Recent events across the region confirm this. Building upon a long history of aggressive Chinese military posturing and territoriality in Southeast Asian waters, in 2010, Beijing unexpectedly declared “indisputable sovereignty” over the South China Sea as “a core interest,” a contentious term usually reserved for strategic priorities such as Tibet, Xinjiang Province and Taiwan. Many foreign policy experts agree that the most dangerous regional flashpoint is the South China Sea, because at least six Asian states currently lay claim to its petroleum-rich waters and critical shipping lanes. The Association of South East Asian Nations (ASEAN) naturally interpreted Beijing’s statement as fighting words and immediately bared its teeth by demonstrating its solidarity with Washington and inviting US Secretary of State Hillary Clinton and American diplomats to participate in the annual ASEAN Regional Forum in Hanoi.

China’s Foreign Minister Yang Jiechi, clearly frustrated with ASEAN’s strengthened alliance with Washington, warned that “China is a big country and other countries are small countries and that is just a fact.” Afterward, many Southeast Asian heads of state and diplomats accepted President Obama’s invitation to attend  the first US-ASEAN Summit in New York City in September 2010. President Obama also visited his childhood home of Indonesia and other key Asian democracies shortly thereafter.

Since then, Beijing has largely backed down in an effort not to anger ASEAN. This, however, has failed to significantly reduce distrust toward the Middle Kingdom. “Charm offensive” efforts by China’s Minister of Defense at last year’s Shangri-La Dialogue to allay ASEAN fears about China’s military ambitions fell on deaf ears, according to summit attendees. The same went for Wen Jiabao’s subsequent tour of key Southeast Asian cities.

Most damning of all, the Pentagon declared plans to increase its military involvement in Southeast Asia anyway — a direct response to China’s recent assertiveness in the region. Then-US Defense Secretary Robert Gates promised that the Pentagon would sustain funding for “air superiority and mobility, long-range strike, nuclear deterrence, maritime access, space and cyber, and intelligence, surveillance and reconnaissance” in Southeast Asia. Beijing also raised more than a few eyebrows last year when it confirmed they were building an aircraft carrier that has long-range strike capability. With the territorial dispute between Tokyo and Beijing at its apex, it is clear that regional tensions have now begun to heat up again.

According to recent data released by the Stockholm International Peace Research Institute (SIPRI), there is strong evidence that there is already an arms race in the Southeast Asian region. Notably, Singapore’s arms imports have jumped by 146 percent, Indonesia’s by 84 percent and Malaysia’s by 722 percent between 2005 and 2009, partly in response to the Chinese military’s increased defense spending and creeping encroachments into Southeast Asian waters over the past several years. One other reason, of course, is that many ASEAN militaries have overlapping territorial ambitions (cases in point: multiple claims on the nearby Spratly Islands, the Paracel Islands, as well as Thailand’s and Cambodia’s military skirmishes last year). In short, the SIPRI data suggest that many Southeast Asian militaries are still suspicious of each other, especially since each has neighbors that will fiercely push back against any attempts at expansionism or supremacy. Simply standing down in the face of a rival’s threat would most likely be out of the question, given the potentially humiliating loss of face to be incurred on the international stage.

The potential intra-Asian competitions for regional dominance are therefore multitude — and not just with China. Beyond Southeast Asian states, issues with India’s growing military clout, Taiwan and the Korean Peninsula are also of concern. There are a few who disagree with the SIPRI interpretation that intra-Asian tensions are the major cause of the recent jumps in ASEAN military buildups — but the alternative hypothesis that the post-1997 regional economic recovery has fueled these defense acquisitions simply lacks the explanatory apparatus to account for the fact that many ASEAN militaries wanted their arms imports to now reach or exceed their pre-1997 financial crisis levels. “The current wave of Southeast Asian acquisitions could destabilize the region, jeopardizing decades of peace,” says SIPRI’s Asia expert Siemon Wezeman.

The Asia-Pacific region, growing confident and buoyant from an economic boom that has benefited millions, would still do well to listen to the quiet, insistent reminders of history. Echoing the tensions in the early 20th-century Balkans that eventually escalated into World War I, nationalism, expansionist ambitions, pent-up grievances, military hubris or disputed territorial claims are all possible sparks that can ignite an entire region — and make it explode.

Transparency — letting other states in neighborhood know which arms they are purchasing and where they’ll be placed — is critical for conflict prevention. An American naval presence to discourage regional adventurism and aggression can also facilitate this. Lastly, strong platforms for mutual dialogue and trade — esp. through multilateral organizations such as ASEAN and the East Asia Summit — may also help prevent escalating arms races. In a region “ripe for rivalry”, an intra-Asian arms race is a possibility we will all still have to be prepared for. Stay tuned…

—

Niruban Balachandran is an author, international speaker and foreign policy expert from Los Angeles, California, and is currently based in Jakarta, Indonesia.

DEVELOPMENTS

The word “modernization” has become ubiquitous in almost all major government policies and initiatives since the 2009 release of Russian president Dmitry Medvedev’s “Go Russia!” policy manifesto, where he called for the modernization of Russia’s economy and society. This has been especially evident in Russian foreign policy, which has been seeking to attract foreign investment in new high tech sectors of the Russian economy in order to further the cause of modernization.

In the search for these foreign investments, Russia has two likely but differing partners: the United States and China. Both show a willingness to invest in Moscow’s modernization but they present drastically alternate opportunities for Russia. On one hand, U.S.-Russia cooperation has followed the Kremlin’s version of modernization: investment in new high-tech industries and projects, such as the Skolkovo innovation center, Russia’s attempt to create and nurture its own version of Silicon Valley on the outskirts of Moscow. Meanwhile, on the other hand, China-Russia cooperation on modernization has been more general, focusing less on high-tech and new industries but more on increasing trade and general investment between the two countries. An especially high priority for Moscow is to diversify economic relations with China, which are dominated by the energy trade.

