COMPLEMENTS:

Armements en Asie  USA: Diplomatie   USA et Asie du Sud Attaque terroriste du 11 septembre 2001

US and China  USA-CoréeNord USA-Middle East

Courtesy of US embassy in Paris, selected and organised by Geoscopie 

Marguerite-Marie LE ROY IRC Director email: leroym@usia.gov / leroym@amb-usa.f http://www.amb-usa.fr/irc/home.htm

Documents sur les Etats-Unis

Council on Foreign Relations. Stokes, Bruce. NEW BEGINNING: Recasting the U.S.-Japan Economic Relationship Study. July 2000.. 120p http://www.cfr.org/p/resource.cgi?pub!3700 http://www.cfr.org/p/pubs/Stokes_NewBeginning_Paper.pdf

Growing Pains: Trade Frictions Corrode the U.S.-Asian Relationship

Bosworth, Barry P.The Brookings Review, vol. 14, no. 1, Winter 1996, pp. 4-9

The author contends that much of the U.S. deficit in regional trade stems from business decisions by U.S. firms to rely on low-wage Asian workers for processing products that are re-exported to the U.S. market. "The unbalanced nature of U.S.-Asian trade is having a corrosive effect on the relationship. Reducing the trade imbalance is fundamental to developing an expanded American partnership with Asia which enjoys widespread support within the United States."

Market Opening or Corporate Welfare? "Results-Oriented' Trade Policy toward Japan Latham, Scott (international trade consultant)

Cato Institute, Policy Analysis, No. 252, April 15, 1996. 47p"For decades the U.S. government has singled out Japan as a country guilty of particularly grievous protectionist policies and has forced on =it special trade arrangements." The author examines three cases -autos, semiconductors and photographic film- to demonstrate that "results-based trade policy is not about opening markets at all but about granting =

special favors to prominent and politically powerful U.S. industries. It is about corporate welfare in the international arena." The author fiercely criticizes Clinton Administration's trade policies.

U.S.-Northeast Asia Economic Strategy: A Five-Year View

Duestenberg, Thomas J. (The Hudson Institute)Duestenberg, Thomas J. (The Hudson Institute)The Washington Quarterly, Spring 1997, pp 183-199

"Having dynamic and open economies in Northeast Asia is very much in the interest of the entire international community. This community lacks the sort of leadership that the United States and its European allies supplied after World War II, when the Bretton Woods system as conceived and successfully put in place. It is now up to the United States to convince its European and other free-trading allies to work with Northeast Asia to bring the most dynamic economies in the world fully into that system."

Japan s Self-Defeating Trade Policy: Mainframe Economics in a PC World

Katz, Richard Katz, Richard The Washington Quarterly, Spring 1997, pp 153-181

"Like many IBM veterans who would still like to keep pushing out mainframe computers in a PC world, Japan continues to adhere to obsolete policies simply because they used to work. Japan is blinded by the glare of past triumphs."

China s Growing Trade Surplus: Why It Matters

Mastel, Greg: Szamosszegi (Economic Strategy Institute)Mastel, Greg: Szamosszegi (Economic Strategy Institute)The Washington Quarterly, Spring 1997, pp 201-212

"Transitory trade imbalances may occur with any trading partner, but the problems with China are deeper and the direct result of Chinese government policy. Although a normal trading relationship is unquestionably beneficial for both parties, trade with a modern mercantilist state may not be in Washington s best interest. At the very least, the United States need to explore innovative approaches for dealing with the emerging trade problems outlined in this article so as not to repeat past mistakes."

Toward Free Trade and Investment in the Asia-Pacific.

Hufbauer Gary Schott, Jeffrey J.The Washington Quarterly, Summer 1995, p 37-45"We first summarize the Bogor declaration. We then assess Asian partiality toward do-it-yourself' liberalization, and evaluate the toe-in-the-water' negotiations initiated by the APEC member countries. Next we speculate on the durability of the APEC process. We conclude with a discussion of the implications of APEC developments for the new World Trade Organization." How the Commerce Department Helps U.S. firms Export to Japan. How the Commerce Department Helps U.S. firms Export to Japan. Business America, November 1995, pp 4-7 "As the U.S. Government continues to negotiate with the Japanese Government to reduce trade barriers and restrictive business practices, an active trade promotion program is following up on these market-opening initiatives." *COMMERCE SECRETARY DALEY 2/16 REMARKS TO JAPAN AMCHAM

("Japan holds key to Asia's economic recovery")Tokyo -- Japan's actions over the coming months will be crucial for Asia's economic recovery and "important to the future prosperity of the world," according to Secretary of Commerce William Daley. Speaking before the American Chamber of Commerce in Tokyo February 16, Daley said: "Asia cannot recover without a healthy and growing Japan. And second, Japan's continued economic growth is dependent upon a healthy Asia.Following is are excerpts of Daley's remarks, as prepared for delivery:...This is my first trip to Japan as Commerce Secretary. Later this week I will visit Korea and Singapore, but it is very symbolic that I begin in Japan. For Japan is Asia's largest economy and trading nation by far. And right now Japan holds the key to Asia's economic recovery. What Japan does in the coming months is, indeed, profoundly important to the future prosperity of the world.Last month, in his State of the Union address, President Clinton talked to the American people about the financial problems of Asia. He said because the turmoil in Asia will have an impact on all of the world's economies, making that negative impact as small as possible is the right thing to do for America. And the right thing to do for a safer world.Japan has already done much. It has committed $30 billion in balance of payments and development assistance, loans, and insurance to other Asian countries. That is more than any other nation in the world.So, I have come to Japan to listen, learn, and gather facts from U.S. firms in the region about the challenges you face. I come from the private sector, and I know how important it is that we support you in your efforts to create jobs. And I am here to discuss with Japanese leaders the responsibilities facing both the United States and Japan. As the world's two largest economies, each of our nations has great responsibilities, and we must both acknowledge this fact.This is the time to lead. And these are times when friends and allies must also speak frankly. The stakes are too high to permit anything else. It is in this spirit that I have come to Tokyo.As I survey the scene here, two things are obvious. First, Asia cannot recover without a healthy and growing Japan. And second, Japan's continued economic growth is dependent upon a healthy Asia. The numbers say it all -- 70 percent of the dollar value of Asia's goods and services are produced in Japan. Let me repeat that: 70 percent of Asia's goods and services are produced in Japan.Today almost 55 percent of Asia's exports are intra-Asian trade. More than 40 percent of Japan's exports go to Asia, meaning that Japan ships nearly twice as much to Asia as to the United States.The message is clear. Japan cannot export to Asian countries unless their economies are healthy, but the other Asian nations cannot recover unless they can export more to Japan. Producers in each country are consumers for each other, and vice versa. It is an integrated system, with Japan at its center. As Japan goes, so goes Asia.Right now, Japan has a bad cold. Economic growth has been virtually stagnant since the early 1990s. In the last seven years, while American industrial production increased one-fourth, Japanese industrial production grew only 4 percent. Moreover, under current economic policies, the outlook for growth is bleak. I know you share my distress at seeing that the Asian private forecasters now expect Japan's real GDP will grow only two-tenths of one percent in 1998. So the message I bring to Japan's leaders is this -- the most important contributions Japan can make to restore stability and growth in Asia are to take steps necessary first, to strengthen domestic demand; second, to deregulate Japan's economy; and third, to open up to imports.First, let me talk about strengthening domestic demand. Faster economic growth in Japan would not hurt the Japanese people. It would help them. A major concern of Japan, for instance, is how to deal with the budgetary realities of an aging population. We have the same worry in America. President Clinton has said saving social security is his first priority with his budget. In Japan, only faster economic growth can generate the resources necessary to deal with an aging population.Reducing the government deficit is an important goal for Japan. For years and years, Japan would tell us to get our economic house in order. And the Japanese government was absolutely right. We needed to bring down Washington's huge budget deficit...I want to point out Japan already has taken significant steps that are a good start in promoting growth. It has begun to address the stability of its own banking system, including a 30 trillion yen package of measures. Success here is vital. And the fiscal stimulus measures in the supplementary budget are a welcome first step to address the slow growth of the domestic economy. However, even with these welcome steps, Japan's overall fiscal policy remains restrictive and still insufficient to move the economy forward.Clearly more needs to be done if there is to be vigorous domestic-demand led growth in Japan. Japan cannot rely on export-led growth. The growth must come from within the domestic economy. And we hope the Japanese authorities are ready to take further actions that are required in a timely fashion. A second urgent need is for Japan to move forward with deregulation. Excessive regulation has stifled economic growth. It has retarded competition. It has raised prices in many sectors. And it has been a major cause of import barriers and trade friction. As you and I know regulation of the wholesale and retail sector, for example, is a major cause of trade friction between our countries. But it also imposes a dramatic cost on the Japanese consumer. This sector employs about one-fifth of the entire Japanese work force. Yet it is less than half as efficient as in the United States. In essence, the regulation of this sector means the Japanese consumer pays twice as much while facing restricted product choice.In a recent study, Japan's Ministry of International Trade and Industry projected that in the absence of deregulation, economic growth will continue to decline, approaching a trend of less than one percent a year early in the next century.The Japanese government knows what must be done, and Prime Minister Hashimoto has proposed ambitious reforms. We look for urgent implementation of these reforms on a priority basis. I am hopeful. At the Denver Summit last year, the Prime Minister announced the Enhanced Deregulation Initiative, and promised results by the time of the Birmingham Summit this May. The whole world will be watching to see what Japan brings to that Summit.Third, we hope Japan will show decisive and vitally needed regional leadership by directly reducing trade barriers and seeking to foster a climate of trade liberalization in Asia. The financial crisis creates a temptation for Asian nations to retrench and move backward in trade liberalization. Japan must avoid this temptation. It should do just the opposite. It should lead the other nations in understanding that trade barriers were a contributor to the region's problems. And Japan should be the example for the region -- showing that economic growth requires not just maintaining openness, but cutting trade barriers further.One of the best ways to do this would be to accelerate market opening moves already discussed in APEC. Last November, in Vancouver, the leaders identified nine sectors where barriers could be eliminated. Japan would send a strong signal to other Asian nations, if it would commit to liberalizing all nine sectors -- including such difficult areas as fish and forest products. So I am urging Japanese leaders to join with the United States in leading APEC to move on eliminating these trade barriers...

Is the Asian Flu Fatal?  Glassman, James K.; and others Reason, May 1998, pp. 18-27In a roundtable discussion, leading economists analyze the Asian financial crisis and what should be America's response. They compare the problems in Indonesia, Thailand, and Korea with those earlier in the decade in Japan, and stress that bad policy choices by governments and foreign banks that ignore risk set the stage for the current difficulties. James Glassman, a WASHINGTON POST columnist and American Enterprise Institute fellow, led the discussion. Other participants were Brink Lindsey, of the Cato Institute; Robert Litan, of the Brookings Institution; Sebastian Mallaby, of THE ECONOMIST; and Allan H. Meltzer, of Carnegie Mellon University and the American Enterprise Institute.

