The vulnerability of soldiers to exaggerated, motivated and false FIRs is fundamentally a result of the State preferring to deal with legal issues in disturbed areas within the framework of a law and order problem.
Legally tackling vexatious first information reports (FIRs) filed against soldiers operating in internal conflicts, has been an unresolved issue that demands immediate attention of the government. The legal noose around the soldier’s operational neck has been tightening since 2017, when the Supreme Court appointed a Special Investigation Team to probe allegations of fake encounter cases in Manipur. Consequently, an FIR was filed by the Central Bureau of Investigation (CBI) against a serving officer and some others which triggered an unprecedented filing of a writ petition by 356 serving personnel of the Indian Army.
In August 2018, the petitioners filed a plea seeking “guidelines to protect soldiers operating in insurgency, militancy and proxy war situations, which have been identified by the State/Union Government to be a disturbed area, where it is imperative for Army to act in aid of the civilian authorities, from malicious, frivolous, vexatious and motivated FIRs.” It was not an attempt seeking to protect any criminal activity, which may be carried out by some soldiers. The plea was supported by the government counsel who was also a respondent. However, on November 12, 2018, the Supreme Court while dismissing the writ petition remarked that it was the government’s responsibility to evolve mechanisms to protect the soldiers, as under the existing legal framework filing of FIR was mandatory.
The petitioners had cited the Punjab High Court judgment of 2005 that laid down the guidelines to be followed before any FIR/Criminal Complaint is lodged against the doctors in exercise of their professional duties. Consequently, it sought the use of same justification in order that the privilege be extended to the soldiers who have also carried out their professional duties in good faith. The Supreme Court judgement implied that it was up to the government to decide whether similar guidelines should also be laid down for the soldiers.
At the heart of the matter is the urgent necessity of protecting the soldiers from harassment to which they are subjected from the prolonged investigative procedures that ensue. The investigative process itself, for a soldier acting in good faith and in accordance with the orders of his superiors, is a form of punishment which could also entail financial costs through legal fees, disruption of normal life, and deep psychological strain of the proverbial legal sword hanging over their heads. Although, admittedly, the soldier already enjoys protection from prosecution under Section 4 of the Armed Forces (Special Powers) Act or the AFSPA, it does not however cover investigations.
Protection should be achievable, as the government has provided such cover to public servants through the Prevention of Corruption (Amendment) Act, 2018. The new section 17A of the Act states, “No police officer shall conduct any enquiry or inquiry or investigation into any offence alleged to have been committed by a public servant under this Act, where the alleged offence is relatable to any recommendation made or decision taken by such public servant in discharge of his official functions or duties, without the previous approval” of the government. A time limit has been laid down for the government to decide. The protection is also extended to retired personnel. The only exception is when public servants are caught red handed in the commission of an illegal act.
The issues relating to the doctors/public servants are vastly different from that of the soldiers. The death of a patient and the acts of corruption are definitely in a different category from deaths occurring during the counter insurgency operations. The commonality is distinctly in the legal principle, that safeguards have been provided for acts done in good faith and such protection is extended particularly to the filing of FIRs and the investigative process. Notably, soldiers act collectively and individual responsibility is not easy to ascertain.
The revealed vulnerability of soldiers to exaggerated, motivated and false FIRs is fundamentally a result of the State preferring to deal with legal issues in disturbed areas within the framework of a law and order problem, which by its very nature it is not. Undoubtedly, the intensity of such conflicts is dynamic and for over several decades the non-state actors have been lethally empowered by technology which is manifested in the improvised explosive devices, and inter alia the suicide bombers who also enjoy the support of external powers.
The issue of vexatious FIRs has been lingering for several decades and many soldiers have had to endure prolonged legal processes which by itself tantamount to punishment. The cases were dealt individually by the armed forces and no resolution through legislation was sought. However, the issue has now gained focus because of the unprecedented and collective action of a group of serving soldiers. There is a strong case for a legislation that will have to cater for the plausible circumstantial mishaps in disturbed areas. The case is also strong because a soldier cannot be expected to perform effectively if, while carrying out orders and discharging his duty in good faith, the resultant complications are likely to return to haunt his mental peace not only while in service but also in retirement. The impact on the morale cannot be acceptable to the military leadership.
The political acknowledgement of the realities of disturbed areas must be based on the fundamental problem faced by the soldiers in such conflicts – the armed adversary is not easily recognisable and often hides among the local populace. Uncertainty and danger to one’s own survival characterise the hostile environment. The abnormal ambience confronted by the agents of the State, and the increasing potential of civil rights activism that requires investigation and which is often false, exaggerated and motivated by inimical intentions, should pave the way for crystallising legislative measures that will preserve human rights and yet ensure protection of the soldiers.
The inadequacy of the existing laws to protect the soldier against motivated FIRs has been amply revealed by the ongoing deliberations of the Supreme Court, and was further highlighted when the Supreme Court intervened in the case of Major Aditya after three civilians were killed in the army firing on stone throwers in South Kashmir. Thus, safeguards against FIRs that emasculate operational capability and demoralise soldiers is an imperative requirement.
The need for effective legislation to answer the soldier’s justifiable demand for protection under law, and not from the law, must be acknowledged by the military and political leadership. The challenge in framing the law is to maintain the balance between protection of soldiers and upholding of human rights. Human rights sensitisation has been embedded in the Indian Army’s counter insurgency doctrine which is also reflected in the creation of human rights cells at the army command, corps and division levels.
Although there can be no blanket protection against FIRs, some provision for checks and balances to weed out motivated and vexatious ones could be created. This is a complex task and would require joint examination by legal experts and the armed forces. The ministry of defence (MoD) could consider instituting a study group in this regard. The erroneous approach, to argue the case, within the existing legal framework stands exposed especially in the light of the same legal framework being used by inimical entities to commence proceedings against soldiers performing their duties in very trying and difficult circumstances.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
While Japan envisions its role as a leading promoter of rules-based liberal international order, the G20 tested Japan’s leadership in championing the cause of trade liberalisation and resisting protectionism.
The G20 presidency offered Japan its first leadership moment in the newly dawned Reiwa era1 as world leaders gathered in Osaka, at a time when the rules-based global economic governance is becoming more fragmented under pressure from growing American unilateralism and Chinese state capitalism. Japan had a difficult choice: whether to let politicisation of trade harm the global economy by allowing managed trade and weakening enforcement mechanism of the World Trade Organisation (WTO) to appease its most important security ally - the US, or be an anchor of free trade and open markets. While Japan envisions its role as a leading promoter of rules-based liberal international order, the G20 tested Japan’s leadership in championing the cause of trade liberalisation and resisting protectionism. Prime Minister Shinzo Abe’s objective was to reinstate global confidence in the multilateral trading system 2 at a time when backlash against globalisation is unleashing economic nationalism in order to undo ‘unfair trade practices’.
Stakes were high for Prime Minister Abe as the US-China trade friction over deficits and siphoning off cutting edge technologies continue to disrupt supply chains and undermine the global economy, which by International Monetary Fund (IMF) estimates could condense the global GDP by 0.5 per cent, or about $455 billion, by 2020. 3 At the global level, Japan – as the third largest economy – was keen on projecting its readiness to step up as the leader of multilateral trading system, particularly after successfully rescuing the TPP-11 following the US exit and concluding the Economic Partnership Agreement with the European Union (EU) following Brexit. However, power politics constrained Japan’s G20 agenda as building consensus on issues of global economic governance exposed deepening fault lines not just between the developed and developing economies but amongst the developed economies as well.
At the national level, as Japan heads for Upper House elections in July, Abe had to demonstrate his ability to advance national interests while navigating the complex web of geo-economic tensions as protectionist policies could impact Japanese exports. Export value to the US and China each account for 20 per cent of the total Japanese exports. 4 Additionally, the G20 had presented Abe an opportunity to demonstrate Japan’s geopolitical standing through summit diplomacy on the side-lines.
What did Abe accomplish?
As president of the G20, Japan had a key role in agenda-setting. Japan’s top three priorities were: launching the Osaka Track for data governance, reinforcing a free and fair trading system, and tackling global environmental challenges. 5 In the run-up to the summit, Abe at the World Economic Forum envisioned that Osaka G20 should be recalled “as the summit that started world-wide data governance”. 6 Japan argued the case for building rules for data governance and constructing a new regime underpinned by Data Free Flow with Trust (DFFT). This is aligned with Japan’s push for data-driven Society 5.0 which the fourth industrial revolution will generate. However, global data governance is intensely debated. Even though cross-border flow of data and information creates increased productivity and innovation, there are more than a few challenges related to privacy, data protection, intellectual property rights and security. The Osaka Declaration on Digital Economy was not signed by emerging markets and developing economieslike India, Indonesia, South Africa and Egypt.
While Abe wanted to find a ‘common ground’ without focussing on ‘confrontations’, 7 the G20 struggled to make considerable progress in providing strategic direction on reforming the WTO — which serves as the foundation of global trading system. The Osaka Declaration made little progress on critical issues such as President Donald Trump’s stance on blocking new appointments to the appellate body, consequently weakening the key dispute mechanism. At the G20, Abe’s attention regarding WTO reforms was steered towards digital trade and industrial subsidies 8, subjects that would not offend Trump.
For the US, EU and Japan, the larger debate on WTO reforms evolved around three axes: alleged overstretch by the appellate body, low compliance regarding notification of government subsidies in accordance with specific agreement rules, and the practice of allowing members to self-designate as developing countrieswith the aim of obtaining special and differential treatment, as in the case of China. 9 While they have coordinated their efforts in pursuing WTO reforms,10 China has submitted its own proposal earlier in May as the organisation is becoming ‘a new platform for great power rivalry’ 11 and the debate on ‘three no’s’ versus ‘three zeros’ 12 intensified.
While Japan promotes globalisation and multilateralism, Trump’s “America First” policy, employing tariffs to correct the ‘unfair trade practices’ of not just China but also allies like Japan and the EU, dilutes global liberal economic governance. A view is fast emerging that to preserve the free trade system, economies like Japan, the EU and China should join forces towards liberal regional integration on trade and investment without the US, consequently driving the US into an unfavourable position which may lead the business elites to create pressure on Trump to ease protectionist measures. 13 However, the Osaka Declaration had no reference to protectionism and multilateralism. Instead, it outlined the objective of keeping the trade and investment ‘free, fair, non-discriminatory’. 14 Incidentally, Japan has prioritised concluding the Regional Comprehensive Economic Partnership (RCEP), representing 33 per cent of the global GDP. 15 However, the RCEP negotiation is navigating the fragmentation within, leading to an evolving discourse among stakeholders to conclude RCEP minus India or pursue RCEP within an Association of Southeast Asian Nations Plus Three (ASEAN+3) framework for now.
Another formidable challenge for Abe at the G20 was traversing the climate politics. As the US attempted to mitigate references to the Paris Agreement, which reflects “common but differentiated responsibilities”, several signatories including France ensured that the G20 upholds the essence of the Agreement. Fault lines of the climate politics reflected in the Osaka Declaration which carried a separate paragraph on the US reservations vis-à-vis the Paris Agreement. In contrast, the Osaka Blue Ocean Vision, addressing the problem of marine plastic waste, received unanimous supportthat encouraged the adoption of a comprehensive life-cycle approach.
Summitry on side-lines
Osaka also witnessed a flurry of summit diplomacy on the side-lines of G20. In one of the key meetings, the US and China negotiated a temporary truce in the escalating trade war even as the structural issues, including subsidies and state owned enterprises, remained unresolved. For Japan, the most important bilateral meetings were with the US and China. As strategic competition escalates between these two powers, managing Japan’s national interests in the US-Japan-China triangle is influenced by the complexities of geostrategic and geo-economic variables. Alliance management is testing Japan’s policy choices as Trump intensifies rhetoric on allies before the 2020 re-election bid. Intense negotiations in the automobiles and agricultural sectors, drug-pricing and currency rules on the one hand, and negotiations on cost-sharing agreement which is scheduled to expire in 2021 in the backdrop of ‘Cost Plus 50’ proposal 16 on the other, will test the foundation of their decades old alliance. The Trump-Abe bilateral meeting in Osaka discussed difficult trade issues including new Japanese investments in the US and purchase of military equipment by Japan. 17
As China-Japan bilateral relations embark on a ‘new era of development’, summit with China was prioritised since this was President Xi Jinping’s maiden visit to Japan after he took office in 2013. While Japan opposes the emergence of a Sino-centric regional order, unpredictability in Trump’s Asia strategy has led to reorienting of Japan’s China policy. Since 2017, Japan’s China policy is indicating a ‘tactical detente’, 18 influenced by pragmatic calculations rather than major shifts in the attitudes, as contested sovereignty and history issues remain unresolved. In the long-term, the US behaviour towards alliance management will continue to be a pivotal factor in Japan’s strategic equation with China. 19
Abe also held meetings with the other key partner countries in the Indo-Pacific including a bilateral with India and a trilateral along with both America and India, focussing on connectivity, infrastructure, and regional security. Japan steered the G20 Principles for Quality Infrastructure Investment underpinned by responsible debt financing, governance and environmental considerations, which appears aligned with India’s proposed Global Coalition on Disaster Resilient Infrastructure.
Meanwhile, managing difficult regional neighbours tested Abe’s diplomatic mettle. While Abe made little progress with PresidentVladimir Putin on contentious issues like peace treaty and territorial disputes, there was no meeting with President Moon Jae-in. Japan’s relations with them are increasingly determined by domestic political pressures, historical baggage and, more importantly, strategic variables in the region. Meanwhile, the US-North Korea impromptu meeting at the DMZ post-Osaka summit caught the Japanese by surprise, reiterating Trump’s unpredictable approach.
The lost opportunity
The G20 is considered as the premier forum for nuanced debate on how best to manage the impending risks in global economic system. Hence, as a leader and advocate of globalisation and multilateralism, Japan was expected to restore international confidence in the multilateral trading system and present solutions to reduce risks and economic instabilities.
The debate on global economic governance in Osaka was dominated by competing interests and narrow national agendas which made this important platform rather ineffective in resolving major problems facing the global economy. At a time when the world economy is dealing with the ramifications of US-China trade rivalry and also Brexit, Japan as a flag bearer of multilateralism and open markets, with strong national interests to protect both, could have been more assertive in setting the strategic direction for upholding the rules-based multilateral trading system. However, the Osaka summit was a lost opportunity for Japan. Even though Japan outlined an ambitious agenda, the cause of multilateralism got compromised by politicisation of issues pertaining to global economic governance..
Views expressed are of the authors and do not necessarily reflect the views of the IDSA or of the Government of India.
1. Japan marched from the Heisei to the Reiwa era on May 01, 2019 with the historic abdication from a living Emperor, in a first such instance in nearly two centuries. As His Majesty the Emperor Emeritus Akihito abdicated the Chrysanthemum Throne, former crown prince Naruhito formally took his place as the new Japanese Emperor. New era names or gengō are used to identify the reign of each emperor.
2. Koji Tomita, “On the upcoming Osaka G20 Summit”, The Association of Japanese Institutes of Strategic Studies (AJISS), May 10, 2019 (accessed June 29, 2019).
11. Wang Peng, “A Stronger WTO”, Beijing Review, July 04, 2019 (accessed July 04, 2019).
12. Three no’s implies: No market-economy status for China; no developing country status for China; and, no compatibility with WTO. Three zeros imply: zero tariffs, zero market barriers, and zero subsidies
No Further Increase in Defence Outlay: Need to Move On
Amit Cowshish
July 10, 2019
It would be nice to see the defence ministry setting up a task force and submitting actionable recommendations which could be considered by the finance minister while deciding the defence outlay next year.
It is pointless bemoaning that there was no reference to defence in the Finance Minister Nirmala Sitharaman’s speech and that she did not further enhance the allocation in the union budget presented by her on July 05. The total allocation under all the four demands for grant of the ministry of defence (MoD) thus remains at Rs 4,31,010.79 crore. It includes Rs 1,12,079.57 crore on account of defence pensions.
There is no reason why expenditure on pensions, for which a separate demand for grant is presented to the parliament, should not be considered a part of the defence budget. Keeping it out of the reckoning would not help defence ministry garner more funds for the armed forces as all funds anyway come from the single pool of central government receipts.
