Tuesday, May 25, 2010

China’s Defaulted Debt: Remedies for U.S. Citizens

    Between 1913 and 1942 the Chinese Government, through the Hong Kong & Shanghai Banking Corporation, Deutsche Bank and other international banks, issued Chinese Government Bearer Bonds in Europe and the United States. The most notable of these bonds was the 5% Reorganization Gold Loan of 1913. These loans were "denominated as 'gold loans' and were payable in British pound sterling and three other European currencies in semi-annual interest payments with principal due and payable in 1960" (Green, 2002).
    In 1939 the Chinese Government defaulted on its sovereign debt as a result of the financial stress created by World War II. During that time a group known as the Kuomintang Business Management Committee, ("KBMC"), exerted substantial control over the finances of the Government of China (1912-1926), and the Republic of China (ROC) from 1927 until 2000. The KBMC currently functions as a private, non sovereign entity managing banks, shipping lines, technology companies and assorted other business ventures worth an estimated "$6 billion dollars" (confidential source, 2010).
KBMC has long been involved in the finances of the public and private sectors of China, Hong Kong, and Taiwan. When World War II began in 1939, the ROC defaulted on all of its foreign debt obligations known as "bearer bonds." Following the default, China issued several more instruments of foreign debt known as Victory Bonds and Allied Bonds. In 1949 the Communist party had taken power in China, renaming it the Peoples Republic of China ("PRC") and the ROC government fled in exile to Taiwan. The PRC later renounced all debt obligations incurred under former regimes, despite its assumption of the government owned salt mines and other assets that had been used to secure such debts, including the gold loans.
On October 29, 2003 an Order of the Executive Yuan decreed that the debts would not be repaid prior to national unification. This was to include all outstanding foreign currency bonds issued in the Mainland prior to 1949 and the short term Gold Bonds of 1949. Debts incurred by any government banks or other financial institution that accepted deposits prior to the ROC's retreat to Taiwan were also renounced.

In 2008, the United States District Court for the Southern District of New York found that some of the bondholders' claims against the PRC were barred by the statute of limitation, Morris v. PRC, (2007).
    Despite numerous attempts by United States citizens to redeem their gold loan "bearer bonds", to date, satisfaction has not been made. "That debt includes about $260 billion on bonds issued by the former Republic of China. Of that, more than 300 American citizens are owed nearly $100 billion from bonds on which the People's Republic of China has defaulted"
Various suits within the U.S. court system have cited the Foreign Sovereign Immunities Act "FSIA", denying U.S. citizens the right to sue the PRC. The FSIA places the burden of proof on the defendant to prove that it is a "foreign state" as defined at 28 U.S.C. § 1603(a),(b), thereby entitling such state to sovereign immunity. If the state in question is found to be a "foreign state", the suit may only proceed under one of the exceptions as defined at 28 U.S.C. § 1605, 1605A, and 1607. Common exceptions include: waiver of immunity by the foreign state, § 1605 (a)(1); an agreement to arbitrate the dispute, § 1605(a)(6); engagement in a commercial activity by the foreign state, §1605(a)(2); or the commitment of a tort in the United States, §1605(a)(5). The burden of proof for an exception under the FSIA rests with plaintiff.
The following, is an examination of several cases which have been heard as a result of the PRC's default on the "gold loan" bearer bonds that will evaluate the validity of the United States citizens' rights to collect on the debts, despite the Foreign Sovereign Immunities Act and the Statute of Limitations.


