakistan transfers strategic Gwadar port to China,” World Socialist Web Site, February 26, 2013, accessed February 17, 2014. http://www.wsws.org/ en/articles/2013/02/26/gwad-f26.html. 7 Declan Walsh, “Chinese Company Will Run Strategic Pakistani Port,” The New York Times, January 31, 2013, accessed February 17, 2014. http://www.nytimes.com/2013/02/01/ world/asia/chinese-firm-will-run-strategic-pakistani-port-at-gwadar.html?_r=0.

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a convenient shipping route to western China and will enable faster oil imports to mainland China from the Persian Gulf. The deal also ensures that the friendly ties between China and Pakistan are further strengthened. After a bidding process, the Pakistani Government approved a concession agreement in 2007 between the Port of Singapore Authority Private Limited (“PSA”) and the Gwadar Port Authority.8 According to the agreement, the Government of Pakistan would get 9 percent of the revenue from cargo and maritime services and 15 percent of the revenue earned from the free-trade zone. Additionally, the PSA promised to invest US$550 million in the subsequent five to 10 years in creating the operational facilities. However, Singapore’s PSA did not appear to run Gwadar successfully, so Pakistan asked China to take over.9 Soon after the consent was granted in August 2012, national security concerns were raised by international media with regards to Chinese activities in Pakistan. Analysts suggested that China was in the process of establishing a “string of pearls,” a line of China-friendly ports stretching from mainland China to the Persian Gulf, that would expand Chinese naval strength in the region. Neighboring India also appeared deeply concerned and viewed the deal with suspicion.10 In response, a spokesman from Pakistan’s Ministry of Foreign Affairs emphasized the commercial nature of this deal and remarked that administration by the Chinese company would primarily serve to encourage the development of the area.11 Iraq: International Joint Ventures in Oil Industry The oil giant CNPC has been aggressively expanding its operations in Iraq too. In 2009, CNPC joined forces with British Petroleum (BP), the multinational oil and gas company, in winning the operating rights to Rumaila, the largest oilfield in Iraq and the sixth-largest oilfield in the world with oil reserves of about 17 billion barrels. In 2010, the joint consortium of CNPC, BP, and Iraq’s South Oil Company took over the management and commenced operation in the oilfield. Over the course of the year, a total of 41 wells were drilled, 103 walkovers were completed and 122km of flow lines were laid. The joint project has seen rapid increases in oil 8 Syed Fazl-e-Haider, “The limping Gwadar port,” Dawn.com, August 10, 2009, accessed February 17, 2014. http://www.dawn.com/news/483219/the-limping-gwadarport-2. Imaduddin, “Transfer of Gwadar Port to Chinese co: Alteration in concession agreement, SROs allowed,” Business Reorder, February 2, 2013, accessed February 17, 2014. http://www.brecorder.com/top-news/108-pakistan-top-news/104212-transfer-of-gwadarport-to-chinese-co-alteration-in-concession-agreement-sros-allowed-.html. 9 Walsh, “Chinese Company Will Run Strategic Pakistani Port.” 10 Ghulam Ali, “China’s strategic interests in Pakistan’s port at Gwadar,” East Asia Forum, March 24, 2013, accessed February 17, 2014. http://www.eastasiaforum. org/2013/03/24/chinas-strategic-interests-in-pakistans-port-at-gwadar/. 11 “Gwadar Port is an economic, commercial venture between Pakistan China,” Pakistan China Institute, February 22, 2013, accessed April 7, 2014. http://www.nihaosalam.com/news-detail.php?id=MzUyMw.

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output after the initially targeted 10 percent increase in daily production was met in late 2010.12 Furthermore, CNPC joined forces with Total Oil, the French multinational oil and gas company, and Petronas, a Malaysian oil company wholly owned by the Government of Malaysia, in winning the service contract for the Halfaya oilfield, which required the joint consortium to increase daily output to 535,000 barrels per day with CNPC as the operator. CNPC and its subsidiary PetroChina set their goal to invest $1 billion in Halfaya by the end of 2012. The oilfield has been able to produce 100,000 barrels a day with 2,000 Iraqis employed at the site and it will reach 535,000 barrels per day in 2016.13 The Iraqi Ministry of Oil has recognized this project as one with the “fastest progress and best construction quality.”14 CNPC has also begun joint projects in the Al-Ahdab field located southeast of Iraq’s capital city of Baghdad. China Petroleum and Chemical Corporation (“Sinopec”), another Chinese oil and gas giant ranked as the fifth biggest company in the world by revenue, has also gained access to reserves in Iraq after its 2009 acquisition of Addax Petroleum, a UK-listed company that focuses on oil and gas exploration and production in the Middle East, Africa and the North Sea.15 Analysts viewed this £4.4 billion deal as another round of China’s great efforts to secure resources in these regions. Observations It is worth mentioning a few interesting aspects of these transactions. First, the Chinese firms involved in the above investments are all SOEs. They are in fact not normal SOEs but those from the “national champion team.” These are large, powerful SOEs in critical industries such as steel, telecommunications and transportation, and they are climbing rapidly onto the world’s league tables. The role of a “national champion” extends beyond mere profit-making; they are part of a bigger strategy to collectively advance the interests of the nation.16 12 “CNPC in Iraq,” CNPC, accessed February 17, 2014. http://www.cnpc.com.cn/en/ cnpcworldwide/iraq/?COLLCC=1185322956&. 13 “CNPC says Iraq’s Halfaya oilfield in operation,” Reuters, June 18, 2012, accessed February 17, 2014. http://www.reuters.com/article/2012/06/18/cnpc-iraq-halfayaidAFL3E8HI0QT20120618. 14 John Lee, “Oil Production at Starts at Halfaya,” Iraq-Business News, July 19, 2012, accessed February 17, 2014. http://www.iraq-businessnews.com/2012/07/19/oilproduction-at-starts-at-halfaya/. 15 Chris Tryhorn, “Chinese oil firm Sinopec buys Addax for £4.4bn,” The Guardian, June 24, 2009, accessed February 17, 2014. http://www.guardian.co.uk/business/2009/ jun/24/oil-company-sinopec-addax-merger. 16 It is estimated there are around 400 companies in this national champion team. Li-Wen Lin and Curtis J., “We Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China,” Stanford Law Review 65, 697 (2013): 699. Peter Nolan, Is China Buying the World? (Cambridge: Polity Press, 2012), 59–60.

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Second, all of the SOEs are seasoned players in international capital markets and have listed their shares in both domestic and international capital markets. From time to time they issue corporate bonds, high-yield bonds or other forms of securities to obtain further capital from international investors. China National Offshore Oil Corporation (CNOOC), for instance, has been known to issue international bonds to tap into offshore capital given tighter liquidity back home in China.17 Third, while the Chinese government is primarily aiming to secure its energy supply, national champion SOEs aim to generate business overall (e.g., manufacturing, building infrastructure, imports and exports of consumer goods and machinery) and therefore have a much more market-oriented mindset than their counterparts in the government.18 Chinese SOEs have demonstrated a savvy investment strategy for dealing with political risks and instability in this region, forming international alliances with other global oil giants in order to share commercial and political risks. The international partners need their rich Chinese counterparts to absorb commercial risks, and they depend on the Chinese government to mitigate potential political risks if necessary. In the next section, I will discuss how such a mindset has contributed to the changing regulatory regime in China and has made Chinese firms adapt to market practices and international norms. Beyond the Middle East: Chinese Investments in Developed Countries Chinese overseas investments do not seem to receive a similar welcoming response in developed countries. In fact, recent discussions about Chinese investments center on various controversies regarding Chinese firms in these advanced economies. In this section, I discuss several recent controversies and analyze their nature. Recent Developments In 2012, China became the third-largest global investor after the United States and Japan.19 The top four destinations for Chinese investment are the European Union,

17 “CNOOC Plans Bond Offering,” The Wall Street Journal, January 13, 2011, accessed February 17, 2014. http://online.wsj.com/news/articles/SB100014240527487035 83404576079460351653234. 18 This mentality is also manifested by China’s investments in Africa. See Deborah Brautigam, The Dragon’s Gift: The Real Story of China in Africa (Oxford: Oxford University Press, 2009), 279. 19 “Word Investment Report 2013,” United Nations Conference on Trade and Development (2013), 4–5.

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ASEAN countries, the United States and Russia.20 Huge amounts of Chinese foreign direct investments (FDI) have been flowing not only into developing countries but also developed economies. In the United States alone, 2012 has witnessed a 17 percent increase in Chinese investment to the amount of US$6.5 billion, up from the previous annual record of $5.5 billion.21 In Australia, it has been suggested that the magnetite iron ore sector was unlikely to have grown rapidly without Chinese capital and expertise.22 In Canada, CNOOC completed China’s largest-ever foreign takeover ($15.1 billion) in 2013 by acquiring Nexen Inc., a Canadian oil and gas giant with a strong presence in West Africa, the Gulf of Mexico and the UK North Sea. In a sharp contrast to the attitude of developing states, many developed countries are concerned about the investments carried out by the Chinese stateprivate alliances, as the majority of such outbound investments involved SOEs. Data shows that SOEs accounted for 72 percent of Chinese FDI involving mergers and acquisitions in 2011, and 98 percent in the first quarter of 2012.23 In particular, in 2007, the Chinese government established the CIC in an effort to pursue more profitable investments with its foreign exchange reserves, apart from its US dollar holdings. This first Chinese sovereign wealth fund (SWF) currently holds estimated assets of $500 billion. This move has further fueled criticism of the lack of transparency in Chinese investments and the link with the government.24 Many controversies relating to Chinese mergers and acquisitions have followed the pattern of CNOOC’s failed bid to acquire the Union Oil Company of California (UNOCAL) in 2005. This transaction was blocked at the last stage by the Committee on Foreign Investment in the United States (CFIUS) under the US Treasury Department, an interagency committee that serves the US President in overseeing the national security implications of foreign investment in the economy.25 In September 2012, President Obama also used the authority granted to him under the Foreign Investment and National Security Act (FINSA) of 2007 to block Chinese acquisition of a US energy firm. In response, the 20 “News Release,” Chinese Ministry of Commerce, September 4, 2012, accessed February 17, 2014. http://english.mofcom.gov.cn/aarticle/newsrelease/ significantnews/201209/20120908320386.html. 21 Hanemann, “Chinese FDI in the United States.” 22 Peter Drysdale, “A New Look at Chinese FDI in Australia,” China & World Economy, 19, 4 (2011): 54–73, 61–2. 23 “2011 Full Year,” A Capital Dragon Index, accessed February 17, 2014. http:// www.acapital.hk/dragonindex/datasheets; “2012 Q1,” A Capitol Dragon Index, ibid. 24 Kyle Hatton and Katharina Pistor, “Maximizing Autonomy in the Shadow of Great Powers: The Political Economy of Sovereign Wealth Funds,” 50 Columbia Journal of Transnational Law 1 (2011–2012). Katharina Pistor, “Sovereign Wealth Funds, Banks and Governments in the Global Crisis: Towards a New Governance of Global Finance?” European Business Organization Law Review (2009): 333–52. 25 James K. Jackson, “The Committee on Foreign Investment in the United States,” Congressional Research Service Report for Congress, June 12, 2013, accessed February 17, 2014. http://www.fas.org/sgp/crs/natsec/RL33388.pdf.

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Chinese company filed suit against President Obama.26 In short, the past two years have seen an increasing number of controversies that have raised a number of concerns about national security, energy security, technology security, and economic impact.27 A recent case involved Huawei, the biggest IT manufacturer in China. Huawei has been blocked by regulators in the US, Australia and elsewhere due to its potential link with the People’s Liberation Army. The concerns were raised most prominently in the US by a 2012 congressional report, which recommended that Huawei be banned from doing business in the United States.28 Consequently, in early 2013 Huawei announced its decision to give up the American market, which surprised many market observers.29 Around the same time, former PRC vice premier Wang Qishan chastised US cabinet members for performing “political background checks,” adding that Americans were not asked about politics when investing abroad, in China and elsewhere. Furthermore, legal compliance issues and regulatory clashes have also emerged due to acts of fraud committed by Chinese firms. In the wake of increasing accounting fraud committed by Chinese firms listed in global stock exchanges worldwide, the United States Securities Exchange Commission (“US SEC”) brought an administrative proceeding in December 2012 against five big international accounting firms that have a strong presence in China.30 The US SEC alleged that they failed to submit documents sought in the US SEC’s investigations and thus violated the Securities Exchange Act and the Sarbanes-Oxley Act.31 However, the five firms refused to comply with the US SEC’s order for fear of violating PRC secrecy laws, which could land their auditors in jail.

26 “Statement from the Treasury Department on the President’s Decision Regarding Ralls Corporation,” CFIUS (Press Release), September 28, 2012, accessed February 18, 2014. http://www.treasury.gov/press-center/press-releases/Pages/tg1724.aspx. 27 Jackson, “CFIUS,” 9–11. 28 In October 2012, the US House Permanent Select Committee on Intelligence published a report, suggesting that CFIUS must block acquisition, takeovers, or mergers involving Huawei. Ibid. 29 It has been reported that Huawei switches their focus and moves to London where they have hired senior bankers to run their global finance operation in the latest sign that this company is embracing western practices. Daniel Thomas, “Huawei to set up UK finance operation,” Financial Times, August 5, 2013. 30 They are Deloitte Touche Tohmatsu Certified Public Accountants Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen, PricewaterhouseCoopers Zhong Tian CPAs Ltd., and BDO China Dahua CPA Co., Ltd. 31 “Release No. 34-68335,” Securities and Exchange Commission, December 3, 2012, accessed February 17, 2014. http://www.sec.gov/litigation/admin/adminarchive/ adminarc2012.shtml.

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The Role of International Capital Markets in Chinese Firms’ Global Investments A crucial set of institutions that have linked Chinese firms’ operations in both developing and developed economies and the controversies that ensued is that of international capital markets. “National champion” SOE’s mighty financial power can be attributed to their impressive ability to dip into global capital through conducting initial public offerings (IPO) and/or issuing stand-alone securities such as high-yield or convertible bonds. For example, the oil giant CNOOC is one of the savviest players in international capital markets, with estimated aggregate proceeds of about US$4 billion from the sale of bonds in 2013 alone.32 In turn, the government also extracts immense revenues from SOEs and reallocates them in a strategic manner,33 carrying out its “going abroad” strategy by providing further financial support for SOEs.34 The lineup of these seasoned market players includes not only oil companies but also state-owned banks, telecommunications companies and even the Chinese Communist Party’s own

32 Kristine Aquino and Charles Mead, “Cnooc Raises $4 Billion in Biggest Asian Dollar Bond Since 2003,” Bloomberg, May 3, 2013, accessed February 17, 2014. http:// www.bloomberg.com/news/2013-05-03/cnooc-raises-4-billion-in-biggest-asian-dollarbond-since-2003.html 33 For example, 121 SOEs directly overseen by the State-Owned Assets Supervision and Administration Commission (SASAC) posted a combined profit of 1.13 trillion yuan (US$182 billion) and handed over about 60 billion yuan (US$9,639 million) to the government in 2010. Since 2011 China has begun collecting profits from more SOEs (approximately 1,631 SOEs, up from about 120 previously), with a higher proportion of their profits to be paid to the state. “More State Companies’ Profit For Social Welfare,” People’s Daily Online, February 23, 2011, accessed February 17, 2014. http://english. people.com.cn/90001/90778/7296669.html; “Why China collects earnings from more SOEs?” People’s Daily Online, November 4, 2010, accessed February 17, 2014. http:// english.people.com, People’s Daily Online cn/90001/90778/90862/7188893.html. 34 For a description, Larry Cata Backer, “Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State-Owned Enterprises, and the Chinese Experience,” Transnational Law & Contemporary Problems 19, 3 (2010); Scott B. Macdonald and Jonathan Lemco, Asia’s Rise in the 21st Century (Santa Barbara: Praeger, 2011), 103; “China’s Sovereign Wealth Fund Received $30 Billion New Capital Last Year,” Bloomberg News, March 4, 2012, accessed February 17, 2014. http://www.bloomberg.com/news/201203-04/china-s-sovereign-wealth-fund-received-30-billion-new-capital-last-year.html.

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propaganda departments such as Xinhua News Agency and People’s Daily.35 Unsurprisingly, these SOEs are the major sources of Chinese outbound FDI.36 How have Chinese firms been able to use international capital markets given their institutional weaknesses at home (e.g., substandard corporate governance regime)? There seems to be a puzzle here. The conventional law and economic development model emphasizes the importance of good institutions as preconditions for economic growth. In international capital markets, the pricing of individual securities serves as a mechanism for constantly evaluating the quality of institutions and governance regimes. For instance, a company issuing bonds can get a better price and pay less interest to investors if it demonstrates high-quality corporate governance and has been incorporated in a jurisdiction that offers sound protection for purchasers of bonds. However, China’s corporate regime is far from perfect, and the problems inherent in SOEs’ corporate governance have been well documented.37 Given Chinese firms’ impressive performance in capital markets, this orthodox law and development theory does not seem, at first glance, to be consistent with the experiences of Chinese firms. To address this puzzle, I will proceed to analyze the approach that Chinese firms have employed to offset their institutional weaknesses at home while achieving impressive economic results worldwide. This analysis may shed light on the nature of the controversies caused by Chinese firms worldwide. Observations: Chinese Approach to Access International Capital Markets Thanks to highly globalized capital markets, Chinese firms have adopted what I call an “institutional arbitrage” approach to compensate for flawed institutions at home, thereby borrowing time for reforms and acquiring managerial expertise while 35 “Xinhua TV Unit Plans Global Expansion as Its Shares Make Debut,” Bloomberg News, February 8, 2012, accessed February 17, 2014. http://www.businessweek.com/ news/2012-02-08/xinhua-tv-unit-plans-global-expansion-as-its-shares-make-debut.html; “People’s Daily Site Raises $222 Million in Enlarged IPO,” Bloomberg News, April 20, 2012, accessed February 17, 2014. http://www.bloomberg.com/news/2012-04-18/china-sparty-website-people-cn-seeks-18-ipo-premium.html. 36 Yiping Huang and Bijun Wang,” Chinese Outward Direct Investment: Is There a China Model?” China & World Economy 19, 4 (2011); Ligang Song et al., “State-owned Enterprises’ Outward Investment and the Structural Reform in China,” China & World Economy 19, 4 (2011): 39. 37 Problems of Chinese corporate governance include, for example, state interference in listed companies, concentration of state ownership, lack of independence among board directors, false financial disclosure, immature capital markets, insider trading, and limited private enforcement through litigation. See, e.g., Donald C. Clarke, “Law Without Order in Chinese Corporate Governance Institutions,” Northwestern Journal of International Law and Business 30, 1 (2010); Yong Kang et al., “Chinese Corporate Governance: History and Institutional Framework,” The Rand Corporation, accessed February 17, 2014. http://www. rand.org/pubs/technical_reports/TR618.html.

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accessing foreign capital to achieve development goals.38 Despite China’s flawed capital market institutions and corporate governance regime, Chinese firms have nonetheless managed to sell their securities to overseas investors by applying this approach. The primary mechanism used is called “private placements,” an offering structure that provides a light-touch version of a regulatory environment in which foreign companies can raise capital in an efficient manner. In contrast, the normal procedure is what we usually call “public offering,” one that generally requires an expensive and lengthy registration process with foreign stock exchange regulators such as the US SEC. It is worth mentioning that institutional arbitrage was not invented by Chinese firms, but by European and American companies and regulators. After years of discussion throughout the 1980s, American regulators created a much less stringent securities regulation regime catering to offerings through “private placements”—selling securities only to qualified institutional buyers rather than the general public; full protection by the securities laws is required in the latter case but not in the former. The private placement structure is a response to pressure from American and European companies aiming to facilitate capital flows across the Atlantic Ocean. Under this new regime, the US SEC generally respects and depends on foreign regulations to govern foreign companies that intend to tap into American capital worldwide. For example, a German company no longer has to register with the US SEC before selling corporate bonds to American institutional investors (e.g., banks or pension funds), as long as it has complied with regulations at home and, preferably, listed its securities in reputable foreign exchanges.39 In other words, part of the regulatory responsibility regarding crossborder transactions has been shifted and shared among international regulators. This interdependent regulatory regime works because German regulators provide supervision as stringent as that of their American counterparts. The original purpose of this reform was to benefit European and American firms so that they can incur much lower compliance costs while accessing global capital.40 Now Chinese companies have joined in to benefit from this lax regime. In the early 1990s, no one could have foreseen that Chinese firms would become major capital markets players two decades later. While the original intended beneficiaries of this regime have suffered during the global economic downturn, Chinese firms have shown their resilience and gained prestige in global capital 38 For detailed discussions about this approach, see Weitseng Chen, “Institutional Arbitrage: China’s Economic Power Projection and International Capital Markets,” Columbia Journal of Asian Law, 26, 2 (2013). 39 In general, foreign companies can only sell securities through private placements to overseas Americans or institutional investors. For more detailed discussion, see Securities Act Release No.33-6779, 41 SEC-Docket 126, accessed February 17, 2014. http://www.sec. gov/rules.shtml. 40 See generally, ibid.; Kelley Y. Testy, “The Capital Markets in Transition: A Response to New SEC Rule 144A,” Indiana Law Journal, 66, 233 (1990).

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markets. The primary motivations for creating this lax regulatory regime 20 years ago have disappeared, such as high compliance costs for foreign companies as a result of geographic limitations. Global financial and legal firms now provide flawless services for their clients worldwide.41 In fact, Chinese firms have revealed the problems embedded in this lax regulatory regime. Some concerns raised 20 years ago by opponents of this lax regulatory regime have materialized; in particular, regulatory competition between various jurisdictions has become an issue. Vicious regulatory competition leads to a destructive “race-to-the-bottom” in which international companies migrate to the least demanding regulatory regime, causing the overall quality of global securities regulation to deteriorate.42 This explains why some reputable international stock exchanges (e.g., the Luxembourg Stock Exchange) have created alternative and much less regulated platforms geared towards foreign issuers selling securities through private placements.43 These platforms aim to compete for and attract foreign listings by lowering regulatory standards.44 By conducting arbitrage among multiple sets of regulatory regimes globally, Chinese firms have been able to bypass their institutional weaknesses and have received warm welcomes from global investors. The Nature of Recent Controversies involving Chinese Firms Worldwide Having examined Chinese overseas investments and the legal structure supporting their expansion, I aim to analyze the nature of and the issues underlying recent controversies involving Chinese investments in both the Middle East and developed economies. At first glance, most of these controversies are related either to the role of Chinese government or to Chinese firms’ exploitative behavior towards resources or regulatory systems in host states. Most controversies appeared in legal forms, but political accusations always followed. Given the complex nature of global trade and economic disputes, a more thorough examination of the nature of these controversies is necessary for a better understanding of the relevant legal issues. 41 See, e.g., Carl Walter and Fraser Howie, Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise (New Jersey: Wiley, 2011), 156–64. 42 See, e.g., Merritt B. Fox, “Retaining Mandatory Securities Disclosure: Why Issuer Choice is Not Investor Empowerment,” Virginia Law Review, 85, 1335 (1999). 43 Singapore, London and Japan are other alternative venues for Chinese companies to list their securities. Chen, “Institutional Arbitrage”; Erica Fung, “Regulatory Competition in International Capital Markets: Evidence from China in 2004–2005,” NYU Journal of Law and Business, 3, 243 (2006), 292–6. 44 For example, the Luxembourg Stock Exchange created Euro MTF (Multilateral Trading Facility) in 2005 to provide an easy listing procedure that falls out of the scope of a European “regulated” market under European Directives 2004-39-EC.

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Global trade and investment disputes are often of a political nature. As a whole, Chinese firms’ activities in the Middle East provide an interesting contrast to those controversies involving Chinese investments in the west. One such example is China’s takeover of the Gwadar port in Pakistan, which has aroused international worries on the basis of the port’s strategic location and the involvement of Chinese government.45 Notably, the lease of the same port by Singapore PSA in 2007 attracted media attention of an optimistic tone, with praise for foreign technology, management capabilities and the project’s potential contribution to the regional economy.46 Apparently, what concerns international observers is not foreign ownership but China’s motivation to acquire such ownership. This motivation-centered approach is nevertheless understandable, as many advanced economies have been caught off guard by the speed and scale of the surge in Chinese investments. In just 10 years, Chinese SOEs have transformed themselves from outsiders into savvy players in capital markets, and, in the near future perhaps, game-changers. However, the downside of this motivation-centered approach to judging Chinese investments would be the danger of overreacting. In this sense, commentators have pointed out that criticisms of Chinese foreign acquisitions thus far reflect mere concerns about Chinese firms’ motivation, and hence suggest that a better approach to designing the US’s foreign investment regulations would be to identify the risks and live with them.47 As politics are undeniably part of international trade in a global economy, this minimalist approach reflects a trade-off between foreign capital and foreign control, a difficult balance to strike in a democratic society especially. In light of this view, I will analyze the nature of three types of controversies, aiming to find common ground for such a balance. Controversies about Institutional Deficiencies and Corporate Fraud The recent controversies involving Chinese firms can be categorized into three types. The first type is associated with scandals surrounding Chinese firms in major international stock exchanges where these firms have listed their securities. Since 2009, there has been an outbreak of corporate scandals involving Chinese 45 Farooq Yousaf, “Why All This Fuss over Gwadar,” The Express Tribune, February 22, 2013, accessed February 17, 2014. http://blogs.tribune.com.pk/story/16196/why-allthis-fuss-over-gwadar. 46 “Singapore’s PSA takes over Gwadar,” Daily Times, February 7, 2007, accessed February 17, 2014. http://www.dailytimes.com.pk/default.asp?page=2007%5C02%5C07% 5Cstory_7-2-2007_pg7_5; Azhar Masood, “Singapore Firm to Invest $550m in Gwadar Port,” Arab News, January 22, 2007, accessed February 17, 2014. http://www.arabnews. com/node/293535. 47 Richard A. Epstein and Amanda M. Rose, “The Regulation of Sovereign Wealth Funds: The Virtues of Going Slow,” University of Chicago Law Review, 76, 111 (2009).

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companies that have listed securities overseas. Consequently, in the United States, Nasdaq and NYSE halted trading in the shares of at least 21 Chinese companies in 2010 alone, and delisted five of them from the exchanges.48 On the Singapore Exchange as of the end of 2012, there have been 19 corporate scandals involving Chinese companies since early 2008.49 In Hong Kong, at least six disputes were reported in the first four months of 2012, causing the Hong Kong Financial Reporting Council to impose close monitoring on 13 Chinese firms.50 Likewise, in Canada, a once well-regarded Chinese timber company, Sino-Forest Corporation, was accused of massive accounting fraud in 2011.51 It should come as no surprise that this type of controversy is the consequence of institutional arbitrage, the approach that Chinese firms have adopted to bypass their institutional weaknesses at home to access global capital markets. Like every arbitrage, institutional arbitrage is not risk-free. This approach allows Chinese firms to pursue global listings despite institutional weaknesses but also diffuses institutional deficiencies through globalized capital markets, which flow into lessregulated markets/jurisdictions worldwide. In short, institutional arbitrage does not dissolve but distributes institutional deficiencies among investor communities, and this accounts for the surge in Chinese corporate scandals across major international stock markets. The nature of this type of controversy reflects the shortcomings of the current global regulatory regime, with consequences being significantly amplified by the scale of Chinese firms’ activities in capital markets. Nonetheless, as discussed, Chinese firms did not invent this institutional arbitrage approach; its creation can be attributed to the Europeans’ and Americans’ financial and regulatory innovations. For the foreseeable future, regulatory shortcomings revealed by arbitrage on the part of Chinese firms will likely be addressed through international cooperation. Such cooperation has already begun and has generated friction between foreign and Chinese regulators, leading to the third type of controversy discussed below.

48 Robert Cookson, “China Foreign Listings Dogged by Scandal,” Financial Times, June 5, 2011, accessed February 17, 2014. http://www.ft.com/intl/cms/s/0/9b70a976-8f8a11e0-954d-00144feab49a.html#axzz2FpkoJosz. 49 For a general discussion, see Qian Meijun, “Why S-chip Fraud Cases Keep Cropping Up,” RMI of National University of Singapore (Press Release), February 17, 2012, accessed February 18, 2014 (Press release, Feb. 17, 2012). http://www.rmi.nus.edu. sg/aboutus/_files/rminews/QianMeijun17Feb2012.pdf. 50 Fox Hu, “Investor Distrust of Chinese Listings Hits IPOs Prices,” Bloomberg News, April 19, 2012, accessed February 18, 2014. http://www.bloomberg.com/news/201204-18/investor-distrust-of-chinese-listings-hits-ipos-prices.html. 51 For a description, Madhavi Acharya-Tom Yew, “Sino-Forest Investigation: OSC Accuses Ernst & Young of ‘Failure to Perform Sufficient Audit,’” The Star.Com, December 3, 2012, accessed February 18, 2014. http://www.thestar.com/business/article/1296809--oscaccuses-ernst-young-of-failure-to-perform-sufficient-audit-on-sino-forest.

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Controversies about Chinese Outbound FDI and Overseas Acquisitions The second type of controversy is associated with Chinese firms’ acquisition of foreign assets, and is often manifested in the form of public debates, media reports, litigation, legislative initiatives or the national security review procedures regarding foreign investment in host countries. As seen in a number of cases, this type of dispute seems to involve more of political backlash against Chinese acquisitions rather than commercial considerations. For example, early in 2012, Huawei, the world’s second-largest telecommunications equipment supplier, was barred by the Australian government from investing A$42 billion to build a national broadband network based on the alleged links between Huawei and the Chinese military.52 Similar distrust was manifested when US President Barack Obama issued an order blocking an investment by Ralls, a company owned by two Chinese executives, in wind farms near an airspace in Oregon.53 Believing that the President had violated constitutional protections on property ownership, Ralls filed a lawsuit challenging the CFIUS’s decision in October 2012.54 This type of controversy has mainly taken place in developed countries where domestic politics play a role in these disputes. The recent trend with regards to Chinese investments in Australia provides one such example. Until 2010, Australia had been among the top-reported recipients of Chinese overseas direct investments in recent years.55 Recently, however, public sentiment has expressed disdain for

52 “Huawei’s Woes—Beijing’s Export Ambitions Held Back by Cyber Crime Fears,” Financial Times (Editorial), March 28, 2012, accessed February 18, 2014. http://www. ft.com/intl/cms/s/0/cfb969b4-78e8-11e1-88c5-00144feab49a.html; “Huawei banned from Australian broadband project,” Information Age, accessed February 18, 2014. http://www. information-age.com/technology/mobile-and-networking/2095268/huawei-banned-fromaustralia-broadband-project. 53 Ralls was seeking to acquire the ownership of four wind farm project companies and place wind turbines made by its Chinese affiliate in Oregon near restricted Navy airspace. Sara Forden, “Chinese-Owned Company Sues Obama Over Wind Farm Project,” Bloomberg News, October 2, 2012, accessed February 18, 2014. http://www.bloomberg. com/news/2012-10-02/obama-bars-chinese-owned-company-from-building-wind-farm. html; Richard McGregor, “Beijing Criticises US ‘Political Checks,’” Financial Times, December 20, 2012, accessed April 10, 2014. http://www.ft.com/intl/cms/s/0/be4aa5d84a59-11e2-a7b1-00144feab49a.html#axzz2yRZIpVg9. 54 “Statement from the Treasury Department on the President’s Decision Regarding Ralls Corporation,” CFIUS (Press Release), September 28, 2012, accessed February 18, 2014. http://www.treasury.gov/press-center/press-releases/Pages/tg1724.aspx. 55 Luke Hurst, Peter Yuan Cai and Christopher Findlay, “Chinese Direct Investment in Australia: Public Reaction, Policy Response, Investor Adaptation,” Eaber Working Paper Series Paper 81 (2012), 3

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Chinese investments and pressed the government to respond.56 On March 1 2013,57 a newly-amended foreign investment policy went into effect in Australia, which is alleged to discriminate against Chinese companies. This policy was approved in spite of scholarly criticism that it would disturb the well-functioning foreign investment regime to a great degree.58 The political nature of this type of friction reflects an inherent tension between globalization and domestic politics in democratic countries. The globalized economy depends on a set of fixed rules to which all countries must submit at the expense of economic autonomy and democratic participation: free capital markets, free trade, free enterprises and small government. Countries would not be able to attract foreign capital without subjecting their economy to external influence created by foreign shareholding and investment projects.59 Such a trade-off may upset the general public who feel vulnerable but have little say in policymaking that is usually dominated by technocrats and corporate elites. Even national governments and domestic politicians appear powerless as a result of increasing dependence on international companies, so elected politicians have to address the public frustration

56 Philip Wen, “Mining Fears of Chinese Invasion,” The Sydney Morning Herald, August 25, 2013, accessed February 18, 2014. http://www.smh.com.au/business/miningfears-of-chinese-invasion-20120824-24s0g.html; Ministry of Commerce, “Outbound investment development report 2010,” as reported in Beijing Review, November 25, 2010, accessed April 10, 2014. http://www.bjreview.com.cn/business/txt/2010-11/22/ content_313809.htm. 57 The amendment in particular broadens the definition of what might be construed as foreign government ownership, possibly in response to growing concerns about investments by SWFs into strategic assets and key national industries. The net effect of the amendment is now to recognize expressly the associations between government-controlled entities that emanate from the same foreign country. Alistair Nicholas, “A Challenge for China-Australia Investment,” Weber Shandwick, April 8, 2013, accessed February 18, 2014. http://webershandwick.asia/rule-changes-impact/; Jamie Nettleton, “Australian Foreign Investment Policy Update: Higher Threshold extended to New Zealand Investors ad Clarification of Application to Foreign Government Investors,” Addisons Focus Papers (2013), accessed February 18, 2014. http://www.addisonslawyers.com.au/knowledge/ assetdoc/c43dcaaf04188f8d/Update.pdf; Australian Foreign Investment Review Board, Foreign Investment Policy, March 2013, accessed February 18, 2014. http://www.firb.gov. au/content/_downloads/AFIP_2013.pdf. 58 Peter Drysdale, “China and Australia’s foreign investment regime,” East Asian Forum, June 10, 2012, accessed February 18, 2014. http://www.eastasiaforum. org/2012/04/02/china-and-australias-foreign-investment-regime/; Luke Hurst, ANU and Bijun Wang, “Australia’s dumb luck and Chinese investment,” East Asian Forum, April 1, 2012, accessed February 18, 2014. http://www.eastasiaforum.org/2012/04/01/australiasdumb-luck-and-chinese-investment/. 59 Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy (New York: W.W. Norton, 2011), 189; Tom Friedman, The Lexus and the Olive Tree (New York: Anchor Books, 2000), 104–6.

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by being more populist and defensive.60 Such backlashes against globalization have usually taken place in the developing world (e.g., protests against the G8, G20 or WTO); now, they have spread to and within developed countries too, at an even quicker speed and on a wider scale, through a democratic political system. By contrast, the experiences of Chinese firms in the Middle East show a different picture with much less tension between domestic politics and globalized economy. Given their stage of economic development, developing states and the local community generally welcome Chinese investments that bring in capital and job opportunities.61 Although Chinese investments have revealed various problems in these countries, such as land grabbing, such problems are mainly caused by the weaknesses of the local political system and regulatory regimes (e.g., lack of political accountability and property rights protection). Overall, this second type of controversy does not suggest an unorthodox Chinese approach towards foreign investments and economic development either; rather, it mainly reflects the inherent tension of globalization in developed countries in particular. In contrast to what we have seen in the Middle East, the frustration of the general public caused by economic insecurity and increasing dependence on global capital has been funneled into domestic politics, thus politicizing foreign investment policy in the liberal democracies.62 In fact, Chinese firms are not the only targets of the general public’s anger and frustration in advanced economies; the international conglomerates from their own countries whose interests have become less bound by the domestic markets and who have benefited from a globalized labor market are also maligned.63 Regulatory Clashes and Issues with Sovereign Wealth Funds The third type of controversy is about friction between foreign and Chinese regulators in relation to issues brought about by the first two types of controversies—whose responsibility it is to solve the problem and how to regulate the responsible actors. The US SEC’s proceedings against the big five accounting firms, discussed previously, is a case in point. Another recent example is the dispute between the China Securities Regulatory Commission (“CSRC”) and the Public Company Accounting Oversight Board (“PCAOB”), a US watchdog agency created by the Sarbanes–Oxley Act (2002) to oversee the auditors of public companies.64 In the wake of increasing accusations of accounting irregularities at a 60 Rodrik, The Globalization Paradox, 187–90, 200–205; Nolan, Is China Buying the World?, 46–8. 61 For example, see Brautigam, The Dragon’s Gift, 145–61. 62 Drysdale, “A New Look.” 63 Nolan, Is China Buying the World?, 46–8. 64 Cai Tingyi andWang Zheng, “SEC and CSRC Wrestle Over Cross-Border Financial

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number of Chinese companies, PCAOB continually asked CSRC to grant a direct inspection of Chinese auditing firms involving US-listed companies.65 However, CSRC fiercely declined such requests on the grounds of national sovereignty. Another recent academic and policy debate in the field of foreign investment and competition law has focused on how to regulate SWFs and SOEs.66 In the face of national security fears of sovereign investing and desires for foreign capitals, national governments have been seeking to target sovereign wealth funds and SOEs without cutting off the flow of FDI. Various approaches have been adopted. While countries like the US, Canada, Australia, Germany and France have opted for a legislative approach to regulating sovereign investing specifically, with varying degrees of restrictions,67 the European Union has relied upon existing market competition regulations to regulate state subsidies to businesses.68 Several international organizations have created customary norms to address issues surrounding sovereign investing. The Organisation for Economic Co-operation and Development (OECD), for example, has declared a set of benchmark rules for the behavior of SWFs,69 as well as a set of guidelines for SOEs.70 In a joint Supervision,” Caijing, January 8, 2013, accessed February 18, 2014. http://english.caijing. com.cn/2013-01-08/112419091.html. 65 PCAOB seeks to inspect these China-based audit firms because they are registered with the PCAOB and audit approximately one fourth of the Chinese firms that have obtained listing status in the US through reverse mergers. Michael Cohn, “PCAOB Makes Tentative Progress on Chinese Audit Firm Inspections,” Accounting Today, September 24, 2012, accessed February 18, 2014. http://www.accountingtoday.com/news/pcaob-chinaaudit-firm-inspections-64051-1.html. 66 See Backer, “Sovereign Investing in Times of Crisis”; Hatton and Pistor, “Maximizing Autonomy”; Paul Rose, “Sovereign Wealth Fund Investment in The Shadow of Regulation and Politics,” Georgetown Journal of International Law, 1207 (2009); Rumu Sarkar, “Sovereign Wealth Funds as a Development Tool for ASEAN Nation: From Social Wealth to Social Responsibility,” Georgetown Journal of International Law, 621 (2010); Amy Keller, “Sovereign Wealth Funds: Trustworthy Investors or Vehicles of Strategic Ambition? An Assessment of the Benefits, Risks and Possible Regulation of Sovereign Wealth Funds,” Georgetown Journal of Law and Public Policy, 333 (2009). 67 The variations lie in the broadness of the definition of “national security/interest” in respective regulations. Considerations include, for example, national defence factors (e.g. investing regarding weaponry, munitions, critical infrastructure, or critical industries that are important in the day to day operation of the state, such as finance and energy), economic security factors (e.g. employment of locals, taxation revenue, benefits to the local industry, fair competition, R&D and technology transfer), social policy factors (e.g. ethnocentrism/ nationalism linked to property and land policies) or environmental policies. 68 Backer, “Sovereign Investing in Times of Crisis,” 74–91. 69 “OECD Guidance on Sovereign Wealth Funds,” OECD, accessed February 18, 2014, http://www.oecd.org/investment/investment-policy/oecdguidanceonsovereignwealthfunds.htm. 70 “OECD Guidelines on Corporate Governance of State-Owned Enterprises,” OECD, accessed February 18, 2014. http://www.oecd.org/corporate/ca/corporategovernanceofstateownedenterprises/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm.

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effort between the IMF and the International Working Group of Sovereign Wealth Funds (IWG), the Santiago Principles were also proposed in 2008 to assign “best practices” for SWFs.71 In this policy debate, some politicians and policymakers have called for more restrictions while others have argued against excessive regulations from the perspective that the current regime is equipped with sufficient legal mechanisms to address national security concerns.72 In any case, the issue underlying these arguments is how to strike a balance between foreign investments and national security concerns.73 Interestingly, such regulatory debates were initially triggered by Japanese firms and their outbound FDI nearly three decades ago. One of the controversial deals, Fujitsu’s attempted acquisition of Fairchild Semiconductors in 1986, served as major impetus behind the passage of the Exon-Florio provision in 1988, which established the national security review mechanism to assess the consequences of all foreign investments in the United States.74 This is the same review mechanism that has cast a cloud over Chinese FDI and vetoed several projects to date. As a matter of fact, most of the current skepticism with respect to Chinese firms was also raised with respect to Japanese enterprises throughout the 1980s. By the end of the 1980s, a major source of international outbound FDI came from Japan.75 From the outset, the motivation of Japanese FDI, similar to that of Chinese firms today, was to strengthen domestic industry or production through the acquisition of management skills, brands, technology or a supply of raw materials. Such motivation aroused doubts from host countries, as it did not fit into conventional thoughts about FDI.76 The 71 “Generally Accepted Principles and Practices—Santiago Principles,” International Working Group of Sovereign Wealth Funds, accessed February 18, 2014. http://www.iwgswf.org/pubs/gapplist.htm. 72 Drysdale, “A New Look,” 65; Luke Hurst, Peter Yuan Cai and Christopher Findlay, “Chinese Direct Investment In Australia: Public Reaction, Policy Response, Investor Adaptation,” Eaber Working Paper Series 81 (2012), accessed February 18, 2014. http://www.eaber.org/node/23342 at p.12; Epstein and Rose, “The Regulation of Sovereign Wealth Funds”; Yvonne C.L. Lee, “The Governance of Contemporary Sovereign Wealth Funds,” Hastings Business Law Journal, 197 (2010). 73 For example, according to Chinese authorities, Chinese investors have suspended all investments in magnetite projects in Western Australia as of 2011 in the face of new restrictions imposed by the Australian government in response to the increasing Chinese capital inflow. Drysdale, “A New Look.” 74 Christopher J. Foreman, “Omnibus Trade and Competitiveness Act of 1988: Putting the Brakes on Foreign Investment,” Georgia Journal of International and Comparative Law, 175 (1989); Curtis Milhaupt, Is the U.S. Ready for FDI from China? Lessons from Japan’s Experience in the 1980s, Vol. 1 of Investing in the United States: A Reference Series for Chinese Investors (Vale Columbia Centre: 2008) 3, accessed February 18, 2014. http://www. vcc.columbia.edu/pubs/documents/MilhauptFinalEnglish.pdf. 75 Japan’s FDI in the U.S. alone skyrocketed from less than $1 billion annually at the early stage to more than $18 billion in 1990. Ibid., 2. 76 Huang and Wang, “Chinese Outward Direct Investment,” 19.

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economists were unable to analyze the Japan problem because at root it is not an economic problem, but a matter of differing political systems. The fact that Japan has a strong state makes Japan more similar to Germany than to any English-speaking country.77 As a result, reactions in the US were characterized by trade disputes, exchange rate controversies and cultural misconceptions directed at the Japanese, all stemming from concerns about national security such as the diminishment of the US’ technological capabilities and unfair trade against US firms’ investments in Japan. By the early 1990s, however, Japan’s activities in the US were readily explained by existing FDI theories; Japanese firms such as Toyota have also become one of the major sources of job opportunities in the US.78 In short, the third type of controversy reflects debates about market regulations that touch upon not only commercial but also political considerations. Whether or not Chinese firms are following the trajectory of the rise of Japanese firms remains to be observed; one crucial variable is the political system. Unlike China, Japan is a democratic country, and hence its state-private alliance is subject to more constraints than its Chinese counterpart and its legislative body has the capacity to intervene if the state that has been delegated enormous power goes too far.79 Also, the controversies surrounding Japanese firms dissolved partially because of the recession in Japan and a strong recovery in the US; in the case of Chinese firms today, however, the trend is reversed. Observations Several implications can be drawn from the three types of controversies. First, with the exception of the first type, which reveals regulatory deficiencies exposed by institutional arbitrage, most controversies reflect the political economy of the current globalized economy. As domestic politics in host countries play a crucial role in disputes involving Chinese companies, a nationalistic response from the Chinese government and its people/firms is understandable and the cross-border blame with harsh political rhetoric is to be expected. Second, despite its political nature, the national security review mechanism remains a crucial legal tool for FDI recipient countries to manage globalization and to strike a balance between the openness of the market and the protection of

77 Chalmers Johnson, Japan: Who Governs? The Rise of the Developmental State (New York: W.W. Norton & Company, Inc. 1995), 99. 78 Edmard M. Graham and David M. Marchick, U.S. National Security and Foreign Direct Investment (Institute of International Economics: 2006), 23; Milhaupt, Is the U.S. Ready, 2–3. 79 Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975 (California: Stanford University Press, 1982), 315–17.

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their citizens.80 Disputes surrounding Chinese companies will not decrease any time soon, but this phenomenon is not unprecedented. Rather, it reflects more of a trade-off to be borne in the era of a globalized economy. Lastly, this type of controversy does not suggest an unorthodox Chinese model of economic development either. The Chinese firms’ approach to tapping into international capital and then investing overseas does not seem to be at odds with those approaches used by their American, European and Japanese counterparts. As such, how and to what extent does this similarity imply an institutional convergence, at least in the field of foreign investment and global capital markets? The next section focuses on several signs that may indicate an increasing level of collaboration, and perhaps, legal convergence. Signs of Convergence The past two years have seen developments that may incentivize Chinese firms and regulators to be more responsive to global concerns, which could lead to further regulatory convergence between China and its foreign counterparts. In the wake of the increase in scandals and controversies, both Chinese firms and regulators appear to have recognized that greater international collaboration, rather than legal confrontation, may serve China’s interests better. Signs of such changes have been observed in the changing mentality and behavior of Chinese firms in the Middle East and in advanced economies and of Chinese regulators. Signs of Convergence from Chinese Firms in the Middle East The experiences of Chinese firms in the Middle East have illustrated how deep engagement in global markets may incentivize Chinese firms to adapt to international norms. Take an example such as the policy to control corruption, a matter for which Chinese firms have been often criticized when pursuing business opportunities through networks, guanxi or bribes. However, Chinese firms’ investments in the Middle East have made them realize the importance of worldwide control of corruption through international collaboration based on the notion of “progressive capitalism” embraced by developed countries and international organizations such as the World Bank. Policy initiatives based on this notion often run against China’s diplomatic principle of “non-interference in internal affairs” and/or economic interests which led to its belief in “realistic

80 For a general dicussion, see Michael J. Trebilcock and Mariana Mota Prado, What Makes Poor Countries Poor: Institutional Determinants of Development (Massachusetts: Edward Elgar Publishing, 2011), 243–4.

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capitalism.” However, some recent developments have signaled changing mentality and behavior.81 For example, the Chinese copper mining companies in Afghanistan have started voicing their concerns about local corruption, political risk and legal uncertainty. Even with the support of Afghan authorities, newly proposed legislation concerning mineral exploitation could seriously affect their interests.82 Political risks might also greatly affect their long-term investment in this region after the NATO forces withdraw in 2014. It has been reported that some operatives were removed from the mining site and the firms witnessed a series of rocket attacks.83 The potential return of the Taliban once the American forces leave could seriously hamper Chinese prospects and plans for energy and commodities passage through the Middle East. As a result, Chinese firms have expressed their reluctance to continue with their investment projects in the region, despite pressure from the Chinese government to stay.84 Similarly, in 2012, it was reported that CNPC engineers were harassed on site and the field also suffered disruption from one of the private Afghan armies. Regional warlords demanded informal fee payments for operating in the area. CNPC became less sure of whether the oil produced there would be sold, as the NATO forces were still battling to stabilize the country though military action.85 This has aroused doubt as to whether or not China would be comfortable playing the role of a political stabilizer after the NATO forces leave Afghanistan. Another factor has also made China and its firms come to appreciate the merit of political accountability in host countries. Chinese firms are used to making deals directly with the central government or influential political figures, which are often not held accountable by the substandard political systems in this region. Recently, however, this approach has given rise to backlashes from local communities against Chinese firms. For instance, the projects of Chinese SOEs in Aynak in the Logar province of central-east Afghanistan have made these firms the targets of several hostile local campaigns due to their mining fields being the sites of important Buddhist archaeological remains. Despite international experts repeatedly describing those sites as a hugely important cradle of Bronze Age, Buddhist and Islamic civilizations, the Afghan Ministry of Mines sold the rights to 81 This is one of China’s five principles of peaceful coexistence. This diplomatic guideline has become increasing difficult to honor if foreign disputes and unrest affects Chinese citizens and business investments, and has been being tested from time to time, for example, by issues about North Korea’s nuclear weapon development and South Sudan’s violence that has jepordized the life of Chinese citizens and huge oil investments. Shannon Tiezzi, “China’s South Sudan Dilemma,” The Diplomat, December 25, 2013, accessed February 18, 2014. http://thediplomat.com/2013/12/chinas-south-sudan-dilemma/. 82 Chansoria, “China is expanding its footprint in Afghanistan.” 83 Pantucci, “China in Afghanistan, a Tale of Two Mines.” 84 Chansoria, “China is expanding its footprint in Afghanistan”; Pantucci, “China in Afghanistan, a Tale of Two Mines.” 85 Pantucci, “China in Afghanistan, a Tale of Two Mines.”

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the copper reserves around the archaeological sites to the Chinese firms at belowmarket prices.86 A more recent case also took place in Myanmar, where Chinese oil firms made numerous deals with the previous military government (Junta). In 2012, the Junta was replaced by a new democratic government that may overrule the approvals made by the military government.87 Additional pressure comes from Chinese SOEs and big firms that have become increasingly market-oriented and act like conventional international firms and interested groups.88 They are less influenced by the party-state for a number of reasons, such as increasing commercial pressure to pursue a higher margin rather than implementing national policies, compliance pressure by foreign regulators in jurisdictions where these SOEs’ securities are listed, divergence of interests between original shareholders and external investors, and increasing bargaining power in the face of government technocrats as a result of rising revenue contributions. Such tension between the state bureaucracy and SOEs/government-controlled companies is not uncommon in a state-guided developmental system such as Japan, Taiwan and Korea because it is inherent in the capitalist development state.89 Additionally, when the interests of SOEs are also subject to more scrutiny by host-country investment vetting agencies (e.g., stock exchanges and government regulators),90 SOEs require the Chinese government to be more responsive to market concerns so that they can be more competitive internationally, are exposed to less market and political risks, carry less policy burdens and more profitable 86 Freddie Mcconnell, “Afghanistan’s heritage is at stake,” The Independent, March 17, 2013, accessed February 18, 2014. http://www.independent.co.uk/news/world/asia/ afghanistans-heritage-is-at-stake-8537560.html. 87 Yun Sun, “China adapts to new Myanmar reality,” Asia Times, December 23, 2013, accessed February 17, 2014. http://atimes.com/atimes/Southeast_Asia/SEA-04231213.html. 88 Erica S. Downs, “Business Interest Groups in Chinese Politics: The Case of the Oil Companies,” in China’s Changing Political Landscape: Prospects for Democracy, ed. Cheng Li (Washington, DC: Brookings Institution Press, 2008), 125–6; Luke Hurst, Peter Yuan Cai and Christopher Findlay, “Chinese Direct Investment In Australia: Public Reaction, Policy Response, Investor Adaptation,” Eaber Working Paper Series, 81 (2012): 12, accessed February 18, 2104. http://www.eaber.org/node/23342. 89 Johnson, MITI and the Japanese Miracle, 309–11; Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (New Jersey: Princeton University Press, 2004), 276, 284. 90 Although institutional arbitrage model may help Chinese firms diffuse risk and institutional weakness at home to the globalized capital markets in the short term, it also subjects Chinese firms to various international regulatory regimes in each of these stock exchanges and jurisdictions. For example, the regulatory regimes of international capital markets where Chinese SOEs are now publicly listed, including Hong Kong, the United States, London, Luxembourg, and Singapore stock exchanges and relevant regulators. Consequently, these host countries naturally have an active, legitimate and continuing interest in regulating and pressuring China firms toward a system increasingly governed by international standards and a multinational governance structure.

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projects, and receive fair treatment in foreign markets.91 As a result, Chinese regulators have to deal with pressure not only from the international community but from their own “national champion” firms too. In other words, as its engagement in the Middle East and other emerging economies grows, China will eventually find itself saddled with liabilities similar to those that have historically constrained global powers in these regions, namely the United States and the United Kingdom. In response to these liabilities, the United States, the United Kingdom and other existing powers have advocated progressive capitalism to address their concerns and to protect overseas business interests by exerting soft power, calling for a global reform agenda (e.g., anticorruption, anti-terrorism, political accountability or anti-money laundering), or even resorting to military action.92 In the long run, such shared burdens by global economic powers, China included, may lead to a regulatory convergence; in fact, such changes have already taken place, though slowly. The new policy guidelines announced by State-Owned Assets Supervision and Administration Commission (SASAC) in 2012 have shed some light on these changes. As China’s highest state agency overseeing SOEs, SASAC has demanded that Chinese SOEs invest overseas, adjust their entry strategies, attain regulative and normative institutional legitimacy in host countries and fully comply with the local laws and policies.93 The new guidelines also require SOEs to establish a harmonious social status, to avoid earning a reputation for exploitation and to respect the local customs of the host countries and regions.94 Signs of Convergence from Chinese Firms in Advanced Economies On account of the regulatory friction and clashes that the past three years have seen, some significant changes seem to have taken place in the advanced economies as well. This is in part because developed countries have needed 91 Daniel H. Rosen and Thilo Hanermann, “China’s Changing Outbound Foreign Direct Investment Profile: Driver and Policy Implications,” Peterson Institute for International Economics, Policy Brief No. 09–14 (2009): 11–12; Drysdale, “A New Look”; Xueli Huang and Ian Austin, Chinese Investment in Australia: Unique Insights from the Mining Sector (Basingstoke: Palgrave Macmillan, 2011). 92 Alterman, “China’s Soft Power in the Middle East,” 75. 93 “China: Outbound Investments Made by Central Enterprises Strengthened,” Library of the Congress, accessed February 18, 2014. http://www.loc.gov/lawweb/servlet/ lloc_news?disp3_l205403150_text. 94 Other reform measures have been implemented too to provide a more liberal and commercial policy environment. See Rosen and Hanemann, China’s Changing Outbound Foreign Direct Investment, 11–12. Chinese scholars have also suggested that Chinese oil firms engage more in international community, support governance reforms, improve innovation, production security, and efficiency. See Xu Yanming, A Study on the International Strategy of CNPC (zhong shi you guo ji hua zhan lüe yan jiu), 121 (October, 2012).

