Russian intellectual property laws needed to be addressed, not only in their formulation but in their consistent application. Without a clear and demonstrable change in the government’s policy towards indiscriminate application of the rule of law, Russia invited a repeat of the Chinese theft of the Sukhoi 27SK. This aircraft was reverse engineered and developed into the indigenous Shenyang J-11 fighter jet. It initially lacked the more advanced Russian avionics package, but Chinese research and development have more than compensated for this deficiency, a likely by-product of avoiding the lengthy and difficult concept design stage of building a fighter from the ground up. This was a significant loss for Russia’s arms export industry, which is critical to keeping a modicum of economic diversity beyond the commodity markets.

An important first step was the 2008 legislation protecting intellectual property. Going forward, Russia will need to address the application of these laws to give fair balance to both the consumer and producer. From the beginning of 2008 existing patent law has moved into Part IV of the Russian Civil Code. Russian law is based partly on the continental system imparted by Napoleon, only recent reforms have introduced the precedent system favoured by Anglo-Saxon nations. This has created the situation of a lack of precedents on which to follow in the deliberation of cases.  It also lacks the inclusion of a fair use defence, and lacks a uniform infringement policy. However, the law has seen an almost dramatic increase in the amount of counterfeit property seized. This is due to the reversal in policy that has lead to an aggressive application of the law. This domestic ferocity reflects the frustration at not being able to effectively pursue the loss in revenue from international clones of Russian merchandise, specifically military hardware.

Russia can ill afford to neglect the diversification of its economy. Although the Russian economy takes justified pride in its position as a major exporter of commodities, overreliance on one sector invites economic instability when that sector suffers. In 2009, Russia was the world’s largest exporter of natural gas and second largest exporter of oil. Overconfidence in the commodity sector induced a high degree of volatility in the Russian economy. The Global Financial Crisis consumed over one third of the total amount of foreign reserves held by the Central Bank of Russia, in an attempt to stabilise the Ruble.  That USD200 billion was subsequently matched by the Russian government in a rescue package for the Russian financial sector. To reduce this volatility and address long term issues the following policies must be introduced.

• High levels of corruption need to be addressed in the same manner as intellectual property rights. An aggressive and thorough application of uniform laws that pertain to officials. This can only be achieved by an independent judiciary and increased transparency in government. At the very least, the policy of the Kremlin should be vocally and visibly altered. Russia is a state that has traditionally been the province of the strongman. The example set by the Kremlin strongly influences subordinate political groupings, and should be taken advantage of.
• Accessing capital for smaller, non energy companies remains a concern. Financial markets are geared towards support for the largely state owned and relatively inefficient commodity companies. The major concern is the bureaucratic difficulty in registration of any business related matter. From registering and operating a small business, to listing on a stock exchange, there are significant obstacles that hinder the growth of these businesses. The reduction in bureaucracy needs to coincide with the reduction in corruption.
• Poor infrastructure particularly in the case of transport and utilities hinders the ability of firms to operate. Inadequate road, rail and air links slow supply chains and introduce inefficiencies in distributed organisations. This hinders geographic and economic expansion. The Federation needs to devote less of its budget to spending on pork barrel initiatives and more on restructuring the basic capacity deficiencies it faces.
• Addressing capacity issues in defence industry should become a top priority. Russian arms exports are predicated on the idea of quality. Given the increasing desire for updated weapons platforms from South East Asian states in response to the growth in China’s power projection capabilities, reaching capacity in arms manufactures loses a significant additional revenue stream. Middle Eastern nations are similarly in need of upgrading their soviet era air defence systems, ably demonstrated by the near bloodless NATO campaign against Libya. Russian technology is recognised as being able to counter the world’s leading competitors, and will be in continuing high demand. Russia needs to make a serious investment in production facilities and investment in skills and training to increase this capacity.
• Inflationary concerns are significant. The overall inflation rate in 2008 was 13%, a figure that rose to over 30% in certain weapon categories especially damaging the vital arms export industry. The Russian government needs to introduce downward inflationary pressures, or they need to increase subsidies to key industries to enable them to address bottlenecks. Money to expand the capacities of its key manufacturers such as Sukhoi would enable both increased construction, increased employment and decreased inflation.

Squandering the increased wealth granted by commodity prices and failing to address structural inadequacies in Russia’s economy will deal a death blow to long term economic growth and stability. However, the Russian response to intellectual property rights is a promising demonstration of the ability of the state to address its concerns, and address them in a manner that is quintessentially Russian: firm, effective and direct. This verve must be applied to other fields before the opportunity is lost.

]]> http://foreword.com.au/2011/11/russian-economic-reform-hope-in-intellectual-property-rights/feed/ 0 http://foreword.com.au/2011/11/russian-economic-reform-hope-in-intellectual-property-rights/ http://feedproxy.google.com/~r/ForewordReport/~3/kMJEuOc7IKs/ http://foreword.com.au/2011/10/the-occupied-the-pre-occupied-people-v-greed/#comments Mon, 31 Oct 2011 02:19:01 +0000 Luke Furness http://foreword.com.au/?p=1702 Citigroup Global Markets recently settled a fraud dispute with the US Securities and Exchange Commission for USD $285M. It is a small part of a steady stream of litigation commenced by the American corporate regulator. A more recent addition to the offence against banks is the US citizens themselves. With demonstrators from the “Occupy Wall Street” movement now exporting their influence overseas, what role will protests play in shaping US securities policy?

It would appear the participants in the “Occupy [Insert Location Here]” movement have a disparate message. The Wall Street parent movement has a ascertainable anti-megabank theme, but with Julian Assange addressing crowds in London and cars burning in Rome, the “Occupy” brand looks less revolutionary and more like a convenient anecdote on which to base local rioting. This results in unfortunate dilution to the original issue: legitimate claims against US investment banks for their role in the financial crisis. A recent example is SEC v Citigroup Global Markets.

