Saturday, August 27, 2005

A Cautionary Tale

Malaysia’s Internal Security Act (ISA) was originally enacted in 1960 during the “Emergency,” the communist insurgency that engulfed the newly independent country in the 1950s and 1960s. That rebellion petered out long ago, but the law is still on the books, proof that “emergency” measures tend to linger long after the emergency has passed because they are useful to the authorities.

Originally aimed at communist insurgents, the Internal Security Act, which provides for unlimited detention without trial, has been used against all kinds of “security” threats, even common criminals, like forgers, and against political activists, student leaders, union bosses and journalists, anyone who challenges authority

Earlier this month human rights groups and former detainees gathered in Malaysia’s capital, Kuala Lumpur, on the 45th anniversary of the passage of the ISA to tell their horror stories and, it was hoped, to renew their determination to force the law’s eventual repeal.

Since 1960 more than 3,500 Malaysians have been held under the law that permits detention for up to two years without trial and allows the Home Minister to renew the detention order indefinitely. One detainee, Loh Meng Liong, was held for 16 years before he was freed in 1982. There is no maximum limit.

The Malaysian experience also demonstrates that torture and unlimited detention go hand in hand. Former ISA detainee Tian Chua, who is now information chief for the opposition New Justice Party, recalled, “We were routinely tortured during interrogations, stripped naked, beaten with broomsticks and threatened with rape.”

Former Deputy Prime Minister Anwar Ibrahim was detained under the ISA as late as 1998 for opposing the P.M. He was later tried in court, convicted of sodomy and corruption and served six years in jail until his released last year. Ironically, he had been detained under the ISA as a young politician, protesting treatment of peasants.

The September 11 attacks on the U.S. gave the ISA a fresh lease on life since it provided former PM Mahathir justification for more arrests. About 100 members of the banned Jemaah Islamiah organization, which is believe to have inspired, if not directed the October 2002 Bali bombings, were detained under the act.

Malaysia’s experience is a cautionary tale for the U.S., since, in the wake of the terrorist attack on New York and Washington on Sept. 11, 2001, the U.S. has been inching toward its own version of detention without trial, an internal security act in everything but name.

Jose Padilla, an American citizen suspected of wanting to plant a “dirty bomb” in an American city, has now been held in South Carolina for three years without trial as an “enemy combatant.” Earlier this year there was talk funding a special detention center – “Camp 6” – for indefinite incarceration of suspected terrorists.

If the U.S. is moving stealthily toward a policy of indefinite detention, the Blair government in Britain is openly considering a host of new security measures in the wake of July’s terror bombings. One would allow the police to detain a suspect without trial for up to three months instead of the current 14 days.

Washington used to regularly condemn Malaysia’s (and Singapore’s) use of the unlimited detention as a violation of human rights. One doesn’t hear Washington complaining so much these days. Wonder why. Shortly after the terror attacks, President George W. Bush thanked former premier Mahathir Mohamad for Malaysia’s efforts against terrorism.

It should be emphasized that Malaysia is not some tin-pot dictatorship like Zimbabwe. It is a functioning democracy, which is, in many ways, a model for a moderate Muslim-majority state. We should be so lucky if Iraq turned out to be half as stable, prosperous and democratic as Malaysia is today. That’s why the ISA remains such a blight on Malaysia’s democracy.

Saturday, August 20, 2005

Chewing Gum and Lollypops

Almost unnoticed, the Chicago-based Wrigley’s, the world’s largest maker and marketer of chewing gum, has built a dominating presence in China. With 60 per cent of the market and a million retail sales outlets, Wrigley’s has probably come closer than any other American company to fulfilling the century-old mythic dream: “If every one of China’s one billion people bought just one …”

In five years Wrigley’s has built an awesome distribution network, making sure that the little green packages of Doublemint gum are available in almost every corner of the country. The company is said to have the widest distribution and sales network of any food manufacturing and consumer packaging company in China, foreign or domestic, a staggering one million outlets, 30,000 in Shanghai alone.

No foreign or domestic gum company comes close to Wrigley’s market share or sales volume. Indeed, the domestic Guangdong Fanyu Candy Co., the once prosperous and well-known maker of Yiqing chewing gum and Dada bubble gum, had to fold its operations in 2002. It could not compete. The only significant competitors left are the South Korean Lotte and the Italian Perfetti Van Melle.

