Online Journal of Peace and Conflict Resolution 1.2 -- May 1998

Oil and Politics in East Asia

by Nilanthi Samaranayake

In recent years, China has increased its assertiveness in pursuing territorial claims in the South China Sea. This development can most likely be traced to China's need to find sources of oil since China switched from being an oil-exporting nation to an oil-importing nation a few years ago. While Southeast Asian nations have essentially agreed to disagree by postponing resolution of their territorial disputes, China continues to insist on its rights to drill for oil on these islands. These actions exemplify the need to establish a multilateral resource development regime whose prerequisite for admission could be the resolution of territorial disputes. This proposal seeks two objectives: 1) securing peace among East Asian states and 2) investigating solutions to the imminent energy crisis in this region. Furthermore, it would be beneficial for the United States to sponsor this forum since it is the only country Southeast nations want that can propose a credible plan to counter China's territorial aspirations. With this plan, the United States can continue to play a relevant role in East Asian politics, help American energy firms prosper, and can try to diminish China's potential to be a regional hegemon.

First, this paper will consider China's vast oil reserves, but will illustrate how the government has not devoted enough time or money to exploration. Because of China's heightened need for oil, its military modernization program, and its increased belligerence in pursuing territorial claims, this paper will explain why the United States could propose a policy that can be coordinated through the ASEAN Regional Forum. The problem areas of United States-China relations will be examined as will those between the United States and Southeast Asian nations. Additionally, the potential role of Japan in this development regime will be analyzed. Next, the various estimates of Southeast Asian energy reserves and the future of alternative energy resources will be explained. Finally, this paper will discuss the prospects of this regime being passed in the U.S. Congress.

Assessment of China's Oil Reserves

Since the enactment of market reforms in 1978, China has "quadrupled its GNP; seen average annual growth rates around 10 per cent (even through times of worldwide recession); and multiplied its people's living standards."(1) Additionally, in a nation of 1.2 billion people, China has impressively increased its per capita income by at least 50 percent.(2) As would be expected of any developing country, the energy needs of China have intensified with its rapid success. Its sizable population has added to the urgency of meeting these demands. China continues to rely largely on coal, which supplies 75 percent of its energy.(3) However, coal cannot satisfy all the cravings of a rapidly developing country. The heavily-populated southeastern region of China continues to become more prosperous, and the subsequent increase of consumer cars requires more oil. Unfortunately, southern China does not possess sufficient energy reserves.(4) In the early 1993, China became a net importer of oil for the first time in thirty years.(5) Although being the world's fifth largest oil producer, China's dependence on imported oil is expected to grow to a level of 50-60 million tons annually.(6) Consequently, it is in the Chinese government's interests to search for sources of oil to accompany its extraordinary economic growth.

Although extreme estimates of China's oil reserves have been computed, Vaclav Smil explains that the consensus is that China holds 2.6 billion tons of crude oil.(7) The Daqing and Shengli oil fields in Northeastern China have provided China with most of its oil since the 1960s. Yet, production has slowed down over time in both places. Western China abounds with untapped oil resources. The Tarim Basin in Xinjiang province is believed to hold 250 million barrels.(8) However, the Chinese government has not invested enough time or money into exploration of this vast region and has not developed new technology for the existing, torpid oil fields. For example, prosperous coastal China receives 67.4 percent of total fixed investment whereas the central and western parts, which constitute 85 percent of China's territory, get only 32.6 percent of total fixed investment.(9) Consequently, many experts understand the need for China to improve its relations with oil-exporters like Saudi Arabia, Iraq, and Iran. It is in China's interests to ensure that its overall relations with these nations are positive and to delicately handle contentious issues such as unpopular advanced weapons sales against the opposing forces of national objectives and complaints from the international community. One must examine China's oil relationship with the Middle East in the context of the world's relationship to this tumultuous region. The East-West Center claims that by 2000, 87 percent of the oil East Asian nations import will come from the Middle East, up from 70 percent today. Furthermore, by 2010 dependence on that region could total 95 percent.(10) To exemplify the extraordinary power of the Middle East, Secretary of Energy Federico Peña stated that by 2010 "the Persian Gulf nations will provide more than 70 percent of the world's exports, surpassing their peak of 67 percent of global oil imports in the embargo year of 1974. This is unacceptable."(11) Although many Middle East critics cite alarmist cultural concerns of the spread of Islamic fundamentalism, Kent Calder more astutely examines this region's potential to wreak havoc from a realist perspective. He explains how this development is not in the interests of the currently dominant Western countries, specifically the United States, to witness a situation where two major economic and political regions become allies.(12) People can debate the merits of the United States' dual containment policy of Iran and Iraq; nevertheless, it is not wise to be excessively dependent on only a few countries. It appears to be in China's national interests to improve its ties to the Middle East unless prescient U.S. policy can prevent this scenario from being realized.

Security Implications of Energy Policy

Territorial disputes naturally characterize a region with various island groups. Every country in Southeast Asia has this type of quarrel with its neighbors. However, China treats these problems with belligerence in the context of reports that this disputed territory possesses much-needed oil deposits over which China could claim sovereignty. Alarming to its neighbors is that China has embarked on a program of military modernization. Kent Calder explains that the need to gain energy motivates China to enhance its blue-water navy's force projection in the South China Sea.(13) China already has spent $1 billion for the acquisition of four Russian submarines.(14) Because of this massive military, China's neighbors have a justifiable reason to be alarmed by China and its historical desire to be the hegemon of the region. David Shambaugh writes:

China's rhetoric about "never seeking hegemony" is not matched by its order-of-battle and military doctrine for fighting low-intensity conflicts, nor by its aggressive stances in the East and South China Seas and in the Himalayan and Central Asian border regions. Moreover, China's National People's Congress recently passed legislation declaring sovereignty over the Spratly, Paracel and Diaoyutai island groups, and explicitly reserved the right to use military force to affirm its claims.(15)

Because of China's formidable military arsenal and its tendency to display its influence, China is the East Asian nation most likely to be at the heart of conflicts in the future in this region.

