3 October 2012 | Vol. 3, № 15.

From the Editor’s Desk

Dear FDI supporters,

Welcome to this week’s edition of the

Strategic Weekly Analysis.

This week we published a Strategic

Analysis Paper titled Australia, China and

the United States: Maintaining an

Equilibrium in the Indo-Pacific. Written by

Visiting Fellow, Saloni Salil, the paper

proposes that Australia should not focus

on preparing in case of a war with an

Asian power but, instead, focus on

working with Asian powers to develop

even greater co-operation and

engagement in the region. India and

Indonesia are seen as possible partners in

this process.

Saloni Salil is a post-graduate research

scholar from the Department of

Geopolitics and International Relations in

India’s Manipal University.

Upcoming papers from the Indian Ocean

Research Programme include an analysis

of some of the steps India is taking to

increase its political, economic and

strategic engagement with Burma. We

also continue our series examining the

national involvement of various countries

in the Indian Ocean Region.

The Landmark Study analysing the food

and water security situation in Southern

Africa, and how Australia might respond,

is due to go to the publisher next week.

The second study, examining the same

issues in the Middle East, is well

underway.

We are also about to publish a major

study that examines our ability nationally

to deal with a major catastrophic disaster.

The study will concentrate on the Pilbara

region, which is experiencing an

unprecedented expansion of its minerals

and energy sectors. A relatively minor

disruption may result in a significant and

costly loss of production. To help prevent

and alleviate such disasters, Australia

requires a national capability.

I trust that you will enjoy this edition of

the Strategic Weekly Analysis.

Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International

*****

Page 2 of 12

India−Pakistan Visa Deal: A Boost for Trade and Bilateral

Co-operation?

India and Pakistan have agreed to liberalise their visa arrangements. While the trade

benefits may not be great, at least initially, the move should still be a positive step forward

in the bilateral relationship.

Background

Announced on 8 September, the visa deal came during a three-day meeting between

Pakistani Foreign Minister Hina Rabbani Khar and her Indian counterpart, S.M. Krishna, in

Islamabad. Under the deal, eight categories of visas are to be liberalised. Changes include

the provision of a visa on entry at the land border for the elderly and young and, most

importantly, the provision of multiple-entry and multiple-city visas for businesspeople with

annual turnovers of over three million Pakistani rupees ($30,600).

Comment

The latter is particularly significant in view of recent trade developments. These include

Islamabad’s decision to grant most-favoured nation (MFN) status to India — India having

granted the status to Pakistan in 1996. Pakistan has promised to grant MFN status to India

by December this year by moving from a system in which only items stipulated on a “positive

list” could be traded, to one in which a small “negative” list covers excluded items, for

example those relating to defence. India has also liberalised its regime by agreeing to

remove yarn and textiles from its negative list and allowing Pakistani businesses to set up in

India.

India sees such developments as consistent with what Krishna refers to as its “step-by-step

approach” to the relationship. India has for many years held the view that this is the best

way forward, rather than pushing for dramatic developments in relations, for instance over

Kashmir. New Delhi believes that a Pakistan that is more solidly stitched into the Indian

economy is more likely to abjure the highly disruptive tactics in support of trans-border

terrorism that have been witnessed from Pakistan in recent years. India is also keen to

support what it sees as the delicate process of civilianising the Pakistani polity, consonant

with its belief that it has been the military — and especially the Inter-Services Intelligence —

that has been most heavily engaged in supporting terrorism.

The step-by-step approach is also seen by New Delhi as being consistent with its persistent

demand that Islamabad do more to bring those responsible for the 26 November 2008

attacks on Mumbai, and other attacks on India, to justice. For India, this is the “bottom line”

in terms of achieving any significant breakthrough in relations. For its part, Islamabad claims

that it doesn’t have sufficient evidence to progress with the cases. The issue is complicated

by the arrest in India of Abu Jundal, who allegedly planned the 26 November attacks, and

has claimed under interrogation that the ISI was involved — a claim similar to that made by

David Headley, another Lashkar-e-Taiba operative associated with the attacks, during his

trial in the United States.

Page 3 of 12

Indian Prime Minister Manmohan Singh is set to visit Islamabad some time before the

Pakistani election, which is scheduled to take place in the first half of next year. But so far

New Delhi has not committed to a date, saying the visit would need to achieve something

significant, probably in reference to a breakthrough on terrorism. Such a breakthrough is

currently unlikely. Even if the civilian government wished it, the military remains attached to

its “tame” terrorist groups like Lashkar-e-Taiba and the Haqqani Network as a potentially

useful force de frappe in the context of Kashmir and Afghanistan.

