21 May 2013

What India needs to learn from China

IDSA COMMENT 

May 20, 2013 

“Deception is an integral element of Chinese strategic culture”, noted Shyam Saran at the second K. Subrahmanyam lecture series held in August 2012 at New Delhi.1 At the same event, the former foreign secretary also underscored the importance of being more conversant with the Chinese thought process for improving Indo–China relations. His counsel becomes even more relevant in the light of the recent friction between India and China over difference in interpretation of the border, resulting, recently, in a 19-km incursion in the Daulat Beg Oldi sector of the Depsang Valley in Ladakh. The sense of déjà vu should not be lost given that there have been over 550 instances of Chinese transgressions into the Indian territory since January 2010 alone, including one in July 2012 in the same Chumar area of Ladakh.2 This had ensued in a similar face-off, after Chinese helicopters destroyed Indian bunkers and tents, but did not escalate. 

Before the oft-asked question about ‘how to deal with China’ can be answered, it must be noted that there is a discernible and recurring pattern in the manner in which China conducts its foreign relations with India and other small neighbours. 

Chinese Gambit 

Factoring in the element of ‘deception’ — which as Saran explains, is not exactly a vice in statecraft — could help us put into perspective some of China’s actions. For one, it could explain why Chinese Defence Minister Liang Guanglie during his visit to India in September 2012, insisted that the PLA had ‘never deployed a single soldier’ in PoK, even as India’s military intelligence had picked up credible reports of about the 735 Chinese nationals working at the site of the Neelum–Jhelum hydroelectric project, near the LoC in J&K and the presence of Chinese soldiers in PoK to provide security to development projects.3

Another pet Chinese ploy is to constrict their ‘win-set’ or range of acceptable solutions, so that the other party has to walk the extra mile in order to accommodate the former’s inflated demands. By doing so the first party gives the illusion of ‘having compromised’ but has conceded very little. A case in point would be the recent Chinese incursions in the disputed Western sector of the border where they demanded a quid pro quo pulling down of structures from the Indian side. 

Yet another art that the scions of Sun Tzu know only too well is “masking offence as defence”. The Chinese advanced their indignation at the increase in India’s infrastructure outlay along the border as a reason for the recent setting up of tents in the Western sector of the Indo–China border. However, before India gets apologetic about it, it should recount the numerous instances of China’s own infrastructure programmes along the border, including the repaving of the Xingjian–Tibetan highway in July 2012, which runs through the disputed Aksai Chin area. Besides, China has consistently conducted a series of live ground and air-drills in the Tibetan Autonomous Region in 2012, as a response to which India merely registered ‘its concern’. China also announced an 11.2 per cent hike in its defence budget in March 20124 and recently omitted a reference to its no-first-use strategic nuclear weapons doctrine in the latest government white paper released in April 2013.5 China has over the past also antagonized India on a number of occasions by issuing stapled visas for people from Arunachal Pradesh, which it incidentally terms as ‘South Tibet’; condemning official state visits to the same; and depicting disputed areas as part of Chinese territory. India may have put up a strong front in light of the latest border incursions but has probably not given out the right messages in terms of signaling its resolve and intent in dealing with issues of ‘concern’ to it. 

With China, keep it real

C. Raja Mohan
20 May 2013

The Chinese premier Li Keqiang's visit to India this week is a good moment to inject much-needed realism into Delhi's China policy. Through the second term of the UPA government, Delhi has allowed ideological romanticism and political timidity to overwhelm common sense in dealing with China. Worse still is the relentless mystification of Chinese policies. Consider the recent psycho-babble in Delhi about the logic behind China's Depsang intrusion. Delhi is unlikely to ever divine the complexities of Beijing's bureaucratic politics. Nor is it necessary. 

What mattered, and is lying in plain sight, is Beijing's growing assertiveness on territorial disputes with all its neighbours. In the last few years, China has used military force in pushing its extraordinary territorial claims against Vietnam, the Philippines and Japan. 

Is Beijing's behaviour out of line? Not really; historians of international relations tell us that rising powers tend to demand a revision of territorial status quo. Confident of its expanding economic and military clout, Beijing is doing precisely that. 

Consider, for example, three recent developments in Jammu and Kashmir, all during the second term of the UPA rule. China has stepped up its military presence in Pakistan-Occupied Kashmir, issued stapled visas to Indian citizens from J&K and begun to "dis-count" the length of the Sino-Indian border. China now says the border between the two countries is about 2000 km; the official Indian count for the operational length of the border is nearly 3500 km. The Chinese number makes sense only if J&K is taken out of the equation. The problem, then, is not about the opaqueness of Chinese intentions; it is entirely about Delhi's self-deceptions. 

Delhi persuaded itself that a China currently preoccupied with territorial disputes in the east would make nice with India. This is rooted in a profound misreading of Beijing's sense of its own power, and a terrible underestimation of the new Chinese determination to make good on its long-standing territorial claims everywhere, including those against India. Delhi deluded itself that a boundary deal with Beijing was around the corner, even as the evidence pointed in the other direction. China had, in fact, walked back from the earlier understanding, arrived in April 2005, on a three-stage solution to the boundary dispute. 

The UPA government also bet that by reinventing the rhetoric of non-alignment and slowing down its relations with the US, it could persuade Beijing to do the boundary deal. This, again, has been a massive misjudgement of Chinese attitudes towards Washington. Beijing does not believe it needs Delhi on its side to change the balance of power with the US. Beijing is convinced that American power is in terminal decline and it can compel Washington to do a deal on Chinese terms. 

Delhi's return to realism involves redressing four imbalances that have cast a dark shadow over the relationship with China. The first is the military imbalance on the border. Delhi should know that Depsang will not be last incident on the long and contested frontier with China. The structural conditions that generated it -including the dramatic modernisation of Chinese military capabilities in Tibet -are likely to endure, at least for the foreseeable future. Prime Minister Manmohan Singh must leave the visiting Chinese leader in no doubt that India is determined to restore the military balance on the ground. While India could consider new military confidence-building measures on the border, Singh must impress upon Li that without an early resolution of the boundary dispute, military tensions are bound to grow, and inevitably threaten the rest of the relationship. 

The second imbalance is about relations with other countries. In the last few years, Delhi has bent over backwards to assure Beijing that it will not join the US, Japan and Vietnam to contain China. Beijing has offered no such assurances to Delhi. It has persisted in deepening its long-standing strategic alliance with Pakistan. China has expanded nuclear and missile cooperation with Pakistan in defiance of international rules, and signalled that it will help Pakistan maintain strategic parity with India. 