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an influx of capital to sustain their economic recoveries from the financial crisis and so it has been hard to resist foreign investments that will bring jobs and revenue to an economy in distress. At the same time, Chinese firms have started adopting a more skilful and commercial approach to their investments in developed countries. For instance, in addition to portfolio investments and direct investments in strategic industries, Chinese companies have started investing in conventional manufacturing industries in the United States in order to pursue skilled labor, better innovation and design, and lower logistics costs by being located near the market. This trend contrasts with Chinese investments in earlier years when firms mainly invested in industry and/or places where they could either secure stable commodity supplies or obtain advanced technologies.95 When the purpose of Chinese outbound investment moves from strategic investments to normal expansion of production overseas, one does not see any substantial difference between Chinese firms’ business strategy and that of any international company. In 2013, for instance, Lenovo, the second-largest PC manufacturer in the world, began production of its computers at a new plant in the US state of North Carolina. New jobs have been created and news media hurrahed this big win for American workers that were making computers that used to be made in China.96 This development has created a changing picture, one which appears similar to the changing attitude towards Japanese companies in the advanced economies during the 1990s.97 The year 2013 has also seen another milestone for China’s outbound investment in the oil industry. As the first Chinese SOE to be blocked by the US’ CFIUS review in its 2005 attempt to buy American oil company Unocal Corp, CNOOC successfully closed its acquisition of Canadian oil company Nexen in early 2013 with unprecedented approval from both the Canadian and American governments. While both governments have shown a pragmatic approach to sustain their oil businesses, which are in great need of capital, CNOOC has been praised for its global deal-making ability and for the commitment made to its Canadian counterpart.98 Shortly after CNOOC’s deal, CNPC also announced its intention to acquire minority shares of a 49 percent stake in the UK operations of Canada’s Talisman Energy Inc. for $1.5 billion. As evidenced by other recent

95 Huang and Wang, “Chinese Outward Direct Investment.” 96 “Lenovo Paves the Way for Made-in-America Computers as North Carolina Facility Ramps Up Full Production,” ABC News, June 5, 2013, accessed February 17, 2014. http://abcnews.go.com/Technology/lenovo-paves-made-america-computers-northcarolina-facility/story?id=19334715. 97 Johnson, Japan: Who Governs?, 302–8. 98 “Cnooc’s Unocal Lessons,” The Wall Street Journal, July 23, 2012, accessed February 18, 2014. http://blogs.wsj.com/deals/2012/07/23/cnoocs-unocal-lessons/. “Cnooc heeds lessons of failed Unocal bid,” Financial Times, July 23, 2012, accessed February 18, 2014. http://www. ft.com/intl/cms/s/0/bd0bc91a-d4e1-11e1-9444-00144feabdc0.html#axzz2pm2RsmEf.

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transactions, this once highly sensitive type of investment by Chinese companies in North America seems to have become common.99 A globalized economy requires universal and integrated rules to reduce compliance and monitoring costs and to provide generally acceptable mechanisms for evaluation, thereby facilitating cross-border transactions. One typical example involves accounting and auditing standards that have been distilled into the Generally Accepted Accounting Principles (“GAAP”). Similar dynamics account for an increasing collaboration between Chinese regulators and their foreign counterparts, as exemplified by the abovementioned dispute between CSRC and PCAOB, the US watchdog supervising accounting practices. Despite its continued refusal to allow PCAOB to diligence the accounting practices of Chinese companies listed in the United States,100 CSRC and the Chinese Ministry of Finance (MOF) eventually signed a memorandum in May 2013 enforcing cooperation with the PCAOB.101 Recently, the Singapore Stock Exchange (“SGX”) and CSRC also reached an unprecedented agreement to strengthen the integration of capital market regulations between the two countries by delegating CSRC to exercise part of SGX’s regulatory power over new Singapore IPO applicants in order to attract more Chinese SOEs and firms to list in SGX.102 Conclusion What can Chinese firms in the Middle East tell us about law and economic development? The short answer is “a lot.” First of all, in terms of global capital markets, there doesn’t seem to be a Chinese model.103 Chinese firms have followed a conventional approach used by international firms to tap into global capital from advanced markets, thereby increasing investment portfolios worldwide, emerging markets included. Despite the fact that energy security was the initial driver of Chinese investments, the Middle Eastern market provides a 99 “China Foothold in U.S. Energy,” The Wall Street Journal, March 6, 2012, accessed February 18, 2014. http://online.wsj.com/news/articles/SB100014240529702048 83304577223083067806776. 100 Cohn, “PCAOB Makes Tentative Progress”; Tingyi and Zheng, “SEC and CSRC.” 101 Helen Roxburgh, “Deloitte asks SEC to throw out China audit case,” Economia, May 29, 2013, accessed February 18, 2014. http://economia.icaew.com/news/may-2013/ deloitte-asks-sec-to-throw-out-china-audit-case. 102 “SGX and China Securities Regulatory Commission Establish Direct Listing Framework,” Wong Partnership LLP, accessed February 18, 2014. http://www. wongpartnership.com/index.php/files/download/1134. 103 For a general debate about China Model, see Joshua Ramo, The Beijing Consensus (New York: The Foreign Policy Centre, 2004), accessed February 18, 2014. http://fpc.org.uk/publications/TheBeijingConsensus; Yasheng Huang, “Debating China’s Economic Growth: The Beijing Consensus or The Washington Consensus,” Academy of Management Perspectives I, 2 (2010): 31.

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rich context in which to observe Chinese firms’ market-oriented behavior and changing mindset, one which has become responsive to market forces as well as international concerns. There does appear to be an Asian model, though, as manifested in the economic growth of Japan, Singapore, Taiwan and South Korea; this model emphasizes state-guided development policies, managed free trade, regulated capital flow and more cooperation than competition. China is now following suit, but it would be an overstatement to claim such characteristics as a Chinese model. Second, the scandals surrounding Chinese firms, controversies caused by Chinese acquisition of foreign assets in advanced economies, and friction between Chinese and foreign regulators are not unorthodox either. At most, one can take the view that they are taking place in an unorthodox context. The 1980s and 1990s saw similar debates as a result of Japan’s rising economic power, the first wave of the rise of Asian economic power on a large scale. In the US, well-known commentators called for containing Japan, threatening that the failure to do so would lead to a collision and would jeopardize American corporate power, free market value and authority to carry out foreign policy.104 In Japan, the US was perceived as a declining power trapped by its own troubles but too proud to admit it,105 and an American-authored book entitled The Coming War with Japan sold around 400,000 copies.106 By the late 1990s, however, most of these issues and concerns had faded away, in part because Japanese firms had further adapted themselves to market practices and in part due to the economic recovery in the US and the beginning of the long-lasting recession in the Japan. Now, China has resumed this unfinished debate. Third, the political economy of advanced economies plays a crucial role in the face of increasing Chinese investments, contrasting sharply, although unsurprisingly, with that of the Middle Eastern countries. The analyses of controversies involving Chinese firms have established the political nature that accounts for two out of the three major types of recent controversies, leaving only one that points to genuine regulatory concerns as a result of institutional arbitrage by Chinese firms. As discussed, such institutional arbitrage is not a Chinese invention, but the scale of China’s global offering has indeed amplified the shortcomings of the current regulatory regime that originally catered to companies from advanced economies with sound corporate regulations. Nevertheless, two new elements regarding China and its firms have been added to these repeated debates, and the consequences remain unknown. For one, unlike Japan, China is not a democratic country in which checks and balances would selfcorrect excessive governmental behaviors and market distortion. Second, unlike Japan and other “Asian Tiger” countries (with the exception of Singapore), the 104 James Fallows, “Containing Japan,” The Atlantic Monthly (1989). 105 Johnson, Japan: Who Governs?, 300–307. 106 George Friedman and Meredith LeBard, The Coming War with Japan (New York: St Martins Press, 1991).

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Chinese economy and overseas investments are directly led by SOEs, which are by nature less market-oriented. The question to be answered in the near future is whether and to what extent these factors will put China’s capitalist system at odds with existing systems; if the two systems are not members of the same species, the illusion that problems may be solved or ameliorated through such measures as macroeconomic coordination, deregulation or market-opening agreements is created.107 That said, we have seen signs of regulatory convergence in global capital markets, and the driving force for this has been the changing mentality of both Chinese and foreign regulators as well as that of Chinese firms in the Middle East and advanced economies. Because capital markets are the single most globalized and interdependent market sector, regulatory convergence in this realm provides perhaps a more optimistic signal than convergence in other sectors would. If we are to be so fortunate, these signs may ensure that fewer bestseller books entitled The Coming War with China or the like are produced.

107 Johnson, Japan: Who Governs?, 308.

Part II Resources, Territory, Hierarchy

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Chapter 3

Japan’s Pursuit of Gulf Energy Resources: Between US Dependence and Asian Competition Yukiko Miyagi

Factors Influencing Japan’s Middle East Policy and Approaches Understanding the factors which shape Japan’s policy and approaches towards the Gulf will enable the identification of drivers and obstacles to its involvement in Gulf security, and the reasons for a certain level of involvement and the modalities of Japan’s approach. The major factors can be divided into the following five categories: 1) Japan’s oil dependence on the Gulf producer states; 2) Japan’s relations with the US which is characterized by its security dependence; 3) Japan’s concerns for Gulf security; 4) Japan’s security concerns in East Asia; and 5) Japanese domestic constraints on involvement in military operations in the Gulf. 1) Japan’s Oil Dependency on the Gulf Japan is an energy scarce state, and it has been in extreme dependence on Gulf oil for its energy supply for a long time. About 90 percent of its imported oil comes from the Middle East, compared with 18 percent for the US and 16.6 percent for the EU.1 In 2012, Japan relied on oil for 44 percent of its energy demand, and 18 percent on natural gas. Hydrocarbon energy sources will remain the largest source of power for at least the next two decades. Having very little domestic energy production,2 Japan’s reliance on energy imports is heavy. Japan’s hydrocarbon energy self-sufficiency rate was a miniscule 0.4 percent in 2010.3 To fill its needs Japan has depended on the Gulf’s relatively inexpensive crude oil, for which it has had sufficient refining capacity and on more cost-effective large tankers for transportation from the Gulf (unlike from Africa).

1 Enerugi Hakusho (Energy White Paper 2011) and Kaseki Energugi no Doko (Trends in Fossil Energy), Agency for Natural Resources and Energy (2011), accessed May 1, 2013. http://www.enecho.meti.go.jp/topics/hakusho/2011energyhtml/2-1-3.html. 2 Covering 18 percent of its total consumption in 2004. Ibid. 3 Ibid.

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This heavy energy interest in the region has resulted in a strong Japanese interest in maintaining close ties with the oil states of the Gulf. It began at the time of the Arab boycott in 1973, with the provision of the Japanese financial and technological assistance for socio-economic development of the Gulf states, labeled “resource diplomacy” in Japan, as a means of developing ties with a greater dimension than mere economic exchanges. It also led to Japan’s first involvement in Middle East international politics, namely supporting the Palestinians in their conflict with Israel since the time of the Arab oil boycott and thereafter changing into support for American Arab-Israeli peace initiatives in the post-Cold War period. In diplomatic contacts with large Gulf states such as Saudi Arabia, Japan has held talks on issues which are of importance to the oil-rich Kingdom. Japan’s involvement in the crises in the Gulf took the forms of financial contributions to and even incremental military participation in USled operations against these states, as seen in the provision of US$13 billion for the war on Iraq in 1990–1991, the cooperation of the Japanese troops with the US occupation authority after the war on Iraq in 2003, and economic sanctions on Iran in response to the nuclear issue. Japan’s oil interest in Iran and Iraq has typically urged it to adopt a cooperative stance towards the two countries by refraining from clear and open support of US policy against them. In regard to Iran, economic relations are maintained and the government’s official development assistance (ODA) is still provided, in spite of US drives to isolate the country. 1. Japan’s security dependence on the US has created a degree of vulnerability vis-à-vis the US. Following its defeat in the Second World War, Japan was rehabilitated under US occupation and became independent in 1952, when it signed a security alliance with the US. However, due to the postwar Japanese Constitution prohibiting the use of military force for settling international disputes, Japan has been compelled to rely on the US for key parts of its defense. This in turn led to various US demands for Japanese contributions in support of US policies including those in the Gulf. As Japan’s economic power rose over time, so did US expectations for Japanese financial contributions to its policies. This was seen during the Cold War period in the form of Japanese official development assistance (ODA) to US client states in the region, as well as its financial contribution through UN agencies. In line with the incremental military expansion of Japan’s capabilities during the Cold War, its international military cooperation in the Gulf was also increasingly expected by the US. During the Gulf war Japan faced strong US demands, and was challenged to stretch the national interpretation of the Constitutional provisions, and pass extraordinary laws in order to enable it to undertake new military responsibilities in the Gulf. 2. Japan’s security concerns in the Gulf during times of conflict in the region have urged its involvement in attempts to prevent the worsening of the

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situation that would inflict damage on Japan’s energy and economic interests in the Middle East region. Japan was among the major oil importers of the Gulf, which suffered damage to its investments in the oil industry and in major construction projects in Iraq and Iran. It was also constrained in its business ties with them by US sanctions, as well as by the threats to oil and other shipping to, from, and through the Arabian Sea. As a result, such stakes have driven Japan to be more involved, usually in the form of engagement with regime leaders to urge them to come to terms with their adversaries or to comply with the Western/US terms to alleviate the most devastating course of events, notably tighter sanctions. 3. Japan’s security concerns in East Asia have included especially threats from the North Korean nuclear development, China’s arms buildup and unclear intentions, territorial conflict with many neighboring states in North East Asia, and a rise in Asian oil consumption. This rise in consumption has led to a competition for hydrocarbon energy sources with Japan, including those in the disputed East China Sea/Japan Sea Exclusive Economic Zone. These challenges in its immediate neighborhood have all stimulated the development of greater Japanese military capabilities and an expanded military role as well as encouraging closer cooperation with US policy in the Middle East. Such strategic challenges for Japan have increased its interest in strengthening its US alignment by extending further military contribution to the US alliance in order to ensure the US commitment to Japan’s defense. This has also stimulated Japanese policymakers’ interest in extending Japan’s military capability and operability at the same time, in order to counter the strategic challenges and to deter possible provocations by neighboring states. Its Asian neighbors’ growing military presence in the Gulf and diplomatic and economic exchanges with states in the region have also stimulated Japan to do likewise, so as not to lag behind in the race to build ties with the Gulf.4 4. Japan’s domestic constraints, namely the Peace Constitution of the country and the anti-militarist national norms that support it, which are widely shared by the public, have placed limits on Japan’s international military cooperation with the US. Stipulating that Japan renounces war as a means of settling international disputes, the Constitution is interpreted 4 In particular, China’s military presence has drawn Japan’s attention. “Interview with Bonji Obara, Chugoku no Gunji Senryaku wo Tettei Kaibo (Complete Anatomy of China’s Military Strategy),” World Wave Tonight, November 29, 2011, accessed January 28, 2014. http://www.nhk.or.jp/worldwave/marugoto/2013/11/1129.html; Prime Minister Abe’s diplomacy has launched active cooperation in a wide geographical area including the Gulf in the framework of the US alliance under the term of “value-based diplomacy,” while emphasizing inclusion of China instead of exclusion. “Interview with the Cabinet Office Councilor Shotaro Yachi: Abe Diplomacy that Overlooks the Globe,” Nippon.com, July 5, 2013, accessed August 14, 2013. http://www.nippon.com/ja/currents/d00089/.

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to prohibit “collective security” operations with its allies. In the face of the public’s support for the Constitution, the Japanese government has had to resort to an incremental loosening of Constitutional restrictions by “reinterpretation” of the wording of the document and by passing a new extraordinary law to enable specific military operations, as to date a full revision of the Constitution has not yet been possible due to the public adherence to it. This has limited Japan’s assistance for US military operations in the Gulf to non-combat operations, and to operations which do not involve the use of the military beyond self-defense or for the defense of Japan’s allies. Furthermore, such operations must be legitimized by a UN resolution enabling Japan’s participation in order to gain domestic support. This limitation has been in place not only in terms of Japanese military participation, but also in terms of financial contributions to military undertakings by allies. 5. Japan’s character as a member of the West has shaped its particular approach, encouraging Japan’s participation in international cooperation led by the West on issues in the Gulf. Japan has an interest in being recognized by the major Western states as one of them, based on its self-perception of being a Western-style democratic state with a marketeconomy and a high level of economic development. Especially since Japan’s ambition to be a permanent member of the UN Security Council has not been realized, it has keenly pursued involvement in other high-level international policy forums such as the General Agreement on Tariffs and Trade (GATT) negotiations since 1955. It was a founding member of the International Atomic Energy Agency (IAEA) established after the 1973 oil boycott, and of the G7 since 1975. Being a member of the current G8 is of particular importance to the Japanese government, as it is a circle which has undertaken policymaking on various international issues, even beyond the purely economic domain. This has promoted Japan’s active engagement in issues of Western concern, participation in forms of Western cooperation, and in policy-coordination with the US and other major Western states. Although Japan has been alarmed by Asian competition for access to Gulf energy sources and been in the Asian “race” for winning the favor of the Gulf hydrocarbon states, as a Western-style developed economy, it also shares an interest with the West in moderating and regulating the behavior of the growing Asian economic powers such as China and India, as well as slowing down and enhancing the transparency of their energy consumption. As a member of the “West” Japan has also been more obliged to heed the Western consensus over sanctions on Gulf states, thereby down-sizing its energy and economic relations (if not withdrawing altogether from these markets) which has created a vacuum that its Asian competitors quickly moved to fill.

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Japan’s Energy Interest in the Gulf As an exceptionally energy-scarce state, Japan’s dependency on Middle East hydrocarbon sources has been very heavy since the country’s main energy source shifted from coal to crude oil during its reconstruction in the 1950s after its defeat in Second World War.5 It is expected that hydrocarbon energy sources will remain the largest energy source for at least the next two decades according to the revised energy policy following the nuclear disaster in March 2011. Japan’s reliance on imported Middle Eastern oil for its total oil import has been consistently high since the 1960s: 90.9 percent in 1968, while its oil dependency for its energy consumption was as high as 77.4 percent in 1973. By 2000, oil dependency had declined down to 51.8 percent, although oil from the Middle East still accounted for approximately 90 percent of its total import.6 The Middle East has been favored by Japan for oil imports due to cost effectiveness, such as its refining cost for which it has sufficient infrastructure, and favorable transportation costs (compared to Africa and Asia), with the region’s accessibility for large tankers. The end of relatively inexpensive imports from Asian oil-producing neighbors such as China and Indonesia in the mid 1980s due to a rise in their own oil consumption has also resulted in Japan’s continuing reliance on the Middle East in the period since then. Reflecting the rise of competition for oil access, especially from the new Asian economies, the Japanese government established an energy policy in 2006. The most important goals set by it were: 1) to increase contracts for developing oil fields and production obtained by Japanese companies in oil-producing states to cover 40 percent of the country’s total imports by the year 2030, by more than doubling it;7 and 2) to reduce oil dependence from approx. 50 percent down to 5 In 2012, Japan relied for 44 percent of its energy demand on oil, 18 percent on natural gas, and 22 percent on coal. Japan’s domestic energy production amounted to 18 percent of its total energy consumption in 2004. Enerugi Hakusho (Energy White Paper 2011) and Kaseki Enerugi no Doko (Trends in Fossil Energy), Agency for Natural Resources and Energy (2011), accessed May 31, 2013. http://www.enecho.meti.go.jp/ topics/hakusho/2011energyhtml/2-1-3.html. 6 In 2005, it was 90.2 percent. On oil dependency: amounted to 18 percent of its total energy consumption in 2004. See Sekiyu Tennen Gasu Kankei (Related to Oil and Natural Gas), Agency for Natural Resources and Energy, accessed May 31, 2013. http://www.enecho.meti.go.jp/faq/oil/q01.htm; It amounted to 18 percent of its total energy consumption in 2004. On Japan’s Middle East oil dependency and international comparison, see Enerugi Hakusho (Energy White Paper 2007) and Ichiji Enerugi no Doko (Trends in Primary Energy), Agency for Natural Resources and Energy (2007), accessed May 1, 2013. http://www.enecho.meti.go.jp/topics/hakusho/2007energyhtml/ html/2-1-3-1.html. 7 It was 18 percent in 2010. Waga Kuni ni Okeru Kongo no Enerugi Seisaku ni Tsuite (On Japan’s Energy Policy for the Future), Agency for Natural Resources and Energy, accessed June 30, 2013. http://ogb.go.jp/move/seminar/kekkahoukoku/2011ontai/ shiryo1-1.pdf.

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40 percent by increasing the share of nuclear power generation from approx. 30 percent to over 40 percent, while also; 3) facilitating energy conservation. Among its strategies for achieving these targets were further efforts to strengthen relations with hydrocarbon producer states in the Middle East at the same time as diversifying its suppliers. As for the second goal, the 2006 policy was reconsidered following the March 2011 natural and nuclear disaster in Japan, confirming the country’s continuing reliance on oil for the coming period. There emerged a new concept which accepts Japan’s significant oil dependence, viewing oil as a desirable component of its energy sources and a necessary buffer against newly recognized emergencies such as massive natural disasters within the country and the disruptions and dangers inherent in other energy supplies.8 Furthermore, the use of natural gas is now seen as having other advantages; it is relatively clean and relatively easy to purchase internationally compared to crude oil, as flexible contracts for purchase are available. This has further encouraged proactive approaches towards hydrocarbon producers. The most recent visit by the Japanese Prime Minister Abe, made in May 2013 to the UAE, and to Saudi Arabia (also Turkey and Russia), which was described as “resource diplomacy (shigen gaiko)” in Japan, reaffirming the policy of strengthening relations with hydrocarbon producers in the Gulf. Japan’s Strategies for Oil Access in the Gulf Japan’s strategies for securing Gulf oil flows into the country have developed since the 1970s in response to changes in the international environment for oil access. This environment can be divided into three phases: 1) post-Arab boycott; 2) post-oil glut; and 3) post-Cold War. Japanese policymakers started to recognize the importance of building ties with the Gulf oil states after the formation of the Organization of the Petroleum Exporting Countries (OPEC) in the 1960s and began diplomatic initiatives towards them, but this only became urgent with the Arab oil boycott in 1973. In the first period, Japan’s approach of relying on major Western companies for the purchase of Gulf oil was replaced by direct trade relations with those states along with a new policy of strengthening relations with them for the purpose of securing oil flows; there was also a new effort to lessen oil dependence by pursuing alternative energy sources and energy efficiency as well as stockpiling oil reserves. The approaches towards Middle East countries adopted during this period focused on the provision of assistance for their economic development in the forms of government grants, loans, and technical cooperation, and the beginning of Japan’s political involvement in the Middle East, namely by extending support for the Palestinians and the Arab parties in the conflict with Israel 8 Yukiko Miyagi et al., “Japan’s Engagement in the Gulf,” in Asia-Gulf Economic Relations in the 21st Century: The Local to Global Transformation, ed. Tim Niblock and Monica Malik (Gerlach Press: London and Berlin, 2013), Chapter 15.

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.

with the goal of encouraging a comprehensive peace. As for the former, Japanese Deputy Prime Minister Miki’s visit to Saudi Arabia, UAE, Kuwait, Qatar and Iraq in December 1973 marked an increase of the Japanese government’s budget for economic assistance for Gulf states. Since that time, Japanese experts have also assisted in human resource development, through, for example, the establishment of vocational training schools especially in technology. Along with this, about 10 days after the breakout of the Arab oil boycott in October 1973, the Japan Center for the Cooperation for the Middle East (JCCME) was established among Japanese businesses with the authorization of Japan’s Economic Ministry, for the purpose of facilitating business relations between Japan and the oil producer states in the Middle East. In parallel with the government’s initiative, the Japanese private sector also launched its own scheme for providing development assistance for the Middle East. For example, the Japan Cooperation Center, Petroleum (JCCP), established in 1981 by the Japanese oil industry for the purpose of strengthening ties with oil producer states by technological and management support in the upstream oil industry, began running programs for local trainees. As for Japan’s intervention in the Middle East conflict, the Japanese government allowed the opening of a PLO diplomatic office in Tokyo and invited PLO Chairman Yasser Arafat to Tokyo in 1981 despite the opposition of the US Congress and Israel. Japan’s call for the Palestinians to be allowed independent representation in peace negotiations with Israel, which countered the US policy of excluding them (until 1993) began in this period and has continued consistently since then. Nevertheless, Japan’s support for the Palestinians has been qualified by a careful balancing of its ties to the US. Indeed, these moves had been preceded by consultations with the US, with care taken not to antagonize Washington, by, for example, inviting the PLO chairman as a guest of the Japanese ruling party, rather than as an official guest of the state, and also refraining from granting full ambassadorial status to the Palestinian diplomatic representative in Tokyo. Nevertheless, the general features of Japan’s approach in this period can be characterized by an emphasis on non-political mechanisms, such as financial contributions to the Palestinians through the United Nations Relief and Works Agency for Palestine Refugees (UNRWA), to Lebanon during the civil war through the United Nations Interim Force in Lebanon (UNIFIL), as well as bilateral Official Development Assistance (ODA) to countries in the region. The second period, which saw an oil glut in 1986 and the rise of the Asian economies, resulted in an increase in Japan’s dependence on Gulf oil compared to the previous period with an increase in imports, partly due to the availability of cheaper oil in the region and partly due to the decline in the volume of Asian oil exports especially from Indonesia and China. Yet, because of the excess of oil production compared to demand, Japan’s vulnerability in regard to the Gulf oil producers actually decreased compared to the previous period of a tight oil market. Indeed, this period was the beginning of more balanced, mutually interdependent relationship between Japan and the Gulf oil producers, and their recognition of shared interests in maintaining more enduring oil trade relationship and stable oil

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production and exports. For Japan, the Gulf’s economic growth was important for the stability of those states and thus for the flow of Gulf oil to the world oil market, and also for the export of Japanese products to the wealthy Gulf oil-producing states, mostly machinery, equipment and automobiles. Nevertheless, greater reliance on Gulf oil for its own economic wellbeing sustained Japan’s generally dependent position vis-à-vis the Gulf states, and indeed, Japan’s long-term interest in maintaining ties with the oil producers was still significant. Japan’s continuing interest in maintaining these ties was manifested in its consistent provision of public and private assistance as well as engagement in dialogues with the Gulf oil-producing states on how Japan could further contribute to their development in various fields, especially with a view to assisting the Gulf states’ agenda of economic diversification.9 In the political and security fields, Japan’s political involvement in the region was upgraded, driven first by Japan’s effort to curtail ever-growing damage to its oil interests in Iran and Iraq, two of Japan’s significant oil suppliers, during the war between the two countries. Japan’s overall political approach during the Iran–Iraq war was to step up both bilateral contacts towards them, and multilateral coordination in areas such as the UN, while maintaining political neutrality between them, in order to avoid harming its relationship with either state, while taking diplomatic initiatives for the purpose of ending hostilities between them. As in the case of the Palestinian issue, Japan’s approach towards Iran under the Islamic regime has been that of balancing between the country and the US with an attempt to preserve ties with both. In this period, Japan refrained from any military involvement in the region due to strong public sentiment against the use of military force. This was manifested by the Japanese government’s declining US requests to send its Maritime Self Defense Force to the Persian Gulf for the protection of oil tankers there during the latter part of the Iran–Iraq war, and for minesweeping at the end of the war. The final and current period, starting with the end of the Cold War, is marked by the various impacts of US global hegemony and, at the same time, the tightening of the world oil market owing to the rise of the Asian economies especially of China and India. Most notably, as China turned from a net oil exporter to a net importer in 1993, global oil prices started to rise constantly after 1999. Indeed, Tokyo realized that the especially privileged position it had enjoyed as a longterm primary hydrocarbon importer and a leading provider of industrial goods for the Gulf states had ended. Perceiving the challenges posed by Asian competitors for oil access in the Gulf, the Japanese government began a new initiative for expanding ties with Gulf oil states with the new millennium, characterized by diversification of the relationship from oil trade and by a new exploration of Japan’s role in Gulf political and security issues. However, the ultimate purpose 9 For the contents of the discussion, see Walid Sharif (ed.), The Arab Gulf States and Japan: Prospects for Co-operation, Routledge Library Editions: Japan, Volume 17 (London: Routledge, 1986).

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for the Japanese government was to ensure stable oil flows from the Gulf by acquiring concessions for oil development and production in those states. Japan’s role in US-led international military initiatives in the region also grew in the postCold War period, both as a result of an increase in the weight of the US role in Japan’s defense in East Asia, and as a result of US dominance over Middle East security issues. The Japanese government’s “resource diplomacy” was revived, now with high rank officials’ visits exchanged, with meetings between Japanese prime ministers and Gulf monarchs or presidents, as well as between ministers. This began with the “Kono initiative,” launched by Japanese Foreign Minister Kono’s visit to Saudi Arabia, UAE, Kuwait and Qatar in 2000, including a call for “dialogue among civilizations” between intellectuals from Japan and those from Islamic states for the purpose of facilitating mutual understanding of their history and culture, and aimed also at building “multi-layered relations” specifically by putting a new emphasis on talks on political issues and expanding the areas of Japan’s assistance for Gulf oil states’ development. During the new millennium, the Japan Center for Cooperation with the Middle East (JCCME) established special desks for promoting Japanese business in Saudi Arabia and Iraq, and the Japan External Trade Organization (JETRO) also founded offices in Riyadh and Dubai for supporting Japanese businesses which are in operating in the Gulf or might be interested to do so in the future. In order to make Japanese business partnerships more attractive to Gulf states, the Japanese government began to offer a “package” around large-scale business contracts identified as significant for Japan’s economic interests. Typically these consisted of support for Japanese public-private sector collaborations in development projects, such as a Japanese government insurance package for the project, an official bank loan, government technical assistance, as well as the support for the business companies provided by JCCME and JETRO. In the security field, this period saw a shift in Japan’s approach from a purely non-military means centered around financial aid toward the participation of Japan’s Self Defense Forces in international military cooperation in the region. This was first seen at the end of the Gulf war of 1990–1991, which was followed by Japan’s participation in the United Nations Disengagement Observer Force (UNDOF) in the Golan Heights since 1996, in Iraq after the war of 2003, and the anti-piracy international cooperation off the coast of Somalia, the Gulf of Aden, and the North Arabian Sea since 2008. Nevertheless, Japan’s military approach still faced constitutional constraints, with such activities having to be within the UN framework, and excluding participation in combat operations. It has typically taken such forms as support for the US coalition forces from outside the area of combat (in the Indian Ocean for US operations in Afghanistan, and in Kuwait for those in Iraq); postwar minesweeping (the Gulf war, the Iraq war); reconstruction and humanitarian activities (after the Iraq war); and patrolling activities (UNDOF, anti-piracy off the coast of Somalia, the Gulf of Aden, and

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the North Arabian Sea), and in international operations which are endorsed by UN security council resolutions. Case Studies Japan’s Gulf policy and approaches can be categorized into three patterns, represented by the following cases: Pattern 1) Iran since the Islamic revolution, as a case in which Japan is faced by political obstacles, mainly from the US, to maintaining ties with the country; Pattern 2) GCC hydrocarbon producer states, with which Japan is free of political obstacles while facing Asian competition; and Pattern 3) Iraq, with which Japan experienced a shift from Pattern 2 to Pattern 1, due to the US policy of regime change. 1) The Case of Iran Japan’s approach to the Islamic republic of Iran since the revolution in 1979 and the US embassy hostage-taking exemplifies a clear case of balancing between a Gulf oil state and the US. Iran has historically been Japan’s third-largest oil supplier; remained in 2011 Japan’s fourth-largest oil supplier and in 2012 its fifthlargest, despite the sanctions and political isolation of the country.10 The Japanese government recognized Iran’s importance for its long-term oil interests long before the Islamic revolution, since it was a country with large undeveloped reserves. Hence Japan maintained diplomatic and economic relations with Iran even during the periods of US and UN sanctions during the 1980s and 1990s, and the current period of high international tension and the increasing diplomatic isolation of Iran since the emergence of the nuclear issue in 2002. Japan witnessed the rise of political tension between the Islamic regime and the US both in 1979 and 2002 at times when it had significant energy and economic stakes in the country, including large oil contracts. By 1979, Japan’s Mitsui Cooperation Ltd. had launched a joint venture with Iran’s National Oil Company, the Iran–Japan Petrochemical Company (IJPC), which was inaugurated in 1973 with the strong support of the Japanese government. The project was maintained during most of the Iran–Iraq war (until the oil complex suffered devastating damage from Iraqi bombardment), due to the strong encouragement of the Japanese government, despite Mitsui’s desire to withdraw from Iran. Japan’s political stance during the Iran–Iraq war was one of neutrality both between Iran and Iraq, as well as between Iran and the West. It maintained a low 10 Enerugi Hakusho (Energy White Paper 2013) and Energugi Doko (Trends in Energy), Agency for Natural Resources and Energy (2013), accessed January 30, 2014. http://www.enecho.meti.go.jp/topics/hakusho/2013energyhtml/2-1-3.html; “Islamic Republic of Iran,” Ministry of Foreign Affairs, accessed June 30, 2013. http://www.mofa. go.jp/mofaj/area/iran/index.html.

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profile for a while, but once the Iran–Japan Petrochemical Company’s complex started to incur war damage, it became proactive. At the 1983 UN General Assembly, Japan proposed to listen to Iran’s grievances, while also seeking to facilitate communication between the Iraqi and the Iranian leaders by sending diplomatic envoys to these countries. However, Japan was unable to participate in the international operations to protect Gulf oil shipping during the war. Although Japanese oil tankers and ships in the Gulf started to be targeted along with those of other nations towards the end of the war, Japan was not able to send its Maritime Defense Forces to escort them due to a strict Constitutional interpretation of its military role at that time. Likewise, when Japan received a US request for cooperation in minesweeping operations in the Gulf after the war, it had to decline for the same reason. Japan’s approach has been marked by a consistent pursuit of positive engagement with Iran in contrast to the US policy of containment. Under the terms of the US sanctions on Iran in place since the US embassy hostage-taking in 1979–1980, the Japanese government had to consult with and persuade the US to approve its economic development loans to Iran. It succeeded in doing so in the beginning of the 1990s, after the end of Khomeini’s rule.11 In 2002, Japan’s partially public oil company, INPEX (International Petroleum Exploration corporation) had obtained from Iran recognition of a privileged position in negotiations for joint development of the giant Azadegan oil field, whose discovery was announced in 1999.12 During the period of high tension over Iran’s nuclear development in the 2000s, Japan’s stance and level of engagement shifted, depending on the positions taken by other major Western states, the levels of pressures coming from Iran and the US, as well as its understanding of the legitimacy of Iran’s claims. In the early period following the rise of international concerns and US attempts to bring the issue to the UN Security Council between June and November 2003, the Japanese government took an initiative to bring the US and the European states to a consensus on Iran. Although it aimed to “moderate” the US stance, it was based on Japan’s overestimate of the positive effect of concerted Western pressure to bring Iran into compliance with international demands, as well as of an underestimate of its negative impact on its ties with Iran. Japan’s initiative to form a consensus within the International Atomic Energy Agency (IAEA) Board of Governors’ meeting in September 2003 aimed at conveying a mild warning to Iran by “implying” a referral to the UN Security Council and meant encouraging European states to harden their position and to move towards that of the US. Receiving a serious 11 After the US sanction on Iran, Japan resumed a US$18 billion loan for Iran in 1993 after 2 years of consultation with the US. Further in 1995, when US tightened sanction, Japan secured “suspension” not cancellation, to leave the possibility of resumption (Tateyama 1993). 12 Yukiko Miyagi, Japan’s Middle East Security Policy: Theory and Cases (London: Routledge, 2009), 129.

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warning from the Iranian government that it would reconsider relations between them, Japan’s approach on the issue returned to its typical low-profile role. It maintained a position generally in line with the more moderate European states, of negotiation with Iran before sending the case to the UN Security Council. Throughout such political tensions over Iran, Japan has maintained the government’s official economic assistance (ODA) programs for the country, while abstaining from large-scale infrastructure-building such as dams, power plants and railways, which the US considered would contribute to the strengthening of the regime. Japan framed its assistance as aimed at improvement of the socioeconomic conditions of the population, such as the development of the rural economy, human resource development, environmental protection, and disaster relief after earthquakes. In bilateral diplomatic relations, Japan has continued engaging Iran in frequent meetings between high-level officials such as foreign ministers and vice foreign ministers, including exchanges of views on various issues including Iran’s nuclear program, and periodic dialogues on human rights issues.13 Even during the periods when Iran has been under various UN sanctions, the Japanese government has promoted business relations. In May 2009, the Japanese Chamber of Commerce and the Tokyo Chamber of Commerce jointly hosted a seminar with an Iranian business delegation. The Tehran office of the government’s trade agency, Japan External Trade Organization (JETRO) is still in operation, and it has been stressing the importance of keeping a foothold in the Iranian market to protect Japan’s long-term interests. However, a significant portion of Japanese business in Iran left the country, particularly in 2011, fearing US punishment of their businesses under its tightening sanctions, as well as the possibility of military operations against Iran. The reduction of INPEX’s share in the Azadegan project from 75 percent to 10 percent in October 2006 and its complete withdrawal in May 2010 after having resisted US pressure in the previous period was due to the Japanese government’s understanding of INPEX’s view that the terms of the contract were not profitable for Japan, hence making use of an opportunity to withdraw without harming Japan’s long-term ties with Iran by using the new UN resolution as an excuse.14 Following Iran’s threat to block the Strait of Hormuz at the end of December 2011, Japan announced it was considering the participation of the Japanese Maritime Self Defense Forces in international cooperation with the US for escorting vessels and tankers in such an event, intelligence-gathering to assist patrols in the area and 13 “Islamic Republic of Iran,” Ministry of Foreign Affairs, accessed June 30, 2013. http://www.mofa.go.jp/mofaj/area/iran/index.html. 14 The decision to withdraw from Azadegan was due to the profitability of the contract on the business term, contrary to the impression given by the media that Japan yielded to the US’ orchestration of oil business sanction in Iran. In the earlier partial withdrawal, the decision to maintain a 10 percent share was made to show Japan’s commitment towards Iran and to avoid severing Japan’s ties with the country.

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clearing mines which Iran might put in the area in case of military conflict. This was considered by the government to be possible as there was a precedent—the operations conducted for anti-piracy purposes off the coast of Somalia, the Gulf of Aden and North Arabian Sea, and minesweeping after the 1990–1991 Gulf war— and the government did not therefore face legal and normative constraints.15 Also, it is important to note that the nature of Japanese military participation is limited to the activities related to the protection of civilian vessels, activities that would be less likely to damage Japan’s relationship with Iran. 2) The Case of Iraq The case of Iraq was an early example of Japan’s balancing behavior, similar to its stance on Iran but it was later replaced by a clear shift of sides towards the US in the face of the US’ determination to remove the Ba’th regime in Iraq. Japan’s economic relations with Iraq had developed in the 1970s with an increase in oil imports, large-scale infrastructure building by Japanese companies such as a thermal power plant, an oil refinery and fertilizer plants, as well as Japanese exports to Iraq, especially of machinery. Relations deepened in the early and mid 1980s, despite the Iran–Iraq war, with an increase in oil imports, until the war damage to Iraq resulted in its inability to repay its debts to Japan. The period before the 2003 US military attack on Iraq saw Japanese attempts to rebuild economic ties with Iraq that had been severed by the Gulf war of 1990–1991 and Iraq’s hostage taking of Japanese during the war. However, when Japan took a diplomatic initiative for re-establishing oil relations with Iraq in response to the UN’s Oil for Food program in the mid 1990s, this was blocked by the US. Therefore, Japan’s clear support for the US in 2003 came in a context in which Japan had no remaining economic and energy interests at stake in Iraq while perceiving a possible opportunity to acquire a role after the US-led regime change. Japan’s military support for the US by sending its Ground Self Defense Force to the Iraq after the war was due to the government’s view that military cooperation was a much more effective way of strengthening US ties than financial contributions to the war, in contrast to the time of the Gulf war of 1990–1991, when Japan contributed US$13 billion for the US coalition shouldering 26 percent of its cost, yet only received criticism for being “too little too late.” It could be argued that ironically, Japan’s military participation in the US war on Iraq was an attempt to earn credibility in Washington, which would allow Japan to dissuade the US from a similar war on North Korea over its nuclear development.16 To be sure, Japan made pro forma efforts to head off the impending war by advising Iraqi leaders 15 “Sankei,” MSN, accessed May 5, 2013. http://sankei.jp.msn.com/politics/news/ 120306/plc12030600250000-n1.html. 16 The Japanese ruling parties sent their representatives to Washington to try to persuade the US in the wake of the war on Iraq. Miyagi, Japan’s Middle East Security Policy, 87–126.

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to avoid US military attack by complying with US demands. As the US seemed determined to go to war, with or without a UN resolution—which was necessary for allowing the Japanese military participation in Iraq—the government lobbied UN Security Council member states at that time to get UN endorsement of the US attack. Nevertheless, as no resolution for the war was forthcoming, Japan’s military participation was limited to postwar and “non-combat” operations and in the areas free of “combat” so that Japanese soldiers would not face a situation wherein they would be engaged in the use of force other than for pure self defense. Furthermore, as the US could not secure a UN resolution for the war, Japan refrained from financial support and military cooperation for the war itself. Instead it extended both to the postwar reconstruction of the country, humanitarian support for the Iraqi people, and distant logistic support for the US forces after the war (from the air base in Kuwait). The Japanese financial contribution was still significant, providing US$5 billion for postwar reconstruction, shouldering about 10 percent of the amount of international contribution called for by the US.17 Japan’s military cooperation in “anti-terrorism” operations connected with the US war in Afghanistan had already begun in October 2001, with the participation of Japan’s Maritime Defense Forces with the US coalition’s naval forces in the Indian Ocean. Having supported the passage of a UN resolution for the military operation, the Japanese government passed a special law (the Anti-Terror Special Law) to enable logistic support for the coalition’s operations via non-combat activities in non-combat zones. At the time of the Iraq war, Japan expanded its support in the Indian Ocean by sending an Aegis vessel for collecting and analyzing strategic information and fuelling vessels to the Indian Ocean in support of the coalition’s operations, as an indirect military contribution, thereby reducing the burden for the US. Japan’s balancing act between the US and the Arab countries came in the context of its recognition of the extent of opposition to the war in the Arab world. The Japanese foreign minister held a meeting with the Arab ambassadors in Tokyo to explain Japan’s position focused on humanitarian and reconstruction efforts. As in the case of Iran, the Japanese government started encouraging Japanese business to enter the Iraqi market after the removal of the Saddam regime by organizing business seminars.18 Japanese economic ministers visited Iraq in June 2008 and January 2011; Japan established the Iraqi Committee in 2008, with officials from the Japanese Economic and Foreign Ministries, and other public institutions, and intellectuals to assist Japanese business to enter the Iraqi market. A JapanIraq Economic Forum was sponsored by the two governments in July 2008 in

17 As the international contribution did not reach as much as intended by the US, and also many other states’ provision of contribution did not fully cover their originally pledged amounts, the actual share of the Japanese contribution was much larger than 10 percent. Interview with JICA representatives in Amman in March 2013. 18 Miyagi et al., “Japan’s Engagement in the Gulf.”

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Amman and again in December 2009 at Baghdad and Basra airports.19 A Japanese business delegation led by government officials visited Iraq three times. JCCME set up an Iraq Desk and an office in Baghdad in June 2012.20 Furthermore, Japan’s agency for implementing official aid, Japan International Cooperation Agency (JICA) opened offices in Arbil in 2009 and Baghdad in 2012 to support Japanese business engaged in assistance. This was based on the Japanese government’s aim to facilitate the shift from Japanese engagement in aid projects to new private contracts in the Iraqi market. However, businesses have been very cautious about entering Iraq owing to the poor security conditions there. The case of Iraq shows that Japan’s balancing between the country and the US stopped and was replaced by bandwagoning with the US as a result of Tokyo’s perception of overwhelming, uncontested US dominance over the issue of regime change for the country, when Japan’s immediate energy and economic stake in the country was absent. 3) The Case of GCC Hydrocarbon States Japan’s Arabian Oil Company’s contract in the Saudi-Kuwaiti neutral zone, obtained in 1957, was the first Japanese oil concession in the Gulf. This was followed by Abu Dhabi Oil Company’s offshore concession signed in 1968. The GCC states have historically provided a large share of Japan’s oil supply, with Saudi Arabia constituting its main source of imported oil.21 Japan recognizes that the GCC states are within the US security system and therefore expects no political obstacles from Washington to building relations with them. On the other hand, however, precisely because both the GCC and Japan were within the security umbrella provided by the US, Japan’s interest in these states did not venture beyond the economic dimension for a long time, and, until the emergence of other Asian competitors for access to Gulf oil, Japan’s interest did not develop beyond oil and trade relations. At the turn of the millennium, when, perceiving Asian competition for Gulf oil and the subsequent rapid rise of oil prices, the Japanese government became conscious of the importance of strengthening ties with the Gulf oil states. This began with then Japanese Foreign Minister Kono’s initiative in 2000 (Kono Initiative) for establishing a multilayered relationship with the Gulf states, including for the 19 “Iraku Josei (Situation in Iraq),” Japan Cooperation Center for the Middle East (July 2012), accessed January 31, 2014. http://www.iraq-jccme.jp/pdf/08/001.pdf. 20 “Iraq Committee,” Japan Cooperation Center for the Middle East (July 2012), accessed January 31, 2014. http://www.iraq-jccme.jp/. 21 In 2011, Saudi Arabia’s share was 31.1 percent, followed by the UAE’s 22.5 percent, Qatar’s 10.2 percent, Iran’s 7.8 percent, and Kuwait’s 7.0 percent. Enerugi Hakusho (Energy White Paper 2012) and Kaseki Enerugi no Doko (Trends in Fossil Energy), Agency for Natural Resources and Energy (2012), accessed May 1, 2013. http://www.enecho.meti. go.jp/topics/hakusho/2012energyhtml/2-1-3.html.

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first time the politico-strategic dimensions in the dialogues between them.22 Following the aforementioned energy policy of 2006, Prime Minister Abe also visited Saudi Arabia, UAE, Kuwait, and Qatar to expand Japan’s relations with them, and sealed an agreement with Saudi Arabia to develop their relations beyond the energy field The terms “towards multilayered relationship” and “strategic partnership” were used between Japan and those states (e.g. the joint statement with Saudi Arabia in 2006, the Japan-GCC strategic dialogue in September 2010) by promoting dialogues at various levels in fields other than trade: investment, technology, culture, environment, and aviation aimed at consolidating partnerships by diversifying economic relations. The diversification of economic relations was pursued through agreements for promoting investment and tourism.23 Joint Committees were established with Saudi Arabia, UAE, Qatar, and Kuwait respectively, to explore new areas of economic cooperation.24 Furthermore, region-wide GCC-Japan FTA negotiations were launched in 2006.25 In May 2013, Prime Minister Abe again visited the UAE and Saudi Arabia bringing over 100 Japanese business leaders from various sectors with him to facilitate the expansion of business relationships.26 Japan’s business approaches are supported by the public sector, which has offered the Gulf states a package typically consisting of loans, insurance, and technical assistance.27 As for the government’s technical assistance, Japan has assisted in various fields which are on the Gulf states’ specific agendas, such as 22 “The Visit to the Gulf Countries by Minister for Foreign Affairs Yohei Kono (Overview and Evaluation),” Ministry of Foreign Affairs, accessed January 30, 2014. http:// www.mofa.go.jp/region/europe/russia/fmv0101/overview.html. 23 Aviation agreements were made with Saudi Arabia in 2008, and with Qatar in 2009, and regulated taxation of foreign business mutually, with Qatar in 2009, with Saudi Arabia in 2010, with Kuwait in 2010, and with UAE in May 2013; Japan began negotiations for agreements on promoting mutual investment, signed with Kuwait in March 2012, and with Saudi Arabia in April 2013. 24 “Japan-Saudi Arabia Relations,” Ministry of Foreign Affairs, accessed January 31, 2014. http://www.mofa.go.jp/region/middle_e/saudi/; “Japan-United Arab Emirates Relations,” Ministry of Foreign Affairs, August 30, 2013, accessed January 31, 2014. http:// www.mofa.go.jp/region/middle_e/uae/index.html; “Japan-Kuwait Relations,” Ministry of Foreign Affairs, September 13, 2013, accessed January 31, 2014. http://www.mofa.go.jp/ region/middle_e/kuwait/index.html. 25 “Free Trade Agreement between Japan and the Gulf Cooperation Council (GCC) (JGFTA) (Chronology and Overview),” Ministry of Foreign Affairs, accessed January 31, 2014. http://www.mofa.go.jp/policy/economy/fta/gcc_2006_2.html. 26 “安倍総理ロシア 中東へ エネルギー調達自ら動く,” TV Asahi, April 28, 2013, accessed January 31, 2014. http://news.tv-asahi.co.jp/news_politics/articles/000004467.html. 27 For example, Japan Bank of International Cooperation (JBIC) has provided loans for Sumitomo Corporation’s Petro Rabigh petrochemical project in Saudi Arabia in 2006, and for the renewal of Abu Dhabi Oil Corporation’s offshore oil concession for 30 years in 2011.

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agriculture, environmental protection, economic diversification, human resources, energy conservation and the development of new energy and water resources, applying the most up-to-date technological knowhow and skills developed or currently being developed in Japan.28 Japan’s emphasis on this approach can be seen from Prime Minister Abe’s announcement in May 2013 that the government is planning to receive 20,000 trainees from the Middle East and to send substantial numbers of Japanese experts to the region in the next five years.29 Japan’s politico-security relations with the GCC states have modestly and incrementally developed since the new millennium. Japan has assumed a greater, if still modest, military role in the Gulf. Japan’s Maritime Self Defense Force and Air Defense Force have been sent to the areas off the coast of Somalia, the Gulf of Aden and the North Arabian Sea since March 2009 and June 2009 respectively for anti-piracy international cooperation following the passage of a UN resolution in June 2008 calling for this. Japan passed a special Anti-Piracy Law to enable naval patrolling and escorting activities, including the provision of intelligence to other forces and the protection of vessels not only of Japanese but also of all other nationalities. In parallel to the sense of being “a member of the West” in the international political arena, and a member of the circle of leading states which would collectively shoulder responsibility for maintaining global stability, Japan has aimed to expand the scope of operations by the Self Defense Forces beyond its initial participation during the Gulf war in 1991.30 In particular, in deliberating over whether SDF should participate in a certain international operation or whether its participation should continue, the Japanese government has looked to the other G8 members for guidance, examples and legitimation.31 From such military cooperation in the Gulf region, enhanced communications have emerged between the Japanese defense authority and the Gulf host countries. For example, during the Japanese Air Self Defense Force’s logistic support for the US and its allies in Iraq from a military air base in Kuwait came meetings between defense ministers as well as those between the chief of staffs of Japan and Kuwait for the purpose of coordinating the stationing of the ASDF.32 Likewise, with Bahrain, which hosts the US Fifth Fleet’s Central Command, Japan’s Maritime Forces have built diplomatic as well as working relations through the 28 For details, see Miyagi et al. 2013. 29 “Japan’s Ties with the Middle East in a New Age of Synergy, Mutual Prosperity, and Cooperation,” Policy Speech by Prime Minister Shinzo Abe, Prime Minister’s Office and His Cabinet, May 1, 2013, accessed January 30, 2014. http://www.kantei.go.jp/ foreign/96_abe/statement/201305/01speech_e.html. 30 “Boei Semina (Defence Seminar),” Ministry of Defense, July 11, 2012, accessed May 2, 2013. http://www.mod.go.jp/rdb/chushi/seminar/seminar20120711-giji.pdf. 31 “Daijin Kaiken Gaiyo (Defense Minister Press Conference),” Ministry of Defense, October 17, 1997, accessed May 8, 2013. http://www.mod.go.jp/j/press/kisha/2007/10/17.pdf. 32 “Naser Shusho tono Kaidan (Meeting with Prime Minister Naser),” Ministry of Defense, July 28, 2008, accessed May 30, 2013. http://www.mod.go.jp/j/press/ youjin/2008/07/28.html.