BACKGROUND

President Medvedev’s official outline of modernization for Russia consists of an ambitious list of five major points of innovation and technology development: energy efficiency and new fuels, nuclear technology, medicine and pharmaceuticals, information technology, and space and telecommunications. Considering American capabilities in these areas and the U.S.-Russia “Reset” diplomacy, the United States was perceived as a natural partner. However, U.S. cooperation with Russia along these lines might be more what Moscow wants, rather than what it needs.

In the past few years, major American companies such as Boeing, Cisco, Microsoft, Intel, and GE have all pledged support to the Skolkovo innovation city, though with varying degrees of involvement. For example, Cisco has made a commitment to invest roughly $1 billion in Skolkovo-based projects, whereas companies like Google and Intel have merely agreed for their top executives to sit on Skolkovo’s advisory board. In addition to commercial exchange, U.S.-Russia cooperation on modernization has also become a part of the U.S.-Russia Bilateral Presidential Commission, where a number of the working groups cover all five points of Medvedev’s modernization plan.

U.S.-Russia high-tech economic cooperation has made significant progress, but it is based on relatively underdeveloped sectors of the Russian economy that will take years to become internationally competitive. Also, projects like Skolkovo are isolated examples of a drive for innovation that are not necessarily reflective of the Russian economy as a whole. For example, Skolkovo will have a more streamlined bureaucracy and tax system in order to stimulate investment there, but this will not have any immediate effect on the corruption-plagued bureaucratic and tax regimes found in the rest of Russia. Though U.S. investments in Russia’s modernization may have strong symbolic value and serve as confidence building measures, the sustainability and returns of these investments are still not very clear.

In contrast, Chinese investment opportunities in Russia—though less aligned with President Medvedev’s high-tech wish list—may constitute the very modernization program that Russia needs. China’s know-how from its own successful modernization program can lay the foundation for a strong and sustainable partnership between Chinese and Russian firms. China’s experience expanding its massive high-speed rail system can also be crucial in assisting Moscow’s ambition to modernize and expand its aging rail network. Furthermore, as Russia’s largest trading partner in energy resources, China is a vital ally in the modernization of Russia’s oil and gas industry. Finally, China can also assist Russia in the development of its sparsely populated Far East, something the Kremlin has linked closely with modernization and the high-tech Asia-Pacific market. Though many in Moscow are apprehensive about the growing Chinese influence in this region, cooperation with Beijing and other East Asian partners can be instrumental in developing the Russian Far East in a way that is consistent with the Kremlin’s designs and aspirations.

ANALYSIS
It the past year, it seems that Moscow has noticed these different approaches to its modernization. Despite success stories of drawing U.S. investment in projects like Skolkovo, there are indications that Russia is looking eastward towards China. In 2011 alone, Moscow has made a number of overtures to Beijing to cooperate on projects such as high-speed rail systems and high-speed internet satellite systems. In nearly all of these projects the key word “modernization” is used again and again. Even the 2012 APEC Summit, which will be hosted by Russia, has been given the theme “Cooperation for Modernization.” Furthermore, Moscow is also looking beyond China and at other neighbors in East Asia, such as South Korea.

Modernization through a partnership with China may not usher in new innovative industries listed under President Medvedev’s “Go Russia” speech, as perhaps modernization with the U.S. would. However, cooperation with Beijing and Chinese firms represents significant and tangible opportunities in modernizing many parts of Russia’s outdated industries and national infrastructure. Also, it is worth noting that China currently has more capital available for investing while the United States struggles with a seriously troubled domestic economic and political situation.

Nevertheless, the U.S. and the West still enjoy much of the Kremlin’s attention regarding its efforts in modernization. However, with Russia also looking east and seeking closer economic ties with China, there are implications regarding U.S. foreign policy in this region. In relations often dominated by security issues, such as missile defense or nuclear disarmament, the recent U.S.-Russia commercial partnerships have been a welcomed reprieve for both parties, especially in the efforts of resuscitating the “Reset” diplomacy. However, unless the United States and US companies do more, opportunities for meaningful engagement with Russia may soon be lost to a more ambitious and financially stable China.

China’s growing influence in Russia’s modernization effort will have an impact on U.S.-Russia relations. Modernization is and will continue to be the focus of the Kremlin, and the U.S. should intensify its efforts to engage Russia economically and politically if it does not want to see China gain disproportionate influence and economic benefits from cooperation with Russia.
—
John K. Yi is an Alfa Fellow currently living in Moscow, Russia. He received his M.A. in Eurasian, Russian, and Eastern European Studies at Georgetown University, focusing on Russian foreign policy in East Asia and in the Six Party Talks.

DEVELOPMENTS
From this year forward, longtime U.S. ally Saudi Arabia will supply more oil to China than the U.S. In 2010, the Middle East and Saudi Arabia accounted for 18 percent and 12 percent of U.S. crude oil imports, respectively. That same year, 46 percent of China’s crude oil imports originated in the Middle East and 19 percent came from the Kingdom of Saudi Arabia. While U.S. demand for oil has plateaued, China’s demand is expected to increase rapidly for at least the next two decades.

China’s demand for energy has exploded in recent years and, as a result, it has increased its activities in the Middle East. To date, China’s involvement in the region has been relatively uncomplicated, focusing almost exclusively on securing oil deals and building economic ties. By comparison, the U.S. has been engaged in addressing a host of complex issues in the area for some time, including the Israeli-Palestinian conflict, Iraqi development, and the containment of Iran. Perhaps it is the differences in the scope and degree of the two countries’ associations with the region that explain the Middle Eastern public’s contrasting views of them. In any case, China has of late fared much better than the U.S. in area public opinion polls.

At the same time regional perceptions of the U.S. are diminishing and global competition for energy resources is increasing, China’s engagement with and push for influence in the Middle East, and especially Saudi Arabia, is intensifying. That is contributing to a growing view among Western interests that China’s activities are threatening the international order. Such an understanding is too simplistic.
China’s need for energy makes its expansion in the Middle East, and Saudi Arabia, inevitable. And, Chinese, U.S., and Saudi goals in the region, while interrelated, are not mutually exclusive: China seeks a consistent energy supply to power its continued economic growth; the U.S. seeks to secure the homeland and the liberal international economic system; and Saudi Arabia seeks a counterweight to balance U.S. power. There will be competition but space also exists for substantial Sino-U.S. cooperation.

