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Strengthening cooperation to promote the development of the high range Blue Economy

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The “blue” industry, especially the high range one, is one of the main development areas for the economy also in the near future.

 China, which has always tried to strike a balance between maritime power and terrestrial equilibria in the Heartland, is the right place to think – for the first time – about a complete water geopolitics, as well as a real global industrial project.

The products that will be the axes of the new future technological revolution will increasingly come from the sea: energy, fast transport; rare metals, but also the most common ones; desalinated and processed water; DNA for study purposes and for medical applications, as well as oil and finally various traditional and non-traditional forms of food.

 If, from now on, we create a global market for the Blue Economy, we will have safe and peaceful world development. Otherwise, if we repeat the old land struggles on the new sea – possibly with the same violent acquisition logic – we will have such new wars that the experience of land clashes cannot even make us imagine.

The Earth is finite and limited. Now we have to work on the sea, but we have to do so all together peacefully and with win-win actions.

 It is estimated that the most environmental-friendly marine industry is currently worth 1.5 trillion US dollars and it is expected to be worth at least twice as much by the end of 2030.

Nowadays China dominates in all these blue economy areas. China’s fishing in foreign waters accounts for 44% of the world’s entire product and the same applies to ocean fishing, which accounts for 52% globally. This also holds true for China’s marine wind energy which accounts for 20% in the world. Also 50% of all the most active ports in the world are Chinese. Unfortunately, China also holds negative records such as 56% of all rivers polluted by plastics in the world.

Half of the world’s industrial fishing is Chinese. Hence, nowadays, China is already the world’s largest sea farmer.  It has already organised the exploitation of its largest marine area for deep-sea mining, thus focusing on a deep-sea area that is four times the size of Switzerland.

 Either you do good business with China in these areas or it is better staying at home.

 Therefore, it is necessary to think about a sea “Silk Road” and not only to reach the Mediterranean.

 A Silk Road to quickly change the whole paradigm of the world economy.

Hence, at the same time, it will also be necessary to reduce polluting emissions and possibly start the construction of many ocean parks, with a view to making the sea recover the products that are extracted from it.

 Fixed cycle of nature, stability of economic cycles.

 Among the companies in the various sectors of the Chinese Blue Economy, the collaboration with selected companies will be particularly useful both for the actual production of marine materials and for environmental protection. It should be recalled that the latter is a side of the Blue Economy coin. China does not think that environmental protection can be separated from the extraction of marine products.

 In Europe, the Blue Economy system is still in the development phase. Hence the figures are still quite small: in 2017, the turnover of the whole sector was 658 billion euros, with a gross profit equal to 74.3 billion euros and a number of employees amounting to 4 million throughout the EU-28.

 Within the European framework, the Blue Economy envisages the usual sectors of the Chinese one, albeit with a specific focus on underwater defence, which in China is calculated separately, in addition to putting all marine biotechnologies into a single category. The EU also envisages sea renewable energies as the greatest sector for future development.

 The traditional European demography is another factor to be considered: 45% (214 million) of the EU population lives on the coasts and the Northern ones always record a higher GDP than the Southern coasts.

 The successful European activities in the Blue Economy are still the traditional ones: tourism, spa and health services and some standard biotechnologies.

Obviously there are also maritime construction and repairs, but in specific areas of the European coasts – activities that now tend to be off the market.

Hence an EU Blue Economy linked to labour-intensive technologies, with insurmountable natural differences in the maximum use levels of the various areas.

 Never as in the case of the Blue Economy do large expanses and boundless areas count – all the dimensions that, as Hegel said, have always been lacking in the physical and geographical dimension of the Eurasian peninsula.

 The Jews called the Mediterranean “the Great Sea”, but this expression does not describe its physical dimensions, but only its historical and cultural ones.

Furthermore, coastal tourism in the EU is worth 54% of all “Blue” jobs and it is still growing, while the transport-related marine economy sectors are decreasing and the remaining maritime sectors are growing very slowly or are stable.

