Mission Accomplished?

China suddenly withdrew its controversial oil rig from Vietnamese waters ahead of schedule. Beijing says the rig did its job -- and it may have, in more ways than one.


NOTE: This story was updated Wednesday afternoon.

More than two months after China sparked a regional crisis with the dispatch of a billion-dollar deep-water oil rig to waters claimed by Vietnam, Beijing announced that the rig had finished its work ahead of schedule and was heading back to China.

The big question now is: What does this really mean?

Opinions are divided on how to read the move -- as unexpected as the initial placement of the rig in disputed waters in early May -- but few outside observers believe Beijing is ultimately backing down from its aggressive claims of maritime rights in the South China Sea. Indeed, the fact that foreign ministry officials said the move had been made for commercial reasons, reiterated their claims to the disputed waters, and left the door open for the rig to return suggests that the maritime battles between China and its neighbors are far from over.

Indeed, Vietnamese officials warned China Wednesday not to send any more rigs or to repeat what Hanoi believes are violations of its exclusive economic zone, which extends 200 miles off the coast. Last week, Vietnam's foreign ministry again demanded the withdrawal of the rig and on Wednesday reaffirmed the country's claims to the disputed Paracel Islands.

For the moment, China is ignoring Hanoi's demands and painting the rig's relocation as a purely commercial move.

Early Wednesday, the two Chinese firms operating the rig said that they had finished drilling two exploratory wells in waters not far from the disputed Paracel Islands, about 120 nautical miles off the coast of Vietnam. The firms, China National Petroleum Corporation (CNPC) and China Oilfield Services Limited, said that the rig found some oil and gas prospects in the region, and was withdrawn ahead of the arrival of a typhoon. The companies had earlier said that the rig would operate until the end of the good weather season in mid-August.

Many Chinese users of Weibo, a Twitter-like microblogging service, criticized the withdrawal, Reuters reported, suggesting that Beijing had backed down to pressure from the United States and others. But Chinese Foreign Ministry spokesman Hong Lei told reporters the rig's withdrawal was a purely commercial decision.

"The oil rig is relocated in accordance with the relevant company's plan of operation at sea. It has nothing to do with any external factor," he said.

The United States "welcomes" news of the rig's withdrawal, State Department spokesperson Jen Psaki said at a briefing Wednesday, but she said she would not speculate on the reasons that drove Beijing to retire the rig ahead of schedule. She added that Secretary of State John Kerry had last week reiterated U.S. concerns with Chinese actions in the region, "and those have not all been addressed."

CNPC, meanwhile, said that it would study the geological data from the two wells and then decide on its next steps for the project, leaving the door open for a replay of the contentious deep-water operation, which has led to numerous low-intensity skirmishes between Chinese and Vietnamese coast guard vessels since May.

"The big question is whether the rig returns next year or not," said M. Taylor Fravel, an expert on Chinese maritime claims at the Massachusetts Institute of Technology.

Most observers accept at least part of the official Chinese explanation. The typhoon clearly played a part in the redeployment of the expensive rig, which Chinese officials have for years viewed as a strategic, rather than a purely commercial, tool. And it's entirely possible that the rig finished drilling the exploratory wells ahead of schedule thanks to favorable weather earlier this summer.

Beyond that, there are several other possibilities. China may have felt that it sufficiently made its point by dispatching a rig to disputed waters and successfully operating it despite vehement protests and limited tactical responses from Vietnam and others. The United States, for example, repeatedly denounced Chinese actions as "provocative," but did not seek to force the issue.

Or China may have decided to throttle back the controversial operation in light of the blowback it sparked around the region. Massive anti-Chinese riots gripped Vietnam in the days after the rig's placement. The Philippines, Japan, and Australia have all announced closer defense ties with the United States, in part because of China's aggressive and sweeping claims to big chunks of the South China Sea. The United States and Japan pointedly took issue with China's maritime grabs at a regional security meeting in May. And the issue topped the agenda for U.S. diplomats in Beijing last week at a big strategic summit with Chinese counterparts.

"Of course, moving the rig does not mean that China is backing down. However, it is clear that China underestimated the Vietnamese and international reaction to the deployment of the rig," Fravel said. "As a result, an earlier-than-scheduled withdrawal of the rig, from a tactical perspective, might be undertaken to reduce focus on the issue."

Anthony Wallace - AFP - Getty


Gap Gambles on Myanmar

The company spent a year preparing to enter the former pariah state. Will it be a trailblazer or a cautionary tale?

Gap Inc. began considering operating in Myanmar almost a year after the United States and the European Union formally eased sanctions on the former pariah state; it took another year of preparation before the company became the first U.S. retailer to make clothes in the country formerly known as Burma. In June, Gap announced it will be putting "Made in Myanmar" jackets and vests on its shelves later this summer.

Gap's decision to invest in one of Asia's poorest countries and the long process from conception to reality highlight the promise and potential hazards of the country as it reenters the global economy. Being the first in Myanmar could give the company an edge -- keeping its supply chain "flexible and nimble," Gap executives say. In the fiercely competitive apparel market, staying trendy requires the speed afforded by a complex web of suppliers and factories that can react at a moment's notice. But there are risks -- to the company's investment as well as its reputation -- in working in a country without a minimum wage or reliable electricity. And the government's precarious international standing, as its treatment of minorities, political dissidents, and journalists frequently draws outcries, only makes it riskier.