National City Bank of New York v. Republic of China, 348 U.S. 356 (1955)
In 1954 the Republic of China sued National City Bank in a Federal District Court to recover monies deposited by an agency of the Republic. National City Bank filed a counterclaim for over $1.6 billion dollars in defaulted treasury notes that were issued by the Republic. The Republic plead sovereign immunity, and requested a dismissal of the case. The District Court dismissed National City's counterclaims. National City appealed to the Court of Appeals for the Second Circuit, that
affirmed the dismissal and the denial on the ground that the counterclaims were not based on the subject matter of the respondent's suit and therefore it would be an invasion of the respondent's sovereign immunity for our courts to permit them to be pursued. National City Bank of New York v. Republic of China (1955)
However, the pressing question of "sovereign immunity" caused the case to be heard by the U.S. Supreme Court on November 9, 1954. In delivering the opinion of the court, Justice Frankfurter stated, "[t]he status of the Republic of China in our courts is a matter for determination by the Executive, and is outside the competence of this Court" (National City Bank of New York v. Republic of China (1955).
The "status", referring to the recognition of the Republic of China as a "foreign sovereign" was viewed by the court as a duty of the U.S. State Department. "The State Department is responsible for conducting foreign affairs, and as such is the usual determining authority for granting immunity for a particular suit." Ex parte Republic of Peru, 318 U.S. 578. However, in this case, the U.S. State Department refused to issue such a "status" opinion.
The court, fearing interference with international relations, similar to those that resulted after the issuance of an opinion in The Schooner Exchange v. McFaddon (1812), was reluctant to issue such an opinion in this case regarding the "status" of the Republic of China. Essentially, the court was reluctant to advise on a matter that would have a direct affect on foreign affairs and international relations, as it was not seen by the court as a power of the judicial branch.
This case demonstrated the need for a re-evaluation of the ability to circumvent valid "sovereign immunity," through the use of counterclaims that ultimately tested the definition of "original subject matter". In addition, it demonstrated the inability of U.S. bondholders to successfully sue the Republic of China, directly, for the defaulted debt in a U.S. court. Despite the 1952 revisions to U.S. law that stripped foreign governments of their sovereign immunity when engaged in "commercial activity" within the United States (e.g. the sale of government bonds), claims arising prior to the 1952 law were barred from consideration. Thus this issue was no longer a matter for the judicial branch, but rather a matter for the executive branch to settle; or so it seemed.
The 1979 Exclusion
In 1979, a bilateral trade agreement between the United States and China was entered into, and the United States formally recognized the PRC as the established government of China. As part of the agreement, all claims of United States nationals against the Chinese government for losses of property were to be settled. However, this agreement only covered losses occurring between October 1, 1949 and May 1979.
The Chinese Government bonds that had been in default prior to October 1949, were
therefore excluded from this agreement and bondholders were not eligible to receive any of the proceeds from the 1979 settlement. Again, holders of the "gold loan" bearer bonds, which defaulted in 1939, were without remedy.

Jackson v. People's Republic of China, 794 F.2d 1490, 1497-98 (11th Cir. 1986)
    Jackson v. People's Republic of China (1986) was heard in the U.S. Court of Appeals, 11th Circuit on July 25, 1986. The Plaintiffs, were investors in bearer bonds that were issued by the Imperial Government of China in 1911, seeking a review of the 1982 Hu Kuang Railway Case. This decision, of an American court, set aside default judgment against the PRC and dismissed the case for lack of subject matter and jurisdiction.
    Initially, the Hu Kuang Railway Case resulted in default judgment in favor of the plaintiff, do to China's refusal to appear before the court. The default judgment resulted in the Chinese government's prompt attention to the matter in the form of an aide memoire which expressed China's view regarding sovereign immunity. The memoire stated,
[a]s a sovereign State, China incontestably enjoys judicial immunity. It is in utter violation of the principle of international law of sovereign equality of all States and the UN Charter that a district court of the United States should exercise jurisdiction over a suit against a sovereign State as a defendant, make a judgment by default and even threaten to execute the judgment. (Nisuki, 2001, p. 163)
    The same memoire argued that the debts at issue in the Jackson case were "odious debts" incurred by the prior regime, and as such the current government of China refused to recognize them. The Chinese out of fear of internal affairs compromise continued to hold fast to the principle of "state equality," as defined in the UN Charter.

