People with Alzheimer’s disease have fat deposits in the brain. For the first time since the disease was described 109 years ago, researchers affiliated with the University of Montreal Hospital Research Centre (CRCHUM) have discovered accumulations of fat droplets in the brain of patients who died from the disease and have identified the nature of the fat.

This breakthrough, published in the journal Cell Stem Cell, opens up a new avenue in the search for a medication to cure or slow the progression of Alzheimer’s disease. “We found fatty acid deposits in the brain of patients who died from the disease and in mice that were genetically modified to develop Alzheimer’s disease. Our experiments suggest that these abnormal fat deposits could be a trigger for the disease”, said Karl Fernandes, a researcher at the CRCHUM and a professor at University of Montreal.

Over 47.5 million people worldwide have Alzheimer’s disease or some other type of dementia, according to the World Health Organization. Despite decades of research, the only medications currently available treat the symptoms alone.

This study highlights what might prove to be a missing link in the field. Researchers initially tried to understand why the brain’s stem cells, which normally help repair brain damage, are unresponsive in Alzheimer’s disease. Doctoral student Laura Hamilton was astonished to find fat droplets near the stem cells, on the inner surface of the brain in mice predisposed to develop the disease. “We realized that Dr. Alois Alzheimer himself had noted the presence of lipid accumulations in patients’ brains after their death when he first described the disease in 1906. But this observation was dismissed and largely forgotten due to the complexity of lipid biochemistry”, said Laura Hamilton.

The researchers examined the brains of nine patients who died from Alzheimer’s disease and found significantly more fat droplets compared with five healthy brains. A team of chemists from University of Montreal led by Pierre Chaurand then used an advanced mass spectrometry technique to identify these fat deposits as triglycerides enriched with specific fatty acids, which can also be found in animal fats and vegetable oils.

“We discovered that these fatty acids are produced by the brain, that they build up slowly with normal aging, but that the process is accelerated significantly in the presence of genes that predispose to Alzheimer’s disease”, explained Karl Fernandes. In mice predisposed to the disease, we showed that these fatty acids accumulate very early on, at two months of age, which corresponds to the early twenties in humans. Therefore, we think that the build-up of fatty acids is not a consequence but rather a cause or accelerator of the disease.”

Fortunately, there are pharmacological inhibitors of the enzyme that produces these fatty acids. These molecules, which are currently being tested for metabolic diseases such as obesity, could be effective in treating Alzheimer’s disease. “We succeeded in preventing these fatty acids from building up in the brains of mice predisposed to the disease. The impact of this treatment on all the aspects of the disease is not yet known, but it significantly increased stem cell activity,” explained Karl Fernandes. “This is very promising because stem cells play an important role in learning, memory and regeneration.”

This discovery lends support to the argument that Alzheimer’s disease is a metabolic brain disease, rather like obesity or diabetes are peripheral metabolic diseases. Karl Fernandes’ team is continuing its experiments to verify whether this new approach can prevent or delay the problems with memory, learning and depression associated with the disease.

European Union missions based in Jerusalem and Ramallah in the occupied West Bank condemned Friday a death sentence issued in the Gaza Strip earlier this week.

The sentence was the fifth issued since the beginning of the year by Palestinian courts.

On Monday, the Permanent Military Court in Gaza City — acting as a court of First Instance — sentenced a 37-year-old Palestinian from the al-Daraj neighborhood to death by firing squad after he was convicted of “collaboration with a foreign hostile entity,” the Palestinian Center for Human Rights (PCHR) reported.

Under Palestinian law, wilful, premeditated murder and treason as well as collaboration with the enemy — usually Israel — are punishable by death.

The EU called on authorities in Gaza — run by the Hamas movement — to refrain from enforcing capital punishment on the grounds that the practice is cruel, inhumane, fails to deter criminal behavior, and denies citizens human dignity.

PCHR said that Monday’s sentence brings the total number of death sentences issued by the Palestinian courts since 1994 to 161, over 80 percent of which were carried out in the Gaza Strip.

The remainder took place in the occupied West Bank in courts run by the Palestinian Authority.

The majority of those facing the death penalty in the Gaza Strip have been executed since Hamas took control on 2007, PCHR said, adding that 19 have been executed since 2007 without ratification by President Mahmoud Abbas.

Under Palestinian law, capital punishment may only be carried out with the approval of the Palestinian president.

As the Hamas movement broke from the Palestinian Authority in 2007 and does not recognize the legitimacy of Mahmoud Abbas, Hamas authorities in the Gaza Strip sidestep the president’s consent on cases of capital punishment.

The EU added that the authorities in Gaza must “comply with the moratorium on executions put in place by the Palestinian Authority, pending abolition of the death penalty in line with the global trend.”

While Hamas has controlled the Gaza Strip since 2007 and the Palestinian Authority rules in the occupied West Bank, the death penalty is carried out by both parties in both territories.

Hamas executed 18 men in August for alleged collaboration with Israel during the 50-day Gaza war.

Palestine is one of 22 countries that carried out the death penalty last year.

The practice has been abolished in 140 countries — nearly two thirds of countries around the world — and in 2012 over half of United Nations member states voted for a UN resolution to be passed for a global moratorium on the practice.

In 2014, Iran, Saudi Arabia, and the United States carried out the largest numbers of recorded death sentences.

Rights groups have criticized Palestinian authorities in both the West Bank and Gaza Strip for implementing capital punishment without due process.

Corporations are taking the retirement savings of elderly public employees and using them to inflate their stock prices so wealthy CEOs and their shareholders can enrich themselves at the expense of their companies. And it’s all completely legal. Under current financial regulations, corporate bosses are free to repurchase their own company’s shares, push stock prices into the stratosphere, skim off a generous bonuses for themselves in the form of executive compensation, and leave their companies drowning in red ink.

Even worse, a sizable portion of the money devoted to stock buybacks is coming from  “massively underfunded public pension” funds that retired workers depend on for their survival. According to Brian Reynolds, Chief Market Strategist at New Albion Partners,  “Pension funds have to make 7.5%,” so they are putting their money “in these levered credit funds that mimic Long-Term Capital Management in the 1990s.” Those funds, in turn, “buy enormous amounts of corporate bonds from companies which put cash onto company balance sheets…and they use it to jack their stock price up, either through buybacks or mergers and acquisitions…It’s just a daisy chain of financial engineering and it’s probably going to intensify in coming years.”   (“How a Public Pension Crisis Is Driving an Epic Credit Boom“, Financial Sense)

So, once again, ordinary working people are caught in the crosshairs of a corporate scam that could blow up in their faces and leave them without sufficient resources to muddle through their retirement years.

The amount money that’s being funneled into buybacks is simply staggering. According to Dave Dayen at the Intercept:

“Last year, companies spent $553 billion to repurchase outstanding shares, just short of the record $589.1 billion in 2007. Large companies like Apple, General Motors, McDonald’s, Pfizer, Microsoft and more have engaged in buybacks in recent years.

Returning profits to shareholders through buybacks and dividends accounted for 95 percent of all earnings in 2014. As a result, each additional dollar of corporate earnings now translates to under 10 cents of reinvestment, according to a study by J.W. Mason of the Roosevelt Institute.”

(“SEC Admits It’s Not Monitoring Stock Buybacks to Prevent Market Manipulation“, Dave Dayen, Intercept)

This explains why business investment (Capex) is at record lows.  It’s because the bulk of earnings is being recycled into buybacks, over $2.3 trillion dollars since 2009 to be precise. And it’s all connected to the Fed’s zero rate policy.  Zero rates have created an environment in which corporations no longer look for ways to grow their businesses, expand operations, hire more employees or improve productivity.  Instead, they look for the quick fix, that is, load up on debt, buy more shares, goose the stock price, and walk away with a bundle.

It’s all about incentives. The Fed has created incentives that encourage financial engineering and stock manipulation as opposed to growth and productivity. And keep in mind that repurchasing shares is a form of margin buying, the same type of margin buying that triggered Stock Market Crash of 1929.

According to Dayen: “Prior to the Reagan era, executives avoided buybacks due to fears that they would be prosecuted for market manipulation. But under SEC Rule 10b-18, adopted in 1982, companies receive a “safe harbor” from market manipulation liability on stock buybacks if they adhere to four limitations.”

We won’t go over the regulations now because, as you can see,  they obviously don’t work or these corporations wouldn’t be $2 trillion in the hole. But it is interesting to note that, at one time,  policymakers saw how destructive buybacks were and were prepared to prosecute offenders for manipulation. I doubt that any of our regulators today would even dream of bringing a case against these corporate behemoths, after all, they pretty much own the whole show lock, stock and barrel.

The real danger of this buyback phenom, is that the corporations have piled on so much debt that any sharp decline in the market could push one or two of these giants into default.  That, in turn, could quickly take down other counterparties touching off another financial crisis.    So, the question regulators should be asking themselves,  is how much red ink are these corporations hiding on their balance sheets and what are the risks to the public if they’re unable to repay their debts.  According to Henry Blodget at Business Insider:

“As corporations have borrowed more and more money, the level of corporate debt relative to the size of the economy has continued to increase. As the chart below shows, this ratio is now at its highest level ever — even higher than it was in 2007, before the last debt-fueled economic implosion. Importantly, corporate net debt — the amount of debt that corporations are carrying minus the cash they have on hand (green line below) — is also at its highest level ever as a percent of the economy.”

(“Now It’s Time To Think About What Will Happen When Companies Stop Buying Back So Much Stock“, Business Insider)

Let’s summarize:

1. Buybacks are driving the stock market higher.

2. Corporations purchase buybacks with credit.

3. “The level of corporate debt relative to the size of the economy… is now at its highest level ever.”

What can we deduce from these three observations?

First, that stock prices are a bubble and, second, that a significant stock market shakeout could leave some of the nation’s biggest corporations teetering towards insolvency.

Of course, none of this is going to stop corporations from engaging in the same risky behavior. Heck, no.   In fact,  CEOs are actually looking for ways to speed up the buyback process. I’m not kidding. Check clip from yesterday’s Wall Street Journal:

“Companies are increasingly turning to accelerated share repurchase agreements…to return cash to shareholders and secure an immediate boost to per-share profits…..But these turbo-charged stock buybacks can backfire, especially when a steep market plunge—such as the 5.3% drop in the markets over the past two trading days. That’s because a steep plunge in stock prices can force the companies to potentially pay more to buy the shares through an ASR than what they would pay if they purchased the shares over time on the open market.
 
“Things can go wrong,” said Robert Leonard, head of specialty equity transactions at Citigroup Inc….
(“Accelerated Buybacks Less Favorable During Market Swoons“, Wall Street Journal)

You’re darn right, they can go wrong, but who gives a rip? Not America’s insatiable CEOs, that’s for sure. They’re just looking for faster ways to cash in, that’s all that matters to them. These guys aren’t even thinking about the health of their companies, let alone their customers. ‘Making widgets for the masses, is for suckers’, right?  Corporate honchos have bigger fish to fry, like leveraging up their whole operation to its eyeballs, skimming the cream off the top, stuffing the moolah in an unmarked Caymans account, and slipping out the backdoor before the whole rickety structure comes crashing to earth. That’s modern-day capitalism in a nutshell. Slash and burn, Baby, just like big boys at the Pentagon.

One last thing: Just to show the extent to which these corporate mandarins will go to enrich themselves at their company’s expense, check out this blurb from this 2014 article at Bloomberg:

“International Business Machines Corp. (IBM) is reducing stock buybacks after an $8.2 billion first-quarter splurge… IBM said last week it won’t sustain its rate of share repurchases in the first quarter, when buybacks more than tripled from a year earlier to the most since 2007. The company plans to spend less than $5.8 billion total in the final nine months of this year….
. 
 IBM’s sales have fallen from a year earlier for eight straight quarters…Declining sales and rising buybacks have squeezed IBM’s free cash flow…The repurchases, meanwhile, have taken a toll on IBM’s balance sheet. Total debt climbed to $44 billion in the first quarter, up from $33.4 billion a year ago….
 
 During the first quarter, IBM issued $4.5 billion of new bonds, clearly used to fund buybacks, Black said….
“The company tapped the bond market five different times last year, then you have a pretty sizable February issuance,” Black said in the interview. “I feel like there is investor fatigue on the name.” 
(“IBM End to Buyback Splurge Pressures CEO to Boost Revenue“, Bloomberg)

Okay, let’s translate this into English: IBM spent $8.2 billion in first-quarter on stock buybacks, even though “sales have dipped “from a year earlier for eight straight quarters”; even though “declining sales and rising buybacks have squeezed IBM’s free cash flow”; even though buybacks “have taken a toll on IBM’s balance sheet”; and even though “Total debt climbed to $44 billion in the first quarter, up from $33.4 billion a year ago.”

Unbelievable, right? And that’s not even the best part. The best part is the fact that “The company tapped the bond market five different times last year.”  In other words, they went to the bond market with ‘cup in hand’ and appealed to gullible investors to lend them more money to pay their lavish executive bonuses, to shower more dough on their worthless, do-nothing shareholders, and to keep this whole ridiculous farce going on a bit longer.

Talk about balls!

Tell me this, dear reader, when can we stop referring to this activity as “buybacks” and call it by its real name; looting?

I MUST admit that Moshe “”Bogie” Ya’alon did not top the list of my favorite politicians. The former army Chief of Staff and present Minister of Defense looked to me like a mere lackey of Netanyahu and a one-dimensional militarist. Many people call him a “bock”, a non-complimentary German-Yiddish term for billy goat.

Yuval Steinitz, the present minister for I-don’t-know-what, was also not at the top of the list of politicians I admire. He, too, seemed to me one of the servants of Netanyahu, without a recognizable personality of his own.

Even the former army Chief of Staff, Gabi Ashkenazi, was not one of my ultimate heroes. When he was appointed, some malicious people claimed that he owed his advancement to his Oriental origin, since the Minister of Defense, at the time, was also of Oriental origin. Ashkenazi’s father was from Bulgaria, his mother from Syria. The Minister of Defense at the time, Shaul Mofaz, was from Iran. Ashkenazi was in charge of one of the serial wars against Gaza. He was and remains popular.

Now I admire all three. More than that, I am deeply grateful to all three.

WHAT HAS brought about such a profound change?

It was caused by another former army Chief of Staff, Ehud Barak.

(If this gives the impression that Israel abounds with former Chiefs of Staff, that is an exaggeration. But we are indeed amply supplied with them.)

Barak has been a Chief of Staff, a Defense Minister and a Prime Minister. Since he was replaced by Binyamin Netanyahu, he is in private business – giving advice to foreign governments. He has become very rich, and doesn’t hide it. Far from it.

He grew up in a kibbutz. Since he was a fattish boy without athletic ability, who played the piano, his life there was not easy. When he was called up like everybody else, he seemed far from a military career.

But a senior commando officer noticed his intelligence and decided to push him on. He accepted him into his select unit – the renowned Sayeret Matkal (“General Staff commando”), where he advanced quickly both for his physical bravery and his outstanding intelligence.

Early on, a high-ranking officer drew my attention to him. “Watch Barak,” he advised, “he is extremely intelligent and one of these days he is going to be Chief of Staff!”

Years later, I got a surprise phone call. I was at the time the editor of a popular news magazine and a Member of the Knesset, profoundly disliked by the establishment. I was told on the phone that General Barak, the Deputy Chief of Staff, was inviting me for a talk in his office.

I wondered what the reason might be, but there was no reason. The general just wanted to have a conversation with me.

So we talked for about an hour and hit a subject of joint interest: military history. Since World War II, that has been my hobby. (Some people joked that I was the only militaristic pacifist they knew.) We talked about the Thirty Years War and other campaigns, and I was impressed. He knew his stuff and was obviously an intellectual person – qualities that are quite rare in our officers’ corps, which tends to be rather pragmatic.

After that I hardly met him. He disappointed me as a Prime Minister, messed up the Camp David conference and was beaten at the following election by Netanyahu. He became Minister of Defense in the coalition government.

NOW HE has surged back into prominence with startling disclosures.

It appears that Barak has written a book of memoirs. On the eve of publication, he has given an interview in which he disclosed the most intimate details of government discussions. The subject: an Israeli attack on the nuclear installations of Iran.

According to Barak, the three central members of the government – Netanyahu, Barak and the Foreign Minister, Avigdor Lieberman, had decided by 2009 to unleash the Israeli Air Force and destroy the Iranian installations, a very daring and complex operation.

To make this decision, they needed the endorsement of the military and a resolution of the “eight” – an unofficial committee of the eight central ministers. Under Israeli law, the government as a whole is the Commander in Chief of the armed forces. The government has delegated this power to the “Cabinet”, a more restricted forum. This body, in turn, has unofficially empowered an even smaller committee, the “Eight”.

In 2009, the three leading ministers – Netanyahu, Barak and Lieberman – decided that the time had come to attack Iran. It was a momentous decision, but at the last moment Ashkenazi informed them that the military was not ready. The matter had to be postponed.

The next year, the three tried again. This time, the situation was more auspicious. The Chief of Staff informed them – though in rather grudging terms – that the military was ready. The Eight had to decide.

Four members were in favor. Two, both Likud members, were opposed. There remained two: Ya’alon and Steinitz. Netanyahu undertook to convince them. Both were his personal loyalists. Netanyahu spoke with each of them at length, and then put the operation to the vote.

To Barak’s uttermost surprise and disgust, at the crucial moment both these ministers voted against. In Barak’s language: “They just melted!”

Without a majority – four against four – there was no decision. The world-shaking event did not happen.

A year later, the subject was brought up again. But this time there was another obstacle: joint maneuvers of the Israeli and US armies were in progress. In such a situation, an attack was impossible, since it would have been blamed on the US.

Thus the opportunity passed. Diplomacy (an almost dirty word in Israel) took over.

TELLING THE story, Barak blamed the two melting weaklings, Ya’alon and Steinitz, as well as the army high command, for this chain of events. For him, it was a demonstration of what amounted to cowardice in the face of the enemy.

A furious debate broke out in Israel. As usual in our country, it centered on secondary details, so as to avoid the main ones.

Point No. 1: How could these super-secret stories be published at all? We have in Israel a very strict military censorship. Breaking its rules can land one in prison. Yet all those involved in this publication asserted that the censors allowed it.

How? Why? Details of the innermost workings of the army high command and the most secret cabinet deliberations?

Point No. 2: Was Netanyahu really totally committed to the attack? Did he really put the maximum pressure on his two most devoted ministers to get them to vote the right way?

Netanyahu has practically staked his whole political career on the Iran bomb. He has declared many times that the very existence of Israel is involved. How could he allow the private considerations – moral or otherwise – of two ministers he probably does not respect very much to endanger the very existence of the nation?

I have a lurking suspicion that Netanyahu had his own secret doubts about the operation, and was unconsciously rather relieved that it was obstructed by his underlings.

BUT THE real questions are far more consequential. If the two ministers had not “melted”, what would have happened?

To my mind, a catastrophe.

If the army (which in Israel includes the Air Force) had such profound misgivings, they probably had good reason. To do the job, the airplanes had to get there, locate, hit and destroy the various dispersed underground nuclear installations and come safely back. Not an easy task.

We assume that we have an excellent Air Force, as well as excellent intelligence agencies. But even so, it would have been a very risky thing to do.

How do you get there? It’s either the long way all around the Arabian peninsula to the Persian Gulf, or the straight way over Jordan or Syria and Iraq, or from the sea through Turkey and perhaps the former Soviet republics. All this without being detected by Iran and its allies.

Once near your targets, you have to locate the exact underground installations and destroy them, while being subject to intense anti-aircraft missile and artillery fire. If there are casualties, what do you do? Just leave them there?

And the way back may be even more difficult than the way there.

AND THAT is only the military side, the one that obviously worried Ashkenazi and his officers.

What about the political consequences?

Iran would certainly have blamed the US and its Arab allies. The first response would have been the blocking of the Hormuz Strait, the narrow waterway through which almost all the oil of Saudi Arabia, the other Gulf States, Iraq and Iran flows. The effect on the world economy would have been disastrous, with the price of oil skyrocketing beyond imagination.

Rockets of all kinds and origins, launched by Iran, Hizbollah and Hamas, would have rained down on Israel. The lives of all of us would have been in extreme jeopardy. Since I live quite close to the army high command, in the center of Tel Aviv, I might not have been writing this.

The entire region, as well as the world economy, would have been thrown into chaos, with everybody blaming Israel. And that would have been only the beginning.

SO I am profoundly grateful to Ya’alon, Steinitz and Ashkenazi.

I am very sorry about what I have thought about you in the past, and now think the very opposite.

Thank you!

Speaking in New Orleans on the tenth anniversary of Hurricane Katrina, President Obama declared:

What started out as a natural disaster became a man-made one—a failure of government to look out for its own citizens.

He then, typically, dissembled the argument, pointing to a mish-mash of “economic inequality … a country that tolerated poverty.”

He should have stopped while he was ahead: Yes, Mr. President, the devastation of Hurricane Katrina was a failure of government—but it was the result of the active failure of government, not some vague, passive failure of omission.

As those of us with memories based in facts know, Hurricane Katrina itself left New Orleans relatively unscathed. Initially, everyone breathed a sigh of relief: Katrina had veered, had dissipated, the feared devastation had not occurred.

And then came the levee failures—more than 50 levees and flood walls built and maintained by the government failed:

The levee and flood wall failures caused flooding in 80% of New Orleans and all of St. Bernard Parish. Tens of billions of gallons of water spilled into vast areas of New Orleans, flooding over 100,000 homes and businesses. Responsibility for the design and construction of the levee system belongs to the United States Army Corps of Engineers; the responsibility of maintenance belongs to the local levee boards. [Emphasis added]

The disaster itself, then, was a direct result of government failure.

And then came the aftermath:

[T]he New Orleans mayor’s and Louisiana governor’s offices … both expressed frustration and helplessness, caused by having no plans for an emergency of this magnitude. The mayor’s office set up operations in the privately owned and operated Hyatt hotel, judged the safest base. They were equipped with old field-type phones that couldn’t be recharged. Both the governor and mayor claimed they were paralyzed by lack of communication, and pointed the finger at the feds’ failure to come to the rescue. The entire governmental response, from top to bottom, was beset by lack of leadership, action, and absolutely no coordination or communication between any two agencies. It had been immediately pointed out following 9/11 that much of that rescue effort was hindered and many of the deaths of firefighters and police were due to the inability of rescue agencies to communicate among and between themselves. Yet four years later, and despite billions of dollars distributed to and by the new Dept. of Homeland Security, the exact same systems were in place.

When one mayor in Louisiana called FEMA to get supplies, he was put on hold for 45 minutes. Eventually a bureaucrat promised to write a memo to his supervisor. Evacuees on a boat could not receive permission to dock along the Mississippi river. A sheriff was told he could only get the help he was seeking if he emailed his request—of course, his parish was flooded and without electricity.

School buses sat idle in parking lots—contrary to the City of New Orleans’ emergency plan that called to use such buses to evacuate residents to safety—not to the Superdome, which lay within the threatened area. Furthermore, the Superdome had been used as emergency shelter before, and there had been violence and civil disorder within it on those occasions. Yet no provision had been made to prevent the recurrence of such violence that had occurred before and worsened under the “hell-like” conditions following Katrina. The people in the Superdome were essentially held under house arrest, not allowed to leave or even go outside for fresh air. No provision was made to provide them food, water, sanitation, counseling, or even communicate to them what was happening and what they could expect. It’s little wonder that such desperate “Lord of the Flies” conditions led to a breakdown in civil society. It could have been a laboratory study in what happens when you treat people like cattle—only worse, because cattle owners feed and water their stock.

