The Strategic and Economic Dialogue: Almost as Interesting as a Sharknado

The U.S.-China Strategic and Economic Dialogue (SED) has only generated fitful levels of interest in recent years. With this year's SED coming on the heels of Sino-American rancor involving Edward Snowden, expectations for this week's talks were tamped down as well.

With D.C. swamped with all the high-profile sharknado news, it would be easy to miss this week's SED talks. In a semi-surprising development, the Washington Post's Howard Schneider reports that something significant happened:

China and the United States have agreed to restart negotiations over a possible investment treaty that could substantially open the Chinese economy to more American companies.

During high-level talks over the past two days, Chinese officials agreed to drop a longstanding demand that negotiations over a Bilateral Investment Treaty would have to exclude sensitive or developing sectors of the economy that it wanted to protect.

Although many American companies have businesses in China, investment there is governed by a strict set of rules that often limits foreign ownership — a policy, U.S. officials argue, that will crimp China’s growth in the long term and which limits the benefits American companies and workers can gain from China’s economic expansion.

American officials characterized the change in negotiating policy as a major concession and a sign that the new Chinese government wants to speed economic opening.

The Financial Times' Geoff Dyer provides some interesting details:

The two governments began discussion of a bilateral investment treaty in 2008, but the talks did not progress. According to US officials, the discussions are now being revived after China made an important concession about the basis for the negotiations. Every sector will be up for discussion unless one of the governments declares it off-limits – a “negative list” approach, which Washington had long called for.…

China has also agreed this year to revise its offer for signing up to the World Trade Organisation’s agreement on government procurement rules.

Both stories stress that there's no guarantee a bilateral investment treaty (BIT) will be negotiated -- in theory, they've been negotiating this for five years. Still, what's interesting is why China agreed to these concessions. There are three proffered reasons in the news roundups: 1) putting a halt to rising levels of U.S. investor protectionism in reaction to things like the proposed takeover of Smithfield Foods by Shuanghui International, 2) a desire by China to jump-start lagging U.S. foreign direct investment in the country since 2010, 3) a crowbar to allow China Inc. to buy up the world, or 4) a mechanism by China's new leadership to jump-start domestic economic reforms.

I don't think it's (1). The truth is there really hasn't been a lot of U.S. investor protectionism directed against China. Furthermore, no BIT in the world is going to crimp the CFIUS process if there really is a national security case.

It could be (2). According to the Commerce Department's Bureau of Economic Analysis data, U.S. foreign direct investment in China has fallen from $58.9 billion in 2010 to $51.3 billion last year. That last figure is still way above pre-2008 levels, however, so I'm not sure it's enough of a motivating factor.

I don't think it's (3), and I'll outsource why to this Martin Wolf column.

I have no positive evidence for (4), except that it would be consistent with what President Xi Jinping and Premier Li Keqiang have been jaw-jawing about with respect to domestic economic reform. And using an international agreement to force domestic change in China is not an unprecedented maneuver.

Developing … in some very interesting ways.

Daniel W. Drezner

Why Teaching American Foreign Policy Is the Best Job Ever

Every once in a while someone asks me if I ever get bored teaching the same courses over and over and over and over again. Now, one answer I give is that I teach enough different courses so that the material seems new when I pick it up again. But another answer is that for some courses, what makes my subject area so awesome is watching my students' reactions. Here's the sanitized version:

My students never believe me when I tell them the myriad ways the United States nearly launched nuclear weapons by accident during the Cuban missile crisis. My students never believe me when I tell them that Ronald Reagan sent an inscribed Bible and a cake shaped like a key to Iran as a way to release American hostages held in Lebanon. My students really do turn white as a sheet when I talk about the eurozone crisis.

I bring this up because, thanks to the Washington Post's Rajiv Chandrasekaran, I have a new story to tell about how bureaucratic politics and outsourcing can have some perverse effects in foreign policy:

The U.S. military has erected a 64,000-square-foot headquarters building on the dusty moonscape of southwestern Afghanistan that comes with all the tools to wage a modern war. A vast operations center with tiered seating. A briefing theater. Spacious offices. Fancy chairs. Powerful air conditioning.

Everything, that is, except troops.

The windowless, two-story structure, which is larger than a football field, was completed this year at a cost of $34 million. But the military has no plans to ever use it. Commanders in the area, who insisted three years ago that they did not need the building, now are in the process of withdrawing forces and see no reason to move into the new facility.

For many senior officers, the unused headquarters has come to symbolize the staggering cost of Pentagon mismanagement: As American troops pack up to return home, U.S.-funded contractors are placing the finishing touches on projects that are no longer required or pulling the plug after investing millions of dollars.

In Kandahar province, the U.S. military recently completed a $45 million facility to repair armored vehicles and other complex pieces of equipment. The space is now being used as a staging ground to sort through equipment that is being shipped out of the country.

In northern Afghanistan, the State Department last year abandoned plans to occupy a large building it had intended to use as a consulate. After spending more than $80 million and signing a 10-year lease, officials determined the facility was too vulnerable to attacks.

Read the whole thing -- but my favorite part is what's gonna happen to the new headquarters building in the southwest:

The military, which has opened a formal investigation into the decisions that led to the contract, is considering two options for the building: demolishing it or giving it to the Afghan army. Although the handoff sounds appealing, U.S. officials doubt the Afghans will be able to sustain the structure. It has complex heating and air-conditioning systems that demand significant amounts of electricity, which, in turn, require costly fuel purchases for generators. The building is wired for 110-volt appliances, not the 220-volt equipment used by Afghans. And, the officials note, the U.S. military recently built a new headquarters building on the Afghan base that adjoins Leatherneck.

“Both alternatives for how to resolve this issue are troubling,” Sopko said.

Based on his conversations with military officials, he said one of the options now seems to be gaining traction: “The building will probably be demolished.”

Seriously, this is s**t you can't make up.