The discussions about the shape of EU-China relations are missing the export dependency angle. Value chain analysis provides insights into both direct and indirect trade relations with China, which in turn point to specific policy tools.

French President Emmanuel Macron’s recent trip to China has resulted in stirring up a pan-European debate on the nature of China-EU relations. Macron’s conciliatory advances toward the Chinese leadership have been met both with praise as well as pushback, particularly loudly professed by the Central and Eastern European nations.

The punditry has since glossed over the diminished position of the traditional Franco-German motor of the EU, a core-periphery split, a divide between presentism and future-oriented thinking, as well as a divergence in the positions on the strategic autonomy and the nature of transatlantic relations.

While the majority of the disagreement was focused on the questions of diplomacy, security, and international relations, Macron’s large entourage of businesspeople has also brought economic relations under scrutiny. The French appetite for increased trade and investment with China contradicts the EU Commission’s desire to “de-risk,” a Brussels codeword for decreasing trade and investment dependencies on China.

The de-risking narrative has been enthusiastically embraced by the Baltic states, Poland, and Czechia, all of which seek to re-evaluate their trade and supply chain exposures to China. However, as the 2021 events in Lithuania demonstrate, complex trade relations in the 21^st century may prove more difficult to disentangle than expected.

In the widely publicized case of the Sino-Lithuanian spat, the Lithuanian government opted for a high-profile falling out with China after having assessed the potential economic damage to be low and manageable. However, China’s unprecedented weaponization of supply chains in order to attack Lithuania has revealed a weakness: the reliance on bilateral trade data has not shown the full picture of Lithuania’s economic exposure towards China, and the Baltic state’s politicians based their decisions on imprecise figures.

Had they derived their decisions from the analysis of global value chains, their choices might have been different. As the recently published econometric analysis by the Central European Institute of Asian Studies shows, when counting indirect trade linkages, Lithuania is almost 250% more exposed to Chinese demand as the official records show.

Figure 1: Countries within the European supply chain have a higher indirect trade relations than what bilateral statistics indicate.

The debate on China in the wider region of Central and Eastern Europe (CEE) has been awash with contradictions since its inception due to the ignorance of value chain data. Neither the China-friendly nor the more critical politicians had reflected indirect exposures in their rhetoric. Although the indirect trade data clearly positions China as a more important export destination than what the traditionally used bilateral data would have us think, China enthusiasts never used this as an argument in the debate and often conceded defeat when the counterparty put bilateral data on the table. China hawks, on the other hand, constantly underestimate the extent of exposure and dependence on China, which in turn further emboldens them in pursuing China-critical symbolic actions. Paradoxically, the CEE region – or 16+1 in Beijing’s parlance – has been professing a growing disappointment over the meager trade volumes with China just as the indirect trade linkages were deepening.

An analysis of global value chains may also prove useful in the current heated debate on the nature of Sino-European relations. The often-repeated figure of the EU countries conducting more than two-thirds of trade among themselves is only true to some extent. A large part of these trade exchanges is a cross-border movement of intermediate goods within a manufacturing supply chain. A component can traverse borders multiple times back and forth before production is complete, which leads to double counting and inflating the intra-EU trade figures.

When the movement of components is removed from the equation and only the final demand is considered, the picture changes rapidly. The intra-European trade proportion falls by several percentage points, which is mostly compensated by the rise of the importance of US and Chinese consumption. The final demand analysis thus allows us to assess the effectiveness of certain policy tools. For instance, the recent focus on reshoring or near-shoring may result in boosting the supply chain resilience; however, it will not decrease the dependence on extra-European markets for exports and production. Protecting production chains does not address final demand dependence.

Take any other trade policy tool recently discussed and adopted by the EU, and you will find that they are primarily concerned with the European dependence on imports from China. This is certainly a significant issue; nevertheless, the vulnerabilities running in the opposite direction – export dependence on the Chinese market – seem secondary for policymakers.

