Friday, 28 March 2014

Obstacles to a NZ-EU free-trade agreement

As the Trans Pacific Partnership (TPP) deal slowly edges towards some sort of conclusion, New Zealand is looking even further into the future towards other important free-trade partnerships. Whether the TPP deal will be successful or not is still undecided, but the ideals of free-trade are still clearly attractive.

New Zealand agreed 26 March to take steps to deepen their relationship with the European Union. One aspect of this strengthening could include a free-trade agreement with the EU, the first of its kind between the South Pacific nation and the supranational bloc.

For its part, New Zealand hopes to benefit from the partnership by reducing its trade deficit with Europe while boosting its exports.

Given the historical ties between the two markets, targeting each other’s economies with a free-trade agreement is a logical move. Both “share common history, values, and interests”, said New Zealand Prime Minister John Key. The EU is New Zealand’s third largest trading partner according to a press release outlining the possible new trade agreement.

However, as with other free-trade agreements currently under negotiation in the EU, not all member nations of the bloc are expected to profit equally which might divide the terms of agreement should it proceed.

In this sense, a deal could be an uphill struggle as the nations inside the EU, all with very different economic priorities, try to find an elusive common ground. Yet the fact that the EU is warm to talking about a deal indicates that they understand the potential benefits.

Since tariff barriers between the EU and New Zealand are already low, the majority of the negotiations will likely be around decreasing the non-tariff barriers by unifying regulation and streamlining services, trade, and public procurement. However, as so often happens in talks like these, decreasing non tariff barriers is often more difficult.

New Zealand is one of the smaller trading partners for the EU, so the benefits may be felt more heavily in New Zealand. Which is not to say that certain agricultural exports destined for the EU might grace the kitchens and restaurants of Europeans at a cheaper cost and in greater amounts. That is bound to make everyone involved equally happy.

More significantly, given the financial history of recent years, such a suggested deal points to a growing EU requirement to diversify its commercial linkages to help lift its economy out of the financial doldrums.

Europe’s declining population and festering economic crisis have forced EU leaders to promote struggling domestic growth by exporting to non-EU markets.

After all, domestic demand is stagnating due to rising debt levels and high unemployment. Foreign markets, such as New Zealand are a good way to soak up surplus expensive EU products.

However, the Europeans face a dilemma. Agreements like this do run the risk of increasing competition in some European sectors which already struggle to compete in the EU marketplace.

Struggling nations, especially in Europe’s south, are exactly the countries Brussels is trying to help with such a deal, but it could backfire by weakening them further and strengthening the more robust countries such as France, Germany, and the Netherlands.

Another example of a theoretically mutually beneficial free-trade agreement with the EU, is the currently gridlocked - but still optimistic - Transatlantic Trade and Investment Partnership (TTIP). For the EU, the deal with New Zealand pales in comparison to the TTIP, which aims to increase free-trade ties between the United States and the Europe.

But that trade deal is also facing some problems. Although two of the world’s largest economies organising something as complex as a free-trade deal was never going to be simple.

Just as it potentially could affect a NZ-EU deal, the competing national interests of the EU trading bloc have made it difficult to form a united stance in the TTIP.

So it might be a bit ambitious to assume any NZ-EU deal can succeed without a hitch. New Zealand has shown itself to be competent in negotiating for such deals, the highly encouraging agreement with China an astounding example.

The benefits for both are certainly attractive, but the fact remains that New Zealand will not be negotiating with a single unified country in the EU.

Europe is a functioning bloc - most of the time - but if it cannot find a common ground between its nations when discussing heavier deals with the United States, a similar and far smaller deal with New Zealand may be out of its reach. Then again, perhaps New Zealand will be the long-awaited country which finally manages to corral the squabbling EU states and forge a lasting free-trade agreement.

Wednesday, 26 March 2014

Snowden’s NSA files now hurting everyone

The secret NSA files drip-fed to the media over the past year continue to hit headlines across the world. While the first series of revelations in the final half of 2013 were handpicked to irritate domestic American privacy concerns, most of the files dumped into newspapers over the last few months now appear chosen to damage the US government as much as possible.

Edward Snowden, the analyst who allegedly removed thousands of classified documents from US government computers, has cooperated with international journalists to publish the classified material while living in Russia (a country which is not exactly a shining beacon of human freedom).

The latest tranche of documents includes information suggesting the US National Security Agency (NSA) created “backdoors” into computers belonging to Chinese telecom giant Huawei Technologies. Email accounts, communications between top company officials, and the extremely sensitive source-code of individual Huawei products may have been gathered by a project named in the colourful spook parlance as “SHOTGIANT”.

According to the documents, NSA could use their access to Huawei’s system to roam freely through computer and telephone networks to conduct espionage and potentially carry out offensive cyber operations. The attraction of breaking into Huawei Technology’s system apparently arises from a need to gain surveillance access to phone hardware not produced in the United States.