For the record, the total defence outlay works out to 2.04 per cent of the gross domestic product (GDP) and 15.47 per cent of the total central government expenditure (CGE) envisaged in the budget presented by the finance minister. That there has been a decline in the defence outlay as a percentage of the GDP and CGE is not in dispute. It is also not in dispute that defence requires larger outlays.
The question at this stage, however, is whether it was possible for the finance minister to provide additional funds beyond what was allocated in the interim budget in February this year. Probably she could but, going by the estimates of receipts and expenditure presented on Friday, it could not be a substantial amount.
The budget estimates show that there is an increase of just Rs 2,149 crore in the total receipts of the central government over the amount projected in the interim budget. Even if this entire amount were to be diverted to defence, the increase in the outlay would have been a little less than 0.50 per cent.
No one can seriously argue that more taxes could be imposed, higher disinvestment targets could be set, funds allocated for various social sector schemes could be cut down, or the government could resort to higher borrowing which, broadly speaking, are the only other ways in which more receipts or savings could be generated and additional funds could be made available for defence.
There was a gap of more than Rs 1.12 lakh crore in the requirement projected by the armed forces alone (both on account of revenue and capital expenditure) and the allocation actually made to them during 2018-19.1 Assuming that the gap this year is half of that, the armed forces would require Rs 50,000 crore. In the face of this, passing on Rs 2,149 crore to defence would have only invited ridicule.
Significantly, the finance minister refrained from making routine declaration of the government’s commitment to security of the country and making platitudinous promises of providing additional funds, if required. Except those who are prejudicially opinionated, no one ever seriously doubts the government’s commitment. As for additional funds, it is better not to make a promise that cannot be kept.
Talking of promises, it is just as well as that the finance minister did not announce setting up of a non-lapsable pool of funds for modernisation – an idea that she was supportive of earlier as the defence minister. This idea has been discussed and debated ad nauseum in the past and has been found to be impractical and of little use for speeding up modernisation of the armed forces.
There is no wisdom in taking any step without fully considering its consequences and working out the modality of its implementation down to the last detail. A case in point is the decision taken in the past to withdraw custom duty exemption on import of defence items by the defence public sector undertakings and the ordnance factories.
That single decision had put enormous extra burden on the defence budget. Withdrawal of customs duty in this year’s budget on import of equipment that is not manufactured in India will marginally reduce the burden on the defence budget without upsetting the level playing field between the public and the private sectors.
This is not to suggest that there is no need for a higher level of funding for defence. The armed forces, a dominant section of the defence analysts, and even the standing committee on defence feel that the defence budget should be pegged at three per cent of the GDP. There is no clarity though on how this can be done.
It would be nice to see the defence ministry setting up a task force to examine this burning issue and submit actionable recommendations which could be considered by the finance minister while deciding the defence outlay next year. The only alternative would be for the armed forces to make financially viable defence plans.
Views expressed are of the authors and do not necessarily reflect the views of the IDSA or of the Government of India.
1. Standing Committee on Defence (16th Lok Sabha), Forty second Report, Para 1.3.
Defence Budget, Defence Expenditure, Defence Industry
As concerns over a potential conflict in the region grow, the pressing issue of what a conflict would mean for the price of international crude oil needs to be addressed urgently.
Once again, the West Asia – or the Middle East – is on the boil as Washington and Tehran ratchet up the aggression. If President Donald Trump is to be believed, the American forces came close to attacking Iran after Tehran brought down an American drone; but backed off at the last minute, ostensibly to prevent killing 150 Iranians! A couple of vessels have also come under attack in the Gulf of Oman by unnamed attackers. The United States (US) and its Arab allies have pointed the finger at Iran. Meanwhile, on July 01, 2019, Iran’s semi-official Fars News Agency, quoting Foreign Minister Javad Zarif, reportedly confirmed that Iran’s enriched uranium stockpile has passed the 300-kilogram limit set under the July 2015 nuclear deal1 – formally, the Joint Comprehensive Plan of Action (JCPOA). On July 03, President Hassan Rouhani even declared that Iran will begin, as early as July 07, enriching uranium “in any amount that we want” and would exceed the levels specified under the 2015 nuclear deal.2
After the recent JCPOA Joint Commission meeting held on June 28, while the European Union (EU) confirmed that the planned barter trading mechanism -the Instrument in Support of Trade Exchanges (INSTEX) – was now “operational”, the Iranian Deputy Foreign Minister Abbas Araqchi observed that this may not be sufficient to change Iran’s decision to breach its JCPOA commitments, and that it would not abide by the deal until Iran was allowed to sell some of its oil.3 Therefore, the uncertainty around re-imposition of the earlier United Nations (UN) sanctions on Iran still remains and will only add to the volatility of oil prices in the near future.
Iran has also periodically been threatening to disrupt shipping through the vital Strait of Hormuz through which a majority of the region’s oil transits for (mainly) Asian consumers. Several nations, including India, have responded by sending naval escorts to protect their vessels traversing through these waters. As concerns over a potential (though unlikely) conflict in the region grow, the pressing issue of what a conflict would mean for the price of international crude oil also needs to be addressed urgently. In the aftermath of the recent US-Iran stand-off, both spot and future prices of crude oil witnessed a five per cent hike. Although there is no supply shortage as such, the price at which it is bought will impact on consumers.
As the third largest consumer of oil, with its current import dependency at more than 83 per cent, India’s economy is bound to feel the pinch of higher oil prices. With domestic production continuing to stagnate and the transport sector expected to register a compound annual growth rate (CAGR) of 9.5 per cent during the 2019-2024 period4, India’s thirst for oil is unlikely to abate in the near future. In fact, India is seen as potentially the largest market for oil over the next decade. This has a huge impact not only on India’s overall import bill, of which oil – and gas – imports make up the bulk, but also on the economy as a whole. With every US$ 10 per barrel hike in crude oil prices, India’s current account deficit (CAD) goes up by 0.4 per cent of GDP; every 10 per cent increase in prices can push up the inflation rate by 20 basis points.5 According to Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Petroleum and Natural Gas, India spent $111.9 billion on oil imports in 2018-19, up from $87.8 billion in the previous fiscal year.6
Organisations like the International Energy Agency (IEA) have been cutting their estimates for oil demand growth through 2019, citing the impact of trade issues between the US and China on the global economy, as well as growing concerns over the impact of hydrocarbons, particularly oil and coal, on climate change, which it says have led to a fall in the demand for oil.
In fact, till the recent attacks on the ships, prices were seen as being bearish. Several reasons have been cited for this phenomenon, the most prominent being the surge in the US shale oil production by 1.6 million barrels a day (mbd), compared to a year earlier, as well as an increase in the US inventories. Also, due to the ongoing US-China ‘trade war’, concerns regarding a slowing global economy have impacted on growth and therefore on the demand for oil, preventing a rise in prices. As per the latest estimates of the Organisation of the Petroleum Exporting Countries (OPEC), the world oil demand will rise by 1.14 mbd in 2019, which is 70,000 barrels per day less than previously expected.7
While all this may be good news for the new Indian Government which took office in May 2019, the question is how can this bearish trend in prices be sustained?
First, while most global oil majors and analysts agree that by the late 2020s demand for liquid transport fuels will stop growing, the demand for oil for petrochemicals, particularly olefins and aromatics, will continue.
Second, with global upstream capital expenditure having fallen by almost 45 per cent between 2014 and 2016, due to the price collapse, it will have an impact on the new production. According to the IEA World Energy Outlook-2017, an additional 2.5 mbd of new production will be required for conventional oil production to remain flat, given that it takes about three to six years from project sanctioning to coming onstream.
Third, despite data from the US Energy Information Administration’s (EIA) June 2019 drilling productivity report suggesting that the oil output from major shale formations is rising, it has also lowered its total oil production growth forecast. This is based on the rig count, an early indicator of future output, which has been declining over the past six months, due mainly to independent exploration and production (E&P) companies cutting their spending. Also, although advanced technology has arrested declines, the lateral lengths of the wells have increased substantially, as have the volume of water used in drilling.8
Fourth, Russia and the OPEC have agreed to roll over the production cuts for another few months, possibly till the end of the year, which saw prices go up slightly. As the US shale output starts declining, further cutbacks from the group will see excess supply disappearing. Without timely supplies entering into the market, prices will start ascending eventually.
Under these circumstances, what can India do to reduce the impact on its economy? Apart from strategic oil reserves, which can be accessed in the event of a supply disruption, there are financial instruments that can hedge price increases. These include hedging and options contracts that allow oil companies to lock in the price of the oil they contract to import in the future, which can soften the risk of sudden spikes in oil prices.
While private oil companies, including Indian, as well as several small countries systematically hedge against price increases, the Indian state-owned companies – a far larger importer of crude oil - continue to hesitate in employing such mechanisms, despite the Reserve Bank of India (RBI) recommendations that they should go for hedging, particularly for long futures contracts, fearing a backlash if prices drop.
However, if prices do drop, a mechanism can be adopted whereby the loss is spread over time, similar to the mechanism that is in place for spreading the impact of higher oil prices over time. What is important is that the market should put existing mechanisms that could hedge against price spikes, which India is likely to see soon. Given that India will remain dependent on the international market for the foreseeable future, it is time that strategies and mechanisms are employed to minimise such risks.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
Given India’s evolving procurement system, efforts should be made to enhance compatibility of technology from various sources. This may require greater cooperation with the US since many of India’s suppliers other than Russia depend on US technologies for their products.
One of the first priorities of the new government led by Prime Minister Narendra Modi will be to take stock of the ‘global strategic partnership’ with the United States (US) which has emerged in recent years as an indispensable partner in India’s economic transformation and the realisation of its aspiration to play a bigger role on the global stage. The defence partnership, a key pillar of the relationship, has blossomed. Yet it runs the risk of plateauing, given differences over India’s contract for the Russian S-400 Triumf Air Defence Missile System and pending progress on the remaining two foundational agreements -– the Industrial Security Annex (ISA) and the Basic Exchange and Cooperation Agreement (BECA).
Last year saw the first-ever 2+2 dialogue against the backdrop of burgeoning joint exercises such as Cope-India (Air Force), Yudh Abhyas (Army) and Vajra Prahar (Special Forces). The two sides are also increasingly engaged in multi-lateral exercises such as the MALABAR, RED FLAG and RIMPAC, covering the broad expanse of the Indo-Pacific. The US has recently renamed its Pacific Command as the US Indo-Pacific Command (USINDOPACOM), an acknowledgement of the seamless connectivity that binds the Pacific and Indian Oceans and India’s growing importance. The Indian Navy and the US Naval Forces Central Command (NAVCENT) are set to deepen their maritime cooperation in the Western Indian Ocean, where Chinese presence, in island nations and strategic ports such as Gwadar and Djibouti, are of concern to India. The defence and strategic relationship today encompasses a broad spectrum of activities from intelligence sharing to joint humanitarian and relief efforts, mutual port visits by naval ships, joint exercises, trade in military hardware and, most importantly, co-production and co-development of military systems.
Just as Prime Minister Modi was sworn in again, the US State Department Spokesperson Morgan Ortagus called India a ‘great ally’ and ‘partner’ with which his country would work on a broad spectrum of issues. The US sees the defence partnership in the context of its Building Partner Capacity programmes. It increasingly regards India as a potential ally in dealing with the emerging challenges in the Indo-Pacific, notably China’s growing economic and military assertiveness. India’s importance as a market for arms supplies, next only to Saudi Arabia, is a major factor. Since 2008, India has purchased nearly US$ 18 billion worth of arms from the US, including sophisticated C-17 and C-130J transport planes, state-of-the-art P-8i maritime reconnaissance aircraft, Harpoon missiles, Apache and Chinook helicopters and M777 howitzers. These are among the most sophisticated and lethal platforms of their kind.
India’s immediate objective is to rapidly build its defence capabilities, in order to better deal with potential threats on its northern and western land borders and in the Indian Ocean. It needs the latest technologies to pursue its ambitious ‘Make in India’ programme in defence manufacturing. A rapidly growing economy and deeper pockets alone will not guarantee that unless agreements are in place to secure the latest technologies from the US, beyond simply buying items off the shelf. India has to ensure that high-tech imports are equally matched by technology transfer for indigenous manufacturing.
The foundational agreements with the US such as General Security of Military Information Agreement (GSOMIA, 2002), Logistics Exchange Memorandum of Agreement (LEMOA, 2016) and Communications Compatibility and Security Agreement (COMCASA, 2018) are path-breaking. However, the true potential for high technology transfer involving the Indian private sector would be realised only after conclusion of the ISA. Looming large over the Indo-US defence co-operation is the shadow of India’s continued reliance on Russia for key defence imports. Beyond the fact that Russian and US platforms are incompatible in terms of communications security, the US is particularly apprehensive about the potential for compromising US platforms when operating alongside the Russian S-400 system. India’s contract for the sophisticated S-400 air defence missile system has been red-flagged by the US as potentially significant for triggering sanctions under Countering America’s Adversaries Through Sanctions Act (CAATSA). The fact that a special waiver amendment under the sanctions provision of CAATSA was included in the John McCain National Defense Authorisation Act of 2019 specifically with India in mind means that a waiver is likely but not necessarily guaranteed.
The menu of sanctions under CAATSA ranges from denial of visas to persons who are party to the S-400 contract, to even more severe action such as denial of munitions licences to India. The latter, if ever resorted to, would mean the cessation of all defence and strategic cooperation. Given the prevailing geopolitical uncertainties, it is moot if the US would want to go down this path.
However, decisions taken by India in exercise of its strategic autonomy and in view of the long-standing dependence on the Russian equipment, nevertheless, would determine the kind of defence technologies the US would be willing to share with India, the convergence over the geostrategic developments in the Indo-Pacific notwithstanding.
There is no gainsaying the fact that India needs to speed up its defence modernisation, especially capacity-building, indigenous manufacturing and access to the most sophisticated defence technologies, if it is to play a role commensurate with its ambition and potential. The most potent source of such technologies remains the US. It is pertinent to note that even China’s defence modernisation benefitted from close cooperation with the US as part of their ‘strategic alliance’ against the former Soviet Union in the 1980s. The ‘three pillars’ approach taken by the US included military technology cooperation under the Foreign Military Sales (FMS) status granted to China by President Ronald Reagan in 1984, which resulted in the US building artillery ammunition factories and undertaking the F-8 fighter jets avionics modernisation programme, among others, until all US military exports to China were suspended in the aftermath of the Tiananmen Square incident of June 1989.
What has facilitated the rapid development of defence cooperation between the US and India in recent years is the designation of India as a Major Defence Partner/Friendly Foreign Country and increasing willingness on the part of the US to relax rules and regulations governing high technology transfer through special carve-outs such as the Strategic Trade Authorisation Tier-1 Licence Exemption. However, the US lags behind in regard to the ‘Make in India’ aspects of the defence trade with India as compared to New Delhi’s robust technology transfer agreements for fighter aircraft, advanced trainers and submarines with traditional arms suppliers such as Russia, United Kingdom (UK) and France. The bilateral Defence Trade and Technology Initiative (DTTI) would need to expedite the work of its seven joint working groups and find ways to ensure early implementation through industrial production of various agreed-upon defence projects. US concerns regarding IPR run deep and remain to be assuaged, just as India’s expectations regarding transfer of technology and license production remain unfulfilled.
India’s ability to meet the emerging geostrategic challenges in the Indo-Pacific is a function of its geographic location, leadership, the strategic doctrines developed in response to emerging threats, and, above all, the resources that can be mustered. The budgetary crunch severely limits capital expenditure on new platforms, especially expensive imports, which makes it all the more vital for India to focus on cheaper indigenous manufacturing. Over reliance on outright imports, whether from the US, Israel, France, UK or Russia, must be gradually reduced, in favour of indigenous designs, development and production.
