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China’s silence towards the European Union’s electric vehicle probe could mean that a more harmful retaliation is on its way During her State of the Union address on 13 September, European Commission President Ursula von der Leyen announced that the European Union would undertake an anti-subsidy probe against the Chinese electric vehicle (EV) sector. This signalled a major step in the EU’s shift to a more aggressive trade defence against China and raises the question of how China will react, given the importance of the Chinese market to key sectors of the European economy (including the auto and luxury sectors), and also given China’s crucial role in providing goods to the EU for the green transition? An EU-China High Economic and Trade dialogue on 25 September in Beijing, between EU Trade Commissioner Valdis Dombrovskis and his Chinese counterparts, may have given a glimpse into China’s mindset. There were fears Chinese officials would respond aggressively to von der Leyen’s announcement during Dombrovskis’s visit but this was not the case. Nevertheless, the silence may be deceptive. Three main factors should be taken into account when considering potential Chinese retaliation. Subtle but harmful retaliation First, China might file its own anti-subsidy investigation at the World Trade Organisation against key European sectors. This would not be difficult since Europe has ramped up its subsidies massively since the pandemic, and more recently has attempted to gain more ‘strategic autonomy’ in sectors including semiconductors. There is very little the EU can do about this potential retaliation, which would be costly for the sectors targeted and for the EU’s image as a free-trade and WTO champion. Second, China could try to persuade EU governments that the Commission-led investigation should be withdrawn. A similar probe happened in early 2014, when the EU launched an anti-subsidy investigation into solar panels produced in China. President Xi Jinping visited then Chancellor Angela Merkel right after the anti-subsidy investigation was announced. Subsequently, the issue was settled quickly, with the Commission withdrawing the case from the WTO. Based on this previous experience, China might prefer to take up the issue bilaterally, possibly with Germany again, rather than enter discussions with the Commission. But a major difference this time is the relative importance of the auto sector in the EU compared to solar power. The auto sector accounts for 14 million jobs in Europe and a good part of the EU’s exports. Exports of cars and components are heavily concentrated in a few EU countries, especially Germany. These exports to China have plummeted in 2023, with a close to 30% drop, and Chinese competition in third markets and even the EU market, has become much more intense. Third, also unlike the solar-panel probe, it is the Commission and not the sector being harmed that has filed the case. It will be harder for the Commission to withdraw the investigation because it would lose credibility. Merkel decided to accommodate Xi Jinping’s request in 2014 because she wanted to save the auto sector, even at the cost of hurting a smaller part of the German economy – the solar panel companies. The new investigation aims to protect the automotive sector. There could be consequences for major European auto companies producing electric vehicles in China, but jobs in Europe are now more important than the future of those companies in China. In any case, the future of European manufacturers is bleak; they seem to have already lost the EV race to their Chinese competitors. China will find it much harder to move the EU away from its decision to pursue an anti-subsidy investigation, differently to what happened in 2014. Lessons to learn There might be a lesson for Europe in what happened to Apple in China in September. Days before Apple’s launch of its new iPhone 15, Huawei launched its Mate 60 with upgraded functionalities which require high-end semiconductors. Beyond raising doubts about the effectiveness of US-led export controls on advanced semiconductors, this announcement constituted a direct challenge to Apple’s phone sales in China. Chinese officials were also prohibited from using iPhones and rumours spread in Chinese media in advance of the Apple launch about the underwhelming quality of the iPhone 15. Investors dumped Apple stock globally and the company lost about 6% of its value in a few days. China’s retaliation against the Commission’s anti-subsidy investigation might not be as direct and transparent, but it will still be harmful and might offer less room for the EU to respond. Europe’s strategic dependence on China is greater than in 2014 and this probe has the potential to cause a bigger fall-out for the EU. China has strengthened its position as a global power and uncompetitive behaviour could hit European core sectors harder because China has more power to retaliate. On the flip side, the stakes are higher for the EU given the importance of the auto sector in terms of jobs and exports. For that reason, China may not manage to deter the EU’s investigation as easily as it did in the past. But this may prompt China to threaten even larger retaliation.

Landlocked in the heart of Central Asia, Kazakhstan is involved in regional partnerships and, pragmatic, claims to be a facilitator with balanced relations, even if the pressure to take a stand between Russia, China and the European Union is strong. This cocktail is the challenge of so-called middle power (or bridge) countries, developing multi-factor diplomacy, here constrained by geography and made possible by the country’s resources. Moreover, the development and identity of the five Central Asian countries are built around the imperative of cooperation, given the geographical position and the small number of citizens (75 million for the five countries).  The 2023 edition of the Astana Forum, formerly economic and renamed Astana International Forum, was structured around four themes: foreign policy and international security, international development and sustainability, energy and climate change and economy and finance. This forum supports the development of international action: dialogue of international themes, with the desire to propose answers, desires to become a reference on the world scene without forgetting a public relations dimension. This has resulted in Kazakhstan’s diplomacy being described as ‘niche diplomacy’ (for uranium exchanges) or multi-vector diplomacy[1]. Since February 2022, the Belt and Road Initiative, China’s connectivity project, no longer pass through Russia. Kazakhstan is at the centre of the EU-funded Asia-Europe Transport Road (or Trans International Transport Road). This is one example where the economy, originally considered by Joseph Nye as a resource of hard power, becomes a factor of attractiveness and image for a country. In terms of analysis, considering a continuum – not a strict dichotomy – between hard power and soft power allows for more flexibility between projects and resources. This multilateral institutional program connects the rail freight container transport networks of China and the EU. The multimodal transport structure connects the Caspian and Black Sea ferry terminals with the rail systems of Asian and European countries. The route starts from Southeast Asia and China, crosses Kazakhstan, the Caspian Sea, Azerbaijan, Georgia, and Turkey. The so-called middle corridor is present in the speeches and in the initiatives and funding of the European Union and China. This land logistics link between the China and EU trading zones goes beyond transport to digitation of data and complying with European Union and UN standards. Therefore, several models are facing together depending on the view of China or the Union. Beyond this situation, what are the challenges for this middle power and in the broader context of countries that voluntarily and reasoned choose an identical approach and positioning? A successful solution for a middle power means choosing specific negotiating topics in the international space, being agile and flexible, and knowing how to build coalitions to defend them. In the context of multilateralism, it is necessary to structure actions for a convergence between its interests and those of the partners rather than on an ideology. This is one of the conditions for becoming credible, for developing its discourse and, ultimately, to be perceived by the international community as a country with positive contributions. And beyond this community, by the public, which comes down to finding its place on the world map in the long term, when the country becomes known and better identified. Diplomacy becomes public, because it consists of informing, or even dialogue with public opinion. Thus, the Astana Forum presents a middle power capable of building a regional dialogue with experts, politicians, and international actors, which contributes to the construction of legitimacy and the ability to influence through contacts, cooperation and media coverage. Being a middle power also means being courted in alliance competitions whose number and formats become exponential, which generates as many acronyms as possible, here China + C5 and EU + C5. Two recent summits, beyond content and photos, tell the stakes. The China-five Central Asian summit took place in May 2023 in Xi’an, China with the signing of 54 multilateral agreements. The meeting of the European Union and the five Central Asian countries took place at the beginning of June in Cholpon Ata, Kyrgyzstan. These are the five countries being courted no doubt with strong pressure to choose one or the other alliance, hence the tensions and questions of cooperation already mentioned. Moreover, contradictions exist between the possibilities and wills of the middle powers and the driving force of international institutions, structures with more rigid rules, including, for example, the Security Council. A new paradigm is emerging: the role of coalitions. Finally, middle-power countries must balance their national interests, common international challenges such as climate change, and building alliances and coalitions. Claims of middle powers, alliances and coalitions and connectivity programs may be shaping the geopolitics of tomorrow.