 The problem lies in the fact that the Blue Economy is a global project for transforming the production systems and lifestyles. It is not just a matter of hotels by the sea or deep-sea fishing.

For the EU – which is not a Blue competitor of China, but an area of possible integration of tasks and functions – the living resources of the sea still account for a mere 14% of all “Blue” jobs in the EU. It is, indeed, a very low percentage.

 The extraction of metals from the seabed is scarce in the EU. It accounts for 4% of employment in the whole Blue sector.

Clearly this also includes oil and gas. And both sectors are declining in terms of profit and investment.

There are 600 active offshore platforms in the EU.

 Shipyards account for 8% of employment in the sector, while the maritime product from seaweed processing is very low, with China already accounting for 46% of the world market and with only 6 EU projects currently active for aquatic biomass.

There are only 11 major desalination plants in the EU, mostly owned by large multi-sector companies.

Moreover, we should never neglect the coastal control of climate change, which can become a big global industry.

However, since the time of the report by the Club of Rome that, in 2009, invented the very concept of Blue Economy, his author, Pauli, has always stressed that the Blue Economy is part of the Green Economy – which is always a sustainable practice – and that it is based on new technologies.

 And here we revert immediately to China.

China has always been particularly interested in the Blue economy and in technological innovations, with the construction of marine areas of economic innovation. Just think about the Blue Economy Zone of the Shandong Peninsula, established in 2011, where, four years later, an integrated marine economic system began, which in 2020 is expected to become a great mechanism of ecological Blue economy with a high rate of innovative technology.

 In 2012, it was the turn of the Quingdao Blue Silicon Valley, a city for the new maritime scientific technologies.

Later China established other industrial areas for the protection of biodiversity and for new marine technologies, mainly in the Yangze River Delta.

 Since China’s 13th Five-Year Plan, the Blue Economy has been an ever-growing part of China’s GDP.

 Hence, from the Deep-Sea Dragon, a system for producing experimental deep-sea and surface platforms.

There are also the White Dragon’s explorations in the Arctic, albeit with a future research base in the Antarctica, and the Global Multidimensional Network for Ocean Observation, i.e. the network of stations that can be connected to all the scientific, climate, technological and energy observation stations that already operate in other parts of the two thirds of the Planet, namely those covered with water.

We should also recall the collection and processing of minerals extracted from the seabed.

In this case, the international regulations are already very detailed, but it is currently very hard to predict the aggregate effects, which are mutually reinforcing and with unpredictable percentages.

 Nor should we neglect the Great Lakes Observing System (GLOS), which is one of the 11 associations in the world that scientifically study the Integrated Ocean Observing System (IOOS).

It initially regards the Great Lakes region between the USA and Canada, but it is also much studied in China.

 And the network of Chinese marine sensors will certainly be connected to the large areas of global verification and study.

Hence the problem will increasingly be to control both internal and external waters at the same time.

With specific reference to the Chinese political practice, the 2018 great reform of the State Council, which placed sustainable development at the core of China’s planning, was decisive.

 Since then, there has been a Minister for Natural Resources responsible for all land and sea natural areas, as well as for the economic use of land and for the protection and rehabilitation of the most endangered areas or of the already polluted ones.

While in almost all Western countries these powers and responsibilities are divided between various Ministries and Administrations, in China the already efficient chain of command is in the hands of a single political body and of a single Minister. The maximum efficiency for a chain of command.

 Moreover, China is currently going through a particular phase: from the fast and traditional development to an even faster one, albeit characterized by high environmental, social, ecological and technological quality.

 A new “development way”, which does not imitate Western traditions, but places science and technology into a new vertical and fast political system.

 In the Taoist philosophical tradition, to which Mao Zedong essentially belonged, quality and quantity are not always separated in reality and can be analysed, but only through multiple analogies.

Said analogies never stop and cannot be logically separated.

Still today, this is the basis of the political and economic action of the Chinese Party and State.

 Not an ordinary imitation of capitalism, but new and free efficiency of a technical-scientific network that is directed with market criteria of mutual interest, completely open to controls.