A group of 500 guests in French Quarter hotels pooled their resources to come up with $25,000 to charter buses to come and rescue them, subsidizing those without the means to contribute. They waited 48 hours for the buses whose arrival was said to be “imminent,” only to learn that the military had commandeered them as soon as they arrived in the city. Once kicked out of the hotels, “by orders,” they learned they would not be allowed in either of the two city shelters—the Convention Center and the Superdome—which had descended into humanitarian and health hellholes. Yet neither could they leave the city—those trying to leave the city on foot were turned back by armed police, “protecting” neighboring cities from fleeing evacuees. Only those with transport could leave, yet, as we’ve seen, transport was denied them.

Companies wanting to send in planes and helicopters to rescue their people were prohibited from doing so. One company contacted Louisiana Congressman Bobby Jindal’s office for help identifying who could grant them permission to send in a helicopter to rescue their stranded employees. Unable to find anyone at FEMA, the FAA or the military who would accept responsibility to grant permission, the congressman advised the company to just go ahead.

What is probably most inexcusable and has been kept relatively quiet is that the Red Cross and the Salvation Army were staged and ready to enter New Orleans with food, water and other emergency supplies. The roads to the Superdome and the Convention Center were open, and other areas of the city remained similarly accessible. But the Louisiana Dept. of Homeland Security denied them permission to go in, saying their presence would “prevent people from leaving.”

In the ultimate, horrible example of a bureaucratic Catch-22, the government kept people from leaving New Orleans, and the Dept. of Homeland Security would not let aid agencies in, saying having aid available in the city would create a magnet to keep people from leaving.

Never forget. Government failed. “Society” didn’t.

(EurActiv) — The risk that groups like Islamic State could smuggle militants into Europe under cover of a huge wave of migrants is much smaller than some politicians suggest, according to security specialists with close ties to governments and intelligence agencies.

By the end of July, more than a third of a million migrants and refugees had entered the European Union, mainly via Italy, Greece and Hungary, according to EU border agency Frontex. The flow has continued unabated through August.

Once inside the bloc’s borderless Schengen zone, the new arrivals – many from countries like Syria and Iraq where Islamic State holds sway over vast areas – are free to travel through 26 countries without restrictions or checks.

That has prompted anti-immigration parties such as Italy’s Northern League and Britain’s UKIP to issue dire warnings about the threat of infiltration.

Even NATO Secretary General Jens Stoltenberg told reporters in May: “Of course, one of the problems is that there might be foreign fighters. There might be terrorists also trying to hide… to blend in among the migrants.”

But such warnings meet with scepticism from security experts who point out that the flow of fighters has mainly been in the opposite direction, from Europe towards the Middle East.

“Islamic State has no need to export fighters to Europe because it imports fighters from Europe,” said Claude Moniquet, a former French intelligence agent who heads the European Strategic Intelligence and Security Center in Brussels.

“There are five to six thousand Europeans who are, or have been, in Syria, and others are leaving all the time. So it’s hard to see the advantage for Islamic State to export Syrians or Iraqis — people who speak Arabic, who know Iraq and Syria, and who they need over there.”

Returning Europeans

For European volunteers who have trained and fought in Iraq or Syria and want to return home undetected, the idea of hiding among large groups of migrants might seem to have some appeal.

But the risks are huge.

Nearly 3,600 people have died attempting to reach Italy, Greece and Spain by sea in the past 12 months, according to the International Organization for Migration – even before news on Thursday of another ship sinking off Libya and the discovery of 71 refugee corpses in a lorry in Austria.

Even those who survive the journey to Europe face appalling conditions en route and the prospect of detention and screening on arrival.

“It is a very cumbersome way for terrorists to come into the European Union. There’s a lot of easier ways to slip in”, such as by using forged papers or stolen passports, said Magnus Ranstorp, research director with the Center for Asymmetric Threat Studies at the Swedish National Defence College.

That said, there has been at least one reported case of a migrant being arrested on suspicion of terrorism.

In May, Italian police arrested a 22-year-old Moroccan man, Abdelmajid Touil, suspected by Tunisia of being part of a cell of Islamist militants behind an attack that killed 22 people at the Bardo museum in Tunis on 18 March.

Italian authorities say he arrived in Sicily a month before that, among a group of migrants who set off on a boat from Libya and were rescued by the Italian navy. Touil says he is innocent and is fighting extradition to Tunisia.

Lone wolves

There is another reason, security specialists say, why Islamic State needn’t fret too hard about smuggling people into Europe: there is no shortage of ‘lone wolf’ militants already in place. From Brussels and Paris to Copenhagen, deadly attacks have been committed since May last year by people living in Europe and able to travel freely across the continent.

A man accused by French prosecutors of “attempted murder with terrorist intent” aboard a high-speed train on 21 August was a Moroccan who had lived in at least five European countries, according to investigators, though they also suspect he may have travelled to Syria via Turkey this year.

“The volume of people in contact with Islamic State – not only the ones who’ve gone (to Iraq and Syria), but sympathisers who decide to act (in Europe) – that’s what’s keeping security services awake in Europe,” Ranstorp said.

According to Shiraz Maher, an expert on radicalisation at Kings College London, the idea of Islamic State exploiting the migrant crisis to spirit operatives into Europe is “not inconceivable”, but “there is an element of this being seized on in a populist fashion by politicians on the right”.

“There’s not an overriding need for them to send people right now,” he said. “That may well change over time.”

In the past century, religious freedom has been a key indicator of the state of democratic institutions in the Republic of Albania. What is the current situation in Albania?

First, the State’s official position on religious freedom is normally reflected in the constitution. The legal and policy framework of Albania is favorable to religious freedom. While the current constitution provides for freedom of religion, there are other laws and policies that have contributed to the generally free practice of religion in Albania. [1]

The 2009 International Religious Freedom report issued by the US Department of State made the following declaration about religious freedom in Albania:
The Constitution provides for freedom of religion, and other laws and policies contributed to the generally free practice of religion. The Government generally respected religious freedom in practice…The law at all levels protects this right in full against abuse, either by governmental or private actors. The Government is secular. [2] According to the Constitution, there is no official religion and all religions are equal; however, the predominant religious communities (Sunni Muslim, Bektashi, Orthodox, and Catholic) enjoy a greater degree of official recognition (e.g., national holidays) and social status based on their historical presence in the country. Official holidays include holy days from all four predominant faiths. [3]

The Hoxha Dictatorship: the darkest years in Albania’s history

The state of religious freedom in Albania today is totally different from the period during the Hoxha communist dictatorship. Enver Hoxha, soon after taking leadership of the Democratic Front in 1945, instituted drastic changes. Under the August 1945 Agrarian Reform Law, Albania’s arable land was redistributed to put an end to large land ownerships and to increase farm output. Properties of religious institutions were among those nationalized, and the holdings of monasteries, religious orders, dioceses and the like were limited to 20 hectares. Many of the clergy and religious followers were tortured and executed. In 1946, all foreign Roman Catholic clergy were expelled—a crippling blow for the numerous Catholic schools and welfare institutions in the country. [4]

The policy of the Hoxha dictatorship stems from Hoxha’s own views about religion.

He was violently anti-religious, and his announced goal was to make Albania an atheist state. It is for this reason that the communist period in Albania was more severe for the country’s religious institutions than most of the other eastern European and Balkan communist countries. [5]

The anti-religious period of the Hoxha dictatorship reached a high point with the 1976 Constitution. Article 55 banned “fascist, anti-democratic, religious, war-mongering, and anti-socialist activities and propaganda…as well as the incitement of national and racial hatred.”

The Hoxha nightmare, which did eventually end, was an anomaly in Albanian life. In previous periods as far back as the 19th century, Albania was known as a land of tolerance. While the 19th and early 20th centuries saw the Muslim noble class as the ruling elite of Albania, these periods were characterized by tolerance for other religious groups. Even after five centuries of Ottoman rule, under which 70 percent of the Albanian population converted to Islam, there was still tolerance of other faiths and beliefs. The various Albanian constitutions before the Hoxha dictatorship all declared that Albania had no official religion, indicated that religions were respected and stated that all Albanians had the right to choose their religious preference or to eschew religious affiliation if they wished. These were the true feelings of the Albanian people, and these feelings and beliefs—along with religious pragmatism—were an intrinsic part of Albanian culture. [6]

The Situation in Albania Today

Once the brutal dictatorship of Enver Hoxha ended, Albania returned to its long, solid tradition of religious tolerance. Today, religious institutions play a major role in the field of education. Prime Minister Edi Rama has been head of the government since September 2013 and a key figure in Albanian political life since the fall of the communist government. He has been a steady and reliable friend of the United States and South East Asian major economies. In my conversations with Mr. Edi Rama, it is evident that he is sensitive to the Albanian tradition of religious freedom and tolerance.

Schools

The Ministry of Education in Albania affirms that public schools are secular, and that ideological and religious indoctrination in public schools is prohibited by law. Of the more than 100 educational institutions affiliated with associations or foundations, 15 are religiously-affiliated. [7]

By law the religiously-affiliated schools must be licensed by the Ministry of Education, and curricula are required to comply with national education standards. Numerous state-licensed schools are overseen by Catholic and Muslim groups, which have not had any problems in obtaining licenses for new schools. The strong cultural factor of tolerance is present in the school system of Albania.

Albania and Kosovo

Albania is also setting a very good example for Kosovo, its recently independent neighbor. The challenge in Kosovo for religious freedom may be even greater because of the background of alienation between the Albanian and Serb communities. The Albanian leadership has been a significant force in promoting tolerance in neighboring Kosovo, another predominately Islamic nation.

“The Religion of Albania is Albanianism”

In light of current US policy that calls for the deepening of the dialogue with predominantly Muslim countries, it is fortunate that on the shores of the Adriatic, within the heart of Europe, there is a country where 70 percent of the people subscribe to the Islamic faith and the two predominant Christian faiths—Orthodox Christian and Roman Catholic, constituting 20 and 10 percent of the population respectively—have total freedom. [8] It is also a fact that this is not a recent phenomenon, but as Pashko Vasa, a XIX century Albanian intellectual, independence movement leader and writer, said, “The religion of Albania is Albanianism.” This historic and intrinsic aspect of the Albanian culture serves as an example of religious freedom for other predominantly Muslim countries. It is a major reason for the positive bilateral relationship between the United States and Albania.

In my multiple visits to Albania over the past decades, and during my childhood years, the main cultural characteristic that has always been apparent in this religiously pluralistic state is tolerance. Albanians of the three major religions live in harmony with each other. Pope John Paul II visited Albania on April 25, 1993, and consideration is being given to the establishment of a Catholic university in Albania. As the world community enters the second decade of the third millennium, Albania receives high marks for its commitment to religious freedom and tolerance.

Tolerance is part of the Albanian heritage. The Hoxha dictatorship was a cruel exception. The transition from extreme communist dictatorship in the late 1980s and early 1990s to democracy was difficult, but now democratic traditions have been re-established. With the end of Hoxha’s dictatorship, the Albanian tradition of tolerance soon reemerged as an important factor in the civic and cultural life of the country. Albania shows that religious freedom and Islamic values not only can co-exist, but also can flourish together.

Albania: A New Beginning

Albania’s new Prime Minister Edi Rama, is determined to eliminate corruption in his country and gain the respect of the international community. He realized that the international community was concerned about a persistent corruption; illegal drug smuggling and human trafficking that have plagued Albania since the end of almost 50 years of Communist rule. The Communist government of Enver Hoxha was regarded as the most extreme Communist government in the Post-World War II period. [9]

The legacy of the past is a major handicap for Albania. The post-Communist government was faced with the reality that Albania, for centuries, was one of the poorest countries in Europe.

In the elections of 2013, the Socialist Party of Albania led by Edi Rama campaigned for significant change: reducing corruption and crime, while downsizing the government. His campaign focused on the theme that life should and could be improved. International observers declared the elections to be free and the best elections held so far in the history of democracy in Albania. The current government of Albania has one of the highest numbers of women as members of the cabinet of ministers.

After almost two years in office, there are signs of a “new beginning” in Albania. One such signal is the high caliber of senior officials that are serving in the new government. A good example is Ditmir Bushati, a former Chairman of the Committee on European Integration in the National Assembly of Albania. I met with him in Tirana last year. There is no question about his competence in international affairs. His main focus now is to achieve Albania’s goal of becoming a member of the European Union and fully integrated into the European Institutions as well as Strengthen Tirana’s relations with the countries of the Caspian region, particularly with the Republic of Azerbaijan, Republic of Turkey and People’s Republic of China.

In 2006 I also met with the Minister of Foreign Affairs of Albania, Former Ambassador to Portugal and France, Mr. Besnik Mustafaj, shortly after the United States government announced on April 2, 2006, that it had awarded a $13.85 million grant to Albania. The grant would fund a program to reduce corruption through reforms in tax administration, public procurement and business registration. In doing this, the US government indicated that the previous government of Sali Berisha is serious about tackling corruption. [10] On the occasion of this official visit, I had the honor to accompany the Albanian Foreign Minister in his official meetings with Congressman Tom Lantos and Congressman Earl Pomeroy in the US House of Representatives. Later on Mr. Mustafaj was warmly welcomed by Congressman Dana Rohrabacher, who was a former Speech writer and Assistant Press Secretary in the Presidential Campaigns of Ronald Reagan in 1976 and 1980. Mr. Rohrabacher announced the presence of Mr. Mustafaj in Washington, during a special hearing session with Former Secretary of State Condoleezza Rice in Rayburn House Office Building.

However, the Minister at that time was quite open with me in discussing the challenge of reducing corruption since it is closely tied to nepotism. Granting preference to one’s relations is not unique to Albania. But the countries of Europe and North America, for the most part, have been able to modify this cultural tradition. The current Edi Rama Government is perceived positively by the international community and is receiving tremendous assistance by United States, Germany, Austria, Italy and other influential countries of European Union.

The Country

Situated in southeastern Europe, about the size of Maryland, Albania is at the edge of the West Balkans. Approximately 3.5 million people are of Albanian ethnic background. The Greek population numbers three to five percent. There is greater diversity in religion; Muslims constitute around 70 percent of the population, Albanian Orthodox is 20 percent and Roman Catholics number around ten percent.

History has had a significant impact on contemporary Albania. In some ways, Albania was looked upon negatively by the Western European establishment. This negative image was aggravated by the dictatorship of Enver Hoxha, regarded by many as the most brutal of the post-World War II dictators.

Albania has never received credit in the post-Communist era for its commitment and practice of religious freedom. This is most likely rooted in the pre-Communist period of Albania. The culture of this predominantly Muslim country was always tolerant of other religions. The only non-tolerant period before the Communist era was during World War II when Albania was occupied by the Axis fascists.

An anti-Albanian bias still exists. The cultural divide between the Albanian-Muslim culture and Western Europe resulted in various cultural images that did not (and still do not) favor the Albanians.

But this attitude is changing. The increased pressure of the United States—through diplomacy, the US Agency for International Development and the U.S. Peace Corps—and Albania’s growing rapport with Croatia and Macedonia through the Adriatic Charter are all indications of a changing attitude.

The strong support that Albania gave to neighboring Montenegro as it moved toward independence is also a good sign that a relationship based on mutual respect is developing. In my discussions with leaders from Croatia and Montenegro, it was very apparent that they wanted strong bilateral ties with Albania.

The Challenges

The Edi Rama government faces many challenges. In more than twenty five years after the end of Communist dictatorship, Albania has gone through several difficult periods of adjustment. The core challenges remain: unemployment, a crime network that, in some instances, is interwoven with cultural traditions and a lack of unity on the resolution of core problems. [11]

The “breath of fresh air” from Edi Rama and his government is generating new enthusiasm for Albanians to push their country to a new level. However, the opposition seems unable to recognize that there are key national issues that should be addressed by working together with the government. The goal should be a bipartisan approach to finding solutions for the significant core challenges of Albania.

This is an area of interest where Western European, Indonesian and South East Asian Advisors could assist. [12] In the United States, one speaks of bipartisan support. This occurs on issues of national interest that merit bipartisan support.

Albania needs assistance to establish a tradition wherein all political parties agree to work together and come to consensus on solutions. Albania cannot afford excessive internal bickering.

Concluding Observations

There is no question that Albania has had a rocky transition from Communism to democracy. From 1992-2015, there have been six governments. Substantial progress is being made to elevate Albania to the next level, i.e. a democracy that offers its people hope for the future.

Edi Rama, the Prime Minister, is completing his first two years as the head of government. He has selected leaders with very good reputations to work with him.

The United States and the European countries should assist Albania, a genuine example of such support is the one demonstrated by Austria, to identify other assets which can help to transform the country to a new level of prosperity. [13]

The Western community, having ignored Albania for so many decades, should reject its past policies, which never recognized the potential of this country on the Adriatic.

Given the “new beginning” of Prime Minister Rama, the time is ripe for the West to cooperate with Albania to transform the country into a land of opportunity.

Sources:
[1] http://www.state.gov/j/drl/rls/irf/2010_5/168289.htm
[2] http://www.economist.com/blogs/easternapproaches/2010/07/correspondents_diary_0
[3] http://www.unhcr.org/refworld/country,,,,ALB,,502105e2c,0.html
[4] http://www.opendemocracy.net/bernd-fischer/albania-and-enver-hoxhas-legacy
[5] “A stable ecumenical model? How religion might become a political issue in Albania” Tonin Gjuraj. East European Quarterly. 34. 1 (Spring 2000): 21-49.
[6] A stable ecumenical model? How religion might become a political issue in Albania
Tonin Gjuraj. East European Quarterly;34. 1
[7] Bureau of Democracy, Human Rights and Labor, United States Department of State. “International Religious Freedom Report,” 2009.
[8] Percentages are based on estimates as provided in the World Factbook, 2010.
[9] http://countrystudies.us/albania/37.htm
[10] http://www.setimes.com/cocoon/setimes/xhtml/en_GB/features/setimes/features/2011/07/21/feature-03
[11] http://thehill.com/blogs/global-affairs/guest-commentary/230631-albanian-prime-minister-sali-berisha-the-challenge-of-never-again-requires-individual-conscience-and-collective-action
[12] http://www.vlada.cz/en/media-centrum/aktualne/albania-attracting-czech-investors-and-tourists-94996/
[13] http://www.diplonews.com/feeds/free/18_June_2012_139.php

President Maithripala Sirisena stressed Friday the necessity for a national plan and policy to take the country’s construction sector, which is a major contributor the economy, to international level.

Sirisena said a national plan should be formulated with the cooperation between the state and private sector and extended an open invitation to the private sector in this regard.

The President made this observation while participating in the Construct 2015 exhibition at the BMICH.

The three-day construction industry exhibition, organized by the National Construction Association of Sri Lanka provides knowledge and education regarding the construction industry and equipment available in this industry.

Speaking at the occasion, President Sirisena said even though today’s construction industry has been completely enriched with modern technology, when that knowledge is utilized in the local field of construction, it should be combined with the expertise Sri Lanka developed in ancient times.

“What we learn from historical chronicles about great creations like Lovamahapaya have been proved during excavations and during ancient times Sri Lankan construction industry had a great name that no other country had in the world,” he noted.

Recalling that Sri Lanka’s history of using iron goes back to the period Before Christ (BC) and the history of irrigation in Sri Lanka reveals that ancient kings had built more than 34, 000 tanks for irrigation, the President said that centuries old Sri Lankan expertise in construction sector should be taken to international level.

When the National Construction Association pointed out the issue of inadequacy of skilled workers, the President asked them to submit a proposal to solve this issue. He said the government will then look into the issue and find a solution.

According to the consultants and contractors Sri Lanka’s construction industry faces many significant problems in areas including financial, government policies, technology, management and coordination, R&D, resource, safety, training and development social and skill levels.

Around 200 bodies have been extracted so far from the Mediterranean Sea on Friday, after two boats carrying migrants capsized off the Libyan coastal town of Zuwara, an official from the Libyan coastguard told dpa.

“We have been trying to count the final number of dead bodies; and I think they have exceeded 200 by now,” the official said about the accidents, which occurred the previous day.

“We have pulled out many new bodies early in the morning and others have been thrown by the sea onto the shore as well, including children,” he added.

The Malta-based non-profit group Migrant Report had earlier said young children, aged 1 to 3, were among the dead.

“It’s a total chaos,” an official in Zuwara was quoted by Migrant Report as saying. “We hardly have the resources to deal with a small rescue, let alone this.”

The bodies taken to hospital were of migrants from Syria, Bangladesh and African nations, local Akhbar Libya 24 reported.

The first boat, carrying about 50 people, signalled for help Thursday. The second one was carrying around 400 passengers when it sank later. The Italian Coastguard, which coordinates rescue efforts off Libya, said it had received no emergency call.

“We are still waiting for more details, but we have learned there were 400 migrants on one of two boats; 100 have already been rescued – nine of them women, and two girls,” International Organization for Migration (IOM) mission chief for Libya, Othman Belbeisi, said.

Belbeisi said the Libyan authorities were “expecting to receive another 150 survivors today. The rest of the people are still missing in the sea.”

This is the latest in a series of disasters involving migrants, many of them refugees fleeing persecution and conflict, attempting to reach Europe from North Africa.

On Wednesday, 17 migrants drowned after their boat capsized off the same coast. The Italian Coastguard said 20 people, most of them from Nigeria and Ghana, were saved.

The same day, about 30 bodies were recovered from the hull of a boat carrying about 400 migrants intercepted 50 kilometres north of Libya, the Italian Coastguard said. The victims were apparently asphyxiated by engine fumes.

Over 2,900 migrants were rescued off Sicily, also on Wednesday, IOM said.

Hundreds of locals took to the streets of Zwuara town on Thursday night, protesting about the gangs who use their shores to smuggle migrants.

“We are fed up, and at the same time we cannot face armed militias who control everything in the absence of a governmental authority,” a resident from Zuwara said.

Libya was thrown into chaos after the 2011 revolution which ousted former strongman Moamer al-Gaddafi.

More than 2,500 migrants have died trying to cross the sea to Europe so far this year, UNHCR spokeswoman Melissa Fleming said in Geneva, adding that 310,000 refugees have successfully crossed the Mediterranean in the same period, 200,000 of them to Greece and 110,000 to Italy.

The total number of refugees making it across the Mediterranean in the whole of 2014 was 219,000, Fleming said.

Unprecedented numbers of refugees are braving the crossing as they flee war, persecution and poverty in the Middle East, Africa and Asia.

EU military vessels and planes are monitoring the Mediterranean Sea to gather information on migrant smuggling networks with a view to ultimately dismantling their trade and curbing the loss of life at sea.

The bloc’s foreign policy chief, Federica Mogherini, proposed Thursday in Vienna that the mission, launched in June, should now be expanded to the search and possible seizure of suspicious vessels on high seas.

Such a move requires the approval of EU member states.

However, critics argued that little would change unless the European Union has a mandate to operate closer to the Libyan border because smugglers have long been sending migrants to sea unaccompanied.

