The "Meet Our Researchers" series showcases the incredible scholars at Stanford’s Center on Democracy, Development and the Rule of Law (CDDRL). Through engaging interviews conducted by our undergraduate research assistants, we explore the journeys, passions, and insights of CDDRL’s faculty and researchers.

How has infrastructure development been used to gain influence in diplomacy? How has our understanding of that tool changed since BRI, and how successful has it been for China?

Infrastructure development has always been a problematic tool for amassing geopolitical influence; it builds friendships when loans are going out, then creates enemies once they’re issued. A recent example is the 1997 Asian financial crisis when Western countries had invested in power plants throughout the continent, only for many countries to default and expropriate. This has happened repeatedly throughout history.

While China’s done quite well at protecting its economic interests in infrastructure projects, it's a mixed bag due to the prevalence of moral hazard, public backlash, and the tarnishing of diplomatic ties. With the state being so heavily involved in BRI, China intervenes when countries want to default or expropriate, protecting its interests and those of state-owned enterprises effectively. However, this can lead to a moral hazard problem because these enterprises feel too protected by China and act without the appropriate caution while building risky projects.

Today, many countries that have received BRI lending have serious relational problems with China, if not at the government level, then among the public. People tend to push back and feel taken advantage of when a foreign country comes in and builds projects, especially with rumor mills churning out narratives about China’s 'debt-trap diplomacy.' These diplomatic challenges were true long before the BRI and persist today.

Why do countries, through BRI or other means, decide to take on infrastructure projects they obviously can’t afford?

Countries often don’t behave rationally — politics, corrupt officials, and conflicting interests all affect policymaking. Also, everyone builds infrastructure projects that may bankrupt them, partly due to an ingrained optimism bias in the infrastructure sector.

We’re in the worst developing country debt crisis in modern history, and countries are having a difficult time navigating a changing infrastructure lending landscape. China is now the largest bilateral lender, and its absence from international organizations like the Paris Club prevents the unified action needed to allow countries to emerge from debt crises. Even the International Monetary Fund (IMF) is struggling to help them, as it is cautious about issuing aid to countries with murky BRI loans to pay back.

Funding for infrastructure development can be used as an incentive for democratization through conditionality on loans. However, many countries are turning away from traditional Western lending institutions in favor of alternative lenders with fewer conditions. How can we balance the importance of conditionality and incentivizing democratization while preventing the decreased reliance on Western institutions?

Conditionality can be positive in promoting democratization, but there have to be limits to it, especially because it becomes less effective when alternative lenders like China exist. Conditionality began as limited to policies that promote democratization, development, and liberalization but has metastasized to the point where lenders are pushing a wide range of policies on borrower countries. Many of these conditions, such as environmental or social protections, are good policies but can be viewed as a manifestation of Western imperialism within these countries. These programs also become futile when countries become simply incentivized to seek Chinese loans instead, which have virtually no conditionality.

Is the turn away from Western lending institutions an inevitable shift, or can policy changes encourage its prodominance again, if that’s something that we want?

Western institutions are better for infrastructure development, as organizations like the World Bank are the best at protecting human rights and preventing environmental disasters. There are also strategic and security reasons for promoting Western institutions — for example, we don’t want Chinese technology companies building telecommunications grids in other countries.

The bigger question is, what would a return to a Western-dominated model of investment look like? Pre-BRI, there was an open, liberal system of direct investment from private companies. BRI represented a pivot to more state-driven investment. Should the US shift to a similar model, or return to private direct investment fueling infrastructure development? The Biden administration’s alternative to BRI for state-driven investment was the Partnership for Global Infrastructure and Investment (PGII). Despite mutual investment in telecommunications and renewable energy, PGII focuses on developing very different sectors than BRI, building social impact projects like healthcare infrastructure.

What is the most exciting or impactful finding from your research, and why do you think it matters for democracy, development, or the rule of law?

I’m focusing on how liberal democracies can get building again, so I researched flaws in domestic infrastructure projects within the US. It revealed how the judicial system was an engine fueling how infrastructure projects are conducted; I realized the extent to which permitting regulation and environmental litigation had been driving my own incentives when I was a bureaucrat. Decisions are often made in response to case law and to ‘litigation-proof’ projects, which can incentivize inefficient and expensive project management. I believe democracies are perfectly capable of building infrastructure projects well, but problems in current building initiatives, from the California High-Speed Rail to our housing crisis, are rooted in the outsized effects of the threat of lawsuits.
 

How do you see your research influencing policy or contributing to real-world change?