BACKGROUND
In 1993, China became a net importer of oil; in 2003, it overtook Japan to become the planet’s second largest consumer of oil; by 2025, it is expected to replace the U.S. as the world’s largest oil importer; and, by 2030, it is projected to import 75 percent of its energy. Since the mid-1990s, China has encouraged its national oil companies (NOCs) to diversify suppliers and acquire assets abroad, and has moved to build closer diplomatic and economic relations with oil exporting countries.

China and Saudi Arabia are forming an increasingly broad relationship along those lines. Discussing expanding Sino-Saudi ties, Prince Walid bin Talal, the billionaire Saudi investor, told The New York Times, “Saudi Arabia needs to open new channels beyond the West. It’s clear Saudi Arabia is going where its interests are, and China is going where its interests are.” To that end, the two countries have been holding regular high-level meetings together. Tellingly, King Abdullah’s first trip outside of the Middle East after becoming king was to China, where he concluded an agreement with President Hu Jintao concerning energy cooperation and joint investment.

China and Saudi Arabia have made several substantial energy-related deals but they have also grown their overall trade and investment with one another. On the energy side, Chinese and Saudi companies have undertaken the building of a refinery in Quanzhou, gas exploration in Saudi Arabia, and the creation of an oil storage facility on Hainan Island. In other sectors, Chinese companies are building digital networks and cement plants in Saudi Arabia, and Chinese and Saudi entities are combining to create an ethylene derivative facility in Tianjin and an aluminum smelter in Saudi Arabia.

In many ways, China is a more attractive business partner for Saudi Arabia than the United States. Unlike the U.S., China does not attempt to link energy and economic agreements with what the Saudis view as their internal affairs – i.e., political reforms and human rights – and Sino-Saudi commercial contacts have not suffered from the sort of backlash U.S.-Saudi business relations did after 9/11. Also, Chinese NOCs operate without regard for the Foreign Corrupt Practices Act and Organization for Economic Co-operation and Development guidelines, combine with other state-owned enterprises to offer attractive package deals, and participate in investments that may offer little in terms of economic return but are politically profitable.

While China and Saudi Arabia forge closer relations with each other, and the U.S. may no longer be the unrivaled economic force in the region, the world continues to depend on the U.S. to secure the vitally important energy resources originating in the Middle East. It is estimated that the U.S. spends over $35 billion per year defending Middle Eastern oil supplies. The U.S. has bases in every Gulf Cooperation Council country except Saudi Arabia. And, the U.S. is the biggest supplier of conventional weapons to the Middle East, providing an additional means with which to promote security. In 2010, the U.S. entered into a $60 billion arms deal with Saudi Arabia, agreeing to deliver, among other things, 154 fighter jets, 190 helicopters, and a store of bunker-busting bombs.

ANALYSIS
China’s expanding involvement in the Middle East, and with Saudi Arabia in particular, should not be ignored but it also should not be feared. China has shown little interest in supplanting the U.S. in the region; it has avoided challenging U.S. military predominance and major U.S. policy initiatives in the area. If anything, Saudi Arabia and other Middle Eastern countries appear more interested in China displacing the U.S. than China does. It makes sense that China would support the status quo in the region: any increase in oil prices caused by instability in the area would disproportionately harm China.

China and the U.S. will not always agree on Middle Eastern policy, especially on matters that can be interpreted as involving issues of state sovereignty. Ultimately, however, the two countries’ interests on most significant regional issues – secure energy flows, terrorism, piracy, the proliferation of weapons of mass destruction, and internal political stability – align. And, that provides a basis for cooperation.

The U.S. and Chinese navies could certainly cooperate more closely. China benefits greatly from the security the U.S. provides in the Persian Gulf and along the trade routes that take oil to China from the Middle East, but it does not assist much, even though 85 percent of the oil it imports pass through strategic shipping lanes. Other potential areas of cooperation between the U.S. and China include reducing the need for Middle Eastern oil generally – perhaps by encouraging their companies to develop alternative energy sources or explore for oil elsewhere jointly – and developing the economies of those countries in the region where rebellions recently occurred.

The U.S. and China will be active in the Middle East, and in Saudi Arabia, for the foreseeable future. How their mutual engagement in the region and their bilateral relations with states there evolve will have profound foreign policy implications both for them and the Middle East writ large.
—
Jason Fisher is an attorney living in the San Francisco Bay Area. He holds graduate and law degrees from the University of California, Berkeley, and his professional interests include foreign affairs, national security, and international law.

DEVELOPMENTS
An internal argument over higher taxes on business has been shepherded to a close by Russia’s prime minister Vladimir Putin in a decision that deals a blow to Russia’s innovation-based small businesses. The compromise also represents a setback for President Dmitry Medvedev, who has spearheaded attempts to stimulate small business, in the run-up to parliamentary elections this fall and the presidential election next spring.

At the crux of the argument was the payroll tax, which grew from 26 percent to 34 percent for most businesses when a new law came into force at the start of 2011. The increase especially affected small businesses, whose main expenses are often salaries and benefits. For small non-retail businesses, the tax increased from 14 percent to 26 percent.

In March, Medvedev called on lawmakers to lower the tax, but a solution was quickly mired in disagreement between the Economic Development Ministry, the Health and Social Development Ministry, and the Finance Ministry, which had Putin’s support. At the St. Petersburg Economic Forum in June, Medvedev announced that the government would lower the payroll tax from 34 to 30 percent, but thereafter the ministries disagreed over how to deal with the ensuing loss in revenue for the government pension fund. Medvedev’s spokesperson said income generated from the privatization of state enterprises could be used to help make up lost revenue for pensions, which will be raised in 2011 and 2012. The prime minister and president were left to break the stalemate.