Original article

Protesters are back on the streets of Guatemala demanding the resignation of President Otto Pérez Molina – with up to 100-thousand just on PLaza de la Constitución in the capital. Also the Contraloría General de la Nación (CNG, Court of Auditors) has joined the attorney general’s office in demanding the resignation of the Head of State, apparently implicated in the customs corruption scandal – a case known as “La Línea” – a scheme involving businessmen, officials and privates, who paid kickbacks to evade taxes, that is believed to have defrauded the state of millions of dollars.

In a statement, the court orders the retired General to “immediately hand in his resignation to avoid any further incidents with unpredictable consequences”. The attorney general’s office had motivated the demand with the need to avoid “ungovernability”.

President Pérez Molina is suspected to be among the ringleaders of the corruption scheme, involving his former vice-president Roxana Baldetti, who was arrested and is being detained pending a court decision on her responsibility.

The fate of the President lays in the hands of a special committee set up by Congress, dominated by the government majority, to decide whether or not to begin the complex impeachment procedure, starting with the revocation of his immunity. The committee was set up yesterday and includes Mario Linares and Gloria Sánchez of the President’s Partido Patriota, (PP); Jorge Mario Barrios Falla and Sergio Celis of the conservative Libertad Democrática Renovada (Líder); and Nineth Montenegro of the Encuentro por Guatemala, who is in fact the only opposition member. Nineth Montenegro denounced the total disinterest of the other members of the panel to examine the report on Pérez Molina to establish the possibility of his implication in the case. No meetings or deadlines have been set so far for the committee, as the September 6 general elections approach.

Meanwhile, the President’s son, Otto Fernando Pérez Leal, mayor of Mixco, lost his immunity to allow an investigation for misappropriation of funds and mismanagement of his functions.

Reports of the last hours also indicate that former Interior minister Héctor Mauricio López Bonilla, ‘loyalist’ of Pérez Molina, and ex Defence minister Manuel Augusto López Ambrosio, both under investigation for corruption, landed yesterday and the day before in Panama. The reasons for their travel are currently unknown.

A total of 94,390 people, most of them Saudis, aged 15 to 59, are jobless because of their unwillingness to work, according to an online newspaper quoting the Central Department of Statistics and Information.

Among them, 65.2 percent are Saudis and 72.7 percent women.

The CDSI report, which covers the work force, the number of workers and people without jobs in the first half of 2015, said these people are capable of working and not old, nor are they handicapped, sick, studying or receiving training in any school, university or other educational institution.

Mohammad Al-Khunaizi, member of the Human Resources Committee of the Shoura Council, said there were a number of reasons behind unwillingness to work.

He said those who are not working actually do not need work as they have sufficient financial resources from their families, either directly or from properties that give them enough income. The social culture in which they are brought up tells them that money is the only attraction for work and not a social responsibility for the development of the country.

Al-Khunaizi said these families provided lots of gifts and other things to their employable youths without giving them any responsibility, or without tying gifts to achievements. This is contrary to the Western system wherein families train their children to earn the claim on wealth by showing achievements in life.

Engineer Mansoor Al-Shathri, head of the job market committee of the chambers’ council, also said that most of those who do not want to work come from rich backgrounds. “Their families have sufficient financial resources.”

He said that foreigners unwilling to work create a security and economic threat. Some of them indulge in theft, dug pedaling and panhandling for money.

Regarding Saudi women’s unwillingness to work, Al-Khunaizi said there are several reasons for this including incomes from their guardians. The workplace environment does not suit many families.

Sometime, due to high cost of transportation, it is not financially feasible for women to work. Some women have no one to take care of their children due to lack of trust in housemaids and the non-availability of nurseries near their workplaces.

In addition, as per the rules of Ministry of Labor, dependents of expatriate workers are not allowed to work.

The Pacific Northwest is abundantly dotted with wildfires in Washington, Oregon, Idaho and Montana. There are over 27 fires listed in the Inciweb database for the state of Washington. The largest active fire listed is the Okanogan Complex Fire which is currently at 256,567 acres and has 1,250 personnel working the fire. This fire began as a lightning strike on August 15, 2015. It is only 10% contained at present.

Washington Governor Inslee’s request for a federal Emergency Declaration to provide additional resources to cover some of the costs related to multiple wildfires burning in eastern Washington state was approved by President Obama’s administration recently. Washington state has lost the most this firefighting season with the deaths of three U.S. Forest Service firefighters on August 19 as they were battling the Okanogan Complex Fire.

Idaho is also feeling the heat with over 40 active fires listed in the Inciweb database. The largest fire, the Soda Fire, is actually 100% contained, but the fire has affected 283,686 acres. Crews continue to patrol the fire lines and look for hot spots. Patrol progress has been good and very little if any smoking areas have been found. Firefighters have also rehabilitated nearly 40 miles of firelines constructed by the front blade of a bulldozer, with another 60 miles to go.

Montana hasn’t been spared the wildfire plague but currently there are “only” 26 fires listed with the largest being Bear Creek Fire at 20,460 acres. This fire began on August 12. It’s origins are unknown. On Thursday, August 20th strong winds, high temperatures, and low relative humidity caused the Bear Fire to drastically increase in size from 465 acres to over 17,000 acres in less than 4 hours. However, with daily smoke inversion (smoke being held down by cooler, higher air layers), fire behavior has slowed and minimal increase in the fire size has been observed.

In Oregon, it’s much the same story with 19 ongoing fires torching parts of the state. The largest of these as listed in Inciweb is the Cornet-Windy Ridge Fire which has affected 103,887 since it began on August 10, 2015 with a lightning strike. This fire is currently 80% contained. The fire size remains unchanged as firefighters continue to douse hot spots within their respective perimeters.

The natural-color satellite image above was collected by the Moderate Resolution Imaging Spectroradiometer (MODIS) aboard the Aqua satellite on August 25, 2015. Actively burning areas, detected by MODIS’s thermal bands, are outlined in red.

Hopes are dissipating for an accord between the warring sides in Libya, after the delegation head of the General National Congress (GNC, Tripoli parliament not internationally recognized), stepped down from his role just hours ahead of another round of talks set for today in Morocco.

Salah Makzhoum gave no explanation for his decision, and resigned also as deputy speaker of the parliament.

The GNC and Islamists of the Libya Dawn coalition, which controls Tripoli since August 2014, did not sign a deal for the formation of a national unity government signed on July 12 in Skhirat, in Morocco, by their former Misrata allies that foresees the inclusive administration for a year, headed by a premier and two deputies, but only with one legislative body, the internationally recognized Tobruk parliament.

It remains unclear whether today’s meeting – under the aegis of the UN envoy Bernardino Leon – is still confirmed.

A series of recent mass protests in several Arab countries have called into question suggestions that civil wars, brutal crackdowns and military coups and interventions have quelled popular willingness to stand up for rights in the Middle East. The protests, although focussed on specific social and economic demands, fundamentally have the same objectives as popular revolts four years ago that toppled four autocrats: dignity, social justice and greater freedoms.

The civil wars in Libya and Syria, Saudi military intervention in Bahrain and Yemen, the Gulf-backed military coup in Egypt, and the rise of the Islamic State seemingly put hopes for a democratic transition in the Middle East and North Africa to bed. The struggle against jihadist extremism and populations cowed by the violence and the brutality that counterrevolutionary forces were willing to employ had buried any chance of renewed civic protest.

Protesters in Lebanon, Iraq and Egypt are voting down that notion with their feet. Lebanon’s protest slogan, ‘You Stink,’ refers to much more than the piling up of garbage on the streets of Beirut and a government that can’t even put an efficient waste management system in place. It refers to a mainstay of governance across the Middle East and North Africa that is characterized by systemic corruption, a total lack of transparency and accountability, and a willingness to brutally suppress dissent.

The Lebanese protests go even further. They constitute evidence that sectarian divides between Sunni and Shiite Muslims, often at the expense of non-Muslim minorities, are artificially manufactured by autocrats ruthless in their effort to ensure survival of their regimes. Members of the 18 sects that make up the Lebanese mosaic suffer equally from the penchant smell of uncollected garbage and associated health hazards.

The initial heavy handed Lebanese security force response to the protests suggested that Arab leaders had learnt little from the experience of 2011. Police brutality egged on by suspected provocateurs among the demonstrators fuelled the protests much like what happened in Bahrain four years ago and what helped transform a popular revolt in Syria into a brutal civil war. Lebanese with memories of a bloody civil war that wracked their country from 1975 to 1990 are steadfast in their demands but determined to ensure that their protests do not get out of hand.

In a similar vein, hundreds of thousands of Iraqis have spilled in recent weeks into the streets of Baghdad and southern cities like Basra every Friday to protest corruption and demand an improvement in basic public services. Sunnis and Shiites are among the protesters in a country that has been at war for much of the 12 years since the US toppling of Saddam Hussein in 2003, been shaped by sectarian politics since, seen its minorities brutalized and forced to leave, and has lost significant territory to the Islamic State that represents the most brutal expression of sectarian hatred. Protesters chanted “Sectarianism is dead” and “They are stealing from us in the name of religion!”

Much like the self-immolation of Tunisian street vendor Tarek al-Tayeb Mohamed Bouazizi in December 2010 sparked the Arab revolts that toppled the leaders of Tunisia, Egypt, Libya and Yemen, the Iraqi protests were fuelled by the killing by security forces in July in Basra of a young protester, Muntather Al-Halfi.

“We are tired of the conditions that we are forced to endure in Iraq. Politicians have no understanding of the daily struggles people face. Some high-ranking officials…are protected by their privileged status and they don’t care about our situation… Our fundamental rights to essentials such as education, health, housing, work, food, access to potable water and electricity have been compromised since Saddam Hussein’s regime fell 12 years ago,” Iraqi artist Nibras Hashim told an online news service.

“Politicians made them believe that all this was due to religious divisions. These protests are a political awakening, a revival of people’s consciousness. It’s also a symbol of unity: during the demonstrations, we march together, both those who are secular and religious, Sunni or Shiite. Together, we form one body with no particular group coming out on top,” Hashim went on to say.

Unlike Lebanon and Iraq, Egypt is a far more homogeneous society with a Coptic minority that has largely been supportive of the repressive regime of general-turned-president Abdel Fattah Al Sisi. Nonetheless, militant soccer fans and students have staged 807 anti-government protests between October of last year and June of this year, according to Democracy Index.

Mortada Mansour, the controversial larger-than-life president of storied Cairo club Al Zamalek SC said this week that members of the Ultras White Knights, the militant fans of the club, would be arrested on their return from Tunisia for shouting insulting chants against the Egyptian military and policy as well as him during a match in Tunis. “The names of those who insulted President Al Sisi, the army and police are now with airport security who are waiting for their return,” Mansour said

That makes it even more startling that the fans’ and students’ nemesis, the feared and despised police force, has joined the fray. Security forces were called in to squash protests in defiance of Egypt’s draconic anti-protest laws by low-rank police officers in several Egyptian governorates, including Cairo, in demand of demanding better employment benefits and bonus payments.

Separately, tax authority employees demonstrated against the introduction of a new civil service law designed to streamline Egypt’s unwieldly bureaucracy.

The Interior Ministry accused the policemen, the bottom of the heap of the 1.7 million strong Egyptian security forces, of being supporters of the outlawed Muslim Brotherhood, who’s democratically elected President Mohammed Morsi was removed by Mr. Al Sisi from office, of endangering Egyptian security at a time that the country was confronting a jihadist insurgency.

Leaders in Lebanon and Iraq have responded in more conciliatory terms. Iraqi Prime Minister Haidar al Abadi promised to root out corruption and streamline his government. Lebanon’s cabinet put its paralysis on full display when met it this week to discuss the crisis. Rather than announcing immediate steps to rid Beirut of its garbage it referred the issue to a ministerial committee.

The renewed protests may not immediately topple regimes like they did in 2011 but they do reflect fundamental change in the Middle East and North Africa with anger and frustration over corruption and incompetent and repressive government bubbling at the surface. They also suggest that the largely short-lived success of the 2011 revolts has not extinguished a deep-seated desire for change and a willingness to take to the streets.

The power of the protests is reflected in the fact that major political figures and groups including Lebanon’s Hezbollah and the Hariri movement, Iraqi Shiite leader Grand Ayatollah Al-Sayyid Ali Al-Husseini Al-Sistani and Iraqi Shiite militias have either declared their support or joined the demonstrations. The wide support is both an asset and a liability with established groups linked to government likely to want manipulate the protests to serve their political purpose.

Moreover, like most protest movements, demonstrators in Lebanon and Iraq agree on what they don’t want: continued corruption and government that is unable to provide public goods and services. Their Achilles Heel is that views run the gamut on how their goals can be achieved and what system of government will ensure that. The protesters further lack the political experience and organization to effectively influence powerful political groupings that have their own agendas and governments who embrace their demands with varying degrees of sincerity.

Nonetheless, the message the protesters are sending is addressed not only to the region’s rulers. It is also addressed to their international backers. The peaceful protests and extremist jihadism are two sides of the same coin: they are expressions of deep-seated discontent among restless populations that no longer are willing to subject themselves to inefficient, corrupt and arbitrary rule. The likes of the Islamic State can only be truly defeated if as much effort is invested in addressing the region’s political and social governance issues as is put into military campaigns and repression.

By Dr. S. Chandrasekharan

I had always maintained that without solving the contentious issue of the delineation of provinces, the drafting of the new constitution cannot be completed. This was the most serious issue affecting the Madhesi and the Janajathi groups and some solution should have been found before the final draft copy was handed over to the Speaker.

But the brazen way in which the three main political parties- the Nepali Congress and the Maoists went their way with the six province formula was rather surprising and it inevitably led to protests and violence from the Terai from 8th of August onwards.

What made it worse was the addition of a seventh province to satisfy the Karnali region which led to the departure of the only Madhesi group – Madhesi Janadhikar Forum ( democratic) of Gachhadar who had all along gone with the mainstream group despite inviting the wrath from their own constituents, from the constitution making process. With Sadhbhavana party following Gacchadar’s exit, there is now left no Madhesi vote in the Constituent assembly in finalising the constitution. This is a serious flaw affecting the credibility of the new constitution that is supposed to have consolidated the gains made in the 2006 Jana Andolan agitation and 2007 Madhesi movement.

Violence has been widespread following hartals, stoppage of traffic and closure of shops with the Police opening fire at many points. Many civilian deaths have occurred.

The most critical incident was at Tikapur in Kalilali district where seven Police men including the Senior Superintendent were lynched on 24th August. Five more Policemen were critically injured of whom one succumbed to the injuries subsequently.

It is not clear how an unarmed Superintendent and two of his guards were isolated and how they could have approached the mob of thousands holding knives and sticks without waiting to get support of other armed police groups from nearby. This lack of coordination among the Police and resultant deaths that would demoralise the Police could have been avoided. Tikapur as well as other neighbouring villages are now desolate with all the young and old having fled the area for fear of reprisal. It is hoped that the perpetrators of the killings are brought to justice soon.

Instead of addressing the grievances and the reasons for violence, Home Minister Bam Dev Gautam in an apparent reference to India had alleged “foreign conspiracy” in instigating violence. He also alleged that intruders from outside have entered many of the Terai districts.

The Home Minister’s statement was most inappropriate and rightly the Indian ambassador while reserving his comments met the Home Minster personally to convey his concern that the statement of the Home Minister was not helpful for Indo Nepal relations.

The Prime Minister of India, soon after the Tikapur incident is said to have had a telephonic talk with the Nepalese Prime minister Sushil Koirala to discuss the latest political developments in Nepal.

In the wake of the inappropriate comments from the Home Minister, should PM Narendra Modi have telephoned Nepalese PM at all? With the agitation centered mainly in the Terai districts where the Madhesis predominate any action or statement from the Indian side will be misunderstood.

Earlier Prime Minister Modi, during his visit to Kathmandu in addressing the Parliament maintained that India will not interfere and that Nepal should find its own solution for all the problems faced by it. This stand was universally applauded by all the political parties including the Maoists in Nepal. However in a subsequent visit he made a reference to the constitution making process and suggested that the new draft should be inclusive. This nullified whatever good will that was generated in the previous visit and the feeling gained in Kathmandu was that India wanted the demands and the aspirations of the Madhesi groups should be accommodated in the new constitution. The present call from the Indian PM will not be liked by many in the establishment. One does not know who in the PMO is advising the PM on matters relating to Nepal.

What needs to be done now is clear. There is a need to talk and the Prime Minister Sushil Koirala should reach out to the Madhesi leaders to desist from agitating and come to Kathmandu for talks. If there is going to be delay in finalization of the new constitution, it will not matter.

The Madhesi leaders instead of making “fiery and provocative” speeches should allow a pause in the agitation and seek a dialogue with the leaders of the three mainstream political parties. It does not matter whether there should be one or two provinces in the Madhesh and they should therefore formally give up the demand for one province for the entire Madhesh area. The Tharus will also be happy with a second one covering the western half of the southern districts.

On the question of the five disputed districts of Jhapa, Morang, Sunsari, Kanchanpur and Kailali, instead of going for a federal commission which apparently appears to be an “Indian suggestion” why not ascertain the views of the voters of the five districts directly by some form of a referendum?”

On the gender discrimination and citizenship rights, it is not clear why at all, a change was being suggested when the provisions in the interim constitution were adequate. Perhaps a status quo will be more acceptable.

The only other important point that is being contested is in declaring Nepal as a secular state. While the Maoists are insisting on a specific mention of “secularism” why not consider the suggestions of some others where freedom of religion could be embedded into the constitution?

It is time that normalcy is restored as soon as possible. With the blockade of transport to Kathmandu Valley, the situation in Kathmandu could become critical. The three major parties particularly the UML should give up their rigid and brazen attitude towards constitution making and at the same time, the Terai groups particularly- Upendra Yadav should become more conciliatory and be ready for a compromise for the well being of whole of Nepal.

In another effort to get attention off of her email server debacle and on to her campaigning in the politically important state of Ohio on Thursday, Hillary Clinton compared Republican candidates to extremist terrorist groups. Many intelligence and law enforcement officers believe this is an intentionally-created controversy in order to take some of the wind out of the sails of a letter sent to Secretary of State John Kerry about Clinton’s slipshod treatment of national secrets during her tenure in the Obama administration.

While many lawmakers on both sides of the aisle indicated she may have gone too far in using Islamic terrorism to make her point, the news media gave Clinton a pass on her over-the-top remarks. “Extreme views about women — we expect that from some of the terrorist groups. We expect that from people who don’t want to live in the modern world. But it’s a little hard to take coming from Republicans who want to be the president of the United States,” Clinton said.

Regardless of Clinton’s campaigning and her vitriolic remarks, GOP Senator Chuck Grassley, Chairman of the Senate Judiciary Committee, has increased the intensity of his own battle with Clinton and her minions over his attempts to learn how top secret classified information was allowed to be transferred on insecure communication lines. He also claims the possession of this classified material on improperly secured storage devices, whether it be Hillary Clinton’s home Internet server, servers owned by the Colorado firm that installed her home system, and so-called thumb drives she turned over to her attorney, David Kendell.

According to a statement on Tuesday, Grassley had written in a letter to Secretary of State John Kerry, “The transmission of classified material to an individual unauthorized to possess it is a serious national security risk. Moreover, if a person unauthorized to maintain custody of classified materials does in fact maintain custody, it raises legitimate questions as to whether the information was properly secured from foreign governments and other entities.”

Kendall’s response to Grassley noted that he and his law partner were given top secret clearances from State Department officials in November and December of last year. In December 2014, Kendall and other unnamed attorneys sent Hillary Clinton’s emails to the State Department.

Kendall claims that he and his colleagues obtained security clearances, “in order to be able to review documents at the Department of State, to assist former Secretary Clinton in preparing to testify before the House Select Committee on Benghazi.” Yet, his office retained electronic copies of the emails, rather than turning over all copies to the State Department.

“Here’s the gist of this case: Hillary Clinton said that the email controversy has nothing to do with her. Well, if that’s true why did she ‘lawyer-up’ with her husband’s attorney and why did she turn over the thumb drives? And does anyone really believe a truth-deficient attorney is someone you want to have access to national security secrets? The whole case is a scam and the FBI is very timid in this investigation,” said former criminal investigator and organized crime analyst Stephen Sarrelli.

“What I find most comical is Hillary Clinton comparing the GOP candidates to Islamist terrorists when it is she and her former boss President Obama who entertained Muslim extremists at the White House. And Clinton’s confidante Huma Abedin is accused of having family connections to the Muslim Brotherhood,” noted Sarrelli. “And I recall how Obama and Clinton called the Muslim Brotherhood ‘moderates’ when they were designated a terrorist organization by several Arab nations,” he added.

On August 11, 2015, the Inspector General for the Intelligence Community notified congressional offices that two of the four emails contained information classified up to Top Secret/SCI/TK/NOFORN when generated. According to Kendall, neither he nor Turner had a clearance issued at that level from the State Department.

Consistent with the understanding that Kendall and Turner’s classification was not sufficient, the FBI is now in custody of all thumb drives previously in their possession as well as the non-government server Clinton used for email during her tenure at the State Department.

By Le Hong Hiep*

CPV General Secretary Nguyen Phu Trong’s recent visit to Washington has been praised by both sides as a “historic” landmark in bilateral relations (The White House, 2015). However, in order to gain a more nuanced evaluation of the visit’s significance, the visit needs to be considered within the broader regional context, and against the backdrop of recent changes in the Vietnam-US-China triangle.

This paper seeks to analyze the new dynamics in this triangular relationship and their implications. By adopting a three-level analysis approach, it will examine three of the most important factors at the systemic, national and sub-national levels which currently shape the relationship from a Vietnamese perspective.

These factors are the increasing strategic competition between the US and China, the level of strategic trust between Vietnam and the two powers, and Vietnam’s domestic political and economic developments.

The paper is divided into four sections. The first three analyze the mentioned dynamics, while the final section discusses possible implications for the region.

The paper argues that new dynamics in the triangle are conducive to the improvement of Vietnam-US relations while unfavourable for Ha Noi’s ties with Beijing. Vietnam’s relations with the US will therefore improve significantly, while its relations with China will suffer significant setbacks. However, these trends may still be constrained by traditional factors shaping Vietnam’s foreign policy, such as ideological considerations and Vietnam’s wish to maintain a balance between the two great powers.

SYSTEMIC LEVEL: INTENSIFYING STRATEGIC COMPETITION BETWEEN THE US AND CHINA

US-China strategic competition is on the rise, and the two countries seem to be heading towards a Cold-War style rivalry, characterized by an intense contest for zones of influence and, to a lesser extent, for military supremacy. The only difference is that outright confrontation is deliberately being avoided, at least for the time being, due to their complex interdependence in many realms.

China’s determination to expand its footprint worldwide and to challenge American primacy through its military buildup and such initiatives as the Asian Infrastructure Development Bank (AIIB), the One Belt – One Road (OBOR) project, or the building of massive artificial islands in the South China Sea, shows its departure from Deng Xiaoping’s mantra of “tao guang yang hui” (hide our capabilities and bide our time). The Chinese leadership, especially under Xi Jinping, seems to have come to believe that while China’s power has come of age, that of the US is declining. They are confident that it is now time for China and its people to aspire for the “Chinese Dream”, and to forge a new international order more conducive to its interests and commensurate with its rising power. Such aspirations, however, have raised concerns not only in Washington, but also in regional capitals, including Ha Noi.

