James Kwok is the Senior Editor of the Correspondence Section of the Harvard International Review.
Abe and Japanese Foreign Relations
Legend has it that when Thomas Jefferson was selected as American minister to France, he pointed out that he could only succeed his predecessor Benjamin Franklin, and not replace him. Shinzo Abe, the favored candidate in the impending leadership race in Japan’s ruling Liberal Democratic Party, will face a similar problem as he starts his campaign to be Japanese PM. Will he live in the shadow of Koizumi’s legacy, or will he replace it with his own? Some of his policy planks make it clear that he will follow in Koizumi’s political footsteps. However, a continuation of the unabashed nationalism prevalent in Koizumi’s administration may alienate and anger Japan’s East Asian neighbors, to the detriment of Japan.
Shinzo Abe, like outgoing PM Junichiro Koizumi, has expressed his desire to maintain close and friendly relations with the United States. He has however, also remained staunchly supportive of Koizumi’s visits to the Yasukuni War Shrine, a memorial to Japanese war dead, some of whom are Class A war criminals. Koizumi’s visit on August 15 incited rioting in South Korea and widespread anger in China. A great deal of resistance has also come from businessmen based in Japan, who have become concerned that anti-Japanese sentiments may jeopardize vital economic links to their neighbours.
Additionally, Abe has also expressed his desire to revise the Japanese constitution, which only allows Japan to have a “self-defense” force, and not a full-fledged conventional military force like those of other countries. This desire for re-militarization, in addition to Abe’s support for a permanent Japanese presence in the UN Security Council, has continued to put a damper on Sino-Japanese and Korean-Japanese relations. South Korea and China both feel that Japan has not properly atoned for its military aggression against both China and Korea during World War II.
Despite Japan’s frigid relations with China and South Korea, Abe has not clearly outlined a road map for repairing relations with the two nations. In an interview with NTV, he felt that repairing relations will require initiative from Japan’s neighbors: “I would like to see China take a step forward,” Abe said. Instead, he told Liberal Democratic Party members, “Japan will follow a foreign policy…based on national interests,” also saying that “the security treaty with the US forms the center of Japan’s foreign and security policy. We must work to strengthen that stance.”
Such an alignment of interests is bound to hurt Japan. Allowing Sino-Japanese and Korean-Japanese relations to languish will sow anti-Japanese sentiment among the Koreans, as well as the Chinese, who have since 2001 refused to meet with Koizumi due to his war shrine visits. This may lead to a future dearth of collaboration between Japan and its neighbors, which is certain to be harmful to all parties involved in an economic and political sense. If elected as PM, Abe will have to enact his policies carefully, or he may end up rallying his domestic political base at the cost of alienating his neighbors.
The Kaczynskis–Double the trouble for Polish foreign relations?
Many Polish citizens probably saw a familiar face when the Polish press reported on Poland’s new Prime Minister Jaroslaw Kaczynski. They are quite right–their current president and leader of Poland’s Law and Justice Party (PiS) is Kaczynski’s identical twin, Lech.
Some in the media have joked about the fact that identical twins are holding the seats of power in Poland’s government. The New York Times, referring to their conservative political platform, referred to the Kaczynski domination of Poland as a “double drift to the right.” However, Lech Kaczynski’s appointment of his other half to the post of Prime Minister in early July is not truly a laughing matter. While the duo will undoubtedly cooperate with each other, their combined political program, if they are not mindful of their actions, may exacerbate the already frosty foreign relations between Poland and Germany.
The Kaczynskis’ abrasiveness when dealing with foreign media may be an indication of this potential trouble ahead for Polish-German relations. In late June, a leftist german paper called Die Tageszeitung published a scathing editorial on the Kaczynskis, referring to the politically conservative brothers as “young polish potatoes–the rogues who want to rule the world.” While politicians usually take abuse from the media in stride, Jaroslaw Kaczynski as PM, asked the German government to punish the paper for its scathing remarks. Lech Kaczynski, as President, also backed out of a summit with German Chancellor Merkel and President Chirac. The German government thus far has tried to keep an arms’ length from the debacle, citing concerns that any intervention could be a transgression of free speech.
This recent row has done nothing to help improve the faltering state of Polish-German relations. Last year, erstwhile Chancellor Schroeder signed an agreement to run a pipline from Russia to Germany in an effort to enhance energy security for Germany. The pipeline however, circumvented Poland, which theoretically could have collected fees from oil being shuttled from the east to western Europe. In an interview with Izvestiya, Lech Kaczynski publicly acknowledged that there have been numerous times when “the interests of our countries have not intersected.”