Ladies and Gentlemen, It is very special for me to be in Manila and once again to experience first-hand the famous Filipino hospitality. Each time I visit, I am struck by the warmth, intelligence, and honesty of the people I meet. You make everyone feel at home, even 10,000 kilometres from home. While visiting your beautiful country, I have also learnt a proverb of yours. It says: ‘Be like a rice stalk: the more grain it bears, the lower it bows'. I believe a country's proverbs can tell a lot about its people.  And this proverb certainly describes the people of the Philippines: always humble, especially in success. Right now, the Philippines is booming. Thanks to your resilience, dynamism, and work ethic, your economy grew by close to 8% last year. You are among the fastest growing emerging markets. Your Development Plan, as outlined by President Marcos, is prioritising good governance, cutting red tape, and speeding up permitting for strategic investments, for example in renewables and semiconductors. Not only does this make the Philippines an even more attractive trade and investment destination for European firms, but Filipino companies are also beginning to thrive in the European market. IMI, for example, has expanded its micro-electronics business to become the 14th largest manufacturing solutions provider in Europe. Or consider the Philippine port-handling giant, ICTSI. It operates a container terminal in the Adriatic Sea, and recently signed another 30-year lease to operate a port in the Baltic. It is worth mentioning, as well, that there are around 50,000 Filipino sailors manning ships with European flags. You make trade happen. And you never boast about any of this. So allow me to begin by thanking all the Filipinos who are contributing every day to the friendship and economic partnership between Europe and the Philippines. These examples show that the ties between our countries are already strong. But the time has come to lift our partnership to the next level. Because we have much more in common than our geographic distance would suggest. I see three main fields where we share interests and values, and we are just made to work together. First of all, international security. Both the Philippines and Europe believe in a global order that is based on the principles of the UN Charter, such as the respect for every nation's sovereignty and territorial integrity. And this order is now threatened, in both our regions. Second, economic transformation. We are both modernising our economies, with a focus on the green and digital transitions. And in parallel, we are de-risking our trade and investment. Europe and the Philippines are natural economic partners more than ever before. And third, on democratic values. Because economic progress can only be coupled with social progress, for all people in our societies. Let me begin with security. The Philippines have helped build the rules-based global order, as a founding member of the United Nations, ASEAN, and the World Trade Organisation. And last year, you stood up to uphold the global order, when Russia sent its tanks into Ukraine. Both the European Union and the Philippines – along with over 140 countries – have clearly condemned Russia's war of aggression against a sovereign, independent member of the United Nations. And we Europeans will continue to support Ukraine and to uphold the UN Charter for as long as it takes. But another permanent member of the UN Security Council – China – has yet to assume fully its responsibility under the UN Charter to uphold the sovereignty and territorial integrity of Ukraine. This is happening against the backdrop of China's more assertive stance in your region. Europe has constantly called on China to respect the sovereign rights of states within their exclusive economic zones. China's show of military force in the South and East China Seas and in the Taiwan Strait directly affects the Philippines and our other partners in the region. But it could also have global repercussions. And any weakening of regional stability in Asia, the fastest-growing region in the world, affects global security, the free flow of trade, and our own interests in the region. So whether we talk about Ukraine or about the South China Sea, our security is connected. That is why the EU has been enhancing its engagement in the Indo-Pacific. We aim to promote a free and open Indo-Pacific, to reinforce respect of international law and address global challenges. With the Philippines, we are deepening our security partnership, particularly on maritime security and on cyber cooperation. And we want to do more.  Ladies and Gentlemen, We cannot choose our neighbours, but we can choose who we do business with, and on what terms. This leads me to my second point. We, Europeans, are clear-eyed when it comes to diversifying and de-risking our trade and investment. We made the mistake with Russia, thinking that we could manage our geopolitical differences through business. Before the full-scale invasion of Ukraine, Europe relied heavily on energy imports from Russia. When the Kremlin started the war, Russia tried to blackmail us with cutting its gas supplies. 80% in eight months. This triggered a severe energy crisis, but we withstood. We saved energy, we diversified to like-minded partners, and we invested massively in home-grown renewable energy. Today, we are stronger than before and more independent. And we have learnt our lesson. We will not make the same mistake again. When it comes to the key inputs needed for our competitiveness, such as critical raw materials, we should never rely on one single supplier. This is the core of our de-risking strategy. And I know that this is not only Europe's strategy. The Philippines, for instance, exports 90% of its nickel ore to China, instead of processing it inside the country to create more jobs and added value. But this can change. That is also why I am here in Manila today. The Philippines and the EU have a major opportunity to step up our partnership on both trade and investments. Let me focus on investments, first. Europe has just launched a plan for boosting infrastructure investments in strategic sectors in partner countries. It is called Global Gateway, and for ASEAN, we have put forward an investment package worth EUR 10 billion in public funds until 2027. But it is not only about the money. It is also about the method. European investments come with the highest environmental and labour standards, as well as with a strong focus on creating local value chains. Take the raw materials examples. Unlike other foreign investors, we do not want to invest only in the extraction of raw materials. We can also support you in building local capacity for processing, powered by new clean energy infrastructure. Global Gateway seeks to create good jobs right here because this also strengthens our supply lines. Global Gateway seeks to promote investments that move Filipino sectors up the value-chain. And we look forward to working with the Asia Development Bank, based right here in Manila.  You are experts in the region, and we share similar priorities.  So it is only natural that we work hand-in-hand. Moreover, the Philippines are a natural leader in digital innovation. The Philippine Venture Capital Report of 2023 observed an explosion of new activity in the country's start-up ecosystem. Your e-commerce market value increased by 33% in the last three years alone. The people of the Philippines are five years younger than the global average. So it is no surprise that your economy is so dynamic. The Philippines can become a new digital hub in the region. But as entrepreneurs everywhere, Filipino entrepreneurs need infrastructure investment. This is where Global Gateway can truly make a difference. And we are already working on the ground, or rather, in space. Together with the Philippines Space Agency, we are building the first earth observation system in Southeast Asia. In parallel, Nokia is investing in 5G infrastructure. Why does this matter to Filipino innovators? Because the European Copernicus satellites will be made available for space-based services here in the Philippines, like disaster risk management against typhoons, or satellite navigation, which is fundamental for aviation, drones, and autonomous driving. This is part of a larger digital economy package that we are finalising with the government. We are even exploring a possible extension of the new fibre submarine cable that will connect Europe to Japan via the Arctic. We would create a direct data connection between our regions to de-risk and open up new opportunities for both our economies. New investments could also lead the way for more trade between Europe and the Philippines. The EU is your fourth largest trading partner, accounting for nearly 8% of your trade. This is thanks to our current trade preferences scheme. But there is much untapped potential in our trade relationship. Let me give you an example: A few months ago, I was in South Korea. There I saw the impressive positive impact of the trade deal we have concluded. In a little over a decade, EU trade with Korea has more than doubled. This is what happens when you give people and business the opportunity to work across borders. New doors open for innovation. And the most important: People benefit. So let us make progress. Our trade agreements with Singapore and Vietnam are already delivering. And Europe wants to conclude free trade agreements with other ASEAN countries. I believe, like President Marcos, that the timing and conditions are right for us to solidify our bilateral trade relations. That is why we have taken the decision to relaunch our negotiations for a free trade agreement between the Philippines and the EU. Our teams will begin right away a scoping process to identify what we need to do to overcome any remaining gaps before we can get back to negotiating. This should take no more than a few months. Let us seize this window of opportunity, and make it work. Trade agreements today are about much more than eliminating tariffs and quotas. They are about shared commitments, values, and principles, including on human and labour rights. And this leads me to my last point. Our democracies – all of them – are work in progress. None of them is perfect. But they are all perfectible. Your new government has taken some important steps for human rights here in the Philippines. Each one of our democracies is different. But we all share the same universal values, and the same direction of travel. The path towards better democracies is one that we can and should walk together. Ladies and Gentlemen, The Philippines and the European Union may stand at the opposite sides of the world, but our destinies are linked more than ever before. We see it with geopolitics and climate change. We see it in the connection of our value chains. We have a similar outlook on the Indo-Pacific. And we have strong economic ties. Europe wants to be a trusted partner to the Philippines as it grows into its economic potential. We want to be partners who stand eye to eye. Partners who put people and their values first. Having met so many wonderful people here in the Philippines, who are proud of their country, hardworking, and humble, I am excited for what we can achieve together. I know you are proud of your Bayanihan spirit. And I really hope that we can build the same spirit of community between us, in Europe and the Philippines. Salamat, thank you very much and have a wonderful evening.

