House Rules Committee chairman David Dreier (R-CA) announced last week during a visit to Tunis that he intends to head an initiative to propose a free trade agreement between the United States and Tunisia, which experienced a popular uprising in 2010 and held democratic elections in October.
"One of the most effective ways the United States can offer support to the Tunisian people as they work to solidify democratic gains is by expanding trade and commercial ties," Dreier, who is also the founding chairman of the House Democracy Partnership, said in an emailed statement yesterday. "Spurring economic growth through increased trade would ... help to create the resources necessary for sustainable democratic development and prosperity in Tunisia."
According to congressional sources, Dreier first discussed the topic with Tunisian Prime Minister Hamadi Jebali at the Davos meeting of the World Economic Forum in March, just months after Dreier introduced a bipartisan resolution calling for a free trade agreement with Egypt and the Office of the U.S. Trade Representative relaunched Trade and Investment Framework Agreement (TIFA) talks with Tunisia. Even though Dreier's proposal has yet to gain a substantial congressional base, he is partnering with House Committee on Foreign Affairs senior member Rep. Gregory Meeks (D-NY) and Ways and Means Committee member Rep. Erik Paulsen (R-MN).
As Brookings Institute Saban Center on the Middle East director Tamara Wittes noted, there's a growing feeling of congressional support for Tunisia.
"I think there's a tremendous amount of support on the Hill for Tunisia," she told The Cable. "I think members of Congress understand how important it is to have a successful model in North Africa for the other countries struggling with democratic reform."
U.S. Chamber of Commerce vice president of Middle East and North Africa affairs Lionel Johnson agrees that Tunisia has a lot of potential.
"The Tunisian government is the one in the region that shows the most promise," he told The Cable. "We'd like to see talks begin in early 2013."
Washington has already pledged to help Tunisia with short-term economic problems like debt and unemployment. In March, it was announced that the United States would transfer $100 million to Tunisia, which faces a $25 billion debt, and in June the parliament in Tunis voted in favor of a bill allowing for a $400-450 million sovereign bond issue "with up to 100 percent of the principal and interest guaranteed by the U.S. government," enabling Tunisia to "borrow at almost risk-free rates." The State Department's Middle East Transitions office is pursuing a series of "smaller but important steps."
"There are investment regulations, border controls, and other regulatory changes that could help facilitate trade between the U.S. and Tunisia," Middle East Transitions program director William Taylor told The Cable. "What we're hoping is that by taking some of these steps earlier on, they might get some of these trade benefits sooner than if they were wrapped into one large negotiation for a free trade agreement."
Ultimately, though, a free trade agreement stands to make a significant economic impact on Tunisia, which counted the United States among its top five trading partners in 2010.
"There's a lot that the U.S. is already doing with economic and technical assistance to support the growth of the private sector in Tunisia, so an FTA would complement that because it would be mutually beneficial," Wittes explained. "Over the long term, we know that Tunisian economic health is going to come through a robust private sector that will help to cement a democratic transition. This is not an FTA that's going to have a massive impact on the U.S. economy. It will, however, have an important impact on the Tunisian side."
Senate Foreign Relations Committee ranking Republican Richard Lugar (R-IN) says he thinks Tunisia will become a strong economic partner for the U.S.
"Most successful middle-income countries want deeper bilateral trade relationships," he said at an event on Wednesday. "Countries that undergo successful transitions often ... become our best allies and trading partners."
Brendan Smialowski/Getty Images
The State Department rolled out its fiscal 2013 budget request today, which contains several items that are sure to meet resistance when lawmakers roll up their sleeves and dig into the budget this spring and summer.
International programs don't have strong constituencies on Capitol Hill to begin with, and Congress has its own ideas for how to spend foreign aid.
The State Department knows all of this, of course, and has framed its fiscal 2013 budget request as a small portion of the federal budget that contributes directly to national security. State's $51.6 billion request, however, faces a GOP-led House that is searching hard for discretionary budget items to cut and a foreign-policy-minded Senate that wants to use aid to press foreign governments to act more in line with U.S. priorities.
"This is a moment of historic change around the world. They are also tight times for our government and for our people -- the two truths that have guided us from day one," Deputy Secretary of State Tom Nides said Monday. "And so, as I'd like to remind you once again, with just 1 percent of the federal budget, the State Department and USAID will maintain our country's leadership in a changing world, what'll promote our values, jumpstart our economy, and above all keep America safe in 2013 and beyond."
Here are five of the items in the State Department's budget that will spark debates in Congress this year:
1) The top line budget numbers. The State Department and USAID requested $51.6 billion for fiscal year 2013, but $8.2 billion is categorized as temporarily needed funding for Afghanistan, Iraq, and Pakistan under what's called the Overseas Contingency Operations fund (OCO) account. The remaining $43.6 billion is the "core budget" request and represents a 10 percent increase over fiscal 2012 levels as enacted by Congress.
For fiscal 2012, lawmakers moved a lot of funding from the core budget to the OCO account in order to fit State Department funding inside the mandatory discretionary spending caps set forth in the Budget Control Act of 2011. Now, State is trying to move that funding back into its core budget so that it will have it whenever the need for emergency funding wanes.
In general, State prefers to use the OCO accounts when possible because Congress is more willing to fund programs that are needed in the current wars... and because the OCO account is off budget. ("Obviously, the benefit of the OCO account in general allows for all of you who report on this and for the Hill to look at the costs of our frontline states, to look at the costs of Iraq, Afghanistan, Pakistan," said Nides.)
