Agreements and Anniversaries: China, India and Sri Lanka’s Foreign Policy - 1987 and 2017

The foreign policy of a country, whilst being an extension of its domestic policy, is chiefly the manner in which it deals, responds and cooperates with the international community. Hardly set it stone, the policy and policy making process evolve according to circumstance and situation. Thus it is of added significance when the country formulating that policy is a relatively small state, attempting to balance its policy towards two of the largest states in the world. Adapting to developments at the national, regional and global level, while strategizing for the future, remains at the core of decision making.   

Sri Lanka’s relations with the global community date back centuries, with the importance of the country’s location being paramount. Apparent through the manner in which other countries have sought to maintain ties, Ceylon has from the times of the ancient kings, and the special envoys they dispatched to foreign courts, to the heightened commercial connectivity along the trading routes and through to the colonial period, when three of the most powerful empire builders of their time, sought to ‘engage’ with the country, in more ways than one, experienced a foreign policy that has been complex, competitive, and colourful to say the least.

From independence onwards, the country has striven to be ‘a friend to all and enemy to none’ in the international community, yet faced trying and decisive moments when decisions were taken, or forced to be taken, owing to a plethora of factors. A noteworthy degree of this engagement and these decisive moments have pivoted on relations with China and India.

With China, from the recognition accorded by D. S. Senanayake in 1950, to the Rubber-Rice Pact during the premiership of Dudley Senanayake in 1952, S. W. R. D. Bandaranaike’s decision to establish diplomatic relations in 1957, Sirimavo Bandaranaike’s engagement in shuttle diplomacy at the time of border tensions between China and India in 1962, and her close ties with Mao Tse Tung and Chou en Lai, as well as the diplomatic engagement of all Presidents from J. R. Jayewardene to Maithripala Sirisena, have seen a steady, sometimes meteoric rise in connectivity, as during the period from 2005 to 2015, with even Xi Jinping visiting Sri Lanka in 2014. The Chinese stake in the development drive is high in Sri Lanka. These are not funds that China chose to freely pour into the Sri Lankan economy, but instead loans that Sri Lanka sought. Hence while China looks to expand its sphere of influence globally and finds a ready partner in Sri Lanka, it is of paramount importance to note that Sri Lanka reached out to China and that country reciprocated. Terms and conditions that accompany such finances, and through them prosperity, obviously come at a cost, as would be the case with all loans.

India, given its geographic proximity has remained a critical factor in policy formulation. Whilst independence itself in 1948 is attributed to the freedom struggle on the island, the departure of the British from India remains a pivotal factor that is often overlooked. The signing of vital agreements with the British to safeguard defence and external relations by D. S. Senanayake owing to his anxiety of having to ward off any untoward action, to the strong bond of friendship between Nehru and the Bandaranaikes, which continued through Indira Gandhi and Sirimavo Bandaranaike, the Sirima-Shastri Pact of 1964, claiming the island of Kachchativu in 1974, the training of rebels by Mrs Gandhi and her deep dislike of J. R. Jayewardene as well as the infamous humanitarian air intervention by India in the north of Sri Lanka and the signing of the Indo-Lanka Accord in 1987 between Rajiv Gandhi and J. R. Jayewardene, the saga that was the Indian Peace Keeping Force and the action of Ranasinghe Premadasa, the closeness of relations during the presidency of Chandrika Bandaranaike Kumaratunga, the straining of them in the second term of Mahinda Rajapaksa, and the intimacy of ties post 2015 with Narendi Modi having visited Sri Lanka twice in two years, have all seen the formulation of policy with India remaining a cornerstone in the foreign policy framework.

29^th July 2017 marks three decades since the signing of the Indo-Lanka Accord, the assault on Prime Minister Rajiv Gandhi and the first steps towards the establishment of the Provincial Council system. Politics remained at the core as India, her coterie of diplomats and abundance of politicians from Tamil Nadu to New Delhi took umbrage at developments in the island.