China’s silence towards the European Union’s electric vehicle probe could mean that a more harmful retaliation is on its way During her State of the Union address on 13 September, European Commission President Ursula von der Leyen announced that the European Union would undertake an anti-subsidy probe against the Chinese electric vehicle (EV) sector. This signalled a major step in the EU’s shift to a more aggressive trade defence against China and raises the question of how China will react, given the importance of the Chinese market to key sectors of the European economy (including the auto and luxury sectors), and also given China’s crucial role in providing goods to the EU for the green transition? An EU-China High Economic and Trade dialogue on 25 September in Beijing, between EU Trade Commissioner Valdis Dombrovskis and his Chinese counterparts, may have given a glimpse into China’s mindset. There were fears Chinese officials would respond aggressively to von der Leyen’s announcement during Dombrovskis’s visit but this was not the case. Nevertheless, the silence may be deceptive. Three main factors should be taken into account when considering potential Chinese retaliation. Subtle but harmful retaliation First, China might file its own anti-subsidy investigation at the World Trade Organisation against key European sectors. This would not be difficult since Europe has ramped up its subsidies massively since the pandemic, and more recently has attempted to gain more ‘strategic autonomy’ in sectors including semiconductors. There is very little the EU can do about this potential retaliation, which would be costly for the sectors targeted and for the EU’s image as a free-trade and WTO champion. Second, China could try to persuade EU governments that the Commission-led investigation should be withdrawn. A similar probe happened in early 2014, when the EU launched an anti-subsidy investigation into solar panels produced in China. President Xi Jinping visited then Chancellor Angela Merkel right after the anti-subsidy investigation was announced. Subsequently, the issue was settled quickly, with the Commission withdrawing the case from the WTO. Based on this previous experience, China might prefer to take up the issue bilaterally, possibly with Germany again, rather than enter discussions with the Commission. But a major difference this time is the relative importance of the auto sector in the EU compared to solar power. The auto sector accounts for 14 million jobs in Europe and a good part of the EU’s exports. Exports of cars and components are heavily concentrated in a few EU countries, especially Germany. These exports to China have plummeted in 2023, with a close to 30% drop, and Chinese competition in third markets and even the EU market, has become much more intense. Third, also unlike the solar-panel probe, it is the Commission and not the sector being harmed that has filed the case. It will be harder for the Commission to withdraw the investigation because it would lose credibility. Merkel decided to accommodate Xi Jinping’s request in 2014 because she wanted to save the auto sector, even at the cost of hurting a smaller part of the German economy – the solar panel companies. The new investigation aims to protect the automotive sector. There could be consequences for major European auto companies producing electric vehicles in China, but jobs in Europe are now more important than the future of those companies in China. In any case, the future of European manufacturers is bleak; they seem to have already lost the EV race to their Chinese competitors. China will find it much harder to move the EU away from its decision to pursue an anti-subsidy investigation, differently to what happened in 2014. Lessons to learn There might be a lesson for Europe in what happened to Apple in China in September. Days before Apple’s launch of its new iPhone 15, Huawei launched its Mate 60 with upgraded functionalities which require high-end semiconductors. Beyond raising doubts about the effectiveness of US-led export controls on advanced semiconductors, this announcement constituted a direct challenge to Apple’s phone sales in China. Chinese officials were also prohibited from using iPhones and rumours spread in Chinese media in advance of the Apple launch about the underwhelming quality of the iPhone 15. Investors dumped Apple stock globally and the company lost about 6% of its value in a few days. China’s retaliation against the Commission’s anti-subsidy investigation might not be as direct and transparent, but it will still be harmful and might offer less room for the EU to respond. Europe’s strategic dependence on China is greater than in 2014 and this probe has the potential to cause a bigger fall-out for the EU. China has strengthened its position as a global power and uncompetitive behaviour could hit European core sectors harder because China has more power to retaliate. On the flip side, the stakes are higher for the EU given the importance of the auto sector in terms of jobs and exports. For that reason, China may not manage to deter the EU’s investigation as easily as it did in the past. But this may prompt China to threaten even larger retaliation.

