WASHINGTON TRIES PULLING ECONOMIC LEVERS IN THE SOUTH CHINA SEA


BY GREGORY POLING AND ZACK COOPER | AUGUST 28, 2020
AMTI UPDATE CSIS

This week, the U.S. government for the first time imposed economic penalties on Chinese businesses for their behavior in the South China Sea. The Commerce Department placed 24 Chinese companies on the Entity List. The list restricts exports of certain goods to companies and individuals that threaten U.S. national security or foreign policy priorities. According to Commerce Secretary Wilbur Ross, the 24 companies (22 of which are state-owned enterprises) were selected because they “played a significant role” in China’s construction of artificial bases in the Spratly Islands. The State Department, meanwhile, announced that it would not issue visas to Chinese nationals “responsible for, or complicit in, either the large-scale reclamation, construction, or militarization of disputed outposts in the South China Sea, or the PRC’s use of coercion against Southeast Asian claimants to inhibit their access to offshore resources.”

Secretary of State Mike Pompeo linked both policies to his July announcement that the United States would now treat most of Beijing’s maritime claims and many of its actions in the South China Sea as illegal. A day after the new U.S. position was announced, Assistant Secretary of State David Stilwell spoke at the annual CSIS South China Sea Conference. Asked whether the administration would impose sanctions on Chinse entities engaged in illegal behavior at sea, he said, “Everything is on the table.” Since then, partners in Southeast Asia and beyond have been waiting to see concrete follow-through.

These new restrictions show that the administration is looking for ways to match words with actions. The 24 companies targeted allegedly supported island building through illegal dredging, construction, or other activities. Yet these moves are unlikely to seriously affect the individuals and companies involved. It is unclear how wide the visa restrictions will be applied, but most of those directly involved in Beijing’s island-building campaign can probably do without travel to the United States. As for the Entity List, few of those companies source components from the United States that they could not find elsewhere. In short, these restrictions, while perhaps inconvenient, are about symbolism more than cost-imposition.

We have gone on record for years, both together and individually, arguing that the U.S. government should consider sanctioning “Chinese companies in industries such as fishing, tourism, and construction that are operating illegally in the exclusive economic zones of other states.” But we expected to see more direct sanctions on these companies. If the United States views Chinese claims and actions as illegal, and wants to encourage a change in behavior, why not impose financial sanctions? That is what Washington has done in response to violations of international law and military coercion by Russia, Iran, North Korea, and others. One possible explanation is that some within the administration, particularly in the Treasury Department, were resistant to sanctions that might further derail the Phase One trade deal.

Alternatively, the new export and visa restrictions could be just a first step. Additional sanctions might be coming on CCCC and associated entities. And the administration could also target companies engaged in illegal fishing and hydrocarbon exploration. In this case, however, observers will ask whether CCCC was the right place to start. There has been no dredging or landfill in the Spratlys since 2016, and no major construction since 2018. If these companies are being targeted for actions they did in the past, then there is no way for them to get off the list. If they are still violating international law in some other way, then Washington needs to explain how. Otherwise, partners in Southeast Asia and beyond are unlikely to support this action.

The United States is right to use economic tools to impose cost and incentivize changes in Beijing’s behavior, and that of its state-owned enterprises and private companies. But sanctions are most effective when aimed at specific and ongoing illicit activity. In the South China Sea, this means going after China’s illegal fishing, maritime militia, and hydrocarbon surveyors. Those are the actors who are actively harassing Southeast Asian nations, stealing their resources, and infringing on their rights. Washington should make clear that future malign activity, such as illegal oil and gas drilling or new military construction, would bring new sanctions. But it cannot change past behavior. The Obama administration decided not to impose costs on CCCC Dredging when it built the island bases. Unfortunately there are no do-overs in international relations.

About Gregory Poling

Gregory B. Poling is senior fellow for Southeast Asia and director of the Asia Maritime Transparency Initiative at CSIS. He oversees research on U.S. foreign policy in the Asia Pacific, with a focus on the maritime domain and the countries of Southeast Asia. His research interests include the South China Sea disputes, democratization in Southeast Asia, and Asian multilateralism.

About Zack Cooper

Zack Cooper is a research fellow at the American Enterprise Institute. Previously, he was senior fellow for Asian security at the Center for Strategic and International Studies. He has also served on staff at the National Security Council and in the Office of the Secretary of Defense. He received a B.A. from Stanford University and an M.P.A., M.A., and Ph.D. from Princeton University.

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