Center for World Conflict and Peace

Center for World Conflict and Peace

Monday, July 8, 2013

Political Risk and Economic Security in Canada-U.S. Trade Relations

Canada is overwhelmingly the United States’ largest trading partner, with approximately 80% of U.S. foreign trade conducted with its northern neighbor; the same fact can be applied almost in the reverse regarding Canada’s trade relationship with the U.S. According to a report commissioned by the Canadian Embassy in the U.S., 7.1 million U.S. jobs are supported by Canadian companies.  Such a relationship is not a mere token of friendship, but is a matter of economic security for both countries. Certain events in the United States, however, threaten to jeopardize this relationship, constituting a “political risk” for Canada’s economic investment in the U.S.
With the U.S. economy still far from recovered and unemployment still high, any significant damage to trade relations with America’s chief, nay predominant, economic partner can only serve to the detriment of U.S. economic security as well. If the United States cannot properly manage its relations with the country with which it conducts so much of its foreign trade, Canada may well seek out options elsewhere. It’s not an issue of hurt feelings and sentimentality. It is about the strength and viability of the U.S. economy, something with which Americans cannot afford to be cavalier.
The Canadian economy has not greatly diversified its export base, and in some ways is a “petrostate” (some even call it an “energy superpower”). The value of the Canadian dollar is largely tied to the price of its major export commodity, oil. Yet Canada’s economy is much better suited to compete in the global market than other so-called “petrostates” such as Russia and Saudi Arabia, with a great amount of technological and industrial capabilities and ready access to the burgeoning economies of the Asia-Pacific region -- a fact further bolstered by the presence of Vancouver, Canada’s largest port, on the country’s west coast.
Although the Canadian dollar’s value is largely linked to oil prices, it is also a designated reserve currency -- the IMF declared it officially as such in late 2012, although on an informal basis the loonie had been used as a reserve currency for decades. The IMF’s decision was, in part, based on the Canadian economy’s relative stability in the post-financial crisis period. The Economist, in fact, has described Canada as having the strongest post-crisis economy of the G7 nations.
Iceland, which suffered a major collapse of three privately-owned commercial banks, had considered using the Canadian dollar as its national currency, and while it ultimately opted not to, Iceland’s choice of the Canadian dollar, as opposed to the Euro, one of the Scandinavian krone currencies or even the British pound, as a possible new national currency attests to the Canadian dollar’s strength. The Bank of England’s decision to invite Canadian banker Mark Carney to succeed Sir Mervyn King as Governor of the Bank is further testament to the strength and versatility of Canada’s economy.
The development of Canada’s economic ties with other global markets is already developing strongly. Despite both being signatories of the North American Free Trade Agreement (NAFTA), it’s rather easy to assume that because Canada is geographically separated from Mexico by the continental U.S. that Canada and Mexico are united only by their common, more domineering neighbor. Yet of late, Canada has been developing its own bilateral trade relations with Mexico, both within and outside the framework of NAFTA.
The Harper government has also famously pursued stronger relations with China. This isn't to suggest that Canada is “pro-China,” but Prime Minister Stephen Harper, as a trained economist, understands that China is an emerging market, and is only separated by an ocean. In fact, Mr. Harper’s foreign policy overall has demonstrated that Canada is not the soft “nice guy” on the international stage it has been so made out to be, and has shown that Canada is still very much a sovereign nation in control of its own destiny, and will act accordingly, something American conventional wisdom.
This is not the first time a strong Canadian leader has emerged willing to take steps to ensure what he felt was best for Canada economically. In 1972, Liberal Prime Minister Pierre E. Trudeau (who famously told CBC journalist Tim Ralfe “just watch me,” when asked how far he would go to deal with a political crisis in Québec), unveiled the “Third Option” which sought to increase Canada’s trade relations with Asia and Europe. This, however, was replaced by Trudeau’s second-term successor, Conservative PM Brian Mulroney, who implemented what evolved to eventually become Canada’s contribution to NAFTA, further shoring up Canada’s economic ties with the U.S.
The important difference with those state of affairs then and the reality of the world today is that much of the world was closed to the type of global trade that is now the norm today. The bipolar world of the Cold War has given way to a multipolar world with several emerging markets, many of which do not have their own adequate supplies of energy, thus strengthening the position of a state like Canada, which has ample amounts of energy to bring to market.
The Canadian response to the Obama Administration’s apprehensions regarding the Keystone XL pipeline underscores how important energy exports are to Canada’s economic security. It has become such an important issue in Canada that Canadians have warned that a rejection of the pipeline would result in a “deep freeze” in Canada-U.S. relations. The concerns of American environmentalists opposed to the pipeline are certainly valid, and it appears that a good-faith effort has been taken by the parties involved in the pipeline’s construction to find ways to build the pipeline without damaging the environment. The fear on the part of those in support of the pipeline is that if it's rejected, Canada (which is the largest foreign supplier of natural energy to the U.S.) will begin to direct its energy sales toward China.
Heightened border security after 9/11 has also taken its toll on Canada-U.S. trade relations. With the best of intentions (e.g., protecting both countries from the entry of terrorists, criminals, etc.), the tightening of the border has slowed trade relations. For instance, large cross-border shipments of products are held longer at customs, causing the companies in charge of production, logistics and receiving to lose valuable time and money, a deplorable situation only due to be exacerbated by the budget sequestration (which will have an effect on customs and border protection staff). This is a case-in-point of political risk, where political actions can cause an unfavorable environment for foreign investment.
If conditions of political risk are such that the risk-to-ROI ratio is too unfavorable for the investing party, the company will take its business elsewhere. This past spring the Globe and Mail has predicted that the U.S. governmental budget sequestration will have particular bearing on Canada’s defense industry, which will ultimately have implications for the U.S. national security, seeing as one of the cornerstones of Canada’s foreign policy has been engagement in various peacekeeping operations around the world (not to mention Canada’s strong role in the war in Afghanistan).
When all is said and done, if Canada does not find their trade relationship with the U.S. to be profitable, there is nothing to say that they won’t start taking their business elsewhere. The presence of a large French-speaking population gives its government and business community ready access to the Francophone markets in Europe and Africa. And as Canada’s immigrant communities become more integrated in their adopted homeland and rise to new levels in business, their language and cultural skills (which tend to be well-preserved in the Canadian “mosaic”) may well serve to give Canada greater access to other emerging markets in Asia.
Overall, this means that the U.S. runs the risk of undercutting its largest foreign trade relationship, a vital aspect to the U.S.’s economic security. While the Canada-U.S. relationship is strong, business always rules the day, and Canada will take its business where is best for its national economy. The Canadian economy is relatively robust, and appears to have less to lose than the United States. For the sake of economic security, the U.S. would do well, then, to seek ways to take better care of Canada-U.S. trade relations. While Americans may be taking steps to protect its border and its environment, trade is also a major component of national security, and it would be unwise to trade one facet of security for another.

