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Energy & Economics
Emblems of European Union and China

How might China hit back over the EU’s electric vehicle anti-subsidy investigation?

by Alicia García Herrero

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 Second, China could try to persuade EU governments that the Commission-led investigation should be withdrawn.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.

Energy & Economics
EURO vs. Yuan. European and Chinese flags

Overcoming an EU-China trade and trust deficit

by Shairee Malhotra

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.

Diplomacy
Taiwan, EU and China Flag

The post-election Taiwanese economy: decisions ahead and takeaways for the European Union

by Alicia García-Herrero

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

Diplomacy
Chancellor Sholz and Prime Minister Ibrahim in Berlin

Press conference by Federal Chancellor Scholz and the Prime Minister of Malaysia, Anwar Ibrahim, on Monday, March 11, 2024 in Berlin - Wording

by Olaf Scholz , Anwar Ibrahim

BK Scholz: A warm welcome, Mr. Prime Minister! I am delighted to welcome you here to Germany for the first time. Your visit is a very special start to a Southeast Asia Week with several high-ranking visits from this important region of the world here in Berlin. The Indo-Pacific region is of great importance to Germany and the European Union. We therefore want to intensify political and economic cooperation. Germany already maintains close economic relations with the region. Malaysia is Germany's most important trading partner in ASEAN. This is of great importance because it is associated with many direct investments in the country, but also with all the economic exchange that results from this. We would like to further expand this partnership. Of course, this is particularly true with regard to the objective of further diversifying our economic relations with the whole world. We want to have good economic and political relations with many countries. We also want closer cooperation on climate protection and the expansion of renewable energies. We are therefore very pleased with Malaysia's announcement that it will stop building new coal-fired power plants and dramatically increase the share of renewable energies. We think this is very important. Malaysia and Germany are established democracies. We are both committed to multilateralism and compliance with international law. It is therefore also right that we deepen our security and defense cooperation. The defense ministries are already working on the necessary cooperation agreements. Of course, we also discussed developments in the Middle East, developments in Gaza and the situation following the Hamas attack on Israeli citizens. It is no secret that our perspective on the Middle East conflict is different to that of others. But that makes it all the more important to exchange views with each other. In any case, we agree that more humanitarian aid must reach Gaza. This is also our clear call to Israel, which has every right to defend itself against Hamas. We do not believe that a ground offensive on Rafah is right. An important step now would also be a ceasefire that lasts longer, preferably during Ramadan, which has now begun and during which we broke the fast together today. Such a ceasefire should help to ensure that the Israeli hostages are released and that, as I said, more humanitarian aid arrives in Gaza. We also have a very clear position on long-term development. Only a two-state solution can bring lasting peace, security and dignity for Israelis and Palestinians. That is why it is so important that we all work together to ensure that a good, peaceful perspective, a lasting common future is possible for Israelis and Palestinians, who coexist well in the two states. Of course, the world is marked by many other conflicts and wars, especially the dramatic war that Russia has started against Ukraine. It is a terrible war with unbelievable casualties. Russia, too, has already sacrificed many, many lives for the Russian president's imperialist mania for conquest. This is against all human reason. That is why we both condemn the Russian war of aggression. It is important to emphasize this once again. The Indo-Pacific is of great importance for the future development of the world. Of course, this also applies to all the economic development and development of the countries there. I therefore welcome the efforts of Malaysia and the ASEAN states to settle disputes peacefully and to find ways to ensure that this becomes typical of everything that has to be decided there. Any escalation must be avoided at all costs. Peace and stability must always and everywhere be maintained on the basis of international law. This applies in particular to the freedom of the sea routes and compliance with the UN Convention on the Law of the Sea. That is why the ongoing negotiations on the Code of Conduct are so important. Thank you once again for coming to Berlin on the first day of Ramadan, at least for our location. We broke the fast together earlier. For me, this is a good sign of peaceful coexistence and solidarity. I see it as something very special. Ramadan Kareem! PM Anwar: Thank you very much, Mr. Chancellor, dear Olaf! Thank you for your wonderful hospitality and for bringing us together today to break the fast! Germany is of course one of our most important partners in Europe. We have seen a huge increase in trade and investment. We can see that major investments have been made. We have visited Siemens. Infineon is a big investor in Malaysia and is showing its confidence in the country and the system here. There are many other examples of companies operating in Malaysia. Of course, my aim is always to expand bilateral relations in the areas of trade and investment and also to benefit from your experience, both in the field of technology and in environmental and climate protection issues. We have set ourselves clear goals for the energy transition. We have drawn up an action plan that is also in line with your policy. Renewable energy, ammonia, green hydrogen - we are pursuing these very actively. Fortunately, Malaysia is also a hub within ASEAN for these renewable energies and technologies. We welcome the German interest in this, also with regard to new investments in the renewable energy sector and with a view to climate change. We have of course discussed this cooperation on this occasion and I am pleased with the Chancellor's willingness to tackle many of these issues. Sometimes we have small differences of view, but it really shows the trust we have in each other. As far as the war in Gaza is concerned, we agree that the fighting must stop. We need a ceasefire immediately. We also need humanitarian aid for the people of Palestine, especially in Gaza. Of course we recognize the concern about the events of 7 October. We also call on Europeans, and Germany in particular, to recognize that there have been 40 years of atrocities, looting, dispossession of Palestinians. Let us now look forward together! I agree with the Chancellor on what he said about the two-state solution. It will ensure peace for both countries. Together we can ensure that there is economic cooperation and progress for the people in the region. We have also positioned ourselves with regard to the war in Ukraine. We have taken a very clear stance against aggression, against efforts to conquer. This applies to every country and, of course, also to Russian aggression in Ukraine. We want a peaceful solution to the conflict. Because this conflict has an impact on trade and economic development as far away as Asia. We have a peaceful region. ASEAN is currently the fastest growing economic area in the world, precisely because it is so peaceful - apart from the issue in Myanmar, but that is contained within Myanmar. The conflict has not spread to the region, although there are of course refugee movements. Within ASEAN, we have jointly agreed on a five-point consensus and the parameters by which the issue can be resolved. The ASEAN countries have agreed that Laos, Malaysia and Indonesia would like to lead the troika together and resolve the conflict with Myanmar. Then there are other issues such as the South China Sea and China. I assured the Chancellor that we are getting along well with China. We have not seen any difficult incidents, but of course we see ourselves as an absolutely independent country. We are of course a small country, but we stand up for our right to cooperate with many countries to ensure that the people of Malaysia also benefit from these mechanisms and from cooperation with other countries. Once again, Mr. Chancellor, thank you very much for this meeting. I am very impressed by your insight, by your analysis of the situation. It is very impressive to see what a big country like Germany is doing, and it was also good to share some of our concerns. I am pleased with the good cooperation. It's not just about trade and investment, it's also about the overall development of bilateral relations in all areas. I also told the Chancellor that the study of Goethe is gaining interest in Malaysia. Questions from JournalistsQuestion: Mr. Prime Minister, can you tell us something about the progress of German investment in Malaysia and can you say something about the challenges for the government in the transition to renewable energy in Malaysia? Mr. Chancellor, in 2022 you spoke about the turning point in German foreign and security policy. But if you now look at ASEAN or Southeast Asia: How does Germany see Malaysia in terms of its bilateral importance, trade and also regional issues? PM Anwar: Within the European Union, Germany is our biggest trading partner. They have made large investments, up to 50 billion US dollars. I have already addressed Infineon and many other leading German companies and I have said in our discussions that we are very pleased that they have chosen Malaysia as an important hub, as a center of excellence, as a training center in the region and I look forward to further cooperation in this area. Of course, I also mentioned that education should be a priority. There are 1000 Malaysian students here in Germany and also several hundred German students in Malaysia. We are also very happy about that. We are working with many German companies to train people and strengthen cooperation. We have taken important steps in renewable energy. We are investing in solar energy, in green energy and in our renewable energy export capacity. There is now an undersea green energy cable to the new capital of Indonesia, another to Singapore, and another cable to the Malay Peninsula. You can also see from the fact that data centers and artificial intelligence are growing and thriving in the Malaysian region that this has great potential. BK Scholz: Thank you very much for the question. - First of all, the turning point lies in the Russian attack on Ukraine. This was the denunciation of an understanding that we have reached in the United Nations, in the whole world, namely that no borders are moved by force. But the Russian war of aggression is aimed at precisely that, namely to expand its own territory as a large country at the expense of its neighbor - with a terrible war. We cannot accept this - not in Europe and not anywhere else in the world. That is why it is right for us to support Ukraine and to do so in a very comprehensive manner. After the USA, Germany is the biggest supporter - both financially and in terms of arms supplies - and in Europe it is by far the country that is making the greatest efforts to help Ukraine defend itself. But this touches on an issue that is important for the whole world. Anyone who knows a little about the history of the world - and it is colorful and diverse - knows that if some political leader is sitting somewhere, leafing through history books and thinking about where borders used to be, then there will be war all over the world for many, many years. We must therefore return to the principle of accepting the borders as they are and not changing them by force. That is the basis for peace and security in the world. That is why we are also very clear on this together. For Germany, however, this does not mean that we lose sight of our own economic development, the development of Europe and the world. As you may already have noticed, it is particularly important for the government I lead and for me as Chancellor of Germany that we now make a major new attempt to rebuild relations between North and South and to ensure that we cooperate with each other on an equal footing in political terms, that we work together on the future of the world, but that we also do everything we can to ensure that the economic growth