worldpolicy.org

Iranian Press TV reported on Sunday Iran’s intention to construct ten additional uranium enrichment facilities. President Mahmoud Ahmadinejad has requested Iran’s Atomic Energy Organization generate 20,000 megawatts of electricity for domestic use through 500,000 additional centrifuges by 2020. Vice President Ali Akbar Salehi explained that the decision was a direct response to the recent criticisms from the United Nations, and especially the International Atomic Energy Agency (IAEA) and the P5+1 (the five permanent members of the Security Council, plus Germany). “We had no intention of building many facilities like the Natanz site,” Salehi said, “but apparently the West doesn’t want to understand Iran’s peaceful message.” In Paris, French Foreign Minister Bernard Kouchner labeled Iran’s decision “a bit childish.” Also on Sunday, more than 200 members of the Iranian parliament signed a letter urging Ahmadinejad to restrict the IAEA’s presence in Iran, and some called for Iran’s withdrawal from the Nuclear Non-Proliferation Treaty (NPT). Withdrawal would eliminate the West’s already limited inspection capability in Iran, but in so doing would signal malicious intent—beyond Iran’s stated peaceful intent for civilian energy—that might prompt harsher sanctions and perhaps even preemptive military action from Israel or others. As to Iran’s peaceful nuclear power generators, Russian sources told Reuters on Monday that the Bushehr plant—which Iran has contracted to Russia for an estimated $1 billion—will likely begin generating electricity in March 2010, coinciding with the Russian New Year.

Results from the Honduran presidential election, in which voters have appeared to reject President Manuel Zelaya, are putting the United States and Brazil at odds over the future of the Latin American nation. Zelaya, who was ousted from the presidency in a military coup in June, apparently lost to opponent Porfirio Lobo, who according to provisional election results won about 56 percent of the vote. The United States praised the vote; a U.S. State Department spokesman said the “the Honduran people took a necessary and important step forward.” But Brazil, which has hosted Zelaya in its embassy in Tegucigalpa since mid-September, said it would not recognize the results because of the military coup. “Brazil will maintain its position because it’s not possible to accept a coup,” said Brazilian president Luiz Inacio da Silva. Zelaya has called the election a “fraud” and tried to get Hondurans to boycott the vote.

The government of Dubai announced on Monday that it will not guarantee the debt of the investment firm Dubai World. The Director General of Dubai’s finance department, Abdulrahman al-Saleh, warned that creditors are responsible for their own lending decisions. “Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct.” The federal United Arab Emirates (UAE) pledged cautiously on Monday to lend to Dubai banks, hoping to allay a crisis of confidence similar to, if on a far smaller scale, that which crippled the global economy last fall. “We will look at Dubai’s commitments and approach them on a case-by-case basis,” an anonymous UAE official told the press. “It does not mean that Abu Dhabi will underwrite all of their debts.” The Dubai finance department last week requested a six-month standstill on all Dubai World debts, including that of its property development subsidiary, Nakheel, totaling some $59 billion. Dubai World, a major impetus for Dubai’s stellar economic growth, had invested in lavish real estate projects, including artificial islands in the Persian Gulf and properties in Manhattan and Las Vegas. The standstill request surprised global investors who believed, and were told by Dubai officials, that the emirate would face no financial troubles in the near future. Mr. Saleh cautioned that global markets were overreacting to the news of Dubai’s standstill request and that, while firms will take losses in the near future, they will emerge stronger as the government restructures the businesses.

Trade chiefs from over 150 countries gathered in Geneva as the World Trade Organization (WTO) opened its first ministerial conference in four years. The conference, which commenced on Monday, was arranged as “a platform for ministers to review the functioning” of the multilateral trade body, said Director-General Pascal Lamy. Though it is not a negotiating forum, Lamy still urged the ministers to speed up their progress on the eight-year-old Doha Development Round, the WTO’s currently stalled round of trade negotiations. “The best way of strengthening the [international trade] system is concluding this round,” said Lamy, as world leaders set a new 2010 target to conclude the process. “Now we need action, concrete and practical action, to close the remaining gaps.” Developing countries echoed his call for urgency; the Cairns group, an alliance of 19 nations that account for more than 25 percent of the world’s agricultural exports, expressed its dismay at the lack of progress on Doha. The group of 33 developing countries (dubbed the G-33) also called for action, noting that it would stand firm to preserve developing-country interests as the Doha round proceeds, particularly on the contentious special safeguard mechanism (SSM)—the right to retain protective tariffs on agriculture should imports surge or prices drastically fall—that led to last year’s breakdown in talks. The conference (which will conclude on Wednesday) is set to address other trade-related issues as well, such as improving the resolution of trade disputes, preventing protectionism, enlarging membership, and cooperating with other international organizations.