 *STATE DEPARTMENT OFFICIAL URGES THAT CHINA AVOID DEVALUATION (Larson says decision not to devalue helps region) By Warner Rose, USIA Staff WriterWashington -- The best way China can help resolve the economic crisis in Asia is by not devaluing its currency, says a top State Department international economic policy maker. "The most important single thing that China can do to contribute to the stabilization of the Asian economy is to maintain its exchange rate parity and to avoid any kind of depreciation that would foster depreciations elsewhere in the region," Alan Larson, assistant secretary of state for economic and business affairs, said March 4 at the Foreign Press Center.Chinese Deputy Premier Zhu Rongji gave assurances to U.S. Deputy Treasury Secretary Lawrence Summers in January that China would not devalue, Larson said. "That is a very constructive contribution to overall stability," he said.When a country devalues its currency, its exports become less expensive to foreign buyers while its imports become more expensive. There has been concern that any currency devaluation by China would spark devaluations by other Asian countries attempting to keep their export prices competitive with China's.China's on-going efforts to make major reforms in its economy should be conflict with "maintaining a strong, stable currency," Larson added.Larson said Congress was likely to have a fight again this year over renewal of China's normal trade status, known as most favored nation (MFN) treatment. "The MFN question has become in some respects a referendum on the broad questions of policy toward China and of some of China's overall practices, and it extends beyond the issues of trade," he said. The president must issue an annual waiver for Chinese goods to continue to enter the United States under MFN treatment. Every year since 1989, members of Congress have introduced legislation attempting to overturn the president's waiver, citing human rights issues.The U.S. government, said Larson, seeks discussions with the Chinese on a variety of issues covering human rights, exports of missile and nuclear technology and other trade and non-trade issues that also concern members of Congress who may be interested in trying to block China's MFN renewal. "What I find when I talk to senators and congressmen about China MFN is an interest by many in having a very clear sense that China is moving in the direction of stronger support for human rights, protection of dissidents, support for religious freedom, support for international rules on non-proliferation," he said. These same issues will certainly come up again this year as July 3 (the date for reissuing the waiver) approaches, said Larson. "The difficulty or the ease in dealing with MFN will depend on whether there has been progress on these issues," he said.On the planned April meeting in Washington of finance ministers of 22 countries to discuss the Asian crisis and ideas for a new international financial architecture, Larson said there was no agenda at this time and the date had not been fixed. Attending the meeting will be the finance ministers of the Group of Seven major industrial countries and 15 other governments. The discussions will focus on ways to make the world financial system more transparent by making needed information more readily available. "Because capital is much more mobile than it use to be ... you have a system that is becoming increasingly sensitive to information," he said. Is There a Monetary Union in Asia's Future?    Eichengreen, Barry The Brookings Review, Spring 1997, pp 33-35"Gazing far into the 21st century, one can imagine the development of a single Asian currency analogous to the Euro... In a world of open international capital markets and politicized domestic policy settings, that will be the only alternative to floating exchange rates. As the economies of East Asia grow still more open and interdependent, pressure will build to work toward this goal. But as yet the political preconditions are not in place." *GREENSPAN ON ASIA AND THE U.S. ECONOMY(Remarkable strength but worrisome "storm clouds")Washington -- Federal Reserve Board Chairman Alan Greenspan sees remarkable strength in the U.S. economy but large uncertainties in 1998 due to the Asian financial crisis. "The outlook for total spending on goods and services produced in the United States is less assured of late because of storm clouds massing over the Western Pacific and heading our way," Greenspan said February 24 in his semi-annual report to Congress on the state of U.S. economy.Following is the text of Greenspan's remarks as prepared for delivery:Monetary Policy Testimony and Report to the CongressTestimony of Alan Greenspan, Chairman, Federal Reserve Board February 24, 1998

Mr. Chairman and members of the Committee, I welcome this opportunity to present the Federal Reserve's semiannual report on economic conditions and the conduct of monetary policy.

The U.S. Economy in 1997

The U.S. economy delivered another exemplary performance in 1997. Over the four quarters of last year, real GDP expanded close to 4 percent, its fastest annual increase in ten years. To produce that higher output, about 3 million Americans joined the nation's payrolls, in the process contributing to a reduction in the unemployment rate to 4-3/4 percent, its lowest sustained level since the late 1960s. And our factories were working more intensively too: Industrial production increased 5-3/4 percent last year, exceeding robust additions to capacity.Those gains were shared widely. The hourly wage and salary structure rose about 4 percent, fueling impressive increases in personal incomes. Unlike some prior episodes when faster wage rate increases mainly reflected attempts to make up for more rapidly rising prices of goods and services, the fatter paychecks that workers brought home represented real increments to purchasing power. Measured consumer price inflation came in at 1-3/4 percent over the twelve months of 1997, down about 1-1/2 percentage points from the pace of the prior year. While swings in the prices of food and fuel contributed to this decline, both narrower price indexes excluding those items and broader ones including all goods and services produced in the United States also paint a portrait of continued progress toward price stability. Businesses, for the most part, were able to pay these higher real wages while still increasing their earnings. Although aggregate data on profits for all of 1997 are not yet available, corporate profit margins most likely remained in an elevated range not seen consistently since the 1960s. These healthy gains in earnings and the expectations of more to come provided important support to the equity market, with most major stock price indexes gaining more than 20 percent over the year.The strong growth of the real income of workers and corporations is not unrelated to the economy's continued good performance on inflation. Taken together, recent evidence supports the view that such low inflation, as closely approaching price stability as we have known in the United States in three decades, engenders many benefits. When changes in the general price level are small and predictable, households and firms can plan more securely for the future. The perception of reduced risk encourages investment. Low inflation also exerts a discipline on costs, fostering efforts to enhance productivity. Productivity is the ultimate source of rising standards of living, and we witnessed a notable pickup in this measure in the past two years.The robust economy has facilitated the efforts of the Congress and the Administration to restore balance in the unified federal budget. As I have indicated to the Congress on numerous occasions, moving beyond this point and putting the budget in significant surplus would be the surest and most direct way of increasing national saving. In turn, higher national saving, by promoting lower real long-term interest rates, helps spur spending to outfit American firms and their workers with the modern equipment they need to compete successfully on world markets. We have seen a partial down payment of the benefits of better budget balance already: It seems reasonable to assume that the decline in longer-term Treasury yields last year owed, in part, to reduced competition -- current and prospective -- from the federal government for scarce private saving. However, additional effort remains to be exerted to address the effects on federal entitlement spending of the looming shift within the next decade in the nation's retirement demographics.As I noted earlier, our nation has been experiencing a higher growth rate of productivity -- output per hour worked -- in recent years. The dramatic improvements in computing power and communication and information technology appear to have been a major force behind this beneficial trend. Those innovations, together with fierce competitive pressures in our high-tech industries to make them available to as many homes, offices, stores, and shop floors as possible, have produced double-digit annual reductions in prices of capital goods embodying new technologies. Indeed, many products considered to be at the cutting edge of technology as recently as two to three years ago have become so standardized and inexpensive that they have achieved near "commodity" status, a development that has allowed businesses to accelerate their accumulation of more and better capital.Critical to this process has been the rapidly increasing efficiency of our financial markets -- itself a product of the new technologies and of significant market deregulation over the years. Capital now flows with relatively little friction to projects embodying new ideas. Silicon Valley is a tribute both to American ingenuity and to the financial system's ever-increasing ability to supply venture capital to the entrepreneurs who are such a dynamic force in our economy.With new high-tech tools, American businesses have shaved transportation costs, managed their production and use of inventories more efficiently, and broadened market opportunities. The threat of rising costs in tight labor markets has imparted a substantial impetus to efforts to take advantage of possible efficiencies. In my Humphrey-Hawkins testimony last July, I discussed the likelihood that the sharp acceleration in capital investment in advanced technologies beginning in 1993 reflected synergies of new ideas, embodied in increasingly inexpensive new equipment, that have elevated expected returns and have broadened investment opportunities.More recent evidence remains consistent with the view that this capital spending has contributed to a noticeable pickup in productivity -- and probably by more than can be explained by usual business cycle forces. For one, the combination of continued low inflation and stable to rising domestic profit margins implies quite subdued growth in total consolidated unit business costs. With labor costs constituting more than two-thirds of those costs and labor compensation per hour accelerating, productivity must be growing faster, and that stepup must be roughly in line with the increase in compensation growth. For another, our more direct observations on output per hour roughly tend to confirm that productivity has picked up significantly in recent years, although how much the ongoing trend of productivity has risen remains an open question.The acceleration in productivity, however, has been exceeded by the strengthening of demand for goods and services. As a consequence, employers had to expand payrolls at a pace well in excess of the growth of the working age population that profess a desire for a job, including new immigrants. As I pointed out last year in testimony before the Congress, that gap has been accommodated by declines in both the officially unemployed and those not actively seeking work but desirous of working. The number of people in those two categories decreased at a rate of about one million per year on average over the last four years. By December 1997, the sum had declined to a seasonally adjusted 10-1/2 million, or 6 percent of the working age population, the lowest ratio since detailed information on this series first became available in 1970. Anecdotal information from surveys of our twelve Reserve Banks attests to our ever tightening labor markets.Rapidly rising demand for labor has had enormous beneficial effects on our work force. Previously low- or unskilled workers have been drawn into the job market and have obtained training and experience that will help them even if they later change jobs. Large numbers of underemployed have been moved up the career ladder to match their underlying skills, and many welfare recipients have been added to payrolls as well, to the benefit of their long-term job prospects.The recent acceleration of wages likely has owed in part to the ever-tightening labor market and in part to rising productivity growth, which, through competition, induces firms to grant higher wages. It is difficult at this time, however, to disentangle the relative contributions of these factors. What is clear is that, unless demand growth softens or productivity growth accelerates even more, we will gradually run out of new workers who can be profitably employed. It is not possible to tell how many more of the 6 percent of the working-age population who want to work but do not have jobs can be added to payrolls. A significant number are so-called frictionally unemployed, as they have left one job but not yet chosen to accept another. Still others have chosen to work in only a limited geographic area where their skills may not be needed.

Should demand for new workers continue to exceed new supply, we would expect wage gains increasingly to exceed productivity growth, squeezing profit margins and eventually leading to a pickup in inflation. Were a substantial pickup in inflation to occur, it could, by stunting economic growth, reverse much of the remarkable labor market progress of recent years. I will be discussing our assessment of these and other possibilities and their bearing on the outlook for 1998 shortly.

Monetary Policy in 1997

History teaches us that monetary policy has been its most effective when it has been preemptive. The lagging relationship between the Federal Reserve's policy instrument and spending, and, even further removed, inflation, implies that if policy actions are delayed until prices begin to pick up, they will be too late to fend off at least some persistent price acceleration and attendant economic instabilities. Preemptive policymaking is keyed to judging how widespread are emerging inflationary forces, and when, and to what degree, those forces will be reflected in actual inflation. For most of last year, the evident strains on resources were sufficiently severe to steer the Federal Open Market Committee (FOMC) toward being more inclined to tighten than to ease monetary policy. Indeed, in March, when it became apparent that strains on resources seemed to be intensifying, the FOMC imposed modest incremental restraint, raising its intended federal funds rate 1/4 percentage point, to 5-1/2 percent.We did not increase the federal funds rate again during the summer and fall, despite further tightening of the labor market. Even though the labor market heated up and labor compensation rose, measured inflation fell, owing to the appreciation of the dollar, weakness in international commodity prices, and faster productivity growth. Those restraining forces were more evident in goods-price inflation, which in the CPI slowed substantially to only about 1/2 percent in 1997, than on service-price inflation, which moderated much less--to around 3 percent. Providers of services appeared to be more pressed by mounting strains in labor markets. Hourly wages and salaries in service-producing sectors rose 4-1/2 percent last year, up considerably from the prior year and almost 1-1/2 percentage points faster than in goods-producing sectors. However, a significant portion of that differential, but by no means all, traced to commissions in the financial and real estate services sector related to one-off increases in transactions prices and in volumes of activity, rather than to increases in the underlying wage structure.