The Foreign Compensation (Financial Provisions) (No.2) Order 1987
    China's refusal to recognize the bonds issued under the PRC regime was a matter of principle. This became increasingly evident in 1987 when China entered into an agreement with Britain to satisfy the bonds of "British citizens holding the 1913, 5% Reorganization Gold Loan bearer bonds – the same bond issue held by many American bondholders" (Testimony of Jonna Z. Bianco, July 17, 2008, p. 4)
    The agreement between Britain and China was reached through the implementation of Britain's Foreign Compensation Act of 1950, which established the Foreign Compensation Commission (FCC). The FCC's duties included the registration, settlement, and disbursement of compensation arising out of claims against foreign Governments.
    Under the Foreign Compensation Act of 1950, section 7(2), the power to direct payment was given to His Majesty. Section 7(2) stated,
…His Majesty may by Order in Council direct the payment into the Exchequer by the Commission, out of any sums paid to the Commission for the purpose of being distributed by them under this Act, of such amount as may be determined by or under the Order…(www.opsi.gov.uk)
    In 1987 Her Majesty exercised this power and, Statutory Instrument 1987 No. 2201, The Foreign Compensation (People's Republic of China) Order, was issued. The Order stated,
…an Agreement (hereinafter referred to as "the Agreement") entered into between Her Majesty's Government and the Government of the People's Republic of China on 5th June 1987 provides that the Chinese Government shall pay to the Government of the United Kingdom the sum of £23,468,008…(www.opsi.gov.uk)
Part I (2) of the Order defined the claims to be settled as,
a bond or other document of title in respect of a loan or obligation issued or guaranteed before 1st October 1949 by a former government of the territory or any part thereof or by another public authority in the territory. (www.opsi.gov.uk)
Prior to this agreement the Chinese government had never formally recognized any debts
issued before 1949. This agreement, however, only remedied the debts owed on pre-1949 bonds that were owned by a British national (individual, corporation, firm, or association) prior to January 1, 1980.
    This restrictive settlement with British nationals meant that China had chosen to finally acknowledge the debts. However, U.S. bondholders were still without remedy, and the pre-1949 bonds were now considered to be in a "selective default" status.
    Selective default is a term often used by various credit rating agencies to describe the default of an issuer on a bond, loan or other material financial obligation. This is different from a "default" rating in that the issuer has not entered into bankruptcy filings or any other proceedings which would otherwise cease business. According to Fitch Ratings, this includes "the selective payment default on a specific class or currency of debt" http://www.fitchratings.com/creditdesk/public/ratings_defintions/index.cfm?rd_file=ltr ).
    In addition to the Fitch ratings, " S&P has maintained an 'investment grade' rating for China since 2001, which S&P defines as an issuer not having any defaulted full faith and credit sovereign debt outstanding and unpaid"(
    China's 1987 agreement with Britain established formal acknowledgement and responsibility for the outstanding PRC bonds by the current regime. This, by definition, should have resulted in a lower credit rating for all issues of sovereign debt until all of the defaulted bonds were satisfied. However, this was not the case.
    U.S. bondholders, recognizing this anonymity and having been barred from remedy in all previous cases, decided to take an innovative approach. If remedy was not available through the U.S. judicial branch; political power and the use of the legislative branch was seen as a possible solution by the bondholders.

Senate Concurrent Resolution 78 (2008) and House Resolution
1179 (2008)
    In 2008 Senate Concurrent Resolution 78 and House Resolution 1179 were introduced on the floor of the 110th Congress of the United States.
    House Resolution 1179
(2008) stated the following:

Whereas the continued publication of artificial ''investment grade'' sovereign credit rating classifications assigned to the Government of the People's Republic of China provides an incentive to the Chinese Government to avoid a negotiated settlement with United States citizens regarding China's default on its sovereign debt obligations;
Whereas the lack of transparency concerning the selective default of the Government of the People's Republic of China poses a material risk to the investing public and threatens the integrity of the United States capital markets… (H.R. 1179 (2008), p. 3, 3-4).
These Resolutions sought remedy for U.S. bondholders by forcing China to disclose all
defaulted debts, including those of the prior ROC regime, when registering prospectuses and other instruments with the Securities and Exchange Commission ("SEC").
    While the SEC does not have any control over Nationally Recognized Statistical Rating Organizations (NRSROs), such as Moody's, Fitch, and S&P, they do have a self proclaimed responsibility to U.S. investors. The SEC homepage states that, "[t]he mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation" (www.sec.gov).
    The protection of investors in the United States should be derived from the basic laws and rules which are intended to regulate the securities industry. According to the SEC,