Representatives from the P5+1 met on Friday in response to Iran’s rejection of the uranium enrichment proposal earlier this week. In a joint statement released at the conclusion of the meeting, the P5+1 “urge[d] Iran to reconsider the opportunity offered by this agreement, and to engage seriously with us in dialogue and negotiations.” U.S. President Barack Obama will likely push for sanctions against Iran in the coming weeks. He elicited a bland but significant statement of support from Russian President Dmitry Medvedev on Sunday in Singapore but failed to win a similar statement from Chinese President Hu Jintao during Obama’s nine-day tour in Asia. A senior EU official confirmed that sanctions were discussed at the meeting but not in specific, actionable terms. Mohamed ElBaradei, the director general of the UN International Atomic Energy Agency (IAEA), suggested that Iran’s Wednesday announcement should not necessarily be considered that nation’s final, written decision. “What I got is an oral response [from Tehran], basically saying we need to keep all the material in Iran until we get the fuel [rods].” Dr. ElBaradei lamented, “I would hate to see that we are moving back to sanctions because…sanctions are going to make things much worse.”

South Korean officials indicated Friday that they will not renegotiate its free trade agreement (FTA) with the United States signed in June 2007. Some U.S. officials and members of Congress believe the FTA, which is yet to be ratified, does not sufficiently balance South Korea’s $13 billion trade surplus, especially in the automotive industry. South Korea exports nearly 100 times the number of vehicles to the United States that it imports from American auto manufacturers. President Lee Myung-bak, welcoming President Obama to Seoul on Thursday, suggested he was willing to hear U.S. complaints about the agreement, which became a heated point of debate during the U.S. presidential elections and in Congress. “There’s a tendency to lump all of Asia together when Congress looks at trade agreements and says it appears this is a one-way street,” said Obama, in conciliatory remarks. On Friday, Korean Foreign Minister Yu Myung-hwan emphasized that President Lee’s comments did not offer “renegotiation.” The Korea Institute for International Economic Policy estimated the FTA would boost South Korea’s long-term growth by 6 percent, creating 340,000 jobs; similarly, the U.S. Chamber of Commerce estimated the FTA would create 350,000 American jobs. Also on Friday, South Korea announced plans to ease rules on domestic investment and foreign entry, in hopes of dramatically increasing tourism and foreign investment.

The Chinese government came under scrutiny Thursday after secret scholarships awarded to children of Namibian officials were revealed. According to The New York Times, scholarships to study in China were given to the children of nine top Namibian officials, including the defense minister and President Hifikepunye Pohamba. First revealed by the Namibian tabloid Informante, the scholarship scandal unleashed a wave of fury from civil society groups and youth organizations, who say that it is unconscionable for well-paid officials to accept the scholarships while only one out of six high school graduates in Namibia is able to attend college. “Only senior people in government knew about the scholarships,” said Norman Tjombe, director of the nonprofit Legal Assistance Center. “No chance was given at all to the general public.” The budding relationship between China and Namibia, cemented through lucrative development deals, is already under scrutiny by Namibian prosecutors, and many now wonder if the scholarships are merely a Chinese attempt to buy influence from Namibia’s leadership to win more contracts for its companies that seek to do business there. “How is it that this favor just comes like manna from heaven?” Elijan Nguare, secretary general of Namibian governing party Swapo’s youth league, told The New York Times. “Clearly there must be something that they are after.” Government agencies in China have not commented as of this writing, but Namibia’s anti-corruption commission began an inquiry into how the scholarships were awarded.

Closing Remarks: President Olafur Ragnar Grimsson of Iceland

Summary by Josh Sanburn, World Policy Journal

After three days in which global leaders, academics and entrepreneurs addressed the world’s most pressing problems, the closing keynote speaker identified the financial crisis, the need for a green energy revolution and climate change as the three most important issues, all of which are irreversibly linked. “None of these three crises can be solved without solving the other,” he said.

The financial crisis has shown that people around the world fell victim to the notion that the market is paramount, he said. Icelanders have learned how fragile that idea really is. “It threatened the complete breakdown of of the social fabric of our society,” he said, citing riots and social unrest that occurred soon after the collapse of Lehman Brothers in the United States last year.