opportunities and potential of many regions in the world are exploited to the maximum. This is why economic cooperation between Europe and ASEAN, between Germany and ASEAN, between Germany and Malaysia plays such an important role, and we want to make progress in the areas we have just mentioned. Renewable energies are central to this. We know that: We need to increase the prosperity of people around the world. Billions of people want to enjoy a level of prosperity similar to that which has been possible for many in the countries of the North in recent years. If this is to succeed, it will only be possible if we do not damage the environment in the process, which is why the expansion of renewable energies is so important. New and interesting economic opportunities are also emerging, for example in the area of hydrogen/ammonia - this has been mentioned - because the industrial perspective of the future will depend on more electricity, which we need for economic processes - and this from renewable energies - and on hydrogen as a substitute for many processes for which we currently use gas, coal or oil. Driving this forward and creating prosperity together all over the world is a good thing. The fact that the German semiconductor industry and successful German companies in the electronics sector are investing so much in Malaysia is a good sign for our cooperation. We want to intensify this. Question: Thank you very much, Mr. Prime Minister. Your government supports Hamas and, unlike Western countries, has not described Hamas' attack on Israel as terrorism. In November you said that Hamas was not a terrorist organization. Do you stand by this assessment and are you not afraid that this position on Hamas could affect relations with countries like Germany? Mr. Chancellor, I have a question for you: Do you think that Malaysia's position on Hamas could damage bilateral relations between Germany and Malaysia? And if I may, one more question on Ukraine: Germany is still discussing the delivery of cruise missiles to Ukraine. The Foreign Minister said yesterday that a ring swap with the UK was an option, i.e. Germany sending Taurus cruise missiles to the UK and the UK then sending its Storm Shadow cruise missiles to Ukraine. Do you think this is also an option? PM Anwar: Our foreign policy position is very clear and has not changed. We are against colonialism, apartheid, ethnic cleansing and dispossession, no matter in which country it takes place, in Ukraine or in Gaza. We cannot simply erase or forget 40 years of atrocities and dispossession that have led to anger in the affected societies and also action after action. Our relations with Hamas concern the political wing of Hamas, and we will not apologize for that either. This cooperation has also helped to raise concerns about the hostages. We have no links with any military wings. I have already said that to my European colleagues and also in the US. But we have some different views. The Australian National Congress also recognized long before the Europeans or Americans that this apartheid policy must be abolished. That's why we have taken that position. We need to understand what the fundamental problem with this is. We cannot allow people to be plundered, to have their homes taken away from them. This has to be solved. Am I in favor of people, of children being killed? Absolutely not. No, nobody should do that. That is the consistency in our politics. But I am against this obsession, this narrative, as if the whole problem started on October 7 and would end then. It didn't start on October 7, and it won't end then either. It started 40 years ago and it's still going on today. Against this background, I am of the opinion - and I have also said this to the Chancellor - that we should now look to the future. We have a problem. Do we want to deal with history now, with the atrocities that have happened, or do we want to solve the problem now? Solving the problem now means: the fighting must stop, the killing must stop. Then the whole international community - Germany, Malaysia and all neighboring countries - can ensure that there is no more violence, from any group, against anyone - not against Muslims, Christians or Jews. People must be able to live in peace. Thank you very much. BK Scholz: I have already said it and I would like to repeat it again: Germany's position is clear. Israel has every right to defend itself against the terrorist attack by Hamas. We have always made that clear in recent days, weeks and months, and it remains so. Israel can rely on that. At the same time, we have clear positions on further developments, and these have already been stated. Let me say this once again: we want more humanitarian aid to reach Gaza. We want the hostages to be released, unconditionally. We want there to be no unnecessary victims. That is why we have said very clearly what forms of military warfare are compatible with international law and what we find difficult. I have spoken out on Rafah and on the need for a long-term peaceful perspective with a two-state solution that makes it possible for Palestinians in Gaza and the West Bank to live peacefully in a separate, self-governing state alongside Israel - as a democracy in the region, and where the citizens of Israel can also rely on us. That is the perspective we are working for and what is at stake now. That is why we are working - despite the different assessments of the specific issue - on a peaceful perspective, which is necessary. I would like to repeat what I have to say on the issue of supporting Ukraine in its defense. Germany is by far the country that is providing the most support for Ukraine - financially, but also in terms of arms deliveries. All in all, the deliveries to date and those promised amount to 28 billion euros and 30 billion dollars. That is a considerable sum. We have mobilized everything to ensure that Ukraine receives the necessary support from us - ammunition, artillery, tanks, air defence of various kinds, which is also highly efficient and very much appreciated. Our support is reliable and continuous. Ukraine knows this, and we hear time and again how much this great support is appreciated there. As far as the one weapon system is concerned, I am of the opinion that it cannot be used without control in view of its effect and the way in which it can be used, but that the involvement of German soldiers is not justifiable, not even from outside Ukraine. I have therefore said that I do not consider the deployment to be justifiable and that it is therefore not a question of direct or indirect involvement, but of us being clear on this specific issue. My clarity is there. It is my job as Chancellor, as head of government, to be precise here and not to raise any misleading expectations. And my answers are correspondingly clear. Question: Good afternoon, Excellencies! You both mentioned the situation in Gaza and said that we must look ahead to a two-state solution. But how much influence can this meeting have on a humanitarian ceasefire? PM Anwar: Germany is an important country in Europe and has established good relations with Israel, and we have somewhat better relations with Palestine, with the Palestinian Authority and also with the political Hamas. Other Arab countries and neighboring states of Palestine and Israel are doing what they can. We should also be a little more positive. It is of course a chaotic situation, an uncertain situation. There is no easy solution. The Palestinians have suffered a lot. The Netanyahu government has also been very clear in its stance. There is no easy solution. We have to stop the killing of innocent people on both sides, the killing of civilians. We now need a permanent ceasefire and, ultimately, a two-state solution. This is also possible if the international community has the courage and determination. I have said: sometimes you get really depressed when you have the feeling that this case has already been morally abandoned and that there is no real will from all countries to stop the war and find a solution. I am sure that the countries of the Middle East, the international community, Germany and the other parties involved want this peaceful solution. BK Scholz: We would all have liked the start of Ramadan to have been accompanied by a longer-lasting ceasefire, which would have been linked to the release of the hostages by Hamas and also to an increase in humanitarian aid reaching Gaza. Having said that, the aim now is to bring this about as soon as possible. I believe that would be very important for everyone and could also create prospects for further developments. That is what is at stake now. We are in agreement with the American government and the European Union in everything we do. Many people around the world are also trying to work in this direction - as we have heard here, but this also applies to neighboring countries. What we must prevent is an escalation of the war. We also warn against Iran or the Iranian proxies becoming more involved in this war than is already the case. This must be resolved soon. As I said, how this can be done is something that is very clear to me, to the European Union, to the USA and to many others, and it has also been mentioned here together. Question: Mr. Prime Minister, you said that history should be left behind. But for the Israeli hostages, October 7 is still the present, also for their families. Regarding the talks you are holding with the political leadership of Hamas: What are you talking about? How much hope do you have that these hostages will be released soon? Can you also say something about what you saw on October 7 and the fact that these hostages are still being held by this terrorist violence? Mr. Chancellor, you recently met the Pope, who has now caused controversy with his statements on the white flag, which Ukraine has taken to mean, as the Foreign Minister said, that the Church is behaving more or less as it did at the beginning of the 20th century, in other words that the Church did nothing against Nazi Germany at that time. How do you react to the Pope's statements? PM Anwar: Thank you. I have already made my opinion clear. You cannot simply overlook the atrocities of the last four decades, and you cannot find a solution by being so one-sided, by looking only at one particular issue and simply brushing aside 60 years of atrocities. The solution is not simply to release the hostages. Yes, the hostages should be released, but that is not the solution. We are a small player. We have good relations with Hamas. I have told the Chancellor that, yes, I too would like the hostages to be released. But is that the end of it, period? What about the settlements, the behavior of the settlers? No, it goes on every day. What about the expropriations, their rights, their land, their dignity, the men, the women, the children? Is that not the issue? Where is our humanity? Why is there this arrogance? Why is there this double standard between one ethnic group and another? Do they have different religions? Is it because of that? Why is there a problem? Yes, we want the rights of every single person to be recognized, regardless of whether they are Muslim, Jewish or Christian. I am very clear on that. But of course I cannot accept that the issue is focused on just one case, on one victim, and that the thousands of victims since 1947 are simply ignored. Is humanity not relevant? Is compassion not relevant? That is my point. Do I support any atrocities by anyone towards anyone? No. - Do I want hostages to be held? No. But you can't look at the narrative in such a one-sided way. You can ask if I disagree with some subgroups. But that's not the way to solve the issue. We have to be fair, just, and find an amicable solution that is just, that is fair. BK Scholz: Once again what I have already said: Germany has a special and good relationship with Israel. That is very important to us. That's why Israel can also rely on us. You have a clear position on what is necessary now. That includes the release of the hostages. That includes humanitarian aid. It includes the prospect of a two-state solution. I have already spoken about this, I just want to mention it again here. This is also important for us. We were very supportive of the founding of the state of Israel, and German policy will continue to develop along these lines. As far as the Russian war of aggression against Ukraine is concerned, Germany's position is very clear: Ukraine has the right to defend itself, and Ukraine can rely on us to support it in many, many ways. I have already said that we are very far ahead when it comes to the volume and quality of the arms supplies we have provided. That is also true. That is why, of course, I do not agree with the position quoted.

