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Policy Alert: Rising Powers React to Potential U.K. “Brexit” from European Union

brexit2With Britain’s June 23 referendum on whether to remain in the European Union (EU) fast approaching, debates about the future of the United Kingdom and Europe have gained attention across the world. Many observers worry about the potential economic and political consequences of Britain’s decision to exit – or “Brexit” – the EU. With polls showing the public split nearly 50-50 on the referendum, President Barack Obama traveled to Britain and urged British voters to stay in the EU. In this Policy Alert, we examine commentary from China, India, Russia, and Japan on the U.K. referendum.

CHINA

Chinese President Xi Jinping urged the British public to vote in favor of a strong and united European Union. With over $61 billion in trade deals announced during Xi’s recent visit to the United Kingdom, he hoped “Britain, as an important member of the EU, can play an even more positive and constructive role in promoting the deepening development of China-EU ties.” At risk is a deal between Beijing and London in October 2015 where China would build a nuclear energy plant at Hinkley Point, the “largest inward investment in” U.K. history.

Commentators debated whether the Brexit decision could have a negative impact on growing economic ties between the United Kingdom and China. (more…)

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Policy Alert: Panama Papers Leak Proves Taxing for Rising Powers

panamapapers

On April 3, an international coalition of journalists released information on thousands of tax shelters created by the Panama-based firm Mossack Fonseca. Global reactions to the leak of over 11 million documents, also known as the Panama Papers, have been swift with condemnations directed at individuals named as shareholders and directors of the shell companies, including politicians, business leaders, athletes, and celebrities in more than 200 countries. Among them are 12 national leaders, such as the prime ministers of Iceland, the United Kingdom, and Pakistan, the presidents of Argentina and Ukraine, and the king of Saudi Arabia. The list also links to individuals with connections to Russian President Vladimir Putin and Chinese President Xi Jinping.

While the use of these offshore companies to avoid taxes at home is not illegal, they remain controversial to many who consider the practice as cheating taxpayers and creating opportunities for fraud, money laundering, and drug trafficking. Several countries in Eurasia were identified as hubs for this type of financial activity or saw their political leadership included in the allegations. This Policy Alert highlights reactions in China, India, Russia, Japan, and South Korea to the emerging global shell game.

CHINA

After the Panama Papers cited at least eight current and former Chinese top-ranking officials of having links to Mossack Fonseca, the Communist party ordered the country’s media outlets to censor all references to the story. Foreign Affairs Ministry spokesperson Hong Lei refused to comment on “groundless accusations” when pressed by journalists. Chinese law does not prohibit its citizens from creating overseas entities, but according to Chun Han Wong in the Wall Street Journal, party leaders are sensitive to allegations, including some directed at relatives of President Xi Jingping, that may “add fuel to perceptions of double standards in Beijing’s efforts to fight graft.”

Hong Kong was said to be home to the most active and highest number – over 2,000 – of the shell corporations set up through Mossack Fonseca. Zhang Xiaodong, named as the firm’s primary contact on the island, pushed his clients to set up offshore accounts to purchase stocks abroad due to “overseas countries’ hostility to the rising Chinese economic power.” When a media outlet did cover the leaks, its criticism was directed at foreign powers. The Global Times questioned the real motives behind the leak, which the paper said has “basic political targets,” and how the information is being spun by “the Western media” to minimize information negative to the United States and give “extra spin” to the “exposure of non-Western leaders, such as Putin.”

INDIA

In response to The Indian Express’s reporting on 500 Indians named in the Panama Papers, Prime Minister Narendra Modi ordered the formation of a multi-agency group to investigate. Modi had previously established a Special Investigation Team (SIT) on Black Money to explore how wealth is held overseas away from Indian tax collectors, but investigators are pessimistic about their chances at finding the over $505 billion in lost tax revenue that left India from 2004-2013. Justice M.B. Shah, chairman of the SIT, said if the Panama Papers accusation were true, “then the persons cannot easily avoid punishment under the Black Money Act of 2015.”

Many commentators and media outlets focused on how the use of tax havens and the information contained in the leaks were negatively affecting India’s economy and political leadership.