Although the nominal federal funds rate was maintained after March, the apparent drop in inflation expectations over the balance of 1997 induced some firming in the stance of monetary policy by one important measure -- the real federal funds rate, or the nominal federal funds rate less a proxy for inflation expectations. Some analysts have dubbed the contribution of the reduction in inflation expectations to raising the real federal funds rate a "passive" tightening, in that it increased the amount of monetary policy restraint in place without an explicit vote by the FOMC. While the tightening may have been passive in that sense, it was by no means inadvertent. Members of the FOMC took some comfort in the upward trend of the real federal funds rate over the year and the rise in the foreign exchange value of the dollar because such additional restraint was viewed as appropriate given the strength of spending and building strains on labor resources. They also recognized that in virtually all other respects financial markets remained quite accommodative and, indeed, judging by the rise in equity prices, were providing additional impetus to domestic spending.

The Outlook for 1998

There can be no doubt that domestic demand retained considerable momentum at the outset of this year. Production and employment have been on a strong uptrend in recent months. Confident households, enjoying gains in income and wealth and benefitting from the reductions in intermediate- and longer-term interest rates to date, should continue to increase their spending. Firms should find financing available on relatively attractive terms to fund profitable opportunities to enhance efficiency by investing in new capital equipment. By itself, this strength in spending would seem to presage intensifying pressures in labor markets and on prices. Yet, the outlook for total spending on goods and services produced in the United States is less assured of late because of storm clouds massing over the Western Pacific and heading our way.This is not the place to examine in detail what triggered the initial problems in Asian financial markets and why the subsequent deterioration has been so extreme. I covered that subject recently before several committees of the Congress. Rather, I shall confine my discussion this morning to the likely consequences of the Asian crisis for demand and inflation in the United States.With the crisis curtailing the financing available in foreign currencies, many Asian economies have had no choice but to cut back their imports sharply. Disruptions to their financial systems and economies more generally will further damp demands for our exports of goods and services. American exports should be held down as well by the appreciation of the dollar, which will make the prices of competing goods produced abroad more attractive, just as foreign-produced goods will be relatively more attractive to buyers here at home. As a result, we can expect a worsening net export position to exert a discernible drag on total output in the United States. For a time, such restraint might be reinforced by a reduced willingness of U.S. firms to accumulate inventories as they foresee weaker demand ahead.The forces of Asian restraint could well be providing another, more direct offset to inflationary impulses arising domestically in the United States. In the wake of weakness in Asian economies and of lagged effects of the appreciation of the dollar more generally, the dollar prices of our non-oil imports are likely to decline further in the months ahead. These lower import prices are apparently already making domestic producers hesitant to raise their own prices for fear of losing market share, further contributing to the restraint on overall prices. Lesser demands for raw materials on the part of Asian economies as their activity slows should help to keep world commodity prices denominated in dollars in check. Import and commodity prices, however, will restrain U.S. inflation only as long as they continue to fall, or to rise at a slower rate than the pace of overall domestic product prices.The key question going forward is whether the restraint building from the turmoil in Asia will be sufficient to check inflationary tendencies that might otherwise result from the strength of domestic spending and tightening labor markets. The depth of the adjustment abroad will depend on the extent of weakness in the financial sectors of Asian economies and the speed with which structural inefficiencies in the financial and nonfinancial sectors of those economies are corrected. If, as we suspect, the restraint coming from Asia is sufficient to bring the demand for American labor back into line with the growth of the working-age population desirous of working, labor markets will remain unusually tight, but any intensification of inflation should be delayed, very gradual, and readily reversible. However, we cannot rule out two other, more worrisome possibilities. On the one hand, should the momentum to domestic spending not be offset significantly by Asian or other developments, the U.S. economy would be on a track along which spending could press too strongly against available resources to be consistent with contained inflation. On the other, we also need to be alert to the possibility that the forces from Asia might damp activity and prices by more than is desirable by exerting a particularly forceful drag on the volume of net exports and the prices of imports.When confronted at the beginning of this month with these, for the moment, finely balanced, though powerful forces, the members of the Federal Open Market Committee decided that monetary policy should most appropriately be kept on hold. With the continuation of a remarkable seven-year expansion at stake and so little precedent to go by, the range of our intelligence gathering in the weeks ahead must be wide and especially inclusive of international developments. The Forecasts of the Governors of the Federal Reserve Board and the Presidents of the Federal Reserve Banks.In these circumstances, the forecasts of the governors of the Federal Reserve Board and presidents of the Federal Reserve Banks for the performance of the U.S. economy over this year are more tentative than usual. Based on information available through the first week of February, monetary policymakers were generally of the view that moderate economic growth is likely in store. The growth rate of real GDP is most commonly seen as between 2 and 2-3/4 percent over the four quarters of 1998. Given the strong performance of real GDP, these projections envisage the unemployment rate remaining in the low range of the past half year. Inflation, as measured by the four-quarter percent change in the consumer price index, is expected to be 1-3/4 to 2-1/4 percent in 1998 -- near the low rate recorded in 1997. This outlook embodies the expectation that the effects of continuing tightness in labor markets will be largely offset by technical adjustments shaving a couple tenths from the published CPI, healthy productivity growth, flat or declining import prices, and little pressure in commodity markets. But the policymakers' forecasts also reflect their determination to hold the line on inflation.

The Ranges for the Debt and Monetary Aggregates

The FOMC affirmed the provisional ranges for the monetary aggregates in 1998 that it had selected last July, which, once again, encompass the growth rates associated with conditions of approximate price stability, provided that these aggregates act in accord with their pre-1990s historical relationships with nominal income and interest rates. These ranges are identical to those that had prevailed for 1997--1 to 5 percent for M2 and 2 to 6 percent for M3. The FOMC also reaffirmed its range of 3 to 7 percent for the debt of the domestic nonfinancial sectors for this year. I should caution, though, that the expectations of the governors and Reserve Bank presidents for the expansion of nominal GDP in 1998 suggest that growth of M2 in the upper half of its benchmark range is a distinct possibility this year. Given the continuing strength of bank credit, M3 might even be above its range as depositories use liabilities in this aggregate to fund loan growth and securities acquisitions. Nonfinancial debt should come in around the middle portion of its range. In the first part of the 1990s, money growth diverged from historical relationships with income and interest rates, in part as savers diversified into bond and stock mutual funds, which had become more readily available and whose returns were considerably more attractive than those on deposits. This anomalous behavior of velocity severely set back most analysts' confidence in the usefulness of M2 as an indicator of economic developments. In recent years, there have been tentative signs that the historical relationship linking the velocity of M2--measured as the ratio of nominal GDP to the money stock--to the cost of holding M2 assets was reasserting itself. However, a persistent residual upward drift in velocity over the past few years and its apparent cessation very recently underscores our ongoing uncertainty about the stability of this relationship. The FOMC will continue to observe the evolution of the monetary and credit aggregates carefully, integrating information about these variables with a wide variety of other information in determining its policy stance.

Uncertainty about the Outlook

With the current situation reflecting a balance of strong countervailing forces, events in the months ahead are not likely to unfold smoothly. In that regard, I would like to flag a few areas of concern about the economy beyond those mentioned already regarding Asian developments.Without doubt, lenders have provided important support to spending in the past few years by their willingness to transact at historically small margins and in large volumes. Equity investors have contributed as well by apparently pricing in the expectation of substantial earnings gains and requiring modest compensation for the risk that those expectations could be mistaken. Approaching the eighth year of the economic expansion, this is understandable in an economic environment that, contrary to historical experience, has become increasingly benign. Businesses have been meeting obligations readily and generating high profits, putting them in outstanding financial health.But we must be concerned about becoming too complacent about evaluating repayment risks. All too often at this stage of the business cycle, the loans that banks extend later make up a disproportionate share of total nonperforming loans. In addition, quite possibly, twelve or eighteen months hence, some of the securities purchased on the market could be looked upon with some regret by investors. As one of the nation's bank supervisors, the Federal Reserve will make every effort to encourage banks to apply sound underwriting standards in their lending. Prudent lenders should consider a wide range of economic situations in evaluating credit; to do otherwise would risk contributing to potentially disruptive financial problems down the road.A second area of concern involves our nation's continuing role in the new high-tech international financial system. By joining with our major trading partners and international financial institutions in helping to stabilize the economies of Asia and promoting needed structural changes, we are also encouraging the continued expansion of world trade and global economic and financial stability on which the ongoing increase of our own standards of living depends. If we were to cede our role as a world leader, or backslide into protectionist policies, we would threaten the source of much of our own sustained economic growth.A third risk is complacency about inflation prospects. The combination and interaction of significant increases in productivity-improving technologies, sharp declines in budget deficits, and disciplined monetary policy has damped product price changes, bringing them to near stability. While part of this result owes to good policy, part is the product of the fortuitous emergence of new technologies and of some favorable price developments in imported goods. However, as history counsels, it is unwise to count on any string of good fortune to continue indefinitely. At the same time, though, it is also instructive to remember the words of an old sage that "luck is the residue of design." He meant that to some degree we can deliberately put ourselves in position to experience good fortune and be better prepared when misfortune strikes. For example, the 1970s were marked by two major oil-price shocks and a significant depreciation in the exchange value of the dollar. But those misfortunes were, in part, the result of allowing imbalances to build over the decade as policymakers lost hold of the anchor provided by price stability. Some of what we now see helping rein in inflation pressures is more likely to occur in an environment of stable prices and price expectations that thwarts producers from indiscriminately passing on higher costs, puts a premium on productivity enhancement, and rewards more effectively investment in physical and human capital.

Simply put, while the pursuit of price stability does not rule out misfortune, it lowers its probability. If firms are convinced that the general price level will remain stable, they will reserve increases in their sales prices of goods and services as a last resort, for fear that such increases could mean loss of market share. Similarly, if households are convinced of price stability, they will not see variations in relative prices as reasons to change their long-run inflation expectations. Thus, continuing to make progress toward this legislated objective will make future supply shocks less likely and our nation's economy less vulnerable to those that occur

