Category: US News

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Myanmar is proving to be a major test of strategic economic cooperation between the United States and Japan – one which reveals wider foreign policy differences between the allied nations. Those differences make substantial collaboration towards realizing a “free and open Indo-Pacific” (FOIP) in specific countries difficult, despite joint strategic interests and aligned high-level political visions.

In Japan’s pursuit of a policy response to China’s infrastructure Belt and Road Initiative (BRI), economic cooperation with partners in third countries to beef up the financing on offer has emerged as a key component. Strategic commercial cooperation is arguably most opportune and necessary in Myanmar because the country is at a fraught stage in its democratization, set into motion in 2010 when it pivoted to form closer ties with countries like the United States and Japan in order to reduce economic over-dependence on China.

However, despite similar headline commitments under FOIP by the United States and Japan to promote rule of law and needs-based economic development, the extent of cooperation in Myanmar has been limited to Japanese trading houses subcontracting to General Electric and U.S. aluminum can manufacturer Ball investing in the Japan-led Thilawa Special Economic Zone (SEZ). Why has the type of economic cooperation much touted by their FOIP strategies come to so little fruition in Myanmar? Is there a way forward?

Cooperation in Myanmar is revealing substantial differences in foreign policy between the United States and Japan

A major issue preventing cooperation is the dire state of U.S. economic relations with Myanmar. Japanese officials and business executives view, perhaps not wrongly, the costs of cooperating with U.S. government bodies and corporations to outweigh potential benefits. A prerequisite for substantial joint economic cooperation is the United States lifting sanctions, to allow for its own economic ties with Myanmar to flourish.

The United States has not put garments and textiles – Myanmar’s biggest potential export product to the United States – on its Generalized System of Preferences, a scheme that eliminates tariffs for goods imported from developing countries. The specter of targeted sanctions against perpetrators of the Rohingya crisis, despite not being fully enforced, poses a reputational risk to U.S. investors.

Furthermore, the United States has not lifted Section 312 of the USA Patriot Act, placing burdensome due diligence requirements on the movement of trade or investment finance in or out of Myanmar. Other than Myanmar, only North Korea, Iran, and Cuba also have this restriction placed upon them, resulting in the absence of American financial institutions there. With the United States unable to freely trade with and invest in Myanmar, economic cooperation with Japan is a non-starter.

The United States places primary importance to human rights – Japan gives primacy to rule of law and development

This is not just a practical matter but points to a wider foreign policy divergence. The United States places primary importance on the human rights agenda as a prerequisite to economic ties. Japan, however, gives primacy to the rule of law and economic development, viewing them as the basis from which to solve human rights problems. Disengagement means no leverage. Japanese ambassador to Myanmar Ichiro Maruyama recently reiterated strong disagreement with international pressure and sanctions on Myanmar – previously condemning it in strong language (for a diplomat) as “utter nonsense”. A Japanese business leader in Myanmar expressed to me his lack of faith in U.S. companies’ commitment to the country.

Japan, by contrast, has a robust presence in Myanmar, with a 3.5 percent share of investment into the country and strong trading ties. It led the establishment of the enormously successful Thilawa SEZ near Yangon, which acts as a “laboratory” to test regulatory reforms to then be rolled out across the rest of the country. Toyota recently announced that it will assemble pick-up trucks there, likely bringing auxiliary industries with it. Japan’s development bank has strategically taken a stake in the Dawei SEZ, the ocean outlet which lies west of the Thai capital Bangkok. Japanese investments, particularly in transportation infrastructure, are beginning to spread north from Yangon to Mandalay, where Chinese influence is stronger.

Japan’s influence goes beyond commerce. Along with 57 staff deployed in Myanmar’s ministries, Japan has established the Myanmar-Japan Joint Initiative (MJJI), an exclusively bilateral dialogue that aims to provide technical assistance to promote a favorable business environment. Japan has established these dialogues across Southeast Asia, focusing on detailed regulations and rule-making for areas such as visas, imports and exports, tax, industrial policy and insurance – a purportedly tedious task that distinguishes Japan from China in its economic offering.