  • The Hindu noted the problem of overseas tax havens remains an issue for India despite the Reserve Bank of India’s attempts to provide guidelines deterring the practice. The papers called on leaders – not just in India – to coordinate a global response to increase transparency and set “a zero tolerance approach to illegal transfers.”
  • The Economic Times demanded India “strengthen its ability to digest the data yielded by such increasingly frequent leaks and take appropriate action” in coordination with global partners to “revamp the tax system.”
  • The Times of India praised Modi for seizing the leak’s opportunity to set up the multi-agency probe and fight against black money.
  • On the other hand, N Sundaresha Subramanian, associate editor at Business Standardcriticized the BJP government for failing to make progress on its campaign promise to reign in these money stashing schemes.
  • The leaks prove tax havens are “used overwhelmingly for secrecy and dissimulation” and not legitimate purposes, according to Dikshit Sengupta with National Institute of Public Finance and Policy, New Delhi. He highlighted similar practices in the country of Mauritius where many Indian businesses and wealthy individuals shield their assets and end up eroding India’s tax base.
  • A.S. Panneerselvan, journalist and Executive Director of Panos South Asia, saw the impact of the Panama Papers leak as extending beyond the financial realm into an “inevitable way to reboot the news media” through an unprecedented level of collaboration between international media organizations.

Several political parties and pundits discussed how the Panama Papers are being used as a political weapon in India.

  • Opposition parties such as the Congress Party and the Aam Aadmi Party urged the ruling BJP leadership to avoid becoming involved in tax haven investigations due to their closeness to people named in the leaks, including sports promoter Lokesh Sharma. BJP officials refuted the allegations, however, and called the Congress Party “singularly responsible” for the existence of tax loopholes in India.
  • One of India’s most prominent actors with a potential political role, Amitabh Bachchan, was named in the Panama Papers leak. While he denied having money in offshore accounts, it has raised questions about his future in politics.
  • Prashant Bhushan, founder of the political organization Swaraj Abhiyan, said the country needed “to see swift and visible action on the Panama Papers” to undo the damage to Prime Minister Modi’s credibility on financial reforms.
  • Pratap Bhanu Mehta, president of the Centre for Policy Research in New Delhi, predicted the rise of “angry populism” in many liberal democracies in response to the news. However, Mehta expected a “muted” reaction in India due to elites giving each other a “free pass” on their respective financial dealings and because the Indian tax base is small and unlikely to feel cheated by these revelations.

Not everyone in India, however, was upset about the leaks with several defending the use of tax havens for economic growth.

  • Raghuram Rajan, Governor of the Reserve Bank of India, advised the public against attacking the “entrepreneurial wealth of self-made people,” a “dangerous” trend he believed could harm economic growth. Rajan promised his agency, which the government appointed to lead an investigation into the Panama Papers’ claims, will discover what really happened and provide opportunities for people to determine the legitimacy of wealth earned through these financial setups.
  • Dinesh Kanabar, CEO of Dhruva Advisors, traced the rise in India of overseas money to the country’s formerly high tax rates, a historical lack of income accounting, and previous “difficulties faced by Indians in sending money abroad.” However, Kanabar argued these drivers no longer exist in India and pressed his readers to better understand the legitimate uses of offshore accounts and the troubling fact massive amounts of financial data was breached and leaked.
  • The Daily Pioneer encouraged readers to avoid moving to “tar the reputation of people” named in the leaks until an investigation concluded.
  • Naushad Forbes, president of the Confederation of Indian Industry, thought it was wise to take advantage of legal tax loopholes since those incentives were created to attract investment and economic activity. Forbes believed there were already laws on the books for India to “deter corporate wrongdoing.”
  • Professor Illa Patnaik of the National Institute of Public Finance and Policy maintained there was a distinction between illegal tax evasion and more legitimate tax avoidance strategies even as both methods employ tax havens. She argued India needed a simpler “tax regime with lower compliance costs” to sort out the thin line between legal and illegal activities.