Thursday, July 4, 2013

Is there a Global Epidemic of Protest?

In an article in The DiplomatRobert Kelly raised an interesting question regarding whether the youth protests that have engulfed Turkey, Brazil, Egypt will spread to Asia. He argued that all of them have a common denominator with other Asian countries, where there are:
[W]ell-educated youth, exposed through modern technologies to the reality of better, cleaner governance elsewhere. And many of the problems these protests are identifying exist in spades in Asia: high-handed, out-of-touch governments; election-proof pseudo-technocracies that act as unaccountable oligarchies; shallow, clique-ish political parties that provide no meaningful transmission belt of citizen preferences; massive government and business corruption; wasteful white-elephant spending to capture global “prestige” while everyday services like health care and education are underfunded; closed political opportunity structures that regularly reward insiders and large corporations with crony connections to the state; wealthy, de-linking elites with 1% lifestyles wildly at variance with the rest of the population… That is not just Brazil, Turkey, Egypt, or the EU/Brussels. That is Asia too; there is more than enough sleaze to go around.
There are three problems with Kelly's arguments, however. First, Kelly made a mistake of lumping all these "youth demonstrations" together. The youth protests that triggered the Arab Spring were different from the "Occupy movement." Granted, both have a common element of lamenting the lack of opportunities for the youth, but the structural conditions and the immediate causal factors were vastly different. The Arab Spring happened in authoritarian countries with a clear demand to overthrow the authoritarian rulers, triggered by the self-immolation of a Tunisian youth.

On the other hand, except in democratic countries, the Occupy movement never really took hold, never have a clear agenda aside of "soaking the rich" and "down with evil corporations," and therefore hasn't had much of a long-term political impact. Even in the United States, I would argue that Occupy's importance has been widely exaggerated by its media supporters and its supporters' massive use of social media. In fact, for countries where protests are common occurrences, such as Indonesia, few really take the Occupy movement seriously. Worldwide media coverage on the Occupy movement was minimal, used mostly to show that even the United States was experiencing protests--basically, to bring the United States down a notch.