But outside experts see the OCO account, which has been used by State since last year and by the Pentagon since 9/11, as a slush fund. "I think OCO accounts are a scourge," said Gordon Adams, former national security director at the Office of Management and Budget during the Clinton administration. "Special extra accounts are a refuge for budget scoundrels. Funding for all three of those countries are going to be subject to debate and dispute."
2) Middle East Funding Initiative. The administration is requesting $770 million for this new initiative, which is meant to support U.S. activities in countries affected by the "Arab Spring." This is the largest single new program in the State Department's budget request, but there's not a lot of detail in the request about how the money will actually be spent.
Nides said it's impossible to predict. "The Arab Spring has come. We need to make sure we have the tools and the flexibility in which to fund these initiatives," he said. "I cannot tell you today where that money will be spent, because we'll be, obviously, in consultation with the Hill."
Some $70 million of that total comes from existing programs, the Middle East Partnership Initiative (MEPI) and USAID's Office of Middle East Partnerships (OMEP). The remaining $700 million is "new money," an administration official said. "We came to the Middle East changes without any resources dedicated to this in the budget," the official said, explaining that State has spent about $800 million since last year to respond to the protests in countries like Egypt, Libya, and Yemen, but had to cobble those funds together from other accounts.
"That will be controversial because there's no content. It's a contingency fund and Congress doesn't like to give State contingency funds," said Adams. "It's probably not a bad idea in theory but it is way too large for having no program."
3) Egypt military funding. The State Department is again asking Congress for $1.3 billion in direct aid to the Egyptian military. The $1.3 billion in military aid that Congress appropriated for fiscal 2012, however, has not been sent yet and might be held up for a while because of the escalating crisis concerning pending charges against 19 American NGO workers in Cairo. By law, Secretary of State Hillary Clinton has to certify the Egyptian military is moving towards a true democratic transition before that money can be released and many top lawmakers are urging her not to do so. There are even bills to halt the funding regardless of Clinton's determination. Additionally, the administration is requesting $250 million in direct assistance to the civilian government, which it believes to be more responsible for the NGO crackdown than the military.
Nevertheless, the administration is hoping that will all be worked out by next year. "Our goal is, is to provide them those funds," said Nides. "I mean, it's obviously clear to all of us that we have issues that we need to work through. And we're working very aggressively to do so. But this budget reflects our commitment and our desire to fully fund those initiatives."
4) Pakistan civilian assistance. The U.S.-Pakistan relationship is in tatters, but the administration is still requesting more than $2 billion in aid to Pakistan. But in a shift from last year, the administration is requesting significantly less money for assistance to the Pakistani civilian government while increasing requested aid for the Pakistani military. That may seem odd considering that the Pakistani military and intelligence services have been widely accused of playing both sides in Afghanistan, and that Osama bin Laden was discovered hiding in a military garrison town for years.
Nevertheless, the administration is requesting only $1.1 billion for in Pakistani civilian assistance for 2013, even thought the Kerry-Lugar-Berman bill authorized up to $1.5 billion each year. Meanwhile, the administration requested $800 million under the Pakistani Counterinsurgency Contingency Fund (PCCF), a reimbursement program for the Pakistani military jointly run by State and DOD, and State is requesting $350 million in foreign military financing for Pakistan, up from $98 million in fiscal 2012.
An administration official said that becuase Congress only gave State about $1 billion last year under the Kerry-Lugar program, that's about how much they decided to ask for in FY 2013. "It's still one of the largest recipients of assistance in our budget," the administration official said. "We have a lot of negotiation to do and we'll be making that argument that we can and we'll have to figure out with Congress what the final number will be."
5) Palestinian Authority assistance.
The administration requested $370 million for economic support funding for the
West Bank and Gaza in fiscal 2013, down from the $397 million given to the PA
in fiscal 2012 but still one of the largest U.S. assistance programs in the
budget. Congress is extremely sour on PA assistance, however, because peace
talks have broken down and because Fatah and Hamas are planning to form a unity
The reduction in West Bank funding is because equipment for the U.S. police training program there has been largely completed, an administration official said. State also cut the amount of direct cash transfers to the Palestinian Authority from $200 million to $150 million. "We think the economic situation is slightly better so we think we can do a little bit less," the official said.
What's more, the administration is also requesting $79 million for UNESCO in 2013, even though the U.S. government is legally barred from contributing to UNESCO because the organization admitted Palestine as a member.
"The Congress has prohibited us for funding UNESCO this year. And as you know, the president's also articulated -- and quite clearly -- that he would like a waiver to allow us to participate in UNESCO," said Nides. "We have put the money in the budget, realizing that we are not going to be able to spend the money unless we get the waiver. And we have made it clear to the Congress we'd like a waiver."
The State Department formally rolled out a new plan today for how it will tackle economic, energy, and environmental issues -- by combining them all into one bureaucratic structure.
Undersecretary Bob Hormats is the leader of the newly expanded "E" team in Foggy Bottom, making him the undersecretary for economic growth, energy, and the environment. Before today, Hormats was the undersecretary for economic, energy and agricultural affairs. The change moves several offices under Hormats' umbrella, and also places him in charge of two new offices that never existed before.
Hormats is now in charge of three bureaus led by assistant secretaries and their teams: the Bureau of Oceans and International Environmental and Scientific Affairs (OES), led by Assistant Secretary Kerri-Ann Jones, the Bureau of Economic and Business Affairs (EB), led by Assistant Secretary Jose Fernandez, and the brand new Bureau of Energy Resources (ENR), led by State's Coordinator for International Energy Carlos Pascual, pending the confirmation of an assistant secretary.
The new "E" family will also, for the first time, include the Office of the Science and Technology Advisor, led by E. William Colglazier, and a new Office of the Chief Economist, which will be led by someone who hasn't been hired yet - interviews are ongoing.