In the end, the plan proposed by the Putin-backed Finance Ministry won. The new payroll tax for 2012-2014 still includes 30 percent of yearly salaries of up to 512,000 rubles ($17,700), but adds a 10 percent tax on salaries higher than this mark. Although the additional tax won’t drastically affect medium and large enterprises, where 90 percent of workers make less than 512,000 rubles a year, it could adversely affect many small businesses. Notably, innovative small enterprises such as IT businesses, who pay larger salaries to the highly qualified employees comprising their workforce, may be hit hard by the additional 10 percent tax.

BACKGROUND
In Russia, a small business is typically defined as a private company with fewer than 100 employees. The nation lags behind its peers in the size of its small business sector. According to data gathered for the Global Entrepreneurship Monitor project, Russia’s economy had the sixth lowest entrepreneurial activity of the 54 countries in the study, and total entrepreneurial activity here remained static between 2009 and 2010. According to expert estimates, small businesses pay about 10 percent of business taxes collected in the country.

The sector accounts for 25 to 30 million jobs nationwide, of which some 2.5 million are located in Moscow, and contributes about 20 percent of GDP. This number is small, however, compared to the United States, where the percentage is around 80 percent, and even to other countries in Eastern Europe. Poland, for instance, counts on small enterprise for 60 percent of its GDP. Furthermore, the number of entrepreneurs is growing very slowly: Russia had 950,000 small businesses in 1994 and has 1.2 million to today.

President Dmitry Medvedev has made small business a key part of his agenda and of his image as an innovation- and business-friendly president. In March, Medvedev called for addressing unemployment by financing small businesses, pledging to continue state subsidies for startups. The president proposed tax breaks for small business estimated at 41 billion rubles ($1.45 billion) over the next two years. In the lead-up to the March presidential election – Putin and Medvedev have not said which of them will run – the success of Medvedev’s efforts to reform the country’s business sector may very well inform his political future. He has positioned himself as a modernizer and friend to business, courting in particular Western investors, while Putin has continued to lash out at independent-minded companies and executives and to play up his image as a strong, conservative leader.

The federal budget already allocates 2 billion rubles ($70 million) to small business development each year, and regions are supposed to supply additional funding. The Moscow city government also invested 3 billion rubles ($100 million) in small business in 2010, including 1 billion rubles of federal funding, but no services or funds have been provided since January, when new mayor Sergei Sobyanin froze the financing program. In addition, the government has opened up several “technoparks” and business incubators, where small businesses, many of them using new technology, can enjoy reduced rental rates and other benefits. Critics have argued, however, that the existing funding and benefits are not sufficient to achieve significant growth, and the static entrepreneurial numbers seem to bear this out. They make the case that Russia needs to spend more than developed countries on small business development in order to narrow the gap.

Despite government stimulus, entrepreneurs face a number of hurdles. Perhaps the greatest challenge is finding startup capital. Although the government has provided startup grants to entrepreneurs, small businesses still seek billions of rubles in loans each year. Meanwhile, the microfinance industry is underdeveloped in Russia and lending rates are high. Most Russian organizations offer microcredit at interest rates between 20 and 30 percent. A new law passed in January launched a legal basis for microfinance that may eventually attract more lenders to this market and allay banks’ hesitancy to offer microcredit.

Even if microcredit takes off, however, the red tape and corruption for which Russia is well-known plagues small businesses, as well. Although the registration procedure for startups has been simplified and can be completed at “one window,” tax accounting and obtaining permits takes up a significant amount time and money for small businesses. Moreover, many small business owners are forced to pay bribes to pass technical and administrative inspections. Necessary documents such as sanitary and fire safety permits also present officials with a chance to extort bribes, and the cumulative effect greatly burdens entrepreneurs.

In effect, the January tax increase was just one more albatross around the neck of small business. The reduction to a 30 percent base rate with an additional 10 percent payroll tax on higher salaries will ease the burden on some small enterprises, but the innovational enterprises championed by Medvedev “the modernizer” will for the most part experience a greater tax load.

ANALYSIS
Many hopes have been pinned on the growth of small business in Russia. It has been championed as a way to lower unemployment and provide a wider variety of job opportunities. Furthermore, the expansion of small business will almost certainly be the key precondition for the emergence of a broad middle class in the country. Large-scale growth of this sector, however, does not seem possible due to problems including limited credit resources and administrative barriers.

In the face of small business’s troubles, even Medvedev seems to be lowering his expectations for small business growth. Whereas in the past the president has said at least 50 percent of the population should eventually be employed in small business, at a July meeting with entrepreneurs from Penza province he said that “30 to 40 percent of people, if not more” should become entrepreneurs.

Innovation businesses in particular are vital to the diversification of Russia’s energy-based economy, and their growth will be necessary to replace the state as the main driver of research and development and to make Russian products competitive on the international market. The 10 percent tax on highly paid employees will deal a significant blow to the latest generation of emerging innovation businesses. The Russian government needs to support these small businesses by offering more widespread and enduring grant programs to compensate for the new load it has burdened them with.

DEVELOPMENTS
Iranian workers were not at the forefront of the country’s recent pro-democracy uprising. With a few notable exceptions, that struggle was spearheaded by students, women, professionals, and other members of the urban middle class. Yet Iran has a rich history of labor activism. Labor played a decisive role in the 1979 revolution that overthrew the Shah and gave rise to today’s Islamist dictatorship. Despite a brutal government crackdown against independent trade unionists, workers continue to take industrial action to secure their basic rights. Moreover, the increasing domination of the Iranian economy by the regime’s repressive apparatus – most especially the Islamic Revolutionary Guard Corps (IRGC) – is transforming a hitherto economic confrontation into a fundamentally political one.