The Case

The complaint against Citigroup is similar to that faced by Goldman Sachs last year and like that case, it was settled for a substantial sum. It involved alleged breaches of the Securities Act 1933 (US) dealing with fraud and misrepresentation. The regulator’s complaint is here, though those not experienced in derivatives are advised to start from page 13. To cut the complaint to brutal brevity, the case was this:

   1. Citigroup represented to investors that they were a mere intermediary of the transaction (the arranging bank) and Credit Suisse would select the assets of the security;

   2. Citigroup played a role in:

a)       Selecting some assets of the security; and

b)       Taking a ‘short’ position in the security;

which made (1) a misrepresentation; and

   3. Investors decided to purchase the security in reliance of the representation in (1).

These points are all that is necessary to show a claim in misrepresentation and all that was necessary for Citigroup to settle expediently with the SEC. This is a fair result after a proper application of the law.

Detours

The conventional wisdom of both the Citigroup and Goldman Sachs cases which finds its way into household lounge rooms is that the banks paid the price for “betting against” their clients. This is little more than a misunderstanding of the concept of the counterparty. In all business markets, there is a long (buy) and a short (sell) position. Sellers of insurance promote how frequently you can claim and then, immediately following sale, records the premiums as an asset and hopes you rarely claim. Gyms promote a healthy lifestyle when they know a fraction of members will attend regularly. Stores promote loyalty cards as a means of discount when they know it will cause you to spend more. All these are instances of business with which reasonable people would agree are perfectly legitimate and so that legitimacy must subsist, even when the counterparty makes a large profit.

In contrast to the lounge chair theories, the true legal theme of post-GFC securities litigation is *disclosure*. All investors that deal with the investment banks are sophisticated institutional investors who must be expected to make decisions even where there are vested interests (or others “betting against”). However, such expectation cannot survive where those interests aren’t known because they haven’t been properly disclosed. There is no legal recourse for those disappointed by their investment decision and wanting to sue their profiting counterparty. However, there is and ought to be recourse against those who mislead investors by failing to disclose relevant facts.

The Pre-Occupied

There will continue to be those obstructing Wall Street with alternative theories painted on picket fence signs and I suspect they do so without having read any of the SEC complaints and understanding any securities law. To be sure, many who occupy Wall Street are not and need not to be lawyers, they are simply exercising their democratic right to be outraged without reference to the technicalities of banking law. However, to be effective in arguing for a change in the law, you ought first understand how the current law operates. Law is applied dispassionately to the facts without references to greed, selfishness or immorality and so slogans of such nature are unpersuasive to Congress. Ultimately, those that know the law and have a proposal on how to transform it  are a part of much needed securities reform. Those that know nothing of the law and make no attempt to understand it are little more than a traffic jam.

What are the options for the government?

The Case

Note: Despite any criticisms of the decision, one of the strengths of this judgment is its accessibility to the people. Go to the judgment here you will find a convenient summary at the beginning and the offending articles themselves at the end – more than enough to form your own view.

The Act makes it unlawful for a person to do something because of another person’s race that is reasonably likely to “offend, insult, humiliate or intimidate.” More important still was the defence of a “fair comment” which protects genuinely-held opinions that do not purport or appear to be facts. All words of both the provisions of the statute were carefully defined and considered, the final result being found as a breach.

The effect of the case can be quite easily over- and understated fuelled on emotive reactions. One the one hand, it is exaggeration to say free speech has been obliterated and the media should now fear publishing anything disagreeable concerning race. Several commentators have made comparisons to George Orwell’s dystopia 1984, which is a mischievous and irresponsible hyperbole. On the other, it is foolish to dismiss the case as good riddance to bad and offensive journalism. A much critical eye must be cast over restrictions on publication and we should be wary of celebrating the result simply because we think the article is of low quality and dislike of the opinions expressed.

Recommendation: Amend the Racial Discrimination Act

The government is mistakenly complacent of the role of courts in determining when offence in media goes too far. They should use their legislative power to mark out clearer boundaries between fair comment and unfair racial discrimination. At least this much should be done to ensure that journalists and indeed non-professional writers and speakers are provided with certainty as to what is acceptable before the fact. This recommendation goes further to urge that free speech is given more recognition in the Act. What Andrew Bolt wrote was clearly objectionable, provocative and generally too unpalatable for most cocktail functions and family dinner tables. However, they were most obviously his opinion, appearing as they did in editorials and personal blogs and used language of banter and mischief that could only be interpreted as one person’s view. It is condescending to assume that an audience cannot recognise Bolt’s pieces as confrontational opinions which they may deplore, mistrust and even challenge in subsequent articles of their own. Yes, there were many factual errors in Bolt’s accounts of the fair-skinned indigenous Australians’ lives but that is an unsurprising result given that individuals you are attempting to criticise are unlikely to be of much autobiographical assistance.

To be clear, an apology is due for this needlessly provocative article. However, the right to be offended is the right of the reader, armed with a doubting mind and the ability to protest (loudly if necessary) journalism she, in her discretion, finds offensive. The court should not be empowered to import its judgment on what is offensive to every article concerning race. Now, it may be that Bolt was just slightly too inaccurate and too crass than the law allows and this is not the beginning of a more restrictive media culture. Otherwise, it is time to amend the Racial Discrimination Act to recognise not just the media right to publish, but the consumer right to receive controversial opinions and critically evaluate them without premature judicial intervention.

For a company traditionally weighted toward domestic sales, this push for overseas sales could represent a serious challenge. However, Cosgriff argues that it provides more of an opportunity than a risk as there is still “strong desire for American technology that we are willing to export.”

He points to industry-wide changes in defense trade as a reason for confidence. According to Cosgriff, defense trade across Asia is generally becoming friendlier to U.S. defense exporters. In India, for example, he argues that the time spent working with their government on defense procurement practices is slowly improving the business climate for Textron Systems.

