Estimates now exceed $75 billion (Kahn 1994,
Burton 1994, Pearce 1995). One critic contends
that the real
cost could total $77 billion, a sum so great that it could slow China’s recent economic boom (Kahn 1994). Some economists believe that the dam will never make economic sense. A 1994 review of design and financing plans suggested a benefit-cost ratio of 0.8, meaning that China could never recoup its investment through flood control or electricity benefits, much less make the project a commercial contributor (Ibid.).
Several opponents of the dam argue that for a lower price, numerous smaller dams could produce more power and greater flood control benefits (Burton 1994, Topping 1995). Such a plan would avert the need for massive population relocation and eliminate the risk of a giant flood. Although ten projects smaller than the Three Gorges are under construction on the upper reaches of the Yangzi and its tributaries, progress is stalling as resources are funneled into the megadam.
Given this evidence, we conclude that the economic and environmental cost of the dam outweigh its potential benefits. The Three Gorges Dam is not a viable solution to China’s navigational or flood control needs, nor is it a prudent approach to China’s energy and environmental problems.
The U.S. Position
The United States was one of the first countries to express interest in participating in the dam project. In the mid-1980s, government and business collaborated on a Three Gorges working group that conducted a feasibility study of the dam with the aim of winning contracts for American companies. Among the major corporate players recruited by the U.S. Bureau of Reclamation for the study were Bechtel and Merrill Lynch (Tomlinson 1997). In 1985, the working group proposed to the Chinese that the dam be built as a joint venture with selected members of the group. The Bureau of Reclamation was actually hired in the waning days of the Bush Administration by the Chinese to do technical consulting work on the dam. But in 1993, when the Clinton Administration took office, Interior Secretary Bruce Babbitt canceled the project under pressure from environmental NGOs.
In 1992, because of the increasing influence of more environmentally-attuned officials appointed by President Clinton, the Congress added a requirement to the Ex-Im Bank’s mandate that environmental reviews be conducted for foreign projects that sought its backing, and the project became the first serious test of the new guidelines. The Ex-Im Bank asked the National Security Council (NSC) to convene a panel to evaluate the costs and benefits of American participation.
In 1993, the U.S. Bureau of Reclamation stated
officially that it was no longer convinced that
megadams were economically feasible or environ
mentally sound. It also stated that it will not fund any such dams anywhere in the world.
In September 1995, the interagency NSC panel recommended to the Ex-Im Bank that it should not help finance American companies in bids to assist in the construction of the dam. Deputy National Security Adviser Samuel R. Berger cited three broad reasons why the Bank should not support the project:
First, we think it would be unwise for the United States Government to align itself with a project that raises environmental and human rights concerns on the scale of the Three Gorges. Second, any decision to provide assistance would present legal difficulties as environmental and human rights group are threatening to sue the Bank if it became involved. Third, the White House has expressed concern about the project’s financial viability as private bankers and the World Bank have raised serious questions about the Chinese government’s estimates of its cost and economic benefits (Dunne 1995).
The memo also added a clause that counseled the government to “refrain from publicly condemning the Three Gorges project,” and to “emphasize the U.S. government’s commitment to strengthening commercial relations with China and to helping China meet its basic energy needs” so as to avoid afflicting already strained United States-China relations (Companies Turn Up 1996).
Eight months later, the Ex-Im Bank recanted its former proposition that large hydroelectric projects are environmentally beneficial, and voted unanimously not to issue a letter of interest for the project. According to Martin Kamarck, Ex-Im Bank chairman at the time of the ruling, China had failed to “establish the project’s consistency with the Bank’s environmental guidelines” (Tomlinson 1997). This marked the first time the Ex-Im Bank refused financing on purely environmental grounds (Ex-Im Bank Rejects 1996).
The Ex-Im Bank, however, stated that if the Yangzi Three Gorges Project Development Corporation, the project’s sponsor, provided additional information on plans to mitigate environmental degradation, it would reconsider its position. It also stressed that its decision would not in any way limit or impede American companies from doing business related to the project on private terms or with financing from other sources.
However, because China demands export credit
guarantees (essentially insurance to cover
contracts) and supporting loans from contractors
on all major Three Gorges deals, the Ex-Im Bank’s
ruling hindered most U.S.-based applicants’
chances. As construction proceeds, the Japanese,
Germans, French, and Canadians have stepped
forward to help their companies garner a piece of the project, while American firms look on and suffer losses that they say could amount to over $1 billion in exports and 19,000 jobs.