However, this disjunction needs to be fixed–there has been bitter hatred between the two nations since the Second World War, and current relations have not done much to reverse this historical trend. Despite the fact that their nationalistic bent is popular in Poland, Jaroslaw and Lech Kaczynski may need to find more diplomatic ways to engage Germany when the situation requires it. Their desire to become more fully integrated into the EU, as well as with other European countries, should provide ample motivation for this change.
A Blossoming Friendship? US-Canadian Softwood Negotiations
This past July 1st was not only a day to celebrate the birth of Canada, it was also a day that may mark the ending of a long-standing trade dispute between Canada and the United States. While the agreement over the cessation of hostilites between Canadian and American lumber companies seem to have put to rest accusations of dumping and protectionism, any political or economic changes in this period may well keep the bad blood flowing between these two countries.
The softwood lumber dispute is a good reminder of how despite the “special friendship” between Canada and the United States, when the stakes involved include money and commerce, friendship turns into feuding. Since 1982, Canadian lumber companies had been facing high duties from the American government on the basis that the lumber north of the border had been subsidized by the Canadian government, and therefore were sold too cheaply in comparison to lumber coming from the United States. The debate for the most part centred on what are referred to as “stumpage” fees–the prices that lumber companies pay to the government in order to have the “right” to harvest lumber from publicly-owned land. American lumber companies have been accusing the Canadian government of selling these stumpage fees at an unreasonably low price for the past two decades to undercut American lumber companies. This has led to a succession of import duties against the Canadians on and off until July 1st.
While the WTO and NAFTA over the last decade have generally ruled in favor of the Canadians, there is still evidence that not everything about the American lumber company complaints is unreasonable. Recently, the WTO found that while Canada should not have been slapped with countervailing tariffs, Canada’s provincial governments had been providing stumpage fees to companies that were financially beneficial.
This type of ambiguity makes this lumber agreement, signed by trade ministers from both sides of the 49th parallel, so fragile. The duties from Canadian lumber may be returned to Canadian lumber companies for now, but American lumber companies still have an incentive to cry fowl in the future, even if production costs and hence lumber prices in Canada are smaller for a reason other than subsidies from the government. Secondly, the agreement has two clauses which may make all this “softwood” diplomacy useless. If prices of lumber from Canada fall too much, the US government will automatically resume levying the tariff. If the agreement in some way proves difficult or undesirable, both sides may choose not to renew the agreement after 7 years. For Canadian lumber companies battling it out using civil suits against Washington, this escape clause provides an added incentive for their American counterparts to not take it seriously and continue lobbying the US government for tougher action on them. This would defeat the whole point of trying to come to an agreement in the first place. In this case, the Canadian lumber companies will need to react to changes in the political situation between Canada and the US in the future without snapping.
It’s Prodi’s Turn: Italy’s New PM tries to rein in the Public Debt
Romano Prodi may have triumphed in his quest to be Prime Minister of Italy, but the new challenges facing his government and Italy as a whole require more than just his trademark political acumen.
Prodi’s main challenge during his term will improving on the lackluster state of Italy’s public finances. Italy’s Debt-to-GDP ratio has risen since 2005 to 108%, with the 2006 public deficit projected to be roughly 4.1% of GDP. It has the 9th, and is one of the only OECD countries that have the dubious distinction of being in the top ten of the countries with the highest public debt-to-GDP ratios.
The problem with the dire state of Italy’s coffers is twofold. Firstly, Italy’s growth has been nothing to brag about. ING Market Analysts have estimated that quarter and quarter growth thus far in 2006 has been only about 0.6%–essentially flat. Mario Draghi, Italian Central Bank governor, has been a strong advocate for a loose monetary policy to encourage higher GDP growth. Higher growth implies higher incomes, which in turn implies higher tax revenues collected by the government.
Secondly, and probably more importantly, Italy’s entitlement programs are putting a great deal of strain on public finance. Italian social security as it stands makes it possible for people who have worked for 35 years and who are 57 years old to retire and collect full pensions from the government. In Italy, pensions take up nearly 15% of GDP. Attempts by the Berlusconi government to ease this burden by making it more difficult to retire early have raised the ire of Italian workers, making further reform more difficult. The universal healthcare program poses an even greater problem as the Italian population becomes increasingly older.
While fiscal austerity may be just what the doctor ordered, Prodi’s small margin of victory has shown that, if anything, his government will have to get used to making compromises to get what it wants. This may well stall any helpful attempts at reducing public debt in a prompt manner. As other EU nations look on, Prodi will need to make sure he picks his fights and can help Italy without hurting his political future.