 Currently, energy consumption in Southeast Asia is divided between fossil and biomass fuels.(16) However, the increased industrialization by these countries requires greater oil consumption, especially in the transportation sector. Because of this heightened need for oil, Southeast nations cannot help feeling alarmed by China's belligerence. China's aggression concerning territorial disputes has forced other nations to prioritize military modernization ahead of fundamental development projects. Consequently, the potential for arms races in Southeast Asia has been accelerated. The General Accounting Office has commented that:

China and several other Asian nations appear to be embarked on force modernization programs that when combined with long-standing territorial disputes, raise concerns among policymakers over the stability of the region. Almost every nation in the Asia- Pacific has territorial disputes with one or more of its neighbors.(17)

Territorial disputes can only exacerbate relations between nations that all require oil for industrialization.

An ominous scenario for this region is that China's need for oil might come into conflict with the same desire by Japan and South Korea, neighbors that consume more oil than China does. Japan does not possess sufficient sources of oil and spends $50 billion annually on fuel imports. South Korea spends three times more on imported energy than does Japan as a fraction of GNP.(18) Kent Calder explains that "a naval arms race among China, Japan, and possibly South Korea sparked by the changing oil equation is the greatest long-term security danger the region faces."(19)

Reassessed U.S. Policy in Southeast Asia

After assessing China's urgent energy needs, its potential to foment instability in Southeast Asia, the possibility of a clash for energy between China, South Korea and Japan, and the arms races that China's belligerence could ignite, it is advisable for the United States to formulate a responsible long-term policy for the region. The United States can act according to the National Security Council's 1997 National Security Strategy: "our strategic interest in Southeast Asia centers on developing regional and bilateral security and economic relationships that assist in conflict prevention and resolution and expand U.S. participation in the region's dynamic growth."(20) The United States could present a plan advocated by energy expert Kent Calder that coordinates a multilateral resource development regime for East Asia.(21) However, Southeast Asian nations could be required to resolve their territorial disputes in order to gain entry into this organization. As a member of the ASEAN Regional Forum (ARF), the United States can operate through this nascent, but potentially powerful organization in order to give East Asian states an incentive to settle their disputes.

Under the auspices of ARF, the U.S. plan could give businessmen incentives to invest in oil development in any of the East Asian ARF member countries, including China and various Southeast Asian nations. Certainly, other interested foreign investors should feel free to assist this regime. American oil businessmen will not naturally gravitate toward a regime devoted to conflict resolution unless it appeals to their interests; therefore, assistance from the U.S. government and the presence of abundant oil deposits are certainly enticing. East Asian nations require money in order to further increase their oil production, whose outlook appears promising to investors. With this system, nations from China to Indonesia would not be so ready to depend on imported oil and would not be as reluctant as they are presently to devote time and money toward oil exploration and drilling. Essentially, this regime could allow East Asian nations to feel more secure in their access to oil since China would not likely risk denial of entry into an advantageous regime solely due to territory over which it wants sovereignty.

One can justly ask why the United States should interfere and involve itself with a complicated plan in this region of the world. China would not likely welcome an effort by the United States to exert an increased influence in China's perceived sphere of influence. However, the United States is the only nation that is strong enough to coordinate and realize this plan, but is not as historically threatening to Southeast Asia as are China and Japan. Additionally, in an age where calls for U.S. retrenchment are widespread, nations of this region have regretted the U.S. withdrawal from Subic Bay Naval Base and Clark Air Base in the Philippines following Chinese intransigence.(22) Interestingly, China could even appreciate this proposal because investment in China's domestic oil production could decrease its appetite for conquest in Southeast Asia and provide China with a way to become less dependent on imported oil. Essentially, East Asia could respect this regime because it provides a mechanism for ensuring resource development, which would be useful in this region. More important to U.S. foreign policy interests is that this type of regime could make the entire region less dependent on the Middle East for oil; therefore, the potential for East Asian politics to be held hostage to Middle Eastern oil could be reduced. Professor Marvin Ott of the National War College remarks that the United States' foreign policy "interest is to make sure no regional power emerges in Southeast Asia."(23) All parties in this scenario can benefit if they are willing to cooperate.

Prospects for Chinese Participation

The success of this plan depends on China's willingness to accede to this regime. In order to gain China's support for this proposal and subsequent decreased belligerence, it is advisable for the United States to ensure that overall United States-China relations do not become overly politicized as occurred recently during President Jiang Zemin's visit to the United States. Numerous ways exist for the United States to improve relations, although President Clinton does not appear sensitive to them. If the United States were to treat China with the respect it feels it deserves and also were to explain how the energy regime appeals to Chinese national interests, then bilateral relations could substantially improve and result in China's entry to this organization.

Several obstacles exist in the United States-China relationship. First, President Jiang's visit to the United States highlighted the emphasis that vocal Americans and consequently Congressmen place on human rights. President Clinton, who reneged on his 1992 campaign promise not to grant Most Favored Nation (MFN) status to China, again felt the pressure to appease human rights-conscious Americans during Jiang's visit; therefore, he publicly lectured the President of the most populous nation on how his leadership is on the "wrong side of history."(24) In fact, China has made progress on human rights issues, such as the November 16, 1997 release of its most famous dissident, Wei Jingsheng. No person can dispute that human rights abuses occur in China; however, it is irresponsible for the United States to reprimand China when a multitude of nations have human rights' records that are several times more egregious than that of China and are not as strategically important as China.

This human rights debate permeates the annual MFN renewal debate in Congress. MFN under the Jackson-Vanik amendment to the Trade Act if 1974 was created as a response to restrictive Soviet emigration practices. Nobody has doubted that China meets the amendment's conditions as evidenced by Deng Xiaoping's comment in 1980 that his government would send 10 million Chinese to the United States if desired by the American President.(25) However, human rights issues have tainted China's renewal of MFN since the Tiananmen Square incident of 1989. Richard Nixon writes that "only 10 of the 188 nations in the world do not have that status. Several of the 178 who do have it have human-rights policies as bad as, or worse than, those of China."(26) Interestingly, most U.S. observers fail to realize this discrepancy when issues concerning China come to the forefront.