As a result, Cosgriff says Textron Systems intends to be present “from the Red Sea to the Sea of Japan.” He expects their approach in each country to differ – some will largely be based on teaming relationships (i.e. Northeast Asia) whereas others will be direct sales (i.e. India). However, with time, he expects an increasing number of Asian countries, including India, to be managed as partners rather than buyers.

To improve long-term local market competitiveness, Textron Systems is focused on finding onshore partners, especially in India, and working to secure intellectual partnerships in countries like Singapore. The company also has demonstrated a willingness to acquire offshore companies with unique capabilities, such as Aerosonde in Australia, in the past.

At the product development level, Textron Systems is squarely focused on innovating new solutions that will meet the needs of their largest customer, the U.S. military. This includes prioritizing the innovation of new medium altitude – long endurance UAVs at AAI. Despite the competitive landscape (i.e. Predator and Reaper), Cosgriff believes “there is an opportunity there. It is a logical step to take your experience in the tactical space (Shadow) and push up in altitude and out in endurance.” The U.S. Pacific Command could be a key consumer of such technology.

However, Cosgriff also sees new international markets, including demand for Aerosonde products that have yet to be exploited. ”Aerosonde being offshore gives us some ability to market its products differently. There is demand for cheaper and more persistent solutions that you can use in military, civilian, and law enforcement. This also tracks with other product offerings in South Korea, Japan, and India.”

Two other products that Cosgriff is especially interested in marketing in Asia-Pacific are the Motor Lifeboat (MLV) and UAV ground control stations. Although the Indian market, for example, is “heavily penetrated by Israeli manufacturers,” he believes that no one can compete with Textron Systems solutions around ground control stations. Textron Systems even sees opportunities to market the NAIAD Rigid Hall Inflatable, under license from a New Zealand company, to special forces in Asia.

Cosgriff is quick to point out that these are only Textron Systems products. In the larger parent company, he says there are a wealth of opportunities for growth in Asia-Pacific. Using the V-22 as an example, he says there are numerous applications for the platform, including carrier on-board delivery and small island chain operations, which have yet to bet explored. There also could be opportunities for big export markets in the region for the platform.

As a corporation, Cosgriff argues that the diversity in Textron (NYSE: TXT) business groups provides “great opportunities for synergy” that could drive growth in the future. For example, Cosgriff points out that Textron has a leader in both vertical (Bell) and fixed wing (Cessna) aerial platforms as well as a leader in unmanned aerial vehicles (UAVs), UAV ground control stations, and aircraft piston manufacturing (Textron Systems).

Given that “all services have vertical and fixed wing UAV programs, Cosgriff argues that there are “pretty strong capabilities across Textron” to meet future civilian and defense aerial platform requirements.

Unfortunately, Textron does not appear to be capitalizing on these synergies (or at least willing to share that they are). In speaking with representatives at Cessna and Bell, I was told that neither is aware of major cross-company collaborations underway with Textron Systems on designing and developing the next generation of UAV solutions.

Furthermore, I was told by multiple sources that Textron lacks an all-up corporate strategy for either research and development (R&D) or regional business development (BD). This places Textron in stark contrast to other large defense contractors, such as Boeing, who vocally advocate cross-company integration as a key differentiator in the marketplace.

The question then is whether Textron’s strategy of “operating as a holding company” significantly hinders its ability to achieve the highest return on investment for its shareholders.

In pressing this point, I asked multiple individuals across the company for the advantage of being so diversified but was instead told that they themselves did not know if there was an advantage. The closest explanation that I received was that diversification enables Textron to derive great value out of having different business units working on different cycles. This makes Textron far less susceptible to temporal ups and downs in individual sectors.

In an age when governments around the world are asking for “solutions not products” and demanding cost-effective innovation, it is unclear why integration is not in their advantage. Likewise, why would diversification preclude integration?

The good news is that Textron has visionaries in its business groups who see the value in leveraging cross-company skills and knowledge. But, when there is no mandate for this to occur, there is reason to pause and for investors and media to ask the more pointed question of “When this will happen at-scale?”

Image by Defpro/defpro.com

To address this primary question from the perspective of Australia, Japan and Taiwan, this report proposes the following policy recommendations:

Policy Recommendations

Access Full Report Here (PDF)

1.      Australia must restructure its commitments to the Joint Strike Fighter program. A new modulation of involvement would enable Australia to achieve a strategically viable force with broader capabilities at a lower cost to the nation (p.8).

2.     Taiwan, given the lack of new hardware, must endeavor to pursue upgrade options to consolidate existing air power capabilities. Moreover, Taiwan must look elsewhere at those other international options that are politically feasible and could produce strategically viable forces for future conflicts (p.8).

3.     At the appropriate juncture, the United States should release the F-35B to Taiwan, presenting such a sale of VSTOL aircraft as an alternative to the sale of advanced submarine and ballistic missile defense technologies (p.9).

4.     As the United States leaves the Middle East and refocuses on Asia, all three countries should move closer to India, seeking partnerships that are lucrative and strategically comprehensive (p.10).

5.     With no F-22A exports in sight, Japan and Australia should actively seek to procure the PAK-FA produced by both Russia and India as an alternative, advanced air superiority fighter (p.10).

6.     In order to ease intra-regional tensions, each country should individually and collectively attempt to pursue joint ventures in military cooperation and economic development with the People’s Republic of China, so that free information is more readily available to stabilize any regional balances of power (p.12).

The last few years have seen wide debate on the future form of many of the world’s foremost air forces, as government defense procurement policies have oscillated between cuts and necessary investments. There are few places around the world where this is more evident than in East Asia. There, the rise of various intra-regional tensions, the development of China’s military forces and a renewed focus on affecting an appropriate balance of capabilities have landed countries with tough decisions and, more often than not, the difficult task of finding options that will lead to both a strategically viable force and an austere budget sheet.

