Category Archives: China aggression

Strategic Implications of the Transpacific Partnership

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Document: Report to Congress on Strategic Implications of the Trans-Pacific Partnership

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Summary

 
On October 5, 2015, Ministers of the 12 Trans Pacific Partnership (TPP) countries announced conclusion of their free trade agreement (FTA) negotiations. The agreement is one of the Obama Administration’s signature trade policy initiatives, an effort to reduce and eliminate trade and investment barriers and establish new rules and disciplines to govern trade and investment among the 12 countries. TPP proponents, including Administration officials, argue that the proposed TPP would have substantial strategic benefits for the United States in addition to its direct economic impact. They argue that the agreement would enhance overall U.S. influence in the economically dynamic Asia –
Pacific region and advance U.S. leadership in setting and modernizing the rules of commerce in the region and potentially in the multilateral trading system under the World Trade Organization (WTO).
 
Congress plays a key role in the TPP. Through U.S. trade negotiating objectives established in Trade Promotion Authority (TPA) legislation and informal consultations and oversight, Congress has guided the Administration’s negotiations. Ultimately, Congress would need to pass implementing legislation if the concluded agreement is to take effect in the United States. The geo- political arguments surrounding TPP are widely debated, as are the arguments about its  potential economic impact. To some, the TPP is an important litmus test of U.S. credibility in the Asia-Pacific region. As the leading economic component of the Administration’s “strategic rebalancing” to the region, the TPP, proponents argue, would allow the United States to reaffirm existing alliances, expand U.S. soft power, spur countries to adopt a more U.S. friendly foreign  policy outlook, and enhance broader diplomatic and security relations. Many Asian policymakers  – correctly or not – could interpret a failure of TPP in the United States as a symbol of the United States’ declining interest in the region and inability to assert leadership. Some critics argue that TPP backers often do not identify specific, concrete ways that a successful deal would invigorate U.S. security partnerships in the region, and that an agreement should be considered solely for its economic impact. They maintain that past trade pacts have had a limited impact on broad foreign policy dynamics and that U.S. bilateral relations are based on each country’s broader national interests.
 
The Administration is also pursuing strategic economic goals in the TPP. Through the agreement,  proponents argue, the United States can play a leading role in “writing the rules” for commerce with key trading partners, addressing gaps in current multilateral trade rules, and setting a  precedent for future regional and bilateral FTA negotiations or multilateral trade talks at the World Trade Organization (WTO). The core of this argument is the assertion that the TPP’s  potential components – including tariff and non tariff liberalization, strong intellectual property rights and investment protections, and labor and environmental provisions – would build upon the U.S. led economic system that has expanded world trade and investment enormously since the end of World War II.
 
Although most U.S. observers agree it is in the U.S. interest to lead in establishing global and regional trade rules, less consensus exists on what those rules should be, yielding some criticism on the strength and breadth of various TPP provisions. In addition, some argue that crafting new rules through “mega regional” agreements rather than the WTO could undermine the multilateral trading system, create competing trading blocs, lead to trade diversion, and marginalize the countries not participating in regional initiatives.

President’s Day, Was George Washington a Spy?

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The Spymaster’s Toolkit

CIA: Long before General William Donovan recruited spies to advance the American war efforts during World War II as Director of the Office of Strategic Services (OSS), predecessor to the CIA, General George Washington mastered the art of intelligence as Commander of the Continental Army during the Revolutionary War.

Washington was a skilled manager of intelligence. He utilized agents behind enemy lines, recruited both Tory and Patriot sources, interrogated travelers for intelligence information, and launched scores of agents on both intelligence and counterintelligence missions. He was adept at deception operations and tradecraft and was a skilled propagandist. He also practiced sound operational security. Washington fully understood the value of accurate intelligence, employing many of the same techniques later used by the OSS and CIA.

As we celebrate the 284th birthday of the first American President, we highlight some of the tradecraft employed to secure our independence from the British and offer insights on its use today. Were it not for the use of secret writing, concealment devises, propaganda, and intercepted communications, there may have been a very different outcome to the War of Independence.

* * * * *

SECRET WRITING

Revolutionary War: American agents serving abroad composed their intelligence reports using invisible ink. George Washington believed this would “not only render his communications less exposed to detection, but relieve the fears of such persons as may be entrusted in its conveyance.”

Communicating via invisible ink required the use of several chemical compositions. One mixture was used to write with disappearing ink, the other mixture was applied to the report to make it legible. Despite their invisible communications, it is estimated that the British intercepted and decrypted over half of America’s secret correspondence during the war.

CIA: The CIA has declassified several documents that provided recipes for making invisible ink. One recipe instructs: “Take a weak solution of starch, tinged with a little tincture of iodine. This bluish writing will soon fade away.” A mixture for exposing secret writing included “iodate of potassium, 5 grams, with 100 grams of water, and 2 grams of tartaric acid added” but warned, “run a hot iron over the surface being careful not to scorch the paper.”