12/21/98

*FACT SHEET: APEC ECONOMIC LEADERS MEETING (1998) -- OUTCOMES

(APEC finance crisis strategy based on Clinton initiative)Washington -- When the leaders of the 21 economies that make up the Asia-Pacific Economic Cooperation (APEC) forum met recently in Kuala Lumpur they embraced a comprehensive, detailed, broad-based strategy to overcome the financial crisis and urgently spur renewed and sustainable growth.According to a fact sheet released by the Department of State, this strategy -- based largely on President Clinton's September 14 proposal before the Council on Foreign Relations -- emphasizes the necessity of individual economies implementing prudent, growth-oriented macroeconomic policies and cooperative efforts to strengthen financial institutions and markets, further liberalize trade and investment, and build the capacity of developing economies.Following is the Department of State fact sheet: APEC ECONOMIC LEADERS MEETING (1998) -- OUTCOMESLeaders embraced a comprehensive, detailed, broad-based strategy -- based largely on President Clinton's September 14 initiative -- to overcome the financial crisis and urgently spur renewed and sustainable growth. This strategy emphasizes the necessity of individual economies implementing prudent, growth-oriented macroeconomic policies and cooperative efforts to strengthen financial institutions and markets, further liberalize trade and investment, and build the capacity of developing economies. Leaders acknowledged the many positive steps taken by individual economies (such as the U.S. lowering of short-term interest rates) and launched additional concrete action plans and programs.-- Finance Ministers will develop measures to help improve transparency and accountability in the international financial system, strengthen national financial systems and market infrastructure, and involve the private sector more effectively in the prevention and orderly resolution of international financial crises. Finance Ministers will report on implementation of this work and on their programs to improve economic and corporate governance and strengthen financial supervisory regimes to Leaders in September 1999.-- Leaders acknowledged: Japan's commitment of substantial public resources to strengthen its financial system and stimulate growth; some economies' provision of additional resources to the IMF; G-7 support for a new contingent, precautionary line of credit anchored in the IMF; China's maintenance of the renminbi exchange rate, implementation of growth-oriented macroeconomic policies and pledge to continue reforms of its banking system and state-owned enterprises; and implementation of strong reform programs in developing economies, especially Thailand, the Philippines, and Korea.-- The U.S. and Japan, with support from the ADB and IBRD, announced a multilateral initiative to help revitalize private sector growth by supporting economies' efforts to accelerate the pace of bank and corporate restructuring, mobilizing new private sector financing, and promoting the restoration of growth.-- At Secretary Albright's initiative, APEC will work to develop a social framework for growth to help the most vulnerable to the hardships arising from the crisis. Additionally, the World Bank and the ADB have pledged to triple and double, respectively, their support for social sector programs.-- Leaders called for examination of actions on strengthening domestic financial systems to withstand the potentially destabilizing impact of short-term flows (including hedge funds) and to ensure allocation of long-term capital to productive uses. The United States will lead this examination.-- We succeeded in gaining APEC endorsement to move the tariff elements of EVSL into the WTO. APEC is challenging the world trading system to conclude this broad liberalization package in 1999. It will be important for all APEC economies, including Japan, to remain committed to successful conclusion of this package in the WTO. It was also agreed to begin implementing within APEC an ambitious work program on the non-tariff aspects of EVSL (e.g. NTMs, services, economic and technical cooperation).-- At the initiative of Vice President Gore, PM Shipley agreed to look at how APEC can advance work on global climate change.-- Leaders endorsed the recommendations of the Natural Gas Initiative and the vision of an integrated gas infrastructure for the region. The private sector is working on how to help governments take the policy steps necessary to bring this vision to reality.-- Leaders pushed forward efforts to promote and facilitate the development of electronic commerce.-- Leaders renewed their commitment to advance sustainable development throughout APEC's workplan including programs on sustainable cities, cleaner production, and protection of the marine environment.

*USTR ON FOREIGN SHARE OF JAPANESE SEMICONDUCTOR MARKET 12/23/98(U.S. will continue to press Japan to deregulate economy)Washington -- Foreign share of the Japanese semiconductor market rebounded to its second-highest level ever in the second quarter of 1998, even as sales from U.S. and foreign suppliers fell during the quarter, according to the Office of the U.S. Trade Representative (USTR).In a statement released December 23, USTR noted that foreign market share gained overall because the Japanese semiconductor market declined even more during the period. Over the past three quarters, USTR said, the Japanese semiconductor market has shrunk 22.5 percent.  Following is the official text of the statement:Foreign share of the Japanese semiconductor market rebounded to its second-highest level ever in the second quarter of 1998, rising to 33.9 percent from 31.7 percent in the first quarter, even as sales from U.S. and foreign suppliers fell during the quarter. In 1997, foreign share averaged 33.3 percent, up from an average of 27.5 percent in 1996. Foreign market share gained overall because the Japanese semiconductor market declined even more during the period. Over the past three quarters, the Japanese semiconductor market has shrunk 22.5 percent. "Although we are pleased that the U.S. and other foreign suppliers continue to maintain a competitive position in the Japanese semiconductor market, we are concerned about the absolute downturn in sales," said Ambassador Charlene Barshefsky. "We will continue to monitor the situation carefully since the U.S. offers competitive semiconductor products for sale in all sectors of the market. The downturn in overall sales underscores the importance for more effective measures on the part of the Japanese government to stimulate domestic demand-led growth. The United States will continue to press Japan to further deregulate its economy, move toward domestic demand-led growth, implement financial reforms on an accelerated basis, and undertake market-opening reforms across-the-board. Only through such comprehensive measures can Japan create a climate of growth that can effectively stimulate the Asia-Pacific region."One of the key elements of the 1996 semiconductor agreement is the provision for cooperative activities between foreign semiconductor suppliers and Japanese users, in areas such as automotive, telecommunications and emerging applications. "We are gratified by the high level of interest shown by U.S. suppliers and Japanese semiconductor users which is occurring under the framework of the 1996 U.S.-Japan semiconductor agreement. We expect that U.S. chipmakers and their Japanese customers will continue to work together to develop the new products that will drive consumer demand and help the Japanese economy recover 1999," Ambassador Barshefsky said.

*SEC. DALEY 12/18 REMARKS ON U.S.-CHINA TRADE RELATIONS

(China must do more to open its markets to U.S. companies)Washington -- China must do more to open its markets to American companies, according to U.S. Secretary of Commerce William Daley. Daley's call for greater access to Chinese markets came at the conclusion of the 12th U.S.-China Joint Commission on Commerce and Trade (JCCT) December 18.Following is the text of Daley's remarks, as prepared for delivery:12th U.S.-China Joint Commission on Commerce and Trade Closing Plenary SessionWashington, D.C. December 18, 1998Let me first thank Minister Shi and all who have made these meetings possible, especially the delegates from both sides, and the co-chairmen of the working groups. I also appreciate the business people who have played such a major role in our discussions. They probably have more at stake in these meetings than anyone. Over the past two days, we discussed many tough issues. And we talked frankly about them. In closing these meetings, I want to highlight what we have done.First, Mr. Minister, thank you again for the list of projects for rebuilding and expanding China's infrastructure. The numbers are impressive. I know our American companies will want to review it. We will make sure they have the opportunity to do so. They want very much to do more business in China.As fierce competitors, I hope they will be very successful in winning new contracts. However, Mr. Minister, I am disappointed that the list does not include more domestically-funded projects. Our firms want to be suppliers for all projects in China. I welcome your suggestion that we agree on a joint list of projects. This would be useful for my trade mission to China early next year.As you know, market access was high on the agenda for these meetings. So I am pleased that we agreed to meet early next year to discuss the role of CDMA technology, in modernizing China's telecommunications network. We also welcome China's announcement that your power generation, and GSM telecommunications equipment markets, remain open to U.S. companies.But to be honest, we disagree with China's definition of an open market. While you said the power generation market is open to U.S. suppliers, your delegation says all domestically-funded projects are closed to foreign companies. But the vast majority of power projects in China are domestically-funded. Therefore, you exclude American suppliers from a huge market.This is not what I would call an open market.You also say that our concerns about China's new market access restrictions are based on "misunderstandings." Well, Mr. Minister, as I said yesterday, hearing 100 times is not as good seeing a thing one time. We need to see deeds, not words. We need to see real gestures that China is committed to balancing our trade and economic relationship.Second, Mr. Minister, you said the U.S. government should be more involved in helping our companies in China. I agree. So I am delighted with the decision to place a full-time U.S. trade finance officer in Beijing. This should help level the playing field for some of our companies.Third, is progress on export controls. We are world leaders in many technologies, as you know. We want very much to increase our high-tech exports to China. But as we have always said, it will not be at the expense of our national security. So by continuing to talk about these issues, by recognizing what is doable, and what is not, we are making good progress in several key areas.These include advances on developing plans to increase the number of end-use visits. These verify that U.S. exports are being used for purposes stated at the time of export. Cooperation on this issue will help sustain U.S. high-tech exports.In addition, our discussions on issuing export certificates for a broader range of dual-use products is a very positive step. And we agreed to hold more export control seminars in an effort to expand overall U.S.-Chinese cooperation.Fourth, and finally, we had good discussions on commercial law and intellectual property rights. We moved ahead on enforcing arbitration awards. And we agreed to hold more legal seminars.Clearly, all of the understandings we reached -- including others on standards and business development -- show how far we have come in the relationship. But there is much more that must be done in the weeks and months ahead if we are to reduce our ballooning trade gap with China.

And I hope you and your team will be committed to addressing that. Our task now is to implement the understandings we have reached. And we must continue to work out the tougher issues. In the year ahead, Mr. Minister, I can assure you we will work very, very hard to make that so. I trust China will do the same

China-U.S. Trade Issues. November 10, 1998.

U.S. Congressional Research Service. Economics Division. Morrison, Wayne M.

U.S.-China commercial issues will likely continue to be of major interest to Congress in 1998, especially if the U.S.-China trade imbalance continues to grow. Trade friction could arise over a number of issues. Some Members of Congress have argued that the United States should threaten China with trade sanctions if it fails to take action to reduce its trade barriers. Press reports alleging that the Clinton Administration improperly allowed China to acquire sensitive U.S. missile technology (by allowing China to launch U.S.-made satellites) and supercomputers have lead to congressional legislation which could affect the future level of high technology exports to China. Finally, an interim rule issued by the U.S. Agriculture Department to prohibit untreated solid wood packing materials from China could affect up to half of China's exports to the United States."

JAPAN

Whither Trade Policy with Japan? Council on Foreign Relations. Japan Study Group. Lincoln, Edward J.October 1998.

"A variety of indicators suggest that access problems remain and that Japanese government resistance to dismantling those barriers continues. This paper addresses several questions concerning trade relations: What is the `problem'? What have we learned in 20 years of negotiations? What might we do now?

"Lessons Learned From US/Japan Trade Negotiations"

Background paper from the October 22, 1998, meeting  on a New Paradigm for U.S.-Japan Economic Relations

Dealing With the New Japan. By Amy McCreedy Washington, DC, Woodrow Wilson International Center for Scholars, 5 p. http://wwics.si.edu/NEWS/newjpn.htm June 12, 2001 the Asia Program and the Japan Center for International Exchange held a workshop titled 'New Perspectives on U.S.-Japan Relations.'

URLs on Asia 2000

CENTRAL ASIA

-- CALMING THE FERGHANA VALLEY: development and dialogue in the heart of Central Asia.by Nancy Lubin & Barnett R. Rubin.Brookings Institution Press, The Century Foundation and Council on Foreign Relations. Center for Preventive Action. Project on the Ferghana Valley Region of Central Asia, (Preventive Action Reports; Vol. 4), 12/1999 11.95 120 p. ISBN 0-87078-414-5

http://www.foreignrelations.org/public/resource.cgi?pub!3570

http://www.brookings.edu/press/books/clientpr/priority/ferghana.htm

"Of all the regions of the former Soviet Union, Central Asia is potentially one of the most explosive and certainly one of the least understood. It is also growing rapidly in importance to U.S. national security, commercial, and foreign policy interests: it has vast oil, gas, gold, and other resources; it has become a source and transit route for narcotics and possible nuclear and other materials; and it is affected by the fierceconflicts in Tajikistan and Afghanistan. Vast in size (larger than Eastern and Western Europe combined), and with a rapidly growing population of over 50 million people, it is marked by the persistence of relatively corrupt and authoritarian governments.This report assesses the potential for conflict in Central Asia through the prism of one of its most volatile areas, the Ferghana Valley. Spanning parts of Tajikistan, Uzbekistan, and Kyrgyzstan, the Ferghana Valley is home to 20 percent of Central Asia's entire population. The region has recently experienced increasing religious and ethnic tensions -- the further danger being that instability in the valley could spread more widely throughout Central Asia. The Ferghana Valley project of the Council on Foreign

Relations' Center for Preventive Action (CPA) has produced this report as the fourth volume in its series of Preventive Action Reports."