Reflecting on the period, the Oxford educated, political heavyweight Lalith Athulathmudali once observed that ‘the Indians came in only because we were winning. …Their purpose was to use our acute problem, which they helped to intensify, in order to get us to change our policy on several points.’ A domestic issue had spiraled into an international one as global attention turned to the island with the riots of July 1983. As refugees sought asylum overseas the issue ceased to be domestic. Whilst Jayewardene sought the support of the United States of America and the Western world, especially through his open market policies, his tackling of relations with his immediate neighbour, remained critical.

Yet his attempting to cooperate with Rajiv Gandhi, especially in light of the already deep-rooted involvement of India, even won them both a nomination for the Nobel Peace Prize in 1988 but which was eventually secured by the UN Peace Keeping Forces. From 1987 to date relations with India have soured and improved at varied times, signaling change yet the abiding factor has been the need for positive relations owing to geography. Elections and their results do not move the island nation from its geographic positioning, and hence, neighbours do not change. Jayewardene and almost all his successors have understood the need to work with a country they wouldn’t be able to survive without.

In the last three decades China has experienced a steady rise as a global power, marking her presence on the world stage and surging ahead of countries like India, in a gamut of areas. Interestingly the thirtieth anniversary of the Indo-Lanka Accord coincides, with the signing of a landmark agreement with China over the Hambantota port, which lies in close proximity to international sea lanes and is one of the many assets Sri Lanka possesses.

Once again we are reminded that foreign policy remains an extension of domestic policy. Domestic compulsions continue to drive foreign policy and its formulation as Sri Lanka, having undergone a virtual stagnation of economy growth and development, sacrificing prosperity and losing out on the opportunities due to the conflict, is attempting today to regain her position in the region and the world at large. Countries like Singapore which took a cue from then Ceylon have raced ahead and are in the vanguard of global affairs. South East Asia, since adopting a collaborative mechanism in 1967 is reaping immense benefits fifty years later, while others in South Asia are trying to ride the wave of the One Belt One Road initiative of China.      

Sri Lanka’s choice to proceed with the signing of the Agreement with China, to service the debt and ensure usage of facilities the country possesses, is judicious, to say the least. The agreement is a lease and needs to be understood as such. At the same time the efforts to lease the Trincomalee oil tanks in the East to India indicate the ability of a small island nation to balance her foreign policy. Satisfying two global giants at the same time, involves massive effort, dedication and strategy. Evidenced through the action of the Sirisena - Wickremesinghe government is that bipartisan cooperation can bring about change, which would transcend into prosperity of the island and her people.  

 

Foreign policy is therefore not set in stone, yet strategy remains a crucial element if a state is to benefit from location, resources and infrastructure. The maturity of the process of policy making makes it clear that irrespective of developments in China or India, and despite the international machinations enveloping these two countries, Sri Lanka, her leaders and people, need to focus on a strategic, Sri Lanka-first policy through which the state’s interests are safeguarded, sustained and promoted. That policy needs to be set in stone. 

- AWARELOGUE EDITORIAL

GUEST COMMENTARY - MERCANTILISM: HAS IT LOST ITS RELEVANCE?

Mercantilism, which is the earliest theory pertaining to International Trade, was the dominant economic doctrine in the 16^th, 17^th and 18^th centuries, and is often discussed with reference to colonialism as Mercantilism is considered to be a result of Colonialization. In the past, this was based on the premise that national wealth and power were best served by increasing exports and collecting precious metals in return. Therefore, a country’s economy was mainly controlled by the state, chiefly through corporations and trading companies. Through this approach the main intention of nation states was to increase their power by sustaining a positive balance of trade. 

With the passage of time, Mercantilism was rejected by scholars such as Adam Smith and David Ricardo who promoted free trade among nations.  However, today once again states are already beginning and/or are considering the use of inward looking protectionist trade policies as they begin to discover certain flaws in following an extremely liberal trade policy. Hence we see several leading economies in the world moving towards more neo-mercantilist trade policies in order to maintain their power in the international system.

When examining the relevance of Mercantilism to contemporary global trade, it is important to pay attention to the following characteristics of Mercantilism:

·            State-led economy

·            Export based economy with minimum imports (balance of trade theory) and implementing high tax and tariff policies when importing goods to countries (a nationalist approach)

·            The concept of bullionism

·            Maximising the use of domestic resources

·            Provision of subsidies for profitable industries.