“Many of our targets communicate over Huawei-produced products,” one NSA slide read. “We want to make sure that we know how to exploit these products,” it added, to “gain access to networks of interest”.

As has become Mr Snowden’s modus operandi, the documents were released in slide-form to multiple news outlets simultaneously. They reveal a complex new layer in the United States’ increasingly dangerous digital cold war with China. Both countries have stated publicly that the other is constantly stepping over the line when it comes to cyber operations and cyber espionage.

US President Barack Obama and Chinese President Xi Jinping discussed the cyber thorn during a particularly heralded meeting in early 2013. At the time, the NSA revelations were yet to surface and the Chinese government was under pressure to cease its worldwide hacking attempts, or at least scale them back.

Ex-NSA and CIA Director Michael Hayden, speaking that year at a conference for intelligence officials and business heads, said that he “stood in awe at the depth and breadth” of the Chinese cyber espionage efforts during his time at the helm. Until the Snowden documents began to appear, it was assumed this Chinese push had compromised the internet and forever changed how digital communications would process. Huawei was just the most public face of this push.

Perhaps the Chinese are using a telecom provider to spy on other nations. Evidence confirming this is classified and decidedly sketchy. But in a twist of relatively expected irony, the United States may just have formulated their warnings about Huawei’s cyber efforts because they conducted almost mirror-image hacking projects on the Chinese telecom.

Yet a legitimate question still remains about why, if the US is so adamant about using its own cyber powers strictly for security and counter-terrorism, must it be necessary for them to hack into another country’s telecom company?

Breaking into the Chinese company appears to have grown from a recognised need to strengthen the cyber security for America’s - and its allies’ - citizens from a suspected foreign intelligence service which allegedly uses a successful telecom company as a front. The exposed documents do not, however, suggest the United States exploits the collected intelligence to assist American telecom companies in gaining greater market-share.

That is simply not the American way of doing intelligence. Employing spy agencies to boost US companies is not a line even the most notorious NSA operators are willing to cross, yet. Other nations may hack American companies to steal their secrets, but, as far as the evidence reveals, the US does not.

Mr Snowden’s latest revelations are interesting and offer some vindication for concerns about Huawei Technology’s true goals, and, at least to this writer, paint the US as a prudent intelligence agency serving the needs of its citizens to ensure greater security in their livelihoods. Not as a rogue agency drunk on its own cyber-power.

In an age of distributed technology networks and disguised criminal/terrorist groups, the NSA’s ability to exploit any communication tool those groups might choose to use is extremely important for all of us. Our very lives could one day depend on it.

That those tools may belong to a Chinese telecom company appears to be ancillary to the NSA’s goal to covertly build the suspected backdoors into phone products.

Perhaps the most bothering aspect in Mr Snowden’s releases is that they no longer meet his stated goal of exposing the US government’s complicity in American privacy breaches. Instead, he and his followers are now revealing information which directly harms America’s and it allies’ national security. New Zealand will not escape this pain either, because it is deeply tied into US intelligence efforts.

Exposing the NSA’s sources and methods of gathering intelligence offers its many rivals a laundry list of perfect alterations it must make to plug gaps in its systems. This goes for Huawei as much as it does al Qaeda, as well as plenty of other foreign groups wishing to do harm to the United States and its allies.

We’ll likely never know how much damage the Snowden leaks have done to US intelligence efforts. But the motive and goals behind the Mr Snowden’s actions are becoming more transparent with each classified slide. Those motives are, and probably never were, about increasing American public freedom. They are about hurting the US, plain and simple.

Friday, 21 March 2014

Russia's "Gas Blackmail" limits EU response to Ukraine crisis

The deadlock between the European Union and Russia over the crisis in Ukraine is exposing the dilemma of Europe’s overreliance on Russian energy. Ukraine is a critically important energy transit country, especially for natural gas, and Europe needs to be careful it doesn’t strangle the gas deliveries from Russia with rash sanctions.

The European Union is the world’s third-largest energy consumer, according to the International Energy Agency (IEA). While this is a huge amount, with most of it coming from hydrocarbons (at 76.1% in 2010), that total is expected to decline to 67.7% in 2030 and 62.4% by 2050 according to a 2013 European Commission report.

Right now though, which is the only time that really matters, the EU needs enormous amounts of energy. There isn’t enough on the European landmass to cover all of Europe’s demands, so imports have become especially important over the past decade.

Energy imports are set to increase from 53% in 2010 to more than 53% in 2030, before jumping to 57% by 2050. Europe’s recent trend towards discarding some expensive renewable energy projects will only exacerbate this rise, as will the almost wholesale shutdown of many nuclear plants in Germany and elsewhere.

Russia has noticed Europe’s dilemma and taken full and speedy advantage. Gazprom, a Russian energy company, built pipelines into Europe and now claims around 30% of the energy market in Europe and Turkey. It could also have delivered a staggering 5.9 trillion cubic feet of natural gas to Europe in 2013, if reports are accurate.

