Subscribe to our weekly newsletters for free

Subscribe to an email

If you want to subscribe to World & New World Newsletter, please enter
your e-mail

Energy & Economics
USA and China trade war concept. suitable also as South China Sea conflict

Are tariffs, of all things, the salvation of free trade?

by Dr. Jan Cernicky

We can talk about selective tariffs - but not about protective tariffs - Concerns about the effects of economic dependencies are increasingly overshadowing the benefits of open global trade. - In the current geopolitically charged situation, there may be situations in which trade policy dependencies - for example in the case of rare earths - can be mitigated by state intervention. - In such cases, selective tariffs are the best choice. Subsidies to build up own production capacities are significantly less efficient, more expensive and undermine the market principle. - Protective tariffs for industries whose products are sufficiently available on the global market, such as the automotive and steel industries, should be rejected. - The fundamental goal should be the preservation of rule-based world trade in accordance with WTO rules. Any kind of state intervention must be justified on the basis of solid data. Background During Chinese party leader Xi Jinping's visit to Europe in May, there was once again a lot of talk about economic dependencies. They are seen as a threat to the "economic security" of Germany and Europe. What often seems to fade into the background is that the arguments for a global division of labor remain valid: it enables general prosperity precisely because certain countries and regions concentrate on the production of individual goods and consequently do not produce others themselves. On the other hand, it is also true that the economic damage more than compensates for these advantages if a state such as China uses economic dependencies as political leverage and, in the worst case, stops supplying goods for which it has a monopoly. In principle, China has achieved such a monopoly for refined rare earths and some other smelted metals.1 However, this clearly does not apply to electric cars, steel or solar cells. The reason for such quasi-monopolies is simple: Chinese companies export the products in question so cheaply that production elsewhere in the world is not worthwhile. If this were solely due to the fact that Chinese companies produce better, the only correct response would be to roll up our sleeves and become better ourselves. In the case of rare earths from China, however, the advantage of Chinese manufacturers is largely due to direct and indirect subsidies. In such an environment, in which Chinese producers have massive cost advantages due to politically granted benefits, it is not worthwhile for private companies outside China to build up their own capacities for the production of rare earths, for example. Even if prices were to rise and economic production were possible, this would not be rational; state-supported Chinese companies can easily survive periods of low prices. The usual market mechanism, whereby companies with the most competitive solutions survive, does not apply here. Even technologically superior production methods do not prevail due to Chinese subsidies. Possible reactions The best economic solution is undoubtedly for the state not to react at all and to see the availability of very cheap products that are available for domestic consumption or for further processing as an advantage. The fact that the products in question have been made cheaper by Chinese taxpayers' money can be gratefully accepted. It would be a genuine and courageous system competition not to respond with the same instruments, but to maintain a market economy system and thus exploit the weaknesses of the counter-design. Shaping the economic framework conditions politically in such a way that innovations that provide alternatives to the use of the raw materials in question can be developed more easily would be a reaction that is still justifiable within the framework of the social market economy. This would be, for example, favorable recycling processes. In most cases, such innovations are possible. However, their introduction and application is significantly more expensive than importing standard products from China. If dependence on China is really not justifiable in individual cases,2 there are two possibilities for state intervention in the form of subsidies or tariffs, which may be justifiable in rare individual cases, but are not provided for within the framework of the World Trade Organization (WTO). Important indicators for the assessment of dependencies are, for example, the lack of substitutability of the imported good, the degree of concentration of supply in a country and the relevance of the good in question for the domestic economy. However, state intervention to protect domestic production sites, such as is being discussed for electric cars or steel, appears to be explicitly unjustifiable. There is a sufficiently diversified supply of such products on the global market and there is no dependency on just one country. Economic effects of tariffs and subsidies Tariffs and subsidies both aim to compensate for the price difference to cheaper foreign competitors. Tariffs make imports more expensive, while subsidies make domestic production cheaper through state subsidies. Both have a negative welfare effect, but the correlation is more harmful in the case of subsidies. Figure 1 uses a schematic example, which is not based on empirical data, to illustrate the effect if the costs of producing rare earths in Germany were reduced to the level of the import price from China (country 1) through subsidies.   With the subsidies, it is now economically viable for the subsidized companies to produce the rare earths from ore in Germany. The actually cheaper ways of importing rare earths from alternative countries or using other technical solutions remain more expensive and would hardly be used. The goal of reducing dependencies would therefore be achieved in a very expensive way. Large sums of taxpayers' money would be spent on this. In this example, the most expensive possible route is discussed in order to clearly demonstrate the negative consequences. In reality, however, it is very unlikely that the cheapest route in economic terms will be subsidized. This is because there are always many different providers and technical solutions, which means that all the options are often not even known or can only develop in the long term. It is therefore very unlikely that the optimal subsidy recipients will be selected. A benefit is created for a specific, relatively arbitrarily selected application, but not for others. The effectiveness of the market is thus distorted and the competitiveness of the location decreases as a result. As the subsidies compensate for a competitive disadvantage, it is unlikely that high additional tax revenues will be generated. The funds spent are no longer available for other state investments. The result is a loss of welfare on this scale. Only the subsidized companies benefit from this. The price at which rare earths can be purchased in Germany does not change. It is also possible to subsidize production abroad in order to reduce dependence on one country. Such models are being attempted via "raw material partnerships", for example. Such an approach can be significantly cheaper than subsidizing domestic production. In the example (Figure 1), only the significantly lower import price from country 2 would have to be subsidized. However, the other disadvantages of subsidies listed above also apply in this case. In particular, it is even more difficult to obtain all the necessary information for projects abroad and therefore even less likely to choose the most cost-effective option. The targeted tariffs discussed here are intended to respond to dependencies on supplies from a specific country. They are therefore only imposed on imports from this country. Other imports are not affected. To stay with the example, the importer pays a surcharge on the imported rare earths. This makes his product, for which he processes rare earths, more expensive domestically. Manufacturers abroad who are not affected by the duty become more competitive in comparison.    