During the Cold War, a major advancement in secret writing technology was the shift from liquid invisible inks to dry systems. The KGB was one of the first foreign intelligence services to employ a dry method. The CIA’s Office of Technical Services in the Directorate of Science and Technology spent considerable time researching Soviet systems and finally succeeded not only in “breaking” them, but in anticipating where its KGB counterpart would go next in the never-ending search for more secure systems. By the end of the Cold War, a kind of tacit convergence had emerged as both sides applied new techniques that used very small, almost undetectable quantities of chemical in secret writing messages. In the words of one CIA chemist, it was like “uniformly spreading a spoonful of sugar over an acre of land.”

CONCEALMENT DEVISES

Revolutionary War: Agents used a variety of modified objects to conceal their secret messages.  One device was a wafer-thin lead container that would sink in water, or melt in fire, thus destroying its contents. The device was small enough that an agent could swallow it if no other means of discarding were available. This was done as a last resort as ingestion was typically followed by a severe bout of lead poisoning. The lead container was eventually replaced by a silver, bullet-shaped container that could be unscrewed to hold a message and which would not poison a courier who might be forced to swallow it.

CIA:  A concealment devise can be any object used to clandestinely hide things. They are typically ordinary, every-day objects that have been hollowed out. The best concealment devises are ones that blend in with their surroundings and call no attention to themselves. They can be used to hide messages, documents, or film. Some examples of concealment devises include hollowed out coins, dead-drop spikes, shaving brushes, and makeup compacts.

PROPAGANDA

Revolutionary War: During the American Revolution, the British had a shortage of soldiers so they hired almost 30,000 German Hessian auxiliary forces to fight against the Americans. The Continental Congress devised a propaganda campaign to encourage the Hessian mercenaries to defect to America. The campaign included offering land grants to those mercenaries fighting for the British on American soil. The offers were written in German on leaflets disguised as tobacco packets. A mock-defector ran through the mercenaries’ camps encouraging others to defect as well. As part of the campaign, Benjamin Franklin forged a letter to the commander of the Hessians, “signed” by a German prince. The letter instructed the commander to let the wounded mercenaries die. This dealt a blow to the morale of the Hessians. Between 5,000 and 6,000 Hessian mercenaries deserted from the British, in part because of American propaganda.

CIA: Propaganda campaigns use communication to alter a population’s beliefs and views thus influencing their behavior. There are three types of propaganda: white, black, and grey. White propaganda openly identifies the source and uses gentle persuasion and public relations techniques to achieve a desired outcome. For example, during the Persian Gulf War, the CIA airdropped leaflets before some Allied bombing runs to allow civilians time to evacuate and encourage military units to surrender. Black propaganda, on the other hand, is misinformation that identifies itself with one side of a conflict, but is truly produced by the opposing side – like Franklin sending the letter “from” a German prince. Grey propaganda is the most mysterious of all because the source of the propaganda is never identified.

INTERCEPTED COMMUNICATIONS

Revolutionary War: The Continental Congress regularly received quantities of intercepted British mail. General Washington proposed to “contrive a means of opening them without breaking the seals, take copies of the contents, and then let them go on. By these means we should become masters of the whole plot.”

CIA: Clandestinely opening, reading and resealing envelopes or packages without the recipient’s knowledge requires practice. ‘Flaps and seals’ opening kits were used in the 1960s. A beginner’s kit offered the basic tools for surreptitious opening of letters and packages. Once mastered, an advanced kit with additional tools was used. Many of the tools were handmade of ivory and housed in a travel roll.

* * * * *

Washington employed the use of many other intelligence gathering techniques still in use today to secure our independence and freedom from Great Britain. Not only is he The Father of His Country, but he is heralded as a great spymaster. Upon the conclusion of the Revolutionary War, a defeated British intelligence officer is quoted as saying, “Washington did not really outfight the British. He simply out-spied us.”

Pay Your Bills Years in Advance, Negative Interest Rate

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Primer: 

The Federal Reserve System‍—‌also known as the Federal Reserve or simply as the Fed‍—‌is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907. Over time, the roles and responsibilities of the Federal Reserve System have expanded, and its structure has evolved. Events such as the Great Depression in the 1930s were major factors leading to changes in the system.[10]

The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: Maximizing employment, stabilizing prices, and moderating long-term interest rates. The first two objectives are sometimes referred to as the Federal Reserve’s dual mandate. Its duties have expanded over the years, and as of 2009 also include supervising and regulating banks, maintaining the stability of the financial system and providing financial services to depository institutions, the U.S. government, and foreign official institutions. The Fed conducts research into the economy and releases numerous publications, such as the Beige Book.