The outcomes in trade, too, may be slow and painful to realise. Trade between India and

Pakistan is currently minimal at US$2.7 billion (although the third country transactions

between India and Pakistan, mostly via Dubai, bring the total two way trade to US$10

billion). According to the Wall Street Journal, even with MFN status, non-tariff barriers, such

as onerous labelling provisions and lack of trade facilitation at the borders, are likely to keep

trade low for some time.

Meanwhile, Chinese goods are flooding into Pakistan under its MFN arrangement with

Beijing. India also faces challenges from Chinese manufacturing. A further challenge is that

the Indian and Pakistani economies are not particularly complementary. Even with the best

will in the world — which is currently lacking — progress will be incremental. Where there

could be greater trading traction, however, is at the local level between the two Punjabs,

both of which are dynamic sub-regions of their respective economies. Niche items like

Pakistani light cotton products for women’s fashion, which could prove popular in India just

as they have in Pakistan, could also benefit from the new regime.

The most recent developments may still be seen as a positive step forward for

India−Pakistan relations. The challenge now is to maintain positive momentum of the step-

by-step approach to improving bilateral relations. However, a terrorist attack that is seen to

have originated in Pakistan could derail this process at any time.

Dr Sandy Gordon FDI Associate

About the Author: Dr Gordon is a Visiting Fellow at the College of Asia and the Pacific,

Australian National University, Canberra. He is a specialist of South Asia and the Indian

Ocean and co-editor of South Asia Masala.

This article first appeared in the East Asia Forum, 25 September 2012.

*****

Page 4 of 12

Multiple Internal Challenges for South Sudanese Oil Supply

Corruption, security, social discontent and lack of infrastructure will significantly constrain

South Sudan’s oil producing capability.

Background

Much of the commentary on South Sudan’s post-seccession oil production has focussed on

the dispute with Sudan. Signs suggest that September’s meeting between leaders from

Sudan and South Sudan has produced a modus vivendi between the two parties. Oil-rich

South Sudan will, however, still face multiple challenges in encouraging investment in its

vitally important oil sector.

Comment

In late-September, the leaders of Sudan and South Sudan held direct talks, aimed at

resolving the long-running border and oil disputes. Initial analysis suggests that the

discussions, held in Addis Ababa - both the Ethiopian capital and home to the African Union

(AU) – may have produced consensus over both the border and oil revenue. Additionally, the

AU, the broker of the mediation process, has proposed an October 2013 referendum to

decide the future of Abyei. The potentially oil-rich region has been claimed by both states

and was the flashpoint in April, as the dispute escalated to the brink of war.

Negotiation and agreement bode well for both countries’ economies, which are inextricably

linked to oil production and export. The northern area of Sudan retains the region’s

processing and exporting facilities. Conversely, the South boasts two-thirds of pre-

independence oil reserves, which will provide a much needed source of revenue for the

undeveloped state.

Significantly though, it is not simply external pressures that will test South Sudan’s

hydrocarbon sector. Oil companies seeking opportunities in South Sudan will face multiple

challenges, including corruption, a lack of infrastructure, social discontent and political

instability.

While undoubtedly impacting its northern neighbour, South Sudan’s decision to shut-down

oil production has resulted in significant strain on its own economy. As is often the case in

Africa, it is ordinary citizens who have felt the impact of the government’s decision. As a

result of an austerity budget imposed due to declining revenue, the Juba government has

found it increasingly difficult to pay civil servants. As a consequence, according to British risk

consultancy firm Maplecroft, graft and bribe-seeking among public sector workers may pose

an increasing risk to business.

Declining revenue has also led to scarcity, particularly in fuel and foreign exchange.

Conscious of its weak position, the South Sudanese government has blamed a variety of

foreign parties, including foreign traders, for the state’s poor economic conditions. Jingoism

from the government may promote xenophobia, creating a hostile business environment.

Page 5 of 12

Infrastructure issues may also pose a challenge for oil companies. As a result of South

Sudan’s poor economic activity, almost all goods must be imported from Kenya and Djibouti.

This is a long and expensive process, made worse by the state’s poor road infrastructure and

air transport services. Deficiencies are likely to continue, and potentially worsen, given the

government’s current policy of abandoning existing oil infrastructure in favour of developing

new pipelines to the Kenyan port of Lamu.