It makes sense for the United States to reinforce and complement Japan’s economic and diplomatic efforts

The United States and Japan share deep strategic interests in promoting responsible economic development in Myanmar, a gateway to the Indian Ocean sandwiched between China and India, to ensure that it does not become economically over-dependent on China. Therefore, it makes much sense for the United States to reinforce and complement Japan’s economic and diplomatic efforts, following its lead.

Steps towards improving economic cooperation – and ultimately building Myanmar’s economic resilience – are not untenable. First, each country has actions that they can individually take to make collaboration more feasible. The United States should place Myanmar as centrally important to its Asia strategy, and promote deeper business ties, as encouraged by the top Asia official in the National Security Council. This should be achieved via the removal of restrictions where politically possible and by the American Chamber of Commerce doubling down to systematically explain troubles faced by its businesses to relevant Myanmar government agencies. Despite strong resistance, Japan should be more open to exploratory dialogue and should improve information sharing with other embassies and chambers of commerce.

A second lesson is that to tackle BRI regionally, the United States and Japan have to find creative ways to collaborate on the country level in a manner that benefits development, not merely blocking or out-doing China. In Myanmar, there are four good places to begin. First, search for opportunities to collaborate on Myanmar’s agriculture industry, including construction of transportation infrastructure to reach markets. Second, look for synergies to build capacity in banking, infrastructure finance, procurement and so on. Third, encourage U.S, investment into Thilawa and Dawei. Fourth, jointly assist Naypyidaw, its capital, with building policies and regulation that encourage investment.

A major investment by China, perhaps in Kyaupkyu, the terminus for an oil and gas pipeline to Kunming and potential site of a deep-sea port and SEZ, may jolt the United States and Japan into joint action. But after all, the U.S.-Japan alliance treaty mandates them to “encourage economic collaboration” in Article II – before it ever mentions military cooperation or U.S. bases – and China has shown through BRI that a strategic economic vision is best built from the ground up, project by project. Sustained, long-term efforts, rather than reactionary pushbacks, to strengthen economic cooperation from the bottom up would better benefit Myanmar’s development, as well as U.S. and Japanese businesses.

The post A Rocky Start for U.S.-Japan Cooperation in Myanmar appeared first on Tokyo Review.

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This content was originally published here.

This content was originally published here.

There aren’t that many things you can get economists to agree on. Fiscal stimulus, minimum wages, monetary policy, health care, bank regulation — on almost all the major issues of the day, you can find a respected economist to argue for either side.

But there are a few questions where there’s near unanimity, and rent control is one of them. Pretty much every economist agrees that rent controls are bad. And in the last decades of the 20th century, economists had some success persuading state and local governments to curb these policies.

Now the policy appears to be making a comeback. Two rent-control bills have cleared the housing committee in California’s state legislature, and New York state looks like it’s about to stiffen New York City’s rent-stabilization regime and offer other cities the option to copy it. City governments may have to relearn why their predecessors pruned back rent-control policies.

Rent control is supposed to protect poor, deserving tenants from the depredations of greedy landlords. And it does, up to a point. Research on rent control shows that many of the beneficiaries are low-income, and that controlling their rents makes it more likely that they’ll stay in their apartments for a good long time.

The problem is that rent control doesn’t do anything about the reason that rents are rising, which is that there are more people who want to live in desirable areas than there are homes for them to live in. Housing follows the same basic laws of economics as other goods that consumers need: When the demand for a product consistently exceeds the supply, prices will rise until the quantity demanded is equal to the amount that suppliers have available.

As long as there’s no new construction, controlling that natural increase is just a game of musical chairs. You can change which people get to live in a city, but you still leave just as many people out in the cold. Actually, a few more, because rent control also reduces the incentive to supply rental housing.