CHINA AND TAIWAN

-- China and the WTO: the politics behind the agreement. by Joseph Fewsmith.

National Bureau of Asian Research, Nov. 1999, 12 p.

http://www.nbr.org/publications/report.html

"Chinese leaders in favor of China's greater integration into the world economy were thrown on the defensive in April by the U.S. rejection of China's unprecedentedly forthcoming offer for joining the World Trade Organization (WTO) and by the bombing of the Chinese embassy in Belgrade in May. The events of April and May raised the WTO issue from the already difficult arena of bureaucratic politics to the often brutal realm of elite politics. Although Premier Zhu Rongji bore the brunt of public criticism,President Jiang Zemin similarly came under attack by nationalistic opposition leaders for 'selling out the country' and being soft on the United States. Jiang has spent much of the time since then defending himself and rebuilding support for joining the WTO. The Clinton Administration, realizing its miscalculation in April, similarly spent the next six months working to repair U.S.-China relations in order to bring China back to thenegotiating table.On November 15, 1999, the United States and China finally signed a landmark agreement on China's accession to the WTO. Without the efforts from both China and the United States to repair the damage done in the spring, an agreement would have been delayed indefinitely. The agreement on China's entry into the WTO will rank with President Nixon's 1972 visit to Beijing and President Carter's extension of diplomatic recognition to China as a major step in bringing China into the world. It will help stabilize China's relations with the major powers - - most particularly the United States -- and burnish Jiang Zemin's (and perhaps Zhu Rongji's) leadership credentials. Most importantly, it will reinforce domestic reform and lead China to play an increasingly constructive role in world affairs."-- CHINA'S ARMS SALES: motivations and implications.by Daniel L. Byman and Roger Cliff.Rand Corporation, 1999, 7.50 pa, 60 p. (MR-1119-AF) ISBN 0-8330-2776-X

http://www.rand.org/publications/MR/MR1119/

"China's arms sales pose a moderate threat to U.S. interests. Beijing has sold arms to leading rogue states, such as Iran and Iraq, and has transferred technology related to nuclear, biological, and chemical (NBC) weapons and their associated delivery systems. Through China's help, states such as Iran have developed their own defense industrial base, making them more autonomous and threatening to U.S. allies. Although Chinese sales have fallen in recent years, and Beijing has become more responsible regardingthe sale of NBC technologies and missile systems, further progress is necessary to stop China's behavior from posing a threat to U.S. interests."-- Cox Committee Report: an assessment.Stanford University. Center for International Security and Cooperation.December 1999. M.M. May, Ed.

http://www.stanford.edu/group/CISAC/coxfinal3.pdf

"The Cox report [http://www.house.gov/coxreport/] outlines the organizational structure of the PRC and argues, in essence, that all state, military, and commercial activities in China are 'controlled' by the CCP politburo. The general problem with this section of

the report, however, is that it paints a picture of an extremely centralized political system where policies across government, military, and commercial activities are uniformly directed by a handful of leaders in the Politburo Standing Committee. The impression left by the report is that the top leadership of the CCP holds distinct, uniform policy preferences, and that these preferences dominate, overriding the preferences of all other players in the state, military, and commercial sectors. The report assumes that just because the head of a state bureaucratic entity is a CCP member this ensuresCCP 'control' (presumably meaning the imposition of CCP preferences on the entity).Such a picture is based on skewed research into the organizational structure of politics in China. Most problematic is that in reality, as most experts on the Chinese political system (including the experts cited by the Cox report) recognize, this top-down, uniform-preferences view of Chinese policy is a caricature of a much more complicated system. Scholarly research on policy processes in energy policy, environmental policy, arms control, and foreign and military policy, among other major areas of public policy, allindicate that the policy process is more often characterized by interagency rivalries, bargaining, and logrolling."-- TAIWAN'S NATIONAL SECURITY, DEFENSE POLICY, AND WEAPONS PROCUREMENT PROCESSES. Report.by Michael D. SwaineRAND Corporation, 1999, 12.00 pa, 78 p., (MR-1128-OSD) ISBN 0-8330-2798-0

http://www.rand.org/publications/MR/MR1128/

http://www.rand.org/cgi-bin/Abstracts/e-getabbydoc.pl?MR-1128-OSD

"This report examines Taiwan's national security decisionmaking structure and process and the primary factors guiding its defense strategy, force structure, and military procurement decisions. It attempts to explain the motives and interests determining Taiwan's national security policy and defense plans and its decisions to acquire major weapons and related support systems from foreign sources, including the United States. The author has determined that Taiwan's national security policy process is poorly coordinated, both within the top levels of the senior leadership and between the civilian and military elite. As a result, Taiwan lacks a strategy that can integrate and guide its foreign and defense policies. He also concludes that Taiwan's defense policy and procurement decisionmaking process are significantly influenced by a variety of non-military criteria that complicate efforts to ascertain the motives and objectives of Taiwan's requests for U.S. arms and call into question Taiwan's ability to effectively absorb such arms. He recommends that the United States continue to acquire more and better information about Taiwan's strengths and weaknesses in these areas and especially to more accurately assess Taiwan's requests for military sales from the United States. He also recommends that the United States (1) avoid providing arms and assistance to Taiwan in ways that provoke greater tension with China without appreciably improving Taiwan's defense capabilities, (2) continue to strengthen contacts with the ROC military but avoid interacting with the Taiwan armed forces in a waythat suggests the establishment of joint U.S.-Taiwan operational capabilities, and (3) develop and maintain close contacts with Taiwan's key decisionmakers."-- U.S.-China Military Relations Not a One-Way Street.by Ken Allen.Henry L. Stimson Center, Dec. 13, 1999.

http://www.stimson.org/cbm/china/newsadv1299.htm

http://www.stimson.org/pubs/cbm/china/chinmil.pdf

http://www.stimson.org/pubs/order.htm

"The formal military relationship the United States and China established twenty years ago is at its lowest point since the Tiananmen situation in June 1989. Based on differences between Washington and Beijing over NATO's accidental bombing of China's embassy in Belgrade, human rights, Taiwan, ballistic missile defense, and trade issues, as well as charges of Chinese nuclear espionage and illegal campaign contributions, Congress has sought to severely restrict military-to-military relations at all levels. These restrictions may, however, actually reduce the United States' ability tounderstand China's military at a critical time… The United States should encourage, rather than discourage, discussions with the PLA without helping the PLA increase its warfighting capabilities."-- Why Caution is Needed in Military Contacts with China. Backgrounder.by Larry M. Wortzel.Heritage Foundation Backgrounder No. 1340, Dec. 2, 1999.

http://www.heritage.org/library/backgrounder/bg1340.html

http://www.heritage.org/library/backgrounder/pdf/bg_1340.pdf

"The United States should gauge its military contacts with China carefully. It should adopt a simple standard to govern future military cooperation: It should do nothing to improve the PLA's capability to wage war against Taiwan or U.S. friends and allies, its ability to project force, or its ability to repress the Chinese people. Relations with China must be kept in the proper perspective. Normal trade relations do not mean normal military relations."

NORTH KOREA

-- NEGOTIATING ON THE EDGE: North Korean negotiating behavior.by Scott SnyderUnited States Institute of Peace Press 11/99 37.50 cl BibliographyIndex 236p ISBN 1-878379-95-XUnited States Institute of Peace Press 11/99 17.50 pa BibliographyIndex 236p ISBN 1-878379-94-1

http://www.usip.org/pubs/catalog/Negedge.html

"The ordeal of negotiating with North Koreans during the Cold War has left the impression of a 'crazy' and 'bizarre' diplomacy, of negotiators who insult and provoke their Western counterparts while fabricating crises and fomenting discord. As NEGOTIATING ON THE EDGE reveals, however, there is not only method to this 'madness' but also an ongoing shift toward a less provocative negotiating style.Drawing on interviews with an eminent cast of U.S. officials and marshalling extensive research on North Korea past and present, Scott Snyder traces the historical and cultural roots of North Korea's negotiating behavior and exposes the full range of tactics in its diplomatic arsenal. He explains why North Koreans behave as they do, and he argues that there is in fact an internal logic to what often seems to be outrageous conduct.Finally, Snyder explores how economic desperation and the end of the Cold War have forced North Korea to modify its negotiating style and objectives. Focusing on the U.S. negotiating experience with North Korea in the 1990s, Snyder also deals comparatively with recent South Korean and multilateral attempts to engage Pyongyang."-- North Korea Advisory Group. Report to the Speaker U.S. House ofRepresentatives.U.S. Congress. House. Committee on International Relations. North Korea Advisory Group, Nov. 1999.

http://www.house.gov/international_relations/nkag/report.htm

"Dear Mr. Speaker:We are pleased to transmit to you our report, which answers the question: Does North Korea pose a greater threat to U.S. national security than it did five years ago? In sum, we found that the comprehensive threat posed by North Korea to our national security has increased since 1994. Among the issues that need to be addressed are the following:1. Current U.S. policy is not effectively addressing the threat posed by North Korean weapons of mass destruction, missiles and their proliferation.2. U.S. assistance sustains a repressive and authoritarian regime, and is not effectively monitored.3. Current U.S. policy does not effectively address the issues posed by international criminal activity of the North Korean government, such as narcotics trafficking, support for international terrorism and counterfeiting.4. Current U.S. policy does not effectively advance internationally-recognized standards of human rights in North Korea, including liberating political prisoners and abolishing prisons for hungry children.5. Current U.S. policy does not effectively encourage the political and economic liberalization of North Korea."

SOUTH ASIA

-- India's Nuclear Bomb.by George Perkovich.Carnegie Endowment for International Peace, November 16, 1999.

http://www.ceip.org/programs/npp/perkovichtable.htm

"India's Nuclear Bomb aims to tell a story; a story of how the nation of Ghandi, the world's largest democracy, wrestled with the bomb… In telling the story I am trying to answer three questions. First, why did India develop nuclear weapons when it did and the way it did? Second, why did India resist international pressure to stop work on this program? Last, what impact did the U.S. have in working with India and addressing India's nuclear program?-- New Beginning in South Asia.by Stephen P. CohenBrookings Institution, Policy Brief No. 55, January 2000, 7 p.

http://www.brook.edu/comm/policybriefs/pb055/pb55.htm

http://www.brook.edu/comm/PolicyBriefs/pb055/pb55.pdf

"Since the end of the Cold War American policy towards South Asia has been overshadowed by more troublesome or more economically significant regions. The dominant American objective in South Asia has been to prevent India and Pakistan from acquiring nuclear weapons, although this policy was dramatically defeated in May 1998, when each exploded a number of nuclear devices.A U.S. policy that responds only to the region's development of nuclear weapons and the risk of nuclear war will fail, and forfeit other important American interests in the process. A heightened engagement with India and Pakistan, dealing with the causes of regional conflict and not only its symptoms, might not only reduce the risk of war but also could promote important American economic, strategic, and humanitarian interests. Such a fresh start in South Asia would accord India a more important place inAmerica's world-view, but would not ignore Pakistan. It could begin with a high profile visit by the U.S. president to the region, an institutionalization of the strategic dialogues between Washington and New Delhi, and the strengthening of economic and strategic ties between the two democracies. As for Pakistan, which faces the prospect of instability to the point of chaos, the United States should take the lead in helping develop its civilian institutions by responding positively to the new Pakistani government's efforts to eradicate corruption, reform its economy, and over time restore democracy."-- Political/Military Developments in India. Hearing, May 25, 1999, 39 p.U.S. Congress. Senate. Committee on Foreign Relations. Subcommittee on NearEastern and South Asian Affairs.