If the tariff rate were set in the same way as above so that the competitive disadvantage for the most expensive option - metal processing in Germany - is compensated for in terms of price, the tariff rate on imports from China would be very high. However, consumers of rare earths in Germany would still have access to the significantly cheaper other options. Metal processing in Germany would therefore remain unprofitable, while imports - now no longer from China, but from country 2 - would continue to be significantly cheaper. However, the price difference to the cheapest processing variant in Germany, in the example (Figure 2) recycling, would no longer be so great, so that this variant would be easier to make economically viable by scaling up or using innovative technical solutions. In reality, the introduction of customs duties would not divert all procurement to a single country; there is no capacity for this anywhere. The result would be a mix of different suppliers, which would make it more worthwhile to drive innovation in Germany. Changes in the price structure between the different providers and processes over time can be tracked by customers in this model - the best process (or the second best, if the best is used in China) then prevails on the market. The welfare loss here arises from the fact that consumption or further processing of the imported products becomes more expensive by at least the difference to the second cheapest source of supply. However, the volume of the welfare loss is significantly lower than in the case of subsidies. It can be argued that tariffs make the prices of downstream products in the supply chain more expensive, whereas subsidies do not. While this is true, it overlooks the fact that the much larger group of companies and consumers who are not directly affected do not suffer any direct additional costs in the case of tariffs, but bear the costs of subsidies through their taxes. Political effects of tariffs and subsidies In terms of their political and structural consequences, subsidies are more harmful than targeted tariffs. This is simply due to the procedure at the end of which individual companies receive a subsidy decision. An "objective" allocation is hardly possible here. On the contrary: the procedure is susceptible to personal relationships, political influence and direct corruption. Furthermore, subsidies that are only granted in one country of the European Union jeopardize the integrity of the European Single Market. Similar problems can arise with customs duties. This happens when they are used to protect certain domestic industries. In the case of targeted, selective tariffs, which are based on clearly defined, objective categories, such as the degree of dependence on a product from a country, there is little scope for political influence once the criteria have been established. Tariffs cannot harm the European single market either, as they can only be imposed at European level anyway. WTO conformity The reduction of tariffs and subsidies within the framework of the World Trade Organization (WTO) and the predecessor agreement GATT are a central reason for the reduction of global poverty in recent decades and one of the cornerstones of Germany's prosperity. It is therefore self-evident that tariffs and subsidies not only contradict the idea of the WTO. They also contradict its two basic principles: Subsidies for domestic production contradict the non-discrimination principle3, tariffs against individual countries violate the Most Favorite Nation Clause4. There are exceptions for both in the WTO rules. For example, WTO members must notify subsidies so that they can be examined and other countries can object to them if necessary. In principle, subsidies are only intended - and within a narrow framework - for developing countries, which still includes China. However, the notification of subsidies to the WTO hardly works any more. For example, 64 countries (around a third of members) have not even notified their subsidies for 20175. Nevertheless, some of China's subsidies may indeed be legal according to the letter of the WTO rules. But they are certainly not legitimate, as the aim of the WTO is to liberalize world trade and not to cement the opposite. And even if subsidies are known, the WTO cannot take legally binding action against them due to the dispute settlement mechanism blocked by the USA. Consequently, the USA has not reacted to the unresolved problem of China's subsidies within the WTO framework. Although tariffs have been imposed on some Chinese imports, the Inflation Reduction Act (IRA) is a huge subsidy program. If the dispute settlement mechanism were to work, the IRA would almost certainly have to be declared WTO-incompatible. However, as this path is blocked, many countries and regions of the world - including Germany and the EU at the forefront - are reacting with their own openly WTO-incompatible subsidy programs. The current subsidy race is constantly creating new reasons to impose subsidies in response to the subsidies of others. This will further damage the multilateral trading system, which has been very successful for Germany in particular. Targeted tariffs, on the other hand, which can be used to eliminate competitive disadvantages caused by subsidies and which are therefore only levied on goods from the subsidizing country, are in principle in line with the basic idea of the WTO. This is because it balances out a distortion of the world market created by subsidies. Therefore, tariffs are generally permitted as a reaction to dumping and subsidies6. A reaction to subsidies via tariffs within the strict WTO framework is currently hardly possible for the reasons mentioned above. In this situation, it should be actively communicated that in an unsatisfactory legal situation, the path of the least evil will be taken with tariffs. At the same time, serious efforts should be made to reform the WTO. Conclusion The argument: "We want to have the production of certain things in Germany because we believe that we would no longer be supplied with them in crisis situations" is not an economic argument. Production for strategic reasons is always a financially subsidized business. Because if there was money to be made, the private sector would do it. Politically, this line of argument is perfectly legitimate - as is the attempt to steer the economy directly in a politically acceptable direction through subsidies. However, this has nothing to do with a social market economy, but rather the opposite. However, if Germany and Europe are to remain committed to the social market economy and open multilateral trade, the only economically sensible response to problematic dependencies from abroad (if one has to respond at all) is to impose targeted, selective tariffs - but certainly not protective tariffs for domestic production sites. The German government should work within the EU to set a clear framework for this and at the same time work on a reform at WTO level to finally reduce the rampant subsidies. Because these - and not tariffs - are currently the biggest threat to the open global trading system that is so important to us. References 1 Vgl. etwa die Darstellung der Abhängigkeiten von für die Energiewende nötigen Metallen in Cernicky (2022): https://www.kas.de/documents/252038/16166715/Energiewende+und+Protektionismus+-+Wie+gehen+wir+pragmatisch+mit+China+um.pdf/442ba770-d504-43cc-25f1-eaf7d970dfc1, genaue Zahlen vgl. etwa die Auflistung des BDI: https://bdi.eu/publikation/news/analyse-bestehender-abhaengigkeiten-und-handlungsempfehlungen/ 2 Zum Versuch einer entsprechenden Bewertung vgl. etwa die von der KAS und dem Ifo-Institut durchgeführte Studie zu Abhängigkeiten in Lieferketten, Flach et al (2021): https://www.kas.de/de/analysen-und-argumente/detail/-/content/globale-wertschoepfungsketten 3 Art. III GATT 4 Art. I GATT/ WTO 5 WTO | 2023 News items - Members reiterate concerns on lack of transparency with subsidy notifications: https://www.wto.org/english/news_e/news23_e/scm_02may23_e.htm 6 GATT Art VI, Dumping und Ausgleichzölle Publisher: Konrad-Adenauer-Stiftung e. V., 2024, Berlin Design: yellow too, Pasiek Horntrich GbR Produced with the financial support of the Federal Republic of Germany. This publication of the Konrad-Adenauer-Stiftung e. V. is for information purposes only. It may not be used by political parties or election campaigners or helpers for the purpose of election advertising. This applies to federal, state and local elections as well as elections to the European Parliament. The text of this work is licensed under the terms of "Creative Commons Attribution-ShareAlike 4.0 international", CC BY-SA 4.0 (available at: https://creativecommons.org/licenses/by-sa/4.0/legalcode.de).