In early November 2023, Estonia announced a decision to allow Taiwan to open an unofficial, non-diplomatic economic and cultural representative office in Tallinn. The opening of an office does not mean that Tallinn and Taipei are establishing official diplomatic relations, nor does it mean that Estonia is opening its own office in Taiwan. It is following in the footsteps of countries around the world that have unofficial ties with Taipei and want an unofficial government presence in the country to facilitate economic relations. For its part, Beijing has expressly condemned the decision by Tallinn to allow Taipei to decide if it wants an office in Estonia, with China’s Foreign Ministry making a clear statement calling for Estonia to reverse course. Estonia’s announcement occurred just before Taiwan’s Foreign Minister Joseph Wu embarked on a three-country tour of the Baltic states — a rare trip for the foreign minister to visit three countries with which Taiwan does not have formal diplomatic relations. Baltic leaders and ministers stated that they had no plans to meet directly with Wu, though Lithuanian Foreign Minister Gabrielius Landsbergis spoke at the same event as Wu, and his grandfather, the first president of post-Soviet, Lithuania Vytautas Landsbergis, did meet with Wu. Estonia’s move to open a representative office comes after Lithuania made a similar decision, sparking controversy and drawing political and economic ire from Beijing. The Vilnius office, which opened in November 2021, is called the “Taiwanese Representative Office in Lithuania,” which balks the traditional use of “Taipei” over “Taiwan” to avoid Beijing’s complaints and any alleged notions of formal relations. The opening of the Vilnius office resulted in the downgrading of the bilateral relationship with China and the expulsion of the Lithuanian ambassador from Beijing; the removal of Lithuania as a “country of origin” for Chinese trade; and a formal World Trade Organization complaint against China, supported by the United States and European Union. Beijing’s main complaint at the time was that the office provided legitimacy to Taiwan by using the word “Taiwanese,” thus the reason for the strong reaction. Lithuanian President Gitanas Nausėda conceded the point, “I think it was not the opening of the Taiwanese office that was a mistake, it was its name, which was not coordinated with me.” Now, with Estonia’s announcement, that complaint has proven hollow. It is not the “Taiwanese” reference with which Beijing has a problem — the real issue is the expansion of Taiwan’s international space. As I argued in January 2022, “The name of the office [in Lithuania] is the supposed sticking point, but the reality of the matter is that Beijing wants to prevent the expansion of Taiwan’s international space. The mere opening of an office, regardless of name, represents the expansion of Taiwan-Lithuania ties. Likewise, any new de facto embassy would be perceived as offensive to Beijing. … As more countries build ties with Taiwan, leaders will be able to better assess the risks and benefits of diplomacy with Taiwan. Beijing’s wolf warriors now cry foul at any perceived attempt to foster closer relations with Taipei.” Beijing perceives any “win” by Taiwan as a direct threat to its long-term plan to completely isolate Taipei. A possible office in Estonia provides Taipei with the ability to more easily interact with the Estonian people, expand bilateral trade, and demonstrate itself to be a good international partner — all of which threaten Beijing’s ability to shape the narrative regarding cross-Strait relations. As expected, PRC Foreign Ministry Spokesperson Wang Wenbin made clear the Lithuania office name issue was fake. During his regular press conference on November 8, Wang called for Estonia to change course, making no mention of the prospective name of a future office: “We firmly oppose any form of official interaction between the Taiwan region and countries having diplomatic ties with China and oppose any action supporting ‘Taiwan independence’ separatist forces. We call on Estonia to stay committed to its solemn commitment of adhering to the one-China principle, not to allow Taiwan to set up any organization of official nature, and earnestly safeguard the political foundation of its relations with China.” Wang’s language and warnings are less strident than what could be expected, but given that the announcement of the office in Estonia was just made, details are not yet firm. Estonian Foreign Minister Margus Tsahkna hinted to Politico that the office would be “representation—economical representation—of Taipei, not Taiwan,” which, if the name is the true issue, should appease Beijing’s concerns. As more is known, Beijing will assuredly increase its pressure on Estonia, which already includes the Chinese ambassador in Estonia threatening to leave the country if the office opens. The true test will come once details about the office are released. How will Beijing seek to punish Estonia for the move? Will the reaction be less severe than what China did to Lithuania? How will the European Union and the United States support Tallinn should Beijing utilize its coercive toolkit again? Beijing’s response to the office will demonstrate a few key things in the aftermath of the Lithuania example. How Beijing responded to Lithuania created immense international support and attention for Vilnius. Taiwan President Tsai Ing-wen opened up a $1 billion fund for joint Taiwanese-Lithuanian projects and another $200 million fund for Taiwanese investment in Lithuania’s industrial sector to show support for the decision, and the Biden administration announced a $600 million credit line. Because Beijing initiated pressure on other countries, such as Germany, to push Lithuania to change course, the overreaction became a critical case study in China’s coercive toolkit. The collective West closed ranks, supported Lithuania for the decision, and warned Beijing against further reprisals. If Beijing treats Tallinn in a similar way as Vilnius, then it will be clear that Beijing will ignore international warnings to serve its own goals — bluster over substance and compromise. The most important thing for Estonia to do in the coming days and weeks is to be resolute in the decision. Divisions within Vilnius prolonged Beijing’s attempt to pressure politicians into changing course. Knowing how angry President Nausėda was about the ordeal provided an opening, but other actors did not back down. At the moment, Estonia’s Foreign Minister Tsahkna is taking the lead in publicly responding, but the coalition government needs to adhere to the same line to diminish Beijing’s ability to pressure specific politicians. If Estonia does not back down, the country could stand to benefit from new Taiwanese-Estonian projects. Since the Taiwanese and Lithuanian offices opened in the respective capitals, Taipei has agreed to assist in building an 8-inch semiconductor wafer production line in Lithuania. The two also agreed to open a joint research center on laser technology in Taiwan. Lithuania is home to two projects funded by Taiwan’s National Development Fund (NDF). Another Lithuanian company, Solitek, received around $8.5 million from the $1 billion fund. During a recent visit to Taipei by Seimas Speaker Viktorija Cmilyte-Nielsen, the two sides signed a memorandum of understanding on health and made a decision to eliminate double taxation — the latter of which is still an issue that Taiwan has with the United States. Progress between Taipei and Vilnius has been slow, but it has gained steam with these investments. Tallinn can expect to reap some new investments with a Taiwan office and take part in the NDF. However, the benefits that Tallinn receives not only from Taiwan but also from the United States will likely depend on how loudly and forcefully Beijing complains — and acts on those complaints. No matter how much investment Estonia receives as a result of this new office opening, Tallinn is now a part of the cross-Strait competition — in an election year. With the upcoming January 2024 presidential election in Taiwan, Tallinn may have inadvertently become a foreign policy issue for the candidates, but that largely depends on Chinese retaliation. Any office will likely open under a new leader in Taipei, so while the announcement and prospective investment promises will occur under President Tsai, the implementation of such things will be up to her successor. After Lithuania defied China and its intense pressure to reverse course, Beijing is now in a situation where another Baltic country has allowed Taiwan to expand its unofficial international space — and thus expanded the threat landscape in its push to eliminate Taiwan’s presence abroad. The more these seemingly small countries defy China and the more they are backed by large countries (and, more importantly, fulfilled promises from Taiwan), the harder it will be for Beijing to keep the next case of Taiwan fever from spreading. The views and opinions expressed in this article solely belong to the author and do not represent the perspectives or stance of World and New World Journal, nor do they reflect the opinions of any of our employees. World and New World Journal does not endorse or take responsibility for the content, opinions, or information presented in this article. Readers are encouraged to consider multiple sources and viewpoints for a comprehensive understanding of the subject matter. Thank you for your understanding.