The retailer first started exploring the option last summer by meeting with local NGOs, trade union leaders, and officials. Sonia Syngal, who runs the company's supply chain, worked with Gap's team responsible for the company's environmental impact and labor standards, led by Kindley Walsh Lawlor, to consider all aspects of sourcing from Myanmar, from human rights to anti-corruption policies.

In the fall, the Gap team reached out to Claude Fontheim, a labor lawyer and consultant with experience in brokering deals between apparel companies and international unions. (Fontheim declined to be interviewed for this story.) By winter, the Gap team had a plan that included the outlines of a private-public partnership. The company announced in June at the U.S. Embassy in Myanmar that along with its factory orders, Gap would also work with USAID and Hewlett-Packard on a women's education program. The company didn't disclose how much money it was investing in Myanmar overall or in the USAID program.

In addition to partnering with USAID, the company also consulted other current and former government officials, including former State Department ambassador-at-large for global women's issues, Melanne Verveer. A Gap spokeswoman said the company paid Verveer's firm, Seneca Point Global, a "nominal fee" to consult on women's empowerment in Myanmar. Verveer applauded Gap's efforts in this blog post on the company website.

The company's Myanmar plan also includes at least a year of factory audits by an outside firm. Gap's in-house team usually inspects factories to make sure they meet the company's international labor standards, but in Myanmar the clothier decided to also contract with an independent auditor to check working conditions. That firm, Verité, inspected factories over six months and worked with suppliers to improve circumstances.

"We found, when we first assessed, that workers didn't really have any idea of what they could expect in terms of payment, time spent on-site, limitations on overtime, days off -- very basic-level benefits," Verité CEO Dan Viederman said.

Viederman said Gap won't allow his firm to discuss specifics but that the factories' working conditions have improved since Verité began its inspections.

Viederman's findings highlight the risk for Gap: The company has to create standards or it could be blamed for those poor working conditions later.

Gap says it's ready to do that.

"In Myanmar, we're currently working with two factories and are committed to applying industry-leading best practices and to doing our part to ensure that internationally recognized human rights and labor standards are upheld," Courtney Wade, a company spokeswoman, stated in an email. She added that Gap's decision would result in 700 local hires for a new building at one of the factories and that the company's business will contribute to the employment of 4,000 people.

Wade said Gap is placing orders through two South Korean vendors that the company has used before, though she wouldn't disclose which ones for competitive reasons. She said Gap's supply chain includes more than 40 countries, many of which are emerging markets.

Gap has said it will file disclosures about its business with the State Department, even though the company is not required to because it isn't building its own brick-and-mortar factories. U.S. companies that invest more than $500,000 in Myanmar or invest in the oil and gas industry have to file annual reports about corruption, human rights, and environmental programs.

"It's our goal to release it soon so that it can act as a baseline," Lawlor, the Gap vice president for social and environmental responsibility, said.

Despite all of Gap's efforts to convince the world that it is acting aboveboard in Myanmar, there are skeptics. Local unions and international labor rights activists say pay and factory conditions are the most important factors.

"There's no lower-wage place to go with lower enforcement of labor conditions than Myanmar," said Dara O'Rourke, a professor at the University of California at Berkeley who studies labor conditions and supply chains. O'Rourke said that Gap must be "radically transparent" by, for instance, disclosing the independent factory auditor's findings to prove that it isn't relying on sweatshops.

"Just the fact that they've hired a bunch of consultants doesn't give me any confidence in the conditions," O'Rourke said. "They're going into a country which has, currently, very little infrastructure for enforcing labor rights, so it's incumbent on Gap Inc. to prove that they've created safe, healthy, humane, dignified jobs."

Vicky Bowman, a former British diplomat who now runs the Myanmar Centre for Responsible Business, said Myanmar's government has very little capacity to police labor standards.

"It's all very well to tell the companies to do the right thing, but if you don't have local government enforcing it, it makes it harder for the company to do the right thing," Bowman said.

"All Western companies are aware, as they should be, that they're going to come under a lot more scrutiny in Myanmar than they will in Laos, Cambodia, or Vietnam," she said.

Activists targeted Gap for not signing an accord on labor rights in Bangladesh after a series of disasters drew attention to the lack of basic fire and building safety standards in the country. An Asian-American political group, 18 Million Rising, recently created a fake Gap website to draw attention to the issue during the company's annual shareholder meeting.

In addition to the possible reputational risks to Gap, the U.S. government could reinstate sanctions if the government of President Thein Sein is seen as backtracking on its commitment to democracy. Last week, House Foreign Affairs Committee Chairman Ed Royce (R-Calif.) called for new punitive measures against his government for human rights abuses, including visa bans and possible new economic sanctions.

Over the past year, 15 U.S. companies, including Coca-Cola and Western Union, have registered with the State Department that they've invested in Myanmar. As of April, Myanmar's government approved $243.6 million in foreign direct investment from U.S. companies, according to a recent U.S. Embassy report. The energy sector provides the bulk of outside investment but that could be changing. And Gap's trailblazing could be a helpful test case for other U.S. companies waiting on the sidelines.

Peter Kucik, a former Treasury Department sanctions official now with Inle Advisory Group who provides consultancy services to companies on business in Myanmar, said he expects more companies to commit to doing business in the country over the next two or three months.

"Last year people just wanted the broad strokes and now you have people saying they've looked at the numbers and this does make sense," Kucik said.