Energy & Economics
Export in Chains

Export bans and inter-state tensions: The need for a revised WTO export bans framework to address worrying state behaviour at the peak of the pandemic

by Dr. Seebal Aboudounya

Please note that this article is only available in English. Abstract: During the peak of the Coronavirus (SARS-CoV-2) pandemic, some states imposed export bans on medical goods to prevent their exportation during the emergency situation brought about by the Covid-19 pandemic. However, the manner in which this policy was applied caused much discontent especially between neighbouring countries and allies, particularly due to the confiscation of pre-ordered goods destined for countries also experiencing a crisis situation. This paper analyses the rise of inter-state tensions due to export bans at the peak of the pandemic and calls for the need to revise the World Trade Organization’s (WTO) export bans framework which currently contains a number of gaps exacerbating the problem and leaving a legal gap. The paper discusses those gaps in the WTO’s legal framework and highlights the areas in need of revision to avoid repeating the troubles of the past pandemic. Introduction Faced with political pressure and an extraordinary situation during the Coronavirus (SARS-CoV-2) pandemic, some countries resorted to the use of export bans as a tool to ensure that they have enough medical supplies for their population. However, their use of export bans also involved the confiscation of medical goods destined for delivery to their neighbours and allies. Such behaviour provoked discontent among those states expecting the delivery of their ordered medical supplies which were urgently needed as the death-toll from Covid-19 was sharply rising. This article starts by explaining the instances where confiscations using export bans occurred, namely between the United States and Germany, the US and Barbados as well as France and the United Kingdom. The paper also discusses the ‘near misses’ involving some European states where the export bans were initially used to confiscate the goods of other European countries, but then those goods were ultimately allowed to be delivered abroad to their delivery location. The discussion then shifts to the international legal framework of the World Trade Organization (WTO) governing the use of export bans and then shows how this legal framework is flawed in certain areas as it contains some gaps that may be exploited for conducting unconstrained confiscation operations. An overview of existing studies on export bans then reveals that this policy is already harmful in several ways (Evenett 2020a; Bown 2020; Barichello 2020). The article then ends with a concluding discussion emphasising how export bans are particularly harmful when used in relation to pre-ordered goods and reiterating the need for a revised WTO legal framework on export bans. Incidents of confiscations using export bans The three incidents below all occurred during the peak of the covid pandemic in 2020 when countries faced life and death situations. The three cases also involved the use of export bans to justify the confiscation of medical goods pre-ordered by other states. US vs Germany This incident occurred on 3rd April 2020 involving the United States and Germany (Crump 2020). This particular event captured a lot of media attention and included the release of high-level statements from both sides, with accusations of “modern piracy” being directed towards the US (BBC 2020a). The main issue here was that approximately 200,000 N95 masks that Germany had ordered for its police force were diverted to the United States (Selinger 2020). The masks shipment dispatched from China from an American company was diverted to the US during a transfer between planes in Thailand (Selinger 2020). Germany stated that the masks were confiscated in Bangkok by American officials and that those masks were ordered from a US producer (Crump 2020; DW 2020). The next day, the US company 3M denied Germany’s claims and told a German news agency that it did not have any paperwork regarding a shipment for Germany (DW 2020). However, Germany had made it clear on 3rd April that it had ordered and paid for those urgently needed masks from a US company (Berlin 2020). In fact, Germany referred to earlier accusations made by French officials against the US for buying France’s masks in China and added that “the U.S. administration has obliged the American conglomerate 3M by law to supply the U.S. with as many N95 respiratory masks as possible, such as those used in hospitals” and that “the group also manufactures in China” (Berlin 2020a). Significantly, the media was already reporting how the American company 3M “has been prohibited from exporting its medical products to other countries under a Korean-War-era law invoked by President Donald Trump” (BBC 2020a). The BBC (2020a) added that “on Friday [3rd April], Mr Trump said he was using the Defence Production Act (DPA) to demand that US firms provide more medical supplies to meet domestic demand”. Zooming in on Trump’s official statements during the Coronavirus Task Force Press Briefing reveals significant information when he stated that:  I’m also signing a directive invoking the Defense Production Act to prohibit export of scarce health and medical supplies by unscrupulous actors and profiteers. The security and Secretary — the Secretary of Homeland Security will work with FEMA to prevent the export of N95 respirators, surgical masks, gloves, and other personal protective equipment. We need these items immediately for domestic use. We have to have them. […] We’ve already leveraged the DPA to stop the hoarding and price gouging of crucial supplies. Under that authority, this week, the Department of Health and Human Services, working with the Department of Justice, took custody of nearly 200,000 N95 respirators, 130,000 surgical masks, 600,000 gloves, as well as bottles — many, many, many bottles — and disinfectant sprays that were being hoarded (Whitehouse 2020, emphasis added).  Trump’s statements are important because they include the significant number of 200,000. Although Trump did not specify where those 200,000 N95 were confiscated from, the number remains important (BBC 2020a); it is the same number of masks that Germany reported. More importantly, the official statement also supports the fact that the DPA was used as a tool for confiscating goods. Trump’s statements describe these good as being ‘hoarded’ prior to their confiscation, however, the statements from Germany’s side indicate that those masks were intended for the German people. As significant as Trump’s statements were the ones made by Berlin’s Interior Senator who blamed the US for the confiscation of the N95 masks (DW 2020). In fact, he stated that:  We consider this an act of modern piracy. This is not how you deal with transatlantic partners. Even in times of global crisis, there should be no wild west methods. I urge the federal government to urge the United States to comply with international rules (Berlin 2020b; BBC 2020a).  As such, this incident saw direct statements from the German side, indicating that Germany saw the US’ behavior as deviating from international rules. Yet despite Trump’s statements in the press briefing, he directly addressed the German incident, denying the claims by saying that “there has been no act of piracy” (Crump 2020). Similarly, the spokeswoman for the American embassy in Bangkok denied that the US had knowledge of the mask shipment bound for Germany (Tanakasempipat 2020). Despite the US’ constant denial of state involvement, it remains a fact that an order of 200,000 masks destined for Germany was never delivered. Moreover, at no point did the developments mention non-state entities, but rather, the discourse had remained solely at the inter-state level and the main issue for discussion was the US’ use of the Defence Production Act to secure vital medical goods. US vs Barbados On the 5th of April, Barbados was brought into the picture when 20 ventilators donated to Barbados by a Philanthropist where “barred from exportation” by the US government (Barbados Today 2020). Moreover, as stated by the Barbadian Health and Wellness minister, these ventilators were already “paid for” (Barbados Today 2020). In explaining this incident, the Health minister clarified that “it has to do with export restrictions being placed on certain items” (Connell 2020). Thus, the Barbados incident was another instance where export bans were used as the justification for confiscating important medical supplies that were destined for another country. As for the US’ response to this incident, The Miami Herald wrote that a State department spokesperson’s email response “seemed to suggest that some previous media reports about seized medical exports may not be accurate” (Charles 2020). However, given that this is an incident relating to a Caribbean Island whose relations with the US are far from hostile, it is unlikely that this confiscation incident was characterised by significant inaccuracies. France vs UK Another instance of confiscation via export bans was reported during the pandemic, but this time, the location was Europe. The incident happened in March 2020 and had the UK’s National Health Service (NHS) as the victim and France as the accused. France’s actions were reported by Euronews when it stated that:  France has forced a face mask manufacturer to cancel a major UK order as the coronavirus-inspired scramble for protective gear intensifies. The National Health Service ordered millions of masks from Valmy SAS near Lyon earlier this year as COVID-19 threatened. But amid a global shortage, France earlier this week ordered the requisition of all protective masks made in the country (Euronews 2020). France’s export ban placed the company in an uncomfortable situation as it was prohibited from fulfilling the NHS’ order. Indeed, the company director commented that "the requisition does not allow any wiggle room for us to deliver to the NHS, but it is complicated because the NHS was the first client to order and uses our masks all year long” (Euronews 2020). It is important to note that four months later, the Guardian revealed that Valmy had a contract with the NHS that was signed in 2017 where this company “was required to deliver almost 7m FFP3 respirator masks to the UK at 17p per mask in a pandemic situation as soon as the order was activated” (Davies and Garside 2020). The NHS did indeed activate the contract in early February, however, the French “sweeping requisition decree” ultimately meant that France seized the masks within its borders (Davies and Garside 2020). Near misses: tensions in Europe The incidents below can be described as “near misses" as the accused states initially confiscated other state’s products, but eventually gave them back to their neighbours. The cases here are particularly useful for showing how the misuse of export bans has the potential to harm diplomatic relations between neighbouring states and allies, especially when the ban is placed over other states’ pre-ordered goods. Germany vs neighbours One of such instances occurred between Germany and Switzerland, but this time Germany was the accused. The incident was reported on the 9th of March 2020 and caused a strain in Germany’s relationship with Switzerland during the pandemic. The “diplomatic spat” started a week after the German government banned exports on most protective medical goods (Dahinten and Wabl 2020). Switzerland was particularly angered when 240,000 masks travelling to it were blocked from crossing the German border to enter Switzerland (Dahinten and Wabl 2020). Switzerland then called the German ambassador for “an emergency meeting” regarding this issue amid a very tense situation, especially when it hardly manufactures protective equipment itself (The Local 2020). Eventually after a call was scheduled between the leaders of both countries, Germany modified the ban on the 12th of March, adding exemptions and then removed it completely the following week (Hall et al. 2020). Germany’s diplomatic relations were equally weakening with another neighbour, but this time, the neighbour was a European Union (EU) member. The point of conflict was of course the export ban on protective equipment. The Austrian Economy minister commented on this ban by stating that:  It can’t be that Germany is holding back products for Austria just because they happen to be stored in a German location […] these products are for the Austrian market, and unilateral moves by Germany are just causing problems in other countries (Dahinten and Wabl 2020).  