Hence development based on technology but, above all, on the protection of the environment and therefore of human and animal life, as well as of the life of the elements – and all at the same time.

Once again, the Taoist tradition.

Obviously the protection from pollution is central to the Chinese Blue Economy project. Just think about the project for the ecologization of the Bohai Sea, started in November 2018 –  a three-year plan that will lead to the stable cleaning of 73% of all the Bohai Sea coasts.

 Rapidity, efficiency and no operational difference between environmental recovery activities and actions to make income from the sea.

 In essence, China’s Blue System is divided into two sectors, albeit always interconnected: development of innovative scientific and technological products related to the sea economy, and later, during and after the process, the integrated protection of the environment.

 Again to compare China with the European Blue Economy policies, it should be recalled that the EU seas host about 48,000 different species, while the Chinese seas cover an area of approximately 6 million square kilometres, ranging from tropical to temperate climate and up to the Great Cold climate areas.

 There are as many as 32,000 kilometres of Chinese coastline, with 22,629 species belonging to 46 phyla.

 Data not comparable with those of the Mediterranean, but certainly able to permit, from the very beginning, large economies of scale.

In the EU the per capita yearly consumption of fish is 24 kilos, compared to 41 kilos in China.

  It should be reiterated that China has already reached the highest levels of ocean fishing, both in terms of volumes and technologies, outside and inside its territorial waters. Moreover, technologies and economic returns can be useful to everyone.

Worldwide, the actions known as Our Ocean, started by Secretary of State Kerry in 2014, have led in the West only to 36 marine actions to the tune of 550 million euros, and to other commitments, albeit not yet funded, resulting from the 2018 Bali Conference.

Only 64 million euros were allocated for the Mediterranean, and 37.5 million for the South African and Indian Ocean coasts.

Obviously this is positive, but it should be recalled that Chinese investment is already much higher and not only due to the very large size of China’s Blue Area.

Last year the Chinese ocean GDP grew by 6.7%, thus reaching 9.3% of China’s total GDP. In 2018, 17.2 billion yuan were invested in the production of offshore renewable energy.

Excellent data, but this is just the beginning.

An additional 5.5% has been recorded for Chinese maritime transport, while the average yield of traditional fishing is slightly declining. Maritime tourism has already grown by 8.3% in China.

 An excellent rate, not even comparable with the rate in the EU, where tourism is one of the fastest growing sector in the Euro-Mediterranean Blue Economy.

Furthermore, while – without any particular use of advanced technology -the Blue Economy in the EU is still largely a possibility, in China it is already a well-established reality.

 As the philosopher and sinologist Jullien would say, possibility and reality are the same image, albeit seen in two different ways, but not necessarily at two different moments.

Currently tourism accounts for 61% of jobs in the EU Blue Economy. As we can see, it is an old business with a low average return.

The EU aquaculture is still a small sector compared to China’s huge size and technology, even in proportion to the population, but all the sustainable ocean exploitation programmes in Europe are postponed to an indefinite future and are at risk of funding.

  Renewable marine energies will reach 10% of European consumption in 2050-a percentage which already pales into insignificance compared to the Chinese ones.

Apart from bureaucratic and administrative efficiency, with the Chinese Blue Economy we are already on another planet. The Chinese scientists are already thinking about a Blue Economy divided into three major areas: the resolution of water scarcity;the search for deep waters and the cleaning of surface waters.

 They are also thinking about technological innovation, which is scarcely pursued in the EU. China has already developed 100 projects, for 10 years, with 100 million new jobs. All these projects have already begun.

 Finally, in China there will be an integrated marine economy between research and the balanced exploitation of resources.

In particular, the development sectors that China currently likes are deep-sea aquaculture with the use of cages; ocean satellite communication, which is optimal; marine biomedicine; desalination with advanced technologies; the search for minerals in the seabed; offshore oil exploration; research into marine antiseptic and medical materials; the production of renewable energies at sea.

 It is in these areas that China’s greatest ten-year effort will develop.

 The management of the Chinese sea is based on a simple concept: the ecological absorption capacity of the seas.