The United States has perceived itself to be a unique champion of human rights, which is certainly an important issue. Yet, its way of pursuing this objective is counterproductive to the betterment of United States-China relations. Democratization experts have sagaciously recognized the relationship between economic development and human rights. Recent history exemplifies an evolution toward democracy after reaching a certain level of economic growth as evidenced by South Korea and Taiwan. Samuel Huntington writes that China does not yet possess the characteristics that foster democracies such as an urbanized middle class, which constitutes the backbone of a society and can persuasively demand political reform.(27) Enhancing economic ties with China appears to be how democracy can be furthered. Additionally, despite the boisterous annual debate, MFN status is always renewed because it is generally understood how the loss of MFN would devastate not only China, but also American firms and jobs.(28) The U.S.-China Business Council estimates that 190,000 jobs would be lost if MFN status were revoked.(29) Consequently, it is advisable for the United States to rid itself of an emotional approach in assessing human rights records and to recognize how economic and political pragmatism will further integrate China into the world community and will likely foster democratic norms.

No nation wants to be humiliated; Clinton's condescending lecture to Jiang does not give China what it has sought since 1949: recognition of its legitimacy as a great power. It was first denied this by the United States because of its ties to Taiwan. Although relations have been better since President Nixon's opening to the People's Republic of China (PRC) in 1972, China still does not feel it is being accorded the respect deserved by a nation of its size. For example, Chinese newspapers continually display headlines that criticize the United States for its insensitive attitude toward China. China expert Henry Kissinger writes:

Clinton has attended more summits with [Yeltsin] than he has with any foreign leader and with a far greater show of personal warmth. Though the president has never visited Beijing. . . he has been to Moscow three times and met with Yeltsin on American soil twice.(30)

Russia, like China, has many human rights problems; however, Clinton would not criticize Yeltsin and dare return to the bellicose way in which bilateral relations were handled during the Cold War. Yet, Clinton appears oblivious about starting another one with China with his pyretic rhetoric. Conducting diplomatic relations quietly rather than debating in public as Clinton recently did appears to be the most productive method of dealing with China. Jeffrey Bader, the Deputy Assistant Secretary of State for East Asian and Pacific Affairs, perspicaciously commented that "the U.S. cannot demonize China simply because it is not democratic. If the United States treats China as an enemy, then the U.S. guarantees it will behave as one."(31) Essentially, it is in U.S. interests to recognize publicly that China is its friend; if the United States does not do so, then it may be forced to bear the consequences of a misguided policy concerning a future superpower.

Contrary to conventional wisdom, it is the author's opinion that the issue over Taiwan's status will not likely be a problem for the United States and China in the near future. Essentially, the PRC refuses to consider any alternative to Taiwan's reunification, while Taiwan is opposed to it under the current PRC government. Michael Yahuda has commented that this "impasse can only be broken by changes in the political identities of probably both sides."(32) As Taiwan consolidates its democracy, the future of the torpid PRC elite appears brittle. Nevertheless, Taiwan's dominant party, the Guomindang, is opposed to declaring independence. The Guomindang is firmly entrenched and maintains substantial support from the countryside; therefore, the near future does not portend conflict over the potential for a declaration of independence.

The United States has an ambiguous commitment to Taiwan. Maintaining its status quo policy is sufficient since PRC-Taiwan ties appear far from the point of collapse. Taiwan's prodigious investment on mainland China illustrates the inextricable relations of the PRC and Taiwan. For example, by 1992 Taiwan exceeded American and Japanese investment totals to become the second largest source of foreign direct investment (FDI) in the PRC.(33) Julie Dam explains their symbiotic relationship:

China has encouraged investors from Taiwan by giving them generous tax breaks. Some 30,000 Taiwanese firms have committed $28.85 billion to various types of projects. . . In the past year Taiwan's exports to China increased 25% while the volume of goods flowing from China to Taiwan shot up 85%.(34)

Commenting on the bellicose rhetoric of the Taiwan Straits Crisis in early 1996, economist Andrew Freris remarks, "it's one thing to posture, to fling your arms in the air. . . but trade goes on. Look at the figures, and you say, 'Crisis? What crisis?'"(35) Consequently, it would not be in the interests of either party to upset the status quo.

Although President Lee Teng-hui's visit in 1995 to the United States caused much tension in cross-Straits relations, two major events indicate efforts to ameliorate this relationship. Jeffrey Bader notes that observers must call their attention to the visit by the head of the Taiwan Straits Exchange Foundation to the PRC, which was the highest level visit since June 1995.(36) The second incident was the visit of two PRC ships to Kaohsiung on Taiwan and that two Taiwanese ships will soon travel to Fuzhou and Xiamen on the PRC.(37) Considering Taiwan's economic and cultural ties to the Mainland, Yu Xintian of the Shanghai Academy of Social Sciences does not predict a military invasion of Taiwan from the PRC.(38) Edmund Liu, the Director of the Far East Commercial Office (Taiwan) in Jordan, reminds observers of their common bonds and Taiwan's official stance against independence: "our position is very clear: We don't want independence, this is our position. We are Chinese, we are not Taiwanese."(39) Liu comments that President Lee, who supports reunification, won more than 54 percent of the vote indicating that the people on Taiwan are behind his policies. Also, Liu mentions that only a minority demand independence from the Mainland.(40)

One could raise the Taiwan Straits crisis in early 1996 as an indication of unstable PRC-Taiwan ties; however, this incident was probably not rooted in disdain for Taiwan as much as it was a need for Jiang Zemin to consolidate his leadership in the Chinese Communist Party.(41) As the PRC fortifies its economy and political system, relations between Taiwan and the PRC can only improve. Based on this evidence, Taiwan will probably not be a sore spot for relations between China and the United States.