All this suggests an actual solution to skyrocketing rents: Build more housing, so that the rent controls won’t be necessary, and offer subsidies to the smaller number of low-income people who simply can’t afford decent housing. To do that, cities would need to ease the costly land-use regulations that make it so difficult for developers to fill the unmet demand. And in many cases, cities would also need to get rid of rent control, both to reassure potential landlords that they can build without fear of new controls and to encourage landlords to tear down smaller buildings and put up bigger ones, something that rent protections often prevent.

Alas, that’s not going to happen, so coastal urbanites should brace for what will. Declining housing stock is just one of the many potential costs of rent controls; others include a deteriorating housing stock as landlords stop investing in their properties, and higher rents. Yes, higher, because rent control creates a two-tier housing market. There are cheap, price-stabilized apartments that rarely turn over, because why would you give up such a great deal? Then there are the uncontrolled apartments, which everyone else in the city has to fight over, bidding up the price.

Perversely, the people paying above-market rent are often worse off than the people enjoying a hefty subsidy from their landlords. There’s no means test for rent-stabilized housing, and while the average income of people in New York’s rent-stabilized apartments is somewhat lower than that of people in market-rate housing, a recent analysis by The Wall Street Journal showed that the people getting the biggest benefit are white, affluent Manhattanites who presumably landed the apartments decades ago and held on while rents rose around them.

That could be an argument for controlling the rent on all the housing stock. But cities don’t do that for a reason: If you force the price of something below market level, people will supply less of it. Since cities tend not to impose rent controls unless they’re already experiencing a severe housing shortage, that would be bad. Thus, rent control usually applies only to older buildings, since you can’t go back and unbuild an apartment house that was constructed before 1947. It doesn’t completely solve the problem, since landlords still withdraw less-profitable units from the market, shrinking the housing stock over time. But it turns what would be a disastrous policy into one that is merely terrible.

“Merely terrible” is a low aspiration for something as important as housing policy, but at this point it’s probably the best that New Yorkers and Californians can hope for.

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The dollar has reached a two-week high. This happened today when strong and economic data led investors to thinking about the Federal Reserve. This is going to be impacted by the monetary policy meeting and it could mean very interesting things for the industry in general. The broader markets appeared to be much quieter. Traders are now way more hesitant because they don’t want to put out on large positions before the two-day meeting. The meeting is going to involve some of the EU Central Bank policymakers who are in Portugal, and then the Bank of England’s decision regarding interest rates.

The strong US retail sales that happened on Friday really did show that the reduced rates are present and that they are lifting the dollar. The FED chairman may however choose to lay down the groundwork so that a rate cut could happen later on in the year.

The expectations of a rate cut at the meeting have fallen to around 20%. The bets of a monetary easing however do appear to be high right now. The market’s pricing over the last 24 hours are now cutting from the current rate. Investors are scaling back some of their dollar-long positions according to the data that has been published by the CFTC data. That being said, analysts are not convinced about the Euro, and they are not sure that it can seize on the dollar to try and move higher. Even though this should be a softer environment for the dollar this time around, there are some EUR negatives out there and there is a high chance that this could break out later on this year. The index is going to measure against an entire basket of currencies and it has also reached a two-week high of well over 97.603.

The euro doesn’t look to have changed much. It stands at $1.1213 and investors and even policymakers are all waiting to make their decision. They are going to attend an ECB meeting which is going to be held at the Sintra in Portugal, and this is going to be done using the Euro inflation zone data. Sure, fears have protracted that a Sino and US standoff could actually tip the whole economy into recession. They have also progressed rate cuts with the prospect of being more stimulus overall.

Markets are now pricing at a very high level of probability and there is even an unusually high level of uncertainty regarding trade. That being said, it’s safe to say that there isn’t a high chance of them cutting rates if there is a post-G20, or de-escalation with China. The sterling has slid to a 2019 low and now it is at 1.2573. This is the weakest that it has been since January and investors are worried that if Boris Johnson was to replace Theresa May, this could put Britain on the long and winding path of the dreaded no-deal Brexit.

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