President Grimsson called on leaders around the world to create a new philosophical and moral framework to avoid repeating the same mistakes. He tied the rise of a green energy revolution to stabilizing the economic sector, saying that Iceland now has a 100 percent clean energy economy. And greening the energy sector will naturally lead to a reduction in emissions.

To solve these problems, President Grimsson said countries around the world should place more regulations on financial institutions in order to rein in the excesses of a market economy, and he also challenged the United States and other countries to harnass geothermal energy to limit the use of fossil fuels.

“The political system was tested to its limit,” he said. “Even in the most stable and secure democracies, it almost resembled the revolutionary situations we read about in history books. But we have the capability and the mandate to solve these problems.”

Days after President Obama introduced new tariffs on Chinese tires, China’s commerce ministry took steps towards imposing tariffs on U.S. automotive and poultry exports. China launched anti-dumping and anti-subsidy investigations into the two industries, citing complaints from Chinese manufacturers that the U.S.-made products entered China’s markets with “unfair competition.” Officials say the probe is not intended as retaliation for the new U.S. policy, which was widely condemned in China as a “grave act of trade protectionism,” said Chen Deming, China’s minister of commerce. (The U.S. tariff will tack an additional 35 percent surcharge on Chinese-made tires, starting September 26.) Beijing has requested World Trade Organization (WTO)-sanctioned consultations over the U.S. tariffs, noting that they are in contravention of both WTO rules and commitments made at the April G-20 summit. In the United States, some analysts have called the tariffs an overtly political effort to appease union workers and secure their support for domestic policies, especially health care. Both China and the United States, however, stand to lose if a trade row escalates—the Chinese economy relies heavily on exports to the United States, while Beijing holds trillions in Treasury bonds and dollar-denominated assets. Amidst widespread warnings that protectionist sanctions could hinder a rebound from the economic crisis, fears of a full-blown trade war pushed markets lower around the world on Monday.

The United Nations’ highest court will hear final arguments from Argentina over claims that a Uruguayan paper mill is polluting a shared river. The mill, which sits on the Uruguay River, is causing “irreversible” environmental damage and discharging pollutants into the water and the air, according to Argentinean lawyers arguing before the International Court of Justice (ICJ). Argentinean lawyers contend the mill releases harmful effluents into densely populated area whose inhabitants use the river for fishing, leisure, and tourism, while Uruguayan officials claim the mill is a model of eco-responsibility. Argentina filed an application with the ICJ in May 2006, accusing Uruguay of unilaterally authorizing construction of two mills on the river and breaching a 1975 bilateral treaty, which said all decisions regarding the river must be made through consultations and agreement between both countries. The ICJ dismissed a bid by Argentina in July 2006 to halt construction of both mills, but plans for the second mill have now been abandoned.

At least 14 women and children were killed and dozens more were injured in southern Pakistan as a charity food giveaway became a stampede. According to officials, hundreds of women had assembled in the southern port city of Karachi to collect free flour and rice from a local businessman observing the Muslim holy month of Ramadan. However, the distribution quickly devolved into chaos, with most of the deaths caused by suffocation. Crowding and congestion made it impossible for rescue workers to adequately respond. President Asif Ali Zardari expressed “shock and grief” over the deaths and ordered an immediate judicial probe to determine responsibility. Prices for staple goods have risen sharply in the region and the government has not been able to provide relief to the growing numbers of people stricken with poverty. During Ramadan, Islam’s most sacred month, many wealthy business leaders in the community give alms, distributing free foodstuffs or cooked foods to the poor.

Venezuelan President Hugo Chavez said that his country has received $2.2 billion in credit from Russia to purchase nearly 100 tanks and a series of anti-aircraft rocket systems. The weapons include 92 Soviet-era T-72 main battle tanks and 300-millimeter Smerch multiple-launch rocket systems. After meeting with Russian President Dmitry Medvedev and Prime Minister Vladimir Putin, Chavez noted that the weapons were needed “to modernize our fleet of armored vehicles,” but also said the purchases were not directed at any particular country. Tensions between Venezuela and its neighbor, Colombia, have been heightened of late, due to Colombia’s agreement with U.S. forces to allow access to several of domestic bases. “With these rockets it is going to be very difficult for [the United States] to come and bomb us,” Chavez said. Venezuela also finalized a deal with a group of Russian companies to invest $20 billion to develop the Junin 6 block of crude reserves in the Orinoco Belt, estimated as one of the largest sand oil deposits in the world.