These decisions come at a hard time for many nations. The ongoing effects of the global financial crisis continue to crimp spending programs, complicate budgetary considerations and limit the reach of otherwise obvious paths of development.

Access Full Report Here (PDF)

Image Credit: U.S. Airforce/flickr (Creative Commons).

Disclaimer: Extended Policy Reports reflect the personal views of the author and do not in any way express or reflect the views of any particular government or represent the formal position of Foreword on any particular issue.

Experts believe that PPI’s Track II dialogue will serve as an important new lever for the peaceful resolution of complex security issues across Oceania.

In a recent interview, U.S. Ambassador (Ret.) John W. McDonald, Chairman and CEO of the Institute for Multi-Track Diplomacy (IMTD), went so far as to argue that “Track II diplomacy initiatives, such as PPI, will be increasingly important to the maintenance of peace and stability in Asia-Pacific … Too many critical security issues facing the region are undermined by government officials who are prone to making flagrant statements and being uncompromising as a result of domestic factors.”

McDonald also asserted that Track II dialogue “would help to expose these errors in judgement … and ensure that conflict resolution remains on-track despite potential short-term missteps along the way.”

While McDonald is right to point out the obvious benefit of expert commentary on antagonist positioning around regional conflicts, Andrew Shearer, Director of Studies and Senior Research Fellow at Lowy, contends that an equally important contribution of PPI will be its ability to attract the attention of policymakers to the region and propose new policy recommendations for their consideration.

This will be especially critical in the United States (U.S.), where experts believe few policymakers and scholars yet recognize the geopolitical importance of Oceania to U.S. national security interests.

Speaking with The Diplomat earlier this month, Ernest Bower, Head of Pacific Partners Initiative (PPI), echoed this point: “The U.S. government currently doesn’t have the capability to address issues in Oceania. The government tends to be reactive not strategic in this region. And think tanks aren’t looking at issues in Oceania. This has created a screaming gap in focus on Australia, New Zealand, and Pacific Island Country security issues. We need to think about what should be the U.S. strategy for engagement in Asia-Pacific over the next 20 to 30 years.”

In Bower’s eyes, PPI fills a critical void in Western policy circles by “stretching the boundaries” of strategic dialogue on Oceania security issues and enabling third party experts to more critically assess the Pacific policies of Western and regional governments.

That said, PPI first will have to overcome a number of serious challenges that face Track II initiatives in Asia-Pacific. Experts believe the two biggest will be achieving a critical mass of influential organizations and overcoming government indifference.

Challenge 1
Securing a critical mass of participants will be difficult given that Australia, New Zealand, and Pacific island states lack a tradition of independent think tanks.

Bower recognizes this challenge: “Neither Australia nor New Zealand possess a large number of independent think tanks (capable of engaging in Track II dialogue). We hope that PPI will encourage more independence of think tanks in Australia and New Zealand beyond the Lowy Institute.”

While Bower hopes to resolve this problem by encouraging the proliferation of more independent regional think tanks, McDonald argues that PPI can mitigate this risk by looking beyond just think tanks: “Setting up independent think tanks is not the first step here. (Track II diplomacy) doesn’t need to be limited to think tanks.” McDonald instead believes that PPI should open its membership to leading non-governmental organizations to complement existing think tank members.

Another solution may be to include other Asia-Pacific countries in the initiative, including think tanks from ASEAN, Canada, China, France, India, Japan, Russia, South Korea, and France. Shearer is open to this approach: “Once the PPI has developed some momentum, I can’t see any reason not to engage think tanks from other countries as well – so long as they share the overall objectives of a stable, prosperous, free and open region.”

Challenge 2
Building a strong partnership with government actors, who may not be open to collaboration with non-governmental entities, also poses a major challenge to Track II initiatives in Asia-Pacific.

McDonald believes that PPI must be prepared to mitigate this challenge, “across the world, Track I (governments) do not want Track II to succeed. Governments usually do not appreciate the advice of Track II actors early on in the process. To overcome this, Track II must prove their usefulness to (Track I) and change the minds of government actors.”

Fortunately, PPI is well positioned to bridge the divide between the two tracks thanks to its founding members – CSIS and Lowy. Experts believe that this will significantly lower the barrier for securing U.S. and Australian policymaker consideration for PPI policy recommendations.

Strategic Implications
Although it will take time for PPI to overcome these challenges, experts believe the initiative is well positioned to play an active and vocal role in resolving complex regional security issues, including domestic instability in Papua New Guinea and the military coup in Fiji.

Beyond this role, Shearer contends that PPI can simultaneously emerge as an important mechanism for advancing U.S. strategic interests in Asia.

While “the increasing presence of other major powers (may be) reinforcing the need for enduring U.S. engagement in the South Pacific,” as Shearer contends, this loftier goal will likely first require PPI to overcome the knowledge-gap that persists in America.

Given that U.S. policymakers have traditionally paid little attention to China’s rise as a major aid donor in the South Pacific, the international struggle over the region’s wealth in fish and minerals, or the efforts of Pacific Countries to diversify their sources of foreign investment and development assistance, the ability of PPI to drive increased awareness and improve basic understanding of Pacific security issues will be critical.

If this gap can be closed, PPI stands a stronger chance of being consequential in maintaining peace and stability in Asia-Pacific.

As Shearer points out, the U.S. strategic presence in Asia-Pacific “will remain the most important structure underpinning Asia-Pacific security” for some time to come. The issue before PPI then will be how to better leverage that presence and advance Western interests through Pacific engagement.

This article first appeared on the Asia-Pacific Reporting Blog, the original can be found here.

Image credit (in order of appearance): The White House/United States Government/flickr (Creative Commons), Charles Dharapak/AP (Creative Commons).