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contacts that have developed from joint anti-piracy operations. In recent years, military exchanges with other Gulf states, such as Saudi Arabia and Oman, which carries strategic significance, have developed. There have also been port calls by Japan’s MSDF (Maritime Self-Defense Force) at Gulf states such as Saudi Arabia and Oman, Bahrain, and Kuwait on the occasion of joint exercises or training of MSDF personnel in the region.33 Japan’s military relationship with Bahrain has been the most developed among the Gulf states so far, with an agreement reached in April 2012 that the two countries would begin military exchanges at working levels as well as between defense authorities to exchange views on international and regional security issues and cooperation, to start unit-to-unit exchanges and joint training, and to collaborate in international defense fora.34 Since the policy of establishing multilayered relationships with the Gulf states, Japan has been reinforcing security cooperation on various occasions. A periodic Japan–Gulf strategic dialogue has been held since September 2010 over issues of common concern such as the stability of Iraq and Iranian nuclear development, as well as environmental agendas and energy market stability.35 Most recently in March 2013, the conduct of high-level talks on security issues with Saudi Arabia and the United Arab Emirates were agreed. In their talks, issues such as sea-lane security, anti-piracy, anti-terrorism, and Iranian nuclear development would be discussed.36 These initiatives are pursued primarily as a means of multiplying Japan’s ties with the Gulf states for the general, basically economic, purpose of strengthening ties, rather than concrete and specific security needs. It is indeed very interesting that despite the calls for building such ties having been increasingly heard within both Japan and the Gulf states in recent years, the Saudi Crown Prince in his meeting with Japanese Prime Minister Abe in April 2013 only agreed “in principle” to the expansion of bilateral relations in politics and security.37 It seems that at this point, military exchanges remain within the US framework and around coordination for certain US-endorsed international operations. The talks are still 33 “Oshirase (Announcement),” Ministry of Defense, April 25, 2009, accessed May 2, 2013. http://www.mod.go.jp/msdf/formal/info/news/201304/040901.pdf; “Oshirase (Announcement),” Ministry of Defense, May 2010, accessed May 2, 2013. http://www. mod.go.jp/msdf/formal/info/news/201005/052501.pdf. 34 “Meeting between Prime Minister Noda and H.M. Hamad bin Isa al-Khalifa, King of the Kingdom of Bahrain,” Ministry of Foreign Affairs, April 11, 2012, accessed May 2, 2013. http://www.mofa.go.jp/region/middle_e/bahrain/meeting1204_pm.html. 35 “Nichi GCC Senryaku Taiwa (Japan-GCC Strategic Dialogue),” Ministry of Foreign Affairs, October 9, 2013, accessed May 2, 2013. http://www.mofa.go.jp/mofaj/ area/page23_000537.html. 36 “サウジと投資協定調印 首相、安保対話でも合意,” Nihon Keizai Shinbun, May 1, 2013, accessed August 23, 2013. http://www.nikkei.com/article/DGXNASFS01002_ R00C13A5000000/. 37 “サウジと安全保障対話を新設へ 安倍首相、皇太子と会談,” Asahi Shinbun, May 1, 2013, accessed June 2, 2013. http://www.asahi.com/politics/update/0501/ TKY201305010150.html.

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at the level of understanding the position of their counterparts, and exploring what they can do for collaboration in this area, not out of necessity, but as an auxiliary to the overall US security system. Conclusion Observation of the cases, exemplifying different patterns in Japan’s approach to the Gulf, leads to the following conclusions: Japan is in some ways caught in its relationship with the Gulf between the US and East Asian competitors for Gulf energy resources. While it has consistently increased the level and dimensions of its engagement in the Gulf over time, it has done so in reaction to threats to its energy security from these two sources. First, it can be argued that Japan has pursued securing stable access to Gulf hydrocarbon energy sources by balancing between the US and the Gulf oil states in conflict with the US, while increasingly expanding the dimensions of its relationship with these states free of such political obstacles in order to better compete with its Asian rivals for energy resources. For a long time, US political conflicts with Arab states, in general over Israel, but also with Iran and Iraq, complicated Japan’s attempt to establish secure energy relations in the region and forced it to adapt its policies to meet these contingencies. Most recently, the problem has manifested itself in the gap between the level of economic interest in the Gulf of the Japanese government and of Japanese private business. Despite the government’s enthusiasm for securing Gulf energy sources and its encouraging business to enter the Gulf market, Japanese business circles have been reluctant owing to the risks and problematic profitability of such ventures, owing to their experiences in Iran since the Iran–Iraq war (except for a brief period of optimism in the late 1990s until the outbreak of the nuclear issue) and in Iraq since the 1990s, where business security is not guaranteed.38 This contrasts with China’s business approach, apparently more cautious about political and security conditions, and more sensitive about business profitability. This arguably reflects Japanese business circles’ low expectation for government protection against possible US pressures, which often come with the threat of sanctions against Japanese businesses in the US market, or US-led military operations. Yet, it is because Japan’s business interests in contentious areas, has declined that its government has become less independent from the US in its Gulf policy. Japan’s policy in the Gulf also has to respond to the challenge posed by Asian neighbors such as the Indian navy’s activism in the area surrounding the Gulf, 38 Japanese business was still optimistic about the Iraqi market until the outbreak of the Gulf war of 1990–1991. During the period between the end of the Iran–Iraq war and the Iraqi invasion of Kuwait in 1990, Japanese businesses were seriously considering Baghdad’s proposal for joint development of Iraq’s oil reserves, which would have led to a large-scale economic relations in parallel with Iran’s Azadegan.

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China’s active acquisition of natural resources worldwide, and the success of South Korean companies in obtaining large-scale business contracts from Gulf states. These have all alarmed policymaking circles in Tokyo and stimulated similar efforts on its part. Japan’s promotion of “strategic partnerships” with GCC states and FTA negotiations with them have paralleled those by China. The topdown approach of China and South Korea for sealing business deals with Gulf states has also encouraged Japan to emulate such an approach. Japan’s promotion of cultural and educational exchanges with the Gulf state has mirrored similar approaches employed by China and South Korea. But at the same time, Japan has also extended technological assistance to China and India for the improvement of their energy efficiency, conservation and new energy development for the purpose of moderating the race for hydrocarbon access. This has also been accompanied by Japan’s cooperation with Western economic powers for bringing the newly emerging Asian economies into international coordination among major importers in order to stabilize the world oil market. This reflects the fact that Japan shares their dependency on Gulf energy resources while, at the same time is a member of the developed “West.” As far as the impact of Japan’s approach is concerned, Japan has been ultimately reinforcing the US hegemonic security system in the Gulf, although in some occasions it has attempted to moderate the US approach or pursued an alternative stance together with other Western states on specific cases, such as Iran. Indeed, as Japan has to rely on the US for its own defense, the more conflict it faces with its Asian neighbors, the more vulnerable it becomes to US pressures on issues in the Gulf. As China’s ambition for dominance in Asia becomes more salient, it is likely to draw Japan further under US influence. However, Japan is not entirely exceptional among the Asian states in this regard. It may be less critical of the impact of the US security system for the Gulf, seeing the US as the dominant power in the region, and aware also of the reliance of many Gulf states themselves on the US as an ultimate guarantor for their security. However, other Asian states are equally supportive of the US role. Another US ally in East Asia, South Korea, sent troops to Iraq to provide logistical support for the US and the Indian navy has coordinated with the US in joint Gulf exercises. Furthermore, the fact that many ASEAN states continue to rely on the US and even prefer the US to major Asian states such as China and Japan for security in Asia limits any their challenge by them to the US security system in the Gulf. As regards Japan’s relation with the US in the Gulf, a major change from its historic balancing act between the US and the Gulf could only take place under three conditions: 1) US’s overwhelming projection of hegemonic power in the region would induce Japan to fully bandwagon with the US; however, with the US withdrawal from Iraq and continuing challenges from Iran this does not seem on the cards; 2) the revision of the Peace Constitution to allow Japan to create an independent nuclear deterrent and to remove restrictions on its use of military power for political ends, also unlikely at present; and 3) a functioning regional

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security system in Asia similar to NATO in Europe, putting Japan in a zone of peace, again unlikely in the foreseeable future. As such Japan seems likely to continue for the foreseeable future to adjust and deepen its historic approaches, mixing balancing toward the US and deploying its main strength, its economic and technological prowess, in relations with the Gulf.

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Chapter 4

Geopolitical Shifts: Asia Rising, America Declining in the Middle East? Michael C. Hudson

I would like to share some thoughts with you about how the tectonic shifts in the global balance of power marked by the rise of China and India and the relative decline of American hegemony play out across the Indian Ocean region—bordered as it is by five continents and some 40 countries. At the Middle Eastern end of it we find the strategic chokepoints of the Bab al-Mandab and the Strait of Hormuz, and at the Asian end the Strait of Malacca. However, while the Middle East and Asia are ever more interconnected across this third-largest ocean (and also along the reviving terrestrial “Silk Road”) through trade, finance and culture, we are still quite a ways off from seeing a confrontation in the Middle East between the rising Asian superpowers and the US. But President Obama’s dramatic “rebalancing” project indicates that America intends to intensify its support for the small Asian states worried about China’s assertiveness in the East and South China seas while at the same time insisting that this “pivot” does not mean a diminution of US power in the Middle East. For the time being it seems that China and India are content to remain “free riders” in the Middle East, uninterested in challenging the US. Introduction In Singapore—and elsewhere in Asia—these days there is much talk about the rise of Asia (by which is usually meant China) and the decline of America. For example, Kishore Mahbubani, Dean of the LKY School of Public Policy in Singapore has written that “the West is understandably reluctant to accept that the era of its domination is ending and that the Asian century has come.” The West, which is “increasingly incompetent in its handling of key global problems … is preventing the emergence of a new wave of history.”1 He sums it all up in a pithy sound bite: in modern history Europe is yesterday’s hegemon; the United States is today’s and Asia will be tomorrow’s. It is a theme that elicits both pride and apprehension. Southeast Asia’s prosperity depends on the Chinese and 1 Kishore Mahbubani, “The Case Against the West,” Foreign Affairs 87:3 (May/June 2008): 111–24.

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Indian economic powerhouses, but Chinese assertiveness in the East and South China seas, and India’s “Look East” policy is a worry. According to Lee Kuan Yew, Singapore’s former strongman prime minister, “America’s core interest requires that it remains the superior power” in the region, which is subject to a twenty-first century contest for “supremacy with China.”2 And while the idea of American decline is often met with smiles of satisfaction, there is also concern that Washington’s famous “pivot” toward Asia will either be too feeble or too provocative to a region that wants good relations with both of these giants. Lee Kuan Yew goes on to warn that medium and small powers in Asia “are uneasy that China may want to resume the imperial status it had in earlier centuries, and have misgivings as being treated as vassal states.”3 Rethinking the “Rise of Asia and Decline of America” Much has been made of the rise of Asia and its potential growing influences on the Middle East across the Indian Ocean. There is talk of a fundamental shift in the global balance of power in favor of Asia and to the detriment of the current global—and Middle Eastern—hegemon, the United States. I agree that this shift is occurring, but I would argue that it is being driven not so much because of the rise of Asia, but rather because of the decline in American power—largely selfinflicted. It is not a steep or immediate collapse but rather an incremental decline over time. Even if China and India and other Asian powers were not “looming” the influence of the United States would still be declining. Maybe it is not such a bad thing: if in a new multipolar world perhaps the established and emerging great powers can help bring about positive changes in this troubled region. It seems clear up to now that the United States as the sole important outside player has failed to play such a role. So let me now turn to each of the two sides of this new geostrategic equation and re-examine, first, the so-called rise of Asia (with special emphasis on China and India), and second, the so-called decline of the United States (with special emphasis on the Arabian Peninsula and Persian Gulf).

2 As quoted in Graham Allison, Robert Blackwill, and Ali Wyne, Lee Kuan Yew: The GrandMaster’s Insights on China, The United States, and the World (Cambridge: The MIT Press, 2013). 3 Ibid.

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“Asia Rising”: But What Does this Really Mean Strategically? According to the Prime Minister of India, Manmohan Singh, “The most important development of the twenty-first century will be the rise of Asia.”4 The argument rests primarily on the spectacular economic growth in parts of Asia—first with the “Asian Tigers”—South Korea, Taiwan, Hong Kong and Singapore), and now especially with China and India. The world’s third-largest economy, Japan, seems finally to be moving forward again. If, as Alfred Thayer Mahan famously observed, “whoever controls the Indian Ocean dominates Asia,” then the growth of Chinese and Indian naval power challenges the US Navy’s traditional dominance; and in addition China’s assertive practices in the East and South China seas pose an even sharper challenge to America’s domination of the Asia-Pacific region. Might it also challenge US superiority in the Middle East and Gulf regions? Playing a global role is new for China, and judging from the debates among Chinese analysts there is so far no consensus on strategic priorities even though all agree that secure access to energy sources largely from the Middle East is a vital national interest. Some emphasize China’s traditional “eastern” focus: recovering Taiwan, challenging Japan and South Korea, and projecting power in the potentially energy-rich South China Sea against the competing claims of the Philippines, Vietnam, Malaysia, and Indonesia. Behind this “eastern strategy” is a concern to resist what is seen as America’s attempt to “contain” China. Others now argue that China can and should project power in all directions—projecting influence toward Russia in the North, and India and the largely Muslim lands to the West, in addition to pursuing its interests to the east and south. In explicating Chinese foreign policy perceptions, Wang Jisi, Dean of the School of International Studies at Peking University, notes that “the perceived changing power balance between China and the United States has prompted many Chinese to expect, and aspire to, a more ‘can-do’ PRC foreign policy.”5 This requires reconstituting the historic Silk Road, both in its terrestrial and maritime dimensions to guarantee a secure flow of oil, gas and other bulk resources. It means building and dominating a new Eurasian “super region” through an economic assistance program for South Asia, Central Asia, the Middle East, and the Caspian Sea. It means taking measures to mitigate externally provoked ethnic separatism and religious extremism in China’s western provinces (Xinjiang and Tibet). It means countering steps that the United States has already taken to try and organize the Muslim Central Asian states in what would become a US-dominated “new Silk 4 Manmohan Singh, “Opening Address” (presented at the LSE Asia Forum 2006, New Delhi, India, 6–7 December 2006), accessed on 3 June 2013. http://www.lse.ac.uk/ LSEAsiaForum/pdf/ManmohanSingh_OpeningAddress.pdf. 5 Kenneth Lieberthal and Wang Jisi, “Addressing US-China Strategic Distrust,” Brookings Institution, John L. Thornton China Center Monograph Series 4 (March 2012), p. 16.

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Road.” It means reaching accommodations with India and Russia which wish to promote their own spheres of influence in areas to the west of China. India is also flexing its growing economic and military power. Writes C. Raja Mohan, “After being relatively marginal to international politics all these decades, the subcontinent is reclaiming its position at the crossroads of Asia.”6 Delhi is concerned about China’s growing soft power in the subcontinent, and analysts worry that the notion of a Sino-Indian rivalry in the subcontinent would set back regional stability and prosperity. As the Indian president put it, In 1992, our Government launched India’s ‘Look East Policy.’ This was not merely an external economic policy, it was also a strategic shift in India’s vision of the world and India’s place in the evolving global economy. Most of all it was about reaching out to our civilizational neighbors in South East Asia and East Asia. I have always viewed India’s destiny as being inter-linked with that of Asia and more so South East Asia. I reiterate India’s commitment to work with ASEAN and East Asian countries to make the 21st century truly an Asian century.7

But India too is looking westward, toward the Middle East (which it calls Southwest Asia) and is deploying naval forces and commercial projects (especially oil-related) in the Indian Ocean region. Who will “contain” whom? If the U.S., through its “rebalancing toward Asia” strategy recently announced by the Obama Administration, is trying to contain China in the East and South China seas and also, by cultivating India, in the western lands and the Indian Ocean, China may be trying to “contain” the U.S. by challenging its traditional Asian allies and by dominating the Muslim western lands and eventually challenging America’s superior geostrategic position in the Middle East. A modus vivendi, if not an alliance, with Russia would serve Chinese interests on land, and a standoff with India, utilizing Pakistan and Afghanistan, would serve Chinese interests at sea. Eventually, perhaps, China would be able to leverage its growing economic power into political influence in the crucial areas of the Arabian Peninsula and Persian Gulf. The success of a Chinese “march west” might depend on which power can best play “the Islamic card.” That is a very tricky matter for both China and the U.S. since each one, for different reasons, carries negative baggage in the competition for Muslim public opinion. Entanglement in the swamp of the Middle East might constitute a trap for China and a diversion of its limited political resources from nearer and more important areas to its east. Before we speak further about “Asia” as a whole emerging as a coherent global competitor, let us bear in mind that it seems so fraught with fragmentation and local rivalries that as Minxin Pei observes, “it is meaningless to talk about Asia 6 C. Raja Mohan, “South Asia Rising,” The Indian Express, 9 November 2011. 7 Singh, “Opening Address.”

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as a single entity of power.”8 Just look at the divisions and rivalries: China vs. Japan, China vs. South Korea, North Korea vs. its near and far neighbors (and even its only friend), China vs. India, and China vs. Russia, not to mention internal conflicts in Thailand, the Philippines, Malaysia and Myanmar. Thus, one must entertain doubts about its ability to project power and influence farther afield to areas like the Middle East. Let us not overlook the vast economic and military disparities compared to the United States. As Pei observes, “Asia is nowhere near closing its economic and military gap with the West. The region produces roughly 30 percent of global economic output, but because of its huge population, its per capita GDP is only $5,800, compared with $48,000 in the United States. Asian countries are furiously upgrading their militaries, but their combined military spending in 2008 was still only a third that of the United States. Even at current torrid rates of growth, it will take the average Asian 77 years to reach the income of the average American. The Chinese need 47 years. For Indians, the figure is 123 years. Asia’s combined military budget won’t equal that of the United States for 72 years.”9 Does it not also matter, in speaking of so-called cohesion in Asia, to note that there is a sharp political-structure divide among countries that are authoritarian, such as China, North Korea, Vietnam, Laos and Cambodia; and those that are moreor-less democratic, such as India, Japan, South Korea, Taiwan, the Philippines, Malaysia, and Indonesia (and Myanmar moving in that direction)? Ranabir Ray Choudhury, an Indian columnist, sums up Asia’s situation: One crucial difference between the American Century and the Asian Century would be that while in the former case one single sovereign nation ruled the roost, namely the U.S., in the latter it would be more the Asian region instead of one sovereign entity. If this is so, then the military and socio-cultural attributes of the “century” we are talking about would have to undergo a fundamental change for the simple reason that there would be no military and socio-cultural dominance in the sense the U.S. had in the last century.”10 A prominent Singaporean businessman, Ho Kwon Ping, warns “in the rush of exuberant expectations that Asia’s time has come, the continent could fall victim to what’s behind many failures in the history of the world—simple hubris.”11

8 Minxin Pei, “Think Again, Asia’s Rise,” Foreign Policy (July/August 2009). Accessed on 3 June 2013. http://www.foreignpolicy.com/articles/2009/06/22/think_again_ asias_rise. 9 Ibid. 10 Ranabir Ray Choudhury, “Asian century,” The Hindu Business Line, 16 April 2005. Accessed on 3 June 2013. http://www.thehindubusinessline.com/todays-paper/tpopinion/asian-century/article2174711.ece?ref=archive. 11 Ho Kwon Ping, “Asia as Global Leader—Not So Fast,” Yale Global Online, 14 May 2012. Accessed on 3 June 2013. http://yaleglobal.yale.edu/content/asia-global-leadernot-so-fast.

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“America Declining”: But Why and How Fast? To be sure, there are challenges to US supremacy in Asia and a record of failures in the Middle East. Washington is far from “declining” its global dominance. We may look at two aspects of the situation. First, is the rebalance, or what some have somewhat misleadingly called the “pivot” toward Asia. Second, is the insistence that a pivot toward Asia is not a zero-sum game that requires a diminution of forces elsewhere. The question is: can the US live up to these stated commitments? In a March 2013 speech to the Asia Society in New York, Tom Donilon, Obama’s National Security Advisor, spoke of “rebalancing” as “a comprehensive, multidimensional strategy: strengthening alliances, deepening partnerships with emerging powers, building a stable, productive and constructive relationship with China, empowering regional institutions, and helping to build a regional economic architecture that can sustain shared prosperity.” He also said: “Here’s what rebalancing does not mean. It doesn’t mean diminishing ties to important partners in any other region.”12 But in fact can—or will—the US do both in an era of fiscal austerity and war weariness at home? We used to say that the US had a “holy trinity” of interests in the Middle East: Israel, oil, and containment of Soviet Russian expansionism. The third of these concerns has disappeared (even though Russia aspires to restore a position of influence in the Middle East). However, solidarity with Israel seems unshakeable and concern for the oil-rich regions remain strong even though new technology is making North America energy-independent. This commitment goes back a long way. In his 1980 State of the Union Address, President Jimmy Carter declared: “An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”13 As for Israel, President Barack Obama reaffirmed America’s uncritical embrace of the Jewish state during his visit in March 2013. The New York Times wrote of the visit: “Mr. Obama hit all the right notes … he cracked jokes, quoted the Talmud and revered Israeli figures, pledged America’s unwavering support while asserting Israel’s right to defend itself, and, perhaps most important, echoed the Israeli narrative of the conflict with the Palestinians.”14 12 Tom Donilon, “The United States and the Asia-Pacific in 2013” (remarks to The Asia Society in New York, NY, 11 March 2013). Transcript, accessed on 3 June 2013. http:// www.whitehouse.gov/the-press-office/2013/03/11/remarks-tom-donilon-national-securityadvisory-president-united-states-a. 13 Jimmy Carter, “State of the Union Address,” 23 January 1980. Transcript, accessed on 3 June 2012. http://millercenter.org/president/speeches/detail/3404. 14 Jodi Rudoren and Isabel Kershner, “Attempt to Win Hearts is Tempered by a Challenge to Wary Israelis,” The New York Times, 21 March 2013. Accessed 5 June 2013. http://www.nytimes.com/2013/03/22/world/middleeast/obama-mends-fences-in-israel. html?_r=0.

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In the future probably there will be frictions between the US and rising Eurasian powers (China, India, Russia), but at this moment they are secondary. Today the US faces difficult situations in the Middle East that are largely of its own making. The hopes raised just after Obama’s speech at Cairo University in 2009, in which he reached out (verbally) to the Muslim world, have largely evaporated. The US tried briefly but then failed to move the Palestinian-Israeli conflict toward a balanced solution; and four years later Obama could only lamely admit that moving toward a two-state solution is a hard job. Could there be a more dramatic demonstration of America’s impotence? As for protecting the Gulf States, the American record was scarcely any better. It has not been forgotten that Washington gave material support to Iraq under Saddam Hussein in its long war against the Islamic revolution in Iran during the 1980s, and that the US-led expulsion of Iraq from Kuwait in 1991 had led to an impoverishment of the Iraqi people and a diminution of the Iraqi state’s ability to serve as a buffer against future Iranian aggression in the Gulf. The U.S.-led invasion of Iraq in 2003, while toppling Saddam Hussein, had further impoverished Iraq and given Iran a strategic advantage in the Gulf. It had also opened up space for Sunni Muslim extremists to gain a foothold in a place from which they had been previously excluded. The failure of America to secure clear victories in Iraq and Afghanistan certainly diminished its regional and international standing. Those who expected a quick transition to a stable, “moderate” democracy have been disappointed. One of our researchers from the Middle East Institute, recently in Baghdad, believes that the United States has simply become irrelevant. Politicians seeking foreign patronage go to the Iranians, the Turks or the Saudis, but not the Americans. As for Afghanistan—”the graveyard of Empires”—nobody knows whether the American military withdrawal in 2014 will open up (again) a space for Islamist extremist networks to flourish. Then there is the question of the Arab Uprisings. Clearly, the US was surprised when dictators in Tunisia, Egypt, Yemen and even (recently) Libya it had long regarded as staunch allies were toppled. In the subsequent chaotic aftermath, Washington has belatedly sought to support new “moderate” forces, even flirting with a Muslim Brotherhood-dominated government in Egypt and an Al-Nahdadominated government in Tunisia. Having supported the overthrow of the Qadhafi regime in Libya “from behind,” the US has since suffered the loss of its ambassador to Libya and is standing on the sidelines as Libyans try to put together a new political system. Today Washington is baffled, almost paralyzed by the ongoing tragedy in Syria. Having mistakenly seen an opportunity to roll back Iranian influence in the Mashriq, the US and others have discovered that the Asad regime has considerable staying power; moreover, with the Syrian opposition deeply fragmented and infiltrated to some extent by Al-Qa’ida loyal Islamist extremists with deep antipathy toward the US and Israel, it faces potential embarrassment. In a hint of the multipolarity to come, Russia and China have shown that they cannot be left out of the equation.

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It is ironic that the authoritarian oil-rich monarchies on the Arab side of the Gulf are also unhappy with American policy. Frightened by the example of popular uprisings elsewhere, the Gulf rulers have responded by throwing money to pacify potential protesters and by using their mukhabarat (police and intelligence services) to crack down on alleged plotters. They have not been happy with what they see as Washington’s equivocal position. While the US has basically reiterated its support for the beleaguered monarchical regime in Bahrain, which cannot suppress the ongoing protests, it has urged the Bahrain authorities to be more inclusive. This irritates the Bahrain authorities and, especially, their powerful Saudi neighbors who would like the US to accept their claim that the unrest is an Iraninspired effort to overthrow the monarchy. Furthermore Gulf rulers—especially Saudi Arabia and the UAE—are unhappy with America’s tentative support for the Muslim Brotherhood-dominated regime in Egypt. The Gulf rulers, who appear to be mounting a counter-revolution against the Arab Uprisings to their west and south, are unnerved that the Americans, who did little to keep their allies Ben Ali and Mubarak in power, could at some point also leave them in the lurch. American hegemony might also be challenged by the diminishing importance of Middle East oil. If US policies involving Palestine–Israel, the “war on terror,” Afghanistan, Iraq, Iran, and the Arab Uprisings may be described as “self-inflicted wounds” to American hegemony, the breakthrough in drilling technology known as “fracking,” or the hydraulic fracturing unearthing natural gas and oil in America’s Midwest, could eventually also loosen American dominance of the Middle East. The idea of “protecting access to Middle East oil,” has been a staple of US policy since World War II, but now experts predict that the US may become the world’s largest oil producer by 2020 and be fully energy self-sufficient by 2035.15 Might this condition not begin to erode the US military security commitment to a region that begins to seem a bit dispensable? Such a trend would differ from those self-inflicted policies that have reduced US credibility and leverage in the region—squeezing out the US. In this case, it is a matter of a “loss of interest” that could hasten America’s marginalization. Against this factor, however, is the fact that America’s global allies in Europe and Asia continue to depend heavily on Middle East oil, and the giant American defense industries need a US presence to continue to dominate lucrative military sales to the region. Asia the Free Rider If you were a foreign policy official in Beijing or Delhi observing the setbacks that America is suffering in the Middle East, I think your reaction might be one of schadenfreude—yes, it is too bad that the Americans cannot get things right in the Middle East, and we have always left this region to them; but what can 15 Ian Bremmer and Kenneth A. Hersh, “When America Stops Importing Energy,” The New York Times (op.-ed.), 22 May 2013.

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we do? You would probably answer “nothing.” Why should they? Despite all the talk about Asia and the Middle East coming closer together there is still an enormous geographical and psychological distance between them. An Indian or Chinese policymaker with a Machiavellian turn of mind might actually argue that they should stay out of Middle Eastern quarrels as much as possible and let the Americans do the heavy lifting. Besides, Asia has internal problems of its own. As Indian President Pranab Mukherjee has said: “The existing divide between advanced and developing Asia must be bridged to make the 21st century an Asian century. To this end, while advanced Asia must maintain its economic ‘miracle,’ an environment must be created for the rest to catch-up and prosper.”16 Former Commerce Minister Bo Xilai (before his downfall in 2012) “warned that despite the hype about China’s economic growth, his country would remain a developing nation for the next 50 years. This was the time required for the benefits of economic progress to reach the vast swathes of the western region of China.”17 Chinese and Indian leaders seem to agree that there will be no “Asian century” unless their two countries establish a broad cooperative relationship—and this has not yet happened. Chinese President Xi Jinping sees a “bumpy and twisted road” ahead for Asia.18 Nevertheless, down the road, Asia’s thirst for energy will compel these distant powers to engage politically in the Middle East. China and India will continue to work toward projecting naval power in the Indian Ocean and Arabian Sea. Their oil and gas companies will continue to seek secure access to Middle East resources. Influential voices in the Gulf already are exhorting China and India to weigh in on the region’s contentious political issues. For example, Dr. Abdelkhaleq Abdulla, a well-known intellectual from the UAE, has confronted Chinese and Indian counterparts urging them not to stand on the sidelines if they want to benefit from the Gulf’s energy and financial resources. That means taking a pro-Palestinian position instead of “neutrality.” It means supporting their complaints against Iran and their concerns about extremist Sunni political Islam. In the event of an Israeli-American attack on Iran’s nuclear and military facilities and/or in the event of the collapse of the Bashar al-Asad regime in Syria all of these issues may suddenly come to the fore. Russia and China so far have served as blocking agents against US and European efforts to squeeze Iran and 16 Sheeja Moodubelle, “Udupi: Pranab Mukherjee Speaks on Role of India in Asian Economy,” Daijiworld, 26 May 2012. Accessed on 3 June 2013. http://www.daijiworld. com/news/news_disp.asp?n_id=138865. 17 Ramananda Sengupta, “‘India’s Power is Infinite,’” Rediff India Abroad, 20 March 2006. Accessed on 3 June 2013. http://ia.rediff.com/money/2006/mar/20asoc3. htm?q=tp&file=.htm. 18 Xi Jinping, “Working Together Toward a Better Future for Asia and the World,” (remarks to the Boao Forum for Asia Annual Conference 2013, Boao, Hainan, China, 7 April 2013). Transcript, accessed on 3 June 2013. http://news.xinhuanet.com/english/china/201304/07/c_132290684.htm.

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bring down the Syrian regime. In the event of a Gulf war, especially if it spreads to involve Hezbollah in Lebanon against Israel, where will “Asia” stand? It may be to China and India’s geopolitical advantage to take a more active role in Middle East policy, considering their long-term dependency in Middle East energy resources. This will be a slow if steady process. The convergences between Asia and the Middle East, although increasing, have been confined mainly to economic and commercial dealings. Their political clout may be exaggerated, at least for now. However, China’s recent foray into the Palestine–Israel conflict, with the near simultaneous visits to Beijing by Mahmoud Abbas and Benjamin Netanyahu in the spring of 2013, may be a sign of things to come. The United States may be diminished but it is certainly not going away—it will continue to be the dominant military force in the region. For the time being China and India may be perfectly content to let the US play this role in the interest of regional stability but largely because of its inept policies America’s influence is diminishing. The day is coming when China and other Asian powers will become active participants in Middle East diplomacy, and that may be all to the good. Lately the US has announced the deployment of up to four littoral combat ships to Singapore, and there may be additional augmentation of the American military presence adjacent to the Strait of Malacca and elsewhere in the Indian Ocean.19 Washington is also supporting India’s nascent projection of naval power eastward. If this and other Asian deployments are intended to check Chinese encroachments, they also may constitute a staging ground for future American military power projection toward the Gulf. As Jon Alterman has observed, it is becoming easier to project US power across the Indian Ocean than across the Atlantic and the Mediterranean.20 In the long run we may be seeing the creation of a new transregional system centered on the Indian Ocean, but in the short run Asia and the Middle East are still quite distinct and separate systems of interaction and competition. The US has not been very successful in maintaining stability in the Arabian Peninsula–Persian Gulf area (the scene of three major wars since 1980), despite its substantial military presence; and now it is losing influence and credibility. But this is not due to the rise of Asia; it is mainly self-inflicted, owing to the lack of clear and consistent policies for dealing with a region undergoing an historic upheaval.

19 Marcus Weisgerber, “Agreement Calls for 4 U.S. Littoral Combat Ships to Rotate through Singapore,” Defense News, 2 June 2012. Accessed on 3 June 2013. http://www. defensenews.com/article/20120602/DEFREG03/306020001/Agreement-Calls-4-U-SLittoral-Combat-Ships-Rotate-Through-Singapore. 20 Jon B. Alterman, “The Asia Pivot,” Middle East Notes and Comment (Washington, DC: Center for Strategic and International Studies, January 10, 2013.

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Acknowledgments I gratefully acknowledge the research assistance of Rana Khoury. Earlier versions of this paper were delivered at conferences at the College of William and Mary and the American University of Beirut.

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Chapter 5

No Spring for Migrant Workers: Split Labour Market Undermines Lebanon’s Fragile Identity Elizabeth Picard

Arab Uprisings of the 2010s against authoritarianism and corruption were quickly labelled part of the ‘struggle for democracy’. While the term was used in vague and often contradictory manners by opponents of the incumbent regimes, by street protesters and by foreign supporters, its implications are manifold. As explained by T.H. Marshall in 1950, the struggle for democracy implies fighting for three sorts of rights: political rights, civil rights and social rights.1 In the Middle East, ideas of citizenship and equality before the law are more often than not challenged because of overwhelming social and economic inequalities. Among the citizens of a state and among the inhabitants of a country, who is entitled to social welfare, health and education? How do the inequalities of access to these rights interfere with the respect of political and civil rights? How do they contribute to representations of the self as a citizen, of the citizens as a nation, of the state as a common good? Such questions obviously need to be raised for several Gulf States too, where foreign workers have long brought a crucial contribution to economic growth while remaining excluded from national rights and wealth. By contrast, they remained understudied in the Arab Levant until recently. Still, the labour market in Lebanon can be considered quite similar to the labour markets in Kuwait or Bahrain; the economy of Lebanon can be considered a rent economy comparable to those of the Gulf States; and the legal status and practical treatment of foreign workers in Lebanon obey the same rules known in the Gulf as kafala (sponsorship). Moreover, in Lebanon, like in the Gulf States, the foreign workers’ issue underlines flaws in nation building and contributes to the fragmentation of domestic ethnic and confessional groups. Lebanon has often been labelled a ‘microcosm’ of the Middle East, a place to study events and trends which would soon spread in the Arab East. In this time of 1 As reminded by Anh Nga Longva, ‘Citizenship in the Gulf State. Conceptualization and Practice’, in Citizenship and the State in the Middle East: Approaches and Applications, ed. Nils August Butenschøn et al. (New York: Syracuse University Press, 2000), 184, quoting T.H. Marshall, Citizenship and Social Class (Cambridge: Cambridge University Press, 1950).

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social upheaval and political change in the Arab world, the case of Lebanon and the current situation of Asian migrant workers in Lebanon might offer an insight into the future of the Gulf states. An often heard self-satisfied comment on the Uprisings in the surrounding Arab countries is either that Lebanon, having long been a paragon of democracy did not need a revolution like its neighbors or, alternatively, that it was the first nation in the Arab world to lead a successful popular intifadha in the Spring of 2005, which obtained the rapid withdrawal of the Syrian occupation forces. Eight years later this optimistic judgment remains questionable: notwithstanding the dramatic episodes of the summers of 2006 (the Israeli war over Lebanon) and 2007 (the army war against an Islamist insurgency in Nahr al-Barid). The local political scene is characterized by a toxic stalemate between two rival coalitions: the ‘8 March’ parties dominated by Hezbollah and supported by Syria and Iran; and the ‘14 March’ forces under the leadership of the Hariri’s Future Party which is allied with the Saudis and the West. Since 2005, expectations for constitutional reform and public accountability have diminished year by year, and street politics have turned more violent every year. Yet, the Arab Uprisings, especially the demonstrations in Tahrir square in Cairo and the mobilizations in Syria have resounded in civil society associations in Lebanon as well as among militant organizations. ‘Here [in Lebanon], it was heard, we don’t suffer from one dictator but from eighteen [in reference to the leaders of legally empowered confessional groups].’2 Calls for constitutional reform, the suppression of the sectarian system and reining in its ruling elite mobilized more than 3,000 people on 27 February 2011, 10,000 and 25,000 people on 6 and March 20, in rallies called respectively by Leftist, democratic secular collectives, independent activists and political parties such as the Lebanese Communist Party (LCP) and the People’s Movement.3 It was the birth of several campaigns and gatherings outside the 14 and 8 March polarization and the classical left. Civil movements were mainly motivated by the inability of Lebanon’s ruling class to deliver structural reform. The movements acquired new layers of activists around the country, such as the Haqqi ‘alayyi (‘my right’) campaign in Beirut, the ‘Tripoli without arms campaign’, the ‘Civil Forum’ in the Beqaa, and the ‘Amal mubashar (‘Direct Action’), a coalition of independent activists in Beirut, the Beqaa and the Shuf. However contradictions soon started to surface, as radical groups argued that a more revolutionary movement was needed to continue the battle to bring down the whole system. Political parties from both 14 and 8 March also tried to hijack 2 For a reflection on authoritarianism in postwar Lebanon see Farid El-Khazen, ‘The Postwar Political Process: Authoritarianism by Diffusion’, in Lebanon in Limbo: Postwar Society and State in an Uncertain Regional Environment, ed. T. Hanf et al. (Baden-Baden, Nomos Verlagsgesellschaft, 2003), 53–74. 3 Marie-Noëlle AbiYaghi, ‘Civil Mobilisation and Peace in Lebanon: Beyond the reach of the ‘Arab Spring’, Conciliation Resources, 24 (2012), accessed January 25, 2014. http://www.c-r.org/accord-article/civil-mobilisation-and-peace-lebanon.

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the movement and, finally, the revolt against the regime in Syria added a new problem: whether or not to support it? As the deadline for organizing quadrennial legislative elections approached, controversies over the Electoral law stiffened, showing the underlying fragmentation and paralysis of the political class. Distrust and despair delegitimized the political arena. The capacity for political mobilization and the long history of political engagement noticed by social scientists4 seemed to have run out of steam after the national elections in 2009. In contrast, one could observe a steady increase in the voicing and actions of labour unions and civil society organizations in defence of labourers and employees, protesting against low salaries, unemployment, the lack of health coverage, the rising cost of basic commodities and the deterioration of working conditions. Beyond the negative effects of the deepening political crisis and financial uncertainty, social conditions have steadily deteriorated over the past half-decade while the Lebanese were enduring the consequences of the world economic crisis and the Arab Uprisings.5 Therefore, social mobilization, which had long remained contained by the confessional political leadership, hit the headlines in spite of the low level of unionization.6 In the early 2010s, ‘signs of life in various labour movements’ suggested that ‘Lebanon’s stillborn revolution’ might lead up to a substitution of social mobilization for the aborted political struggle.7 Electricity contract workers carried out the longest workers’ uprising in Lebanon’s modern history; public school teachers and the Union Coordination Committee representing teachers, professors, and public administration staff and retirees, led weeks of strike and protest; workers and employees in the Spinneys supermarkets announced the much publicized and widely supported creation of a new union; Beirut municipality employees, soon followed by their coworkers in Beiteddine and Tripoli, demonstrated in the streets; the bank employees’ association took escalatory steps to bring the banks association to agree to renew their collective labour agreement,

4 Karam Karam, ‘An Analysis of Political Change in Lebanon in the Light of Recent Mobilization Cycles’, in The Arab State and Neo-liberal Globalization. The Restructuring of State Power in the Middle East, ed. Laura Guazzone et al. (Reading: Ithaca Press, 2009), 47–73. 5 With a national debt up to 58 MM$, no government budget approved since 2006 and a slowing down of growth from 5 per cent to 1.5 per cent in 2012. See ‘Entering a Grey Area: Lebanon’s Economic Challenges in the Arab Spring’, Roundtable Reports Series (2011), accessed January 25, 2014. http://www.lcps-lebanon.org/publications/1345209118economic_challenges.pdf. 6 Only 5 per cent of employees and workers adhere to a union according to Mohammad Zbeeb, ‘Bid Farewell to a Lebanese Union Impostor’, al-Akhbar (English), December 28, 2012, accessed April 10, 2014. http://english.al-akhbar.com/node/14506. 7 Rasha Abouzaki, ‘Lebanon’s Stillborn Revolution’, al-Akhbar (English), July 18, 2012, accessed April 10, 2014. http://english.al-akhbar.com/node/9946.

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etc.8 Indeed labour and unionism issues became subjects of mass contest as in the other Arab Uprisings.9 This trend could be noticed parallel to another one on the Lebanese scene: mobilizations in favour of foreign workers. While human rights associations proliferated in the wake of the civil war,10 the Syrian withdrawal in 2005 gave them a new boost, especially for advocacy groups such as Ruwwad (2004) which cares for imprisoned refugees and illegal migrants, Kafa (2005) which opened a branch devoted to migrant workers in 2010, or al-Mufakkira al-Qanuniyya (‘the Legal Agenda’) founded in 2009 by the well-known lawyer Nizar Saghiyeh. In Lebanon, dozens of such associations11 are working along confessional charity NGOs such as Caritas in support of foreign workers, endeavoring to solve judicial and security issues, defend their rights and alleviate their harsh daily life. They are organized and powerful, make an intensive use of the Internet, and mobilize volunteers, and local and international donors. An important novelty of the 2010s is that after long restricting their interest to (extremely ill-treated) female domestic workers12 these NGOs and associations have become aware of the precarious situation of thousands of ‘ummal wafidin13 working in construction, agriculture and factories. Although the foreign workers may not play an active role themselves, the associations go public and voice complaints and demands that echo those of Lebanese workers. In 2011, World Bank estimates put the total workforce in Lebanon at 1.2 million (for a population of around 4.2 million) of whom some 760,000 were foreigners (17.8 per cent of the population, around 50 per cent of the workforce). Direct observation and government statistics, however faulty they may be,14 and rough comparisons between figures from the Central Administration of Statistics 8 These are the most publicized social mobilization documented and discussed in the daily al-Akhbar since April 2012 by journalists from the economic and social desk Rasha Abouzaki, Hassan Chakrani, Faten Elhajj, Mouhamad Wehbe, Mohammad Zbeeb and others. 9 Marie Duboc, ‘La question syndicale comme objet contestataire’, in Au coeur de révoltes arabes. Devenir révolutionnaires, ed. Amin Allal et al. (Paris: Armand Colin, 2013). 10 Karam Karam, Le Mouvement Civil au Liban. Mobilisations, protestations et revendications associatives dans l’après-guerre (Paris: Karthala, 2006). 11 ‘Lebanon Support’, Daleel Madani, Civil Society Portal, accessed January 25, 2014. http://daleel-madani.org. 12 A choice, one of my interviewees argued, ‘dictated by the feminists, Secretary of State Clinton and US funding’. 13 Arabic translation for foreign worker. 14 Studies on the workforce in Lebanon stress the difficulty of access to up-to-date, reliable and significant data on the recruitment and employment of foreign temporary workers (Sensenig-Dabbous, Hourani, op. cit., 2) mainly due to the inability/reluctance of the Lebanese state to publish useful statistics. Most of my interviewees and written sources suggested that official figures have to be multiplied by three in order to report the real number of foreign workers. According to unofficial estimates, the Ministry of

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for 1998 quoted by Young (p. 6) and the 2010 estimate by the Pastoral Care of Afro-Asian Migrant Workers (PCAAM) quoted in the 2011 CARIM Report,15 all show a sharp increase in foreign manpower, and a particular growth in Asian labor immigration as well as a new and important African immigration in contrast to the global decrease of Arab manpower. Table 5.1

Breakdown of official foreign labour in Lebanon (excluding Syrian and Palestinian)

Arabs Non-Arab Asians Africans

1998 23,854 42,042

2010 18,755 76,645 46,812

Observation of these new trends in the context of diverse but significant Arab revolts led me to propose a hypothesis on the current mobilizations in Lebanon. In line with comments by specialists on migration in the Middle East who suggested that ‘there is a thread linking protest and international migration’,16 I proposed to make this thread visible and relevant to understand the new developments on the social scene in Lebanon. Namely, I noticed that the Minister of Labour in the ‘8 March’ Miqati government formed in June 2011, Charbel Nahas, put together a reform package to ensure the periodic adjustment of wages, to redistribute revenue from rentier to productive services, to reinvigorate the role of the unions and to create the basis for universal health care in Lebanon. Among other things, Nahas argued in favour of respecting international norms relating to the treatment of migrant workers.17 He advocated extension of the minimum wage rule to foreign Labour delivered 185,000 work permits in 2011 (this figure does not include permits for Palestinians or Syrians) – of which 45,000 were for non-domestic jobs. 15 Martin J. Mc Dermott, Report of the Committee on Pastoral Care of Afro-Asian Migrant (PCAAM) workers in Lebanon to its president Bishop Elias Nassar (2010), quoted in Sensenig and Hourani, 39. 16 Philippe Fargues, ‘Voice after Exit: Revolution and Migration in the Arab World’, Migration Information Source, May 11, 2011, accessed January 25, 2014. http://www. migrationinformation.org/Feature/display.cfm?ID=839. Before discussing Arab emigration toward Europe, Fargues mentions migration processes in the Arab lands generally. 17 Intervention in a closed seminar on migrant labour, Institut Français du ProcheOrient, November 3, 2012. The Lebanese authorities have been reluctant to ratify international agreements on migrant workers such as the ILO conventions of 1949 and 1955, and the 1990 Convention on the Protection of the Rights of all Migrant workers and members of their Families. Eugene Sensenig-Dabbous, Guita Hourani’, Towards Effective Temporary Labor Migration Schemes Report on Lebanon and Jordan’, CARIM

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workers ‘not for humanitarian reasons but in order to boost the labour market’.18 Although new in Lebanon, such a discourse appeared to fit the ‘global legalist narrative’ of equality, secularism and the rule of law developed by transnational forces in accordance with the policies of the great powers.19 Following the theory of migrations and transnationalism inspired by Wallerstein,20 it is tempting to see the democratization discourse currently spreading over the Middle East impact on the integration of migrant workers in the receiving countries and boost trans-border social networks. In the case of Lebanon, such promotion of democracy would result in empowering the migrants, especially the non-qualified migrants, and reducing the local competitiveness of their low salaries. My central hypothesis was that the social scene might witness a strategic bridging between Lebanese workers and their unions on the one hand, and foreign workers and their associations on the other in order to promote social measures to their common benefit. In other words, if there was to be a ‘revolution’ in Lebanon, it would be primarily through the spillover of a social movement across national boundaries, by means of the de-sectorization of contentious politics and the concerted collective action of activists who, until then, have rarely cooperated in their struggle against economic and political domination. In view of the paralysis of the political sphere, and taking advantage of the ‘conjunctural fluidity of social relations’, the unskilled Lebanese labourers and the exploited migrant workers would be able to jointly ‘mobilize their resources’ beyond their conflictual sectoral goals in order to lead the country on the path of transition.21 Field research to test this hypothesis was conducted during two 15-day visits in Lebanon, in November 2012 and March 2013. I interviewed stakeholders such as union members and leaders in GCLW (General Confederation of Lebanese Workers) and FENASOL (Federation of Workers and Employees Unions in Lebanon, a split from GCLW), government authorities in the Security Directorate and an ex-Minister of Labour. I met ILO (International Labour Organization) specialists such as Azfar Khan and Mustafa Said. I visited civil society organisations devoted (Consortium for Applied Research on International Migration) Research Report 2001–08 (2011), accessed January 25, 2014. http://hdl.handle.net/1814/19882. 18 Interview with Azfar Khan, senior migration specialist, International Labour Organization, Regional Office for Arab States, Beirut, November 9, 2012. 19 David Mednicoff, ‘The Legal Regulation of Migrant Workers, Politics and Identity in Qatar and the UAE’ in Migrant Labour in the Persian Gulf, ed. Mehran Kamrava et al. (New York: Columbia/Hurst, 2012), 187–215. 20 Stephen Castles and Mark Miller, The Age of Migration: International Population Movements in the Modern World (New York: The Guilford Press, 2003). Castles’ hypotheses have been deconstructed for the Gulf monarchies by Claire Beaugrand, ‘Politiques de non-intégration dans les monarchies du Golfe. Discuter les raisons de leur pérennité’, Transcontinentales 8/9 (2010), accessed January 25, 2014. http://transcontinentales.revues. org/793. 21 Michel Dobry, Sociologie des crises politiques. La dynamique des mobilisations multisectorielles (Paris: Presses de la Fondation Nationale des Sciences Politiques, 1986).

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to the support of migrant workers: Frontiers (Ruwwad), Lebanese Labour Watch (al-Marsad al-Lubnani li-Huquq al-’Ummal wal-Muwadhdhafin), Arcenciel and Caritas-Lebanon. I corresponded with executives in labour import companies and members of the AliBaba network. I discussed with analysts such as Elisabeth Longuenesse (IFPO), Paul Tabar, director of LAU (Lebanese American University) Institute of Migration Studies, Assaf Dahdah, a PhD student in anthropology at Université de Provence and Karam Karam (Common Space Initiative for Share Knowledge and Consensus Building) I was given the opportunity to present my preliminary hypothesis in a seminar at IFPO (3 November 2012). Participants unanimously stressed that no real desectorization was taking place in Lebanon, although the rise in activism and protest I had noticed was beyond question. While they did not dismiss the possibility that social mobilization could successfully substitute for political activism in the current deadlock, they concurred in doubting whether it would be possible to build a bridge between national and foreign claims, and establish cooperation between the two labour sectors. Contacts, interviews and readings, namely of Michael Young’s report22 and Mary Kawar’s studies,23 only confirmed these early answers. The second seminar on Foreign Workers in Lebanon organized by Elisabeth Longuenesse at IFPO (20 March 2013) brought further confirmation with additional comments and elements of comprehension. Yet, my curiosity remained and my early hypothesis morphed into a new series of questions: which elements, which dynamics and conditions explain the current situation of the labour market in Lebanon and the endurance of the boundaries between the various categories of exploited labour? Should we look into the Lebanese polity or into transnational labour networks to understand the current situation? How do the national and the international dimensions meet and connect, around which crucial matters, through the mediation of which actors? And what could be the consequences of such structure for migrant workers in Lebanon and for the Lebanese social fabric? Reflecting upon these questions and examining the documentation collected during fieldwork led to three complementary tracks of analysis: the political economy of globalization without liberalization in countries such as Lebanon requires that the labour market remains split into competing segments; while workers from these various segments are stuck in a common no-win situation, agents all along the trans-boundary migratory networks cooperate to their mutual benefit. Therefore, social dynamics and power hierarchies have to be assessed 22 Michael Young, Migrant Workers in Lebanon (Beirut: The Lebanese NGO forum, 1999), accessed 25 January, 2014. http://www.lnf.org.lb/migrationnetwork/mig3.html. 23 Mary Kawar is an ILO researcher working on issues related to skills and employability, employment policy, youth employment and migration in the Arab East. Mary Kawar and Zafiris Tzannatos, ‘Private Sector Does not Demand Enough Skilled Labor’, LCPS Policy Brief (2012), accessed January 25, 2014. http://www.lcps-lebanon. org/publication.php?id=260.