The new government will have to take a strategic view of the remaining foundational agreements with the US in order to facilitate transfer of key technologies necessary for building capacities to meet the growing challenges in the Indo-Pacific. It will have to weigh the consequences of altogether abandoning the traditional Russian supplies. Any jettisoning of the S-400 deal would impact adversely on ties with Russia across the board, including the acquisition of other key platforms such as the Akula class SSN nuclear attack submarine that is to replace Chakra II, which complements India’s nuclear triad based on the indigenously built Arihant SSBN.
Given India’s evolving procurement system, efforts should be made to enhance compatibility of technology from various sources. This may require greater cooperation with the US since many of India’s suppliers other than Russia depend on US technologies for their products.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
The WhatsApp bug brings to light the same old dilemma between safeguarding individual privacy and enabling the state to undertake surveillance in the interest of security.
Cyber Security breaches have become the new normal with invasive bugs on the rise. Recent incidents include the Face Time bug, which enables callers to listen into the recipients’ audio, and the Intel processor security flaw that allowed malicious actors to transfer sensitive data from a computer’s CPU to that of the attackers. The latest breach is the WhatsApp bug, which enables perpetrators to install a spyware by simply making a call to the targeted device. Social media platforms have end-to-end encryption, which means that the data cannot be intercepted during transit. However, attacks like these may undermine user confidence in the security provided by private entities. This breach also underlines the dark side of the Information Age – that there is nothing called fool-proof security and that every individual, system and organization is equally vulnerable.
Debugging the Bug
In early May, WhatsApp detected a bug that could inject malware on any targeted smart phone through a single call. This means that a simple call – even if not answered – may leave the phone and all its data including call logs, emails, messages, and photos vulnerable to malware, as opposed to other hacks that require some sort of user interaction like clicking on an infected link. In fact, this WhatsApp vulnerability could even bypass the face ID lock of iPhones, a feature introduced by WhatsApp to double user protection.
This Zero Day exploit, also known as Pegasus spyware, was allegedly developed by an Israeli cyber intelligence company called NSO. The hack code developed by the company could easily transmit itself to the target’s phone with a WhatsApp call and at the same time delete the call record itself from the call log. Thus, there is no way to find out if the phone has been breached. Following the bug’s detection, WhatsApp started rolling out an update on 10 May so as to provide a security patch for its customers.
Further analysis of the attack showed that WhatsApp VoIP (Voice over internet protocol)1 had a vulnerability called "buffer overflow weakness," which perpetrators could leverage to run malicious code on the host device. As the call starts, perpetrators manipulate the specially crafted series of data packets called SRTP (secure real time transport protocol), leading to the overflow being triggered and the attacker gaining access to the application. Attackers can then deploy surveillance tools to the device for use against the target. Karsten Nohl, chief scientist at the German Security Research Lab, states, “Remote exploitable bugs can exist in any application that receives data from untrusted source.” The majority of VoIP traffic that is sent over the internet is not encrypted, so anyone with access to the network can intercept calls or messages. This is one of the many serious threats in the VoIP environment. VoIP, in WhatsApp, is used to connect users and the evasion of the platform’s end-to-end encryption is being attributed to vulnerable VoIP.
The Target
The Israeli firm NSO’s stated objective has been to “create technology that helps government agencies prevent and investigate terrorism and crime to save thousands of lives around the globe.” However, it doesn’t require much to imagine how the technology can be used for other purposes as well. It has been reported that NSO had actually developed the WhatsApp bug code to access the phone data of a United Kingdom based human rights lawyer who had helped a group of Mexican journalists, government critics and a Saudi Arabian national living in Canada to sue the company for allegedly misusing the technology. They also called for an export ban on the technology to prevent it from being used for breaches of individual privacy.
What could this mean?
While at first glance it appears that the WhatsApp malware was developed by a private firm to target an individual and at best a select group of individuals involved in litigation with it, NSO’s links with the Israeli government does have spill over effects on regional politics. The company was founded by a retired senior Israeli military officer, General Avigdor ben-Gal, and continues to maintain close ties with the Israeli government and its security forces. It has been alleged that companies like NSO have been used by Israel to further diplomatic relations with hostile neighbours in the Middle East and the Persian Gulf. Arab states see Israeli technologies as powerful tools that could be used against terrorists as well as political dissidents. While NSO has not denied that it provides services to Saudi Arabia, it denies that the technology it had shared with Saudi Arabia was in any way used in the surveillance and subsequent killing of the journalist Jamal Khashoggi. Nevertheless, Saudi agencies armed with NSO technology have allegedly gone after many of Khashoggi’s associates including Iyed el-Baghdadi, an Arab writer and activist based in Oslo, Norway. According to a report generated by Citizen Lab at the University of Toronto, NSO’s software has actually been detected in 45 countries with civil society members seen to be targeted in six.
Incidents of social media breaches make it clear that anyone with a smart device is vulnerable One cannot ignore the fact that any government armed with such technologies can carry out the targeted monitoring of individuals without their knowledge. Attempts at breaking end-to-end encryption show that many private enterprises are hand in glove with government agencies. Moreover, such social media breaching technologies can be misused if they fall into the hands of malicious actors. For instance, private chat information and details could be used for blackmail and financial gains.
WhatsApp is used by over 1.5 billion monthly active users, and more than 200 million users in India alone. Such a large user base also raises question about the security awareness and accountability actions being taken by India. This also brings to light the dark side of unregulated cyberspace. In the absence of any universal rules or common doctrines governing cyber space, the dilemma of individual privacy and the state’s obligation to ensure security including through surveillance would continue to remain a zero-sum game.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
1. Voice over internet protocol (VoIP) is the transmission of voice and multi-media content over Internet Protocol (IP) networks.
The Arms Trade Treaty is flawed and requires strengthening. Ratified States need to take the lead in fortifying the Treaty before more member States are asked to join.
The Geneva Centre for Security Policy (GCSP) released its May 2019 issue of Strategic Security Analysis titled, “The Arms Trade Treaty and Asia’s Major Power Defiance – India, China, Pakistan and Indonesia”. The paper has raised a number of issues regarding the gaps within the Arms Trade Treaty (ATT) while highlighting what the four Asian States- India, Pakistan, Indonesia and China- find problematic in acceding to the Treaty.
The paper brings to the forefront the genuine causes of concern for these Asian states: Indonesia not only has apprehensions on the notion of conditionality within the Treaty, but is equally wary of the Treaty’s inability to address the non-state actor threat and to curb transit and transhipment of illicit arms. Pakistan is not sure of being able to meet its Treaty obligations specific to arms trafficking as it has a porous border with Afghanistan. The non-participation of other major powers is a significant factor in China’s refusal to join the Treaty. And lastly, India does not believe that the Treaty addressed its causes of concern on illicit trade and imbalance in obligations between the exporting and importing States.
The Arms Trade Treaty does not hamper arms sales between government entities. It postulates that, “each State will decide which measures it needs to put in place in order to carry out its obligations under the ATT.” For both India and China, however, the paper refers to the growth in the defence expenditure as a factor that hampers their desire to participate in the ATT. India’s explanation of vote during the UNGA Session on the Arms Trade Treaty in 2013 was specifically directed at two aspects of the Treaty: one, it is weak on terrorism and in combating the non-state actors; and two, there is an imbalance in the obligations of importing and exporting States. The paper cites the contradiction between India’s interests in the ATT and its growing defence exports, with States such as Bangladesh, Oman, Afghanistan, Vietnam, and Mauritius slated to import US$2 billion worth of defence equipment from India. But it fails to bring to light that India is still the world’s second largest arms importer, which underlines its concerns over the imbalance between the obligations of importing and exporting States. Thus, the problem areas that were highlighted by India when the Treaty opened for signature hold true in-spite of its growing defence exports and imports.
The paper highlights that weapons sales by India have risen over the years while simultaneously pointing out how it has taken a significant step in adhering to the export control lists of all the four regimes, the Wassenaar Arrangement (WA), the Missile Technology Control Regime (MTCR), the Nuclear Suppliers Group (NSG) and the Australia Group (AG). India is one of the few Asian States to have joined three of these regimes – AG, WA and MTCR, along with South Korea and Japan. India’s membership in these regimes exemplifies its commitment to strengthen international security and non-proliferation objectives.
There are currently eight items covered under the legally binding ATT (article 2): battle tanks; armoured combat vehicles; large-calibre artillery systems; combat aircraft; attack helicopters; warships; missiles and missile launchers; and, small arms and light weapons (SALW). The non-legally binding WA covers all the above categories. Additionally, the United Nations Register of Conventional Arms (UNROCA), of which India is a member, covers all the mentioned categories along with an additional category, i.e., Man Portable Air Defence Systems (MANPADS). The paper also ignores the fact that India, in line with its international commitments, is also a part of the United Nations Programme of Action on Small Arms and Light Weapons (UNPOA). India’s adherence to various non-legally binding mechanisms/regimes is a clear indicator of its support for transparency. India’s strong export controls are at par with international best practices, as evident in its adherence with the four key export control regimes. Along with its international commitments, India becomes an ATT+ country in terms of control over export of arms. New Delhi has met the major objectives of the ATT and there is almost no evident value addition for India in joining the ATT in its current format.
Although the focus of the paper is on Asian States, it does not take into consideration the perspectives of other Asian States that come within the top arms importers of the world such as Saudi Arabia, Egypt, Vietnam, Iraq, and the United Arab Emirates. Vietnam’s concerns stem from the Treaty’s failure to ‘strike a balance between international peace and nations’ legitimate right to self-defence’. For its part, Iran states that ‘the Treaty failed to ban the transfer of conventional arms to “aggressors” and “foreign occupiers”.’ The role of these States is equally important in strengthening the Treaty and making it a functional entity.
The paper also bypasses the not-so-recent withdrawal of the United States from the ATT, which has resulted in the top two (Russia and US) arms exporting states being out of the ambit of the Treaty. As the world’s largest arms exporter, the withdrawal of the US from the ATT severely dents future prospects of making the Treaty universal and effective. Further, given the fact that, as highlighted in the paper, 60 per cent of illicit weapons sales originate from the United States, the US withdrawal from the ATT may increase illicit arms transfers exponentially. President Trump has faced a lot of backlash for his decision, which is considered by many as harmful to long term US interests. Analysts believe that it takes away the moral high ground and reduces US influence in the treaty process.
Another aspect underscored by the authors is that there is “a heightened arms race in the region” and that in such a scenario, “ATT would hamper their sovereign security parameters”. Although there is trust deficit between Asian arms importers, the gaps between their defence imports are too large to be categorised as an arms race. For example, the paper lists India-Pakistan, India-China and China-Vietnam as having trust deficits. But India’s share of arms imports is 9.5 per cent, while Pakistan’s is 2.7 per cent. Although China’s share of imports is 4.2 per cent compared to Vietnam’s 2.9 per cent, the People’s Republic of China is the fifth largest arms exporter with a 5.2 per cent share of arms exports in the world.
The reference to sovereign security parameters is a concern shared by the United States of America as well. This explanation was used by President Trump to justify withdrawal from the ATT. However, the Treaty does not impose restrictions on arms trade; its key purpose is to keep track of the arms trade in order to reduce illicit trafficking of arms. This fact is further strengthened by the significant growth in defence exports of the UK, which has signed and ratified the Treaty. Thus, the ATT does not impinge upon the sovereign rights of States to trade in arms; it aims to bring transparency to international arms transfers.
The paper rightly points to the gaps in the ATT that need to be addressed by the State Parties. One of the most significant issues with the Treaty is that of reporting. According to the paper, not a single State Party has submitted an update regarding its legislations and regulations related to international conventional arms trade. Nor have State Parties submitted reports on their annual arms transfers. Thus, the mechanisms within the ATT need to be strengthened before more member states are encouraged to join the discussions.
The ATT currently does not address the issue of illicit trafficking in a stringent manner. According to the Stockholm International Peace Research Institute, 98 per cent of Saudi Arabia’s conventional weapons were supplied by ATT members and signatories in 2015. However, as Saudi Arabia is not an ATT state party, it is not answerable for its arms trade. Thus, ratified states need to take a lead in showing visible change, before other members are added to the ATT. The authors suggest that Asian States, which account for 19 per cent of global arms imports, should make changes to the Treaty after joining it. They base their argument on the fact that Article 20 of the ATT will allow amendments to be considered by the Conference of State Parties (CSP) from 25 December 2020. But if the Treaty in its current form is weak on illicit trafficking of arms, would additional members not make the process of reaching consensus on amendments more difficult? Given that all changes would be undertaken on the basis of consensus, it would be a challenge for States to amend the Treaty to make it more efficient in accordance with Article 20. It is unrealistic to expect non-signatories to join the treaty unless member States strengthen the Treaty and make it favourable for new states to join. Amendments within the Treaty to include stronger action on the non-State actor could potentially act as a catalyst for greater participation of some Asian States.
Additionally, without thetop five arms exporters (US, Russia, France, Germany, and China) heavily invested in the negotiation process to strengthen the Treaty from within, no change will be effectively implemented in global arms trade. While a recent announcement by the Ministry of Foreign Affairs of the People’s Republic of China on its consideration of joining the ATT has offered hope to the efforts of strengthening the Treaty, Russia has expressed its apprehensions on how the Treaty is discriminatory, does not include a direct ban on unlicensed arms production or transfers to non-State actors, and has no provisions regulating the re-export of items intended for military use. Although Russia is a non-signatory, as the second largest arms exporter, its concerns need to be addressed in order to strengthen the Treaty.
What the Arms Trade Treaty needs is the backing of significant arms trading States – the United States, Russia and China – to come together and provide the Treaty with the required sense of legitimacy since they account for more than 50 per cent of arms exported around the world. Implementation of the ATT without the participation of these States would be a step in the right direction, but would not address the global problem of illicit trafficking in arms and its diversion to non-state actors. Bringing the arms trading States into the folds of the Treaty is necessary to serve the dual purpose of moving multilateral discussions towards fruition and drastically weakening the illicit trade and trafficking of arms around the world. But the choice for aspiring member States should not be between a toothless Treaty with more members and a strong Treaty without the top defence importers and exporters.
Dr. Kanica Rakhra is Consultant to the Disarmament and International Security Affairs division of the Ministry of External Affairs.
Views expressed by the author do not reflect the views of the Ministry of External Affairs.
During his first term, Modi had invested considerable political capital in cultivating critical players. The second term should enable him to reap the fruits of his political investments and elevate his engagements to a higher level.
The resounding re-election of Prime Minister Narendra Modi is a blessing for India's relations with the countries of the Middle East. With Sushma Swaraj not contesting in these elections, India will be looking for a new External Affairs Minister, but Modi's imprints will be more pronounced than before.
During his first term, Modi had invested considerable political capital, time and resources in cultivating critical players in the Middle East, namely, Saudi Arabia, United Arab Emirates (UAE), Qatar and Iran in the Persian Gulf region, and Israel in the Levant. Through personal engagement and hardnosed economic interest-driven calculations, he managed to befriend leaders of these countries, who at times do not talk to one another.
The second term should enable Modi to reap the fruits of his political investments and elevate his engagements to a higher level. At the same time, he will not be able to escape from some of the pressing and challenging problems.
First and foremost will be Iran, which has been a major foreign policy challenge since the end of the Cold War. Domestic electoral success will not be enough for Modi to override the determination of the Trump Administration to halt Iran's oil exports completely. The US refused to extend the 200,000 barrels per day waiver granted to India last November, and this meant that India would not be able to import crude oil from Iran from May 2 without evoking American displeasure and even anger. A section of the political class, largely unrepresented in the new Lok Sabha, might advocate a defiant stand to exhibit India's strategic ‘autonomy.’ States do not have the luxury of committing hara-kiri. Hence, Modi will have to devise a balanced approach vis-à-vis the United States and its demands on Iran.
Along with the November waiver on imports, the Trump Administration had excluded Chabahar port from the purview of sanctions. This should give Modi a golden opportunity to satisfy both the United States and Iran. The actual Indian investment in the Iranian port is much lower than the US$ 500 million touted in official circles. By enhancing its financial commitments to the Chabahar Port project, India could mollify Iranian displeasure over the stopping of crude imports.
In other words, what India needs to do is stop the import of Iranian crude to satisfy the United States and expand its financial commitments to the Chabahar project to keep Iran in good humour!