Social discontent, exacerbated by declining economic conditions, may also lead to political

instability. Post-independence euphoria will be short-lived, particularly if the government

fails to deliver outcomes. In mid-September, reports emerged of an alleged mutiny in the

Upper Nile State and the Ramciel area of Lakes State, a site that will serve as the young

nation’s capital. An unstable security environment will not only pose a risk to assets and

personnel, but also the government’s ability to control its own security forces.

Looking ahead, despite a potential resolution to the Sudan-South Sudan disagreement, the

region’s oil flow still faces a number of challenges, which are likely to restrict its output.

Liam McHugh

Research Manager

Northern Australia & Energy Security Research Programmes

lmchugh@futuredirections.org.au

*****

Western-Afghan Cultural Differences Need to be Understood

as 2014 Approaches

A greater understanding of cultural differences is increasingly important if the gains made

by Western forces in Afghanistan are to last beyond the approaching drawdown.

Background

With the withdrawal of Western forces now to be completed by the end of 2014, it is

important, even at this late stage, to address the issue of cultural differences in this conflict.

The increase in “insider” or “green on blue” attacks, by some 75 per cent in 2012, has been

attributed to a combination of misunderstandings and cultural differences.1

Comment

On 6 October 2011, veteran NBC Special Correspondent, Tom Brokaw, asked General Stanley

McChrystal (Rtd), former Commander US and International Security and Assistance Forces

(ISAF), whether the US knew enough about Afghanistan, its culture, language and history.

Gen. McChrystal revealed that they did not and still have made no substantial effort to gain

that knowledge.2

1 ‘Foreign troops killed in Afghanistan’, Al Jazeera English, 16 September 2012.

2 Council on Foreign Relations, HBO History Makers Series with Stanley McChrystal, 6 October 2011.

<www.cfr.org/afghanistan/hbo-history-makers-series-stanley-mcchrystal/26157>.

Page 6 of 12

This insightful comment gives credence to the vital importance of knowing your allies as well

as your enemy.

Anthropologist Professor Thomas Barfield explains that, over the past eleven years, non-

government organisations treated the Afghan Government as a nuisance rather than a

partner in relation to aid projects. This reduced the capacity of Afghans to manage the

projects and, in turn, added immeasurability to the cost of such projects. It also reduces the

legitimacy of the government in the peoples’ eyes, something that the international

community seems astoundingly oblivious to.3

Ahmed Rashid writes that frustrated US officials in Afghanistan warned that Washington had

gathered no serious intelligence on the Taliban threat until 2006. Lieutenant-General David

M. Rodriguez confirmed, in 2007, that although the US forces fought very hard to

understand how Afghanistan worked, they still had a very shallow knowledge.4

It is important to note that the Soviet Union, during its 1979-89 occupation, found it difficult

to establish credible depth within the population. It did, however, find a constituency via

mass organisations such as the Democratic Youth Organisation of Afghanistan and the

Democratic Organization of Afghan Women, which increased their memberships to 220,000

and 130,000 respectively by the end of the 1980s. The People’s Democratic Party of

Afghanistan, which had a membership of around 2,000 to 3,000 in 1979, was boosted to

205,000 by March 1988.5 We already know that, beyond 2014, a large number of Western

military mentors/advisors will remain in Afghanistan to assist both the local military and the

police forces to continue to build and maintain their strength and ability, so as to secure the

country from insurgents. Unless those mentors have the requisite cultural and linguistic

training, any gains that have been achieved will be lost very quickly.

When West meets East, as in the case of Afghanistan, a state beset with chronic poverty,

abominable literacy levels, endemic corruption, religious tensions and regional interference

all overlaid by thirty years of conflict, the need to understand its culture and history are

paramount.

Lindsay Dorman FDI Associate

About the Author: Lindsay Dorman was lecturer in International Relations at the South Perth

Learning Centre, 2009-11 and was Honorary Secretary of the United Nations Association of

Australia (Western Australia Division) from 1999 to 2005. He holds a Master’s Degree in

International Relations from Curtin University.

3 Barfield, T., Afghanistan: A Cultural and Political History, Princeton University Press: Princeton NJ,

(2010), p. 316. 4 Rashid, A., Pakistan on the Brink: The Future of America, Pakistan and Afghanistan, Viking Press:

New York, (2012), p. 74. 5 Kipping, M., ‘Two Interventions: Comparing Soviet and US-led State Building in Afghanistan’,

Afghanistan Analysts Network, April 2010, Executive Summary, p 8.