The following article appears in the 25th anniversary issue of World Policy Journal. For the month of November, read the entire 25th anniversary issue, fall 2008, for free!

Both Europe and America present the world with a model for democratic government on a continental scale. Europe’s model is comparatively recent—with only a half century of history. America’s model has been evolving for over two centuries. Both are likely to play a major role in determining how the world organizes itself over the next 25 years. But the two models and their likely global roles differ greatly, and their implications for how the rest of the world develops are also likely to be very different.

Whereas Europe’s model has a comparatively weak central power—more confederal than federal—the American experiment, since its nineteenth century Civil War, has internally grown increasingly centralized. Compared to the member states of the European Union, America’s states are much more restricted in their powers and budgets. The federal budget dwarfs them all and reflects where real power lies. In short, America’s continental model is not one where unity appears to have been bought at the expense of centralized power. On the contrary, America’s federal center has by now accumulated colossal military and economic might, unmatched by any other government around the world. Given this force, it is not surprising that the United States has developed a vocation for global management,which by now has become an integral part of America’s identity as a nation. Continue Reading…

Russia’s invasion of Georgia should compel the United States and Europe to alter their policies of using economic engagement to promote democracy.

After the Cold War, the United States and Europe sought to integrate Russia, China, and their satellites into the Western market economy. Policymakers believed this would encourage democracy, human rights and a peaceful demeanor toward their neighbors.

Policymakers believed robust foreign commerce and free markets—privatization, private property, and business law—would expose these societies to Western culture and instigate expectations for personal freedoms and free elections. Market economies function best when individual initiative and property rights are protected by elected governments. Democratic capitalism has decidedly outperformed autocratic communist and fascist regimes. And prosperous nations, invested in global commerce, are less inclined toward aggression.

Russia instigated wide-ranging privatization and other market reforms, opened to foreign investment, and had a rocky experiment with democracy. From 1990 to 1995, gross domestic product (GDP) dropped 50 percent, thanks to falling prices for oil and metal exports, inadequate commercial law, cronyism, and corruption. Output stabilized for a few years, but then sank further after the 1997 Asian financial crisis. Boris Yeltsin, largely discredited, turned over the presidency to Vladimir Putin in 1999.

Mr. Putin may be a capitalist, but he is no democrat. He maintained essential elements of a market economy but compromised elections, asserted control over regional governments and the judiciary, squelched personal freedoms, and sought to reestablish Russian influence, whenever possible, in former Soviet republics. Read the rest of this entry »

[This post is an update on Mr. Christy’s article published in the summer 2008 issue of World Policy Journal.]

If there were trading cards for the Doha Development Round participants, I’d save Falconer’s. The agriculture negotiations chairman, Ambassador Crawford Falconer is my candidate for MVP—it is a shame he is stepping down later this year; he will be missed. Falconer consistently works to strip away the nonsense, politics, and disinformation that dogs these types of negotiations. His reports read like a stern uncle reining in a bunch of wayward nephews—they are direct, utterly sensible, and beyond cavil. There is not a scintilla of wishful thinking. (This, by the way, accords with my personal experience with Falconer, who chaired a World Trade Organization panel proceeding in which I participated.)

Falconer dishes his latest dose of reality in a terse, 4.5-page report dated August 11. He responds directly to the canard that the July mini-ministerial in Geneva fell apart over technical issues regarding the special safeguard measure (SSM)—which allows protection where a surge in imports threatens domestic agriculture producers. Falconer stresses that the U.S.-India disagreement over the SSM is “not some purely ‘technical’ matter,” but rather is political. He then drives the point home by noting the many other difficult issues that the negotiators did not resolve, including cotton from least-developed countries, new tariff quotas for sensitive products, and tariff simplification. He also notes that the members as a whole had not yet vetted the issues where progress was made. His report has been widely accepted as an accurate account.