Second, Modi should slash the bureaucratic cobwebs and enable the flow of investments from the UAE and Saudi Arabia, which have committed to invest up to US$ 75 and 100 billion, respectively, in India. If the Ratnagiri refinery does not take off due to land issues, Modi should explore other western coastal states to facilitate Saudi-Emirati investments in the mega refinery project. Should Etihad exit from the troubled Jet Air, Modi’s personal equation with the Emirati leadership, would be helpful in the privatization of Air India.
Three, the ongoing intra-Gulf crisis over Qatar does not serve India's interest. Given its economic, political, energy and expatriate links, an early resolution of the Saudi-Qatari standoff is in India's interest. Mediation often comes with inadequate returns and burns, and India has eschewed, and rightly so, the temptation to mediate the Arab-Israeli conflict or the Saudi-Iranian rivalry. But the intra-Gulf Arab acrimony is different and India's stakes are vital. Further, during his first term in office, Modi had established a personal rapport with all key players involved in the crisis, namely Saudi Crown Prince Mohammed Bin-Salman, Emirate Crown Prince Mohammed al-Nahyan and Qatari Emir Tamim al-Thani, and have met them many times. Modi should use the massive domestic mandate and his personal contacts with these leaders to initiate a dialogue process. It is both a doable and vital proposition that Modi considers bridging or healing the rift among Gulf Arab monarchs.
Fourth, China has managed to entice the Gulf Arab countries to endorse and partake in its ambitious Belt and Road Initiative. Given the abundance of sovereign wealth, Arab countries are a better bet for China than impoverished Asian and African economies. This would mean that, India will have to expand its trade basket and move into investment projects with the Gulf Arab countries. The Indo-Omani joint fertiliser company in Sur and India’s economic partnership with Jordan presents a model and precedent for more energised Indian investment in the Gulf economies. The government should also encourage the private sector to expand its presence in the Middle Eastern economies, especially the Persian Gulf region.
Five, India should expand its presence in the Israeli economy and technology market through selective but aggressive investments aimed at technology acquisition. More robust cybersecurity cooperation with Israel would require identification of critical areas and significant financial commitments. Mere statements and Memoranda of Understanding will not get India cutting edge technologies.
Lastly, India's growing political engagements with the Middle East must be given more extensive publicity within the country. Looking primarily through the Pakistani prism, many commentators have either ignored the Indo-Gulf and Indo-Middle Eastern relations or have come to the wrong conclusion that under Modi India's relations with the Islamic world has deteriorated. Nothing could be farther from the truth. Modi has skilfully balanced the Israeli-Palestinian, Saudi-Iranian and Saudi-Qatari binaries and furthered India's interests. Saudi and Emirati leaders have bestowed their highest honours on Prime Minister Modi just days before the Lok Sabha elections, thus indicating the status of India's relations with the Muslim world under Modi. A proper understanding of Modi's Middle East policy since 2014 will not only generate broader domestic support for it but also enhance India's influence in the region. If the mantra of NDA-1 was active engagement, now is the time for action.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
Design and Development of Equipment by DRDO, DPSUs and Ordnance Factories
Amit Cowshish
May 24, 2019
There is a need to make it clear in the text of Paragraph 72 of DPP 2016 that no vendor other than the Development-cum-Production partner or the nominated Production Agency will be permitted to enter the tendering process at the post prototype development stage.
Paragraph 72 in Chapter II of the Defence Procurement Procedure 2016 (DPP 2016) sets out the procedure for awarding design and development (D&D) projects to the Defence Research and Development Organisation (DRDO), Ordnance Factory Board (OFB) and Defence Publics Sector Undertakings (DPSUs). There are at least three issues concerning this procedure that merit attention.
One, after professing the creation of a level-playing field (supposedly between the public and private sectors) as one of its aims, DPP 2016 goes on to carve out an exclusive preserve for the aforesaid government agencies without laying down the yardstick for adopting the procedure. This is paradoxical as it strikes at the very root of the notion of a level-playing field. Recourse to Paragraph 72 amounts to denying the same opportunity to the private sector as cases covered by this passage fall in the category of Buy (Indian Designed, Developed and Manufactured) category of procurement, which, going by its defining attribute spelt out in DPP 2016, is supposed to be open to the private sector as much as the public sector. It is not that there is no justification for awarding some D&D projects to government agencies. If, for example, a system manufactured by a government agency is to be upgraded, it may be justifiable to go back to the same agency for the upgrade. The point, however, is that this must be done in exceptional circumstances and on specific grounds that should be spelt out in the DPP in the interest of transparency. Such a step will also help the Services Headquarters (SHQ) in identifying the cases to be initiated under Paragraph 72 while substantially reducing the possibility of unnecessary discussion at the Acceptance of Necessity (AoN) stage with different stakeholders taking different views on whether the proposal should be processed under this paragraph.
Two, Paragraph 72 (c) states that the D&D of the prototype would be done as per the internal procedures of the government agency concerned and that ‘competitive procedures shall invariably be followed’. Many experts hold that the internal procedures of government agencies are not geared to handle such projects and that the rider about the competitive process further stymies their effort. The broad procedure for the procurement of goods and services by all government agencies, including PSUs, is laid down in the General Financial Rules (GFRs), which also permit them to issue detailed supplementary instructions broadly in conformity with the general rules contained in the GFRs.
The procedures followed by the DRDO, OFB and DPSUs have been evolved by these organisations themselves, explicitly or impliedly, under this provision in the GFRs. That being the case, there is no reason why they cannot modify their internal procedures to cater to the peculiarities of D&D projects, if so required. They could even formulate a separate procedure, customised to facilitate smoother implementation of such projects, within the broad principles of public procurement laid down in GFR 2017. The Ministry of Defence could nudge them to do so and, in fact, coordinate the exercise to make sure that their internal procedures follow the same standards and are fully in tune with the specific requirements of D&D projects. It bears recalling that there is a separate chapter in DPP 2016 on defence shipbuilding. The Defence Procurement Manual, 2009 also has several customised chapters, such as those dealing with procurement of goods and services from foreign countries, repair contracts with foreign and indigenous firms, offloading of refit and repair of naval vessels to PSUs and private shipyards. There is no reason why the DRDO, OFB and DPSUs cannot have a separate customised chapter in their internal procurement manuals to execute D&D projects. As a part of this exercise, or even independently, MoD needs to drop the stipulation in Paragraph 72 (b) that ‘competitive procedures shall invariably be followed’ as it seems to suggest that in the context of D&D projects there should be no single-source procurement. This constraining stipulation is not in conformity with the GFRs which permit single source procurement under specific circumstances.
Three, as per Paragraph 72 (c), once the prototype is ready, the Preliminary Services Qualitative Requirements (PSQRs) are required to be frozen and a commercial request for Proposal (RfP) is to be issued to the Development-cum-Production (DP) partner of the government agency that had undertaken the D&D project or to the Production Agency (PA) nominated by them. These cases, the paragraph goes on to say, are not to be treated as single vendor cases. The next two sub-paragraphs, however, negate the notion of single source procurement after the prototype has been developed. According to Paragraphs 72 (c) and (d), after receipt of commercial bids in response to the RfP from the participating vendors, SHQs will conduct the user trials and staff evaluation, followed by commercial negotiations with the vendors declared successful after staff evaluation. The use of the word vendors in these sub-paras is confusing for it leaves the window open for participation in the tendering process by vendors other than the DP partner/PA of the government agency which had undertaken the D&D project, if other vendors have a similar product to offer under Buy (IDDM) category. This possible interpretation of sub-paragraphs 72 (c) and (d) undermines the assurance underlying paragraph 72 as a whole, though not stated explicitly, that the procurement order will be placed on the DP partner or the PA of the government agency concerned.
There is a need to make it clear in the text of Paragraph 72 that no vendor other than the DP partner or the PA will be permitted to enter the tendering process at the post prototype development stage, unless that is not the intention, in which case government agencies may find it difficult to attract partners for the project. There has to be a reasonable assurance of orders at the end of the development phase for the DP partners/DAs to take interest in the project. Paragraph 72, as presently worded, does not seem to manifest that assurance.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
Defence Research and Development Organisation (DRDO), Defence Industry
In this era of complex interdependence, sudden disruptions in supply chains will not only hurt Chinese businesses in the US and elsewhere, but also damage the US economy as well as its reputation as a business destination.
On May 15, 2019, the Donald Trump administration issued an Executive Order (EO) entitled “Securing the Information and Communications Technology and Services Supply Chain”. While it does not specifically mention the Chinese telecommunications major, Huawei, the EO does bring to an end speculation over the future of the Chinese company’s presence and operations in the United States. Pursuant to the International Emergency Economic Powers Act and the National Emergencies Act, the EO declares “a national emergency with respect to the threats against information and communications technology and services in the United States.”1 It does not name any country or company per se, but describes the threat as “information and communications technology or services designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries.”2 The EO comes in the wake of serious allegations against Chinese telecommunications equipment suppliers, Huawei in particular, on account of malicious cyber-enabled actions, including spying, economic and industrial espionage and close ties to the Chinese government.
The EO of May 15 is the latest in a series of actions that the US has taken during the last few years to reduce the security risks from Chinese-made equipment. For some time now, the US intelligence community, some private sector companies and think tanks have openly voiced concerns about espionage being carried out with equipment supplied by Chinese companies. Based on the recommendations of The House Intelligence Committee, the Obama administration had blacklisted Huawei and ZTE Corporation from supplying equipment for sensitive systems way back in 2012. The 2018 National Defense Authorization Act forbade government agencies from procuring telecommunications equipment or services produced or provided by Huawei and ZTE Corporation.3 The latest EO comes in the midst of an escalating trade war between the US and China, as part of which both sides have imposed tariffs on the import of goods from the other country.
The EO authorises the Secretary of Commerce to, in consultation with heads of other agencies as appropriate, prohibit transactions involving information and communications technology or services from “adversaries”. For its part, the Bureau of Industry and Security (BIS) of the Department of Commerce has placed Huawei Technologies Co. Ltd. and 68 of its non-US affiliates on its ‘Entity List’.4 Exports, re-exports and transfer of all items subject to Export Administration Regulations (EAR) to Huawei and the listed affiliates from the US will be put under review. BIS imposes a licence requirement for all items subject to the EAR and a license review policy of presumption of denial – which clearly means that license applications for export to Huawei and affiliates will be outright denied. Under category 3 (Electronics) and 5 (Telecommunications) of the Commerce Control List, semi-conductor integrated circuits, semi-conductor technology, equipment, devices or material manufacturing equipment, telecommunications equipment, bridges, gateways and routers are controlled items. Items under these categories have significant importance in US-China trade.
Huawei has the largest share (28 per cent) in the global cellular base station market.5 The company supplies telecom products and solutions to some 1500 networks in 170 countries.6 In the wake of the May 15 EO, the US probably seeks to address the issue of its rising trade imbalance with respect to China as well as curtail Huawei’s aggressive expansion in the global telecommunications trade, especially when 5G deployment is also around the corner.
US-China High Technology Trade and Trade Imbalance
US-China trade, at around USD 660 billion in 2018, has increased by 80 per cent since 2009. China has gained substantially from this bilateral trade, with a balance of USD 419 billion in its favour. The trade imbalance itself has grown by 85 percent, from USD 227 billion to 419 billion between 2009 and 2018 (Figures 1 and 2).
Out of 22,000 commodities that the US trades globally, 500 products from high technology fields such as biotechnology, Information and Communication Technology (ICT), electronics, aerospace and advanced materials are classified as Advanced Technology Products (ATP). These products represent leading edge technology. In this category, the percentage of exports and imports in US global trade has remained steady at around 45 and 55 per cent, respectively, over the last decade. Imports, for instance, were 57 per cent of global ATP trade in 2018 (Figure 3). Nevertheless, US exports of ATP to China have consistently remained marginal; it was seven per cent in 2009 and had increased to only 10 per cent by 2018 (Figure 4). In contrast, China had around a 30 per cent share in global US imports of ATP in 2008, which increased to 35 per cent in 2018 with a value of USD 173 billion (Figure 5). The US, despite managing to maintain a balance between its exports and imports in the global ATP trade, has failed to do this in its ATP trade with China.
The skewed character of bilateral ATP trade between US and China explains the present US apprehensions clearly. During the years 2008 to 2019, US imports of ATP from China total 80 percent of its bilateral ATP trade with China (Figure 6). Under the ATP category, the US imported around USD 157 billion worth of ICT products from China in 2018, while it exported only close to USD 4 billion worth. US imports of ICT products have increased around 50 per cent in these years, from USD 79 billion in 2009. At the same time, US ICT exports to China during these years have remained rather low hovering between 4.5 and 2.5 per cent of its total ICT trade with China (Figure 7).
Nor do the trade figures in telecommuincations equipment paint a bright picture for the US. In 2018, China accounted for only four per cent of global US exports of telecommuincations equipment. But, for the same year, China had a whopping 45 per cent share in total telecommuincations equipment imported by the US (Figure 8). US-China telecommuincations equipment trade heavily favours China. At USD 34 billion in 2018, imports from China accounted for 96 per cent of bilateral trade in this segment. US telecommuincations equipment exports were worth only USD 1.43 billion in 2018. From 2009 to 2018, such imports from China increased by 188 per cent – from USD 11.7 billion to 33.9 billion (Figure 9). US telecommuincations equipment exports to China for the same period have grown by just 4.25 per cent.
Technology is a key factor in US economic strength. An upper hand in ATP signifies technological leadership. Its consistent increase in exports in this segment has helped
China to penetrate markets in both developing and developed countries. The US appears to be caving in to the competition from China, as it is unable to arrest its falling share of exports in ICT and telecommunication equipment trade. Global US exports of telecommunication equipment, for instance, has grown by 30 per cent over the last one decade, but its imports have almost doubled (Figure 8). The gap between exports and imports is widening and transforming the US into a market for such products rather than an exporter.
Implications for the US
The May 15 EO aims to correct this imbalance in the midst of the escalating US-China trade war. It will not only adversely impact upon US companies and citizens but also have global ramifications. Chinese-made ICT products are much cheaper than their Western counterparts. Consumers of ICT products are generally individuals and businesses. If companies of Chinese origin are forbidden or restricted from carrying out their business in the US or with their American counterparts, the costs of ICT products will certainly rise. There are no replacement products either, as no other country can match China in this regard.
Chinese telecommunication manufactures have been at the epicentre of conflicts, be it related to espionage earlier or trade wars now. It is important to note that Huawei is closely knit with the global technology supply chains. Its presence in the US entity list will send ripples through these supply chains, disrupting not just American but global markets as well. US companies also gain significantly from Huawei — out of USD 70 billion that Huawei spent on procuring components in 2018, close to USD 11 billion went to US firms. 7 Flex, Broadcom, Qualcomm, Intel, Microsoft and Texas Instruments are all suppliers of components and technology to Huawei. These US companies would now require a licence to continue doing business with Huawei or they will probably be proscribed from engaging in any business activity. Further, a disruption in the manufacturing process owing to the loss of suppliers from the US will escalate costs for Huawei’s global clients, which also includes US allies. This can potentially derail or further increase the costs of the 5G roll-out plans of many countries who have roped in Huawei for this purpose.
Major telecom players in the US do not use Huawei equipment in their networks. But, surprisingly, the smaller ones, especially rural carriers (fewer than 100,000 subscribers) depend on Huawei and ZTE to an extent.8 If the ban on Huawei persists and these carriers are forced to replace the company’s equipment, their costs will skyrocket. Moreover, Huawei will most certainly be kept out of 5G deployment in US. Smaller carriers, who count on low-cost equipment from Chinese manufacturers, might not be able to bear the costs of 5G deployment. It may either leave rural consumers devoid of 5G technology, or simply increase the costs substantially for consumers.
The grant of a temporary 90-day general export licence from the US Department of Commerce to Huawei indicates that the US has not yet reached the point of no return. Huawei could be removed from the entity list. Nonetheless, as evident from the trade figures, the US is a lot more dependent on Chinese ICT products and telecommunication equipment. American firms have close business relationships with their Chinese counterparts, be it is Apple iPhones assembled in Shenzen or Qualcomm supplying smartphones or cellular modem chipsets to Chinese manufacturers. In this era of complex interdependence, such sudden disruptions in supply chains will not only hurt Chinese businesses in the US and elsewhere, but also damage the US economy as well as its reputation as a business destination. It is after all a vicious circle.