Negative 0.5% Interest Rate: Why People Are Paying to Save

When you lend somebody money, they usually have to pay you for the privilege.

NYT’s: That has been a bedrock assumption across centuries of financial history. But it is an assumption that is increasingly being tossed aside by some of the world’s central banks and bond markets.

A decade ago, negative interest rates were a theoretical curiosity that economists would discuss almost as a parlor game. Two years ago, it began showing up as an unconventional step that a few small countries considered. Now, it is the stated policy of some of the most powerful global central banks, including the European Central Bank and the Bank of Japan.

On Thursday, Sweden’s central bank lowered its bank lending rate to a negative 0.5 percent from a negative 0.35 percent, and said it could cut further still; European bank stocks were hammered partly because investors feared what negative rates could do to bank profits. The Federal Reserve chairwoman, Janet Yellen, acknowledged in congressional testimony Wednesday and Thursday that the American central bank was taking a look at the strategy, though she emphasized no such move was envisioned.

But as negative rates — in which depositors pay to hold money in bank accounts — become a more common fixture, there are many unknowns about what these policies mean for finance, for the economy and even for the definition of money.

These are some of the key questions, and, where we have them, the answers.

So how do negative interest rates work?

It depends. In the cases of interest rate targets set by central banks like the E.C.B. and Swedish Riksbank, they set a negative target rate for banks, and banks in turn pass it along to their customers. The E.C.B., for example, currently has a negative 0.3 percent rate, meaning that when banks deposit money at the central bank overnight, they pay for the privilege.

Banks have different ways of passing the negative rates on to depositors, often framed as fees for keeping money in an account, which is basically negative interest rates by another name.

Bond markets reflect these negative rates, too, including for longer-term government debt. For example, if you bought a two-year Swiss government bond on Thursday, you would have needed to pay a price that resulted in a yield of negative 1.12 percent. Even 10-year Swiss bonds have a negative rate, a sign markets expect below-zero rates to persist in Switzerland for many years to come.

Generally companies that borrow money are viewed as riskier than governments, so they have to pay higher interest rates. Therefore negative-rate corporate debt is still rare. But it has happened, including with corporate bonds issued by the Swiss food giant Nestle.

But don’t people just withdraw cash rather than pay to deposit it at their bank or buy a government bond that will give them back less than they paid?

You’d think, right? This was exactly why economists had long thought that negative interest rates were impossible. It helps explain why central banks first turned to other tools, including quantitative easing, when they saw a need to ease monetary policy despite interest rates that were already near zero.

But it looks as if the convenience of keeping money in a bank account is worth a small negative interest rate or fees for most consumers and businesses, at least at the only slightly negative rates currently in place. Storing and providing security for cash may be more expensive than a small bank charge.

When initial experiments in Switzerland and Sweden didn’t result in mass withdrawals from the banking system, larger central banks in need of easier money moved gingerly in the same direction. They’ll stop when either their economies start to grow or they see more concrete evidence that negative rates are doing more harm than good.

How is this supposed to help the economy?

Pretty much the same way it always is supposed to help the economy when a central bank cuts rates. Lower rates encourage business investment and consumer spending; increase the value of the stock market and other risky assets; lower the value of a country’s currency, making exporters more competitive; and create expectations of higher future inflation, which can induce people to spend now.

We have decades of experience with central banks trying to manage the economy by, for example, cutting bank rates to 2 percent from 3 percent when there is an economic downturn. The shift to negative rate policies is, hypothetically at least, the same, but with a starting point of rates already around zero.

So does it work?

It’s hard to say with any certainty yet. At a minimum, it seems to have an effect of lowering the value of a currency, which makes export industries very happy. It’s less clear whether it can help create sustained economic growth, particularly when the hard-to-calculate downsides are factored in.

What are those downsides?

The global financial system is built on an assumption of above-zero interest rates. Going below zero could cause damage to the very architecture by which money and credit zoom through the economy, and in turn inhibit growth.

Banks could cease to be viable businesses, eliminating a key way that money is channeled from savers to productive investments. Money market mutual funds, widely used in the United States, could well cease to exist. Insurance companies and pension funds could face their own major strains.

In a speech last year, Hervé Hannoun, then the deputy general manager of the Bank for International Settlements, even argued that this could “over time encourage the use of alternative virtual currencies, undermining the foundations of the financial system as we know it today.”

Is the Federal Reserve going to do this in the United States?

Janet Yellen doesn’t think so. But in two days of congressional testimony this week, she also didn’t rule it out.

For one thing, the United States economy, and particularly its labor market, looks to be in stronger shape than that of many others around the world. So the Fed expects to be in interest-rate raising mode this year (though exactly how fast is very much in question). But even if the economy does take a turn for the worse, there’s no certainty that negative rates are the path the Fed would take.