BACKGROUND
Westerners often view Iran’s pro-democracy movement as an “elite” phenomenon. That perception is correct – but only to the extent that Islamic Republic elites led the reformist “Green” movement that grabbed headlines during the disputed 2009 election. Iranian workers have not wholeheartedly embraced the Green agenda. That is largely due to the fact that the Greens have not, for the most part, addressed labor grievances in forceful and concrete terms.

Throughout the 20th century, however, the Iranian labor movement played decisive roles in the nation’s political development. In 1906, for example, leather workers organized Iran’s first industrial action in support of the constitutional revolution. And by staging mass protests that “shut down the flow of oil, electricity, and most government offices,” labor activists tipped the balance of social forces against the Shah during the 1979 revolution.

Under the Islamic regime, independent labor unions are banned. Two official bodies – the Islamic Labor Councils (ILCs) and the Assemblies of Workers’ Representatives (AWRs) – purport to represent the interests of Iranian workers. But as Amnesty International has reported, these organizations “are not fully representative because candidates standing for election to ILC boards are subject to discriminatory screening procedures” and “must demonstrate their Islamic belief and ‘practical allegiance’ to Islam and show that they are faithful to the ideological basis of the Islamic Republic.”

Even so, workers in various industrial sectors continue to form independent trade unions, often in the face of enormous personal risks. Most notable among these is the Union of the Tehran and Suburbs Bus Company. Since its founding in 2005, government security forces have subjected the union’s members to a sustained and brutal campaign of repression. Its president, Mansour Osanloo, for example, has spent much of the past six years in and out of jail for allegedly undermining “national security.” At one point, security agents sliced Osanloo’s tongue to silence him. In 2010, his pregnant daughter-in-law was abducted and severely beaten by regime forces in retribution against Osanloo’s activism; she suffered a miscarriage shortly thereafter.

Meanwhile, economic conditions in Iran have severely worsened over the past few months. The official unemployment rate currently stands at 11.5 percent, but the actual rate is likely to be much higher. The government has fallen far short of the one million jobs per year needed to meet annual demand in a country where 60 percent of the population is under the age of thirty. The implementation last December of President Ahmadinejad’s plan to cut longstanding subsidies on dozens of essential commodities has added to the pain. According to a report by Iranian economists cited by the Wall Street Journal, prices of basic foodstuffs have increased by as much as 137 percent, and many average families have found themselves unable to pay their utility bills. Moreover, since the cuts went into effect, “[i]nflation has shot up well above the 14 percent level cited by the Iranian government and IMF, while demand for Iranian-made goods is plummeting.”

The subsidy cuts have coincided with increased labor activity. In recent months, workers in the education, transportation, manufacturing, food production, and – most alarmingly for the regime – petrochemical industries have staged protests to demand unpaid wages and an end to layoffs in newly privatized companies. The government has counterpunched by proposing draconian new laws designed to curb workers’ rights and empower management. Under the new laws, “workers’ holidays have been reduced to 20 days; workers’ organizations are to have no say in lay-offs; leave of absence for bereavement are to be eliminated; and the forty percent advance for special work shifts and other hardships will be [withheld].”

ANALYSIS
These confrontations have unfolded against the backdrop of ever increasing domination of numerous sectors of the Iranian economy by the regime’s security apparatus, most notably the IRGC. “Taking advantage of their vast alumni network and influence, the Revolutionary Guard has arranged no-bid contracts to develop everything from the oil and pipeline projects abandoned by foreign corporations to automotive parts, farming, and telecommunications,” the intergovernmental Task Force on Financial Integrity and Economic Development reports. “Consequently, it’s estimated that the IRGC may control as much as 1/3 of the Iranian economy.” IRGC-linked firms, for example, have been tapped to develop Iran’s largest offshore gas field, South Pars. More recently, President Ahmadinejad appointed a senior IRGC commander, Rostam Ghasemi, to serve as Iran’s next oil minister.

This is a significant development for the future of Iran’s labor movement – and the quest for civil rights and popular dignity in the country. Workers may have reacted coolly to a Green leadership seen as offering “more of the same” and consistently failing to articulate its constituents’ far more radical demands. Yet, in the long term, the militarization of the Iranian economy means that labor is headed for a crash course with the country’s theocratic rulers. With the repressive apparatus at the nation’s economic helm, the struggle for economic security and basic rights will be transformed into a political struggle over the legitimacy of the Islamic Republic. Western governments concerned with the risks posed by a radical Islamist regime with ambitions of regional hegemony and driving toward nuclearization, then, would be wise to lend solidarity and support to Iran’s embattled workers.
—
Peter Kohanloo and Sohrab Ahmari are law students in Boston. Their writing has previously appeared in the Weekly Standard, among other publications.

DEVELOPMENTS
The good news this month is that South Africa marks the twentieth year of the end of its nuclear weapons program this July. That may have removed a significant threat but elsewhere in the impoverished and war-ravaged continent the increasing quantities of conventional weapons make any observer of African politics nervous. According to some reports, in 2010, Africa imported arms worth nearly one billion dollars from Ukraine alone. These weapons ended up in countries like the embattled Democratic Republic of Congo and Sudan that have, in recent years, seen extremely high loss of civilian life in the hundreds of thousands. Arguably, the potential catastrophes caused by heavy systems like tanks and rockets may not compare with the more abundant small arms that reach all stripes of armed groups including those that are intent on fueling ethnic or religious tensions. It is mindboggling to think that, if asked to choose between a cheap laptop computer and a gun, a young person in a conflict environment in Africa would likely pick an AK-47 rifle for its immediate but high-risk lucre.