Concerning trade, the United States frequently complains about intellectual property rights and copyright laws that it alleges China has broken. This attitude has led to a wounded trade relationship with China. For example, in early September 1996 the United States suddenly cut China's textile export quota by 195,001 dozen without providing adequate justification for its action according to the Chinese government.(42) Furthermore, the United States is dissatisfied with a trade deficit with China every year since 1983, totaling $40 billion in 1997.(43) Yet, the Chinese government also claims it has a trade deficit with the United States.(44) These actions are symptoms of a relationship characterized by an overall lack of understanding and effective management.

Denying American accusations, China has tended to be criticized concerning weapons proliferation with Pakistan and Iran. Yet, it is advisable for the United States to laud China for its improved behavior in this area. For example, China is a member of the Nonproliferation Treaty, the Comprehensive Test Ban Treaty, the Chemical and Biological Weapons Conventions and the Land Mine Protocol. China has also expressed its desire to gain entry to the Zangger Commission and has requested U.S. support. It is seeking admission to the Missile Technology Control Regime and recently established an office devoted to arms control issues in its Ministry of Foreign Affairs in order to exemplify its emphasis on the subject. Furthermore, the United States and China improved bilateral arms control relations during the recent Jiang-Clinton summit where China agreed to halt its nuclear and missile dealings with Iran in exchange for the elimination of a 12-year old embargo on U.S. sales of nuclear-power equipment to China.(45) In this area, China has made much progress which should be considered a positive development concerning its relations with the United States.

In general, China-United States relations appear to hold much promise. Opportunities for investment in China are abundant considering the FDI China received in 1996 was estimated to be $40 billion--which was second only to that of the United States.(46) The potential obstacle for investors is whether China can create new legal and political structures that support its high inflow of FDI.(47) China expert Winston Lord made a prescient observation in 1996 that Jiang Zemin will be more accepted by his peers after the recently concluded National Party Congress in October 1997, and therefore will be more flexible in his foreign policy.(48) Interestingly, it appears that President Clinton's lack of China expertise and a coordinated Asia policy will be the main obstacles to achieving an advantageous relationship with China in the future.

Southeast Asian Membership in an Energy Regime

Southeast Asian nations appear willing to join a regime that fosters the protection of their territorial sovereignty and their access to energy resources. Indonesia, Malaysia, and Brunei are the main resources of oil and natural gas in Southeast Asia.(49) Brunei is estimated to possess more than $30 billion in financial reserves and does not appear as open to foreign investment in oil as are Indonesia and Malaysia.(50) Other countries in the region possess smaller reserves, and some nations such as Thailand do not have any oil. The following summary will examine the threat faced by some of these nations from China, the United States' relations with these countries, and their prospects for oil development.

United States-Indonesia Relations

Indonesia is a nation that has territorial disputes with Vietnam and Malaysia. Assuming it can resolve its differences, Indonesia can become a member of an organization sponsored by its American ally. Indonesia's energy outlook appears hopeful, but continued exploration is needed. Kent Calder explains that "keeping China and Indonesia from becoming large-scale energy importers likewise deserves priority and could be furthered by cooperative initiatives."(51) He suggests that the United States should offer official development assistance for domestic efficiency goals and for foreign investment incentives in the energy sector.(52) The Overseas Private Investment Corporation already offers specific risk and extended risk guarantees for U.S. investment in Indonesia. This kind of policy could be intensified in order to attract American investors to a resource development regime.

In 1994, Indonesia decreased investment barriers with its "deregulation packages" and has made "considerable progress in trade and investment" liberalization according to the State Department.(53) The Department of Energy (DOE) concluded an agreement with the government in November 1995 that will promote increased trade, investment, and development of sustainable energy in Indonesia. DOE's additional objective in this opportunity was to enhance its ties to American industry and non-governmental institutions in energy cooperation.(54) News that is hopeful for American energy exploration firms is that the Department of Commerce has labeled Indonesia as being a "Big Emerging Market" and that it is considered to have "enormous potential for economic and energy development."(55) This 1995 meeting was the first time that American private sector executives were invited to Indonesia to discuss both oil and renewable energy issues in bilateral relations. The potential obstacles to U.S. development of Indonesian energy reserves that were assessed at this meeting were "energy project financing, privatization of Indonesia's energy sector. . . streamlining of Indonesia's regulatory framework, and optimization of United States-Indonesia private sector cooperation."(56) More meetings like this could occur; however, it would be advisable for the American policy direction to be altered to encompass a multilateral resource development regime that requires Indonesia to finalize its territorial disputes with Vietnam and Malaysia.

United States-Malaysia Relations

Malaysia has territorial disputes with China, Brunei, the Philippines, Taiwan, Vietnam, Singapore, Thailand, and Indonesia.(57) A regime that fosters the settlement of these problems and simultaneously aids its oil industry would be quite appealing to Malaysia. The United States has a healthy relationship with this nation. Malaysia, like Indonesia, is a major oil exporter which requires further exploration to halt its latest trend of relying more on oil imports. U.S. investors have given $9 billion to Malaysia's economy, most of which is devoted to petroleum development.(58) The Department of State describes the Malaysian government as fostering FDI; however, a potential problem to investors is that it "retains considerable discretionary authority over individual investments. In some sectors it has used this authority to restrict the percentage of foreign equity or encouraged foreign firms to enter into joint ventures with local partners."(59) One hopes that Malaysia will be more cooperative concerning foreign investment after other nations express interest in an energy development regime.

United States-Vietnam Relations

This relationship has been a troubled one yet holds much potential for the future. The United States finally normalized relations in July 1995 with the nation that delivered to the United States its only military loss. The long delay that took place in sending Ambassador Peterson to Vietnam intensely dissatisfied Vietnamese officials.(60) However, Vietnam does not possess the leverage to treat the United States with resentment because of its increasing fear of China' territorial ambitions.