There is a question of whether that would even be legal. It’s not clear if the language of the Federal Reserve Act allows negative bank rates (J.P. Koning, a financial commentator, runs through the legal issues here). Ms. Yellen said in testimony this week that the legality of negative rates “remains a question that we still would need to investigate more thoroughly.”

She also said that “it isn’t just a question of legal authority.”

“It’s also a question of could the plumbing of the payment system in the United States handle it?” she said. “Is our institutional structure of our money markets compatible with it? We’ve not determined that.”

Financial markets do not now price in meaningful odds of negative rates in the United States. Want one modest clue that negative rates can’t be ruled out, though? In its annual stress test of major banks, the Fed asked the firms to figure out what would happen to their finances in a “severely adverse” scenario that included a sharp rise in unemployment and a rate of negative 0.5 percent rate on short-term Treasury bills — in other words, what you’d expect to see if there were a recession and the Fed cut rates well below zero.

Ms. Yellen noted that the rates on Treasury bills could go negative even in the absence of a policy shift by the Fed, as has happened a few times in the past.

So what are some of the weird things that could happen in a world in which negative rates become routine?

The policies in Europe and Japan are still relatively new and involve rates only slightly below zero. But if the policies become long-lasting, or negative rates go much lower, there are a lot of mind-bending ways it could affect routine transactions.

For example, would people start prepaying years’ worth of cable bills to avoid having money tied up in a money-losing bank account? How about property taxes? Would companies and governments put in place new policies prohibiting people from paying their bills too early?

Or consider this: Many commercial transactions now take place with some short-term credit attached — for example, a company that gets a 60-day grace period to pay bills from its suppliers. Would that flip, and suddenly suppliers would prohibit upfront payment and insist that their customers wait 60 days to pay?

Might new businesses sprout up that allow people to securely store thousands of dollars in bundles of $100 bills, or could people buy physical objects as stores of value that the banks can’t charge a negative interest rate on?

“Negative interest rates in Japan is blowing my mind,” said Jose Canseco, the provocative retired baseball player not normally known for his economic musings, on Twitter. And the truth is, he’s not the only one.

China banks may lose 5 times US banks’ subprime losses

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Yellin’s testimony includes China as the big worry.   

China is big concern

Yellen didn’t mince words about China: its economy is slowing down and uncertainty is rising about how much China will devalue its currency, the yuan.

A weak yuan has major implications for global trade. Yellen firmly blames the uncertainty of China’s currency for the rise in global growth fears.

“This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth,” Yellen said.

Add in spooky dude, George Soros:

Bass: China banks may lose 5 times US banks’ subprime losses in credit crisis

CNBC: A Chinese credit crisis would see the country’s banks rack up losses 400 percent larger than the hit U.S. banks took during the subprime mortgage crisis, storied hedge fund manager Kyle Bass has warned in a letter to investors.

“Similar to the U.S. banking system in its approach to the Global Financial Crisis (GFC), China’s banking system has increasingly pursued excessive leverage, regulatory arbitrage, and irresponsible risk taking,” Bass, the founder of Dallas-based Hayman Capital, wrote in the letter dated Wednesday.

“Banking system losses – which could exceed 400 percent of the U.S. banking losses incurred during the subprime crisis – are starting to accelerate.”

China’s banking system has grown to $34.5 trillion in assets over the past 10 years, from a base of $3 trillion, wrote Bass, who is famed as one of the few major investors to correctly call the U.S. subprime housing collapse that kicked off the 2008 global financial crisis. That prescience earned him a mention in Michael Lewis’ book “Boomerang,” which was about the European credit crisis.

This expansion in the banking system’s asset base was fueled largely by rapid credit expansion, Bass wrote, that helped fund the huge, and often inefficient, infrastructure spending program that has propped up China’s growth.

“China’s [banking] system is even more precarious when we realize that, even at the biggest banks, loans are not made to borrowers based on their ability to repay,” he wrote. “Instead, load decisions are political decisions made by the state.”

Add to this the danger posed by China’s shadow banking system – made up of instruments Bass claimed the country’s banks used to subvert restrictions on lending – and the upshot was there were “ticking time bombs” in China’s banking system, the hedge fund manager explained.

“Chinese banks will lose approximately $3.5 trillion of equity if China’s banking system loses 10 percent of assets,” Bass wrote. “Historically, China has lost far in excess of 10 percent of assets during a non-performing loan cycle.”

He noted that U.S. banks lost about $650 billion of their equity throughout the global financial crisis.

The letter said that the Bank for International Settlements (BIS) estimated that Chinese banking system losses from the 1998-2001 non-performing loan cycle exceeded 30 percent of gross domestic product (GDP).

“We expect losses in this cycle to exceed prior cycles. Remember, 30 percent of Chinese GDP approaches $3.6 trillion today,” he warned.

Bass wrote that he expected the massive losses to force Beijing to recapitalize Chinese banks and sharply devalue the yuan.