These numbers are very important. EU leaders have vowed to reduce their reliance on Russian energy. The current crisis, however, offers few immediate avenues to diversify their imports.

Simply put, no matter how the EU wishes to punish Russian President Vladimir Putin for his unilateral military takeover of the Crimean peninsula and meddling in Ukraine, Europe is not in a position to enact harsh economic actions without the very real threat of them backfiring.

Russia is already too integral to European livelihoods and industry. This is not to say the Europeans aren’t trying.

21 people from Russia have been named on an EU “blacklist”, along with other bilateral sanctions shared with the United States targeting “any individual or company believed to be providing financial support to the Russian government”.

But the West may need to target more crucial sectors of the Russian economy if they are to affect any real response from Moscow. Putting pressure on Russia’s energy sector would be effective.

On March 10, the EU Commission said it would delay a decision about whether Russian state-owned energy major Gazprom could supply more natural gas to Europe via the OPAL pipeline in Germany. Also under the spotlight is the legal status of the new South Stream pipeline which will run out of Russia, through the Black Sea, and into Southern Europe.

Both of these pipelines would allow Russia to skirt Ukraine and deliver their natural gas into Europe. Stalling these particular pipelines won’t directly assist Ukraine, but it is a heartening show of support for the embattled country.

The reality is that this support is largely symbolic. There is no chance the European consumers would accept any disruption to their energy requirements just to stand firm against Russian political and military aggression. Firing electricity turbines and keeping warm are much more pressing needs than geopolitics for the average European.
 
Neither Russia nor Europe wants the Ukraine crisis to shut down gas or oil pipelines. The EU is keen to put pressure on the Kremlin, but it can’t do that without hurting itself. It is a similar story for Russia, but the balance slightly favours Moscow in this regard. They have control of the energy, whereas Europe only has the cash.

The EU can begin to open alternative import options from the United States, where new gas fields are producing larger amounts every month for international sale, or open their own gas and oil fields.

The European Continent may not have much indigenous energy - and certainly not enough to compensate Russian energy - but at least it would offer a backstop to any worst-case scenario. Europe is probably prepared to weather a limited tightening in Russian energy imports, but neither of the two mentioned alternatives is ready for full adoption at this point.

Polish Prime Minister Donald Tusk encouraged his country’s push to develop its shale gas reserves and recently announced a six-year tax break for that industry. Mr Tusk views that new policy as part of a “fundamental prerequisite of sovereignty” to help combat the threat of “gas blackmail.” By this “threat” he clearly means Russia.

Developing Europe’s energy fields may take years, and the US is not in the position yet to deliver the necessary quantity of gas. America may be organised in the medium term, but Russian gas is the best of bad options right now.

It’s really the only choice.

Unfortunately for Europe, no matter how badly it wants to pressure Russia, the status quo of “gas blackmail” might be the reality for the foreseeable future. In Ukraine, Europe may just have to grin and bear a posturing Russia at this moment.

Thursday, 20 March 2014

TPP deal still alive - but only just

Last year was full of promises about finalising the Trans Pacific Partnership (TPP), but ultimately, the deal still rests anxiously in the things-to-do pile. The wide-ranging international trade accord, with members spanning the globe in two hemispheres, was at the top of US President Barack Obama’s list and yet not even the most powerful man in the world could push it through in 2013.

The machinations of the TPP were probably less to blame for the US President’s inability to negotiate successfully than it was about the Republican Party’s impressively destructive economic opposition to whatever Mr Obama tries to do.

Any deal with 12 very different countries, with very different economies, will always take time to work out the many kinks and obstacles. It is always difficult to isolate a single cause for bumps in the road, yet at least in America, the trend towards robust free-trade relationships appears to have stalled. And it should be a worrying sign for everybody if Mr Obama cannot revive the TPP.

Despite the hurdles, the TPP is actually fairly good trade policy. It awards free-market principles, it is truly international, and it is very inclusive. There is even good reason to believe it will overtake the loitering World Trade Organisation (WTO) in both importance and effect.

Nobel Prize-winning economist Paul Krugman, writing at the New York Times earlier in February, doesn’t seem to mind that the TPP is held up on the tracks. Even though he is a big proponent of free-trade, Mr Krugman isn’t convinced the deal should be completed. He’d apparently be “a bit relieved if the TPP just fades away”.

Mr Krugman’s main problem is that trade deals are not what they once were. They don’t work to reduce tariffs and lessen protectionism like they used to, because there just isn’t that much protectionism remaining to eliminate. Instead, trade deals appear to be about protecting property rights and patents for interested parties.

He points out that in the US, average tariff rates have dropped by two-thirds since 1960 and a report issued by the International Trade Commission on American import restraints “puts their total cost at less than 0.01 percent of GDP.” Trade between the members of the deal, which would amount to around 40% of the global economy, is already “fairly free, so the T.P.P. wouldn’t make that much difference”, says Mr Krugman.