Vietnam has border disputes with China, Brunei, Malaysia, Philippines, Taiwan, Indonesia, and Cambodia. China, Vietnam's most feared adversary, fought a naval battle with Vietnam in 1988 for the Spratly Islands.(61) China commented that its border negotiations with Vietnam in September 1996 were faring well concerning the Beibu Gulf, a region where China has successfully found oil deposits in previous explorations.(62) Despite its claims of improving relations with Vietnam, China recommenced offshore oil drilling on territory disputed by an alarmed Vietnam in March 1997.(63) China has always denied criticism that it intends to achieve hegemony in the region; however, its actions do not corroborate its public statements.

Concerning whether Vietnam would join a United States-sponsored energy regime, it appears that Vietnam will need oil as it becomes more industrialized, but is more urgently seeking protection against China's territorial ambitions. Currently, biomass fuels are mostly consumed in Vietnam. For its industrialization and electricity needs, Vietnam is using indigenous coal resources. The government of Vietnam has inhibited the importation of petroleum products which has prevented Vietnam from following the pattern of countries at similar levels of development that depend on imported oil.(64) Nevertheless, Vietnam will continue to industrialize and will likely need to secure its access to oil.

Vietnam's private sector has expanded rapidly since the opening of its economy. The World Bank describes Vietnam as "an attractive yet challenging environment for foreign investors."(65) To aid them, Vietnam passed a foreign investment law in November 1996 that facilitates foreign investors' opportunities to form domestic partnerships.(66) Foreign businesses from 55 countries have already allocated $22.6 billion for efforts in Vietnam.(67) Essentially, it appears that Vietnam would be quite receptive to the idea of foreigners investing in its energy resources.

The United States must understand the implications of Vietnam-China relations for its own policy in Southeast Asia. Due to Chinese belligerence, Vietnam's Communist Party leader, Do Muoi, has begun to modernize Vietnam's navy in order to protect its offshore economic development.(68) Additionally, the loss of the Soviet Union as a major contributor to the Vietnamese economy has starved the country of cash. In the context of a need to devote funds to economic development rather than to a costly defense budget, Vietnam has made overtures to the United States for protection from its unsettling neighbor to the north.

Two events recently took place that indicate Vietnam's desire for a detente with the United States. In April 1997, Hanoi announced that it would pay the United States $145 million for the debt that South Vietnam incurred during its war with the North. This astonishing development took place during Secretary of the Treasury Robert Rubin's visit to Vietnam. Considering Vietnam won the war yet is willing to pay for the defeated side's loans, one can guess that Vietnam is desperate to court the United States as an ally in order to seek protection from China and to build its economy.(69) Another event that illustrates Vietnam's desire to enjoy flourishing relations with the United States was the release of one of its longest-serving dissidents in September 1997.(70) Because of these gestures, it would be wise for the United States to realize its advantageous position in securing the accession of Vietnam to a resource development regime.

Concerning soldier investigations following the Vietnam War, the State Department writes that remaining are "only 55 individuals whose fates are unresolved. Achieving the fullest possible accounting for those who did not return from the war remains the administration's highest priority in its relations with Vietnam."(71) As of mid-1995, the United States was the eighth-largest foreign investor in Vietnam, with approximately $530 million devoted to projects.(72) Upon reminding itself of its geopolitical and economic interests in this policy proposal, the United States could pursue improved relations with Vietnam and not allow POW negotiations to impede progress on this energy regime.

United States-Philippines Relations

The Philippines have shared a curious history with the United States. After a long period of being colonized by the United States, the Philippines reaffirmed their national pride after the United States pulled out of Clark Air Base and Subic Bay Naval Base. However, actions from China have resulted in an increased defense budget and calls for the return of the U.S. military umbrella. Despite the 1992 Manila Declaration where all East Asian disputees agreed to halt any efforts to seize the Spratly Islands and pledged to resolve ownership problems, China seized the Philippine-claimed part of the Spratlys known as Mischief Shoal and deployed naval vessels in February 1995.(73) Additionally, China arrested Philippine fishermen in this territory to display its unquestionable sovereignty. Although being a contracting party to the Manila Declaration, China displayed its hegemonic mentality when it bluntly declared in its 1992 Territorial Sea Law that it claimed the entire South China Sea.

The Philippines relies more on fossil fuels than on biomass energy and understands its demand for oil. John Soussan explains that the Philippines, Malaysia, and Thailand have tried "alternatives to oil such as gasifiers (which use wood and charcoal) and fuel alcohol (from sugar cane), but as yet these alternatives have made little impact beyond the experimental stage."(74) Considering its increasing need for oil as its transportation sector grows, the Philippines acknowledges the need to protect its potential sources of oil in the Spratly Islands from Chinese encroachment. For this reason in 1995, the Philippine Congress passed a 15-year military modernization bill which was "an unprecedented sum by Philippine defence standards" but was deemed necessary since the Spratly dispute "highlighted its lack of military muscle."(75) Consequently, it appears that the Philippines would be ready to join an energy development regime that protects its sovereignty and explores new sources of energy.

With investment totaling more than $2 billion, the United States is the largest foreign investor in the Philippines.(76) The Philippines has embarked on investment liberalization efforts and signed in 1987 the Omnibus Investment Code that positioned it along with ASEAN investment structures. The United States appears to be in a good posture to increase investment in the Philippines considering its progress in investment reform.

Japan's Role in an Energy Development Regime

In order to play a greater role in international affairs, Japan could contribute heavily to this regime because of interests in its already substantial investments in Southeast Asia. For example, Japan was quite alarmed by China's seizure of the Philippine-claimed part of the Spratly Islands in February 1995 because this territory was close to the Palawan Shelf where Japan has invested much money.(77) Throughout the same year, Japan was not pleased with China's drilling for oil on the Diaoyu Islands whose ownership is disputed between these two countries.(78) As of late 1995, Japan was the top donor for China, Brunei, Indonesia, and the Philippines.(79) Japan's top four recipients of official development assistance in descending order are China, Indonesia, the Philippines, and Thailand.(80) Clearly, Japan has a major economic interest in this region. As it seeks greater international prestige through requests for a permanent seat on the United Nations Security Council, Japan could enhance its image by contributing to this energy regime.