The third imbalance relates to Tibet and Kashmir. While Delhi acknowledges China's sovereignty over Tibet, Beijing's position on J&K has become increasingly hostile to India. Singh must tell Li that the respect for core concerns, including territorial sovereignty, must be mutual and cannot be one-sided. 

India to Station Ground Forces in Afghanistan?

By Zachary Keck 
May 20, 2013 

Every Monday The Diplomat's Zachary Keck takes a look at the latest happenings in the Asia-Pacific region. From important meetings of heads of state, to critical trade and business gatherings to matters of culture and art, The Diplomat keeps you up to date on the latest events. 

Here is this week's primer. See an event we missed or something for next week? Please post a comment below! 

May 19-20: Tajikistan’s President Emomali Rakhmon is on a state visit to China at the invitation of President Xi Jinping. 

May 19-20: Mexican Foreign Minister José Antonio Meade Kuribreña is in China for working visit. 

May 19-21: Bangladesh Prime Minister Sheikh Hasina visits Thailand. 

May 19-21: UK's Foreign Office Minister of State Hugo Swire will be Thailand to hold the inaugural Thai-UK Strategic Dialogue that was first announced last November. Vice Foreign Minister Jullapong Nonsrichai will represent Thailand at the Dialogue. 

May 19-27: Chinese Premier Li Keqiang to visit India, Pakistan, Switzerland, and Germany. It will be Premier Li’s first overseas voyage since taking his current position. 

May 20: Myanmar President Thein Sein to travel to U.S. for a meeting with U.S. President Barack Obama at the White House. 

May 20-22: Afghan President Hamid Karzai to travel to India for meetings with India President Manmohan Singh. According to Defense News, India may station ground forces in Afghanistan after NATO forces withdraw in 2014. 

May 20-22: India and the U.S. to hold Homeland Security Dialogue, which will focus on terror groups like LeT and al-Qaeda, illicit financing and transnational crimes. Home Minister Sushilkumar Shinde will lead the talks for India. The U.S. will be represented by Homeland Security Secretary Janet Napolitano. 

May 20-28: 66th Session of the World Health Assembly. The World Health Assembly is the supreme decision-making body of World Heath Organization. 

May 20-29: Acting Assistant Secretary of State for East Asian and Pacific Affairs, Joseph Yun, will travel to Indonesia, Brunei, and Vietnam May for bilateral and multilateral meetings with senior officials. 

May 21: U.S. Air Force test launches a Minuteman III ICBM at Vandenberg Air Force Base, CA. 

May 21: ASEAN’s Council of Permanent Representatives Plus Three will hold a meeting. 

May 21: Iran’s Guardian Council’s deadline to announce the official list of candidates for next month’s election. 

May 21-24: ASEAN Regional Forum (ARF) Senior Official Meeting and ARF Defense Officials' Dialogue held in Brunei. There will also be a ASEAN Senior Officials’ Meeting (SOM), a ASEAN Plus Three SOM (APT SOM), and an East Asia Summit (EAS SOM). 

May 21-25: Vice Premier Wang Yang will pay an official visit to Zimbabwe and then will travel to Ethiopia to attend the African Union’s special summit for the 50th anniversary of the Organization of African Unity. 

May 21-26: Japan’s Parliamentary Vice-Minister for Foreign Affairs Kenta Wakabayashi travels to Columbia and Ecuador. In Columbia he will attend the Summit and the Ministerial Meetings of the Pacific Alliance. In Ecuador he will attend the inauguration ceremony of President Rafael Correa Delgado on May 24. China will also send an envoy to Ecuador for the occasion. 

May 21-28: Under Secretary of State for Political Affairs Wendy Sherman will travel to Indonesia, India, and Bangladesh. From May 21-23 she will be in Indonesia to participate in the U.S.-Indonesia Global Policy Dialogue. On May 24-25 Sherman will be in India to prepare for the U.S.-Indian Strategic Dialogue next month. She will end the trip with a stop in Bangladesh from May 26-28 where she will lead the U.S. delegation to the second U.S.-Bangladesh Partnership Dialogue (see below) and meet with Prime Minister Sheikh Hasin. 

May 22-23: APEC to hold a Senior Finance Officials' Meeting in Manado, Indonesia. 

May 22-24: Lao Foreign Minister Thongloun Sisoulith will visit Japan. 

May 23: U.S. President Obama to discuss legality of drone mission in a speech at the National Defense University. 

May 23-24: NATO and Russian officials meet in Moscow on Missile Defense. 

May 24: Iran’s Defense Ministry says it will unveil new military technology during parades for Khordad 3, which marks the anniversary of the liberation of Khorramshahr city from Iraqi occupation during the eight-year Iran-Iraq War. 

May 24-26: Japanese Prime Minister Shinzo Abe to visit Myanmar to hold talks with President Thein Sein. 

May 24-29: Uruguayan President José Mujica will visit China. 

May 26-27: The U.S. and Bangladesh will hold their second annual Partnership Dialogue in Dhaka. The first one was held in Washington, DC last year. The proposed Trade and Investment Cooperation Framework Agreement (Ticfa) between the two countries is expected to be discussed, as is a petition in the U.S. to revoke Bangladesh’s Generalized System of Preferences (GSP) designation, which allows for certain products to be imported into the U.S. duty-free. Earlier this month, Bangladesh’s Commerce Minister GM Quader said, ““From the top level on both sides, we’ve agreed to sign the Ticfa with America soon.” 

India and Iran Relations: Sustaining the Momentum

ISSUE BRIEF 
May 20, 2013 

In past few years both India and Iran have been working towards managing its energy and economic cooperation under the shadow of the US and European Union (EU) sanctions. Despite the tightening of sanctions, India cannot halt the import of crude oil from Iran given its dependence on Iranian oil. Iran was India’s second largest supplier of oil but now it has slipped to sixth position. India imported 16.083 million tones of oil in 2010-2011 and 14.689 million tonnes of oil during 2011-2012.1 Though India reduced oil imports from Iran, It is trying to expand trade in other commodities like tea, pharma, automobile, electronics, spare parts and agricultural products. India has already approved USD 364 million (20 billion rupees) fund to provide reinsurance to local refineries that process Iranian crude oil and the quantum of the fund can be raised in future.2

India and Iran have also been working to build the regional transport networks –International North South Transport Corridor, which will help connect South, Central and West Asia to Europe for regional economic development. Equally important is the regional security dynamics, particularly the developments in Afghanistan in the post-2014 scenario. In addition, the unfolding of Syrian crisis and the impact of the ‘Arab Spring’ has implications for both India and Iran. 