In this Mercantilist approach to trade, states possessed the supreme power over trade and the state formulated economic policies in such a way that they can reap the maximum advantage by accumulating more wealth and thereby becoming more powerful as a nation. Hence it is a zero-sum game which is more advantageous to developed economies. The primary method of calculation of wealth of a country was by looking at its gold and silver reserves which was known as bullionism and this was one manner utilised by Western imperialists to accumulate wealth. Mercantilists firmly believed that the more gold a country possessed, the more powerful and wealthier it was.  Certain imperial powers also had navigation acts which restricted the ability of other nation to trade with the colonies that were under the rule of these imperial powers.

Along with this, they also followed a favourable balance of trade in which the economy was mainly export oriented with a minimum number of imports. To support this policy, they implemented high rates of taxes and tariffs for imports and at the same time the government provided with subsidies for local manufacturers. This led to the strengthening of local producers and discouraged imports from other countries. Hence the Mercantilist approach was a nationalist economic policy.

While from an initial overview it seems as if this theory is quite obsolete, when we carefully examine the current economic situation of the world we can see that several countries, specifically developed economies, still prefer and try to utilise Mercantilist approaches to trade under the guise of capitalism and free trade. However, unlike in the past, the concept of bullionism is not so prominent in modern mercantilism because today there are more sophisticated ways of calculating a country’s wealth like the Gross Domestic Production (GDP), Gross National Production (GNP), etc.

However, even after centuries, although it is not as popular as it used to be during the colonial period, the essence of Mercantilism, i.e. maximising net exports in order to prosper the national economy, remains the same. Just like companies such as the British East India Company enjoyed the trade monopoly, in the modern era also it is observed that several global powers have held monopoly for certain goods. For example, the Organization for Petroleum Exporting Countries (OPEC), has maintained the monopoly for crude oil up until recent past. Although this is a regional organization which goes beyond the national boundaries of one particular country, they have made sure that no other country or trade union outside their region can compete with them when controlling the global price for crude oil. Through this these countries make sure that the middle eastern oil rich countries remain powerful actors in the arena of global trade, particularly in oil exports. Hence, going along the lines of the realist school of thought, all these attempts of states are to maximise their power by becoming economically and politically strong.

Apart from regional cartels like OPEC, most of the world’s richest countries who claim to be fully committed to free trade and trade unions, are very much Mercantilist in some of their economic policies. One such example is China, who claims to have a state driven capitalist economy. Although at a superficial level this is what can be observed, China, in fact has underlying protectionist resolutions in each economic and trade related decision they venture into. They have purposely undervalued their currency and they deliberately subsidise the goods they export to other countries so that they will have a trade surplus. Anti-dumping, one of the most detrimental instruments of protection, is another famous technique used by countries like China in order to drive other firms out of the market and create a kind of monopoly in the global market regarding several trade items.

When we look into the Latin American region, we find Mexico as a perfect example of modern day Mercantilist economy. An ideal example from Mexico is Telmex, a Mexican telephone company which was initially owned by the government and later in the 1990s it was privatised and this was essentially a state grant of the telephone monopoly to a private business. Even today, Telmex enjoys telephone monopoly and the adverse result of this is that the company does not take sufficient endeavours to improve the quality of their service and satisfy the consumers. In order to avoid budding companies entering into the market, Telmax engages in lobbying politicians, controlling regulatory bodies, proposing favourable laws, etc. (Conroy, 2005). Situations such as this limit the options for consumers. It is true that the local companies prosper through these measures, but the consumers who are on the receiving end are at disadvantage because they are deprived of being exposed to other options available and choosing what perfectly suits their taste.

Even though Free Trade Agreements (FTAs) have actually made trade with developed countries more accessible for the developed world, mercantilism approaches within these trade agreements are still visible. The best example for this is the South Asian Free Trade Agreement (SAFTA). Even though the FTA made trade between India and Sri Lanka is much compatible, non-tariff barriers have made the trade agreement ineffective and inefficient. On the other hand, the trade agreement has made India reap more benefits with the strategy of white list and this is quite similar to what could be seen during the Mercantilist era. Such examples depict the fact that even though free trade exists between countries, it has failed and still fails to lift off the trade gaps and close the technological and development barriers which could be seen within developed and developing nations. The Doha Round and the Bali package are other examples where the developing countries’ needs have not been addressed by the developed countries. This also proves that countries especially developed nations prefer mercantilism approach compared to developing nations who prefer free trade agreements. 