Second, I doubt that there's an epidemic of political demonstrations, where one country could catch and infect other countries with the "mass protest" disease, unless they share a common region or political characteristic, such as in Europe in 1848 or the recent Arab Spring. Even in a so-called "cascade," as Kelly termed it, there are so many variables in play that countries such as Bahrain might be engulfed in protests but the giant next door, Saudi Arabia, can remain virtually unaffected. In fact, it is very doubtful that the protesters in Egypt looked at Turkey or Brazil as their inspiration.

Most likely, the reason is just very mundane, that it is just a simple coincidence that these three protests occurred at almost the same time. Sure, this explanation may be seen as a cop-out, but then again, there is just no evidence to support the assertion that these three protests were linked with each other.

Third, and most importantly, the problem with Kelly's "broad structural conditions" that I quoted above above is that that these conditions are actually so widespread that in almost every Asian country-- and even in African and South American countries--such political-economic hanky-panky is seen as common or almost a given fact.

I think there are important questions to be asked, such as: where are the demonstrating youths? Why don't protests happen more often? Why we don't see more of then on the streets of Seoul, Jakarta, Beijing, Bangkok, and other places?

You want us to protest in this kind of smog?!!

There are several missing variables here that could help to explain the differences between Asia and Turkey, Egypt, and Brazil.

One issue is youth unemployment. The countries where the youths have been protesting have a relatively high youth unemployment rate. Brazil, for instance has almost 20% unemployment rate among its youth. Turkey has a 16.60% unemployment rate. In general, Asia tells a different story, with better employment rates. Basically, for many employed youths in Asian countries, their jobs are more important than going to the street. South Korea, for instance, only has 7.5% youth unemployment rate.

Still, there are some countries with high unemployment rates, such as Indonesia at 19.6% and the Philippines at 16% in 2012. The difference, however, is that in those countries, the numbers are actually improving, and these countries also have burgeoning informal sector economy, which, to some degree, has perversely helped lower their propensity to protest. You can't protest when you are busy working!

Joko Widodo (Center). The next President of Indonesia?

Moreover, to further tamp down the desire to protest, currently in Indonesia, the Governor of Jakarta Joko Widodo is the most popular politician in Indonesia and a favorite to win next year's election. He is well regarded as an able reformer with soft heart for the poor. President Benigno Aquino III is widely popular in the Philippines. The positive outlook of these countries actually helped tamp down the desire to go on the street.

Second, there is no trigger issue that could make everyone coming together, kinda... like this:

In Turkey, the trigger was the Gezi Park. In Brazil, it was the increase in transportation fares. And in Egypt, it was the first anniversary of Morsi's presidency. Of course, it is very difficult, perhaps impossible, to confidently declare what kind of trigger will spark massive protests. More likely is the case that these triggers will vary from case to case.

For instance, Indonesia, which shares the same structural conditions as Kelly noted, did not erupt in protests when the government cut subsidies and raise fuel price a while ago. Rather, the atmosphere here in Indonesia was more of resignation, that the fuel price increases were coming anyway, like it or not. True, there were some protests with university students clashing with the police. But the scale and scope of the protests was nowhere as close to what happened in Gezi, let alone Tahrir Square.

Third, in most cases, government overreactions precipitated much bigger protests, even though the protesters themselves, by and large, were peaceful and non-destructive. In Turkey, police overreactions coupled with Turkish Prime Minister Erdogan's infamous remark of calling the protesters "capulcu" (looters), triggered a much bigger demonstration. In Brazil, the police's use of rubber bullets on both protesters and journalists indiscriminately caused a much bigger protest a few days later. Meantime, in Egypt, it was more of Morsi's authoritarian inclinations, his threats of violence, not to mention various missteps, that made the planned demonstration turnout to be much bigger than expected.

In Indonesia, the anti-fuel price increase protesters behaved violently and caused massive traffic jams, which in the end alienated the public, whose support they needed.

We are blockading the streets, inconveniencing millions for your sake. Therefore you should support us!

Therefore, back to the main question: Can we predict where or when the next massive demonstration might happen? Here is my answer: check the youth employment and see whether the government overreacts. That is probably a very fuzzy and unsatisfying answer, but that's the best answer I can give.

Post-Morsi Egypt: What next?

It is finally over. The military ousted Morsi and placed him and his top aides under arrest and issued arrest warrants for 300 leaders and members of Moslem Brotherhood. The problem for Egypt, and the United States, is that this is only the end of the beginning.

One thing for sure is that a significant segment of the society, notably the Islamists, are upset. The Moslem Brotherhood again feels aggrieved over what they perceive is a massive conspiracy to undermine both Morsi presidency and the movement as a whole. It would not be unthinkable for them to actually return to the path of violence, seeing that the democratic process is just a sham.