Protection is based on the criterion of sustainable development, not on the circular economy with a zero return rate. Everything is designed to reduce environmental waste.

Moreover, sustainable development between land and sea -which is another specific issue for China – will be the development and not just the preservation and conservation of coasts.

 The primary concept for doing all these things together is Harmony, a Confucian criterion that relates Man to his Environment.

Hence coordinated development between economy and society.

This is the same deep criterion of the “Silk Road”: a harmonious, global and strategic project that works only with market rules and is connected to a win-win logic, which ensures benefits to everybody.

 According to the latest data available, in China the companies related to the Blue Economy have grown at a pace ranging from 14% to 4%.

 For the time being, the regions directly concerned are the following: Zhejang, which is responsible for implementing the “Maritime Strategy of the East Sea” and focuses on ports and island economies.

 Then there are Guangdong, which hosts the companies operating in the integrated management of the maritime economy; Fujian, where cooperation through the straits is pursued; Shandong, which develops the “Blue Economy Zone of the Peninsula” to create a primary gateway to North East Asia, and finally Tianjin, where high-level maritime technology is put into practice.

As early as 2001, 14.46 million people have already been employed in the Chinese Blue Economy, with a one million increase every year.

The cooperation with Western companies is already in place both at financial level, so as to share cutting-edge technologies, and for the participatory development of regions and companies.

Furthermore, the Chinese Smart Ocean programme also envisages a network of sensors on the coasts, at sea, in flight and in the space.

 All this is designed to build a complete real-time monitoring system of all China’s seas and rivers –  a network that should connect to the equivalent systems in other parts of the globe.

 A turtle strategy that, according to Chinese tradition, epitomizes the North and the Waters, but is also invulnerable, due to its powerful shell.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Rebalancing Act: China’s 2022 Outlook

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Authors: Ibrahim Chowdhury, Ekaterine T. Vashakmadze and Li Yusha

After a strong rebound last year, the world economy is entering a challenging 2022. The advanced economies have recovered rapidly thanks to big stimulus packages and rapid progress with vaccination, but many developing countries continue to struggle.

The spread of new variants amid large inequalities in vaccination rates, elevated food and commodity prices, volatile asset markets, the prospect of policy tightening in the United States and other advanced economies, and continued geopolitical tensions provide a challenging backdrop for developing countries, as the World Bank’s Global Economic Prospects report published today highlights.

The global context will also weigh on China’s outlook in 2022, by dampening export performance, a key growth driver last year. Following a strong 8 percent cyclical rebound in 2021, the World Bank expects growth in China to slow to 5.1 percent in 2022, closer to its potential — the sustainable growth rate of output at full capacity.

Indeed, growth in the second half of 2021 was below this level, and so our forecast assumes a modest amount of policy loosening. Although we expect momentum to pick up, our outlook is subject to domestic in addition to global downside risks. Renewed domestic COVID-19 outbreaks, including the new Omicron variant and other highly transmittable variants, could require more broad-based and longer-lasting restrictions, leading to larger disruptions in economic activity. A severe and prolonged downturn in the real estate sector could have significant economy-wide reverberations.

In the face of these headwinds, China’s policymakers should nonetheless keep a steady hand. Our latest China Economic Update argues that the old playbook of boosting domestic demand through investment-led stimulus will merely exacerbate risks in the real estate sector and reap increasingly lower returns as China’s stock of public infrastructure approaches its saturation point.

Instead, to achieve sustained growth, China needs to stick to the challenging path of rebalancing its economy along three dimensions: first, the shift from external demand to domestic demand and from investment and industry-led growth to greater reliance on consumption and services; second, a greater role for markets and the private sector in driving innovation and the allocation of capital and talent; and third, the transition from a high to a low-carbon economy.

None of these rebalancing acts are easy. However, as the China Economic Update points out, structural reforms could help reduce the trade-offs involved in transitioning to a new path of high-quality growth.

First, fiscal reforms could aim to create a more progressive tax system while boosting social safety nets and spending on health and education. This would help lower precautionary household savings and thereby support the rebalancing toward domestic consumption, while also reducing income inequality among households.