Since 1999, China has become the second-largest market for Wrigley’s, behind only the U.S. “I don’t think people know how global [Wrigley’s] is,” fund manager Rose Papp told Wrigley’s now counts 14 percent of its sales in Asia, up from 3.3 percent in the year 2000. Industry analysts estimate that the Chinese chewing gum market is worth about $250 million now and may reach more than $800 million by 2008.

Wrigley’s entered China in a big way in 1989, when it built its first wholly owned chewing gum factory Guangzhou. Last October, Wrigley’s opened a 50,000 square-foot factory to make gum base - - the material that gives gum its chewiness -- in Shanghai. Since the opening of the Shanghai plant the company has been able to produce all of the ingredients for making chewing gum on the mainland.

In recognition of Wrigley’s unassailable position in China, Spanish food conglomerate Agrolimen sold its Joyco confectionery division’s operations in China and India and several other countries to Wrigley in 2004 for 220 million euros ($274 million). Joyco had established the joint venture with Guangdong Fanyu Candy Co, that went broke in 2002. But it was still the leading seller of bubble gum and lollypops in China. Also as part of the deal, it bought Cafosa, its chewing and bubble gum base business.

“With the addition of the Joyco brands, we have been able to add complementary confectionery products to our portfolio and take advantage of our robust sales force,” said Wrigley’s spokesperson Kelly McGrail. “That will make these products widely available in China. The Ta Ta bubble gum and Pim Pom lollypops also give us great-tasting and affordable single-piece confections for kids – widening the Wrigley’s product portfolio to this younger market,” she added.

The Joyco deal also gives Wrigley’s a boost in India, where Joyco enjoyed a leading position in those confection products. Before the sale, Wrigley’s gum sales in India accounted for only about 3.5 percent of the market. The acquisition boosted combined confectionery sales to approximately 35 percent. The industry leader, however, is still the Italian firm of Perfetti Van Melle, which had 47 percent, according to Euromonitor International, an industry analyst.

Compared with many other packaged consumer goods sold in China, counterfeiting has not been a serious problem, according to the company. “There are sporadic cases, and when they arise we work closely with local authorities,” said McGrail. Wrigley’s is also a member of the Quality Brand Protection Committee, an anti-counterfeiting coalition in China, which has more than 100 multinational corporations as members and lobbies the government for stricter laws and regulations for intellectual property violations and better enforcement systems.

The Wm. Wrigley Jr. Co. was founded in 1891, originally to sell soap and baking powder. In 1892, William Wrigley Jr., the company founder, began offering chewing gum with each can of baking powder. The gum eventually became more popular and the company reoriented itself to make and sell gum. It is still a family-run business based in Chicago.

Fighting the Singapore banWrigley’s is slowly working its way back into Singapore after having been shut out, along with every other gum maker after the island country famously banned the import and sale of chewing gum for sanitary reasons in 1992. The company was deeply involved in the negotiations leading to the 2003 Free Trade Agreement with the United States. Two issues dominated the negotiations: Singapore’s participation in the Iraq War coalition and chewing gum. Of the two, gum was by far the stickiest.

Somewhat grudgingly, Singapore compromised, agreeing to allow the importation and sale of what it called “therapeutic” gum. “They were tough,” said former Rep. Philip Crane ® of Illinois, who was involved in the negotiations. This opened the way for sales of Wrigley’s Orbit brand of sugar-free gum, which contains calcium lactate intended to strengthen tooth enamel. Another beneficiary of the deal is Pfizer, which makes Nicorette, a nicotine gum meant to help smokers kick the habit.

At the moment, Wrigley’s gum can only be obtained through a licensed pharmacist, and the buyer must provide his name and identity card number. In Singapore, chewing gum is still very much a controlled substance.

Thursday, August 11, 2005

Koizumi's Great Gamble

The political pressure on some of Japan’s legislators to pass the postal privatization bill was so great that one legislator actually committed suicide. Now many believe that Prime Minister Junichiro Koizumi is committing the equivalent of political hara kiri by dissolving parliament and calling for new elections next month.

Koizumi made good on his threat to call a special general election after the House of Councilors, Japan’s equivalent of the Senate, defeated his bills to privatize Japan’s post office, including its banking and insurance branches which contain assets equal to about $3 trillion (that’s with a “T”).