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on a transnational basis taking into account the strength of social networks; the changing ethnoscape and social dynamics within Lebanon’s boundaries contribute to weaken the national narrative of the sovereign state if not its very existence. Globalization without Liberalization and the Split Labour Market Long before the neoliberalism of the Hariri era24 Lebanon was the Middle Eastern paragon of a globalized merchant and financial economy.25 Yet, before independence, and more than ever after the civil war, the globalization of the Lebanese ‘free market’ economy did not mean liberalization but rather the domination of powerful private interests. It did not imply the respect of fair competition and the rule of law by capital owners but rather their monopolization of wealth and the clientelization of the polity and society.26 This monopolistic logic prevailed as far as immigration and labour rights were concerned. The current situation of Lebanese legislation, carefully monitored by the ruling elite, is telling. The national strategy for inward migration remains extremely cautious and the regulatory frameworks dealing with migrant workers can be considered ‘poor and based on continuously changing policies’.27 As mentioned in note 15, Lebanon has not ratified the ILO conventions of 1949, 1955, the 1951 Geneva Convention and the 1990 convention on the Protection of the Rights of all Migrant Workers. Given the large influx of Palestinian refugees on its territory after the 1948–9 war, and given the unruly participation of hundreds of thousands of Syrian workers in its economy, it is understood that Lebanon will probably not ratify these instruments.28 24 Hannes Baumann, ‘The “new contractor bourgeoisie” in Lebanese politics: Hariri, Miqati and Faris’ in Lebanon after the Cedar Revolution, ed. A. Knudsen et al. (London: Hurst, 2012), 125–44. 25 Carolyn Gates, The Merchant Republic of Lebanon: Rise of an Open Economy (London: I.B. Tauris, 1998). 26 Reinoud Leenders, Spoils of Truce: Corruption and State Building in Post-war Lebanon (Ithaca: Cornell University Press, 2012). 27 The key governmental agencies managing the issue of migrant labour are the general security in the Ministry of Interior, the Ministry of Labour and the Ministry of Social Affairs. Sensenig-Dabbous, Hourani, 2011, op. cit., II.A. Lebanese Government Level, 30–34. 28 Lebanon currently excludes signing ILO conventions C118 on Equality of Treatment of Nationals and non-Nationals in Social Security, C97 on Migration for Employment and C143 on Migrations in Abusive Conditions and the Promotion of Equality of Opportunity and Treatment of Migrant Workers. Yet, it ratified the Palermo Protocol to Prevent, Suppress and Punish Trafficking in Persons, and Protocol against the Smuggling of Migrants by Land, Sea and Air, of 2000. A. Di Bartolomeo, T. Fakhoury and D. Perrin, ‘Lebanon, The Demographic-Economic Framework of Migration, The Legal Framework of Migration, The Socio-Political Framework of Migration’, CARIM migration profile

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The resulting informality of the migrant work market fits into the general handling of labour issues in Lebanon. According to a 2011 World Bank report, ‘only 29 per cent of Lebanese workers earn formal regular wages, the remainder being either informally employed, or self-employed, or unemployed’.29 It is commonly agreed that this percentage is greater among the 60 per cent of foreign workers, a large proportion of whom have entered Lebanon surreptitiously and illegally through the Syrian border or stayed in the country after expiration of their contract and visa. Consequently, two main features characterize the foreign labour market in Lebanon: it is a split market, and an informal market organized/disorganized for the optimal exploitation of human work force. Taking advantage of the participation of tens of thousands of skilled and unskilled Palestinian refugees in the 1950s and 1960s in a buoyant national economy while denying them the right to national integration (tawtin) provided an early model of disconnected policies for the business community’s handling of foreign workers: ‘restrictions on the Palestinians’ right to work lead to exploitative conditions but do not shut them out of the labour market.’30 The Syrian exception in terms of labour legislation reinforced its segmentation. The Syrian pattern of migration and its relationship to the labour market and Lebanese society at large differs from those of other Arab migrants such as the Egyptians and Sudanese. Already in the 1970s, Syrian workers were more numerous than the Palestinians and easier to employ and dismiss. Affirming a long agreed bilateral policy (1949, 1972) renewed in the 1994 Labour Agreement (following the 1991 Treaty of Brotherhood, Cooperation, and Coordination), workers get a three month visa every time they show up at the border and are not required to have a work permit or a sponsor (kafil). However, the long political and military involvement of the Ba’thist regime in Lebanon during and after the civil war made, and still makes, their case politically sensitive.31 Their number diminished drastically after the military withdrawal in 2005 but grew again dramatically when thousands of refugees fled their country in turmoil since 2011.32 (2011), accessed January 25, 2014. http://www.carim.org/public/migrationprofiles/MP_ Lebanon_EN.pdf. 29 Mohammad Zbeeb, ‘Bid farewell to a Lebanese Union impostor’, al-Akhbar English, December 28, 2012, accessed April 10, 2014. http://english.al-akhbar.com/ node/14506. 30 ‘Palestinians in Lebanon working but under precarious conditions’, International Labour Organization, November 20, 2012, accessed January 25, 2014. http://www.ilo.org/ beirut/media-centre/news/WCMS_BEY_PR_10_EN/lang--en/index.htm. 31 John Chalcraft, The Invisible Cage: Syrian Migrant Workers in Lebanon (Stanford: Stanford University Press, 2009). 32 ‘Anti-Syrian tide drives workers out of Lebanon’, The New York Times, March 4, 2005; ‘Lebanon and Syria: Situation of Syrians in Lebanon; violence against Syrians; political affiliation of Syrians; naturalization of Syrians in 1994 (1994–2009)’, Immigration and Refugee Board of Canada, November 17, 2009, accessed January 25,

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Beyond a hostile social discourse expressed across all confessional groups, they offer a ductile variation margin for the business community, not dissimilar to the role played by Pakistani Sunnis and Indian migrant workers in Gulf States such as Bahrain.33 Following the Palestinian and Syrian patterns, national and even ethnic differentiation prevailed. The legal and factual differentiation between nationals and foreigners, Arabs and non-Arabs, and between various non-Arab nationalities was due to the employers’ approach of splitting the market in order to take advantage of differences between native, unionized workers and undocumented immigrant, non-unionized workers from poorer countries.34 In 1971 for example, Ittihad ‘Ummal Balidiyyat Bayrut represented mainly southern Lebanese municipality toilers; in the immediate after-war Oger Liban carried on recruiting mainly Lebanese for the reconstruction and the street cleaning of downtown Beirut. However, progressively in the 1990s, Palestinian and Syrian manpower, then non-Arab migrants took over from Lebanese from the peripheral regions in these tasks and other unskilled jobs all over the country: in the construction sector and menial jobs in the agricultural and service sectors such as gas station attendants, janitors, cleaners, porters or sanitary workers, etc.35 Year after year, capitalists and managers chose to recruit in foreign countries with lower standards of living in search of lower wage demands: Egyptians then Sudanese were ‘imported’ in large numbers as well as Filipinos, then Sri Lankans and other Asian nationalities. A decade later these unskilled jobs have become the almost exclusive preserve of Asian and African migrants.36 Field studies show ethnic and national specialization of tasks by branch of activity and within firms, with specific nationalities restricted to specific occupations,37 and the clustering of workers of same sex and same origin.38 This allows employers to delegate the task of disciplining (in the Foucauldian sense) to the foreigners themselves, who enforce norms, statuses and hierarchies partly inspired by their milieu of origin. Besides 2014. http://www.refworld.org/docid/4b7cee9023.html; Fabrice Balanche, ‘al-’Ummal al-Suriyyun fi Lubnan, Le Monde Diplomatique Arabic Edition (2007); Ahmed Mohsen, ‘Syrian Workers Eyed with Suspicion after Uprising’, al-Akhbar English, December 5, 2011, accessed April 10, 2014. http://english.al-akhbar.com/node/2200. 33 Laurence Louër, ‘The political impact of labour migration in Bahrain’, City & Society 20 (2008): 32–53. 34 Edna Bonacich, ‘A theory of ethnic antagonism: the split labor market’, American Sociological Review 37 (1972): 547–59. I thank Dr. Louër for directing me to this reference during our fruitful discussion in October 2012. 35 Young, Migrant Workers in Lebanon, 4. 36 Interview with Ahmad Dirani, al-Marsad al-Lubnani li-huquq al-’ummal walmuwadhdhafin, March 13, 2013. 37 Ibid. At Haytham, the oil company which belongs to the Shiite foundation Mabarrat, the Lebanese are employed to deliver gas and Asians for car wash. 38 Elisabeth Longuenesse, Paul Tabar, unpublished preliminary research in food plants and cleaning firms in the Beirut district, February and March 2013.

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facilitating social control, this strategy of splitting the labour market encourages a global downward spiralling of salaries on the national market, because Lebanese labour laws do not govern migrant workers’ unskilled services: they rarely reach the minimum wage set by the law and are often not registered in the social security system.39 For most migrants, the result of the segmentation of the labour market is the extreme insecurity and even destitution of a large majority of them. Only a skilled minority makes its way into the regular job market. Although studies are rare and most of them deal with the situation of domestic workers40 there is, as mentioned in the introduction to this chapter, a recent concern among burgeoning NGOs and in the civil confessional and trans-confessional society for the (il)legal treatment they undergo from state authorities (especially from the Ministries of Interior and Justice) and employers’ organizations. Their lack of social and health protection, their often appalling housing conditions, their dreadful working conditions (10 hours a day, six days a week or more) and the meanness of their ‘salary’ a part of which often remains in the hands of employers and middlemen are not new issues.41 However, they have only recently begun to draw public attention in relation to considerations on the meaning of democracy in Lebanon in comparison with neighbouring countries. In fact, media campaigns and festive demonstrations against xenophobia have mobilized a new generation of militants sharing a common alienation from Lebanon’s traditional prejudices and political leadership.42 Still, as underlined by all interviewees, nothing, or nearly nothing, of this has mobilized Lebanese labour unions.43 Rather, the GCLW is ‘naturally’ inclined

39 The Lebanese Salaire Minimum Interprofessionnel de Croissance (SMIC) was raised to $450 per month in January 2012. 40 Nayla Moukarbel, Sri Lankan Housemaids in Lebanon (Amsterdam: Amsterdam University Press, 2009); Kathleen Hamill, ‘Trafficking of migrant domestic workers in Lebanon’, Kafa (2011), accessed January 25, 2014. http://www.kafa.org.lb/ StudiesPublicationPDF/PRpdf37.pdf. 41 ‘A profile of sustainable human development in Lebanon, part III D’, UNDP (1997), accessed January 25, 2014. http://www.lb.undp.org/content/lebanon/en/home/ library/democratic_governance/the-report--a-profile-of-sustainable-human-developmentin-lebano.html. 42 Telling examples are the 2012 antidiscrimination internet campaign Shayef halek? (‘Can you see yourself?’), accessed January 25, 2014. http://www.cheyef7alak.com/ and the Jadaliyya video, Racism and segregation at the Lebanese beaches, July 13, 2012, accessed January 25, 2014. http://www.jadaliyya.com/pages/index/6430/racism-and-segregation-atlebanese-beaches-(video). 43 I was told of an attempt by the Progressive Socialist Party (led by Druze chief Walid Junblatt) to raise the issue; of a failed joint mobilization of Lebanese drivers and foreign cleaners at Sukleen in downtown Beirut during Muhammad Fneish’s ministry (July 2008 – November 2009); and of a recent joint strike in an Ouza’i factory.

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towards protecting Lebanese workers against lower-priced migrant competition.44 Union leaderships ‘advocate for the rights of the Lebanese workers before the government in order to regulate the flow of migrant workers and preserve them from the migrant labour competition’.45 They refuse to get involved in the support of foreign workers and the protest against their legally organized insecurity.46 In return, less than 1 per cent of non-Lebanese toilers join unions although they are legally entitled to become simple (i.e. non-voting non-eligible) members.47 While the labour association was among the main actors of the political scene before 1975 when it enjoyed the support of powerful leftist parties, it is now shattered and weakened by a deadly sectarian competition. The GCLW went as far as ruling out the salary rises and other measures in favour of the working class proposed by Minister Nahas in 2012, in order to please its powerful political patrons, so fighting for the rights of migrant workers would be a far more remote objective. Yet, the exclusion of foreigners from the benefits of public welfare has several lopsided effects on the domestic labour market besides its harmful effects on the migrant market. It raises the domestic unemployment rate as it excludes from unskilled Lebanese workers from the labour market since they are not likely to accept the same terms as foreigners as they (unlike most foreign workers) have to pay rent and other expenses and want to be covered by social security. In the long run, the recourse to cheaper labour does not translate into tangible economic and social benefits for Lebanese citizens since their salary remains low while the employment of cheap foreign labour is not reflected in lower prices.48 Tacit and Active Complicity in a ‘Mafia-Style’ Networking Migrant workers are the main losers in the current Lebanese process of deregulation of the labour market and the general paralysis of social movements, as confirmed by every study on their living conditions and net financial gains after reimbursing expenses for recruitment, travel, accommodation and sometimes residence and work permit.49 Like the Lebanese workers and unions, but for other reasons, they are tacit participants in a global economy of labour substitution for the sake of 44 Young, Migrant Workers in Lebanon, 52. 45 Sensenig-Dabbous, 40. 46 Ahmad Dirani, March 10, 2013. 47 Interview withYoussef Harb, head of the Textile and Leather branch in FENASOL, March 14, 2013. 48 UNDP, part III D (1997). 49 Most of the migrants finance their trip by raising resources through family sources, mortgaging/selling their property including house/land, taking loans at very high rates of interest or a combination of these. Seema Gaur and Prem Saxena, ‘Indian Labor Migrants in Lebanon: A Comparative Study of Migrants from Punjab and Tamil Nadu’, The Middle East Institute, accessed January 25, 2014. http://www.mei.edu/content/indian-labor-migrantslebanon-comparative-study-migrants-punjab-and-tamil-nadu.

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entrepreneurs and managers. The threat of physical and symbolic violence plays a major role in their acquiescence as an overwhelming majority remains ‘illegal’ both in terms of residence and/or of work (an interviewee spoke of 75 per cent of workers working illegally in the construction sector) and very frequently deprived of their passports, while unchecked xenophobic attacks make victims among them every week. Nevertheless, Asian and African foreign workers are more numerous every year in Lebanon where the economy of manpower importation is flourishing. A full study of this economy would require minute concrete observations of the numerous agents involved in the process beyond critics of the modern worldsystem and humanitarian stances. As Mark Granovetter has observed, each of these agents takes part in a transnational network made of a ‘chain of small scale interactions’.50 Families, churches, unions and associations, local authorities and national officials, especially embassies, police and immigration service officials, employment agencies in the sending and receiving countries, brokers, travel agencies, smugglers, traffickers and even NGOs, not to mention the workers and employers themselves. Each of them shares in the formation and operating of powerful transnational networks whose benefits s/he pursues for his/her own sake.51 Informality and illegality are the key characteristics of the functioning of these trans-boundary networks that escape international regulation. In the case of Lebanon, they also escape loose national regulation because the state is fragmented, weak, and dominated by private interests. A leading Lebanese political actor considers the system organizing the inclusion of foreign workforce in the Lebanese economy as a ‘mafia-style network’.52 Indeed, what is occurring today in and around Lebanon fits the model discussed by Kyle and Koslowski: ‘Tacit and active complicity is required by a range of people in the sending and destination regions … Smugglers and traffickers … are deeply integrated into the social fabric of indigenous settings … and are facilitated by a loose network of recruiters, middlemen, actual smugglers, local and foreign financiers, and government officials and police ….’53 Following their hypotheses I will now discuss the three main features that characterize the foreign labour market in Lebanon: privatization, commodification, and de-territorialization. First, the logic of the free market imposes itself over any other consideration along the chain of migration and foreign employment, all the more so in Lebanon where traditional laissez-faire policies were further fostered in the 1990s and 50 Mark Granovetter, ‘The strength of weak ties’, American Journal of Sociology 78 (1973): 1360–80. 51 N.M. Shah, ‘Emigration dynamics from and within South Asia’, International Migration 33 (1995): 559–625. 52 ‘Un maillage mafieux’, interview, March 2013. ILO officers disagreed with the formulation. 53 David Kyle and Rey Koslowski, ‘Introduction’, in Global Human Smuggling: Comparative Perspectives, ed. D. Kyle, R. Koslowski et al. (Baltimore: Johns Hopkins University Press, 2011), 1–7.

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2000s reconstruction period. Better known in the Gulf countries, the sponsorship (kafala) system governs the foreign worker market in Lebanon as well as in other Arab countries such as Syria, Jordan and Israel. It allows the externalization by the state of an important part of the control over the migrants in favour of employers and recruiters, and consequently ‘embodies the importance of private actors in migration management’.54 In the Lebanon of the 2010s, where political paralysis freezes the adoption of the yearly national budget and blocks decisions about structural reform there is hardly any national economic policy beyond the priority given to the banking and real estate sectors, even less an immigration policy beyond the rejection of Palestinian tawtin and the Syrian presence. Therefore, the decision to recruit foreign manpower in branches of activity such as agriculture, services and small industries does not depend on the existence of national manpower in these sectors nor does it respond to a national scheme to develop them. Rather, it depends on the comparative advantage offered by foreign toilers over nationals from the point of view of individual entrepreneurs. Although national labour laws apply in principle to migrants also55 the employer and/or broker (kafil) imposes all kinds of unfair terms of working conditions, wages and limits of mobility (end of contract; holding of passport …) on their foreign employees. He/she possibly avoids legal duties by outsourcing workforce i.e. turning to interim and importing agencies – thus gaining a comfortable margin of freedom and benefit; the same margin is withheld from his employees. Inevitably, the privatization of the foreign labour market opens the way to informality and illegality in the status, activities, wages and movement of immigrants.56 Administrative controls are rare and hindered by powerful political bosses, and employers feel free to impose their terms on workers who mostly do not read Arabic and urgently need a salary. In return, a large proportion of imported workers quit their jobs before the end of their contracts in order to escape severe working conditions and heavy reimbursement charges. Many stay in Lebanon and find another wild contract in another company or work freelance as they cannot get hold on their passport until they reimburse their kafil. Also, in order to alleviate the payment of sojourn and work permits, import agencies (Lebanese makatib al-’amal) recruit unskilled immigrants for domestic or cleaning work and send 54 Mehran Kamrava, Zahra Babar (eds) ‘Migrant Labour in the Gulf’, Georgetown University Centre for International and Regional Studies, Working Group Summary Report 2 (2011), accessed January 25, 2014. http://www12.georgetown.edu/sfs/qatar/cirs/ migrantlaborsummaryreport.pdf. 55 The Lebanese Labour code (1946, amended in 1993) applies to foreign workers except in agriculture and domestic employment. Foreign workers are entitled to receive health coverage during the period of their contract. 56 Julien Bret, ‘Circulation transnationale et travail disqualifié au Moyen-Orient. Les travailleurs non-arabes au Liban’, Hommes et Migrations No. 1266 (2007): 96–107; Binod Khadria, India Migration Report 2009: Past, Present and the Future Outlook (New Delhi: Cambridge University Press, 2009).

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them as full workers in remote industrial areas in the North or the Beqaa valley.57 As mentioned earlier, around two thirds of the foreign workers participating in the Lebanese economy work in the informal sector. The cost for individual workers in terms of health and retirement pensions is immeasurable. It is also heavy for the Lebanese state in terms of tax evasion. Besides, it raises issues of national security, since the Security Directorate lacks the means to monitor the composition and size of the current populations living in the country and the internal security forces and police are not prepared to guarantee their safety when they are confronted with deep racial prejudices. If one considers the logic of the government, and the security aspect of the management of the population, the question of who is a foreigner becomes primordial in the end.58 It adds to the existing population segmentation and threatens the social pact between state and society. I will examine how this process of privatization affects the national identity of Lebanon In the third part. Secondly, the Lebanese situation suggests that, rather being the result of negotiations and deals between migrant workers with their social capital, and local production managers with their economic rationale, migrant employment is a fluid and uncontrolled process. Myriads of ‘exogenous’ key actors interfering at every juncture of the migration network are the decisive actors in international labour migration.59 These intermediaries of all sorts govern the migration network; they turn foreign manpower into a commodity and manpower import into a trade. They extract value from migrants as well as businessmen and share the profit of this commercialization between themselves.60 Private employment agencies may not be the most powerful agents along the network but they are certainly pivotal. While thousands of kilometres apart, recruiting offices in the sending country and placement offices in Lebanon can be considered ‘two sides of the same coin’.61 A main asset of their business is the bulk of information these agents master along the network and do not share with their ‘clients’ – both employers and employees – in order to beguile them.62 Here again migrant trade operates on the border of illegality either because 57 Interview withYoussef Harb, head of the Textile and Leather branch in FENASOL, 14 March 2013. 58 This idea is borrowed from Françoise Mengin, ‘Taiwan as the Westphalian Society’s Foucaldian Heterotopia’, Sociétés Politiques Comparées 5 (2008): 16. 59 Fred Krissman, ‘Sin Coyote Ni Patrón: Why the “Migrant Network” Fails to Explain International Migration’, International Migration Review 39 (2005): 4–44. ‘Government officials and their agents, employers and their supervisors, moneylenders, smugglers, landlords, and even many neighbors, coworkers, and acquaintances are all exogenous to the Massey model. In addition, many of these actors participate in migration networks for reasons that have nothing to do with altruism; these networks function for more purposes than familial affection or mutual aid’, 25. 60 N.M. Shah, ‘Emigration Dynamics from and within South Asia’, International Migration, 33 (1995): 559–625. 61 Samira Trad, interview, Ruwwad, 5 November 2012. 62 Khadria, India Migration Report, 30.

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legislation is complex (for example migrant workers who wish to regularize their residence situation by paying taxes to the Ministry of Interior cannot do so without jeopardizing their current situation); or it is incomplete (as neither minimum wage nor social security apply to foreigners according to Lebanese law); or because the authorities are unable/unwilling to enforce it: for example, migrant workers arriving in Lebanon see their passport confiscated by their kafil, although this discriminatory measure has been repeatedly condemned by the UN and fought by local human rights lawyers.63 The role played by political and social (sectarian and family) elites in enforcing, overseeing and cashing in on the foreign labour trade fits well with the traditional political economy of the ‘Merchant Republic’. Until today, there has been no systematic study of the ‘collusive transactions’64 linking political leaders to the business elite in order to facilitate the exploitation of foreign manpower at lowest cost. Yet, many observers agree that what they denounce in the domestic labour field as exploitation also takes place in the imported labour market, only in worse conditions. Sectarian and political leaders use their positions as lawmakers to facilitate administrative arrangements in favour of their business partners or for their own sake.65 The burying of Minister of Labour Boutros Harb’s proposed legislation66 in the parliamentary sands and the rejection of Minister of Labour Charbel Nahas’ aforementioned reform by Najib Miqati’s government are telling examples. The rationale behind such tactics is to raise entrepreneurs’ immediate profits in spite of the fact that ‘the reduction of production costs by employing cheap unskilled unmotivated manpower locks the structure of the economy into low productivity, low value-added jobs and low wages’.67 While agencies and political leaders play a leading role in the labour trade, making profit by selling foreign manpower is tempting for every actor along the migration network in a context of neoliberal globalization, even for the migrant workers themselves. Obviously, in the short term, many migrant workers appreciate their freedom from monthly taxes and social security contributions, and 63 Gulnara Shahinian, ‘UN Special Rapporteur on contemporary forms of slavery’, Mission to Lebanon Report (2012), accessed January 25, 2014. http://daccess-dds-ny. un.org/doc/UNDOC/GEN/G12/149/40/PDF/G1214940.pdf?OpenElement. 64 Dobry, Sociologie des crises politiques, 110. 65 The struggle of Spinneys supermarkets’ employees against their manager in 2012 revealed that sectarian leaders from various regions had ownership of the land where the retailer’s branches were installed. Only a small minority of foreign workers was involved in the struggle, and there was hardly a mention of their particular fate in the press. See the reports in al-Akhbar from August 2012 to January 2013. Also Elisabeth Longuenesse and Paul Tabar’s unpublished field work (2013) shows that local political forces are able to impose quotas of national and sectarian groups in neighbouring factories. 66 Marlin Dick, ‘Harb drafts laws to protect domestic workers’, The Daily Star, February 11, 2011, accessed April 10, 2014. http://www.dailystar.com.lb/News/Lebanon-News/2011/ Feb-11/61085-harb-drafts-laws-to-protect-domestic-workers.ashx#axzz2ySmbZX5j. 67 Kawar, ‘Private Sector Does not Demand Enough Skilled Labor’, 6–7.

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are therefore prepared to choose illegal networks.68 Here, the hiding or distortion of useful information by network operators plays a decisive role. A comparative study of Tamil and Punjabi workers in Lebanon showed that the former were mostly brought in by agencies on legal visas and were employed in the organized sector. While they were deprived of part of their wages, they migrated in relatively secure conditions. For their part many Punjabis had their migration arranged through a close family member already living in Lebanon. While such arrangement seemed to guarantee savings and security, early immigrants actually played the role of agents, obtaining sponsorship and work permits from local employers and selling them to prospective migrants in the name of family and friendship ties.69 In the end, if the Punjabis did better in Lebanon than the Tamils, it was thanks to the higher social capital that they had acquired before their departure from India. Their living conditions and financial gains were not improved, in fact the reverse, by their use of informal migration channels. This leads to the third characteristic of the foreign labour market in Lebanon: The political economy of foreign employment has become de-territorialized, that is, operated by trans-boundary actors and regulated by transnational networks. While this is a common characteristic of unskilled labour migration around the world, the process has been facilitated in Lebanon over the last 30 years. Non-Arab Asian migrants entering Lebanon were able to bypass state sovereignty thanks to the ‘special relation’ linking Lebanon to Syria. Moreover, in the recent period, migration agents also made extensive use of the internet to organize and protect their businesses. Both the recourse to a neighbour’s soil and dealing through the Internet are indications of the de-territorialization of the labour migration process. Among illegal foreign workers, a telling number have entered Lebanon by crossing the land border between Syria and Lebanon.70 Indeed traffickers in manpower were able to fly workers into Syria, since governments such as India had good relations and favourable customs agreements with the Ba’thist regime, allowing employment agencies to open branches in Damascus. Only on their arrival at Mezzeh airport would newcomers understand that Syria was not the end of their journey even when the company supposed to hire them had Syrian headquarters. This meant that many Asian migrants purchased their visas for Syria and most of their journey remained within a legal framework. Still, for the last part of their journey, they had to walk across the Syrian–Lebanese border, led by local smugglers who relieved them of their last dollars and sometimes of their passports. Unlike the Syrian workers who were free to cross back and forth over the border under the condition of paying public taxes and private fees, Asian (and 68 According to IDAL (Investment Development Authority), employees’ contribution should be 2 per cent of their monthly wage. 69 Gaur, Indian Labor Migrants in Lebanon, 6. 70 This information is available in global studies (Young; Sensenig-Dabbous, Hourani) and was confirmed by an anonymous employee in Caritas interviewed in Jisr el-Basha on 14 March, 2013.

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African) migrants entered the land of illegality where they remained trapped until they became able to reimburse months and years of sojourn permit and the price of their passage. It is necessary to point out that labour smugglers are generally far from the outlaws and other kinds of bandits imagined by state employees and international experts in distant offices. Before the Syrian uprising of 2011, passage across the Syrian-Lebanese border was sponsored by Syrian and Lebanese top political leaders and military officers, and controlled by police and customs administrations from both states that taxed them on their way, as testified in most victims’ narratives. In addition, it was not until relatively recently that most South Asian states had functioning embassies in Lebanon, with sections to care for expatriates’ interests. Local ‘honorary consuls’ were said to attend to their own financial business – even by participating in the immigration racket – rather than to the interests of the nation they were supposed to represent.71 Even now, these embassies do not have the concrete means to check the delivery of work permits and migration movements of their nationals in Lebanon.72 Finally, the de-territorialization of labour migration does not consist only of the capacity of trans-boundary actors to get around the rules and legal power on the ground. Increasingly, it consists of a dematerialization of the migration network through electronic communication and the negotiating and striking of deals whose participants are as efficient as they are inaccessible. Typing ‘Asian workers for Lebanon’ in to a web search engine leads to buoyant e-commerce websites with suggestive names, administered in China, Malaysia or elsewhere. Tens of companies often splintered between ‘mother’ and ‘franchise’ branches all over the Middle East and South Asia declare their business as ‘staffing for the construction and oil and gas industry’ and ‘providing skilled and non-skilled workers along with caravans and their tools’. Contacted by phone (their physical address was impossible to locate) ‘legal representatives’ of employment agencies in Beirut were eager to promote themselves as graduates of Business departments at obscure American universities. They were willing to discuss deals such as ‘providing 40 unskilled Nepalese for a cleaning enterprise in Beirut’ but soon retracted when understanding my inquiry was only academic. Although limited, my probe into such a complex network suggests that transnational networks dealing with human labour are at the forefront of aggressive financial capitalism.

71 For example, the Philippines, Sri Lanka and Ethiopia briefly forbade labour expatriation to Lebanon when they took direct charge of their interests in Beirut. For details see Young, op. cit., 16–18. 72 This led one of our interviewees to denounce the complicit and corrupt role paid by diplomats from the sending countries. Beirut, March 20, 2013.

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On the Future of Lebanon’s Identity Besides the steadily growing labour immigration discussed in this chapter, Lebanon is experiencing an important emigration, especially of skilled manpower, which grew rather than decreased after the ceasefire in 1990. Experts estimate that more than half a million people emigrated from Lebanon between 1975 and 1995.73 40 per cent of this emigration consisted of highlyqualified young people,74 as the rate of unemployment increased during the socalled reconstruction period, especially the unemployment of skilled workers, making universities a mere ‘export industry’.75 Mary Kawar comments on this trend by showing that ‘specific factors contributing to a low level of labour demand and skills include macroeconomic uncertainty, poor governance, corruption, and weak public infrastructure’, thus locking the private sector ‘in a low productivity and low-wage equilibrium’.76 To this day, the migration deficit of Lebanon has remained understated because the balance of remittances has stayed positive: Remittances from Lebanese abroad amounted to $7.2 billion in 2009 (20 per cent of GDP) while outward remittances flows were estimated at $5.7 billion (17 per cent of GDP).77 Still, the human dimension is striking: the World Bank put the stock of emigrants at 664.1 thousands (15.6 per cent of the population) for 2010 and the stock of immigrants at 758.2 thousands (17.8 per cent).78 Lebanon therefore became a labour surplus economy at both ends; the duality in its workforce ‘consists on the one hand, of highly skilled job seekers who often emigrate and, on the other hand, of low-skilled job seekers who usually remain in the country and are employed at low wages’.79 73 Kamal Hamdane, ‘Assurer du travail pour le retour des personnes qualifiées’, in The Return of qualified Lebanese migrants 1996 Symposium at AUB (Beirut: Ministry of Foreign Affairs, 2000), 44. 74 Hassan Jouni, La migration hautement qualifiée au Liban, CARIM Report (2010), accessed January 25, 2014. http://cadmus.eui.eu/bitstream/handle/1814/13677/CARIM_ ASN_2010_23.pdf?sequence=1; Kawar, ‘Private Sector Does not Demand Enough Skilled Labor’, 9 (quoting a 2011 WB report): ‘Lebanon has the highest emigration and skilled emigration in the Arab world’. 75 ‘National survey of household living conditions 2004–5’, Central Administration of Statistics (2007), 55–7, accessed January 25, 2014. http://www.bloggingbeirut.com/ docs/chapter3.pdf. 76 Kawar, ‘Private Sector Does not Demand Enough Skilled Labor’, 6, ‘Specific factors contributing to a low level of labor demand and skills include macroeconomic uncertainty, poor governance, corruption, and weak public infrastructure’. 77 ‘Migration and Remittances Factbook 2011’, World Bank (2011), accessed January 25, 2014. http://siteresources.worldbank.org/INTPROSPECTS/Resources/ 334934-1199807908806/Lebanon.pdf. 78 Ibid., 159. 79 Kawar, ‘Private Sector Does not Demand Enough Skilled Labor’, 4.

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An interesting and rarely noticed point in Kawar’s remarks concerns the changing identity of the workforce and the labour market in general. It is not only that foreign immigration overtook national emigration in the recent years. Kawar writes that ‘[migrant] low-skilled job seekers (…) usually remain in the country’, thus inducing a steady and significant change in the sociological composition of the local population. In Beirut as in Hong Kong and in other big buoyant cities of Asia, foreign migrants have gained visibility in the public space, especially on Sundays when local families remain at home and socialize privately. In suburban districts such as Dora in Beirut it is common to see migrants out and about. Here, banks, restaurants and cafés, food markets, shopping malls, medical and social centres connect them to their fellow nationals and their home countries. At the same time they transform the urban landscape and reveal themselves as real and visible inhabitants of Lebanon. Assaf Dahdah’s fine anthropological study of non-Arab women migrants in Greater Beirut80 shows how ‘in the context of high segregation and fragmentation that characterizes Beirut, [these migrants] contribute in the interstices of the legality and of the city to its “re-creation” as a new figure of “citadinity”’. In the district where these migrants invent new forms of public space, local and global stakes interweave in a process of ‘glocalization’ and contribute at the same time to shape new Lebanese national stakes. Indeed, identity tensions mixed with class tensions have grown along the visibility of foreign workers. The reverse face of the process of re-cosmopolitization of Beirut81 is the spreading of xenophobic reactions and racist crimes that strike Syrians in particular but do not spare newcomers from Asia and Africa. Parallel with the splitting of the labour market, one can observe the spatial and social segmentation of the society, building an invisible barrier between the Lebanese and other inhabitants of Lebanon. As underlined by a majority of my interviewees, only new NGOs acting under the influence of sister-bodies in the politically correct international civil society mobilize against exploitation and racism. True, they are more active on the Internet than on the ground. The state for its part remains inactive as it is dominated by powerful networks of interests that take advantage of the situation. As for workers’ unions and leftist parties such as the LCP that should include migrants’ rights in their current protest movement – if only for the sake of their own members – they have failed to overcome the dominant popular feeling that foreign workers are a threat to the domestic labour market. Like the state, they remain trapped in corporatist segmented mobilizations imposed by confessional leaders and business interests.

80 Assaf Dahdah, L’Art du faible. Les migrantes non arabes dans le Grand Beyrouth (Liban) (Beirut: Presses de l’IFPO, 2012). For an English abstract, accessed January 25, 2014. http://www.ifporient.org/node/1169. 81 For a comparable example see William Berthomière, ‘The emergence of a cosmopolitan Tel Aviv’, Migracijske i Etničke Teme 21 (2005): 243–53, accessed January 25, 2014. http://halshs.archives-ouvertes.fr/halshs-00573832/.

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In spring 2013, growing tensions in Lebanese political life brought the government to a standstill after Najib Miqati’s resignation (25 March 2013) and exposed the hollowness of the upcoming general election. The damaging effects of the military spillover of the Syrian crisis in the Lebanese arena function as a selffulfilling prophecy as Salafis and Hezbollahis engage deeper every day in support of each of the Syrian fighting camps. This dangerous drift cannot but convince public opinion of the failure of the official policy of ‘dissociation’ promoted by President Sleiman.82 For all varieties of Lebanese, Syria remains the key to all evils or solutions in Lebanon eight years after its military withdrawal. There are few observers and leaders who dare to acknowledge that the reason why the Syrian crisis exposes and shakes Lebanon more than other neighbouring countries such as Jordan and Turkey is to be found in Lebanon itself. Indeed, as this study has showed, Lebanon’s vulnerability has to be understood in terms of domestic as much as external factors. It is related to the steady but hardly noticed change in the identity of its society and polity during the past decades, especially after the end of the wars between 1975 and 1990 when migration issues increasingly transformed economic trends, social stakes and finally the national political order. On the issues of employment, the reining in of foreign manpower and dealing with foreign workers, the Syrian crisis is crucial – probably more crucial than the situation of the Palestinian refugees. Indeed the crossing of the border by Syrian businesses and financiers in the wake of the 1963 Ba’thist coup,83 the massive and unruly participation of Syrian unskilled workers in national production since the 1990s,84 and the recent arrival of several hundred thousand Syrian refugees in Lebanon fed negative representations, impacted the strategies of economic actors and shaped state policy toward immigration. In this respect, the tense relation between Lebanese and Syrian workers on the labour market offers a dominant pattern for the treatment reserved for migrants of other origins notwithstanding the fact that their numbers and needs make the Syrians threatening competitors in a depressed labour market. Beyond renewing the social question in Lebanon, the migrant phenomenon contributes to the renewal of the national question because ‘immigration constitutes the limit of what constitutes the national state … Immigration […] reveals in broad light the hidden truth and the deepest foundations of the social and political order we describe as national’.85 A study of this question in Lebanon is beyond the 82 ‘Too Close for Comfort: Syrians in Lebanon’, International Crisis Group, Report 141 (2013): 30. 83 Elizabeth Picard, ‘Managing identities among expatriate businessmen across the Syrian-Lebanese boundary’, in State Frontiers, Borders and Boundaries in the Middle East, ed. Inga Brandel (London, I.B. Tauris, 2006), 75–100. 84 John Chalcraft, The Invisible Cage. 85 Abdelmalk Sayad (1984), ‘Immigration and State Thought’ in Selected Studies in International Migration and Immigrant Incorporation, ed. Marco Martiniello et al. (Amsterdam: Amsterdam University Press, 2010), 166.

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scope of this chapter on migrant labour, workers’ mobilization and their failed cooperation. Yet a cluster of legal debates concerning the acquisition of Lebanese citizenship (to descendants of emigrants, to children of Lebanese women married to foreigners …) and political controversies on naturalization – especially after the 1994 decree86 – underlines a slow but deep change in the composition of the population living in the country. The often-discussed confessional dimension in this change (namely the diminishing role of the Christian communities) combines with a crude socio-economic dimension (the issue of poverty)87 which the Lebanese authorities often prefer to acknowledge in terms of ethnicity (Arab vs. non-Arabs). They nurture the illusion of the temporary sojourn of migrants (and the future return of émigrés) in order to justify discriminatory policies of nonintegration. Their short-sightedness conveys a defensive awareness of national identity because in Lebanon, as in the Gulf countries, ‘the migrants are the foil in relation to which the nationals perceive and define themselves’.88 Growingly concerned with their future, Lebanese workers use migrants as scapegoats rather than allies in their struggle against elusive trade networks.

86 Guita Hourani, ‘The 1994 Naturalisation Decree’, EUDO Observatory on Citizenship (November 2011), accessed January 25, 2014. http://eudo-citizenship.eu/docs/ LEB-1994NaturalizationDecree-GuitaHouraniNov2011.pdf. 87 Heba Laithy, Khalid Abu-Ismail and Kamal Hamdan, ‘Poverty, Growth and Income Distribution in Lebanon’, International Poverty Centre Country Study 13 (2008), accessed January 25, 2014. http://www.ipc-undp.org/pub/IPCCountryStudy13.pdf. 88 Anh Nga Longva, ‘Citizenship in the Gulf State’, 184.

Part III Nation-States, Sovereignty, and International Networks

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Chapter 6

Preventing the Emergence of a ‘Nested Security Dilemma’ in the Asian Maritime Domain: The Case of the Sino-Indian Relationship Chietigj Bajpaee

The maritime domain has emerged as a bridge linking the East, South and West Asian (or Middle Eastern) sub-regions, given the strategic importance of seaborne trade to regional economic growth, which has been complemented by the regions’ deepening resource interdependence. This has prompted growing emphasis on protecting the maritime ‘global commons’ from transnational security threats such as maritime piracy and terrorism, as well as arms, narcotics and people trafficking, and natural disasters. However, the logic of maritime cooperation threatens to be negated by preexisting inter-state rivalries. The unique nature of disputes in the maritime domain has also fuelled the recent escalation of maritime tensions. This includes the presence of multiple levels of interaction between states in the maritime domain, the growing internationalization of maritime territorial disputes, and regional norms of interaction that emphasize minimal institutionalization. A case in point is the relationship between China and India; major powers whose rise has provided both states with more tools and platforms to interact with each other while projecting their bilateral relationship to the regional level. This is noted by the transformation of their traditionally land-based rivalry into a competition increasingly taking place in the maritime domain. This chapter investigates how the logic of maritime cooperation threatens to be undermined by the potential emergence of a ‘nested security dilemma’ between major regional powers in the maritime domain. In particular, the chapter illustrates how the Sino-Indian maritime relationship in the South China Sea and Indian Ocean offers a potential harbinger for how the bilateral relationship could play out in the Middle East, as both states’ interests in the region continues to grow. A sustainable solution to this ‘nested security dilemma’ will entail confidencebuilding that transcends the maritime security sphere and addresses the root causes of mutual mistrust through a multilateral, inclusive process of regional interaction. This will give precedence to shared interests of freedom of navigation and protecting the ‘global commons’ over traditional inter-state rivalries.

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The Logic of Cooperation in the Maritime Domain The maritime domain has gained strategic significance in Asia in recent years due to the region’s growing resource needs and dearth of overland transport routes, leading to an overwhelming reliance on seaborne trade. The numbers speak for themselves. Over half of the world’s annual merchant traffic by tonnage and a third of maritime traffic passes through the Malacca, Sunda, and Lombok Straits with some 10 million barrels of crude oil transiting the region every day, accounting for 40 per cent of the world’s oil exports.1 This includes 80 per cent of China’s crude oil imports, two-thirds of South Korea’s energy imports, and almost 60 per cent of Japan and Taiwan’s energy imports.2 Asia presently meets three-quarters of its oil demand through imports, which is expected to increase to 90 per cent by 2030.3 This resource dependence has made the maritime domain a bridge, linking East, South and West Asian or Middle Eastern sub-regions. The emergence of the ‘Indo-Pacific’ as a new geopolitical frame of reference is indicative of the growing interdependence between these sub-regions, leading to the emergence of ‘the seas of the western Pacific and the Indian Ocean’ as a ‘single integrated geopolitical theatre’ centred on maritime Asia.4 However, this interdependence has also led to the proliferation of transnational security threats, including piracy, illicit trafficking, and the latent threat of maritime terrorism. For instance, despite its receding trend, maritime piracy remains a prevalent threat, inflicting an economic cost of between US$7 billion and US$12 billion in 2010, of which an estimated $5 billion to $7 billion was incurred in the Indian Ocean Region that inter-connects the East, South and West Asian sub-regions.5 On the other hand, this threat also presents an ideal catalyst for regional cooperation. Nowhere is the importance of the maritime domain as a catalyst for cooperation more apparent than in Southeast Asia, where piracy has been effectively tackled through a process of improved regional coordination between Singapore, Malaysia, Indonesia, and Thailand under the aegis of the Malacca Straits Patrol initiative (MALSINDO). This has been complemented by greater political and economic stability in post-Suharto Indonesia though the possibility for renewed insecurity 1 Prokhor Tebin, ‘South China Sea: A new geopolitical node’, Asia Times, October 14, 2011, accessed April 10, 2014. http://www.atimes.com/atimes/Southeast_Asia/MJ14Ae01. html. 2 Sarah Raine and Christian Le Mière, Regional Order: The South China Sea Disputes (London: Routledge, 2013), 12. 3 ‘Still quite narrow: the Gulf-Asia “new Silk Road”’, International Institute for Strategic Studies (IISS) Strategic Comment 7, 43 (2011). 4 C. Raja Mohan, Samudra Manthan: Sino-Indian Rivalry in the Indo-Pacific (Washington, DC: Carnegie Endowment for International Peace, 2012), 212. 5 ‘Hijackings on the high seas: Why piracy is a shifting threat’, The Economist, May 18, 2013; ‘Piracy: No stopping them’, The Economist, February 5, 2011; Keith Wallis, ‘HK touted as risk service hub to tackle piracy’, South China Morning Post, May 7, 2011.

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remains given the plethora of insurgent and terrorist threats that continue to face the region.6 This was illustrated most recently by instabilities in Sabah state in Malaysia, where the maritime domain served as a bridge for insurgents sympathetic to the Sultanate of Sulu to mount attacks from the southern Philippines.7 Similarly, the piracy threat in the Gulf of Aden is being effectively addressed through the emergence of a more coordinated regional approach between the various multilateral, joint command operations in the region. This includes the Shared Awareness and Deconfliction (SHADE) mechanism, EU-led Operation Atalanta, NATO-led Operation Ocean Shield, the US-led Combined Taskforce-151 and the adoption of increasingly bold rules of engagement.8 As in the case of Southeast Asia, a sustainable solution to the piracy threat off the coast of Somalia will entail both regional and multilateral cooperation and attacking the root causes of piracy that emanate from the absence of political stability and economic security in Somalia and the Horn of Africa.9 The Dilemma of Maritime Competition Several maritime territories are also depositories of vital resources ranging from fish stocks to minerals and offshore oil and gas, which demonstrate the growing importance of the maritime domain as an economic lifeline to the region.10 The 6 For instance, the separatist movement in Aceh has been quelled through a carrot-and-stick approach of rapprochement with the rebels, improved law enforcement and a weakening of the rebels’ material capabilities following the 2004 Asian tsunami. Arno Waizenegger, ‘Armed separatism and the 2004 tsunami in Aceh’, Canada Asia Commentary 43 (2007), accessed January 1, 2012. http://www.conflictrecovery.org/bin/ Armed_Separatism_and_2004_Tsunami.pdf; Michael Schuman, ‘How to defeat pirates: Success in the Straits’, Time Magazine, April 22, 2009. 7 Roel Landingin, ‘Sultan of Sulu’ adamant on Sabah claim’, Financial Times, March 12, 2013. 8 These include the implementation of ship protection measures such as maintaining high cruising speeds, practicing evasive manoeuvres, the use of physical barriers and water cannons, and the employment of private security companies aboard merchant ships, as well as prosecuting captured pirates in regional states with functioning judicial systems, such as Kenya, Tanzania and the Seychelles’.Somali pirates widen their net’, IISS Strategic Comment 17, 40 (2011). 9 Issues of poverty and environmental degradation from commercial overfishing in the waters surrounding the Somali coast have been a catalyst for the proliferation of the piracy threat in the region, as well as the absence of a stable functioning government in Somalia since the collapse of the short-lived government of the Union of Islamic Courts in 2006. The Hawiye and the Darod clan have been the primary sources of piracy activities in the ungoverned spaces around the Haradheere region of central Somalia and the semiautonomous Puntland region. ‘Piracy: No stopping them’, The Economist, February 5, 2011. 10 Some 155 Vietnamese fishermen were detained by Chinese authorities in the Paracel Islands in 2009, which rose to 400 in 2010: Greg Torode, ‘Disputed islands are

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South China Sea, for instance, is estimated to hold some 10 per cent of the global catch of fish as well as 11 billion barrels of oil in proved and probable reserves and 190 trillion cubic feet (tcf) of gas.11 This has prompted an escalation of tensions related to maritime territorial disputes, which are tied both to material goals of protecting freedom of navigation and accessing offshore energy resources, and to more ideational objectives related to acquiring ‘Great Power’ status through projecting power, protecting ‘spheres of influence’ and fulfilling national ambitions of protecting sovereignty and territorial integrity. While these material and ideational goals are not new, the growing strategic importance of seaborne trade and dependence on imported energy resources to fuel the economies of the region, coupled with its expanded military capabilities and growing interregional linkages have increased both the likelihood and intensity of any armed conflagration between states in the maritime domain. A plethora of maritime territorial disputes scatter the region, several of which have flared up in recent years. Some disputes are relatively localized in nature, such as the disputed status of the Northern Limit Line between North and South Korea; the Dokdo/Takeshima islets between South Korea and Japan; the Southern Kuriles/Northern Territories between Russia and Japan; Suyan/Leodo Reef between China and South Korea; Reed/Recto Bank and the Scarborough Shoal/ Huangyan Island between the Philippines and China; and portions of the Natuna islands between Indonesia and China. Other disputes have wider implications for the freedom of navigation, such as the Sino-Japanese dispute over the Diaoyu/ Senkaku islands in the East China Sea and China’s (and Taiwan’s) claim to the ‘nine-dash line’ around the South China Sea, which conflicts with Vietnam’s claim to the Paracel Islands and the Philippines, Vietnam, Malaysia, and Brunei’s claims to portions of the Spratly Islands. Beyond the region’s growing maritime capabilities and interests, several factors rooted in the unique nature of disputes in Asia’s maritime domain have also acted as a catalyst for the recent escalation of maritime tensions. Notably, sovereignty in the maritime domain is more fluid or fungible than on continental territory. This creates more room to manoeuvre in addressing maritime territorial disputes compared to disputed land borders, which can be more permanently occupied. As prized catch’, South China Morning Post, May 30, 2011, A4; ‘Asean naval chiefs hold talks, pledge closer ties’, Agence France-Presse, July 28, 2011. 11 This would satisfy less than two years of China’s oil demand but cover over 17 years of its gas demand though most of this is believed to be in shallow water basins along the coastline and within the exclusive economic zones of Vietnam, the Philippines, Malaysia and Brunei. The US Geological Service estimates that there may be an additional 16 billion barrels of oil and 145 tcf of gas, although the China National Offshore Oil Corporation (CNOOC) has estimated much greater hydrocarbon reserves in the disputed territory of 125 billion barrels of oil and 498 tcf of natural gas. David Brown, ‘More fuel to South China Sea disputes’, Asia Times, March 12, 2013; Leslie Hook, ‘Gas Finds Give Impetus to China Sea Claim’, Financial Times, November 9, 2012.

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Raine and Le Mière note, ‘disputes over territorial sovereignty are by their nature zero-sum, whereas disputes over maritime zones and freedom of navigation within EEZs need not be’.12 Moreover, the players in the maritime domain are also more diverse. They include the navy, coastguard, local police, fishing communities, provincial, state or city-level authorities, and a plethora of government ministries. These multiple levels of interaction between states increase the opportunity for inter-state collaboration, but also fuel the possibility for misunderstanding, especially when sub-state groups and different levels of government send conflicting signals and pursue conflicting interests. For instance, until recently there were 17 government agencies in China with overlapping jurisdictions over the maritime domain, including the Foreign Ministry, which is often overruled by the PLA; the Coastguard under the Public Security Ministry; the Maritime Safety Administration under the Ministry of Transport; the Fisheries Law Enforcement Command under the Ministry of Agriculture; and the China Marine Surveillance under the Ministry of Land and Resources.13 This creates inconsistency in policy, which is exacerbated by the fact that some of these bodies have limited experience on issues of foreign policy and international security. This has been somewhat alleviated by the consolidation of the country’s coastal security under the National Oceanic Administration, though as this body is not a ministry-level organization it is likely to face resistance from other government agencies that are threatened with having their powers curtailed.14 In some cases these multiple levels of interaction actually serve China’s strategic interests by allowing it to project power and strengthen claims over disputed waters while remaining under the threshold of a full-scale military and political standoff. It also allows Beijing to claim that belligerent actions are being carried out by autonomous actors rather than sanctioned by the central government in Beijing. For instance, fishing and oil survey vessels have come to play a prominent role as triggers of recent tensions as so-called ‘rogue’ Chinese vessels have strayed into disputed waters claimed by Japan, Vietnam and the Philippines. With China being the world’s largest consumer of fish and having the world’s largest shipping fleet such incidents are likely to become increasingly commonplace. Countries in the region have also employed non-military actions, including jurisdictional, administrative and economic means to assert their maritime territorial claims though these gestures are often more symbolic than substantive. In China, legal actions have included the adoption of the ‘Law on the Territorial Sea and Contiguous Zone’ in 1992; ‘Law on the Exclusive Economic Zone and 12 Raine and Le Mière, Regional Order, 205–6. 13 ‘Stirring up the South China Sea (I)’, International Crisis Group Asia Report 223 (2012): 8. 14 Teddy Ng, ‘Beijing to put all maritime forces under one roof’, South China Morning Post, March 11, 2013; Julian Ryall, ‘Chinese maritime plan “a threat”’, South China Morning Post, March 12, 2013.

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Continental Shelf’ in 1998; and tabling a map of the South China Sea that delimited China’s territory along ‘nine dash lines’ in 2009. More recently, in July 2012 Sansha on Hainan Island was upgraded from county to prefecture-level status, granting it administrative control over the disputed Spratly, Paracel and Pratas islands along with the Macclesfield Bank and Scarborough Shoal. China has also issued e-passports that illustrate the disputed islands as part of Chinese territory. China’s declaration of an East China Sea Air Defense Identification Zone (ADIZ) in November 2013 also served a similar purpose as the country has sought to legitimize its claims to disputed maritime territories with Japan and South Korea. China has not been alone in these efforts. The Japanese government’s purchase of the Senkaku/Diaoyu islands in September 2012 was also a catalyst for the recent escalation in tensions between China and Japan.15 A law passed by Vietnam’s National Assembly in June 2012 that defined the country’s sovereignty over the Paracel and Spratly Islands has also been a catalyst for recent tensions, as well as Vietnam’s decision to upgrade the Spratly Islands to ‘township’ level under the Truong Sa District in 2007.16 Meanwhile, the Philippine legislature adopted an archipelagic baseline law in 2009 to assert its claims. More recently, the country referred its dispute with China over the South China Sea to the International Tribunal on the Law of the Sea under UNCLOS in January 2013. In this climate of mistrust, economic interactions, rather than being a catalyst for cooperation, have sometimes become subservient to security concerns. For instance, China’s ban on rare earth exports to Japan in 2010 following tensions over the Diaoyu/Senkaku islands dispute and the Chinese ban on the import of bananas from the Philippines in 2012 following frictions over the Scarborough Shoals demonstrate that the region’s growing economic interdependence can actually be a catalyst that escalates rather than restrains tensions. Finally, while the Chinese navy presently plays a secondary role over contested maritime territories compared to the country’s paramilitary and civilian institutions, the growing strategic significance of the maritime domain could eventually lead to a more prominent role for the People’s Liberation Army Navy (PLAN) in these disputes. This increases the possibility for an escalation in tensions as noted by incidents in January 2013 when PLAN vessels allegedly locked onto Japanese Maritime Self-Defence Force vessels with their fire-control radar systems.17 China-India: ‘Great Game’ at Sea – Growing Maritime Interests A case in point of the maritime domain emerging as a potential theatre of interstate rivalry is the ongoing reorientation in China and India’s strategic interests 15 ‘Growing tensions in the East China Sea’, IISS Strategic Comments 19, 14 (2013). 16 Teddy Ng, ‘New City to Run Disputed Island Chains’, South China Morning Post, June 22, 2012. 17 ‘Growing tensions in the East China Sea’, IISS Strategic Comments 19, 14 (2013).

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from the continental to the maritime domain. This is reflected in shifts in both countries’ military doctrines, narratives and capabilities. In the process, the SinoIndian relationship and their latent rivalry is gradually shifting from their long land border to the maritime domain with strategic implications for freedom of navigation and the maritime security architecture in Asia. China and India have traditionally been viewed as continental powers. Until relatively recently both countries’ economies have historically been largely inward-looking and self-sufficient with little trade beyond their immediate subregion (Northeast Asia for China and South Asia for India). As such, maritime trade has played a marginal role in economic activities aside from a few brief historical periods. Furthermore, in the two countries’ experience as modern nation-states, the navy has traditionally played second fiddle to the army in forging both countries’ military doctrines and strategies. Both countries have historically pursued relatively modest maritime security interests, that have largely been confined to playing a supporting role to land-based operations and protecting their respective coastlines. China’s focus has been on sea-denial capabilities aimed at deterring US intervention in a conflict in the Taiwan Strait while India has focused on coastal defence and surveillance given the presence of maritime terrorist threats along the country’s porous, poorly demarcated and disputed maritime border. With respect to their bilateral relationship, the disputed land border has traditionally been the primary source of contention as noted by the brief border conflict between the two in 1962. However, the rise of China and India as major trading and resource-consuming powers has elevated the strategic importance of the maritime domain. In particular, China and India’s growing dependence on imported hydrocarbon resources, most of which are transported by sea, has made maritime security an integral part of both countries’ energy security strategies. Some 95 per cent of India’s total trade is conducted by sea, including over 70 per cent of the country’s oil imports, while more than 50 per cent of India’s trade passes through the Strait of Malacca.18 Meanwhile, China has been a net oil importer since 1993 with over half of its oil consumption now imported.19 More than 60 per cent of China’s exports are seaborne while 90 per cent of China’s total trade and 80 per cent of China’s oil imports transit the sea lanes of the South China Sea.20 China is now the world’s second-largest oil consumer, and its demand for hydrocarbons is predicted to grow by 70 per cent by 2030, three-quarters of which is expected to be imported.21 18 Shashank Joshi, ‘China and India: Awkward Ascents’, Orbis Fall (2011): 566. 19 ‘Country Analysis Briefs: China, India, November 2010/2011’, U.S. Energy Information Administration, accessed February 6, 2014. http://www.eia.gov/countries/. 20 Joshi, ‘China and India’, 567; ‘Country Analysis Briefs: China, November 2010/2011’, U.S. Energy Information Administration, accessed February 6, 2014. http:// www.eia.gov/countries/. 21 David Brown, ‘More fuel to South China Sea disputes’, Asia Times, March 12, 2013.