Beijing seeks normalisation of ties with Europe; however, for Brussels, reconciliation will be conditional on Beijing’s willingness to address fundamental divergences On 7-8 December, European Commission President von der Leyen and European Council President Charles Michel will be in Beijing for the 24th European Union (EU)-China summit, but the first in-person one in four years, taking place at a critical juncture in EU-China ties. At the previous EU-China virtual summit in April 2022, the Ukraine conflict was the primary talking point for the Europeans and other issues such as climate and economics were relegated to the back burner. This time, the focus is likely to be economics. A relatively constructive meeting between United States (US) President Joe Biden and Chinese President Xi Jinping on 15 November, which led to the resumption of US-China high-level military dialogue and Xi’s assurances on Taiwan, has contributed to paving the way for the EU to focus on ironing out economic irritants. Deficits, dependencies and de-risking With daily EU-China trade amounting to 2.2 billion euros, the EU is concerned about its widening goods trade deficit with China—400 billion euros in 2022—referred to by EU Ambassador to China, Jorge Toledo, as the “highest in the history of mankind”. In the context of China’s restrictive environment for foreign companies, the EU is keen for a level playing field and greater reciprocity in trade. Another major area of contention is Chinese overcapacity through subsidies in key industrial export sectors such as electric vehicles (EVs) that are undermining European automotive industries. The European Commission has already launched a probe for the EVs sector and is now considering other major sectors including wind energy and medical devices. In addition, Europe is heavily dependent on critical raw materials such as lithium and gallium from China, which are intrinsic to its green transition. While over 90 percent of the EU’s supply of raw materials comes from China, the EU aims to address this dependency through its Critical Raw Materials Act. Factors such as Chinese aggression in the South China Sea, human rights violations in Xinjiang, and pandemic-era supply chain disruptions have deteriorated European perceptions of China. The downswing in EU-China ties was further accentuated by Beijing’s posture in the Russia-Ukraine conflict and the failure of European leaders to coax China to positively use its influence with the EU’s most immediate security threat, Moscow. Thus, a major trust deficit has accompanied the trade deficit. On 6 November, only a month before the summit, von der Leyen in her speech warned against “China’s changing global posture” with its “strong push to make China less dependent on the world and the world more dependent on China”. While acknowledging China as Europe’s most important trading partner, she emphasised the “explicit element of rivalry” in the relationship. Another dialogue of the deaf? The EU and its member states are recalibrating their China policies, with countries such as Germany even releasing China-specific documents outlining their approach. The EU’s “de-risking” strategy aims to reduce dependencies in critical sectors, and through an expansion of its policy toolbox, the Union is implementing a range of measures including greater scrutiny of inbound-outbound foreign investments, anti-coercion instruments, and export controls for dual-purpose technologies. In this context of an evolving European approach, the upcoming summit is a much-anticipated one for EU-China watchers. Despite the strain in relations, high-level diplomatic exchanges have continued in full swing, many of which, such as von der Leyen’s visit to China in April, EU Trade Commissioner Valdis Dombrovskis’s visit in September, and EU Foreign Policy Chief Josep Borrell’s visit in October were conducted in preparation for this summit. A sluggish Chinese economy gives Europe room to wield its economic leverage. However, grey areas in Europe’s China policy remain, especially with regard to the implementation of measures and the need for more effective coordination, often compromised by a lack of unity amongst member states and tendencies of leaders such as French President Emmanuel Macron and German Chancellor Olaf Scholz to prioritise business interests over all else. Thus, straddling the fine balance between economic opportunities and security risks will continue to be a test for how Europe manages its interdependence with the lucrative Chinese market. Previous EU-China summits have not produced a joint statement, and according to sources, this summit is unlikely to produce one as well. Yet it is an opportunity for the EU to put forward unresolved concerns and forge some common ground. Without concrete deliverables, the upcoming summit risks being another “dialogue of the deaf” as Borrell famously described the previous one. Amidst renewed transatlantic solidarity, Beijing’s rhetoric indicates that it seeks normalisation of ties with Europe and a more independent European policy towards China away from Washington’s influence. Yet for Brussels, reconciliation will be conditional on Beijing’s willingness to address fundamental divergences.

The EU should try to attract more business from Taiwan, though Taiwan’s January 2024 election hasn’t made the job easier Taiwan’s economy has transformed since 2016 under the leadership of the Democratic Progressive Party (DPP). In particular, the Taiwanese economy has diversified away from mainland China, while reliance on semiconductors is now even more acute than eight years ago. In elections in January, the DPP won the presidency for a third term but lost overall control of Taiwan’s parliament, the Legislative Yuan. In contrast to the previous two terms, the DPP therefore needs to agree policy, including economic policy, with other parties. this could signal a softer approach in relation to the continuation of diversification away from the mainland. Ongoing diversification Mainland China remains Taiwan’s biggest export and investment destination, despite the share of Taiwan’s exports that go to China reducing from 40 percent on average between 2016 and 2019 to 35 percent in 2023 (Figure 1). This has happened even though Taiwan signed a free trade agreement with mainland China in 2010 – the Economic Cooperation Framework Agreement (ECFA) – which at the time led to an increase in Taiwanese exports to the mainland. The COVID-19 pandemic in 2020 also triggered a sharp increase as the rest of the world entered a deep recession, but the trend has not lasted. Since 2021, the share of Taiwanese exports going to the mainland has dropped significantly, influenced by US export controls on high-end semiconductors, with a clear knock-on effect on Taiwanese exporters.   Taiwanese FDI into mainland China has also shrunk rapidly, from 65 percent of total Taiwanese FDI on average from 2008-2016 to 34 percent on average from 2017-2023 (Figure 2). The difference between these periods is that in the former, Taiwan was governed by the Kuomintang (KMT, Chinese Nationalist Party), which favours closer relations with the mainland, while in the latter period the DPP was in charge. There are both geopolitical and economic reasons for mainland China’s falling share of Taiwanese FDI. First, the ECFA trade and investment agreement, reached under the first term of KMT President Ma Ying-jeou, was not extended when a new round of negotiations started in 2012, to include technological cooperation, finance and people-to-people exchanges. A broader economic agreement between Taiwan and the mainland, mostly focusing on services – the Cross-Strait Service Trade Agreement (CSSTA) – fell victim to lack of consensus among Taiwan’s main political parties, increased tensions in the Taiwan Straits and student protests in Taiwan (the so-called Sunflower movement) in 2014.1 Second, with the DPP victory in 2016, the new Southbound Policy 2 was launched, offering incentives for Taiwanese companies investing in 18 Asian countries, including ASEAN 3, India and other South Asian and Australasian nations. In addition, rising labour costs in mainland China, the ongoing trade war between the US and China, an increased regulatory burden in the mainland and political tensions between the two sides of the Taiwan Strait also pushed Taiwanese businesses to look elsewhere to invest. -    The new political reality and geographical diversification While the election-winning DPP wants to see further diversification away from the mainland, the more pro-China party, the KMT, wants reinforced economic relations with China.4 Because of the now-hung parliament, the DPP will need to take some of the KMT’s wishes into account it wants pass new rules, including those related to geographical diversification. Beyond the two parties’ preferences, two other important issues also need to be factored in. First, geographical diversification requires open markets but Taiwan is increasingly unable to open any market through trade or investment deals. Taiwan has spent the last eight years negotiating bilateral deals with its closest allies, Japan and the US, but the DPP administration has not even been able to complete these. Incoming President Lai has said that Taiwan should continue to push to be part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), to which it applied in September 2021, but the reality is that Taiwan’s application has little hope of success. China officially applied to be a member of the CPTTP only a couple of days before Taiwan. Since then, the United Kingdom has become a member of CPTTP, but the negotiation processes with Taiwan and mainland China have not started. Australian’s prime minister, Anthony Albanese, has expressed severe doubts about Taiwan’s ability to become member of CPTTP because of lack of international recognition of it as a nation-state.5 Second, while the DPP is likely to continue to offer more fiscal incentives to promote diversification in Southeast Asia and India (under the Southbound Policy), the fastest-growing destination for both exports and foreign direct investment from Taiwan is the United States, followed by Japan. This can be explained by the ongoing artificial intelligence revolution, which needs semiconductors, and the decisions of some key Taiwanese chip companies (especially TSCM) to open factories overseas for chip production, with the US and Japan as the most important destinations. In other words, the DPP’s push for geographical diversification might not be the main reason why diversification has happened; rather, it has been driven by market forces and business opportunities. This also means that the KMT push to maintain – if not deepen – economic ties with mainland China might not succeed unless China’s currently underwhelming economic performance turns around. Implications for the