This is likely related to the fact that mitigating export dependence using a palette of trade policy tools has its limits. Achieving robust risk management of export dependence would, in the long run, entail significant changes in the economic structure, a politically highly salient topic in the EU. In particular, Germany’s economic model of depending on export manufacturing and a relatively subdued domestic consumption would require a shakeup that no one dares to picture, let alone pursue.

Speaking of Germany, it has a special position as an anchor within the European supply chain. A high proportion of the indirect trade between the EU countries and China is routed via Germany. This was one of the reasons the Lithuanian officials did not see the full scope of their trade linkages to China. It was also the avenue that China chose to exert pressure on the Baltic country – German companies that were summoned and threatened by Chinese officials to drop their Lithuanian suppliers.

The complex web of Germany-centred supply chain networks increases other EU countries’ indirect exposure to China, obfuscates these linkages for most observers, and makes it difficult for individual countries to implement effective policies.

This has implications for both sides of the Macron-in-China debate. The supporters of the French president’s renewed economic foray into China need to recognize the supply chain-embedded vulnerabilities and the potential for their exploitation. On the other hand, the decouplers’ agenda can only be pursued in partnership with Germany, while the Central European industrial behemoth does not seem too keen to reduce its linkages with China.

The low priority of this agenda in Brussels, coupled with the East-West divide on this topic, indicates that the problem of Europe’s export dependence will most likely be dealt with by muddling through unless China’s exploits cause a stronger call to action.

If there is a country in Europe that is in constant crisis, it is Bosnia and Herzegovina. This is precisely why most analysts call Bosnia and Herzegovina an impossible state. It is important to note that Bosnia and Herzegovina is a complex country made up of two parts: the Republika Srpska and the Federation of Bosnia and Herzegovina (where the absolute majority are Bosniaks and Croats).

Recently, two US Air Force “B-1B” bombers made a low flight over Bosnia and Herzegovina, flying over several cities. After the overflight of American bombers, the US embassy in Sarajevo announced that bomber overflight is a sign of the US’s permanent commitment to the sovereignty, territorial integrity and multi-ethnic character of Bosnia and Herzegovina.

– We are celebrating the lasting bond between the USA and BiH. The flight demonstrates our commitment to building strong bilateral relations and is proof of our common values and goals. Through cooperation and understanding, we are building a path to a future of peace, security and prosperity in the region – announced General James Hecker, member of the US Air Force and commander of American air bases in Europe, air forces in Africa and the NATO Joint Air Command.

The B-1B aircraft is a long-range heavy bomber that can carry the largest conventional load of guided and unguided missiles of any aircraft in aviation.

It is stated that these aircraft are able to quickly drop huge amounts of precision and non-precision weapons against any enemy, anywhere in the world, at any time.

However, no sovereign authority in Bosnia and Herzegovina – the Presidency and the Council of Ministers – has made a decision on the overflight of American bombers over Bosnia and Herzegovina. Specifically, it was done without the consent of the legitimate representatives of the Serbs in the institutions of Bosnia and Herzegovina. With this act, official Washington violated the sovereignty of Bosnia and Herzegovina.

The question arises, why are US bombers now flying over Bosnia and Herzegovina and who are they sending a message to? But the answer to that question is simple. The only ones who were bombed by American bombers in the Balkans were the Serbs. Also, only the Serbs protested against the overflight of the American bombers, because they have bitter memories of the American weapons that were used to kill Serbian soldiers and civilians in the Balkans in the 1990s.

Also, due to frequent crises in Bosnia and Herzegovina, the political leader of the Serbs in that country, Milorad Dodik, often talks about a referendum for the independence of the Republika Srpska. And while no one disputes this right with Scotland, as well to other countries in Europe in the past years(like Montenegro), Republika Srpska is threatened with war. Not only from Bosnian radical politicians, but also from American diplomats. To make matters worse, at the same time official Washington created and recognized an independent Kosovo through war. Even today, the main protector and financier of independent Kosovo is US.