http://www.access.gpo.gov/congress/senate/senate11sh106.html

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=106_senate_hearing

s&docid=f:59863.pdfhttp://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=106_senate_hearings&docid=f:59863.waisSenator Brownback: "Today's headlines are screaming about the failures in our understanding of China's foreign policy goals and intentions. It is ironic that for the pastdecade, much of America's foreign policy in Asia has focused almost single-mindedly on China, while we have largely ignored India… It is my belief that the United States has real and legitimate political, economic and security interests in India, and we need to understand and engage with India on all levels as soon as possible. Seizing the opportunity that we have to build greater ties with India should be one of our main foreign policy goals."-- Regional Security in South Asia. Hearing, October 20, 1999.U.S. Congress. House. Committee on International Relations. Subcommittee onAsia and the Pacific.

http://www.house.gov/international_relations/ap/aphear.htm

Assistant Secretary of State Inderfurth: "We have a number of immediate challenges facing United States policy in South Asia, and this afternoon I would like to address three in particular: the political crisis in Pakistan, where the Army has taken the reins of

power; the recent elections in India and the formation of a new government; and the situation in Afghanistan and our steps to combat international terrorists who take shelter there… Mr. Chairman, before I conclude, I would like to note that our ability to pursue our agenda in South Asia - - and indeed throughout the world - -depends in large part on adequate funding for our foreign affairs budget, a point that Secretary Albright makes repeatedly. If the proposed cuts are enacted, the Administration will be forced to reduce our efforts to: counter terrorism, prevent and reduce conflict, stem the spread of deadly diseases like HIV/AIDS, and fight drugs - - all of which are clearly in the interests of the American people and key to our agenda in South Asia. In fact, our programs to support regional democracy, to eradicate illegal poppy cultivation, and to address trafficking in women and children - - will be sorely under-funded."

GENERAL

-- Trends in the Asian Military Balance: A comparative summary of militaryexpenditures; manpower; land, air, naval, and nuclear forces; and arms sales.by Anthony H. CordesmanCenter for Strategic and International Studies, July 28, 1999.

http://www.csis.org/mideast/reports/AsiaMilitaryTrends.html

http://www.csis.org/mideast/reports/AsiaMilitaryTrends.pdf

"Asian countries spent nearly $200 billion on defense in 1998 while China's nuclear capabilities added to the size and scope of the nuclear dimension in the region, according to a new report by Anthony Cordesman, CSIS Senior Fellow on strategic assessment. In a detailed technical analysis, Cordesman offers a comparative summary of military expenditures, manpower, land, air, naval, and nuclear forces, and arms sales for 19 Asian countries. He outlines U.S. and Russian nuclear deployments in the region, illustrates China's nuclear capabilities, and highlights Chinese and North Korean

missile technology advances."

ASIA

-- China, Nuclear Weapons, and Arms Control: a preliminary assessment. Chairmen's Report of a Roundtable. 2000.Manning, Robert A.; Montaperto, Ronald; Roberts, Brad.http://www.foreignrelations.org/p/pubs/china.pdfhttp://www.foreignrelations.org/p/resource.cgi?pub!3601"The report [of a roundtable consisting of the Council on Foreign Relations, the National Defense University, and the Institute for Defense Analyses] concludes that Beijing's policy choices vis-à-vis its strategic modernization program are likely to make it the nuclear actor whose behavior may matter most to Washington during the coming decade, and certainly more than has been appreciated. The tendency in Washington to dismiss China as an inconsequential nuclear actor must be set aside in favor of a clearer appreciation of China's significance, both current and potential."-- China-U.S. Relations. Issue Brief. April 14, 2000.Dumbaugh, Kerry.U.S. Congressional Research Service. (CRS Issue Brief IB98018)http://www.cnie.org/nle/inter-25.html"SUMMARYAlthough there have been some improvements in U.S.-China relations since mid- 1996, relations also have been marred by continuing allegations of Chinese espionage, ongoing controversy over human rights, charges that China continues to violate its non-proliferation commitments, controversy over the accidental NATO bombing of the Chinese Embassy in Belgrade, and renewed tensions over Taiwan. Investigations are also underway into allegations that the Chinese government was involved in illegal financial contributions to the U.S. presidential and other political campaigns in 1996. Meanwhile, both U.S. and Chinese leaders sought to improve the political relationship beginning in 1997. High-level contacts, political dialogue, and presidential summitry have resumed, including an October 1997 summit with Chinese President Jiang Zemin in Washington, and a June 1998 summit with President Clinton in China.The Clinton Administration continues to favor a policy of 'engagement' with China, and in January 2000, the Administration announced it was assigning the highest priority to granting China Permanent Normal Trade Relations (PNTR) and bringing China into the World Trade Organization (WTO). Administration officials appear convinced that China continues to want good relations with the United States, and that it has made important shifts in its willingness to abide by international agreements. Consequently, President Clinton announced, after the October 1997 summit, that he was prepared to move forward on a range of bilateral issues in the coming months, including implementing U.S. nuclear energy cooperation with China under the terms of a nearly moribund 1985 bilateral agreement.But the Clinton Administration's policy of engagement continues to be targeted by Congressional critics seeking to pressure the White House to take a firmer, more sanction-oriented approach to China. As in past years, Members are taking advantage of the annual deadline for renewing China's trade status (June 3) to pressure the Administration for different policy choices. To make the prospect of approving PNTR for China more palatable, some Members in the 106th Congress are pursuing 'parallel legislation' and other side agreements that would impose additional requirements on China outside the boundaries of its trade status. These appear to include proposals to create a new commission to report annually on China's human rights record, to seek annual WTO review of China's compliance with trade agreements, and establishing extra import protection arrangements. Congress also continues to focus on Taiwan - - particularly in light of the island's March 18, 2000 watershed democratic elections which brought to power the Democratic Progressive Party, which in the past has advocated independence for Taiwan.In addition, the 106th Congress has resumed consideration of some measures critical of China that were considered in the 105th Congress but did not pass. Congress also continues to pursue allegations that Chinese nuclear weapons design has profited greatly from secrets allegedly stolen from U.S. nuclear research labs. (For details on legislation in the 105th Congress related to China, see CRS Report RL30350 (pdf), China and the 105^th Congress: Policy Issues and Legislation, 1998-1998.)."-- Giving the People's Republic of China Permanent MFN: implications for U.S. policy. Hearing, April 11, 2000.U.S. Senate. Committee on Foreign Relations.http://www.senate.gov/~foreign/hearings/hrg041100b.htmlhttp://www.senate.gov/~foreign/2000/pr041100.cfmThe Director, Asian Studies, American Enterprise Institute argues againstconferring PNTR status on China. The President of the U.S.-China BusinessCouncil argues in favor of it. Dr. Greg Mastel strongly stresses the need toinclude effective enforcement and monitoring mechanisms in any China PNTRlaw.-- Long-Term Visions of Regional Security: United States and China. May 2000 -- Special Annual Issue.Center for Strategic and International Studies. Pacific Forum.http://www.csis.org/pacfor/annual/annual2000.htmlhttp://www.csis.org/pacfor/annual/specialMay2000.pdf"This Special Annual Issue of COMPARATIVE CONNECTIONS provides an in-depth review of the Sino-U.S. relationship, including an analytic summary generated by Bonnie S. Glaser which details a recent U.S.-China conference held in Honolulu. Following the outline for the conference, the Issue focuses on current and future contentious issues and examines areas where U.S. and Chinese long-term strategic interests overlap or fail to do so."-- Strategy for the Future: U.S.-China relations and China's WTO Accession. Speech by Assistant Secretary of State Stanley O. Roth before the Woodrow Wilson Center. Washington, D.C. May 9, 2000.U.S. Dept. of State.http://www.state.gov/www/policy_remarks/2000/000509_roth_china.html"For good reason, almost any discussion of China over the last few months has almost immediately become a discussion of China PNTR. Today, I would to focus on a somewhat broader agenda: what are the interests and strategy guiding U.S. policy toward China, the fundamentals that remain constant, regardless of who wins the next election.To put it in a nutshell: Our objective is a strong, stable, prosperous and open China, one which respects and builds upon the diverse views and strengths of its own people. Our strategy is to integrate China into regional and global institutions, helping it become a country that plays by the accepted international rules, cooperating and competing peacefully within those rules. 'Engagement' is the coherent set of tactics to accomplish this strategy, working with China at every level and at every available opportunity to manage, if not resolve, specific differences and identify and expand issues on which we take a common approach."-- United States Hong Kong Policy Act Report, as of April 1, 2000. April 25, 2000.U.S. Dept. of State. Bureau of East Asian and Pacific Affairs.http://www.state.gov/www/regions/eap/000401_us-hk_pol_act_rpt.html"PREFACEHong Kong under Chinese sovereignty has continued to develop overall in a positive direction, with the Hong Kong Government committed to advancing Hong Kong's unique way of life and the PRC Government generally respecting its commitments regarding Hong Kong's high degree of autonomy. In the year from April 1, 1999 to March 31, 2000, Hong Kong remained a free society that extends basic civil liberties to its citizens every day, defines its identity in terms of being an open international city, and largely continues to make its own decisions in pursuit of its own identity and economic interests. Nonetheless, there were developments that raised concerns and continued to bear close attention, the most serious being the Hong Kong Government's request for the National People's Congress interpretation of the Basic Law following the Court of Final Appeal's 'right of abode' ruling.

The United States has substantial interests in Hong Kong and supports the Joint Declaration concept of 'one country, two systems' for Hong Kong under Chinese sovereignty. In recognition of Hong Kong's high degree of autonomy, the United States continues to accord Hong Kong a special status distinct from the rest of China. The United States continues to lend support to Hong Kong's autonomy by concluding bilateral agreements, promoting trade and investment, arranging high-level visits, broadening law enforcement cooperation, bolstering educational, academic, and cultural links, and treating Hong Kong separately from the mainland for export control purposes. This report covers significant developments during the past 12 months that affect U.S. interests in Hong Kong."