The liberals and secularists, while they are currently applauding the military's coup, could later rue the day of this coup, especially should the military again overplay its hands; and this time, it would be the final nail in the coffin of the Egyptian democratic experiment. Like it or not, the Egyptian military is not a democratic institution. And what happened today is simply an alliance of convenience between two camps that saw the Moslem Brotherhood as the biggest threat, and there is no guarantee that the military will not intervene the next time, regardless of whether the government is headed by an Islamist or a liberal.

To put it bluntly, in overthrowing Morsi, Egypt is not out of the woods yet. There is distrust and suspicion all over the place, and the economic crisis, which was the primary cause of Morsi's downfall, continues unabated.  In fact, the next government will be in an unenviable position of getting blamed for a collapsing economy.

So what's next for Egypt?

The prognosis is pretty grim. Still, one can hope that the political actors have learned some lessons over the past two years so that they could avoid any pitfalls. They, however, need to pursue several confidence-building measures:

First, the military should return to the barracks as soon as possible. The military should avoid overplaying its hand by creating a technocratic cabinet, headed by a respected civilian, whose members should still include the Moslem Brotherhood as a caretaker cabinet, one that gives a timetable for the next legislative and presidential election in about a year or two. It should also create an inclusive committee to draft and fix the constitution that Morsi passed in November 2012. By doing this, the military could assure the people that it is not interested in keeping power and only intervened to prevent the country from descending into chaos.

Second, as a sign of goodwill, the military should also release Morsi and his top aides, and assure them that they will not be brought to trial. Granted, this is a risky proposition, given that Morsi and his supporters would still be an angry bunch. Still, it is better than letting them rot in jail and brought to trial, as this would alienate a significant members of the society. Like it or not, the Moslem Brotherhood is still the most organized political entity in the nation. Even though they received widespread criticisms due to the persistent economic crisis, they still have a significant numbers of supporters.

Third, should the Moslem Brotherhood intend to return to power, it should avoid the mistakes that it has made in the past two years. It should reach out to other interest groups -- the liberals, secularists, and Coptics -- and try to understand their concerns. In essence, it should realize that it does not have the license to reshape the Egyptian society in its image; rather, it should try to accommodate interest groups in the nation, lest it will again provoke a backlash.

Finally, for the United States, the best action it could take at this point is to shut up. Trust toward the United States is at all time low and Obama has zero credibility in the streets of Cairo. The Moslem Brotherhood saw the United States as the primary backer of the military, while the rest of the population saw the United States as too cozy with the Moslem Brotherhood. Any attempt to intervene at this point would do nothing but further damage America's credibility in Egypt.

Instead, the United States should quietly send an olive branch to any new government, proposing economic aid to help facilitate the transition of Egypt back to democracy. Any other comments, notably condemning the coup, are simply unproductive.

Wednesday, July 3, 2013

Things Just Took a Turn for the Worse in Egypt

I saw a very apt description of Egypt today--I think was on Foreign Affairs' Facebook page, though I can't find it anymore--one that gets at a central dilemma the country now faces. The description went something like this: the Islamists and radicals, though illiberal in spirit, are democrats while the so-called liberals and reformers and moderates are actually politically anti-democratic.

Of course, The Muslim Brotherhood (MB) isn't particularly liberal. In fact, quite a few of their beliefs and political programs appear more than a touch retrogressive. The group isn't a fan of the division between church and state; they are a Islamic male-dominated faction that treats women and Christians and other minorities as second class citizens; the group's support for holy war in Syria is alarming; the MB's power grab under now former president Mohamed Morsi--as evidenced in his cabinet and political appointments and in the process of writing the constitution--has been heavy-handed, to say the least.

Meantime, though, the MB does support democratic processes. And there's a simple reason for that. They have real, tangible advantages over all other political groups in Egypt: it is by far the best and most organized faction, the one that is best equipped to get people out of their homes, schools, and workplaces and into the voting booth. The MB has strength in numbers, and a democratic system translates this support into significant political power. The MB is well aware of this reality.

Egyptian reformers and liberals, on the other hand, ostensibly are in pursuit of increased political freedom, equality, and expression--classic tenets of liberal philosophy. However, they are not democrats, at least not at this point. They support democracy as long as they win; once they lost elections and discovered that they couldn't get what want they wanted via democratic mechanisms, they turned on Morsi and the entire democratic system as well. This might sound like a harsh assessment, but it's the truth.

As we now know, the liberals have won the day, for now. The army intervened, deposing Morsi and his government and elevating the head of the Constitutional Court to the presidency and a batch technocrats to lead the Egyptian government. These moves have sparked celebrations in Egyptian streets and city squares. But let's take a step back.