Second, following tightening anti-monopoly provisions aimed at digital platforms, and a range of restrictions imposed on online consumer services, the authorities could consider shifting their attention to remaining barriers to market competition more broadly to spur innovation and productivity growth.

A further opening-up of the protected services sector, for example, could improve access to high-quality services and support the rebalancing toward high-value service jobs (a special focus of the World Bank report). Eliminating remaining restrictions on labor mobility by abolishing the hukou, China’s system of household registration, for all urban areas would equally support the growth of vibrant service economies in China’s largest cities.

Third, the wider use of carbon pricing, for example, through an expansion of the scope and tightening of the emissions trading system rules, as well power sector reforms to encourage the penetration and nationwide trade and dispatch of renewables, would not only generate environmental benefits but also contribute to China’s economic transformation to a more sustainable and innovation-based growth model.

In addition, a more robust corporate and bank resolution framework would contribute to mitigating moral hazards, thereby reducing the trade-offs between monetary policy easing and financial risk management. Addressing distortions in the access to credit — reflected in persistent spreads between private and State borrowers — could support the shift to more innovation-driven, private sector-led growth.

Productivity growth in China during the past four decades of reform and opening-up has been private-sector led. The scope for future productivity gains through the diffusion of modern technologies and practices among smaller private companies remains large. Realizing these gains will require a level playing field with State-owned enterprises.

While the latter have played an instrumental role during the pandemic to stabilize employment, deliver key services and, in some cases, close local government budget gaps, their ability to drive the next phase of growth is questionable given lower profits and productivity growth rates in the past.

In 2022, the authorities will face a significantly more challenging policy environment. They will need to remain vigilant and ready to recalibrate financial and monetary policies to ensure the difficulties in the real estate sector don’t spill over into broader economic distress. Recent policy loosening suggests the policymakers are well aware of these risks.

However, in aiming to keep growth on a steady path close to potential, they will need to be similarly alert to the risk of accumulating ever greater levels of corporate and local government debt. The transition to high-quality growth will require economic rebalancing toward consumption, services, and green investments. If the past is any guide to the future, the reliance on markets and private sector initiative is China’s best bet to achieve the required structural change swiftly and at minimum cost.

First published on China Daily, via World Bank

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The US Economic Uncertainty: Bitcoin Faces a Test of Resilience?

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Is inflation harmful? Is inflation here to stay? And are people really at a loss? These and countless other questions along the same lines dominated the first half of 2021. Many looked for alternative investments in the national bourse, while others adopted unorthodox streams. Yes, I’m talking about bitcoin. The crypto giant hit records after records since the pandemic made us question the fundamentals of our conventional economic policies. And while inflation was never far behind in registering its own mark in history, the volatility in the crypto stream was hard to deny: swiping billions of dollars in mere days in April 2021. The surge came again, however. And it will keep on coming; I have no doubt. But whether it is the end of the pandemic or the early hues of a new shade, the tumultuous relationship between traditional economic metrics and the championed cryptocurrency is about to get more interesting.

The job market is at the most confusing crossroads in recent times. The hiring rate in the US has slowed down in the past two months, with employers adding only 199,000 jobs in December. The numbers reveal that this is the second month of depressing job additions compared to an average of more than 500,000 jobs added each month throughout 2021. More concerning is that economists had predicted an estimated 400,000 jobs additions last month. Nonetheless, according to the US Bureau of Labour Statistics, the unemployment rate has ticked down to 3.9% – the first time since the pre-pandemic level of 3.5% reported in February 2020. Analytically speaking, US employment has returned to pre-pandemic levels, yet businesses are still looking for more employees. The leverage, therefore, lies with the labor: reportedly (on average) every two employees have three positions available.

The ‘Great Resignation,’ a coinage for the new phenomenon, underscores this unique leverage of job selection. Sectors with low-wage positions like retail and hospitality face a labor shortage as people are better-positioned to bargain for higher wages. Thus, while wages are rising, quitting rates are record high simultaneously. According to recent job reports, an estimated 4.5 million workers quit their jobs in November alone. Given that this data got collected before the surge of the Omicron variant, the picture is about to worsen.

