(June 16-30, 2016)

Indo – Pacific Region

Award of the Permanent Court of Arbitration.

The Permanent Court of Arbitration (PCA) has issued a press release fixing 12 July as the date for issue of its award in the arbitration case between the Philippines and China. The PCA had, in Octber 2015, awarded its first decision in the case where it had ruled that the case was “properly constituted” under the United Nations Convention on the Law of the Sea.

China has also been reaching out to other claimant states during the past couple of months with high profile visits to these countries. The latest is the visit of State Councillor Yang Jiechi to Vietnam where both countries agreed to "appropriately handle relevant disputes and problems". China’s outreach is directed at mitigating the international pressure that it may be subjected to, in the case of an inimical award by the PCA.

China has been claiming that 60 countries have voiced support for Beijing’s position that the tribunal lacks jurisdiction in the case and the ruling is therefore invalid. China also continues to maintain its stand of not recognizing the arbitration or its award. Notwithstanding this, China had issued a position paper on its stand in this case in Dec 2014 which has been taken cognizance of by the PCA in its deliberations.

China’s claim of support dubious at best since only 8 countries have publicly confirmed their support for China’s stand while 4 have denied China’s claim of support. The others have been silent but in contrast, 40 countries have publicly voiced support for implementation of the award by the PCA. Consequently, it boils down to a game of numbers if China were to be pressurized by the international community into accepting the award. India has been publicly non-committal on the issue despite China’s claim of its support. It is also pertinent to note that India, in the past, has agreed to even inimical awards by the PCA in cases where it had been involved.

Japan

Elections to House Of Councilors:

The next round of elections to the Upper House of Parliament or House of Councilors in Diet will be held on 10th July. The four main political parties have revealed their campaign pledges but Abenomics, the economic policy package championed by Prime Minister Shinzo Abe, seems to be the main rhetoric of poll campaigns. The ruling party seeks a fresh mandate for its economic policies amid opposition criticism that the lives of the ordinary people are not improving. Japan having fought deflation for more than two decades, remains mired in weak growth despite repeated attempts to revitalize the economy. The Bank of Japan (BoJ) has injected massive liquidity into the economy and has also introduced negative interest rates to spur lending and investment in January 2016. However, the growth is tepid and inflation has continued to fall. The decision of the UK to exit the EU has led to farther fall in stock prices and yen’s appreciation.

Just before the elections, the government has postponed a consumption tax hike until October 2019 in deviation from a major economic policy reform announced in December 2012. The previous consumption tax hike from 5 to 8 percent was imposed in 2014. Some economists believe that raising taxes has worked at cross purposes to boosting economic growth and instead depressed consumer spending. By postponing the tax hike by 2½ years, the Abe government expects to see an economic upturn, which in turn will help Japan exit deflation. Incidentally, the extended time limit also coincides with the completion of the current government’s term in 2018.

In July elections, the opposition wants to keep the LDP from gaining ground in the upper house, where they are short of the two-thirds mark though the ruling coalition holds a two-thirds majority in the more powerful lower house or House of Representatives. It is also the first nationwide election since the voting age was lowered to 18 years from 20.