West Asia is going through the phase of political transition. With the changing global and regional security environment, new geopolitical alignments as well as changing balance of power are taking place. Iran an important player in the region is confronted with both internal and external challenges. Domestically, it is preparing itself for the upcoming presidential elections in June and struggling to manage its economy because of the sanctions. Externally, it is trying to overcome its current isolation because of its standoff with the West on its suspected nuclear weapons programme. So far Iran has been able to manage both these challenges by developing strong political, economic and strategic relations with the states in the region and beyond, hoping that such ties can it through the difficult times. While the region reorganises itself, Iran and India look towards consolidating their bilateral relations. Both the countries are significant actors, whose role can’t be overlooked in terms of their political and economic involvement in the region. Today, the regional complexities demand new ways and means of cooperation between India and Iran. 

It is in this context that the recent visit of External Affairs Minister, Salman Khurshid merits some attention. This is yet another diplomatic push towards strengthening the existing partnership between the two regional actors. Earlier, the visit of the Indian Prime Minister, Manmohan Singh to Iran on August 28, 2012 to participate in the NAM summit was a clear indication of New Delhi’s desire to give new impetus to bilateral relations and enhance economic cooperation. The Prime Minister said: “there is lot of interest in doing business with India and getting Indian investment in infrastructure. There are of course difficulties imposed by western sanction, but subject to that I think we will explore ways and means of developing our relations with Iran”.3 After Prime Minister’s visit, a new thrust was given to the bilateral relations. Subsequently, several high-level visits have taken place from both sides. 

Significant among the various interactions has been the recent 17th India-Iran Joint Economic Commission meeting held in Tehran on May 4, 2013. The external affairs minister Salman Khurshid and his counterpart Ali Akbar Salehi, under the framework of joint commission, discussed critical bilateral and regional issues. Four important areas were identified: 
  • Regional connectivity 
  • Enhancing bilateral trade and economic cooperation 
  • Cooperation on regional security issues 
  • Enhancing cultural and people-to-people contact 
  • Regional connectivity 
On regional connectivity, both sides agreed to work on a trilateral transit agreement involving Afghanistan. A draft agreement is expected to start soon. India’s participation in Chabahar port project has been under discussion for the last few years but the decision to upgrade the Chahbahar port was conveyed during the EAM’s visit. As a follow up, India’s Secretary from the Ministry of Shipping will visit Tehran to discuss the cost and related aspects on port project. It is important to note that the Iranian port of Chabahar (previously Bandar Beheshti), located on the Makran coast of the Sistan and Baluchistan province of Iran criss-crosses some of the most important international corridors – East-West, North corridors, South corridor and TRACECA4 - and can be considered one of the most strategic transit locations. It is often referred to as the ‘Golden Gate’ to the landlocked Commonwealth of Independent States (CIS) countries and Afghanistan. Chabahar has immense potential to connect the business centres in South Asia (Mumbai, Jamnagar, etc), the Middle East (Dubai), Central Asia (Turkmenistan) and Afghanistan (Milak). It is close to the mainline shipping routes connecting Asia and Europe and is 700 km away from the capital of the province of Zahedan and 2,200 km away from Tehran. The distance from Chabahar to Milak on the Afghan border is 950 km; it is 1,595 km to Dogharoon on the Afghan border; 1,827 km to Sarakhs on the Turkmen border; and 120 km from the Pakistan border. Iran plans to use this port for transhipment of a variety of goods - tea, eatables, electronics, building materials, heavy equipments, etc. – to Afghanistan and Central Asia and equally maintain the Bandar Abbas port as a major hub for trade with Russia and Europe. 

Defence Procurement Procedure Amendments: Fingers Crossed

20/05/2013 

On 20 April 2013, the Defence Acquisition Council (DAC) approved the amendments in the Defence Procurement Procedure (DPP) with a focus on enhancement of indigenous content in defence products and solutions. The new DPP incorporating all these amendments is likely to be released by mid 2013. The new policy would focus on the two objectives of infusing greater efficiency in the procurement process and strengthening the defence manufacturing base in the country. This will help in reducing our vulnerability resulting from over dependence on foreign imports by strengthening the Indian defence industry. Recently, Raksha Mantri , Mr. AK Antony said, “The only way forward for the country is rapid indigenisation of defence products, with both the public and private sectors playing pivotal roles in this endeavour”. He also said that the government will make all efforts for creating a level playing field for Indian defence manufacturing industries vis-à-vis global players and also between the public and private sectors. 

The highlights of the amendments in the DPP are as follows:[1]
  • Introduction of a specific order of categorisation for acquisitions. 
  • Release of a public version of the Long Term Integrated Perspective Plan (LTIPP) for the industry in order to direct its infrastructural capabilities and investments. 
  • Elimination of the clause of nomination for Maintenance Transfer of Technology (MToT) to Defence Public Sector Undertakings (DPSUs) and Ordnance Factories (OFs). 
  • Advance consultations for “Make” procedure. 
  • Simplification of the complex “Buy & Make (Indian)” procedure. 
  • Clear definition of indigenous content. 
  • Ensuring faster progress in “Make” and “Buy & Make (Indian)” cases. 
  • Finalisation of defence items list. 
  • Licensing for dual use items. 
  • Consultations on security guidelines for Indian defence industry. 
  • Resolution of tax related issues. 
  • Provision of funds for Micro, Small and Medium Enterprises (MSMEs) in defence sector. 
  • Freezing of the Service Qualitative Requirements (SQRs) before the Acceptance of Necessity (AON) stage and reducing the AON validity from two years to one year. 
  • Provision of enhanced financial powers to Service Chiefs and decision making powers to DAC. 