But as Ryan Avent pens in the Economist, tariff rates are not universally low. While reducing them further may not affect the macroeconomic line, the microeconomic effects might be well worth the energy.

Non-tariff barriers, which Mr Krugman doesn’t address, will reportedly decrease substantially if the TPP passes successfully. Reducing these barriers is actually a stated goal of the TPP negotiations. If the non-tariff restrictions were calculated together in an all-in measure, Mr Avent says, they lift US tariff restrictions to 17%. Japan is calculated to have 38.3% with this all-in measure, South Korea’s is 48.9% and Australia’s is 29.5%.

That implies there are plenty of walls still to break down between many of the participating countries. The takeaway from the negotiations is that they will create important steps towards regulatory harmonisation. Mr Krugman correctly notices how robust the trade between TPP members already is, but this interaction could certainly be updated and streamlined. That is what the TPP is all about.

The question is whether the talks can conclude soon and find some common ground. It is important to identify that this sort of trade deal has never been attempted before on such a large scale, and toes are bound to be stepped on. There are still many private interests groups hoping their own industries in their particular countries can be protected from the prospect of greater free-trade.

Unions and free-trade opponents alike ridicule the TPP as a series of secret talks aimed at creating a giant corporate power grab. In an age where secrets are leaked so often and for so many reasons, the existence of back-room talks out of earshot of the public is an easy card to play to disparage any trade talks. But secrecy is not an indicator of the presence of the insidious, it’s just the way geopolitical and economic talks are organised.

US President Barack Obama is using the TPP talks as a capstone in his announced “Asia Pivot” strategy. That plan hit some nasty speedbumps at the end of last year as crises appeared in both the Middle East and domestically, and it simply wasn’t clear that Mr Obama meant to follow through with the scheme. However, there are encouraging signs appearing from Washington in early 2014.

It is important to watch what the US is doing with the TPP talks, because they will be the largest partner by a long shot. This year, Mr Obama will travel to Japan, South Korea, Malaysia, and the Philippines in late April to begin again where he left off and try to repair the damaged relationships with important US partners. The TPP negotiations will once again be high in his list, according to National Security Advisor Susan Rice.

Talking to the Department of State's Global Chiefs of Mission Conference a few days ago, Ms Rice made special effort to praise the significance of trade talks."In the Asia-Pacific, we're working hard to finalise the Trans-Pacific Partnership and to lock in an agreement on a high-standard free trade agreement that will govern one-third of global commerce,” she said.

New Zealand is also holding the leash tight. Trade Minister Tim Groser said the latest round of talks in February made some important progress on outstanding issues such as market access and copyright and patent rules. Mr Groser reiterated that the talks are “slowly chipping away at a vast stone to get down to the kernel of a very good quality trade agreement and we've made very good progress, but we're not there yet."

A successful TPP could convince dozens of other pending trade talks around the world that their own partnerships are still within the realm of the possible. The new estimate for success is sometime late 2014, but even this might be ambitious considering the remaining obstacles. Economists don’t often agree on much, but more and freer trade is surely a good thing for everybody.


Friday, 14 March 2014

Russia finishes one set of games, pivots straight into new political games

The Russian Economic Ministry said March 13 that Russia was prepared to retaliate with sanctions of its own if the West imposed economic measures over tensions in Crimea. As the pressure mounts, Russian President Vladimir Putin is inching closer to yet another political victory over the EU, NATO, and the United States.

The US Congress passed a resolution March 11 calling for Washington to work with European allies and others "to impose visa, financial, trade and other sanctions" against key Russian officials, banks, businesses, and state agencies.

A threat of sanctions against Russia is also worrying New Zealand exporters, many of whom were looking forward to a potential free-trade agreement with Russia. New Zealand Prime Minister John Key recalled his delegation in Moscow as the Russian military flew attack helicopters into Crimea, they were told to suspend negotiations.

It is not clear if those talks will restart any time soon. Not only are the Russian markets feeling the effects of international condemnation over their provocative moves in Eastern Europe, New Zealand could join some countries in imposing sanctions on Russia.

That, of course, would reverse many gains the delegation made over the last few months. From Moscow’s perspective, a reversal in trade progress with a little nation like New Zealand will not be high on its current priorities. Russia has much larger concerns and far nearer goals to accomplish.

Russia is on a roll. Ordinary Russians are still basking in the ironically warm glow of a largely successful Sochi Olympic games. Although they live in deteriorating living conditions and must deal daily with an insidious level of corruption, according to polls, the Russians couldn’t be happier with the way their government.

Mr Putin enjoys a robust 67.9% approval rating according to data released earlier this month by Russian polling firm VTsIOM. The Crimean debacle, worrying as it is for Europe, has apparently given Russians greater appreciation for what Mr Putin is trying to do.