While wages are rising, employment is no longer in the dumps. People are quitting but not to invest stimulus cheques. Instead, they are resigning to negotiate better-paying jobs: forcing the businesses to hike prices and fueling inflation. Thus, despite high earnings, the budget for consumption [represented by the Consumer Price Index (CPI)] is rising at a rate of 6.8% (reported in November 2021). Naturally, bitcoin investment is not likely to bloom at levels rivaling the last two years. However, a downfall is imminent if inflation persists.

The US Federal Reserve sweats caution about searing gains in prices and soaring wage figures. And it appears that the fed is weighing its options to wind up its asset purchase program and hike interest rates. In March 2020, the fed started buying $40 billion worth of Mortgage-backed securities and $80 billion worth of government bonds (T-bills). However, a 19% increase in average house prices and a four-decade-high level of inflation is more than they bargained. Thus, the fed officials have been rooting for an expedited normalization of the monetary policy: further bolstered by the job reports indicating falling unemployment and rising wages. In recent months, the fed purview has dramatically shifted from its dovish sentiments: expecting no rate hike till 2023 to taper talks alongside three rate hikes in 2022.

Bitcoin now faces a volatile passage in the forthcoming months. While the disappointing job data and Omicron concerns could nudge the ball in its favor, the chances are that a depressive phase is yet to ensue. According to crypto-analysts, the bitcoin is technically oversold i.e. mostly devoid of impulsive investors and dominated by long-term holders. Since November, the bitcoin has dropped from the record high of $69,000 by almost 40%: moving in the $40,000-$41,000 range. Analysts believe that since bitcoin acts as a proxy for liquidity, any liquidity shortage could push the market into a mass sellout. Mr. Alex Krüger, the founder of Aike Capital, a New York-based asset management firm, stated: “Crypto assets are at the furthest end of the risk curve.” He further added: “[Therefore] since they had benefited from the Fed’s “extraordinarily lax monetary policy,” it should suffice to say that they would [also] suffer as an “unexpectedly tighter” policy shifts money into safer asset classes.” In simpler terms, a loose monetary policy and a deluge of stimulus payments cushioned the meteoric rise in bitcoin valuation as a hedge against inflation. That mechanism would also plummet the market with a sudden hawkish shift.

The situation is dire for most industries. Job participation levels are still low as workers are on the sidelines either because of the Omicron concern or lack of child support. In case of a rate hike, businesses would be forced to push against the wages to accommodate affordability in consumer prices. For bitcoin, the investment would stay dormant. However, any inflationary surprises could bring about an early tightening of the policy: spelling doom for the crypto market. The market now expects the job data to worsen while inflation to rise at 7.1% through December in the US inflation data (to be reported on Wednesday). Any higher than the forecasted figure alongside uncertainty imbued by the new variant could spark a downward spiral in bitcoin – probably pushing the asset below the $25000 mark.

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Platform Modernisation: What the US Treasury Sanctions Review Is All About

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Image source: home.treasury.gov

The US Treasury has released an overview of its sanctions policy. It outlines key principles for making the restrictive US measures more effective. The revision of the sanctions policy was announced at the beginning of Joe Biden’s presidential term. The new review can be considered one of the results of this work. At the same time, it is difficult to find signs of qualitative changes in the US administration’s approach to sanctions in the document. Rather, it is about upgrading an existing platform.

Sanctions are understood as economic and financial restrictions that make it possible to harm the enemies of the United States, prevent or hinder their actions, and send them a clear political signal. The text reproduces the usual “behavioural” understanding of sanctions. They are viewed as a means of influencing the behaviour of foreign players whose actions threaten the security or contradict the national interests of the United States. The review also defines the institutional structure of the sanctions policy. According to the document, it includes the Treasury, the State Department, and the National Security Council. The Treasury plays the role of the leading executor of the sanctions policy, and the State Department and the NSS determine the political direction of their application, despite the fact that the State Department itself is also responsible for the implementation of a number of sanctions programmes. This line also includes the Department of Justice, which uses coercive measures against violators of the US sanctions regime.