It is the hypocrisy of official Washington towards Kosovo that creates additional anger in Republika Srpska. Because, we must not forget, Serbs in Bosnia and Herzegovina experienced the Holocaust at the hands of Croats and Bosniaks (Bosnian Muslims) during the Second World War. Precisely the genocide that the Serbs experienced in the Second World War is the reason why the Serbs in Bosnia and Herzegovina during the breakup of Yugoslavia clearly said that they do not want an independent Bosnia in which those who mercilessly killed them during the Second World War will have the main say. But that they want to live with their mother country Serbia.

The Serbs from Bosnia expected that, just as the Jews got their own state, they too would have the opportunity to decide where they would live. Unfortunately, part of the international community had other plans. The artificial state of Bosnia and Herzegovina was forcibly created, and since the Croats do not want Bosnia in addition to the Serbs, a de facto colonial administration was appointed in Bosnia. It is reflected in the character of the Office of the High Representative. Namely, in the nineties, when US was the only superpower in the world, Washington lobbied to introduce the position of High Representative in Bosnia. He was given dictatorial powers, so the democratic will of the people in Bosnia is valid only if the High Representative agrees with it. Plus, the High Representative could remove politicians, fire them from their jobs, in short, make life hell for anyone who opposes him. Due to all of the above, and bearing in mind that the position of the High Representative was expected to last for a short time, rebellions by local Serbs and Croats, as well as part of the international community, soon occurred. Many respected Western organizations that deal with the protection of human rights have been pointing out for years that the office of the High Representative in Bosnia and Herzegovina must be abolished, because it contradicts democracy and has the characteristics of a dictatorship.

However, the current High Representative, Christian Schmidt was illegitimately elected to that position because he was not appointed to that position by the United Nations Security Council. That is why the Republika Srpska has clearly said that it does not recognize Mr. Christian Schmidt as the High Representative. However, US diplomats in Bosnia don’t accept that decision of Republika Srpska, which is why a new crisis is being created in Bosnia and Herzegovina.

Since the Republika Srpska, in accordance with international law, refuses to implement the undemocratic decisions of the High Representative, part of the international community led by Washington plans to implement a new law that obliges everyone to comply with the decisions of the High Representative. And that is exactly why the American bombers flew over Bosnia and Herzegovina, to send a message to the Republika Srpska that it must listen, otherwise they can be punished as they were in the 1990s.

Another big problem is the issue of state property in Bosnia and Herzegovina. Namely, according to the Dayton Peace Agreement, which ended the war and created today’s Bosnia and Herzegovina, all property belongs to the entities, except for property that is decisively stated to be state property.

Even if international law is on the side of Republika Srpska, on this issue as well, the US ambassador in Bosnia and Herzegovina, contrary to diplomatic practice, announced his position in the form of an order.

Speaking about the claims from the Republika Srpska that there is no state property and that it belongs to the entities, Murphy stated that this is completely wrong.

– It is a legal fiction. No matter how many times the Republika Srpska authorities claim the opposite, it does not change the fundamental facts, said Murphy and added that the issue of property is resolved at the state level and that the state must say what property it needs, such as prospective military property.

– If there is property that is not needed, you do not have to keep it and the state can transfer it to another owner: municipality, canton, and even entity.

The question arises, where does a foreign ambassador have the right to interfere in the internal affairs of a sovereign state and to determine what has been resolved and what has not?! However, all of the above indicates that a new serious offensive is heading towards Republika Srpska.

                  Political neutralization of Milorad Dodik

Republika Srpska, bearing in mind that international law is on its side (Dayton Peace Agreement), must not accept to have her property taken away, under no circumstances. Also, the Office of the High Representative is a relic of the past and is not in accordance with international law, so Republika Srpska is doing the right thing by not recognizing the newly appointed High Representative. This policy of the President of the Republika Srpska, Milorad Dodik, has shown that even small entities/states, if they have strong leaders like Mr. Dodik, can lead an independent and beneficial policy for their people.

