Many countries can do a lot better than look to the rich and powerful among them which observe only the law of the jungle
IN an ideal world, rich and powerful countries are righteous, gracious, confident and patient – possibly even wise and generous.
It is about national character, particularly after having achieved an estimable rank. It is also about setting a good example to lesser nations that may one day also become rich and powerful. In the real world however, self-righteousness just about substitutes all. Such unpalatable truths are seldom standard-fare in political science classrooms.
It is not necessary to be cynical, or to subscribe to the cynical doctrine of neo-realism, to make honest observations approximating to cynicism. But it takes resolve.
What is needed is an assessment of world affairs as they are and not as they should be. It will require a frank appraisal without fear or favour, or undue international relations theory.
After emerging as a world power in the late 1880s, the US grew into a global superpower by 1945. Britain and the Soviet Union were the other superpowers. The British Empire was the most extensive in spanning the globe. Nonetheless the cost of two world wars had consigned it to advanced terminal decline, and the 1956 Suez Crisis ended Britain’s superpower status conclusively.
The US was clearly the world’s leading superpower, with the Soviet Union soldiering on in a distant second place. The Soviet economy bore inherent flaws that would soon prove fatal.
In 1991 the Soviet Union collapsed, its economy in tatters as it imploded into its several components. Since then the US became the world’s sole superpower, with the unchallenged capacity to project global power on multiple levels: economic, cultural, technological, political, diplomatic and military.
For nearly three whole decades the US dominated these spheres like no other country, perpetuating its dominance in each and seldom according to formal expectations of its international obligations. With a deeply ideological polity, the US adheres to the constant mantra of “free markets” – in theory.
This means a stated commitment to the notion of keeping private industry and the “public” state separate and distinct, a supposed adherence to laissez-faire free enterprise without state intervention. And so trade battles raged between the US and Japan when the Japanese economy was the world’s second-largest with the prospect of becoming larger. Japan with its state-supported industrial policy and “closed” keiretsu system was said to be trading unfairly.
Today, the US is accusing China of unfair trade. China, now the world’s second-largest economy with the promise of going further, also has its version of industrial policy and public-private partnership.
A cooperative partnership between state and industry is common to the rapidly growing economies of East Asia. It is a generic feature of the Newly Industrialising Economies (South Korea, Taiwan, Hong Kong, Singapore) even if they were individually too small to be accused of “unfair trade.”
Yet when it suited the US, it would happily intervene with tariffs of its own. The 1930 Smoot-Hawley Tariff stands as a historic monument to state intervention by raising taxes on more than 20,000 imports, being among the most severe protectionist measures restricting US trade in a century.
The US Congress has even applied protectionist measures against parts of the country. The 1828 Tariff of Abominations imposed even higher taxes than Smoot-Hawley, aimed at the southern states and harmed their economy. For a whole decade from the 1970s to the 1980s, the UN laboured on a set of rules and conventions for better order and safety on the high seas. In later years more negotiations over the details for amendments followed. The US insisted on certain changes, and those changes were made.
The UN Convention on the Law of the Sea (Unclos) came into force in 1994, and since then more than 160 countries around the world have ratified it. But until today the US still refuses to do so. President Bill Clinton signed Unclos but Congress blocked it. Since then nobody in Washington has made a serious effort to push for ratification. Some US officials say that by not ratifying the treaty the US is able to observe it as and when it pleases, and that should be good enough. For other countries, that violates the spirit of law and makes a mockery of acceding to international treaties. When Donald Trump campaigned for the presidency he vowed to withdraw from the Trans-Pacific Partnership (TPP). Soon after taking office he did just that. Those who favour the TPP blame Trump, but the decision was bipartisan. In the final stages of his presidency Barack Obama did nothing for the TPP.
More tellingly, Hillary Clinton herself rejected the TPP in her campaign. As Secretary of State she was the TPP’s most ardent champion, being resolutely for it before she was firmly against it. No serious candidate in the 2016 US presidential campaign favoured the TPP since an election season meant they had to champion their own national interests. Other countries have signed on to it with all its obligations and restrictions, while the US is left free to do as it pleases again.
For years, the US has been pressuring foreign tax havens like the Swiss banking community to release details of confidential client accounts. US pressure also focused on the Swiss government, supposedly to help US authorities trace possible terrorist financing, but it is more than that.
With East Asian economies on the rise, typically a cash-rich China, US authorities worry about outflows of US funds to evade taxes. Swiss bankers however say their foreign clients have secret accounts more for security than tax evasion purposes.
In recent years Swiss bankers have pressed their foreign clients to divulge details of their accounts to their own governments while systematically closing undeclared accounts. A result has been an outflow of funds from these accounts by clients seeking alternative havens. The US introduced the Foreign Account Tax Compliance Act in 2010, requiring financial services companies abroad to provide details of accounts held by US citizens to US tax authorities. For its part, the US has rejected the OECD’s Common Reporting Standard in providing details of foreign offshore accounts in US tax havens. A result: an inflow of funds from offshore accounts elsewhere, with a spike anticipated this year.
In East Asia the leading tax havens for offshore accounts are Hong Kong and Singapore, NIEs that have diversified well from the industrial sector. China itself is joining in on the mainland, but its offshore banking potential is still limited and underdeveloped. Meanwhile US tax havens are racing ahead, reaping fresh dividends of new accounts once held in the Cayman Islands, Bahamas, Panama, BVI and Switzerland itself. US bankers say their clients seek security rather than to evade taxes. Where some set profitable examples, others are certain to follow. But double standards and rash laws can be counter-productive, exposing a country as a deceitful, self-seeking, double-dealing hypocrite – and worse.
The Smoot-Hawley Tariff led to the Great Depression; protectionism is still protectionism even if it is claimed to “make America great again.” Reneging on a commitment to Unclos is emboldening China’s claim to the South China Sea, for which the US has no answer.
It should not require an ideal world just to make the rule of law ensure due justice.