Page 7 of 12

***** India Boosts Security Relations with Maldives as Indian Ocean

Competition Continues

India’s increasing involvement and influence amongst smaller island states mirrors China’s

expansion in the region. Given the economic links between India and China, however, a direct

confrontation is unlikely.

Background

In September 2012, India increased its security relations with the Maldives. Indian Defence

Minister A.K. Antony announced that India would train Maldivian air force and navy

personnel and extend by two years the deployment in the Maldives of an Indian helicopter

squadron. Also announced was the stationing of defence staff in the Maldivian embassy in

New Delhi, assistance for Malé with the surveillance of its Exclusive Economic Zone and an

economic support package worth a further US$500 million. While the announcements can

be seen as the latest developments in the competition between China and India for

influence in Indian Ocean states, the recent visit to India of Chinese Defence Minister Liang

Guanglie resulted in a consensus that India and China would co-operate maintain stability

and peace in the Indo-Pacific region.

Comment

China has been consistently expanding its own interests in island nations on India’s

periphery – the Maldives, Sri Lanka, Seychelles, and Mauritius – all countries in which India

has traditionally been the main strategic provider. China has provided those countries with

millions of dollars in aid and infrastructure projects and has also provided training and

equipment to the Seychelles defence force. The perceived threat to India’s influence in the

region and, potentially, its security, has led to increased aid to these countries from New

Delhi. That is especially so in the Maldives, which sits on an important sea line of

communication between the Middle East and East Asia.

The increasing warmth in relations between India and China stems from Beijing’s concern

over the growing India-United States relationship and China’s own interest in India as an

important trading partner. The Defence Minister’s visit to India, the first to occur in eight

years, recognises India’s growing strategic weight, the desirability of restarting defence

exercises and the interest China has in maintaining its relationship with India. It was a

confidence-building measure aimed at reducing tensions between the two countries, in

which China tried to calm Indian concerns over its relations with states in the Indian Ocean

region.

It is important to note, however, that prior to arriving in India, General Liang visited Sri

Lanka, where China is funding the building of a major port in Hambantota. Beijing has also

supplied Colombo with US$12 million in military aid. China’s increasing military build-up and

its aggressive stance in the East and South China Seas against Japan and the Philippines has

Page 8 of 12

led to increased concern over how assertive a rising China may be when pursuing its

interests.

The size and strength of China has long made it a source of concern for India. Like China,

India is undertaking a significant enlargement and modernisation of its navy. The possibility

that the expanding naval power of both countries will lead to conflict is currently

exaggerated. Subject to the emergence of a future security dilemma, regional economic

integration and the safe passage of trade though the waters of the Indo-Pacific are in the

interests of both Beijing and New Delhi.

Zamaris Saxon FDI Research Assistant Indian Ocean Programme

*****

The United States Backs Burma: Imports Ban to be Lifted

While the process may be slow, with few immediate effects, the decision to begin lifting

the ban on Burmese imports is a show of support from Washington for President U Thein

Sein and his reform process.

Background

Following her most recent meeting with Burmese President U Thein Sein, US Secretary of

State Hilary Clinton announced that the United States will lift its ban on the importation of

Burmese goods. While questions linger over Burma’s links with North Korea, Washington

now appears convinced that the remarkable changes implemented by President Sein are

permanent.

Comment

In their third meeting together, just prior to President Sein’s address to the United Nations

General Assembly in New York, Secretary Clinton announced that the process of easing

import restrictions would begin. The decision offers recognition by the US that President

Sein is sincerely committed to reforming his country. It is proof that Washington considers

that the time for sanctions has passed and that keeping them in place would, in fact, be

counterproductive, as noted by FDI Senior Visiting Fellow and leading Burma expert, Dr

Andrew Selth:

Washington’s hard line will impede the implementation of reforms — most of

which will depend on foreign capital, technology and expertise. It also weakens

the position of the president and other reformers in Burma, and strengthens the

hand of conservatives opposed to the scope and pace of change.6

6 Selth, A., ‘US Sanctions Against Burma: Neither Rhyme Nor Reason’ Future Directions International

Strategic Weekly Analysis, Vol. 3, № 34, 5 September 2012.

Page 9 of 12

The president’s position will have been strengthened by the announcement, but it will not

be an overnight change. The ban will be lifted on a sector-by-sector basis, with Obama

Administration officials liaising with Congress to work through the restrictions imposed by

the 2003 Burma Freedom and Democracy Act. Exactly what the US might purchase from

Burma remains uncertain, but the country does have a large, low-cost labour force, albeit

very much an unskilled one. Working against further trade are the erratic electricity grid,

poor infrastructure and – a consequence of the country’s long isolation and a powerful

motivation for the reform process – a narrow range of products on offer, with few

customers other than India or, especially, China.

