Three Georges Dam The United States, China and the Three Gorges Dam: Toward A Sounder Foreign Environmental Policy Yumiko Kojima, Kyoko Murai, Howard Pang, and Elena Vitale The Three Gorges Dam project on China’s Yangzi River is the world’s largest hydroelectric undertaking. While Chinese leaders say the dam will improve river navigation, prevent periodic flooding, and provide the needed electricity for China’s growing economy, many doubt that the dam will be able to meet the proponents’ claims and instead point to evidence of environmental catastrophe if it is built. Under pressure from NGOs, the Clinton Administration has opposed the provision of competitive export financing for the dam. This decision sparked criticism from U.S.
executives who argue that by not participating the United States is losing jobs and the opportunity to mitigate the negative aspects of the dam. This paper argues that the U.S. position was justified. As part of a consistent and credible environmental policy to promote sustainable development, the United States should integrate environmental guidelines into its commercial diplomacy. U.S.
policy towards China should provide support for prudent environmental policies as well as environmental technology transfers, both to foster environmentalism and advance U.S. commercial interests. Introduction Construction of the Three Gorges Dam on China’s Yangzi River began in earnest in late November 1997, perhaps marking the end of almost 15 years of debate on the project among American policymakers. However, the case highlights a key dilemma in U.S. foreign policy-making that is likely to remain for years to come: how to balance U.S.
commercial interests with environmental concerns. Though lauded by environmentalists, the Export-Import (Ex-Im) Bank’s decision not to provide financing for U.S. equipment suppliers vying for dam-related contracts has been criticized roundly by American corporations. They claim the policy hampers their efforts to break into the lucrative Chinese market. The prospect of similar potentially destructive megadams being proposed in other emerging economies means that U.S. policy on the Three Gorges Dam sets a precedent that will either aid or hamper American efforts to promote sounder environmental policies abroad.
This paper will examine the Ex-Im Bank’s decision and its implications for U.S. foreign environmental policy. To this end, it will first outline the rationales behind support for and opposition to the project, including an evaluation of the net environmental impact of the dam. The following section will consider several issues raised by the case in order to assess the merits of the U.S.
government’s stance. The paper concludes with some recommendations for a more credible and consistent U.S. foreign environmental policy. Background The concept of the Three Gorges Dam is over 75 years old, dating back to when it was first proposed by the nationalist leader Sun Yat-Sen, in 1919.
The dam was a dream of communist leader Mao Zedong, who felt it would be a potent symbol of China’s self-sufficiency and ability to develop without western aid. In 1992, Chinese leaders officially announced plans to harness the river’s power by constructing the world’s largest hydroelectric dam only after communist leaders managed to silence opposition and pushed the plan through the National People’s Congress. The Three Gorges refers to a 120-mile stretch of limestone cliffs along the upper reaches of the Yangzi River where the water drops precipitously through the Qutang, Wu, and Xiling gorges. The region is linked to folklore and important historical events, and its beauty has inspired Chinese painters and classical poets such as Li Bai for centuries. Since the dam’s approval, however, the project has met with significant opposition, both domestic and international, as human rights groups, environmentalists, and historians decry the extraordinary costs the dam will incur. The dam, which will be 1.3 miles long and 610 feet high, is expected to be completed by 2009.
It will create a 385 mile-long reservoir stretching back up the river that will totally engulf the Three Gorges, as well as 115,000 acres of rich farmland, thirteen cities, hundreds of villages, and countless historic temples and archeological sites. Between 1.4 and 1.9 million people will need to be resettled. The project poses significant ecological dangers, technical challenges, and human rights issues and has raised questions about the rights of other industrialized nations to intervene in Chinese internal affairs. It is the largest, most expensive, and perhaps most hazardous hydroelectric project ever attempted. Both its technical and social dimensions are staggering.
In China, the project has fueled a heated debate over its feasibility and scientists as well as concerned citizens fear an economic and ecological catastrophe. According to some, the economic, social, and ecological costs of completing the dam are not warranted (International Rivers Network 1997). Experts from around the world believe the dam cannot control the river nor meet China’s electricity demand (Kahn 1994, Burton 1994, Pearce 1995, Sullivan 1995). After conducting a four-year study of the project’s feasibility, the World Bank concluded that the project design is not “an economically viable proposition,” and refused financing. In November 1997, however, the Three Gorges Dam project entered a crucial phase.