Meanwhile, Washington’s determination to preserve its global primacy, especially in the Asia- Pacific region, has informed its hardening stance against Beijing. To most observers, US key regional initiatives, such as the strategic rebalancing to the Western Pacific and the Trans-Pacific Economic Partnership Agreement, all have been launched with China as the hidden primary target. The US has also worked quietly to expand and strengthen its network of regional allies and partners to gain a strategic upper hand over China.

Against this backdrop, Southeast Asia has emerged as an arena for the two powers’ strategic competition. Vietnam, in particular, has become a natural target for both powers’ diplomatic manoeuvres.

After the Haiyang Shiyou (HYSY) 981 oil rig crisis in 2014, China tried to restore its relationship with Vietnam by inviting CPV General Secretary Nguyen Phu Trong to visit Beijing in April 2015. China accorded Mr. Trong the highest level of protocol with a 21-gun salute. During the visit, while trying to address tensions over the South China Sea, the two sides also put an emphasis on economic cooperation. They agreed to establish two working groups on infrastructure development and financial cooperation (BBC Vietnamese, 2015; Voice of Vietnam, 2015). These agreements seem to serve China’s purpose of promoting the AIIB and its renminbi internationalization project, but Vietnam also stands to benefit.

For example, the two sides agreed to include Vietnam’s northern port of Hai Phong in China’s Maritime Silk Road initiative (Nikkei Asian Review, 2015). In addition, three major infrastructure projects that may receive Chinese funding, namely the Lao Cai-Ha Noi-Hai Phong high-speed railway, the Lang Son-Ha Noi highway, and the Mong Cai-Ha Long highway, were also discussed (Voice of Vietnam, 2015). More offers may also be made by China during President Xi’s visit to Ha Noi later this year.

On the part of Washington, its efforts to deepen ties with Ha Noi have also brought about positive results. These efforts are focused on both economic and strategic aspects. On the economic front, Washington has been successful in securing Vietnam’s participation in the TPP even when the agreement contains “sensitive” provisions, especially regarding labour rights and Vietnam’s state-owned enterprises. The increase in bilateral trade and US investments in Vietnam has also cemented the economic foundation of bilateral ties and further consolidated the US position as a key economic partner of Vietnam. 1 Meanwhile, Washington’s attempts to forge a closer strategic relationship with Ha Noi led to its pledge in 2013 to provide US$18 million for Vietnam to purchase patrol vessels, and its decision in October 2014 to partially lift its ban on lethal weapon sales to the country. Broader frameworks for bilateral strategic cooperation have also been set up. The two sides concluded a Memorandum of Understanding on defence relations in 2011, which was later supplemented by a “Joint Vision Statement” announced in June 2015. The enhanced defence cooperation with the US certainly makes Vietnam-US relations more comprehensive than Vietnam-China relations. Ha Noi currently has no meaningful defence and strategic ties with Beijing due to the South China Sea disputes.

Given the rising strategic competition between the two major powers, it is in Vietnam’s interest to maintain a balance between them. However, such an option is becoming harder for Vietnam to pursue. Due to China’s growing assertiveness in the South China Sea, Ha Noi finds it increasingly difficult to promote its relationship with Beijing but more comfortable, even necessary, to forge a closer relationship with Washington. And while the strategic interests of Vietnam and China become increasingly incompatible, those between Vietnam and the US have converged steadily, for which Washington’s deepened involvement in the South China Sea disputes is a case in point.2

Therefore, while Vietnam is open to diplomatic manoeuvres by both Washington and Beijing, the South China Sea disputes and China’s increasing assertiveness tend to push Ha Noi further away from Beijing and closer to Washington.

NATIONAL LEVEL: STRATEGIC TRUST BETWEEN VIETNAM AND THE TWO GREAT POWERS

The increasing level of mutual trust between Vietnam and the US perhaps embodies the most important development in bilateral relations in recent years.
Since bilateral normalization in 1995, the CPV’s suspicion of US intentions to subvert its regime has been a major obstacle to the development of bilateral ties. For example, official documents of the Party have long identified “peaceful evolution” by “hostile forces” as one of the major threats to regime security. In 2009, the Secretariat of the CPV’s Central Committee issued Directive 34-CT/TW on “stepping up the fight against the scheme of ‘peaceful evolution’ in the fields of culture and ideology”. A follow-up document prepared by the CPV’s Central Department of Propaganda and Education guiding the implementation of the Directive identified some US initiatives as part of its “peaceful evolution” scheme against the regime. Specifically, the document argued that the US wish to send volunteers of the Peace Corps3 to Vietnam signified its plan to sow the seeds of a “color revolution” in the country. Meanwhile, US education assistance, such as the Vietnam Education Fund (VEF) and the Fulbright Economic Teaching Program, was seen as a disguised tool to “transform” Vietnam politically by producing a generation of pro-American and pro-Western intellectuals.4

However, by 2015, such perceptions seem to have subsided. During Mr. Trong’s visit to Washington in July, Vietnam granted a license for the establishment of the Fulbright University Vietnam, which is an outgrowth of the Fulbright Economic Teaching Program and partly funded by the US Department of State. The university is reported to adopt American curriculums and enjoy a greater level of autonomy than its Vietnamese counterparts (Thanh Tuan, 2015). Meanwhile, during his first-ever visit to the US in March 2015, Minister of Public Security Tran Dai Quang confirmed that Vietnam would allow the U.S. Peace Corps to operate in the country (Vuving, 2015). And last but not least, to many observers, the most important indication of the growing trust between the two countries is the expansion and deepening of military cooperation.

The enhanced level of mutual trust results from efforts by both sides, especially the US commitment to respect the VCP’s domestic political interests. For example, in the Joint Statement by President Barack Obama and President Truong Tan Sang which established the bilateral comprehensive partnership in 2013, the two sides underscored that they would respect “each other’s political systems” (The White House, 2013). The same commitment was also repeated in the Joint Vision Statement during Mr. Trong’s visit to the US (The White House, 2015).

Vietnamese leaders’ lessened paranoia about the US “peaceful evolution” may also have derived from their changed perception of the threats and interests presented by a deepened Vietnam-US relationship. While the “peaceful evolution” is a vague threat that may never actualize, stronger ties with Washington offer tangible immediate benefits such as trade, investment, and military cooperation. These factors contribute to Vietnam’s economic performance and its better position vis-à-vis China in the South China Sea. From the Vietnamese leadership’s perspective, Washington’s warm reception of Mr. Trong also indicated that the US acknowledged the VCP’s rule in Vietnam, which ultimately boosts the CPV’s domestic political legitimacy. These considerations further weaken their perception of the US as a threat to the regime.

Contrary to the positive developments in Ha Noi’s ties with Washington, its relationship with Beijing is suffering from an increasing trust deficit. This largely results from China’s growing assertiveness and coercion in the South China Sea.

Especially, the HYSY 981 oil rig crisis in 2014 dealt a major blow to Vietnamese leaders’ confidence in their Chinese counterparts and deepened their perception of the China threat. China’s massive artifical island builiding in the Spratlys right after the oil rig crisis, during a time when the two sides were supposed to be mending their relations, caused the strategic trust between the two countries to further deteriorate.

It is no coincidence that the CPV has recently tolerated an increasingly anti-China discourse in the official media. Major media outlets now regularly carry news reports, op-eds and commentaries that directly criticize China’s expansion in the South China Sea. The commemoration of military clashes between the two countries, such as the 1974 Paracels battle, the 1979 border war, the 1984 Vi Xuyen battle, or the 1988 naval clash in the Spratlys, was once a taboo but is now allowed. To a certain extent, Vietnam’s increasing overture to the US as well as Japan and India also indicates its declining trust in China.

In other words, Vietnam’s “balance of trust” between China and the US now tips in the latter’s favor. This is a gradual yet significant shift. After the Tiananmen crackdown in 1989, for example, some Vietnamese leaders believed that “no matter how expansionist it is, China remains a socialist country”,5 and that Vietnam should “join hands with China at any cost to protect socialism, repulse the United States and other imperialist forces” (Co, 2003, pp. 31-32). This belief led the Vietnamese leadership to consistently pursue normalization with China despite the 1988 Spratlys naval clash that happened shortly before that.6 Today, such thinking has become irrelevant. The CPV’s regime has consolidated itself after three decades of reforms under Doi Moi, and Vietnam’s international status has also improved significantly, giving Ha Noi more room to resist Beijing’s pressures. More importantly, China’s rise and its growing coercion in the South China Sea have forced Ha Noi to appeal to nationalism, which serves as an increasingly important pillar in its current legitimation strategy. As such, it is national interests rather than ideological considerations that now dictate the country’s foreign policy making. Such a shift also tends to play in Washington’s favour at the expense of Beijing’s.

SUB-NATIONAL LEVEL: VIETNAM’S DOMESTIC ECONOMIC AND POLITICAL SITUATION

Vietnam’s economy has been experiencing a slowdown since 2008. Specifically, from 2008 to 2014, the country registered an average annual GDP growth rate of 5.8 per cent, significantly lower than the 7.6 per cent achieved in the 2000-07 period. Against this backdrop, Vietnam has been aggressively pursuing free trade agreements (FTA), including the TPP, not only to boost exports and attract more foreign investment, but also to provide an impetus for domestic economic reforms, especially regarding SOEs. The TPP, with such regulations as the “yarn forward” rules of origin,7 is also expected to reduce Vietnam’s trade deficit vis-à-vis China and its heavy dependence on the northern neighbour for material imports.8 As a result, if the TPP comes into effect, although China may remain Vietnam’s top economic partner for the forseeable future, its relative importance to Vietnam will be reduced by the expected deepening of economic ties between Ha Noi and Washington.

Politically, China’s growing assertiveness in the South China Sea and bilateral tensions over the disputes have caused nationalist sentiments in Vietnam to run high. For example, in a 2014 survey carried out by the Pew Research Centre, while three-quarters of Vietnamese surveyed (76%) expressed a favourable opinion of the US, China was viewed by respondents as the greatest threat to the future of the country, and a majority of them (84%) worried that the South China Sea disputes could lead to a military conflict (Pew Research Center, 2015a).

Similarly, according to another survey released on 23 June 2015, nearly three-quarters of Vietnamese respondents (74%) said it is more important to be tough with China on territorial disputes than it is to have a strong economic relationship (17%) with their neighbour to the north (Pew Research Center, 2015b).9 Against this backdrop, Vietnamese leaders will be tempted to appeal to nationalist sentiment to stay popular. To put it a different way, while Vietnamese leaders would not wish to be seen openly as “pro-China” or “pro-America”, carrying the latter tag may be less damaging, or even prove favourable in certain cases, to their political standing.10

Another domestic development that may have important implications for Vietnam’s future relations with both China and the US is the CPV’s 12th national congress and the election of its new leadership next year. In preparatory congress documents released for party members’ preview and comments, the South China Sea disputes have been specifically decribed as being “complex, intense and highly unpredictable” (phức tạp, gay gắt và rất khó lường).11

The documents also acknowledge that “the protection of national sovereignty and territorial integrity […] is facing many difficulties and challenges”. Such views imply the CPV’s growing awareness of the threats that the South China Sea disputes present for the country. They may also lead to a harder stance by Vietnam on the issue in the future, which possibly includes, among other things, a continued strategic alignment with the US.

In terms of leadership transition, if Prime Minister Nguyen Tan Dung becomes the new CPV General Secretary,12 Vietnam’s relations with the US may enjoy another boost. Mr. Dung, who routinely presents himself as a nationalist leader, has publicly spoken out against China’s expansion in the South China Sea on numerous occasions, including the famous statement that Vietnam will not trade its sovereignty and territorial integrity for an “illusionary friendship” [read: with China] (VnExpress, 2014). The rather liberal domestic agenda under his premiership also resonates better with Washington than Beijing.13 Moreover, his family members’ personal connections with the West in general and the US in particular may also positively influence his view on the US as well as Ha Noi’s relations with Washington.14 In case some person other than Mr. Dung takes over the CPV’s helm, the factors analyzed above will still likely cause him or her to lean more towards the US.

IMPLICATIONS FOR THE REGION

New dynamics in Vietnam’s relations with China and the US have important implications for not only the two powers, but also the broader region.
For China, this trend means that its South China Sea strategy is backfiring. Its artificial island building in the Spratlys, in particular, is deepening the perception of the “China threat” not only in Ha Noi but also in many other regional capitals. Beijing’s preference for “hard power” over “soft power” will further undermine its moral authority and ultimately hurt its legitimacy for regional leadership. Its worsened relationship with Vietnam and the region’s growing suspicion of China’s strategic ambitions are cases in point. Now with China’s artificial islands completed, the chances of restoration of mutual trust between Ha Noi and Beijing will diminish. However, China’s willingness to conclude a legally binding Code of Conduct in the South China Sea and its strict self-restraint from coercive measures may still help. On the contrary, escalatory actions such as militarizing the artificial islands and establishing an Air Defence Indentification Zone (ADIZ) in the South China Sea will do irreparable damage to China’s relations with Vietnam as well as the whole region. Beijing’s fear of a US-led strategic encirclement will then become a self-fulfilling prophecy.

For the US, this is the right time to accelerate its rapprochement with Vietnam. The growing trust between Ha Noi and Washington, Ha Noi’s deepened suspicion of Beijing, and Vietnam’s domestic conditions provide the right catalysts for Washington to engage Ha Noi in a more meaningful and substantive relationship that best serves the national interests of both countries. The most important rule for the US to observe is to continuously nuture mutual trust by fully respecting Vietnam’s political system and assuring Vietnamese leaders that the US will always take Vietnam’s interests into consideration in any negotitation with China.15 Further steps to promote bilateral strategic relations such as helping Vietnam to enhance its maritime capacity, engaging Vietnam in US-led regional security initiatives, or completely removing the outdated ban on lethal weapon sales to the country should be considered. In terms of human rights, to be fair, there are many things Vietnam should improve, but it has indeed made considerable progress over the past few years. Therefore, while Washington, for various reasons, may want to maintain pressures on Ha Noi’s human rights record, it should not allow the issue to impede bilateral strategic cooperation. A harsh stance on the issue may backfire as it will encourage Ha Noi to use the issue as a bargaining chip in its dealings with Washington.

Dynamics in Vietnam-US-China relations also reflect key currents in regional geopolitics, most notably regional countries’ strategic (re-)alignments to deal with China’s rise, and the intensifying major power competition, especially between the US and China. However, it would be naïve to believe that Vietnam’s relations with the US are driven only by the China factor. Other important mutual interests, such as trade, investment, or education cooperation, are also involved.

At the same time, Vietnam’s relations with China will not completely be dictated by the South China Sea disputes, and economic cooperation with China still matters greatly for Ha Noi. Therefore, Vietnam’s strategic re-alignment with the two major powers will continue to be an incremental transformation rather than a paradigm shift, depending largely on Ha Noi’s perception of the China threat in the South China Sea. To hedge against possible consequences of over-relying on Washington, Ha Noi will also seek to deepen its ties with other major countries in the region, especially Japan, India and like-minded ASEAN partners. The outcomes of such efforts, again, will largely be determined by how regional countries perceive the China threat, a puzzle to which China itself holds the answer.

CONCLUSION

An analysis of new dynamics in the Vietnam-US-China triangle suggests that, at least in the short run, Vietnam’s relations with the US enjoy strong prospects for further development, while its relations with China will suffer significant setbacks.

These new dynamics, however, may still be constrained by traditional factors shaping Vietnam’s foreign policy. For example, while ideological considerations may be becoming less relevant in Vietnam’s foreign policy making, they still matter.16 Similarly, although the coming leadership transition bears some implications for Vietnam’s foreign relations, one should not exaggerate the individual role of Vietnamese political leaders, be it Prime Minister Dung or anyone else, in the making of the country’s foreign policy. Vietnam’s China and US policies will continue to be collectively determined by the CPV Politburo, which makes any policy changes regarding the two powers subject to thorough deliberations, and hence gradual rather than radical. Moreover, although the geopolitical gravity currently tends to push Vietnam away from China towards the US, such a trend is still constrained by Vietnam’s long-standing wish to maintain a balance between the two powers.

About the author:
*Le Hong Hiep is Visiting Fellow at ISEAS – Yusof Ishak Institute, Singapore. He is currently on research leave from his lectureship at the Faculty of International Relations, Vietnam National University – Ho Chi Minh City.

Source:
This article was published by ISEAS as Perspective 45 (PDF)

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Vietnamnet. (2015, 23 Jul). Sau chuyến thăm Mỹ của Tổng Bí thư là gì? [What will happen after General Secretary’s visit to America?] Retrieved 8 Aug, 2015, from http://vietnamnet.vn/vn/ban-tron-truc-tuyen/251954/sau-chuyen-tham-my-cua-tong- bi-thu-la-gi-.html
VnExpress. (2014, 22 May). Thủ tướng: ‘Không đánh đổi chủ quyền lấy hữu nghị viển vông’ [Not to trade sovereignty for illusionary friendships: PM] Retrieved 6 Feb, 2015, from http://vnexpress.net/tin-tuc/the-gioi/thu-tuong-khong-danh-doi-chu-quyen-lay-huu- nghi-vien-vong-2994075.html
Voice of Vietnam. (2015, 11 Apr). Củng cố lòng tin, vì hòa bình và phát triển quan hệ Việt – Trung [Strengthening mutual trust for peace and development of Sino-Vietnamese ties] Retrieved 29 Jul, 2015, from http://vov.vn/Print.aspx?id=394215
Vuving, A. L. (2015, 10 Apr). A Breakthrough in US-Vietnam Relations. The Diplomat Retrieved 26 Jul, 2015, from http://thediplomat.com/2015/04/a-breakthrough-in-us- vietnam-relations/

Notes:
1 For example, Vietnam’s exports to the US in 2014 amounted to US$28.66 billion, accounting for almost 20 per cent of the country’s total exports. By 2014, the US had also become the seventh largest foreign investor in Vietnam, with the stock of registered capital reaching more than US$10 billion.
2 While the US involvement is seen by Vietnam as an important counterweight to China’s growing power and unchecked ambitions, the US considers its involvement as a means both to strengthen ties with Vietnam and other ASEAN claimant states, and to protect its long-standing interests in the South China Sea, especially freedom of navigation and over-flight.
3 The Peace Corps is a government-run volunteer organization established in 1961. More information about the organization is available at <http://www.peacecorps.gov/about/>
4 The full text of the document (in Vietnamese) is available at: <http://www.viet- studies.info/kinhte/DeCuongTuyenTruyen.pdf>
5 Such a judgement is controversial. The Tiananmen crackdown did not necessarily show that China was “a socialist country”. It may simply have indicated the Communist Party of China’s determination to safeguard their rule.
6 During the clash, China destroyed three Vietnamese naval vessels and killed 64 Vietnamese sailors. That same year, China established for the first time its presence in the Spratlys by occupying a number of features there.
7 The rules require Vietnam to use a TPP member-produced yarn in textiles in order to receive duty-free access to TPP member markets. As China is not a TPP member, while Vietnam depends heavily on China for yarn and textile materials, the TPP has prompted a surge of foreign investment in Vietnam’s textile industry. In the long run, such developments may help reduce Vietnam’s imports of textile inputs from China.
8 In 2014, China accounted for 29.6 per cent of Vietnam’s total imports, and Vietnam ran a trade deficit of US$28.96 billion vis-à-vis China (General Department of Customs, 2014)
9 The surveys’ sample size is 1,000, but the Center does not specify its composition or respondents’ background. More information about the surveys’ methodology is available at: <http://www.pewglobal.org/international- survey-methodology/?year_select=2015>
10 For example, Mr. Trong’s visit to America has been perceived positively by the public, including the overseas Vietnamese communities, and helps improve his personal image. Unconfirmed reports reveal that President Truong Tan Sang and National Assembly Speaker Nguyen Sinh Hung may also visit America later this year.
11 Even documents of the 11th Congress (2011) did not mention the South China Sea disputes specifically, but used the generic term “territorial and maritime disputes” instead.
12 Dung is now the strongest candidate to become the next CPV General Secretary. For an analysis of Vietnam’s forthcoming leadership transition, see Hiep (2015).
13 For example, in the economic realm, Dung promoted SOE reforms, deregulation and equitization, and sought to expand the country’s international economic integration through FTAs. Politically, he called for a greater level of democracy for the country, stating that “democracy is an objective trend in the evolutionary process of human societies” (Vietnam Government Portal, 2014). Dung also proposed a law on demonstration, which was received positively albeit with some suspicion, by the country’s democracy and human rights activists.
14 Dung’s son-in-law is a Vietnamese American businessman, and all his children were educated in the West (specifically the US, Switzerland, and the UK).
15 Historical lessons have taught Vietnam to be cautious in promoting relations with one great power at the expense of another. The 1954 Geneva Accords or US inaction during China’s invasion of the Paracels in 1974 are two cases in which Vietnam’s national interests were betrayed by its allies. Vietnamese officials are currently very sensitive to the possibility of the US negotiating with China behind its back. For example, when Chinese officials boasted that China and the US were working to formulate a “new type of great power relations”, Vietnamese officials approached their American counterparts on many occasions for information and clarification.
16 For example, Mr. Bui The Giang, a senior official in the CPV Commission for External Affairs, cautioned that although Mr. Trong’s visit to America represents a “turnaround” in Vietnam-US relations, it does not necessarily lead to a “turnaround in everyone’s thinking”. He therefore concluded that, due to differences in their political systems, there is still a long way for the two countries to go to further promote their cooperation in the future (Vietnamnet, 2015).


By S Narayan*

The Hong Kong and the Shanghai indexes recovered by 2% in early trading on 25 August 2015, after a free fall a day earlier that dragged down indices all over the world. The stock markets in China appeared to continue on a downward trend subsequently that day. The opening (3004) was lower than the closing numbers (3209), but there has been a correction by 28 August.

The correction indicates that there is still value in the stocks that are being traded, and that valuations over a one-year as well as a five-year time-frame are still positive. The index was 2217 on 30 August 2014, and 3080 in early trading on 25 August 2015, a gain of over 40%. It is true that the index had reached 5166 on 12 June, a growth of 150%, and has lost substantially since then: but the inherent strength of the Chinese economy is evident from the fact the index is substantially higher than at this point last year.

This should help the doomsayers to pause, step back and look at what appears to be happening in the Chinese markets, and in the rest of the world.
First, there is clearly excess capacity in many manufacturing sectors in China. Iron, steel, tyre, and input producers are dumping products in all markets, including India, affecting local production and sales.

The United States, Brazil, and Indonesia are some of the countries that have resorted to anti-dumping duties against Chinese products. As the domestic consumption patterns fail to meet the expectations of policy makers in China, and faced with an uncertain global export market, there is an overhang of production capacities and consequential debt burdens, which are spilling out into the global economy.

This is exacerbated by the fall in commodity prices. While the softening of oil prices is caused by excess production capacities, and with the revenue needs of Middle East economies to keep pumping oil to meet their expenditure requirements, the reductions in imports by the US, as well as the slowing down of the European Union’s and Russian economies, are affecting demand growth globally. Other commodities like coal, copper and other minerals are affected by the China factor. As China moves away from coal-based power generation into nuclear and solar options, it is likely that the coal prices will remain soft in the medium-term. Copper and other commodity prices are suffering due to heavy stockpiling by China in the past, and these need to be unwound for prices to stabilise again.