More important, it is advisable for Japan to support this forum due to a desire for oil that conflicts with that of China. Japan is concerned about China's pursuit of a blue water navy and its warming relations with Russia, a nation with which Japan still disputes territory from World War II.(81) Interestingly, although Japan fears China's ambitions, Chinese newspapers frequently have distressing headlines such as "Japan should not distort history"(82) and "Japan has 'motives' calling China a threat"(83) that recall Japanese expansionism in the first half of the twentieth century. Even though military expansionism is antithetical to Japan's pacifist postwar mentality and China is Japan's top recipient by far of official development assistance,(84) China still cannot forget egregious wartime actions like the Nanjing Massacre.

In order to avert aggravating China, Japan backed away in February 1997 from an antimissile defense project sponsored by the United States, which was a surprise to many observers who are accustomed to Japanese acquiescence to American security demands.(85) Kent Calder suggests that both the United States and Japan are nations that could offer significant assistance to the development of China's oil fields through technologies that are not readily available in China.(86) Yet, Japan and the United States must avoid pursuing this plan in a way that could appear anti-China since Chinese newspapers are continually characterized by alarmist articles such as "Military Accords Create Suspicion" that predict all actions in the United States-Japan alliance are targeted against China.(87) For example, the summit between President Clinton and Prime Minister Hashimoto was innocently postponed in 1995 to April 1996, which was shortly after the United States and China diplomatically clashed in the Taiwan Straits Crisis. According to Ezra Vogel, China perceived this meeting's reaffirmation of the United States-Japan alliance as directed against China because of the timing of the summit.(88) Yet, Secretary Albright's February 1997 speech in Tokyo was appropriate since it stated the U.S. intention to simply maintain the current level of 100,000 forward-deployed troops in Asia.(89) If carried out in a non-confrontational manner, Japanese assistance could ease the American burden to this project, prove to the world Japan's importance in the international community, and could culminate in a beneficial resource regime.

Assessment of Southeast Asian Energy Reserves

Speculation ranges from the futility of oil exploration in East Asia to the prodigious profits awaiting in this region. Various studies have come to different conclusions, and this section provides a brief summary of the potential for oil in East Asia. John Soussan characterizes Indonesia, Malaysia, and Brunei by writing that they:

all contain extensive deposits of fossil fuels and have major oil and gas industries. Vietnam contains significant coal deposits and Thailand limited reserves of lignite and natural gas. Elsewhere, reserves of fossil fuels in South East Asia are confined to small deposits of marginal significance.(90)

He adds that the Philippines has "a little oil and coal."(91)

Conversely, the U.S. General Accounting Office has made the characterization of a "potentially oil-rich South China Sea, particularly the Spratly Islands."(92) Chinese figures estimate that the South China Sea has reserves comparable to those of the plentiful North Sea, meaning no less than 25 billion barrels.(93) Francis Lees also speculates that oil and natural gas deposits are located among the Spratly chain of 400 islands.(94)

Vaclav Smil is of a third opinion that no one can entirely know of the oil reserves in this region because it will take at least two decades before explorations will reveal the answer.(95) Based on bellicose Chinese exploration methods, one can infer that China might be drilling for oil on disputed territories for the next twenty years and may finally be in possession of a blue water navy to enforce its claims. Consequently, insightful U.S. policy is needed urgently.

Alternate Energy Resources in Southeast Asia

One could question the emphasis on oil in this proposal instead of other renewable resources. However, no other energy resource is as easily available than oil in Southeast Asia and no other form of energy is as critical to the transportation industry as is oil. John Soussan explains the problems associated with increased industrialization and transportation:

Throughout South East Asia, energy demand for transport will continue to grow rapidly, and will inevitably be based on petroleum products. Transport is a sector in which fuel substitution possibilities are extremely limited.(96)

For other sectors, natural gas is an alternative to oil because it is cleaner and is abundant in Asia. However, it is difficult to transport and its production is quite expensive.(97) Another type of clean energy is nuclear, which is largely used by Japan and South Korea. Yet, its problems are numerous considering the troubles preventing the spread of non-peaceful uses of nuclear energy. Soussan mentions that the grandiose dreams of using alternative forms of energy such as wind, water, and solar power "have rarely been fulfilled, however, and such forms of energy make little more than a marginal contribution to the energy economies of South East Asia."(98) One should not exclude the possibility of the development of alternate energy resources; however, in the near future, it is advisable for this proposed regime to concentrate on oil. Accordingly, since the oil supply will eventually disappear, this energy organization could enact long-term projects that seek the advancement of other energy forms. This concept is critical to the future of the world's energy supply and to the political implications of unwise energy policies of all countries and not only China.

Role of the ASEAN Regional Forum (ARF)

To discuss emerging security concerns, the ASEAN Regional Forum held its first meeting of foreign ministers in 1994. ARF's long-term goal is to provide an arena for conflict resolution(99) --a forum that would be ideal for this proposal. It has generally not been used as an instrument through which active security policy is coordinated; therefore, the American plan could make use of this nascent organization. A South Korean government official remarks that ARF has been used too infrequently and predicts it will eventually become a major force in East Asian security.(100) Other fora that are not currently very active could help coordinate this policy proposal. An effort between the United States, ASEAN governments, and private sectors that has been created is the Private Investment and Trade Opportunities (PITO) project. This endeavor tries to expand trade, investment, and technology transfer between the United States and ASEAN. It is funded by private contributions and by the ASEAN Regional Program of the U.S. Agency for International Development.(101) Another effort, the ASEAN-United States Initiative (AUI), coordinates a working group composed of senior officials who try to improve trade and investment relations.(102) Also, a goal of Southeast Asian states is to create an ASEAN Investment Area (AIA) by 2003, which could facilitate investment under this plan. Essentially, this proposal can be administered through ARF with the assistance of existing organizations.