Such statements indicate that placing export bans on other states’ goods seriously angers the importing states as such bans make them feel that their interests are being completely ignored by their counterparts. France vs neighbours France also got a share of the criticism in March when it seized the supplies of the Swedish company Mölnlycke located in France after announcing an export ban on masks and other medical goods (AP 2020; Marlowe 2020). The conflict erupted between France and Sweden when the French ban was placed over Mölnlycke’s Lyon Warehouse that is responsible for distributing personal protective equipment to Southern Europe as well as Belgium and the Netherlands (Marlowe 2020). Significantly, the seized stock was composed of 6 million masks, all of which “had been contracted for”, including a million masks each to Italy and Spain (Marlowe 2020). Eventually, France allowed the shipments to go to Italy and Spain despite initial reluctance to do so (AP 2020). However, the easing of the situation was mainly due to the “crucial efforts” of Sweden’s prime minister who was thanked by Mölnlycke on the 4th of April for his role in the removal of the French export ban on the Lyon Warehouse (Mölnlycke 2020). It is important to note that this instance also made its way to the European Parliament on the 3rd of April where the French export ban was questioned and criticised as “yet another demonstration of the lack of European solidarity” (EP 2020). Thus, this specific incident resonated across the whole of Europe, and not in a positive way. Export bans: the GATT framework The international law on export bans falls under the competence of the WTO, particularly the General Agreement on Tariffs and Trade 1994 which itself is mainly composed of the 1947 GATT agreement (GATT 1994). Significantly, article XI of the agreement titled ‘General Elimination of Quantitative Restrictions’ prohibits the use of export bans when it states that:  No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party (GATT 1994).  However, the agreement leaves out certain exemptions where this prohibition does not apply, the relevant one here being “export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party” where the GATT clearly states that “the provisions of paragraph 1 of this Article shall not extent to” it (GATT 1994, XI, 2(a)). The emphasis on the temporary application of such measures is important and is further clarified in the WTO’s timely report on “export prohibition and restrictions” issued at the peak of the Covid pandemic where it explained that:  The reference to a measure that is "temporarily applied" indicates that the carve-out applies to measures applied for a limited time, taken to bridge a "passing need". In turn, "critical shortage" refers to deficiencies in quantity that are crucial, that amount to a situation of decisive importance, or that reach a vitally important or decisive stage, or a turning point (WTO 2020, annex 1).  Of relevance to the export bans legal framework is also Article XX of the GATT (1994) titled “General Exceptions” that states how:  Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures […] (b) necessary to protect human, animal or plant life or health.  Thus, here the GATT agreement allows countries to use export bans when it is necessary to protect lives. The WTO’s report confirms the relevance of this exception to the Covid-19 situation when it explains that:  In the context of COVID-19, Article XX(b) of the GATT 1994 could be used to justify a ban or quantitative restriction on the exportation of goods, so long as such a measure would be necessary and effective in contributing to protecting the health of that country's citizens (WTO 2020, Annex 1).  Thus, in terms of international law, countries are allowed to make use of export bans when faced with exceptional circumstances. During the Covid pandemic, the WTO member states did indeed make use of the exceptions and exemptions codified in the GATT agreement while informing the WTO of their new policies (Pauwelyn 2020, 107). However, when life is back to normal, their use remains illegal. Thus, overall, the export bans legal situation can be described as residing in a ‘legal grey zone’ whereby their use, though normally prohibited, can be justified and permitted in serious situations requiring them (Pelc 2020, 349). Nonetheless, it is important to note that the international legal framework here does not provide clarification for situations where the export ban exemption is placed on pre-ordered or pre-paid-for goods supposed to go to other countries. Indeed, the current legal framework suffers from a number of ambiguities as explained below. The first ambiguity relates to the term “destined goods.” When prohibiting export bans, article XI speaks of “export of any product destined for the territory of any other contracting party”. Thus, clearly, countries cannot put their hands on goods going to other countries for this would be illegal. However, the carve-out intended to “prevent or relieve critical shortages” is not detailed enough as to clarify if this also applies to goods “destined” for other countries (GATT, article XI, 2(a)). Even if the “destined” statement is applied to the exemption, the ambiguity remains. Much of the ambiguity rests on how to interpret the term “destined” from the export prohibition paragraph: is the term “destined” applied here generally whereby a company in Country X is an exporter and thus it’s goods will naturally be “destined” for other countries, or does the term imply goods that are ready-to-travel to other countries who have already placed an order or paid for goods? Clearly, it’s the second interpretation when applied as an exemption that has been the cause of conflict between the states in the previous section. However, regardless of which interpretation is intended in the GATT, instances where countries confiscate orders destined for other countries is seen as politically and morally unacceptable by the latter; “modern piracy” was how Germany described it. Thus, whatever the world leaders had in mind when they agreed to this exemption, clearly it now needs a lot of clarification. Secondly, there is ambiguity over the situation regarding donated goods. This is an important question especially given the Barbados case. Here the goods sold in country X were already bought in Country X (from a philanthropist in Country X) to be sent to country Y. Thus, a transaction had already taken place and the goods now belong to the philanthropist who is kindly giving this order to Country Y. Does an export ban apply to this situation? Logically, there is little to no justification for its application in this scenario, but the GATT agreement still needs to confirm this. Thirdly, there is ambiguity over the situation of “guest” companies. Given the globalised world we live in, does this exemption apply to international companies geographically located in country X? This was the main cause of tension between Sweden and France when France imposed the export ban over the Swedish company’s Warehouse. A logical consideration of this situation would lead to a ‘no’ answer to this question, but it is also acknowledged that the company may be subject to the geographical jurisdiction and the laws of the country that it is located in. Thus, it is important that the relationship between the host country and the foreign company is clarified when it comes to export prohibitions. Fourthly, there is ambiguity over the timeline of enforcing an export ban policy. The Covid crisis saw quick decisions being taken and implemented. This was particularly the case with export bans and was to the detriment of the importing states. In the case of the US-Germany incident, the confiscation of the masks on their way to Germany occurred hours before the US president announced invoking the defence production Act. In fact, the US policy on export restrictions became official on the 7th of April after the Federal Emergency Management Agency published it (Bown 2020). Significantly, FEMA stated that “this rule is effective from April 7, 2020 until August 10, 2020” (FEMA 2020). Thus, the obvious question arises: on what basis were the masks going to Germany confiscated? Similarly, on what basis were the ventilators destined for Barbados blocked by the US on the 5th of April? If the WTO steps in to advise on the implementation of such export bans, the situation would be greatly improved. Finally, there is ambiguity over the extent to which one country may enforce its policy, particularly in other countries. The US-Germany case was sensationalised by an “international hunt” for masks in Bangkok; thus, here the US officials imposed the export ban on an American company in a foreign country outside their national jurisdiction. However, the question remains, is this permissible under the GATT? The GATT articles did not go that far, but it is important that the international legal framework answers this question. Overall, several unanswered questions resulting from the brevity of the GATT’s article on export bans require answers. Filling in those gaps in the GATT would greatly improve the legal framework on export bans and ease tensions between member states. The next section takes a closer look at export bans, particularly their discussion in the literature and their unwelcome effects. The effects of export bans The academic literature on export bans mainly focuses on their effects, either on several states or on specific case-studies. Prior to Covid-19, a number of studies were mainly concerned with the effects of export bans following the food price crisis in 2007-2008 when countries made use of export restrictions on agricultural commodities in an attempt to stabilise domestic markets (e.g. Liefert, Westcott, and Wainio 2012; Dorosh and Rashid 2013; Timmer 2010). However, following the coronavirus pandemic, some studies have focused on their use on medical goods and agricultural goods as well as on their effects (Koppenberg et al. 2020; Pelc 2020; Evenett 2020b). Nevertheless, what unites almost all the studies on export restrictions is that they mainly agree that such bans do more harm than good. The recent studies on export bans are important because they demonstrate how this policy results in negative effects. For example, Simon Evenett (2020a, 831) in his recent work argues that “export bans on masks, for example, erode the capability of trading partners to cope with the spread of COVID-19. Rather than beggar-thy-neighbour, export bans on medical supplies effectively sicken-thy-neighbour”. He further analyses the effect of the export ban from the perspective of the developing countries cut-off from receiving advanced medical equipment such as ventilators, and explains that whenever this policy is implemented, “a significant share of the world’s population” is prevented from accessing this vital equipment (Evenett 2020a, 832). Evenett (2020a, 833) therefore recommends that governments consider other alternatives to export bans that “do not impede foreign purchases”. Significantly, Evenett also discusses the effect of the export curbs on the exporting country itself and argues that this policy is counter-productive:  Whatever temporary gain there is in limiting shipments abroad, the loss of future export sales will discourage local firms from ramping up production and investing in new capacity, which is exactly what the WHO has called for. In practical terms, during a pandemic this mean that an export ban “secures” certain, currently available medical supplies at the expense of more locally produced supplies in the future (Evenett 2020a, 832).  Internationally, export bans have also been shown to have severe effects on several countries at once. Chad Bown’s (2020, 43) work on the Covid pandemic demonstrates how “taking supplies off the global market can lead to higher world prices and reduced quantities, harming hospital workers in need in other countries”. He also cautions that their use during the pandemic may invoke a “multiplier effect”, similar to the one observed during the sharp price increases of agricultural goods in the 2000s when “one country’s export restriction led to additional global shortages, further increasing world prices, putting pressure on other countries to impose even more export restrictions” (Bown, 2020, 44). Richard Barichello’s (2020, 223) study on Covid-19 and the agricultural sector also highlights the negative effect of export bans while observing how some countries have already imposed export restrictions on staple goods such as rice and cereal products during the pandemic. Barichello acknowledges that such export bans could have a positive effect on countries such as Canada if a consequence of such a ban increases the price of a commodity that it exports. However, he also explains the gravity of the adoption of export bans during current times when he writes that:  The distributional effects of adding export restrictions will, like the COVID-19 crisis itself, fall most heavily on the poor in importing countries by reducing trade, raising food prices, and reducing food security in all but the export countries of that commodity (Barichello 2020, 223). Export bans have also been shown to have “intangible” negative effects that are also significant. Hoekman, Firoini and Yildirim’s (2020) study focuses on export bans from an “international cooperation” perspective and emphasises the foreign policy damages resulting from export bans. The authors write that “in the case of the EU, the immediate policy responses of some member states may have damaged the European project by eroding trust among European partners” (Hoekman, Firoini and Yildirim 2020, 78). Simon Evenett (2020b, 54) adds that export restrictions are a “gift to those economic nationalists abroad that want to unwind or shorten international supply chains”; such nationalists can then claim that relying on the foreign market is unreliable. It is significant that the WTO itself discusses a similar point in its Covid-19 report on export restrictions when it lists the following as part of the “other possible consequences” of export bans:  An erosion of confidence in the multilateral trading system, in particular if restrictions negatively impact the most vulnerable, especially least-developed countries, whose healthcare systems are already strained. It would be difficult for importing members to trust a system that fails to produce tangible benefits in times of crisis and may lead to general calls to ensure that production of medical and other products only take place at the national level (WTO 2020, 9).  