Furthermore, Chinese One Belt One Road (OBOR) and the United States President withdrawing from regional trade agreements such as the Transatlantic Trade Investment Partnership (TTIP) and Trans Pacific Partnership (TPP) clearly define the diversified strategies countries tend to follow. Developed nations such as United States prefer a protectionist, more conservative and demand driven trade policies. The idea behind this is Mercantilism where the president tries to strengthen the local entrepreneurs in the means of smart trade. On the other hand, China develops a theory of an open market system which underlies political dominance over the region. The strengths in the two economies has actually led to such policies. For example, the Chinese open their markets because of the fact that they have surplus of cheap labour and US because of their high unemployment rate.

Therefore, one cannot simply say that Mercantilism is an obsolete economic concept because the essence of mercantilism is seen in global trade even in this globalized, technologically advanced 21^st world market. In fact, the tendency of going back to Mercantilism by developed economies is on the rise. Therefore, Mercantilism is still a prominent approach in contemporary global trade and will continue to remain relevant as long as nation states exist.

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          - Guest Commentary : Harini Fernando

JAPAN, EU AND ASIA: SYNERGIZING INTERNATIONAL COOPERATION

A century and a half ago, with the Meiji Restoration in 1868, Japan commenced its ascent as a global power. The race towards industrialization was gripping the West, and not wanting to be left out Japan adopted the slogan ‘Fukoku Kyohei’ meaning ‘Enrich the Country, Strengthen the Armed Forces,’ and  joined the rapacious pursuit of grabbing power through the establishment of a colonial empire. The empire grew rapidly, military success followed, and so did defeat, resulting in occupation, dissolution of the empire and the promulgation of a new constitution in 1947.
 

Seven decades later Japan is not merely a rising star of the East, but has achieved that which was envisioned in 1868 - a state which is industrially advanced, economically sound and politically crucial. Whilst the nuclear attacks caused untold devastation, what was more destructive was the loss of prestige and position the country had hitherto enjoyed. Yet those who attacked, also sought to re-build, and ensured the newly emerging state would be able to regain that which it lost and more importantly, a former enemy became a close ally. The formula that worked in Japan is one that America has attempted to replicate elsewhere. From intervention in numerous states in Asia and the Arab world, the United States has sought to attack and rebuild, change regimes and introduce new players, critically crush and then financially support, but that which worked in Japan, does not appear keen on reaching fruition in other conflicts.

Through its control of the Asian Development Bank, Japan has been able to win over former enemies through financial assistance. A country once detested in most of Asia for its colonial past, is today admired, respected and relied upon across the world. Thus the trade deal with the European Union is being touted as a ‘slap in the face’ of Donald Trump whose preferences for protectionism over free trade has seen America turning its back on the Trans Pacific Partnership (TPP) and opting instead to protect all things American.

Yet the deal, hailed as a landmark, could be viewed from three angles for its advantageous nature and opportunity - for the Japanese, the Europeans and Asians.   

Facing stiff competition in the region and globally, Japan and China have found it difficult to put the past behind them. While the Mukden Incident in 1931 led to the Japanese invasion of Manchuria, the defeat of the Chinese and the creation of the puppet state of Manchukuo eroded normalcy and led to continued strife. The animosity continues to date. With China going global with its One Belt One Road initiative as it uses its historic trading paths and partners, Japan doesn’t want to be left out.  

Visiting Washington in February 2017, Shinzo Abe explored the possibility of a trade deal with Trump. As the new American President had opted to turn his back on the TPP, Japan was hopeful of using the hard bargaining that had been done in the past over the TPP but Trump wasn’t interested in what had been done and instead chose to nitpick over trade barriers that existed. A deal with America is still far off.

