Michael F. Martin
Specialist in Asian Affairs
Burma is to hold its first parliamentary elections in 20 years on November 7, 2010. The polls raise questions about U.S. policy towards the Burmese regime, coming in the context of two decades of largely isolationist U.S. policy towards Burma. Some argue that these elections, even if far from free and fair, offer a limited opportunity for political change, even if evolutionary. Others believe that the ruling junta's restrictions on electoral activity thus far demonstrate that it has little interest in democracy or in loosening its repressive policies. These considerations weigh deeply in policy debates over sanctions and engagement with the regime—debates in which Congress has had a strong voice over the past two decades.
In 1990, the last time nationwide parliamentary elections were held in Burma, the National League for Democracy (NLD), led by prominent opposition leader Aung San Suu Kyi, won a stunning and unexpected victory. The junta's subsequent refusal to seat the newly elected parliament and its arrest of Aung San Suu Kyi were widely condemned internationally, and led to the imposition of numerous U.S. and international sanctions against the regime. This time, the circumstances surrounding the elections have been controversial from the start. The Obama Administration has repeatedly stated that it does not foresee the elections being free and fair, and the outcome will not be a genuine reflection of the will of the people of Burma. Some members of Congress have also expressed skepticism that Burma's impending elections will be a true expression of democracy.
Most observers feel that by various means and methods, the ruling military junta, the State Peace and Development Council (SPDC) and the Union Election Commission (UEC) are conspiring to ensure that the pro-junta political parties will win most of the 1,163 seats at stake. Preliminary information on the number of proposed candidates submitted by each of the political parties indicate that it would take a virtual election sweep by their candidates for the opposition parties to win a majority. The opposition parties are particularly weak in many of the state and regional parliamentary elections; an exception is in states where ethnic minorities are a large percentage of the population. Thus, it is more likely that the pro-junta parties will win a majority of the seats on November 7.
The UEC has approved 37 parties to participate in the elections, but on September 14 it announced that several political parties—including Aung San Suu Kyi's NLD—were officially dissolved. The formal campaign period for the parliamentary elections began on September 24, 2010. There have been accusations of irregularities in the campaign process, including decisions by the UEC to reject the broadcasting of some party statements, undue restrictions on campaign rallies, and intimidation of opposition party members. The SPDC has also arrested Buddhist monks and students advocating boycotting the elections.
The Obama Administration reportedly is considering the imposition of additional sanctions on Burma, in part because of the manner in which the SPDC is conducting the election. The Administration is also backing calls for the creation of a U.N. Commission of inquiry into crimes against humanity and war crimes in Burma. Ten other nations have also backed the creation of the U.N. Commission.
Under current federal law, President Obama has the authority to impose certain types of financial sanctions without seeking approval from Congress. However, he must inform Congress if and when he imposes new sanctions.
Date of Report: October 6, 2010
Number of Pages: 11
Order Number: R41447
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Emma Chanlett-Avery, Coordinator
Specialist in Asian Affairs
William H. Cooper
Specialist in International Trade and Finance
Mark E. Manyin
Specialist in Asian Affairs
The post-World War II U.S.-Japan alliance has long been an anchor of the U.S. security role in East Asia. The alliance facilitates the forward deployment of about 36,000 U.S. troops and other U.S. military assets in the Asia-Pacific, thereby undergirding U.S. national security strategy in the region. For Japan, the alliance and the U.S. nuclear umbrella provide maneuvering room in dealing with its neighbors, particularly China and North Korea.
U.S.-Japan relations have been adjusting to the Democratic Party of Japan’s (DPJ) landslide victory in the August 30, 2009, elections for the Lower House of Japan’s legislature. With the resignation of the DPJ’s first prime minister, Yukio Hatoyama, the United States must now adjust to the leadership of Naoto Kan, the new premier. While most members of the left-of-center DPJ are broadly supportive of the U.S.-Japan alliance and the general thrust of Japanese foreign policy, in the past the party has questioned and/or voted against several features of the alliance, including base realignment and Japan’s financial payments for U.S. forces stationed in Japan. The party has put forward a foreign policy vision that envisions greater “equality” in Japan’s relations with the United States, in part through deeper engagement with Asia and a more United Nationsoriented diplomacy. The DPJ’s victory appears to mark the end of an era in Japan; it was the first time Japan’s Liberal Democratic Party (LDP) was voted out of office. The LDP had ruled Japan virtually uninterrupted since 1955.
After the DPJ victory, bilateral tensions arose over the 2006 agreement to relocate the controversial Futenma Marine Air Station to a less densely populated location on Okinawa. The move is to be the first part of a planned realignment of U.S. forces in Asia, designed in part to reduce the footprint of U.S. forces on Okinawa by redeploying 8,000 U.S. Marines and their dependents to new facilities in Guam. After months of indecision and mixed messages from Tokyo, the Hatoyama government agreed to honor the original agreement, much to the dismay of the many Okinawans opposed to the base. Kan has voiced his intention to honor the agreement, although many concerns remain about its implementation.