The WTO (2020, 9) also highlights how from a health-perspective, export bans may ultimately weaken the fight against the coronavirus when it states how: “given its global nature, if some countries are not able to combat the disease, this coronavirus, or mutated strains of it, will inevitably recirculate and contaminate the populations of all countries, including those imposing the export restrictions”. Thus, an export ban on medical goods is not the soundest policy to implemented during a pandemic. Effects of export ban confiscations & concluding thoughts It is important to consider the consequences of using export bans specifically as a confiscation technique. The points raised above are still of high relevance. However, there are three main disadvantages that are particularly prominent when countries place export bans on other states’ goods. Firstly, enforcing this policy on the goods of other states creates severe tensions between countries at different levels. The first one is at the diplomatic level whereby the officials of country Y express their discontent to officials of country X. Such tensions then easily transmit to other places. Indeed, at the citizenry level, these tensions take the foreground as the citizens in country Y read the news and frown at what their neighbouring states are doing to them in times of need. Thus, the misuse of export bans can be seen as a threat to diplomacy, international trade, and to the principles of establishing friendly relations between states and peoples. Secondly, shortages and stress are another effect of this policy when enforced on other states’ goods. When countries place orders, it is usually because they have a need for those orders. When those orders are then confiscated, those expecting the orders are left empty-handed and in a stressful situation. The stress is generated after the realisation that their plans for fighting the virus have been compromised; orders placed months or weeks ago will now not reach their borders despite those orders being just hours away from arrival. In the above cases, the German police and the NHS had to deal with the unpleasant news that their mask orders will not arrive. Such export bans create a difficult situation for the importing nations and for their institutions, as they then try to seek alternative suppliers at a very short notice. Finally, the implementation of this policy on other states’ orders sends worrying empirical signals. Scholars of IR when they first learn about international politics naturally ask whether the world we live in is a very “realist” world characterised by “survival of the fittest” instinct, or whether it is a world that accommodates international law and inter-state cooperation, despite anarchy. This is the essence of the classical debate between Realists and neo-Liberal Institutionalists (Mearsheimer 1994; Walt, 1997; Ikenberry 2011; Martin 1992). It is reassuring that in the previous discussion, the WTO still had a role to play. The European Commission also tried to solve the disputes arising between its members over the export bans (EC 2020). However, despite those interventions, it was clear that the cause of the problem was the unilateral export ban policy that was quickly being implemented at the discretion of the member states over what was destined for other states. As such, there is an urgent need for the WTO to revise its export ban legal framework to prevent the above scenarios from ever repeating in the future. Bibliography AP. 2020. “Scramble for virus supplies strains global solidarity.” Associate Press. 3 April. https://apnews.com/article/health-ap-top-news-international-news-global-trade-virus-outbreak-b37eadbf9885767d01270117820f4b37 Barichello, Richard. 2020. “The COVID‐19 pandemic: Anticipating its effects on Canada's agricultural trade.” Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, 68 (2), pp. 219-224. https://doi.org/10.1111/cjag.12244 Barbados Today, K. 2020. “Ventilators destined for Barbados seized by U.S.” Barbados Today. 6 April. https://barbadostoday.bb/2020/04/05/ventilators-destined-for-barbados-seized-by-u-s/ BBC. 2020a. “Coronavirus: US accused of ‘piracy’ over mask ‘confiscation’”, BBC, 4 April. https://www.bbc.co.uk/news/world-52161995 Berlin. 2020 a. “USA confiscate protective masks for Berlin”, Berlin.de, 3 April. https://www.berlin.de/en/news/coronavirus/6131492-6098215-usa-confiscate-protective-masks-for-berl.en.html Berlin. 2020b. “The delivery of masks for the Police has not reached Berlin [German].” Berlin.de, 3 April. https://www.berlin.de/sen/inneres/presse/pressemitteilungen/2020/pressemitteilung.915948.php Bown, Chad. 2020. “COVID-19: Demand spikes, export restrictions, and quality concerns imperil poor country access to medical supplies.” in Richard E. Baldwin and Simon J. Evenett eds., COVID-19 and Trade Policy: Why Turning Inward Won’t Work. London: CEPR press, pp. 31-47. https://cepr.org/publications/books-and-reports/covid-19-and-trade-policy-why-turning-inward-wont-work Charles, Jacqueline. 2020. “Barbados accuses U.S. of blocking ventilators for coronavirus, then walks back allegation.” Miami Herald. 6 April. https://www.miamiherald.com/news/nation-world/world/americas/haiti/article241783756.html Connell, Antoinette. 2020. “Bostic: Ventilators not seized.” Nation News. 6 April. https://www.nationnews.com/2020/04/06/bostic-ventilators-not-seized/ Crump, James. 2020. “US denies diverting masks headed for Germany after Trump administration accused of ‘modern piracy’.” The Independent, 6 April. https://www.independent.co.uk/news/world/americas/coronavirus-masks-update-trump-germany-facemasks-bangkok-modern-piracy-a9449976.html Dahinten, Jan and Matthias Wabl. 2020. “Germany Faces Backlash From Neighbors Over Mask Export Ban.” Blomberg. 9 March. https://www.bloomberg.com/news/articles/2020-03-09/germany-faces-backlash-from-neighbors-over-mask-export-ban Davies, Harry and Juliette Garside. 2020. “Revealed: NHS denied PPE at height of Covid-19 as supplier prioritised China.” The Guardian. 20 July. https://www.theguardian.com/world/2020/jul/20/revealed-nhs-denied-ppe-at-height-of-covid-19-as-supplies-sent-to-china-coronavirus Dorosh, Paul. A. and Shahidur Rashid. 2013. “Trade subsidies, export bans and price stabilization: Lessons of Bangladesh–India rice trade in the 2000s.” Food Policy, 41, 103-111. https://doi.org/10.1016/j.foodpol.2013.05.001 DW. 2020. “US firm denies German ‘piracy’ claims over vanished face masks.” DW, 4 April. https://www.dw.com/en/us-firm-denies-german-piracy-claims-over-vanished-face-masks/a-53017112 EC. 2020. “Communication from The Commission To The European Parliament, The European Council, The Council, The European Central Bank, The European Investment Bank And The Eurogroup: Coordinated economic response to the COVID-19 Outbreak.” European Commission, 13th March, Brussels. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020DC0112 EP. 2020. “Parliamentary questions, subject: Masks intended for Italy blocked by France.” European Parliament. 3rd April. https://www.europarl.europa.eu/doceo/document/P-9-2020-002075_EN.html Euronews, R. 2020. “Coronavirus: French protective mask manufacturer scraps NHS order to keep masks in France.” Euronews, 6 March. https://www.euronews.com/2020/03/06/coronavirus-french-protective-mask-manufacturer-scraps-nhs-order-to-keep-masks-in-france Evenett, Simon J. 2020a. “Sicken thy neighbour: The initial trade policy response to COVID‐19.” The World Economy, 43 (4), pp. 828-839. https://doi.org/10.1111/twec.12954 Evenett, Simon .J. 2020b. “Flawed prescription: Export curbs on medical goods won’t tackle shortages.” in COVID-19 and Trade Policy: Why Turning Inward Won’t Work, edited by Richard E. Baldwin, and Simon J. Evenett. London: CEPR press, pp. 49-61. https://cepr.org/publications/books-and-reports/covid-19-and-trade-policy-why-turning-inward-wont-work FEMA. 2020. “Prioritization and Allocation of Certain Scarce or Threatened Health and Medical Resources for Domestic Use.” Federal Emergency Management Agency, 85 FR 20195, 10 April. https://www.federalregister.gov/documents/2020/04/10/2020-07659/prioritization-and-allocation-of-certain-scarce-or-threatened-health-and-medical-resources-for GATT. 1994. “General Agreement on Tariffs and Trade 1994.” World Trade Organization. https://www.wto.org/english/docs_e/legal_e/06-gatt_e.htm Hall, Ben. et al. 2020. “How coronavirus exposed Europe’s weaknesses.” Financial Times. October 2020. https://www.ft.com/content/efdadd97-aef5-47f1-91de-fe02c41a470a Hoekman, Bernard, Matteo Fiorini, and Aydin Yildirim. 2020."COVID-19: Export controls and international cooperation." in Richard E. Baldwin and Simon J. Evenett eds., COVID-19 and Trade Policy: Why Turning Inward Won’t Work. London: CEPR press, pp. 77-87. https://cepr.org/publications/books-and-reports/covid-19-and-trade-policy-why-turning-inward-wont-work Ikenberry, G. John. 2011. Liberal Leviathan: The origins, crisis, and transformation of the American world order. Princeton: Princeton University Press. https://doi.org/10.2307/j.ctt7rjt2 Koppenberg, Maximilian, Martina Bozzola, Tobias Dalhaus and Stefan Hirsch. 2021. “Mapping potential implications of temporary COVID‐19 export bans for the food supply in importing countries using precrisis trade flows.” Agribusiness, 37(1), pp.25-43. https://doi.org/10.1002/agr.21684 Liefert, William .M., Paul Westcott, and John Wainio. 2012. “Alternative policies to agricultural export bans that are less market-distorting.” American Journal of Agricultural Economics, 94(2), 435-441. https://doi.org/10.1093/ajae/aar103 Marlowe, Lara. 2020. “Coronavirus: European solidarity sidelined as French interests take priority.” The Irish Times. 30 March. https://www.irishtimes.com/news/world/europe/coronavirus-european-solidarity-sidelined-as-french-interests-take-priority-1.4216184 Martin, Lisa. 1992. “Interests, power, and multilateralism.” International Organization, 46(4): 765-792. DOI: https://doi.org/10.1017/S0020818300033245 Mearsheimer, John .J. 1994. “The false promise of international institutions.” International security, 19(3): 5-49. https://doi.org/10.2307/2539078 Mölnlycke. 2020. “French export ban for face masks lifted.” Mölnlycke, 4th April. https://www.molnlycke.com/news/news-archive/french-export-ban-for-face-masks-lifted/ Pauwelyn, Joost. 2020. “Export restrictions in times of pandemic: Options and limits under international trade agreements.” In COVID-19 and Trade Policy: Why Turning Inward Won’t Work, edited by Richard E. Baldwin and Simon J. Evenett. London: CEPR press, pp. 103-109. https://cepr.org/publications/books-and-reports/covid-19-and-trade-policy-why-turning-inward-wont-work Pelc, Krzysztof. 2020. “Can COVID-Era Export Restrictions Be Deterred?.” Canadian Journal of Political Science, 53(2), 349-356. https://doi.org/10.1017/S0008423920000578 Selinger, Hannah. 2020. “Stealing masks and stockpiling hydroxychloroquine – What America has become during this epidemic is deeply worrying.” The Independent, 6 April. https://www.independent.co.uk/voices/coronavirus-us-masks-trump-hydroxychloroquine-covid-19-drug-a9450261.html Tanakasempipat, Patpicha. 2020. “Accused of 'piracy', U.S. denies diverting masks bound for Germany.” Reuters, 6 April. https://uk.reuters.com/article/uk-health-coronavirus-masks/accused-of-piracy-u-s-denies-diverting-masks-bound-for-germany-idUKKBN21O0YR The Local. 2020. “Coronavirus: Germany blocks truck full of protective masks headed for Switzerland.” The Local. 9 March. https://www.thelocal.com/20200309/germany-blocks-protective-masks-headed-for-switzerland/ Timmer, C. Peter. 2010. “Reflections on food crises past.” Food policy, 35(1), 1-11. https://doi.org/10.1016/j.foodpol.2009.09.002 Walt, Stephen, M. 1997. “The progressive power of realism.” American Political Science Review, 97(4): 931-935. https://doi.org/10.2307/2952177 Whitehouse. 2020. “Remarks by President Trump, Vice President Pence, and Members of the Coronavirus Task Force in Press Briefing.” Whitehouse.gov., 3 April. https://www.whitehouse.gov/briefings-statements/remarks-president-trump-vice-president-pence-members-coronavirus-task-force-press-briefing-18/ WTO. 2020. “Export prohibitions and restrictions.” World Trade Organization, information Note, 23 April. Available from: https://www.wto.org/english/tratop_e/covid19_e/export_prohibitions_report_e.pdf