RUSSIA

Vladimir Putin has been accused of hiding $2 billion in offshore accounts. A cellist named Sergei Roldugin, reportedly a close friend of Putin, is viewed as being at the center of the tax evasion scheme. Twelve other Russian politicians and businessmen with close ties to the president are also listed in the leak.

  • Putin flatly denied the allegation, calling it “an attempt to shake the situation [in Russia] from within, make us more compliant, and tar us the way they want.”
  • Presidential spokesman Dmitry Peskov said “Putinophobia” in the West “reached a point where to speak well about Russia, or about some of its actions and successes is impossible…While Putin does not appear anywhere backed by any facts, it is obvious to us that the main target behind such ‘leaks’ has been and still is our president, especially in the context of the upcoming parliamentary and… the presidential election in two years’ time.”
  • The spokesman of Russia’s Prosecutor-General’s Office, Alexander Kurennoi, said the office will check information on Russians with offshore accounts, although he added the revelation “wasn’t a story about Russia. It was a story about the offshore world.”
  • Russian bank officials and politicians, including VTB Bank CEO Andrey Kostin and Minister of Economic Development Alexei Ulyukayev, have denied any involvement in the scandal.

Some liberal opposition newspapers, such as Novaya Gazeta and Kommersant, ran investigative stories that covered the Panama Papers. In contrast, state-owned media characterized the story as “anti-Russian” and dismissed allegations against Putin, shifting the focus to Ukrainian President Petro Poroshenko and his Panamanian company.

  • Russia Times editorialized in defense against “mainstream media’s latest attacks” that its coverage of the Panama Papers “hasn’t been primarily focused on Vladimir Putin.”
  • Russia’s Channel One emphasized “no cases of wrongdoing have been confirmed. The administration of the Russian president has no illusions about the real purpose of this information attack.”
  • State Duma opposition deputy Dmitry Gudkov criticized the lack of Russian media coverage, saying “it is paradoxical that major Russia mass media channels do not have a reaction and report on the event exclusively with regard to foreign politicians or don’t report it at all.” According to Gudkov, the Panama Papers send a signal to Kremlin that if “they continue to escalate, there will be more consequences. When these things are revealed, they can be investigated by security services in the United States or other countries.”

Unlike Iceland, where thousands of protesters gathered in front of the parliament and forced the prime minister to resign, there have been no major protests in Russia, except two people who decided to demonstrate in front of parliament before being detained.

  • Natalya Zorkaya, a leading scientific collaborator for the department of social-political investigations at the Levada Center pollster, explained “there have been many corruption scandals in Russia – with the prosecutor general, the defense minister. Many things happened that one would think would have offended the people. But this does not push our people onto the streets because we don’t have the inclusiveness that exists in European democracies, in those where society understands that mass demonstrations can have an effect. Unfortunately we still haven’t reached this state.”
  • The Russians “do not expect formal rules to be real or facts to be unequivocally true,” posited Maxim Trudolyubov, Senior Fellow at the Kennan Institute and the Editor-at-Large of Vedomosti, an independent Russian daily. They understand “business is always murky and politics is always dirty,” and “do not believe… they would be able to exert any real influence on the country’s policies.”

JAPAN

The Panama Papers contained 24 companies and 360 shareholders in Japan, raising concerns offshore tax havens are being used for criminal activities. There is no evidence politicians or public officials have been involved, although some doctors and businessmen reportedly attempted to acquire offshore accounts.

Japanese media outlets unanimously voiced criticism.

  • Tax avoidance by political leaders are a “betrayal of people’s trust” and “shakes the foundation of democracy,” claimed Mainichi Shimbun. The editorial posited the revelation by the Panama Papers will only exacerbate the public anger that has been fueling since the 2008 financial crisis and the subsequent public attention to inequality. Asahi Shimbun agreed, criticizing these leaders for failing to fulfill their “moral responsibility” as elected officials.
  • Sankei Shimbun also condemned the use of tax havens by politicians, calling it a hindrance to the international efforts to regulate such offshore accounts for preventing money laundering by criminals and terrorists.
  • The editorials by Yomiuri Shimbun and Nikkei Shimbun called for further international efforts to eliminate the use of tax havens, citing as an example the multilateral framework of bank account information sharing recently proposed by the OECD and approved by the G-20 summit. The articles urged the participation of tax haven countries, including Panama, which has yet to join the framework.
  • “It is tempting to dismiss all shell companies as vehicles for tax avoidance, money laundering, or drug trafficking. But those businesses can also be used to shield assets from corrupt governments, where the rule of law is not enshrined and private property is not protected,” cautioned The Japan Times. “Shell companies not only protect against extortion, but also against attempts by authoritarian governments to strip their opponents of assets through the court system.”