The major shift in the proposed DPP has been the redefinition of procurement categories into five and their prioritisation. For all capital acquisitions, “Buy (Indian)” would be the topmost priority and “Buy (Global)” having least priority. According to the revision, if any category has to be selected, the proposal must state reasons for excluding the higher preferred category. The order of priority of the acquisition categories are: 
  • Buy (Indian) 
  • Buy & Make (Indian) 
  • Make (Indian) 
  • Buy & Make with ToT, and 
  • Buy (Global). 
DAC has approved the release of the public version of the 15 year Long Term Integrated Perspective Planning (LTIPP) (2012-2027) outlining the Technology and Capability Roadmap (TPCR), aiming to provide guidance to the defence industry for planning their infrastructural capabilities and directing their Research & Development (R&D) and technology investments. It is a good move on the part of the government however, it remains to be seen how well the industry makes use of the presented opportunity. The DPP amendment discards the nomination of OFB and DPSUs for MToT[2] in order to encourage private sector participation in Maintenance, Repair and Overhaul (MRO) work. This measure is a step towards providing level playing field to the private players and will have a positive impact on the defence industry. 

A clear definition of indigenous content providing the much needed accuracy and decipherability in indigenisation is likely to be enunciated in the forthcoming DPP. Earlier, the DPP only specified the amount of indigenous content mandatory for programmes under the “Buy (Indian)” or “Buy & Make (Indian)” categories. The process and criteria for licensing defence items will be defined clearly with dual use items not requiring licensing. The revision postulates that the SQRs will have to be frozen before AoN stage and the latter is valid for one year as compared to the previous time period of two years. This reform is expected to accelerate the acquisition process and save the users the agony of time delays. The financial powers of the Service Chiefs are proposed to be raised from INR 50 crore to INR 150 crore, thereby giving flexibility to the decision makers for quick acquisition of low value equipment. DAC has been entrusted with greater powers in the sense that all deviations from the DPP will have to be approved from DAC instead of the Defence Minister, which is positive case of devolution of powers. 

Most of the amendments will have a positive impact on Indian private industry. However, there are apprehensions of the adverse outcome of category prioritisation on the defence modernisation drive. It is envisaged that the Indian industry would be able to acquire technology from foreign technology partners by forming Joint Ventures, partnerships etc. and offer solutions to the defence forces. Though the purpose behind the approach is focus on indigenisation and encouraging the domestic defence industry, it is questionable whether on ground the approach will be pragmatically possible. India does not possess the technological capability and expertise to develop and produce requisite defence systems indigenously and to meet all the military requirements on its own.. The requirements of huge investments, infrastructure, experienced professionals and test facilities would present considerable obstacles in rapid indigenous production. The development and qualification process of defence equipment is very tedious and time consuming. The stringent No Cost No Commitment (NCNC) trials (field trials, Electromagnetic Compatibility/Electromagnetic Interference (EMI/EMC), quality assurance tests) by the users in different environmental conditions involve lots of resources, capital and risks. 

Li Keqiang’s India visit: Why Trade not Border High on Agenda

Paper no. 5495 Dated 20-May-2013 
Guest Column by Prof. B. R. Deepak 

Wealth (fu) and power (qiang) has remained the dream of China throughout its long history. The best manifestation of this is reflected during the modern period when China was down and out with the defeats it suffered at the hands of foreign powers starting from the Opium War (1840). The defeats demonstrated to the Qing dynasty (1644-1912) the importance of being rich and powerful. 

A movement, which came to be known as “self-strengthening” movement, was launched from 1861-1894 and carried out in three stages. During the first phase (1861-1872), the slogan was ziqiang (self-strengthening); the aim was to build up a strong military power through the purchase and manufacture of modern weapons. Slogan for the second phase (1872-1885) was fuqiang (wealth and power), and the aim was to build modern enterprise such as railways, shipping, mining and telegraph with the private capital. The third phase (1885-1894) was marked by building up of navy and the establishment of modern iron and steel works. 

The ‘Self-strengthening’ movement marked the beginning of industrialisation and sowed the seeds of modern capitalism in China. However, the modernisation campaign was constrained, as China adhered to the Confucian traditions; had a dislike for merchandise and discouraged private enterprise and competition; and made no attempt to assimilate western institutions, philosophy, art and culture. Secondly, whatsoever attempts of modernisation were hampered by subsequent foreign aggressions: Japanese invasion of Formosa [Taiwan] in 1874; the British attempts to open Yunnan in 1875; the Russian occupation of Ili in Xinjiang, 1871-72, French invasion of Annam [Vietnam] in 1884-85, and Japanese aggression in Korea, 1894-95. 

Five and half a decade later, Mao Zedong attempted to re-enact the ‘self-strengthening’ aura by following the Soviet model of industrial and agrarian development. Mao was successful in turning China powerful (qiang) by building the largest standing army in the world, but failed to make China rich (fu), as some of the constraints of “self-strengthening” movement were inherent in his developmental model besides the self-imposed isolation and economic blunders. 

Mao’s successor, Deng Xiaoping de-Maoised China, ended the self-imposed isolation by initiating a policy of reforms and opened the door during the 3rd Plenary Session of the 11th Central Committee of the Communist Party of China (CPC) in 1978. The thrust of the reforms was in rural areas, where a ‘contract household responsibility system’ was implemented that linked remuneration to output. Besides, a two-layer management system featuring the integration of centralisation and decentralisation was also implemented. 

During the 3rd Plenary Session of the 12th Central Committee in 1984, reforms were taken to the urban areas, and various systems of ownership such as collectively owned enterprises, individual, private and foreign owned enterprises were introduced and encouraged. 

During the 13th national Congress of the CPC held in 1987, a three-stage modernisation formula (sanbuzou) for the next 62 years was advocated, which compared to the 33-year three-stage modernisation programme of ‘Self strengthening’ Movement allotted double the time for realising the defined strategic objectives. These three stages were defined as: 1) Doubling the 1980 GDP to end shortages of food and clothing (jiejue wenbao wenti). 2) Quadrupling the 1980 GDP by the end of 20th century and achieving a relatively comfortable life for all the people (dadao xiaokang xueping). 3) Basically completing China’s modernisation by mid 21st century, raising the per capita GDP to that of moderately developed countries and achieving a fairly well off life for its people (dadao zhongdeng fada guojia de shuiping) . 

The new vision of modernisation paid dividends as China showed its enthusiasm for merchandise and encouraged private enterprise and competition; and made serious attempt to import advanced western technology and management skills. China’s entry into the World Trade Organization in 2001 brought in export boom, registering almost 30% annual growth until 2007 capturing more than 10% of the global market. Politically, China sought a stable and peaceful surrounding. It is remarkable to note that ever since its Vietnam adventure in 1979, China remained committed to peace with global powers and regions in its vicinity. To everyone’s surprise, China achieved the first stage by the end of the 1980s and the second stage in 1995 ahead of schedule. 