Note: Paragraph two of this commentary has been amended. In the original version, due to an editing error, the blacklisting of Huawei and ZTE by the US in 2012 was wrongly attributed to the Trump administration.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
The vulnerability of soldiers to exaggerated, motivated and false FIRs is fundamentally a result of the State preferring to deal with legal issues in disturbed areas within the framework of a law and order problem.
Legally tackling vexatious first information reports (FIRs) filed against soldiers operating in internal conflicts, has been an unresolved issue that demands immediate attention of the government. The legal noose around the soldier’s operational neck has been tightening since 2017, when the Supreme Court appointed a Special Investigation Team to probe allegations of fake encounter cases in Manipur. Consequently, an FIR was filed by the Central Bureau of Investigation (CBI) against a serving officer and some others which triggered an unprecedented filing of a writ petition by 356 serving personnel of the Indian Army.
In August 2018, the petitioners filed a plea seeking “guidelines to protect soldiers operating in insurgency, militancy and proxy war situations, which have been identified by the State/Union Government to be a disturbed area, where it is imperative for Army to act in aid of the civilian authorities, from malicious, frivolous, vexatious and motivated FIRs.” It was not an attempt seeking to protect any criminal activity, which may be carried out by some soldiers. The plea was supported by the government counsel who was also a respondent. However, on November 12, 2018, the Supreme Court while dismissing the writ petition remarked that it was the government’s responsibility to evolve mechanisms to protect the soldiers, as under the existing legal framework filing of FIR was mandatory.
The petitioners had cited the Punjab High Court judgment of 2005 that laid down the guidelines to be followed before any FIR/Criminal Complaint is lodged against the doctors in exercise of their professional duties. Consequently, it sought the use of same justification in order that the privilege be extended to the soldiers who have also carried out their professional duties in good faith. The Supreme Court judgement implied that it was up to the government to decide whether similar guidelines should also be laid down for the soldiers.
At the heart of the matter is the urgent necessity of protecting the soldiers from harassment to which they are subjected from the prolonged investigative procedures that ensue. The investigative process itself, for a soldier acting in good faith and in accordance with the orders of his superiors, is a form of punishment which could also entail financial costs through legal fees, disruption of normal life, and deep psychological strain of the proverbial legal sword hanging over their heads. Although, admittedly, the soldier already enjoys protection from prosecution under Section 4 of the Armed Forces (Special Powers) Act or the AFSPA, it does not however cover investigations.
Protection should be achievable, as the government has provided such cover to public servants through the Prevention of Corruption (Amendment) Act, 2018. The new section 17A of the Act states, “No police officer shall conduct any enquiry or inquiry or investigation into any offence alleged to have been committed by a public servant under this Act, where the alleged offence is relatable to any recommendation made or decision taken by such public servant in discharge of his official functions or duties, without the previous approval” of the government. A time limit has been laid down for the government to decide. The protection is also extended to retired personnel. The only exception is when public servants are caught red handed in the commission of an illegal act.
The issues relating to the doctors/public servants are vastly different from that of the soldiers. The death of a patient and the acts of corruption are definitely in a different category from deaths occurring during the counter insurgency operations. The commonality is distinctly in the legal principle, that safeguards have been provided for acts done in good faith and such protection is extended particularly to the filing of FIRs and the investigative process. Notably, soldiers act collectively and individual responsibility is not easy to ascertain.
The revealed vulnerability of soldiers to exaggerated, motivated and false FIRs is fundamentally a result of the State preferring to deal with legal issues in disturbed areas within the framework of a law and order problem, which by its very nature it is not. Undoubtedly, the intensity of such conflicts is dynamic and for over several decades the non-state actors have been lethally empowered by technology which is manifested in the improvised explosive devices, and inter alia the suicide bombers who also enjoy the support of external powers.
The issue of vexatious FIRs has been lingering for several decades and many soldiers have had to endure prolonged legal processes which by itself tantamount to punishment. The cases were dealt individually by the armed forces and no resolution through legislation was sought. However, the issue has now gained focus because of the unprecedented and collective action of a group of serving soldiers. There is a strong case for a legislation that will have to cater for the plausible circumstantial mishaps in disturbed areas. The case is also strong because a soldier cannot be expected to perform effectively if, while carrying out orders and discharging his duty in good faith, the resultant complications are likely to return to haunt his mental peace not only while in service but also in retirement. The impact on the morale cannot be acceptable to the military leadership.
The political acknowledgement of the realities of disturbed areas must be based on the fundamental problem faced by the soldiers in such conflicts – the armed adversary is not easily recognisable and often hides among the local populace. Uncertainty and danger to one’s own survival characterise the hostile environment. The abnormal ambience confronted by the agents of the State, and the increasing potential of civil rights activism that requires investigation and which is often false, exaggerated and motivated by inimical intentions, should pave the way for crystallising legislative measures that will preserve human rights and yet ensure protection of the soldiers.
The inadequacy of the existing laws to protect the soldier against motivated FIRs has been amply revealed by the ongoing deliberations of the Supreme Court, and was further highlighted when the Supreme Court intervened in the case of Major Aditya after three civilians were killed in the army firing on stone throwers in South Kashmir. Thus, safeguards against FIRs that emasculate operational capability and demoralise soldiers is an imperative requirement.
The need for effective legislation to answer the soldier’s justifiable demand for protection under law, and not from the law, must be acknowledged by the military and political leadership. The challenge in framing the law is to maintain the balance between protection of soldiers and upholding of human rights. Human rights sensitisation has been embedded in the Indian Army’s counter insurgency doctrine which is also reflected in the creation of human rights cells at the army command, corps and division levels.
Although there can be no blanket protection against FIRs, some provision for checks and balances to weed out motivated and vexatious ones could be created. This is a complex task and would require joint examination by legal experts and the armed forces. The ministry of defence (MoD) could consider instituting a study group in this regard. The erroneous approach, to argue the case, within the existing legal framework stands exposed especially in the light of the same legal framework being used by inimical entities to commence proceedings against soldiers performing their duties in very trying and difficult circumstances.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
While Japan envisions its role as a leading promoter of rules-based liberal international order, the G20 tested Japan’s leadership in championing the cause of trade liberalisation and resisting protectionism.
The G20 presidency offered Japan its first leadership moment in the newly dawned Reiwa era1 as world leaders gathered in Osaka, at a time when the rules-based global economic governance is becoming more fragmented under pressure from growing American unilateralism and Chinese state capitalism. Japan had a difficult choice: whether to let politicisation of trade harm the global economy by allowing managed trade and weakening enforcement mechanism of the World Trade Organisation (WTO) to appease its most important security ally - the US, or be an anchor of free trade and open markets. While Japan envisions its role as a leading promoter of rules-based liberal international order, the G20 tested Japan’s leadership in championing the cause of trade liberalisation and resisting protectionism. Prime Minister Shinzo Abe’s objective was to reinstate global confidence in the multilateral trading system 2 at a time when backlash against globalisation is unleashing economic nationalism in order to undo ‘unfair trade practices’.
Stakes were high for Prime Minister Abe as the US-China trade friction over deficits and siphoning off cutting edge technologies continue to disrupt supply chains and undermine the global economy, which by International Monetary Fund (IMF) estimates could condense the global GDP by 0.5 per cent, or about $455 billion, by 2020. 3 At the global level, Japan – as the third largest economy – was keen on projecting its readiness to step up as the leader of multilateral trading system, particularly after successfully rescuing the TPP-11 following the US exit and concluding the Economic Partnership Agreement with the European Union (EU) following Brexit. However, power politics constrained Japan’s G20 agenda as building consensus on issues of global economic governance exposed deepening fault lines not just between the developed and developing economies but amongst the developed economies as well.
At the national level, as Japan heads for Upper House elections in July, Abe had to demonstrate his ability to advance national interests while navigating the complex web of geo-economic tensions as protectionist policies could impact Japanese exports. Export value to the US and China each account for 20 per cent of the total Japanese exports. 4 Additionally, the G20 had presented Abe an opportunity to demonstrate Japan’s geopolitical standing through summit diplomacy on the side-lines.
What did Abe accomplish?
As president of the G20, Japan had a key role in agenda-setting. Japan’s top three priorities were: launching the Osaka Track for data governance, reinforcing a free and fair trading system, and tackling global environmental challenges. 5 In the run-up to the summit, Abe at the World Economic Forum envisioned that Osaka G20 should be recalled “as the summit that started world-wide data governance”. 6 Japan argued the case for building rules for data governance and constructing a new regime underpinned by Data Free Flow with Trust (DFFT). This is aligned with Japan’s push for data-driven Society 5.0 which the fourth industrial revolution will generate. However, global data governance is intensely debated. Even though cross-border flow of data and information creates increased productivity and innovation, there are more than a few challenges related to privacy, data protection, intellectual property rights and security. The Osaka Declaration on Digital Economy was not signed by emerging markets and developing economies like India, Indonesia, South Africa and Egypt.
While Abe wanted to find a ‘common ground’ without focussing on ‘confrontations’, 7 the G20 struggled to make considerable progress in providing strategic direction on reforming the WTO — which serves as the foundation of global trading system. The Osaka Declaration made little progress on critical issues such as President Donald Trump’s stance on blocking new appointments to the appellate body, consequently weakening the key dispute mechanism. At the G20, Abe’s attention regarding WTO reforms was steered towards digital trade and industrial subsidies 8, subjects that would not offend Trump.
For the US, EU and Japan, the larger debate on WTO reforms evolved around three axes: alleged overstretch by the appellate body, low compliance regarding notification of government subsidies in accordance with specific agreement rules, and the practice of allowing members to self-designate as developing countries with the aim of obtaining special and differential treatment, as in the case of China. 9 While they have coordinated their efforts in pursuing WTO reforms,10 China has submitted its own proposal earlier in May as the organisation is becoming ‘a new platform for great power rivalry’ 11 and the debate on ‘three no’s’ versus ‘three zeros’ 12 intensified.
While Japan promotes globalisation and multilateralism, Trump’s “America First” policy, employing tariffs to correct the ‘unfair trade practices’ of not just China but also allies like Japan and the EU, dilutes global liberal economic governance. A view is fast emerging that to preserve the free trade system, economies like Japan, the EU and China should join forces towards liberal regional integration on trade and investment without the US, consequently driving the US into an unfavourable position which may lead the business elites to create pressure on Trump to ease protectionist measures. 13 However, the Osaka Declaration had no reference to protectionism and multilateralism. Instead, it outlined the objective of keeping the trade and investment ‘free, fair, non-discriminatory’. 14 Incidentally, Japan has prioritised concluding the Regional Comprehensive Economic Partnership (RCEP), representing 33 per cent of the global GDP. 15 However, the RCEP negotiation is navigating the fragmentation within, leading to an evolving discourse among stakeholders to conclude RCEP minus India or pursue RCEP within an Association of Southeast Asian Nations Plus Three (ASEAN+3) framework for now.
Another formidable challenge for Abe at the G20 was traversing the climate politics. As the US attempted to mitigate references to the Paris Agreement, which reflects “common but differentiated responsibilities”, several signatories including France ensured that the G20 upholds the essence of the Agreement. Fault lines of the climate politics reflected in the Osaka Declaration which carried a separate paragraph on the US reservations vis-à-vis the Paris Agreement. In contrast, the Osaka Blue Ocean Vision, addressing the problem of marine plastic waste, received unanimous support that encouraged the adoption of a comprehensive life-cycle approach.
Summitry on side-lines
Osaka also witnessed a flurry of summit diplomacy on the side-lines of G20. In one of the key meetings, the US and China negotiated a temporary truce in the escalating trade war even as the structural issues, including subsidies and state owned enterprises, remained unresolved. For Japan, the most important bilateral meetings were with the US and China. As strategic competition escalates between these two powers, managing Japan’s national interests in the US-Japan-China triangle is influenced by the complexities of geostrategic and geo-economic variables. Alliance management is testing Japan’s policy choices as Trump intensifies rhetoric on allies before the 2020 re-election bid. Intense negotiations in the automobiles and agricultural sectors, drug-pricing and currency rules on the one hand, and negotiations on cost-sharing agreement which is scheduled to expire in 2021 in the backdrop of ‘Cost Plus 50’ proposal 16 on the other, will test the foundation of their decades old alliance. The Trump-Abe bilateral meeting in Osaka discussed difficult trade issues including new Japanese investments in the US and purchase of military equipment by Japan. 17
As China-Japan bilateral relations embark on a ‘new era of development’, summit with China was prioritised since this was President Xi Jinping’s maiden visit to Japan after he took office in 2013. While Japan opposes the emergence of a Sino-centric regional order, unpredictability in Trump’s Asia strategy has led to reorienting of Japan’s China policy. Since 2017, Japan’s China policy is indicating a ‘tactical detente’, 18 influenced by pragmatic calculations rather than major shifts in the attitudes, as contested sovereignty and history issues remain unresolved. In the long-term, the US behaviour towards alliance management will continue to be a pivotal factor in Japan’s strategic equation with China. 19
Abe also held meetings with the other key partner countries in the Indo-Pacific including a bilateral with India and a trilateral along with both America and India, focussing on connectivity, infrastructure, and regional security. Japan steered the G20 Principles for Quality Infrastructure Investment underpinned by responsible debt financing, governance and environmental considerations, which appears aligned with India’s proposed Global Coalition on Disaster Resilient Infrastructure.
Meanwhile, managing difficult regional neighbours tested Abe’s diplomatic mettle. While Abe made little progress with President Vladimir Putin on contentious issues like peace treaty and territorial disputes, there was no meeting with President Moon Jae-in. Japan’s relations with them are increasingly determined by domestic political pressures, historical baggage and, more importantly, strategic variables in the region. Meanwhile, the US-North Korea impromptu meeting at the DMZ post-Osaka summit caught the Japanese by surprise, reiterating Trump’s unpredictable approach.
The lost opportunity
The G20 is considered as the premier forum for nuanced debate on how best to manage the impending risks in global economic system. Hence, as a leader and advocate of globalisation and multilateralism, Japan was expected to restore international confidence in the multilateral trading system and present solutions to reduce risks and economic instabilities.
The debate on global economic governance in Osaka was dominated by competing interests and narrow national agendas which made this important platform rather ineffective in resolving major problems facing the global economy. At a time when the world economy is dealing with the ramifications of US-China trade rivalry and also Brexit, Japan as a flag bearer of multilateralism and open markets, with strong national interests to protect both, could have been more assertive in setting the strategic direction for upholding the rules-based multilateral trading system. However, the Osaka summit was a lost opportunity for Japan. Even though Japan outlined an ambitious agenda, the cause of multilateralism got compromised by politicisation of issues pertaining to global economic governance..
Views expressed are of the authors and do not necessarily reflect the views of the IDSA or of the Government of India.
It would be nice to see the defence ministry setting up a task force and submitting actionable recommendations which could be considered by the finance minister while deciding the defence outlay next year.
It is pointless bemoaning that there was no reference to defence in the Finance Minister Nirmala Sitharaman’s speech and that she did not further enhance the allocation in the union budget presented by her on July 05. The total allocation under all the four demands for grant of the ministry of defence (MoD) thus remains at Rs 4,31,010.79 crore. It includes Rs 1,12,079.57 crore on account of defence pensions.
There is no reason why expenditure on pensions, for which a separate demand for grant is presented to the parliament, should not be considered a part of the defence budget. Keeping it out of the reckoning would not help defence ministry garner more funds for the armed forces as all funds anyway come from the single pool of central government receipts.
For the record, the total defence outlay works out to 2.04 per cent of the gross domestic product (GDP) and 15.47 per cent of the total central government expenditure (CGE) envisaged in the budget presented by the finance minister. That there has been a decline in the defence outlay as a percentage of the GDP and CGE is not in dispute. It is also not in dispute that defence requires larger outlays.