However, precisely because of the patriotic policy of Republika Srpska President Milorad Dodik, part of the international community is trying to remove him from power. First of all through accusations of corruption and on top of that with colored revolutions. Despite speculation that NATO soldiers could arrest Mr. Dodik, this is not realistic. But what is realistic is that the State Prosecutor’s Office of Bosnia and Herzegovina issues an arrest warrant and that NATO special units assist in the execution of that act.

There is already intelligence that such plans are being prepared. Due to all of the above, the President of Republika Srpska and the Government of Republika Srpska must approach this issue seriously. First of all, through increasing the number of members of the special police units of the Republika Srpska in Banja Luka and through the mobilization of the people of the Republika Srpska. It is necessary to make it clear to part of the international community that if the political persecution and arrest of Milorad Dodik were to take place, the people of the Republika Srpska would rise to the defense of their democratically elected president through mass protests and demands for the independence of the Republika Srpska. Only these two factors can stop the political neutralization plan for Milorad Dodik, which is already formulated in Sarajevo.

Exploring the Historical Bonds of Sweden, Poland, and Turkey

The Swedish monarch, Charles XII, exuded pride and arrogance as he led his formidable army towards Moscow, still in his twenties. He believed his forces to be invincible, drawing comparisons between himself and his soldiers to the legendary Leonidas and his valiant 300 Spartans. Several factors contributed to the young king’s unwavering confidence on the path to Moscow.

A mere few years prior, in 1700, a powerful coalition comprising Denmark-Norway, Saxony-Poland-Lithuania, and Russia had launched a coordinated assault on the Swedish protectorate of Holstein-Gottorp, as well as the provinces of Livonia and Ingria. Undeterred by the overwhelming presence of enemy armies, Charles XII triumphed in successive sieges, vanquishing his adversaries one by one. Following the Battle of Narva, even the formidable Tsar Peter the Great of Russia sought terms of agreement, but Charles XII disregarded these pleas. By the time they arrived at the gates of Moscow, the Swedish army had emerged victorious against foes two or even three times their own size, bolstering the commander’s sense of invincibility, akin to the great conquerors of the past like Leonidas or Alexander the Great. However, the seemingly indomitable Charles XII committed the same error as dreamy conquerors such as Napoleon and Hitler before him: underestimating the challenges posed by the vast Russian steppes. The army of Charles XII suffered a devastating defeat, compelling the young monarch to seek refuge in Ottoman territories, accompanied by a mere thousand men.

The Swedish king and his men remained guests in the Ottoman Empire, which is today Ukrainian territory, for more than 5 years. The Ottomans treated Charles like a king and cherished him, and he and his Polish and Ukrainian entourage were generously borne. Turkish Sultan Ahmed III was aware of the importance of Sweden for Ottoman security. The King, who could not return to his country, hoped to defeat Russia through an alliance with Poland and Ottoman Turks. The presence of the Swedish King in the Ottoman Empire also strained Turkish-Russian relations and eventually brought them to the brink of war. The most important reason for the Ottoman-Russian Prut War (1710-11) was the Turks’ refusal to surrender Charles XII to the Russians.

Nations whose Destinies Connected

If one were to ask residents of Istanbul about the location of Sweden or Poland today, they might draw a blank. In the minds of modern Turks, these countries no longer hold strong alliances or close ties. Similar sentiments can be found on the streets of Stockholm or Warsaw. Relations between Turkey, Sweden, and Poland have weakened and even become uncertain since the days of the Ottoman Empire. However, during the Ottoman era, particularly in the 16th-18th centuries, the sultans in Istanbul viewed Sweden and Poland as crucial counterbalances against Russia in Eastern Europe, and they prioritized these relationships.