Hormats could have as many as 150 to 200 new people under his leadership, but the changes are basically cost neutral. The idea is to combine these three bureaus into a cohesive team, which can take advantage of the increasing overlap between energy policy, environmental policy, and the economy.
"If this was only moving the bureaucratic boxes around it wouldn't be worth the effort," Hormats told The Cable in an interview. "This really responds to Secretary Clinton's challenge to break down silos and to create greater efficiencies within the State Department and focus attention in developing economic statecraft."
The changes in the State Department's bureaucracy were spelled out in the Quadrennial Diplomacy and Development Review, which was released last year, but also fits perfectly into Secretary of State Hillary Clinton's new favorite initiative, "Economic Statecraft," as laid out in her speech in October.
"America's economic strength and our global leadership are a package deal," Clinton said. "A strong economy has been a quiet pillar of American power in the world. It gives us the leverage we need to exert influence and advance our interests. It gives other countries confidence in our leadership and a greater stake in partnering with us."
Hormats said the State Department was currently evaluating several ways in which the new offices could work together. For example, the United States could use economic strategies to promote access for U.S. energy technology companies in Africa, he said. The environmental experts could also chip in to make sure development in the African energy sector is ecologically sound.
Another initiative State is thinking about, Hormats said, is an effort to strengthen science and technology cooperation with the European Union in areas such as nanotechnology, smart grids, and electric cars. The idea is to play a role in setting industry-wide standards for new green technologies, helping U.S. businesses establish an international foothold in these emerging industries.
The conventional wisdom is that environmental and business objectives are at odds with each other, but Hormats is aiming to disprove that. He made the case that environmentally conscious companies are more energy efficient, and therefore more economically successful. President Barack Obama's Energy and Climate Partnership of the Americas is an existing example of this type of thinking, and a project that will be managed in his shop.
Hormats has also been meeting over several months with environmental groups to assure them that their concerns will not be made subservient to the overwhelming drive to seek economic gains and greater energy independence.
"The last thing we want to do is make the environmental bureau a subsidiary of the economic or energy bureaus," Hormats said. "The goal is to find synergies among co-equals. That's the key."
In what seems like a deliberate ploy to escape the cold autumn weather gripping Washington, President Barack Obama will leave for Cannes on Wednesday for the G-20 summit and Secretary of State Hillary Clinton is off to Istanbul for an international meeting on Afghanistan.
Upon arriving in Cannes on Thursday morning, Obama will hold bilateral meetings with French President Nicolas Sarkozy and German Chancellor Angela Merkel. He will then meet with the "L-20," an elected group of labor leaders from the G-20 countries. On Thursday afternoon, the formal G-20 schedule commences.
Obama will meet on Friday with the newly reelected Argentine President Cristina Kirchner, followed by a press conference, and then perhaps some more one-on-one time with Sarkozy. Other bilateral meetings could pop up, according to Deputy National Security Advisor Ben Rhodes.
"The G-20 agenda is critical to growing our economy here back at home, to strengthening the recovery, to increase exports and to create jobs," NSC Senior Director for International Economics Mike Froman told reporters on Monday morning. "In Cannes, we expect the eurozone to be the primary focus of discussion, but in addition, the leaders will focus on mechanisms that have been put in place to ensure strong, balanced and sustainable growth."
Froman said other topics at the G-20 summit will include financial regulatory reform and how to keep momentum going on G-20 priorities, such as security and infrastructure development, phasing out fossil fuel subsidies, fighting corruption, and strengthening the multilateral trading system.
"[T]here is growing agreement around the world that the focus at Cannes needs to be on growth," said Treasury Undersecretary Lael Brainard. "President Obama remains intensely focused on putting Americans back to work. Recovery in the U.S. remains fragile and still too vulnerable to disruption beyond our shores."
Brainard called the new European plan to stave off financial collapse "significant" but declined to comment on whether or not the administration has confidence that Europe's the $1.4 trillion firewall the Obama administration is recommending will actually be implemented. The officials didn't comment directly on the idea of China bailing out Europe, but they didn't seem thrilled about the prospect, either.
So the concept that China and other emerging economies are part of this discussion, that they will be there, along with ourselves and other industrialized countries, speaking with the Europeans, talking about the elaboration and the implementation of their plan, and expressing unity and support of what the Europeans are doing, we think is very much appropriate," Froman said.
Brainard also implied -- but did not say outright -- that the United States was not supportive of the European idea of imposing a tax on all trades of stocks and bonds. She talked about the Obama administration's financial responsibility fee as the preferred approach.
"We think that the financial responsibility fee, which is on the liabilities of the largest financial institutions, is well-targeted to make those institutions that are bearing greater risk pay more. It is better targeted to prevent evasion. And the IMF went through a similar assessment exercise and came, frankly, to a pretty similar conclusion," she said.
Meanwhile, Clinton leaves Monday night for London to attend a conference on cyber security policy. On Wednesday, Clinton will participate in an international conference in Istanbul on the way forward in Afghanistan. The conference is part of the lead up to the Bonn conference on Afghanistan scheduled for Dec. 5.
"Istanbul is seen as an opportunity for Afghanistan's neighbors to reiterate their commitment to a stable, secure, economically viable Afghanistan and to supporting Afghan-led reconciliation, the transition to Afghan security leadership, and then a shared regional economic vision," a senior administration official told reporters on Monday. "It's a gathering of regional foreign ministers. The U.S. is actually there just as a supporter, which is critical."
The Bonn conference is expected to include 85 countries and 15 international organizations, and is being held to commemorate the 10th anniversary of the Bonn Agreement in December 2001, which was convened to establish an interim government for ruling Afghanistan following the U.S. invasion.