European Union So far, the EU has benefitted little from Taiwan’s trade and investment diversification, at least when compared to the US and the rest of Asia. The EU’s export share into Taiwan has remained practically stagnant (while the US has doubled its share), notwithstanding a large increase in exports from the Netherlands for a single item – ASML’s lithography machines for chip production. The EU lacks a trade or investment deal with Taiwan, but so do some of Taiwan’s other trading partners, including the US. Considering that the EU is the largest foreign direct investor in Taiwan, the question arises of whether the EU should do more to foster more bilateral economic relations. The gains could be substantial, especially from inbound FDI as Taiwanese investment focuses on high-end manufacturing. There has been some movement. A €5 billion investment in France by a Taiwanese company (ProLogium) was announced in May 2023 to build a battery factory 6 . TSMC announced in August 2023 a €4.5 billion investment in a semiconductor factory in Germany 7 . But for the EU to catch up with Japan and the US as a recipient of outbound FDI from Taiwan, the result of Taiwan’s elections could be an obstacle. This is because the DPP will have less control of the economic agenda because it does not control the Legislative Yuan. The close-to-impossible negotiation of a trade and investment deal between the EU and Taiwan – as shown by Taiwan’s difficulties in relation to Japan, the US and the CPTTP – does not point to any improvement in the institutional framework for economic relations to improve. The question, then, is what can the EU offer to attract high-end foreign direct investment from Taiwan? Subsidies to attract semiconductor factories cannot be the only answer, given the very large amounts needed and the pressure such subsidies put on EU member states’ already stretched finances (Legarda and Vasselier, 2023). Working with business associations and chambers should be a key driving force to improve business relations between Taiwan and the EU, especially considering that the EU is the largest foreign foreign direct investor in Taiwan, while Taiwanese companies have been absent from the EU single market until recently. Overall, the US and the rest of Asia have been the main winners from Taiwan’s rapid diversification of its economy away from mainland China. The EU, which is lagging, should work to enhance its economic exchanges with Taiwan. Hopefully the January 2024 election results will facilitate this. Most importantly, the EU should aim to attract more high-tech FDI from Taiwan. Unfortunately, a better institutional framework through a trade/investment deal seems highly unlikely, for geopolitical reasons. This puts all the burden on chambers of commerce and other forums to improve business relations. References 1- The Sunflower Movement was a student-led protest that occuped Taiwan’s Legislative Yuan to put pressure on the KMT government against signing a second cooperation deal with mainland China. See Ho (2018). 2- See the New Southbound Policy portal at https://nspp.mofa.gov.tw/nsppe/. 3- Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. 4- Alicia García-Herrero, ‘Taiwan’s future economic direction hinges on the election outcome’, First glance, 12 January 2024, Bruegel https://www.bruegel.org/first-glance/taiwans-future-economic-direction-… 5- Claudia Long and Stephen Dziedzic, ‘Albanese says Australia is unlikely to support Taiwan 6- France24, ‘Taiwanese battery maker Prologium to invest €5 billion in French factory’, 12 May 2023, https://www.france24.com/en/europe/20230512-taiwanese-battery-maker-pro…. 7- DW, ‘Taiwan’s TSMC to build semiconductor factory in Germany’, 8 August 2023, https://www.dw.com/en/taiwans-tsmc-to-build-semiconductor-factory-in-ge…. Ho, M.-S. (2018) ‘The Activist Legacy of Taiwan’s Sunflower Movement’, Carnegie Endowment for International Peace, 2 August, available at https://carnegieendowment.org/2018/08/02/activist-legacy-of-taiwan-s-sunflower-movement-pub-76966 Legarda, H. and A. Vasselier (2023) ‘Navigating Taiwan relations in 2024: Practical considerations for European policy makers’, China Horizons, 21 December, available at https://chinahorizons.eu/our-research/policy-briefs/278-navigating-taiwan-relations-in-2024-practical-considerations-for-european-policy-makers

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском As Beijing’s investment approach to Latin America focuses on industries of strategic importance, the EU and US will need to contend with growing Chinese competition China is pouring less foreign direct investment (FDI) into Latin America. But while this may seem like a sign of Beijing’s disinterest in the region, data suggests that Chinese companies are simply recalibrating, not retreating. In doing so, they are becoming important players in sectors key to Western interests: critical minerals, fintech, electric vehicles, and green energy. While the European Union and the United States have long been top investors in Latin America, increased competition with Chinese investment now jeopardises their interests in the Latin American industries that will become most crucial to the digital and green transitions. The number of Chinese projects in Latin America grew by 33 per cent from 2018-2023, compared with the previous five-year period of 2013-2017, even as the total value declined. In other words, Chinese companies are making more investments in the region but are pursuing smaller-scale projects on average. These investments are also more focused on what China calls “new infrastructure“ (新基建), a term which encompasses telecommunications, fintech, renewable energy, and other innovation-related industries. In 2022, 60 per cent of China’s investments were in these frontier sectors, a key economic priority for the country. Beijing also views smaller projects in these industries as incurring less operational and reputational risk, especially compared to some of the large-scale infrastructure investment projects often associated with the Belt and Road initiative. Like China, the investment priorities of the G7 grouping – particularly the US and the EU – are centring on critical minerals, fintech, electric vehicles, and green energy as they aim to grow and reinforce existing economic and political partnerships in Latin America. However, both the US and the EU risk falling short of China’s investment strategy in the region. The US has signalled want for greater economic engagement with the region, especially in sectors of strategic interest. However, to date, US efforts to compete with China remain largely focused on building US domestic capacity in these strategic sectors, even as some US companies, such as Intel, are increasingly focused on including regional partners in their supply chains. Some see opportunity for Latin America in Joe Biden’s landmark legislation, the Inflation Reduction Act (IRA), which is aimed at incentivising the energy transition while also de-risking critical supply chains. For example, certain countries in the region may benefit from preferential market access for their lithium or other key inputs to new energy and technology supply chains. However, the reach of the IRA – which remains a largely domestic policy – does not stretch as far as China’s current investment reshuffle. The Americas Act, announced by members of Congress in March could generate promising new investment opportunities for the region, as it encourages US companies and others to move their operations out of China, to which Latin America stands as a promising replacement. But Americas Act reshoring would primarily incentivise textiles and potentially medical equipment manufacturing, with less overall focus on the range of “new infrastructure” industries that China is prioritising. Chinese interests in information and communication technologies reveal a similar story. While the US has focused its policy on 5G equipment sales, China is undertaking a process of vertical integration in Latin American tech sectors that will dramatically boost its competitiveness. For instance, Chinese company Huawei is rapidly expanding its focus to include data centres, cloud computing, cybersecurity, and other services, especially in Argentina, Brazil, Chile, Colombia, Mexico, and Peru. (Computing accounted for a sizable 41 per cent of total Chinese information technology investment in the region between 2018 and the first half of 2023.) At the same time, Global Gateway, the EU’s proposal for a global investment initiative is yet to reach its potential in the region. Brussels is looking to be Latin America’s partner of choice by building local capacity for making batteries and final products like electric vehicles, as European Commission president Ursula von der Leyen noted last year. Yet even as the EU signals renewed commitment, China is becoming increasingly dominant in the electric vehicle market in Latin America and other regions. China surpassed the US in electric vehicle sales in 2023, with Chinese companies accounting for 45 per cent of total global sales and three times that of Germany’s. What is more, China has invested $11 billion in lithium extraction in the region since 2018, as part of a bid to control a third of global lithium-mine production capacity. Meanwhile the EU has secured some access to lithium as part of trade deals with Chile, alongside other nations, but this pales in comparison to what will be required to fuel the future of EU battery production. Latin America as a whole accounts for an estimated 60 per cent of the world’s lithium reserves. Based on its current levels of engagement in the region, the EU risks falling short of lithium, stalling its battery production and subsequently, its electric vehicle sales, just as China advances in this field. The window is closing for the EU, the US, and other partners looking to both maintain market share and compete with China in these Latin American industries, despite still-high rates of US and EU investment in and trade with the region. Indeed, US automakers increasingly see Chinese competition across the globe as an “extinction-level event.” Ensuring competitiveness in “new infrastructure” and related sectors will require a continuous commitment by partners to building and supporting project pipelines, and to delivering products and services at price points that can compete with China’s subsidised offerings. Both the EU and the US remain critical economic partners for Latin America and are contributing in ways that China is not. Still, complacency risks allowing China to take the lead in emerging industries in the region, some of which weigh heavily in the EU’s green and digital transformation. To protect their own future industries, the EU and the US need to first take a longer look at Latin America’s – especially as China vies for a dominant position.