Policy Recommendations for Mexico

First, Mexico needs to define a clear strategy for fighting the drug cartels. This includes three aspects: (i) limit and clearly define the goal; (ii) divide and conquer; (iii) continue implementing a kingpin targeting strategy[3].

(i)      Limit and clearly define the goal to the destruction of the cartels, rather than stopping the production and movement of drugs. Any more than the dismantling of the cartels will prove to be near impossible, and any less will be unacceptable. Creating a clear scope of mission will help provide greater operational clarity and purpose. It is not helpful to let this conflict be bundled into the same category as the United States’ ‘War on Drugs’.

(ii)     Dividing and conquering involves the targeting of a single cartel at a time until they are destroyed. This strategy was used in Colombia against Medellin first and then the Cali cartel, and proved more effective than fighting a multi-front war. Targeting all cartels simultaneously could lead to collusion between drug gangs in order for them to face the threat of the army and police, thus making any effort to dismantle them drastically harder. In addition, openly targeting the most violent cartel first may facilitate in a ‘race to the bottom’ in violence as each cartel attempts to avoid being the next target.

(iii)    A ‘kingpin’ targeting strategy involves identifying, locating and capturing or killing kingpins and key lieutenants of cartels. Running and managing a transnational criminal organisation is similar to being in charge of a large multinational corporation – it requires a skill not found in many. Taking out key leaders can cripple cartels’ effective operational ability. This can be further supplemented by increased extraditions to the United States of key figures. In December 2009, Arturo Beltrin Leyva, head of the Beltrán-Leyva Cartel, was surrounded and killed by the Mexican Navy. The Mexican Federal Police also arrested Teodoro Garcia Simental, an important lieutenant of the Tijuana Cartel on January 12, 2010. Calderon has utilized this strategy effectively, and the increase in violence seen as a result should not be interpreted as failure, but rather the result of the cartels fragmenting with infighting, much the same as was seen in Colombia. The death or capture of a cartel leader creates a power vacuum which is required to be filled. If there is no clear candidate for succession, factionalism and infighting occur as gang members vie for the top spot. With each kingpin and lieutenant removed, the cartel’s operational capability suffers dramatically and increases the cost to the individual of being at the top.

Second, dramatically strengthen the Mexican Federal Police. Whilst the military remains useful in that it is one of the least corrupt institutions in Mexico[4], and has the ability to clash with heavily armed drug gangs, it cannot win the war by itself. This is due to the fact that the skills required to take down a criminal organisation are more than just the ability to defeat them in combat. It is necessary to be able to conduct investigations to support prosecutions, recruit informants and gather evidence. This role falls to the Federal Police. The responsibility of dismantling the cartels needs to be transferred from the military to the Federal Police as they grow in operational capacity. To strengthen the Federal Police and in order to help weed out corruption, municipal police departments should be abolished, with the state police taking on the municipal policing responsibilities for cities. Furthermore, state police should be trained at a federal level.

On his first day in office, Calderon ordered a raise on the salaries of the Federal Police and Armed Forces; however more reforms still need to be undertaken. Law enforcement reform must include stronger vetting programs, a policy of hiring better educated officers, increasing pay to reduce susceptibility to bribery, increased rotation of personnel and internal affairs investigations to help combat corruption and reduce the ability to intimidate the police into collusion[5].

Policy Recommendations for the United States

The United States currently trains thousands of Mexican police officers and troops, collaborates with specially vetted security units, eavesdrops on cartel activity, and provides and upgrades security equipment and intelligence technology for Mexico[6]. Whilst it is evident that the United States is already supplying technical, operational and monetary assistance to Mexico, there is more that can be done.

First, the increased use of drone UAVs (Unmanned Aerial Vehicles) could provide the necessary high-tech surveillance and strike capabilities against the cartels that the Mexican police and army do not currently possess.  The US military, acting on specific instructions and information from the Mexican military, is already utilizing Global Hawk UAV Drones for increased surveillance[7]. This surveillance can be further augmented by Predator and Reaper UAV Drone strikes on known cartel strongholds and kingpins. The possibility of drone strikes by the United States has already been discussed as noted by US Representative Silvestre Reyes – ex-chairman of the House Intelligence Committee[8]. Although potentially politically difficult, all strikes would need to be approved by top Mexican authorities and specially vetted security units so as not to undermine Mexico’s sovereignty. The use of drone strikes is justifiable as the situation on the ground is already a combat operation. Well armed cartels numbering over one hundred thousand combatants supplied with military grade weaponry are already fighting the Mexican military as well as targeting U.S officials[9]. This ability to strike from the air with superior military technology would place enormous pressure on the cartels’ ability to operate, as well as enhance Mexico’s policy of targeting kingpins and key lieutenants.

The strategy of targeted drone strikes on enemy personnel and leadership has been utilised previously in other conflicts. The use of drones was effectively implemented in Afghanistan and on the Pakistani border to provide vastly superior surveillance intelligence as well as targeted air strikes against the Taliban and al-Qaeda members and leaders. Those who are critical of this approach point out that of the 269 reported drone strikes in northwest Pakistan between 2004 and 2011 (killing between 1,658 and 2,597 individuals), approximately 20 per cent of them are non-militant fatalities[10]. To those who believe that this is an unacceptably high non-militant fatality rate, it should be pointed out that historically the combatant to non-combatant fatality ratio was closer to 50:50[11]. That is, half of all deaths in war have historically been civilian deaths; in comparison, 20 per cent is a significant achievement in reducing civilian causalities. Furthermore, the effectiveness of targeting militant leaders – 20 of the 30 identified leaders in the region have been killed in the last 18 months – has caused utter disarray amongst the upper leadership of al-Qaeda[12]. The purpose of highlighting the 20 per cent collateral damage rate is not to justify the strikes based on murky mathematical propositions that more civilians will be saved than the number killed in the long run, but rather to show that given the comparatively lower civilian mortality rate in strikes, that drones actually offer a reduced collateral damage option and are not as indiscriminate as we are led to believe. This strategy could be used to great effect in Mexico against the drug cartels, targeting both their militant strongholds and leadership. Furthermore, DIME (Dense Inert Metal Explosive) armaments could be utilised when targeting areas with high civilian concentration as they are uniquely suited for providing low collateral damage[13]. Drones have proven to be cheaper than conventional military forces, more accurate than traditional airstrikes, and provide reduced levels of civilian casualties overall.