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Meanwhile, India’s reliance on imported oil is set to grow to 90 per cent in the next 20 years. This in turn will fuel both countries’ need to expand naval power projection capabilities in order to secure sea lanes of communication. With the Middle East being home to 65 per cent of the world’s proven oil reserves and 45 per cent of its natural gas, the symbiotic relationship between China and India as major sources of oil demand and West Asia or the Middle East as the pre-eminent oil supplier is set to grow.22 The Middle East already accounts for 50 per cent of China’s oil imports and 70 per cent of India’s oil imports.23 Both countries’ significant interests in the Middle East are not confined to hydrocarbons. Some 40 per cent of China’s exports go to the Middle East and North Africa (MENA) region while over half of China and India’s foreign remittances of $70 billion and $66 billion, respectively in 2012 emanated from this region.24 India also maintains a sizable diaspora population of over 6 million people in the Gulf. In China this growing dependence on imported resources has prompted concerns over the so-called ‘Malacca Dilemma’ – reflecting strategic vulnerabilities rooted in the country’s dependence on resources imported through sea lanes patrolled by potentially adversarial countries, including the United States, Japan and India. This has led the country to adopt a threepronged strategy of reducing its import dependence; investing in infrastructure aimed at bypassing maritime chokepoints, and building up its naval capabilities to secure SLOCs.25 Reducing import dependence has entailed diversifying its energy mix and improving energy efficiency. Bypassing maritime chokepoints has entailed the construction of overland oil and gas pipelines from Kazakhstan and the Russian Far East, as well as from the port of Kyaukphyu on Myanmar’s Arakan coast in the Bay of Bengal to Kunming in Yunnan Province in China’s southwest, and ambitions to access the maritime routes through the Arctic passage.26 In building up its naval capabilities China has not only sought to strengthen the capabilities of its navy but also to expand the Chinese-owned oil tanker fleet, which now carries some 50 per cent of China’s oil imports and is set to expand from 15 per cent to 40 per cent of the world fleet.27 22 Nima Khorrami Assl, ‘China and India: Rival Middle East strategies’, Al Jazeera, January 10, 2012. 23 Bloomberg, ‘China seeking to be “new force” in Mideast peace’, South China Morning Post, June 20, 2013; ‘India to step up oil import from Africa: minister’, Xinhua, December 10, 2011. 24 Mohan Guruswamy, ‘India-China war delayed by technology’, Asia Times, May 7, 2013. 25 Ian Storey, ‘China’s “Malacca Dilemma”’, China Brief 6, 8 (2006). 26 ‘Construction of Sino-Myanmar pipeline starts’, Xinhua, September 10, 2010; Emanuele Scimia, ‘China’s influence spreads to Atlantic’, Asia Times, May 20, 2013. Both China and India gained permanent observer status at the Arctic Council in May 2013. 27 Geoffrey Till, ‘Asia’s naval expansion: An arms race in the making?’ in Adelphi Paper: Vol. 2012, No. 432–433, ed. International Institute for Strategic Studies (London: Routledge, 2012), 53.

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Shifting Maritime Doctrines and Narratives Both countries’ expanding maritime security interests have manifested themselves in shifts in their maritime security doctrines and the growth of historical narratives that reaffirm the importance of their maritime traditions. In China this includes a move beyond ‘near-coast defence’ toward ‘near-seas active defence’ and increasingly into the realm of ‘far-sea operations’.28 An alleged proposal by a Chinese military official to US Admiral Timothy Keating, former chief of the US Pacific Command to divide up the Pacific and Indian Oceans into US and Chinese ‘spheres of influence’, respectively, although likely stated in jest, is nevertheless indicative of China’s growing maritime ambitions.29 Meanwhile, the former Indian Defence Minister George Fernandes declared in 2000 that India’s maritime interests extend ‘from the north of the Arabian Sea to the South China Sea’.30 Both countries’ historical narratives have also been adapted to accommodate their renewed focus on maritime traditions. Renewed focus in China on the naval voyages of Zheng He during the Ming Dynasty in the fifteenth century and in India on the naval expeditions of the Chola Dynasty during the eleventh century have demonstrated a concerted effort by both states to elevate the strategic importance of their naval traditions.31 The views of proponents of expanding naval power, such as former Chinese naval chief Admiral Liu Huaqing and India’s first ambassador to China, KM Panikkar, have also found renewed support during the current maritime renaissance in both states. From a theoretical standpoint, this ongoing naval transformation in China and India has redefined the long-standing seapower (rim land) vs. land power (heartland) debate, between such scholars as Spykman and Mackinder. It challenges the notion that a state’s status as a continental or maritime power is permanent or static as China and India transition from the former to the latter or more accurately acquire the characteristics of both.

28 Nan Li, ‘The Evolution of China’s Naval Strategy and Capabilities: From ‘Near Coast’ and ‘Near Seas’ to ‘Far Seas’’, Asian Security 5:2 (2009): 144–69. 29 Manu Pubby, ‘China proposed division of Pacific, Indian Ocean regions, we declined: US Admiral’, The Indian Express, May 15, 2009. 30 Mohan, Samudra Manthan, 184; Integrated Headquarters (Navy), Indian Maritime Doctrine (New Delhi: Ministry of Defence, 2004), 56; Walter C. Ladwig III ‘Delhi’s Pacific Ambition: Naval Power, ‘Look East’, and India’s Emerging Influence in the Asia-Pacific’, Asian Security, 5, 2 (2009): 87–113. 31 Iskander Rehman, ‘An Ocean at the Intersection of two emerging maritime narratives’, IDSA Issue Brief (2011); Ladwig III ‘Delhi’s Pacific Ambition’.

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Shifting Maritime Capabilities Beyond rhetoric, both countries have pursued ambitious plans for the development and acquisition of naval platforms aimed at strengthening their blue water naval capabilities. By 2020, the PLA Navy is expected to have 73 principal combatants; 78 submarines of which 12 will be nuclear; 80 medium and heavily amphibious lift ships; and 94 guided missile boats.32 For instance, the commissioning of China’s first aircraft carrier in 2012 – making it the third Asian country to acquire such a capability and only the tenth in the world to do so – demonstrates its proclivity to look beyond local maritime security interests.33 Much of the hype surrounding the launch of China’s first aircraft carrier – the refitted 67,000-tonne former Soviet aircraft carrier, the Liaoning (previously known as the Varyag) – has been exaggerated given its modest size, the country’s lack of carrier experience and the absence of a full carrier battle group to support its operations.34 The fact that the Navy lacks an offshore depot to support long-range operations has further reaffirmed the challenges facing the country’s carrier ambitions. Nonetheless, the fact that China is in the process of developing two more indigenously-developed carriers (with ambitions for 4–6 carriers, as well as nuclear-powered vessels) that will allow it to project naval power beyond its immediate sub-region, is indicative of the trajectory that Beijing sees for itself in the maritime domain.35 As Bitzinger notes, ‘one aircraft carrier may be symbolic, but four to six carriers is a new maritime strategy’.36 Furthermore, despite the operational vulnerability of aircraft carriers amid the proliferation of sea-denial platforms such as submarines, anti-ship ballistic missiles and improved surveillance capabilities, any state seeking to project power beyond its immediate region and exercise sea-control will require carrier group capability.37 Furthermore, China and India’s interest in building up their nuclear submarine capability beyond their predominantly conventional diesel submarine fleet points

32 Mohan Samudra Manthan, 56. 33 Choi Chi-yuk, ‘Into uncharted waters’, South China Morning Post, August 11, 2011, A4. 34 Xu Tianran, ‘Carrier conducts second trial’, Global Times, November 30, 2011. 35 Minnie Chan, ‘Navy on course for nuclear carriers’, South China Morning Post, February 23, 2013; Till, ‘Asia’s naval expansion’, 138. 36 Richard Bitzinger, ‘Aircraft carriers: China’s Emerging Maritime Ambitions’, RSIS Commentaries 35 (2009). 37 Steady progress on the development of carrier-based aircraft such as the J-11 or J-15 and surface escorts such as Type-065A air defence frigate is strengthening the operational capabilities of China’s carrier ambitions. The country’s indigenously developed Type 071 and larger Type 081 amphibious assault vessels also have significant implications for China’s naval power projection given their multidimensional capability – Till, ‘Asia’s naval expansion’, 90; Greg Torode, ‘Combat ship set for key role in military diplomacy’, South China Morning Post, April 16, 2011, A5.

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toward a growing interest in power projection beyond their littoral regions.38 While 36 countries maintain submarines in their navies, China and India are two of only six countries with a nuclear submarine capability. Additionally, aside from what is known about China’s naval modernization, a recent report by the US– China Economic and Security Review Commission has noted that more often than not the international community has underestimated the pace of China’s military modernization given the opacity of China’s defence decision-making apparatus and defence-industrial sector.39 This alludes to the possibility that the PLA Navy’s ability to project power is likely to proceed faster than anticipated. To accommodate its expanding naval ambitions, China is in the process of establishing a fourth fleet that may consist of 2–3 aircraft carrier battle groups at Yulin in Sanya on the southern island of Hainan. This fleet, which indicates China’s growing maritime interests in the Indian Ocean and beyond, will complement the North Sea Fleet based in Qingdao, the East Sea Fleet in Ningbo and the South Sea Fleet based in Zhanjiang.40 These expanding maritime capabilities have manifested in several recent demonstrations of China’s growing projection of power beyond its traditional sphere of interest around the first and second ‘island chains’.41 These include a month-long visit of two Chinese missile frigates to the Mediterranean Sea and Eastern Atlantic in April 2013, which followed the PLAN’S first naval exercises in the Pacific Ocean in 2011 and the Navy’s revolving three-ship 38 Notably, there has been a gradual modernization of the country’s submarine fleet from the older first generation Han (Type 091) nuclear-powered (SSN) and Xia (Type 092) nuclear-powered ballistic missile (SSBN) submarines to the newer second generation Shang (Type 093) SSN and third generation Jin (Type 094) SSBN armed with JL-2 submarinelaunched ballistic missiles (SLBM) and type 095 SSN vessels. China’s development of the jiaolong submersible craft, which will enhance the country’s ability to conduct deepsea, ocean-floor mining operations, also demonstrates the growing sophistication of the country’s indigenous shipbuilding capability. This is complemented by the acquisition of Kilo-class submarines from Russia. Mohan, Samudra Manthan, 76–7; Aki Nakai, ‘China’s Naval Modernisation: Reflections on a Symposium’, Occasional Papers on Asia 1 (2011): 8; ibid.; Wu Zhong, ‘China’s navy delivers Thanksgiving spoiler’, Asia Times, November 29, 2011; ‘Submersible hits depth milestone’, Agence France-Presse, July 27, 2011. 39 This is illustrated by the Yuan-class diesel electric submarine that was launched in 2004, the development of the Dongfeng-21D anti-ship ballistic missile in 2010, and the test flight of the prototype of China’s fifth generation stealth fighter, the J-20 in 2011, all of which caught followers of China’s military modernization by surprise. Amy Chang, ‘Indigenous Weapons Development in China’s Military Modernization’, US-China Economic and Security Review Commission Staff Research Report (2012). 40 Willy Lam, ‘Beijing adopts multi-pronged approach to parry Washington’s challenge’, China Brief, 11, 22 (2011). 41 The first island-chain refers to a line through the Kurile Islands, Japan, the Ryukyu Islands, Taiwan, the Philippines, and Indonesia. The second island-chain extends to Guam and Indonesia, including the Bonins, Marianas and the Carolines encompassing an area of 1,800 nautical miles from China’s coast. Nakai, ‘China’s Naval Modernisation’ (2011).

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deployment in support of anti-piracy operations in the Indian Ocean since 2009.42 The US Director of National Intelligence has noted that the Chinese military has ‘begun a substantially new phase in its military development by beginning to articulate roles and missions for the PLA that go well beyond China’s immediate territorial interests’.43 The Chinese themselves do not deny such ambitions with the State Oceanic Administration stating in its 2010 report that the country’s goal was to ‘place China among mid-tier maritime powers’.44 Meanwhile, India has ambitious plans for the development of a 160-plus-ship navy, comprising three aircraft carrier battle groups by 2022.45 This includes 60 major combatants, as well as 400 aircraft aimed at transforming the Indian Navy, the world’s fifth-largest, into ‘a brand new multi-dimensional Navy’ with ‘reach and sustainability’.46 More than 40 warships and submarines are on order or under construction at the country’s three major shipyards.47 Despite delays in procuring some naval platforms, such as the Russian aircraft carrier Admiral Gorshkov (INS Vikramaditya), India has stepped up the indigenous development of naval platforms.48 These vessels will supplement and in some cases replace the country’s older Rajput and Delhi-class destroyers through strengthening the range and endurance of its vessels; incorporating stealth features; facilitating network-centric operations and carrying a more lethal and longer range of cruise missiles. India also acquired the USS Trenton (renamed the INS Jalashwa), a landing platform dock ship from the United States in 2007, which has enhanced the country’s ability to conduct expeditionary operations and humanitarian missions.49 While the country currently maintains a modest submarine fleet of an estimated 14 vessels, this is undergoing an upgrade with the construction of Scorpenes from France, 42 Huang Jingjing, ‘China announces Pacific drill’, Global Times, November 25, 2011; Emanuele Scimia, ‘China’s influence spreads to Atlantic’, Asia Times, May 20, 2013. 43 Dennis Blair, ‘Annual Threat Assessment of the Intelligence Community for the Senate Select Committee on Intelligence’, Office of the Director of National Intelligence (Washington, DC: US Congress, 2009), 23. 44 ‘China reveals carrier ambitions’, Jane’s Defence Review, January 5, 2011. 45 ‘Indian Navy Chief Admiral Sureesh Mehta Spells Out Vision 2022’, India Defence, August 10, 2008, accessed February 6, 2014. http://www.india-defence.com/ reports/3954. 46 Mohan, Samudra Manthan, 59. 47 Rajat Pandit, ‘Presidential Fleet Review: India showcase maritime might’, Times of India, December 21, 2011; Till, ‘Asia’s naval expansion’, 93. 48 These include Project-71 aircraft carriers (or air defence ships), Project 15A Kolkata-class stealth destroyers, Project 28 anti-submarine Kamorta-class corvettes and Project 17-A Shivalik and Talwar-class stealth frigates. Mohan Samudra Manthan, 61; Siddharth Srivastava, ‘India drops anchor in the Maldives’, Asia Times, September 2, 2009; Rajat Pandit, ‘Made-in-India ‘INS Shivalik’ to be inducted soon’, Times of India, September 22, 2009; Pandit, ‘Presidential Fleet’. 49 ‘Naval ships to bail out Indians stranded in Libya’, Times of India, February 27, 2011.

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the leasing of Akula-class submarines from Russia, upgrades to India’s Russian Kilo-class (Sindhughosh-class) submarines and Type 209 German submarines (Shishumar-class), and the development of Advanced Technology Vessel Arihantclass nuclear-powered submarines.50 The Andaman and Nicobar (Southern) command was established in 2001 at the mouth of the Strait of Malacca. This complements the Eastern Command headquartered in Visakhapatnam in Andhra Pradesh and the Western Command in Mumbai, as well as a base for unmanned aerial vehicles on the Lakshadweep islands.51 Meanwhile, the second phase of ‘Project Seabird’ is underway, which entails the construction of a naval base, INS Kadamba in Karwar, Karnataka on the country’s western coast. This base will protect maritime trade routes in the Arabian Sea while alleviating pressure on the congested port of Mumbai. Maritime Trajectories Maritime Confidence-Building and Cooperation China and India’s growing maritime capabilities and interests translate into one of two (or a combination of two) maritime futures for both countries. On the one hand, both countries’ naval power projection capabilities need not emerge as a source of insecurity in the regional architecture. This is demonstrated by the focus of both countries’ navies on tackling non-state threats, such as humanitarian disasters, combatting maritime piracy, illicit trafficking, and the latent threat of maritime terrorism, and confidence-building through joint exercises. Notably, India is keenly aware of the non-state dimensions of maritime security, given its experience in dealing with a long-running separatist insurgency led by the Liberation Tigers of Tamil Eelam (LTTE) in neighbouring Sri Lanka; at its height the LTTE employed the world’s most sophisticated maritime terrorist tactics led by its naval wing, the Sea Tigers. The fact that the explosives used in the 1993 Mumbai terrorist attacks and the militants involved in the 2008 Mumbai terrorist attacks were both smuggled into the country by sea, coupled with the growth

50 Supporting the growing fleet of vessels, the navy is also inducting MiG-29K multirole aircraft and Kamov-28 and 31 helicopters to deploy from its aircraft carriers, and acquired P8-I Poseidon maritime reconnaissance aircraft to strengthen the navy’s ‘maritime domain awareness’. It has also developed K-15 Sagarika nuclear-capable submarinelaunched ballistic missiles (SLBM), Klub-S land-attack cruise missiles, and a submarinelaunched supersonic missile that modifies its BrahMos cruise missile, with reports of a sealaunched cruise missile (Nirbhay) also under development. Sudha Ramachandran, ‘Indian navy pumps up eastern muscle’, Asia Times, August 20, 2011; Mohan Samudra Manthan 59, 74. 51 Ibid., 66.

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of piracy in the Indian Ocean Region, has elevated the importance of non-state security threats in India’s naval strategy.52 While not superior to China in the quantity or quality of its naval platforms, the Indian Navy has generally outpaced the PLAN in the sphere of protecting the maritime global commons, including maintaining the free flow of maritime trade and transport. Humanitarian assistance/disaster relief (HADR) operations have emerged as a catalyst for India to expand its maritime influence; in East Asia this includes the Indian Navy escorting US naval vessels transiting the Strait of Malacca, as part of ‘Operation Enduring Freedom’ in 2002; and assistance following the Asian tsunami of 2004 and the cyclone that struck Myanmar (Burma) in 2008.53 In West Asia the Indian Navy has been utilized to evacuate Indians and civilians from other South Asian countries from the conflict in Lebanon in 2006 and the civil war in Libya in 2011. India has also been successful at regional confidence building in the maritime domain fuelled by the growing frequency of joint naval exercises with regional navies. Several Southeast Asian countries have taken part in the biennial Milan naval exercises with India since they commenced in 1995, including Indonesia, Thailand, Malaysia and Singapore while India has also conducted joint naval exercises with Singapore (SIMBEX) since 1993 and with Malaysia, Singapore and Indonesia as part of the Search and Rescue Operations (SAREX) since 1997. India has conducted several bilateral naval exercises with South Korea while the bilateral Malabar naval exercises with the United States have acquired an increasingly trilateral format with the participation of Japan since 2007. India and Japan have also established a maritime dialogue, which follows both countries’ first bilateral naval exercises off the Japanese coast in 2012.54 In West Asia, India has held annual naval exercises with Oman since 2003; joint naval exercises with Iran in 2003 and 2006, large-scale Tropex (Theatre Readiness Operational Exercise) involving vessels of the Western and Eastern Command in the Arabian

52 Among the initiatives prompted by the 2008 Mumbai terrorist attacks were the establishment of a new Coastal Command led by the navy with the purpose of facilitating an integrated approach by the country’s 16 government agencies involved in coastal security issues, and the establishment of joint operations centres in Mumbai, Vizag, Kochi and Port Blair. Till, ‘Asia’s naval expansion’, 185. 53 The Indian Navy escorted more than 20 vessels through the Strait of Malacca as part of ‘Operation Enduring Freedom’ from April–September 2001 while some 38 Indian Navy vessels were deployed to provide humanitarian assistance in the aftermath of the Indian Ocean tsunami for five operations in Indonesia, Sri Lanka, the Maldives, as well as off the Indian coast. Rajat Pandit, ‘Navy Makes a ‘Blue-Water’ Mark’, The Times of India, January 7, 2005; Mohan, Samudra Manthan, 98; Till, ‘Asia’s naval expansion’, 102, 175. 54 Indrani Bagchi, ‘India, Japan navies to work jointly with eye on China’, Times of India, January 29, 2013.

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Sea in 2007, as well as exercises with the navies of Kuwait, Bahrain, Saudi Arabia and the UAE.55 So far India has taken the lead on regional maritime confidence building. Nonetheless, China’s rhetoric of maintaining ‘Harmonious Oceans’, carrying out ‘New Historic Missions’ that include countering non-traditional security threats and engaging in ‘military operations other than war’ (MOOTW) suggest that China’s potential for cooperation in the maritime domain could grow as its maritime security interests move further from its coastline and become less geographically-bound.56 This is illustrated by the fact that since 2010 the PLAN has been escorting non-Chinese vessels, including UN World Food Program convoys through the Gulf of Aden.57 The induction of one of the world’s largest hospital ships, the Peace Ark in 2008, as well as the deployment of a Chinese missile frigate to the Mediterranean Sea in early 2011 to support the evacuation of Chinese nationals from Libya, is further evidence of the Chinese navy’s growing humanitarian response capabilities.58 Such operations are likely to become increasingly commonplace given the growing outbound investment by Chinese companies, much of which is in states with unstable regimes. From an initial aversion to joint military exercises and multilateral operations, China has also developed a growing acceptance of such initiatives. One of the earliest instances of China’s naval multilateralism was the presence of observers from China at the inaugural Pacific Reach combined submarine rescue exercise in October 2000. More recently, China conducted the first-ever joint naval exercise with Russia in the Yellow Sea in April 2012 under the aegis of the Shanghai Cooperation Organization (SCO).59 China has also conducted multilateral naval exercises involving eight states off the coast of Singapore in May 2007 as part of the West Pacific Naval Symposium and has participated in the biennial Aman naval exercises with Pakistan in the Arabian Sea since 2007.60

55 Prasanta Kumar Pradhan, ‘Accelerating India’s ‘Look West Policy’ in the Gulf’, Institute of Defence Studies and Analyses Issue Brief (2011). 56 Jesse Karotkin, ‘PLAN Shapes International Perception of Evolving Capabilities’, China Brief 10, 3 (2010): 4–6; ‘White Paper on China’s National Defense in 2008’, Information Office of China’s State Council (2009). 57 Between 2008 and 2011 China sent eight task forces to the Gulf of Aden on escort missions in which more than 40 per cent of the vessels it escorted were non-Chinese. Greg Torode, ‘PLA provides first escort of food aid ship off Somalia’, South China Morning Post, March 30, 2011; Till, ‘Asia’s naval expansion’, 189. 58 ‘Chinese hospital ship back after treating thousands’, China Daily, November 27, 2010; Greg Torode and Minnie Chan, ‘PLA Navy sends warship to safeguard Libya evacuees’, South China Morning Post, February 26, 2011. 59 ‘China, Russia hold first navy drills’, Agence France-Presse, April 23, 2012; Teddy Ng ‘Sino-Russian drill seen as tactical move’, South China Morning Post, April 19, 2012. 60 Mohan, Samudra Manthan, 223.

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Maritime Rivalry and Competition An alternative maritime trajectory is one of rivalry and competition. This is revealed in the fact that despite facing several shared dilemmas in their maritime security agendas, there has been limited success by China and India in forging a cooperative approach toward regional issues in the maritime domain. Both countries have generally played a marginal role in the evolution of regional multilateral approaches to maritime security issues.61 Rather, most initiatives have been driven by either ASEAN (Association of Southeast Asian Nations, e.g. Malacca Straits Coordinated Patrols, ASEAN Maritime Forum (AMF), ASEAN Naval Chiefs’ Meeting, expert working group on maritime security under ASEAN Defence Ministers’ Meeting Plus (ADMM Plus)), the United States (Proliferation Security Initiative (PSI), Container Security Initiative (CSI), International Ship and Port Security Facility Security (ISPS) Code, Global Maritime Partnership) or other regional powers such as Japan (Regional Cooperation Agreement on Combatting Piracy and Armed Robbery against Ships in Asia (ReCAAP), the North Pacific Coast Guard Forum). Non-state and inter-state maritime security threats demonstrate divergent pressures on a state’s resources. The tools required to combat maritime piracy, armed robbery, terrorism and trafficking are different from those required to assert a claim over a disputed maritime territorial boundary, to access offshore energy resources or to project power over sea lines of communication (SLOCs). This demonstrates a dichotomy between a traditionally competitive view of the maritime domain as espoused by maritime strategists such as Alfred Thayer Mahan and Julian Corbett – with an emphasis on sea-control and competitive naval diplomacy – in contrast to more recent debates emphasizing cooperation on nonstate, non-traditional security threats, and economic interdependence rooted the seabased trading system. In this respect, the fact that naval discourse in both countries is increasingly reflecting Mahanian thinking and moving away from a traditionally maritime defensive posture that is reflective of continental states is a point of concern. In China, debates over maritime strategy have moved beyond the first and second ‘island-chains’ while India’s Maritime Doctrine is even more explicit, stating that ‘sea control is the central concept around which the Indian navy is structured’.62 Rather than being a source of regional confidence-building and cooperation, China and India’s growing maritime interests are increasingly translating into an onshore competition, as manifested in both countries’ ambitions to develop a forward naval presence through the development of transhipment hubs along maritime trade routes. As Raja Mohan notes, ‘two important imperatives for forward basing-resource security and the ability to effectively operate close to the 61 Indrani Bagchi, ‘India, Japan navies to work jointly with eye on China’, Times of India, January 29, 2013. 62 Aki Nakai, ‘China’s Naval Modernisation’ (2011); Ministry of Defence, Indian Maritime Doctrine 2009 (Government of India: Press Information Bureau, 2009), 75.

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adversary’s territory – are becoming important themes in the maritime discourse in China and India’.63 China’s development of ports along maritime trade routes, including Gwadar in Pakistan, Hambantota in Sri Lanka, Chittagong in Bangladesh, and Sittwe in Myanmar has fuelled allegations of Chinese ambitions to pursue a ‘string of pearls’ strategy of extending geopolitical influence along vital sea lines of communication from the South China Sea through the Strait of Malacca to the Gulf of Aden and Strait of Hormuz. China’s anti-piracy operations in the Indian Ocean since 2009 have also led to calls to establish a ‘long-term supply base’ near the Gulf of Aden as the PLAN has stepped up port calls in the region, including Salalah in Oman, Aden in Yemen and Djibouti, as well as establishing the country’s first ‘turn-around’ naval facility in the Seychelles.64 India has countered China’s ‘string of pearls’ with its own so-called ‘necklace of diamonds’.65 In East Asia this has manifested itself under the aegis of its ‘Look East’ policy, as noted by Indian Navy vessels gaining permanent berthing rights at Vietnam’s Na Thrang port, which has confirmed New Delhi’s ability to extend its ‘sustainable maritime presence’ into the South China Sea beyond its traditional zone of influence in the Indian Ocean.66 The Indian Navy has also established a permanent presence in the southern Indian Ocean, including a monitoring station in Madagascar, plans for a similar facility in Mauritius and established berthing rights in Oman. While claims that these port facilities have a military role are exaggerated at present, it is not inconceivable that both countries could eventually utilize these commercial ports for military-strategic purposes, including resupply, refuelling and even surveillance and signals intelligence. Given their historical aversion to overseas bases, it is more likely that both states will pursue a strategy of ‘places not bases’ with arrangements to access overseas facilities rather than establishing permanent overseas bases.67 This is evidenced by both countries’ efforts to court island states in the Indian Ocean region, including the Maldives, Mauritius, Seychelles and Sri Lanka as part of a long-term maritime strategy to secure exclusive security partnerships with states that are strategically located along important maritime trade routes.68

63 Mohan, Samudra Manthan, 135. 64 Ibid., 67. 65 Ibid., 135. 66 Indrani Bagchi, ‘India looks east to Vietnam, Myanmar’, Times of India, October 8, 2011. 67 Michael S. Chase and Andrew S. Erickson, ‘Changes in Beijing’s Approach to Overseas Basing?’ China Brief 9, 19 (2009). 68 Mohan, Samudra Manthan, chapter eight.

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Preventing the Emergence of a ‘Nested Security Dilemma’ The rise of China and India as major maritime powers and the relational dynamics between both states in the maritime domain has implications beyond the confines of their bilateral relationship. Raja Mohan notes that the ‘growth of their (China and India’s) naval capabilities and the broadening of their maritime horizons in recent years will extend the security dilemma – which has expressed itself until now in the land of inner Asia – to the waters of the Indian and Pacific Oceans’.69 In doing so, the bilateral relationship between the two Asian powers have ‘begun to generate a competitive dynamic enveloping the entire Indo-Pacific littoral’.70 Gilboy and Heginbotham’s concept of a ‘nested security dilemma’ is useful in this context, as it examines how the relational dynamics between two major regional powers can impose ‘spillover’ effects on the regional security order.71 In a classic security dilemma, supposedly defensive measures, such as arms build-ups and other efforts aimed at balancing, result in a mutual diminution of security.72 The concept of nested security dilemmas is based on the idea that ‘security dilemmas involving major states are nested’ or have externalities beyond their bilateral relationship with implications for regional and global security.73 ‘Nested’ implies that security dynamics ‘simultaneously operate across both hierarchical levels (e.g. sub-region-level and regional-level) and across geographical regions (e.g. South, East and West Asia)’.74 Employing Gilboy and Heginbotham’s concept of a nested security dilemma as an explanatory tool demonstrates how China and India’s responses to each others’ actions in the maritime domain can create externalities beyond their bilateral relationship that affect the wider regional security dynamic. Both countries’ positions on the South China Sea and Indian Ocean offer mirror images of each other with India challenging China’s self-proclaimed position of authority in the South China Sea while China challenges India’s ‘sphere of influence’ in the Indian Ocean. For instance, India has echoed the US position on maritime territorial disputes in the East and South China Seas by calling for a peaceful resolution to the disputes and maintaining freedom of navigation. While not as vocal as the United States, which declared the South China Sea disputes a ‘national interest’ in 2010, India has nonetheless injected itself into the disputes through its pursuit 69 Ibid., 9. 70 Ibid. 71 Robert Stewart-Ingersoll and Derrick Frazier, Regional Powers and Security Orders (New York: Routledge, 2012); George J. Gilboy and Eric Heginbotham, Chinese and Indian Strategic Behavior: Growing Power and Alarm (New York: Cambridge University Press, 2012), 273. 72 For definition of ‘security dilemma’ see: Robert Jervis, ‘Cooperation Under the Security Dilemma’, World Politics (1978): 167–214. 73 Ingersoll and Frazier, Regional Powers, 273. 74 Ibid.

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of deepening relations with several claimant states, notably Vietnam and Japan, as well as participating in offshore oil and gas exploration in disputed waters. For instance, India and Japan held their first bilateral naval exercises in June 2012 while India has also provided training to Vietnam in underwater warfare.75 Reports in July 2011 that an Indian Navy vessel, the INS Airavat received alleged radio contact from the Chinese Navy demanding that the vessel depart disputed waters in the South China Sea after completing a port call in Vietnam illustrate that the growing Indian presence in the region is unlikely to go unchallenged by China, which maintains a preference for a bilateral, non-internationalized approach in resolving maritime territorial disputes.76 This was followed by the less belligerent but nonetheless provocative gesture of an Indian naval vessel, the INS Shivalik, receiving a PLAN escort while on its way from the Philippines to South Korea in June 2012.77 Beijing has also opposed Vietnam granting exploration rights to Indian company ONGC Videsh in offshore blocks located in disputed waters.78 Meanwhile, India has also voiced concerns to China’s growing interests and presence in the Indian Ocean. Garver notes that ‘by slowly expanding its naval presence in the Indian Ocean, Beijing is trying to create a new status quo’.79 Reports that an Indian attack submarine and Chinese naval unit were ‘locked in a tense stand-off’ near the Bab-el-Mandeb Strait in the Gulf of Aden in January 2009, culminating in the Chinese vessels forcing the Indian kilo-class submarine to surface, illustrates the emergence of a potential Sino-Indian rivalry in the Indian Ocean.80 George Perkovich notes the emergence of a ‘swelling Sino-Indian security dilemma’ into the Indian and Pacific oceans amid both countries’ growing ability 75 ‘India, Japan to hold first bilateral naval exercise off Tokyo’, Press Trust of India, June 4, 2012; Prakash Nanda, ‘A Maritime India’, Geopolitics, II, XII (2012): 90; The Hanoist, ‘Vietnam builds naval muscle’, Asia Times, March 29, 2012. 76 Ben Bland and Girja Shivakumar, ‘China confronts Indian navy vessel’, Financial Times, August 31, 2011. 77 Krishnan, ‘In South China Sea a Surprise Chinese Escort for Indian Ships’, The Hindu, June 14, 2012. 78 In a joint exploration and export and production sharing agreement concluded between India’s ONGC Videsh and PetroVietnam in 2006, India gained access to blocks 127 and 128 in the Phu Kahn basin. It subsequently relinquished it interests in block 127 in 2010 based on uneconomic returns though it began exploration activities in block 128 in September 2011. The same year a consortium of Indian companies and PetroVietnam obtained approval to purchase British Petroleum’s stake in the Nam Con Son basin. China has challenged India’s exploration activities in the disputed waters, as demonstrated by China National Offshore Oil Corporation (CNOOC) offering tenders for 19 offshore blocks, including block 128 where India has a stake, in May 2012. Scott, 2013, 62–3. 79 John Garver, ‘The Security Dilemma in Sino-Indian Relations’, India Review 1, 4 (2002): 33–4. 80 Chow Chung-yan, ‘Chinese Navy Sees Off Indian Sub’, South China Morning Post, February 4, 2009.

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to ‘build capacity to project power and secure their lines of communication in increasingly distant waters (so that), China will seem to encroach on India’s sphere of influence in the Bay of Bengal and Indian Ocean, while India will seem misplaced in the South China Sea and the Strait of Malacca’.81 Raja Mohan echoes this position noting that ‘as their weight begins to influence the IndoPacific maritime domain, and their naval footprints begin to intersect, China and India are likely to see increased mutual suspicions’.82 He adds that ‘for China’s strategic planners, securing sea lanes against hostile powers has become perhaps the chief preoccupation’ while India’s strategic planners share a strategic concern surrounding ‘the growth of China’s presence in its backyard, in and around the Indian Ocean’.83 Addressing the Roots of Mistrust Deterring the emergence of a ‘nested security dilemma’ in the Sino-Indian relationship will require addressing unresolved core grievances in the bilateral relationship. As Gill notes, ‘naval relations between the two countries (China and India) are largely set by continental concerns’.84 These include long-standing territorial disputes, trade imbalances, and the role of third parties – for example, China’s ‘all-weather’ friendship with Pakistan and India’s deepening relations with Japan and Vietnam that have served to fuel a climate of strategic mistrust. The propensity for misunderstanding is also fuelled by limited people-to-people contacts, cultural barriers and deficient institutional mechanisms for interaction. Rising levels of nationalism accompany the growing international clout of both countries with jingoistic media reporting, contributing to a climate of mistrust at the people-to-people level.85 On a more fundamental level neither state has much experience with sharing power with the other. In the pre-colonial period both civilizational states were essentially masters of their own domain. But as both countries’ perceived domain has grown and begun to overlap in the post-Cold War period, there is greater likelihood of misunderstanding and friction. Taking one instance, while the Sino-Indian territorial dispute has lost the strategic relevance it once had – given the emergence of ‘disruptive technologies’ 81 Mohan, Samudra Manthan, xii. 82 Ibid., 187. 83 Ibid., 40. 84 Till, ‘Asia’s naval expansion’, 202. 85 For example: Banyan, ‘India-China relations and the media: Blame the messenger’, The Economist, May 21, 2012; Debasish Roy Chowdhury, ‘Indian press buries truth at the border’, Asia Times, February 18, 2012; D.S. Rajan, ‘China Should break up the Indian Union, suggests a Chinese strategist’, Chennai Centre for Strategic Studies, C3S Paper 325 (2009); ‘China may attack India by 2012’, Times of India, July 12, 2009; Bhartendu Kumar Singh, ‘Warmongers in China, India miss the mark’, Asia Times, August 29, 2009.

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such as ballistic missiles and cyber-warfare that have reduced the strategic ‘space’ between both states – the disputed border nonetheless remains a thorn in the side of a normalization of relations.86 This was demonstrated most recently by the standoff between both countries in Eastern Ladakh in April 2013.87 More significantly, the growing imbalance in the bilateral relationship is emerging as a catalyst for instability. It is not by coincidence that China’s offers to resolve the territorial dispute on amicable terms emerged during a period of greater parity in China and India’s material capabilities; until the mid 1980s China and India’s GDP and per capita income were similar.88 In contrast, China’s more aggressive position on the territorial dispute in recent years can be attributed to the balance of power tilting in China’s favour rooted in its economy now being more than three times the size of India. This has translated into strengthened military capabilities, which has granted Beijing greater confidence and leverage in pushing India to resolve territorial disputes on its own terms. As the asymmetry of material capabilities continues to grow in the bilateral relationship the likelihood of friction will grow. Furthermore, unlike their brief border war in 1962, future hostilities are unlikely to be confined to their disputed border with the potential for spillover into other arenas, including the maritime domain. A notable example of this was an attempt by China to block an Asian Development Bank loan to India in 2009 as it included funds for the Indian state of Arunachal Pradesh, which China claims as South Tibet.89

86 The Line of Actual Control (LAC) distinguishing the Indian and Chinese sides of the border remains undemarcated with no mutual agreement on the exact alignments of the border. India claims 38,000 square km of territory in Aksai Chin that is held by China, as well as 5,180 square km of territory in the Shaksgam Valley that Pakistan handed over to China in 1963. Meanwhile, China claims 90,000 km of Arunachal Pradesh. Bilateral discussions under the special representatives’ framework since 2003 have made little progress in resolving the territorial dispute. For a detailed background of the 1962 Sino-Indian border war see: Srinath Raghavan, War and Peace in Modern India (London: Palgrave Macmillan, 2010), 227–310. 87 Rahul Singh, ‘China ends Ladakh standoff, troops pull back’, Hindustan Times, May 5, 2013. 88 China has made several offers to resolve the border dispute through a territorial swap. For instance, Chinese Premier Zhou Enlai made such an offer during his 1960 visit to India. In 1979, Deng Xiaoping made a similar offer for a ‘package solution’ to India during Indian Foreign Minister Vajpayee’s visit to Beijing. On both occasions India’s reluctance to equate the two sectors led to a lack of progress. Zorawar Daulat Singh, ‘Understanding the standoff in Ladakh’, The Tribune, April 26, 2013; Mohan Guruswamy, ‘India-China war delayed by technology’, Asia Times, May 7, 2013. 89 Pranab Dhal Samanta, ‘India-China face-off worsens over ADB loan for Arunachal, Bank doesn’t help’, Indian Express, May 15, 2009.

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Strengthening Maritime Confidence-building In the absence of adequate confidence-building mechanisms, common security concerns are fuelling strategic mistrust rather than acting as catalysts for cooperation. For instance, China’s anti-piracy operations in the Indian Ocean have been perceived by some members of India’s strategic community as an attempt by Beijing to project power rather than protect the ‘global commons’. In this context, China’s increasingly assertive position over territorial disputes in the South and East China Seas has been viewed as a sign of its potential behaviour in the Indian Ocean, especially if China elevates the protection of sea lines of communication to a ‘core interest’ (hexin liyi) on par with its security and sovereignty interests of resolving maritime and continental territorial disputes, reunification with Taiwan and developmental objectives. Strengthening bilateral trust will entail more robust naval confidence building. Mohan notes that ‘as the economic stakes of China and India in the oceans steadily expand and the two sides proceed with the building of powerful navies, a substantial and open-ended dialogue between the two security establishments on maritime and naval issues has become an urgent imperative’.90 The establishment of a bilateral maritime security dialogue in April 2012 is a positive step in this respect, though the initiative remains largely consultative and lacks a rules-based structure.91 A more robust initiative could be an ‘incidents at sea agreement’ between both states, which would emulate a similar agreement reached between the United States and the Soviet Union in 1972 at the height of the Cold War (Incidents On And Over the High Seas (INCSEA)). This would facilitate information exchange, provide a mechanism to manage incidents and ultimately strengthen mutual understanding. On a more fundamental level both states need to overcome well-entrenched strategic that espouses maritime ‘spheres of influence’, which has resulted in China perceiving India’s maritime presence in the South China Sea as inherently threatening while India has perceived China’s growing naval role in the Indian Ocean as belligerent. As Raja Mohan notes, ‘as New Delhi and Beijing define their maritime approaches in terms of the US Monroe Doctrine, the two would seem bound to step on each other’s toes’.92 Rather, India and China should recognize that they both have legitimate strategic interests in each other’s maritime backyards as they continue to rise as major powers with growing dependence on maritime trade and resource imports to maintain their growth and development trajectories. For instance, Indian National Security Advisor Shiv Shankar Menon has proposed a ‘Maritime Concert’ in which the region’s major maritime powers would have collective responsibility 90 Mohan, Samudra Manthan, 208. 91 Ashok Tuteja, ‘India, China to Kickstart Maritime Dialogue’, Tribune, April 14, 2012. 92 Mohan, Samudra Manthan, 205.

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to protect the Indian Ocean from non-traditional security threats.93 The fact that China, India and Japan have been coordinating their anti-piracy patrols in the Indian Ocean within the framework of the Shared Awareness and Deconfliction (SHADE) mechanism demonstrates that cooperation is possible despite a longstanding climate of mistrust between the region’s major powers. Protecting the Maritime ‘Global Commons’ However, ‘the unfolding maritime security dilemma between India and China cannot be mitigated through bilateral confidence-building measures alone’.94 As Till notes, ‘neither China nor India see each other as their primary antagonist but do note that they are allied to the countries that are – the US and Pakistan respectively’.95 Furthermore, India’s deepening relationship with Vietnam and Japan – China’s traditional regional adversaries – and China’s deepening relations with several states of the Indian Ocean Region demonstrate that the Sino-Indian maritime relationship is rooted in the larger regional dynamic. Ultimately, an integrated, holistic and cooperative approach is necessary to address the range of divergent but overlapping threats facing the maritime domain in the Indo-Pacific Region. First, despite a plethora of areas of mutual interest in the maritime domain – including joint exploration of offshore oil and gas resources, joint patrolling of sea lanes of communication and combatting nonstate threats such as piracy – regional and global multilateral initiatives are likely remain of limited utility amid the persistence of a regional trust deficit. The shortlived initiatives between Japan and China in 2008 and between China, Vietnam and the Philippines in 2005 for joint offshore oil and gas exploration demonstrate that agreements alone are insufficient to sustain cooperation. Tensions are likely to persist in the absence of sufficient measures aimed at addressing the root causes of regional rivalries. In other words, sustainable cooperation in the maritime domain will be contingent on confidence-building that transcends the maritime security sphere and addresses the root causes of mutual mistrust through a multilateral, inclusive process of regional interaction. For instance, the Malacca Straits Coordinated Patrols (MALSINDO) in Southeast Asia played a prominent role in quelling the piracy threat in the South China Sea. However, this functional cooperation was built upon pre-existing confidencebuilding mechanisms forged between regional powers by the Association of Southeast Asian Nations (ASEAN). In this context, the establishment of an Expanded ASEAN Maritime Forum (EAMF) in 2012, as well as the China– ASEAN maritime cooperation fund and the Philippines’ proposal for ‘joint 93 Shiv Shankar Menon, ‘The Evolving Balance of Power in Asia’, Paper presented to Global Strategic Review: The New Geopolitics, September 13, 2009. 94 Mohan, Samudra Manthan, 209. 95 Till, ‘Asia’s naval expansion’, 47.

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cooperation areas’ are positive developments, though these initiatives have so far achieved little of substance.96 Second, maritime cooperation is held hostage to regional norms of interaction with an emphasis on minimal institutionalisation and non-confrontation.97 This has limited the restraining influence of competitive naval developments. For instance, the ‘Guidelines for the Implementation of the Declaration on Conduct of Parties’ concluded in July 2011 is a step in the right direction toward operationalizing the 2002 ‘Declaration on the Conduct of Parties in the South China Sea’.98 However, both the 2011 guidelines and 2002 declaration have failed to quell the war of words and sporadic skirmishes in the South China Sea amid the absence of a legally binding code of conduct. As such, there needs to be a move away from informal codes of conduct toward institutionalized mechanisms that provide rules-based, legally-binding covenants that emphasize the importance of freedom of navigation and enforce the demilitarization of disputes by all claimants. At present, the lack of more institutionalized rules of engagement in the region is prompting some regional powers to seek means of dispute resolution beyond the region. This is illustrated with the example of the Philippines challenging China’s ‘nine-dotted line’ claim in the South China Sea before the arbitration tribunal of the 1982 UN Convention on the Law of the Sea (UNCLOS), though this action holds more symbolism than substance given that China has opted out of the dispute settlement mechanism of the convention.99 The presence of opt-out clauses for dispute resolution mechanisms makes legal mechanisms insufficient to resolve long-standing maritime territorial disputes. Adherence to a universally recognized rules-based framework such as UNCLOS would be a crucial first step in the process of ensuring that maritime Asia is governed by the rule of law. In this context, the fact that the region’s predominant maritime power, the United States, has failed to ratify UNCLOS has set a bad example for the region. However, multilateralism by itself does not guarantee a reduction of regional mistrust. At present the region is plagued by multiple overlapping forums to tackle issues of maritime security. The competing nature of these forums is in part a reflection of the climate of mistrust that pervades the region amid the persistence of underlying inter-state rivalries. Regional powers often employ these forums to 96 ‘ASEAN Maritime Forum breaks new ground for maritime cooperation’, Philippine Information Agency, October 9, 2012; Trefor Moss, ‘Rocky patch’, South China Morning Post, April 19, 2012. 97 Gillian Goh, ‘The ASEAN Way: Non-intervention and ASEAN’s role in conflict management’, Stanford Journal of East Asian Affairs 1: 1 (2003). 98 Greg Torode, ‘China, ASEAN agree on guidelines over claims’, South China Morning Post, July 21, 2011; Ian Storey, ‘ASEAN and the South China Sea: Movement in Lieu of Progress’, China Brief 12: 9 (2012). 99 ‘Philippine legal move stirs South China Sea disputes’, IISS Strategic Comments 19: 13 (2013).

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extend their influence while limiting that of others, as noted with the example of the Indian Ocean Naval Symposium (IONS), which was launched in 2008 under India’s leadership with the notable exclusion of China. As such, regional powers need to embrace the concept of ‘open regionalism’ that takes account of the views of extraterritorial, non-claimant stakeholders that have an interest in the peaceful resolution of maritime territorial disputes and maintaining the freedom of navigation in the region. In this context, there needs to be recognition by all parties, particularly China that the era of seeking bilateral local solutions has passed. Beyond these general principles, specific measures that could serve to reduce tensions in the maritime domain include: • Establishing areas of joint development for offshore oil and gas exploration or alternatively seeking a moratorium of exploration activities in disputed areas; • Protecting fish stocks through bilateral or multilateral rather than the unilateral imposition of fishing bans; • Joint maritime patrols aimed at improving coordination in maritime domain awareness; • The conclusion of ‘incidents at sea’ agreements aimed at mitigating the risk of escalation leading to conflict. With respect to these initiatives several precedents exist, such as the Arctic Council’s 2011 Search and Rescue agreement concluded between several countries sharing disputed maritime claims, China’s coordinated maritime patrols with several ASEAN states in the Mekong River, and the already-mentioned incidents at sea (INCSEA) agreement between the US and Soviet Union established in 1972. There also remain several areas of uncertainty that will need clarification, such as the blurring of lines between commercial and military rites of passage amid the growing use of paramilitaries for humanitarian operations; and conflicting interpretations of the UN Law of the Sea, notably making the distinction between islands and rocks in determining the extent of a claimant state’s territorial sea and exclusive economic zone and whether military vessels need to seek the permission of the coastal state when passing through its EEZ.100

100 Under Article 121 of UNCLOS, states claiming ‘rocks’ are only entitled to 12 nautical mile (nm) territorial waters while claims to ‘islands’ (that can accommodate human habitation) allow states to extend their exclusive economic zone by 200nm. While China agrees on the principle of freedom of navigation in a country’s exclusive economic zone it argues that this right does not extend to military activities within its EEZ given ‘due regard for rights and duties of the coastal state’ (Article 58). However, the United States claims that surveillance activities are permissible under this interpretation.

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Implications of US ‘Pivot’/‘Rebalancing’ For the foreseeable future neither China nor India are in a position to exercise unilateral maritime dominance over their respective maritime theatres in the South China Sea and Indian Ocean while the United States remains the region’s predominant military power and ‘sea-based balancer’. Instead, as both countries remain focussed on internal growth, development and the consolidation of political power, any rivalry is likely to manifest itself in the realm of rhetoric, economic development, military modernization, and a competition for allies. However, an emerging Sino-Indian naval competition does have the potential to escalate if the US presence in the region weakens over time. Notably, the SinoIndian maritime relationship is developing against the wider strategic development of the US ‘strategic pivot’ or ‘re-balancing’ toward the ‘Indo-Pacific region’.101 This ‘forward-deployed diplomacy’ has manifested in several US actions aimed at shoring up its maritime presence in the region, including a commitment to devote 60 per cent of US naval assets to the region by 2020, including six aircraft carriers; the forward deployment of advanced littoral combat ships to Singapore; the establishment of a permanent rotational US marine taskforce in Darwin, Australia by 2016; the Joint Air-Sea Battle Operational Concept unveiled in the US 2010 Quadrennial Defense Review, which aims to build an integrated long-range strike capability to overcome the growing ‘anti-access, area-denial’ (or ‘counter-intervention’) capabilities of China; and renewed US commitment to its allies facing maritime territorial disputes with China, namely Japan and the Philippines, and rapprochement with other countries maintaining precarious relations with China, including Vietnam and Myanmar (Burma).102 This is complemented by broader gestures of a renewed US commitment to the region such as ongoing negotiations for the Trans-Pacific Partnership multilateral trade agreement with a dozen Pacific economies and the US gaining membership to the East Asia Summit during its sixth summit meeting in Bali in November 2011 after acceding to ASEAN’s Treaty of Amity and Cooperation in 2009. However, the United States is as much ‘re-balancing’ within the region as it is ‘pivoting’ towards the region, as demonstrated by the redeployment of US marines 101 Hillary Clinton, ‘America’s Pacific Century’, Foreign Policy (2011). 102 Leon Panetta, ‘The US Rebalance towards the Asia Pacific’ (speech at The Shangri-La Dialogue, Singapore, June 2, 2012); Christian Le Miere, ‘Rebalancing the burden in East Asia’, Survival 5, 2 (2013): 32; Greg Torode, ‘U.S. combat ships sail into troubled seas’, South China Morning Post, August 17, 2011, A10; Greg Torode, ‘Beijing wary as new US military strategy emerges’, South China Morning Post, April 25, 2011. The ‘Air-Sea’ Battle Concept, which parallels the Air-Land battle concepts of the Cold War, was unveiled by the Center for Strategic and Budgetary Assessment in 2010. Operationalisation of the concept would entail a shift from platform to networkcentric operations of a ‘distributed fleet’; employing a larger number of smaller units and enhanced long-range strike capabilities in order to target an adversary’s intelligence and command and control systems. Till, ‘Asia’s naval expansion’, 81–2.

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from Okinawa to Guam, Hawaii and Australia.103 While the United States may not yet be witnessing an ‘East of Suez’ moment in its foreign policy similar to that experienced by Britain in the last century, the country is nonetheless likely to reduce its global military footprint amid the operational fatigue of two consecutive land wars and the pressures of fiscal austerity. As such, the ‘re-balance’ or ‘pivot’ towards Asia is as much about reiterating the US commitment towards the region as it is about burden-sharing through getting regional allies to adopt more active positions on regional security. This demonstrates the growing complexity of the emerging regional security architecture in Asia as the US-led ‘hub and spokes’ bilateral alliance model is replaced by a ‘spokes-to-spokes’ multilateral security system in which regional powers increasingly forge relations with each other rather than through bilateral alliances with the United States at the center.104 Notable evidence of this has been Japan’s increasingly proactive role in forging bilateral and multilateral regional security partnerships, some of which are independent of the United States, such as Prime Minister Shinzo Abe’s proposal for a ‘security diamond’ comprising Japan, the United States, Australia and India, which would ‘safeguard the maritime commons stretching from the Indian Ocean to the western Pacific’.105 In the same context, the United States is actively seeking to draw India deeper into the East Asian security architecture, to the concern of China. For instance, the US 2010 Quadrennial Defence Review proclaimed India ‘as a net provider of security in the Indian Ocean and beyond’.106 More recently, Ben Rhodes, US deputy national security advisor for strategic communication noted that ‘just as the United States, as a Pacific Ocean power, is going to be deeply engaged in the future of East Asia, so should India as an Indian Ocean power and as an Asian nation’.107 This has moved beyond the realm of rhetoric, as demonstrated by the launch of the US-Japan-India trilateral dialogue in December 2011.108 As such, the maritime domain is likely to emerge as an increasingly active theatre of inter-state rivalries amid concerns of a strategic void created by a more ‘hands-off’ approach by the United States in the region, as well as the growing interest of major regional powers to protect their burgeoning seaborne trade,

103 Le Mière, ‘Rebalancing the burden in East Asia’, Survival, 32. 104 Ibid., 34. 105 Ibid., 35–7; Shinzo Abe, ‘Asia’s Democratic Security Diamond’, Project Syndicate, December 27, 2012, accessed February 6, 2014. http://www.project-syndicate. org/commentary/a-strategic-alliance-for-japan-and-india-by-shinzo-abe. 106 ‘Quadrennial Defense Review 2010’, U.S. Department of Defense, accessed February 6, 2014. http://www.defense.gov/qdr/. 107 Bertil Lintner, ‘India-Myanmar: a half-built gateway’, Asia Times, November 30, 2011. 108 Josh Rogin, ‘Inside the first ever US-Japan-India trilateral meeting’, Foreign Policy, December 23, 2011.