Energy & Economics
puzzle with the colourful national flag of poland and usa dollar banknote. finance concept

Poland is the Seventh Most Difficult Country in Europe to Conduct Business

by Adam Ujazdowski

Poland ranks seventh in Europe and 12th worldwide among the least business-friendly countries. It also performed the worst in this regard compared to neighboring countries, including war-torn Ukraine. Greece is the most challenging country to conduct business in. These conclusions come from the eleventh edition of the annual Global Business Complexity Index report by TMF Group, a leading provider of compliance and administrative services. The authors of the TMF Global Complexity Index 2023 examined 79 jurisdictions, accounting for 93% of the world’s GDP and 88% of net foreign direct investment. They compared 292 annually monitored indicators regarding key aspects of business operations, administrative regulations, and legal compliance for entrepreneurs planning to conduct business in a selected market. For the first time, Saudi Arabia appeared in the ranking, taking the 37th position. Poland, considering European countries, ranked seventh in the index, three places better than the previous two years. “We observe progress in digitizing processes in Poland. This is a significant convenience for investors and businesses along the Vistula River. An example is the ability to perform all financial reporting activities in an IT service. Another example is the growing interest in the simplified joint-stock company (PSA), introduced just over two years ago, which requires only 1 PLN of capital and has straightforward management and liquidation rules. The turmoil related to the introduction of the Polish Deal has also passed, which is welcomed by businesses and improves sentiment.” – explains Joanna Romańczuk, Director of TMF Group for Central and Eastern Europe, highlighting positive changes in conducting business in Poland. At the same time, Poland performs the worst regarding ease of doing business compared to neighboring countries (excluding Belarus, not included in the ranking), including Ukraine. “The position of a country in the ranking is determined by the complexity of internal business rules and how other countries in the ranking handle such issues. While we see positive signals in Poland, our neighbors are better at facilitating business establishment and operation, even war-torn Ukraine. Ukraine has the status of a candidate country for the European Union. Therefore, the government is introducing many business facilitations, and the pace of reforms is very rapid. For example, no penalties are imposed for self-corrected tax returns. Additionally, attractive solutions for businesses, such as favorable tax conditions and automatic intellectual property protection, are being implemented in the IT sector.” – adds Joanna Romańczuk. TMF Group experts point out that entrepreneurs in Poland are burdened by the necessity of repeatedly reporting the same information to various institutions and the long-standing variability of regulations, such as the announcement of the National e-Invoice System (KSeF), followed by the postponement of its implementation, which caused significant costs for many large organizations to adapt to its introduction. Among the countries where it is most difficult to conduct business, European countries dominate – Greece, which swapped places with France for the top spot this year. They are followed by Colombia, Mexico, and Bolivia. In Europe, it is also more difficult to conduct business in Italy, Belgium, Spain, and Croatia than in Poland. The Cayman Islands (a British Overseas Territory), Curaçao (a Dutch Overseas Territory), Denmark, Hong Kong (a Special Administrative Region of China), and New Zealand are the best in the world at eliminating business obstacles. In Europe, besides Denmark, which has consistently held top positions in this category for years, the Netherlands, the United Kingdom, the Czech Republic, Malta, and Ireland are the most business-friendly countries. “Last year, I gave examples of Denmark, which has long been a global leader in business-friendliness, and the Netherlands, the United Kingdom, and Malta. This year, the Czech Republic also shows that Europe can be very business-friendly, competing even with the United States. No one doubts that it would be beneficial for Poland to join the ranks of leaders in this field in the coming years,” concludes Joanna Romańczuk. In addition to analyzing business conditions in 79 jurisdictions, the authors of the TMF Global Complexity Index 2024 (GBCI) also identify key topics shaping the global business landscape and regulatory environment: Impact of Global Regulatory Compliance on Foreign Investments The authors of this year’s GBCI emphasize that representatives of most jurisdictions expressed confidence in the stability of regulations over the next five years, continuing a trend of increased stability compared to previous years. For example, in 2020, representatives of only 35% of jurisdictions predicted no significant regulatory changes. This sense of stability has grown yearly, reaching 58% of jurisdictions in 2024. Experts suggest that the number or complexity of regulations is not the biggest challenge, but the speed of regulatory changes is the real difficulty. Geopolitical Factors and Bridge Economies Geopolitical instability has an obvious impact on the flow of trade and investment worldwide. While energy prices remain high, supply chain disruptions and trade barriers also pose significant challenges for global players. As a result, many companies are reevaluating their potential growth plans and long-term expansion goals. However, while geopolitical issues may disrupt supply chains or create trade barriers for some jurisdictions, others benefit from global shifts. Due to their neutrality on global issues, countries known as “bridge economies” can capitalize on their unique positions. For these countries, their newly established roles in the global supply chain have become a crucial way for international companies to manage their risks during periods of international instability. Uncertain Times and Success Strategies – Technology and Retaining Employees Although jurisdiction representatives cited various factors influencing growth, IT and technology topped the list as the most influential. Technology offers growth opportunities in multiple ways, providing development possibilities where countries have technological expertise in production and can increase market share through production. The use of technology to increase productivity has also been identified in terms of streamlining work. In many jurisdictions, including New Zealand and Hong Kong, companies automate office, basic, and part-time work using artificial intelligence to keep the workforce size low and focus on higher-value tasks. At the same time, the vast majority of jurisdictions face challenges in attracting and retaining talent (78%), with this figure even higher in the EMEA (90%) and APAC (79%) regions. The ability to respond effectively to demand in this area largely depends on two factors: local labor laws and the potential of regional talent. Jurisdictions with restrictive labor laws and a strong presence of trade unions – or those with a shortage of available talent – are naturally much less able to flexibly adjust employment levels.

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.

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
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
Italian Prime Minister Giorgia Meloni during her speech at COP28 for the High-Level Segment for Heads of State and Government.

President Meloni's speech during the COP28 High-Level Segment for Heads of State and Government

