East Asia Forum

East Asia Forum

Saving Doha: Polly wants a trade deal

Author: Jagdish Bhagwati, Columbia University The Doha Round of Multilateral Trade Negotiations (MTN) is the first negotiation to take place under the auspices of the World Trade Organization (WTO), founded in 1995. The eight previous rounds of global trade talks were conducted under the General Agreement on Tariffs and Trade (GATT), following its creation in 1947. The previous MTN, the Uruguay Round, took nearly eight years to complete, causing some to quip that GATT stood for the General Agreement to Talk and Talk. But the jokes about the Doha Round, which is in its tenth year, are far worse — akin to the classic Monty Python sketch in which a customer holds up a dead parrot in a cage while the shopkeeper insists that the parrot is only ‘resting.’ When the parrot drops off its perch in the cage, the customer insists that it is now clear that the parrot is dead. The shopkeeper, however, insists that the bird is only ‘stunned’ by the fall. Increasingly, political leaders like British Prime Minister David Cameron, German Chancellor Angela Merkel and Indonesian President Susilo Bambang Yudhoyono, who spoke eloquently for the Doha Round at the World Economic Forum in Davos this year, are emphasizing that the Doha Round’s failure would cost the world significant gains in prosperity, halt progress for the poor in developing countries and reduce workers’ real incomes in developed countries. A Doha failure would also deal a lethal blow to the credibility and future of the WTO, which has been an almost unique example of effective and democratic multilateralism. Just as the economist Lester Thurow famously declared at Davos in 1988 that ‘GATT is dead,’ the current refrain is that the WTO is Monty Python’s parrot. Given the stakes for the global economy , the Doha Round must be saved . The High-level Trade Group, co-chaired by myself and Peter Sutherland, argued at Davos that this can best be achieved through a high-stakes gamble of announcing a date — such as the end of 2011 — by which the negotiations are declared completed or the parrot is knocked off its perch. But the next question is this: How do pro-trade and pro-Doha leaders such as Cameron and Merkel bring the foot-draggers on board? While many players, including Brazil, China and the European Union, must make marginal concessions to close Doha, the focus will have to be on the principal naysayers. The talks broke down in mid-2008, owing to the United States’ refusal to reduce agricultural subsidies further and India’s refusal to ask its subsistence farmers to compete with subsidized U.S. farmers. But the main problem since then has come from the U.S. President Barack Obama is presumably sympathetic to openness in trade. He cannot have spent a decade teaching at the University of Chicago without being persuaded that trade is beneficial. Even during his campaign for the Democratic Party nomination, when his main rival, Hillary Clinton, was pushing to suspend trade negotiations and had embraced the protectionist narrative, Obama kept his cool and promised instead to reopen NAFTA — a tactic designed to amount to nothing, as it has. But the Democrats in Congress who won in 2008 were financed by labor unions, which are fearful of trade, chiefly with developing countries. They have constrained Obama’s willingness to embrace trade deals. Obama’s loss of support from his party’s left wing, which has been alienated by his compromises over Guantánamo, Iraq, Afghanistan and even health-care reform, has also played a part. Few of these officials are willing to battle for trade, having reconciled their supposed concern for the poor with a deplorable willingness to deny developing countries access to the U.S. and other rich markets that can help them earn their way out of poverty. Indeed, they now claim, astonishingly, that trade actually harms the poor in poor countries! Last November’s elections changed for the better the politics of trade, as the Republican Party is now in the majority in the U.S. House of Representatives. Trade negotiations are supposedly acceptable again. Obama has already offered a pre-emptive concession on a free-trade agreement with South Korea. With this FTA practically in the bag, the Republicans now want to see FTAs with Colombia and Panama put into that bag. Regrettably, neither they nor the president have asked that Doha also be put into the bag. At long last, this is surely the opportunity for pro-Doha statesmen worldwide to pressure both Obama and the Republican leadership into doing so. To neglect this window of opportunity would be tragic. Jagdish Bhagwati is professor of economics and law at Columbia University and senior fellow in international economics at the Council on Foreign Relations. This piece was published here in the Seattle Times. Ten years of Doha negotiations: Are we close to striking a deal? Let’s do a Doha deal Global trade talks: Doha is doable this year