China has been trying to boost internal consumption as an alternative to export-led growth, and it is clear that its success has been mixed, with some regions responding faster than others. The policy-interventions of supporting equity markets, allowing greater leverage in trading, and most recently, exposing pension funds to equity markets for up to 30% of their asset base, appear to be knee-jerk reactions, which the global markets are discounting as bad policy.

There is evidence of US economic recovery, but as its economy is most integrated with the rest of the world, the problems in China are compounded with the continuing crisis in Greece, the decline of Gross Domestic Product (GDP) in Japan, the slowing down of the commodity- based Australian economy and the political tensions in Korea. It is to be expected that markets there will be jittery, but perhaps it is not due to the China factor alone, but a combination of events happening simultaneously across the globe.

Stepping back into the context of India and South Asia, there has been little change in the Karachi and Dhaka indices, though they are insignificant global traders. The Bombay Stock Exchange in India recovered by 28 August, after a fall of over 1600 points on 24 August.

India’s Finance Minister and Governor of the Reserve Bank of India (RBI) have attempted to allay anxieties, both saying that the fundamentals are strong. This needs to be examined.

The Foreign Institutional Investment (FII) sales on 24 August were of the order of Rs 5,000 crore, less than a billion US dollars, and the sales on 21 August were around Rs 2,500 crore, about half that amount. Yet the rupee fell against the dollar by a whole rupee. This indicates the volatility of the reserves that India is holding, and how prone it is to short-term fluctuations. Anxieties about the ‘hot money’ holdings have resurfaced. It is fortuitous that crude prices have softened and the current account deficit is under control, even though exports have been performing dismally.

However, the fundamentals of foreign exchange management in India appear to be more worrisome than the authorities make out to be. It is also clear that the stock market valuations are shallow, based on FII inflows, rather than retail and local institutional investors; this perhaps is a significant distinction between the Chinese and Indian markets.

While South Asia appears to be relatively calm, the signals from the markets on 24 August are important for India to pick up and learn from. Most importantly, it is clear that there need to be some change in the fundamentals of economic growth parameters in the Indian economy. There is no evidence of fresh capital formation (though the construction sector is seeing some signs of recovery). The quarterly results of important corporates indicate flattening sales, and margins are held only due to reduced input prices. Capacity utilisation in major industries like steel, cement, automobiles and its ancillaries is lower than what it was one year ago. The nationalised banks have deposited close to Rs 70,000 crores (around US$ 12 billion) back with the RBI, as there is little appetite for fresh industrial loans and for lending.

Prime Minister Narendra Modi’s statement on 24 August that he would announce some reforms aimed at reviving growth appear to be a recognition of the need for policy- interventions. The announcement that there would be an acceleration of public expenditure is a welcome one, for it would infuse much-needed liquidity in the economy.

It is important to note that while stock markets in China are continuing to fall, markets in India have recovered by 28 August – further evidence of the strength of the Indian economy.

There are several green shoots. There is a strong revival in the technology sector, especially start-ups that are based on information technology. There has been significant funding in the last six months. The digital retailing space has exploded; growth in logistics, warehousing and distribution is very visible. Retail sales in urban areas are still robust, though the picture in Tier-2 and -3 cities is somewhat subdued. A poor monsoon would dampen spending in rural areas, and sales of motorcycles, tractors, fertilisers and irrigation equipment could get affected. However, there is a healthy growth in the consumption of petroleum products, and petrochemicals and plastics, as well as in the pharmaceutical industry.

A growth rate of over 7% of GDP still appears feasible and real. These are due to sui generis factors indicated above, and the Government needs to do its bit in stabilising growth through policy- as well as implementation-interventions.

About the author:
*Dr S Narayan is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He was formerly Economic Advisor to the Prime Minister of India. He can be contacted at snarayan43@gmail.com. The author, not ISAS, is responsible for the facts cited and opinions expressed in this paper.

Source:
This article was published by ISAS as Insights 287 (PDF).

By James M. Roberts and William T. Wilson, Ph.D.*

The Index of Economic Freedom, published annually by The Heritage Foundation and The Wall Street Journal, is entering its third decade with the publication of the 21st edition. Since the first edition the world has witnessed profound advances in the cause of freedom. Open economies have led the world in a startling burst of innovation and economic growth, and political authorities have found themselves increasingly held accountable by those they govern.

Despite continuing challenges confronting the world economy, the global average economic freedom score has improved over the past year by one-tenth of a point, reaching a record 60.4 (on a scale of 0 to 100) in the 2015 Index. Although the rate of advancement has slowed in comparison with the previous year’s near record 0.7 point increase, the world average is now a full point higher than the score in the aftermath of the financial crisis and recession, thus regaining all of the ground lost.

On a worldwide basis, the increase in economic freedom was driven by improvements in trade freedom, monetary freedom, and freedom from corruption, for which global ratings have advanced by an average of close to one point or more.

Regrettably, average scores for most other economic freedoms—including business freedom, property rights, labor freedom, and financial freedom—have registered small declines. More troubling were the declines in the Index measures of government size. With a drop of 0.8, the control of government spending has recorded the largest deterioration, reflecting a continuation of countercyclical or interventionist stimulus policies in many countries.

Furthermore, the world continues to witness profoundly worrisome attacks on economic and political freedoms, for example by ISIS in the Middle East and North Africa and by Russia in Europe and Central Asia. Elsewhere, the failures of populist authoritarian regimes, such as in Venezuela, have inevitably generated economic chaos. Meanwhile, economic growth rates in the U.S., Japan, and the EU remain stagnant.

The United States continues to rank as only the 12th freest economy, seemingly stuck in the ranks of the “mostly free,” the second-tier economic freedom category that the U.S. dropped into in 2010. However, the downward spiral in U.S. economic freedom over the previous seven years has come to a halt. In the 2015 Index, the U.S. recorded modest score gains in six of the 10 economic freedoms and an overall score increase of 0.7. On the other hand, the U.S. score for business freedom plunged below 90, the lowest level since 2006.

The long slide in American economic freedom has been accompanied by stagnant growth of the U.S. economy and persistently high unemployment and underemployment. Adoption of the revitalizing policies of economic freedom in the United States is essential to creating good new jobs for Americans. It is also vital to promote economic freedom abroad because U.S. companies and workers increasingly rely on international trade and finance to improve productivity and to build markets.

America is a global economic superpower, but to maintain its position, its government and business community must encourage the free flow of capital, goods, services, and ideas around the world, which contribute to ongoing U.S. and global prosperity. Implementing such forward-looking policies would kick-start the economic dynamism and innovation that will lead to better products, new markets, and greater investment.

In this fifth annual Global Agenda for Economic Freedom, a diverse team of Heritage Foundation policy experts make key observations about eight global regions: Sub-Saharan Africa, North America (the U.S., Canada, and Mexico), the Asia–Pacific, the Middle East and North Africa, Central and South America and the Caribbean, Europe, Russia, and the Arctic. In each region, Heritage experts identify obstacles to expanding economic freedom and the actions that regional governments should take, and make concrete recommendations on roles the U.S. can take in promoting economic liberty.

While these recommendations are crafted for individual regions, some themes appear repeatedly worldwide—particularly the importance of protecting property rights, fighting corruption, and pushing back against a revival of the failed state-owned-enterprise model and creeping crony corporatism and government favoritism. These are summarized in a Global Issues section at the beginning of the report.

To help nations to achieve such goals, the report also identifies opportunities in virtually every region for the U.S. government to forge new agreements and initiatives that will promote job-creating, private sector–led trade and investment.

The emphasis on free trade is not surprising. Countries with the lowest trade barriers also have the strongest economies, the lowest poverty rates, and the highest per capita income. Thus, the “free trade tool” is an ideal instrument for expanding economic freedom. In particular, new initiatives, such as the ongoing negotiations for a Trans-Pacific Partnership (TPP) of 12 Pacific Rim nations as well as a Trans-Atlantic Trade and Investment Partnership (TTIP) between the European Union and the United States, hold some promise. If negotiated well, these agreements could create new economic opportunities by expanding trade among the United States, Asia, Latin America, and the member states of the European Union.

History teaches that the human spirit thrives on fairness, opportunity, transparency, and liberty. The downfall of the Soviet Union, the liberation of Eastern Europe, the opening of China, and the ongoing “Arab Spring” are vivid reminders of this truth. The human spirit is the real wellspring of economic prosperity and enduring development, and that spirit is at its most inspired when it is unleashed from the chains that have bound it.

The fight for freedom necessitates perpetual vigilance. The false idols of socialism and collectivism in the name of social justice and equality are never short of deceptive emotional appeal. When they become the touchstones of government policy, the unavoidable economic and social results are stagnation, deprivation, coercion, and even the gradual erosion of the rule of law.

This report lays out a plan to push back against those false promises and to promote economic freedom in the world. It offers Washington a blueprint—a global agenda—for a practical and effective strategy to promote economic freedom around the world and restart growth at home. This global agenda can—and should—be implemented. Now.

—James M. Roberts and William T. Wilson, PhD, eds.

Global Issues

By James M. Roberts

A World with More Trade and Investment Freedom

International trade plays an increasingly significant role in the economies of the United States and other countries. Thanks to U.S. leadership in the Uruguay Round trade talks, 123 countries collectively implemented the largest global tax cut in history and created the World Trade Organization (WTO) in 1995 to mediate trade disputes. Trade disagreements that could have escalated into trade wars in the past are now moderated by impartial referees. With first the U.S.–Canada free trade agreement (FTA) in the 1980s, and then the North American Free Trade Agreement (NAFTA) in the 1990s, the United States initiated a healthy global contest to see which country could sign the most free trade agreements. So far, Chile is in the lead, having inked agreements with 56 countries; Mexico is second, with 44 countries. Overall, hundreds of bilateral and regional trade agreements are in force today among free-market countries, and many more are being negotiated.

However, the continuing lack of leadership by the Obama Administration has allowed negotiations for further global trade liberalization through the Doha Round (the successor to the Uruguay Round) to grind to a halt. Furthermore, the long delays during the first term of the Obama Administration in implementing the FTAs with Colombia, Panama, and South Korea severely hampered the momentum for trade liberalization in the United States.

There are some potential bright spots for global trade freedom: the ongoing Trans-Pacific Partnership talks among Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The participants’ goal is to make the TPP a “21st-century” or “gold-standard” trade agreement. To reach this goal, each country must be willing to make beneficial policy changes that will include reducing tariff and non-tariff barriers, improving protection of intellectual property and international investment rights, dismantling agricultural and many other government subsidies, and limiting support of state-owned enterprises (SOEs). The resulting agreement should include a mechanism to facilitate easy accession by other countries in the future.

Regrettably, TPP negotiations to date have included excessive U.S. posturing on environmental standards and labor regulations. Although there is a danger of further such posturing in negotiations that began in 2013 on a Trans-Atlantic Trade and Investment Partnership between the European Union and the United States, there also are potential benefits from an agreement that reduces barriers to transatlantic trade and investment, as opposed to one that creates new regulatory hurdles to doing business.

Meanwhile, American trading partners, such as Canada and Chile, have forged ahead with new agreements, leaving the U.S. behind. In the regional sections that follow, Heritage Foundation experts lay out specifics of how the United States can catch up around the world. The United States should encourage other countries’ efforts to reduce trade barriers, including African countries’ proposed Continental Free Trade Area (CFTA) to boost Africa’s intraregional trade and the Alliance of the Pacific (Chile, Colombia, Mexico, and Peru with candidate countries Costa Rica and Panama).

U.S. programs, such as the U.S. Generalized System of Preferences (GSP) and the African Growth and Opportunity Act, promote mutually beneficial trade and growth. These programs should be expanded to include more categories of imports and extended on a long-term basis. Foot-dragging by the Obama Administration has had a larger cost: the decline of the credibility of the U.S. as an economic model. Not long ago people around the world spoke of the “Washington consensus,” by which they meant a generally free-market policy mix. Now, foreign governments deride America’s slow growth and policy failures. Chinese leaders in particular look with disdain on American policy advice, notwithstanding their own rapidly mounting problems and their pressing need for another wave of economic reforms.

As documented in the 2015 Index of Economic Freedom, protectionist measures, industry-specific subsidies, and excessive (and potentially protectionist) “enforcement” actions, such as anti-dumping and countervailing-duty regulatory measures, reduce efficiency and competitiveness and diminish the prosperity of all nations. All countries should resist these counterproductive policies, and the U.S. should lead.

In an economically free country, there are no constraints on the flow of investment capital. Individuals and firms are allowed to move their resources to and from specific activities without restriction, both internally and across the country’s borders.

Regarding investment, the U.S. government should refocus its development policy on trade and investment and vigorously pursue an expanded commercial agenda that makes investment in developing countries more attractive to investors, such as by establishing a broader network of bilateral investment treaties (BITs) or trade and investment framework agreements (TIFAs) and by negotiating double-taxation treaties that remove fiscal burdens from investment-oriented capital flows.

A World with More Freedom for Workers

Labor freedom and business freedom indicators in the 2015 Index of Economic Freedom reward countries with laws, regulations, and policies that give workers and employers flexibility and opportunity. In addition, guest worker visa programs can help countries to meet growing needs for skilled technology workers or seasonal workers. These guest worker visas can also address politically difficult immigration issues.

In the United States, H1-B visas for high-tech workers help American high-tech companies to recruit skilled immigrants, such as engineers and computer programmers. Under current law, the government can issue only 85,000 H1-B visas each year: 65,000 to highly skilled private-sector workers and 20,000 to workers with advanced graduate degrees from U.S. universities. Yet demand for such skills is much greater, so the caps are reached very quickly every year.

Another pro-economic freedom measure would be to make it easier for business people to travel between countries. In the United States, expanding the Visa Waiver Program (VWP), particularly by adding member countries from trusted allies and partners of the U.S., would further reduce transaction costs and increase efficiency for American businesses. Chile has now been invited to join the VWP, but America’s great ally and trading partner Poland continues to be denied the VWP membership that it richly deserves.

The VWP has also boosted U.S. tourism receipts, since most tourist and business travel to the United States originates in countries enrolled in the Visa Waiver Program, and it is therefore an important instrument to promote economic exchange with like-minded nations. The Obama Administration should speedily approve many more eligible and deserving nations for the VWP.

A World with Less Corruption and More Property Rights

Economists from Adam Smith to Milton Friedman have noted the crucial role of property rights as an engine of economic growth, on which the equally important development of a middle class depends. Establishing those property rights is step one for economic freedom.

For nearly every country on the globe, the Index of Economic Freedom’s “freedom from corruption” score is the lowest of the 10 indicators measured. Corruption is a perennial and difficult problem to address, yet it must be a top priority for governments hoping to create conditions favorable to economic growth and prosperity. The degree of corruption in a country is a good barometer of the strength of its judicial institutions and rule of law, both of which are strongly tied to how effectively a country protects private property.

Many countries’ economic freedom scores would be substantially higher if not for the prevalence of government corruption. Yet the solution lies not in passing more anti-corruption laws, which can be corrupted in practice. In fact, too much regulation can reduce respect for the law, creating an environment for predatory behavior by the government or its favored cronies.

The best means of fighting corruption is transparency. Laws should be clear, logical, and simple to understand.

Lack of reliable property rights is a worldwide problem. The starting point for development, especially in lower-income countries, is greater agricultural productivity, which depends on secure property rights to land. These are absent in much of the world.

For example, the biggest problem in the Indian economy is uncertainty about land ownership. This affects hundreds of millions of people. Most resources associated with land belong to the state, and many attempted land sales conflict with contested ownership and require corrupt and horribly inefficient government involvement to carry out. This system undermines agricultural productivity and obstructs progress in alleviating poverty.

In dealing with developing economies, the U.S. needs to expand from focusing almost exclusively on intellectual property rights (IPR) to include land and other property rights. While the information and IPR sectors are vitally important parts of the economy in the developed world and certainly should be protected, these areas are not as mature in emerging markets and poorer nations. In developing countries, it is most vital to protect the “real” properties—land, businesses, capital, and buildings—from expropriation and corrupt practices because they are the primary sources of the commodity exports on which those countries depend.

To protect real property, developing countries must enhance their rule of law. Transparent judicial systems are vital for the protection of property rights, not just for the wealthy and powerful, but also for average citizens. Citizens’ incentive to work hard and save for the future depends on their confidence in the political and economic system to protect their earnings and possessions. The right to acquire, keep, and dispose of property at will must be protected through honest, efficient, and transparent judicial institutions so that assets can be expected to be available as needed.

Less corruption and better protection of property rights will make for much more prosperous long-term economic partners. The U.S. should offer technical assistance to strengthen the rule of law, for example, by developing appropriate legal norms and land-titling processes and for mapping property boundaries.

A World with Less Crony Corporatism and Fewer State-Owned Enterprises

The full chapter on state-owned enterprises in the Trans-Pacific Partnership is not an accident. Massively subsidized SOEs are an international issue that is steadily growing in importance, not least because of their dominance of the Chinese economy. Brazil has been backsliding in this area for several years. India has a set of poorly performing state firms associated with harmful government intervention in the economy, such as price controls. In Vietnam, underperforming SOEs are the main factor restraining development. The ideological commitment of some governments to state ownership precludes the complete eradication of SOEs, but internal and external reforms would considerably enhance economic freedom and clear the way for fresh global liberalization.

Governments should publicly identify the smallest possible set of sectors that must be managed by the state for clearly identified strategic reasons. In other sectors, state firms should be sold or at least forced to compete.

Sub-Saharan Africa

By Charlotte Florance and Anthony B. Kim

The sub-Saharan Africa region remains a global hot spot for economic, political, and security developments. Despite some setbacks caused by political turmoil and Ebola in the region over the past year, sub-Saharan Africa’s overall trade and investment environment has been evolving in a positive direction.

According to the Index of Economic Freedom the trend by sub-Saharan African economies as a group toward greater economic freedom has been gaining steam over the past decade. The 2015 Index, in particular, notes encouraging developments. With more than half of the region’s 46 countries graded in the Index having enhanced their economic freedom scores, sub-Saharan Africa is one of the most improved regions in the 2015 Index. Indeed, six of the 10 largest score improvements among all 178 countries graded in the 2015 Index were registered by sub-Saharan African countries. More impressively, a number of countries in the region, including Angola, Comoros, Guinea-Bissau, and Seychelles, have shown sustained growth in economic freedom over the past five years. Also encouraging is that Liberia and Sierra Leone, two post-conflict countries confronting the challenge of containing Ebola, have escaped the lowest Index category of economically “repressed” nations. Many countries in the region appear to be generating the sort of “escape velocity” needed to make the additional institutional changes critical to long-term economic development.

Nonetheless, the region as a whole continues to underperform when it comes to following through on reforms that will help the emergence of a more dynamic private sector and result in more broad-based growth. More critically, the continuing existence in some countries of uneven economic playing fields, exacerbated by weak rule of law, means residents who lack connections are still being left out and have only limited prospects for a brighter future. Vibrant economic growth and lasting development in sub-Saharan Africa depend greatly on increasing the competitiveness of African entrepreneurs—especially in the small and medium enterprise sector—through expanded economic freedom.

In light of Africa’s dynamic and shifting economic growth patterns, Washington should seize the opportunity to reinforce its vision of economic freedom and empowerment through policy actions such as those outlined below.

Prioritizing the Fight Against Corruption

In 2015 sub-Saharan Africa continues to be the second-fastest-growing region in the world, despite the drop in global oil prices that affected several oil exporting countries including Angola and Nigeria. Kenya and Ethiopia, for example, are projected to grow by 6 percent to 7 percent over the next two years. Nevertheless, most African countries still suffer from endemic corruption, fragile protection of property rights, and inefficient entrepreneurial environments. If African countries are to harness the high economic growth rates (currently spurred by commodity exports) to ensure long-term sustainable growth, their governments (and the U.S.) should prioritize anti-corruption and transparency measures.

Africa is a diverse continent with varying challenges and opportunities. In the “freedom from corruption” indicator of the Index, the divergence in individual country scores could not be more apparent, with scores ranging from Botswana at 64.0 (of 100) to Somalia’s meager score of 8.0. Corruption scandals continue to plague the continent.

Action Needed. African governments must continue the fight against endemic corruption and enhance the rule of law at all levels of government. In addition, African governments need to adopt policies and practices that build trust and accountability with their citizenry and improve the overall investment climate to ensure economic freedom for ordinary citizens.

U.S. Policy Recommendation. Despite progress, lingering corruption continues to cripple sub-Saharan Africa’s growth potential and undermine opportunities for U.S. investors throughout the continent. Strong rule of law is a critically important factor in attracting dynamic flows of global investment capital. Development-assistance capacity-building programs cannot succeed without an increased focus by African governments on these transparency and anti-corruption efforts.

The U.S. government should prioritize the accountability of national and local governments, for example, by making future funding of U.S. foreign aid programs for them contingent on their making steady improvements in rule of law. The U.S. government should also place a stronger emphasis on working directly with civil societies in African countries by empowering nongovernmental voluntary groups to serve as watchdogs for corrupt government practices and individuals. These watchdog groups would be aided by a more focused approach by the U.S. on building e-government capacity in African countries.

Encouraging African Economic Integration

Africa—the least economically integrated region in the world—faces major economic and governance challenges as it seeks a macroeconomic growth agenda capable of integrating the entire continent into the global economy. More than a decade ago, former United Nations Secretary-General Kofi Annan observed that open markets are the only realistic way to pull hundreds of millions of people in developing countries out of abject poverty. However, Africa has yet to harness the power of market-oriented growth. Formal intra-African trade remains at a dismal level, the lowest of any region in the world. In order to maximize the region’s trading potential, a serious and bold plan for greater continent-wide integration needs to be developed and put into action.

Action Needed. During the 2015 World Economic Forum in Davos, Switzerland, several African politicians and business leaders pledged to remove all of the impediments to intra-Africa trade. These words, however, have not been supported by concrete actions beyond the few continent-wide initiatives already underway. In an effort to establish a Continental Free Trade Area (CFTA) by 2017, the African Union is pursuing greater African market integration. The CFTA is also working to, by 2028, integrate the Regional Economic Communities into a single customs union with a common currency, central bank, and parliament. Nevertheless, complex customs unions, administrative procedures, and burdensome regulations continue to hinder CFTA negotiations.

U.S. Policy Recommendation. With improved policy environments and a rich natural resource endowment, many economies on the African continent have become more attractive trade and investment partners to the rest of the world. The U.S. should no longer regard African countries primarily through the assistance lens, but increasingly as viable economic trading partners.

The U.S. has taken some limited steps to develop a strategic market-access approach to Africa. In 2000 Congress passed the African Growth and Opportunity Act (AGOA), a trade-preference program aimed at promoting growth by reducing U.S. barriers (tariffs, for instance) to African exports. The legislation was extended twice, in 2005 and 2010, and is due to expire again in September 2015. More than 30 sub-Saharan African countries benefit from AGOA membership. Trade between Africa and the U.S. has more than tripled since AGOA’s enactment in 2000, and U.S. direct investment in Africa has grown nearly sixfold.