Second, the federal re-legalisation of marijuana and its production within the United States could cripple cartel profits. As stated in a CRS Report for Congress[14] and the Office of National Drug Control Policy in Washington[15], 60% of Cartel profit is estimated to come from the trafficking and sale of Marijuana. A report by RAND Corporation has concluded that ‘even with taxes, legally produced marijuana would likely cost no more than illegal marijuana from Mexico and would cost less than half as much per unit of THC’[16]. This means that legalised production in the United States could undercut illegal marijuana from Mexico and force the cartels out of the market through competition. Cartel cost structures for the production of marijuana are very high due to the illicit nature of their business. The turf wars they engage in, combating government forces and smuggling the product across the border to where there is demand all drive the price up significantly. Additionally, the monopoly status of cartels means that they can capture large economic profits. However, the cartels’ comparative advantage is in criminal activity, not the production of an (illicit) agricultural commodity. By legalising the production of marijuana in the United States, businesses and farmers could reduce the costs incurred in the production and distribution of the crop, and pass the cost savings onto consumers. Since cartels cannot reduce their cost structures in the same manner, they would be pushed out of the market. Whilst there are many other arguments for and against the legalisation of marijuana, this report’s intention is only to look at the impact it has on the drug cartels. Although undercutting the marijuana market in and of itself will not collapse the cartels, the severely diminished profit margins reaped by the drug gangs will limit their operational ability, making them more vulnerable to methods previously mentioned.

Third, refocus gun control efforts towards interdicting military grade weaponry being smuggled in from non-US sources. Gun control is a contentious issue in the United States, and whilst there are those who advocate re-instating the ban on assault weapons for a number of valid reasons, it will have very little effect on the firepower capabilities of the Mexican cartels. Already the drug gangs are displaying an increasing trend towards military-grade hardware such as grenade and rocket launchers as well as anti-tank missiles, which are being sourced from locations other than the United States, such as China and South America. Additionally, assault weapons are readily available from these same alternative sources if the supply in the United States dries up[17]. Therefore, instead of focusing on stemming the flow of assault weapons coming from the United States, the US government should attempt to work with Chinese and South American authorities to impede illicit military-grade arms smuggling rackets which are bolstering the cartels’ militant capabilities.

As the Mexican drug cartels are transnational criminal organisations (TCOs) it is important to remember that their motive is profit not ideology. In essence there are only two features in defeating a TCO. Increasing the cost of operating (in this case, through military strikes, police work and increasing the risk of operating) and by decreasing profit margins (in this case, legalising an industry that drug gangs have a comparative advantage and motive to continue operating in illicitly).

In summary, Mexico needs to limit their goals to the destruction of the cartels by targeting them one at a time with specific emphasis on capturing and extraditing or killing cartel leaders. To do this, Mexico must strengthen their Federal Police and provide them with greater responsibility in bringing down the cartels. The United States can supplement these efforts by introducing drone strikes on cartel strongholds and high level targets at Mexico’s behest. In addition, re-legalising marijuana production in the United States would force the cartels out of the market through competition and destroy up to sixty per cent of their profit margin. This will limit their operational capacity and make it harder to combat Mexican government forces.

References

In his first eight-years as President, Putin oversaw an economic boom due to a significant rise in global oil prices, while his macho image and assertive policies helped restore Russia’s self-confidence and global stature. He temporarily surrendered the presidency to Medvedev for one term to maintain the façade of constitutionality but undermined any attempts by his younger apprentice to reform a system of bureaucratic and kleptocratic capitalism.

However, the petro boom of the last decade temporarily disguised the fact that Putinism failed to ensure a stable authoritarian system in which a “managed democracy” was compatible with economic competitiveness. Without extensive political and legal reforms, which are strongly resisted by the ruling elite, modernization has stuttered, foreign capital remains limited, and Russia faces an escalating domestic crisis fuelled by economic weakness and demographic decline.

Domestic developments will also have significant security and foreign policy repercussions. In a scenario reminiscent of the decaying Soviet Union, Russia’s deepening stagnation will increase the prospect of state fracture if the central authorities cannot contain pressures exacerbated by economic distress, ethnic discontent, and religious radicalism in the country’s numerous restless regions. This will have an immediate impact on Moscow’s many neighbors who could be drawn into a maze of border conflicts and territorial disputes.

Putin remains a highly popular figure among Russia’s masses. The majority seem willing to jettison democracy for an effective authoritarianism that can restore Russia’s international prestige and great power status while ensuring economic predictability. But while huge revenues from oil and gas sales helped to raise Putin’s positive image during the 2000’s, his return to power may coincide with another global recession and falling energy prices that will shake the foundations of the Russian economy.

Economists believe that Putin’s return to the Kremlin makes it less likely that Russia will reduce its dependence on natural resources where oil and gas earnings constitute about half the annual budget. Moreover, Putin is unwilling to combat the bureaucracy and corruption that service his regime but obstruct and endanger economic development. He will have twelve more years to preside over a Russia that is poised between an assertive global role and a potentially violent contraction. He is not known for his willingness to compromise or surrender Russia’s imperial gains, indicating that a new “time of troubles” (Smutnoe Vrema) is looming on the horizon.