WTO Director-General Pascal Lamy’s comments on the progress of the talks and the report of Canadian Ambassador Don Stephenson, chair of the negotiations on market access for non-agricultural products (NAMA), have not been so well received. In the view of some members, Lamy’s comments do not accurately present the splits among the members, reporting agreement where none existed. This may be due in part to the fact that Lamy is nearing the end of his term and this may be his last chance to move the talks forward. Certainly, the members have reasons to back away from concessions given the overall failure of the negotiations, but Lamy’s account is overly rosy. As for Stephenson, the United States has attacked his report for mischaracterizing the state of play on sectoral negotiations, which would eradicate tariffs on specified goods (e.g., chemicals). More importantly, Argentina rejected the July 25 compromise draft on NAMA—which serves as the basis of all claims of progress. Because the WTO operates by consensus, Argentina’s rejection of the package suggests that the widely reported progress is illusory. What to make of all of this? Read the rest of this entry »

Now it’s more urgent than ever. The multilateral trading system needs support. And one of the best signals the United States could send would be to propose a moratorium on bilateral trade deals of the sort the Bush administration has pursued in wretched excess. These deals offer paltry advantages, and have major drawbacks, as I argued in an article for the WPJ’s special trade issue.

The urgency stems from the collapse on July 29 of negotiations aimed at securing an agreement in the Doha Round of global trade talks. Those negotiations dragged on for nine days at the World Trade Organization’s Geneva headquarters, only to end in yet another in a series of breakdowns—this time, over whether developing countries could raise emergency tariffs to protect their farmers. Never mind which countries deserve the most blame for the latest fiasco; there has been plenty to spread around since the talks were launched in the Qatari capital of Doha in 2001. The important point is that the debacle increases the risk that the WTO’s authority will undergo a significant erosion in years to come.

Minimizing threats to the WTO’s authority ought to be a top priority of trade policy, because as I contended in my article, the WTO plays a crucial role in fostering global economic stability. The WTO’s centrality to the trading system is already under some doubt, thanks to the proliferation in recent years of bilateral and regional trade agreements. So the global trade body is facing a double whammy in the aftermath of the Doha Round failure. Read the rest of this entry »

From the forthcoming Summer 2008 issue of World Policy Journal.

Many of you are presently suffering from sharp increases in food prices. The main cause of this increase is here to stay since it results from structural changes in the demand for farm products. Reducing farm subsidies and tariffs should help create more room for your own farmers to export thus helping raise their revenues. It should also ensure a better connection between supply and demand. If anyone still wonders why agricultural subsidies and production systems need reform and why this is crucial for Africa, just look in the news everyday!

—World Trade Organization Director-General Pascal Lamy, addressing the African Union Conference of Trade and Finance Ministers, April 3, 2008

In mid-July 2008, trade representatives from World Trade Organization (WTO) member states began meeting in Geneva in an attempt to make a breakthrough towards completing what has been seven years of negotiations on the Doha Development Agenda. There had been political commentary on Doha that was skeptical about the success of the agreement; Barack Obama’s economic policy advisor, Jason Furman, for example, has told the media that it is impossible for the candidate to have an opinion on an agreement “that doesn’t exist.” Still, there is a growing consensus among trade representatives such as Peter Mandelson of the European Commission and Susan Schwab, the U.S. Trade Representative, suggesting that while many complex steps still need to be taken in order to complete Doha, a deal in 2008 must be made. Indeed, the need is critical and immediate, not only to help alleviate the pressure brought on by the spike in global commodities—oil and foodstuffs—and lift African economies out of poverty, but also as a symbol that nations can work together to address global issues.

The fundamental purpose of Doha was not just to create clearer and fairer conditions of global trade, but also to open up new opportunities for growth and development in the world’s most impoverished areas. In turn, millions would be lifted from poverty.

Inextricably linked to Doha’s goal of alleviating poverty was the strong desire among WTO members to issue a global response to what were perceived as the imbalances between rich and poor, powerful and powerless, that have been key drivers of terrorism and global conflict. Doha, while idealistic in its goal, set out in 2001 to develop a new platform for global cooperation that would depart from traditional aid and development programs. These have tended to see money simply flowing from rich to poor nations—if at all—usually with strings attached. Instead, this new platform has sought, by liberalizing trade barriers across the globe, to allow impoverished nations a vehicle to develop their own independent economies and stand on their own feet. Doha had, and continues to have, the profound ambition of restoring dignity to the world’s impoverished. Moreover, any Doha trade liberalization also stands to benefit rich nations such as the United States and those that comprise the EU, who are now more than ever relying on exports to maintain economic dynamism and growth.
Read the rest of this entry »

Whether you call this a war on the middle class, as Lou Dobbs has, or whether you accept the notion that the middle class are facing lower real wages (inflation adjusted and taking into account healthcare and pension costs), many commentators have painted a very bleak picture of what the US middle class is currently experiencing. In other Western countries similar arguments are being made.
Read the rest of this entry »