Using private financing over the past few years, for example, Rotec Industries, an Elmhurst, Illinois engineering firm has sold cranes and conveyor belts worth around $50 million to the dam developers and executives reckon a further $100 million of similar equipment will be needed (Tomlinson 1997). But without export credit guarantees the company has lost some potential business to a consortium led by Mitsubishi, which is backed by Japanese export credit guarantees. Caterpillar estimates it lost out on $200 million in sales as a result of the Ex-Im Bank decision. The decision “gave an enormous advantage to our European and Japanese competitors,” said William Lane, chief lobbyist for the company in Washington, in a recent interview (Ibid.).
Some U.S. companies were forced to use overseas subsidiaries to stay in the running for the project: Westinghouse and GEboth of which lack hydropower expertise in the United Statesrouted their bids for Three Gorges work through Canadian subsidiaries (only the GE bid was successful). And Voith’s American subsidiary was forced to withdraw from the tender in favor of its German parent, which won $85 million in contracts (Ibid.).
According to the U.S. business lobby, more is at stake than even the hundreds of millions of dollars of contracts. American executives argue that the Three Gorges project is a key way to establish a foothold in China, the world’s fastest growing market (Contest Heats Up 1997). Caterpillar, for instance, sees participation in a showpiece project like the dam as a way of developing good relations with local officials and companies. Since doing business in China is all about establishing relationships, companies are gambling that profits will materialize in the future as the market continues to grow and opens further to foreign investment. These companies see acquiring a stake in the dam project as a way of gaining a “first-mover’s” advantage.
Critics argue that the Clinton administration’s
decision illustrates the seeming futility of the
increasingly frequent U.S. practice of trying to
change a foreign government’s behavior by
unilaterally imposing economic sanctions. While
the United States has led the international
environmental opposition to the project by
withholding low-cost government financing for the
$30 billion project, the high-minded effort has had
little discernible effect on the massive venture. The
Three Gorges case,
they say, is one of the most visible examples of such American initiatives, but there are many (Iritani 1997).
The critics also contend that the ability of one nation, even a superpower, to cripple other governments by imposing economic penalties is increasingly ineffective in a global economy where foreign competitors will happily fill any void. They claim that the real victims of U.S. government sanctions are the American companies forced out of potentially lucrative markets and labeled as unreliable trading partners. And they call for a policy of “constructive engagement,” which entails maintaining economic ties while pushing for change through normal diplomatic channels and multilateral organizations.
The Three Gorges Dam case is also an example of how efforts to promote trade come in conflict with political concerns. The issue is particularly relevant in considering U.S. foreign policy towards China.
In its relations with China, the United States has long been torn between engagement and disengagement. This division is currently at work in trade policy, with experts advocating the necessity of free trade and activists leading public opinion by highlighting its costs. The renewal of China’s Most Favored Nation (MFN) trading status has been controversial ever since the Chinese government’s 1989 assault on pro-democracy demonstrators in Tiananmen Square. However, consistent with his predecessors since the 1970s, President Clinton argues that maintaining normal trade relations is the best way to integrate China further into the family of nations, promote American interests and ideals, and increase U.S. government influence with the Chinese government. In addition, if the United States were to revoke China’s normal trading status, it would jeopardize access to one of the world’s most rapidly growing emerging markets, one that already supports 170,000 American jobs and doubtless will support more in the years ahead (Favoring China 1997).
In fact, the United States is China’s largest export market. The U.S. trade deficit with China jumped 17 percent last year to $39.5 billion, a larger imbalance than with any other country except Japan (Ibid.). Experts agree that opening U.S. markets to China has indeed had a beneficial effect and that China is displaying a greater willingness to accept international rules (Favoring China 1997 and Friend or Foe 1997).
However, U.S. policy makers are often caught between the above needs and their obligation to act as leaders by sending a signal to the international community when necessary.
Environmental degradation in China poses a threat
not only to the Chinese people, but also to the
global population as a whole. The state of
China’s environment is of concern, particularly as there seems to be little hope for a reversal of current trends. Such trends include the enormous population pressures the country faces, the political problems involved in laying off the thousands of laborers who work in polluting factories, and the fact that despite official recognition of the magnitude of the problem. Chinese environmental officials concede priority to economic development in the short to medium-term. The promotion of sustainable development in China must therefore be considered to be in the U.S. national interest.
Is China’s Environment a U.S. National Interest?
This is an issue that is not specific to United States-China relations, but one that is relevant to international relations in general though it is most often debated in the context of North-South relations. Whether or not a specific problem should concern American policy makers depends on whether it has ramifications that transcend national borders.