The third and fourth generation of Chinese leaders pursued the growth model relentlessly. They not only legitamised the communist rule by adhering to growth model but also set new benchmarks for development. Especially during Hu Jintao’s tenure (2002-2013), China witnessed unprecedented level of economic growth. China’s GDP touched $8.3 trillion from a meager $1.20 trillion when he took over from Jiang Zemin, registering an impressive 10% and above annual growth. Not only the financial crisis was effectively dealt with, but it also together with other Asian economies contributed almost 50% to the world’s economic growth during the slump. 

Rapid growth catapulted China to second largest economy of the world leaving behind countries like UK, France, Germany and Japan. Urbanization registered fastest ever growth anywhere in the world, and by the end of 2012 over 52% Chinese were living in the urban areas. The urbanization opened up real estate sector, and in fact became catalyst in maintaining and sustaining rapid growth; as a result the ghost cities in China also registered an increase, and the gap between China’s haves and have-nots have widened as could be seen from the rural urban income levels in China. 

India-EU trade links: Stronger the better

Geethanjali Nataraj and Rohit Sinha 1
20 May 2013

Introduction 

The India-EU Free Trade Agreement (FTA) has been on the anvil for long. In fact, the Indian and German governments are meeting this week in New Delhi to iron out the differences to ensure that there is progress towards striking a deal. To place the whole issue in a context, it is well known that two blocs are at the center stage of world politics and economics - the US and the EU along with the rising power in Asia, China. The US has assumed the mantle of the world monitor and holds strong positions on matters relating to politics and trade. 

The EU, on the contrary, has made an impact more because of its strategic trade-policy initiatives and policies of neo-protectionism. It has largely been held responsible for the failure and slow progress of the Doha round of negotiations. However, India has strived to maintain good relations with the EU and the ongoing negotiations to sign an FTA are a proof of that. An FTA with the EU is important to India to gain, at least to some extent, preferential and duty-free access to the European market. 

India-EU FTA 

Having established diplomatic relations in 1963, this year (2013) marks 50 years of India-EU relations. However, most of this period witnessed largely unsubstantial relationships2 despite having cordial relations. The relations grew quantitatively and qualitatively only in the 1990s. The change began with India's liberalisation policies of the 1990s, which accelerated EU-India trade. The EU and India issued a joint diplomatic statement in 1993 and signed their first cooperation agreement in 1994. Since then, trade between them has grown steadily. In 2002, India was the EU's 15th largest trading partner. In 2012, it grew to be the 8thlargest partner. If trade between India and all EU member-states is added together, the EU is India's largest trading partner. 

At the 6th EU-India Summit in 2005, a roadmap for strategic partnership in the form of a Joint Action Plan was agreed upon, alongside a commitment to review its implementation annually. Now the area where progress has been achieved include trade, science and technology, especially space and biotechnology, some areas of security (counter-terrorism, cyber-crime, piracy), energy, development and some aspects of multilateral institution building, such as creation of participation in new multilateral forums. 

To further improve the progress, a Sustainability Impact Assessment, commissioned by the EU, examined three possible FTA scenarios: a limited FTA, an extended (deep) FTA and an extended (broad) FTA (including further NTB harmonization). From the CGE (Computational General Equilibrium) analysis, the report concludes that every scenario leads to larger welfare gains for both the EU and India than the baseline scenario (which includes a notional WTO Doha round completion). The extended FTA brings India and the EU the greatest benefits in terms of welfare gains, production, international trade, wage increases and productivity increases. The welfare effects amount to an additional 0.3% growth for the Indian economy in the short run and 1.6% growth in the long run. The EU's large economic base means that the changes are too small to lead to significant changes in percentage GDP growth3 . 

In the above backdrop, it is important to understand the issues of contention between India and EU that come in the way of signing an FTA. 

Issues of Contention 

Labour standards and GATS Mode 4 liberalisation 

India's trade policy is fairly constrained by its concerns for the poorer part of its population. More than half of India's population is under the age of 25, necessitating a growth strategy centred on job-creation rather than the one centred on export-led one. These demographics and its education system have provided India with a skilled, competitive, English-speaking work force, of which Europe will be short in the near future. This adds to why tariff reductions alone will not make the EU-India FTA sufficiently economically interesting for India4 . A much deeper agreement covering services and investment and other areas of cooperation is needed. 

Services sector of the Indian economy is of crucial importance to the country. It constitutes approximately 55% of GDP, totaling approximately 725 billion euro. It also accounted for 93 billion euro of exports in 2010. India's trade in services with the EU amounted to 19 billion euro in 2010. The structural elements of the Indian economy mean India is particularly interested in the liberalisation of services under Modes 1 and 4 of GATS. GATS define four modes of services supply, according to which commitments are made by WTO Members. While Mode 1 concerns services supplied from the territory of one Member into the territory of another, Mode 4 refers to the supply of services by a service supplier of one Member through the presence of natural persons of that Member in the territory of another. Practically, the liberalisation of Mode 4 service supplies facilitates the free movement of independent professionals -like software engineers -by committing to measures such as more relaxed visa requirements or labour market tests by which the presence of certain foreign service suppliers are regulated. As India's skilled services labour force is growing very fast, India puts a stronger emphasis on better market access for services suppliers through Mode 4 liberalisation than market access for goods in trade negotiations. 

Intellectual property rights and generic medicines 

A second contentious issue relates to intellectual property protection. Leaked draft agreement suggests that provisions could go beyond WTO obligations under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement4. India has always taken positions in the World Intellectual Property Organization (WIPO) and the WTO, indicating that it was not willing to commit to an agreement beyond TRIPS. Moreover, in the past, the EU preferred to seek compliance with TRIPS and other intellectual property conventions rather than press for deeper commitments in its FTA negotiations. 