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access offshore energy resources, and project power amid ambitions of ‘Great Power’ status. A similar trend can be seen in the Middle East where the declining US dependence on imported oil fuelled by the shale gas revolution and more general efficiency gains across OECD countries will reduce the United States’ strategic interests in the Middle East. This comes at a time when the East Asian dependence on Middle East and North African oil is increasing. For instance, in 2011 the United States imported 2.5 million barrels per day (bpd) of oil from the Middle East, accounting for 26 per cent of its global imports: this is projected to fall to 100,000 million bpd or 3 per cent of its oil imports by 2035.109 In contrast, China imported 2.9 million bpd of oil from the Middle East in 2011, accounting for 60 per cent of its global imports, which is projected to grow to 6.7 million bpd or 54 per cent of its oil imports by 2035.110 China is set to overtake the United States as the world’s leading crude oil importer in 2014.111 In this context, a blockade along the Strait of Hormuz due to conflict with or instabilities in Iran or disruptions along the Gulf of Aden due to a growth of piracy and terrorism emanating from failed states in the Horn of Africa have greater strategic implications for India and China than for the United States. While the Sino-Indian competition is presently muted in the Middle East, as US strategic interests in the region diminish amid its quest for energy independence, its naval presence could weaken paving the way for an escalation of Sino-Indian naval competition in the Middle East. At present China and India’s economic interactions with the Middle East far exceed their strategic engagement with the region. However, there are signs of change amid both countries’ strategic dialogue with the Gulf Cooperation Council, China’s appointment of a special envoy for the Middle East in 2002, the establishment of the China-Arab Cooperation Forum in 2004 and the launch of India’s ‘Look West’ policy in 2005.112 In this context a more competitive and complex dynamic could emerge in the region as the unipolar presence of the United States gives way to a more multipolar orientation in which the Sino-Indian relationship serves to overlay pre-existing fissures in the Middle East. An interesting footnote to this is the fact that China and India have often shared closer perspectives with each other on developments in the region than either country has shared with the United States. This is evidenced by both countries’ historically close relations with states that the US has labeled pariah regimes, including Iran, Syria and Libya, as well as China and India’s concerns regarding the Arab Uprisings and opposition to Western intervention in Libya and Syria. This points to the potential for a greater convergence of interests between 109 Toh Han Shih, ‘Beijing “to increase reliance on Middle East oil”’, South China Morning Post, June 10, 2013. 110 Ibid. 111 Bloomberg, ‘China’. 112 Ibid.

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both states in the Middle East. However, this also alludes to a different dynamic between regional and extraterritorial powers in the Middle East with a reversion to traditional Westphalian norms of interaction emphasizing sovereignty, territorial integrity and non-intervention over humanitarian intervention and democratic regime change. Ultimately, this indicates that the rise of China and India as major maritime powers has the potential to challenge the current global maritime system rooted in an Anglo-Saxon strategic culture that can be traced from the Dutch to the British and the United States, which emphasizes political liberalism, free trade and muscular seapower.113 Conclusion The ambitions of regional powers to reclaim ‘lost’ territories in order to access offshore resources and protect maritime trade routes, combined with their growing maritime capabilities is increasing both the likelihood and intensity of an armed conflagration in the maritime domain connecting East, South and West Asia. With respect to China and India, both countries’ growing overseas interests sets the stage for a deepened rivalry in the maritime domain in the absence of more robust confidence-building mechanisms. The Sino-Indian maritime rivalry is still in its nascent stages and nowhere near the great naval arms races of the nineteenth and early twentieth century, as seen between Britain and Germany in 1909–14 for example. Nonetheless, this should not fuel complacency. Former Indian naval chief, Admiral Mehta has noted that ‘as the geographical competition-space between the two (China and India) coincides in the Indian Ocean wisdom and forbearance are going to be needed in generous measure to ensure that competition does not transform into conflict’.114 Ultimately, regional powers have a shared interest in maintaining open sea lanes given the strategic importance of regional waterways as transit points for growing trade and resource imports and the need for a coordinated approach by littoral and extra-regional navies in combatting non-traditional security threats, including maritime piracy, terrorism and arms, narcotics and people trafficking. The growing importance of the maritime domain for trade, energy security and access to maritime resources calls for a multilateral, transparent and inclusive model of confidence building in the form of more institutionalized interactions, greater information sharing, naval visits and joint exercises. Sustainable cooperation in the maritime domain will also require confidence-building that transcends the maritime domain aimed at addressing the root causes of mutual mistrust. This will 113 Mohan, Samudra Manthan, 233. 114 Admiral Suresh Mehta, ‘India’s Maritime Diplomacy and International Security’ (speech presented at the International Institute for Strategic Studies, June 2007).

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deter the emergence of ‘nested security dilemma’ in the maritime domain linking the East, South and West Asian or Middle Eastern sub-regions.

Chapter 7

The Gulf Monarchies and Pacific Asia: Towards Interdependency? Christopher M. Davidson A host of economic, diplomatic, cultural, and other highly pragmatic linkages seem to be making the long-predicted “Asianization” of Asia a reality.1

As this chapter will demonstrate, the powerful and multidimensional connections that are being forged by the very eastern and western extremities of the continent are perhaps now one of the most visible indicators of this process. Given time, this will finally lead to the emergence of meaningful bilateral ties between nonWestern poles of the international system involving states that up until recently had been considered as peripheral to the global economy and dependent on the advanced capitalist countries for their trade and investment.2 Most notably, an important new relationship is developing between the six monarchies of the Persian Gulf – Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Qatar, Bahrain, and Oman – and the three most advanced economies of Pacific Asia – Japan, China, and South Korea. With little shared modern economic history, with enormous political and socio-economic disparities, and separated by great geographical distances, the rapidly tightening economic interdependence between the two regions is a recent phenomenon that deserves considerable attention. What began as a simple, late twentieth century marriage of convenience based on hydrocarbon imports and exports has now evolved into a comprehensive, longterm mutual commitment that will not only continue to capitalize on the Persian Gulf’s rich energy resources and Pacific Asia’s massive energy needs. But it will also seek to develop strong non-hydrocarbon bilateral trade, it will facilitate sizeable sovereign wealth investments in both directions, and it will provide lucrative opportunities for experienced Pacific Asia construction companies, their technologies, and – in China’s case – its vast labour force. Although this increasingly extensive relationship seems to have had little impact on the Persian Gulf’s military security arrangements – which remain mostly with the United States, Britain, and France – and although few serious attempts 1 See for example Yoichi Funabashi, ‘The Asianization of Asia’, Foreign Affairs, December (1993), 82–93. 2 Anoushivaran Ehteshami, ‘Asian Geostrategic Realities and their Impact on Middle East-Asia Relations’, in The Middle East’s Relations with Asia and Russia, ed. Anoushivaran Ehteshami and Hannah Carter (London: Routledge, 2004), 133–4.

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have been made by either side to replace or balance these with new pan-Asian alliances, this may change soon. Meanwhile, there is compelling evidence that the two regions are seeking to strengthen their other non-economic ties. An abundance of state-level visits, often at much higher levels than with Western powers, and a considerable number of cooperative agreements, gifts, loans, and other incentives are undoubtedly binding these great trade partners ever closer. Moreover, with a number of future collaborations including ‘hydrocarbon safekeeping’, renewable energy projects, civilian nuclear power plants, and the building of a twenty-first century ‘Silk Road’, the trajectory of interdependence will continue to accelerate. With a growing realization that the Pacific Asian economies, particularly China, may continue to experience higher economic growth credit than the Western economies – thus signifying a global shift in economic weight from the West to the East – the Eastwards reorientation of the Persian Gulf monarchies can only intensify. Following a brief historical background of relations between the Persian Gulf and Pacific Asia, an examination of contemporary hydrocarbon and nonhydrocarbon trade links will then be made, before turning to the sizeable interlinking investments between the nine states involved and to the several examples of major construction and labour contracts in the Persian Gulf that have already been awarded to Pacific Asian companies. Finally, the efforts to boost diplomatic and other relations will be considered, followed by an analysis of the many recent efforts to explore innovative future avenues of economic and technical cooperation. Historical Background The Persian Gulf’s oil trade with the Pacific Asian economies began in the early 1950s, when Japanese oil companies were scouring the globe for resources to fuel Japan’s rapid postwar industrialization programme. Most of the Gulf sheikhdoms were off-limits to Japan as they remained part of Britain’s ‘Trucial System’ – a series of nineteenth-century peace treaties between London and the various sheikhs that guaranteed British protection in exchange for exclusive political and economic relations.3 Saudi Arabia, however, was the key exception, with Britain having formally recognized King Abdul-Aziz bin Saud’s independence in 1932 and being unable to prevent the US’s Standard Oil of California from beginning exploration the following year. In 1953, Japan was able to dispatch freely an economic delegation to Saudi Arabia, and the following year formal diplomatic relations began. By 1956, Japan’s Arabian Oil Company had secured a 43-year concession to explore and extract Saudi oil,4 and in 1960, production commenced. 3 James Onley, The Arabian Frontier of the British Raj: Merchants, Rulers, and the British in the Nineteenth-Century Gulf (Oxford: Oxford University Press, 2007). 4 The concession duly ended in early 2000.

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The lucrative relationship was then quickly strengthened by the Saudi ruling family, with its first Minister of Defence visiting Tokyo in 1960, and with its third king visiting in 1971. In parallel, non-hydrocarbon trade between the Persian Gulf and Japan was also beginning to flourish, although its origins were more circuitous. Dubai, as one of the Trucial States, had long been exploring inventive ways of circumventing Britain’s tight economic controls,5 and in the 1950s and 1960s, the sheikhdom managed to position itself as the primary re-export hub for goods destined for India. Following the latter’s independence and the attempts of its first Prime Minister, Jawaharlal Nehru, to replicate the Soviet miracle by using the state to plan and protect the economy, a number of restrictive practices were introduced that effectively prevented India-based merchants from meeting domestic demand for their products, especially fabrics. In particular, cotton from Japan was in great demand. Dubai played the role of an intermediary, its merchants carefully ordering the necessary materials well in advance so as to overcome the lengthy five-month shipping time from Japan.6 By the late 1970s, Dubai’s trade with Japan had expanded to include electrical goods, with the re-exporting of millions of Hitachi personal stereos to the subcontinent,7 and by 1982 thousands of Japanese television sets were being distributed across India and the Persian Gulf.8 With Britain’s granting of independence to Kuwait in 1961, and with its withdrawal from the Trucial States in 1971, Japan’s opportunities for further oil concessions and more formal non-hydrocarbon trade expanded to include all the Gulf monarchies. Formal diplomatic relations were established with Kuwait in 1961, and in late 1971 Japan was one of the first countries to recognise the newly formed UAE federation. The following year relations were also established with Qatar, Bahrain and Oman. The Arabian Oil Company – by this stage 80 per cent owned by Japan and 20 per cent owned by Saudi Arabia and Kuwait – duly signed concessions in Kuwait in 1961,9 and the Japanese Oil Development Company (JODCO) took a stake in an international consortium to exploit UAE offshore oil in late 1972.10 Although China was also involved in some of the re-export trade in the Persian Gulf in the 1950s and 1960s, the volume was much lower than that of

5 Christopher M. Davidson, Dubai: The Vulnerability of Success (New York: Columbia University Press, 2008), 19. 6 Ram Buxani, Taking the High Road (Dubai: Motivate, 2003), 109–10, 118; Christopher M. Davidson, Dubai: The Vulnerability of Success (New York: Columbia University Press, 2008), 70. 7 Davidson, Dubai, 313. 8 Buxani, Taking the High Road, 117–19, 121; Davidson, Dubai, 71. 9 CIA, ‘The World Factbook, people and economics overviews of Japan, China, South Korea, Saudi Arabia, the UAE, Kuwait, Qatar, Oman, and Bahrain’, 2009. 10 Abu Dhabi Marine Operating Company, ‘Historical background documents’, 2009.

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Japan and most of the activity took place in Qatar and Kuwait rather than Dubai.11 With sizeable domestic hydrocarbon reserves and less momentum behind its industrialization programme, China’s interest in an oil trade with the Persian Gulf was also much lower than Japan’s. Moreover, during this period, China’s open support for anti-imperialist, revolutionary movements stymied most opportunities for closer ties with the Gulf’s ruling families,12 most of which were political beneficiaries of the Trucial System.13 Nonetheless, with an eye to the future, the ruler of Kuwait visited China in 1965 and diplomatic relations were established in 1971. By 1978, circumstances were already beginning to change, as the initiation of a series of Chinese economic and political reforms – the ‘Four Modernizations’ – that aimed to stimulate economic growth and support modernization14 effectively led to the downgrading of Marxist ideologies in China’s external relations.15 The door having been opened, Oman immediately established diplomatic relations, while the UAE followed suit in 1984, and the following year Saudi Arabia held its first official meeting with China on Omani territory. Just days after the 1981 formation of the Gulf Cooperation Council – the loose organization that was to represent the joint interests of the Gulf monarchies – China had granted it recognition.16 Significantly, in 1983, China began to import crude oil from Oman as a temporary measure, in order to alleviate the problem of transporting its own oil from its northern provinces to refineries on the Yangtze River. By 1988, as Chinese demand for oil was accelerating rapidly in tandem with its increasing population and intensifying industrialization, the Omani arrangement was made permanent.17 By 1990, China’s presence had extended to all the Gulf monarchies and embassies being set up in Qatar in 1988, in Bahrain in 1989 and in Saudi Arabia in 1990.18 Although far less proactive than Japan and China during this period, with its major oil companies not being established until the late 1970s and with most of its other trade links to the Persian Gulf also developing more recently, South Korea was carefully building the foundations of its present strong relationship 11 China, Ministry for Foreign Affairs. ‘Overview files on the GCC states’, 2009. 12 Steve A. Yetiv and Chunlong Lu, ‘China, Global Energy, and the Middle East’,Middle East Journal, 61, 2 (2007): 201. 13 Peace treaties signed between Gulf ruling families and the British Empire in the nineteenth century effectively guaranteed the former’s security from both foreign aggression and domestic insurgency. Christopher M. Davidson, The United Arab Emirates: A Study in Survival (Boulder: Lynne Rienner, 2005), 29–31. 14 The four modernizations were in the fields of agriculture, industry, technology, and defence Richard Evans, Deng Xiaoping and the Making of Modern China (Harmondsworth: Penguin, 1995). 15 Yetiv and Lu, ‘China’, 201. 16 Ibid.: 202. 17 Mahmoud Ghafour, ‘China’s Policy in the Persian Gulf’, Middle East Policy, 16, 2 (2009): 89. 18 China, Ministry for Foreign Affairs. ‘Overview files on the GCC states’, 2009.

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during the 1960s and 1970s. For the most part, it established diplomatic relations in the wake of Japan but ahead of China, embassies being set up in Saudi Arabia in 1961, in Oman in 1974, in Qatar in 1974, in Bahrain in 1976, in Kuwait in 1979, and finally in the UAE in 1980.19 The Hydrocarbon Trade The hydrocarbon trade undoubtedly remains the central pillar in the contemporary relationship between the Gulf monarchies and Pacific Asia, and could now be worth as much as US$200 billion per year. At present, the former produces a combined total of about 16.6 billion barrels of crude oil per day, which is about 19 per cent of the global total. The bulk of production takes place in Saudi Arabia, the UAE and Kuwait. The region also produces about 232 billion cubic metres of natural gas per year, which is about 8 per cent of the global total. The bulk of production takes place in Qatar, Saudi Arabia and the UAE. More importantly perhaps, the Gulf monarchies account for 37 per cent of all known crude oil reserves and 25 per cent of all known natural gas reserves.20 Saudi Arabia alone accounts for 25 per cent of global oil reserves21 and Qatar 15 per cent of global gas reserves.22 At the other extreme, Japan’s current hydrocarbon consumption is 5 million barrels of oil per day, all of which it has to import, and 100.3 billion cubic metres of gas per year, 95 per cent of which it has to import. China’s current consumption is 7.9 million barrels of oil per day, 58 per cent of which it has to import, and 70.5 billion cubic metres of gas per year, 5 per cent of which it has to import. South Korea’s current consumption is 2.1 million barrels of oil per day, all of which it has to import, and 37 billion cubic metres of gas per year, 93 per cent of which it has to import. Respectively, Japan and China have the fourth and third greatest oil consumption needs in the world, while South Korea has now also entered the top 10. Japan has the fifth greatest gas consumption needs in the world, while China and South Korea have now moved into the top 2023 and are likely to catch Japan in the near future. According to the Organization of the Petroleum Exporting Countries (OPEC), although Japan’s demand for oil is likely to fall by 15 per cent

19 South Korea, Ministry for Foreign Affairs. ‘Overview files on the GCC states’, 2009. 20 CIA, ‘The World Factbook, people and economics overviews of Japan, China, South Korea, Saudi Arabia, the UAE, Kuwait, Qatar, Oman, and Bahrain’. 2009: 2007 and 2008 estimates, author’s calculations for totals. 21 BP, British Petroleum Statistical Review (London: BP, 2008). 22 US Government, Energy Information Administration (EIA), ‘Qatar profile’, 2009. 23 CIA, ‘The World Factbook, people and economics overviews of Japan, China, South Korea, Saudi Arabia, the UAE, Kuwait, Qatar, Oman, and Bahrain’, 2009: 2006–8; estimates, author’s calculations for totals.

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by 2030, China, South Korea and other Pacific Asia economies are likely to make up 80 per cent of net oil demand growth over the same period.24 Specifically, Japan currently imports about 1.3 million barrels of oil per day from Saudi Arabia, which is over 31 per cent of its total oil imports and worth close to $33 billion per year for Saudi Arabia.25 This now makes Saudi Arabia the fifth-largest trading partner of Japan, while Japan is its second-largest trading partner.26 In close second place, the UAE now exports 800,000 barrels of oil per day to Japan,27 with total oil and gas exports from Abu Dhabi – the most resourcerich of the UAE’s seven constituent emirates – now worth over $47 billion.28 Japan’s hydrocarbon trade with the other Persian Gulf monarchies is much less, but still noteworthy; its annual imports from Qatar – most of which is gas amounts to $17 billion, its imports from Kuwait – most of which is oil amounts to $15 billion, and its imports from Oman and Bahrain being $2.6 billion and $0.4 billion respectively.29 China’s total hydrocarbon trade with the Gulf monarchies is substantially less than Japan’s, mainly due to its domestic gas reserves; nonetheless its oil imports have been rising sharply, with $1.5 billion of imports in 1991, $20 billion in 2004, and nearly $33.8 billion in 2005.30 Unsurprisingly, during the latter part of this period, China’s Tenth Five-Year Plan (2001–5) contained its government’s first public acknowledgement that overseas oil supplies needed to be secured if China were to enjoy continued economic growth and modernization.31 In the next few years China’s imports are likely to double again, with one Chinese official having earlier stated that ‘we need to find oil fast’32 and another commentator recently explaining that ‘with the huge oil and gas imports predicted for the next decade and beyond, China is compelled to turn to the Persian Gulf’.33 Certainly, the International Energy Agency (IEA) predicts that China’s imports will grow to over 11 million barrels per day by 2030, more than half of which will have to be sourced from the Persian Gulf.34 As with Japan, Saudi Arabia is currently China’s greatest supplier of oil, with about 500,000 barrels of oil per day – or 30 per cent of China’s total oil imports – being shipped by Aramco to the China Petroleum and Chemical Corporation (Sinopec).35 In second place with its hydrocarbon exports, is once 24 The National, 5 August 2009. 25 Japan, Ministry for Foreign Affairs, ‘Overview files on the GCC states’, 2009. 26 Saudi Gazette, 22 July 2009. 27 The National, 26 June 2009. 28 Japan, ‘Overview’. 29 Ibid. 30 Ghafour, ‘China’s Policy’, 83–4. 31 Yetiv and Lu, ‘China’, 199. 32 International Herald Tribune, 2 October 2006. 33 Ghafour, ‘China’s Policy’, 82–3. 34 Ibid., 82. 35 Ibid., 83.

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again the UAE’s Abu Dhabi, with annual oil exports to China having risen from $3.5 billion to $4.5 billion over the past five years. Oman, courtesy of its aforementioned 25-year history of oil exports to China, still remains a significant supplier, its oil trade with Sinopec having risen from $1.5 billion in 2002 to $4.4 billion in recent years. Kuwait, Qatar and Bahrain’s hydrocarbon trade with China has been more modest, but again the trajectory is impressive; Kuwait’s supply of 200,000 barrels per day – currently worth $700 million – being likely to double in the next few years, and Qatar’s gas exports to China having risen in value from under $100 million in 1999 to nearly $1 billion today.36 For South Korea, the import pattern is similar to its larger neighbours, although, much like Japan, it requires from the Persian Gulf substantial imports of both oil and gas, given its lack of domestic gas reserves. Saudi Arabia is its largest trade partner, supplying about 770,000 barrels of oil per day as part of an annual hydrocarbon trade worth $21 billion. The UAE is the second-largest trade partner, supplying about 430,000 barrels of oil per day as part of an annual hydrocarbon trade worth $13 billion.37 This makes South Korea the second-largest importer of Abu Dhabi’s oil after Japan.38 Kuwait’s total oil and gas exports to South Korea are also sizeable – worth $8.1 billion, while Qatar’s are worth $7 billion – almost exclusively gas exports – Oman’s are worth $5.1 billion and Bahrain’s $0.3 billion.39 The Non-Hydrocarbon Trade Non-hydrocarbon trade between the Gulf monarchies and Pacific Asia is on a much smaller scale than oil and gas. Nonetheless, as demonstrated, there has been an historical precedent for the importing of certain goods from Pacific Asia into the Persian Gulf, especially textiles and electrical goods, and as the latter region’s per capita wealth accelerated during the oil era, the demand for such imports has continued to increase, along with new demands for cars, machinery, building materials and many other products associated with the region’s oil and construction booms. In total, such imports from Japan, China and South Korea could be worth as much as $32 billion per year.40 Importantly, there is no longer a complete imbalance of non-hydrocarbon trade between the two regions, as some of the export-oriented industries that have been established in the Gulf monarchies – mostly in an attempt to diversify oil-dependent economies – are now among the world’s leading producers of metals and plastics. Their export capacity continues to increase, with most of their future surpluses being earmarked for their Pacific Asian customers. 36 China, Ministry for Foreign Affairs. ‘Overview files on the GCC states’, 2009. 37 South Korea, Ministry for Foreign Affairs. ‘Overview files on the GCC states’, 2009. 38 The National, 5 August 2009. 39 South Korea, Ministry for Foreign Affairs, 2009. 40 Author’s calculations based on subsequently listed country totals.

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Japan’s greatest non-hydrocarbon trade partner in the region is the UAE, as a function of historic ties to Dubai’s entrepôt trade, Abu Dhabi’s commitment to building up heavy, non-hydrocarbon-related industries,41 and the UAE’s high per capita wealth which is now in excess of $40,000.42 Their total non-hydrocarbon trade is now over $11 billion per. year43 Japan’s second-largest non-hydrocarbon trade partner in the region is Saudi Arabia, the two countries having begun to sign economic and technical cooperation agreements as early as 1975. Presently, their non-hydrocarbon trade has mushroomed and stands at over $5 billion, most of which is made up of Saudi imports of Japanese cars, machinery and consumer durables, but consisting also of Japanese imports of Saudi metals.44 Japan’s nonhydrocarbon trade with Kuwait, Qatar and Oman is presently about $2 billion, $1.8 billion and $1.7 billion respectively, most of which, again, is made up of Japanese exports of cars, machinery and consumer durables. Although Bahrain remains Japan’s least significant trading partner in the Persian Gulf, it is noteworthy that their non-hydrocarbon trade has increased dramatically from $700 million in 200745 to nearly $1.3 billion today, and is expected to increase by a further 20 per cent over the following year. Overall, Japanese non-hydrocarbon trade with the Gulf monarchies is set to increase even further as negotiations over a free trade agreement (FTA) between Japan and the six monarchies are currently taking place, having commenced in 2006. China’s greatest non-hydrocarbon trade partner in the Persian Gulf has for many years been Saudi Arabia, a memorandum of understanding on bilateral trade having been signed in 1988 – as described, two years before China had even granted diplomatic recognition to Saudi Arabia. In 1992, a bilateral trade conference was staged and in 1996, under the auspices of a GCC–China consultative mechanism, annual trade meetings began between the two countries, held alternately in Riyadh and Beijing.46 Today, it is estimated that their total annual non-hydrocarbon trade is worth $1.7 billion, mostly made up of Saudi imports of Chinese textiles and machinery,47 making Saudi Arabia China’s tenth-largest international export destination.48 The UAE is presently China’s second-largest non-hydrocarbon trade partner in the Persian Gulf, total trade being estimated at $500 million, again primarily made up of imports of Chinese textiles and machinery.49 In the near 41 Davidson, Dubai, 70–71; Davidson, Abu Dhabi, 72–3. 42 CIA, ‘The World Factbook, people and economics overviews of Japan, China, South Korea, Saudi Arabia, the UAE, Kuwait, Qatar, Oman, and Bahrain’, 2009: 2008 estimate. 43 Japan, Ministry for Foreign Affairs, ‘Overview files on the GCC states’, 2009. 44 Ibid. 45 Ibid. 46 Yetiv and Lu, ‘China’, 202. 47 China, Ministry for Foreign Affairs. ‘Overview files on the GCC states’, 2009. 48 Ghafour, ‘China’s Policy’, 87. 49 China, ‘Overview’, 2009.

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future it is likely that China’s trade with the UAE will increase massively, and perhaps will soon overtake Japan’s non-hydrocarbon trade with that state. Most of this growth is expected to be a result of Dubai’s strengthening relationship with China, Dubai Ports World stating in 2008 that China was already Dubai’s second-largest trade partner after Iran.50 China’s non-hydrocarbon trade with the other Persian Gulf monarchies is also growing; annual trade with Kuwait, Oman, Bahrain and Qatar being worth $260 million, $60 million, $60 million and $50 million respectively. These relationships have been facilitated by several agreements similar to those made by China with Saudi Arabia and the UAE. As with Japan, China intends to increase its non-hydrocarbon trade with the Persian Gulf even further by achieving an FTA with all six of the monarchies in the near future. These FTA negotiations began in 2004, following a visit by a GCC delegation to China.51 Subsequent FTA negotiations were held in 2005 and 2006, by which stage agreements had been reached on tariff reductions. Although the talks have since stalled due to China’s unwillingness to lift certain import restrictions on a number of non-hydrocarbon goods from the Persian Gulf, in early 2009, the concept of an FTA was reinvigorated by the president of China, and in summer 2009, the GCC reciprocated China’s sentiments by publishing a White Paper entitled ‘Economic relations between GCC member states and the People’s Republic of China’, which similarly urged the swift conclusion of FTA negotiations.52 More recently, the proposed FTA seems to have gathered further pace. South Korea’s non-hydrocarbon trade with the Persian Gulf is more modest, although as with Japan and China, its relationship is strengthening. The Persian Gulf monarchies having collectively become South Korea’s second-largest export destination after China,53 most of the trade being made up of cars, rubber parts and textiles. Individually, South Korea’s non-hydrocarbon trade with Saudi Arabia is about $3 billion, the UAE $2.9 billion, Qatar $800 million, Kuwait $700 million, Oman $300 million and Bahrain $100 million. South Korea has not yet advanced as far as Japan and China with a Persian Gulf FTA; however negotiations did begin in summer 2008, a second round being held in spring 2009,54 and they have continued since.

50 Arabian Business, 31 March 2009. 51 Yetiv and Lu, ‘China’, 206. 52 China Daily, 30 January 2004; People’s Daily, 12 February 2009; Gulf Cooperation Council Secretariat 2009. 53 Zawya Dow Jones, 8 March 2009. 54 Kuwait Times, 8 March 2009.

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Investments and Joint Ventures Alongside the booming hydrocarbon and non-hydrocarbon trades, the relationship between the Gulf monarchies and Pacific Asia is being greatly enhanced by a substantial flow of investments between the two regions. Significantly, these investments are being made in both directions and at all levels, and they include massive sovereign wealth investments. Although the majority are still connected to the oil and gas sectors, there is strong evidence that an increasingly diverse range of non-hydrocarbon joint ventures is also being established. In the short term, these opportunities are providing the Gulf monarchies with a realistic alternative to the mature Western economies for their overseas investments. Such an alternative was viewed as being particularly necessary following the 11 September, 2001, attacks, after which many Western governments and companies did little to disguise their distrust of Gulf sovereign wealth funds, many arguing that the funds were not merely commercial and that power politics could be involved. Japan is presently the largest foreign investor in Saudi Arabia, with over $11 billion of active investments being distributed among 24 different projects, including sixteen industrial projects and eight service-sector projects.55 In the other direction, Saudi Arabia’s Aramco now holds a 15 per cent stake in Japan’s fifth largest oil company, Showa Shell Sekiyu. Additionally, in summer 2009, the two countries entered into a $1 billion joint venture, when the Saudi Basic Industries Corporation (SABIC) and Japan’s Mitsubishi Rayon agreed to build an acrylics factory in Saudi Arabia, with Mitsubishi holding the majority stake. In the UAE, Abu Dhabi’s third-largest sovereign wealth fund, the International Petroleum Investment Company (IPIC), has recently sought a $5 billion package from Japan’s Mitsubishi UFJ Financial Group and the Sumitomo Mitsui Banking Corporation. This in turn will allow these Japanese banks to have an interest in some of IPIC’s overseas investments.56 In the other direction, IPIC has now taken a 20 per cent stake in Japan’s Cosmo Oil Company, which continues to hold a major Abu Dhabi offshore oil concession, thus strengthening further Japan–UAE interdependence. In early 2005, the Chinese Ministry for Commerce revealed that Chinese investments in the Gulf monarchies had already reached $5 billion, while Gulf investments in China totalled $700 million.57 With a flurry of further investments and joint ventures since that announcement, these figures have since mushroomed, and will soon overtake even Japan’s interests in the region. In particular, China has sought investments to help build up its oil-refining industries, in which the Persian Gulf economies have sought to have a dominant presence.58 At present China’s greatest investment partner from the Persian Gulf is Kuwait, a relationship which strengthened greatly following the setting up of a $9 billion joint venture 55 Saudi Gazette, 22 July 2009. 56 Associated Press, 2 August 2009. 57 Ghafour, ‘China’s Policy’, 87. 58 Yetiv and Lu, ‘China’, 205.

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between the Kuwait Petroleum Corporation and Sinopec in 2005.59 In 2006, this deal was followed by the Kuwait Investment Authority (KIA) buying over $700 million in shares in the Industrial and Commercial Bank of China, thereby making Kuwait one of the biggest investors in one of China’s first major public offerings. China may soon become heavily involved in Kuwaiti projects, Sinopec currently having a sizeable stake in an international consortium that is bidding for an $8 billion infrastructural programme.60 The most innovative aspect of the investments between the two countries has been the establishment of the Kuwait–China Investment Company (KCIC) in 2005. Set up by the Kuwait government, the KCIC is 15 per cent owned by KIA and has a capital base of about $350 million, about half of which is held in cash.61 As well as Kuwait, China is also heavily involved with Saudi Arabia, Aramco having taken a 25 per cent stake in a major joint venture with Sinopec in 2001. In the near future another joint venture between the two companies may take place, but this time with Aramco taking the majority stake. This could lead to the building of the largest oil refinery in China, and may require as much as $6 billion to complete. Similarly, SABIC has already helped to initiate three petrochemicals projects in China as part of its ‘China Plan’, which aims to facilitate mutual investments between the two countries, support China’s economic development and satisfy its increasing demand as one of its premier suppliers.62 In the other direction, Sinopec has recently embarked on yet another joint venture with Aramco, taking an 80 per cent, $300 million stake in a new oil and gas exploration company in Saudi Arabia.63 Elsewhere in the Persian Gulf, Qatar has recently followed Kuwait’s lead and has signalled its intent to purchase $200 million in shares in the Industrial and Commercial Bank of China.64 And in summer 2009, it was announced that Qatar Petroleum would enter a joint venture with PetroChina worth $12 billion. The UAE, and more specifically Dubai, is also investing in China, with its government-owned Dubai Ports World parastatal now operating seven terminals in China and three of them in Hong Kong. Construction and Labour Contracts For some years, construction and labour companies in the Pacific Asia countries have been winning contracts in the Persian Gulf, the China National Petroleum Company (CNPC) having supplied labourers for projects in Kuwait as early as,

59 Associated Press, 26 June 2009. 60 Ghafour, ‘China’s Policy’, 89. 61 Financial Times, 10 July 2009. 62 Yetiv and Lu, ‘China’, 207–8. 63 Ghafour, ‘China’s Policy’, 87–8. 64 Ibid., 87.

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198365 and a number of other Chinese companies having supplied labourers for tourism and real-estate projects in Dubai for several years. However, very recently a large number of major contracts have been awarded to Japanese, Chinese and South Korean companies both to build and supply labour for multi-billion dollar projects in the Persian Gulf. Significantly, in many cases these companies have competed successfully against Arab and Western companies that have had a much longer history of winning contracts in the region and have usually sourced their labour from South Asia. Undoubtedly, these new contracts serve to solidify further the economic interdependence between the two regions while also taking advantage of the Pacific Asian companies’ experience, technologies and access to abundant labour. Of the three principal Pacific Asian countries, it has been South Korea that has made the greatest inroads into the Gulf monarchies’ construction sector. In the UAE, three out of five new gas facilities in Abu Dhabi’s Habshan region, operated by Abu Dhabi Gas Industries (GASCO), are being constructed by South Korean companies. Hyundai Engineering and Construction, GS Engineering and Hyundai Heavy Industries won their contracts in 2009, totalling $4.9 billion. Remarkably, Hyundai Engineering and Construction is already believed to be working on nine other projects in the UAE and has recently completed the construction of new gas processing facilities in Saudi Arabia’s Khurais field. Elsewhere in Saudi Arabia, the company won a $1.9 billion contract in late 2008 to build further gas processing facilities in the Karan field, on behalf of Aramco. And three other major South Korean companies won a combined $2.8 billion contract to build a new refinery and petrochemicals plant in Saudi Arabia.66 Diplomacy and Security Surprisingly, for many observers, there is still no obvious security dimension to the increasingly interdependent relationship between the Gulf monarchies and Pacific Asia. All the former are widely considered to be vulnerable, given their rich energy resources, small national populations, and close proximity to major conflicts and other potential threats. Moreover, their reliance on a Western security umbrella is undoubtedly problematic, given the strained relations between the Arab world and the US, not least over the Arab-Israeli conflict, but also following the 2001 invasion of Afghanistan and the 2003 invasion of Iraq. Equally it would seem to make sense for the Pacific Asian countries to seek a more active role in the security arrangements and defensive shields of their primary energy suppliers. Part of the explanation is that the Gulf monarchies do not yet see a reliable alternative to the West. For all its shortcomings, it was a Western-led alliance that liberated Kuwait in 1991, and it is the Western presence that has been credited 65 Ibid., 87–9; Yetiv and Lu, ‘China’, 203. 66 Korea Herald, 17 July 2009.

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with safeguarding the Gulf from Iraqi or Iranian belligerence in the past. As such, with a few exceptions, notably a modest arms trade with China (Nuclear Threat Initiative 2007), almost all of the Gulf monarchies’ arms imports have been sourced from western manufacturers. Moreover, although there has been an appreciable increase in China’s naval presence in the region – in part due to antipirate operations in the nearby Gulf of Aden – there is little projection of Pacific Asian military power in the Persian Gulf itself. Instead there remain a number of well-entrenched US military bases in Kuwait, Bahrain and Qatar, a British base in Oman and a new French base was even opened in Abu Dhabi in spring 2009. Some commentators have argued that the same lack of enthusiasm for a security relationship between the two regions applies in reverse: although it is not ideal that the US dominates the Persian Gulf, the Pacific Asian countries nonetheless see little alternative to Western-provided security, given that the thousands of miles of shipping lanes between themselves and their hydrocarbon suppliers would be difficult and expensive to protect. Thus far, it has remained more practical and cost effective to rely on experienced Western navies, which have already invested in a multi-billion capability for this purpose and enjoy access to a network of maritime bases in allied states.67 Another component of the explanation is simply lingering distrust, despite all the aforementioned economic linkages and converging histories. This is not so much related to Japan or South Korea, which are effectively neutral military powers, but rather to China, which has repeatedly created difficulties for a stronger security relationship. For many of the older generation of Omanis, including their present ruler, it is still difficult to forget that China helped to sponsor the rebellion in Oman’s Dhofar province in the 1960s and 1970s, while Britain played a key role in suppressing the rebels.68 In the mid 1980s, it appeared that China’s role in the region would increase, as Saudi Arabia began to buy Chinese CSS–2 East Wind missiles. However, Saudi Arabia was unwilling to go further and purchase Chinese intercontinental ballistic missiles, preferring to keep sourcing its ordinance from the US. Most seriously, in 1990, China was unwilling to condemn openly Iraq’s invasion of Kuwait, and following Kuwait’s purchase of nearly $300 million of Chinese howitzers in the mid 1990s, a Kuwaiti official later claimed that his government had been pressured into the deal as China was threatening to withdraw its support for future UN sanctions against Iraq.69 Tellingly, China’s Ministry for Foreign Affairs is currently attempting to rewrite this troubled period of history with Kuwait and its neighbours by stating that ‘during the Gulf crisis in 1990, China resolutely opposed Iraq’s invasion and occupation of Kuwait and demanded that Iraq should withdraw its troops from Kuwait and restore and respect the independence, sovereignty and territorial integrity of Kuwait … both countries share identical or similar views on 67 Yetiv and Lu, ‘China’, 200–201. 68 John Calabrese, ‘From Flyswatters to Silkworms: The Evolution of China’s Role in WestAsia’. Asian Survey, 30 (1990): 867; Ghafour, ‘China’s Policy’, 89, 91. 69 Ghafour, ‘China’s Policy’, 88–9, 91; Yetiv and Lu, ‘China’, 211.

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many major international and regional issues, constantly rendering sympathy and support to each other’.70 Regardless of the various explanations, the present reality is that the Gulf monarchies and their great Pacific Asian trade and investment partners do not yet have a meaningful security relationship. However, this is in no way jeopardizing their current and future closeness, with both clusters of countries now going to considerable lengths to improve other, non-economic aspects of their interdependency. Indeed, there now appears to be a tacit understanding from both parties that their relationship simply need not contain a military security component, at least for the time being. High-level diplomatic visits have, in particular, become central to the strategies of both regions. While economic and trade matters are certainly discussed at these events, they are, nonetheless, also perceived as valuable opportunities for heads of state and their ministers to meet their counterparts and consider a range of other matters. Often substantial gifts or interest-free loans are granted during these meetings, clearly in an effort to build more sturdy political and cultural understandings, and they undoubtedly generate further goodwill. In recent years the frequency of these visits has greatly intensified, and the seniority of the visitors – especially from the Gulf monarchies travelling to Pacific Asia – is significantly high, and likely to now be higher on average than the seniority of visitors dispatched to Western capitals. Future Initiatives and Collaborations With the noted exception of military security arrangements, the relationship between the Gulf monarchies and the three principal Pacific Asian economies will continue to strengthen and broaden for the foreseeable future, provided that the former remain able to balance their existing relationships with the Western powers and Pacific Asia, especially China.71 Thus far, such geopolitical competition would seem to have been avoided, given the primary emphasis on bilateral economic linkages, which for the most part have had little direct impact on the Gulf monarchies’ dealings with the West. Indeed, as this chapter has demonstrated, the hydrocarbon and non-hydrocarbon trade between the two regions has been rapidly rising in volume and value, and is projected to continue to do so. Similarly, it has been shown that the flow of bilateral investments between the two regions continue to rise, and a substantial number of construction and labour contracts are being signed with ever greater frequency. These trajectories are all being enhanced by improving non-economic ties, especially at the diplomatic level, and, as discussed, it is likely that these linkages will grow even tighter in the near future. Furthermore, the relationship will also be enhanced by several new initiatives and collaborations 70 China, Ministry for Foreign Affairs, ‘Overview files on the GCC states’, 2009. 71 Daniel Moran and James Russell (eds), Energy Security and Global Politics: The Militarization of Resource Management (London: Routledge, 2008).

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between the two regions, all of which augment existing economic bonds, while some have implications for future non-military security arrangements, and others are highly symbolic of this twenty-first-century partnership. In 2010, Abu Dhabi’s national oil company began using one of Nippon’s existing reserve bases in Kagoshima in southern Japan as a crude oil storage depot. This agreement has already provided the UAE with an alternative outlet for its crude oil sales, not only to Japan and its neighbours, but the entire East Asia region. Such an outlet would prove vital if the Strait of Hormuz – the entrance to the Persian Gulf – was closed in the event of an emergency. From Japan’s perspective the agreement is equally beneficial, as it provides Japan with direct access and a pre-emptive right to purchase crude oil in such an emergency. Tellingly, ADNOC’s spokesperson stated that the arrangement would ‘contribute to enhancing Abu Dhabi’s relationship with Asian markets generally and Japan particularly, and guarantee the flow of crude oil supplies to these markets in emergencies’.72 The future energy sector is another likely area of collaboration, with countries from both regions actively seeking to set up solar and nuclear joint ventures. Japan’s Showa Shell Sekiyu announced that it was considering operating solar power plants in Saudi Arabia in cooperation with Aramco, which, as described, is now one of its principal shareholders. Showa intends to build small pilot plants in Saudi Arabia to test its technologies, and should these prove successful then a joint venture with Aramco may be set up.73 With the UAE committed to a path of diversifying its energy sources and building up a civilian nuclear programme based on imported technologies from the US, its government has repeatedly turned to Japan and South Korea for advice and assistance. In early 2009, the UAE signed a nuclear cooperation memorandum of understanding with Japan, and in summer 2009, the UAE signed a similar agreement with South Korea. A 20-strong UAE delegation was promptly sent to South Korea – at the invitation of the Korea Electric Power Corporation (KEPCO) – to survey its nuclear facilities, and in late 2009, a KEPCO-led consortium outbid two other international consortia to win a $20 billion contract to construct the UAE’s first three nuclear plants. Perhaps most emblematic of the many new developments that will strengthen the link between Pacific Asia and the Gulf monarchies in the near future is China’s attempt to reconstruct the old Karakoram Highway. This will effectively connect China to the Persian Gulf by a land route that follows the same path as the ancient Silk Road. To do so, China will build the world’s highest altitude motorway in cooperation with the Pakistani government, which will not only involve a massive investment and working in difficult terrain, but will even require the pacifying of local tribes in remote areas beyond the control of the Beijing and Islamabad governments.74 On completion, this new highway will connect with deep-water ports in Pakistan, most notably the port at Gwadar, in Baluchistan, which has 72 The National, 26 June 2009. 73 Associated Press, 25 June 2009. 74 The National, 6 August 2009.

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direct access to the Gulf of Oman and lies just 250 miles from the entrance to the Persian Gulf. China has already invested $200 million in Gwadar, the port having first opened in 2005 with three berths; China intends it to expand soon to 10 berths with a new bulk-cargo terminal.75 Conclusion By the end of the twentieth century, with rapidly accelerating demand from increasingly resource-scarce China and South Korea, and sustained demand from Japan, the Pacific Asian economies had all become heavily dependent on oil and gas imports, with most being sourced from the Persian Gulf monarchies. Now, more than ever, this massive and lucrative hydrocarbon trade represents the central pillar in the strengthening relationship between the two regions and, as demonstrated, is presently worth hundreds of billions of dollars per annum. In the near future it is likely this trade will amount to trillions of dollars per annum. Significantly, few efforts are being made by either side to disguise their increasing dependency on the other, with the bulk of future Gulf hydrocarbon exporting capacity being earmarked for Pacific Asian buyers. This contrasts markedly with other hydrocarbon importing economies, especially in the West, where most often an emphasis is placed on diversifying supplies wherever possible. Although on a much smaller scale than the oil and gas trade, it is also important to note how rapidly the non-hydrocarbon trade between the two regions is also growing. In something of a twenty-first century reincarnation of the ancient Silk Road, the Gulf monarchies are importing ever-increasing quantities of textiles, machinery, automobiles, and electrical products from the Pacific Asian economies, while in the other direction, the Gulf states have augmented their hydrocarbon exports by selling increasing volumes of metals, plastics, and petrochemicals. With a host of new initiatives from all of the governments and business communities concerned, together with considerable relaxations on visa requirements and other erstwhile restrictions, it is becoming much easier than before for merchants from both regions to travel and take their business from one side of Asia to the other. In parallel to these intensifying trade links, the relationship between the Gulf monarchies and the Pacific Asian economies is being strengthened even further by a massive flow of investments. These investments are in both directions and at all levels, with most being managed by giant government-backed sovereign wealth funds. Although the bulk of these investments are still associated with the hydrocarbon industry, there are, however, strong signs that an increasingly diverse range of non-hydrocarbon joint ventures are also being pursued. Such opportunities are finally providing the Gulf monarchies with a realistic and more hospitable alternative to the more mature Western economies for their overseas investments and interests. 75 Ghafour, ‘China’s Policy’, 83.

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Although Pacific Asian construction companies have been winning contracts in the Persian Gulf for some time, it is significant that over the last few years there has been a marked increase in their success. Many of the most recent contracts have been to both build and supply the labour for multi-billion dollar developments and, significantly, in many cases the successful Japanese, Chinese, and South Korean companies have had to compete against Arab and Western companies. Even though Chinese and other Pacific Asian labour often comes at a slightly higher cost than labour from India, Pakistan, or Bangladesh, it is increasingly viewed as less problematic by the governments in the Persian Gulf monarchies, as the presence of thousands of non-Muslim and non-Arabic speaking Pacific Asian labourers is not thought to pose a significant security threat to these states. Despite these intensifying connections between the two regions, a meaningful security arrangement has yet to develop, despite the obvious advantages to both the Gulf monarchies – which have to balance their reliance on Western support with often contradictory domestic sentiments; and the Pacific Asian economies – which need to secure their energy supply routes. If anything, the Western powers have increased their military presence in the Persian Gulf in recent years, with new bases being established and ever-increasing sales of sophisticated weaponry to their most demanding customers. In part, this has been due to a history of distrust, with the Gulf monarchies preferring to seek support from the same reliable protectors that preserved their integrity during the Iran–Iraq War of the 1980s and orchestrated the liberation of Kuwait in 1991. Moreover, there is undoubtedly a feeling on both sides that their increasing economic interdependency does not yet require a security dimension as long as the Western powers continue to guarantee – and thereby subsidize – the safety of their shipping routes and supply lines. However, there are a number of recent indicators that the Pacific Asian states, especially China and to a lesser extent Japan, are beginning to assume a more active role in the broader region’s security environment. Without a strong security component to their relationship, the Gulf monarchies and the Pacific Asian economies have all gone to considerable lengths to shore up a number of other, non-economic aspects of their interdependency. In particular, there has been a strong focus on aid-giving, grants, and other donations, even if only for symbolic purposes. Moreover, there has been a marked increase in the frequency and seniority of diplomatic visits. While economic and trade matters remain at the heart of these meetings, a broad range of other issues are discussed and strong efforts are being made to generate the most effective cultural and educational linkages. Furthermore, the increasingly interdependent and multidimensional relationship between the two regions is also being enhanced by several new initiatives and collaborations which will take shape over the next few years. These include innovative hydrocarbon storage projects, investments in renewable energies, further improvements to pan-Asian physical trade infrastructure, and the construction and technology transfer of civilian nuclear power from Pacific Asia to the Gulf monarchies. All of these developments will augment existing economic bonds, while some may even have an impact on future security arrangements.

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The intensifying connection between the two regions also has several broader implications. The lack of significant military collaboration has certainly allowed the US and other Western powers to remain in their role as the ultimate protectors of the Persian Gulf and the guarantors of the international oil industry’s most strategic shipping lanes. This has kept to a minimum any tension between the US and China, with the latter regarded by most observers as being the most militaristic of the Pacific Asia states. Given time this will likely change, as the Pacific Asia states gradually seek greater influence over their primary energy suppliers. Moreover, the many other linkages between the Gulf monarchies and Pacific Asia described in this chapter, including the various economic and diplomatic ties, and perhaps especially the raft of new initiatives and collaborations, will undoubtedly prompt the US and other powers to pay more attention to this new pan-Asian relationship. Such increased attention, if mishandled and too heavyhanded, may in turn reduce trust between the Gulf monarchies and their Western allies and partners, thus providing a fresh wave of opportunities for Pacific Asian governments and companies to win lucrative contracts and thus increase their influence even further.

Chapter 8

The Indian Ocean: An Evolving U.S. Policy Agenda Ellen Laipson

This chapter addresses the evolution of U.S. policy towards the Indian Ocean region in recent years. It considers the factors that have driven a debate over the Indian Ocean, and the challenges to develop a coherent, overarching new strategy for the region. It takes into account how the Indian Ocean fits into the “rebalancing” to Asia, and some of the intrinsic ways in which the Indian Ocean is in itself an increasingly important part of global geography. As of mid 2013, there is no new overarching strategic concept for the Indian Ocean as a region, but there are many signs that parts of the U.S. government are debating and deliberating to determine if there is a need for one. Various U.S. officials have acknowledged the region’s growing importance. The Indian Ocean is mentioned more often in defense documents, with the U.S. Navy paying particular attention. Former Secretary of State Clinton’s travels to South and Southeast Asia led her to reflect on the Indian Ocean’s relevance in the age of globalization. Yet, policy thinkers in Washington have stopped short of articulating a new, overarching policy, perhaps because a single unifying theme proves elusive. By many measures, the Indian Ocean matters more now than any time since the 1970s. At that time, it appeared to be a contested zone in the Cold War, with concerns about the Soviet Union’s hegemonic ambitions, and its drive to secure access to the ocean through relationships with India and other key littoral states.1 This led the United States to seek security cooperation arrangements with countries in the Persian Gulf and in Southeast Asia. Today the region is important for its role in global commerce and security. It is the vital link between the oil-rich Middle East and the fast growing consumer markets of East Asia. Robert Kaplan’s 2010 book Monsoon characterizes it best: “The Greater Indian Ocean … may comprise a map as iconic to the new century as Europe was to the last one” (preface p. xi). He argues that the Indian Ocean is the place where the civilizational struggles between Islam and the West play out, alongside the power shifts in global energy markets, and the relentless rise of India and China, with all the repercussions that this has for the smaller neighbors 1 Walter K. Andersen, “Emerging Security Issues in the Indian Ocean: An American Perspective,” in Superpower Rivalry in the Indian Ocean: Indian and American Perspectives, ed. Selig Harrison and K. Subrahmanyam (Oxford: Oxford University Press, 1989), 50.

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and for outside great powers that have interests in and responsibilities towards the countries of the region. It is also tempting to see the Indian Ocean as more than just a physical place, but as a metaphor for the age of interconnectedness. It helps us understand the ways in which the neat protocols of sovereign states are insufficient to manage the interactions of man and nature in the open space of the ocean. It is also a space that conveys big ideas about the interdependence of distinct societies, and how those societies are affected by flows of people. This more abstract reflection on the relative importance of the Indian Ocean leads to an appreciation of the policy challenges for the United States (or other outside great powers). They are not limited to relations with friendly or hostile states that line its rim, but to notions of the global commons, of the increasingly compelling requirement to manage the shared resources of the Indian Ocean in responsible ways for the good of all, not for the benefit or interest of any one power. Definitional Problems The sea is bound by 38 states inhabited by 2.5 billion people.2 There are defined sub-regions (such as the Horn of Africa, South Asia, Southeast Asia) and constituent bodies of water (mainly the Arabian Sea and the Bay of Bengal on India’s two flanks) as well as strategic gulfs and channels. It is a wildly heterogeneous region in terms of culture, language and natural resource endowment. For scholars, it does not easily lend itself to a unit of analysis that has common features or some systemic unity. Rather, the Indian Ocean region is a conglomeration of networks, sub-regions and smaller units of governance and affinity that make the whole a bit elusive. Other efforts to provide a unity of purpose to the region include “networks of interaction,” or an “interacting cosmopolitan unit,” or a zone where nationalism and universalism come together. A more anthropological and historical approach labeled the region a “dynamic geography of obligation,” drawing on the relationships bound by migration and economic interdependence.3 It is questionable whether the notion of an Indian Ocean region is meaningful for purposes of policy formulation. Should there be more effort to conceive of this 2 For more details, see David Michel and Russell Sticklor (eds), Indian Ocean Rising: Maritime Security and Policy Challenges (Washington, DC: Stimson, 2012). Stimson has produced two other Indian Ocean publications: Ellen Laipson and Amit Pandya (eds), The Indian Ocean: Resource and Governance Challenges (Washington, DC: Stimson, 2009) and Amit Pandya and Rupert Herbert-Burns with Junko Kobayashi, Maritime Commerce and Security: The Indian Ocean (Washington, DC: Stimson, 2011). 3 From discussions at the Third Biennial Critchfield Conference, The Indian Ocean Basin: Navigating the 21st Century Marine Silk Road, at the College of William and Mary, Williamsburg, Virginia, April 5–6, 2013.