As for Wednesday's conference in Istanbul, the opening session will feature remarks from Turkish President Abdullah Gul, Afghan President Hamid Karzai, Turkish Foreign Minister Ahmet Davutoglu, and Afghan Foreign Minister Zalmai Rassoul. Clinton will make remarks on Wednesday afternoon after lunch.
Pakistani Foreign Minister Hina Rabbani Khar will also be at the conference, and Pakistani President Asif Ali Zardari will be in town for a U.S.-Afghan-Pakistani trilateral meeting as well. The United States has been pressing the Pakistani government to cut ties with the Haqqani network, but there's no progress to report just yet.
"The secretary, I think, was quite clear that we all need to see visible signs of progress as a matter of some urgency in days and weeks, as she noted, as opposed to months and years," the senior administration official said.
President Obama opined on Chinese currency legislation, Pakistani double dealing, and the European debt crisis during his Thursday morning press conference, which was supposed to focus on his jobs bill. Here are the foreign policy highlights of his remarks.
On Chinese currency manipulation:
Obviously we've been seeing a remarkable transformation of China over the last two decades, and it's helped to lift millions of people out of poverty in China. We have stabilized our relationship with China in a healthy way. But what is also true is that China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States. And I have said that publicly but I've also said it privately to Chinese leaders.
And currency manipulation is one example of it, or at least intervening in the currency markets in ways that have led their currency to be valued lower than the market would normally dictate. And that makes their exports cheaper and that makes our exports to them more expensive. So we've seen some improvement, some slight appreciation over the last year, but it's not enough.
It's not just currency, though. We've also seen, for example, you know, intellectual property, technologies that were created by U.S. companies with a lot of investment, a lot of up-front capital, taken, not protected properly, by Chinese firms. And we've pushed China on that issue as well. Ultimately, I think that you can have a win-win trading relationship with China. I'm very pleased that we're going to be able to potentially get a trade deal with South Korea. But I believe what I think most Americans believe, which is trade is great as long as everybody is playing by the same rules.
On the legislation to penalize currently manipulation currently being considered by Congress:
My main concern -- and I've expressed this to Senator Schumer -- is whatever tools we put in place, let's make sure that these are tools that can actually work, that they're consistent with our international treaties and obligations. I don't want a situation where we're just passing laws that are symbolic, knowing that they're probably not going to be upheld by the World Trade Organization for example, and then suddenly U.S. companies are subject to a whole bunch of sanctions. We've got a -- I think we've got a strong case to make, but we've just got to make sure that we do it in a way that's going to be effective.
Last point is, my administration has actually been more aggressive than any in recent years in going after some of these practices. We've brought very aggressive enforcement actions against China for violations in the tire case for example, where it's been upheld by the World Trade Organization that they were engaging in unfair trading practices, and that's given companies here in the United States a lot of relief.
So, you know, my overall goal is, I believe U.S. companies, U.S. workers, we can compete with anybody in the world. I think we -- we can make the best products. And a huge part of us winning the future, a huge part of rebuilding this economy on a firm basis -- that's not just reliant on, you know, maxed-out credit cards and a housing bubble and financial speculation, but is -- is dependent on us making things and selling things -- I am absolutely confident that we can win that competition. But in order to do it, we've got to make sure that we're aggressive in looking out for the interests of American workers and American businesses, and that everybody's playing by the same rules, and that we're not getting -- getting cheated in the process.
On Pakistan's hedging strategy:
With respect to Pakistan, I have said that my number-one goal is to make sure that al-Qaida cannot attack the U.S. homeland and cannot affect U.S. interests around the world. And we have done an outstanding job, I think, in going after directly al-Qaida in this border region between Pakistan and Afghanistan. We could not have been as successful as we have been without the cooperation of the Pakistan government. And so on a whole range of issues, they have been an effective partner with us.
What is also true is that our goal of being able to transition out of Afghanistan and leave a stable government behind -- one that is independent, one that is respectful of human rights, one that is democratic -- that Pakistan I think has been more ambivalent about some of our goals there. And you know, I think that they have hedged their bets in terms of what Afghanistan would look like, and part of hedging their bets is having interactions with some of the unsavory characters who they think might end up regaining power in Afghanistan after coalition forces have left.
What we've tried to persuade Pakistan of is that it is in their interest to have a stable Afghanistan; that they should not be feeling threatened by a stable, independent Afghanistan. We've tried to get the conversations between Afghans and Pakistans (sic) going more effectively than they have been in the past. But we've still got more work to do. And there is no doubt that there's some connections that the Pakistani military and intelligence services have with certain individuals that we find trouble (sic). And I've said that publicly and I've said it privately to Pakistani officials as well.
On the Pakistan-India relationship:
[The Pakistanis] see their security interests threatened by an independent Afghanistan, in part because they think it will ally itself to India, and Pakistan still considers India their mortal enemy. Part of what we want to do is actually get Pakistan to realize that a peaceful approach towards India would be in everybody's interests and would help Pakistan actually develop -- because one of the biggest problems we have in Pakistan right now is poverty, illiteracy, a lack of development, you know, civil institutions that aren't strong enough to deliver for the Pakistani people. And in that environment you've seen extremism grow. You've seen militancy grow that doesn't just threaten our efforts in Afghanistan but also threatens the Pakistani government and the Pakistani people as well.
So trying to get that reorientation is something that we're continuing to work on. It's -- it's not easy.