I do research on practical public-private partnership policy in the United States, working with the Build America Center and the Department of Transportation to directly supply the government with research when needed.

There are policy changes that must occur to promote effective infrastructure development. The US will have to reform institutions that predated BRI to adapt to today’s post-BRI world. The three key institutions are the World Bank, the IMF, and the World Trade Organization (WTO). I hope that my ideas can influence their restructuring. For domestic development, I’m continuing my work with the Build America Center on how governments can more efficiently procure infrastructure projects and help public officials adopt best practices.

Lastly, what book would you recommend for students interested in a research career in your field?

The first book, which is extraordinarily boring but crucial to infrastructure development, is The Strategic Management of Large Engineering Projects: Shaping Institutions, Risks, and Governance. Written by Miller, Lessard, Michaud, and Floricel, it includes the perspectives of MIT engineers on infrastructure project case studies to understand why so many have failed. For some great history, the economist Raymond Vernon’s book Sovereignty at Bay develops the idea that relationships sour over international investment and that it’s not an effective diplomatic tool.

Negotiators from 12 Pacific Rim countries recently reached an agreement on the Trans-Pacific Partnership (TPP), a sweeping trade pact that has been promoted by the Obama administration as a high-quality, next-generation deal that will set standards for international trade for years to come. While noting the agreement still requires ratification by each member state, Stanford scholars believe that the TPP will be approved and reshape not only trade but also security relations in the Asia-Pacific region and beyond.

The TPP negotiations originally began as an expansion of the Trans-Pacific Economic Partnership Agreement signed by Brunei, Chile, New Zealand and Singapore in 2005, and then took on broader significance in 2008 when the United States expressed interest. The number of members eventually grew to include the other North American Free Trade Agreement (NAFTA) economies of Canada and Mexico, as well as Australia, Peru, Vietnam, Malaysia and Japan. Even before the agreement was finalized, leaders of many other Asia-Pacific countries expressed interest in joining the next round of negotiations, including South Korea, Taiwan, the Philippines, Colombia, Thailand and most recently, Indonesia.

A summit with leaders of the member states of the Trans-Pacific Strategic Economic Partnership Agreement (TPP). Pictured, from left, are Naoto Kan (Japan), Nguyễn Minh Triết (Vietnam), Julia Gillard (Australia), Sebastián Piñera (Chile), Lee Hsien Loong (Singapore), Barack Obama (United States), John Key (New Zealand), Hassanal Bolkiah (Brunei), Alan García (Peru), and Muhyiddin Yassin (Malaysia). Six of these leaders represent countries that are currently negotiating to join the group.

The appeal of the TPP in the region is twofold. First, the repeated failure of new trade talks at the World Trade Organization (WTO) has forced countries seeking greater trade liberalization to pursue it through other bilateral or regional multilateral negotiations. Second, in the Asia-Pacific region, the number of these agreements has rapidly multiplied, creating myriad different standards, procedures and tariff rates that raise the costs of doing business across state borders and inhibit international trade and investment.

The TPP offers the prospect of a common set of rules governing investment, production and exchange across all member states, with significant improvements in economic efficiency. In addition, the danger of being excluded from a new trade regime that includes a huge share of the region’s economic activity has created a sense of urgency to seek membership from those countries not in the initial round of negotiations. By far the most conspicuous absence among the TPP members is China, which is now the world’s second-largest economy and a significant trading partner of all current member states.

The Trans-Pacific Partnership has been a research focus at the Freeman Spogli Institute for International Studies.

The Walter H. Shorenstein Asia-Pacific Research Center has organized several events exploring aspects of the TPP, and the Taiwan Democracy Project in the Center on Democracy, Development, and the Rule of Law held a conference in 2013 that examined the TPP from a Taiwanese perspective. The conference produced a comprehensive report on the topic, and an audio recording of an earlier Shorenstein APARC panel event was made available online. Now that negotiations have concluded, the Taiwan Democracy Project will revisit the topic in an upcoming conference on Feb. 9.

With the public release of the agreement in early October, three noted experts from Stanford University, Thomas Fingar, Michael Armacost, and Donald Emmerson, offered their analysis of the TPP’s prospects for ratification and its impact on the Asia-Pacific region.

Now that the agreement has been published, what is significant about the TPP? What does it mean for China?