“China will likely have to print in excess of $10 trillion worth of yuan to recapitalize its banking system,” he said. “By the time the loss cycle has peaked, we believe the renminbi will have depreciated in excess of 30 percent versus the U.S. dollar.”

The hedge fund manager didn’t return an email sent outside office hours requesting comment on the investor letter, which the Wall Street Journal reported was the first he had sent in two years.

Bass’ sentiments on the yuan aren’t new, with the Wall Street Journal reporting earlier this month that he was among the money managers making bearish bets on the currency.

The dollar has already fallen about 5.9 percent against the yuan since August, when a sharp devaluation by the People’s Bank of China (PBOC) roiled markets; the greenback was fetching around 6.5710 yuan on February 5, the last day of trade before China’s markets closed for a week-long Lunar New Year holiday.

The PBOC has introduced a slew of measures to arrest, or at least slow, declines in the currency in the hope of achieving an orderly depreciation.

The central bank has asked banks making yuan loans abroad to set aside more in reserves and has also hoovered up yuan in Hong Kong, a key market where the bearish bets have been made, effectively making it more expensive for traders to borrow the yuan to make these trades.

China’s state-owned publications have also chipped in with stinging editorials admonishing greedy speculators for betting against the currency. Prominent investor George Soros was recently likened to a “crocodile” that had declared “war” on China for suggesting while at the World Economic Forum in Davos, Switzerland, that China’s economy was headed for a hard landing.

In his letter, Bass casts the attacks on Soros as confirmation of his views.

“China’s public reaction in its state media to George Soros’ comments in Davos was in character for a country that is on the precipice of a large devaluation,” Bass said.

While many have pointed to China’s large – albeit shrinking – pile of $3.23 trillion in foreign-exchange reserves as a defensive wall against a crisis, Bass says that’s simply not enough.

He estimates China really only has around $2.1-2.2 trillion in reserves after adjusting for several factors including about $700 billion that could be tied up in China’s sovereign wealth fund CIC. That’s below his estimate of the $2.7 trillion minimum China would need to effect a banking sector bailout.

“China’s liquid reserve position is already below a critical level of minimum reserve adequacy,” he said.

Predictions of a Chinese economic disaster have been circulating for a long time; Gordon Chang’s book “The Coming Collapse of China” was published in 2001.

However, the mainland saw economic growth slow to a 25-year low of 6.9 percent in 2015 amid its transition toward a consumption-driven economy and away from its manufacturing roots.

When it comes to positioning for his expectations of a Chinese bank implosion, Bass wrote that he was thinking broad.

“What happens in China will not stay in China,” he said. “We decided to liquidate the majority of our risk assets.”

He did not appear likely to buy back in to the market any time soon.

“The next 18 months will be fraught with false-starts, risk rallies, and second-guessing,” he wrote.

To be sure, some of Bass’ other doomsday bets haven’t yet come to fruition.

For more than five years, he has called for a collapse in Japan government bonds (JGB) as part of a yet-to-materialize full-blown financial crisis there. That trade, dubbed a widow-maker, has so far backfired spectacularly.

Instead of a collapse in JGB prices, they’ve surged, with the benchmark 10-year seeing negative yields for the first time this week. Bond yields move inversely to prices.

Hayman Capital had returns of about 1.7 percent last year, according to a Bloomberg report.

***

TOKYO (AP) — Japan’s main stock index dived Friday, leading other Asian markets lower, after a sell-off in banking shares roiled investors in the U.S. and Europe.

Tokyo’s Nikkei 225 was down 4.8 percent to 14,952.61 after earlier sinking as much as 5.3 percent. Hong Kong’s Hang Seng fell 1.0 percent to 18,364.14. South Korea’s Kospi gave up 1.4 percent to 1,835.01 and Australia’s S&P/ASX 200 fell 1.2 percent to 4,765.30. Shares in New Zealand and Southeast Asia also fell. Markets in China and Taiwan are closed until Monday for Lunar New Year holidays.

Global stocks have been in a slump since the beginning of the year when China’s market, which had been propped up by government buying, plunged dramatically. Concerns about China, however, are now just one of several factors behind the bloodletting.

Iran, North Korea and the Cruz Letter

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The Keys to Iran’s Missiles are in China and North Korea

The latest revelations about Iran’s ballistic missile program make it clear that sanctions on Tehran are pointless unless they’re imposed on China and the DPRK, too. Full story and intelligence here.

Iran space navigation system to be launched  

TEHRAN, Feb. 10 (MNA) – National plan to improve navigation and positioning services will soon become operational with special features.

Iran’s very modern system of navigation and positioning system has been produced by Iran Electronics Industries (IEI) as the executive and with the support of Iran’s National Space Center as one of the subordinate units of the Science and Technology Department of the Presidential Office.