More specifically, the two deadly attacks staged in Uganda in 2010 lay bare the unresolved issues of small arms market in the entire East African neighborhood and adjacent countries like the Democratic Republic of Congo. The region sits in the middle of various ethnic, political, and religious agendas driven by local and transnational actors whose dynamics often foster morbid economics. The complexity of social structures that straddle — and therefore challenge–East African nation-states allow the flow not only of people but also arms that slip through relatively unprotected borders despite the best legislative efforts of entities like the Kenyan government. By all accounts, the severe drought that has currently afflicted East Africa will only worsen this picture. At around a hundred dollars per unit cost, assault rifles and guns make urban life unpredictable in one of the most the tense parts of the world, especially at night. In stateless Somalia, for example, the ease of obtaining guns compounded by lack of opportunities spawned a new desperate generation of guns-for-hire operating a network of checkpoints for shakedowns inland and out in the Indian Ocean. The otherwise flourishing capital of Kenya, Nairobi, for instance, stands as the foremost victim of the profusion of a guns culture–a convoluted reality some unfairly choose to attribute to a particular ethnic group.

BACKGROUND
African countries found themselves awash with large stockpiles of weapons, particularly sophisticated small arms, as a factor of the roles they chose to play during the Cold War that corresponded with decolonization processes. The emergence of newly independent nations meant the forging of statehood from scratch together with armies that aspired to protect the interests of evolving nation-states. Externally, ideological competitions that pitted the West against the Soviet bloc presented Africa an unprecedented access to discounted or free advanced military hardware. To make matters worse, not too long after independence, a crop of military juntas more than willing to mortgage their countries’ futures for weapons spread across the continent after deposing weaker regimes. In East Africa, Somalia’s Siad Barre, Ethiopian’s Mengistu Hailemariam, and Uganda’s Idi Amin ran whopping tabs in order to amass huge quantities of weapons that they believed could help settle domestic as well as cross-border challenges decisively. One of the tragic results of this browbeat mentality was none other than the proliferation of small arms and accompanying ethnic or political scars that continue to fester even a quarter of a century later.

The collapse of seemingly invincible dictators in Somalia and Zaire (now the Democratic Republic of Congo) opened sizeable political vacuums that were soon filled in by ethnic or, lately, religious sentiments. The weapons and vast quantities of ammunitions they left behind following their demise fell into the hands of opportunists with little military training. Army officers transformed into warlords providing essential support for ethnic/clan conflicts such as the tragic Rwanda genocide that spilled over to neighboring Democratic Republic of Congo and vice versa. Similarly, former Somali high-ranking officers like General Farah Aideed who opposed Operation Restore Hope led by the United States in 1992 threw their lots with their respective clans. Although well endowed with arms, however, many of these non-state entrepreneurial organizations lack funding, making multiple checkpoints “tax-collection” alternatives. When it comes to keeping the peace, there is little or no evidence that controlling the flow of arms was on the to-do list of warlord types nor were there incentives for them to do so.

Relatively peaceful East African countries have been saddled with the problems that come with the collapse of regimes and the challenges they leave behind. Nairobi, for example, is significantly different from the quiet metropolitan center that it was twenty years ago and a relaxed walk or any kind of undisturbed movement at night seems to be a thing of the past, most notably in the feared Eastleigh neighborhood. This busy Kenyan city hosts a large refugee population from neighboring countries together with unscrupulous elements who intend to maintain posh lifestyles by operating a shadow economy that includes deadly arms local gangs purchase. The Kenyan government has made commendable efforts to control arms trafficking but the trade continues unabated and, thus, posing greater danger.

ANALYSIS
Political transitions often increase the likelihood of violence and large-scale crimes perpetrated using small arms. This is evident in the many regime changes that occurred in Africa over the last twenty years from Somalia to Liberia, Sierra Leon to the Democratic Republic of Congo. Ethnic and, to some extent, religious contentions bolstered by economic rivalries in times of scarcity have always existed in Africa, sometimes causing bloody clashes before they got resolved through the art of negotiations that many societies have perfected over time. What is unique to the twentieth and twenty-first centuries, though, pertains to the wider availability of all categories of killing machines. To the extent that the Russian-made automatic assault rifle AK-47 became a symbol of freedom at one time, it now represents massacres and genocide committed by drugged children who would not hesitate to take the lives of neighbors or friends.

The absence or weakness of national, regional, and continental bodies that closely monitor arms trafficking is a matter of high concern. Short-term or strategic political problems among neighboring countries serve as conduits for arms slipping through borders to support one dissenting group or another. Rather than reacting to frictions that have already escalated, continental bodies like the African Union and regional bodies need to play proactive roles in resolving tensions between countries and map potential conflict zones within a given country for possible intervention. International organizations and super-power governments should collaborate to control the flow of arms and bring global traffickers selling arms to justice for their actions in order to set the standards for a more peaceful future. A candy store of machine guns in the hands of children and youths cannot be something we condemn but feel constrained to change. Education should be the most attractive option for an upcoming generation, not carnage. Why can we not refocus the attention of young people on productive things like computers rather than guns? This is a challenge to creative minds and policy-makers alike.
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Mohammed Hamid Mohammed is Africa Regional Editor for Foreign Policy Digest.

DEVELOPMENTS
Russia has chosen to back India’s accession to the Nuclear Suppliers Group (NSG), a non-treaty based group seeking to limit the spread of sensitive nuclear technology. While the NSG in name was formed as a near-direct consequence of India’s 1974 so-called “peaceful” nuclear test, Russia and other nuclear powers are now seeking to admit New Delhi into the select group which asserts control over nuclear exports, allowing India a say into the group’s future decisions and moving to erase remaining doubt as to the legitimacy of its nuclear arsenal.

This position stands in stark contrast to the original bargain as enshrined in the Treaty on the Nonproliferation of Nuclear Weapons (NPT): namely, that states not possessing nuclear weapons as of the treaty’s inception would forgo the legal right to atomic arms in exchange for access to peaceful nuclear technology. While policies such as the 2008 U.S.-India nuclear agreement and NSG exemption have yet to materially affect New Delhi’s nonproliferation policy, admitting India into the NSG without its ratification of the Comprehensive Test Ban Treaty (CTBT) and voluntary cessation of fissile material production prior to the negotiation of a fissile material cutoff treaty (FMCT) would practically nullify the original NPT bargain. Russia’s acceptance of India’s disregard for the existing nonproliferation regime will do much to dismantle the system surrounding the treaty, while destabilizing South Asia in the interests of Moscow’s relationship with New Delhi – read: military exports and nuclear reactor construction.