[t]he laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it. (www.sec.gov)
Essentially, Senate Concurrent Resolution 78 and House Resolution 1179, should have
resulted in restricted access to U.S. capital markets to China until the bonds are satisfied; or required the full disclosure of "selective default" status, on pre-1949 sovereign debt instruments, in prospectuses and post-1949 instruments that are registered with the SEC. Instead, Senate Concurrent Resolution 78 was referred to the Foreign Relations Committee and was never brought back to the floor for voting. In addition, House Resolution 1179 was also referred to the House Committee on Financial Services and never returned for voting.
    The SEC, however, did investigate the three major NRSROs, Moody's, Fitch, and S&P. An article in the New York Times, by Michael Grynbaum (2008), stated that a report issued by the Securities and Exchange commission, "confirmed what many on Wall Street had long suspected: the major ratings firms, including Fitch, Moody's and Standard & Poor's, flouted conflict of interest guidelines and considered their own profits when rating securities, among other suspect practices"(http://www.globalsecurities/watch.org).
    NRSROs are private companies, paid by their clients, in this case China, to evaluate the risk associated with their financial instruments. Often, if risk is determined to be higher than usual by analysts, issuers will buy insurance policies to back their securities and other financial instruments, and thus avoid a lower credit rating. Conflict of interest arises when the analysts ignore obvious facts, such as those associated with China's sovereign credit ratings, for fear that issuing a lower credit rating will result in a loss of revenue from the client.
Possible Remedies for PRC Bondholders
    Thus far U.S. holders of the bearer bonds issued by the Peoples Republic of China have found little prospect for collecting on their investments. Bonds issued prior to 1949 were blocked from remedy by the Foreign Sovereign Immunity Act. The 1952 changes to U.S. law denied sovereign immunity to states engaged in activities that were "commercial"; and the subsequent case, Republic of Argentina v. Weltover (1992), defined commercial activity by a state. Despite this progress, the bonds which were issued prior to 1952 remained barred from consideration under the "commercial" exception of the Sovereign Immunity Act.
    Precedent set by other international agreements and cases, while establishing the current government of China's responsibility for the PRC bonds and commercial activity, have also failed under the time constraints associated with the FSIA and the "commercial exception". Efforts in the legislative branch have not generated results and the Securities and Exchange Commission has yet to issue charges against the NRSROs for fraudulent activity. At this point, it would appear that the only successful remedy for these matters would be the denial of access to U.S. credit markets by executive order, or through the lowering of China's credit rating by the NRSROs.
Denial of access to U.S. markets is not a new practice in the U.S. when negotiating with a non-compliant or un-willing counterpart in international relations. Similar measures have been taken against Iran. The Iran and Libya Sanctions Act ("ILSA") of 1996 authorized the president "to select at least two from a list of six authorized economic punishments for sanctioned firms: for example, the president could deny access to U.S. financial markets" (www.nti.org).
    The SEC, while lacking the power to force NRSROs to change credit ratings, could bring charges against the NRSROs for fraudulent business practices. A similar charge was brought against Goldman Sachs & Co by the SEC in 2010. According to Daryl Isherwood (2006),
In its complaint, the SEC alleges that Goldman failed to tell investors in a collateralized debt obligation that a major hedge fund that helped choose the portfolio had also placed bets against it. (www.foxbusinessnews.com)
    Goldman Sachs' alleged concealment of the hedge fund, an instrument used to mitigate risk on an investment, essentially deprived potential investors of the knowledge necessary to make an informed decision prior to investing. The "inflated" credit ratings, issued by the NRSROs that ignored China's "selective default" on prior financial instruments, a no different than Goldman Sachs concealing details about the hedge fund. Both instances involve business entities concealing or distorting information about the risk associated with investments and therefore should fall under the regulatory authority of the SEC.
    Finally, the Statute of Limitations should not bar U.S. citizens from collecting on their bonds. The ROC acknowledged in Article 63 (2) of its 1992 amended Constitution, the mutual amity to satisfactory compromise on their debts, upholding the legal effects of any civil matters created in the Mainland Area, with and including "any foreign national". Article 63 (3) of the Constitution was a clear admission that the ROC continued to accept responsibility for all of its pre-1949 debt.
The Statute of Limitations for these defaulted bonds toiled upon the act of default in about 1939, re-toiled again on about September 18, 1992 by the action of acknowledgement of the debt, and has re-toiled again on about March 1, 2004 when Article 63, paragraph 3, was amended and Article 63(3) became Article 63 paragraph (1) and (2), and 63 (3) was deleted, as promulgated by Presidential Order on about October 29, 2003 and subsequently implemented on about March 1, 2004 by Order of the Executive Yuan. (Source Confidential)
For these reasons, U.S. citizens have a clear and apparent right to satisfaction of their
bonds. The key elements to win such a battle in a U.S. court, while complicated, are available. Successful remedy of this situation, however, will require the coordination and cooperation of all three of the U.S. branches of government.