Biting the Hand that Feeds it: Russian Oil and European Companies
While the recent meeting of G8 finance ministers in Russia has ensured a forum for more discussion on European energy security, it has provided no effective answers thus far to the energy security of EU countries.
What has European countries worried is the relative dependence they have on the potentially volatile source of Russian oil. If the corporation is the engine of Europe, then the Russian-owned Gazprom gas supplier is literally the fuel that keeps the engine going—Gazprom provides roughly half of Europe’s gas supply. What has made EU countries particularly nervous has been the way in which Russia has used Gazprom as its political muscle, flexing it to subdue smaller Russian neighbors like the Ukraine, ostensibly for the resistance of Ukraine to paying more than its discounted price for Russian oil. In early 2006, Russia stopped supplying oil to the Ukraine, leading to reverberations in energy markets and temporarily high gas prices in Europe, whose countries rely heavily on Russian oil via Ukraine. The gas ran soon after European countries cried foul, but Russia remains unapologetic about the crisis.
Alexei Kudrin, Russian minister of finance, has tried to fight back against the notion of Russian foul play. Kudrin publicly stated during the most recent G8 meeting that, “Russia has been a stable supplier of energy for decades and will continue to be so.” At least part of the cause of Russian recalcitrance and strong-headedness can be attributed to the Russian feeling that while the Europeans rely on Russian gas, their unwillingness to allow Gazprom to expand more fully into European markets seems like a sign of ungratefulness. While energy ministers have tried to rectify the problem, no clear solution remains—accommodation of some sort from both Europe and Russia through concessions seems to be the best way of ensuring that gas crises precipitated by Russia do not arise again. The G8 meeting of finance ministers has proved however, that multilateral energy policy can generate a lot of heat and little progress.
France: The Problem with putting Labor Reforms to work
The endgame of the political crisis in France is unlikely to produce benefits for French workers, employers, or the French government itself. The actions of French politicians in dealing with the CPE (or First employment contract) is threatening the current and future French governments in their ability to enact effective and much-needed labor market reforms.
Even if the CPE, which allows French employers to fire younger workers easily, is rendered impotent, French workers and trade unions have won a hollow victory. France’s current labor laws still cause a high degree of labor market rigidity, specifically the difficulty of French firms in hiring workers, whom they may not easily lay off in poorer economic times. This type of rigidity has led to an unemployment rate of 10% and has depressed business activity in France throughout the 1990s. The rationale for a more flexible hiring law for employers is that it encourages businesses to hire youth workers more readily from the labor market, effectively increasing the rate of job finding in the economy.
To a large extent however, the CPE is not likely to make another appearance in the spotlight. Though it was signed into law amidst the complaints and threats of workers throughout France, Chirac later attempted to limit the scope of its effects by reducing its trial period to 1 year and calling for a new law that would modify the CPE so as to mollify the striking French workers. However, given that Chirac is not eligible for another presidential term in 2007, he has not seized any of the initiative in seriously considering future labor market reforms in France.
Instead, this state of turmoil in France has demonstrated the presidential inclinations of both Sarkozy and de Villepin, who probably will be top contenders for the Presidency in 2007. Indeed, Sarkozy, who is the Minister of the Interior and head of the right-wing UMP party, has played heir apparent to Chirac, working against Prime Minister de Villepin to broker a deal with the legions of dissatisfied trade union workers and youths who have railed against the CPE. In the same vein, de Villepin forcefully encouraged Chirac to promulgate the CPE, as well as to face down the erstwhile threat of a general strike at the end of March. Their actions during this crisis underscore the potential problems that the victor of the 2007 presidential race will face–the unappealing idea of labor market reform.
While there are other factors that have led to a weaker economy, the main hurdle France has yet to overcome is its labor laws. France has continued to post a weak growth rate, with only a 1.5% increase in GDP from 2005. Labor market reform, then, is key to encouraging greater economic growth. Sarkozy and de Villepin both still want to encourage a looser labor market through reforms like the CPE, but both are completely aware that their political positions are difficult ones. As a prominent figure of France’s right wing, Sarkozy risks alienating his supporters by being too accomodating to the trade unions and workers on the matter of the CPE. However, he is also mindful of the fact that an overly tough stance on workers will demonstrate his inability to act as a mediator of France’s political elements, which in turn will probably weaken his general appeal as a presidential candidate. Likewise, de Villepin must play a balancing act between ensuring civil harmony and pushing through relatively unpopular economic policies that will increase the economic well-being of French citizens. No matter what happens in this crisis, whoever emerges as Chirac’s successor in 2007 must have the stomach to deal with political turmoil of this order in the future.