Measuring the impact of the earthquake on Japan’s economy

Author: Huw McKay, Westpac and ANU The great misfortune of Japan’s earthquake will shape the contours of economic activity in the country for some time to come. Japanese private sector estimates of the economic cost are centring on 3 per cent of GDP. Those estimates are split roughly half and half between the damage bill and the anticipated activity loss. This essay is not intended to critique the efforts of the forecasting community at this difficult time. Rather, it is to trace the thought processes involved in looking at such a disaster, and to make some observations about the future position of the Japanese economy at various horizons . Turning to the immediate future, activity losses will be spread across all areas of the economy , but will be most visible in industrial production, logistics, utilities, household services and international trade. A proportion of these impacts can be sensibly proxied by an estimate of the short-term decline in hours worked. Around half a million are homeless and are unlikely to be in a position to work for at least a month . The direct negative impact on labour supply from this unfortunate group can be estimated (callous as it is to do so) by scaling the 500,000 to garner their relationship to the labour force. Multiplying that result by measured productivity levels produces an estimated output loss of 0.024 per cent of GDP per month or 0.006 per cent of GDP per week. In addition, power shortages will constrain the capital-intensive sectors. In addition to Tohoku, there is the impact of rolling blackouts on Kanto, where TEPCO, the unhappy owner of the compromised Fukushima nuclear facilities , rules the roost. One month of power disruptions to both Kanto and Tohoku might come in close to a loss of 0.08 per cent of GDP. Offsets to these losses will be available via increased hours worked in other parts of the country and the diversion of orders to factories in other regions running on full power. In some cases, these offsets could be considerable, especially in sectors where capacity utilisation is presently low and the production process in question is not highly specialised. As a large segment of Japanese manufacturing does not meet both of those criteria, it seems unwise to get overly excited about a drastic reorientation in the very short term. In terms of international trade, affected ports process less than 1.5 per cent of Japan’s exports and a little over 2 per cent of imports. This factor is most likely to manifest as sectoral dislocations rather than as negative outcomes of aggregate note. On that point, the range of industries that have been hit hard includes non-ferrous metals, specialty machinery, electronics and auto components, rubber, medical equipment and brewing. Downstream producers relying on inputs from these factories will see the supply chain disrupted for some time. This will in turn disturb wholesale distribution networks around the world, with an eventual impact on shop shelves and retail showrooms. The potential horrors of exposure to nuclear radiation will have a profound impact on consumer behaviour while the danger is perceived to exist. Until the scare dissipates, consumers living within a plausible radius — including Tokyo — are expected to eschew discretionary outings. That implies a precipitate drop in spending on travel, restaurants and other forms of extra-domicile recreation. The impact may be similar to the behaviour observed during cases of viral outbreak, where socialisation temporarily falls toward zero. Here, consumers are shunning the atmosphere, not just groups of people, so the temporary effect could be greater. Turning to the reconstruction phase, local estimates of the monetary cost of rebuilding, spread over two years, would add between 0.125 per cent and 0.25 per cent to activity levels per quarter above any prior baseline. A little less than 70,000 buildings have been damaged, while a further 10,000 have fully or partially collapsed. Looking specifically at the dwelling stock, the Tohoku region has significantly different fundamentals from the national average. The number of persons per dwelling is higher in Tohoku (2.5 versus 2.2 nationally) the average floor space of dwellings is larger (124sqm versus 107sqm nationally) and the proportion of detached dwellings is higher (72 per cent versus 55 per cent nationally). Also, a greater share of Tohoku’s dwellings are wooden (51 per cent versus 32 per cent nationally) or were constructed before 1980 (37 per cent versus 32 per cent nationally), and are thus more likely to suffer critical damage. Rates of owner occupation are considerably higher than elsewhere in Japan (65 per cent across Tohoku versus 51 per cent nationally) despite a persistently higher unemployment rate in the region (5.2 per cent average for the last decade versus 4.7 per cent nationally). Each of these characteristics is relevant for the scale, style, financing and timing of the rebuild. All things considered, the reconstruction of the dwelling stock will be a more protracted process in Tohoku than it would be in the ‘average’ prefecture. As for the energy sector, Japan went into this disaster with a glut of power capacity, having over-invested in prior decades when long run demand projections were rosier. Therefore, it is unlikely that all of the lost capacity will be replaced. A shift in the energy mix away from nuclear capacity can be anticipated, but that might also come from more intensive use of existing infrastructure. In terms of raw material demand, a shift toward conventional fuels and away from nuclear would be expected to benefit LNG, coal and oil, in that order, with Japan’s carbon emissions profile a casualty of the shift. A factor for the medium and long term is whether the Tohoku can hang onto its high-tech manufacturing and components base. The Chinese rare earth embargo severely constrained many firms in the tech arena. Many will be confronting a forced re-location decision in the wake of the disaster. A further wave of hollowing out, directly or indirectly related to the disaster, would be a negative for Japan’s future prospects. The net impact of the near term losses and the gains of the reconstruction phase will leave the level of activity at the end of 2012 just a little below what was anticipated in a pre-disaster baseline. Japan accounts for a little over 5 per cent of PPP World GDP and therefore it contributes around 0.1percentage points to world growth when it expands at its potential rate. Prior to the shock, it was expected to quietly add 0.09ppts in 2011 and 0.12ppts in 2012. The new growth profile alters that to 0.06ppts and 0.14ppts respectively. Huw McKay is Senior International Economist at Westpac Banking Corporation and a graduate scholar at the ANU. Japan’s earthquake and its economic impact The political and policy fall-out from the Japanese earthquake and tsunami Japan’s big society: a Chinese perspective on the earthquake