On the international front, Putin looks set to follow a two-pronged approach. First, Moscow will continue to exert pressure on near neighbors to discard membership of Western institutions and integrate with Russia-led structures including the Customs Union that currently includes Belarus and Kazakhstan and into which Moscow seeks to entrap Ukraine and several Central Asian states.

Moscow also intends to transform the Collective Security Treaty Organization (CSTO) into a more effective body strictly controlled by Russian decision-makers. CSTO Secretary-General, Nikolai Bordyuzha, has initiated proposals to employ the organization as a mechanism for Russian intervention within member countries that were once loyal Soviet republics. Political planners in Moscow are fearful of Arab-type revolutions anywhere in their neighborhood, as they could prove contagious in Russia itself. In claiming an “area of responsibility” that coincides with the defunct Soviet Union, Moscow is developing several scenarios where military intervention would be warranted.

For instance, the organization may become directly involved if the head of the state is cornered by the domestic opposition and requests CSTO assistance. In such a case, the CSTO could intervene politically and militarily to “protect the constitutional order” and help eliminate social or ethnic unrest. The Russian General Staff has accelerated preparations for creating CSTO forces on standby for possible intervention and such missions would not require approval by the United Nations Security Council.

Second, Putin will seek to extract even more concessions and benefits from the American administration. The White House claims it expects more progress in the “reset” with Moscow, regardless of who is the next Russian president. History indicates that U.S.-Russia relations pass through “boom and bust” cycles in which periods of détente and cooperation are followed by frosty episodes usually precipitated by Moscow’s aggression toward a neighbor or its blocking of American diplomatic initiatives.

Rather than deepening the current detente to develop a strategic partnership with the U.S., Putin will seek to adapt the “reset” to Russia’s advantage by making sure that Washington remains largely silent on his integrative approach toward Central Asia, his bullying of Georgia, his pressure on Azerbaijan and Turkmenistan to withdraw from EU-sponsored energy pipelines, and Moscow’s increasingly repressive domestic human rights record.

Washington will be tested when the screws are further tightened to prevent public unrest and regional separatism. With elections results prearranged and the opposition harassed and marginalized, will Putin be renamed as the second last dictator in Europe, or will that appellation be reserved for Belarusian President Lukashenka alone? This will indicate whether the West still sees Russia as a political part of Europe or has concluded that the country cannot be changed and the days of democratization have become a historical footnote.

This piece is republished with permission from our partner e-IR and Janusz Bugajski, the original can be found here.

Image Credit: Image by Real Distan/flickr (Creative Commons).

To address the latter this report proposes the following policy recommendations:

 Policy Recommendations

Access Full Report Here (PDF)

1.      The US must look back to similar situations in its past Sino-American relations to guide current strategic thinking (p.5).

2.     US strategic planners and their allies must use ambiguity, allowing actions to dictate intent to Chinese military and strategic planners (p.6).

3.     The US needs to push much harder to develop strong military-to-military, commercial and economic ties with India (p.6).

4.     The United States must continue to move combat systems closer to areas of potential conflict in East Asia. Balance must be struck to increase US and allied capabilities while avoiding a Chinese counter reaction (p.7).

5.     The United States must maintain and strengthen its relationship with Japan (p. 7 ).

6.     With Chinese moves in East Timor and Fiji already being looked at by Australia, the US and Australia must take measured steps to increase their level of military-to-military cooperation on all levels (p. 7).

7.      US, India, Japan and Australia should consider sharing the burden of military hardware design and development (p. 7).

8.     Continue the development of the Air/Sea Battle concept to unify the combined power of the US Navy and Air Force to maximize combat effectiveness (p. 8).

9.     The US and its partners, along with China, must work to create multiple avenues to de-escalate tensions and build institutions that mitigate the push towards competition (p. 9).

A Competition Declared

Over the last few years much has been written theorizing possible competition and confrontation between the United States and China. A passionate debate has ensued seeking to answer this important question.  On March 2, 2011, the debate ended with a definitive answer.  It was on this date that US Secretary of State Hillary Clinton, while testifying to the US Senate Foreign Relations Committee, removed any speculation:

“We are in a competition for influence with China. Let’s put aside the humanitarian, do-good side of what we believe in. Let’s just talk straight realpolitik. We are in competition with China.”

She would go on to detail Chinese attempts to outflank Exxon Mobile for Liquefied Natural Gas resources in Papua New Guinea: “Exxon Mobil is producing it. China is in there every day, in every way, trying to figure out how it’s going to come in behind us, come in under us”.

Such a pronouncement of declaring open competition is rare. Diplomatic interactions and security competitions throughout history have more typically been fraught with secrecy, shadowy statements and staged propaganda on both sides. However, any analyst following US-China relations has seen the writing on the wall for some time. Much has been written about the impending US move away from the “war on terror” to the growing security rivalry between the United States and the People’s Republic of China. It is clear that, as tensions rise, a growing security competition will define the future of East Asia. The United States’ reaction to this growing competition will likely be one of the defining events of the 21st century.

Access Full Report Here (PDF)

Banner image: (Jul. 14, 2010) – U.S. Coast Guard Seaman Michael Luna stands lookout watch as two Republic of Singapore amphibious dock landing ships pass by U.S. Coast Guard Cutter Mellon (WHEC 717) during an exercise as part of Cooperation Afloat Readiness and Training (CARAT) Singapore 2010. CARAT is a series of bilateral exercises held annually in Southeast Asia to strengthen relationships and enhance force readiness.

Image Credit: U.S. Navy photo by Mass Communication Specialist 2nd Class David A. Brandenburg/PACOM/flickr (Creative Commons).

Disclaimer: Extended Policy Reports reflect the personal views of the author and do not in any way express or reflect the views of any particular government or represent the formal position of Foreword on any particular issue.

Vocal critics of Australia’s $16 billion plus F-35 commitments, such as Carlo Kopp, Research Fellow at Monash University and Co-Founder of Air Power Australia, believe that the F-35 is little more than “a specialised battlefield interdictor lacking the performance, stealth and sensor suite for air superiority.”