Ex parte Republic of Peru, 318 U.S. 578
Jackson v. People's Republic of China, 794 F.2d 1490, 1497-98 (11th Cir. 1986).
Gallegly, E. (2008, September 8). China debt syndrome. The Washington Time. Retrieved on
May 22, 2010 from http://www.globalsecuritieswatch.org/SEC_Report_to_Post_on_GSW_Website.pdfhttp://www.washingtontimes.com/news/2008/sep/08/china-debt-syndrome/

Grynbaum, M. (2008, July 9). Study finds flawed practices at rating firm. The New York Times.
Retrieved on May 22, 2010 from
House Resolution 1179
Isherwood, D. (2010 April 16). SEC charges goldman sachs with fraud. Fox Business New.
Retrieved on May 22, 2010 from http://www.foxbusiness.com/story/markets/industries/finance/sec-charges-goldman-sachs-fraud/
Monterey Institute for International Studies. (2010). Economic sanctions: Pressuring Iran's
nuclear program. Monterey: Sabatini. Retrieved on May 22, 2010 from http://www.nti.org/e_research/e3_economic_sanctions_pressuring_iran_nuclear_program.html
Morris v. PRC, 478 F. Supp. 2d 561(2007).
National City Bank of New York v. Republic of China, 348 U.S. 356 (1955).
Nisuki, A. (2001). Japan and international law: past, present, and future. Netherlands: Kluwer
Law and Taxation Publishers.
Office of Public Sector Information. (1950). Foreign Compensation Act. London, UK: OPSI.
Office of Public Sector Information. (1987). Statutory Instrument 1987 No. 2201. London, UK:
Republic of Argentina v. Weltover, 504 U.S. 607 (1992)
Securities and Exchange Commission. (n.d.). Retrieved on May 22, 2010 from

Sites & Harbison PLLC. (2002) Memorandum: Default by China of Full Faith and Credit
Bonds: 40% of Proceeds to Benefit U. S. Government and Many American Communities. Nashville, TN: Greene, R.
Testimony of Jonna Z. Bianco (2008).
The Schooner Exchange v. McFaddon, 11 U.S. 116 (1812).

Tuesday, May 11, 2010

Challenging Global Policy: A 21st Century Evaluation of Sustainability and Global Governance


The reality of the twenty-first century has revealed the need for a comprehensive, logical, coordinated effort from the various agencies responsible for the successful management of global threats. Prior to World War II, international relations occurred within a structure where blood ran thicker than water; conflict resulted over conflicting ethnic values and norms such as religion, race, and tradition. Today, while these issues are still ongoing, international relations and peace operations are occurring in a world where money and, even water, runs thicker than blood. International trade, fresh water supply, food supply, and disease control are key issues that are facing the world today. In short, management of sustainability issues going forward will be the key to peaceful international relations and peace will be the key to a sustainable world.

Keeping the Peace Then and Now

Prior to World War II, keeping the peace meant preventing conflict that resulted from expansionist ideals and opposing religious and cultural values and norms. As far back as 1095, the First Crusade set out with the goal of recapturing Jerusalem and the Holy Land from Muslim rule. These religious wars continued for the next two-hundred years, and the term “crusade” was later used to describe contemporary campaigns outside the Levant in the 16th century.

Over eight centuries later, the blurring of ethnic and cultural boundaries between the Germans and Slavs resulted in a racial, social Darwinism that eventually gave way to armed conflict. Following World War I, the first attempt at modern peace keeping agreements resulted in the Treaty of Versailles.

The Treaty of Versailles did not appease Germany, and did not provide the constraints necessary to prevent it from becoming the dominant continental power once again. Resentment amongst the Germans and Austria-Hungary grew when harsh monetary penalties, breaking of territory, and massive ethnic relocation resulted in the destruction of the German economy.