India-Indonesia ties: Charting an ambitious path forward

Author: Sourabh Gupta, Samuels International Civilizational, cultural, and geographic neighbours, India and Indonesia share striking commonalities in their modern historical trajectories. In both societies, European powers, the Dutch and the British, benefiting from the decline of tired Islamic land empires, had grafted colonial modes of exploitation that progressed fitfully from coast to hinterland to interior. Following proto-nationalist revolts, the Java War of 1825–30 and the Indian Sepoy Mutiny of 1857, both the Dutch and the British skillfully manufactured a buffer of indigenous elite collaboration, such that their faraway possessions were governed by less than two hundred and a thousand expatriate administrators, respectively. As young, independent-minded nations imbued with a deep tradition of internationalism, India and Indonesia were at the forefront of conceptualizing a non-military defence system for Asia whose peace would be assured by the major powers through the United Nations. In part, intended to shield themselves from the vagaries of the Cold War’s emerging bipolar structure, their foundational doctrines of diplomacy — non-alignment and a ‘free and active’ foreign policy — were, in part, as much an expression of their domestic pluralist characters as it was an attempt to establish a shared basis for peaceful coexistence in a post-colonial Asia riven by dissidence and subversion at its peripheries. To this day, both India and Indonesia hold strong preferences for multilateral and UN-centred cooperation and an unfavourable view of close-ended, collective security arrangements. That said, both countries were not beyond deviating from these principles at moments of strategic opportunity or exigency — both the India-Soviet Union Treaty of Peace, Cooperation and Friendship in 1971 and the Indonesia-Australia Agreement on Maintaining Security (AMS) of 1995 providing for consultation mechanisms in case of an adverse challenge or threat of attack to its treaty signatories.

Calls for a Sino-Mongolia strategic partnership

Author: Mendee Jargalsaikhan, UBC The Chinese Foreign Minister’s brief visit to Mongolia on 24 February, like the Chinese Premier’s visit last June, did not trigger any negative public debate or protests in the streets of Ulaanbaatar. Rather, an op-ed by well-known columnist Baabar on the repression and marginalization of Chinese ethnic minorities during the communist era received wide attention. During this visit, Mongolian leaders called for a Sino-Mongolian Strategic Partnership — an unthinkable prospect a decade ago. Mongolia’s political leaders and people are changing their attitudes toward the Chinese. And although they make for great headlines abroad, sporadic incidents of xenophobia and racism against Chinese are not indicative of the wider public sentiment. Even after centuries of distrust, China was a normal neighbour of Mongolia in the 1950s; bilateral trade and all types of exchanges flourished, characterized by a process of learning. This learning came to a 30-year standstill when China became a ‘declared enemy’ of Mongolia. Another phase of cooperation and learning started in 1989, when Mongolia–China relations were normalized. At this time, Mongolians became increasingly dependent on Chinese infrastructure and the Chinese market . While Russia imposed visa requirements on Mongolians, and the safety of passengers and goods going through Russia was problematic, China granted visa waivers for Mongolian travellers and made its air, rail and sea ports accessible. Some might argue that this was Chinese soft power in play, but, above all else, these policies were based on economic practicality. By the Mongolian Embassy’s account, 350,000–370,000 Mongolians travel to China annually. This includes travel to Inner Mongolia or Beijing for medical diagnosis and treatment, as Seoul and Tokyo are costly. The number of Mongolian students in China is also on the rise, and Chinese language schools and training programs are abundant back home. And while China desires to increase its border trading posts with Mongolia, Moscow wants to close its posts. All these factors contribute to the learning between Mongolia and China, and a growth in bilateral trade and Chinese investment. This learning process for Mongolians has two palpable implications. It impels Mongolian political leaders to realize the ‘China factor’ in developing its economy and integrating with East Asia — thus calls for a strategic partnership. It assuages Mongolian misperceptions of China as a threat, something constructed by the Soviets in the 1960s. How much are the Chinese learning about Mongolia, one might ask? Is the Chinese government simply trying to make Mongolia a showcase of China’s benevolence and respect for the sovereignty of its smaller neighbours? This was highlighted when China concluded a border treaty with Mongolia while fighting against India in 1964. It was reiterated by Hu Jintao at the beginning of his first foreign visit to Ulaanbaatar. Whichever way, there is a change in the quality of Mongolia’s relations with China. Mendee Jargalsaikhan is a graduate student at the Institute of Asian Research, University of British Columbia. Chinese investment in Mongolia: A sequel Chinese investment in Mongolia: An uneasy courtship between Goliath and David Mongolia’s ‘third neighbour’ policy and its impact on foreign investment