한국어로 읽기Leer en españolIn Deutsch lesen Gap اقرأ بالعربيةLire en françaisЧитать на русском Elections in Europe demonstrate the growing popularity of far right parties as key outsiders gain on critical votes. In France, President Emmanuel Macron has moved to dampen Marine Le Pen’s success in the European Parliament with a snap national election. The election calendar for June has already thrown up some surprises, particularly in the northern hemisphere. To be sure, Prime Minister Narendra Modi was re-elected, though with a much-reduced majority which will place limits on his power. But the biggest shock is in Europe where French President Emmanuel Macron decided to call a snap election for 30 June after his most notorious far-right rival, Marine Le Pen, pulled off a decisive victory in the French election for the European Parliament. Macron is taking a massive gamble—that in a national election he can recover some of the popularity he has lost since his re-election as president in 2022, squashing Le Pen’s challenge to his leadership. The initial reaction of the commentariat is that Macron will manage a return to the Élysée palace, largely because the centrist parties holding the middle ground were the overall winners and the Left and the Greens failed to increase, or lost, shares of the vote. “I’ve decided to give you back the choice,” Macron said in an address to the electorate from the Elysée palace. In France, the Rassemblement National (RN) party led by Le Pen won 31.5 percent of the country’s vote, according to early results. In Germany, the three parties in Olaf Scholz’s fragile coalition—the Social Democrats (SPD), Greens, and the liberal FDP—were all overtaken by the far-right Alternative for Germany (AfD), which came in second behind the conservative CDU-CSU opposition. Significant gains by nationalist and ultra-conservative parties were also anticipated by exit polls in Austria, Cyprus, Greece, and the Netherlands. In Italy, prime minister Giorgia Meloni cemented her position in her governing coalition, and potentially her hand in negotiations with other European leaders, with her hard-right Brothers of Italy party taking over 28 percent of the vote in the European parliamentary elections. Attention will now turn to the campaign by Ursula von der Leyen, president of the European Commission, to win another five-year term in office. She has a good record and currently no obvious challenger. Nonetheless, her re-election will hinge on her ability to make uncomfortable choices and deals, taking into account the EU’s clear shift to the right in parliamentary elections on 9 June. Though her centre-right European People’s party won the election, securing 189 seats in the 720-strong assembly, von der Leyen’s allies fared worse and the hard right surged from a fifth to nearly a quarter of seats. Her fate is likely to be decided at an EU summit on 27 June when she will seek the personal backing of the EU’s 27 leaders and aim to demonstrate to them that she has the required support in the European Parliament. Mexico Another remarkable election result this month was in Mexico where the ruling left-wing Morena party won a landslide victory in presidential, congressional, and state elections. While president-elect Claudia Sheinbaum and Morena’s victory on 2 June was not a surprise, the scale of it was. Sheinbaum won more votes than the centre-right Xochiti Galvez across genders, age groups, and in every state bar one, coming in 31 points clear of her rival. After decades of high poverty, glaring inequality, and low wages, the ruling Morena party more than doubled the minimum wage and expanded social programs, endearing itself to Mexico’s long-neglected have-nots. The result has left Mexico’s conservative elite struggling to understand the left’s landslide win, living as they do in gated communities far removed from the lives and feelings of average Mexicans. There are unlikely to be any surprises in the other major election this month—that of Iran on 28 June. Iranian authorities have disqualified prominent moderates as candidates in the snap presidential election, called following the helicopter crash that recently claimed the life of Ebrahim Raisi, the country’s president, and other senior ministers. The field of candidates has been narrowed to five hardliners and one mid-ranking reformist. The United Kingdom has seen a frenzy of election activity this month following Prime Minister Rishi Sunak’s surprise decision to call an early election on 4 July. Polls show that there is likely to be a change of government to the opposition Labour party, which is currently holding a 22 percent lead, after 14 years’ Conservative government.

한국어로 읽기Leer en españolIn Deutsch lesen Gap اقرأ بالعربيةLire en françaisЧитать на русском In March and April, Vietnamese Foreign Minister Bui Thanh Son’s nearly back-to-back visits to the U.S. and China highlighted Vietnam’s increasing penchant for delicate diplomacy with major powers amid the U.S.-China strategic competition in the Indo-Pacific and Vietnam’s territorial tussles with China especially in the South China Sea (SCS), which Vietnam calls the East Sea. Much of the (perceived) disorder in the Indo-Pacific hails from the SCS, and one of Vietnam’s principal challenges is fostering order on its maritime borders. Therefore, Vietnam—historically distrustful of major powers—has been diversifying its relations by seeking security and defense ties with Indo-Pacific partners like the European Union (EU), India, and Japan, as well as with Russia, a country that poses an “existential threat” to the transatlantic allies. At the same time, Southeast Asia is battling disunity within the region for resolving disputes in the SCS, for instance. The regional multilateralism embodied by the Association of Southeast Asian Nations (ASEAN) seems to lack teeth even as China ‘controls’ some of its members using its financial and economic heft. So clearly, efforts beyond Vietnam’s “bamboo diplomacy” that deepen international solidarity are required. In a similar vein, Europe’s reluctant rapprochement with China in recent times amid the EU calling China a strategic challenge but continuing to look for economic engagement is reminiscent of Vietnam and much of Asia’s predicament vis-à-vis China. Moreover, like in Southeast Asia, not every member-country of the EU is embracing the Indo-Pacific construct, led by the U.S. Or even if a member does, like France or Germany, it does not spell the end of a productive relationship with China. Nonetheless, it is clear that the EU has started to take a greater interest in the growing geopolitical situation in the Indo-Pacific, even as the disunity over the extent of the Indo-Pacific priorities, including China, is as apparent. In such a scenario, is it possible for the EU and Vietnam, and by extension ASEAN, to have greater convergence, if not congruence, in their policies? Revisiting Vietnam’s Lack of an Indo-Pacific Tilt The Indo-Pacific, the maritime space and littoral between the western Indian and Pacific Oceans, has become the world’s most geopolitically critical region. In this region, much of the focus and debate among the EU’s more proactive members, such as France, the Netherlands, and Germany, is in response to Chinese unilateralism, trade dependency, and unchecked Sino-U.S. contestation. Several of these EU members have come to understand each other’s positions on the Indo-Pacific. Gradually, there is a realization that it is not just about what the EU and its members seek to accomplish in the region but just as much the perspectives and priorities of key Indo-Pacific resident actors—and their views on European strategies and contributions. Vietnam is one such country that is worthy of greater European strategic attention. Vietnam is known for its “bamboo diplomacy”—a reference to the bamboo plant’s strong roots, sturdy stems, and flexible branches—balancing ties with the two big powers, the U.S. and China. In the words of Foreign Minister Bui Thanh Son, Vietnam’s foreign policy caters to “independence, self-reliance, peace, friendship and cooperation, and multilateralization and diversification of external relations and proactive international integration.” However, Hanoi has never officially and fully embraced the term “Indo-Pacific” nor the U.S.