Energy & Economics
Chinese Yuan on the map of South America. Trade between China and Latin American countries, economy and investment

Ahead of the curve: Why the EU and US risk falling behind China in Latin America

by Ángel Melguizo , Margaret Myers

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.

Energy & Economics
SHENZHEN, CHINA - CIRCA NOVEMBER 2019: ZTE room at the High-Tech Fair China 2019 at Shenzhen Convention & Exhibition Center.

What should Europeans do about the U.S.-China Rivalry in key strategic technologies?

by Roberta Haar , Hengyi Yang

한국어로 읽기Leer en españolIn Deutsch lesen Gap اقرأ بالعربيةLire en françaisЧитать на русском In October 2023, the EU Commission identified four technology fields as critical: advanced semiconductors; artificial intelligence (AI); quantum, and; biotechnologies.[1] All four areas are greatly impacted by the U.S.-China rivalry in technology, making it essential for Europeans to understand the Sino-American competition. This article examines this rivalry from the Chinese and U.S. perspectives. It recounts their prevailing attitudes, which are shaped by recent events, and that, in turn, mold Chinese and American strategic approaches. From the Chinese policymakers’ perspective, its geo-technological competition with the U.S. is novel and passively learned. During Xi Jinping’s first term, the Chinese government still positioned technology under the economic-oriented strategy of innovation-driven development. This stance followed the idea that ‘science and technology constitute a primary productive force’ and the ‘peaceful development’ principles set during Deng Xiaoping’s era. However, around 2018, two sanctions incidents that targeted Chinese telecommunications giants shifted Chinese leaders’ understanding of tech strategy into the geopolitical context. The first sanction incident involved ZTE, China’s second-largest communications equipment manufacturer. In 2016, the Barack Obama administration accused ZTE of selling telecom equipment containing American chip technology to Iran, which violated U.S. sanctions. In 2017, ZTE pleaded guilty and paid a fine of $1.2 billion. However, in 2018, Trump’s government stated that ZTE did not comply with the settlement agreement, coupling previous sanctions with export controls on ZTE in April 2018. The second incident involved Meng Wanzhou, then Vice-Chairwoman and CFO of the Chinese telecommunications giant Huawei, who was arrested in Vancouver, Canada, during a layover in December 2018. Her detention was at the extradition request of the Trump administration, which levied charges related to alleged violations of U.S. sanctions against Iran. These included bank and wire fraud and outright violations of U.S. sanctions via a subsidiary called Skycom Tech, which allegedly concealed Huawei’s activities in Iran. The necessity of a strategic adjustment These two incidents caused an uproar in the Chinese media, followed by a surge in public patriotic sentiment. However, for the Chinese government, the impact and significance of the two cases were quite different. The essence of the ZTE case was commercial sanctions, which meant that ZTE violated business norms and deserved economic punishment. The official Chinese government stance was that ‘this is just an individual case of corporate violation.’ Despite this position, the fact that the government was actively involved nonetheless politicized the incident within China. It was Xi Jinping himself who negotiated with Trump to save ZTE from bankruptcy after which ZTE became a state-owned enterprise with absolute state control—a move that ultimately resulted in ZTE gaining a greater domestic market share than Huawei. At the international level, the top-level nature of negotiations prevented the ZTE incident from overly politicizing then-ongoing trade frictions between the U.S. and China. While the ZTE episode was resolved with little rancor, Chinese senior officials became concerned about the impact that the U.S. might have on China’s strategic technology companies.[2] In November 2018, Tan Tieniu, then Deputy Secretary-General of the Chinese Academy of Sciences, reported to China’s top leaders that they should learn from the ZTE incident. They should avoid overreliance on imports of core electronic components and chips, and they should not repeat mistakes made by ZTE. In the same month, Xi Jinping mentioned in a speech that ‘internationally, advanced technology and key technology is more and more difficult to obtain… forcing us to travel the road of self-reliance.’ Terms like technological security, technology ‘chokepoints’ (卡脖子), and core technologies in key fields (关键核心技术) began to appear frequently in Chinese official discourse. These reflected Chinese leadership’s views about the ZTE incident that were in turn shaping strategic thoughts on the geopolitical technology competition with the United States. It was the Meng Wanzhou incident at the end of 2018 that for Chinese leaders confirmed the necessity of a strategic adjustment. As in the ZTE case, Huawei was involved in a business violation that from the Chinese perspective should have resulted in corporate punishment. Instead, a personal arrest warrant was issued for Meng, thereby escalating a commercial sanction into a political and diplomatic incident. Le Yucheng, then Deputy Minister of Foreign Affairs, urgently summoned the U.S. and Canadian ambassadors to China and issued a stern protest. The Chinese government also arrested two Canadian citizens in China, sentencing one to 11 years in prison. The Chinese Ambassador to Canada wrote that the Meng Wanzhou case was a ‘premeditated political act in which the United States wields its regime power to hunt a Chinese high-tech company out of political consideration.’ Chinese Defensive Deterrence These two episodes shaped and reinforced Chinese leaders’ strategic thinking about its geopolitical technology competition with the U.S. The 14th Five-Year Plan issued by the CCP in 2020 proposed ‘making technological self-reliance’ a strategic goal. Soon all official documents established a new tone for China’s technology strategy based on self-reliance. Previously, China pursued a reassurance strategy, a strategy that showed goodwill towards the U.S. and the system it led. Thus, in theory, China had two strategic options: reassurance and/or deterrence. The former strategy involves showing friendliness towards the U.S. and its allies, thereby releasing tension, and maybe re-joining the U.S.-led system. A reassurance strategy allowed China more time for stable development—the logic of ‘keeping a low profile’ of the Deng Xiaoping era. The Xi Jinping government picked the second option, deterrence, which is to show strength or use countermeasures to reduce the likelihood of further U.S. trade or coercive action. To make a deterrence strategy work, however, Xi further believed China needed to gain strong capacity in key tech fields. Therefore, Xi first mobilized domestic R&D resources and tried to acquire advanced technologies before using diplomatic countermeasures. The core logic underlying this geopolitical technology strategy is one of ‘defensive deterrence.’ A typical example of this strategy in play concerns the semiconductor industry. Facing export controls on semiconductor equipment from the U.S., the Netherlands, and Japan, the Chinese government first increased R&D investment in the sector, trying to overcome ‘chokepoint’ technologies. As a result, China’s investment in semiconductor R&D grew from $10 billion in 2018 to $25 billion in 2022, an increase of 150%. At the same time, the Chinese government increased investment in the production of key raw materials (silicon, gallium nitride, etc.) and semiconductor production bases. It also guided industries upstream while also pushing for downstream integration through policies to improve and strengthen supply-chain security. Chinese policy also moved to increase international supply-chain dependence on China through its comparative advantages in the semiconductor industry (and even other industries) in a hedging move against the U.S. and its allies. For example, in the automotive chip sector, in the supply of vital raw materials, and in the semiconductor equipment markets, China sought to utilize its significant comparative advantages. In August 2023, the Chinese government announced export controls on gallium and germanium, two key materials for manufacturing semiconductors. China Seeking More Regulatory Power But in addition to responding to what was perceived as U.S. containment policies in the area of technology, China’s strategic use of technology followed another approach, one led by the Ministry of Foreign Affairs (MFA) and the Ministry of Industry and Information Technology (MIIT). This third approach sought more regulatory power, for example, in the areas of civilian AI where China has huge potential.[3] Starting in 2018, the Chinese government showed a strong determination to introduce and study AI ethics and technical standards.[4] Based on these domestic framework policies, various diplomatic initiatives, and standards proposals, the MFA and MIIT expanded China’s regulatory influence in the field of AI. For example, the MFA proposed the ‘Global Data Security Initiative’ in 2020 and the ‘Global Artificial Intelligence Governance Initiative’ in 2023. Minister Wang Yi explicitly stated ‘We hope to provide a blueprint for related international discussions and rule-making.’ The China Electronics Standardization Institute, affiliated with the MIIT, also actively participates in the formulation of international new technology standards. Selectively decoupling: U.S. Attitudes and Strategies When it comes to strategic technologies, the Joe Biden administration has generally maintained a stance toward China that aligns closely with the previous administration led by Donald J. Trump. This is especially the case concerning competitive technologies such as 5G/6G, the specialized processors designed to handle the computational demands of AI, quantum computing, and electric vehicles (EVs). Taking a page from U.S. President Ronald Reagan’s Cold War playbook of outspending the Soviet Union, president Biden initiated a $2.25 trillion infrastructure plan. This plan, not unlike China’s policy to increase domestic innovation and strength, allocated funds for sectors such as transportation, manufacturing, renewable energy, clean water, and high-speed broadband for both wired and wireless technologies. The justification for these investments, part of the Build Back Better Act (BBB) policy and later incorporated into the Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, was that they were a response to Xi Jinping’s ambitious goals of doubling China’s economy by 2035, intending to establish China as a global leader in biotechnology, green energy, and AI. In addition to a spending strategy to boost U.S. competitiveness in strategic technologies, the Biden administration continued with some of Trump’s punitive measures. For example, Biden maintained tariffs amounting to approximately $300 billion. He also continued action against Huawei, which has the potential to outcompete in 5G/6G mobile network technology. The Trump administration used the Bureau of Industry and Security to exclude Huawei from global semiconductor supply chains and it placed the company on the Commerce Department’s Entity List, thus requiring U.S. companies to obtain a license before exporting to Huawei. As discussed above, Trump’s executive branch also brought fraud allegations against Huawei’s Chief Financial Officer Meng. While Biden kept in place Trump-era prohibitions on sales of U.S. goods to companies like Huawei, as well as maintaining restrictions on exports of U.S. critical technology, he did quickly resolve the dispute over Meng. Within hours of the deal for her release, the two men caught up in the game of hostage diplomacy left China on a flight back to Canada. Highlighting the political nature of the incident, when Meng returned to China, senior local officials at the airport met her. Encourage Multilateralism to meet Global Challenges Along with strident measures, the Biden administration also sought a more nuanced stance. Indications that suggest a less hawkish approach to China include emphasizing a collaborative approach toward global challenges like climate change and future pandemics. Biden further pushed for engagement in high-level meetings with, for example, Secretary of State, Antony Blinken, and National Security Advisor, Jake Sullivan, who held talks with their Chinese counterparts, Yang Jiechi and Wang Yi, in Anchorage, Alaska, in March 2021. These talks were frostier than U.S. officials would have preferred but they got the two sides to engage in some dialogue. Similarly, Biden sought to engage with China in multilateral forums and organizations where both countries are members, such as the recent Asia-Pacific Economic Cooperation (APEC) forum that Biden hosted in November 2023. Even the choice of San Francisco as the venue was designed to be conciliatory as it has historic ties to Asia as well as a central role in global technology as the home of Silicon Valley. Still, one must keep in mind that in deciding on a strategy towards China, Biden must also contend with a Congress and public opinion that are growing increasingly skeptical of doing business with China, which they believe steals good jobs and sends balloons over American territory to spy on U.S. critical infrastructure. One primary shaper of U.S. attitudes towards China are the leaders of the House Select Committee on the Chinese Communist Party, Republican Representative Mike Gallagher and Democratic Representative Raja Krishnamoorthi, who lead one of the last bastions of functioning bipartisanship in Washington, D.C. With their many investigations, subpoenas, and policy recommendations, the House China Committee has become the ‘beating heart’ of U.S. Congressional policy, which, with regards to technology, argues for selectively decoupling from China for national security reasons.[5] A way forward Faced with the U.S.’ decoupling or blunting strategies and China’s defensive deterrence strategy, what steps might European nations take to navigate through the choppy, contentious waters of strategic technologies? Are there also steps that Europeans can take to mitigate the impact on their own strategic technology vulnerability? First, recognizing the pivotal role of technology in the rapidly digitizing global economy, Europeans need to stress that it is in the collective interest of everyone to establish institutions, norms, and policies for effective global governance. Rather than engaging in reactive geopolitical maneuvers resembling a chess game, these institutions could concentrate on constructing a more cooperative foundation for crucial technology sectors. Second, along with this recognition, efforts could be directed toward the development of future institutions, policies, and norms that set standards for next-generation and sensitive technologies. Such efforts should take into account initiatives already made by the Chinese and the Americans. Such efforts could also coincide with a third approach of encouraging the Biden administration to adopt a comprehensive multilateral approach. The U.S. needs to push for collaboration beyond issues such as climate change and economic inequality to encompass the intensely competitive areas in technology like those discussed in this article. For one, Europeans could point out that U.S. blunting strategies are simply not working and may even be backfiring by accelerating Chinese technological advances. In September 2023, Huawei released the Mate 60 Pro smartphone equipped with a 7nm domestic chip, revealing that China has overcome some hurdles that U.S. bans were designed to stymie.[6] Since no one knows how long China’s defensive deterrence strategy will hold (and shift to what Chinese leaders believe is a more offensive deterrence), nor whether Trump or someone as equally anti-multilateral as Trump will be (re)elected, Europeans have many incentives to encourage a softer engagement between China and the U.S. Changing the narrative is a fourth important recommendation. It is essential to recognize that the essence of the Sino-American technology competition is more about narrative construction than a description of the current situation. One indication of this is that both sides believe that the other side started what has been described as the ‘new Cold War.’[7] It does not help that both sides have engaged in behavior that supports the other side’s narrative with some hawkish actors employing similar bash-the-other tactics to gain political advantage.[8] Typically, the factual basis for technological competition is grounded in industrial competition, corporate rivalry, or intellectual property disputes. However, the high-tech relationship between China and the United States has been one of complementarity as well as rivalry. Both China and the United States, as well as European stakeholders, need to be careful of the narratives they espouse, lest they become a self-fulfilling prophecy. This work has been funded by the REMIT project, funded from the European Union’s Horizon Europe research and innovation programme under grant agreement No. 101094228 Footnotes [1] EU Commission Recommendation of 3.10.2023 on critical technology areas for the EU’s economic security for further risk assessment with Member States. [2] Gregory C. Allen. 2023. ‘China’s New Strategy for Waging the Microchip Tech War.’ csis.org, May 3. [3] Jing Cheng and Jinghan Zeng. 2023. ‘Shaping AI’s Future? China in Global AI Governance.’ Journal of Contemporary China 32(143): 794-810. [4] See White Paper on AI Standardization, a Guide to the Building of a National Standard Framework for New Generation AI, a report on Ethical Norms for New Generation AI, a White Paper on Trustworthy AI as well as other regulatory documents. [5] Robbie Gramer. 2023. ‘The Masterminds: Washington wants to get tough on China, and the leaders of the House China Committee are in the driver’s seat.’ foreignpolicy.com, November 27. [6] Weiwen Wang. (2023). ‘China Breaks Through 7nm Chip Technology, Has the China-U.S. Tech War Entered Phase 2.0?’ (中国突破7纳米芯片技术 中美科技战进入2.0阶段?). Lianhe Zaobao (联合早报), September 17. Retrieved from https://www.zaobao.com.sg/news/china/story20230917-1433739 [7] Patricia M. Kim, Matthew Turpin, Joseph S. Nye Jr., Jessica Chen Weiss, Eun A Jo, Ryan Hass, and Emilie Kimball. 2023. ‘Should the US pursue a new Cold War with China?’ Brookings.edu, September 1. [8] Roberta N. Haar. 2020. ‘Will China replace the U.S. as the world’s predominant power?’ Atlantisch Perspectief 44(3):9-13.