Japan is one of the United States’ most important economic partners. Outside of North America, it is the United States’ second-largest export market and second-largest source of imports. Japanese firms are the United States’ second-largest source of foreign direct investment, and Japanese investors are the second-largest foreign holders of U.S. treasuries, helping to finance the U.S. deficit and reduce upward pressure on U.S. interest rates. Bilateral trade friction has decreased in recent years, partly because U.S. concern about the trade deficit with Japan has been replaced by concern about a much larger deficit with China. One exception was U.S. criticism over Japan’s decision in 2003 to ban imports of U.S. beef, which have since resumed, but on a limited basis.
However, the economic problems in Japan and the United States associated with the credit crisis and the related economic recession will likely dominate the bilateral economic agenda for the foreseeable future. Japan has been hit particularly hard by the financial crisis and subsequent recession. Japan’s gross domestic product (GDP) declined 1.2% in 2008 and 5.3% in 2009 and is forecast to grow 3.0% in 2010. At the same time, the United States is showing signs of recovery. The value of the yen has appreciated and has hit 15-year highs in terms of the U.S. dollar, which could adversely affect Japanese exports to the United States and other countries, contributing to the downturn in Japanese economic growth.
Date of Report: October 6, 2010
Number of Pages: 26
Order Number: RL33436
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Shirley A. Kan
Specialist in Asian Security Affairs
This report, updated as warranted, discusses U.S. security assistance to Taiwan, or Republic of China (ROC), including policy issues for Congress and legislation. Congress has oversight of the Taiwan Relations Act (TRA), P.L. 96-8, which has governed arms sales to Taiwan since 1979, when the United States recognized the People’s Republic of China (PRC) instead of the ROC. Two other relevant parts of the “one China” policy are the August 17, 1982, U.S.-PRC Joint Communique and the “Six Assurances” to Taiwan. U.S. arms sales to Taiwan have been significant. The United States also expanded military ties with Taiwan after the PRC’s missile firings in 1995-1996. However, the U.S.-ROC Mutual Defense Treaty terminated in 1979.
At the last U.S.-Taiwan annual arms sales talks on April 24, 2001, President George W. Bush approved for possible sale diesel-electric submarines, P-3 anti-submarine warfare (ASW) aircraft (linked to the submarine sale), four decommissioned U.S. Kidd-class destroyers, and other items. Bush also deferred decisions on Aegis-equipped destroyers and other items, while denying other requests. Afterward, attention turned to Taiwan, where the military, civilian officials, and legislators from competing political parties debated contentious issues about how much to spend on defense and which U.S. weapons to acquire, despite the increasing threat (including a missile buildup) from the People’s Liberation Army (PLA). In 2003, the Bush Administration pointed Taiwan to three priorities for defense: command and control, missile defense, and ASW. The Pentagon also has broadened its concern from Taiwan’s arms purchases to its defense spending, seriousness in self-defense and protection of secrets, joint capabilities, operational readiness, critical infrastructure protection, and asymmetrical advantages. Blocked by the Kuomintang (KMT) party in the Legislative Yuan (LY) that opposed the Democratic Progressive Party (DPP)’s president (2000-2008), the Special Budget (not passed) for submarines, P-3C ASW aircraft, and PAC-3 missile defense systems was cut from $18 billion in 2004 to $9 billion (for submarines only) in 2005. In March 2006, Taiwan’s defense minister requested a 2006 Supplemental Defense Budget (not passed) in part for submarine procurement, P-3Cs, and PAC-2 upgrades (not new PAC-3 missiles). In June 2007, the LY passed Taiwan’s 2007 defense budget with funds for P-3C planes, PAC-2 upgrades, and F-16C/D fighters. In December 2007, the LY approved $62 million to start the sub design phase. After the KMT’s Ma Ying-jeou became President in May 2008, he resumed cross-strait talks while retaining the arms requests. But he has cut the defense budget.
Attention also turned to U.S. decisions on pending arms sales. In 2008, congressional concerns mounted about a suspected “freeze” in President Bush’s notifications to Congress on arms sales. On October 3, 2008, Bush finally notified Congress. However, he submitted six of the eight pending programs (not a “package”) for a combined value of $6.5 billion. Despite the concerns in 2008, President Obama repeated that cycle to wait to decide on submissions for congressional review all at one time (on January 29, 2010) five programs with a total value of $6.4 billion. Like Bush, President Obama did not notify the submarine design program (the only one pending from decisions in 2001) and has not accepted Taiwan’s formal request for F-16C/D fighters (pending since 2006). Legislation in the 111th Congress include: National Defense Authorization Act (NDAA) for FY2010, P.L. 111-84; H.Res. 733 (Gingrey); H.Con.Res. 200 (Andrews); H.R. 4102 (Ros-Lehtinen); and H.Res. 927 (Barton). Moreover, Senators Cornyn, Inhofe, and Lieberman stressed to Defense Secretary Robert Gates the NDAA’s directive for an assessment of Taiwan’s air defense forces, including its F-16 fighters. Submitted in February, the assessment found that Taiwan has diminished ability to deny the PRC air superiority. On May 12, 136 Representatives sent President Obama a letter to urge a sale of new F-16 fighters. In contrast, Senators Feinstein and Specter spoke in June and September against such arms sales as irritants to Beijing.