The U.S. should not only renew AGOA through 2025, but also use the legislation to spur African economic integration (via the CFTA) and ultimately transform the trade-preference program into an FTA between the U.S. and the entire region. Given its critical linkage to AGOA and U.S. market access, Congress should also renew and reform the Generalized System of Preferences (GSP), the U.S. trade program designed to promote trade with developing countries. The goal of AGOA should be to push African progress toward integration and greater economic freedom.

Encouraging More Robust Investment Flows

Continued economic growth and expansion of freedom in sub-Saharan Africa will require inbound investment. In Africa, mobile telephone technology is exploding, discoveries in natural resources continue, and 60 percent of the world’s uncultivated arable land remains on the continent—some of it deemed off-limits by various governmental decisions. Foreign direct investment (FDI) in 2013 grew by 16.2 percent to $43 billion (from $32 billion in 2012). Meanwhile Africa’s middle class is growing—it is already collectively larger than India’s, and, by 2020, 50 percent of households will have discretionary spending power.

Yet FDI in sub-Saharan Africa has been hindered by political unrest and economic uncertainties. Investors’ concerns over taxation issues and the absence of specific investment protections, particularly for U.S. investors, means much of the positive changes occurring on the continent remain unrealized by U.S. investors.

In the summer of 2014, President Obama hosted the inaugural U.S.–Africa Leaders’ Summit, which included a day-long event focused primarily on private-sector development in Africa, yet a significant gap remains between vision and action. Countries such as China play by different rules; their opaque investments in extractive industries may help build a port, a highway, or a railroad in Africa today, but they carry with them a potentially bitter legacy of corruption and nepotism.

Action Needed. In order to spur international trade and economic growth, sub-Saharan Africa needs sound domestic policies that will increase foreign investment. Free, transparent, and open investment regimes provide maximum entrepreneurial opportunities and incentives, while expanding economic activity, greater productivity, and job creation. Intra-regional and global trade in Africa will require serious investments in infrastructure. To attract more foreign direct investment for such projects, African governments need to create effective investment frameworks—characterized by transparency and equity—and support investments from all firms—not just those that are large or politically well connected.

Cabo Verde is one such sub-Saharan African country making significant improvements to its investment climate, and is subsequently attracting foreign and indigenous investment in both the technological and tourism sectors. Its economy might be small in comparison to regional giants such as Nigeria, but a number of other African governments, mainly those of other Lusophone countries, have taken notice of the speed at which Cabo Verde implemented market-oriented reforms.

U.S. Policy Recommendation. Thriving market-based private-sector actors are key to achieving inclusive and broad-based economic growth because they aggressively seek out opportunities for trade, investment, and partnership. The U.S. government should refocus its development policy on trade and investment with sub-Saharan African countries and prioritize the vigorous pursuit of an expanded commercial agenda—for instance, by establishing a broader network of BITs, and negotiating double-taxation treaties (DTTs) that remove fiscal burdens from investment-oriented capital flows. These concrete actions would advance the discussion beyond the simplistic message “Trade, not Aid.”

Negotiating a greater number of U.S. BITs and DTTs with African governments, would be a catalyst for U.S. investment in some of the fastest growing economies in the world. Among sub-Saharan African countries, only South Africa currently has a DTT with the United States, and only six sub-Saharan African countries (Cameroon, Congo Brazzaville, Democratic Republic of the Congo (DRC), Mozambique, Rwanda, and Senegal) have signed BITs. The U.S. should focus on expanding the number of such agreements under the auspices of the Trade and Investment Framework that the U.S. and the East African Community (EAC) agreed upon earlier this year. Given its early development of an AGOA-country strategy and a maturing synthetic-textile-manufacturing industry, Kenya, an EAC anchor country, should be a top priority.

Additionally, Congress should avoid enacting federal securities laws to advance social or political goals in Africa. Under Section 1502 of the Dodd–Frank Act, countries registered with the U.S. Securities and Exchange Commission (SEC) operating in the DRC and neighboring countries are subject to enhanced regulatory scrutiny to combat “conflict minerals”—raw materials that finance armed violence. The problem is serious, but rather than helping, the clumsy and expensive regulations of Dodd–Frank are forcing the closure of artisanal mines and pushing former miners into dangerous militias. Compliance requirements have forced U.S. investors to seek opportunities elsewhere and harmed economic freedom in central Africa.

Strengthening Protection of Property Rights

Secure property rights give citizens the confidence to engage in entrepreneurial activity, save their income, pledge collateral for loans and mortgages, and make long-term economic plans. Conversely, the lack of property rights is a significant challenge to economic growth—an issue currently undermining sub-Saharan Africa’s economic growth and innovation.

In sub-Saharan Africa, the historical obstacles to protecting property rights and threats to economic freedom range from traditions of tribal and communal ownership and land holdings to restrictions based on race (South Africa’s former apartheid system) to experiments with expropriation and uncompensated redistribution (Zimbabwe under President Robert Mugabe), and failed collectivization schemes under communist and socialist economic models.

Furthermore, African governments still lack effective and independent judiciaries capable of protecting property rights and enforcing contracts because they remain susceptible to corruption and political maneuvering.

Another major hindrance to economic development stems from the weakness and under-development of government administrative institutions and their inability to provide formal property titles and documentation proving ownership of land holdings, a situation that creates legal insecurity and economic vulnerability—especially for small and medium enterprises. The average regional Index of Economic Freedom property rights score is weakest in sub-Saharan Africa and is second only to Freedom from Corruption as the lowest indicator in the Index for the region. This highlights the fact that, overall, weak rule of law in Africa remains the largest challenge to improving region-wide economic freedom.

For example, the use of the state’s expropriation power remains on the South African government’s official policy agenda; current legislation threatens to re-open the land claims process. These actions would be detrimental to both domestic and foreign private property owners.

Action Needed. Sub-Saharan African nations must pass and enforce laws to expand the coverage of and provide documentation for private property holdings. In some countries only a small percentage of land is covered by the property cadaster.

U.S. Policy Recommendation. The U.S. should continue to work with international and regional institutions, such as the International Finance Corporation (IFC) of the World Bank, international development assistance cooperative partners from other Organization for Economic Co-operation and Development (OECD) countries, and the African Development Bank, to prioritize capacity-building programs that establish and enhance judicial institutions and the protection of property rights. For example, the U.S. should strengthen the existing initiatives to provide technical assistance to sub-Saharan African countries with regards to developing appropriate legal norms and land-titling processes.

North America

By Ryan Olson

The North American region (home to the three NAFTA partners—the United States, Canada, and Mexico) has long benefited from its relative openness to international trade and investment. Although it enjoys the highest level of economic freedom of any region in the world, those levels have fallen in recent years. However, political changes in Mexico have raised hopes for improvements in economic freedom and, in the United States, a reversal in government spending relative to the size of the economy advanced economic freedom slightly in 2015. North America continues to score above the world average in eight areas of economic freedom. It has high levels of business freedom, trade freedom, monetary freedom, and labor freedom. High government spending in the United States and Canada drags down the region’s performance, and Mexico needs to improve its property rights protection and ability to fight corruption. Mexico lags significantly behind its two northern neighbors in these two areas, and long-term reform is critical to advancing economic development.

Building Regional Economic Integration

The North American Free Trade Agreement remains the centerpiece of an increasingly interconnected North American marketplace in goods, services, and capital. Since its inception in 1994, NAFTA has helped to create an integrated marketplace of over 475 million people producing about one-third of total world gross domestic product (GDP). NAFTA has helped increase income levels, employment, investment, and trade.

While improvements under NAFTA have been beneficial to all parties, there is still a significant amount of work to do to maximize its impact. All three governments continue to make progress on increasing economic openness and removing barriers to trade. One of the largest such efforts is the “Beyond the Borders Action Plan,” an initiative between the U.S. and Canadian governments designed to eliminate cross-border trade barriers. These reforms include accelerating customs procedures, eliminating duplicative screening, and implementing new technologies to ease cross-border shipments.

For example, the action plan aims to help trusted businesses and travelers move efficiently across the border by strengthening “trusted trader” and “trusted traveler” programs and eliminating supply chain bottlenecks. Similarly, the plan also calls for both countries to speed clearance for cargo through new pre-screening and pre-clearance procedures. These efforts are to include: offering a “single window” for importers to submit information required by various government agencies electronically, expediting clearance for low-value shipments, facilitating trade by improving transparency and accountability for border fees, and improving infrastructure at border crossings.

In 2014 U.S. Customs and Border Protection followed up this commitment by beginning an 18-month pilot of the “trusted trader” program, a move that could set the stage for full implementation. In addition, the second phase of a pre-inspection pilot program began. This program allows CBP officers to conduct customs inspections on the Canadian side of the border, facilitating quicker processing through the U.S.–Canada border.

Trade-enhancing improvements have not been limited to the United States and Canada. In January 2015, at the conclusion of a second, three-year pilot program, the Federal Motor Carrier Safety Administration (FMCSA) approved a plan to allow Mexican long-haul trucks to operate in the United States. Previously, Mexican trucks were confined to a 25-mile radius from the border, meaning that many goods had to be warehoused and transferred to U.S. trucks to continue their shipment, a lengthy and costly process. Now, Mexican trucks that comply with safety and training standards will be allowed to proceed to any destination in the contiguous United States, allowing goods to be shipped directly from Mexican suppliers to U.S. businesses and consumers at lower cost.

Implementation of this program is long overdue. Under NAFTA, the original intent was for Mexican trucks to have unfettered access to U.S. highways by the year 2000. However, domestic interests, including U.S. trucking unions, prevented those rules from being implemented, and spurred nearly $2 billion in retaliatory tariffs by Mexico against the U.S. Nearly two-thirds of bilateral U.S.–Mexico trade occurs via land shipments, so full Mexican access to U.S. highways will reduce costs and inefficiencies, producing savings that will eventually be passed on to U.S. consumers.

Recent improvements in North American trade freedom have not been limited to more efficient continental transactions. In October 2014, for example, the Canadian government and the European Commission signed a preliminary text of a new Canada–EU trade pact—the Comprehensive Economic and Trade Agreement. If ratified, the agreement could remove duties on 99 percent of goods, open up public procurement markets, and strengthen investor rights, including through greater use of arbitration panels.

Notwithstanding the success of NAFTA and various efforts to facilitate trade between its member countries, barriers still remain. Particularly in the U.S., recent events have highlighted continued market access issues for Canadian companies. For example, “Buy America” provisions in U.S. Department of Transportation funding recently precipitated a hold on construction of improvements to the Alaskan Marine Highway’s only Canadian port at Prince Rupert. The Canadian government put the hold on the American-leased port’s upgrade because U.S. federal funding for the project requires the use of American-made iron and steel, which the Canadian government and local contractors oppose. Furthermore, in June 2014, the Canadian government filed an intervention with the WTO’s Government Procurement Committee to “register concern” and seek clarification from the Obama Administration of all federal and state “Buy America” provisions passed since 2013. “Buy America” provisions raise costs for government procurement and make U.S. companies vulnerable to the possibility of retaliatory tariffs. These events, along with continued delay of the Keystone XL pipeline and disputes over the construction of a customs plaza at the New International Trade Crossing in Detroit, have raised bilateral trade tensions between the U.S. and Canada.

To combat these and other remaining trade barriers, all three countries are participating in TPP talks, which, if successful, could further liberalize trade. In addition, Canada and Mexico each have unilaterally reduced tariffs in order to boost their international competitiveness.

Action Needed. Political leaders need to push back against parochial special interest groups that fear increased competition. These groups’ concerns must not be allowed to obscure the overall benefits of NAFTA’s trade liberalization. All countries should work—through the TPP and bilaterally—to remove barriers to international trade and investment, and the U.S. and Canada should work to make permanent the pilot programs begun under the “Beyond the Border” Action Plan to facilitate trade. In addition, all three countries should work to avoid and resolve the petty trade disputes that have cropped up in recent years. Disputes over “Buy American” provisions, funding for customs terminals, and oil pipelines only undermine the long- and well-established trade ties of the North American region.

U.S. Policy Recommendation. Congress should roll back “Buy America” provisions that stifle cross-border procurement markets. “Buy America” provisions raise the threat of retaliatory tariffs on U.S. businesses, undermine U.S.–Canadian infrastructure upgrades, and distract from efforts at further cross-border trade liberalization.

Mexico: Still Behind Its North American Neighbors, but Catching Up

Promoting economic freedom in Mexico is key to addressing joint economic, security, and civil society concerns. In December 2012, Enrique Peña Nieto began his single six-year term as president of Mexico. Since taking office, Peña Nieto has taken many positive steps to challenge the private and public monopolies and duopolies that have dominated and hampered huge portions of Mexico’s economy.

These combines—in energy, telecommunications, construction, food production, broadcasting, financial services, and transportation—have long been a drag on competitiveness and job creation. Notwithstanding Mexico’s NAFTA membership, these sectors were effectively “roped off” to benefit politically powerful rent-seekers—a phenomenon known as “state corporatism.” This had the same practical effect as that of traditional protectionist trade barriers. Despite being the third-largest oil producer in the hemisphere and the 10th-largest in the world, Mexico’s oil industry has been in decline.

Since 2012, Mexico’s government has taken huge steps to address these issues. After pushing through constitutional amendments on telecommunications and energy sector reform early in his term, President Peña Nieto took the final step in 2014 by signing the new regulatory structures into law. In the telecommunications sector, new rules will have the effect of breaking the monopoly in Mexico over mobile and fixed line telecommunications currently held by billionaire Carlos Slim’s America Movil. These reforms should help open up the Mexican telecommunications sector to increased competition and investment. Reports by the Mexican Federal Communications Institute indicate that overall telecommunications and cell phone services prices have already dropped by over 15 percent since February 2013. Meanwhile, more consumers can now access open-air broadcast television channels.

Historic energy reforms, kicked off by additional constitutional changes in 2013, were also signed into law in 2014. Before these new constitutional changes, PEMEX, the state-owned oil company, held an unchallengeable monopoly on oil production in Mexico. Now, according to a 2014 report by The Heritage Foundation, foreign companies may be able to invest in Mexico’s vast offshore reserves through production and profit-sharing contracts, service contracts, and licenses. It is estimated that production and efficiencies will increase as foreign companies bring in new technologies that PEMEX could not previously develop. Other Mexican reforms that advanced in 2014 include breaking the monopoly on the energy-distribution sector, which was previously controlled by a federal commission. Since electricity rates in Mexico are nearly double those of the United States, some observers hope this could realize significant savings for Mexican producers and consumers.

While President Peña Nieto has received significant praise for ushering through these historic reforms, some have criticized him for ignoring a deteriorating rule of law and security situation. Over the past year, several high-profile executions and kidnappings have again brought the nation’s attention back to drug-related violence, and reminded Mexicans that economic reforms must be coupled with improvements in the rule of law.

In September 2014, 43 students from a local teaching college in the town of Iguala in the state of Guerrero went missing. The subsequent discovery that the mayor of Iguala had participated in their abduction and had been complicit with drug gangs in the region touched off a national uproar. Although Mexico’s Freedom from Corruption score improved in the 2015 Index of Economic Freedom, these events are a tragic reminder of the continued need for high-priority focus on improvements to rule of law and security in Mexico.

Action Needed. Mexico should continue to liberalize and open its economy. Recent reforms in the labor and energy markets have been major steps in the right direction. In the energy sector further reforms are needed to remove barriers to foreign investment, simplify the regulatory structure, and remove PEMEX’s remaining monopolistic power. If these reforms result in a flood of new private investment they will create hundreds of thousands of new jobs that will encourage even more would-be economic migrants to remain at home in Mexico. Continued economic reform must be accompanied by a reaffirmed government commitment to the rule of law. Corruption is still prevalent in many levels of the bureaucracy, and Mexico’s infamous clientelist and corporatist tendencies persist. Furthermore, ongoing crime and violence undermine the business environment and threaten the country’s most marginalized citizens.

U.S. Policy Recommendation. Congress should take steps to remove the U.S. crude oil export ban, an archaic law that limits the exports of unrefined oil products. Removing the crude oil export ban would help to make PEMEX more competitive, giving it the opportunity to acquire different fuel blends that would help diversify its product base. In the short term, the U.S. Department of Commerce should immediately approve a crude oil swap permit filed in 2013 by PEMEX. This permit would authorize the purchase of 100,000 barrels of lighter U.S. crude that its PEMEX could use to refine more profitable diesel and gasoline blends.

Asia–Pacific

By William T. Wilson, PhD, and Luke Coffey

The Most Improved Region—Again

According to the 2015 Index of Economic Freedom, for the second year in a row, the 43 countries encompassing the Asia–Pacific region have outperformed the world’s other regions in terms of advancing economic freedom. The Asia–Pacific region continues to have, by far, the largest number of the world’s “free” economies.

The region, however, also continues to be distinguished by enormous disparities in this freedom. In the 2015 Index, the scores of 27 countries have improved; 14 have worsened. Of those that improved, seven countries, including Taiwan, Vietnam, and Laos, achieved their highest-ever economic freedom score. Four countries (Taiwan, South Korea, the Philippines, and Burma) have now achieved five consecutive years of advancing economic freedom.

The Asia–Pacific region ranks above the world average in fiscal freedom, government spending, and labor freedom. Yet, the region does poorly overall in property rights, freedom from corruption, and financial and investment freedom.

While four of the world’s freest economies—Hong Kong, Singapore, Australia, and New Zealand—are in this region, many of the other Asia–Pacific countries remain “mostly unfree.” North Korea, which continues to reject any form of free-market activity, remains the world’s least free economy.

Leading the world in three of the 10 economic freedom categories, Hong Kong once again is the world’s freest economy. Runner-up Singapore is beginning to close the gap with Hong Kong as a more dynamic and competitive financial sector emerges in the city-state. Australia and New Zealand continue to set the standard for clean, corruption-free government, and benefit significantly from their transparent and efficient business environments and open-market policies.

India and China are still “mostly unfree.” Despite high economic growth rates, these nations’ foundation for long-term economic development continues to be fragile in the absence of effectively functioning legal frameworks. Progress with market-oriented reforms has been uneven and has often backtracked at the urging of those with a political interest in maintaining the status quo. In Central Asia, Kazakhstan’s links to the Russian economy are hampering its growth.

In 2014, the focal points for Asia’s economic freedom agenda were financial liberalization, auditing and reporting standards, and privatization. This year, the global agenda will focus on the growth in domestic credit and the TPP, and will examine evidence of progress in privatization throughout the region.

The Asian Credit Bubble

Credit growth continues to accelerate throughout the region. For Asia, total debt (household, corporate, government) reached a new high in 2014, reaching a record 210 percent of GDP. That is up a startling 50 percentage points since 2008.

Bank credit, as a share of Asian GDP (excluding Japan), bottomed-out at 80 percent of GDP in 2002–2003, but then quickly climbed to 108 percent in 2013 (latest year available). It is now higher than in 1997, the year the devastating Asian financial crisis commenced.

Much of the rise in debt is corporate. While companies in the West have been deleveraging since the 2008 financial crisis, Asian companies have been doing the opposite. In fact, corporate Asia now has the world’s most leveraged balance sheets. According to Standard & Poor’s, corporate debt in Asia will exceed that of North America and Europe combined by 2016.

Action Needed. Asia’s financial institutions should increase capital adequacy ratios to reduce the threat of increased defaults. More importantly, they should begin a process of deleveraging, with aggregate credit growing more slowly than nominal GDP.

U.S. Policy Recommendation. The U.S. should encourage Asian nations to adopt Basel III standards. The accord is a voluntary regulatory standard on bank-capital adequacy, stress testing, and market-liquidity risk.

Progress on the Trans-Pacific Partnership (TPP)

The TPP is a large trade deal (the biggest in two decades) between 12 countries around the Pacific Rim. It is expected to reduce tariff and non-tariff barriers on goods and services and liberalize all sorts of regulations. The countries included in the agreement are some of the largest and fastest growing partners of the U.S. The 12 countries in the agreement account for 40 percent of world GDP and over one-quarter of world trade. The treaty is reported to have 29 chapters, dealing with everything from financial services to agricultural trade. The current agreement does not include China.

The TPP is part of the U.S.’s broader historical commitment to engagement in Asia. It is similar to other recent trade deals, such as the U.S.–Korea Free Trade Agreement (KORUS), in that it includes a broad range of regulatory and legal issues.

Action Needed. As of the date of this writing, while there apparently has been progress made, there remain a number of critical sticking points obstructing a TPP. These include: protection of intellectual property rights (the U.S. has been pushing for stronger copyright protection for music and film); state-owned enterprises (many TPP governments, such as Vietnam, Singapore, and Malaysia, have major state-owned or “linked” sectors); and Japanese protectionism in its agricultural and auto sectors. The U.S. maintains a 25 percent tariff rate on the import of light trucks.

U.S. Policy Recommendation. U.S. negotiators should press hard for the greatest possible freedom to trade in finalizing the TPP.

Financial Liberalization

One of the most pressing and critical issues currently facing the emerging economies of Asia is the continued development of their financial sectors. The banking sector dominates the emerging markets’ financial intermediation throughout Asia, but many are state-owned and allocate capital poorly. Many of Asia’s emerging stock markets, if they exist, are essentially illiquid. (Only five emerging Asian economies had active stock markets in 2014.) Corporate bond markets are also nonexistent in most emerging economies, and many emerging-market consumers have no access to credit.

Regrettably, the global financial crisis has led to a sweeping re-evaluation of financial market regulation. Basel III, for example, which mandates significantly higher capital and liquidity requirements for banks, was largely designed for Western institutions. Scheduled to be implemented by 2018, the accord ignores the fact that emerging economies are in earlier stages of economic and financial development and, therefore, will require different regulatory regimes as they deepen their financial markets and democratize credit.

Action Needed. Although financial laissez-faire economics is dead in Asia, at least for the foreseeable future, countries should nevertheless implement financial-sector reforms that lead to greater financial freedom, and in turn, financial development.

U.S. Policy Recommendation. The U.S. should encourage countries with relatively closed financial systems to open them up to foreign competition. Heavy-handed banking and financial regulation by the state—regulation that exceeds the traditional state responsibility to maintain transparency and honesty in financial markets—will impede efficiency and should be removed over time in developed and developing Asian countries alike.

Kazakhstan’s Links to Russian Economy Are Hampering Its Growth

2014 was a tough year for the Kazakh economy—the largest economy in Central Asia. Although the economy is not in recession, growth has been slower than expected. In addition to the economic impact of low oil prices, there has also been a negative trickle-down effect from Western economic sanctions on Russia. As the Russian ruble has weakened, so, too, has the Kazakh tenge. In 2014, the Kazakh central bank devalued the tenge by 19 percent; further devaluations in 2015 cannot be ruled out. The Eurasian Economic Union, to which Kazakhstan belongs, came into force in January 2015 and continues to hamper Kazakhstan’s already sluggish economic growth prospects.

Perhaps the biggest shock to the Kazakh economy has been the drop in the price of oil. Over the years, Kazakhstan enjoyed an economic prosperity based mostly on exploitation of its abundant mineral wealth—primarily hydrocarbons, but also uranium and ferrous and nonferrous metals. Devaluation of the tenge was expected to drive labor costs down and boost the natural-resources sector but, due to the drop in oil prices, that has not happened. Making a bad situation worse, the Kashagan oil field—one of the largest-ever oil discoveries—is still not in production, as development costs are billions of dollars in the red and the project will be delayed for several years since it can be profitable only at an oil price of $100 per barrel.