SOUTH KOERA

Roh Jae-heon, the eldest son of South Korea’s former President Roh Tae-woo, was found to be running three paper companies in a tax haven region. Newstapa, the only South Korean media agency involved in the ICIJ’s investigation, first reported the story and wrote “we have yet to ascertain the flow of money, but considering that Roh Jae-heon was at risk of having to make his assets public in divorce proceedings, these companies appear to be linked to an attempt to conceal Roh Tae-woo’s slush fund.”

  • In a statement, Roh rebutted all allegations, saying “I set up the companies for business in China but it was not carried out as planned. I did not open any bank accounts either. I am ready to explain (everything) if relevant authorities ask. They have nothing to do with tax evasion or creating a slush fund.”
  • South Korea’s National Tax Service and Financial Supervisory Service announced they will investigate the 195 individuals mentioned in the Panama Papers, including Roh Jae-heon.

Korean newspapers called for vigorous official investigations.

  • Dong-A Ilbo argued the government “should realize taxation justice by opening the ICIJ data to the public and conducting strong investigation against the individuals and businesses in the list.”
  • The Panama Papers “should give a timely boost” to the tax authorities’ “war on offshore tax evasion,” said The Korea Herald.
  • The “195 cheaters are just the tip of an iceberg,” claimed Joong-Ang Ilbo, noting the fact the National Tax Service collected $1.12 billion-the largest amount ever-from 223 offshore tax evaders last year. The Korea Times shared a similar view, urging the tax authorities to “vigorously” crack down on the “rampant” offshore tax evasion by the Koreans.
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Policy Alert: An American President in Cuba: Reactions from Rising Powers

obama_cubaOn March 20, President Barack Obama became the first sitting president to visit Cuba since 1928. The trip marked a pivotal moment in the efforts to normalize bilateral relations that have been long characterized by mutual enmity. Obama called on Cuba to open its economy and political system while Cuban President Raúl Castro urged the U.S. Congress to lift the trade embargo. In this Policy Alert, we highlight the reactions of rising powers to the trip and steps made toward normalized relations, including commentary in China, Brazil, Russia, India, Japan, and South Korea.

CHINA

As two of the few remaining Communist countries in the world, China’s foreign ministry said its “continued mutually beneficial cooperation with Cuba” is not dependent on the action of third-parties such as the United States. The ministry welcomed the normalization of relations between Cuba and the United States and pressed the U.S. Congress to completely lift the trade embargo. Chinese President Xi Jingping traveled to Cuba in 2014 and visited the barracks where Fidel Castro launched his revolution.

(more…)

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RPI Director Deepa Ollapally: Congressional Testimony on China and South Asia

china-indiaDr. Deepa M. Ollapally, Research Professor of International Affairs and Associate Director, Sigur Center for Asian Studies, Elliott School of International Affairs, George Washington University, testified before the U.S.-China Economic and Security Review Commission during a hearing on China and South Asia.

On the question of whether India sees China as a threat, Dr. Ollapally considered:

India’s top priority is to achieve the status of an economically developed country. Thus even a Nationalist-leaning governing party like the Bharatiya Janata Party (BJP) sees the value of economic integration as a way of stimulating economic growth. Economic growth in turn will lay the foundation for India’s military and political power in the region and beyond. For this to happen, India needs a peaceful extended neighborhood and good relations with China. After all, China is India’s largest trading partner too. Indian Globalists and Realists seem to be confident that economic development is China’s top objective as well. In interviews with Indian business and political leaders, the sentiment I hear most often is that Chinese leaders are first and foremost business-minded. There seems to be a level of confidence that the leaders of both countries will not let relations get out hand. For example, in fall 2014 as Xi Jinping and Modi were meeting in India for a bilateral summit, the spectre of a border encroachment by China at the very same moment, threatened to derail relations. Instead, the two leaders skillfully managed the crisis and averted a blow up on the ground or in the diplomatic arena. This type of crisis management augers well for a Realist/Globalist perspective to continue to hold in India.