by Giorgia Meloni

Dear colleagues, Dear guests, This Summit, for which I thank the leadership of the United Arab Emirates, is a key moment in our efforts to contain global temperature rise to within 1.5°C. We have reached the first Global Stocktake, and while there are reasons to be optimistic, the goal remains far off. COP28 must be a turning point. We are called upon to set a clear direction and enact concrete actions – reasonable but concrete - such as tripling the world’s renewable energy generation capacity by 2030 and doubling the global rate of annual energy efficiency improvements, as also outlined by the Presidency. Italy is doing its part in the decarbonization process, and it does it in a pragmatic way, that means with a technology-neutral approach, free from unnecessary radicalism. My idea is that if we want to be effective, if we want environmental sustainability that does not compromise the economic and social sphere, what we must pursue is an ecological transition, and not an ideological one. We are gradually replacing coal-fired power generation with renewables, we have adopted a new Energy and Climate Plan, and we are investing resources and attention on biofuels, so much so that we are among the founders of the Global Biofuels Alliance. In the European context, we have charted a path to carbon neutrality by 2050 and to reduce emissions by at least 55 percent by 2030. But we are also committed to ensuring, through the EU "Fit for 55" program, a multi-sectoral approach that strengthens labor markets and mitigates the impact on our citizens. And this is an essential point, because if we think that the green transition can result in unbearable costs, particularly for the most vulnerable, we condemn it to failure. Italy intends to direct an extremely significant share of the Italian Climate Fund – whose overall endowment is 4 billion euro – to the African continent. Not, however, through a charitable approach, because Africa does not need charity. It needs to be put in the condition to compete on an equal footing, in order to grow and prosper thanks to the multitude of resources that the continent possesses. A cooperation between equals, rejecting paternalistic and predatory approaches. Energy is one of the cornerstones of the Mattei Plan for Africa, the cooperation and development plan on which Italy is working with great determination to build mutually beneficial partnerships and support the energy security of African and Mediterranean Nations. And we are also, in this way, working towards becoming a strategic hub for clean energy, by developing the necessary infrastructure and generation capacity, in our homeland and in the Mediterranean. After the Rome Conference on Development and Migration, two new financial instruments were established to address the root causes of migration, combat human traffickers, and guarantee the right not to emigrate. We will continue to support the Green Climate Fund also in the next cycle, and as I’ve already announced yesterday, we will contribute with 100 million euro to the new loss and damage fund, strongly pursued by the Emirates’ Presidency. And all these priorities will also be at the heart of Italy's G7 Presidency, in 2024. I want to thank, in conclusion, the Emirati Chair and Sultan Al Jaber and express my congratulations for a COP28 of absolute success. We are all aware, colleagues, that many of the efforts we are making today will likely produce visible results when many of us no longer have roles of responsibility. But doing it anyway – not for ourselves but for those who will come after us – defines the value of our leadership. As Warren Buffet wrote, "There is someone sitting in the shade today because someone else planted a tree long ago." Thank you.

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.

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
EU Environment, Oceans and Fisheries Commissioner Virginijus Sinkevicius gives a press conference on the new EU Arctic Strategy