Concerning the U.S. role, the President can work with the Department of Energy and the Department of State's Office of the Coordinator of Business Affairs (CBA) in implementing this plan. American funding can come from American investors, who could be motivated by government incentives like tax breaks. Also, the U.S. government's Overseas Private Investment Corporation (OPIC) can offer increased investment guarantees for U.S. businessmen. In 1991, OPIC already had over $600 million of investment guarantees and loans outstanding to ASEAN.(103) Asian funding could come through independent firms or could come from multilateral development finance institutions such as the Asian Development Bank (ADB), of which the United States is a member.

Gaining U.S. Congressional Approval

Since this plan makes many assumptions about proper governmental actions, potential problems could occur if it is not carried out judiciously. In addition to the American public's overall disdain for an active U.S. foreign policy, Congress will likely be skeptical of this proposal's essential points. First, Congress will be reluctant to give American businessmen incentives under a new program since it will either have to raise taxes or cut existing spending in order to pay for this plan according to the "pay-as-you-go" law under the Omnibus Budget and Reconciliation Act of 1990. Ideally, this plan could be passed in Congress because it is a sensible security policy and preserves the indispensable role of the United States in East Asia. However, since few Congressmen appear to engage themselves in the pursuit of long-term foreign policy objectives, it would be advisable for the Executive branch to emphasize certain ephemeral aspects of the plan in order to gain support. For example, the anti-Iran and Iraq sentiments, which do not appear ready to diminish in the near future, could be used as a public rationale for implementing this plan. The American public historically appears to have been more receptive to policies created as a response to a perceived enemy rather than those that idealistically embark on unfamiliar internationalist terrain.

Interestingly, American oil companies face more uncertainty from the threat of American sanctions as a response to countries' human rights records than they do from nations where they plan to explore. Many oil executives have stated their reluctance to go to hot spots for oil development due to the imposition of sanctions on Myanmar in April 1997 for its human rights atrocities.(104) This action prevented Unocal Corporation from developing a promising gas field there. Experts fear Indonesia may be reprimanded for its human rights practices in East Timor,(105) which would not help the chances for a successful energy development regime. However, hope exists that Indonesia will not suffer the same fate as Myanmar since Indonesia is a far more important partner to the United States than is the hermit nation of Myanmar. The example of China is instructive since it continues to receive MFN status renewal despite the furor over its human rights record.(106) One hopes that the human rights debate will not permeate the process of creating an East Asian energy development regime.


This proposal's success depends on many assumptions which could be realized if handled sapiently. Essentially, this proposal tries to link the frequently opposing concepts of conflict resolution--which is based on compromise--with national interest--which is based on greed. Southeast Asia requires peace and energy resources to ensure its success. With this plan, China could be motivated to look inward for potential sources of oil and overcome its reluctance to spend time drilling for oil with the help of coordinated foreign investment. Acting according to its national interests, the United States attempts to prevent Chinese hegemony of Southeast Asia and Middle Eastern domination of the oil industry with this plan. Additionally, Japan's voice among the world could be enhanced by its participation in such a critical project. Most important, Southeast Asia can focus on its continued development rather than on costly defense budgets with a plan that seeks peace and prosperity for this region.

1. Charles W. Freeman, III, "China: the emergence of a new economic giant," China Daily, 9 September 1996, 5.

2. Gwynne Dyer, "Holding the China fort for how long?" Washington Times, 2 February 1997, A15.

3. Downloaded from the Department of State home page ( background_notes/china_1097_bgn.html) on 9 November 1997.

4. Vaclav Smil, Energy in China's Modernization (Armonk, New York: M.E. Sharpe, 1988), 168.

5. Kent Calder, "Asia's Empty Tank," Foreign Affairs, Vol. 75, No. 2 (March/April 1996): 56.

6. Francis Lees, China Superpower (New York: St. Martin's Press, 1997), 200.

7. Smil, 37.

8. Calder, 57.

9. Wang Hui, "Western China Promising," China Daily, 2 November 1996, 4.

10. Calder, 60.

11. Secretary Peña's Confirmation Hearing Statement. Downloaded from the home page of the Department of Energy ( on 1 October 1997.

12. Calder, 60.

13. Ibid.

14. William Branigin, "China Takes Over Philippine-Claimed Area of Disputed Island Group," Washington Post, 11 February 1995, A18.

15. David Shambaugh, "China's Security Policy in the Post-Cold War Era," in At Issue: Politics in the World Arena, Steven Spiegel and David Pervin, eds. (New York: St. Martin's, 1994), 145.

16. John Soussan, "Energy Reserves," in South East Asian Development, Denis Dwyer, ed. (New York: Longman Scientific & Technical, 1990), 142.

17. Pacific Campaign for Disarmament and Security, Information Update, No. 38 (August-September 1995), 6.

18. Calder, 58.

19. Ibid.

20. Downloaded from the National Security Council home page (http://www.whitehouse. gov/WH/EOP/NSC/Strategy/#III-east) on 9 November 1997.

21. Calder, 67.

22. Branigin, A18.

23. Marvin Ott, "U.S. Foreign Policy and East Timor," School of International Service, American University, Washington, D.C., 26 February 1997.

24. President Clinton quoted in John Pomfret, "Successful Visit Bolsters Jiang," Washington Post, 3 November 1997. Downloaded from the Washington Post home page (http://search. WPlate/1997-11/03/149l-110397-idx.html) on 9 November 1997.

25. Nicholas Lardy, China in the World Economy (Washington, D.C.: Institute for International Economics, 1994), 99.

26. Richard Nixon, Beyond Peace (New York: Random House, 1994), 126.

27. Samuel Huntington, The Third Wave (Norman, Oklahoma: University of Oklahoma Press, 1993), 68.

28. Richard Nixon, Seize the Moment (New York: Simon and Schuster, 1992), 174.

29. James Przystup, "Sino-American Relations and U.S. Policy Options," House International Relations Subcommittee on Asia and the Pacific (Washington, D.C.: Rayburn House Office Building), 23 April 1997.

