The Turkish-Brazilian deal leaves Iran enriching uranium and is unlikely to satisfy the West

May 17th 2010 | From The Economist online

TWO leaders from two big regional powers, Luiz Inácio Lula da Silva of Brazil and Recep Tayyip Erdogan of Turkey, took a risk in travelling to Iran and negotiating over the country's contentious nuclear programme. Many said they would fail. Instead the two announced triumph on Monday 17th May, clutching hands with Mahmoud Ahmadinejad, Iran's president. But will Western leaders, pressing for new sanctions on Iran, see it as enough?

Under the new deal, Iran says it would send 1,200 kg of its stockpile of low-enriched uranium to Turkey. In exchange it wants 120 kg of uranium enriched to a higher level (around 20%) for a research reactor which produces isotopes that can be used in medicine (typically for the treatment of cancer), within a year.

If this sounds familiar, it is because the outlines of the deal are close to those struck last October between France, Russia, Iran and the International Atomic Energy Agency (IAEA), with American support. Under that plan, 1,200kg of uranium would have been sent to Russia for enrichment to 20%. The material would then have been sent on to France to be turned into fuel rods.

Iran backed out of this deal, demanding higher-enriched uranium immediately, and insisting the swap take place in Iran. Details of the new deal have yet to be hammered out, but Messrs Lula and Erdogan seem to have convinced Iran to give some ground on where and how quickly the enrichment would be done. With Iran’s apparent concessions in hand, the two mediating presidents now say there is no need for further sanctions from the UN Security Council (where both countries currently sit among the 15 members).

Leaders in other Western capitals are unlikely to see things that way. Until Turkey and Brazil got involved, Iran’s negotiations had primarily been with the five permanent members of the Security Council—America, Britain, France, Russia and China—as well as Germany and the IAEA. The Turkish-Brazilian deal must now go to them for their approval.

France's foreign ministry and the European Commission both faintly praised the deal, while noting that it did nothing to solve the underlying impasse between an Iran that has carried on enriching and the countries that want it to desist. The British government said it would continue to work towards a resolution on sanctions in the Security Council.

The thinking behind the failed October deal was to take most of Iran’s stockpile of enriched uranium out of play, in order to create time for negotiations. But because Iran has carried on enriching uranium since it turned down the October deal, it has quite a lot more of the low-enriched stuff sitting around than it would send to Turkey under the new deal (some 1,100 kg according to Jacqueline Shire of the Institute for Science and International Security). Getting uranium from 20% enriched to the 90% or so needed for a bomb takes a lot less effort than getting to the original 3.5% in the first place. So even if the new deal with Brazil and Turkey sticks it is unlikely to buy Iran much time to avoid a vote on sanctions.

Word at the UN had it that a sanctions deal (a full arms embargo, financial and shipping sanctions and restrictions on the Revolutionary Guard) was near. Russia has recently joined America in sending a stronger signal that Iran must stop enrichment, as the UN Security Council has demanded, and answer the IAEA's increasingly pointed questions about activities that appear to indicate an interest in weapons development. This would have left only China in a position to veto sanctions, and China has traditionally not liked to veto alone.

The case against sanctions, in other words, seemed to be crumbling. But Turkey and Brazil might just succeed in swinging other temporary members of the Security Council against sanctions. Lebanon is already publicly sceptical, and Gabon has called for a negotiated solution. Mexico may feel caught between its important American relationship and its regional partner and rival, Brazil. Even if none of the veto-wielders bolts, the Western coalition could have to scrape for the nine votes needed, sending a weak signal.

Unless details of the new deal (a letter is to be sent to the IAEA this week) contain pleasant surprises, it appears Iran may have successfully repeated its old trick of widening divisions between the countries preparing to tighten the sanctions net around it. Israel has already said that Brazil, inexperienced in Middle East diplomacy, may have been manipulated, and more scepticism is certain in the days to come. Messrs Erdogan and Lula may not have long to savour their achievements.

Chinese firms buy Japanese ones

Scaring the salarymen

Fear of foreign takeovers may spur change in corporate Japan

Apr 29th 2010 | TOKYO | From The Economist print edition

MANAGERS across Japan were stunned last month when a factory belonging to Ogihara, a Japanese diemaker, was sold to BYD, a Chinese carmaker that boasts Warren Buffett as an investor. In a sign of the sensitivity of the matter, the Japanese firm tried to keep the transaction quiet, never issuing a press release and refusing all interview requests.

Japan has a long history of resisting foreigners who seek to buy their way into the country. But most recent squabbles have at least been with firms from America, a political ally. Deals involving firms from the Chinese mainland are touchier because of the two countries’ uneasy relations. This has kept the number of Sino-Japanese mergers and acquisitions low, even as China surpassed America in 2007 to become Japan’s largest trading partner.

Yet the volume of deals is now increasing. The number of purchases of Japanese firms by Chinese ones almost doubled last year and their value nearly quadrupled, albeit from low bases (see chart). The deals usually involve small firms with specialist technology, which sell a stake or a subsidiary rather than the whole company, typically for a few million dollars.

Chinese firms are not attracted by Japan’s stagnant domestic market, with its declining population and chronic overcapacity; they want to acquire technologies, skills and brands that can be brought back to China or used in other countries, says Heang Chhor, the head of the Tokyo office of McKinsey, a consultancy. In return, the Japanese firm may get not only capital and new management ideas, but also better access to the burgeoning Chinese market.

This is the case with Laox, an atrophying electronics retailer in which a Chinese franchisee and Suning, a big Chinese appliance retailer, recently bought a 51% stake. The new owners have revamped the firm’s Japanese stores to cater to Chinese tourists who flock to Tokyo to shop, and plan to open 110 Laox outlets in China over the next three years. By that time they expect sales in China to surpass those in Japan.

Importantly, the Chinese owners want to learn from Laox. They want to improve their relations with suppliers and bring Japan’s famed standards of service to China, says Luo Yiwen, Laox’s new boss, a Chinese national who has lived in Japan for two decades. Before the acquisition Laox’s share price had fallen as low as ¥10 ($0.11); it now trades at around ¥110.

Many Japanese are uneasy working for Chinese (much as Americans disliked working for Japanese carmakers in the 1980s). When Honma, a high-end golf-club maker, was acquired by China’s Marlion Holdings in March, the staff were “very shocked”, admits one employee. But the firm, whose clubs are handmade and individually numbered, had recently been in bankruptcy. “So we’re just happy to have jobs,” he adds. Honma’s sales are expected to boom as the new owner tempts China’s newly-rich golfers with its posh clubs. But the Japanese employee suspects that recruiting new workers at its factory in Sakata will be a problem: people would rather work for a completely Japanese firm.

In some cases, differences in business culture make the tie-ups unstable. In 2003 companies from China and Taiwan, along with a Japanese partner, paid ¥1.2 billion for a struggling producer of colour filters for LCD panels. But the new company, Japan Optical Display Technology, was shuttered after four years because of clashes. The Chinese owners were reluctant to pay for environmental compliance. Moreover, they tolerated manufacturing defects that the Japanese partner was unwilling to ignore, explains Osamu Mizoguchi, the former boss. “The philosophies on quality were too different,” he says.

Despite the difficulties, investors assume such deals will continue to proliferate. The expected appreciation of the yuan will fuel foreign deals by making them relatively cheaper (just as a strong yen did in Japan’s heyday in the 1980s). The fear of being bought, in turn, may be galvanising Japanese firms. Japanese businessmen are familiar with the concept of gaiatsu, or “foreign pressure” to change. But these days the pressure is coming as much from Chinese firms as from the Western ones to which the phrase has most commonly been applied.