The Arctic is Hot: Addressing the Social and Environmental Implications

by Emilie Broek

The Arctic is hot. Russia’s full-scale invasion of Ukraine in 2022 has resulted in suspended cooperation with Russia in the Arctic Council; Finnish and future Swedish membership of the North Atlantic Treaty Organization (NATO) means that seven of the eight members of the Arctic Council will also be NATO member states; and a deepening of Chinese–Russian ties over the Arctic has increased security tensions in the region. At the same time, the Arctic is warming four times faster than the global average and is predicted to be ice-free at its summer minimum at least once before 2050 under all climate change scenarios. New resources and fish stocks, shorter shipping routes and unclaimed territory are becoming available as the ice melts. In addition, the Arctic holds 13–30 per cent of the world’s unexploited oil and gas. There are also large deposits of nickel, zinc and rare earth elements in the Arctic that are key to renewable energy and the green transition.  These changes in the Arctic are affecting the development aims of actors such as the European Union (EU). Recent changes in Kiruna, a Swedish mining town located approximately 200 kilometres north of the Arctic Circle, provides evidence of these aims. When Sweden assumed the rotating presidency of the Council of the EU in January 2023, it held its first Swedish meeting there. Two key announcements relating to Kiruna were made at that time: confirmation of the largest deposit of rare earth elements in Europe, namely the Per Geijer deposit; and the inauguration of Spaceport Esrange, which will commence launches of small satellites in 2024. These developments are important for the EU and Sweden but, if not properly planned for, they could spill over into local social and environmental conflict and have long-term consequences. The case of the Arctic sheds light on the importance of balancing the trade-offs inherent in economic and development ambitions. This SIPRI Policy Brief first explores the EU’s growing interest in the Arctic and its efforts to reduce negative spillovers. It then takes Kiruna as an example of where interests linked to mining and space-related activities could lead to local controversy. The policy brief concludes with starting points for how to ensure more mutually beneficial outcomes moving forward.  THE EU’S GROWING INTEREST IN THE ARCTIC  The Arctic is becoming of strategic importance to the EU, including for its climate, energy, and space-related possibilities. The EU’s 2021 Arctic Policy promotes cooperation and sustainable development in the region, including through green and blue energy projects and the supply of critical materials that are key to implementing the European Green Deal (EGD), a package of policy initiatives aimed at achieving net-zero greenhouse gas emissions by 2050. The EU’s 2023 proposal for a Critical Raw Materials Act underpins the need for EU self-sufficiency, strengthened capacities for extraction and refining of raw materials, and diversified supply chains. Europe is currently almost entirely dependent on imports of critical materials, 70 per cent of which are sourced from Russia and China, but it has been set on reducing this dependency, especially given shortages in the aftermath of the Covid-19 pandemic and the energy crisis following Russia’s invasion of Ukraine in 2022.  The Arctic is also important for expanding EU space capabilities. The EU’s 2023 Space Strategy for Security and Defence outlines the significance of its space assets and the need to defend them, especially given the augmented militarization of space and the increased use of dual-use space assets by Russia, China, the United States, and India. Space technologies can also promote Earth observation to support climate change and scientific monitoring. Polar orbiting satellites launched from the Arctic, for example, are uniquely placed for Earth observation. Since the Earth rotates while a satellite orbits, a satellite in polar orbit passes over both poles and travels directly overhead every point on Earth. Addressing the social and environmental implications  Although the Arctic can provide raw materials and expand space capabilities, the resulting social and environmental impacts can also be significant. Moreover, the economic benefits are not always equitably shared, and any new jobs created are not always compatible with local competences. The extraction of resources can also result in competing land and resource claims with Indigenous communities. A study of 53 socio-environmental conflicts related to the economic extraction of natural resources in the Arctic found that Indigenous people were involved in 64 per cent of them. For the Sami, the EU’s only Indigenous group, these challenges add to those already faced by climate change, which is reducing the availability of lichen used as a winter food source for their reindeer and grazing lands more generally. In Sweden, conflicts with the Sami are often related to mining and renewable energy projects. Nine of the 12 metal mines in Sweden are located on Sami lands. Sweden is dependent on hydropower for around 45 per cent of its electricity generation, and 80 per cent of this also takes place on these lands. Wind power generation through projects like the Markbygden Wind Farm, the largest worldwide with expected completion in 2025, has also reduced access to reindeer herding routes. Sweden is a signatory to the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) but has not ratified the International Labour Organization’s Convention 169 on Indigenous and Tribal Peoples, which upholds rights to self-determination and control over land and resources.  