Action Needed. The Kazakh government should develop policies encouraging diversification of the economy into the agriculture, manufacturing, and services sectors. Furthermore, Astana should extract itself from Russian-dominated organizations such as the Eurasian Economic Union.

U.S. Policy Recommendation. Kazakhstan and the entire Central Asia region are strategically poised for economic growth, since the Chinese and East Asian markets, to which they supply raw materials, are expanding. U.S. businesses should take advantage of opportunities in Kazakhstan—as Russia and China are already doing. The U.S. can also help Eurasian countries to deal with challenges in education, health, and environment, as well as the security threat posed by terrorism. Kazakhstan aspires to join the WTO, and the U.S. can assist Kazakhstan to make the adjustments necessary to do so. One of those steps would be to pull away from Russia’s Eurasian Economic Union—a retrograde structure that serves only the interests of Russia.

The Middle East and North Africa

By James Phillips

Many of the countries in the Middle East and North Africa have undergone political and economic upheavals during the protests of the “Arab Spring.” But long-overdue economic reforms continue to be neglected or postponed due to political instability. As a result, the gradual rise in economic freedom that had been recorded in recent years has come to a halt. Structural and institutional problems abound, and the regional unemployment rate is among the highest in the world. Such high unemployment rates, which are most pronounced among younger members of the workforce, have, in turn, boosted political discontent, undermined many governments, and cast a long shadow on the region’s economic prospects.

The region’s problems are complex and rooted in decades of authoritarian rule, which has kept power and resources in the hands of a few. Simply holding elections or allowing freedom of expression will not solve these problems. Indeed, elections merely amplify political cleavages if there is no consensus on the rules of the game after the elections. Stable democracies require a supportive civil society, independent judiciary, respect for the rule of law, limited government, freedom of the press, religious freedom, and a decentralization of power. But as long as national economies are dominated by the state sector, political leaders will be reluctant to share power if that diminishes their access to state-controlled wealth. Difficult institutional reforms are required to reduce the state’s role in the economy and in peoples’ lives.

Middle East Dominated by Authoritarian and Corrupt Regimes

Many Middle Eastern countries are dominated by authoritarian regimes that carve out significant portions of national economies for their own benefit or to provide patronage for their supporters.

The tragic human catalyst that ignited the “Arab Spring” was the young Tunisian food vendor Mohammed Bouazizi, who set himself on fire on December 17, 2010, after police confiscated his fruit and vegetable cart and humiliated him, apparently because he refused to pay them a bribe. Many young Tunisians identified with his plight and were inspired to join popular protests that ousted the corrupt authoritarian regime of President Zine El Abidine Ben Ali, who fled the country.

Government corruption not only squanders economic resources, but also restricts economic competition and hinders the development of free enterprise. Corruption was a major issue that helped to galvanize opposition to governments in Egypt, Libya, Syria, Tunisia, and Yemen. Entrepreneurs are unlikely to invest their capital or hard work unless they have a reasonable chance to earn a fair return for their efforts, free from the threat of government seizure or the interference of corrupt officials.

Action Needed. Ruling elites need to commit to a philosophy of limited government and the development of independent judiciaries and commercial legal frameworks that protect property rights and ensure free competition.

U.S. Policy Recommendation. The U.S. should strengthen the OECD’s anti-bribery convention to address the sharp challenges in the Middle East. Transparency and anti-corruption practices in trade and investment should be emphasized in bilateral investment treaties and other economic exchanges. Private enterprise, a vital engine of economic growth, cannot flourish unless entrepreneurs are free to expand their businesses without fear of government confiscation.

Socialism Still Widespread in Arab Countries

In the 1950s, many Arab countries adopted socialist models for economic development, which curtailed economic growth, encouraged expansion of bureaucracies, and prompted the creation of inefficient state-owned industries. It is no coincidence that Egypt and Tunisia, the first two countries to experience the “Arab Spring” uprisings, had strong socialist legacies that created corrosive corruption and dysfunctional bureaucracies.

Action Needed. Arab countries need to discard failed socialist ideologies and emphasize market reforms and economic liberalization.

U.S. Policy Recommendation. Washington should encourage Middle East governments to liberalize their economies, remove bureaucratic red tape, and encourage domestic and foreign investment to spur the development of vibrant private sectors. Expensive state-owned enterprises should be privatized wherever possible in a transparent and fair process to guard against crony corporatism. Expanding the private sector will fuel economic growth and help to create a larger middle class—an important building block for developing stable democracies.

Many Middle East Economies Too Small to Stand Alone

Many Middle East economies are too small to provide the range of goods and services that their people demand or need. In particular, many Middle Eastern countries import food, automobiles, machinery, electronic devices, and high technology from outside the region. Consumers would benefit from lower prices for these imported goods, which are sometimes discouraged by protectionist tariffs imposed to prop up uncompetitive local industries.

Action Needed. Trade freedom reflects an economy’s openness to the flow of goods and services from around the world, and a citizen’s ability to interact freely as buyer or seller in the international marketplace. Trade restrictions can manifest themselves in the form of tariffs, export taxes, trade quotas, or outright trade bans. However, trade restrictions also appear in more subtle ways, particularly in the form of regulatory barriers. A reduction of government hindrances to the free flow of foreign commerce would have a direct and positive bearing on the ability of individuals to pursue their economic goals and maximize their productivity and well-being.

U.S. Policy Recommendation. The United States should try to negotiate bilateral FTAs with Middle East countries and encourage the formation of a regional free trade zone. FTAs could not only lower the costs of imported goods and help boost imports from the United States, but also expand exports to the U.S. market. Jordanian exports to the United States, for instance, skyrocketed from $229 million in 2001—when it ratified the FTA with the U.S.—to $1.2 billion in 2013. Although an FTA with Egypt may not be politically viable at the moment, Washington should encourage the expansion of the U.S. Department of Commerce’s Qualifying Industrial Zone (QIZ) program, which allows goods produced jointly by Israel and Egypt to enter the United States duty-free. Such expansion would have the ancillary benefit of encouraging greater cooperation between Egypt and Israel.

Iraq: More Reforms Needed

In addition to political reforms, Iraq needs systematic economic reform to stabilize its political system. The country suffers from high rates of unemployment, heavy subsidies for food, oil, and natural gas products, as well as endemic corruption.

For decades, Iraq’s governments have imposed a wide array of constraints on economic activity. Although sometimes imposed in the name of equality or some other noble societal purpose, such constraints are in reality most often imposed for the benefit of elites or special interests, and they come with a high cost to society as a whole. By substituting political judgments for those of the marketplace, government diverts entrepreneurial resources and energy from productive activities to “rent seeking”—the quest for economically unearned benefits. The result is lower productivity, economic stagnation, and declining prosperity.

Action Needed. The Iraqi government must undertake systematic economic reforms to root out corruption in the swollen public sector, privatize government monopolies wherever possible, reduce government subsidies to consumers, and create stronger and more effective institutions to improve governance. It is particularly important to create a transparent and effective oil sector, which is the driving force of the Iraqi economy. The central government also needs to create a better business environment for foreign investors, and boost exploration and development of Iraq’s huge oil production potential. The December 2014 agreement between the Iraqi government and the Kurdistan Regional Government on oil issues is a significant step forward that should help both sides increase oil production and export revenues.

U.S. Policy Recommendation. The U.S. should encourage the Iraqi government to undertake free-market economic reforms, root out corruption, reduce government subsidies, and create a transparent oil sector. It should also press the Shia-dominated government to reach out to Sunni and Kurdish Iraqi political parties and bring them into the ruling coalition on a long-term basis. This will help reduce ethnic and sectarian tensions, undercut the appeal of the Islamic State (also known as ISIS or ISIL) and other terrorist groups, and help to forge a national consensus that will enhance political stability and enable economic growth.

Central and South America and the Caribbean

By Ana Quintana and James M. Roberts

The markets in the countries of Central and South America and the Caribbean total almost half a billion people and account for trillions of dollars in annual trade and investment. Resource-rich countries in the Americas continue to profit from demand for commodities fueled by fast-paced growth in Asia and other markets, which is supporting their sustained economic growth. Millions of Latin Americans have risen from poverty as a result.

In fact, according to the World Bank, extreme poverty in Latin America and the Caribbean has fallen by half in the past 15 years and now the region counts more people in the middle class than in poverty. Its economic freedom scores, according to the 2015 Index of Economic Freedom, range from excellent (Chile) to abysmal (Cuba and Venezuela), with a major player such as Brazil, the world’s sixth-largest economy, registering comparatively low scores because of a penchant for protecting local industries with high import tariffs and regulations, as well as maintaining swollen bureaucracies and a heavy-handed regulatory regime.

This year there are several positive regional trends. Many Latin American countries are emerging as global leaders in free trade. The vast majority of the world’s FTAs are either based in the region or have regional participants. The Alliance of the Pacific (Chile, Colombia, Mexico, and Peru, along with candidate members Costa Rica and Panama) has emerged as a praiseworthy model of regional economic integration that will enhance the prosperity of its member countries. Unprecedented energy reforms in Mexico could create numerous mutually beneficial opportunities for U.S. and other multinational energy companies.

The Future of Communist Cuba

According to the 2015 Index of Economic Freedom, Cuba remains among the world’s least free economies, ranking ahead only of North Korea at the bottom of the list. The Cuban economy continues to suffer the consequences of decades of communist economic policies, cronyism, and mismanagement. Without the support it received over the years from its international benefactors, Cuba’s economy would have long since imploded.

At the height of the West’s Cold War against communism, the Soviet Union subsidized the struggling Castro regime with upwards of $4 billion a year in military and economic support. Given the unsustainable economic model embodied by communism, the decline and fall of the Soviet Union brought extreme economic hardship to Cuba and caused the regime to look elsewhere for the funding without which it would have collapsed. From the late 1990s until 2014, Hugo Chavez’s Venezuela provided that support to the Castro regime through the monetization of about 100,000 barrels of crude oil a day.

In 2015, as falling oil prices pressured the Cuban-supported regime in Caracas, the Castro government once again found itself in desperate need of a new benefactor. Normalization with the United States appeared to be the lifeline that the dying regime needed. Re-opening trade and diplomatic relations with the U.S. will allow Cuba to continue subsidizing a broken and inefficient economy without incentivizing needed reforms. Normalization with the Americans, however, will not spur meaningful economic growth absent those structural reforms.

Potential U.S. investors must be forewarned about the reality of the economic situation in Cuba: As currently constituted, Cuba’s economic and market systems are not ready for an influx of capital or imported goods from the U.S. and other leading economies.

Serious infrastructure deficiencies and flaws in monetary policy mean there will be few opportunities for U.S. companies to enjoy any quick profits from entry into the Cuban market. If anything, Cuba will be a place only for companies with very long-term investment horizons. Decaying supply chain facilities coupled with a massively inefficient and burdensome regulatory bureaucracy will slow the import/export and investment processes. Cuba’s two-tiered monetary system and hard currency controls also limit the quantity of goods and services that Cuban corporations may purchase from U.S. importers using traditional trade financing methods.

Action Needed. The Cuban regime must take significant steps toward market-based democracy.

U.S. Policy Recommendation. The U.S. commercial, economic, and financial embargo against Cuba dates from 1960 and is maintained in force today by means of sections of the following six U.S. statutes: the Trading with the Enemy Act of 1917; the Foreign Assistance Act of 1961; the Cuba Assets Control Regulations of 1963; the Cuban Democracy Act of 1992; the Helms–Burton Act of 1996; and the Trade Sanctions Reform and Export Enhancement Act of 2000. These U.S. laws should not be modified to permit normalized trade and economic relations with Cuba unless and until the Cuban regime takes significant steps to move toward a market-based democracy. The United States government must use the powerful leverage of negotiations for normalization to incentivize democratic and economic reforms on the island and not lift the embargo until Cuba meets the standards for its removal.

Economic and Political Crisis in Venezuela

The foundations of economic freedom in Venezuela have crumbled. As one Latin American pundit put it, “Brazil is becoming Argentina, Argentina is becoming Venezuela, and Venezuela is becoming Zimbabwe.” When the late Hugo Chavez took office in 1999, Venezuela scored 56 of 100 possible points in the Index of Economic Freedom. Today, after more than 15 years of authoritarian populism under Chavez and his successor Nicolás Maduro, Venezuela merits a score of just 34 points. This 22-point plunge is among the most severe ever recorded in the Index’s 21-year history. Venezuela’s 2015 rank—175th of 178 countries—place it among the most repressed nations in the world, above only Zimbabwe, Cuba, and North Korea.

In the past year, the economic and security situation has deteriorated further. Strict hard currency controls and haphazard devaluations have distorted the value of the Venezuelan currency (the Bolivar), which has declined 97 percent in purchasing power in the past three years. The country has incurred significant public debt and has the highest level of inflation in Latin America. Government mismanagement has created extensive scarcities of food and basic goods. Rather than introducing needed structural reforms, the Venezuelan government has turned to rationing, instituted price controls, and seized even more of what relatively few privately held companies still exist.

Action Needed. Regional leaders in Latin America have been reluctant to address the crisis in Venezuela. Their timid pronouncements as members of the leftist, Venezuelan-led “Union of South American States” (UNASUR) multilateral grouping have done little to quell growing domestic unrest in Venezuela. In late 2014 the Obama Administration announced targeted U.S. sanctions against seven specific Venezuelan government officials involved in “violence against anti-government protesters” or the “arrest or prosecution of individuals for their legitimate exercise of free speech.” Without regional support and similarly tough actions against the Maduro regime by neighboring Latin American governments, however, the impact of this unilateral U.S. measure will be limited.

U.S. Policy Recommendation. The U.S. should work to garner support among hemispheric allies against the Venezuelan government’s police-state tactics and active suppression of freedom of political expression. In 2014, at the request of Panama and with support from Canada and the U.S., the Organization of American States convened a special session on Venezuela. Additional such meetings could provide a viable regional platform for dispute resolution, but the U.S. must insist that any future peace discussions be based upon the Inter-American Democratic Charter, adopted on September 11, 2001, and meant to strengthen democratic institutions and improve human rights in the hemisphere. Both the U.S. and Venezuela are signatories to it. The Venezuelan government is thus obligated to guarantee the protection of human rights, including freedom from political persecution. The U.S. government must maintain unceasing pressure on it to do so.

Economic and Security Crisis in El Salvador, Guatemala, and Honduras

The “Northern Triangle” countries of El Salvador, Guatemala, and Honduras are in the midst of an unprecedented crisis. Rampant corruption and weak state institutions make it almost impossible for their governments to combat threats posed by transnational gangs and organized criminal groups. Exacerbating the problem is the region’s weak economic growth rate. Although poverty rates in Latin America have declined in general, they have increased in Guatemala to 54 percent of the population and remained relatively stagnant in Honduras at a very high 65 percent.

In addition to the dire economic straits, the region is facing a chronic citizen-security crisis. Honduras has the world’s highest homicide rate, averaging 91 per 100,000 citizens. El Salvador is fourth in the world with an average of 41 per 100,000, and Guatemala is fifth at 40 per 100,000. (By comparison, the U.S. average is five per 100,000.) Lying along a critical trafficking route, the Central American isthmus is particularly vulnerable to illicit smuggling. Honduras alone is a layover spot for upwards of 80 percent of northward-bound drug flights.

In early 2014, there was an influx of unlawful migrants on the U.S.’s southwest border, the majority of whom came from the Northern Triangle. Fleeing crime, violence, and lack of economic opportunities, many of the migrants were unaccompanied children. In response, the White House requested from Congress $1 billion for Central American development to: “1) Promote prosperity and regional economic integration; 2) Enhance security; and 3) Promote improved governance.”

Action Needed. Deteriorating conditions in the region will continue to impact U.S. national security. The situation, however, cannot be remedied by simply increasing U.S. foreign assistance. These governments have limited absorptive capacity for development assistance and often lack the political will to make necessary domestic political, fiscal, and anti-corruption reforms.

U.S. Policy Recommendations. From fiscal year (FY) 2008 through FY 2014, U.S. foreign assistance delivered under the Central American Regional Security Initiative (CARSI) to all seven countries in Central America totaled $803 million—a figure that does not include two Millennium Challenge Corporation (MCC) compacts with El Salvador totaling $365 million. It should be noted that El Salvador is currently the only MCC recipient in Latin America, in spite of the fact that the ruling socialist party’s economic and social policies directly contradict the MCC’s core values. In response to the 2014 border crisis, the Northern Triangle countries of El Salvador, Guatemala, and Honduras have entered into a development and security plan (the “Plan of the Alliance for Prosperity in the Northern Triangle”) which has been strongly endorsed by the Obama White House. Rather than standing up an entirely new program—one that fails to emphasize sufficient accountability, financial participation, and ownership of outcomes on the part of the aid-recipient countries—the U.S. instead should work to improve the existing CARSI program. In developing policy considerations to promote security in the Western Hemisphere, the U.S. should be wary of promoting potentially ineffective assistance programs—clearly defined outcomes that promote U.S. national security must be the cornerstone of any policy. Any American taxpayer funds should directly target improvements to the rule of law and be conditioned on recipient governments making internal structural reforms.

Europe

By Ted R. Bromund, PhD, and Luke Coffey

In recent years, there has been a significant realignment of European countries in terms of their economic freedom. For example, in the 2015 Index, 13 European countries recorded their highest economic freedom scores. Nine of the world’s top 20 freest economies are in Europe and the region scores well above the world average in eight of the 10 economic freedoms, leading the world in investment freedom and monetary freedom. On the other hand, Europe was also one of the two regions in the world—along with North America—that experienced a drop in economic freedom in 2014, a year when it lost its leadership in trade freedom.

2015 saw a second EU country, Estonia, join the Republic of Ireland in the ranks of the world’s top 10 most economically free economies. Taken as a whole, however, the Europe region is undergoing a tumultuous and uncertain period epitomized by the ongoing sovereign debt crisis in Europe’s southern tier, home to the majority of its most poorly performing nations.

Europe’s economic freedom is undermined by excessive government spending to support elaborate welfare-state policies. In turn, these policies are hindering productivity growth and job creation, causing economic stagnation and rapidly increasing levels of public debt. Many European countries have been slow to implement the cuts in public spending that are needed to spur economic growth, and even slower to undertake the wider structural reforms required to encourage a more entrepreneurial climate. Furthermore, Europe’s elite appear to believe that more European integration, not prudent economic policies, is the answer to Europe’s problem.

The Continuing Crisis in the Eurozone

Since late 2009, the 19 European Union members now using the euro (of 28 total members) have been beset by serial sovereign debt crises, with more looming on the horizon. Indeed, Germany sees the ongoing eurozone crisis as its number one challenge. Cyprus, Greece, Ireland, Portugal, and Spain have received multibillion-euro aid packages financed by their northern eurozone partners and the International Monetary Fund (IMF, which violated its own lending rules to do so). European leaders are seeking a way to keep the eurozone together without addressing the root causes of the crisis. The aid recipients in the south have adopted stringent austerity measures in exchange for the aid, but their populations are deeply dissatisfied with spending cuts. In early 2015, this led to the victory of Syriza—the Marxist political party in Greece.

Although growth in the eurozone in 2014 ended the year at just less than 1 percent, which was unexpectedly strong, economic activity is still well below the peak reached in 2008, before the full onset of the financial crisis. Nor has the meager economic growth of 2014 translated into rapid job growth. Unemployment across the 19-country eurozone bloc stands at 11.4 percent, down from 11.8 percent at the end of 2013. At nearly 26 percent, Greece’s unemployment rate is the highest in the European Union; youth unemployment eurozone-wide is 23 percent and reaches 51 percent in Spain and 42 percent in Italy. Greece is teetering on the brink of its third sovereign default since the current crisis began. A few others, such as Poland, have bucked the trend and are enjoying strong economic growth.

U.S. banks hold some eurozone debt and would take a hit in the event of a default, but the deepest effects would likely be felt through the interconnected global financial system. U.S. exports to European markets would start to fall off and could decline markedly. Furthermore, the U.S. could be impacted by EU Commission proposals such as an EU financial transaction tax (FTT). The EU is also increasingly opposed to “tax competition” policies that would give EU member states the right to lower their own taxes.

Action Needed. Although leaders of the European Union intend to pursue even deeper fiscal and political integration—which would concentrate even more power in the hands of the European super state—they should state this intention in the form of a referendum for voters, rather than deciding this important question unilaterally or undemocratically. At the national member-state level, budgets should not be balanced by tax increases; instead, the European Union, and national leaders, should recognize that pro-market structural reforms and, in many cases, spending cuts, are necessary. For eurozone nations such as Greece, the choice now is a hard one: exit from the euro followed by national default and unknown economic consequences, or remain in the euro and endure a punishing recession.

U.S. Policy Recommendation. Regarding the bailouts of eurozone countries, the U.S. should not participate directly or even indirectly by approving an increase in the IMF’s regular lending capacity. Rather, the United States should adamantly refuse to participate in a global FTT and should counsel the EU to avoid such a self-destructive move.

The EU’s Economically Destructive Common Agricultural Policy

Although it has recently been scaled back somewhat as governments attempt to impose austerity measures in Europe, the EU still spends more on its Common Agricultural Policy (CAP) than on any other part of its budget. The CAP funds direct payments to farmers, rural development initiatives, and food-export subsidies. One of the first supranational policies of the EU, the CAP remains the union’s single largest expenditure and still accounts for nearly 40 percent of the European Union’s total budget.

Some of Europe’s largest companies receive government aid—such as Doux, a French conglomerate that is Europe’s largest poultry producer; and major sugar producers, including Belgium’s Raffinerie Tirlemontoise and France’s Saint Louis Sucre. As is the case for the billions of dollars allocated in annual U.S. farm subsidies, the CAP has become a byword for corporate welfare. It has also resulted in higher food bills for many European consumers and undermined development in poorer countries in Africa. The Common Fisheries Policy (CFP) is another such program, which has witnessed a dramatic decline in employment in the fishing industry as well as dangerously low fish stocks in the Mediterranean and Atlantic.

Action Needed. The EU’s Common Agricultural Policy is destructive, wasteful, and distortive, and must be reformed.

U.S. Policy Recommendation. Expensive and unwarranted U.S. farm subsidies must be reined in. As part of efforts to negotiate a TTIP free trade agreement, individual European countries, the EU, and the U.S. should pledge to eradicate all agricultural subsidies by 2016, including the EU fisheries subsidies. Europe and America should announce that they will fully open their agricultural markets to the world and allow developing nations to make use of their comparative advantages in this sector.

Freer Trade with U.S. Might Help, But Will Not Solve EU’s Problems

The United States and the European Union continue to negotiate the TTIP, which could reduce or eliminate both tariff and non-tariff barriers to trade between the U.S. and the EU—a trade relationship that accounts for about 30 percent of world trade. Even the most generous estimates, however, predict the TTIP would add less than 1 percent of growth to the economies of the U.S. and Europe. While this addition would be welcome, it would not be a game changer as claimed by many TTIP proponents on both sides of the Atlantic.