By contrast, US President Barack Obama dropped from 43% approval in January 2014, to 41% in March. More than 54% of respondents, according to Wall Street Journal/NBC News, now directly disapprove of the American leader’s trajectory. An especially telling statistic in the poll showed the lowest ever approval of Mr Obama’s handling of foreign policy.

Really, when those two indicators are compared, the story of what is happening in international geopolitics couldn’t be clearer.

Russia’s moves in the Crimea are not entirely unexpected or out-of-the-blue. Moscow and Mr Putin have been heading down the track of reconsolidating Kremlin control over the Former Soviet Union states for much of the last decade. For Moscow and the Russian people, gaining greater control over Eastern Europe and Central Asia is nothing less than a Cold War game for influence and power. The United States and Europe may not talk about their geopolitics in such stark terms, but to an extent, they too still treat the world as a chessboard.

The disparity between the two approaches to geopolitics is that it places the West on the back foot. Everything the Russians do is geared towards shifting their pieces on the game board closer to victory, whereas the West is not as caught up in strategic games.

Moscow and Mr Putin don’t worry about how many Russians get access to healthcare. And they care very little about diversifying their economy away from energy exports and the Soviet idea of monocities, where a single industrial creation is produced.

The Russian narrative still talks about the United States as being behind all the political trouble on its near-abroad. The Orange Revolution in Ukraine a few years ago was orchestrated by Washington, they say. And the colour revolutions in Georgia, Kyrgyzstan, and Serbia were all part of a plan to destabilise the Russian periphery.

Mr Putin is worried that Russia could be next. His fear is not that Russian troops will instigate a shooting war with Ukrainian or NATO forces in Crimea, although that would be disastrous for the entire region. Something like that would be largely manageable by Russia and probably not constitute a direct threat to his rule.

He worries instead that the demonstrations experienced in Kiev over the past few months, culminating in the ouster of a democratically-elected leader, could spark similar protests in front of the Kremlin.

Mr Putin may be overly paranoid about Western meddling in Eastern European politics, but if demonstrations started in Moscow he is probably correct in assuming American and EU interests would take full advantage to weaken his regime.

Thankfully - at least from Moscow’s view - the EU, NATO, and the United States have reacted weakly and were horribly unprepared for Russia’s movements in Crimea. Mr Putin acted heavily in Crimea, because his supporter President Viktor Yanukovych very quickly lost control.

Moscow’s overt actions are not for show. They reflect the vulnerable geographic reality Russia must cope with. There is little stopping an invading force from moving Eastwards across the North European Plain towards Moscow. After all, that is the traditional invasion route use by armies of Napoleon and Hitler.

Mr Putin must maintain influence over the countries which offer Russia a strategic buffer from their historic threats in Europe. He simply cannot risk a united Europe soaking up too much territory and coming too close for comfort. He is also determined to preserve Russia’s economic clout over European energy needs. Natural gas and oil pipelines require a lot of investment and are not going to be neglected.

Ukraine is also rich in shale gas which Moscow would dearly love to get its hands on. A more independent Ukraine, aligned with the EU, would cancel this opportunity and remove critical Russian oversight.

Russia’s ultimate goal is to create a counterweight to the EU with his own network of states as part of his Eurasian Economic Union. If this Union can get off the ground, it might become a significant challenge to the EU’s dominance in Eurasia. But then Europe is in a bit of a bind. On the one hand it needs to show Russia it isn’t willing to be pushed around, and they will achieve this with a list of sanctions.

However, those sanctions cannot have very sharp teeth if implementing them threatens imports of Russian energy. Europe may as well not do anything, which is exactly what Russia wants.

Russia is close to achieving a very important victory. Aside from fomenting unrest in Ukraine against any Kremlin-backed government, NATO and the United States can do very little about the military intervention. Russia holds many of the most important cards when it comes to what happens next.

Perhaps the approval ratings of US President Barack Obama’s efforts at foreign policy are indicative of a wider problem. Twice now, in six months, Mr Obama’s threats of crossing his “red lines” have been blown aside. Mr Putin has seen blood in the water and taken full advantage of the vulnerability. His strategy isn’t exactly subtle, but it is very effective for Russia’s long-term goals.

Wednesday, 12 March 2014

China's real audience

China has announced its biggest rise in military spending in three years. At the opening session of parliament, Premier Li Keqiang said that the defence budget would be increased by 12.2 percent, partly to develop more high-tech weapons and to enhance coastal and air defence.

China’s military spending is now the second highest in the world after the United States. The growth of China’s defence budget may be significantly larger however, because Beijing rarely provides accurate information about the true size of its military.

Meanwhile, US Defence Secretary Chuck Hagel revealed a heavily duct-taped American defence budget.

Seeing China increase its military forces while the American’s “streamline” their own forces is stirring debate in the United States - and amongst its Pacific allies - as to whether the US will be able to adequately enforce its defence commitments in the future if China makes any dangerous moves.