30. Henry Kissinger, "Beware: a Threat Abroad," Newsweek (17 June 1996): 41.

31. Jeffrey Bader, "Sino-American Relations and U.S. Policy Options," House International Relations Subcommittee on Asia and the Pacific (Washington, D.C.: Rayburn House Office Building), 23 April 1997.

32. Michael Yahuda, "Foreign Relations of Greater China," in Greater China: the next superpower?, David Shambaugh, ed. (Oxford, United Kingdom: Oxford University Press, 1995).

33. Lardy, 71.

34. Julie Dam, "Despite All the Sniping, It's Still Business as Usual," Time (12 February 1996), 48.

35. Quoted in Ibid.

36. Bader, 23 April 1997.

37. Ibid.

38. Yu Xintian, "Sino-US Relations: Before the Clinton-Jiang Summit," School of International Service, American University, Washington, D.C., 13 October 1997.

39. "Chinese envoy says Beijing wants peaceful unification; Taiwan official says majority in Island are against independence," Downloaded from the home page of The Star (3 March 1996), ( on 15 November 1997.

40. Ibid.

41. Bruce Nelan, "Today Hong Kong, Tomorrow Taiwan," Time, 12 February 1996, 48.

42. "Moftec Protests US Unilateral Action," China Daily, 9 September 1996, 1.

43. Winston Lord, "Sino-American Relations and U.S. Policy Options," House International Relations Subcommittee on Asia and the Pacific (Washington, D.C.: Rayburn House Office Building), 23 April 1997.

44. Chen Yali, interview by author, China Daily headquarters, Beijing, China, 27 September 1996.

45. Pomfret, 3 November 1997.

46. Downloaded from the Department of State home page ( issues/economic/trade_reports/96_toc.html) on 10 October 1997.

47. Ibid.

48. Lord, 23 April 1997.

49. Downloaded from the Department of State home page (gopher:// ftp%3ADOSFan%3AGopher%3A03%20Publications%20-%20Major%20Reports%3A Background%20Notes%20Series%3AInternational%20Organizations%3AASEAN %2C%201992) on 9 November 1997.

50. Downloaded from the Department of State home page ( on 9 November 1997.

51. Calder, 65.

52. Ibid.

53. Downloaded from the Department of State home page ( issues/economic/trade_reports/96_toc.html) on 10 October 1997.

54. Downloaded from the Department of Energy home page ( on 10 October 1997.

55. Ibid.

56. Ibid.

57. Pacific Campaign for Disarmament and Security, 7.

58. Downloaded from the Department of State home page ( on 9 November 1997.

59. Downloaded from the Department of State home page ( issues/economic/trade_reports/96_toc.html) on 10 October 1997.

60. Van Nguyen, interview by author, Embassy of Vietnam, Beijing, China, 23 September 1996.

61. Branigin, A18.

62. Smil, 163.

63. "Vietnam protests Chinese oil project," Washington Times, 17 March 1997, A13.

64. Soussan, 144.

65. Downloaded from the home page of the World Bank ( html/extdr/offrep/eap/viet.htm) on 1 October 1997.

66. "Viet Nam approves new foreign investment law," China Daily, 11 November 1996, 6.

67. Ibid.

68. Pacific Campaign for Disarmament and Security, 5.

69. "Hanoi to repay Saigon's loans," Baltimore Sun, 5 April 1997, A11.

70. Keith Richburg, "Vietnam Frees Leading Dissident," Washington Post, 5 September 1997, A25.

71. Ibid.

72. Downloaded from the Department of State home page (gopher:// 00ftp%3ADOSFan%3AGopher%3A03%20Publications%20-%20Major%20Reports%3 ABackground%20Notes%20Series%3AEast%20Asia%20and%20the%20Pacific%3AVietnam %2C%201995) on 9 November 1997.

73. Branigin, A18.

74. Soussan, 145.

75. Pacific Campaign for Disarmament and Security, 5.

76. Downloaded from the Department of State home page ( background_notes/philippines_1197_bgn.html) on 9 November 1997.

77. Calder, 61.

78. Ibid.

79. Yen Aid Watch Vol.2, No. 3 (November 1995), 7.

80. Ibid.

81. Japanese diplomat, interview by author, (Washington, D.C.: 24 October 1997).

82. Chen Yali, "Japan Should Not Distort History," China Daily, 18 September 1996, 4.

83. "Japan has 'motives' calling China a threat," China Daily, 21 October 1996, 4.

84. Yen Aid Watch, 7.

85. Clifford Krauss, "Japan Hesitant About U.S. Antimissile Project," New York Times, 15 February 1997, 3.

86. Calder, 66.

87. Zhou Jihua, "Military Accords Create Suspicion," China Daily, 7 October 1996, 4.

88. Ezra Vogel, "Japan's Response to the Rise of China," School of International Service, American University, Washington, D.C., 29 September 1997.

89. Willis Witter, "Albright reassures Japan on defenses," Washington Times, 24 February 1997, A11.

90. Soussan, 157.

91. Soussan, 161.

92. Pacific Campaign for Disarmament and Security, 6.

93. Smil, 37.

94. Lees, 200.

95. Smil, 37.

96. Soussan, 145.

97. Calder, 68.

98. Soussan, 161.

99. Downloaded from ASEAN Regional Forum's home page ( arfintro.html#arfintro) on 9 November 1997.

100. South Korean diplomat, interview by author, Washington, D.C.: 17 October 1997.

101. Downloaded from the Department of State home page (gopher:// 70/00ftp%3ADOSFan%3AGopher%3A03%20Publications%20-%20Major%20Reports%3 ABackground%20Notes%20Series%3AInternational%20Organizations%3AASEAN%2C%20 1992) on 10 October 1997.

102. Ibid.

103. Ibid.

104. Agis Salpukas, "U.S. Oil Companies Risk Unstable Politics in Washington," The New York Times, 22 May 1997. Downloaded from the New York Times home page ( china%29%20AND%20%28%29%20AND%20%28pipeline%29) on 9 November 1997.

105. Ibid.

106. Ibid.

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