For the Ottomans, it was advantageous that Russia was engaged in a conflict with Sweden in the north, as it alleviated pressure on the Ottoman Empire. Ottoman wars with Russia also presented an opportunity for the Swedish Kingdom to launch attacks against Russia. In line with Ottoman foreign policy, the corridor spanning from the Ottoman Empire to the Baltic Sea, encompassing Ukraine, Poland, the Baltic states, and the Kingdom of Sweden, was considered a unified entity and treated as such. Presently, the prevailing method of interpreting maps primarily revolves around an east-west orientation, neglecting the various other facets of geography. Restricting the analysis of Russia’s perception of Eastern Europe solely to the East-West dimension would be highly deceptive. When examining the map from the vantage points of influential decision makers or political scientists situated in Istanbul or Stockholm, it is crucial for them to perceive a comprehensive geographical corridor extending harmoniously from Sweden to Anatolia. This broader perspective is essential in formulating appropriate policies aligned with the geographical realities at hand. While it can be acknowledged that Ottoman efforts were insufficient, their approach to map interpretation holds validity, and a comparable perspective remains relevant in contemporary times.

Growing Russia Shrinking Nations

The Russian threat necessitated cooperation and coordination among Sweden, Poland, and the Ottoman Empire. Since the time of Peter the Great, Russia’s objective had been to expand its reach to the Black Sea and the Baltic Sea, which inevitably led to westward and southward offensives by Russian armies. The ongoing conflict in Ukraine draws its origins from these historical objectives as well: Russia seeks to establish a lasting and greater  presence in the Black Sea region and gain access to war seas.

Over the centuries, Moscow (Russia), a relatively insignificant principality in the 15th century, rapidly expanded at the expense of three states: the Ottomans, the Kingdom of Sweden, and Poland. As Russia grew stronger, these three states gradually declined. By the end of the 18th century, Poland lost its independence and disintegrated, while the Swedish Empire diminished to the status of an ordinary state. Although the Ottoman Empire persisted until the 20th century, numerous Russian attacks eventually contributed to its collapse.

History Repeats

History, known for its repetition, serves as the best teacher of world politics. Hence, learning from the past is a paramount virtue for adept statesmen. Following the Ukrainian War, “old history” resurfaced in Eastern Europe, prompting regional states to seek reliable havens in anticipation of a potential Russian assault. Even Finland and Sweden, traditionally regarded as the world’s most pacifist states, found themselves lining up for NATO membership during the Cold War years. Countries under the NATO security umbrella, such as Poland and Turkey, experienced some degree of reassurance.

NATO members, particularly the United States, warmly embraced the applications of Sweden and Finland to join the alliance. However, Ankara surprisingly vetoed both applications, citing national interest. The Turkish government argued that these two states harbored anti-Turkey sentiments and terrorist groups within their borders. At least, these were the explicit reasons given. Finland managed to persuade Turkey within a year and became the fastest member state after applying to NATO. However, Turkey’s veto on Sweden’s membership still remains in effect. Sweden even made constitutional amendments in an effort to sway Turkey. While Sweden’s desire to join NATO can be understood from various perspectives, Turkey’s expectations from Sweden, as well as the key NATO member, the United States, appear more intricate.

The timing of Sweden’s accession as the 32nd NATO member remains uncertain, but statesmen should draw lessons from history. The realities faced by Poland, Sweden, and the Ottoman Empire still hold relevance in today’s international relations. Setting aside current crises, the relationships between Poland, Sweden, and Turkey fall short of their potential. These countries must strive for closer and more coordinated cooperation to maintain peace and stability in Eastern Europe while safeguarding their vital and existential interests. Furthermore, this cooperation should not solely be based on hostility towards any specific state, but rather on deterring hostilities altogether. (*)

NOTES:

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(*) For Turkish-Polish relations also see: Laçiner, Sedat, et al., Turkish-Polish Relations: Past, Present and Future, (Ankara: ÇOMÜ Press, 2015).