Hyperinflation and the subsequent German default on sovereign debt owed to the victors of World War I, demonstrated the failure of the Treaty of Versailles and Woodrow Wilson’s Fourteen Points. This failure was evidenced by a short-term goal which failed to evaluate the multi-faceted needs to obtain long-term peace.

Following World War II and progressing through the late Twentieth Century, the United Nations, World Bank, and the European Union were formed. These are just a few examples of today’s international organizations that play a role in international relations and peace keeping operations. In addition to international organizations, the advancement of technology and international business has resulted in many non-governmental organizations (NGOs), and international corporations becoming actors on the international stage.

Today, the international structure has become more complex. While armed conflict, or threat thereof, has decreased, the issues that give rise to conflict have become more abundant and diverse.

Water Wars

A great Twenty-First Century example of the complexity of today’s system and new challenges to international relations can be demonstrated by examining the world’s most abundant resource; water. Water has become a key issue for states, corporations and NGO’s. Privatization of water and an ever expanding global population has resulted in sustainability concerns and conflicts, now called “water wars”.

According to Vandana Shiva (2002),

Paradigm wars over water are taking place in every society, East and West, North and South. In this sense, water wars are global wars, with diverse cultures and ecosystems, sharing the universal ethic of water as an ecological necessity, pitted against a corporate culture of privatization, greed and enclosures of the water commons. (p. x)

In addition to the paradigm wars, real wars, explicitly over water, have already erupted in some areas of the world. The Middle-East has already seen conflicts arise solely over water between Syria and Turkey as well as Egypt and Ethiopia.

Sustainable, strategic, and coordinated policy will be critical to the peaceful existence of this region within the first quarter of the Twenty-First century. According to Adel Darwish’s 1994 lecture at the Geneva Conference on Environment and Quality of Life,

Israel's population is projected to grow from 4.7 million in 1990 to about 8 million in 2025. By that time Palestinians in the west bank - because of their higher birth rate, are likely to reach just under seven million - the two peoples are to share the same water resources which they both now say are not enough. (http://www.mideastnews.com/WaterWars.htm)

Current international law provides little guidance for the control of water. There are very

few agreements that exist today other than customary rights, established by long-term use of the resource. In the Middle-East upstream countries often control the water resources affecting downstream peoples dependant on the water supply. This is the case between Egypt and Israel as well as Turkey.

The conflict between Egypt and Israel dates to the mid 1960’s when Israel acted against the diversion of the Jordan River. Conflict continued until the early 1970’s when meetings at Camp David, resulted in a peace treaty in 1979. Originally, Israel suggested cooperation on water projects. Sadat, Egypt’s president, agreed, but rescinded when the Egyptian army rebelled against him.

Amazed that the army could plot against him, Mr Sadat questioned Field Marshal Abdel Halim Abu Ghazala, the defense minister, who said the loyalty of the Egyptian army could not be guaranteed if a coup was mounted `to stop Israel [from] stealing the Nile’. The president quickly dropped the water-sharing idea. (Darwish, 1994)

The lack of clarity in international law should be the focal point for relevant agencies going forward. Little precedent exists “that the UN International Law Commission or the International Court of Justice could [cite] to establish some rules to arbitrate on water sharing. . .” (Darwish, 1994).

The World Bank, often criticized for its role in the privatization of water resources, financed a dam project in India in the late 1940’s. The bank set precedent by requiring an agreement between surrounding nations that established usage and rights prior to the dam being built. While successful, this practice by the World Bank has been criticized by those like John Perkins (2004), who argues that the financing of such projects is a manipulative move which places emerging countries into large amounts of debt, leaving them no choice but to give into the demands of the Bank and global politics. Perkins (2004) stated,

Ecuador is awash in foreign debt and must devote an inordinate share of its national budget to paying this off, instead of using its capital to help the millions of its citizens officially classified as dangerously impoverished. The only way Ecuador can by down its foreign obligations is by selling its rain forests to the oil companies. (p. xxiii)

These issues combined with a culture that has demonstrated the willingness to use armed force over less crucial matters is a recipe for disagreement. In addition, water plays a primary role in many religious beliefs throughout the world. According to Vandana Shiva (2002),