India's pharmaceutical sector, sometimes called 'the pharmacy of the developing world', produces generic medicines that are being used by many aid organisations. For instance, nearly 80% of generic medicines for the treatment of AIDS are sourced from India. As a result, the cost of treatment fell significantly from 10,000 to 100 USD per person per year5 . Considering India's track record in upholding patents, it is believed that pharmaceutical companies have been pressuring the EU to demand stricter rules on intellectual property protection, extracting commitments that go beyond WTO obligations 6. Such commitments could include the so-called data exclusivity protection measures, according to which pharmaceutical companies can exclusively retain the rights to their test results for periods of up to ten years (delaying generic medicines), or a practice referred to as 'ever-greening', in which slight alterations to medicine are sufficient to allow a new patent (prolonging intellectual property protection). Aid organizations such as Oxfam, Médecins Sans Frontières and Unitaid have voiced concerns regarding such provisions in the EU-India FTA. The Trade SIA report on the EU-India FTA recognised this concern by stating that commitments should not impair the capacity to promote access to medicines in line with TRIPS flexibility, and by explicitly reiterating that foreign pharmaceutical companies would be legally allowed to charge higher prices to recuperate research and development costs. The Commission responded to civil society concerns by issuing a Q&A document on access to medicines in the negotiations. The document states that the intellectual property provisions in the FTA will not weaken 'India's right and capacity to manufacture and export life-saving medicines to other developing countries facing public health problems.' It adds that, although the Commission believes in the importance of data exclusivity, it will be flexible and will take into account the position of India as producer of essential generic medicines7 . 

Beijing hedges on Brahmaputra data

OUR SPECIAL CORRESPONDENT 

The Brahmaputra in Guwahati. File picture 

New Delhi, May 20: India’s concerns over China’s activities in the upper reaches of the Brahmaputra were today restricted by Beijing to information on hydrological data during floods. 

While the data may help Assam get better alerts on floods, it does not address India’s core concern of possible Chinese plans to divert the Brahmaputra’s waters to its northwestern provinces, a matter that has worried India for some years. The Brahmaputra is the lifeline not only for the northeastern states of Arunachal Pradesh and Assam, but is important for Bangladesh as well. 

When Prime Minister Manmohan Singh expressed India’s concerns about the effect of “activities in the upper reaches of our shared rivers” on lower riparian states to Premier Li Keqiang, he was alluding to, among other constructions, at least three hydropower projects coming up on the Brahmaputra. 

Singh had also brought up this subject before Chinese President Xi Jinping at Durban on the sidelines of the BRICS summit in March. These projects could affect water flow into India especially during the lean season, Indian planners feel. The Chinese response has been that all the projects are run-of-river and would not store water. Sources said the Chinese response today was inadequate, although expected. 

According to information by Indian intelligence and satellite imagery, construction projects on the Brahmaputra and its tributaries have risen from 28 sites in August 2010 to 39 projects last year. 

China had last year made a widened blacktopped Bome-Medog highway operational, a feat accomplished in just three years. The road, with a 3.3km tunnel, 29 bridges and 227 culverts going downstream of the Brahmaputra and into easternmost Himalayas, has prompted Indian strategists to again keep an eye on possible river-diversion plans. 

This was the information sought by India. However, the memorandum of understanding (MoU) signed between the ministries of water resources of India and China today is on “Provision of Hydrological Information of the Yaluzangbu/Brahmaputra River in Flood Season by China to India”. 

“It would be useful for the mandate of our expert level mechanism to be expanded to include information sharing on upstream development projects on these rivers,” Singh said in a statement after the signing of eight agreements, including the MoU concerning the Brahmaputra. 

He also said it would be useful for India and China to collaborate on a better understanding of the “stresses on our shared Himalayan ecosystem”. In other words, India wants China to recognise and act upon Indian concerns about drinking water crisis that could be exacerbated because of Chinese projects on the Brahmaputra. 

Indian ambassador to China, S. Jaishankar, characterised the Chinese response as “sympathetic”. “I think they recognise that we have concerns. They pointed out that they were responsible, that they would not do something which would damage our interests,” he told reporters. 

The response may not have satisfied those who feel developments on the Brahmaputra at the great bend of the mighty river just before it enters India through Arunachal Pradesh are disconcerting. 

A positive spin, as officials see, is the recognition of the issue at the highest level. 

“The logical step now is to expand (the mandate of the expert level mechanism). We want to know what is going on, we want more information,” said water resources secretary S.K. Sarkar, who signed the MoU with Wu Shulin, vice-minister for state general administration of press, publication, radio, film and television. Sarkar conceded that India would be worried about water supply in the lean season. In fact, a mammoth water storage project is being surveyed for feasibility in Arunachal Pradesh, sources said. 

Getting information on Chinese activity on the Brahmaputra remains a top priority for the government. A committee of secretaries and an inter-ministerial expert group, led by the ministry of external affairs, were established to look into the matter. It was decided to monitor Chinese activity on the Brahmaputra and its tributaries on a “continuous basis”. 

In the meantime, China will provide India with information on water level, discharge and rainfall at 8am and 8pm (Beijing time) twice a day from June 1 to October 15 every year in respect of three hydrological stations on the mainstream Brahmaputra. 

In Guwahati, chief minister Tarun Gogoi today thanked Prime Minister Manmohan Singh for taking up the matter of construction of dams by China on the Brahmaputra with Keqiang yesterday. 

Moving forward to stand still

Premier Li Keqiang’s visit to India, close on the heels of a stand-off over the incursion by Chinese troops in Ladakh, was an opportunity for both sides to calm troubled waters and this is evidently what they have tried to do. The decision to “encourage” the two countries’ Special Representatives on the boundary question “to push forward the process of negotiations” towards a mutually acceptable settlement will hopefully breathe political life into a process that is at a virtual standstill despite 15 rounds of talks. No date has been fixed for the next iteration but from the statements made by Prime Minister Manmohan Singh and Premier Li on Monday, the Chinese side seems as aware as the Indian that this issue is vital to other aspects of the bilateral relationship. Besides dealing with the border issue, both sides seemed to have made the deliberate decision to emphasise the larger strategic and global nature of the relationship. They have added civil nuclear cooperation to the mix, and agreed to enhance co-operation against piracy at sea and other non-traditional threats to maritime security. On trans-border rivers, another problematic area, the two sides have agreed “to further strengthen co-operation” and continue sharing data. Eventually, this process needs to result in a full-blown discussion on riparian issues, given China’s ambitious plans for the Yarlung Tsangpo, which feeds into the Siang and Brahmaputra in India. 

Going by the message from Premier Li (‘A handshake across the Himalayas,’ The Hindu, May 20) that his “country will never embark on the doomed path of seeking hegemony,” and his description of the two countries as “destined to be together,” China’s new leadership appears concerned about the fallout of the Depsang incident and keen to allay Indian fears of its intentions. Perhaps as evidence of its sincerity, the Chinese side has made its strongest commitment yet towards addressing the trade imbalance with India. However, the continuing absence of boilerplate language about Tibet being an integral part of China — something the Chinese usually insist on in joint statements with India and others — is a reminder of the many layers to this complex relationship. The first time the ‘T-word’ was dropped was in 2010, and it was evident that New Delhi was retaliating for China’s policy of issuing stapled visas to travellers from Jammu & Kashmir. Three years later, there is still not enough clarity about the Chinese position on Kashmir and the Depsang incident has further muddied the waters. When they meet, the two SRs need to take stock of what has happened and ensure that neither side does anything to hurt or undermine the other’s core interests. This is the only way the relationship will grow.