China has already tested a range of new weaponry over the past 12 months, from hypersonic missiles to impressive stealth aircraft and an aircraft carrier. None of these constitute a peer threat to the United States.

China’s bark appears to be much bigger than its bite, if you will. It is the trajectory and strategic goals of building such machines which ruffles international feathers in the Asia Pacific.

But the real question is: why funnel more resources into the military now? All this monetary spend with few significant gains in regional influence to show for it? It’s all very strange, unless a wider view is taken.

The Chinese navy is an interesting case in point. They cannot yet defeat the United States Navy in open combat, so they must not risk a shooting war with an American ally either. China’s tactic is to goad their neighbours into low-key responses by conducting lightly aggressive actions in territorial waters.  

At no point has China reinforced a territorial claim with troops or staked a flag. The ongoing dispute with Japan over a string of islands in the South China Sea is more of a strategy of harassment than it is about directly challenging Tokyo for control of the islands. It is possible Beijing truly wants to annex those islands for itself, but so far the political will is not forthcoming.

Why they won’t use their growing navy to carve out more space in the South China Sea actually has more to do with the Chinese mainland than it does with islands or water.

Increasing the military budget is a smart way of encouraging the story of a rising China for its audience. That audience is not the international community however, which is becoming more sceptical of China’s future. The audience is the Chinese populace.

It is a risky proposition, but China’s citizens need distraction from a slowing economy, and whipping up a few scraps with neighbours is just the trick.

Nothing keeps the cultural spirit buoyant in downturns quite like nationalism. But it is never clear just how far nationalism can be pushed without spilling over. So far Beijing has been careful not to generate too much attention from the lurking US Navy. Every time it looks to be aggravating the Japanese, it switches to another territorial claim in the Philippines or Vietnam, and back again, to the applause of China’s billions.

These sorts of moves are Beijing’s tell that China’s leaders are under pressure at home. Economic and political change is coming. Perhaps the more China liberalises, the more it will listen to what the populace wants. And word on the street points to an increasingly truculent China in the future.

Wednesday, 5 March 2014

What is the American and Russian strategy with Crimea?

The Russian invasion of Crimea is causing a fluster of opinions around the world about the ultimate goal for Russian President Vladimir Putin. The invasion into Ukraine’s territory is Moscow’s response to the recent popular ouster of the pro-Kremlin Ukrainian president. Mr Putin has also moved to place Ukraine under economic pressure. Russian energy firm Gazprom, the region's largest supplier of natural gas, cancelled its discount to Ukraine beginning April 1.

Ukraine is already heavily in debt to Gazprom and a failure to pay for February's gas deliveries would see its arrears increase to $2 billion. The United States has shown support for the interim Ukraine government, pledging to give Ukraine US$1 billion in assistance parallel to an international aid package coordinated by the International Monetary Fund, US Treasury Secretary Jack Lew said March 4. The United States is committed to supporting Ukraine as it restores financial stability if its government implements necessary reforms, Lew said.

On the same day, the US Department of Defense announced that the United States has suspended all military engagements with Russia, Reuters reported March 4. In addition to military exercises and port visits, the United States will look at a series of economic and diplomatic sanctions to isolate Moscow because of its intervention in Ukraine.

Trade and investment talks with Russia have also been put on hold. Pentagon spokesman Rear Admiral John Kirby called upon Russia to withdraw its forces from Crimea. As if in response to the US decision, Russia rolled out a test of its new mobile RS-12M Topol intercontinental ballistic missile March 4 (known as the SS-25 Sickle in NATO parlance) and hit a target in Kazakhstan, a Russian Defence Ministry spokesman said, Interfax reported.

As the missile test and energy tightening show, Moscow cares very little about any US or NATO military threats to expel Russian forces from Crimea. What’s interesting in this entire Crimea debacle is the immediate outcry that the US use their own military force to push Russia out of Crimea. This is a patently ridiculous suggestion, deeply irresponsible, and blind to the geopolitical realities which led to the current flare-up.

First, we’re told by political elites all over the globe that the US is too “heavy handed” and “imperial” in its dealings around the world. And it’s because of their forceful foreign policy that they invite countries like Russia to stand up to the world’s only superpower and do things like what’s happening in Crimea.

But then we’re supposed to castigate the US for not being heavy handed enough when it encourages the very thing that people say the US should be stopping with all their military power. You can’t really have it both ways. One would suspect that if the US were to intervene in Crimea, there would be international horror at the American "imperialism". While there is sometimes a good case for humanitarian intervention and protection of sovereign territories, this kind of double-think - or heads I win, tails you lose - kind of stance, makes rational decision-making very difficult. And it ignores the nuances of geopolitics.

Aside from the admittedly poor foreign policy decisions which could certainly have encouraged Russia to conduct this invasion, to an extent, US President Barack Obama is actually acting rather prudently in his response to the Russian invasion. He should not be doing anything about it, and he’s not. Mr Obama should be sitting on his hands, militarily speaking, and he is.