The system aims to provide advanced services to increase life quality of Iranian people and will soon become operational providing the whole country with the possibility to simultaneously exploit three highly-advanced global positioning systems called GPS, GLONAA as well as BeiDou.

Numerous valuable services offered by the system with centimeter accuracy include car navigation, crisis management, social services, mapping, identification of stationary and moving targets, precision farming, urban traffic control, tracking oil and gas pipelines, environmental services, advanced housing and urban development services, customs issues and smuggling prevention, accurate harness of fire, current and advanced insurance services, shipping services and ports, fine weather forecast.

The implementation of the navigation and positioning system will be carried out in three phases in 2016.

****

Sen. Cruz to President Obama: “Strategic Patience” Toward North Korea Isn’t Working

WASHINGTON, D.C. – U.S. Sen. Ted Cruz (R-Texas) today sent a letter to President Barack Obama that expresses grave concerns about the administration’s North Korea policy and outlines alternative policy actions to address North Korea’s illegal nuclear tests, strengthen U.S. national security and return greater stability to East Asia and the Korean Peninsula.

Cruz sent the letter today after announcing he will vote for the North Korea Sanctions Enforcement Act of 2016 (H.R. 757), which would impose nuclear weapons-related sanctions on North Korea. The Senate is expected to pass the bill this evening.

“I write to express deep concern regarding [President Obama’s] policy of ‘strategic patience’ toward the Democratic People’s Republic of Korea (DPRK), particularly in light of their recent nuclear test and satellite launch that also served as a long-range ballistic missile test,” wrote Sen. Cruz. “Your administration has, for too long, hoped to achieve denuclearization through failed diplomacy and limited sanctions. The nuclear tests of May 2009, February 2013, and January 2016 suggest that ‘strategic patience’ with a country still officially at war with us is not working.”

Cruz’s letter to Obama lists five actions rooted in American strength that might actually modify the hostile and aggressive behavior of North Korea and its protectors:

1) Fully enforce U.S. laws. The U.S. needs to sharpen the choices for North Korea by raising the risk and cost for those who choose to violate laws and resolutions.

2) Stop protecting China. It is time to tell the truth about China: the PRC is not our partner in denuclearizing the Korean peninsula. Lax enforcement of U.S. laws have made China complacent in policing the illicit financing of regimes like North Korea and Iran, thus becoming complicit in their proliferation.

3) Rebuild the U.S. Navy. The U.S. must renew its commitment to force projection to protect our allies and deter our enemies.

4) Deploy a Terminal High Altitude Area Defense (THAAD) unit to better protect U.S. troops and critical targets in South Korea. This system is more capable than any ballistic missile system that South Korea has or will have for decades. And if the U.S. is serious about defending South Korea, we must openly confront China’s support for North Korea.

5) Relist North Korea as a state sponsor of terrorism. North Korea’s cyber attack and accompanying threats of a “9/11-type attack” fulfill the legal definition of international terrorism – “violent acts or acts dangerous to human life that…appear to be intended to intimidate or coerce a civilian population” (18 U.S. Code § 2331).  Removal from the list has resulted in no improvement in the behavior of the DPRK, and we should end the dangerous fiction that they are not engaged in international terrorist activities.

The full letter can be viewed here and below.

February 10, 2016
President Barack Obama
The White House
1600 Pennsylvania Ave. NW
Washington, DC 20500

Dear Mr. President:

I write to express deep concern regarding your policy of “strategic patience” toward the Democratic People’s Republic of Korea (DPRK), particularly in light of their recent nuclear test and satellite launch that also served as a long-range ballistic missile test. Your administration has, for too long, hoped to achieve denuclearization through failed diplomacy and limited sanctions. The nuclear tests of May 2009, February 2013, and January 2016 suggest that “strategic patience” with a country still officially at war with us is not working.

I would like to propose five alternative actions rooted in American strength that might actually modify the hostile and aggressive behavior of the DPRK and its protectors:

1. Fully enforce U.S. laws. In September 2015, Secretary Kerry warned of “severe consequences” if North Korea “refuses to live up to its international obligations.”[1] It is well past time to impose those consequences. History demonstrates that the United States is able to dictate the agenda when dealing with hostile regimes and improve global security through our leadership. Unilateral U.S. actions against Iran, combined with diplomatic pressure, led other nations to impose their own financial and regulatory measures against Tehran. Collectively, the international sanctions isolated Iran from the international banking system, targeted critical Iranian economic sectors, and forced countries to restrict purchases of Iranian oil and gas, Tehran’s largest export.