On cutting off aid to Pakistan:
You know, we will constantly evaluate our relationship with Pakistan, based on, is overall this helping to protect Americans and our interests? We have a great desire to help the Pakistani people strengthen their own society and their own government. And so, you know, I'd be hesitant to punish, you know, aid for flood victims in Pakistan because of poor decisions by their intelligence services. But there's no doubt that, you know, we're not going to feel comfortable with a long-term strategic relationship with Pakistan if we don't think that they're mindful of our interests as well.
On the European debt crisis:
The biggest headwind the American economy is facing right now is uncertainty about Europe, because it is affecting global markets. The slow-down that we're seeing is not just happening here in the United States: It's happening everywhere. Even in some of the emerging markets like China you're seeing greater caution, less investment, deep concern.
I speak frequently with Chancellor Merkel and President Sarkozy. They are mindful of these challenges. I think they want to act to prevent a sovereign debt crisis from spinning out of control, or seeing the potential breakup of the euro. I think they're very committed to the European project. But their politics is tough because, essentially, they've got to get agreement with not only their own parliaments, they've got to get agreement with 20 parliaments, or 24 parliaments, or 27 parliaments. And engineering that kind of coordinated action is very difficult.
You know, but what I've been seeing over the last month is a recognition by European leaders of the urgency of the situation. And nobody's, obviously, going to be affected more than they will be if the situation there spins out of control. So I'm confident that they want to get this done. I think there are some technical issues that they're working on in terms of how they get a big enough -- how do they get enough fire power to let the markets know that they're going to be standing behind euro members whose -- you know, who may be in a weaker position. But they've got to act fast.
And we've got a G-20 meeting coming up in November. My strong hope is that by the time of that G-20 meeting, that they have a very clear, concrete plan of action that is sufficient to the task.
As the nation careens toward a possible debt default, Secretary of State Hillary Clinton urged Asian business leaders not to overreact to the U.S. political crisis, taking some implicit shots at China's economic policies as well.
"The political wrangling in Washington is intense right now. But these kinds of debates have been a constant in our political life throughout the history of our republic. And sometimes, they are messy," Clinton said in Hong Kong on Monday. "But this is how an open and democratic society ultimately comes together to reach the right solutions."
"Through more than a century of growth, the American economy has repeatedly shown its strength, its resilience, and its unrivaled capacity to adapt and reinvent itself," she said. "And it will keep doing so."
Clinton, who was speaking at an event organized by the Macau chambers of commerce and the Asia Society, said that economics is becoming a higher priority in U.S. foreign policy. She pledged to give a major speech on "America's strategic and economic choices" this fall, and argued that the United States' and East Asia's economies are inextricably linked.
"We are a resident power in Asia -- not only a diplomatic or military power, but a resident economic power. And we are here to stay," she said.
In remarks that appeared at times to be directed at China, Clinton then went on to call for fairness and transparency in economic systems.
"Openness, freedom and transparency contribute to the fourth principle we must ensure: fairness. Fairness sustains faith in the system," she said. "That faith is difficult to sustain when companies are forced to trade away their intellectual property just to enter or expand in a foreign market, or when vital supply chains are blocked. These kinds of actions undermine fair competition, which turns many off from competing at all."
The Chinese government, the largest holder of U.S. debt, has been largely silent about the U.S. debt ceiling crisis. But experts warn that the failure of the U.S. government to resolve the issue expeditiously could further undermine confidence in the already weak U.S. dollar and harm the overall image of the U.S. as a competent world leader.
"We've got repeated statements from Chinese officials of sort of, you know, we hate you guys, but we don't have any choice. And we're still buying your debt, because we don't see anywhere else to buy it," said Sebastian Mallaby, senior fellow for international economics at the Council on Foreign Relations. "But, when the reserve currency is unloved by the accumulators of those reserves -- namely, the central banks of countries like China -- you're on thin ice. They're buying the dollar assets, but they don't like it. And so they're looking actively over a sort of long-term horizon to try to find an alternative."
The Heritage Foundation's Derek Scissors wrote today that China has already slowed its purchase of U.S. Treasury bonds, but for the time being, China has few other options but to continue buying U.S. dollars.
For the third time in two years, hundreds of Chinese officials are meeting with hundreds of their U.S. counterparts to discuss dozens of bilateral topics in dozens of meetings. After the first day of the two-day event, there aren't any new bilateral agreements to announce, and officials say there aren't any expected soon.
"Now more than ever, with two years of dialogues behind us, success depends on our ability to translate good words into concrete actions on the issues that matter most to our people. So as we begin this third round, we will keep that goal in clear focus," Secretary of State Hillary Clinton said in her Monday morning remarks at the opening of the U.S.-China Strategic and Economic Dialogue, which is being held at various locations in downtown Washington.
She praised the new high level participation of senior officials from China's People's Liberation Army and rattled off a long list of issues that would be discussed, including: military-to-military relations, the situation in the Middle East, the need to rebalance the global economy, Iran sanctions, the North Korean nuclear crisis, and human rights.
Vice President Joseph Biden delivered the strongest message on Chinese human rights practices in his Monday morning remarks, when he said, "We have vigorous disagreement in the area of human rights."
"We've noted our concerns about the recent crackdown in China, including attacks, arrests and the disappearance of journalists, lawyers, bloggers and artists," Biden said. "I recognize that some in China see our advocacy [on] human rights as an intrusion and Lord only knows what else. But President Obama and I believe strongly, as does the secretary, that protecting fundamental rights and freedoms such as those enshrined in China's international commitments, as well as in China's own constitution, is the best way to promote long-term stability and prosperity of any society."