The creation of the Three Gorges Dam reservoir will spell the extinction of several known and, possibly, numerous undiscovered species of flora and fauna. Ecologists such as Paul Ehrlich have posited that the loss of even “minor” species could upset the delicate balance of ecosystems, leading to major ecological disruptions and sometimes greater losses further up the food pyramid. Moreover, the loss of biodiversity also “deprives humanity of substances needed to produce new medicines, crop varieties and other products through biotechnology” (UN Chronicle 1997, 17).
The weight of these arguments depends on the likelihood and extent to which these developments will transpire. But even if the above claims are accepted at face value, the true cost in economic and more subjective terms is impossible to measure. It is this uncertainty that makes it problematic to characterize environmental degradation in foreign countries as a U.S. national interest. Put bluntly, the connection between the extinction of the river dolphin and U.S. national interests, broadly defined, is simply too tenuous to gain the support of policy makers and the public without spending a significant amount of political capital. Indeed, even within the United States it has been difficult to convince Americans that preserving the spotted owl was worth the loss of forestry jobs in Washington State.
However, when environmental conditions in foreign countries impact surrounding nations or the global environment, the case for U.S. intervention is easier to make for several reasons. First, the potential deleterious effects of environmental degradation on economic growth represent a threat to American export markets and the health of the nation’s economy.
Acid rain caused by sulfur emissions from Chinese factories and households has caused billions of dollars of damage to Japan and South Korea’s forests. In order to mitigate the effects, these major markets for U.S. exports are forced to divert economic resources which could otherwise be used to build stronger economies or buy more American products (Esty 1997).
Second, the damage that China is inflicting on itself gives rise to similar concerns. Given that China is expected to be an engine of growth for the Asia Pacific region as well as the rest of the world in the next century, the drag on China’s economic growth that environmental degradation will bring has serious implications for the American economy.
Third, Thomas Homer-Dixon has written extensively on how resource scarcities can lead to regional instability by spurring transnational migrations or enticing nations to attempt to expand their territories (Homer-Dixon 1994, 5?40). In April 1996, U.S. Secretary of State Warren Christopher’s allusion to China’s “enormous environmental pressures” underscored fears in the region that resource scarcity within China translates into threat of war and conquest beyond its borders (A Greener China 1996). If such a conflict were to occur, American military and economic leadership would likely be required to bring about a peaceful resolution.
What is ironic about the Three Gorges Dam debate is that the project is aimed partly at reducing China’s reliance on coal as an energy source. Therefore, at first glance the position taken by the Clinton administration seems to contradict its interest in promoting Chinese efforts to clean up the environment. However, it is important to clarify that the basis of the administration’s policy decision rests on concerns about the questionable benefits and likely costs of the megaproject, rather than disagreement over the need for cleaner sources of energy. If the United States has credible grounds to doubt the prudence of a project, it is within its rights and in its interests to make those doubts known and push for alternatives that it believes are more appropriate.
In sum, China’s environment, and those of other countries, should only be of concern to the United States when its improvement or degradation can be linked convincingly to American economic or security interests.
Environmental Policy: Domestic Affair or a Global Issue?
A frequent source of friction in North-South relations is disagreement over environmental policy-making. Some argue that prioritizing environmental impacts is a nation’s prerogative.
This position stems from the belief that economic
growth would be stunted if developing countries
were
forced to adopt stricter environmental standards or rely on expensive, more environmentally-friendly technologies. They would also argue that since environmental policies should be a domestic matter, attempts by developed nations to dictate an environmental agenda impinges on the rights of developing countries as sovereign nations and is an example of hypocritical “environmental colonialism.”
An illustration of this hypocrisy is a recent World Resources Institute study that scapegoats countries such as China and India for producing between 10 and 30 percent of the world’s atmospheric pollution. This study concluded that the key to solving this problem is getting developing countries, in general, to curb their output of air pollutants. However, it could be argued that since China and India account for about 40 percent of the world’s population, they should be entitled to emit an equal portion of the world’s air pollution. Calculated in terms of share of the world’s population, countries such as Canada and Australia far exceed their fair allotment of pollution (Agarwal and Narain, 1995).
Proponents of this view argue that the developed world ignores the environmental damage it caused during the early stages of its own development, and the disproportionate share of pollution and resource consumption accounted for by its citizens. The above claim that environmental restrictions would impede economic growth is true to a certain extent, but it is almost certain that if the pursuit of economic growth in developing countries continues at the expense of environmental protection, the long-term negative effects on development and living standards will be enormous.