While the Americans dragged their feet with the Japanese, the Europeans didn’t. Embittered by the Brexit issue, the EU now in its sixtieth year, is looking for success stories and where better to find one that with a star of the East. Whilst the last year has been disastrous for moving integration further down the road, as the EU reeled from the British vote, the Europeans waited for the invocation of Article 50. In true British fashion, Theresa May delayed invoking it, and soon thereafter called for a snap general election in one of her worst gambles, which she must certainly regret today.

The European model has evolved over time. From the Coal and Steel Pact to what it is today, the EU is unsurpassed in regional integration. The opportunity of collaborating with countries like China and Japan enhance the potential of the grouping and the countries within it. The OBOR and China have already been embraced in much of the EU. Xi Jinping is welcome across the region and countries have been at pains to improve cooperation mechanisms with China, having realized the scope such relationships portend for their own future.

With the breakdown of the TPP, the EU saw opportunity in speeding up trade talks with Japan, which had commenced in 2013. EU exports to Japan are expected to increase by 34%, while Japan’s exports are forecast to rise 29%. Coming soon after the Comprehensive Economic and Trade Agreement with Canada in May, the EU has added another feather to its cap, in expanding free trade. Aspiring towards a similar arrangement with the world’s fastest growing economy, the Europeans are focused on India, where a market of 1.2 billion is as lucrative as they could ever hope for.     

Irrespective of whether the trading arrangement is with China, Japan or India, the region that would benefit is Asia. In the spirit of realizing the Asian Century the contributions being made by China, Japan and India are massive. The numerous countries of Asia, irrespective of inherent differences, bear an ‘Asian’ identity, are geographically joined and politically maintain strong linkages with some or all of these three. The spillover effects of such trading arrangements such as the Japan - EU Economic Partnership Agreement provide hitherto untapped prospects, especially for smaller states in Asia, and those which are closest to the big three.  

Apparent as it is, that each of these states possess immense potential through their cooperation with the world, potential and possibility would be insurmountable if they choose to work together, and use that synergy in their global interactions. History remains relevant, yet past misgivings only cloud a bright future.

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 -          -    Awarelogue Editorial

GUEST COMMENTARY: HEGEMONIC STABILITY THEORY AND THE RISE OF CHINA

Two of the most polemic topics in international Politics in the 21^st century pertain to the pace and depth of globalization and the rise of China.In this essay I aim to briefly examine the rise of China and the possibilities this may augur to the world as America’s influence begins to recede.

Hegemonic stability theory (HST) - a theory which was principally applied in the study of International Political Economy- developed through the writings of Kindleberger, Keohane, Gilpin, Modelski, Snidal and Lake. “Cooperation and a well-functioning world economy” according to Grunberg is “dependent on a certain kind of political structure, a structure characterized by the dominance of a single actor. Dominance by a hegemonic power constitutes the optimal situation for ensuring and maintaining an open and stable world economy.”

Postulating the HST, Wohlworth says that “powerful states tend to seek dominance over all parts of any international system…fostering some degree of hierarchy within the overall systemic anarchy.…the theory's core prediction (therefore) is that any international order is stable only to the degree that the relations of authority within it are sustained by the underlying distribution of power.” Snidal goes on to argue that the fundamental propositions of HST require the following conditions: 1) that the hegemony’s domination should benefit all (especially the weaker members of the international system) as well as that 2) the presence of a dominant state should lead to greater stability in the international system.

Advocates of HST support the notion of “American predominance in world affairs and declare  American predominance in world affairs and declare American hegemony an indispensable element for a better, peaceful and prosperous world.” Under the present conditions of globalization, American hegemony has played a principal role in norm creation, as well as in maintaining the contemporaneous global security architecture. Whilst a considerable body of literature has deconstructed the notion that the terminology of ‘Hegemon’ applies solely to America any longer, I maintain that the US-made institutional structures, norms and regimes are part of its hegemonic influence. However with the rise of China such structures are increasingly under threat of dissolution, relative insignificance or even impotence. 