Interestingly, the Department of Commerce is not mentioned among the institutions. The review focuses only on a specific segment of the sanctions policy that is implemented by the Treasury. However, it is the Treasury that is currently at the forefront of the application of restrictive measures. A significant part of the executive orders of the President of the United States and sanctions laws imply blocking financial sanctions in the form of an asset freeze and a ban on transactions with individuals and organisations. Decrees and laws assign the application of such measures to the Treasury in cooperation with the Department of State and the Attorney General. Therefore, the institutional link mentioned in the review reflects the spirit and letter of a significant array of US regulations concerning sanctions. The Department of Commerce and its Bureau of Industry and Security are responsible for a different segment of the sanctions policy, which does not diminish its importance. Export controls can cause a lot of trouble for individual countries and companies.

Another notable part of the review concerns possible obstacles to the effective implementation of US sanctions. These include, among other things, the efforts of the opponents of the United States to change the global financial architecture, reducing the share of the dollar in the national settlements of both opponents and some allies of the United States.

Indeed, such major powers as Russia and China have seriously considered the risks of being involved in a global American-centric financial system.

The course towards the sovereignty of national financial systems and settlements with foreign countries is largely justified by the risk of sanctions.

Russia, for example, is vigorously pursuing the development of a National Payment System, as well as a Financial Messaging System. There has been a cautious but consistent policy of reducing the share of the dollar in external settlements. China, which has much greater economic potential, is building systems of “internal and external circulation”. Even the European Union has embarked on an increase in the role of the euro, taking into account the risk of secondary sanctions from “third countries”, which are often understood between the lines as the United States.

Digital currencies and new payment technologies also pose a threat to the effectiveness of sanctions. Moreover, here the players can be both large powers and many other states and non-state structures. It is interesting that digital currencies at a certain stage may present a common challenge to the United States, Russia, China, the EU and a number of other countries. After all, they can be used not only to circumvent sanctions, but also, for example, to finance terrorism or in money laundering. However, the review does not mention such common interests.

The text does propose measures to modernise the sanctions policy. The first one is to build sanctions into the broader context of US foreign policy. Sanctions are not important in and of themselves, but as part of a broader palette of policy instruments. The second measure is to strengthen interdepartmental coordination in the application of sanctions in parallel with increased coordination of US sanctions with the actions of American allies. The third measure is a more accurate calibration of sanctions in order to avoid humanitarian damage, as well as damage to American business. The fourth measure is to improve the enforceability and clarity of the sanctions policy. Here we can talk about both the legal uncertainty of some decrees and laws, and about an adequate understanding of the sanctions programmes on the part of business. Finally, fifth is the improvement and development of the Treasury-based sanctions apparatus, including investments in technology, staff training and infrastructure.

All these measures can hardly be called new. Experts have long recommended the use of sanctions in combination with other instruments, as well as improved inter-agency coordination. The coordination of sanctions with allies has escalated due to a number of unilateral steps taken by the Trump Administration, including withdrawal from the Iranian nuclear deal or sanctions against Nord Stream 2. However, the very importance of such coordination has not been questioned in the past and has even been reflected in American legislation (Iran). The need for a clearer understanding of sanctions policy has also been long overdue. Its relevance is illustrated, among other things, by the large number of unintentional violations of the US sanctions regime by American and foreign businesses. The problem of overcompliance is also relevant, when companies refuse transactions even when they are allowed. The reason is the fear of possible coercive measures by the US authorities. Finally, improving the sanctioning apparatus is also a long-standing topic. In particular, expanding the resources of the Administration in the application of sanctions was recommended by the US Audit Office in a 2019 report.

The US Treasury review suggests that no signs of an easing are foreseen for the key targets of US sanctions. At the same time, American business and its many foreign counterparties can benefit from the modernisation of the US sanctions policy. Legal certainty can reduce excess compliance as well as help avoid associated losses.

From our partner RIAC

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