The question at this stage, however, is whether it was possible for the finance minister to provide additional funds beyond what was allocated in the interim budget in February this year. Probably she could but, going by the estimates of receipts and expenditure presented on Friday, it could not be a substantial amount.
The budget estimates show that there is an increase of just Rs 2,149 crore in the total receipts of the central government over the amount projected in the interim budget. Even if this entire amount were to be diverted to defence, the increase in the outlay would have been a little less than 0.50 per cent.
No one can seriously argue that more taxes could be imposed, higher disinvestment targets could be set, funds allocated for various social sector schemes could be cut down, or the government could resort to higher borrowing which, broadly speaking, are the only other ways in which more receipts or savings could be generated and additional funds could be made available for defence.
There was a gap of more than Rs 1.12 lakh crore in the requirement projected by the armed forces alone (both on account of revenue and capital expenditure) and the allocation actually made to them during 2018-19.1 Assuming that the gap this year is half of that, the armed forces would require Rs 50,000 crore. In the face of this, passing on Rs 2,149 crore to defence would have only invited ridicule.
Significantly, the finance minister refrained from making routine declaration of the government’s commitment to security of the country and making platitudinous promises of providing additional funds, if required. Except those who are prejudicially opinionated, no one ever seriously doubts the government’s commitment. As for additional funds, it is better not to make a promise that cannot be kept.
Talking of promises, it is just as well as that the finance minister did not announce setting up of a non-lapsable pool of funds for modernisation – an idea that she was supportive of earlier as the defence minister. This idea has been discussed and debated ad nauseum in the past and has been found to be impractical and of little use for speeding up modernisation of the armed forces.
There is no wisdom in taking any step without fully considering its consequences and working out the modality of its implementation down to the last detail. A case in point is the decision taken in the past to withdraw custom duty exemption on import of defence items by the defence public sector undertakings and the ordnance factories.
That single decision had put enormous extra burden on the defence budget. Withdrawal of customs duty in this year’s budget on import of equipment that is not manufactured in India will marginally reduce the burden on the defence budget without upsetting the level playing field between the public and the private sectors.
This is not to suggest that there is no need for a higher level of funding for defence. The armed forces, a dominant section of the defence analysts, and even the standing committee on defence feel that the defence budget should be pegged at three per cent of the GDP. There is no clarity though on how this can be done.
It would be nice to see the defence ministry setting up a task force to examine this burning issue and submit actionable recommendations which could be considered by the finance minister while deciding the defence outlay next year. The only alternative would be for the armed forces to make financially viable defence plans.
Views expressed are of the authors and do not necessarily reflect the views of the IDSA or of the Government of India.
As concerns over a potential conflict in the region grow, the pressing issue of what a conflict would mean for the price of international crude oil needs to be addressed urgently.
Once again, the West Asia – or the Middle East – is on the boil as Washington and Tehran ratchet up the aggression. If President Donald Trump is to be believed, the American forces came close to attacking Iran after Tehran brought down an American drone; but backed off at the last minute, ostensibly to prevent killing 150 Iranians! A couple of vessels have also come under attack in the Gulf of Oman by unnamed attackers. The United States (US) and its Arab allies have pointed the finger at Iran. Meanwhile, on July 01, 2019, Iran’s semi-official Fars News Agency, quoting Foreign Minister Javad Zarif, reportedly confirmed that Iran’s enriched uranium stockpile has passed the 300-kilogram limit set under the July 2015 nuclear deal1 – formally, the Joint Comprehensive Plan of Action (JCPOA). On July 03, President Hassan Rouhani even declared that Iran will begin, as early as July 07, enriching uranium “in any amount that we want” and would exceed the levels specified under the 2015 nuclear deal.2
After the recent JCPOA Joint Commission meeting held on June 28, while the European Union (EU) confirmed that the planned barter trading mechanism -the Instrument in Support of Trade Exchanges (INSTEX) – was now “operational”, the Iranian Deputy Foreign Minister Abbas Araqchi observed that this may not be sufficient to change Iran’s decision to breach its JCPOA commitments, and that it would not abide by the deal until Iran was allowed to sell some of its oil.3 Therefore, the uncertainty around re-imposition of the earlier United Nations (UN) sanctions on Iran still remains and will only add to the volatility of oil prices in the near future.
Iran has also periodically been threatening to disrupt shipping through the vital Strait of Hormuz through which a majority of the region’s oil transits for (mainly) Asian consumers. Several nations, including India, have responded by sending naval escorts to protect their vessels traversing through these waters. As concerns over a potential (though unlikely) conflict in the region grow, the pressing issue of what a conflict would mean for the price of international crude oil also needs to be addressed urgently. In the aftermath of the recent US-Iran stand-off, both spot and future prices of crude oil witnessed a five per cent hike. Although there is no supply shortage as such, the price at which it is bought will impact on consumers.
As the third largest consumer of oil, with its current import dependency at more than 83 per cent, India’s economy is bound to feel the pinch of higher oil prices. With domestic production continuing to stagnate and the transport sector expected to register a compound annual growth rate (CAGR) of 9.5 per cent during the 2019-2024 period4, India’s thirst for oil is unlikely to abate in the near future. In fact, India is seen as potentially the largest market for oil over the next decade. This has a huge impact not only on India’s overall import bill, of which oil – and gas – imports make up the bulk, but also on the economy as a whole. With every US$ 10 per barrel hike in crude oil prices, India’s current account deficit (CAD) goes up by 0.4 per cent of GDP; every 10 per cent increase in prices can push up the inflation rate by 20 basis points.5 According to Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Petroleum and Natural Gas, India spent $111.9 billion on oil imports in 2018-19, up from $87.8 billion in the previous fiscal year.6
Organisations like the International Energy Agency (IEA) have been cutting their estimates for oil demand growth through 2019, citing the impact of trade issues between the US and China on the global economy, as well as growing concerns over the impact of hydrocarbons, particularly oil and coal, on climate change, which it says have led to a fall in the demand for oil.
In fact, till the recent attacks on the ships, prices were seen as being bearish. Several reasons have been cited for this phenomenon, the most prominent being the surge in the US shale oil production by 1.6 million barrels a day (mbd), compared to a year earlier, as well as an increase in the US inventories. Also, due to the ongoing US-China ‘trade war’, concerns regarding a slowing global economy have impacted on growth and therefore on the demand for oil, preventing a rise in prices. As per the latest estimates of the Organisation of the Petroleum Exporting Countries (OPEC), the world oil demand will rise by 1.14 mbd in 2019, which is 70,000 barrels per day less than previously expected.7
While all this may be good news for the new Indian Government which took office in May 2019, the question is how can this bearish trend in prices be sustained?
First, while most global oil majors and analysts agree that by the late 2020s demand for liquid transport fuels will stop growing, the demand for oil for petrochemicals, particularly olefins and aromatics, will continue.
Second, with global upstream capital expenditure having fallen by almost 45 per cent between 2014 and 2016, due to the price collapse, it will have an impact on the new production. According to the IEA World Energy Outlook-2017, an additional 2.5 mbd of new production will be required for conventional oil production to remain flat, given that it takes about three to six years from project sanctioning to coming onstream.
Third, despite data from the US Energy Information Administration’s (EIA) June 2019 drilling productivity report suggesting that the oil output from major shale formations is rising, it has also lowered its total oil production growth forecast. This is based on the rig count, an early indicator of future output, which has been declining over the past six months, due mainly to independent exploration and production (E&P) companies cutting their spending. Also, although advanced technology has arrested declines, the lateral lengths of the wells have increased substantially, as have the volume of water used in drilling.8
Fourth, Russia and the OPEC have agreed to roll over the production cuts for another few months, possibly till the end of the year, which saw prices go up slightly. As the US shale output starts declining, further cutbacks from the group will see excess supply disappearing. Without timely supplies entering into the market, prices will start ascending eventually.
Under these circumstances, what can India do to reduce the impact on its economy? Apart from strategic oil reserves, which can be accessed in the event of a supply disruption, there are financial instruments that can hedge price increases. These include hedging and options contracts that allow oil companies to lock in the price of the oil they contract to import in the future, which can soften the risk of sudden spikes in oil prices.
While private oil companies, including Indian, as well as several small countries systematically hedge against price increases, the Indian state-owned companies – a far larger importer of crude oil - continue to hesitate in employing such mechanisms, despite the Reserve Bank of India (RBI) recommendations that they should go for hedging, particularly for long futures contracts, fearing a backlash if prices drop.
However, if prices do drop, a mechanism can be adopted whereby the loss is spread over time, similar to the mechanism that is in place for spreading the impact of higher oil prices over time. What is important is that the market should put existing mechanisms that could hedge against price spikes, which India is likely to see soon. Given that India will remain dependent on the international market for the foreseeable future, it is time that strategies and mechanisms are employed to minimise such risks.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
Given India’s evolving procurement system, efforts should be made to enhance compatibility of technology from various sources. This may require greater cooperation with the US since many of India’s suppliers other than Russia depend on US technologies for their products.
One of the first priorities of the new government led by Prime Minister Narendra Modi will be to take stock of the ‘global strategic partnership’ with the United States (US) which has emerged in recent years as an indispensable partner in India’s economic transformation and the realisation of its aspiration to play a bigger role on the global stage. The defence partnership, a key pillar of the relationship, has blossomed. Yet it runs the risk of plateauing, given differences over India’s contract for the Russian S-400 Triumf Air Defence Missile System and pending progress on the remaining two foundational agreements -– the Industrial Security Annex (ISA) and the Basic Exchange and Cooperation Agreement (BECA).
Last year saw the first-ever 2+2 dialogue against the backdrop of burgeoning joint exercises such as Cope-India (Air Force), Yudh Abhyas (Army) and Vajra Prahar (Special Forces). The two sides are also increasingly engaged in multi-lateral exercises such as the MALABAR, RED FLAG and RIMPAC, covering the broad expanse of the Indo-Pacific. The US has recently renamed its Pacific Command as the US Indo-Pacific Command (USINDOPACOM), an acknowledgement of the seamless connectivity that binds the Pacific and Indian Oceans and India’s growing importance. The Indian Navy and the US Naval Forces Central Command (NAVCENT) are set to deepen their maritime cooperation in the Western Indian Ocean, where Chinese presence, in island nations and strategic ports such as Gwadar and Djibouti, are of concern to India. The defence and strategic relationship today encompasses a broad spectrum of activities from intelligence sharing to joint humanitarian and relief efforts, mutual port visits by naval ships, joint exercises, trade in military hardware and, most importantly, co-production and co-development of military systems.
Just as Prime Minister Modi was sworn in again, the US State Department Spokesperson Morgan Ortagus called India a ‘great ally’ and ‘partner’ with which his country would work on a broad spectrum of issues. The US sees the defence partnership in the context of its Building Partner Capacity programmes. It increasingly regards India as a potential ally in dealing with the emerging challenges in the Indo-Pacific, notably China’s growing economic and military assertiveness. India’s importance as a market for arms supplies, next only to Saudi Arabia, is a major factor. Since 2008, India has purchased nearly US$ 18 billion worth of arms from the US, including sophisticated C-17 and C-130J transport planes, state-of-the-art P-8i maritime reconnaissance aircraft, Harpoon missiles, Apache and Chinook helicopters and M777 howitzers. These are among the most sophisticated and lethal platforms of their kind.
India’s immediate objective is to rapidly build its defence capabilities, in order to better deal with potential threats on its northern and western land borders and in the Indian Ocean. It needs the latest technologies to pursue its ambitious ‘Make in India’ programme in defence manufacturing. A rapidly growing economy and deeper pockets alone will not guarantee that unless agreements are in place to secure the latest technologies from the US, beyond simply buying items off the shelf. India has to ensure that high-tech imports are equally matched by technology transfer for indigenous manufacturing.
The foundational agreements with the US such as General Security of Military Information Agreement (GSOMIA, 2002), Logistics Exchange Memorandum of Agreement (LEMOA, 2016) and Communications Compatibility and Security Agreement (COMCASA, 2018) are path-breaking. However, the true potential for high technology transfer involving the Indian private sector would be realised only after conclusion of the ISA. Looming large over the Indo-US defence co-operation is the shadow of India’s continued reliance on Russia for key defence imports. Beyond the fact that Russian and US platforms are incompatible in terms of communications security, the US is particularly apprehensive about the potential for compromising US platforms when operating alongside the Russian S-400 system. India’s contract for the sophisticated S-400 air defence missile system has been red-flagged by the US as potentially significant for triggering sanctions under Countering America’s Adversaries Through Sanctions Act (CAATSA). The fact that a special waiver amendment under the sanctions provision of CAATSA was included in the John McCain National Defense Authorisation Act of 2019 specifically with India in mind means that a waiver is likely but not necessarily guaranteed.
The menu of sanctions under CAATSA ranges from denial of visas to persons who are party to the S-400 contract, to even more severe action such as denial of munitions licences to India. The latter, if ever resorted to, would mean the cessation of all defence and strategic cooperation. Given the prevailing geopolitical uncertainties, it is moot if the US would want to go down this path.
However, decisions taken by India in exercise of its strategic autonomy and in view of the long-standing dependence on the Russian equipment, nevertheless, would determine the kind of defence technologies the US would be willing to share with India, the convergence over the geostrategic developments in the Indo-Pacific notwithstanding.
There is no gainsaying the fact that India needs to speed up its defence modernisation, especially capacity-building, indigenous manufacturing and access to the most sophisticated defence technologies, if it is to play a role commensurate with its ambition and potential. The most potent source of such technologies remains the US. It is pertinent to note that even China’s defence modernisation benefitted from close cooperation with the US as part of their ‘strategic alliance’ against the former Soviet Union in the 1980s. The ‘three pillars’ approach taken by the US included military technology cooperation under the Foreign Military Sales (FMS) status granted to China by President Ronald Reagan in 1984, which resulted in the US building artillery ammunition factories and undertaking the F-8 fighter jets avionics modernisation programme, among others, until all US military exports to China were suspended in the aftermath of the Tiananmen Square incident of June 1989.
What has facilitated the rapid development of defence cooperation between the US and India in recent years is the designation of India as a Major Defence Partner/Friendly Foreign Country and increasing willingness on the part of the US to relax rules and regulations governing high technology transfer through special carve-outs such as the Strategic Trade Authorisation Tier-1 Licence Exemption. However, the US lags behind in regard to the ‘Make in India’ aspects of the defence trade with India as compared to New Delhi’s robust technology transfer agreements for fighter aircraft, advanced trainers and submarines with traditional arms suppliers such as Russia, United Kingdom (UK) and France. The bilateral Defence Trade and Technology Initiative (DTTI) would need to expedite the work of its seven joint working groups and find ways to ensure early implementation through industrial production of various agreed-upon defence projects. US concerns regarding IPR run deep and remain to be assuaged, just as India’s expectations regarding transfer of technology and license production remain unfulfilled.
India’s ability to meet the emerging geostrategic challenges in the Indo-Pacific is a function of its geographic location, leadership, the strategic doctrines developed in response to emerging threats, and, above all, the resources that can be mustered. The budgetary crunch severely limits capital expenditure on new platforms, especially expensive imports, which makes it all the more vital for India to focus on cheaper indigenous manufacturing. Over reliance on outright imports, whether from the US, Israel, France, UK or Russia, must be gradually reduced, in favour of indigenous designs, development and production.
The new government will have to take a strategic view of the remaining foundational agreements with the US in order to facilitate transfer of key technologies necessary for building capacities to meet the growing challenges in the Indo-Pacific. It will have to weigh the consequences of altogether abandoning the traditional Russian supplies. Any jettisoning of the S-400 deal would impact adversely on ties with Russia across the board, including the acquisition of other key platforms such as the Akula class SSN nuclear attack submarine that is to replace Chakra II, which complements India’s nuclear triad based on the indigenously built Arihant SSBN.
Given India’s evolving procurement system, efforts should be made to enhance compatibility of technology from various sources. This may require greater cooperation with the US since many of India’s suppliers other than Russia depend on US technologies for their products.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
The WhatsApp bug brings to light the same old dilemma between safeguarding individual privacy and enabling the state to undertake surveillance in the interest of security.