-led Indo-Pacific construct although it does recognize that some aspects of the Free and Open Indo-Pacific tenet advocated by the U.S. and its allies are compatible with its national interests. For instance, the order in the Asia-Pacific, a term that Hanoi prefers to use, should be rule-based. This speaks to one of Vietnam’s most important foreign policy priorities: finding peace and stability in the SCS disputes with China and other claimants. However, the order that Vietnam seeks is in more than just the security domain. The goal of development has been the highest priority since Doi Moi (renovation) in 1986. Economic growth is considered the backbone of national security and regime legitimacy. Hanoi’s development of foreign relations can be said to be grounded in its national development experience, with the stress on economic priority leading to national stability and international standing. Vietnam chooses to engage in the Indo-Pacific construct on its terms. Vietnam and EU Convergence On both economic and security fronts, Vietnam and the EU can find converged interests that align closer to each other. Even as Hanoi has not officially adopted the term “Indo-Pacific,” the EU’s Indo-Pacific strategy, if implemented well, could address both Vietnam’s economic and security needs. Despite its security and military power limitations in the Indo-Pacific, the EU can still play a crucial role in effectively addressing these needs, which are vital for the EU’s strategic interests as well. The two already have a Framework Participation Agreement. Vietnam is also part of the EU’s Enhancing Security In and With Asia (ESIWA) project, which covers crisis management and cyber security. This also aligns with the EU’s Indo-Pacific Strategy, where Vietnam is considered a “solid” partner. Notably, both the EU and Vietnam face (potential) economic coercion from China. As China is now Vietnam’s largest trading partner, sudden trade restrictions hindering Vietnamese exports to China would dramatically hurt the Vietnamese economy. In this vein, Hanoi welcomed the EU-Vietnam Free Trade Agreement (EVFTA), hoping it would give opportunities to diversify its trading partners and thus mitigate the risks of economic coercion from China. On the other hand, the EU and its member-states are also trying to increase economic resilience by diversifying trading partners as they wrestle with economic overdependence on China. So, strategically, Brussels presents an excellent opportunity for Hanoi and vice versa. However, challenges remain. For example, all the EU member-states are still to ratify the Investment Protection Agreement signed along with the EVFTA. Even though this is usually a time-consuming procedure, the imperative to reap benefits as soon as possible has taken a setback amid a challenging geopolitical landscape. Nonetheless, the two sides are concerned about more than just traditional economic development; they are concerned about sustainable development and green transition. For instance, under the EU’s Global Gateway framework, the EU and Vietnam have signed the Just Energy Transition Partnership (JETP), which looks to provide a multi-projects credit facility worth €500 million. This is supposed to be the EU’s primary focus in Vietnam now. Yet, Hanoi’s cautious approach for fear of falling into any potential debt trap could stymie smooth cooperation. Projects involving vast sums of money, such as the JETP, are also practically challenging to push at the moment as officials are afraid to be the targets of the Communist Party of Vietnam’s anti-corruption campaigns. Vietnam would also be keen for ASEAN and the EU as blocs to reinvigorate multilateralism and shore up security cooperation, particularly in the SCS disputes. ASEAN states, in general, are looking to the EU as a non-threatening balancing power to reduce the impact of the China-U.S. strategic competition. Among the potential areas of cooperation between the EU and Vietnam within the ASEAN are regional climate action measures, food security, digitalization, and tech innovation. The two sides must also use their partnership to realize an ASEAN-EU FTA. EU as a Security Balancer? The EU and Vietnam also share their commitment to upholding the rules-based order—an essential component of security cooperation because of the region’s strategic importance. However, improving communication and understanding of maritime incidents more effectively is challenging. The SCS territorial conflict is simmering, particularly between China and the Philippines. In 2016, an arbitration tribunal constituted under the United Nations Convention on the Law of the Sea (UNCLOS) overwhelmingly ruled in favor of the Philippines, which China rejected. However, the ruling bolstered Vietnam’s claims, which were not openly welcomed by other ASEAN states besides the Philippines. In the absence of an agreement for a code of conduct (CoC) between China and ASEAN, which has been dragging on for years, China’s violations of international law in the SCS, including the latest against Vietnam in the Gulf of Tonkin, have increased. Against this scenario, Vietnam and the Philippines have signed maritime security deals. At the same time, Vietnam would be reluctant to do anything more drastic, such as support the Philippines in its attempt to draft a “separate” CoC for fear of Chinese retaliation. While Vietnam is less discussed in major global media than the Philippines on the issue, Hanoi is actively using diplomatic means to internationalize the problem, bringing in more players to address complex territorial disputes to safeguard its sovereignty and promote regional peace. In this context, winning the support of the EU and its member-states would be strategically important for Vietnam. The Vietnamese side can facilitate this by providing foreign entities, including the EU, with more transparent and timely information when incidents occur. Naturally, using a media strategy like the Philippines might sensationalize the issue, which might be different from what Hanoi prefers as it walks a tightrope to balance its complex relations with China. However, Hanoi can at least offer foreign diplomats transparent and detailed information in a timely fashion to help them verify and assess the situation on the ground. This will speed up the EU’s and other potential like-minded states’ response to sea incidents and foster ways forward for more multilaterally agreeable forms of modus vivendi in the South China Sea. Ultimately, such a modus should serve China too. EU No Longer a Bystander The EU’s recent stance on the SCS issue has been its respect for a rule-based order and freedom of navigation, strong opposition to unilateral actions, and supporting the ASEAN-led “effective, substantive and legally binding” CoC while mentioning China but not singling it out. This is a change from the EU’s pre-Indo-Pacific embrace when it was a more divided, neutral house. The EU’s heavy dependence on maritime trade through the SCS mandates that the EU can no longer stand as a bystander. However, ASEAN claimant states, particularly Vietnam, would perhaps expect a sharper or clearer position, which the EU has indeed been moving toward. For example, in March 2024, the EU released a statement expressing concerns about the incidents involving “repeated dangerous maneuvers” by the Chinese Coast Guard and Maritime Militia in the SCS. This tilts to the U.S. line, even as the U.S. has been more vocal in directly criticizing China on the SCS, by calling China’s claims “completely unlawful” even before the current events. One could argue that despite the U.S. and its allies having been vocal, this has yet to lead to a concrete resolution of the conflict. However, if the EU cannot send clear signals on the issue, the division among like-minded countries will be seen as weak and exploitable in China’s eyes. Importantly, this is true not just for the SCS disputes but also for China’s coercive activities in general. Therefore, given the convergent non-confrontational, inclusivity-, and economic interests-oriented attitudes of both Vietnam and the EU toward the Asia-Pacific/Indo-Pacific region, both sides are primed to embrace the other’s strategic outlook and up their game in the face of a challenging China and efforts to foster order.