In the frankest terms, Kopp reasons “the F-35 is not a viable design and could never meet Australia’s national security needs. Claims otherwise have been repeatedly shown to be incorrect, and mostly based upon naive, incorrect or absent assessments of the capabilities of contemporary Russian and Chinese built weapon systems deployed in Asia.”

He backs up his argument by asserting that the F-35’s aerodynamic deficiencies make it unlikely to be employed effectively as an air defence interceptor “while its stealth performance is provably insufficient for defensive/offensive counter-air and anti-surface warfare strike operations against contemporary regional capabilities.” This is despite the Pentagon’s promises that its allies will receive comparable stealth capabilities to American versions of the platform.

He therefore contends that the “F-35 is incapable of making any useful contribution to the defence of Australia’s northern sea-air gap,” which most analysts believe is the top national defense priority for the nation.

This begs the question: Why then would Australia continue to pursue such a flawed program?

In Kopp’s assessment, it is because the Australian Department of Defence (ADoD) lacks the internal capacity to properly assess and define Australian air superiority requirements; suggesting that the ADoD has based their next generation platform requirements on “briefings provided by foreign contractors supplying replacement equipment.”

F/A 18F Super Hornet

Kopp therefore is not surprised that Canberra is now considering the F/A-18 Super Hornetas a possible gap alternative to the F-35 despite the fact that “the F/A-18F has similar performance and capability deficiencies to the F-35, and is equally incapable of credibly performing against modern regional threats.” In his view, ADoD is just repeating a long-established pattern of behavior in choosing products without aligning them with air superiority requirements.

While his conclusions may seem extreme to American defence strategists, Kopp’s perspectives are not surprising to Australian defence policy analysts, who see him as a part of an outspoken but accepted minority that remains variably influential in Australian policy circles. This faction argues that Australian air superiority must be designed to unilaterally counter the most advanced capabilities in the region, including the capabilities of China and India; a position that clearly derives from a larger debate in Australian foreign policy – What represents a probable set of adversary capabilities that must be unilaterally countered in order to ensure Australian national security?

While he does not argue China represents a threat, Kopp contends China does present Australians with a very high strategic risk due to its size and the sophistication of its new generation of weapons. For his camp, Australian air superiority requirements therefore must be based upon the assessed capabilities of squadrons of Indian Sukhoi T-50 PAK-FA and Chinese Chengdu J-20 series fighters rather than the few fourth generation platforms being fielded by ASEAN members. (He assumes that the latter will be progressively replaced in time by the T-50 PAK-FA and export models of the J-20 as smaller nations now buying Flankers switch to buying these platforms in 5-10 years time.)

Sukhoi T-50 PAK-FA

If the T-50 PAK-FA and J-20 were the benchmark, he concludes the F-35 would be insufficient for head-to-head combat. Furthermore, he posits that “recent advances in Russian and Chinese Surface to Air Missile and counter-stealth radar technology … nullify designs like the F/A-18E/F and F-35” as well.

Instead, Kopp opines that the F22A is the only viable existing platform capable of ensuring Australian air superiority and enabling optimal support for regional and global peace and stability operations: “The only aircraft type which can credibly compete (with the T-50 PAK-FA and J-20) is the U.S. built F-22A Raptor. If Australia came to the aid of the U.S. with a fleet of 50+ F-22s, it could make a major contribution of high strategic value to the U.S., in any Asia-Pacific conflict. More importantly the F-22 balances strategically any future ASEAN or other Asian buys of the T-50 PAK-FA and J-20 and permits Australia participation in any global interventions where a modern threat exists.”

Unfortunately, as Sam Roggeveen, Fellow at Lowy Institute for International Policy, points out: “Former U.S. Defense Secretary Gates doubled down on the F-35 by ending production of the F-22. For countries like Australia looking for a fifth-generation fighter, the F-35 (currently) is the only game in town.”

While agreeing with Kopp that the F-35 may be insufficient against fifth generation fighters, Roggeveen maintains a polar opposite view on why the debate on Australian air superiority is flawed. For him, it is not merely just a question of adversary capabilities but also of intent.

Chengdu J-20

Roggeveen therefore questions why Australia would need anything more than the F-35 to begin with. Even with squadrons of Chinese J-20s in play, he believes that the only probable scenarios for confrontation with China would involve regional conflicts in far away places such as the Taiwan Strait.

In response, Roggeveen raises an interesting counter-point: “Australia would only ever go to war with China by America’s side. So, even if Australia did have air power that could match the PLAAF and PLANAF one-for-one, could Australia bring decisive strategic weight to any military engagement? At most, we are going to buy 100 (F-35s), and only a fraction of those would be committed to, say, a war over Taiwan. Would that even make a difference to the larger strategic picture?”

From his perspective, the answer is not the F22A (if it were available) or a more advanced next generation platform. Instead, it is at most the F-35 or perhaps even “a cheaper, less capable aerial platform.”

As he observes, the latter would afford Australia the luxury of investing in “a potentially decisive capability such as diesel powered submarine killers (SSKs),” which could be of greater value to the U.S. if a strategic conflict with China ever materializes.

While this might be an interesting strategic option for Northrop Grumman Shipbuilding or General Dynamics Electric Boat, it certainly is not the one preferred by Lockheed Martin, who must ensure that their Australian commitments remain firm. If the company fails to do so, it risks losing future revenue for shareholders and bringing further harm to the F-35 program’s already tarnished image.

Image credit: Banner F-35/Image by Lockheed Martin/flickr (Creative Commons); In text [in order of appearance] – FA-18F Super Hornet/Image by Ned Harris/flickr;  Sukhoi T-50 PAK-FA/Image by FooFighterSpotting/flickr; Chengdu J-20/Image by Yinlei/flickr (Creative Commons).