Those who control power prefer to mask water wars as ethnic and religious conflicts. Such camouflaging is easy because regions along rivers are inhabited by pluralistic societies with diverse groups, languages, and practices. It is always possible to color water conflicts in such regions as conflicts among regions, religions, and ethnicities. In Punjab, and important component of conflicts that led to more than 15,000 deaths during the 1980s was an ongoing discord over the sharing of river waters. However, the conflict, which centered on development disagreements including strategies of the use and distribution of Punjab’s rivers, was characterized as an issue of Sikh separatism. (p. xi)

Twenty-First Century Sustainability

As evidenced by the previously mentioned examples, peace is critical to sustainability and sustainability is important to peace. Conflict of any type reduces the resources that might otherwise be available to a nation’s citizens. In addition to the reduction of resources, war affects human lives, infrastructure, and the global economy. By obtaining peace, critical resources such as human capital, money, and environmental resources are freed for the betterment of a nation’s people. The quality of life is therefore improved and the threat of discord is thereby reduced.

A similar argument was presented in the United Nations’ document titled, Report of the World Commission on Environment and Development: Our Common Future, (“the report”). The report concluded that,

[a] world in which poverty and inequity are endemic will always be prone to ecological and other crises. Sustainable development requires meeting the basic needs of all and extending to all the opportunity to satisfy their aspirations for a better life. (http://www.un-documents.net/ocf-02.htm#I)

This leaves one question. What creates and defines sustainable development in a globalized world? The interdependent nature and challenges of today’s world often conflict with the nature of institutions that currently exist. Most of these institutions tend to be “independent, fragmented, and working to relatively narrow mandates with closed decision processes” (http://www.un-documents.net/ocf-02.htm#I).

The solution to this problem is simple; sustainable management processes and good governance of the nation state, NGOs, and international corporations can help to bridge the gap that currently exists in the international system.

A 2009 study by the Organization for Economic Cooperation and Development (OECD), Sustainable Governance Indicators (SGI), found that,

… the quality of governance is most important in ensuring sustainable policy outcomes. Countries with ‘good executive management performance, a sound democratic order and an effective inclusion of societal actors into policymaking processes are more successful in terms of sustainability and also in terms of social justice’. (http://www.sgi-network.org/pdf/SGI09_Brochure.pdf)

The quality of governance for a nation, NGO, or corporation should be evaluated by the

willingness to recognize a need for change, and the ability to adapt the policies and processes necessary to implement such change.

If this principle is applied to the current international system, the probability of achieving peace will be much greater. The inclusion of varying societal actors and an open, coordinated, policymaking process will reduce fear, define clear standards, and optimize the existing standards of governance and management.

In conclusion, the Twenty-First Century, while arguably a globalized world, can seize the opportunity to leverage globalization through good governance and sustainable management practices. It should not be seen as a need to “undo” or “reinvent” the current system and hundreds of years of international relations precedent; rather an opportunity to evolve and optimize the current system for the attainment of long-term global cooperation.


Darwish, A. Geneva conference on environment and quality of life. Retrieved from Lecture

Notes Online Web site: http://www.mideastnews.com/WaterWars.htm

OECD. (2009). Policy performance and executive capacity in the OECD: Sustainable

governance indicators 2009 [PDF document]. Retrieved on May 9, 2010 from http://www.sgi-network.org/pdf/SGI09_Brochure.pdf

Perkins, J. (2004). Confessions of an economic hit man. New York, NY: Penguin Group.

United Nations. (1987). A/42/427 Our common future: Report of the World Commission on

Environment and Development. Retrieved on May 9, 2010 from http://www.un-documents.net/wced-ocf.htm

Vandana, S. (2002). Water wars: Privatization, pollution, and profit. Cambridge, MA: South

End Press. Retrieved on May 9, 2010 from http://books.google.com/books?id=J7CGlu3qAOIC&printsec=frontcover&dq=Water+Wars&source=bl&ots=LlvX3JQ3Xc&sig=flTYmk8BczM83XEgNK9K-z4W3OI&hl=en&ei=UxjmS6C9CYGC8gaZvqiiDQ&sa=X&oi=book_result&ct=result&resnum=9&ved=0CEAQ6AEwCA#v=onepage&q&f=false