The EU recognizes the need to address these local impacts. Its ‘Fit for 55’ package, which reduces net greenhouse gas emissions by at least 55 per cent by 2030 and supports implementation of the EGD, emphasizes a socially just and fair energy transition and protecting the Arctic from pollution. The EU’s 2021 Joint Communication on the Arctic reaffirms its responsibility to protect and minimize its environmental footprint there. The 2023 Kiruna Declaration notes the vulnerability of remote areas such as the Arctic to energy transitions and the importance of sustainable place-based development. In June 2023, the EU recognized that external interests in the Arctic are ‘increasing with multifaceted social, environmental, and economic con sequences. The EU also upholds Indigenous rights. The EU supported the adoption of UNDRIP in 2007, which also grants the right to free, prior, and informed consent, enabling Indigenous peoples to give or withhold their consent to projects. Article 3 of the Treaty of the EU protects European cultural heritage, which Sami reindeer husbandry is a part of. However, the EU does not have an internal Indigenous people’s policy, which could help to ensure that the negative impacts of conflicts linked to projects supporting the EGD in Europe are addressed internally within the EU’s framework and to uphold these rights. THE CASE OF KIRUNA   Kiruna is the northernmost city in Sweden, located in Swedish Lapland, around 200 km north of the Arctic Circle, with a population of around 23 000 people (see figure 1). It was built in 1900 to facilitate iron ore extrac tion from the mountain of Kirunavaara (meaning ‘Kiruna mine’), which is the largest and purest underground deposit in the world and the source of approximately 90 per cent of Europe’s iron ore. Kiruna is also home to the Sami and Tornedalian Indigenous peoples, who populated the lands long before the town was constructed. It has the highest concentration of Sami population in Sweden, with eight different Sami villages (known as ‘samebyar’) and around 2 500 people, constituting approximately 10 per cent of Kiruna’s population. In Kiruna, the two current issues of mining and space ambitions shed light on the importance of paying attention to the local impacts of development and economic ambitions.   Mining projects and stakeholder consultations  Mining in Kiruna points to the value of early stakeholder consultation.  Strict environmental and social standards, as well as skills-based and financial requirements, mean that it could be 15 years before the Per Geijer deposit of rare earth elements can be extracted. The state-owned Swedish mining company that discovered the deposit, Luossavaara-Kiirunavaara Aktiebolag (LKAB), has highlighted its importance for the EGD and the proposed Critical Raw Materials Act. If not properly planned, however, mining the deposit could have negative local impacts and lead to project delays and contestation later.  Kiruna has a history of Sami resistance against mining. The Kiruna mine is located within nationally recognized Sami reindeer herding grounds and inside the EU’s Natura 2000 protected areas network. It has cut off Sami reindeer routes and access to lakes previously used for fishing. To counter the increased risk of subsidence and accommodate additional layers of iron ore extraction by LKAB, in 2004 it was decided that Kiruna would relocate 3 km to the east. This relocation is expected to be completed in 2035. The Sami claim they were not properly consulted prior to projects for relocation being accepted and were denied compensation for the time spent in these consultations. The Swedish government has responded that the Sami villages of Gabna and Laevas did participate in research on how reindeer routes would be impacted by the relocation, and thus it had fulfilled its obligations under UNDRIP. Mining the Per Geijer deposit also faces pushback. A 2023 statement by the Saami Council criticizes the decision to mine the deposit for its anticipated impact on reindeer herding in Gabna and Laevas, arguing that: ‘The Saami lands are being disproportionately affected... [and] used to justify and greenwash the unsustainable consumption habits of the Western world.’ It accuses LKAB of not informing the Gabna village in advance of the public announcement. LKAB has countered the claim, saying it had already announced the presence of abundant rare earth elements in Kiruna and was in dialogue with the Sami villages to avoid or compensate for the impacts on local lands and reindeer husbandry. In return, LKAB hopes it will be able to move forward with its environmental permit application and eventually extract the deposit.  Space ambitions and precautionary approaches   Space ambitions in Kiruna demonstrate the importance of proceeding with caution and more information. The Esrange Space Center expects to launch its first satellites early in 2024 from its new spaceport. Esrange has previously only launched rockets and balloons but will now be able to support Earth observation to measure and mitigate the impacts of climate change, enhance maritime activities and search and rescue operations, and improve the tracking of military troops. However, its history also illustrates the need to understand stakeholder perspectives and value systems.  