At this point, it is hard not to think that Koizumi is taking himself and the Liberal Democratic Party (LDP) he heads over a cliff. The resulting electoral debacle could have serious consequences not just for Japan but for U.S. policy makers, who have trusted the LDP to be a valued partner in Asian and world affairs..

Start with the fact that the LDP currently holds only a nine-seat majority in the House of Representatives (pardon me if I use their proper names, and not fall into the ugly habit of calling them the Lower and Upper House) augmented by the 34 votes of its coalition partner, the New Komei Party.

Next subtract 37 Representatives, who broke party discipline to vote against the postal privatization bills last July. (The bills actually passed the House of Representatives by five votes, but under Japan’s Constitution it is this body not the other one that is dissolved for a general election.)

Koizumi has promised that no rebel will get an official party endorsement. That means they will have to run as independents, or, more likely, they will try to sell themselves as representing the “real” LDP. The PM is currently recruiting opponents, which means at times having to parachute candidates from other parts of the country into districts where they are unknown.

Keep in mind that the reason most of the rebels opposed the postal bills was out of fear that privatizing the post office, which has more than 200,000 employees dotted all over the country, would fatally damage their personal political machines. One can imagine that these supporters will work like hell to keep their boy in the Diet.

If Koizumi cannot retain most of these seats, he will have to get his working majority out of the hide of the main opposition, the Japan Democratic Party. This may be difficult. After years of shuffles and reshuffles, the JDP seems to finally be getting its act together. It made important inroads in recent House of Counselors election and the voting for the Tokyo assembly.

Then there is the issue itself. “This is an election to ask voters whether they support or oppose postal privatization, and I believe a number of people will say yes,” Koizumi said defiantly. But how many people will be motivated to vote by this one issue is a good question.

Postal privatization holds out the promise of great benefits in the future. However, there is no popular groundswell behind it. It is very much a top-down reform. There’s nothing inherently wrong top-down reforms. The entire Meiji Reformation was accomplished through top-down reforms. But then Ito Hirobumi didn’t have to face the voters.

To the extent that the average Japanese voter thinks about postal reform, he probably likes things the way they are. After all, in these days when people get cash from faceless ATM machines, when they talk only to computers on the bank’s “hotline,” there is something touchingly human about the friendly postman personally coming around to your door to collect grandma’s savings.

The situation is somewhat analogous to President George W. Bush’s proposal to partially privatize social security, another top-down initiative with little real popular support. But one wonders whether Bush would go to the mat over his reform the way Koizumi has for his. It is hard to imagine that Bush would risk his whole administration and the Republican Party on such a gamble even if it were Constitutionally possible.

One thing that gives Koizumi some hope is his approval ratings going into the election. The last poll gave his cabinet a 47.3 percent stamp of approval. For Americans that may seem low, but in Japan it is, in fact, a very high rating. Several LDP premiers have had approval ratings that fell into single digits.

Though almost ignored in the U.S., the election could have serious foreign policy consequences. If Katsuya Okada, leader of the Japan Democratic Party, forms a government, he very likely would end the visits to the Yasukuni Shrine that irritate China and Korea. Indeed, there is evidence that the public at large is nervous about Koizumi’s annual visits, so it might be a good issue to run on.

He would likely withdraw Japanese soldiers from Iraq. Unfortunately for Koizumi, Samawah, where the Japanese are stationed, is in turmoil. One dead soldier might turn the entire election around. A new government would probably drop any plans to amend the country’s peace constitution and may not be as eager as Koizumi to move Japan militarily closer to the U.S., especially in helping come to the defense of Taiwan.

Then there is the issue of postal privatization itself. This is really the subject of an article by itself. It’s safe to say that any tinkering with a pot of wealth roughly equal to a third of the entire gross domestic product of the United States cannot help but have enormous implications for Japan and the rest of the world.

I’ll simply quote a key passage from a study by Jetro: “If the Japanese public . . . begins to invest their postal savings in private banks and other investment vehicles, the country’s economy will never be the same. Huge amounts of pent-up household capital would be moved into private financial markets. This would help to bolster not only Japan’s incipient economic recovery but, over time, financial markets around the world.” See more here.