There are reasons to be concerned—even in the early stages of negotiations—that the TTIP will not promote free trade, but instead build a transatlantic managed market. The ramifications of such managed trade would, in practice, diminish, or even eliminate, apparent U.S. gains from the TTIP, and would not promote economic freedom. The U.S. should, therefore, continue TTIP negotiations cautiously and assess any agreement based on analysis of the partnership’s overall merits. Washington should not support a potential TTIP that would increase the regulatory burden on the economies of the U.S. and the EU and further harm their growth prospects.

Action Needed. Leaders of the EU’s 28 member nation-states should press the European Commission in Brussels to negotiate high-quality trade agreements that genuinely promote free trade. At the same time they should seek to recover their national freedom to negotiate sovereign bilateral trade and investment agreements outside the purview of the EU. In all talks, peripheral issues—such as Edward Snowden, the NSA, and other public controversies that in the past some in Europe have sought to attach to negotiations with the U.S.—should be ignored.

U.S. Policy Recommendation. The U.S. should be prepared to support a TTIP that empowers consumers and opens market opportunities for entrepreneurs. U.S. policymakers should not, however, uncritically support any draft TTIP presented to them without first confirming conclusively that the agreement is not a “Trojan Horse” for increased regulation and the importation of the EU’s managed market into the U.S. Such an agreement would be detrimental to all parties involved, especially the United States.

One of the most important components that should be included in a TTIP is a provision to create an investor-state dispute settlement (ISDS) mechanism. ISDS mechanisms are a critical feature of any 21st-century high-quality trade agreement as they secure basic legal protections for a signatory state’s nationals abroad. The ISDS provision should contain four basic protections: (1) minimum standards of treatment; (2) due process; (3) nondiscrimination; and (4) an anti-expropriation clause. An ISDS mechanism will also allow foreign claimants under the agreement to take their claim to the international investment tribunal forum provided by the TTIP, avoiding the local, cumbersome, and often corrupt remedies of domestic courts.

At the end of the day the fundamental interest of the U.S. in agreeing to any FTA with the EU will be to advance free trade in cooperation with willing national partners—not in collaborating with the EU to manage markets and grow bureaucracies.

Stopping EU Political Integration, Bringing Back the Nation-State

Europe needs to return to fundamental basics of democracy. Power needs to be brought back to the member states and to the people. Intrusive and excessive EU regulations need to be curtailed. Wasteful spending in Brussels needs to end. Policies that promote growth need to be pursued. And the excessive borrowing and entitlement programs need to stop.

Action Needed. Instead of increasing policy competencies in opaque institutions in Brussels, power should be returned to the member states and to the people. This will promote economic freedom in Europe.

U.S. Policy Recommendation. Instead of calling for deeper political and fiscal integration among eurozone members, the U.S. should uphold the principles of sovereignty and democracy when framing its policy toward Europe.

Ukraine Needs Weapons … and Financial Assistance

Even without Crimea, Ukraine’s developed industrial infrastructure, large geographical area and population, as well as its proximity to both the EU and Russia, make it potentially one of the biggest markets in Europe. It has a strong industrial base (albeit much of it under separatist control), an educated workforce, some of the best agricultural land in the world, and, potentially, large amounts of hydrocarbons, including shale gas, as well as offshore oil and gas in the Black Sea.

Russia’s 2014 invasion and occupation of the Crimean Peninsula, and the subsequent Russian-induced instability in eastern Ukraine, have put massive strains on an already struggling Ukrainian economy. Luhansk and Donestsk, two oblasts currently in rebellion against the national government in Kyiv, account for 25 percent of Ukraine’s industrial production and 27 percent of the country’s exports—even though the two oblasts have only 15 percent of Ukraine’s population.

While much of the international debate on how to help Ukraine has centered on whether the West should provide weapons, Kyiv’s most pressing need is enough financial support to avoid a default. In 2014, its GDP shrank by 6.5 percent and unemployment is on the rise. As of March 2015 it was estimated that Ukraine had only about $6.42 billion in foreign reserves, which equates to five weeks of imports—a dangerously low level. The national currency, the hryvnia, is at a record low. In only two days in January it fell more by than 50 percent.

The IMF has agreed to provide up to $17 billion in loans. This is in addition to $10 billion pledged by other countries—including $1 billion in financial aid from the United States. Before President Yanukovych was ousted in 2014, Russia lent $3 billion to Ukraine, which it is struggling to repay. In fact, if Ukraine’s debt-to-GDP ratio exceeds 60 percent, under the terms of the loan Russia can call in the debt early. According to European analysts all of these loans, combined, still leave a financing gap of several billion dollars that are needed to prevent a default and economic collapse.

Although international aid will help stabilize Ukraine’s immediate financial problems, it is not sufficient to set the country on the path to a stable and sustainable economic future. For its long-term financial health, deep economic reforms are needed.

Ukraine also needs political reforms in order to fight rampant corruption, improve governance, and protect private property as well as foreign investment. Ukraine ranks as the 142nd most corrupt country in the world in Transparency International’s 2014 Corruption Perception Index, even lower than Russia (which ranks 136th).

Action Needed. Ukraine must defeat corruption, improve governance, cleanse and revive the government’s civil service, reverse deterioration of its democratic and human rights performance, and improve the rule of law to achieve its economic potential.

U.S. Policy Recommendation. The U.S. and EU should ensure that all financial aid for Ukraine through direct assistance and the IMF is focused on programs that directly address the need for deep structural reforms. They should insist that the Ukrainian government implement these reforms to encourage growth of the Ukrainian economy and lessen its dependence on Russia. As a world leader in the oil and gas industry, the U.S. could also help Ukraine develop its oil, gas, and shale gas deposits in western Ukraine and the Black Sea area, and prevent Russia from interfering in offshore exploration. American technical expertise in these areas and others—such as in nuclear power safety—would match Ukraine’s needs well.

Russia

By William T. Wilson, PhD

Russia’s Economy Stares into the Abyss

The long-term prospects for the Russian economy are bleak. Russia is a failed petro-state, riddled with corruption facing a rapidly aging population. The economy is quickly deteriorating, with real GDP growth of only 0.6 percent in 2014 (the slowest since the global recession in 2009) and with expectations of a contraction of at least 4 percent in 2015 unless energy prices strongly rebound and economic sanctions are lifted. Capital flight has accelerated and the ruble’s massive depreciation has lifted inflation to double digit rates.

Unlike the 2008–2009 crisis, in which the Russian economy contracted 8 percent, Russia possesses large foreign exchange reserves of approximately $400 billion. Its national debt, at only 10 percent of GDP, is small. Russia’s total foreign debt is just 35 percent of GDP. It has, however, at times, been spending these reserves defending the ruble and much of these reserves are not liquid and immediately available.

A protracted period of low energy prices would be devastating. Oil and natural gas sales accounted for 68 percent of Russia’s total export revenues in 2013 and half of the central government’s tax revenue. According to the Polish Institute for International Affairs, Russian GDP per capita income is expected to range between $8,000 and $10,000 in 2015, down from $14,000 in 2013. Action Needed. Russia had plenty of time to diversify its economy during its decade of plenty but squandered the opportunity. It needs to withdraw from the Eastern Ukraine (which is helping to bleed its budget) and open its economy to foreign direct investment in energy, manufacturing, and services. It should also remove the retaliatory ban on western foods imports, which has backfired. It has led to the destruction of the prized customs union with Belarus, which was an important transit route for European food imports.

U.S. Policy Recommendation. With relatively little bilateral trade and investment, U.S. policy recommendations will be ignored unless Russia is serious about economic liberalization. The U.S. can pressure Russia via the WTO (which it joined in 2012) to honor its existing and ongoing commitments. The U.S. should remove restrictions on offshore drilling; the downward pressure on oil prices from additional supply would put more pressure on Russia to reform its economy away from hydrocarbons.

Economic Sanctions Against Russia

After the invasion of Crimea, the West imposed economic sanctions against Russia that initially largely consisted of travel bans on prominent Russian oligarchs that had close ties to the Kremlin. As Russian personnel and equipment poured in from Russia, the sanctions were tightened, including bans on oilfield equipment, the import and export of arms, and exports of dual-use technology. Russian banks have also been cut off from Western capital markets.

While it is difficult to separate the impact of the economic sanctions and sharply lower energy prices on the Russian economy, there is a general consensus the sanctions have had a much more powerful effect than anyone inside or outside Russia had expected.

Russia, in turn, imposed a complete ban of the importation of foodstuffs from any nation imposing sanctions. This ban has lifted domestic inflation in Russia but has cost the European Union a good deal, as its trade links with Russia are significant. According to the Spanish Foreign Minister, as of February 2015, the sanctions have cost the EU 21 billion euros in lost exports. Over the same time period, Exxon has stated that Russian sanctions have cost it $1 billion. Russia is the EU’s third largest trading partner while the EU is Russia’s largest trading partner.

Action Needed. It is in Russia’s own economic interests to respect the sovereignty of Ukraine and withdraw its occupying forces from Eastern Ukraine. Russia must also stop using energy as a political weapon against Eastern and Western Europe, which acts only to destabilize further the region.

U.S. Policy Recommendations. Europe needs to find alternative energy sources. The U.S. should remove the export ban for natural gas and oil. Exclusion from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) banking system would complicate all bank payments for Russia. Iran’s exclusion from SWIFT was the primary reason in compelling Iran to the negotiation table on nuclear talks.

Corruption and Authoritarianism Continue to Plague Russia

Russia is the largest country on Earth. It is blessed with tremendous natural resources, including hydrocarbons, minerals, and timber, as well as an educated workforce. Its economic development, however, is stunted—mismanagement, corruption, abysmal rule of law, poor protection of property rights, and crumbling infrastructure all impede prosperity. Capital flight surpasses foreign investment. The Russian Federation currently ranks 136th in Transparency International’s 2014 Corruption Perceptions Index (down from 127 in 2013).

For years, the Kremlin has ignored high-level corruption: The authorities’ grip on power and graft remains unrelenting. As the late Boris Nemtsov reported in 2014, all the major construction projects in Sochi were allegedly awarded without public tenders or competitive bidding to President Putin’s cronies, and not a single official responsible for the huge embezzlement of funds was imprisoned.

In Russia, the politically cohesive ruling circle controls the Duma (parliament), the law enforcement and security services, the courts, the state-owned companies, and the national television stations. In the absence of political and economic freedom and the rule of law, capital flight will continue, and popular support of the government will remain questionable. Without democratization and liberalization, deep reforms are impossible. Opposed to such an agenda, the Kremlin distracts the Russian public and seeks additional sources of revenue by grabbing additional territory in neighboring countries of the former USSR (most recently in Ukraine and Georgia).

Action Needed. Russia must undertake wholesale reform of the legal system—one that strengthens the rule of law and fights against corruption.

U.S. Policy Recommendations. In 2012, the U.S. Congress took the action that the Russian Duma should have taken years ago, by passing the Sergei Magnitsky Rule of Law Accountability Act. This law matches the best of America’s interests with the best of its ideals, naming the corrupt officials involved in the death of Sergei Magnitsky—a whistleblower who worked as an auditor at a private Russian law firm and made credible allegations of massive corruption by Russian government officials. The Magnitsky Act will prevent those responsible for his death (and for other gross and systematic violations of human rights) from investing in, and visiting, the United States. The U.S. government should expand the list of names of corrupt Russian officials in the Magnitsky Act in the wake of Moscow’s illegal annexation of Crimea. Many of Russia’s leading violators of human rights also travel to Europe, vacationing and investing there. Therefore, European legal norms against such officials would be even more effective. It is time for the U.S. and its allies to hold these human rights violators accountable, and time for the U.S. to call on the European Union to adopt similar measures.

Arctic Region

By Luke Coffey

The Arctic region encompasses the lands and territorial waters of eight countries (Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden, and the United States) spread across three continents. Although, unlike in the Antarctic, there is no Arctic land mass covering the North Pole—just ocean—the region is home to some of the roughest terrain and waters, and harshest weather, found anywhere in the world. It is a region rich in minerals, wildlife, fish, and other natural resources. By some estimates, up to 13 percent of the world’s undiscovered oil reserves and almost one-third of the world’s undiscovered natural gas reserves are located in the Arctic region.

The region represents one of the least populated areas in the world, with sparse nomadic communities and very few large cities and towns. Approximately half of the Arctic population lives in Russia, which ranks as just 143rd freest (of 178 countries) in the 2015 Index of Economic Freedom.

The melting of Arctic ice during the summer months causes challenges for the U.S. in terms of Arctic security but also creates new opportunities for economic development. A decrease of ice means new shipping lanes opening, increased tourism, and further natural resource exploration. Many of the shipping lanes currently used in the Arctic are a considerable distance from search and rescue facilities, and natural resource exploration that would be considered routine in other locations in the world is complex, costly, and dangerous in the Arctic.

The opening of the Arctic offers new trade opportunities. For example, using the Northern Sea Route (NSR—aka the “Northeast Passage”) along the Russian coast reduces a trip from Hamburg to Shanghai by almost 4,000 miles and reduces delivery time by a week. Moreover, unlike the Gulf of Aden, there are no pirates operating in the Arctic now nor are there likely to be any in the future.

So economic activity is sure to increase, although predictions of how quickly that will happen are difficult to make—viz the downturn in shipping over the past year through the NSR due perhaps to higher risk due to sanctions on Russia and reduced operating costs for longer traditional routes because of lower oil prices. On the other hand, ship traffic through the Bering Strait, just south of the Arctic Circle, has been increasing for the past five years.

While economic activity in the Arctic region is always accompanied by significant challenges, all of which serve to dampen any overly optimistic predictions, the bottom line is that commercial activities in the region will increase and offer new opportunities for those who live or work there. So, countries bordering the Arctic should start implementing policies to promote economic freedom in the area.

Despite Reduced Economic Activity, U.S. Must Champion Economic Freedom in the Arctic

In 2014, the Northern Sea Route (NSR) was fully open for six weeks, from August to October, although ships with an icebreaker escort could use the passage for a longer period of time. Use of the NSR dropped dramatically, with 53 voyages in 2014 (22 of which using only a portion of the route), down from 71 in 2013. The amount of cargo transported using the NSR plummeted 77 percent in 2014 compared with 2013.

While Russia claims the downturn in traffic was the result of business decisions made by a few companies, sanctions put a damper on traffic. All but six vessels that crossed the NSR in 2014 were Russian flagged.

The slowdown in NSR traffic highlights the many factors—including transit fees, sparse search and rescue infrastructure in the Arctic, ice, strain on crews and ships, lower fuel prices, and geopolitical realities—that have converged to make the financial and time savings of the NSR less appealing.

While Russia has prioritized the building of Arctic infrastructure, in particular military infrastructure, the degree to which that can be accomplished in the midst of a troubled Russian economy remains to be seen.

Western economic sanctions against Russia have hampered that nation’s ability to extract oil from the Arctic. For instance, in early 2015, Rosneft, the Russian state-owned oil company, announced that it would delay Arctic drilling due to difficulty working with ExxonMobil Corporation because of sanctions.

In the U.S., the Obama Administrations designated over 12 million new acres of land in the Arctic National Wildlife Refuge (ANWR) in Alaska as wilderness, thus placing them off-limits to resource development.

Action Needed. It is in the interest of all Arctic-bordering countries to pursue policies that encourage and promote economic freedom in the Arctic region. Such policies include the free movement of goods and people where possible and appropriate.

U.S. Policy Recommendation. The U.S. should use its Arctic Council chairmanship from 2015 to 2017 to promote economic freedom in the Arctic. The U.S. should also push for development of the infrastructure, search and rescue, and communications networks necessary to sustain and enhance economic activity in the region.

Maintain Arctic Stability for Economic Freedom

The harsh environment in the Arctic affects many capabilities that are prerequisites for economic activity. Search and rescue stations are often few and far between, limiting the frequency and distance of commercial shipping in the region. Communication technologies taken for granted in most other places in the world, such as high-frequency radio signals and the Global Positioning System (GPS), function relatively poorly due to limited availability of satellite geometry, harsh climate, and other challenging environmental conditions. Existing U.S. civilian and military capabilities required to achieve good situational awareness are also being downgraded due to underfunding. That will simply make an already bad situation worse. It will also limit economic activity in the region.

As elsewhere in the world, economic freedom in the Arctic would be further hampered by conflict and instability. Fortunately, there is a very low threat of armed conflict in the Arctic, and it is in the world’s interest to keep it that way. While Russia continues to invest in both rebuilding existing Arctic military infrastructure and creating more, the region remains one of the few where the West and Russia exhibit a high level of cooperation. Currently, the biggest security challenges in the Arctic arise from the expected increase in shipping, both for cargo and tourism, and potential complications that may arise when natural resource exploration in the region rebounds. With the correct policy mix, the risks associated with these challenges can be mitigated by close collaboration by Arctic stakeholders.

Action Needed. Arctic countries need to work closely with each other, primarily through the Arctic Council but also on a bilateral and multilateral basis, to ensure that all participants in economic activity have access to lifesaving government resources. They also must work together to address the myriad security issues facing the region. In the Arctic, the sovereignty of each national claim is protected by the maintenance of regional security and stability. Respecting the national sovereignty of others in the Arctic while maintaining the ability to enforce one’s own sovereignty will ensure that the probability of armed conflict in the region remains low.

U.S. Policy Recommendation. America’s economic interests in the Arctic region will only increase in the years to come. As other nations deploy resources and assets in the region to secure their national interests, America cannot afford to fall behind. It is essential, therefore, that deep cuts in U.S. military spending and degraded U.S. military capabilities in the region be halted—and, ultimately, reserved. The U.S. should acknowledge that the Arctic Council is the best forum to cooperation with other Arctic states and use its 2015–2017 Chairmanship of the Arctic Council to promote economic freedom and national sovereignty throughout the region.

Contributors:
Ted R. Bromund, PhD, is Senior Research Fellow in Anglo–American Relations in the Margaret Thatcher Center for Freedom, of the Kathryn and Shelby Cullom Davis Institute for National Security and Foreign Policy, at The Heritage Foundation. Luke Coffey is Margaret Thatcher Fellow in the Thatcher Center. Charlotte Florance was Policy Analyst for Africa in the Douglas and Sarah Allison Center for Foreign and National Security Policy, of the Davis Institute. David Inserra is Research Associate for Homeland Security and Cybersecurity in the Davis Institute. Anthony B. Kim is Research Manager of the Index of Economic Freedom and Senior Policy Analyst for Economic Freedom in the Center for Trade and Economics, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation. Ambassador Terry Miller is Director of the Center for Trade and Economics and the Center for Data Analysis, of the Institute for Economic Freedom and Opportunity, and Mark A. Kolokotrones Fellow in Economic Freedom, at The Heritage Foundation. Ryan Olson is a Research Associate in the Center for Trade and Economics. James Phillips is Senior Research Fellow for Middle Eastern Affairs in the Allison Center. Ana Quintana is Policy Analyst for Latin America and the Western Hemisphere in the Allison Center. Bryan Riley is Jay Van Andel Senior Analyst in Trade Policy in the Center for Trade and Economics. James M. Roberts is Research Fellow for Economic Freedom and Growth in the Center for Trade and Economics. William T. Wilson, PhD, is Senior Research Fellow in the Asian Studies Center, of the Davis Institute.

Source:
This article was published by The Heritage Foundation.

In this week’s address, US President Barack Obama spoke about his upcoming trip to Alaska, during which he will view the effects of climate change firsthand. Alaskans are already living with the impact of climate change, with glaciers melting faster, and temperatures projected to rise between six and twelve degrees by the end of the century. In his address, the President spoke to ways in which we can address these challenges, including the transition away from fossil fuels to more renewable energy sources like wind and solar, an effort in which America is already leading. And he stressed that while our economy still has to rely on oil and gas during that transition, we should rely more on domestic production than importing from foreign counties who do not have the same environmental or safety standards as the United States. The President looked forward to his upcoming trip, and promised that while he is in office, America will lead the world to meet the threat of climate change before it’s too late.

Remarks of President Barack Obama
Weekly Address
The White House
August 29, 2015

Hi, everybody. This Monday, I’m heading to Alaska for a three-day tour of the state.

I’ve been looking forward to this for a long time. Not only because Alaska is one of the most beautiful places in a country that’s full of beautiful places – but because I’ll have several opportunities to meet with everyday Alaskans about what’s going on in their lives. I’ll travel throughout the state, meeting with Alaskans who live above the Arctic Circle, with Alaska natives, and with folks who earn their livelihoods through fishing and tourism. And I expect to learn a lot.

One thing I’ve learned so far is that a lot of these conversations begin with climate change. And that’s because Alaskans are already living with its effects. More frequent and extensive wildfires. Bigger storm surges as sea ice melts faster. Some of the swiftest shoreline erosion in the world – in some places, more than three feet a year.

Alaska’s glaciers are melting faster too, threatening tourism and adding to rising seas. And if we do nothing, Alaskan temperatures are projected to rise between six and twelve degrees by the end of the century, changing all sorts of industries forever.

This is all real. This is happening to our fellow Americans right now. In fact, Alaska’s governor recently told me that four villages are in “imminent danger” and have to be relocated. Already, rising sea levels are beginning to swallow one island community.

Think about that. If another country threatened to wipe out an American town, we’d do everything in our power to protect ourselves. Climate change poses the same threat, right now.

That’s why one of the things I’ll do while I’m in Alaska is to convene other nations to meet this threat. Several Arctic nations have already committed to action. Since the United States and China worked together to set ambitious climate targets last year, leading by example, many of the world’s biggest emitters have come forward with new climate plans of their own. And that’s a good sign as we approach this December’s global climate negotiations in Paris.

Now, one of the ways America is leading is by transitioning away from dirty energy sources that threaten our health and our environment, and by going all-in on clean, renewable energy sources like wind and solar. And Alaska has the natural resources to be a global leader in this effort.

Now even as we accelerate this transition, our economy still has to rely on oil and gas. As long as that’s the case, I believe we should rely more on domestic production than on foreign imports, and we should demand the highest safety standards in the industry – our own. Still, I know there are Americans who are concerned about oil companies drilling in environmentally sensitive waters. Some are also concerned with my administration’s decision to approve Shell’s application to drill a well off the Alaskan coast, using leases they purchased before I took office. I share people’s concerns about offshore drilling. I remember the BP spill in the Gulf of Mexico all too well.

That’s precisely why my administration has worked to make sure that our oil exploration conducted under these leases is done at the highest standards possible, with requirements specifically tailored to the risks of drilling off Alaska. We don’t rubber-stamp permits. We made it clear that Shell has to meet our high standards in how they conduct their operations – and it’s a testament to how rigorous we’ve applied those standards that Shell has delayed and limited its exploration off Alaska while trying to meet them. The bottom line is, safety has been and will continue to be my administration’s top priority when it comes to oil and gas exploration off America’s precious coasts – even as we push our economy and the world to ultimately transition off of fossil fuels.

So I’m looking forward to talking with Alaskans about how we can work together to make America the global leader on climate change around the globe. And we’re going to offer unique and engaging ways for you to join me on this trip all week at WhiteHouse.gov/Alaska. Because what’s happening in Alaska is happening to us. It’s our wakeup call. And as long as I’m President, America will lead the world to meet the threat of climate change before it’s too late.

Thanks, and have a great weekend.