The History Project: Inspiring Indian and Pakistani Children to Rethink the Past

By Sonya Rehman 
May 20, 2013 

Three young Pakistanis – Qasim Aslam, Ayyaz Ahmad and Zoya Siddiqui – are providing schoolchildren in India and Pakistan with an opportunity to critically analyze, evaluate and question significant events in their nations’ shared history and heritage. 

The History Project, comprising excerpts from three Indian textbooks and nine Pakistani textbooks, provides students an illuminating comparison of the ways that key historical events – leading up to partition – are taught in schools in both countries. 

Last month, Aslam, Ahmad and Siddiqui visited four schools in Mumbai – officially launching The History Project in India. Next month, the trio plans to introduce the project to schools across Pakistan, in the hope that it will spark healthy debate, underpinned by curiosity, impartiality, and an open-minded look at the tumultuous epoch that is India and Pakistan’s shared history. 

According to Aslam, the inspiration for The History Project came in 2005 from Feruzan Mehta, the then Country Director (India) for Seeds of Peace, an international NGO that seeks to inspire and train new leaders from conflict zones to build a more peaceful future. The inspiration grew in the ensuing years, and Aslam and Ahmad finally decided to make their shared dream a reality two years ago. 

In an exclusive interview with The Diplomat, the founders of The History Project speak about the laborious process that went into the compilation of the book, the importance of a solid artistic element to complement the book and their experience of formally introducing their project to children in India last month. 

What inspired you to undertake The History Project? 

Qasim Aslam: It informally started off around 12 years ago when we met Indians across the border for the first time in our lives. We were at this conflict resolution camp [Seeds of Peace, hosted in Maine, USA], where a dozen Indians and Pakistanis were brought to live together for three weeks. 

Over the course of that time, in addition to playing sports and indulging in other activities together, we found history to be a recurring discussion in our interaction. In some cases, the conversations resulted in flared emotions. Over those three weeks, we didn't quite reconcile our versions of history, but we did find it in ourselves to respect the alternative reality, its existence, and the fact that it was as authentic as ours. 

In an effort to scale this process, as it is super expensive to fly a couple dozen kids from the region to the U.S., we came up with the concept of The History Project; which, in essence, is taking the process to the kids themselves. 

Curing America's Fear of Commitment

Karzai is an ingrate, but the Afghans need us. 
BY MARC CHRETIEN | MAY 20, 2013 

Not since the days of Charles de Gaulle has America spilled blood and treasure on a less grateful national leader than Afghan President Hamid Karzai. In a bid to be viewed as ideologically independent, Karzai has famously criticized the West, and the United States in particular, in apparent attempts to strengthen his political hand at home. 

In one year, Karzai will leave office. Around that same time, America's formal commitments to Afghanistan will end. That's a mistake. A guarantee that the United States will maintain a presence in Afghanistan after 2014 is not just important for the future; it could have significant effects right now. It could change the presidential candidates' behavior in the coming election campaign, and it could smooth the transition of power later. 

The Afghan people are frantic to secure their future, and the longer the United States remains mute on its plans, the more chaotic Afghanistan may become. 

Fear of abandonment. The Afghans's circumspection about any U.S. dedication to their wellbeing can be seen on a daily basis. For instance, Afghan citizens have been told that those who served U.S. forces and agencies in various roles, but usually as interpreters, can obtain visas to the United States -- once they complete a lengthy application and review process. It is known as the U.S. special immigrant's visa program, or SIV. This isn't just a reward; it's a vital component of the two countries' abilities to work with one another. Afghans are under constant threat of Taliban retaliation once it is known they have worked for the Americans; without SIV, many Afghans would be at serious risk. 

Unfortunately, due to a Kafkaesque bureaucratic nuance, many Afghans who work directly for the Americans are in fact ineligible for the visa. Afghans who were hired by the International Security Assistance Force instead of by the U.S. military directly are precluded from participating in the SIV program. As word has spread throughout the community, it reflects poorly on the United States. These are common people, without dual citizenship or condos in Dubai, people who aided the United States at their own peril. Combine this disappointment with the sense that America is about to bail on the country altogether, and you have a potentially critical resentment among the Afghans. 

Hedging strategies. Additionally, throughout Afghanistan, the number of reintegrated citizens -- that is, those who have left the Taliban and agreed to rejoin their home communities and to live in accordance with the Afghan constitution -- has flattened out this past year. Why commit to the government of Afghanistan if the United States is just going to abandon it? Along with this growing unwillingness to commit to a democratic government, we are seeing a brain drain from Afghanistan, along with capital flight. Professionals and academics are fleeing, and currency and even gold bars are carried out on a daily basis from the commercial airport in Kabul. 

Afghans tend to believe that history repeats itself exactly as it has in the past. Karzai's predecessor, Najibullah, managed to hold the country together for several years after the Soviets left, even in the face of attacks from Gulbuddin Hekmatyar, because the Soviets kept funding the Afghan army. This lasted until the Soviet Union finally collapsed -- then financial support ended and the Afghan army dissolved into its ethnic components, ultimately allowing the Taliban to take over in Kabul. Thus, it's not hard to imagine how the Afghans see their future this time: America abandons Afghanistan and provides no aid, then the Taliban creeps right back into the power vacuum. A post-2014 commitment now could at least ameliorate some of this fear of abandonment and ill will before any more Afghans hedge their bets and give up on the idea of a democratic government. 

Afghanistan: A new phase in ties with Pakistan?

Aryaman Bhatnagar
17 May 2013

Analysis 

Nawaz Sharief's election for an unprecedented third time as Pakistan's prime minister has been welcomed by the Afghan government. Afghan President Hamid Karzai congratulating Sharief called upon the new Pakistani government to enhance cooperation in order to work towards a peaceful resolution to the conflict in Afghanistan. He said, "We hope that the government paves the way for peace and brotherhood with Afghanistan and cooperates in fighting terrorism and sincerely rooting out terrorist sanctuaries". The Deputy Foreign Minister Jawed Ludin said, "The formation of a strong democratic government in Pakistan presents a good opportunity for the opening of yet another chapter of dialogue and cooperation between our two countries". 