November marks the 50th anniversary of the founding of the Liberal Democratic Party. This amazing organization held power virtually without break during those five decades. It would be ironic if this year spelled the electoral defeat and possible crackup of this historic party. Or, it could be the year the LDP gains a whole new lease on life. That is Koizumi’s great gamble.

Saturday, August 06, 2005

Will Japan Go Nuclear? Never

Sixty years ago today the first atom bomb was dropped on Hiroshima. Three days later a second one devastated Nagasaki. It is customary this time of year to pause and remember the hundreds of thousands of people killed and maimed in the attacks. This year, being the 60th anniversary, is especially poignant.

So it is ironic that the anniversary comes at a time when there is increasing talk about Japan acquiring nuclear weapons of its own. This talk is fueled by a number of factors, including the rise of China, the prospect that Tokyo may alter its peace constitution later this year or next, and, of course, North Korea.

U.S. Ambassador to Japan Thomas Schieffer raised the possibility of an independently nuclear-armed Japan in an interview in Tokyo last June. “If you had a nuclear North Korea, it seems to me that that increases the pressure on both South Korea and Japan going nuclear themselves,” he said.

He was only repeating what other American leaders have been saying. On the television interview program Meet the Press, Vice President Dick Cheney said, “the idea of a nuclear-armed North Korea with ballistic missiles to deliver them will, I think, probably set off an [nuclear] arms race in that part of the world.”

This talk partly reflects the anxiety that was high earlier this year but is now fading that North Korea would test an atomic bomb. It also reflected the frustration many in the administration felt over inability to push China to push North Korea to disarm. One way was to scare Beijing with the prospect of a nuclear Japan.

The Republican Party Policy Committee paper anticipating a North Korean test put it this way: “Essentially, the United States must demand that the PRC [China] make a choice: either help out or face the possibility of other nuclear neighbors.” The implication was that Washington would tolerate or even encourage a Japan armed with nuclear weapons.

Well maybe, but I’m here to say that if they are counting on China quaking over the prospect of a nuclear Japan, they are going to be disillusioned. China’s leaders are not going to fall for that bluff. They know that in the final analysis Japan will never acquire nuclear armaments because to do so makes Japan less secure.

Japan is famous for its nuclear allergy, as the only country ever attacked with nuclear weapons. It is also famous for its “three no’s policy: not to make, posses or allow nuclear weapons on its soil. These remain a strong brake on Japan going nuclear. But there is a more compelling reason why it’s against Japan’s interest.

Japan will never go nuclear is because it can never maintain a credible nuclear deterrent against China. There can never be, as there was during the Cold War, a strategy of mutual assured destruction. The only assured destruction in any nuclear exchange with China would be that of Japan.

It would only take about five thermonuclear bombs, three on Tokyo and two in the Kansai region, to end Japan. But five nuclear bombs or even a few more, devastating as they may be, would not spell the end for China. Japan, in short, cannot survive a first strike and retaliate. China can.

Gen. Zhu Chenghu caused something of a controversy last month when he said that China could aim nuclear weapons at American cities if U.S. forces intervened in an assault on Taiwan. Not so extensively reported was something else Gen. Zhu said: “We Chinese will prepare ourselves for the destruction of all the cities east of Xian [in central China].”

That was as blunt reminder that China has something that Japan does not have – depth. China has a lot more to lose than it did in Mao Zedong’s time, when the communist leaders deliberately moved factories to the interior to help protect them from nuclear attack. But China can still absorb a lot of punishment – indeed, historically it has absorbed a lot of punishment.

The self-defense staff reached a similar conclusion in a study it commissioned back in 1981 on the feasibility of Japan acquiring nuclear arms. The report was then aimed at the threat from the Soviet Union and concluded that in a nuclear exchange Japan would suffer about 25 million fatalities compared with about a million in Russia’s Far East.

Deterrence worked in the long nuclear face off between the U.S. and the old Soviet Union because both countries are continental powers. It was possible to imagine one or the other absorbing a first strike and surviving to retaliate. Such is not the case with Japan (or Taiwan and South Korea, for that matter).

Japan is much better off continuing to rely on and to strengthen its alliance with the United States and depending on its nuclear weapons for protection. Among other things, the U.S. provides the strategic depth that Japan simply does not have.