CENTRAL ASIA

-- Central Asia's New States: political developments and implications for U.S. interests. Issue Brief. March 31, 2000.Nichol, Jim.U.S. Congressional Research Service. (CRS Issue Brief IB93108)http://www.cnie.org/nle/inter-26.html"SUMMARYAfter the collapse of the Soviet Union in 1991, the United States recognized the independence of all the former Central Asian republics and established diplomatic relations with each by mid-March 1992. The United States also supported their admission to the Organization on Security and Cooperation in Europe (OSCE) and other Western organizations, and elicited Turkish support in countering Iranian influence in the region. Congress was at the forefront in urging the formation of coherent U.S. policies for aiding these and other new independent states (NIS) of the former Soviet Union, and approved the Freedom Support Act and other legislation for this purpose.The Clinton Administration has emphasized forging closer U.S. relations with the Central Asian states. U.S. policy goals include fostering stability, democratization, free market economies, free trade and transport throughout the Eurasian corridor, denuclearization in the non-Russian states, and adherence to international human rights standards. An over-arching U.S. priority is to discourage attempts by radical regimes and groups to block or subvert progress toward these goals. U.S. policy also aims to integrate these states into the international community so that they follow responsible security and other policies, and to discourage xenophobic and anti-Western orientations that threaten regional and international peace and stability. U.S. foreign policy goals in Central Asia reflect the different characteristics of these states. U.S. interests in Kazakhstan have included promoting the removal of strategic nuclear weapons located on its territory (the last were removed in 1995) and the security of other nuclear materials. The United States has some economic and business interests in Central Asia, particularly in oil and natural gas development in Kazakhstan, Turkmenistan, and Uzbekistan. The United States forged expanded ties with Kyrgyzstan because it made early commitments to some democratic reforms. The United States continues to be concerned about human rights and civil liberties problems in Tajikistan, Turkmenistan, and Uzbekistan. In Tajikistan, U.S.humanitarian aid is focused on populations displaced by civil war and other urgent needs. For FY2000, the Administration has emphasized security assistance for counter-narcotics, non-proliferation, border and customs, and defense programs.Some observers call for different emphases or levels of U.S. involvement in Central Asia. Some have called for strengthening conditions linking aid to progress in improving human rights or in making adequate progress in democratization and the creation of free markets. Some dispute the importance of energy and other resources to U.S. national security interests. Others point to civil and ethnic tensions in Tajikistan and elsewhere as possibly endangering U.S. lives.Heightened congressional interest in Central Asia was reflected in passage of 'Silk Road' provisions in late 1999 (Consolidated Appropriations; P.L. 106-113) that authorize enhanced U.S. policy attention and aid to support conflict amelioration, humanitarian needs, economic development, transport (including energy pipelines) and communications, border controls, democracy, and the creation of civil societies in the South Caucasian and Central Asian states."-- Hearing on Democracy in the Central Asian Republics. April 12, 2000.U.S. House. Committee on International Relations. Subcommittees on Asia andthe Pacific and on International Operations and Human Rights.http://www.house.gov/international_relations/ap/casia/casia.htmlSubcommittee Chariman Bereuter:" Today’s Hearing will examine how U.S. policy has been implemented and the effectiveness of our efforts to bring democracy to a region that has a history of authoritarian rule… The Central Asian states are at critical junctures in their political and economic development - - balanced between democracy and authoritarianism, between a free market economy and systemic corruption; between cooperation with or resistance to the West. In short, the region is poised between merging into, or retreating from, the Free World. Of all the Soviet republics, it is certainly arguable that those in Central Asia were least prepared for independence. Indeed, each state today still faces three foundational challenges. First, they must forge a shared national identity from a legacy of intermingled ethnic and religious groups and convoluted borders. Second, the Central Asian Republics must institutionalize, both at and below the national level, political and legal structures and attitudes that are compatible with democracy. Third, they must create a free and open economic system - - a radical departure from the Soviet past…"ASIA-PACIFIC Asia-Pacific Security Relations: Changes Ahead (chapter 46, 25 p.) by Thomas W. Robinson in The Global Century: Globalization and National Security, Volumes I & II, Parts I, II, III, IV, & V Edited by Richard L. Kugler and Ellen L. Frost National Defense University, Institute for National Strategic Studies, 2001. http://www.ndu.edu/inss/books/GlobalCentury/globcencont.html Hearing on U.S. Foreign Policy in East Asia and the Pacific: challenges and priorities for the Bush Administration. U.S. House. Committee on International Relations. Subcommittee on East Asia and the Pacific, June 12, 2001. http://www.house.gov/international_relations/ap/ap2hear.htm Subcommittee Chairman Leach: 'The purpose of today's Hearing is to review the challenges and priorities for U.S. foreign policy in East Asia and the Pacific. As many Members are aware, the case for why East Asia matters to the United States is self-evident. Our trade and investment ties are profound and becoming ever more intertwined; the U.S. security interest in maintaining regional stability is compelling; and our commitment to work with like-minded citizens in Asia to broaden the scope of democratic freedoms and expand the rule of law remains an established precept of U.S. policy. The President has rightly placed priority on efforts to reinvigorate relations with America's friends and allies in East Asia. The need for the U.S. to engage in a deep and sustained dialogue with our strategic partners in Japan, to seek the closest possible coordination with the Republic of Korea, and to enhance our extraordinary relationship with Australia is both obvious and essential to the development of a successful Asia policy. In this context, the implication has been raised that Washington may be endeavoring to postpone fuller development of its China policy, perhaps with a view toward 'downgrading' Beijing in the hierarchy of U.S. foreign policy priorities. I would just point out the obvious: for all the many difficulties that weigh so heavily on our relationship - - from Beijing's egregious mishandling of the EP-3 incident to concerns about Taiwan, the South China Sea, nonproliferation, trade, and human rights - - maintenance of stable, constructive Sino-American relations is central to peace and stability in the region. So central, in fact, that failure to articulate a credible and sustainable China policy will eventually undermine other critical U.S. policy goals in the region. Short of the actual outbreak of hostilities, no other development in East Asia is as likely to be so profoundly troubling to our friends and allies, as an unnecessary and protracted deterioration in Sino-American relations. The bilateral agreement reached in Shanghai last weekend on the terms of its entry into the WTO will hopefully help support a Congressional vote later this year on preserving normal trade relations (NTR) with China. China's accession to the WTO will advance our interest in a rules-based international trading system by helping to 'lock-in' Chinese reforms, economic restructuring, and a commitment to orderly globalization. It will also pave the way for a long-overdue entry by a democratic Taiwan into the global trading body. Taiwan is of course the most sensitive issue in U.S.-China relations. It has long been my view that the concepts of independence and self-determination, which are virtually synonymous in most parts of the world, are in juxtaposition in Taiwan. Taiwan can have a maximal degree of self-determination if it does not declare independence. If it declares independence, it will have no self-determination. On the other hand, we are bound by the Taiwan Relations Act, as well as by basic judgment, to help ensure that the status of Taiwan is not changed by force. On the Korean peninsula, the administration's just completed North Korea policy review appears to have reaffirmed support for the U.S.-ROK alliance and the historic 'Sunshine' policy of President Kim Dae Jung, while prudentially recognizing that a militarized North Korea is capable of casting a few dark shadows. It is my strong hope that Pyongyang will now promptly resume its stalled dialogue with Seoul, while responding affirmatively to President Bush's decision to proceed with a comprehensive approach to improving relations with North Korea. Elsewhere in the region, Indonesia, the world's fourth largest nation and largest Muslim country, is at a critical juncture in its transition to democracy. How the U.S. best can work with others to help foster the consolidation of democratic institutions within a stable, unified, and economically viable Indonesia, remains perhaps the most vexing policy issue in Southeast Asia today.' 107th Congress: Asia Pacific policy outlook. Bob, Daniel. National Bureau of Asian Research, NBR Briefing. February 2001., 10 p. http://www.nbr.org/publications/briefing/bob01/index.html 'The 107th Congress will be confronted by a number of issues involving the Asia Pacific region.  Perhaps most important, the Bush Administration will make a concerted effort to revitalize the U.S.-Japan relationship as the cornerstone of U.S. engagement in the region. China will remain a subject of debate on Capitol Hill, but the end of the annual battle over extending normal trade relations status to China may give the Bush Administration a chance to forge broader Congressional consensus on China policy. National and theater missile defense development will be pursued by the new Administration, and significant debate will take place on Capitol Hill over the ramifications of national missile defense and theater missile defense for the Asia Pacific region. While Congress and the new Administration may seek a tougher line against North Korea, South Korean President Kim Dae Jung's commitment to his 'sunshine policy' will constrain new departures in U.S. policy. Regarding the Association for Southeast Asian Nations, the US-Vietnam bilateral trade agreement will be considered and is likely to be approved by Congress, while the new Administration will continue to pursue a U.S.-Singapore free trade agreement. The fate of Indonesia will remain a concern, and President Bush will seek to upgrade ties with other partners in Southeast Asia as well as with Australia and the Pacific Islands.' Perspectives on U.S. National Interests in Asia. Bereuter, Doug. Heritage Foundation, The Seventh Annual B.C. Lee Lecture,  March 6, 2001, 12 p. http://www.heritage.org/library/lecture/hl698.html 'I am very honored to be invited to deliver this year's B.C. Lee Lecture on U.S. relations with the Asia-Pacific region. Tonight, I propose:         To review a few of the fundamental flaws in the Clinton Administration's Asia policy;         To reiterate very briefly the set of principles that I believe should properly guide U.S. policy toward the Asia-Pacific region;         To highlight some specific challenges for the new Bush Administration when viewing the Asian landscape through the larger prism of U.S. 'grand strategy'; and         To offer a few concluding thoughts on the likely Congressional reaction to the Bush foreign policy agenda.' U.S. Army and the Asia-Pacific. Report. Scobell, Andrew. U.S. Army War College. Strategic Studies Institute, April 2001. http://carlisle-www.army.mil/usassi/ssipubs/pubs2001/army&a-p/army&a-p.htm 'SUMMARY The United States has key economic and security interests in the Asia-Pacific region. In recent decades, the Asia-Pacific has experienced rapid economic growth, a wave of democratization, and the emergence of a web of regional and sub-regional multilateral institutions. All these developments have contributed to enhancing the pace and prosperity of the region. The author highlights the significant and ongoing contribution of the U.S. Army in deterring war, executing smaller-scale contingencies, and shaping the security environment. He advocates a robust, pro- active Army presence for the foreseeable future. Such a presence will ensure the promotion and protection of U.S. national interests in the region. CONCLUSION The Taiwan Strait has replaced the Korean Peninsula as the most dangerous flashpoint in the Asia-Pacific. The United States must focus special attention on the ongoing tensions in the Strait both in terms of deterring a conflict and of promoting reconciliation between China and Taiwan. With the ongoing transformations in Northeast Asia, every effort should be made to ensure that the United States is able to maintain forward bases in the region. This probably will entail reconfiguring our current forces in South Korea and Japan and, very possibly, involve relocating personnel to other locations in Southeast Asia, Australasia and/or U.S. possessions in the Pacific.' United States and Southeast Asia: a policy agenda for the new Administration. Report. 2001. J. Robert Kerrey, Chair. Council on Foreign Relations. Independent Task Force on Southeast Asia, 94 p. http://www.foreignrelations.org/p/pubs/SEAsiaTF.pdf 'MEMORANDUM TO THE PRESIDENT Mr. President, Southeast Asia, the venue of a conflict that has shaped an entire generation, is more volatile today than at any time since the Vietnam War. It is a troubling landscape of political turbulence and economic fragility. Most of all, the future of wobbly, democratizing Indonesia, the keystone of the region, is in doubt .As Secretary of State Colin Powell gears up for his visit to Southeast Asia during the July meeting of the Association of Southeast Asian Nations (ASEAN)Regional Forum, this is a timely moment for your administration to focus on a region that too often in the past has fallen off our radar screens, always to our peril. U.S. leadership and enlightened action in Southeast Asia in the critical period ahead can help stabilize the region, expand economic  opportunity, and help states in transition, such as Indonesia and Vietnam, succeed. Absent our leadership, it is likely that political and economic conditions in many of these countries will worsen. Our Task Force believes it is in the interest of the people of the United States that we choose the first course. This memorandum, which summarizes the deliberations of an independent, nonpartisan Task Force, is accompanied by the Task Force 's full report. But we want to highlight three key points for your attention as you formulate your policies:         Southeast Asia remains important to American economic, strategic, political,  and  humanitarian interests, and while not in itself vital, holds the potential to trigger major crises absent sustained attention and cogent policies.         U.S. policy toward Southeast Asia has been viewed as unnecessarily ad hoc, overbearing, and reactive; it needs both a strategic context and a focus.         Indonesia, the world 's fourth-largest nation and biggest Muslim community, major oil and gas exporter, fulcrum of ASEAN, and the region 's most important state, remains in the throes of social, political, and economic instability. This assessment and these recommendations offer some guidance for more focused, better-integrated, and more valuable U.S. relations with Southeast Asia at a time of transition. The American experience in Asia suggests that inattention to dynamics and trends in the region and insensitivity to the contours of national and regional pride and desires are a recipe for unnecessary resentment and conflict. It is in the national interest to prudently commit a larger share of our national attention and our national resources to Southeast Asia. Congress, the administration, business leaders, nongovernmental organizations (NGOs), and the foreign policy community must marshal, educate, and direct a more coordinated and sustained American involvement in the region. The current situation is ripe with opportunities; the cost of inaction or missteps may be considerable.' Taking APEC Seriously Brookings, Policy Brief, December 2001, 8p. http://www.brookings.edu/comm/policybriefs/pb92.pdf U.S.-Asia Trade after September 11. Remarks by Ambassador Jon M. Huntsman Jr. at the Asia Society, November 29, 2001, 14p. http://www.ustr.gov/speech-test/assistant/2001-11-29_Huntsman.PDF Southeast Asia after 9/11: Regional Trends and U.S. Interests Hearing, December 12, 2001. http://www.house.gov/international_relations/ap/ap2hear.htm

CHINESE MILITARY POWER: REPORT OF AN INDEPENDENT TASK FORCE SPONSORED BY THE COUNCIL ON FOREIGN RELATIONS.