The Yangzi River was diverted and construction commenced. The Chinese government has invited foreign companies to take part in the project with the prospect of lucrative exports and entry into the biggest emerging market in the world. The Japanese, German, French and Canadian governments have stepped forward to help their companies garner a piece of the project. However, under pressure from environmental non-governmental organizations (NGOs), the Clinton administration has opposed the provision of competitive export financing through the Ex-Im Bank, citing concerns about the adverse environmental effects, human rights violations, and economic consequences. American companies have thus been left out of the game.
The decision has sparked considerable criticism from U.S. executives who argue that while the project is controversial, not only is the dam being built, but it is proceeding ahead of schedule. If bids by American firms were approved by the Chinese government, they say, $1 billion of exports to the project would generate over 19,000 American jobs and assure entry into the booming Chinese market for U.S. companies. In the meantime, these jobs are going to foreign competitors. By not participating, execu tives argue, the United States is not only losing thousands of American jobs, but also the opportunity to mitigate the negative aspects of the dam.
Moreover, they complain that the Chinese market, already one of the world’s most competitive, is made more so for American companies because the U.S. government does not always separate political from commercial considerations. On the other hand, backers of the administration’s decision argue that the United States has the moral obligation to stand up for the environment and human rights. They also argue that the withholding of economic benefits is the quickest, and sometimes only, way to get the attention of uncooperative foreign governments, even in cases where the outcome appears futile.
Questions Raised Since this is the first attempt to build a dam of this magnitude, different opinions regarding the benefits, duration, and cost of the construction have been formulated. On the one hand, it is obvious that the construction of the dam will result in the flooding of a sizable area of land, including entire villages and historical sites. On the other hand, proponents of the dam claim that the introduction of such a large amount of clean hydroelectric power into China’s rapidly expanding economy might mean a significant reduction in the emission of fossil fuel pollution. Experts warn that the success of the Three Gorges Dam is not guaranteed, and disagree as to the net environmental impact of the project. A critical question here is whether the environmental concerns of China can be considered a U.S. national interest.
Should that be the case, do the developed nations have a right to dictate which environmental impact is more appropriate to China? Should environmental concerns be a part of U.S. commercial policy? Should the U.S. government continue to push the Ex-Im Bank? Should U.S. trade policy continue to try to change foreign government’s behavior by unilaterally imposing trade sanctions? In the following sections, we will examine the U.S. policy towards the Three Gorges Dam.
First, we examine the project’s net environmental impact and describe the position of the United States. Next, we will discuss the issues raised by the case as outlined above. The concluding section will outline some recommendations for future U.S. foreign environmental policy. Environmental Benefits and Costs Chinese leaders argue that the dam will overall have beneficial effects.
First, it will generate 18,000 megawatts of electricity, which would decrease by one tenth the country’s reliance on coal power, and thus reduce the amount of pollution over China’s citiesone of the most severe problems in China today. Second, it will prevent the periodic flooding of the Yangzi which has already claimed half a million lives this century. At present, 15 million lives are at stake as the river rises ever higher above the surrounding land because of sediment deposits on the river bed, while dikes can no longer be raised safely (Veltrop 1997). The dam is expected to cut incidence of serious floods from once in 10 years to once in 100 years (Xinhua News Agency 1997, China Says Three 1997, Veltrop 1997). Third, it will make the upper part of the Yangzi more navigable, “raising the river’s navigable tonnage by a big margin” (China Says Three 1997).
Improved navigability would allow ocean-going freighters to penetrate the depths of China’s remote Southwest, bringing much needed economic development and prosperity to the region. The project is also expected to develop reservoir fisheries, stimulate tourism in and around the reservoir, improve water quality downstream, protect the lake areas downstream, and enable south-to-north water transfer sometime in the next century (Veltrop 1997). Since market liberalization in 1979, China’s vast economy has grown at a breakneck pace, regularly topping 10 percent annual growth. Accompanying this rapid industrialization has been a tremendous increase in demand for electrical power and coal burning power plants have introduced enormous amounts of pollution over most cities. Pulmonary disease has become the nation’s leading cause of death. This heavy pollution has international repercussions as well.
Japan, Korea and Taiwan already suffer under the acid rain created by Chinese sulfur emissions. China has now become the world’s second leading producer of greenhouse gases. If current growth rates continue, China will need to develop an additional 17,000 megawatts of energy per year for the next decadeeventually reaching an amount equal to total United States generating capacity today (Burton 1994). If coal is used to produce the additional power, the environmental impacts could be extremely serious and certainly would not be limited to within China’s boundaries. However, environmentalists and experts from around the world, as well as eminent scientists and economists within China, do not see the dam as a viable solution to the problem. Whether or not the Three Gorges Dam is ever finished, however, experts say hydropower will account for no more than 20 percent of China’s electricity generated by year 2010 (Burton 1994).