Of course, people in Japan and elsewhere will continue to talk about Japan going nuclear. People talk about everything. Conservative lawmaker Ichiro Ozawa once commented: “We have plenty of plutonium in our nuclear power plants, so it is possible for us to produce 3,000 to 4,000 nuclear warheads, making Japan an unbeatable power.”

Japan’s conservatives can bluster all they want. In the final analysis they would still come to the same conclusion. By cooling adding up the advantages and disadvantages of an independent nuclear arms program, they will inevitably decide that these weapons are a loser for Japan. She is far better off under the American nuclear umbrella.


Friday, August 05, 2005

China's Next Target. G.M.?

Nobody believes that the failure of CNOOC to buy Unocal means the end of China’s acquisition drive. The Chinese off-shore oil company withdrew its bid last week in the face of political opposition in the U.S. The question is this: will Chinese companies retreat into buying obscure, non-threatening assets. Or will they make another big move?

If you thought that the CNOOC/Unocal affair was a donnybrook, imagine the upheaval that would occur should a Chinese automobile company make a bid to take over General Motors Corp., the world’s largest automobile manufacturer. The prospect of such a battle is not so far-fetched.

Chinese automobile companies are on the move, seeking worldwide assets and shortcuts to global brand recognition through overseas acquisitions. In late July, the Nanjing Automotive Co.< purchased Britain’s MG Rover Group and its engine-making subsidiary Powertrain Ltd.

Reportedly, the Chinese company picked up the assets of the venerable British automobile maker for a song -- about 50 million pounds (approx. $87 million) -- because the company, Britain’s last indigenous automobile maker, had declared bankruptcy in April. The Shanghai Automotive Industry Corp (SAIC) recently bought a 49 per cent share in South Korea’s Ssangyong Co.

Meanwhile, General Motors looks more and more like a target for acquisition, adrift and vulnerable to the whims of any investor with a few billion dollars to spare. The company’s vulnerabilities are well known: big first quarter losses, plant closings, junk bond rating and big pension and medical costs.

The company’s total market capitalization has fallen to around $18.5 billion, which, coincidentally, is about what CNOOC was offering to buy Unocal, so it would seem G.M. is by no means out of the price range for any big Chinese auto company, especially one with good connections with state-owned banks.

Buying General Motors’ automotive division would fit neatly into China’s strategy of searching out struggling but globally recognized brand names. Lenovo pioneered a winning tactic last year when it bought the PC manufacturing division of IBM while leaving to IBM’s shareholders some of the other more lucrative sidelines.

The American giant’s shareholders might welcome a deal that relieves them of the dead weight of the manufacturing division and leaves them much more profitable assets, such as the GMAC finance unit, satellite television among others. In recent years GMAC has been far more profitable than G.M.’s automotive division.

It would be hard to make much of case against any Chinese bid to acquire G.M. on national security grounds. But it would amount to a huge assault on the American psyche given GM’s iconic status as a symbol of American industry. It would far eclipse the angst that Americans felt in the 1980s when the Japanese made trophy purchases, such as Rockefeller Center.

Presumably, the Chinese company would try to structure any acquisition deal in a way that preserves or seems to preserve American jobs, offering the politicians a Faustian bargain: oppose the sale on “national security” grounds even if it means costing thousands of auto worker jobs.

CNOOC argued that it would save jobs that Chevron would eliminate in a cost-cutting move. But the argument either wasn’t believed, or it didn’t cut any ice with the politicians. Of course, a Chinese purchaser might just pack up the tools and dies and ship them to China, as Nanjing Automotive Group apparently plans to do with the engine division of MG Rover.

Would the Chinese entity find itself in a bidding war with Toyota or some other Japanese company? Not likely. The Japanese would prefer to avoid a head-on assault on G.M. Compared with the bumptious Chinese, the Japanese are older and wiser players in the automotive trade and political wars. Japan has learned not to flaunt its successes in America’s face.

In April Toyota’s chairman Hiroshi Okuda actually suggested that his company might raise its prices in the U.S. to give rival G.M. breathing room to ride out its difficulties. Why so generous? They figure G.M.’s collapse would lead to a political or even a consumer backlash against its own products.

And there may be another reason to help nurse G.M. along. Toyota would prefer that G.M. continue making most of its cars in the U.S. where it may never achieve cost-effectiveness, rather than move operations to China where it could suddenly become very competitive with Japan.