Esrange was established in Kiruna in 1966 because of its suitability for testing and launching rockets, easy transport access and proximity to the Kiruna Geophysical Observatory, and the vast and largely unpopulated area. For the population of Kiruna, Esrange provided the potential to develop local infrastructure and alternative employment to the mining and forestry sectors. A scientific and technical working group was tasked by the European Preparatory Commission for Space Research with approving the location and construction. It found that although Esrange would impact seasonal Sami reindeer herding routes, this would only occur for four months of the year. It identified no security or safety issues. However, the working group underestimated the significance of seasonal land use for reindeer herders. Safety zones, shelters and warning zones were set up for the protection of reindeer and herders, and compensation was paid for the disruption, but new administrative zones divided the land and herders lost their traditional, year-round access. What occurred in Esrange reflects a similar trend in space expansions in remote regions that are far from urban centres but inhabited by people whose heritage and livelihoods are attached to the land. In Hawaii, a plan by the Canadian Astronomical Society to build a Thirty Metre Telescope (TMT) at the peak of Mauna Kea resulted in pushback from the native Kanaka Maoli people, who regard the mountain as sacred and belonging to the gods. In 2014, supporters of the TMT accused protestors of being anti-science. The Indigenous communities responded that they were not against science as such, but rather protecting the cultural heritage of the mountain and their lands, which cannot be understood through conventional science alone. In 2022 an 11-member, state-appointed board, which includes representatives from astronomical observatories and native Hawaiian communities, was established to prepare to take stewardship of the mountain in 2028.  The social and environmental impacts of Arctic space infrastructures remain largely underexplored. Some experts fear that the expansion of launch sites or spaceports could harm habitats and have noise- and light related implications for wildlife, while failed launches would spread toxic materials and debris, and could cause wildfires. Although smaller satellites and reusable launch systems are more reliable and accessible, they could have a greater risk of failure and the scattering of debris and fuel. In 2018, European satellites for environmental monitoring launched by rockets in Russia raised concerns among Inuit people in Canada that the resulting debris could spread toxic fuel and impact wildlife as launchers fell back into Arctic waters, especially given the lack of prior studies conducted on these impacts. In Kiruna, the chair of the Sami village of Talma, who is also a reindeer herder, succeeding in blocking some of the expansion plans for Esrange in 2019 because of the expected impacts on his reindeer and herding routes; and now ‘his sights are set’ on tackling the predicted noise pollution.  STARTING POINTS FOR THE WAY FORWARD  The case of Kiruna demonstrates the importance of human-centred approaches that tap into different sources of knowledge. Mining in Kiruna highlights the need to ensure that stakeholders affected by the outcomes of projects are treated with respect and included throughout the entire process. This can help to distribute economic benefits more equitably and avoid the misreading of concerns. It can also facilitate exchanges between mining industries, environmentalists and communities, and lead to quicker, more inclusive, and fairer consent processes for projects. Space ambitions in Kiruna stress the importance of precautionary approaches that draw from different knowledge and value forms.   Human-centred approaches can help to intertwine development and economic aims with human security. The Saami Council’s 2019 Sámi Arctic Strategy encourages human-centred economic development that is respectful of the environment, co-designed and co-produced using Western and Indigenous knowledge, and rights-based. The strategy emphasizes the importance of human security, which for the Sami includes self determination, participation in decision making, control over their land and resources, and maintenance of their language and culture. Furthermore, human-centred approaches can encourage the co production of knowledge to inform more precautionary decisions. Indigen ous peoples have time-tested understanding of their Arctic environments and living sustainably, and their input can help to prevent unsustainable and conflictual projects. Their ecological knowledge can complement Western methods of environmental protection by introducing approaches that move beyond pure science and rationality. The 2017 EU Arctic Stakeholder Forum report recognized the importance of development based on local Arctic and Indigenous knowledge as a scientific basis. The Saami Council is also trying to bridge this knowledge gap and received funding in 2019 from the EU’s Interreg Nord programme to achieve this aim. In 2022 it organized the first EU–Sámi Week, with a thematic focus on ‘Art and Land’, and workshops to create greater awareness of Sami culture and climate justice through dance, art, music, and food. These initiatives can help to bring stakeholders together and support human-centred approaches to economic and development ambitions in the Arctic.