Jeffrey Bader, the recently departed senior director for Asia at the National Security Council, wrote in a Brookings Institution policy brief that the dialogue "was not conceived as a mechanism to deal with bilateral crises or to produce specific ‘deliverables,' but to develop a richer, more intensive dialogue between senior officials on the two sides than would be possible in the usual quick in-and-out visits, and to break down bureaucratic stovepipes among agencies, particularly on the Chinese side, not accustomed to coordinating effectively with each other."
On Sunday, Clinton awarded Bader the Secretary's Distinguished Service Award, standing alongside Chinese State Councilor Dai Bingguo.
Critics of the Obama administration's China policy see the event as yet another example of the administration placing style over substance, and raising expectations of progress in the U.S.-China relationship without delivering results.
"By far the most important economic issue for America and China is the related imbalances in our economies," wrote the Heritage Foundation's Derek Scissors. "The U.S. recognized this several years ago and has repeatedly raised the matter. Result: Both economies are now more imbalanced than when the dialogue began. The main reason is simple: Neither country wants to bear the pain of rebalancing. Instead, they take to telling the other side why it should rebalance."
A senior administration official, speaking to reporters after the conclusion of the first day's meetings, said that the primary discussion of tough economic issues will be held on Tuesday.
"Tomorrow the focus is on how the U.S. and China can rebalance our economies so we can strengthen our recoveries. Monetary and exchange rate policies are certainly be a focus of those discussions," the official said. But he warned not expect any major announcements. "[The Chinese currency] is not moving enough and no one's satisfied, but it's appreciated more than 5 percent against the dollar [over the last year]," he noted.
Undersecretary of State for Economic, Energy, and Agricultural Affairs Robert Hormats took the Chinese to task for their policy of giving regulatory, financial, and legislative support to state-owned enterprises.
"The biggest challenge in addressing these issues effectively is forging a common understanding that state-controlled competition is not competition, and that competitiveness cannot be bestowed by decree. The trade distortions created by the ‘China Model' are disadvantageous to our U.S. companies trying to compete for opportunities around the world, and a direct threat to U.S. jobs and competitiveness," Hormats said.
And Deputy Secretary of State James Steinberg told an audience at the Center for Strategic and International Studies on Monday afternoon that climate change, specifically short-term climate change forces, was a major topic of discussion between Energy Secretary Stephen Chu and his Chinese counterparts.
As for the military component of the talks, Assistant Secretary of State Kurt Campbell told reporters last week that the United States intends to engage "not just traditional players in the Foreign Ministry but also other players in the Chinese government, including the military."
Dan Blumenthal, a former China desk officer at the Pentagon and now a senior fellow at the American Enterprise Institute, said that while increased military dialogue and the building of relationships is good, the administration must not depend on such dialogue to halt the growing tension in the bilateral security relationship.
"The Chinese are moving very cautiously, the political leadership in China is very adverse to making any bold decisions, and the PLA has very little interest in talking to us about anything of substance," he said. "The summits matter less than what we are doing on the ground in response to what China is doing."
The Senate is preparing to use the confirmation hearing of current Commerce Secretary Gary Locke, who President Barack Obama is set to nominate as the next U.S. ambassador to China, to criticize what many lawmakers see as the administration's flawed policy toward Beijing.
Locke, a Chinese-American whose parents emmigrated from Hong Kong, has extensive experience dealing with China. He traveled to China several times during his eight years as governor of Washington state and ran a law practice at the Seattle-based firm of Davis Wright Tremaine that focused heavily on China-related issues. Locke also has deep connections to the Chinese leadership, which could come in handy if he's confirmed by the Senate.
Locke was confirmed unanimously as Commerce Secretary by voice vote in 2009, but his confirmation this time around is far from assured. For senators on both sides of the aisle, their concerns are not about Locke, personally. They see the upcoming confirmation process as an opportunity to press the administration on several aspects of the U.S.-China relationship, including China's currency manipulation, abuse of intellectual property rights, support for brutal regimes in places like Sudan and Zimbabwe and failure to enforce international sanctions against Iran and North Korea.
"We're going to have some issues regarding China policy," Sen. James Risch (R-ID), a member of the Senate Foreign Relations Committee, told The Cable in an interview Tuesday. Asked what issues he would want to bring up in Locke's committee hearing, Risch responded, "Where do you start? There's just a whole list of issues."
For most lawmakers, China's insistence on keepings its currency undervalued, which exacerbates the U.S.-China trade deficit and encourages companies to move jobs overseas, is an issue that Locke had direct influence over as head of the Commerce Department. Even senior Democrats who do not sit on the Foreign Relations Committee said they plan to press Locke on trade and economic issues through written questions and when debating his nomination on the Senate floor.
"I want to ask him ‘What have you done and why hasn't more been done,'" Sen. Carl Levin (D-MI) told The Cable. "I have questions about the manipulation of currency by China, questions about the fact that they close their markets to our goods but still get access to our markets, what I would consider unfair trade practices by China. There would be questions about intellectual property, about counterfeits. I want to know what he plans to do about it."
Sens. Chuck Schumer (D-NY) and Lindsey Graham (R-SC) have taken the lead on the currency issue in the Senate. Graham said that he was unhappy with the administration's progress on the issue but wouldn't necessarily hold up Locke's nomination because of it.
"If I'm going to have to find somebody who makes me happy on the China currency issue, we're probably never going to have an ambassador," Graham told The Cable.
Sen. Mark Kirk (R-IL), told The Cable that he liked Locke personally, but would use the confirmation process to press the administration to prove it is willing to enforce sanctions under the Iran sanctions laws, which he played a key role in drafting, against Chinese companies who are still doing business with Iran.
