Daily Times

The lack of a cohesive US foreign policy response to China’s military and economic rise is visible in the US’s half-baked lawfare strategies. An example is the Better Utilization of Investment Leading to Development Act (BUILD Act) passed by the US Senate and made law by President Trump on 5th October 2018.

The BUILD Act establishes the United States International Development Finance Corporation (USIDFC). It will be a wholly owned US Government corporation “under the foreign policy guidance of the Secretary of State.”Notably, through the USIDFC, the BUILD Act authorises increasing the U.S.’s existing global foreign development financing for less developed countries from USD 29 to 60 billion. USIDFC will combine the Overseas Private Investment Corporation (OPIC) and the US Agency for International Development’s (USAID) Development Credit Authority. The USIDFC will reportedly take around a year to be operational.

The purpose of the USIDFC is “to mobilise and facilitate the participation of private sector capital and skills in the economic development of less developed countries… and countries in transition from nonmarket to market economies, in order to …, and advance the foreign policy interests, of the United States…” (Section 102).

USIDFC’s policy aims include “to provide countries a robust alternative to state-directed investments by authoritarian governments and the United States strategic competitors using high standards of transparency … which take into account the debt sustainability of partner countries”. The USIDFC will “complement and be guided by overall United States foreign policy… and national security objectives….” (Section 101).

Clearly, “authoritarian governments” is a veiled swipe at China whom the US has accused of using “debt traps”, “economic imperialism” and “predatory economics” causing asset stripping of debt ridden countries. An oft quoted example of China’s debt diplomacy is its successfully securing a 99 years lease of the Sri Lankan Hambantota Port.

Amongst other things, the BUILD Act will empower USIDFC to carry out its purpose and policy aims, make loans or guarantees, fund or invest in projects, establish and operate enterprise funds, and broaden the participation of US small businesses and cooperatives and other small US investors in the development of small private enterprise in less developed friendly countries or areas (Section 201).

The BUILD Act is an international foreign development finance instrument of the US designed to offer a “private sector, market based solution” in contrast to “China’s model of large state-to-state lending”. It has been called “the most important piece of US soft power legislation in more than a decade” (Centre for Strategic and International Studies, 12 Oct. 2018).

The BUILD Act could be the new pivot in the US strategy to try and contain China’s expanding economic clout through the BRI. Earlier examples of US lawfare against China include terminating and replacing NAFTA with Countering America’s Adversaries through Sanctions Act or CAATSA (2017) (legislation principally aimed at China); entering into a relentless trade war with China; and terming China a rogue international player with scant regard for international law.

The BUILD Act is an international foreign development finance instrument of the US designed to offer a “private sector, market based solution” in contrast to “China’s model of large state-to-state lending”

Arguably, the USIDFC will be the US’s counter narrative to the Chinese international development finance models under China’s Belt and Road Initiative (BRI) which has been slated as the single largest mega infrastructure project in history. Through USIDFC, US can be seen re-posturing itself in international development finance, a hitherto ignored area by the US, but a new battlefront in the tussle between China and the US for global dominance.

But the BUILD Act may end up doing too little and being too late. Here’s why.

First, the BUILD Act comes five years after China’s President Jinping sowed the seeds of the BRI which is emblematic of China’s re-visitation of history through its behemoth Silk Road Economic Belt and the Maritime Silk Road.

The BRI will reportedly span more than 68 countries comprising two-thirds of the world’s population and 40 percent of global GDP. It is reported that till date, China has invested more than USD 340 billion in various projects under the BRI. Reassuringly for China, despite hurdles and roadblocks faced in some countries (e.g. Malaysia), BRI has been overall well received in third world countries struggling to keep their economies afloat with no alternative in sight.

Second, purely in dollar terms, the USD 60 billion funding through the USIDFC is miniscule in comparison with the upwards of USD 1 trillion investments planned under China’s BRI. To give some perspective, during the September 2018 Being Summit of the Forum on China Africa cooperation, China pledged an investment of USD 60 billion in Africa alone.

Third, BRI is bolstered by a robust economic engine to fund BRI projects around the world. The bellwether of this economic engine is China’s banking sector that includes the Chinese Development Bank and Export-Import Bank of China, both of which are reported to have lent billions of dollars to foreign countries.BRI projects are also supported through the Silk Road Fund — a state owned investment fund set up in 2014 — which invests in BRI projects through equity, debts and other funds.

The China-led Asian Infrastructure Investment Bank (AIIB), with an authorised capital of USD 100 billion, is another key player in international development finance. AIIB, which is a multilateral institution whose membership now comprises of 87 countries including UK, Australia and India, has been working with private sector companies in Asia Pacific for infrastructure development. The IDIFC’s intended focus area i.e. private sector development in less developed countries can therefore expect stiff competition from China.

Fourth, and most importantly, the true muscle of China’s “soft power” has been grossly miscalculated by a reactive US foreign policy based on a myopic national security driven transactional approach towards international relations. From the South China Sea to the Pacific Island nations where China and the US have been vying for influence, China has pursued active diplomatic engagement to remove lingering mistrust.

To reclaim lost ground after an adverse International Court of Justice judgment against China’s claim in the South China Sea in 2016, without giving up on its larger claim, China has been actively pursuing a Code of Conduct for managing disputes with the 10 member Association of South East Asian Nations (ASEAN). Simultaneously, China has been taking steps to ease tensions with ASEAN countries by adopting a conciliatory approach such as the joint maritime exercises conducted by China and ASEAN countries in October this year. All this could put the US in a fix if its traditional role as security guarantor in the South China Sea gets compromised as a result of a rapprochement between China and the ASEAN countries.

US swagger notwithstanding, the BUILD Act lawfare faces an uphill task in wooing developing countries to hedge their bets on the US — a declining superpower led by a divisive President who is fast undoing post-WW-II international multilateralism. By establishing the USIDFC under the BUILD Act, the US has not exactly offered a credible global counter narrative to the BRI. It is simply trying to catch up in a game it is fast losing to China.

The author is a practicing international lawyer and a graduate of Harvard Law School. He can be reached at: veritas@post.harvard.edu

Published in Daily Times, November 23^rd 2018.