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vast area as an important and coherent geographic zone that lends itself to specific policies and responsibilities? Should we think of the Indian Ocean principally as the maritime space beyond national waters, or is it the collection of countries on its rim? Is it an end in itself or a means, a transmission belt, a transitional space between and among diverse regions and political systems? It is easier to envision a coherent land-maritime region in the Mediterranean, for example, due to the smaller number of littoral states and the existence of key regional organizations—NATO, the European Union, and the Arab League—to provide a structure for interaction across the maritime space. The debate about the Indian Ocean has begun in part because of the more complete new policy exercise on reimagining the Asia-Pacific region. The “rebalancing” to Asia announced by the Obama Administration in 2012 is still being refined and interpreted, but the notion of recognizing the growing geopolitical weight of Asia led to immediate discussions about whether the Indian Ocean should be included in any new strategy. Some academics and even former Secretary of State Clinton have begun using the term “Indo-Pacific” rather than Asia-Pacific in policy formulations, but ranking officials who have focused in their careers on China or Japan, when India was a backwater in U.S. policy, report reluctance in bureaucratic circles to embrace the notion that the Indian Ocean and India’s central role are somehow integral to the new policy. As a practical matter, policymakers are inclined to focus first and foremost on the issues related to the states that surround the ocean, but the nagging demand for a new policy formulation is driven by the interests of non-littoral states, by those who have new appreciation for the Indian Ocean as the transmission belt for a globalized commercial world, and for the movement of people and ideas from the Asian landmass to Europe and the western hemisphere. The notion of the Indian Ocean as a region has come into vogue again in part due to the rise of China and India, and the economic interests of the great powers, more than for purposes of a more inclusive theme of ideological contest (as in the Cold War) or shared challenges from climate change. The Indian Ocean region covers a large geographic area. The ocean’s littoral cuts across four regional bureaus for the State Department (Africa, Near East, Central and South Asia, and East Asia/Pacific) and three regional combatant commands for the Defense Department and the Armed Forces (AFRICOM, CENTCOM and PACOM). The agenda would lend itself to functional experts from legal, environmental, economic, security, human rights, and other bureaus of the State Department, and could well include officials responsible for international issues in federal agencies from Labor, Agriculture, Justice and Commerce. Current Policy Considerations Since the election of Barack Obama, there have been more public references to the Indian Ocean. Although using formal documents of the national security agencies

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and leaders is an imperfect metric of policy interest and priority, it is noteworthy that the last Quadrennial Defense Review (QDR) of the Bush Administration, in 2006, referred to the Indian Ocean only once, with reference to the Department of Defense’s responses to the 2004 tsunami. In 2010, new language emerged: As the economic power, cultural reach, and political influence of India increase, it is assuming a more influential role in global affairs. This growing influence, combined with democratic values it shares with the United States, an open political system, and a commitment to global stability, will present many opportunities for cooperation. India’s military capabilities are rapidly improving through increased defense acquisitions, and they now include long-range maritime surveillance, maritime interdiction and patrolling, air interdiction, and strategic airlift. India has already established its worldwide military influence through counter-piracy, peacekeeping, humanitarian assistance, and disaster relief efforts. As its military capabilities grow, India will contribute to Asia as a net provider of security in the Indian Ocean and beyond […] The United States has a substantial interest in the stability of the Indian Ocean region as a whole, which will play an ever more important role in the global economy. The Indian Ocean provides vital sea lines of communication that are essential to global commerce, international energy security, and regional stability. Ensuring open access to the Indian Ocean will require a more integrated approach to the region across military and civilian organizations. An assessment that includes U.S. national interests, objectives, and posture implications would provide a useful guide for future defense planning.4

This references a holistic government approach, integrating military and civilian engagement, has been emblematic of the Obama Administration, and of the close working relationship established between the secretaries of defense and state in the first term, Robert Gates and Hillary Clinton. In that first term, administration officials reached out to non-government experts to consider new ways to think about the Indian Ocean region. Secretary Clinton’s team hoped to promote environmental and human security issues in its efforts to revitalize U.S. relations with the countries of Southeast Asia, raising awareness of the need for greater regional and international cooperation on some of the transnational issues—environment, water governance, and migration. By the second term, administration officials were being careful not to get too far ahead of the U.S.’ major allies and partners in the Indian Ocean region, and sought to play a supporting role to any new initiatives promoting greater international cooperation launched by India and Australia in particular.

4 Quadrennial Defense Review Report (2010): 60, accessed March 4, 2014. http:// www.defense.gov/qdr/images/QDR_as_of_12Feb10_1000.pdf.

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‘We’ve made it a strategic priority to support India’s Look East policy and to encourage Delhi to play a larger role in Asian institutions and affairs. It’s exciting to see the developments as the world’s largest democracy and a dynamic emerging economy begins to contribute more broadly to the region,’ Clinton said in her speech at the University of Western Australia. ‘It’s also important to see the burgeoning relationship between Australia and India.’ ‘We would welcome joint Australian-Indian naval vessel exercises in the future and we are eager to work together in the Indian Ocean Rim-Association for Regional Cooperation (the organization of 19 Indian Ocean rim countries) which Australia will chair in 2013 and which the United States has now joined as a dialogue partner,’ Clinton said. ‘Increasingly, these waters are at the heart of the global economy and a key focus of America’s expanding engagement in the region–what we sometimes call our pivot to Asia,’ Clinton said while referring to the importance of the Indian Ocean in international affairs.5

There is a lingering concern about India’s intentions and its capacity to demonstrate its leadership of the Indian Ocean agenda. Current analysis by Indian experts and outside observers suggests that India is not yet ready for a greater global role, in part due to the weakness of its current government, and growing lack of confidence in its ability to sustain rapid economic growth and transformation. India has historically been somewhat indifferent to its maritime potential; former high ranking officers in India’s Navy have lamented that the country is in theory a maritime state, but policy is made by “landlubbers.”6 During high-level exchanges in mid 2013, U.S. officials seeking to reinvigorate the strategic partnership found Indian authorities still focused on its desire for strategic autonomy; in recent years, Indian foreign policy figures have tried to find the balance between a strengthened relationship with the U.S. and a desire to preserve maximum independence of action, and to avoid over-association with U.S. policies vis-à-vis China.7 While waiting for a more propitious moment to coordinate with India, Australia, and other friends and allies in the region, the U.S. Navy continues to play an important role in providing a presence and engagement. This is a natural 5 IANS, “Clinton urges India to play larger role in Asia,” Khaleej Times, November 14, 2012, accessed March 4, 2014. http://www.khaleejtimes.com/kt-articledisplay-1.asp?xfile=data/international/2012/November/international_November514. xml§ion=international. 6 Ellen Laipson, “The Indian Ocean: A Critical Arena for 21st Century Threats and Challenges,” in The Indian Ocean: Resource and Governance Challenges (2009): 73. 7 Harsh V. Pant, “India’s torpor, U.S.’ frustration,” Gateway House, July 30, 2013, accessed March 4, 2014. http://www.gatewayhouse.in/indias-torpor-u-s-frustration/; “IndiaAustralia: Aligning Strategic Spheres–Analysis,” Eurasia Review, June 7, 2013, accessed March 4, 2014. http://www.eurasiareview.com/07062013-india-australia-aligning-strategicspheres-analysis/.

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role for the Navy; more than 25 years ago, when strategic analysts in government were trying to develop new thinking about the Mediterranean, it was clear that the Navy (and the Sixth Fleet) had already done the kind of integrated analysis needed, but the policy process focusing on discrete regions (NATO, the Balkans, the Arab-Israel zone, North Africa) lagged behind. This capacity of our maritime forces, which operate beyond the writ of sovereign nation states, demonstrates the links between national and maritime power that the great naval strategist Alfred Thayer Mahan wrote of in his mid nineteenth century classic The Influence of Sea Power Upon History. Even while the U.S. government waits for its regional allies to take the lead on defining a new agenda for the Indian Ocean, the U.S. Navy will remain active in building partnerships for various contingencies—both natural and man-made crises—and to monitor the changing dynamics among the region’s naval powers, current and aspiring. Many think the Indian Ocean agenda is mainly about that—the evolving balance or imbalance of Indian and Chinese naval forces and military capabilities. This traditional security focus draws on the buildup of naval capabilities and the potential for great power tensions and competition. By some accounts, both countries give priority to demonstrating power projection in each other’s neighborhood; over the next decade, for example, China plans to have an aircraft carrier in the Indian Ocean and India plans to have one in the Pacific.8 The two countries have invested heavily in commercial port development in friendly countries in the Indian Ocean, the “string of pearls” of China’s port investments, and India’s corresponding “necklace of diamonds.” While these port construction efforts are of immediate importance for the two countries’ energy and general economic needs, they are also deepening cooperation and interdependence with key countries that could have military value over time. Indian strategists perceive China as having the advantage in maritime power, and this has led India to seek more formal cooperative agreements with Vietnam, Indonesia and Australia, as well as the United States. India’s somewhat ambivalent tilt to the United States is seen by China as a threatening posture,9 whereas Indian authorities try to avoid the appearance of over-reliance on the United States. This creates tensions whether the United States is overtly sending signals to the two parties, or carefully avoiding such an open stance.

8 Mohan Malik, “China and India Today: Diplomats Jostle, Militaries Prepare,’World Affairs (2012), accessed March 4, 2014. http://www.worldaffairsjournal.org/article/chinaand-india-today-diplomats-jostle-militaries-prepare. 9 See for example Chinese Radio International’s analysis that China’s strategic depth will be eroded if the U.S. and India deepen defense cooperation. “US-India ABM break the balance in South Asia,”, accessed March 4, 2014. http://military.people.com.cn/ GB/42967/8671702.html.

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This chapter, however, is premised on a much wider agenda for the region, and sees the changes in naval power, commercial shipping and other maritime resource development as a more complex landscape for policy response. The U.S. Navy now considers relief and humanitarian response as one of its six core mission areas, according to its “Cooperative Strategy for the 21st Century Maritime Power.”10 This is not to diminish the true military responsibility of the navy, but to underscore that naval presence has many functions beyond the purely military. It has a key role in conflict prevention, and in helping to diminish and even resolve tensions or disputes between local powers that play out in the maritime space. Over time, issues relating to natural resource exploitation and trade, coping with the inevitable movement of people in search of jobs and security from climate change and environmental disasters, will become even more prominent in setting the maritime agenda, and the roles and responsibilities of the U.S. and other navies in the region. Alternative Policy Approaches Given the lack of easy consensus over what is or should be the agenda for U.S. policy in the Indian Ocean, it is understandable that political analysts promote very different options, although one can relate the challenge of the Indian Ocean to broader requirements of U.S. global engagement. Carnegie Endowment expert Ashley Tellis summarized it well during a talk to the National Maritime Foundation in India in 2012: I would argue that since World War II, U.S. grand strategy has had three basic goals. The first is to prevent external hegemonic control over critical geopolitical areas of the world, and to prevent the rise of other threats to the global commons. The second goal is to expand the liberal political order internationally. Finally, the third goal is to sustain an open economic regime.11

His first goal relates well to an American role in managing the rise of China, by providing important support to allies and preventing conflict in the maritime space. The second and third goals relate more to the challenges of globalization and free access to the global commons, the security of the vital sea lanes for commerce and energy security, and the commitment to political as well as economic reforms in littoral countries.

10 See America’s Navy, accessed March 4, 2014. www.navy.mil. 11 Ashley J. Tellis, “The Indian Ocean and U.S. Grand Strategy,” Carnegie Endowment for International Peace, January 17, 2012, accessed March 4, 2014. http://carnegieendowment. org/2012/01/17/indian-ocean-and-u.s.-grand-strategy/a1fe.

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Some defense writers and strategists have tried to apply policy concepts from other times and places to the Indian Ocean. These would be based on some core interests that need to be protected, such as: • Ensuring that the seven strategic chokepoints (Mozambique Channel, the Bab-el-Mandeb, the Suez Canal, the Strait of Hormuz, the Malacca Straits, the Sunda Strait and the Lombok Strait) remain open for international commerce; • Preventing a hegemon from controlling the region; • Containing China; • Protecting the global commons (the resources of the ocean itself, freedom of navigation on the high seas, airspace). Depending on one’s ranking of the priorities, different tactics and strategies could be considered. Many believe that the U.S. rebalancing to Asia is driven in part by a desire to give highest priority to U.S. interests in Asia, and that the military component is of great importance. This component includes a realignment of naval forces, deeper onshore commitments to Australia, a new and more agile rotation of assets in the region, and the strengthening of alliances with Korea and Japan. Some in government regret, however, the appearance that the rebalancing was intended to be principally a demonstration of military force; rather, it was intended to redistribute all aspects of American national power with greater political, cultural, and economic engagement as well. The rebalancing to date entails engagement with key states over a wide swath. It has focused first and foremost on the allies and powers of the Pacific Ocean, but the relevance of the Indian Ocean has been a source of some debate and dispute. For some, the concept of the Indo-Pacific region is the logical geopolitical space for American attention in the twenty-first century, but most Asian experts are not yet convinced that the Indian Ocean component is as important as the Asia-Pacific geography. This is based in part on the judgment that India is not yet as critical an anchor or partner for the United States as its traditional allies Korea, Japan, and Australia. The Global Commons If protecting the global commons is the main driver of a new policy formulation, different tactics and instruments of power would be required. The global commons focus would draw on multilateral institutions for international cooperation, and might consider whether that architecture is functioning well, or is in need of refreshing. The Indian Ocean Rim Association for Regional Cooperation,12 for example, while well-meaning and inclusive, is not a dynamic problem-solving organization. It comprises 20 countries of the Ocean and six “dialogue partners” 12 Indian Ocean Rim Association, accessed March 4, 2014. http://www.iorarc.org.

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including the United States. There are countless regional groupings on distinct issues, such as fisheries or marine environment, but none that constitute a forum for a comprehensive view of the region’s problems and possibilities. Since the Bush Administration, the United States has eschewed some of the formal, protocol-bound institutions in favor of more flexible approaches to distinct problems. The “Proliferation Security Initiative” (PSI), for example, has been active in the Indian Ocean region to address the possible illicit movement of weapons of mass destruction related materials by sea. PSI’s creation was linked to efforts to intercept North Korean shipments to Yemen;13 Singapore and the United Arab Emirates have been early and active members, but neither China nor India have joined. Other arrangements that draw on like-minded countries, but not formal intergovernmental institutions, are the task forces formed to combat piracy and terrorism. Some of the major Indian Ocean powers have contributed to those efforts. So there is a mixed picture with respect to regional cooperative arrangements. Some remain in bilateral or restricted structures, such as U.S. cooperation with the countries of the Gulf Cooperation Council that addresses the threat from Iran, or the MALSINDO structure created by Malaysia, Singapore, and Indonesia to strengthen cooperation against piracy in the Strait of Malacca. Others, such as regional activities under a UN banner to stem drug trafficking, cross those political boundaries and might include both the U.S. and Iran as members. For observers such as Andrew Winner, co-chair of the Indian Ocean Regional Studies Group at the Naval War College in Newport, Rhode Island, the global commons is the idea that best lends itself to a new policy formulation. Unlike other more traditional security concerns such as China’s maritime power, or threats to vital infrastructure from terrorism, the global commons is where demand for a coherent approach is most compelling, and where some new policy goals might be achievable and productive. This agenda would include the need to protect and equitably share the natural resources of the Indian Ocean, such as fish and vital seabed minerals.14 By definition, these resources reside beyond the control of sovereign nation states, and require multilateral cooperation. Amit Pandya has addressed how national jurisdiction and sovereignty claims are insufficient as governance arrangements, and he has encouraged a shared system for tracking seaborne navigation, regulatory efforts with respect to fish stocks, and information sharing on marine geology, among other activities that would strengthen cooperation on the global commons of the Indian Ocean.15 He recognizes that the high seas are no longer the purview of a few major powers, and 13 See Susan J. Koch, “Proliferation Security Initiative: Origins and Evolution,” National Defense University Occasional Paper 9 (2012): 1–6. 14 See David Michel, “Under the Sea: Natural Resources in the Indian Ocean,” Diplomatist, accessed March 4, 2014. www.diplomatist.com/dipom06y2013/story011.html. 15 Amit Pandya, “No Man’s Sea: International Rules and Pragmatic Cooperation,” in The Indian Ocean: Resource and Governance Challenges (2009): 57–65.

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that coastal states are more proactive in invoking their own interests. As littoral states become more confident in asserting their economic rights, or, in the case of vulnerable island states, their fears about the effects of climate change, there is a realization that existing international law is not stable or reliable enough to address these dynamics. In conclusion, American policymakers are increasingly interested in the Indian Ocean region as a place where many of the trends of globalization intersect. The agenda of issues ranges from traditional military and security topics to crossborder movement of people, goods and ideas, to the forces of nature on the high seas and in coastal zones that affect human security and regional relations. Some of these issues can be addressed through existing policy structures, from normal inter-state diplomacy to regional security cooperation arrangements. But some are clearly not adequate to a world of shifting power of nations in the international system, and imbalances in resource endowments, sometimes with serious risk to national or regional peace and stability. The U.S. is also looking to its allies for leadership in addressing this daunting agenda, and seeks to shift some responsibility to local and regional actors to set the terms of any major new initiatives. As in the Middle East and other turbulent regions, the U.S. in the Indian Ocean does not seek to impose a “Made in the USA” solution, but seeks to bring its unique attributes as a security provider, a balancer and a partner in search of solutions to threats to the shared resources and sustainability of the Indian Ocean itself, and to the societies and states around its shores.

Part IV Redrawing the Maps of the Future

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Chapter 9

New Connections Across Old Spaces: From Regional Worlds to World Regions R. Bin Wong

Geopolitical conditions and the global economy have changed dramatically in the past 50 years. It is both easy and necessary to consider these changes as new developments. However, it is also difficult and desirable to consider the sequence of historical contexts that have made these recent changes plausible or at least possible. No group of specialists, whether in government, business, journalism or academia, has a very convincing track record of predicting what will come next. Nor do we routinely consider how our current conditions have been formulated out of materials brought forth in earlier moments of history. Perhaps some brief consideration of how such materials have been combined in both conscious and contingent ways more recently may help us anticipate more effectively the likelihoods of different kinds of political, social, and economic changes in the future. When the various knowledge, wealth, and power elites converged on a basic understanding of important late twentieth century economic, social, and political relations to be products of globalization, some historians cautioned against imagining that the human connections among physically distant places were all unprecedented. Focusing especially on the early modern era, variously defined but generally covering the sixteenth through the eighteenth centuries, historians have documented a variety of connections among different parts of the world and have highlighted parallel dynamics of social, cultural, economic, and political change. These interventions have proven salutary in numerous ways. They have reframed and extended our understanding of some patterns of historical change and have in the process sharpened the challenges of accounting for variations and differences among common components of change. More specifically, the historical changes that carried early modern Europe into the modern era politically and economically had once been assumed to be due to traits particular to this world region. Instead certain processes, most notably those of commercialization, urbanization, and political centralization, are now seen as shared traits affecting people across Eurasia. Europe’s connections to other world regions in Africa, the Americas, and Asia have also been understood from the vantage points of others and not just Europeans; these include both populations long settled in the places that Europeans landed as well as other more mobile people who, like ship-born Europeans, learned to navigate diverse settings that they could understand in

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shared ways bridging their linguistic and cultural differences. These achievements have left us the challenge to sort through what was, after all, distinctive about early modern European practices that help us account for the dominance of European and subsequently American wealth and power across most of the globe for much of the modern era.1 Meeting this challenge has potential payoffs for studying the more recent evolution of relations between Asia and the Middle East, and the dynamics of political and economic change within each. One of the more visible ways that early modern Europe differs from other regions of the world is the confluence of political power, economic interests, and missionary zeal that propelled Europeans to make their long and often dangerous maritime journeys. The mercantilist competition that was basic to the statemaking competition for power within the world region extended to Europeans competing for profit in other parts of the world. In political terms, early modern European state-makers were learning how to negotiate with their noble, religious and merchant elites over how to raise revenues, to enlarge their territories through marriage and war, and to organize their overseas adventures. Institutional forms were drawn from these early modern practices of negotiation to support more democratic ideologies in the nineteenth century when European subjects became citizens. Diplomats drew the principles governing relations among sovereign states in the nineteenth and twentieth centuries from the Treaty of Westphalia (1648). Europeans and their American offshoots drew the raw materials from their early modern negotiations with, coercion of, and religious appeals to the people they encountered and engaged in other regions of the world in the nineteenth and twentieth century. Through this inspiration they fashioned their political agendas across the globe, which were at times competing and at times complementary. Politically, early modern China forms a strong contrast to early modern Europe. We can also divide the ruler’s political relations into three categories that contrast with the three-way division we can draw from early modern Europeans. Europeans developed domestic political relations, relations with each other, and with peoples in other parts of the world. The early modern rulers of the Chinese agrarian empire crafted institutionally distinct procedures for engaging most of their domestic subjects, many of the far smaller regimes of northeast and southeast Asia. and, under the Qing dynasty (1644–1911), procedures were established to address other people who inhabited lands stretching from the pasturelands of Mongolia through the Tibetan mountains (Wong 2012b). The differences in the political organization of space and relations among people in China and Europe in the early modern era were significant. The domestic space of the agrarian empire was much more subjected than the entire population of Europe to a common 1 For further commentary on these subjects see Roy Bin Wong, “Did China’s Late Empire Have an Early Modern Era?” in Comparative Early Modernities, 1100–1800, ed. David Porter (New York: Palgrave Macmillan 2012), 195–216; Roy Bin Wong, “Regions and Global History,” in Writing the History of the Global: Challenges for the 21st Century, ed. Maxine Berg (Oxford: Oxford University Press for the British Academy, 2013), 83–105.

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agenda of rule, while European rulers grappled with far more modest domestic spaces and had to invent practices to engage each other. Chinese officials, often responsible for provinces as large or even larger than major European states were members of a vertically integrated bureaucracy; governors oversaw activities within the counties and within their provinces, received orders from and reported to the central government. The strategies and tactics of rule fashioned in the early modern era, many of which had been developed from far older principles and policies pursued in earlier centuries, provided a rich repertoire of possibilities in the modern era, though they are not always appreciated since we look principally for the political ideas and institutions of the modern era to be modeled directly on what Europeans and Americans created in their modern period. For the other two categories of early modern Chinese political relations, the difficulties of understanding the changes of the modern era are even more challenging because they fail to fit the neat binary between domestic and foreign into which Western political theory divides the state’s relations with its own citizens and with others. Modern, indeed contemporary, Chinese political relations distinguish among types of rule that are a mix of early modern Chinese practices and modern Western categories that have supplied a global language for understanding politics.2 This sketch of political contrasts between China and Europe in both early modern and modern times suggests that the limits surrounding convergence in political forms and practices are driven, at least in part, by the distinct paths of historical change in the early modern era that have become increasingly connected in the modern era. Understanding contemporary situations and contemplating future possibilities should be improved by recognizing that our expectations for convergence are in part predicated upon ignoring how norms for political practice have been formed outside Europe before the modern era and the possibility, at least, that such histories supply not only problems but positive possibilities for fashioning future political practices. A scholar with a far deeper historical knowledge of South Asia, the Middle East, and Southeast Asia, could, I imagine, make arguments akin to mine for China, in which attention to early modern political dynamics could inform an understanding of contemporary conditions. With the fall of the Han and Roman empires, China and Europe establish different kinds of political equilibriums—Europe is divided into diverse and typically quite small polities, while China is repeatedly ruled, though hardly continuously, by imperial bureaucratic regimes drawing upon an expanding common fund of ideas and institutions. The scale of polities in South Asia grows and shrinks so that vast territorial scale is sometimes achieved and frequently lost again. The Islamic empires also expand and shrink and compete with each other with dynamics that may well have some important similarities to as well as differences with more familiar European dynamics. Southeast Asia has great diversity among its 2 The contrast between Chinese and European political relations is based on Roy Bin Wong, “Reflections on Qing Institutions of Governance: Chinese Empire in Comparative Perspective,” Crossroads 5 (2012): 103–14.

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mainland regimes and those of the archipelago; different waves of influence from beyond the region come from South Asia, China and Europe at different times, changing the contours of particular parts of Southeast Asia in uneven ways, in part owing to the different kinds of people being influenced by external actors. A more literally global political history of the early modern era would have to address these possibilities as well as take on a serious and deep engagement of political formations beyond Eurasia. For present purposes I will move on to discuss further one way to think of the spatial dimensions of historical changes from the early modern to modern eras. When contrasting Chinese and European world regions in the early modern era it is easy to consider the connections between them as far less important than the linkages within each. The term “regional world” seems a plausible nomenclature to highlight their largely separate spheres, despite being parts of a larger solar system of sorts. The Chinese move into the modern era clearly involved far more connections to the West and the presence of distinct Western professionals organized to promote their beliefs and interests in broader and deeper ways than could be managed in the early modern era. Foreign missionaries, merchants, and diplomats expected to change the ways Chinese did business, conducted political relations with outsiders, and understood the divine. Yet, this visible change from regional world-to-world region that might apply useful for this temporal contrast of connections between China and Europe does not fit as comfortably for the Islamic empires because of their long-standing connections to Europeans. This relationship was marked by both competitive and complementary varieties, involving peace and war, religious clashes and accommodations, commerce and cultural exchanges. Perhaps thinking of Middle Eastern/West Asian Islamic empires as a regional world that simply had more connections to the European regional world than the Chinese regional world did is adequate. What we would like is some way of acknowledging the varying dimensions and depth of connections across large parts of the early modern world and to note that modern era connections change in both substance and impact. This angle should help us gain perspective on how to place contemporary relations among world regions in historical contexts that in turn point us toward considering possible future changes that can include at least implicit affirmations of past or present practices as well as active denials of connections to history. The consolidation and concentration of wealth and power achieved first within Europe and then increasingly by the United States between the mid nineteenth and mid twentieth centuries meant that the political and economic connections forged among world regions in this period were mainly dominated by actors from those two world regions. Europeans pursued wealth and power in the early modern era as they ventured into other regional worlds, but in general they did not consolidate their political power over them or achieve an economic integration of others into their capitalist system until the modern era. During the early modern era, as in the centuries preceding 1500, some of the connections among regional worlds did not involve Europeans at all; as Denys Lombard’s study of Java partially illustrates,

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these notably included the spread of Islam into South and Southeast Asia.3 By the late nineteenth century, increased flows of goods, people, capital, and ideas were principally defined by Western political and economic superiorities.4 By the late twentieth century economic developments across many parts of Asia had transformed both the economies of different societies in Asia and the nature of international trade and finance globally. Politically, the increased numbers and activities of non-governmental organizations operating at global, regional and local levels have redefined political processes and connections among people and within and between different world regions. Religious networks that span regions of the world have been revitalized by a mix of new technologies and renewed expressions of faith. Part of our challenge in looking into the future is to recognize multiple scenarios for different world regions and relations between them that grow out of either early modern or modern practices as well as reliance on intentions to organize foreign relations quite independently of past experiences. For scholars of the contemporary world, many discussions of the politics of “region” spring from the development of the EU. Despite the many difficulties it has experienced in trying to govern the region’s political economy effectively, the EU is seen as a model for what other regions of the world might aspire to achieve. Nakamura Tamio and his colleagues, for example, appeal to the language and logic utilized in developing the European Union to foster an East Asian Community with an aim of creating more formal means of promoting regional security, combatting international crime, cooperating on disaster relief, and alleviating poverty.5 More generally, regional political structures in both East Asia and Europe aim to reduce the costs of coordinated political decision-making and to raise the economic benefits of more effective integration. It is not surprising that policymakers and academics both recognize the fundamental role of European political practices in enabling similar possible developments elsewhere. The reasons for such a view are understandable intellectual extensions from earlier ideas about national state formation based on European models. Yet, the European Union is less of a practical model than a source of inspiration and some key principles for how states can achieve some policy coordination. Europe has both historically based advantages for creating institutions to coordinate its policies; the shared set of political ideologies and institutions as well as similar economic and legal practices have a long history. At the same time Europe more than another world region carries forward a history of competition and conflict that repeatedly wreaked havoc on the region from the sixteenth century through the Second World War so that the benefits of political coordination and economic integration have become especially desirable. The European Coal and Steel Community established in 3 Denys Lombard, Le Carrefour Javanais, 3 vols (Paris: Editions EHESS, 1990). 4 Ronald Findlay and Kevin O’Rourke, Power and Plenty: Trade, War, and the World Economy in the Second Millennium (Princeton: Princeton University Press, 2007), 365–427. 5 Tamio Nakamura, Suami Takao, Usui Yōichiro, and Sato Yoshiaki, Higashi Ajia Kyōdotai Kenshoan (Tokyo: Showado, 2006).

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1950 subjected the key industries needed for war making to supra-national control and made it easier to contemplate other forms of coordination from a position of peaceful security within the region.6 Regional formations in other parts of the world have different motivations and political priorities. ASEAN for instance was formed as Southeast Asian countries were seeking less to solve coordination issues within the region than to gain a larger voice in conversations with China. For their part, the Chinese have encouraged closer ties with different clusters of countries along its various borders and stressed different mixes of political and economic priorities with Southeast Asia and Central Asia. For the Chinese these interregional relationships such as ASEAN + 3 and the Shanghai Cooperation Organization represent new relations predicted upon different principles than had been employed in the early modern era by the imperial court to engage neighbors in Central and Southeast Asia. They are, not surprisingly, cast in the categories within which international relations more generally have come to be structured; issues of political economy join security issues in these regional relations much as they do for neighboring governments in other world regions.7 The economic rise of China has also taken its entrepreneurs, laborers, business managers, and both state and private corporations, into both Africa and Latin America. Major themes in the commentary on these new engagements include China’s seemingly endless appetite for resources, and the differences between the business practices and investment policies of Chinese firms and the Chinese government compared to those utilized by others. Differences from the norms employed by others are often viewed critically and are then related either directly or indirectly to efforts seeking to explain why the Chinese are proving such fierce market competitors. A historical perspective on the changes in the world economy from the vantage point of relations among world regions reminds us that the early modern and especially modern-era fusions of economic and political power always resulted in a hierarchy of economic and political relations. This took place first within Europe, was then manifested in the subsequent spread of such power across the globe, and finally in the shift from Europe to the U.S. as the region holding the hegemonic political and economic positions in the world. These hierarchies depended on the projection of coercive force and belief systems as well as the material interests so salient in economic activities. The move of the modern global center from Europe to the U.S. was peacefully accomplished because of the shared ideological and institutional histories of the regions and because the selfdestruction created by Europeans became the context for massive U.S. aid to re6 Ivan Berend, An Economic History of Twentieth Century Europe: Economic Regimes from Laissez-faire to Globalization (Cambridge: Cambridge University Press, 2006), 190–262. 7 These issues are discussed at greater length in Roy Bin Wong, “Comparing States and Regions in East Asia and Europe: Is Southeast Asia (ever) Part of East Asia?” Southeast Asian Studies 48.2 (2010): 115–30.

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start a devastated European economy after World War II. With China’s recent rise and the continuing if hardly certain promise of the E.U as a political and economic force, there is no single center of global power paralleling Britain’s position in the mid ninteenth century or the U.S. position in the mid twentieth century. In both economic and political terms the U.S., the E.U., and China form three major global actors with varying relations with each other and with others in the world. Global capitalism has never been as global as it is today and has never had such strong actors outside Europe and North America. This is a new kind of multipolar situation within which the more specific issues of present and future Asian–Middle Eastern relations will be framed. Another angle on Asian–Middle Eastern relations takes the change in the types of actors present in relations within and across world regions. Not only are the number of actors working across the boundaries between world regions greater in number than ever before but some interests are very formally organized as NGOs while others are managed through more informal networks, including people sharing a common religious faith who live in different world regions. The levels of formal organization at the regional level also vary to create regions of different and overlapping dimensions. Within these fluid complexities we can nevertheless distinguish several kinds of relations between Asian regions and the Middle East. As others have demonstrated, the Islamic connections between the Middle East and Southeast Asia are salient links that forge a kind of tie absent from the ties of either with Europe or the U.S. For China, the presence of large Muslim populations, especially in the country’s northwest, makes the possibility of ties between such people and their co-religionists in Central Asia and beyond politically problematic. More specifically, China’s relations with the Middle East cannot draw in any simple and direct way on historical relations because the Chinese state’s relations with states in the Middle East were very limited. It is therefore not surprising to see contemporary relations analyzed in terms of economic interests and strategic political concerns. However, historical practices may nevertheless point out some possibilities for the future. Both domestically and internationally China’s political relations can be considered in a very general way as extensions of logics deployed in earlier centuries. Much of what is today domestic in China as a sovereign state in an international sovereign state system was also domestic in the eighteenth century China but some areas that are today domestic were engaged by the Qing state according to principles intended for its Inner Asian territories and distinct from those applied within the empire’s more domestic sphere. Such areas continue to have a somewhat distinct status today as “autonomous regions” and not “provinces,” but when China’s treatment of people in autonomous regions is criticized by foreigners, the government invokes a Westphalian notion of sovereignty with its principle of non-interference in another country’s domestic affairs, making no distinction between its authority over autonomous regions and provinces. When the Chinese go into other world regions, such as Africa or Latin America, their foreign policies vary according to their assessments of the

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economic benefits to be gained in particular world regions.8 The global future will depend on how a rebalancing of production and exchange between regions affects the political relations between them and other world regions. Political stability likely will depend on affecting a military rebalancing among world regions that promotes both peace and prosperity. That will be a different kind of future than the world’s early modern and modern histories have typically displayed. In the early modern era there were dominant powers in each of several world regions; in the modern era, single powers came to dominate politically and economically on a global scale. Today we see regionally based political and economic powers, notably the U.S., China, and the E.U. each recalibrating their global positions with respect to each other. The kinds of relations developed between Asian and Middle Eastern actors will be elements of a larger global compound in which regional actors engage each other increasingly without a clear global dominance by any single regime.

8 Rhys Jenkins, “China’s Global Expansion and Latin America,” Journal of Latin American Studies 42.4 (2010): 809–37; Denis M. Tull, “China’s engagement in Africa: scope, significance and consequences,” Journal of Modern African Studies 44.3 (2006): 459–79.

Chapter 10

Connecting Oceans and Multicultural Navies: A Historian’s View on Challenges and Potential for Indian Ocean– Western Pacific Interaction Barbara Watson Andaya

This chapter adopts a historical perspective to consider the challenges of international strategic cooperation in the vast body of water that connects the Indian and the Western Pacific Oceans. It argues that cross-cultural cooperation in trade and shipboard life, evident from early times, bequeathed a legacy that continues to characterize contemporary merchant shipping. Initially this legacy of shipboard cooperation was also evident in the naval environment, but by the late nineteenth century nationalistic (and at times jingoistic) attitudes demanded that a country recruit only from its own citizenry. The historical developments discussed here have significant implications for multilateral and international relations across the Indian Ocean and Western Pacific. The homogeneity of the modern navy, an inevitable outcome of the preoccupation with national security, stands in marked contrast to the multicultural crews typical of merchant shipping. Despite the development of regional maritime organizations, such as the Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), the concern to protect “national” knowledge will inevitably limit the extent to which a large ocean zone like the Indian Ocean and the Western Pacific can function as a realm of true transnational collaboration. The Single Ocean Let me begin by returning to the “discredited” cartographic tradition that first began to consider the Indian Ocean as a geographic space. Produced in Alexandria, the Geographia of Claudius Ptolemy (90–168 CE) depicted the known world as consisting of the Mediterranean, Europe, North Africa, the Middle East and parts of Asia. The Pacific and most of the Atlantic Oceans were unknown to Ptolemy, but the Indian Ocean was conceived as a vast and enclosed lake. In his Geographia, Ptolemy stated that “the Indian sea … with its gulfs, the Arabian, the Persian, the

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Gangetic … is entirely shut in by land on all sides.”1 Ptolemy’s work, translated by the Arabs in the ninth century, bequeathed the notion of an enclosed Indian Ocean that continued to appear on European maps into the fifteenth century. Discovered only in 2002, an anonymous Egyptian manuscript dating to the late twelfth or early thirteenth century (a copy of one originally compiled a hundred years earlier), also shows the Indian Ocean as a “lake” that stretched from Africa to China.2 Rather than a reflection of geographic ignorance, the ports and islands identified on this map serve to conceptualize a zone of “encounter and contact,” where people from surrounding shores interacted in what one scholar has termed “the largest cultural continuum in the world.”3 Scholars working in a range of disciplines continue to provide irrefutable evidence for ancient movements across the great expanse of water that stretches from East Africa and coastal Arabia to China and Japan. The distribution of material remains in archaeological sites—coins, beads, religious images, glassware—are the most obvious, but historical linguistics has long established that the languages of Madagascar are part of the great Austronesian family. Recent research even suggests that speakers of Austronesian languages may have reached the Persian Gulf.4 Maritime archaeology also supplies numerous examples of the very large ships that would have made early voyages across routes connecting the coasts of Africa with the western Pacific. These tangible objects, of course, do not just demonstrate economic exchanges, but also point to the flow of political and religious ideas and the interactions between human beings. While there only hints about the maps and seacharts—the “paintings” (citra or alekhya)—through which early Indian shippers may have visualized this world, the personal networks between the subcontinent and Southeast Asia are captured in a fourth century Chinese account noting that “the people of Dunsun [probably on the Malay Peninsula] practice [the Brahmans’] doctrine and give them their daughters in marriage; consequently many of the Brahmans do not go away.”5 1 Thomas Suárez, Early Mapping of Southeast Asia (Hong Kong: Periplus, 1999), 86. 2 Emilie Savage-Smith and Yossef Rapoport (eds), The Book of Curiosities: A Critical Edition (World-Wide-Web publication: 2007), accessed June 14, 203. http://cosmos.bodley. ox.ac.uk/. 3 Abdul Sheriff, Dhow Cultures of the Indian Ocean (New York: Columbia University Press, 2010), 14; Neville Chittick, “East Africa and the Orient: Ports and trade before the Arrival of the Portuguese,” UNESCO. Historical Relations across the Indian Ocean (Paris: UNESCO, 1980), 13, accessed April 9, 2013. http://unesdoc.unesco.org/ images/0004/000421/042152eo.pdf; Michael Mollar, “The Importance of Maritime Traffic to Cultural contacts in the Indian Ocean,” Diogenes 111 (1980): 2. 4 Ross Blench, “Remapping the Austronesian Expansion,” (2010), accessed April 13, 2013, http://www.rogerblench.info/Language/Austronesian/General/Blench%20 Ross%20Festschrift%20paper%20revised.pdf 5 Himanshu Prabha Ray, “Seafaring in Peninsular India in the Ancient Period: Of Watercraft and Maritime Communities,” in Ships and the Development of Maritime Technology in the Indian Ocean, ed. David Parkin and Ruth Barnes (London:

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From the late seventh century, Arab and Persian ships began trading directly in Southeast Asia and China in a period that also saw the phenomenal rise of a new religion, Islam.6 Al-Muqaddasi, a tenth-century Arabian geographer, even saw ports on the Persian Gulf as “the vestibule to China” and although he acknowledged the presence of different participating cultures, he still considered that they operated on “the same sea.”7 He, like other Arab cartographers, was inclined to see large bodies of water as areas of commercial and cultural linkages, very much in the manner that deserts were shown in terms of their connecting routes between owns and oases.8 The world map drawn by the geographer Muhammad al-Idrīsī (1099–1065/6) thus shows the Indian Ocean and the surrounding seas reaching from Africa to China, clearly indicating islands resembling Sri Lanka and Sumatra.9 In the Muslim communities that grew up in ports along these routes, Sufi orders provided services for merchants that ranged from accommodation to facilities for money transfers.10 Chinese navigators were also increasingly knowledgeable about the Indian Ocean area. Beginning in the Yuan dynasty (1271–1368) the new names that appeared on Chinese maps show familiarity with Hormuz and other lands around the Persian Gulf, while the volume of Chinese blue and white ceramics reaching West Asia provides evidence of a lively trade.11 Arabic funerary inscriptions and gravestones in Quanzhou, the most important port in southeast China, point to the presence and activities of a considerable Muslim community, and the collaborative RoutledgeCurzon, 2002), 78, 85; Paul Wheatley, The Golden Khersonese: Studies in the Historical Geography of the Malay Peninsula before A.D. 1500 (Kuala Lumpur: University of Malaya Press, 1961), 17. 6 For recent discoveries of food items and crops introduced from South and Southeast Asia dating to the eleventh century, see Marijke van der Veen, Consumption, Trade and Innovation: Exploring the Botanical Remains from the Roman and Islamic Ports at Quseir al-Qadim, Egypt (Frankfurt: Africa Magna, 2011), 231. 7 Janet L. Abu Lugod, Before European Hegemony: The World System A.D. 1250–1350 (New York: Oxford University Press, 1991), 203; K.N. Chaudhuri, Trade and Civilization in the Indian Ocean: An Economic History from the Rise of Islam to 1750 (Cambridge: Cambridge University Press, 1985), 4. 8 Zayde Antrim, Routes and Realms: The Power of Place in the Early Islamic World (Oxford: Oxford University Press, 2012), 2. 9 Hyunhee Park, Mapping the Chinese and Islamic Worlds: Cross-Cultural Exchange in Pre-modern Asia (Cambridge: Cambridge University Press, 2012), 2. Islands on the route from Africa to China that are marked on the Egyptian map referenced in fn. 2 probably served to indicate places where wood and fresh water could be obtained. 10 Ralph Kauz, “A Kāzarūnī Network?” in Aspects of the Maritime Silk Road: From the Persian Gulf to the East China Sea, ed. Ralph Kauz (Wiesbaden: Harrassowitz, 2010), 61–9. 11 Muslim connections with China had been encouraged by the defeat of the southern Song, when the invading Mongols established the Yuan dynasty and won control over China’s sea routes.

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partnerships that developed are nicely conveyed in the term ortagh, a name that originated from a Turkish word meaning “colleagues.” Because maritime Muslim communities were part of a trade diaspora, these “colleagues” played a key role in maritime commerce, contributing another facet that helped strengthen what Hugh Clark has termed the “Indian Ocean trade ecumene.”12 Perhaps the most ambitious manifestation of these connections occurred in the fifteenth century, when the Chinese came to regard Southeast Asian waters and the Indian Ocean as a single body of water through interport maritime itineraries that could be recorded for future reference. A Korean map dated to 1402, clearly showing the tip of southern Africa, well before it was rounded by Bartholomew Dias, is thought to show the extent of Chinese knowledge at that time. The “Mao Kun map,” a series of maps published in the late-Ming Dynasty military encyclopedia Wu Bei Zhi (1628), was apparently based on the expeditions of Zheng He, the Chinese commander of the Ming naval expeditions that reached as far as the Persian Gulf and the coast of Africa. Regarded as the first set of Chinese maps to give an adequate representation of southern Asia, they provide directions for sailing between ports of Southeast Asia and the northern Indian Ocean. Such charts would have enabled Zheng He to produce a cartographic record of his voyages, supplemented by written accounts like those submitted by Ma Huan, Zheng He’s interpreter. For Ma Huan, Mecca was “the country of the heavenly square (a reference to the square where the Kaba’a is located) [that] … is in truth a most happy country.”13 In sum, as Hyunhee Park has shown so well, the foundation for what has been termed the “maritime silk road” stretching from the Persian Gulf to China was already laid down when the Malay entrepôt of Melaka was established in the early fifteenth century.14 Albuquerque claimed that as many as fifty ships sailed between Melaka and Saudi Arabia in 1512, and although this was almost certainly an exaggeration it indicates that the connections were real and important.15 K.N. Chaudhuri, who first encouraged us to think in terms of a unified Indian 12 Park, Mapping the Chinese and Islamic Worlds, 118; Hugh R. Clark, “Settlement, Trade and Economy in Fukien to the Thirteenth Century,” in Development and Decline of Fukien Province in the 17th and 18th Centuries, ed. E.B. Vermeer (Leiden: Brill, 1990), 40; For several articles relevant to the development of Indian Ocean-Southeast Asia and overseas maritime communities, see the special issue of the Journal of the Economic and Social History of the Orient 49, 4 (2006), especially “Maritime Diasporas in Asia before da Gama: An Introductory Commentary” by the guest editor, Hugh R. Clark. 13 Ma Huan. Ying-yai Sheng-lan. ‘The Overall Survey of the Ocean’s Shores’ [1433], trans and ed. J.V.G. Mills (Cambridge: Cambridge University Press for the Hakluyt Society, 1970), 252. See also 72, 165, 174. 14 Park, Mapping the Chinese and Islamic Worlds, 118; see further Kauz, Aspects of the Maritime Silk Road. 15 Ashin Das Gupta, “Indian Merchants and the Trade in the Indian Ocean, c. 1500–1700,” in The Cambridge Economic History of India. Volume I:c. 1200-c.1750, eds Tapan Raychaudhuri and Irfin Habib (Cambridge: Cambridge University Press, 1982), 409

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Ocean (which for him reached as far as China) argued that seaborne trade created a strong sense of unity, and other sources supply evidence of cosmopolitan and cooperative trade relations that were generally indifferent to religious affiliations. Emphasizing the coherence of the Indian and Western Pacific Oceans, however, does not mean minimizing the importance of sub regions. Indeed, in reflecting on such divisions al-Muqaddasi himself spoke of “eight seas.”16 These sub-divisions became more significant with the rise of Melaka, first mentioned in Chinese sources in 1403 CE. In the words of the great Indian historian, Ashin Das Gupta, “There can be no doubt that the emergence of Melaka as an entrepôt where Indian, China and Javanese met to exchange their wares was the most important development in the history of the Indian Ocean during the fifteenth century.”17 Given the pattern of the monsoon winds, it was more efficient to divide trade into sectors, and ships were normally manned by sailors from a similar (often family or village) background, speaking the same language and following similar customs. To a considerable degree, the Malay Peninsula and the Melaka Straits became a rough dividing line. Chinese ships now rarely ventured beyond the Malay Peninsular and the crews, largely recruited from the southeastern provinces of Guandong and Fujian, were normally all Chinese. In the seventeenth century, Chinese ships going from Siam to Nagasaki occasionally used non-Chinese crewmembers, but on the whole Chinese shipping could draw on a very long experience of regional navigation and could fulfill sailing needs and expertise from their own trading experience. On the open seas, for example, the pilots “are acquainted with the configuration of the coasts; at night they steer by the stars and in the daytime by the sun. In dark weather they look at the south-pointed needle ….”18 Ship captains could also tap the expertise available in resident Chinese communities, and the absence of directions for sailing into directly into a port suggests that pilots were probably recruited from the local Chinese community.19 Perhaps because of the prevalence of Malay as a trading lingua franca, crews of vessels in the Southeast Asian region appear to have been more multicultural. A sixteenth century text from west Java, for instance, talks not only of oarsmen, paddlers, boatswains, helmsmen, sailors who “came from all the regions,” but also of men from China. Indeed, the ship itself is a symbol of this multiculturalism, and one description refers to masts made of local products but to an “Indian” rudder (kemudi Keling) and rope stays of Chinese cord (kenur Cina).20 It is also significant 16 Chaudhuri, Trade and Civilization, 4; S.D. Goitein, Studies in Islamic History and Institutions (Brill: Leiden, 1966), 175–229. 17 Ashin Das Gupta, Merchants of Maritime India, 1500–1800 (London: Variorum 1994), 409. 18 Joseph Needham and Colin A. Ronan, The Shorter Science and Civilisation in China (Cambridge: Cambridge University Press, 1986), 29. 19 Ma Huan, Ying-yai Sheng-lan, 252. 20 J. Noorduyn and A Teeuw, eds and trans, Three Old Sundanese Poems (Leiden: KITLV Press, 2006), 260–61.

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that Southeast Asian and Chinese shipbuilders were exchanging ideas, resulting in the “hybrid” vessels that share both Chinese and Southeast Asian construction techniques. The Bay of Bengal was no less a multicultural environment, for the Melaka records show that this was a realm in which Hindu and Muslim merchants easily cooperated. As elsewhere, personal relationships consolidated trans-ocean links with local societies, and the author of an eighteenth-century Malay chronicle had no difficulty in recording that a Coromandel trader had “a wife in Perak as well as one in India.”21 Looking further westwards, we know that by this time the Arab-Indian creole community in Gujarat was well-established and in the eighteenth century Arab trade increased along the African coast, similarly encouraging intermarriage with local women.22 The movement of Gujarati and Arab sailors across the western Indian Ocean thus contributed to an environment that was “distinctively cosmopolitan,” for the Swahili culture of eastern Africa incorporated a region that stretched from the southern Arabia to the Persian Gulf and the western coast of India. As Janet Ewald graphically illustrated, ships in the Indian Ocean were physical, social and economic unities, and could even overcome status divisions. For instance, slaves were an important component in ship movement, especially in the galleys, but they could also become valued crew members. By the eighteenth century, slaves manned Omani ships from the southeast Arabian Peninsula, and slaves served with Somali, Hadhrami and Yemeni crew members in the Red Sea area.23 Abdul Sheriff has cogently argued that the dhow cultures of the western Indian Ocean were infused by a sense of community that incorporated not only sailors but also the various maritime areas they visited.24 Over the centuries, these convoluted networks of maritime exchange continued to link “Asia” to the shores of Africa and the Middle East. This was indeed, as Alan Villiers put it in the 1930s, “a brotherhood of the sea.”25 The famous fifteenthcentury Arab pilot Ahmad ibn Majid never sailed as far as China but he understood that despite the singularities of specific zones, this region was connected by the maritime knowledge that made sailing possible—the navigational skills that generated respect regardless of culture and ethnic background. “Know, Oh seeker, that every man knows his own coast best; the Chinese, China, the people of Sofala, 21 Raja Chulan, Misa Melayu (Kuala Lumpur: Pustaka Antara, 1968; reprint of 1919 edition), 78. 22 Derek Nurse, Thomas G. Spear and Thomas T. Spear, The Swahili: Reconstructing the History and Language of an African Society, 800–1500 (Philadelphia: University of Pennsylvania Press, 1985), 23; Engseng Ho, The Graves of Tarim: Genealogy and Mobility across the Indian Ocean (Berkeley: University of California Press, 2006), 68, 72, 124. 23 Janet Ewald, “Crossers of the Sea: Slaves, Sailors, and Migrants in the Western Indian Ocean, c. 1800–1880,” American Historical Review, 105, 1 (2000): 71–2. 24 Sheriff, Dhow Cultures of the Indian Ocean. 25 Ibid., 99.

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Sofala, the Indians. India; the people of Hijaz, Hijaz; the Syrians, Syria; but the sea is not peculiar to each region and when you are out of sight of the coast you have only your own knowledge of the stars and guides to reply on; These are the same when you are in your own district or some other.”26 European Shipping and Local Knowledge The connectivities that linked the Western Pacific to the coasts of Arabia by no means meant the absence of violence, and piracy in the Indian and Western Pacific Oceans has been documented from very early times. However, although maritime raiding has a long history, it is not easy to apply later European definitions. Piratical activities could certainly be regarded as violent robbery on the high seas, but they could operate under the aegis of some state and thus resemble European privateering, or be a seasonal occupation for seafaring groups.27 Nonetheless, there is no evidence that any of the polities involved in commerce attempted to control the sea lanes in the manner later adopted by the Europeans. Writing to the ruler of Ryukyu in 1468, Sultan Mansur of Melaka clearly expressed the local view: “We have learned that to master the blue oceans people must engage in commerce and trade, even if their countries are barren … All the lands within the seas are united in one body and all living things are being nurtured in love.”28 The same idea was repeated by the ruler of Makassar in the early seventeenth century, “God made the land and the sea; the land he divided among men and the sea he gave in common. It has never been heard that anyone should be forbidden to sail the seas.”29 Such attitudes changed in the early sixteenth century with the arrival of the Portuguese, determined to control the sea routes to the Spice Islands. In the words of Jean Fernel, a French physician, “The ocean has been crossed by the prowess of our navigators and new islands found … A new globe has been given to us by the

26 G.R. Tibbetts, Arab Navigation in the Indian Ocean before the Coming of the Portuguese (London: Royal Asiatic Society, 1971), 215. 27 In some ways it could even be argued that pirate vessels, which often recruited adventurers or captured crews from ships to service their vessels, contributed to an “internationalization” of shipboard life,. Japanese wakou bands, for instance, were composed of varied crews that included not only Japanese by Malays, Siamese, Portuguese, Spanish, Chinese and even Africans. Robert J. Antony, Like Froth Floating on the Sea: The World of Pirates and Seafarers in Late Imperial South China (Berkeley: Institute of East Asian Studies, University of California-Berkeley, 2003), 22. 28 Atsushi Kobata and Mitsugu Matsuda, trans. Ryukyuan Relations with Korea and South Seas Countries: An Annotated Translation of Documents in the Rekidai Hôan (Kyoto: Atsushi Kobata, 1969), 111. 29 Leonard Y. Andaya, The Heritage of Arung Palakka: A History of South Sulawesi (Celebes) in the Seventeenth Century (The Hague: Nijhoff, 1981), 46.