You can read the full testimony here.

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Policy Alert: Zika Epidemic Raises Public Health Concerns among Rising Powers

zika1Last month, the World Health Organization (WHO) declared a global public health emergency in response to the outbreak of the Zika virus in Brazil and other Latin American countries. The WHO estimates the virus has spread to 52 countries to date and can infect up to 4 million people by year’s end. While the symptoms of the virus are moderate, it is “strongly suspected” the disease causes brain damage in newborns. In this Policy Alert, we examine commentary from Brazil, China, India, Russia, Japan, and South Korea on the Zika outbreak.

BRAZIL

Brazil has been the country most affected by the Zika outbreak so far. The outbreak coincides with a concurrent political and economic crisis in the country and has catapulted Brazil’s public health capacity into the global spotlight just months before Rio de Janeiro is set to host the Olympic Games. (more…)

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Policy Alert: China’s New Missiles in South China Sea Stir Debate at U.S.-ASEAN Summit  

missiles

With South China Sea debates already on the agenda at last week’s U.S.-ASEAN summit, new satellite images showing China deployed missiles to a disputed island tested ASEAN’s ability to manage the maritime domain. A joint statement at the close of the gathering did not mention China by name, but it outlined support for “mutual respect for the sovereignty, territorial integrity, equality, and political independence of all nations” as well as for “ensuring maritime security and safety, including the rights of freedom of navigation and overflight.” As host for the summit, the role of the United States in these maritime disputes was also center stage with President Barack Obama calling for “tangible steps” from all sides to resolve the region’s evolving maritime disputes “peacefully and through legal means,” including a “halt to further reclamation, new construction, and militarization of disputed areas.”

On February 17, Taiwan’s Ministry of Defense broke the news China deployed two batteries of eight advanced surface-to-air missile launchers and a radar system in recent weeks. Taiwan provided satellite images showing the HQ-9 missile systems with a range of 125 miles now located on Woody Island – called Yongxingdao by China – in the Paracel Islands chain, which has administrated by Beijing since 1974 but is also claimed by Vietnam and Taiwan. The Pentagon confirmed the presence of the missile systems and considered the moves to be “increasing tensions in the region and are counterproductive.” Secretary of State John Kerry pledged to have a “very serious conversation” with China about U.S. concerns Beijing is militarizing the South China Sea.

This Policy Alert covers the reactions in China, India, Japan, the Philippines, and Vietnam to these developments and is part of our series on Energy and Maritime Security for the Rising Powers Initiative’s project exploring the linkages between energy security debates and maritime strategies in the Indo-Pacific. (more…)

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Policy Alert: North Korean Missile Test Launches Debate Among Rising Powers

southkoreamissileOne month after conducting a nuclear test, North Korea successfully launched a long-range rocket on February 7th from its Sohae Satellite Launching Station. Pyongyang claimed the launch was a peaceful earth observation satellite, but the United States, South Korea, and other powers quickly condemned it as a provocative and destabilizing ballistic missile test in violation of UN resolutions. U.S. National Security Advisor Susan Rice called on the “international community to stand together and demonstrate to North Korea that its reckless actions must have serious consequences.” China, however, remains unwilling to back stronger sanctions against the Democratic People’s Republic of Korea (DPRK) and prefers a return to the negotiation table. In this Policy Alert, we explore the reactions of South Korea, China, Japan, Russia, India, and Brazil to the launch and their proposals to resolve nuclear weapons and missile challenges on the Korean Peninsula.