Sure, the US has dispatched an aircraft carrier group through the Mediterranean and sent Secretary of States John Kerry to Kiev, but Mr Obama is simply not willing to take this any further. And inaction, while it stirs the fires of ridicule in Washington, is the US President’s best move right now. Mr Obama must show Mr Putin and the world that Russia is not a peer nation, and the only way of achieving that is to ignore all his movements in Crimea and treat Russia like the regional power it is.

If Mr Obama reacts by sending US troops, he’s only going to play right into Mr Putin’s game of tricking the world into thinking Russia is stronger than it really is. Mr Obama knows Russia will not become a global power in the next decade (indeed, it’s unlikely Russia will ever return to such a commanding position).

Instead Russia will become a significant regional power, and Mr Obama is comfortable with that reality. So long as Moscow doesn’t try to overextend its reach, the US can use its covert and political resources to make it difficult for Russia to gain truly global power, but it can’t really do anything about it forcefully. This appears to be the US strategy, and it is a good one, even if it worries US allies elsewhere.

It also pays to remember this is all happening in Russia’s backyard, so it’s much easier for Putin to do something about his strategic position than it is for the NATO powers to act. The Russian Black Sea Fleet is stationed in Crimea, at Sevastopol, which makes it Russia’s only warm-water port. Losing this would be a huge blow for Russia.

But it was never clear this port was actually under any threat when Ukrainian President Viktor Yanukovych’s government collapsed last month. In fact, during the Orange Revolution a few years ago, when the existing pro-Russian government fell to a pro-West political movement and was a much more serious strategic threat to Moscow that today’s debacle, the port was never under threat at this time either.

Mr Putin’s game is deeper than just a port. He wants political theatre. He wants a show. And above all, he wants a reaction from the West. Not a military response – that would be crippling for both sides and everyone in between. The reaction he wants is a clear, unambiguous display from the US and NATO about just how far they are willing to go to protect their allies in Europe and elsewhere. Mr Putin expects Mr Obama to shrug his shoulders and look away. The Russian president knows that if he can get this reaction, he can turn it around on the entire Former Soviet Union and say, “See? The US gives you these promises, but how safe do you really feel?”

At this point in the thread of recent events, it appears Mr Putin will get what he’s looking for. But the US is not going to lose the propaganda war to Russia so easily. It would be very surprising if the US does not have an answer to Russia's Crimea gambit. The next few weeks will be important to watch for an American’s counter-move. This has all happened before just a few years ago and the US has learned their lessons.

Back then, in Georgia mid 2008, a Russian invasion was conducted under very different, but remarkably parallel, circumstances. It’s hard to believe the US didn’t know about the build up of Russian troops on the Georgian border before it encouraged Tbilisi to attack South Ossetia. The Russians had been preparing to attack Georgia for months and they struck in August of that year.

They had set a trap, hoping the Georgians would move on South Ossetia. The Americans could certainly see this with technical intelligence, and yet still Washington suggested Tbilisi take the region. Either the gathered intelligence was extraordinarily poorly analysed, or everyone underestimated both the Russian military and Russia's resolve to use it. The story is much the same this time around too; at least to the extent that everyone underestimates the Russian nerve and capability.

Russia is trying to ignite another Cold War to some extent. But it will be a Cold War it can win this time around. The Europeans don’t have any interest in replaying that game, and the US are looking away from Eurasia and really don’t care what happens to a large extent. A few of America’s allies (think Hungary, Poland, Bulgaria) will be more than a little worried with US inaction in Crimea. After all, they want the assurance that if Russia tries the same thing with them, that the US will back them up, no questions asked.

That’s why they've been pushing so strongly for a US ballistic missile defence shield in their countries over the past decade. A missile shield would position significant US forces on their soil and give them the peace of mind of protection from a creeping Russian hegemony. Then again, seeing how easy it was for Russia to occupy Crimea this month - without so much as a US missile waiting to defend the region - they must be feeling extremely anxious.

But then Russia isn’t stupid. They’re not looking to take anything else by force in Eastern Europe, or anywhere for that matter. If Kiev decides to mobilise troops to retake Crimea (and they’re not going to) it would be very surprising if the troops respond to the interim government’s orders. There have already been a number of high-level defections with generals saying they’d immediately look to Moscow in the event of a shooting war.

And quite aside from if they’d fight is the question of can Ukraine’s troops fight. While Ukraine’s military is well-trained, they don’t have the funds or the equipment to prosecute a prolonged war with even a peer nation. So standing up to a military like Russia’s would be suicide. The Russian military is not the 1991-era depleted and demoralised skeleton any longer. With the testing of the ballistic missile this morning, Moscow is showing the world and Kiev that whatever happens, they’re willing to take this the whole way.