BACKGROUND
India’s 1974 “peaceful” nuclear test, which showcased the ability of a state to divert nuclear assistance in the interests of a bomb-producing capability, placed its nuclear efforts outside the bounds of programs recognized by the recently-adopted NPT as being legal, and helped provide the impetus for the formation of the NSG. The NSG is a “group of nuclear supplier countries which seeks to contribute to the non-proliferation of nuclear weapons through the implementation of guidelines for nuclear exports and nuclear related exports.” Those guidelines serve as criteria for states to either be afforded or restricted access to sensitive nuclear technology and materials.

In 2008, after more than thirty years of an effective nuclear technology and material embargo by advanced nuclear-exporting states, India was granted an exemption from specific NSG guidelines requiring recipient states to be parties to the NPT with full-scope safeguard agreements in place with the IAEA or an internationally recognized equivalent. The exemption was pushed by the United States in order to open up India’s domestic market for nuclear exports and to improve U.S.-Indian strategic relations. The United States was not the only country intending to benefit from the opening of nuclear trade with India: following the consensus passage of the exemption in the NSG, Russia and France have also taken advantage of the opportunity to invest in India’s booming nuclear energy market.

Nuclear power generation is projected to grow both relatively and absolutely, with current targets calling for nuclear power to comprise 25 percent of Indian energy consumption by around 2050, up from 2.5 percent today. Playing a major role in India’s planned nuclear expansion is Russia’s state-controlled nuclear firm, Rosatom. Sergei Kiriyenko, the head of Rosatom, has announced that as of December 2010, 18 new reactors are slated for construction by the Russian firm at three separate sites in India. Along with the joint Japanese-American Firms GE-Hitachi and Toshiba-Westinghouse, Rosatom will join France’s nuclear-giant Areva in providing India with the nearly 20,000 MW – enough electrical capacity to provide power for about 1,835 U.S. households for one year – in installed nuclear generation capacity by 2020, with 63,000 MW to be added by 2032.

The 2008 NSG exemption also lifted the ban on Indian imports of uranium, which, according to a 2006 report by the International Panel on Fissile Materials (IPFM), was a constraining factor in the growth of India’s nuclear weapons and energy sectors. The IPFM concludes in its report that New Delhi was only able to meet about two-thirds of its uranium needs without the aid of imports. However, following the 2008 exemption by the NSG, both France and Russia inked agreements with India to supply thousands of tons of both natural uranium and uranium fuel pellets, the former being preferable for the production of plutonium.

While the NSG has worked to normalize relations with India, Pakistan has watched its foremost adversary drastically develop its conventional military capabilities with the help of Russia. The NSG has negated a key limiting variable on India’s nuclear weapons production efforts and provided de-facto recognition of New Delhi’s nuclear arsenal. Pakistan, on the other hand, has been showcased as a case-study in how not to behave with a nuclear arsenal, highlighted by the public confession of Pakistan’s infamous Abdul Qadeer Khan in 2004, the mastermind behind the nuclear smuggling ring that aided the illicit programs of Iran, North Korea, and Libya, to name a few.

ANALYSIS
Russia, as a nuclear weapons state (NWS) recognized by the NPT, key member of the NSG, and strategic ally with India, has a critical role to play in the impact that India’s nonproliferation policy has on South Asia and across the globe. Moscow’s decision to back India’s accession to the NSG looks to balance Moscow’s international obligations as a member of the nuclear export-control group with its national interests, namely garnering the financial benefits that accompany increasing nuclear exports and military sales. However, by supporting India’s accession to the NSG and deepening nuclear trade, Moscow may inadvertently promote further instability in South Asia and discredit the bargain between NWSs and non-NWSs implicit in the NPT – non-NWSs give up the right to nuclear weapons in exchange for access to peaceful nuclear technology.

In the eyes of Pakistan, Moscow’s relationship with India in terms of conventional weapons sales is now compounded by cooperation in the nuclear sector which could allow India to further develop and increase its nuclear arsenal. It is known that India continues to produce fissile material despite assurances given that it would support an FMCT. Therefore, in addition to possessing a significant edge over Pakistan in terms of conventional firepower, India could also be prompted to abandon its policy of a maintaining a minimum strategic deterrent, instead opting to overwhelm its neighbor and rival with nuclear superiority. This would be exceptionally dangerous if India chose to retaliate in a massive fashion for a terrorist attack in which Pakistan’s intelligence agency was implicated.

In addition to potentially destabilizing the military balance in South Asia, NSG accession by India would be a blow to the bargain enshrined in the NPT between nuclear and non-nuclear weapons states. Allowing India the benefits of nuclear cooperation as permitted by the 2008 NSG exemption has undoubtedly done damage to the NPT “grand bargain;” however, cementing that damage by facilitating India’s accession to the NSG would practically nullify the bargain.

Also notable here is the difference in treatment that Iran receives in terms of sanctions and scrutiny as having violated its NPT commitments, versus the outstretched hand India receives as a non-NPT signatory. Had Iran not signed and ratified the NPT it could find itself in a much more enviable position than it does today. The current situation is neither desirable nor sustainable in the long-term as the nonproliferation regime maintains its crisis-mode footing, waiting for the next nonproliferation fire to put out. As experts have noted, temporary patches and continuing resolutions are no way to deal with systemic crises. Russian nonproliferation policy officials should note that India’s bid to accede to the NSG should be taken seriously, but only as it shines a bright light on the need to reform the nonproliferation regime writ large.
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Andrew Riedy is an Alfa Fellow currently living in Moscow, Russia. He received his M.A. in Security Policy from George Washington University, specializing in nuclear proliferation and Eurasian Regional Security. He focuses his attention on the U.S.-Russian strategic security relationship and policy solutions to deal with the destabilizing effects of nuclear weapons and their proliferation.