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navigators of our time.”30 Though the Portuguese were unsuccessful, and though the means by which they hoped to dominate trading rivals injected new tensions into the region, their presence enhanced the cosmopolitan nature of maritime activities. It has been argued for example, that the incorporation of Arab words into Swahili occurred largely after 1500, evidence of the increased volume of trade that resulted from expanded connections.31 The very Portuguese venture into unknown terrains where they lacked sea knowledge meant a greater reliance on local expertise. In 1498, for the last leg of his voyage from Africa to India, Vasco da Gama gained the assistance of a “Moor of Gujarat” whose title “Malemo Cana” (i.e. Mu’allim Canaka) translates as “master navigator learned person.” He showed Da Gama a map of the entire coast of India, and the fact that they sailed out of sight of land for over three weeks shows that Indian navigators were well acquainted with this route.32 The small fleet of five ships that left Lisbon in 1519 under the command of Ferdinand Magellan were mostly Spanish, but there were about 20 Portuguese as well as Italians, Germans, Flemish, Greeks and a slave named Enrique from Melaka, taken in 1511 (possibly originally from the Philippines).33 Historical sources provide recurring evidence of the ethnic mixture of crews on Portuguese ships plying the Indian Ocean in interport trade, when the captain or the master was sometimes the only white man on board.34 For inexperienced Portuguese captains, Muslim pilots were essential guides to the patterns of winds and currents, understanding full well, for instance, that a ship leaving the Red Sea in early July would encounter adverse winds as soon as it reached open waters.35 A sixteenthcentury Florentine merchant who was on one of several Portuguese ships going from Macau to Melaka recorded that the captain and officers were Portuguese, but the sailors were Arab, Turkish and Indian including Bengalis.36 In actual fact, the “Portuguese” categorization is also open to question, since the encouragement of intermarriage to increase overseas manpower meant that many sailors described as “Portuguese” were actually Eurasian. Despite differences in religion, sailors shared a belief that the fate of the ship was in the hands of supernatural powers

30 Sir Charles Scott Sherrington, The Endeavour of Jean Fernel; With a List of the Editions of his Writings (Cambridge: Cambridge University Press, 1946), 17. 31 Nurse et al., The Swahili, 6. 32 Salma Khadra Jayyusi (ed.). The Legacy of Muslim Spain (Leiden: Brill, 1992), 298 fn. 64; Sheriff, Dhow Cultures of the Indian Ocean, 312. 33 Shirley Fish, The Manila-Acapulco Galleons: The Treasure Ships Of The Pacific: With an Annotated List of the Transpacific Galleons 1565–1815 (London: AuthorHouse UK, 2011), 57. 34 C.R. Boxer, The Portuguese Seaborne Empire 1415–1825 (New York: A.A. Knopf, 1969), 57. 35 Ray, “Seafaring,” 79. 36 Francesco Carletti, My Voyage around the World, trans. Herbert Weinstock (New York: Pantheon Books, 1964), 185; Michael Pearson, “Life at Sea,” in The Trading World of the Indian Ocean, 1500–1800, ed. Om Prakash (New Delhi: Pearson Education, 2012), 637.

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and were willing to offer prayers at any shrine that promised a safe voyage and participate in any sea rituals thought to provide protection. The arrival of the northern Europeans in the early seventeenth century exerted a much greater influence on trading patterns, as Indians, for instance, were locked out of the profitable trading routes to the Spice Islands. Nevertheless, the need for maritime labor did increase the cosmopolitan nature of shipboard life. The Portuguese and English therefore recruited local sailors from the time of their first arrival in the Indian Ocean because there were never sufficient European seamen to man a ship. The term lascar, taken from the Persian laschcar, meaning mercenary or hired hand, was commonly employed by British to refer to indigenous sailors, and could encompass not only men from the subcontinent but Arabs, South Asians, Malays, East Africans, Filipinos and Chinese.37 In 1809, the wife of a British naval officer remarked that on large country ships38 there were typically only a handful of Europeans, with the rest of the crew comprised of Indian Portuguese and “lascars.” Among Indian sailors, the best were considered to be Muslims from Gogo in Gujarat. “They are possessed of a spirit of bravery scarce to be equaled in any of the other native tribes … They seldom quarrel among themselves; they are exceedingly quiet on board and obedient to their commanding officer.”39 Portuguese Eurasian helmsmen and the gunners were also “an extremely useful class of men” and related more easily to native crews than did British sailors. Although considerable attention has been given to lascars from India, especially those who reached London, men from other cultures around the Indian Ocean also travelled further afield. In 1786, for instance, the young John Pope, third officer on British country ship, reported an encounter with a French vessel off the Malaya coast that had a crew of 10 Europeans, with the remainder made up of African slaves.40 The prominence of Muslim sailors on East India Company ships may even have encouraged the spread of Islam. In 1787, for example, the crew of 50 men on a British country ship were all Muslims but only 13 had been born to Muslim fathers. Nine were slaves who had been made “Muslim” when they were young, but of the “eleven Bengaleese … three had the badge of Islamism conferred on them on board the ship.” Seventeen men from other ethnic groups called themselves Muslim, and although were “not yet made” (presumably they had not gone through the solemnities associated with pronouncing the syahadat, the confession of faith) 37 Amitav Ghosh, “Of Fanás and Forecastles: The Indian Ocean and Some Lost Languages of the Age of Sail,” Economic and Political Weekly 43, 25 (2008): 16. 38 “Country” ships were so called because they were involved in port to port trade within Asia. 39 Anne Bulley, The Bombay Country Ships, 1790–1833 (London: Curzon, 2000), 228. 40 Anne Bulley (ed.), Free Mariner (Addlestone: British Association of Cemeteries in South Asia, 1992), 89; Sunil S. Amrith, Crossing the Bay of Bengal; The Furies of Nature and the Fortunes of Migrants (Cambridge, MA: Harvard University Press, 2013), 81.

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“professed their willingness and complied with all the forms and were admitted to the privilege of eating with them and were not, for a long time, suspected to be any thing but Mahometans.”41 Although men classified as “Genoot” (i.e. Hindu) were still prominent on Indian Ocean ships, some captains and merchants considered that the elimination of caste differences on board facilitated crew interaction.42 “Lumped together,” as Amitav Ghosh has put it, sailors from different ethnic groups who travelled across the Indian Ocean and as far afield as Europe were arguably “the first Asians and Africans to participate in a globalized workspace.” More particularly, he argues that they functioned as a unified group through a common “seaspeak” that was absolutely essential to the successful operation of any ship, since failure to obey a command, or to seize the right rope or piece of equipment in an emergency could mean disaster. This ability to communicate was especially important, because during port visits ships often dropped off crew members and picked up replacements. As we see in the memoirs of the young officer, John Pope, lascars shared songs, and their sense of community was strengthened because they lived together “continually on deck, rain or fair weather,” without any assigned watches.43 Pope’s letters also show that words like “seacunny” (steersman, from Persian sukkānī and Arabic sukkān, meaning rudder), “serang” (boatswain, from Persian sarhung, an overseer) and tindal (petty officer, in various South Indian languages, a commander) became incorporated into shipboard language, which was so developed that it justified the publication in 1813 of a specific “English and Hindostani Dictionary” compiled by a British naval officer with the assistance of a man from Kutch. Seventy years later a re-edition of the dictionary specifically termed this seaspeak “Laskari.”44 The vocabulary demonstrates an eclectic range of words derived from Malay, various Indian languages, Arabic, and Persian. Although the primary European influence is English, it is worth noting that a significant influence comes from Portuguese, especially in relation to parts of the vessel. The word for “fore” as in “foremast,” for instance, is trikat, from the Portuguese traquete, and the Laskari for the cutwater (the forward edge of a ship’s prow) is taliyamar, from Portuguese talhamar.45 As one would expect, the bulk of the vocabulary is derived from Indian words, but these are often combined with Portuguese terms to denote something very specific, like “trikat-gavi-sawai” for the foretopmast stay sail. The echoes of links with the ancient past are reflected in the Laskari word for “mate,” malum, the Arabic term “mu’allim,” which we encountered earlier in relation to the knowledge of early pilots, while the word for “command” is “hukum,” which all Muslims understood as authority or law. Among themselves lascars probably combined elements of contacts languages and 41 Bulley, Free Mariner, 133. 42 Bulley, The Bombay Country Ships, 232–3. 43 Bulley, Free Mariner, 54, 55, 62. 44 Amitav Ghosh, “Of Fanás and Forecastles: The Indian Ocean and Some Lost Languages of the Age of Sail,” Economic and Political Weekly 43, 25 (2008): 20. 45 Ibid., 21.

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creole, made up of Swahili, Malay and Hindustani, as well as the Sino-PortugueseEnglish pidgin common along the South China coast. As Ghosh concludes, these “marvelously expressive” dialects flourished in many corners of the Indian Ocean but did not outlast the age of sail.46 The Dutch contribution to this cosmopolitan life is less well documented, although the Dutch East India Company (VOC) began to recruit Asian sailors from the mid seventeenth century because of the lack of European sailors, and then more systematically from the 1670s. This early Dutch reluctance to employ Asians stemmed from a realization of the vulnerability of a small group of white officers outnumbered by Asian sailors. Mutiny was not at all uncommon, and a compelling example occurred in 1593, when the governor of the Philippines was murdered by Chinese rowers on his own ship.47 The Dutch did not use the word lascars, but rather “moors,” which could in fact denote not merely Muslims from the Indian subcontinent but Indian Christians as well. The inclusive term inlands matroos (native sailor) was also widely employed. Shipping records from the early eighteenth century indicate that Europeans on VOC ships initially tended to outnumber Asian sailors. In 1708, for example, a ship leaving Batavia for Bengal was manned by a crew of 47 European and 26 Asian sailors who had been recruited in Bengal in 1705.48 However, after Bengal was taken by the British, the VOC had to look for other sources of labor for its intra-Asian ships and crews were now composed largely of Javanese, Malays, Chinese, and men from Surat and Cochin.49 These native sailors were highly mobile, and could be employed by both English and Dutch ships that moved right across the Indian Ocean, from Batavia to Persia. The work by Matthias van Rossum is important in this context because it shows that the wages, recruitment and working conditions of European and Asian sailors were relatively equal in the eighteenth century, in sharp contrast to the inequality that followed the drafting of the “lascar articles” in the early nineteenth century. Prior to this it was possible to recruit Asian sailors individually, but it was also possible for Moor sailors, for example, in Surat, to form working groups themselves, which would have helped in negotiations regarding payment and the work situation. During most of the eighteenth century, Moor sailors employed by the VOC earned 7.5 guilders per month, about the same as the wages earned by European sailors, who were recruited for 7 to 9 guilders. In the nineteenth century, by contrast, Europeans sometimes earned two or three times the wages of Asian sailors.50

46 Ibid., 23–4. 47 Fish, The Manila-Acapulco Galleons, 69, 125. 48 Matthias van Rossum, “A ‘Moorish World’ within the Company: The VOC, Maritime Logistics and Subaltern Networks of Asian Sailors,” Itinerario 36, 3 (2012): 48. 49 Ibid., 46–7. 50 Ibid., 55.

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Changing Relationships Although eighteenth-century Enlightenment scholars could still conceptualize an “ocean arc” that stretched from the Swahili coast to the South China Sea,51 this period marks a new chapter in cross-cultural relations in the Indian Ocean because it coincided with “scientific” ideas about racial hierarchies. These attitudes were increasingly reflected in shipboard relationships, and in the abusive treatment of non-European sailors: in one 1792 report, it was said that the hostility of Bombay Portuguese seamen towards European officers could even explode into violence.52 While British ships seized sailors or “lascars” from Indian ships, by the late eighteenth century it was accepted that Asians were not equal in strength and usefulness when compared to Europeans or Americans. If lascars formed part of the crew, it was believed that a ship should have four British seamen for every ton of ship’s burthern rather than the normal one seaman for every 20 tons. Twelve Indian or Chinese seamen, it was said, were normally required to take the place of nine Europeans.53 The downgrading of the term is apparent in the fact that seamen themselves preferred to be called khalasis (meaning freed person, also from Persian) rather than lascar, which they saw as denigrating.54 Nonetheless, Indian serangs and tindals, lauded because they were “obedient, satisfied with rough fare, averse to strikes, sober and hard-working,” were still necessary to discipline “Asiatic” crewmen.55 Despite the restrictive regulations in the Mernt Shipping Act (the “Asiatic Articles,” passed in 1823), Asian sailors continued to seek employment on European ships. More importantly, they were absolutely essential to maritime operations as steam navigation developed. In 1855, British merchant ships employed between 10,000 and 12,000 lascars in the seas between Africa and Asia, about 60 percent of whom came from the Indian subcontinent while others were from the Malay Archipelago, China, Arabia and East Africa. By 1891, the number of men working under the Asiatic Articles had doubled since 1855, and by 1914 they made up 17.5 percent of the entire British complement of merchant sailors. In the Indian Ocean areas the percentage was far higher.56 Large steamship companies also used Asians in their fleet, often transferring men from one ship to another, but the old camaraderie 51 Kären Wigen, “Cartographies of Connection: Ocean Maps as Metaphors for Interarea History,” in Interactions: Transregional Perspectives on World History, ed. Jerry H. Bentley, Renate Bridenthal and Anand A. Yang (Honolulu: University of Hawai’i Press, 2005), 154–5. 52 Bulley, The Bombay Country Ships, 230. 53 Ibid., 233. 54 Ravi Ahuja,”Networks of Subordination—Networks of the Subordinated: The Ordered Spaces of South Asian Maritime Labour in an Age of Imperialism (c. 1890–1947), in The Limits of British Colonial Control in South Asia: Spaces of Disorder in the Indian Ocean Region, eds Ashwini Tambe and Harald Fischer Tiné (London: Routledge, 2008), 14. 55 Cited in Ewald, “Crossers of the Sea,” 76; Ahuja, “Networks of Subordination,” 13–14. 56 Ewald, “Crossers of the Sea,” 76–7.

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of sailing vessels was undermined because of new skill divisions between Asian sailors themselves, as well as between Europeans, and certain ship areas such as the engine room, where the work was regarded as unfit for white men.57 Ravi Ahuja has contended that “there is little evidence for the emergence of a socially and culturally homogenous class of Indian Ocean seamen.”58 Even old terms like “serang” acquired new and ambiguous connotations as the men filling this position became both disciplinarians and spokesmen for the lascar crew. Much has been written about the very real discrimination and abuses that non-European sailors experienced in the “age of imperialism,” which in some cases have still not been rectified. Separation and ethnic specialization also developed between those working in divisions termed “deck,” “engine,” and “salon.”59 Nonetheless, the ability of crews to work across cultures reflects the centuries-old legacy of people who may have been “subordinated” but who still admired the skills required to move great ships across this great “single ocean.” Globalization, Merchant Shipping and the Modern Navy Because of the economics of international shipping and the availability of relatively cheap labor, the globalization of merchant crews in contemporary times is an accepted fact. Mixed-nationality crews are a phenomenon of the new global labor market created by the freedom of shipowners to organize their crews with workers from various countries and nationalities. Despite undeniable problems and recognition that there is need for improvement in shipboard organization, research has found that mixed-nationality crews generally work well.60 Approximately 80 percent of seafarers today work in a mixed-nationality crew that is put together with specific skills in mind, giving attention to language intelligibility and qualifications.61 We no longer find the kind of concern expressed by an American congressman in 1912, who reminded his audience of the relatively small number of American ships involved in foreign trade, adding that of their crews “no more than ten percent are American citizens.”62 Today mixed-nationality crews, 57 Ibid., 85. 58 Ahuja, “Networks of Subordination,” 17. 59 Ibid., 13–48; Georgie Wemyss, The Invisible Empire: White Discourse, Tolerance and Belonging (Farnham; Burlington, VT: Ashgate, 2009), 141–60; Bulley, The Bombay Country Ships, 233–5 also provides an overview. 60 For a more pessimistic view, see Jan Horck, “Getting the Best from Multi-cultural Manning,” (Copenhagen: BIMCO GA. 2005), accessed 23 April 2013. http://freepdfdb. com/pdf/horck/. 61 Desislava Nikolaeva Dimitrova, Seafarers’ Rights in the Globalized Maritime Industry (Kluwer Law International, 2010), 28–9. 62 Leon Fink, Sweatshops at Sea: Merchant Seamen in the World’s First Globalized Industry, from 1812 to the Present (Chapel Hill: University of North Carolina Press, 2011), 99.

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especially from the Philippines, China, Indonesia, India, and Bangladesh are the major suppliers of seagoing manpower.63 In China, for instant, there is a new group of Chinese seafarers whose primary employment target is the global labor market, and although the opportunities for this group of free seamen is limited by Chinese government restrictions, the majority work for foreign companies.64 While Asian seafarers acknowledge the advantages of working for an international company, it has been argued that shipowners and modern global shipping industries also prefer mixed race crews. This does not mean, of course, that life aboard is necessarily without problems. Although officially taught “Maritime English” is the approved working language, researchers have found that it was not used on the ships they investigated, in part because it relies on somewhat unnatural forms of speech which crewmembers find difficult. This is a serious matter because miscommunication, especially in stressful moments, can lead to tensions between crew members and in extreme situations contribute to accidents and even shipwreck.65 At the most basic level, linguistic divides can simply impede social interaction, the sharing of jokes and participation in entertainment that all contribute to the teamwork necessary for effective shipboard management. In an intriguing reminder of the development of “Laskari,” modern researches have suggested that sailors, now speaking a range of different “Englishes” themselves are best able to create effective modes of linguistic communication through the development of a maritime pidgin.66 This internationalization of merchant shipping, however, is less easily transferred into intergovernmental cooperation. The intrusion of what we might consider “national” navies into the Indian Ocean arena is primarily an outcome of nineteenth-century developments, but for much of this period there was little real sense that employment of non-citizens represented some kind of risk. The Qing dynasty, for instance, only started to rebuild its navy in the aftermath of the Taiping rebellion but by the 1880s China had begun to deploy a modern navy.67 Numerous foreign specialists were employed as advisers and technicians, with

63 Dimitrova, Seafarers’ Rights, 1–3. 64 Bin Wu, “Globalisation and Marginalization of Chinese Contract Workers,” in Marginalisation in China: Perspectives on Transition and Globalisation, eds Heather Xiaoquan Zhang, Bin Wu and Richard Sanders (Aldershot: Ashgate, 2007), 135–54. 65 For a more pessimistic view, see Jan Horck, “Getting the Best from Multi-cultural Manning,” (Copenhagen: BIMCO GA. 2005), accessed 23 April 2013. http://freepdfdb. com/pdf/horck/. 66 Dimitrova, Seafarers’ Rights, 29–31; Helen Sampson and Minghua Zhao, “Multilingual Crews: Communication and the Operation of Ships,” World Englishes, 22, 1 (2003): 31–43; E. Kahveci, “Mixed Nationality Crews: Interaction on Board,” Ahoy!, 5, 20 (2000), 14–18. 67 Although poor administration training and maintenance meant it was no match for the Japanese a decade later. Bernard D. Cole, The Great Wall at Sea: China’s Navy Enters the Twenty-First Century (Naval Institute Press, 2001), 5.

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some even reaching the rank of admiral in the Qing Navy.68 The same practice was followed by other independent Asian states, like Siam, where for many years the navy was commanded by a Dane.69 In these countries there was evidently little sense that foreigners in high positions were potentially dangerous. Until the rise of nationalistic feeling in the nineteenth century it was also customary for European navies to recruit from outside their own citizenry. The British navy employed French prisoners of war as well as volunteers from Turkey and all over Europe. Part of the reason for the presence of foreigners was that the Royal Navy depended on the merchant marine, whose composition, even in the late Victorian period, was 46 percent foreign. It was therefore common for the navy to impress seamen from the merchant service, since the Crown traditionally enjoyed rights to the labor of seafarers. Although most of these individuals were ordinary seamen, officers could also be recruited.70 Britain’s wars against the American and the French in the late eighteenth and early nineteenth centuries increased the need for manpower, and it was estimated that at such times Royal Navy needed around 60,000 additional men. Foreign sailors and even prisoners were therefore incorporated into naval crews.71 American merchant vessels were a common target, and between 1793 and 1812 the British impressed more than 15,000 American sailors to supplement their fleet during the war against Napoleonic France. At the Battle of Trafalgar about 10 percent of Britain’s naval force was comprised of foreign nationals.72 Attitudes were beginning to close in, however, and from 1894 the British Admiralty decided that no foreign officers were to serve on Her Majesty’s ships except in unusual circumstances. It is no coincidence that it is precisely in this period that Americans were also expressing doubts about the number of foreigners in the United States navy. In 1888 the New York Times published a short piece, noting that the navy had already 68 Kent Deng, “Movers and Shakers of Knowledge in China during the Ming-Qing Period,” in History of Technology: Vol. 29. Technology in China, ed. Ian Inkster (London and New York: Continuum Publishing, 2009), 70. 69 Mary E. Laugesen, Povl Westphall, and Robin Dannhorn (eds), Scandinavians in Siam (Bangkok: Scandinavian Society of Siam, 1980), 28. 70 Janice E. Thomson, Mercenaries, Pirates and Sovereigns: State-Building and Extraterritorial Violence (Princeton, NJ: Princeton University Press, 1996), 31; Swedes, for instance, were often employed in the navies of other European powers and the fledgling United States, although Britain limited promotion for any officers who would not become British subjects. Hildoer Arnold Barton, Essays on Scandinavian History (Carbondale: Southern Illinois University Press, 2009), 53. 71 Thomson, Mercenaries, Pirates and Sovereigns, 31. 72 “British Navy Impressment,” History Detectives, accessed March 25, 2013. http://www.pbs.org/opb/historydetectives/feature/british-navy-impressment/; Roy Adkins, Nelson’s Trafalgar: The Battle That Changed the World (New York: Penguin, 2004), 50; Benjie Goodhart, “The Untold Battle of Trafalgar: Justin Hardy Interview,” Channel 4, accessed March 25, 2013. http://www.channel4.com/programmes/the-untold-battle-oftrafalgar/articles/justin-hardy-interview.

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begun to express concern about the numbers of foreigners in the American navy, which some considered “a menace to the Nation.”73 Three years later, Congress passed a bill prohibiting any further enlistment of aliens in the navy, as well as the re-enlistment of those at the end of their terms.74 In the words of one correspondent, “Fair Play” who wrote to the New York Times, “It is plain that the flag of the United States would be better defended by citizens than by aliens.” What was needed, said this writer, was not simply permanency of service but also patriotism “because the navy will always be small in proportion to the coast to be protected and to the burden it will be called upon to bear.” He cited figures to show that only 58 percent of the navy was composed of American citizens, and of the remainder 37 percent had indicated no intention to become naturalized, and 17 percent—a sixth of the entire navy—“are not even residents of the United States.” In short, the composition of the navy was “un-American.”75 In 1892, Benjamin Tracy, Secretary of the Navy, announced that in future only American citizens would be appointed to work in navy years and docks, and foreigners already employed would be required to take out citizenship. In support of this “patriotic policy,” The New York Times in 1895 cited an episode that clearly conveyed the new view of the importance of security. A foreigner who had previously sold “valuable plans” to an American naval officer gained employment as a draftsman in the U.S. navy. Disclosure of his background led to his dismissal, since “it was reasoned that a man who would betray his own government and sell plans to foreigners was the more likely to serve in the same manner the Government with which he was allied either by nativity nor citizenship.”76 Six years later, President McKinley permitted the employment of 500 Filipinos in the American navy, but their positions were to be limited to that of cooks and stewards and lower ratings. There was no question of their being entrusted with matters concerned with intelligence or strategy, and the special Philippine recruitment program ended in 1992.77 Conclusion The developments discussed in this chapter have significant implications for Middle East-Asia relations, for a historical overview points to both potential 73 “Foreigners in the Navy,” The New York Times, December 9, 1888. 74 “None but Citizens for the Navy Yards,” The New York Times, April 28, 1892. 75 “Fair Play,” “Personnel of the Navy,” The New York Times, December 28, 1891 76 “No More Foreigners Wanted,” The New York Times, September 1, 1895. 77 Bureau of Naval Personnel. Filipinos in the United States Navy. By United States Navy. October 1976, accessed April 7, 2013. http://www.history.navy.mil/library/online/ filipinos.htm; H.G. Reza, “Navy to Stop recruiting Filipino Nationals,” Los Angeles Times, February 27, 1992. Accessed April 12, 2013. http://articles.latimes.com/1992-02-27/local/ me-3911_1_filipino-sailors.

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opportunities but also significant challenges. On the one hand, in regard to merchant traffic the Indian and Western Pacific Oceans are assuming ever greater prominence because of the continuing growth in global trade. Linking the Middle East to Asia, the Melaka Straits is the world’s second busiest commercial waterway. This has encouraged an increasing internationalization of commercial shipping, and an acceptance of multinational crews as normal. On the other hand, in terms of national security concerns, the picture is somewhat different. Although declared a “zone of peace” in 1971, the Indian Ocean is of intense geostrategic importance due to the surge of seapower as Asian nations build up their navies. With the development of the initiative for Indian Ocean Marine Affairs Cooperation and the IOR-ARC there are some indications of greater naval cooperation, no doubt stimulated by the need to protect the sea lines of communication (SLOCs) and to enforce greater security for shipping off the East African coast.78 It is evident that these new initiatives have helped to strengthen links that were previously weak or non-existent.79 Nonetheless, despite evocations by national spokesmen of long-standing cross-cultural trade in the Indian Ocean and public declarations of intent, there are few effective tools that will sustain multilateralism at the nation-state level.80 Unlike the multicultural environment of contemporary merchant shipping, the modern navy has inherited a security-conscious shipboard culture that is understandably apprehensive about incorporation of “aliens,” and is thus inevitably less diverse than its predecessors. None of the states surrounding the Indian Ocean have yet followed the path of the Royal Australian Navy, which is actively recruiting foreign personnel with military experience, including those from non-English

78 The IOR-ARC now has 19 members and five dialogue partners. Arndt Michael, India’s Foreign Policy and Regional Multilateralism (London: Palgrave, 2013) 139. The regular bilateral US-India naval field training exercises, for example, are intended to “advance multinational maritime relationship and mutual security issues.” “US, Indian Navy Joint Exercise MALABAR 2013 Begins,” ZNews, November 7, 2013. Accessed January 29, 2014. http://zeenews.india.com/news/nation/us-indian-navy-joint-exercisemalabar-2013-begins_888394.html. 79 For instance, in 2007, the Indian navy for the first time held joint naval exercises with Oman, Bahrain, Kuwait and Saudi Arabia. In June 2012, India also conducted its first joint naval exercise with Japan, and in December 2013 this was repeated, but in Indian waters. Geoffrey Kemp, The East Moves West: India, China, and Asia’s Growing Presence in the Middle East (Washington, DC: Brookings Institute, 2012), 2024; Hideaki Knead, “Japan should Strengthen Naval Co-operation with India,” AMISS-Commentary, 169 (2013): 1–4, accessed April 12, 2013. http://www.jiia.or.jp/en/commentary; Santanu Choudhury. “India and Japan Begin Joint Naval Exercises,” The Wall Street Journal, December 19, 2013. Accessed January 29, 2014. http://online.wsj.com/news/articles/SB10 001424052702304367204579267820463465770. 80 Michael, India’s Foreign Policy, 114, 141.

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speaking countries.81 In terms of naval relationships that reach beyond the connections established in joint maneuvers and public relations exercises such as soccer games, we are still very far from the multicultural world conceptualized in early visions of the Indian and Western Pacific Oceans as an interactive lake. Despite encouraging examples of strategic cooperation, the protection of “national” navigational knowledge will inevitably affect the extent to which this large ocean zone can operate as a domain of truly effective transnational collaboration.

81 The United States is willing to enlist legal non-permanent residents on the condition they apply for citizenship. See Scott A. Thornbloom, “Navy Recruits Become US Citizens Through New MAVNI Program,” America’s Navy. Accessed February 10, 2014. http://www.navy.mil/submit/display.asp?story_id=51953; In the Australian case, a security clearance will be required, and applicants must agree to apply for citizenship within three years. “Overseas Applicants: Navy,” Recruitment Centre, accessed February 10, 2014. http://www.defencejobs.gov.au/recruitmentcentre/canIJoin/ overseasApplicants/navy.aspx; “Information on the recruitment of foreign nationals in to the Australian Defence Force,” Australian Embassy, Republic of Korea, accessed date April 12, 2013.http://www.southkorea.embassy.gov.au/seol/RecruitDe.html.

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Index

14th March forces, 90 2008 financial crisis, 15, 91 8th March parties, 90 Abe, Shinzo, 60, 70–72, 139 Abu Dhabi National Oil Company (ADNOC), 157 accounting fraud, 32, 50 activism, 73, 95 Afghanistan, 26–7, 46, 63, 68, 80, 83–4, 154 Africa, 2, 22, 25, 29, 31, 55, 59, 105, 115, 120, 140, 162–3, 166, 173, 178–84, 186, 188, 192 Al-Ahdab, 29 Al-Infitah, 11 Al-Muqaddisi, 183 Al-Nahda, 83 Al-Qai’da, 83 Alexandria, 11, 181 Alterman, Jon, 86 alternative energy, 157, 159 see also renewable energy America, 2, 25, 30–32, 38, 43, 48, 50, 77–80, 81–3, 86, 120, 124, 126, 128, 130, 133–4, 136–41, 143, 161–2, 164–6, 168–9, 176, 195–6, 198 see also United States American Chamber of Commerce, 13 anti-piracy, 63, 67, 71–2, 124, 129, 164–5 see also piracy Arab boycott, 56, 58, 60–61 Arab Levant, 89 Arab Uprisings, 3, 83–4, 89–92, 98, 106, 140 Arabian-American Oil Company (Aramco), 148, 152, 154 Arabian Oil Company, 144 Arabian Peninsula, 78, 80, 82, 85–6 Arabian Sea, 57, 85

Arafat, Yasser, 61 archaeological artefacts, 182–3 implications, 182 arms trade, 155 Asad regime, 83, 85 Asia, 79–80, 82, 84–6, 108 Asia Pacific, 3, 143–4, 147–9, 152–4, 156–7, 159–60 Asian Century, 81, 85 Asian crew, 191 discrimination against, 191, 193 recruitment, 191 Asian labour, 93, 98, 101, 105 Asian tigers, 51, 79 Association of South East Asian Nations (ASEAN), 3, 17–18, 23, 31, 74, 80, 116, 128, 135–8, 178 ASEAN +3, 178 Australia, 31–2, 39–40, 42–3, 47–8, 138–9, 164–6, 168 Bab al-Mandab, 77 Baghdad, 29, 69, 83 Bahrain, 71, 72, 84, 89, 98, 127, 143, 145–8, 150–51, 155, 197 Balochistan, 27 Bangladesh, 13, 16–17, 19, 129, 159, 194 Ba’th regime, 67, 97, 105, 109 Beirut, 90–91, 97, 106, 108 Beiteddine, 91 Ben Ali, 84 Beqaa’, 90, 103 Bo Xilai, 85 British, 2–3, 25, 28, 131, 141, 144, 146–7, 155, 174, 189–92, 195 see also United Kingdom British protectorate, 2 Brunei, 3, 116 Burma see Myanmar

226

Converging Regions

Cairo, 11, 13, 83, 90 Cambodia, 16–18, 23, 81 Cambodia–Vietnam War, 2 capital markets, 34, 38, 40, 45, 50 capitalist development, 47 CARIM report, 93 Carter, Jimmy, 82 Caspian Sea, 79 Central Asia, 79 central government, 46, 117, 175 China, 1, 3–5, 9–23, 25, 27–34, 36, 38, 40–52, 57–9, 61–3, 74, 77–83, 85–6, 106, 113–14, 116–20, 121–41, 143–61, 163, 165–9, 174–6, 178, 180, 182–7, 191–2, 194, 195, 197 economic rise of, 178–9 foreign investment, 39–44, 49 foreign policy, 179 lax regulatory regime, 35–6 political system, 51 China Investment Cooperation (CIC), 25, 31, 98 China National Offshore Oil Corporation (CNOOC), 30–31, 33, 49, 116, 131 Chinese Communist Party, 32, 33, 90 Chinese National Petroleum Corporation (CNPC), 26–9, 46, 48–9, 153 China Securities Regulatory Commission (CSRC), 41–2, 50 Chowdhury, Ranabir Ray, 81 civil society, 90–91, 94, 108 civil war, 61, 92, 95–7, 126 civilian nuclear programme, 157, 159 technology transfer, 159 Clarke, Hugh, 184 Clinton, Bill, 163–5 coalition, 63, 67–8, 90 Cold War, 2, 56, 60, 62–3, 132, 134, 161, 163 colonial, 1–4, 25, 132, 192 commercialization, 103, 173 Constitution, 39, 56, 58, 63, 65, 90 reform, 90 construction contracts, 153–4, 156, 159 increase, 156 construction sector, 28, 101, 154 cooperation agreements, 161

copper, 26–7, 46–7 Corbett, Julius, 128 corruption, 45–6, 48, 89, 96, 107 cosmopolitan, 186, 188–9, 197 cotton, 11–12, 14, 19, 21, 144–5 Creole, 191 crew members, 185, 188–9, 191 abuse of, 192 inequality of, 191 suppliers of, 194 crisis, 10–11, 15–16, 19–20, 49, 91, 107, 117, 155, 166 Dahdah, Assaf, 108 Damascus, 105 de Gama, Vasco, 188 development aid, 61, 66 diplomatic expansion, 145 diplomatic relations, 143, 156 China, Kuwait, 145 diplomatic visit, 156 Donilon, Tom, 82 Dutch East Indies, 1 Dutch East India Company, 1, 189, 191 duty access, 19, 24 economic development, 89, 177 Asia, 177 Economic Reform and Structural Adjustment Plan, 12 Emerging Markets Payments, 10 Egypt, 2, 4, 9–24, 83–4, 183 Egypt Suez Cooperation Zone, 23 European Union (EU), 14–15, 21, 30, 177, 179 development of, 177 European state formation, 177 energy, 4, 26, 30, 50, 56, 58–60, 64, 67, 69–71, 73–4, 114, 116, 119, 128, 140 dependency, 158 efficiency, 60, 74, 120 resources, 55–75, 86 security, 26, 32, 50, 79, 119, 141, 164, 167 energy consumption, 58–9, 147 energy imports, 26, 55, 114 growth, 148

Index energy sector, 157 future prospects, 15 energy supply routes, 158–9 entrepot trade, 150, 184–5 see also reexport trade Europe, 1, 2, 9, 19–20, 23–4, 70, 75, 77, 83–4, 161, 163, 173–4, 179, 181, 190, 195 Ewald, Janet, 186 export, 9, 61–2, 107, 114, 118–20, 131, 143, 145, 147, 151, 158 Federation of Workers and Employees Unions in Lebanon (FENASOL), 94 Filipinos, 196 finance, 4, 77 firms, 9, 11–12, 20–22, 24, 26–7, 29–30, 32–9, 41–52, 98, 178, American, 35 Chinese, 25–7, 29–30, 32–6, 39, 41–52, 178 European, 35 foreign capital, 35, 37, 40 foreign crew members, 196–7 attitudes towards, 196–7 increase in, 195 Foreign Direct Investment (FDI), 16, 21–3, 31, 34, 39, 42–4 China, 23, 31, 34, 39, 42 Japan, 43–4 politics of, 40 theories, 44 foreign investment, 31, 37, 39–43, 45 China’s approach, 49–50 Asian mode, 51 Foreign Investment and National Security Act, 31 foreign labour, 89, 92–4, 97, 100, 102, 104–5, 108–9, 195 attitudes towards, 195 increase in, 195 foreign markets, 15, 21, 48 foreign policy, 79, 117, 139 foreign regulators, 25, 47, 51–2 France, 3, 15, 42, 124, 143, 195 Free Trade Agreement (FTA), 3, 14, 19, 23, 70, 150–51

227

G7, 58 G8, 41, 58, 71 gas, 4, 26, 28–9, 31, 55, 59–60, 79, 84–5, 98, 106, 115–16, 120, 131, 133, 135, 137, 140, 147–9, 152–4, 158 Gates, Robert, 164 General Confederation of Lebanese Workers (GCLW), 94, 99, 100 Germany, 3, 15, 42, 44, 141 global commons, 113, 126, 134–6, 162, 167–9 policy, 168 policy formulation, 169 global economy, 10, 37, 80, 100, 143, 164–5, 173 globalization, 40–41, 44, 91, 95–6, 104, 161, 167, 170, 173, 193 impacts of, 193 trends, 170 Granovetter, Mark, 101 Gross Domestic Product (GDP), 9, 18, 81, 107, 133, Gulf, the, 2, 3, 5, 28, 31, 55, 65, 67–75, 78–80, 82–6, 89–90, 92, 94, 97–8, 100, 102, 110, 114–15, 120, 127, 129, 131, 140, 143, 161, 169, 182–4, 186 labour supply, 154 Gulf Cooperation Council (GCC), 3, 5, 64, 69–72, 74, 145–6, 150–51 Gulf of Aden, 63, 67, 71, 115, 127, 129, 131, 137, 140, 155 Gulf security, 55, 62, 154 dependance on West, 154 Gulf War, 56, 63, 67, 71, 73, 86 Gwadar port, 27–8, 37, 129, 157–8 Authority, 28 Halfaya, 29 Han empire, 175 haqqi ‘alayyi, 90 Harb, Boutros, 104 Hariri, 90, 96 hegemony, 25, 62, 77–8, 84 Hezbollah, 86, 90, 109 Ho Kwon Ping, 81 Hong Kong, 3, 10, 14, 18–19, 23, 28, 47, 79, 108, 153, 182

228

Converging Regions

Huawei, 32, 39 human rights, 66, 92, 104, 163 Hussein, Saddam, 68 hydrocarbon imports, 143, 147, 158 hydrocarbon safekeeping, 144, 159 hydrocarbon trade, 147–9, 156 value, 147 production, 147 Hyundai Engineering and Construction, 154 Ibn Majid, Ahmad, 186 inequality, 16–17, 89, 191 initial public offering (IPO), 32 Institut Français du Proche-Orient (IFPO), 95 institutional arbitrage, 34–6, 38, 44, 51 inter-state rivalries, 113, 118, 128, 133, 138–9 International Atomic Energy Agency (IAEA), 58, 65 International Energy Agency (IEA), 148 International Labour Organisation (ILO), 94, 96 International Monetary Fund (IMF), 12 International Petroleum Exploration Corporation (INPEX), 65–6 International Petroleum Investment Company (IPIC), 152 international shipping crew, 194 effects of, 194 recruitment of, 195 international trade, 37, 177 intifadha, 90 investment, 70, 127, 143, 152, 156–7, 178 China, 25 foreign, 37 see also Foreign Direct Investment, flow of investment Indo-Pacific, 163 Indonesia, 2, 3, 13, 17, 59, 61, 79, 81, 114, 116, 123, 126, 166, 169, 194 India, 1, 2, 13–14, 17, 28, 58, 62, 77–81, 83, 85–6, 105, 113, 118–21, 123–35, 138–41, 145, 159, 161, 163–9, 186–9, 191, 194 autonomy, 165 leadership, lack of, 165

military capabilities, 164 tilt to US, 166 Indian Navy, 73 Indian Ocean, 1, 2, 5, 63, 68, 77–80, 85–6, 113–14, 118–19, 121, 123–4, 126, 129–32, 134–5, 137–9, 141, 161–70, 181–94, 197 attitudes towards, 187 cartography of, 163, 181, 184 definition of, 162 geography of, 163, 182 importance of, 168 US interests, 164 Indian Ocean Rim Association for Regional Cooperation (IOR-RIM), 165, 168, 181, 197 Indian Ocean trade, 183–6 Arab regions, 186 effects of, 189 routes and connections, 184–6 Indochina War, 2 International Monetary Fund (IMF), 12, 43 International Working Group of Sovereign Wealth Funds, 43 invasion, 83, 154–5 Iraq–Kuwait 155 Iran, 2, 56–7, 62, 64–8, 73–4, 83–5, 90, 126, 140, 151, 159, 169 Iran–Iraq War, 62, 67, 73 Iran–Japan Petrochemical Company (IJPC), 64 Iraq, 26, 28–9, 56–7, 61–4, 67–9, 71, 74, 83–4, 154–5, 159 Ministry of Oil, 29 War, 56, 63 Iraq–Kuwait invasion, 155 Islam, 85, 161, 177, 183, 189 rise of, 183 spread of, 177, 189 Islamic Empire, 175 Islamic Revolution, 64, 83 Islamist extremist networks, 83 Israel, 14, 56, 60–61, 73, 82–4, 86, 102, 166 January 25th Revolution, 1, 9–10, 15 Japan, 3, 5, 17–18, 30, 36, 43–4, 47, 49, 51–2, 55–75, 79, 81, 114, 116–18,

Index 120, 123, 126, 128, 131–3, 135, 138–9, 143–52, 155, 157, 159, 163, 168, 182, 197 development aid, 68 economic power, 51 financial aid, 63 military, 68 outbound FDI, 43 political system, 44, 51 Japan Centre for the Cooperation for the Middle East (JCCME), 61, 63, 69 Japan Cooperation Petroleum Centre (JCCP), 61 Japan External Trade Organisation (JETRO), 63, 66 Japan International Cooperation Agency, 69 Japan–Iraq Economic Forum, 68 Japan Sea Exclusive Economic Zone, 57 Japan Self Defence Forces, 63 Japanese Oil Development Company, 144 Jisi, Wang, 79 joint ventures, 152 solar and nuclear, 157 Jordan, 102, 109 Kafala, 89, 102 Kafil, 97, 102, 104 Karakoram highway, 157 reconstruction of, 157 Karan oil field, 154 Karzai, Hamid, 27 Kawar, Mary, 107–8 Kazakhstan, 120 Khomeini, Ruhollah, 65 Kono, Yohei, 63, 69 Korea Electric Power Corporation (KEPCO), 157 Kuwait, 61, 63, 68, 70–72, 83, 89, 127, 143, 145–55, 159 Kuwait–China Investment Authority (KCIA), 153 Kuwait Investment Company (KIC), 153 labour contracts, 153–4, 156, 159 Laos, 17, 81 lascars, 189, 191–3 number of, 192

229

laskari, 190, 194 definition of, 190 influenced by, 190 Law of the Sea, 118, 136–7 Lebanese Communist Party, 90 Lebanon, 2, 5, 61, 86, 89–110, 126 Lee Kuan Yew, 78 liberalization, 11, 95–6 Libya, 83, 127, 140 logistic, 14, 18, 49, 71, 74 Look East policy, 78, 80 see also rebalance to Asia Magellan, Ferdinand, 188 Mahallah al-Kubra, 11 Mahan, Alfred Thayer, 79, 128, 166 Mahbubani, Kishore, 77 Malacca Straits Patrol (MALSINDO), 114, 133, 135 Malay, 182–6, 190–92 Malaysia, 29, 79, 81, 106, 114–16, 126 Government of, 29 maritime, 1, 2, 5, 27–8, 62, 65–6, 71–2, 79, 113–42, 155, 162, 167, 169, 174, 181–94 Maritime Self Defence Force to the Persian Gulf (MSDF), 62, 66, 68, 71–2 market regulations, 44 calls for, 48 improvements in, 45 Marshall, T.H., 89 Mediterranean, the, 163, 166 Melaka, 77, 114, 119, 125–6, 132–3, 184, 185, 197 Straits of, 185, 197 Sultan of, 187 Memorandum of Understanding, China and Egypt, 21 MENA, 4, 9, 120 mercantilist competition, 174 merchant shipping, 181, 194 internationalization of, 194 Mernt Shipping Act, 192 migrant labour, 5, 82, 92–8 100, 103–4, 110 migration, 93–8, 101–7, 109, 162, 164 migration network, 102–6 Miki, Takeo, 61

230

Converging Regions

military, 39, 46–8, 55–8, 62–3, 65–8, 71–4, 80–86, 97, 106, 109, 116–17, 119, 121–4, 127, 129, 133, 137–9, 143, 155–7, 159–80, 164, 166–8, 170, 180, 184, 197 military cooperation, 56–7, 63, 67–8, 71 military operations, 55, 68 military power, 79–82, 84, 86 military presence, 57, 86, 155, 159 Gulf, in, 155 military relations, lack of, 156, 160 Ming, 1, 184 Miqati, Najib, 104, 109 Mitsubishi, 152 Mohan, Raja, 128, 130, 132, 134 Moors, 191 definition of, 191 Mubarak, Hosni, 16, 84 Muhammed al-Idris, 183 Mukherjee, Pranab, 85 multiculturalism, 181, 185, 197 Multi-Fibre Agreement, 10–11, 13–15 Muslim Brotherhood, 83–4 Muslim communities, 1, 179, 183–4 Muslim sailors, 189–90 Myanmar, 2, 43, 81, 120, 126, 129, 138, 139 Nahas, Charbal, 93, 100, 104 Nahr al-Barid, 90 NASDAQ, 38 Nasser, Gamal Abdul, 11 national identity, 103, 107, 108–10 national security, 2, 5, 28, 43, 55–7, 63, 73, 113–15, 117, 119, 121–2, 125–30, 132–4, 141–2, 196–7 navigation, 116, 119, 130, 137 Nehru, Jawaharlal, 144 Netanyahu, Benjamin, 86 non-economic interdependency, 159 Gulf, Pacific Asia, 159 initiatives and collaborations, 159 non-government organizations (NGOs), 177, 179 non-hydrocarbon trade, 144, 149–51, 156 growth, 149, 156, 158 value, 149 North Africa, 1, 2, 15, 20, 120, 166, 181

North Atlantic Treaty Organisation (NATO), 46, 75, 115, 163, 166 North Korea, 81, 116 New York Stock Exchange (NYSE), 38 nuclear power, 56–7, 59–60, 64–7, 72–4, 85, 122–3, 125, 144, 155, 157, 159 Nuclear Threat Initiative, 155 Obama Administration, 80, 82–3 Obama, Barack, 31–2, 39, 80, 82–3, 163–4 Official Development Assistance (ODA), 56, 61, 66 oil, 3, 4–5, 26–31, 33, 46–9, 55–67, 69–70, 73–4, 79–80, 82, 84–5, 98, 106, 114–17, 119–20, 131, 133, 135, 137, 140, 144–9, 152–3, 157–8, 160–61 boycott, 61 crude, 55, 60 dependence, 59 glut, 60–61 trade, 143–60 storage, 157 Oil-For-Food programme, 67 Oman, 2, 72, 126, 129, 143, 145–51, 155, 158, 197 rebellion, Dhofar province, 155 Organisation for Economic Cooperation and Development (OECD), 42 Pacific Asia, 143–4, 147–9, 152–4, 156–7, 159–60 Pakistan, 12–13, 25–8, 37, 80, 127, 129, 132–3, 135, 157, 159 Palestine, 2, 61–2, 84, 86 Palestinian refugees, 96–7, 102, 109 Palestinians, 82–6 Pei Minxin, 80–81 People’s Liberation Army Navy (PLAN), 118, 122–4, 127, 129, 131 People’s Movement, 90 Persian Gulf, 28, 62, 78, 80, 82, 86, 143, 143–6, 148–55, 157–61, 182–4, 186 petroleum, 22, 26, 28–9, 60–61, 65, 147–8, 152–3 Petronas, 29

Index Philippines, 79–81, 115–18, 133, 135–6, 138 pidgin, 191, 194 piracy, 113–15, 125–6, 128, 140–41, 169, 187 see also anti-piracy political economy, 5, 44, 51, 95, 104–5, 177–8 political stability, 115, 180 political system, 41, 44, 73, 164, 175 European, 175 Chinese, 175 political theory, 175 Western, 175 Port of Singapore Authority, 37 Port Said, 18 Portuguese, 187–92 post-Cold war, 56, 60, 63, 132 Proliferation Security Initiative, 128, 169 provinces, 79, 146, 175, 179, 185 Ptolemy, Claudius, 181 Public Company Accounting Oversight Board (PCAOB), 41–2, 50 Qadhafi regime, 83, 85 Qatar, 3, 61, 63, 70, 143, 145–51, 153, 155 Qing dynasty, 174, 179, 194 Qing navy, 195 Qishan, Wang, 32 Quadrennial Defense Review, 91, 138–9, 164 Qualifying Industrial Zones, 10, 14–15, 19–20, 23 rebalance to Asia, 80, 82, 163, 168 strategies, 168 see also Look East policy rebellion, Dhofar province, 155 re-export trade, 144–5 see also entrepot trade refugees, 61, 92, 96–7, 109 regime, 13, 16, 25–6, 30, 34–6, 38, 40–41, 43, 47, 51, 57, 62, 64, 66–9, 83–6, 89, 91, 97, 105, 127, 140–41, 167, 174–6, 178, 180 regional powers, 113, 128, 130, 135–7, 139, 141, 180 regional security, 72, 130, 139, 170, 176–7

231

regulatory regime, global 38 shortfalls of, 51 religious extremism, 79, 83 renewable energy projects, 144, 159 investment in, 159 see also alternative energy reserves, 3–4, 28, 29, 31, 47, 60, 64, 73, 116, 120, 146–9 resolution, 58, 66, 68, 71, 130, 136–7 rivalry, 2, 80, 113, 118–19, 128, 131, 138, 141 Roman empire, 175 Rumaila, 28 Russia, 79–83, 85, 116, 120, 125, 127 Sadat, Anwar, 11 Salafis, 108–9 sanctions, 56–8, 64–6, 73, 155 US, Iran, 57, 65 Sarbanes-Oxley Act, 32, 41 Sarqiyeh, Nizar, 92 Saudi Arabia, 2, 3, 56, 60–61, 63, 69–70, 72, 83–4, 90, 127, 143–55, 157, 184, 197 Saudi Basic Industries Corporation (SABIC), 152–3 Saudi-Kuwaiti neutral zone, 69 scandal, corporate, 37, 51 sea lines of communication (SLOCs), 197 seafarers, 1, 193–5 labours of, 195 security agreement, 159 increasing, 159 lack of, 159 securities, financial, 32, 37–8, 47 Securities Exchange Act, 32 Securities Exchange Commission (SEC), 32, 35, 41 September 11, 2001, 153 Shanghai Cooperation Organization, 127, 178 Sharif, Nawaz, 25 shipping, 2, 17, 19, 27–8, 57, 65, 117, 145, 155, 159–60, 167, 181, 185, 187, 191–4, 197 crews, 185, 188 strategic lanes, 160 Showa Shell Sekiyu, 152, 157

232

Converging Regions

Shuf, 90 Silk Road, 1, 77, 79, 143–4, 157–8 maritime, 183 modern, 158 Singapore, 79, 86, 114, 126–7, 138 Port of, 28 Singapore Stock Exchange (SGX), 50 Sino-Vietnamese War, 2 Sinopec, 29, 148–9, 153 social mobilization, 91–3, 95 social movements, 94, 100 social networks, 93–6 soft power, 48, 80 solar power, 157, 176 sovereign wealth funds, 31, 41–3, 52, 143, 152 China, 31, 41–2 regulation of, 42, 52 South Africa, 14 South Asia, 79, 106 see also India, Pakistan, Sri Lanka South China Sea, 79–80, 113, 116–22, 125–34, 136, 138 South Korea, 79, 81, 114, 116, 118, 126 Southeast Asia, 1–2, 9–10, 17, 42, 80, 114–15, 126, 133, 135, 161–2, 164, 174–9, 182–4 Special Economic Zones (SEZ), 21, 22 Spice Islands, 187, 189 Spratly Islands, 116, 118 Sri Lanka, 19, 125, 129, 183 state-owned enterprises (SOEs), 21, 29–30, 34, 37, 46–9, 51 scrutiny of, 47 Straits of Hormuz, 27, 77, 129, 140, 157, 183 stock exchanges, international 35, 37–8 Suez, 2, 22–3, 139, 168 Canal, 2 Cooperation Zone, 22 Suharto, 114 Sumitomo Mitsui Banking Corporation, 152 Sunni, 83, 85, 98 political Islam, 85 Swahili, 186, 188, 191–2

Syria, 2, 83, 85, 90–92, 96–7, 102, 105, 109, 140, 187 Syrian uprising, 106 Tahrir Square, 90 Taiwan, 79, 81, 114, 116, 134 Taliban, 46 territorial disputes, 113, 117–18 terrorism, 113–15, 119, 125, 128, 140, 141 textiles and clothing industry, 9–12, 15, 17, 19–24 Tianjin Economic-Technological Development Area (TEDA), 22–3 Tibet, 79 Thailand, 81 Total Oil, 29 Tracy, Benjamin, 196 trade, global, 2, 13, 24, 36–7, 77, 116, 119, 128–9, 132, 139–41, 197 growth in, 197 trade regulations, 35–6, 48 calls for, 48 transnational networks, 101, 105–6 Treaty of Westphalia, 174 Tripoli, 91 Trucial System, 143–4 British withdrawal from, 144 tsunami, 2004, 164 Tunisia, 83 Turkey, 12–13, 60, 83, 109, 195 unemployment, 9, 91, 100, 107 Union Coordination Committee, 91 United Arab Emirates (UAE), 2, 3, 60–61, 63, 70, 84–5, 94, 127, 145–54, 157, 169 United Kingdom, 14, 48 see also British United Nations, 56, 58, 61–6, 68, 71, 104, 127, 136–7, 155, 169 United Nations COMTRADE, 15, 18–19 United Nations General Assembly, 65 United Nations Interim Force in Lebanon (UNIFIL), 61 United Nations Relief and Works Agency for Palestine Refugees (UNRWA), 61 United Nations sanctions, 64, 66

Index United Nations Security Council, 58, 64–6, 68 United States, 2, 25, 30–32, 38, 43, 48, 50, 77–84, 86, 120, 124, 126, 128, 130, 133–4, 136–41, 143, 161–2, 164–6, 168–9, 176, 195–6, 198 5th fleet, 71 military, 67–8 security, 69, 74 United States policy, 84, 161, 164, 167–8 goals, 167–8 India, 164 Indian Ocean, 161, 167 United States Navy, 166, 195–6 building partnership, 166 composition of, 196 functions and roles, 167 Vietnam, 2, 16–17, 79, 81, 116–18, 129, 131–3, 135, 138, 166 van Rossum, Matthias, 191

233

Wallerstein, 94 Washington, 61, 67, 69, 78, 82–4, 86, 161 working conditions, 91, 99, 102 World Bank, 12, 20, 45, 92, 97, 107 World Trade Organization (WTO), 12, 14 World War I, 2, 4 World War II, 2, 5, 56, 59, 84, 167, 177, 179 Xi Jinping, 85 Xinjian, 79 Yemen, 2, 83, 129, 169 Zheng Ho, 1, 184

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