Australian-American partnership in 21st century Asia Pacific

Author: Robert Sutter, Georgetown University Prime Minister Julia Gillard’s visit with President Barack Obama in Washington highlights Australia’s extraordinary role in American strategy toward the Asia Pacific. Australia is the US partner with the most extensive breadth of vision, interests and resolve to provide advice, criticism and support as the United States works to foster an Asia Pacific order of peace, stability and development. The Australian visitors bring to the table an impressive record of commitment with the United States that is appreciated by all sides in politically fractious Washington: Australia’s elite troops and other support in Iraq and Afghanistan; its initiative in taking the lead in working with the United States in dealing with issues in Indonesia, other Southeast Asian countries and the Pacific Island nations; and its ability to provide perspective and experience for the United States in sometimes complicated interactions with Asia’s rising powers, especially China . Australia’s strong ties with Japan and South Korea are also the foundation for counsel and actions on North Korea’s proliferation and provocations. Despite claims of US ‘decline’ and ‘neglect,’ a comprehensive and effective US re-engagement with the Asia Pacific has emerged over the past year. America relies on and coordinates closely with Australia on these initiatives; the two powers are working together to advance American engagement beneficial to both countries and the region as a whole. The Obama administration’s diplomatic, security and economic initiatives represent the most important shift in regional dynamics in several years. They signal top priority American policy attention to the Asia Pacific region. President Obama reportedly has become convinced that the Asia Pacific is both of major importance to the United States and a world region where greater US engagement would be widely welcomed and beneficial for the United States and for the president’s standing at home and abroad. The significance of the US initiatives has been overshadowed to some degree by China’s often ham-handed treatment of security issues, territorial disputes, maritime navigation rights and other sensitive issues with its Asian Pacific neighbors. Ironically, the Chinese actions have had the effect of reinforcing the importance of the American initiatives. Concerns over China’s actions and intentions have prompted Australia and other Asian Pacific countries to support and engage with the renewed US activism; the regional governments on the one hand position their countries to work positively with rising China in areas of common interests, while on the other hand they prepare for possible contingencies involving domineering Chinese assertiveness. The stronger US engagement ranges across the entire Asia Pacific region. Firm US support for the security alliance with Japan helped Tokyo get its footing in the face of what was widely seen as Chinese ‘bullying’ over fishing disputes involving the Senkaku/Diaoyu Islands. The United States has steadily backed its South Korean ally as it sought support in the United Nations and in military exercises against North Korea’s aggression. The US intervention at the ASEAN Regional Forum (ARF) meeting in July led a collective effort by involving Australia and other participants to defend free navigation and restore stability in the disputed South China Sea . The United States joined Australia in the East Asian Summit, raising the profile of that regional body over Asian-only regional groups. Prominent advances in US military and other relations with Vietnam came in August; President Obama held a summit meeting with ASEAN leaders in September, visited Indonesia, along with India, Japan and South Korea, in November and pledged to be at the 2011 East Asian Summit meeting in Jakarta. Meanwhile, US interaction with small Pacific Island states has been upgraded with annual meetings with the Secretary of State, and New Zealand has seen the most significant breakthrough in its relations with the United States since the rupture of the alliance over 20 years ago. The Australian visitors will want an update on US engagement with Asia, especially the summit with China amid renewed Chinese reassurances and less truculent behavior coincident with President Hu Jintao’s successful visit. They will seek stronger American economic commitment in the region, assessing US follow-through on free trade initiatives with South Korea and the regional Trans Pacific Partnership that involves Australia and is forecast to reach a milestone agreement at the APEC meeting in Hawaii this year. Overall, while there are sure to be some differences in the talks, the strongly converging Australian-American interests and actions forecast a remarkably close partnership in the years ahead. Robert Sutter is Visiting Professor of Asian Studies at the School of Foreign Service at Georgetown University and Adjunct Professor of Asian Studies in the Elliott School of International Affairs at George Washington University.