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This means that the TPP will serve as a—the—decisive building block for beyond-WTO trade arrangements. Without success in the TPP (or TTIP, which also has the size and importance to have become the new global standard if it had been concluded before the TPP) negotiations, there was a danger that the advantages of an integrated global trading system would be degraded by adoption of multiple and partially incompatible sub-regional agreements. Now those negotiating bilateral and mini-lateral agreements are likely to strive for consistency with the requirements adopted by key trading nations and the firms based in them.

The TPP is often but erroneously described as part of a U.S. effort to contain or constrain China. It isn’t. The United States should and will seek to bring China into the TPP, not to exclude it. I anticipate that Beijing will join together with South Korea, Indonesia, and possibly other states that are not yet members.

Thomas Fingar is a Shorenstein APARC Distinguished in the Freeman Spogli Institute for International Studies. He served previously as assistant secretary of the State Department’s Bureau of Intelligence and Research, principal deputy assistant secretary, deputy assistant secretary for analysis, director of the Office of Analysis for East Asia and the Pacific, and chief of the China Division.

Does the TPP carry security benefits? What are possible consequences for the U.S.-Japan relationship?

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The TPP agreement is certainly an integral feature of the Obama administration’s effort to “rebalance” toward the Asia-Pacific region. It embeds the United States in a new institution whose membership, I believe, is destined to grow. America’s engagement in the region is a source of reassurance to our friends and allies there. The United States has been bolstering its alliance with Japan, and this agreement will add a broader framework to the U.S. alliance, which was established through the Treaty of Mutual Cooperation and Security, and which contains a specific clause encouraging expanded economic collaboration.

I regret that selling the agreement publicly has included some explicitly anti-Chinese features such as the claim that if the United States and others don’t write the rules of trade, China will. The TPP is and should be open to new members who are prepared to live up to its requirements and that includes China.

Michael H. Armacost is a Shorenstein APARC Distinguished Fellow in the Freeman Spogli Institute for International Studies. He held a 24-year career in the public service, including having served as U.S. ambassador to Japan and the Philippines.

How does the TPP fit into the context of Southeast Asia and its possible alternative arrangements for economic cooperation in the Asia-Pacific region?

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Compared with the TPP, RCEP is far less robust. RCEP is mainly about straightening the overlapping and sometimes inconsistent free trade agreements that already complicate Asian regionalism—the tangled contents of Asia’s “noodle bowl” of overlapping FTAs. (Trade agreements in the Asia-Pacific have burgeoned from around 60 ten years ago to some 300 today.) Under pressure from the more detailed and thoroughgoing TPP, RCEP’s would-be progenitors have been trying to expand their agenda to include more intrusive proposals. Partly for that reason, observers are pessimistic that RCEP’s negotiators will be able to proclaim its successful completion before the end of 2015.

ASEAN is divided. Myanmar, Cambodia, Indonesia, Laos, the Philippines, and Thailand are inside RCEP but outside the TPP. The other four ASEAN members—Brunei, Malaysia, Singapore, and Vietnam—enjoy the advantage of sitting at both negotiating tables. If only one of the two projected partnerships fails, these four states would still have the other arrangement to fall back on, and so much the better for them if both schemes succeed. It is partly for this reason that varying degrees of interest in joining the TPP have been expressed by five of the six non-TPP states in Southeast Asia. The exception is Myanmar, but once the structure and character of its new government have been clarified, its leaders too may wish to consider the TPP. Even China’s initially hostile view of the TPP has softened.

Given the market-favoring and regulation stipulations of the TPP, new entrants may be unwilling to accept its detailed, full-spectrum rules. But the Doha Round is dead, and the proposal to replace it with a scaled-down “Global Recovery Round” has gone nowhere. For the time being, the best one can hope for in the Asia-Pacific region is a successful TPP that China could eventually join, or a successful RCEP that could someday welcome the United States, or the birth of both arrangements followed by effective steps to render them complementary rather than competitive.

Donald K. Emmerson is director of the Southeast Asia Program at the Walter H. Shorenstein Asia-Pacific Research Center in the Freeman Spogli Institute for International Studies, where he is also affiliated with the Center for Democracy, Development, and the Rule of Law and the Abbasi Program in Islamic Studies.

Interested in joining the conversation? The Taiwan Democracy Project will revisit this topic on Feb. 9. The one-day symposium will bring together scholars and practitioners to reconsider Taiwan's prospects for entry into the Trans-Pacific Partnership. RSVP here today.

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Listen to the audio from the event "The Trans-Pacific Partnership (TPP) -- A New Order for the Asia-Pacific?" with Stanford scholars Donald Emmerson, Thomas Fingar, Daniel Sneider and Kathleen Stephens.