Energy & Economics
500 Euro paper money getting on fire on gas

A winter energy crunch in Europe looks a distinct possibility

by Michael Bradshaw

Russia’s invasion of Ukraine imposed a sudden energy shock on Europe 18 months ago. Faced with the prospect of much less Russian gas, there were fears that Europe’s energy infrastructure would not cope with winter 2022-23, causing economies to crumble.  Yet a mild winter and the EU’s gradual rollout of a plan to reduce its energy consumption and buy more from alternative suppliers saw it emerge shaken but not beaten on the other side. Germany, Italy and other gas-reliant nations pivoted from Russian dependency without major electricity shortages. Since then, there has been more good news. Energy prices have fallen steadily in 2023, while Europe’s gas storage levels hit 90% capacity three months ahead of the November target and could even hit 100% in September.  According to politicians like the German energy minister, Robert Habeck, the worst of the energy crisis is over. Yet, as we shall see, it’s a little early to be so confident. New vulnerabilities The share of EU piped gas imports from Russia fell from 39% to just 17% between early 2022 and early 2023. To cope with this shift, the EU has become much more reliant on shipments of liquefied natural gas (LNG) than before. LNG’s total share of EU gas imports rose from 19% in 2021 to around 39% in 2022, amid a rapid upgrade to infrastructure that aims to have grown LNG capacity by one-third between 2021 and 2024. (Indeed, 13% of LNG imports into the EU actually still come from Russia, whose shipments have also significantly increased since the invasion). This LNG increase has made European countries vulnerable to volatility in that market – particularly as 70% of these imports are bought at short notice rather than using the long-term oil indexed contracts that prevail in Asia. For example, we’ve seen Europe’s benchmark gas price ticking upwards in recent weeks due to concerns over strikes at Australian LNG plants. This shows that supplies remain tight and that there are many potential disruptions in our highly interconnected world market. To synchronise demand for LNG, the European Commission has introduced initiatives like the EU Energy Platform, an IT platform that makes it easier for supplier companies in member states to jointly buy the fuel. However, it is uncertain what level of supplies can be channelled through this instrument as it remains untested. Additionally, the industry fears this kind of state intervention could backfire and undermine the functioning of the market. As for pipeline gas, Norway has overtaken Russia to become Europe’s leading supplier, providing 46% of the requirement in early 2023 (compared to 38% a year earlier). This extra load has strained Norway’s gas infrastructure. In May and June, delayed maintenance work caused sluggish flows that drove up prices, again showing how tight the European market is at present. Extended maintenance work in Norway leading to more obstructions in future looks distinctly possible. Meanwhile, the EU is still expected to have to buy around 22 bcm (billion cubic metres) from Russia this year. That’s the equivalent of around 11% of all the pipeline gas used by the bloc in 2022. A large proportion is coming through Ukraine, and with the current Russia-Ukraine transit agreement unlikely to be renewed after it expires in 2024, this supply route is in jeopardy. As part of the pivot away from Russia, the EU managed to reduce gas consumption by 13% in 2022, according to the International Energy Agency (against a target of 15%). In the months ahead, war-weary EU states may not do so well on this front. It will not help that prices have fallen, nor that some states didn’t pull their weight last winter. Only 14 out of 27 EU members introduced mandatory energy reduction policies, while eastern states like Poland, Romania and Bulgaria did little to reduce consumption. Should there be a physical shortage of gas in continental Europe this winter, this might undermine calls for solidarity. What comes next The harsh reality is that for at least another two or three winters, Europe will have to hope for mild weather across the northern hemisphere without major interruptions to global LNG supply if it is to avoid significant gas price spikes. Even as things stand, European gas prices remain around 50% above their pre-invasion long-run average, which is hurting both households and businesses. This is particularly important for Germany, the EU’s industrial powerhouse, with its energy-intensive automotive and chemical industries. There are growing concerns that continued high energy prices could promote de-industralisaton as energy-intensive industries move elsewhere. The good news is that pressure on gas should at least subside from the mid-2020s. Significant new supplies of LNG will come online in the US and Qatar and the market will re-balance. European gas demand should also get significantly lower – down 40% by 2030, according to the energy reduction plan. There is even talk of a supply glut by the end of the decade, depending on renewable energy deployment accelerating in Europe, and a new generation of nuclear power stations coming on stream. This would significantly reduce Europe’s need to import gas for good, but will only happen if the bloc coordinates effectively. We saw what can be achieved in the months after the invasion when France supplied gas to Germany to help reduce its dependence on Russia, then Germany later supplied more electricity to French cities to help with outages caused by nuclear reactor maintenance. The challenge is to take the same approach to decarbonisation. While France tries to gather support for nuclear modernisation both at home and elsewhere in Europe, it is facing opposition from the likes of the German-led “Friends of Renewals” group, which advocates building out only renewable energy. Divisions like these may prove a serious obstacle in achieving a more rapid energy transformation away from fossil fuels. So while Europe has managed to pivot away from Russia’s pipeline gas, it will remain exposed to the volatility of global gas markets unless it reduces its gas demand significantly in the coming years.