In another remarkable move that confirms the scale of the changes in both Burma itself and

its relationship with Washington, the Burmese authorities welcomed a State Department

delegation on a recent fact-finding tour to the violence-plagued Rakhine province. Such

approval would have been unthinkable under the former military regime.

In another clear contrast to the previous government, President Sein praised opposition

leader Aung San Suu Kyi in his UN address. The president lauded Ms Suu Kyi’s role in

Burma’s reforms and congratulated her on receiving the Congressional Gold Medal from the

United States Congress, its highest civilian award. Ms Suu Kyi has been equally effusive,

praising President Sein for his own commitment to the reform process.

Such mutual praise offers public confirmation of Burma’s reform trajectory, but the

country’s relations with North Korea remain an area of concern for Washington. Despite

announcements from Naypyidaw that it would reduce its ties with Pyongyang, a public break

is yet to occur. According to the State Department, discussions on the topic are continuing,

with the US satisfied that Burma is ‘taking the right steps’. For now at least, it seems

Washington is willing to give Burma the benefit of the doubt on that issue.

Leighton G. Luke Manager Indian Ocean Research Programme lluke@futuredirections.org.au

*****

Page 10 of 12

India Escapes Calamitous Drought

A turn-around in India’s seasonal level of rain will assist the country to recover from

crippling drought.

Background

Two months of dry weather sent India’s government into crisis mode, as expectations of

widespread crop failure threatened the country’s already precarious food security. A

reversal in rainfall patterns, however, appears to have alleviated that threat. As the

monsoon season draws to a close, India’s food production is likely to fair markedly better

than initially expected.

Comment

Midway through this year, much of India was experiencing drought-like conditions. Rainfall

during the two crucial months of June and July, on which successful seasonal crops depend,

was abnormally low compared with the two previous years. As recently as two months ago,

meteorologists had forecast the worst monsoon in 65 years, in terms of rainfall received.

The worst hit parts of the country received 60-80 per cent lower rainfall than normal, which

prevented the sowing of certain crops and reduced the water levels of major reservoirs

across India.

Source: Reuters India

Despite the poor start to the monsoon season, four straight weeks of above-average rainfall

during September have helped this major food-producing nation to recover quickly.

Although some areas remain severely affected by the initial dry weather, the heavy rain has

allowed a majority of states to produce higher than expected yields of summer crops, and

may even enable early planting of winter crops. In light of the fortunate turn-around, India’s

government has allowed food exports to continue uninterrupted, which is a major boost to

regional food security because of the reliance of India’s neighbours on its commodities.

Page 11 of 12

Source: Reuters India

Monsoonal rains are vital to the country’s food stability; they provide almost 70 per cent of

the total annual rainfall that its various agricultural sectors depend upon for survival. The

end of September marks the end of India’s monsoon season, with rain already easing.

Although the overall moisture level is still down 10 per cent on previous years, the recent

downpours appear to have been sufficient for India to avert catastrophic crop losses and

future food shortages. While not completely reversing the damage caused by dry weather at

the beginning of the season, the rain should allow yields for summer crops such as rice,

cane, soybeans and cotton to improve, which will be a welcome development for India’s half

a billion poor and food-insecure people.

Jay Vella Research Analyst Global Food and Water Research Programme jvella@futuredirections.org.au

*****

Page 12 of 12

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International. Published by Future Directions International Pty Ltd. Desborough House, Suite 2, 1161 Hay Street, West Perth WA 6005 Australia. Tel: +61 8 9486 1046 Fax: +61 8 9486 4000 E-mail: lluke@futuredirections.org.au Web: www.futuredirections.org.au

What’s Next?

Throughout the week, Singapore will continue live-fire military exercises.

Malaysia will host peace talks between the Pilipino Government and the

separatist Moro Islamic Liberation Front. Commencing 2 October the talks are

expected to last three days.

Also in Malaysia, the High Court is due to announce a decision on the

operating license of rare earth organisation Lynas Corp. Ltd on 4 October.

From 3-5 October, regional maritime security will be discussed in Mombassa,

Kenya by East African officials.

Later this week, Pakistan’s Federal Cabinet will convene to discuss strategies

to reduce power outages. Prime Minister, Raja Pervez Ashraf, has requested

Ministers for Finance, Water & Power and Petroleum and Natural Resources

to brief the special meeting.