The United States should use its actions against Iran as a model for imposing the same severity of targeted financial measures against North Korea. Washington should no longer hold some sanctions in abeyance, to be rolled out after the next North Korean violation or provocation. There will be little change until North Korea feels the full impact of sanctions and China feels concern over the consequences of Pyongyang’s actions and its own obstructionism. The U.S. needs to sharpen the choices for North Korea by raising the risk and cost for those who choose to violate laws and resolutions. Actors who have thus far been willing to facilitate North Korea’s prohibited programs and illicit activities should not be exempt for political convenience. If Congress passes additional sanctions in the coming days, my hope is that, in addition to signing them into law, you would faithfully and consistently execute such targeted measures in a non-discriminant manner.

2. Stop protecting China. It is time to tell the truth about China: the PRC is not our partner in denuclearizing the Korean peninsula. Lax enforcement of U.S. laws have made China complacent in policing the illicit financing of regimes like North Korea and Iran, thus becoming complicit in their proliferation. China has enabled DPRK arms shipments to Iran to travel unimpeded through Chinese ports[2] and airspace.[3] It has facilitated the shipment of chemical reagents and protective suits from North Korea to Syria.[4] It has allowed transfer of arms-related material to Syria.[5]

Perhaps the most egregious act was the Chinese transfer of transporter-erector-launchers (TELs) to North Korea in 2011. Upon receipt of these vehicles, North Korea modified them with the ability to launch the KN-08, an intercontinental ballistic missile capable of reaching the West Coast of the United States from a road-mobile launch platform. This capability poses a nuanced challenge to our ground-based interceptors deployed in Alaska and California. A subsequent report from the United Nations confirmed that Chinese entities were responsible for the sale of these vehicles.[6] On April 7, 2015, Admiral Bill Gortney, the Commander of North American Aerospace Defense Command, confirmed that the KN-08 was operational. Because of China, North Korea has a modern mobile missile launcher that increases its ability to threaten Alaska, Washington, Oregon, and California with a road-mobile nuclear strike.[7]

3. Rebuild the U.S. Navy.

The foundation of the United States’ ability to project power overseas is the aircraft carrier, and its supporting Carrier Strike Group. One would hope that your annual budget submission to Congress would reflect the centrality of the aircraft carrier to America’s defense of our national interests and our allies abroad, but sadly this is not the case. The USS Gerald Ford is over budget,[8] the second ship of the class remains behind schedule,[9] and our Navy has only 272 combatants.[10] The budget you submitted further exacerbates this problem by reducing shipbuilding funds an additional $1.75 billion, as our adversaries expand their presence at sea and increase aggressive rhetoric regarding territorial sea claims.

While Naval force projection has declined under your watch, Japan has invested heavily in its armed forces. Leading the effort to broaden the definition of “self-defense” and expand the military missions Japan would be willing to accept, Prime Minister Shinzo Abe has prudently responded to the threat environment he faces in East Asia. In contrast to your administration, the Japanese government increased defense spending by 2.8% to $42 billion in 2015, which amounted to the largest defense budget in Japan’s history.[11] Your administration has celebrated our ally’s commitment to stability in the region, but I/we fear that your unwillingness to fully fund America’s military to meet its threats will render moot the courageous actions of our friend and ally Japan. The U.S. must renew its commitment to force projection to protect our allies and deter our enemies.

4. Deploy THAAD in South Korea. Last year, your administration approached Seoul with the prospect of deploying a Terminal High Altitude Area Defense (THAAD) unit to better protect U.S. troops and critical targets in South Korea. This system is more capable than any ballistic missile system that South Korea has or will have for decades. The THAAD deployment is wholly in line with China’s stated goal of preserving stability on the Korean peninsula and would not in any way constrain China’s military capabilities. Yet, the PRC reacted aggressively to this prospective deployment. In July 2014, President Xi Jinping warned President Park Geun-hye to “tread carefully”[12] regarding THAAD so it “won’t be a problem between South Korea and China.”[13] Beijing has issued similar warnings after Seoul began publicly discussing the need to improve its missile defenses after last month’s North Korean nuclear test.

I welcome recent progress this week in negotiations with South Korea on THAAD. However, I am concerned that you have not publicly condemned Xi Jinping for attempting to intimidate and blackmail a U.S. ally into rejecting our military assistance. It would be unfortunate if the climate agreement and progressing trade negotiations with the PRC were higher strategic priorities for the United States than standing up to the world’s largest communist state. If the U.S. is serious about defending South Korea, we must openly confront China’s support for North Korea. The U.S. should strongly push back against China’s opposition to THAAD by rebutting its false assertions that the system would impact Chinese security.

A good place to start would be disinviting them from Rim of the Pacific Exercise (RIMPAC) 2016. While speaking in Jakarta on March 20, 2013, you linked participation in these exercises with political engagement: “We have invited the Chinese to participate in the RIMPAC exercise which we host, and we are delighted that they have accepted.  We seek to strengthen and grow our military-to-military relationship with China, which matches and follows our growing political and economic relationship.”[14] Given China’s complicity in North Korea’s nuclear capability, stonewalling of missile defense in South Korea, and its aggressive actions in the South China Sea, I/we believe it is time for the United States to fundamentally reevaluate U.S.-China relations.