Ultimately though, they won’t need to, and that’s the interesting thing in all this. Because neither NATO nor the Visegrad group have the stomach or the force structure to intervene on the level necessary to convince Russia to pull out or force Mr Putin to back down. It takes months to build up sufficient assets for a full-spectrum war, and not even the United States has the available materiel to do this even if they were preparing for it.

Besides, the extent of the Russian occupation force in Crimea varies in estimates depending on which news media report is released. It’s very clear that while they moved quickly to take Crimea, Russia isn’t politically prepared or ready to mobilise larger numbers of troops to reinforce their position. Again, things like this take time to develop even if the countries border each other, as in this case.

Mr Putin doesn’t want to start a shooting war. He has Central Europe and Eastern Europe all tied up economically, with billions of barrels of oil and natural gas purchased from Russia each year. This is also why the sanctions being threatened by the UN and the EU will be pathetically weak if they pass. The economic reality and dependency on existing energy networks will make whoever signs the sanctions few and far between - and temporary. It simply goes against all of the EU member’s national interests to pressure Russian energy deliveries.

On top of this, there are plenty of people in both Eastern Europe and Central Europe who would actually like to see Russia return to some of its past prestige. Germany is the interesting country in that estimate. It would not be surprising if Angela Merkel looks at Russia’s moves in Crimea as a signal to press forward with backdoor diplomacy to strengthen their growing relationship. An understanding between Russia and Germany would serve both countries’ interests, especially regarding energy. Of course, this reality bothers Poland immensely.

However, it’s not all doom and gloom. The US can take some steps to pressure Russia, although by no means is the below an exhaustive list of options. It could keep Senator John Kerry in Ukraine for the medium term to establish a diplomatic fast-line. It could eject Russia from the G8 meetings which would hurt Moscow’s prestige internationally. The US could also assist Ukraine in setting up alternative energy sources in the event Russia ceases their deliveries, although this would take time.

It could use the arriving aircraft carrier group to conduct a show of force, convincing the Russian Black Fleet to shift position rather than confront the carrier group directly, thereby undermining the Russian military position in Crimea. It could publically expose Russian plans gleaned from intelligence to embarrass Moscow. And finally, it could increase intelligence and military support to Kiev and plan for the eventuality of what would happen if Ukraine confronts Russia militarily in Crimea and loses.

With all this said, the US is certainly losing important military credibility in an increasingly unstable world. This is not escaping the notice of the Obama administration. Mr Obama is purposefully trying to detach America from heavy involvement in the world’s problems, so losing some credibility was always going to be a by-product of this approach.

What the US need to ensure against is the death-by-a-thousand-cuts result. Small movements in the Russian periphery might seem manageable now, but there will be a point where they become a problem too big to counter easily. At this stage, the US will wish it had acted sooner and more forcefully. Nevertheless, Mr Obama and Mr Putin both have plans to use the Crimea invasion to their interests. The game is far from over.

Saturday, 1 March 2014

Is Russia intervening militarily in Ukraine?

An armed man patrols at the airport in Simferopol, Crimea.
Crimea's Belbek airport, located immediately north of Sevastopol, has ceased operations amid reports of the runway being seized by gunmen, Interfax Ukraine reported February 28...Belbek is the home of Ukraine's 204th Tactical Aviation Brigade...Simferopol commercial airport, 95 kilometers northeast of Sevastopol, has been reportedly secured by military personnel of unknown origin, but flights are reported to be operating normally...A BBC reporter on February 28 reported seeing 10 lorries full of men and bearing Russian military plates moving on the road from Sevastopol toward Simferopol...The report came amid dispatches from other media outlets, including Liga.net, saying that a group of Russian Mi-24 helicopters were moving toward Belbek airport, 25 kilometers from Sevastopol...The BBC cited one unconfirmed media report that eight Russian military helicopters had arrived in Sevastopol from Russia itself...Interior Minister Arsen Avakov described the blockading of an airport in Sevastopol as “an armed invasion and occupation”..."This is a direct provocation to armed bloodshed on the territory of a sovereign state," he added....A post on Avakov's Facebook page said troops from the Russian Black Sea Fleet could be seen outside Belbek airport...The press service of the Black Sea Fleet has denied the reports...Russia appears to be using military force to secure the strategically-important Crimean peninsula and further convince Ukraine not to pursue closer ties with Europe...By moving troops into Crimea, Russia may be encouraging secession...The interim government in Kiev, now that Ukrainian President Viktor Yanukovych has fled the country, will be under a lot of pressure internally if it cannot retain control of its lands...If the troops are Russian, and the weaponry and demeanor of the gunman suggest they are, this Russian move constitutes a military intervention in Ukraine...It is unclear whether dozens of helicopters shown flying over the Crimea on internet video are Russian or Ukrainian as both nations operate Mi-24 type aircraft...The international community could become involved if the matter is taken to the UN Security Council...However, Russia is a veto member and could argue it made the actions in self-defence on behalf of an ally.