Cyber Security breaches have become the new normal with invasive bugs on the rise. Recent incidents include the Face Time bug, which enables callers to listen into the recipients’ audio, and the Intel processor security flaw that allowed malicious actors to transfer sensitive data from a computer’s CPU to that of the attackers. The latest breach is the WhatsApp bug, which enables perpetrators to install a spyware by simply making a call to the targeted device. Social media platforms have end-to-end encryption, which means that the data cannot be intercepted during transit. However, attacks like these may undermine user confidence in the security provided by private entities. This breach also underlines the dark side of the Information Age – that there is nothing called fool-proof security and that every individual, system and organization is equally vulnerable.
Debugging the Bug
In early May, WhatsApp detected a bug that could inject malware on any targeted smart phone through a single call. This means that a simple call – even if not answered – may leave the phone and all its data including call logs, emails, messages, and photos vulnerable to malware, as opposed to other hacks that require some sort of user interaction like clicking on an infected link. In fact, this WhatsApp vulnerability could even bypass the face ID lock of iPhones, a feature introduced by WhatsApp to double user protection.
This Zero Day exploit, also known as Pegasus spyware, was allegedly developed by an Israeli cyber intelligence company called NSO. The hack code developed by the company could easily transmit itself to the target’s phone with a WhatsApp call and at the same time delete the call record itself from the call log. Thus, there is no way to find out if the phone has been breached. Following the bug’s detection, WhatsApp started rolling out an update on 10 May so as to provide a security patch for its customers.
Further analysis of the attack showed that WhatsApp VoIP (Voice over internet protocol)1 had a vulnerability called "buffer overflow weakness," which perpetrators could leverage to run malicious code on the host device. As the call starts, perpetrators manipulate the specially crafted series of data packets called SRTP (secure real time transport protocol), leading to the overflow being triggered and the attacker gaining access to the application. Attackers can then deploy surveillance tools to the device for use against the target. Karsten Nohl, chief scientist at the German Security Research Lab, states, “Remote exploitable bugs can exist in any application that receives data from untrusted source.” The majority of VoIP traffic that is sent over the internet is not encrypted, so anyone with access to the network can intercept calls or messages. This is one of the many serious threats in the VoIP environment. VoIP, in WhatsApp, is used to connect users and the evasion of the platform’s end-to-end encryption is being attributed to vulnerable VoIP.
The Target
The Israeli firm NSO’s stated objective has been to “create technology that helps government agencies prevent and investigate terrorism and crime to save thousands of lives around the globe.” However, it doesn’t require much to imagine how the technology can be used for other purposes as well. It has been reported that NSO had actually developed the WhatsApp bug code to access the phone data of a United Kingdom based human rights lawyer who had helped a group of Mexican journalists, government critics and a Saudi Arabian national living in Canada to sue the company for allegedly misusing the technology. They also called for an export ban on the technology to prevent it from being used for breaches of individual privacy.
What could this mean?
While at first glance it appears that the WhatsApp malware was developed by a private firm to target an individual and at best a select group of individuals involved in litigation with it, NSO’s links with the Israeli government does have spill over effects on regional politics. The company was founded by a retired senior Israeli military officer, General Avigdor ben-Gal, and continues to maintain close ties with the Israeli government and its security forces. It has been alleged that companies like NSO have been used by Israel to further diplomatic relations with hostile neighbours in the Middle East and the Persian Gulf. Arab states see Israeli technologies as powerful tools that could be used against terrorists as well as political dissidents. While NSO has not denied that it provides services to Saudi Arabia, it denies that the technology it had shared with Saudi Arabia was in any way used in the surveillance and subsequent killing of the journalist Jamal Khashoggi. Nevertheless, Saudi agencies armed with NSO technology have allegedly gone after many of Khashoggi’s associates including Iyed el-Baghdadi, an Arab writer and activist based in Oslo, Norway. According to a report generated by Citizen Lab at the University of Toronto, NSO’s software has actually been detected in 45 countries with civil society members seen to be targeted in six.
Incidents of social media breaches make it clear that anyone with a smart device is vulnerable One cannot ignore the fact that any government armed with such technologies can carry out the targeted monitoring of individuals without their knowledge. Attempts at breaking end-to-end encryption show that many private enterprises are hand in glove with government agencies. Moreover, such social media breaching technologies can be misused if they fall into the hands of malicious actors. For instance, private chat information and details could be used for blackmail and financial gains.
WhatsApp is used by over 1.5 billion monthly active users, and more than 200 million users in India alone. Such a large user base also raises question about the security awareness and accountability actions being taken by India. This also brings to light the dark side of unregulated cyberspace. In the absence of any universal rules or common doctrines governing cyber space, the dilemma of individual privacy and the state’s obligation to ensure security including through surveillance would continue to remain a zero-sum game.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
The Arms Trade Treaty is flawed and requires strengthening. Ratified States need to take the lead in fortifying the Treaty before more member States are asked to join.
The Geneva Centre for Security Policy (GCSP) released its May 2019 issue of Strategic Security Analysis titled, “The Arms Trade Treaty and Asia’s Major Power Defiance – India, China, Pakistan and Indonesia”. The paper has raised a number of issues regarding the gaps within the Arms Trade Treaty (ATT) while highlighting what the four Asian States- India, Pakistan, Indonesia and China- find problematic in acceding to the Treaty.
The paper brings to the forefront the genuine causes of concern for these Asian states: Indonesia not only has apprehensions on the notion of conditionality within the Treaty, but is equally wary of the Treaty’s inability to address the non-state actor threat and to curb transit and transhipment of illicit arms. Pakistan is not sure of being able to meet its Treaty obligations specific to arms trafficking as it has a porous border with Afghanistan. The non-participation of other major powers is a significant factor in China’s refusal to join the Treaty. And lastly, India does not believe that the Treaty addressed its causes of concern on illicit trade and imbalance in obligations between the exporting and importing States.
The Arms Trade Treaty does not hamper arms sales between government entities. It postulates that, “each State will decide which measures it needs to put in place in order to carry out its obligations under the ATT.” For both India and China, however, the paper refers to the growth in the defence expenditure as a factor that hampers their desire to participate in the ATT. India’s explanation of vote during the UNGA Session on the Arms Trade Treaty in 2013 was specifically directed at two aspects of the Treaty: one, it is weak on terrorism and in combating the non-state actors; and two, there is an imbalance in the obligations of importing and exporting States. The paper cites the contradiction between India’s interests in the ATT and its growing defence exports, with States such as Bangladesh, Oman, Afghanistan, Vietnam, and Mauritius slated to import US$2 billion worth of defence equipment from India. But it fails to bring to light that India is still the world’s second largest arms importer, which underlines its concerns over the imbalance between the obligations of importing and exporting States. Thus, the problem areas that were highlighted by India when the Treaty opened for signature hold true in-spite of its growing defence exports and imports.
The paper highlights that weapons sales by India have risen over the years while simultaneously pointing out how it has taken a significant step in adhering to the export control lists of all the four regimes, the Wassenaar Arrangement (WA), the Missile Technology Control Regime (MTCR), the Nuclear Suppliers Group (NSG) and the Australia Group (AG). India is one of the few Asian States to have joined three of these regimes – AG, WA and MTCR, along with South Korea and Japan. India’s membership in these regimes exemplifies its commitment to strengthen international security and non-proliferation objectives.
There are currently eight items covered under the legally binding ATT (article 2): battle tanks; armoured combat vehicles; large-calibre artillery systems; combat aircraft; attack helicopters; warships; missiles and missile launchers; and, small arms and light weapons (SALW). The non-legally binding WA covers all the above categories. Additionally, the United Nations Register of Conventional Arms (UNROCA), of which India is a member, covers all the mentioned categories along with an additional category, i.e., Man Portable Air Defence Systems (MANPADS). The paper also ignores the fact that India, in line with its international commitments, is also a part of the United Nations Programme of Action on Small Arms and Light Weapons (UNPOA). India’s adherence to various non-legally binding mechanisms/regimes is a clear indicator of its support for transparency. India’s strong export controls are at par with international best practices, as evident in its adherence with the four key export control regimes. Along with its international commitments, India becomes an ATT+ country in terms of control over export of arms. New Delhi has met the major objectives of the ATT and there is almost no evident value addition for India in joining the ATT in its current format.
Although the focus of the paper is on Asian States, it does not take into consideration the perspectives of other Asian States that come within the top arms importers of the world such as Saudi Arabia, Egypt, Vietnam, Iraq, and the United Arab Emirates. Vietnam’s concerns stem from the Treaty’s failure to ‘strike a balance between international peace and nations’ legitimate right to self-defence’. For its part, Iran states that ‘the Treaty failed to ban the transfer of conventional arms to “aggressors” and “foreign occupiers”.’ The role of these States is equally important in strengthening the Treaty and making it a functional entity.
The paper also bypasses the not-so-recent withdrawal of the United States from the ATT, which has resulted in the top two (Russia and US) arms exporting states being out of the ambit of the Treaty. As the world’s largest arms exporter, the withdrawal of the US from the ATT severely dents future prospects of making the Treaty universal and effective. Further, given the fact that, as highlighted in the paper, 60 per cent of illicit weapons sales originate from the United States, the US withdrawal from the ATT may increase illicit arms transfers exponentially. President Trump has faced a lot of backlash for his decision, which is considered by many as harmful to long term US interests. Analysts believe that it takes away the moral high ground and reduces US influence in the treaty process.
Another aspect underscored by the authors is that there is “a heightened arms race in the region” and that in such a scenario, “ATT would hamper their sovereign security parameters”. Although there is trust deficit between Asian arms importers, the gaps between their defence imports are too large to be categorised as an arms race. For example, the paper lists India-Pakistan, India-China and China-Vietnam as having trust deficits. But India’s share of arms imports is 9.5 per cent, while Pakistan’s is 2.7 per cent. Although China’s share of imports is 4.2 per cent compared to Vietnam’s 2.9 per cent, the People’s Republic of China is the fifth largest arms exporter with a 5.2 per cent share of arms exports in the world.
The reference to sovereign security parameters is a concern shared by the United States of America as well. This explanation was used by President Trump to justify withdrawal from the ATT. However, the Treaty does not impose restrictions on arms trade; its key purpose is to keep track of the arms trade in order to reduce illicit trafficking of arms. This fact is further strengthened by the significant growth in defence exports of the UK, which has signed and ratified the Treaty. Thus, the ATT does not impinge upon the sovereign rights of States to trade in arms; it aims to bring transparency to international arms transfers.
The paper rightly points to the gaps in the ATT that need to be addressed by the State Parties. One of the most significant issues with the Treaty is that of reporting. According to the paper, not a single State Party has submitted an update regarding its legislations and regulations related to international conventional arms trade. Nor have State Parties submitted reports on their annual arms transfers. Thus, the mechanisms within the ATT need to be strengthened before more member states are encouraged to join the discussions.
The ATT currently does not address the issue of illicit trafficking in a stringent manner. According to the Stockholm International Peace Research Institute, 98 per cent of Saudi Arabia’s conventional weapons were supplied by ATT members and signatories in 2015. However, as Saudi Arabia is not an ATT state party, it is not answerable for its arms trade. Thus, ratified states need to take a lead in showing visible change, before other members are added to the ATT. The authors suggest that Asian States, which account for 19 per cent of global arms imports, should make changes to the Treaty after joining it. They base their argument on the fact that Article 20 of the ATT will allow amendments to be considered by the Conference of State Parties (CSP) from 25 December 2020. But if the Treaty in its current form is weak on illicit trafficking of arms, would additional members not make the process of reaching consensus on amendments more difficult? Given that all changes would be undertaken on the basis of consensus, it would be a challenge for States to amend the Treaty to make it more efficient in accordance with Article 20. It is unrealistic to expect non-signatories to join the treaty unless member States strengthen the Treaty and make it favourable for new states to join. Amendments within the Treaty to include stronger action on the non-State actor could potentially act as a catalyst for greater participation of some Asian States.
Additionally, without the top five arms exporters (US, Russia, France, Germany, and China) heavily invested in the negotiation process to strengthen the Treaty from within, no change will be effectively implemented in global arms trade. While a recent announcement by the Ministry of Foreign Affairs of the People’s Republic of China on its consideration of joining the ATT has offered hope to the efforts of strengthening the Treaty, Russia has expressed its apprehensions on how the Treaty is discriminatory, does not include a direct ban on unlicensed arms production or transfers to non-State actors, and has no provisions regulating the re-export of items intended for military use. Although Russia is a non-signatory, as the second largest arms exporter, its concerns need to be addressed in order to strengthen the Treaty.
What the Arms Trade Treaty needs is the backing of significant arms trading States – the United States, Russia and China – to come together and provide the Treaty with the required sense of legitimacy since they account for more than 50 per cent of arms exported around the world. Implementation of the ATT without the participation of these States would be a step in the right direction, but would not address the global problem of illicit trafficking in arms and its diversion to non-state actors. Bringing the arms trading States into the folds of the Treaty is necessary to serve the dual purpose of moving multilateral discussions towards fruition and drastically weakening the illicit trade and trafficking of arms around the world. But the choice for aspiring member States should not be between a toothless Treaty with more members and a strong Treaty without the top defence importers and exporters.
Dr. Kanica Rakhra is Consultant to the Disarmament and International Security Affairs division of the Ministry of External Affairs.
Views expressed by the author do not reflect the views of the Ministry of External Affairs.
During his first term, Modi had invested considerable political capital in cultivating critical players. The second term should enable him to reap the fruits of his political investments and elevate his engagements to a higher level.
The resounding re-election of Prime Minister Narendra Modi is a blessing for India's relations with the countries of the Middle East. With Sushma Swaraj not contesting in these elections, India will be looking for a new External Affairs Minister, but Modi's imprints will be more pronounced than before.
During his first term, Modi had invested considerable political capital, time and resources in cultivating critical players in the Middle East, namely, Saudi Arabia, United Arab Emirates (UAE), Qatar and Iran in the Persian Gulf region, and Israel in the Levant. Through personal engagement and hardnosed economic interest-driven calculations, he managed to befriend leaders of these countries, who at times do not talk to one another.
The second term should enable Modi to reap the fruits of his political investments and elevate his engagements to a higher level. At the same time, he will not be able to escape from some of the pressing and challenging problems.
First and foremost will be Iran, which has been a major foreign policy challenge since the end of the Cold War. Domestic electoral success will not be enough for Modi to override the determination of the Trump Administration to halt Iran's oil exports completely. The US refused to extend the 200,000 barrels per day waiver granted to India last November, and this meant that India would not be able to import crude oil from Iran from May 2 without evoking American displeasure and even anger. A section of the political class, largely unrepresented in the new Lok Sabha, might advocate a defiant stand to exhibit India's strategic ‘autonomy.’ States do not have the luxury of committing hara-kiri. Hence, Modi will have to devise a balanced approach vis-à-vis the United States and its demands on Iran.
Along with the November waiver on imports, the Trump Administration had excluded Chabahar port from the purview of sanctions. This should give Modi a golden opportunity to satisfy both the United States and Iran. The actual Indian investment in the Iranian port is much lower than the US$ 500 million touted in official circles. By enhancing its financial commitments to the Chabahar Port project, India could mollify Iranian displeasure over the stopping of crude imports.
In other words, what India needs to do is stop the import of Iranian crude to satisfy the United States and expand its financial commitments to the Chabahar project to keep Iran in good humour!
Second, Modi should slash the bureaucratic cobwebs and enable the flow of investments from the UAE and Saudi Arabia, which have committed to invest up to US$ 75 and 100 billion, respectively, in India. If the Ratnagiri refinery does not take off due to land issues, Modi should explore other western coastal states to facilitate Saudi-Emirati investments in the mega refinery project. Should Etihad exit from the troubled Jet Air, Modi’s personal equation with the Emirati leadership, would be helpful in the privatization of Air India.