5. Relist North Korea as a State Sponsor of Terrorism. One need not look far for justification. North Korea’s cyber attack and accompanying threats of a “9/11-type attack” fulfill the legal definition of international terrorism – “violent acts or acts dangerous to human life that…appear to be intended to intimidate or coerce a civilian population” (18 U.S. Code § 2331).  Removal from the list has resulted in no improvement in the behavior of the DPRK, and we should end the dangerous fiction that they are not engaged in international terrorist activities.

The regime in Pyongyang has not only issued explicit threats against American citizens, but there is also documented evidence that North Korea has shipped arms to Iran. Three intercepted vessels bound for Iran in July 2009 contained North Korean weapons that Western intelligence and Israeli intelligence officials and non-government experts believe were bound for Hezbollah and Hamas.[15] All three ships contained North Korean components for 122 mm Grad rockets and rocket launchers, 2,030 corresponding detonators, and related electric circuits and solid fuel propellant. As you know, Hezbollah and Hamas frequently fire these rockets into Israel. Yet your Administration continues to assert that North Korea is “not known to have sponsored any terrorist acts since the bombing of a Korean Airlines flight in 1987.”[16]

Until such actions are taken, the North Korean threat will continue to metastasize. Their launch last Saturday is further evidence of the escalating danger the DPRK poses to the U.S. and our allies. America must once again lead from a position of strength, rekindling the fear of our enemies and restoring the trust of our friends.

Sincerely,

Ted Cruz

[1] Secretary Kerry, Press Availability With South African Foreign Minister Maite Nkoana-Mashabane, September 16, 2015.

[2] Report of the Panel of Experts established pursuant to resolution 1874 (2009),  United Nations, June 11, 2013 (p. 31),http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_2013_337.pdf.

[3] Ibid (pp. 33-34).

[4] Report of the Panel of Experts established pursuant to resolution 1874 (2009), United Nations, June 14, 2012 (pp. 27-29),http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/NKorea%20S%202012%20422.pdf.

[5] Report of the Panel of Experts established pursuant to resolution 1874 (2009),  United Nations, June 11, 2013 (pp. 36-38),http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_2013_337.pdf.

[6] Report of the Panel of Experts established pursuant to resolution 1874 (2009),  United Nations, June 11, 2013 (pp. 26-28),http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_2013_337.pdf.

[7] Bill Gertz, “Admiral: North Korea Can Hit U.S. With Long-Range Nuclear Missile,” Washington Free Beacon, October 12, 2015,http://freebeacon.com/national-security/admiral-north-korea-can-hit-u-s-with-long-range-nuclear-missile/.

[8] Christian Davenport, “New Gerald R. Ford carrier class, as predicted, called $13 billion ‘debacle,’” Stars and Stripes, October 1, 2015,http://www.stripes.com/news/navy/new-gerald-r-ford-carrier-class-as-predicted-called-13-billion-debacle-1.371389.

[9] Ibid.

[10] Status of the Navy, as of February 9, 2016,http://www.navy.mil/navydata/nav_legacy.asp?id=146.

[11] Ankit Panda, “Japan Approves Largest-Ever Defense Budget,” The Diplomat, January 14, 2015,http://thediplomat.com/2015/01/japan-approves-largest-ever-defense-budget/.

[12] Yonhap, “China’s Xi Asked Park to ‘Tread Carefully’ over U.S. Missile-Defense System,” August 26, 2014,http://english.yonhapnews.co.kr/national/2014/08/26/73/0301000000AEN20140826002100315F.html.

[13] Chang Se-jeong and Ser Myo-ja, “Xi Pressed Park on Thaad System,” Korea JoongAng Daily, February 6, 2015,http://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3000595

[14] Ashton Carter, “The U.S. Defense Rebalance to Asia,” Remarks as prepared for delivery, April 8, 2013,http://archive.defense.gov/Speeches/Speech.aspx?SpeechID=1765.

[15] Manyin, Mark, “North Korea: Back on the State Sponsors of Terrorism List?” CRS, January 21, 2015,http://www.crs.gov/Reports/R43865?source=search&guid=738771c7105c426fac0c7ad3efa85187&index=4.

[16] “Country Reports on Terrorism 2012,” Department of State, May 30, 2013,http://www.state.gov/j/ct/rls/crt/2012/209980.htm.

 

 

In the first phase, a total of 15 network stations and two data centers will be launched in Tehran as an experiment to collect accurate position information.

 

After the implementation of the first phase in Tehran, the second phase of the project will be implemented in major cities while the third phase the whole country will be covered by the system.

 

The hardware of the system is supposed to be available to users who will only be charged for a very low annual cost