Date of Report: September 28, 2010
Number of Pages: 69
Order Number: RL30957
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Mary Beth Nikitin
Analyst in Nonproliferation
Bruce Vaughn
Specialist in Asian Affairs
Australia and the United States have cooperated in the peaceful use of nuclear energy since the mid-1950s. The framework for this cooperation is a civilian nuclear cooperation agreement as required by section 123 of the Atomic Energy Act. President Obama transmitted the proposed text of the latest renewal agreement to Congress on May 5, 2010, along with the required Nuclear Proliferation Assessment Statement (NPAS) and his determination that the agreement promotes U.S. national security. Congress has 30 days of continuous session for consultations with the Administration, followed by an additional 60 days of continuous session to review the agreement. If not opposed by a joint resolution of disapproval or other legislation, then the agreement will be considered approved at the end of this time period. Congress also has the option of adopting either a joint resolution of approval with (or without) conditions or standalone legislation that could approve or disapprove the agreement.
The United States and Australia first concluded a civilian nuclear cooperation agreement in 1957. That agreement was updated in 1979. Australia sells around 36% of its $1 billion in uranium exports to the United States. The United States is also a major processor of Australian uranium sold to other countries. Australia does not currently possess any nuclear power plants, but it operates one research reactor.
Date of Report: September 30, 2010
Number of Pages: 13
Order Number: R41312
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Michael F. Martin
Specialist in Asian Affairs
China’s ruling executive body, the State Council, established the China Investment Corporation (CIC), a sovereign wealth fund, in September 2007 to invest $200 billion of China’s then $1.4 trillion in foreign exchange reserves. As with other sovereign wealth funds worldwide, the CIC’s existence allows China to invest its reserves in a wide range of assets, including stocks, bonds, and hedge funds. After a rocky start in which it incurred losses of 2.1% on its global investments in 2008 – caused in part by aftereffects of the global financial crisis of 2007 – the CIC’s rate of return in 2009 rose to 11.7%. The State Council is reportedly considering a CIC request for an additional $200 billion out of China’s $2.5 trillion in foreign exchange reserves.
Congress and financial analysts raised concerns about the CIC after its creation, partly because it was a comparatively large sovereign wealth fund, partly because it was government-owned, and partly because it reported directly to the State Council. Some observers were apprehensive that the Chinese government would use the CIC to acquire control over strategically important natural resources, obtain access to sensitive technology, and/or disrupt international financial markets. The CIC attempted to counter these concerns by announcing that its investment strategy would conform to international standards, and sought only to maximize its “risk-adjusted financial return.” The CIC also promised to avoid politically and strategically sensitive investments.
The CIC has been the focus of discussions among China’s leadership about its economic objectives and its organizational structure. Soon after its creation, the CIC became the sole owner of Central Huijin Investment Limited (Central Huijin), an investment fund established by China’s central bank, the People’s Bank of China (PBOC), as a vehicle for injecting capital into major Chinese banks. Over the last three years, Central Huijin has provided billions of dollars to the Bank of China (BOC), the China Construction Bank (CCB), the Industrial and Commercial Bank of China (ICBC), and other financial institutions. Some analysts maintain that there is an inherent conflict between the CIC’s goal to maximize its return on investments and Central Huijin’s mission to provide capital to domestic financial institutions, and advocate their separation. While there have been reports of a possible separation, Central Huijin remains a subsidiary of the CIC.
Concerns about the CIC’s investment activities reemerged in 2009 when it greatly expanded its overseas holdings, and began acquiring stakes in energy companies, natural resource companies and alternative energy companies. According to its filings with the Security and Exchange Commission (SEC), the CIC had holdings in 82 U.S. entities as of December 31, 2009. Commentators once again questioned the true goals of the CIC’s investment strategy. The CIC maintains that its main mission is to maximize its long-term, risk-adjusted rate of return.
For Congress, the investment activities of the CIC and its subsidiary, Central Huijin, raise questions about U.S. policies on inward foreign direct investment (FDI) and the global competitiveness of U.S. financial institutions. Some question if the current controls on inward FDI via the Committee on Foreign Investment in the United States, SEC, and other agencies provide adequate protection of U.S. strategic assets and technology from investments by the CIC and other Chinese entities. Others are concerned that Central Huijin’s assistance to Chinese banks and financial institutions are part of a larger strategy to increase China’s influence in strategic markets. These commentators suggest that more should be done to protect the United States from China’s rising role in international capital markets.
Date of Report: September 23, 2010
Number of Pages: 16
Order Number: R41441
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