Diplomacy
Paris, France, 25-04-2024 : Visit of the President of the Republic, Emmanuel Macron, for a major speech on Europe at the Sorbonne.

2024 Election Watch: France, the European Union, Germany, and Mexico

by Collin Chapman

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.

Diplomacy
Rome, Italy - March 22, 2019: Xi Jinping, China's president, speaks as he attends an Italy-China business forum with Sergio Mattarella, Italy's president, at the Quirinale Palace in Rome.

Xi Jinping's "Civilization State" and Anti-Americanism in Europe

by Ihsan Yilmaz , Nicholas Morieson

한국어로 읽기Leer en españolIn Deutsch lesen Gap اقرأ بالعربيةLire en françaisЧитать на русском It is not surprising that China’s Xi Jinping should visit France, Europe’s second largest economy and one of the dominant nations within the European Union. But why should he visit comparatively small and economically less important nations such as Hungary or Serbia? The answer lies not merely in the economic opportunities such a visit may bring to all parties, but in the increasingly anti-American themed politics of the three nations, and their governments’ belief that the future of international politics is a multi-polar order dominated by “civilization states.” These two factors make China, which promises to free the world from American political, economic, and cultural dominance and establish a new multipolar order, an attractive partner for France, Serbia, and Hungary. Equally, it makes them attractive to China, which seeks to divide Europe and the United States, and build greater economic and political ties with European nations desirous of a “new” Europe free of American dominance. Xi portrays China as not merely a nation-state, but a continuation of Ancient Chinese culture merged with Marxism. Xi is adamant that China must draw on its civilizational heritage, and reject the values of Western civilization, which are not – he argues – universal, but indeed particular to the West and thus unsuitable for China. Xi’s remark that China “will work with France to deepen China-Europe mutually beneficial cooperation,” and that the two are “major forces in building a multipolar world, two big markets that promote globalization, and two great civilizations that advocate cultural diversity,” underlines this civilizational perspective on global politics. Civilizationism, as a construct, is thus a tool of liberation through which Xi will free China of non-indigenous values and ideas, and through which it will overcome the United States and make the Chinese nation Asia’s dominant power. The leaders of both China and France, despite their differences, are drawn together due to shared antipathy towards the United States, and their shared civilizational perspective on global affairs, a perspective intrinsically connected with their anti-American politics. Naturally, China and France do not share the same opinion of the United States. China views America as a rival; France views America, perhaps, as a perfidious ally forcing “Anglo-Saxon” culture upon an unwilling French people. Experts have noted the importance Emmanuel Macron places on rejuvenating what he calls European Civilization. Indeed, where right-wing populist Marine Le Pen calls for the protection of France’s Judeo-Christian yet secular civilization, Macron is moving beyond the nation-state paradigm and speaking of centralising power within the European Union in order to protect otherwise moribund European civilization. Macron is very concerned about the future of European civilization, and believes that it represents the best of humanity and must therefore protect its “humanist” values. For Macron, European civilization has many enemies. But perhaps the key enemy is the United States, which is an enemy precisely because it is an anti-civilizational power that defends the nation-state paradigm, insists that its values are universal, and desires a relatively weak Europe. Macron argued that Europeans should take inspiration from the “civilisational projects of Russia and Hungary” and what Macron called their “inspiring cultural, civilisational vitality.” He says European civilization is “humanist,” and that to survive it must reject the “Anglo-American model” which permits the private sector to gain enormous power over human life. This position, of course, also rejects the Chinese model, in which the government is given total control over human life. Hungary and Serbia Victor Orbán is drawn to Xi in much the same way as Macron: both believe the rise of civilization states, such as China, as ineluctable, and both believe that China’s rise provides an opportunity for their respective states – if not civilizations – to free themselves from Anglo-American norms. Although Orbán possesses a civilizational rejuvenation project, it is of an entirely different nature to Macron’s “humanist” plan for Europe. Orbán calls for the re-Christianization of Europe, and for the strengthening of the nation-state and its borders, and he speaks not so much of European civilization but of Judeo-Christian civilization. Orban says, “the US ought to permit illiberal states – such as Hungary – to determine their own futures rather than impose ‘universal values’ upon them in an effort to prevent war.” China’s rise comes at the expense of Orbán’s liberal democratic foes (i.e. Washington and Brussels), decreasing their ability to pressure Hungary to return to liberal democratic norms. Equally, because China is ruled by an authoritarian populist who has a civilizational perspective on international relations, the rise of China legitimises Orbán’s own authoritarianism and his civilizational rejuvenation project. It should come as no surprise that the date Xi chose to visit Serbia coincided with the 25th anniversary of the American-led NATO bombings of Belgrade’s Chinese embassy. The two nations have become increasingly close since the 2012 election victory of the governing populist Serbian Progressive Party (SNS), which sees China as both a source of economic growth and technological development, and also as a partner that is less likely to criticise Serbia’s refusal to sanction Russia, and its often socially conservative politics. Thus, President Aleksandar Vučić received Xi in Belgrade in a ceremony during which he promised the Chinese leader that he would receive in Serbia a degree of “reverence and love” not “found anywhere else.” He further promised that his government would only increase cooperation with Beijing, saying “the sky is the limit.” Xi authored an article in Serbia’s Politika news outlet noting that China and Serbia have similar positions on many important international and regional issues. In the piece, Xi is indirectly calling for Serbia to assist China in challenging US and Western dominance in the international sphere. Experts noted that “Serbia’s hosting of Xi is connected to broader efforts — notably by Moscow and Beijing — to challenge U.S. influence and potentially reshape the international order.” Conclusion Xi’s tour of France, Hungary, and Serbia demonstrates the growing influence of China in Europe. But it also tells us much about how some Europeans are responding to China’s rise as a self-styled civilizational power. This rise has inspired some European leaders to challenge US dominance in international politics and embrace the core values of “European civilization.” Many of Europe’s states thus may seek to emulate China, or help it rise and attempt to politically and economically benefit from it. Moreover, China’s rise seems to demonstrate how by rejecting normative Anglo-American (or more broadly Western) values, and embracing the traditional values and culture of one’s own civilization, these states can overcome American imperialism and cultural hegemony. Whether rejecting Western Anglo-American norms and embracing their own civilizational values can give these entire nations a shared purpose, and inspire reindustrialization, remains an unanswered question. Ihsan Yilmaz is a research professor of political science and international relations at Deakin University’s ADI (Alfred Deakin Institute for Citizenship and Globalisation). Previously, he worked at the Universities of Oxford and London.  Nicholas Morieson holds a Ph.D. in politics from the Australian Catholic University, Melbourne, and a Masters in International Relations from Monash University. He is the author of Religion and the Populist Radical Right: Christian Secularism and Populism in Western Europe, and a Research Fellow at the Alfred Deakin Institute for Citizenship and Globalisation.

Defense & Security
Hanoi Vietnam - Jan 30 2023: People go about daily life under Vietnamese flags in a narrow residential alleyway called Kham Thien Market in Hanoi, Vietnam.

Convergence in Vietnam, EU Interests a Harbinger of Indo-Pacific Order?

by Richard Ghiasy , Julie Yu-Wen Chen , Jagannath Panda

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.