The Asian Infrastructure Investment Bank (AIIB), New Development Bank and the related Contingent Reserve Arrangement were spearheaded by the Chinese leadership under President Xi. These institutions validate Chinese attempts to alter the global financial architecture constructed by the Bretton Woods institutions. Over the past 15 years, China has experienced an eightfold increase in GDP, enabling it to serve as the primary  engine  of  global  economic  growth  in  the  early  21st  century. This economic power has enabled China to leverage its position as one of the most influential states in the world.  The recently concluded One Belt One Road (OBOR) forum in Beijing with the participation of heads of state from Europe to Africa encapsulates China’s rise in influence and soft power. 

At the forum President “ Xi announced an additional $124 billion in funding for the OBOR initiative, including loans, grants, and $8.7 billion in assistance to developing countries. According to Chinese state media, some $1 trillion has already been invested in OBOR, with anoter several trillion due to be invested over the decade.” Such actions juxtaposed against America’s shift away from the TPP and the ‘Pivot/Rebalance to Asia’ policy towards a form of nativist ‘economic nationalism’ serves to heighten fears of the decline of American influence in the global economic architecture.

China’s military   budget  grew  at  an  average  of 9.8 percent per year in inflation - adjusted terms from 2006 through 2015 and the People’s Liberation Army has recently been involved in counter piracy patrols, humanitarian assistance, disaster relief exercises, and sea lane security operations in the pacific and Indian ocean. China’s assertive actions in the South China Sea and East China Sea and its alleged threat of war to Philippines over oil drilling in disputed territories, emphasizes the rise of a rival hegemon to USA. American actions to stop China’s island building in the east china and South China Sea have proved futile. Moreover inconsistencies in US foreign policy have resulted in increased anxiety among the traditional allies of USA. Thus the American made global security architecture is also under increasing pressure - especially as China begins to assert its claims utilizing the 9 Dash Line ignoring the arbitration tribunal judgment. 

Contrast China’s rise to the USA and the West. Mounting budget deficits, slow growth in GDP, Western Investment ratios that pale in comparison to China’s recent investment projects in Asia, Latin America and Africa, the financial weaknesses and structural problems in the EU, decline in American competitiveness, and President Trump’s rhetoric which has led to the loss of US soft power have all challenged the American hegemonic position of late. The inability of the International Monetary Fund and International Bank for Reconstruction and Development to adequately support developing economies in avoiding economic malaise - post 2009; along with the rise of the economic superstructure - OBOR - demonstrates a shift in the global power dynamic. In the Theory of Hegemonic Stability: Changes in the International Economic Regimes Keohane argues that the decline of a hegemonic structure of power can be expected to presage a decline in the strength of corresponding international economic regimes. With the rise of China and the increased protectionist sentiment of an ‘America First Foreign Policy’ this is clearly discernable. However this also translates to the decline in import of the American made security architecture that characterized earlier decades. While this decline is not overtly perceptible today, cracks have already emerged. The question therefore continues to be whether China wishes to work within or outside the Western made global order.

Scholars such as Graham Allison claim that conflict between the nascent hegemon and USA will be inevitable – a form of Thucydides Trap between the two. Professor Joseph Nye Jr particularizes the possibility of a Kindleberger Trap emerging in the global order, if China does not take up the mantle of providing global public goods following the weakening and eventual demise of USA. Others believe that China will rise ‘peacefully’ as the new global hegemon provided that USA is willing to accommodate the intensifying national interests of China. At this stage it is still uncertain how China’s rise will pan out on a geospatial context. Consequently the coming decades bring substantial uncertainty to the world. 

Will the American hegemony crumble similar to the British in the 20^th Century or will an infusion of a robust US foreign policy mitigate this decline? Recently President Xi reiterated his support towards the process of a globalized community in Davos but the implications and fallout from the recent rise of populism, first in Latin America (with the Pink Tide movement) and then more overtly in Western Europe signals the pressures that exist on globalization. Regardless of our conjectures for these questions we can no longer doubt that the US hegemony is increasingly under threat and will continue to be in the years to come. Where China stands on the norms, institutions and regimes and to what degree the Asian Dragon alters these structures (and thereby the international order) will have significant ramifications on the forces of globalization and the global security architecture. What has transpired thus far leads to a mixed bag of apprehension and uncertainty that can only be answered in the years to come.

-        - Guest Commentary : Shakthi De Silva