Other senators who have pressed the administration to enforce Iran sanctions against Chinese companies include Sens. Jon Kyl (R-AZ), John McCain (R-AZ), and Joe Lieberman (I-CT). One senior GOP aide said that the issue could become a problem for Locke's confirmation.
"The State Department is going to find it very difficult getting Secretary Locke confirmed to be our ambassador to China if it cannot articulate the standards by which China's violations of Iran sanctions laws will be sanctioned," the aide said.
Larry Wortzel, commissioner on the U.S.-China Economic and Security Review Commission, said that Locke will be pressed on human rights issues, religious freedom, and security matters, in addition to currency and trade.
"Confirmation hearings in the Senate will be used as a platform to state criticism of current policy, as they always are," said Wortzel. "But I think there is a strong probability Locke will be confirmed."
Harvard University sold off some of its investments in Israel but is not divesting itself from the Jewish state and the portfolio changes were not politically motivated, according to the university's spokesman.
Reports that Harvard sold off all of its holdings in Israel sparked immediate outrage across the Internet Monday morning, based on the news that the Harvard Management Company's most recent SEC filing revealed that it had sold stocks amounting to $39 million in Israeli companies such as Teva Pharmaceutical Industries Ltd., NICE Systems Ltd., Check Point Software Technologies Ltd., Cellcom Israel Ltd., and Partner Communications Ltd.
But Harvard spokesman John Longbrake tells The Cable that the filing shows only a change in holdings, not a change in policy.
"The University has not divested from Israel. Israel was moved from the MSCI, our benchmark in emerging markets, to the EAFE index in May due to its successful growth. Our emerging markets holdings were rebalanced accordingly," he said.
Harvard still is invested in Israel, Longbrake said, but he declined to go into specifics. He said the filing in question only represents a small portion of Harvard's overall portfolio, which is about $26 billion.
In other words, Israel's growth and development resulted in a status change whereby the stocks could no longer be considered "emerging market" holdings, requiring Harvard to rebalance its emerging market portfolio.
"There are some funds which invest only in emerging markets," Yaacov Heen, the Cellcom CFO, told The Media Line. "So Harvard had to sell our stock because Israel is no longer classified as an emerging market and they no longer have the ability to hold this stock within the emerging markets fund."
From The Media Line:
Formerly the Morgan Stanley Capital International, MSCI World, is an international index of 1,500 stocks from a couple dozen ‘developed' countries and is often used as a benchmark by global stock funds. In May, MSCI upgraded Israel from an ‘emerging' economy to a ‘developed' economy.
But it's also true that several of the stocks Harvard sold were doing poorly. Harvard's three biggest remaining holdings are all in emerging markets, Israel's Globe business news site reports. They own $295 million in a fund composed of Chinese equities, another $295 million in a fund focused on emerging marks, and $181 million in a Brazilian stock fund.
Harvard's explanation didn't stop the group organizing the Arab boycott of Israel, the Boycott, Divestment, and Sanctions (BDS) for Palestine movement, from claiming a victory.
"We welcome Harvard's decision, and encourage all academic institutions in the U.S. and elsewhere to follow its lead, to invest in socially responsible investments, and divest from Israeli war crimes," Hind Awwad, Coordinator of the BDS National Committee in Palestine told The Media Line. "After Israel's war of aggression on Gaza in 2008/2009, and its recent attack on the Freedom Flotilla, the Global BDS campaign has gained great momentum."
The BDS campaign -- targeting Israeli consumer, academic, cultural, and sports organizations -- started in 2005 and had its first conference in Ramallah in 2007. The Anti-Defamation League has pointed out that, in February 2009, a similar claim by BDS that Hampshire College had divested its Israeli holdings was also disputed by the college.
"Despite the best efforts of activists, and some gains among church groups, the divestment campaign in the U.S. has been largely unsuccessful," the ADL said. "To date, it has failed to bring its primary targeted institutions to divest from Israel or from U.S. companies doing business with Israel."
Where we ask 10 questions that help us to understand one of the personalities making foreign policy in the Obama administration. This week's subject: Under Secretary of State for Economic, Energy and Agricultural Affairs Robert Hormats:
1. Which American president do you look to as the model for your approach to foreign policy? Jefferson, Wilson, FDR, LBJ, JFK, George W. Bush, someone else?
FDR and Harry S. Truman. Both understood the importance of strong alliances -- including with some countries with which we did not agree on many issues -- to accomplish important objectives. They saw great alliances as essential not simply to win World War II but also to construct a new global economic order after it -- to promote reconstruction and avoid a repetition of the mutually destructive economic behavior that helped cause the war in the first place.
Their leadership was critical to the establishment of institutions that underpinned post-war prosperity and security. The economic institutions they created -- designed to build a stable and open global economic system -- were essential to postwar recovery and ultimately to the West's success in the Cold War. They also have served as the framework for the integration of growing numbers of emerging and developing economies into the global trade and financial system, and the cross-border networking of individuals and businesses. Such developments, in turn, have helped nations unlock the unlimited creativity, energy and inventiveness of their citizens and lift hundreds of millions of people out of poverty and into an increasingly vibrant global middle class. Together these institutions and this system have helped produce the dynamic world economy we enjoy today, one that is critical to continued American prosperity. They also form a strong basis for managing a growing set of fresh challenges resulting from new forces and pressures in the global economy.
2. How do you view U.S. leadership in the world in the 21st century? Is America a hegemon in decline or going strong? Is that a good thing or a bad thing?