That leaves no way around a heavy dependence on coal, used widely not only to fuel China’s industrial boom, but also to heat homes for a population growing by 15 million people a year. Forecasts indicate that China’s emissions of carbon dioxide will increase from approximately 2.8 billion tons in 1993 to 5.5 billion tons in 2020 (China Looks At 1996). Experts say that the best China can hope for is to cut coal’s portion of the energy mix from 75 to 60 percent by the year 2010 (Burton 1994). Even if China was able to improve its large electric power plants, it would not touch the needs of small industrial plants and millions of households for coal. China’s most pressing need is therefore to find cleaner, more efficient ways to burn the fossil fuel, reducing emissions of carbon dioxide, sulfur compounds, and the incompletely combusted particles that form soot.
Domestic opposition to the dam has centered largely on the poor record of China’s Ministry of Water Resources, which includes the collapse of 62 dams in the Henan province in 1975 because of poor engineering and design. The resulting torrents of water wiped out whole cities and took the lives of an estimated 150,000 people (Sullivan 1995). Over 10 million contracted diseases and suffered starvation before the area could be restored and, because the Chinese government never acknowledged the disaster, it was not raised in hearings on the Three Gorges project (Topping 1995). Anti-dam lobbyists have been calling for an investigation of the Three Gorges construction plans and pushing for more government accountability with the hope of averting the resulting catastrophe if the 36 billion cubic yards of water to be dammed were ever to be released, either due to structural failure or an act of war.
Scientists predict that collapse of the megadam would produce a flood 40 times larger than the one caused by the collapse of all 62 iron dams combined, engulfing dozens of towns, and imperiling 10 million Chinese (Topping 1995). The Ministry, however, has denied requests for public comment on the project and has often refused to consider independent opinions from China’s private sector (Ibid.). International environmental groups are concerned that the dam will destroy the natural habitats of many of China’s indigenous wildlife species, including the Chinese alligator, the white crane, the river dolphin, and the prehistoric Chinese sturgeon, a fish unique to Yangzi waters (Burton 1994). In addition, contamination of the river by toxic chemicals may dramatically increase if the 1,600 factories in the area are not cleaned up and moved before the waters begin to rise (Sullivan 1995). Experts warn that, by forever changing the hydrology of the river for thousands of miles, the dam will destroy commercial fish stocks and deprive the complex floodplain agricultural systems of the water and silt they need, thereby threatening the livelihoods of 75 million people who live by fishing or farming along the Yangzi’s bank. They also point out that the soon to be flooded land of Waxian prefecture is far more fertile than the high ground to which everyone will soon be moved (Stopping the Yangzi’s 1997).
Seismologists fear that the weight of the reservoir water will trigger a fault line which lies beneath the proposed area, causing a massive earthquake and perhaps rupturing the dam itself (Kahn 1994, Sullivan 1995). Experts in hydrology are concerned that the Yangzi’s high levels of silt and sedimentabout 500 billion cubic meter each yearwill clog drainage outlets and create backlogs, possibly flooding upstream cities (Kahn 1994, Sullivan 1995, Topping 1995). The Wall Street Journal reported that the amount of silt is so large that it could turn the dam reservoir into a giant mud pie in a matter of months. The silt problem may also impede the passage of large vessels by creating shifting sandbars and channels. At present, China does not have the technology to control the flow of river silt through the dam project. A detailed four-year evaluation of the Three Gorges Dam project, funded in the late 1980s by the Canadian government and the World Bank at a cost of $14 million, warned that as the silt is carried downriver and deposited in the reservoir the Yangzi will tend to alter its course, thus increasing the risk of disastrous flood.
American engineers who visited the site also concluded that the project would not prevent flooding (Pearce 1995). The dam may also obstruct, rather than improve, navigation by making shipping vulnerable to an untested lock system that will prohibit the passage of ships whenever serious technical problems arise (Three Gorges Dam 1997). Some critics say that the three goals of power generation, improved navigation, and flood control are incompatible (Stopping the Yangzi’s 1997). The increased sedimentation and the need to substantially lower the reservoir water level in the summer for flood control would limit power generation and interfere with navigation.
They point out that oceangoing vessels could not clear the bridges in Nanjing and Wuhan and enormous locks of unprecedented scale would have to be constructed (Topping 1995). The Three Gorges Dam is expected to cost more than any other single construction project in history (Kahn 1994). Critics have warned that China’s leaders are so determined to build this project, they may have neglected to determine whether it is economically viable. Since construction has begun, the price tag has continued to soar. As late as 1992 the official cost of the dam was $11 billion.
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, …