DEVELOPMENTS
Terrorist attacks in Mumbai on July 13, 2011 brought back to the forefront the issue of national security in South Asia. The bombings in India’s financial center will likely be connected to groups based in nearby Pakistan, just as previous attacks had been. While proliferation talks these days often circle around North Korea and Iran, the long and deep enmity between India and Pakistan has been considered the world’s greatest nuclear flashpoint for years. In May, The Economist magazine ran a cover story about the disputed territory shared by India and Pakistan, simply titled “The world’s most dangerous border.”

Both India and Pakistan are declared nuclear weapon states, and have openly, proudly tested their weapons for one another’s benefit, and for the world to see. Veiled threats to use the atomic weaponry if needed have proliferated over the years. It is less clear exactly what each nation’s true capabilities are. How many nuclear warheads does each nation really have in inventory? How many are armed and ready to be deployed and where are they pointing? While most of this information is classified, we are able to put together some pieces of this puzzle.

BACKGROUND
India joined the exclusive nuclear weapons club in 1974 by successfully testing a nuclear device underground in the Pokhran desert. In 1998, India held a second battery of tests, detonating five nuclear devices, also underground at Pokhran. This time, Pakistan followed suit and within weeks, had conducted retaliatory tests in the Chagai hills with six underground detonations of its own. In reality, both nations had active nuclear enrichment and research programs underway for decades, and by testing the weapons were merely declaring their ability to fabricate them.

While both nations were sanctioned by the international community for their tests in 1998, neither side has decided to officially renounce their weapons capability or put a moratorium on further development. But Pakistan and India have also chosen not to openly test weapons again, though they have unveiled several new generations of long-range missiles capable of housing nuclear warheads. This brings us to the status of the nuclear weapons programs today.

Estimates of nuclear stockpiles under Indian or Pakistani control are speculative in nature at best, as neither nation’s leaders will publicly share this information. According to the Bulletin of the Atomic Scientists in 2010, India has assembled 60–80 warheads and produced the fissile material needed for 60–105 warheads. Pakistan has assembled 70–90 warheads and produced enough fissile material for as many as ninety warheads. These numbers are consistent with estimates from other sources.

Former Indian intelligence official J.K. Sinha has said that India has six reactors capable of producing enough weapon grade plutonium for up to fifty new warheads per year. India also has several potential deployment methods for warheads, including short and intermediate range ballistic missiles, aircraft, and surface ships. India is also said to be working on submarine deployment on its Arihant class vessels. Meanwhile, Pakistan is said to have the ballistic missile capability to reach any corner of India. By the estimates of the head of security for Pakistan’s nuclear arsenal, there are 70,000 people who work in Pakistan’s nuclear complex, including more than 7,000 scientists.

India and Pakistan are probably in possession of a comparable range of weapons. While it is difficult to come across an estimate of how many of these warheads are actually deployed and operational, one thing is certain. Both are thoroughly committed to continue the arms race to increase capacity as rapidly as possible, at high cost, with no end in sight.

Assuming 150 active warheads in South Asia, what is the scope of destruction possible if India and Pakistan conduct a nuclear war against one another? A great deal. Plenty of research has gone into this question. The National Resources Defense Council (NRDC) has created several scenarios detailing possible outcomes. One of them includes twenty-four “ground bursts” of nuclear warheads in fifteen major South Asian cities- and estimates up to eight million deaths from the blasts, thirty- million deaths from radiation in the first two days, and another thirty million deaths from radioactive fallout.

Twenty-four bursts is only a fraction of the approximately 150 active warheads- so we can assume that in an all-out nuclear war, the potential effects would be worse. In any case, a majority of citizens of both nations would survive, and elements of the armed forces would remain intact to fight on using conventional warfare- causing more destruction. While these exercises in building scenarios are illustrative, the casualty numbers are so far out of the realm of human experience that they are difficult to take seriously. Perhaps this is the only way to demonstrate the seriousness of nuclear proliferation on the subcontinent.

ANALYSIS
India and Pakistan have come close to risking nuclear war at least once that we know of, in 1999 during the Kargil skirmish. It continues to be a real threat. But analysts from around the world who observe the nuclear capacities of India and Pakistan are not only interested in the very real possibility that the two nations could harm one another. Fallout, both literal and figurative could travel beyond.

India has disputed territory and a shaky relationship with yet another Asian nuclear power, China. It is likely that China and India are pointing nuclear warheads at one another too. The long-term effects of this as the two nations head toward superpower status over the coming decades are unknown.

Meanwhile, a legitimate fear with Pakistan is its role as a base for terrorist groups such as Al-Qaeda, the Taliban, Lashkar-e-Taiba, and their affiliates, many of whom have stated ambitions to get hold of nuclear weapons for their purposes. Some people who sympathize with these groups’ aims have also joined the Pakistani armed forces and intelligence agencies. Civilian control over the army is marginal at best, and command and control over nuclear deployments are among the Pentagon’s top concerns. In this environment the size of Pakistan’s nuclear arsenal as well as its safeguards are of global concern. A report by Harvard University’s Belfer Center for Science and International Affairs in 2010 said Pakistan’s stockpile “faces a greater threat from Islamic extremists seeking nuclear weapons than any other nuclear stockpile on earth.”

Indian and Pakistani officials often say that the threats related to their arsenals are overblown, and that the stockpiles of countries such as the United States and Russia are much more of a risk to humanity- and even less well secured. They have a point, at least in that the operational stockpiles of the former Cold War states dwarf all of the others in size.

Internal and external efforts to encourage India and Pakistan to curb their nuclear weapon programs have failed. The biggest lesson for outsiders to learn may be that for non-proliferation to be taken seriously by South Asian leaders, it will have to be perceived as more of a global effort and not one targeted only at the subcontinent’s nuclear powers. The secrecy surrounding the nuclear proliferation efforts of both nations will ensure that outside forces will never have a full accounting of the capability they possess- or the ability to find every last warhead in the event of an attempted raid.
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Mahanth Joishy is the South Asia Editor at Foreign Policy Digest.