America is still the "indispensable nation," but there is virtually no major economic issue that can be successfully resolved without a large number of other nations -- traditional allies and powerful emerging economies alike. The global financial crisis was ample evidence -- if any were needed -- of how closely nations are tied together on financial and economic issues. But because the world now is so intensely interconnected, the same also is true when it comes to the environment, trade flows, energy, the volatility of food prices and the availability of food itself, shortages of water, the spread of infectious diseases and vulnerability to terrorism. Creative diplomacy and strong cross-border partnerships are indispensable if American interests are to be served in these areas.
3. What's the number one narrative about the Obama administration's foreign policy so far that you feel has been mischaracterized by the media?
I am reluctant to use the word "mischaracterized," but I would like to see a more thorough media job of documenting the work of the administration in building a more stable international economic system, alongside the political challenges that it is meeting.
4. Which Obama administration foreign-policy official should we watch more closely?
It's a great team that the president and secretary have assembled. Watch all of them!
5. What do you see as the top three challenges for U.S. foreign policy over the next three decades?
In the area of international economic policy, I see many important challenges. Let me just cite one that cuts across many policy issues: Successfully integrating the large emerging economies into the rules-based, market-oriented global economic system.
As these nations become more powerful economically, they must also assume greater responsibility for the stability and proper functioning of the international economic system. They will also have an important role as America's partners in strengthening existing global economic institutions, creating new ones, and establishing new methods of cooperation to address the challenges of the 21st century. We all have a role in ensuring that zero-sum competition for markets, energy, food, or capital does not emerge. Instead, the U.S. seeks, in partnership with emerging economies and traditional allies, greater access for all people to the benefits of global trade, investment and information networks, and cooperation to address any disruptions in the global economy or threats to our nation's, or international, economic growth and stability. Shaping the global system of the 21st Century to meet American interests will require U.S. leadership, vision, and creative partnerships with these economies.
6. Why did you decide to go to work for the Obama administration? What do you hope to accomplish?
I strongly support the policy objectives of President Obama and Secretary Clinton. I also believe that their leadership is crucial to successfully addressing the critical issues our country and the world face in this era. And I hope to play a supportive role in helping them address the challenges before our nation.
If the U.S. successfully addresses these challenges, we will strengthen prospects for American and global prosperity for decades to come. Just as Secretary of State Dean Acheson famously wrote that he was "present at the creation" of the American-inspired and led world order established after World War II (of course he was more than present; he was instrumental in the entire process), those of us in government today, in the early 21st century, can be said to be present at the "re-creation" and have an opportunity to help our nation shape it. Of course the character and needs of the world economy today differ greatly from those in the late 1940s and early 1950s -- and therefore require new ways of thinking and cooperating. The turbo-charged globalization of commerce, finance, and information flows, and the entrance of billions of new producers and consumers into the global economy -- particularly with the reintegration of large economies such as China and India -- raise new challenges. But they also require of us today the same high level of creativity and vision displayed by Secretary Acheson and his colleagues over half a century ago.
One area I will especially focus on in this country is working closely with American labor, business, farmers, entrepreneurs and investors to sharpen our nation's international competitive capabilities, and to support their interests abroad. A key task will be to ensure that changes in the global economy can be harnessed to enhance international opportunities for a widening range of Americans in communities throughout our country -- and to help them take full advantage of expanding markets around the world.
I am enthusiastic about working with my colleagues in the State Department, those in other agencies, and members and staff on the Hill to tackle these issues.
7. Who was your mentor in the early stages of your career and how did they help you?
I have had a wonderful mentor in Fred Bergsten, who now runs the Peterson Institute for International Economics. Fred gave me my first job in government as his assistant on the National Security Council staff when I was fresh out of graduate school at the Fletcher School at Tufts University; he has been a valued mentor and close friend ever since. Fred has a passion for international economic policy that I share and a remarkable sense of vision about the kinds of issues that will be critical to the U.S. and global economy in future years.
8. Who is the foreign leader or figure you most admire and why?
Nelson Mandela. Vision, humanity, creativity and commitment.
9. What is your favorite country to visit for pleasure and what should we do when we go there?
Israel, because of Jerusalem; there is no city that contains as much history per square foot as Jerusalem. Egypt because of the remarkable monuments near Cairo and in Upper Egypt. By studying these civilizations and their rich history we learn a lot about ourselves and our religious and cultural traditions.
10. If you had the chance to meet with any leading figure from history, who would it be and what would you say to them?
Galileo, Copernicus, and Darwin -- for much the same reason. The methods of scientific inquiry we practice today owe much to them. They embody human creativity. I would be interested in knowing how they would advise us today on the question of how to adopt creative, visionary and (if need be) daring solutions to the problems we face. Often our societies find it difficult to face up to the need to dramatically change our ways of thinking and acting in the face of new challenges or to overcome past inertia; as the result tough issues often are not addressed with sufficient boldness. These men were quintessentially bold thinkers. We could learn much from them today.
President Barack Obama makes his first foreign trip as president this Thursday to Canada. NSC officials said the focus of Obama's visit with Canadian Prime Minister Stephen Harper will be trade, NAFTA, and economic recovery, as well as energy security and Afghanistan. At immediate "issue is a controversial so-called 'Buy American' provision requiring the use of U.S.-produced iron, steel, and other manufactured goods in public works projects funded by the $787 billion economic stimulus bill," CNN reports.
Asked in a press call for Obama's message to audiences around the world about his visit, NSC director of strategic communications Denis McDonough responded, "The president feels that the fact is, every day is an opportunity for us to send a clear message to the world and that is why the president has invested as much time as he did and effort to ensure and send a clear signal that the U.S. is leading on this economic recovery package, that he is trying to dramatically expand demand in a difficult time of the economy."
John Hudson reports on national security and foreign policy from the Pentagon to Foggy Bottom, the White House to Embassy Row, for The Cable.