Three, the ongoing intra-Gulf crisis over Qatar does not serve India's interest. Given its economic, political, energy and expatriate links, an early resolution of the Saudi-Qatari standoff is in India's interest. Mediation often comes with inadequate returns and burns, and India has eschewed, and rightly so, the temptation to mediate the Arab-Israeli conflict or the Saudi-Iranian rivalry. But the intra-Gulf Arab acrimony is different and India's stakes are vital. Further, during his first term in office, Modi had established a personal rapport with all key players involved in the crisis, namely Saudi Crown Prince Mohammed Bin-Salman, Emirate Crown Prince Mohammed al-Nahyan and Qatari Emir Tamim al-Thani, and have met them many times. Modi should use the massive domestic mandate and his personal contacts with these leaders to initiate a dialogue process. It is both a doable and vital proposition that Modi considers bridging or healing the rift among Gulf Arab monarchs.
Fourth, China has managed to entice the Gulf Arab countries to endorse and partake in its ambitious Belt and Road Initiative. Given the abundance of sovereign wealth, Arab countries are a better bet for China than impoverished Asian and African economies. This would mean that, India will have to expand its trade basket and move into investment projects with the Gulf Arab countries. The Indo-Omani joint fertiliser company in Sur and India’s economic partnership with Jordan presents a model and precedent for more energised Indian investment in the Gulf economies. The government should also encourage the private sector to expand its presence in the Middle Eastern economies, especially the Persian Gulf region.
Five, India should expand its presence in the Israeli economy and technology market through selective but aggressive investments aimed at technology acquisition. More robust cybersecurity cooperation with Israel would require identification of critical areas and significant financial commitments. Mere statements and Memoranda of Understanding will not get India cutting edge technologies.
Lastly, India's growing political engagements with the Middle East must be given more extensive publicity within the country. Looking primarily through the Pakistani prism, many commentators have either ignored the Indo-Gulf and Indo-Middle Eastern relations or have come to the wrong conclusion that under Modi India's relations with the Islamic world has deteriorated. Nothing could be farther from the truth. Modi has skilfully balanced the Israeli-Palestinian, Saudi-Iranian and Saudi-Qatari binaries and furthered India's interests. Saudi and Emirati leaders have bestowed their highest honours on Prime Minister Modi just days before the Lok Sabha elections, thus indicating the status of India's relations with the Muslim world under Modi. A proper understanding of Modi's Middle East policy since 2014 will not only generate broader domestic support for it but also enhance India's influence in the region. If the mantra of NDA-1 was active engagement, now is the time for action.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
There is a need to make it clear in the text of Paragraph 72 of DPP 2016 that no vendor other than the Development-cum-Production partner or the nominated Production Agency will be permitted to enter the tendering process at the post prototype development stage.
Paragraph 72 in Chapter II of the Defence Procurement Procedure 2016 (DPP 2016) sets out the procedure for awarding design and development (D&D) projects to the Defence Research and Development Organisation (DRDO), Ordnance Factory Board (OFB) and Defence Publics Sector Undertakings (DPSUs). There are at least three issues concerning this procedure that merit attention.
One, after professing the creation of a level-playing field (supposedly between the public and private sectors) as one of its aims, DPP 2016 goes on to carve out an exclusive preserve for the aforesaid government agencies without laying down the yardstick for adopting the procedure. This is paradoxical as it strikes at the very root of the notion of a level-playing field. Recourse to Paragraph 72 amounts to denying the same opportunity to the private sector as cases covered by this passage fall in the category of Buy (Indian Designed, Developed and Manufactured) category of procurement, which, going by its defining attribute spelt out in DPP 2016, is supposed to be open to the private sector as much as the public sector. It is not that there is no justification for awarding some D&D projects to government agencies. If, for example, a system manufactured by a government agency is to be upgraded, it may be justifiable to go back to the same agency for the upgrade. The point, however, is that this must be done in exceptional circumstances and on specific grounds that should be spelt out in the DPP in the interest of transparency. Such a step will also help the Services Headquarters (SHQ) in identifying the cases to be initiated under Paragraph 72 while substantially reducing the possibility of unnecessary discussion at the Acceptance of Necessity (AoN) stage with different stakeholders taking different views on whether the proposal should be processed under this paragraph.
Two, Paragraph 72 (c) states that the D&D of the prototype would be done as per the internal procedures of the government agency concerned and that ‘competitive procedures shall invariably be followed’. Many experts hold that the internal procedures of government agencies are not geared to handle such projects and that the rider about the competitive process further stymies their effort. The broad procedure for the procurement of goods and services by all government agencies, including PSUs, is laid down in the General Financial Rules (GFRs), which also permit them to issue detailed supplementary instructions broadly in conformity with the general rules contained in the GFRs.
The procedures followed by the DRDO, OFB and DPSUs have been evolved by these organisations themselves, explicitly or impliedly, under this provision in the GFRs. That being the case, there is no reason why they cannot modify their internal procedures to cater to the peculiarities of D&D projects, if so required. They could even formulate a separate procedure, customised to facilitate smoother implementation of such projects, within the broad principles of public procurement laid down in GFR 2017. The Ministry of Defence could nudge them to do so and, in fact, coordinate the exercise to make sure that their internal procedures follow the same standards and are fully in tune with the specific requirements of D&D projects. It bears recalling that there is a separate chapter in DPP 2016 on defence shipbuilding. The Defence Procurement Manual, 2009 also has several customised chapters, such as those dealing with procurement of goods and services from foreign countries, repair contracts with foreign and indigenous firms, offloading of refit and repair of naval vessels to PSUs and private shipyards. There is no reason why the DRDO, OFB and DPSUs cannot have a separate customised chapter in their internal procurement manuals to execute D&D projects. As a part of this exercise, or even independently, MoD needs to drop the stipulation in Paragraph 72 (b) that ‘competitive procedures shall invariably be followed’ as it seems to suggest that in the context of D&D projects there should be no single-source procurement. This constraining stipulation is not in conformity with the GFRs which permit single source procurement under specific circumstances.
Three, as per Paragraph 72 (c), once the prototype is ready, the Preliminary Services Qualitative Requirements (PSQRs) are required to be frozen and a commercial request for Proposal (RfP) is to be issued to the Development-cum-Production (DP) partner of the government agency that had undertaken the D&D project or to the Production Agency (PA) nominated by them. These cases, the paragraph goes on to say, are not to be treated as single vendor cases. The next two sub-paragraphs, however, negate the notion of single source procurement after the prototype has been developed. According to Paragraphs 72 (c) and (d), after receipt of commercial bids in response to the RfP from the participating vendors, SHQs will conduct the user trials and staff evaluation, followed by commercial negotiations with the vendors declared successful after staff evaluation. The use of the word vendors in these sub-paras is confusing for it leaves the window open for participation in the tendering process by vendors other than the DP partner/PA of the government agency which had undertaken the D&D project, if other vendors have a similar product to offer under Buy (IDDM) category. This possible interpretation of sub-paragraphs 72 (c) and (d) undermines the assurance underlying paragraph 72 as a whole, though not stated explicitly, that the procurement order will be placed on the DP partner or the PA of the government agency concerned.
There is a need to make it clear in the text of Paragraph 72 that no vendor other than the DP partner or the PA will be permitted to enter the tendering process at the post prototype development stage, unless that is not the intention, in which case government agencies may find it difficult to attract partners for the project. There has to be a reasonable assurance of orders at the end of the development phase for the DP partners/DAs to take interest in the project. Paragraph 72, as presently worded, does not seem to manifest that assurance.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
In this era of complex interdependence, sudden disruptions in supply chains will not only hurt Chinese businesses in the US and elsewhere, but also damage the US economy as well as its reputation as a business destination.
On May 15, 2019, the Donald Trump administration issued an Executive Order (EO) entitled “Securing the Information and Communications Technology and Services Supply Chain”. While it does not specifically mention the Chinese telecommunications major, Huawei, the EO does bring to an end speculation over the future of the Chinese company’s presence and operations in the United States. Pursuant to the International Emergency Economic Powers Act and the National Emergencies Act, the EO declares “a national emergency with respect to the threats against information and communications technology and services in the United States.”1 It does not name any country or company per se, but describes the threat as “information and communications technology or services designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries.”2 The EO comes in the wake of serious allegations against Chinese telecommunications equipment suppliers, Huawei in particular, on account of malicious cyber-enabled actions, including spying, economic and industrial espionage and close ties to the Chinese government.
The EO of May 15 is the latest in a series of actions that the US has taken during the last few years to reduce the security risks from Chinese-made equipment. For some time now, the US intelligence community, some private sector companies and think tanks have openly voiced concerns about espionage being carried out with equipment supplied by Chinese companies. Based on the recommendations of The House Intelligence Committee, the Obama administration had blacklisted Huawei and ZTE Corporation from supplying equipment for sensitive systems way back in 2012. The 2018 National Defense Authorization Act forbade government agencies from procuring telecommunications equipment or services produced or provided by Huawei and ZTE Corporation.3 The latest EO comes in the midst of an escalating trade war between the US and China, as part of which both sides have imposed tariffs on the import of goods from the other country.
The EO authorises the Secretary of Commerce to, in consultation with heads of other agencies as appropriate, prohibit transactions involving information and communications technology or services from “adversaries”. For its part, the Bureau of Industry and Security (BIS) of the Department of Commerce has placed Huawei Technologies Co. Ltd. and 68 of its non-US affiliates on its ‘Entity List’.4 Exports, re-exports and transfer of all items subject to Export Administration Regulations (EAR) to Huawei and the listed affiliates from the US will be put under review. BIS imposes a licence requirement for all items subject to the EAR and a license review policy of presumption of denial – which clearly means that license applications for export to Huawei and affiliates will be outright denied. Under category 3 (Electronics) and 5 (Telecommunications) of the Commerce Control List, semi-conductor integrated circuits, semi-conductor technology, equipment, devices or material manufacturing equipment, telecommunications equipment, bridges, gateways and routers are controlled items. Items under these categories have significant importance in US-China trade.
Huawei has the largest share (28 per cent) in the global cellular base station market.5 The company supplies telecom products and solutions to some 1500 networks in 170 countries.6 In the wake of the May 15 EO, the US probably seeks to address the issue of its rising trade imbalance with respect to China as well as curtail Huawei’s aggressive expansion in the global telecommunications trade, especially when 5G deployment is also around the corner.
US-China High Technology Trade and Trade Imbalance
US-China trade, at around USD 660 billion in 2018, has increased by 80 per cent since 2009. China has gained substantially from this bilateral trade, with a balance of USD 419 billion in its favour. The trade imbalance itself has grown by 85 percent, from USD 227 billion to 419 billion between 2009 and 2018 (Figures 1 and 2).
Source: Created by the author. Data collected from https://www.census.gov.
Source: Created by the author. Data collected from https://www.census.gov.
Out of 22,000 commodities that the US trades globally, 500 products from high technology fields such as biotechnology, Information and Communication Technology (ICT), electronics, aerospace and advanced materials are classified as Advanced Technology Products (ATP). These products represent leading edge technology. In this category, the percentage of exports and imports in US global trade has remained steady at around 45 and 55 per cent, respectively, over the last decade. Imports, for instance, were 57 per cent of global ATP trade in 2018 (Figure 3). Nevertheless, US exports of ATP to China have consistently remained marginal; it was seven per cent in 2009 and had increased to only 10 per cent by 2018 (Figure 4). In contrast, China had around a 30 per cent share in global US imports of ATP in 2008, which increased to 35 per cent in 2018 with a value of USD 173 billion (Figure 5). The US, despite managing to maintain a balance between its exports and imports in the global ATP trade, has failed to do this in its ATP trade with China.
Source: Created by the author. Data collected from https://www.census.gov.
Source: Created by the author. Data collected from https://www.census.gov.
Source: Created by the author. Data collected from https://www.census.gov.
The skewed character of bilateral ATP trade between US and China explains the present US apprehensions clearly. During the years 2008 to 2019, US imports of ATP from China total 80 percent of its bilateral ATP trade with China (Figure 6). Under the ATP category, the US imported around USD 157 billion worth of ICT products from China in 2018, while it exported only close to USD 4 billion worth. US imports of ICT products have increased around 50 per cent in these years, from USD 79 billion in 2009. At the same time, US ICT exports to China during these years have remained rather low hovering between 4.5 and 2.5 per cent of its total ICT trade with China (Figure 7).
Source: Created by the author. Data collected from https://www.census.gov.
Source: Created by the author. Data collected from https://www.census.gov.
Nor do the trade figures in telecommuincations equipment paint a bright picture for the US. In 2018, China accounted for only four per cent of global US exports of telecommuincations equipment. But, for the same year, China had a whopping 45 per cent share in total telecommuincations equipment imported by the US (Figure 8). US-China telecommuincations equipment trade heavily favours China. At USD 34 billion in 2018, imports from China accounted for 96 per cent of bilateral trade in this segment. US telecommuincations equipment exports were worth only USD 1.43 billion in 2018. From 2009 to 2018, such imports from China increased by 188 per cent – from USD 11.7 billion to 33.9 billion (Figure 9). US telecommuincations equipment exports to China for the same period have grown by just 4.25 per cent.
Source: Created by the author. Data collected from https://www.census.gov.
Source: Created by the author. Data collected from https://www.census.gov.
Technology is a key factor in US economic strength. An upper hand in ATP signifies technological leadership. Its consistent increase in exports in this segment has helped
China to penetrate markets in both developing and developed countries. The US appears to be caving in to the competition from China, as it is unable to arrest its falling share of exports in ICT and telecommunication equipment trade. Global US exports of telecommunication equipment, for instance, has grown by 30 per cent over the last one decade, but its imports have almost doubled (Figure 8). The gap between exports and imports is widening and transforming the US into a market for such products rather than an exporter.
Implications for the US
The May 15 EO aims to correct this imbalance in the midst of the escalating US-China trade war. It will not only adversely impact upon US companies and citizens but also have global ramifications. Chinese-made ICT products are much cheaper than their Western counterparts. Consumers of ICT products are generally individuals and businesses. If companies of Chinese origin are forbidden or restricted from carrying out their business in the US or with their American counterparts, the costs of ICT products will certainly rise. There are no replacement products either, as no other country can match China in this regard.
Chinese telecommunication manufactures have been at the epicentre of conflicts, be it related to espionage earlier or trade wars now. It is important to note that Huawei is closely knit with the global technology supply chains. Its presence in the US entity list will send ripples through these supply chains, disrupting not just American but global markets as well. US companies also gain significantly from Huawei — out of USD 70 billion that Huawei spent on procuring components in 2018, close to USD 11 billion went to US firms. 7 Flex, Broadcom, Qualcomm, Intel, Microsoft and Texas Instruments are all suppliers of components and technology to Huawei. These US companies would now require a licence to continue doing business with Huawei or they will probably be proscribed from engaging in any business activity. Further, a disruption in the manufacturing process owing to the loss of suppliers from the US will escalate costs for Huawei’s global clients, which also includes US allies. This can potentially derail or further increase the costs of the 5G roll-out plans of many countries who have roped in Huawei for this purpose.
Major telecom players in the US do not use Huawei equipment in their networks. But, surprisingly, the smaller ones, especially rural carriers (fewer than 100,000 subscribers) depend on Huawei and ZTE to an extent.8 If the ban on Huawei persists and these carriers are forced to replace the company’s equipment, their costs will skyrocket. Moreover, Huawei will most certainly be kept out of 5G deployment in US. Smaller carriers, who count on low-cost equipment from Chinese manufacturers, might not be able to bear the costs of 5G deployment. It may either leave rural consumers devoid of 5G technology, or simply increase the costs substantially for consumers.
The grant of a temporary 90-day general export licence from the US Department of Commerce to Huawei indicates that the US has not yet reached the point of no return. Huawei could be removed from the entity list. Nonetheless, as evident from the trade figures, the US is a lot more dependent on Chinese ICT products and telecommunication equipment. American firms have close business relationships with their Chinese counterparts, be it is Apple iPhones assembled in Shenzen or Qualcomm supplying smartphones or cellular modem chipsets to Chinese manufacturers. In this era of complex interdependence, such sudden disruptions in supply chains will not only hurt Chinese businesses in the US and elsewhere, but also damage the US economy as well as its reputation as a business destination. It is after all a vicious circle.
Note: Paragraph two of this commentary has been amended. In the original version, due to an editing error, the blacklisting of Huawei and ZTE by the US in 2012 was wrongly attributed to the Trump administration.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
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