Harold Brown, Joseph W. Prueher and Adam Segal. Council on Foreign Relations (CFR).  May 22, 2003.

According to this report, China is pursuing a deliberate course of military modernization, but is at least two decades behind the United States in terms of military technology and capability.  Moreover, if the United States continues to dedicate significant resources to improving its military forces, as expected, the balance between the United States and China, both globally and in Asia, is likely to remain decisively in America's favor beyond the next twenty years.

        The report issues a double warning: first, don't overreact to the large-scale modernization program of China's military; second, don't under-react based on the relative backwardness of the People's Liberation Army compared to U.S. military power.  Attributing capabilities to the People's Liberation Army it does not have and will not attain for many years might risk the misallocation of scarce U.S. resources.  Overreaction could lead the United States to adopt policies and undertake actions that become a self-fulfilling prophecy, provoking an otherwise avoidable antagonistic relationship with China that would not serve long-term U.S. interests.  Under-reaction, on the other hand, might allow China someday to catch unaware the United States or its allies in Asia.

http://www.cfr.org/pdf/China_TF.pdf [pdf format, 99 pages]

  PERSPECTIVES ON U.S. NATIONAL INTERESTS IN ASIA. by Doug Bereuter Heritage Foundation, March 9, 2001 http://www.heritage.org/library/lecture/hl698.html

¨ 2004 ANNUAL REPORT TO CONGRESS.  [U.S.-China Economic and Security Review Commission]

U.S.-China Economic and Security Review Commission.  Web-posted June 15, 2004.

http://www.uscc.gov/researchreports/2004/04annual_report.PDF

pdf format, 296 pages]

When Congress created the U.S.-China Economic and Security Review Commission in 2000, it gave the Commission the overall mission of evaluating on an annual basis “the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China.”  Within this context, it directed the Commission specifically to investigate the following areas: China’s proliferation practices, China’s economic reforms and U.S. economic transfers to China, China’s energy needs, Chinese firms’ access to the U.S. capital markets, U.S. investments into China, China’s economic and security impacts in Asia, U.S.-China bilateral programs and agreements, China’s record of compliance with its World Trade Organization (WTO) commitments, and the Chinese government’s media control efforts. 

        While noting some areas of promise, the Commission members note that “a number of the current trends in U.S.-China relations have negative implications for our long-term economic and national security interests, and therefore that U.S. policies in these areas are in need of urgent attention and course corrections.”   Among the main causes for concern, according to the report, are the growing trade deficit the U.S. has with China, China’s refusal to properly valuate its currency, problematic investment standards, relations with Hong Kong and Taiwan, as well as its intentions with regard to proliferation on the Asian continent.

¨ INDIA AND PAKISTAN: IS PEACE REAL THIS TIME?

Husain Haqqani and Ashley J. Tellis.

Carnegie Endowment for International Peace (CEIP).  2004.

http://www.ceip.org/files/pdf/India-Pakistan.pdf

[pdf format, 28 pages]

In late January 2004, the Carnegie Endowment organized a briefing by Husain Haqqani and Ashley J. Tellis on prospects for improved relations between India and Pakistan.  Haqqani, a visiting scholar at the Endowment, had just returned from Pakistan, where he met with government officials and other closely involved participants in the summit meeting.  Tellis, an Endowment senior associate, had just returned from a trip to India, where he likewise met with senior officials and others to talk about India-Pakistan relations.  In this discussion, Haqqani and Tellis highlight key issues they raised in their respective visits.  Both were particularly interested in assessing whether this latest diplomatic engagement would lead to lasting peace, or simply be another in a long string of disappointments.

Both Haqqani and Tellis note that one optimistic omen is that both countries seem committed to a process of bringing about more peaceful relations between the two countries, rather than focusing on a specific short-term outcome.  In another section, however, they warn of the vested interests of the military establishments in both countries:  “One of the major unanswered questions of the India-Pakistan peace process is what to do with the huge military establishments of both countries, one of which also controls political power.”

¨ INDIA-U.S. RELATIONS.  [IB93097]

K. Alan Kronstadt.

Library of Congress. Congressional Research Service (CRS).  Updated May 20, 2004.

http://fas.org/man/crs/IB93097.pdf

[pdf format, 19 pages]

U.S. and congressional interests in India cover a wide spectrum of issues, ranging from the militarized dispute with Pakistan and weapons proliferation to concerns about human rights and trade and investment opportunities. 

The May 10 conclusion of voting in India’s four-phase national election launched nine days of high political drama after the Indian National Congress party won an upset victory to become the largest bloc in the 543-seat parliament with 145 seats (up from 110 previously).  Prime Minister Vajpayee resigned after a defeat that was seen by some as a repudiation of his Bharatiya Janata Party’s (BJP’s)  agenda of economic reforms (the BJP won 138 seats, down from181 previously; among the lost seats was that of External Affairs Minister Yashwant Sinha). A coalition of leftist parties led by the Communist Party of India (Marxist) won a total of 62 seats, their best-ever showing.  The United States congratulated the Congress Party on its victory and praised India’s democratic tradition.  Pakistan’s Foreign Minister said that Islamabad was “very sincere in carrying forward the peace process already initiated.”

On May 18, Congress leader Sonia Gandhi stunned her supporters by telling them she “must humbly decline” the offered position of Prime Minister in a new government, citing a long-held disinterest in holding the position.  Most analysts opined that threats of national instability and agitation by groups unhappy with her foreign origin were major factors.  On the next day, her lieutenant and Oxford-educated economist Manmohan Singh was named to become India’s new Prime Minister.  As Finance Minister from 1991-1996, Singh was the architect of major Indian economic reform and liberalization efforts.  The widely-esteemed Sikh will be India’s first non-Hindu Prime Minister.

¨ MYANMAR: SANCTIONS, ENGAGEMENT OR ANOTHER WAY FORWARD?

[Asia Report No. 78]

International Crisis Group (ICG).  April 26, 2004.

http://www.crisisweb.org//library/documents/asia/burma_myanmar/078_myanmar_sanctions_engagement_or_another_way_web.pdf

[pdf format, 51 pages]

ICG argues in this report that opposing sides of the international debate on

Myanmar (Burma) need to rethink their policies and objectives.  Sanctions have

not forced the military to end the grip on power it has maintained since 1962;

nor are more sanctions likely to in the future, as there is no chance of them

being applied universally.  The often limp policies of “engagement” adopted by

Myanmar’s neighbors have been no more effective, maintains ICG.

This report argues for a new approach, bridging the gap between the opposing

policies—provided, importantly, that Aung San Suu Kyi is released from

custody and that a serious dialogue begins with her National League for

Democracy (NLD) within and beyond the framework of the National Convention due to reconvene on 17 May:

“[T]he international community should identify benchmarks for change, e.g.,

effective guarantees of human rights, and the establishment of a transitional

government, with sanctions being gradually withdrawn as progress is made. 

There should also be benchmark-based incentives for the resumption of

international lending and other economic development support measures.”

¨ A NEW SECURITY AGENDA FOR THE U.S. JAPAN ALLIANCE.

[Heritage Backgrounder #1749]

Balbina Hwang.

Heritage Foundation.  April 26, 2004.

http://www.heritage.org/Research/AsiaandthePacific/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=62448

[pdf format, 10 pages]

The U.S.-Japan alliance was created in the aftermath of World War II and became

the anchor for building stability and prosperity in Northeast Asia during the

Cold War.  The current security environment, however, is dramatically

different.  Some Cold War threats such as North Korea persist, while new

threats from non-state actors, including terrorists, have emerged.  Continued

close cooperation between the United States and Japan could prove critical to

defeating these threats.

The author believes that the Bush administration should:

·           Issue a clear statement articulating the valued role that the U.S.-Japan

alliance plays in America’s regional and global security strategy, as well as

explicit goals for the future;

*Encourage Japan’s continued progress toward deploying a missile defense

system;

·           Urge Japan to maintain its firm stance against North Korean nuclear programs

and proliferation activities; and

·           Facilitate increased cooperation on counter-terrorism efforts, such as

intelligence sharing.

¨ PAKISTAN-U.S. RELATIONS.  [IB94041]

K. Alan Kronstadt.

Library of Congress. Congressional Research Service (CRS).  Updated May 14, 2004.

http://fas.org/man/crs/IB94041.pdf

[pdf format, 19 pages]

Key areas of U.S. concern regarding Pakistan include regional terrorism; weapons proliferation; the ongoing Kashmir dispute and Pakistan-India tensions; human rights protection; and economic development.  A U.S.-Pakistan relationship marked by periods of both cooperation and discord was transformed by the September 2001 terrorist attacks on the United States and the ensuing enlistment of Pakistan as a pivotal ally in U.S.-led counterterrorism efforts in Southwest Asia.

During a March visit to Islamabad, Secretary of State Powell said that the United States will designate Pakistan as a “major non-NATO ally” under Section 517 of the Foreign Assistance Act of 1961, spurring some Pakistanis to anticipate new sales of major U.S. weapons platforms.  Six days later, H.R. 4021 was introduced in the House.  The bill seeks to amend the Foreign Assistance Act to require that only countries that have a democratic form of government and that support U.S. nonproliferation objectives may be designated as major non-NATO allies.

In April, Pakistan’s Parliament established a National Security Council that has been harshly criticized by opposition leaders as institutionalizing a permanent governance role for the Pakistani military, and President Musharraf said that he may not resign his military commission by the end of 2004 as previously indicated.  Also, opposition political figure and Alliance for the Restoration of Democracy leader Javed Hashmi was sentenced to 23 years in prison for sedition, mutiny, and forgery.  In May, Shabaz Sharif, a former Punjab Chief Minister and brother of deposed Prime Minister Nawaz Sharif, attempted to return to Pakistan from exile, but was “dragged away by commandos” and deported to Saudi Arabia after less than two hours in Lahore. Police arrested as many as 2,200 supporters from Sharif’s PML-N party who had gathered to welcome him.

A stable, democratic, economically thriving Pakistan is vital to U.S. interests in

Asia.  The country’s macroeconomic indicators have turned positive since 2001, but widespread poverty persists, and democracy has fared poorly in Pakistan to date.