SOUTH KOREA

President Park Geun-hye strongly criticized the missile launch as an “intolerable provocation,” positing the North’s missile program is “all about maintaining the regime” in Pyongyang. Park’s deputy chief of national security, Cho Tae-yong, pledged “the government will continue to put necessary pressure on North Korea so that North Korea has no other choice but to change.” South Korean intelligence agencies reportedly have evidence North Korea plans another nuclear test in the near future. (more…)

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Policy Alert: Taiwan’s Presidential Election Provokes Reactions in Asia

taiwanelectionOn January 16, Democratic Progressive Party (DPP) candidate Tsai Ing-wen defeated the incumbent Kuomintang Party (KMT) to become the first female president of Taiwan. The DPP also won a majority in the Legislative Yuan and vowed to start a “new era” in Taiwan with an improved economy and a relationship with China based on “dignity and reciprocity.” The United States congratulated Tsai on her victory and expressed its desire for continued peace and stability in the cross-straits. China – who pined for a KMT victory – and other powers responded to the news with a mix of cautious optimism and diplomatic tightrope walking. In this Policy Alert, we look at reactions in Taiwan, China, Japan, South Korea, and India on what the election holds for the region.

TAIWAN

While not entirely a surprise, the landslide victory for Democratic Progressive Party (DPP) transformed the balance of political power on the island. It has also forced the Kuomintang Party to do some soul searching when it votes in March for a new leader after its 2016 candidate and former chairman, Eric Chu, resigned. Furthermore, the new DPP majority promised new legislation to strip the KMT of its multi-million assets through party finance and property reforms, which may make it more difficult for the KMT to mount an electoral comeback.

Taiwanese policymakers remained cautious in the handling of post-election cross-strait relations. (more…)

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Policy Alert: Rising Powers Respond to North Korean Hydrogen Bomb Test

northkoreaOn January 6, North Korea announced it conducted its forth nuclear test, claiming the successful explosion of a hydrogen bomb. As experts work to verify the claim, the international community unanimously condemned Pyongyang with the UN Security Council planning to impose further sanctions on the Kim Jung-un regime for taking an action South Korea called an “unpardonable provocation.” In a display of strength and support for allies in the region, the United States flew a nuclear-capable B-52 bomber over Seoul, which prompted North Korea to vow further tests. In this Policy Alert, we examine commentary from South Korea, China, Japan, India, Russia, and Brazil on the latest North Korean nuclear test.

SOUTH KOREA

As expected, South Korean President Park Geun-hye denounced the test as a “serious threat” to national security and warned “our military is at a state of full readiness, and if North Korea wages provocation, there will be firm punishment.” Along with resuming broadcasts of propaganda messages across the north-south border, South Korea urged the international community to work together on sanctions to inflict “bone-numbing pain” on its northern neighbor, specifically calling on China to prove Beijing is serious about improving ties with Seoul.

Newspapers in South Korea focused on how the country and the international community should response to this latest development by the Democratic People’s Republic of Korea (DPRK). (more…)

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Policy Alert: We Have a Climate Deal: India and China React to the Paris Agreement

parisOn December 12, leaders from more than 190 countries reached a consensus on how to combat climate change after two weeks of intense negotiations and years of diplomatic wrangling. The Paris Agreement will succeed the expiring Kyoto protocol and seeks to keep the average global temperature from rising above two degrees Celsius over pre-industrial levels through reductions in greenhouse emissions, changes in energy policies, shifts in agriculture and livestock production, and other far reaching measures. Countries outlined their plans to reach these targets and pledged to share funding and technology to poorer states needing to adapt to and mitigate the impacts of climate change. This Policy Alert is a companion to Policy Alert #114 and illustrates the reactions on the final deal within India and China, two rising powers central to the negotiations and future success or failure of the accord.

INDIA

Indian Prime Minister Narendra Modi praised the outcome in Paris where “every nation rose to the challenge, working towards a solution” that “has no winners or losers” save for the preservation of “climate justice” and “a greener future.” While many analysts worried India could play a “spoiler” in the negotiations due to its developing economy’s reliance on coal, New Delhi ultimately agreed to the final deal. (more…)

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