What has happened today isn't good for Egypt's long-term prognosis. At a minimum, nothing has changed. The MB is still the most cohesive and organized political group, and has numbers on its side. The MB's political wing, the Freedom and Justice Party (FJP), will very likely win, and win big, at the next round of elections, which will send them right back to political prominence, allowing them to impose their illiberal vision of politics on the state and society. And the so-called liberals will continue to be sore losers, seeking extra-democratic ways to achieve their preferred political outcomes.

At the extreme, the army's intervention could lead to disastrous results, potentially civil war. The MB and its supporters, feeling threatened by the liberal-military coalition and believing the army will never let the Islamists exercise political power, could lash out and resort to violence. It's a very delicate situation. The MB must be angry and resentful at what's happened, thinking that their legitimate right to rule was illegally pulled from them without recourse. It's up to the leadership within the MB and the FJP to channel these sentiments into actions consistent with democratic political rules and norms. But if they are unable or unwilling to do so, then watch out. Revenge-seeking behavior will in all likelihood lead to violence and bloodshed.

Political Unrest in Egypt

Hindsight is always 20/20, meaning that often we make a compelling argument only after the fact. This is especially true with respect to the demonstrations currently taking place in Egypt. While there are some people who provocatively suggest that the protests should not surprise us, I do think that we actually should be surprised that a protest as large as the one currently threatening Morsi's hold on power could happen twice in just two years.

Of course, it could be said, in hindsight, that Morsi made a couple of bad calls during his presidency that ended up backfiring, solidifying his diverse opposition into a coherent group with one single demand that Morsi should resign. In essence, Morsi broke all the rules that could make democracy to be sustainable.

First, Morsi's biggest mistake was in alienating a significant number of the opposition by drafting and rushing to approve a new constitution. This constitution, basically the rules of the game for all to follow, was drafted solely by the Islamists, as the Christians, secularists and liberals, all important political players, boycotted the entire process. As a result, this new constitution lacks legitimacy, as the opposition believes the constitution is a sham, created solely to maintain Islamists, especially the Moslem Brotherhood, in power.

At the heart of Morsi's problem is his conviction that he and the Moslem Brotherhood had won the election fair and square with 51.73% of the vote, and that gave him the mandate to impose his will and shape the society.

His opponents, however, claimed foul, which to some degree was justified, as the Moslem Brotherhood was the most organized group capable of turning out voters. Besides, many also voted for Morsi, seeing him as the lesser of two evil, as the other candidate was presumably backed by the military. Therefore, seeing that Morsi acted to consolidate his and the Moslem Brotherhood's gains, the opposition simply refused to play along and denied the regime and the constitution its legitimacy.

To further confirm the opposition's worst fear, Morsi also decided to place himself above the law, albeit temporarily, in order to rush the approval of the constitution. Even though that action was claimed as an exception, it could also be justly asked: what would prevent Morsi to pull another stunt like this? By doing this, Morsi might have won the constitutional battle, but he lost the war, as his actions united entire opposition with the goal of bringing Morsi down.

Morsi later compounded his mistakes, one of which was by appointing a governor with a link to Gamaa Islamiya, a notorious terrorist group that murdered 62 people in Luxor in 1997, as the governor of... Luxor. Not surprisingly, this appointment didn't go over well and the governor was later forced to resign.

All these mistakes, coupled with the economic crisis, which was caused by the political uncertainty in the first place, finally led to the huge protest movement that threatened Morsi's hold on power.

Could Morsi have acted differently to avoid this outcome? The problem is that Morsi believed he received a mandate to reshape Egyptian society and saw the opposition simply as a cynical bunch, unable to work together with him. Moreover, had he bended too far backward to accommodate the opposition, this would have cost Morsi his Islamist supporters, the Moslem Brotherhood in particular.

Morsi should have realized the Moslem Brotherhood's strong organization would necessarily cause fear among opposition. Instead of concentrating all power in his and his organization's hands, then, he should have created a non-partisan technocratic cabinet, with opposition figures receiving positions of real importance. He ought to have made sure that the constitution was drafted by independent figures, not just the Islamists. This would have squelched the legitimacy issue that plagued Morsi right from the beginning.

But once things went really south a few weeks ago, though, Morsi's options were limited. He could have given concessions, but after the military threw its hat into the ring, any possibility of the opposition working with him was reduced to slim to none, because the opposition now believes that the military has turned against Morsi.

At this juncture, it is easy for the military, the opposition, or the Moslem Brotherhood to overplay their hands.  Morsi probably should pick the least bloody outcome: resign.

Note: A follow-up post can be found here.