Russia–Japan territorial disputes, divisive as ever

Author: Tsuneo Akaha, MIIS The Russia–Japan territorial dispute over the southern Kurils/Northern Territories is heating up again. Although the Cold War has long ended, Russian President Dmitry Medvedev’s visit to Kunashiri Island on 1 November 2010 prompted Japanese Prime Minister Naoto Kan to call it ‘an unforgivable outrage.’ Japan claims that the islands of Habomai, Shikotan, Kunashiri (Kunashir in Russian), and Etorofu (Iturup) are not part of the territories it surrendered in the 1951 San Francisco Peace Treaty. The peace accord, Japan claims, did not specify to whom the renounced territories would belong, and the Soviet Union (now Russia) could not and cannot base their sovereignty claims to the islands on a treaty the USSR refused to sign. Moscow and Tokyo agreed in their joint declaration of 1956, which restored their diplomatic relations, that the Soviet Union would return the disputed islands to Japan upon conclusion of a bilateral peace treaty. Both countries ratified the joint declaration. In 1991, the Japanese were encouraged when General Secretary Mikhail Gorbachev acknowledged that there was a territorial dispute between the two countries. They even became hopeful when the first Russian president, Boris Yeltsin, agreed in 1993 that the 1956 joint declaration was still valid. Since then, Japan has continued to insist that all of the disputed islands are inherent territory of Japan and Russia’s control of the islands is illegal. Moscow’s position is essentially that Japan has no claim to the territories because it surrendered the entire Kuril chain in the San Francisco peace treaty. The victorious Soviet Union, therefore, acquired the islands as well as the southern half of Sakhalin Island (the northern half was already Soviet territory before the Second World War) as justly deserved spoils of war — as agreed in the Yalta Conference among the allied leaders. In recent years, the Russian leadership has intensified their appeal to patriotism and used the islands issue to this end. On 7 July 2010, the Russian Duma passed legislation establishing 2 September as the day to commemorate the end of the Great Patriotic War; that date in 1945 being the day when Japan signed the instrument of surrender. On 28 September, President Medvedev and Chinese President Hu Jintao issued a joint statement commemorating the 65 th anniversary of the war and pledged further strengthening of the Sino–Russian strategic alliance. This was followed by the Russian president’s visit to Kunashiri Island, as noted above, and similar visits to the disputed territories by Defense Minister Anatoly Serdyukov, other key ministers and high-ranking officials. Ironically, the Russian leaders’ visits to the disputed islands demonstrate Moscow’s commitment to develop the long-neglected economy of the Russian Far East, including the southern Kurils; an effort in which Russia regards Japan as an important partner. Japan also sees mutual benefits in closer economic ties with Russia, particularly in the energy field. Although the eventual outcome of the territorial dispute is anybody’s guess, there is no question that the level of trust between Moscow and Tokyo must improve substantially if a mutually acceptable solution is to be reached. Several essential elements of trust-building efforts can be outlined. First, it is essential to improve and expand the relationship between the two governments so as to withstand the ups and downs of diplomatic tensions. The two countries need a more comprehensive engagement, particularly in the economic and social spheres, at both national and subnational levels, especially involving communities in the Russian Far East and northern and western regions of Japan. Second, Moscow and Tokyo should advance cooperation over transnational and global challenges; for example, nuclear proliferation, terrorism, climate change, public health (like HIV/AIDS and infectious diseases), alternative energy development, space exploration and new materials development. Third, both sides should encourage creative and innovative ideas that go beyond long-held perspectives which have proven ineffective. For one, Russia might consider returning the Habomais and Shikotan to Japan upon conclusion of a peace treaty, where the two sides commit to negotiating the status of the remaining islands. While the negotiations continued, Japan should offer assistance and encourage private investment in the development of the entire Northern Territories. Both Russians and Japanese might live side-by-side, with disputes between them to be settled in an arbitration board or a court of their choice. Finally, for any compromise to withstand inevitable criticisms at home, the political leaders in Moscow and Tokyo must build their credibility not on their ability to fan nationalism among their citizens but on their ability to ensure sustainable economic development and social stability. Professor Tsuneo Akaha is Professor of International Policy Studies and Director of the Center for East Asian Studies at the Monetary Institute of International Studies, California. China and its territorial disputes: One approach does not fit all China and its territorial disputes: One approach does not fit all Japan must acknowledge ‘territorial issue’ over islands