Nawaz Sharief, for his part, claimed that he would re-evaluate Pakistan's foreign policy upon forming the government. He offered an olive branch to Afghanistan and acknowledged the importance of improving the bilateral relations between the two countries. Pakistan has for long been recognised as a vital player in determining the Afghan end-game. The Afghan government has sought Pakistan's cooperation in bringing the insurgents to the negotiating table. However, bilateral tensions have prevented any tangible benefits from emerging. It is hoped that things would now be different. 

It is, however, unlikely that a change in the civilian government would bring about a change in Pakistan's approach towards Afghanistan. This continues to remain the prerogative of the military establishment. Pakistan's military has the final say on most strategic and foreign policy related issues, and particularly those concerning relations with India, China, the US and Afghanistan. It has traditionally not taken kindly to the intervention of the civilian leadership in its domain or at its attempts to rein in the military. The ouster of Nawaz Sharief in 1999 through a military coup led by army chief Gen Pervez Musharaff was largely an outcome of the former's attempts to assert his supremacy over the military leadership. 

It is believed, or at least hoped, that the military would not be an obstacle to Nawaz Sharief this time. Its apparent lack of interference in the country's democratic transition has been seen by some as an indicator of the military wanting to take a back seat. This, however, has been the general trend and nature of Pakistani politics during civilian rule, and there is nothing to suggest that time would be any different. There have been no signs that the military is willing to concede any space to the new government as far as making foreign policy decisions are concerned, and Sharief himself may not be too keen to take on the military, at least in the short term. His own tumultuous history with the military, which besides his ouster also led to prison time and an 8 year exile to Saudi Arabia may compel him, despite his public proclamations, to adopt a more cautious approach to civil-military relations and allow the military to retain control over the foreign policy. 

In light of this, only a shift in the Pakistan military's strategic thinking could warrant a new approach to Afghanistan. But there is no sign of that happening either. Rawalpindi's Afghanistan policy is still shaped by its objective of wanting a regime in Kabul that is favourable towards Pakistan, limits India's influence and does not raise the Pashtunistan issue. It is for this reason that despite not wanting to see a Taliban-dominated Afghanistan, Pakistan continues to see the group as a strategic asset and the only Afghan faction that could still help secure its interests. 

It is yet to dismantle, or take any steps in that direction, the terror infrastructure on its soil, which has been used to target India and Afghanistan. Its efforts to construct military infrastructure along the Durand Line, which have led to massive anti-Pakistan protests in Afghanistan in the past week, have also been interpreted in Afghanistan as attempts to impose a pliant regime in Kabul, which have further widened the trust deficit between the two countries. 

Getting to Yes with the Taliban

The case for negotiating with terrorists. 
BY JOHN ARQUILLA | MAY 20, 2013 

Most statesmen confronted by the modern scourge of terrorism have intoned the mantra, "We don't negotiate with terrorists"; yet many have reached out to them, sometimes with considerable success. An ongoing challenge for world leaders today, in an era in which terrorism has emerged as a full-blown form of irregular warfare, is to continue to be willing to talk with these malefactors. The key is to be able to discern the difference between situations in which the terrorists are simply manipulating the negotiation process to play for time or score propaganda points, and those in which there is real hope for peaceful progress. 

One of the clearest examples of the value of negotiating with terrorists is provided by Britain's willingness to keep talking with the Irish Republican Army -- yes, via the gossamer-thin cover of speaking to its political front man, Gerry Adams -- over a period of decades. Thus were the modern-era "Troubles," which began in the late 1960s, ended with the IRA's formal renunciation of all violence in 2005. During these decades, British counter-terrorist forces and IRA gunmen kept on fighting hard, but the negotiations continued as well. To paraphrase Winston Churchill, there was "jaw-jaw as well as war-war." In the end, both sides made meaningful concessions about the political future of Northern Ireland, and a clear path to peace was found, one best described as a self-determination plan that will play out over the long term. Without a willingness to "negotiate with terrorists," this would never have happened. 

The bitter Israeli-Palestinian dispute, which began to feature regular acts of terrorism around the same time that the Irish Troubles were getting underway, has seen negotiation reduce both the frequency and severity of violence, particularly since the Oslo Accord was reached 20 years ago. This first substantial agreement between Israel and the then-Palestine Liberation Organization began the slow, sometimes halting path toward Palestinian autonomy and, on the other side, greater recognition of Israel by its enemies. Again, there have been continuing acts of terrorism and retaliation -- though of generally decreasing scale on both sides. This is another very good example of knowing when it is worthwhile to negotiate with terrorists -- and highlights again the need for "strategic patience." 

One more protracted conflict that has featured many acts of terror is the struggle between the Revolutionary Armed Forces of Colombia (FARC) and the national government. Deep-rooted in resentment over the unequal distribution of land and wealth -- 1 percent of the population controls half the arable land -- the fighting has been going on for nearly 50 years. The violence has included many acts of terror, hostage-taking, and the like. There have been two major efforts to bring about peace via negotiation. The first came during 1998-2002 when, in the name of "confidence building," the government ceded the FARC a haven roughly the size of Switzerland. This was probably a measure too far, and the insurgents and terrorists were too buoyed. So the government returned to an emphasis on military action, eventually inflicting serious defeats on them over the course of a decade of hard fighting. Which seemed to pay off, as last November a new era of negotiations opened up with ongoing talks, first in Oslo and now in Havana. The great challenge for the Colombian government is to remain open to the possibility of peace, while at the same time avoiding steps that would allow the FARC too much of a chance to get back on its feet. 

The American experience in negotiating with terrorists has been mixed, to say the least. The worst debacle unfolded during President Ronald Reagan's second term, when the world learned in 1986 of his secret effort to sell arms to Iran -- a state sponsor of terrorism -- via an Israeli cut-out. The initial idea was to use the arms sale to obtain the release of several hostages being held by an Iran-affiliated terrorist group. Indeed, a few hostages were eventually set free, but more Americans were soon kidnapped -- seemingly to replace the ones who had been released. It was a bad business that next morphed into an effort to use the profits from the secret arms sales to Iran to finance Nicaraguan insurgents trying to overthrow the Sandinista regime. All came tumbling down when the scheme was inadvertently "outed," thanks to a clerical error with a numbered Swiss bank account.