Mongolia’s ‘third neighbour’ policy and its impact on foreign investment

Author: Julian Dierkes, University of British Columbia Justin Li’s 2 February 2011 post is welcome in that it attempts to analyse the economic development of Mongolia in its political context. It is also significant in that it raises an important aspect of China’s perceived rise in standing and its newly assertive foreign policy, namely that this has a very specific impact on regional (security) dynamics and popular perceptions. Li’s essay mainly focuses on the extent to which politics and populism have got mixed up (I assume that’s how he might see it) with investment decisions. This ignores another political arena entirely: foreign policy. The Mongolian parliament is currently debating an updated foreign policy vision, so this particular point may well shift significantly in the coming weeks/months. Up until now the dominant stated theme of Mongolian foreign policy has been the so-called ‘third neighbour’ policy; that is, attempts by successive Mongolian administrations to build closer ties with partners other than Russia and China, its dominant neighbours. The most prominent third neighbours have been Canada, the EU (as a whole or individual countries, especially Germany and the UK, though they are both currently involved in an extradition case involving Mongolia’s spy chief, Khurts ), Japan, South Korea and the US (built to some extent on the Bush administration’s gratitude for the deployment of Mongolian troops in Iraq and Afghanistan). Mongolia has also pursued strong relations with India, Kazakhstan and Turkey. This third neighbour policy has met with some success, far from the ‘geopolitical nightmare for its leaders’ that Li describes. Japan and Korea are clearly very engaged in Mongolia (beyond the Mongolian invasion of sumo ranks, and the large number of Mongolians working in industrial jobs in Korea). Canada’s first resident ambassador, Anna Biolik, took up her post in 2008 and has since been succeeded by Greg Goldhawk. The US-Mongolia relationship seems to have weathered the transition to the Obama administration. Much of what Li describes in his essay could be interpreted as an investment policy based on this third neighbour precept. It is thus quite rational as long as one accepts the aims of the third neighbour policy. Given that Li’s post focuses on the Oyu Tolgoi project in particular, it may not be surprising, given parliament’s involvement in that decision, that the eventual investment agreement for that project involves third neighbours Australia, Canada and the UK. Sticking with a focus on economics, as Li mentions, China has been the largest investor in Mongolia for over ten years casting doubt on his assertion of irrational and imprudent resentment against Chinese investment in Mongolia. Anti-Chinese sentiment in Mongolia has indeed been stirred up by populist politicians in this period, but it is not clear that it is on the rise, rather than representing an on-going undercurrent. Li implies an upsurge of anti-Chinese sentiment with terms such as ‘rapidly capturing’ or ‘increased fear a hundred-fold,’ yet there is scant evidence that this is really a sudden increase in hostility. The fact that Chinese corporations will quite naturally be the biggest customers of any natural resource projects that are developed in Mongolia does not imply that there are incentives for the Mongolian government that these projects should also be Chinese-owned. The government has no obvious interest in creating integrated supply chains for Chinese corporations. In representing the interests of the Mongolian people, the government may be much better off in keeping initial production of raw materials separate from their sales in order to create opportunities to levy taxes and enforce environmental regulation. As to Mongolian decisions regarding railroad construction, Li might enjoy reading Asia Pacific Memo #11 on ‘Broad Gauge versus Narrow Gauge: The Politics of Dimension in Mongolia’s Railroad System’ by Jargalsaikhan Mendee or my own discussion of shifts in the political landscape in Mongolia just this month. I would, finally, take issue with Li’s use of the term ‘racism.’ Without getting into a fruitless discussion of the racial origins or make-up of different populations, it would seem more appropriate for the anti-Chinese sentiment in Mongolia to be referred to as just that, ‘anti-Chinese sentiment,’ or perhaps xenophobia, rather than ‘racism,’ as Li implies. Julian Dierkes holds the Keidanren Chair in Japanese Research, Institute of Asian Research, University of British Columbia where he also coordinates the Program on Inner Asia. Chinese investment in Mongolia: An uneasy courtship between Goliath and David Getting foreign investment policy and China right How do Australia’s foreign investment rules apply to China?