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Transport corridors in Eurasia: All roads lead to Russia

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At the end of September, the EU and Japan signed an agreement designed to add a new dimension to these two global economic powerhouses’ joint effort in the field of transport, energy and digital technology. This expansion of ties between the Old World and Japan is seen by Western media as a counterweight to, and even a pushback against China’s One Belt, One Road mega-project. What are the prospects of various projects dealing with the ongoing competition between transport corridors in Eurasia?

The EU-Japan rapprochement itself is symptomatic and by no means accidental. The efforts that the United States has been bending the past 2-3 years to unravel the existing international system, which in the course of the past decades has brought political and economic dividends primarily to the world’s most developed countries have intensified with the US also becoming increasingly self-serving, openly ignoring and even harming the interests of its nominal allies. As a result, the leading countries of Europe and Asia increasingly feel the need to strengthen the “global, multilateral order” that can solve problems that no country can solve on its own, from climate change to free trade  themselves, without the US. 

Economic integration in Eurasia is just one such area. According to many leading German media outlets, “an expansion of the Eurasian trade zone bypassing the US-controlled shipping lanes spells a disaster” for America.  To fend off this threat, Washington relies entirely on sub-regional projects, preferably under its own patronage. In the mid-2010s, the United States unveiled its conceptual vision of a future for the Asia-Pacific region, namely – the Trans-Pacific Partnership (TPP), and the New Silk Road initiative for Central Asia. In Europe, the US plans are primarily of a military- strategic nature, assigning for NATO the role of a re-integrator of the European continent in the event of an EU collapse. Simultaneously, the Trump administration persist with its attempts to drive a wedge between the EU’s western and eastern members by backing initiatives proposed by a number of Central-East European countries, and encouraging the development of local transport corridors and trade communities, leaning on the United States, instead of Europe, let alone Eurasia.

Meanwhile, European experts have been discussing the prospect of the EU leading the camp of supporters of maintaining liberal international trade standards as one of the best strategies for Brussels to go for. A similar view has been gaining traction also in Japan, which is increasingly suspicious of Trump’s “crude protectionism” and arm-twisting in trade negotiations. And, adding to all this, are Washington’s new demands for increasing the cost of maintaining American troops. After the United States withdrew from negotiations on the Trans-Pacific Partnership (TPP), Japan was one of the main proponents of keeping the talks going. No longer instrumental in the US efforts to “contain China,” a new-look TPP is able to more flexibly build its relations with the world’s second biggest economy, all the more so since China is viewed by almost all TPP participants as a key trading partner. Moreover, Japan is actively working on the implementation of the 15-sided free trade agreement in Asia and the Pacific, the Regional Comprehensive Economic Partnership (RCEP), to cover half of the global economy, and where the US does not participate, while China does.

As part of this policy, the EU and Japan announced in July that they were setting up a free trade zone between them. And now, they have also signed an infrastructure deal to coordinate transport, energy and digital projects linking Europe and Asia. According to the leaders of Japan and the EU, this is about building up ties between the Indo-Pacific region and the Western Balkans and Africa, as well as setting up a sea route, “leading to the Mediterranean Sea and the Atlantic Ocean.” However, infrastructure projects should not “create huge debts” and depend on “one country.”

But is the new Japanese-European “corridor” capable of becoming efficient without promoting partnership relations with other countries?

There exist various projects of economic integration in Eurasia – both between individual regions and those covering all or most of the regional states. Integration projects, such as the Eurasian Economic Union (EAEU) and the Customs Union promoted by the Russian Federation are actively developing, both politically and economically. China relies on the Silk Road Economic Belt (SREB), which officially embraces most of the countries of Asia and Europe. Japan, for its part, has come up with a comprehensive strategy of Partnership for Quality Infrastructure, proposed by Prime Minister Shinzo Abe.

In terms of the development of transcontinental transport corridors, Russia is in a favorable position. However, its transit potential for the development of trade between Europe and Asia is currently used at less than five percent of its capacity. Meanwhile, a sizeable share of infrastructure facilities in Eurasia (railways and highways) is oriented to Russia and which, according to RBC, can twice shorten the time of cargo traffic between Asia and Europe. In addition, Russia’s geographical position provides unique opportunities for optimizing existing transport corridors and creating new ones, in both meridional and latitudinal directions. And also for creating temporary and permanent corridors through a combination of rail, road and sea transport infrastructure. “The most promising transport corridors are the Northern Sea Route, the Trans-Siberian Railway and the North-South Corridor.”

Most recently, the Russian authorities finally approved plans for building a highway connecting China with Europe and running across Kazakhstan and Belarus. It is planned that hundreds of millions of rubles invested in this project within the next six years will help modernize and expand the transport routes that run through the territory of Russia and a significant part of the former Soviet Union, including the Arctic region. The highway will prove the viability of a project to successfully pair the Eurasian integration formats promoted by Moscow and Beijing with Russia’s national transport infrastructure modernization project. At the end of October, the head of Russian Railways, Oleg Belozerov, confirmed many leading German companies’ interest in participating in the construction of the St. Petersburg – Moscow – Nizhny Novgorod high-speed railway. Road and rail corridors can become the most cost-effective way of cargo shipment across Eurasia, replacing air transport, and in many cases, existing sea routes. According to the German newspaper Heise, Russia could  become the center of the “Eurasian economic space stretching from Portugal to China” and consolidate it, “which can lead to a redistribution of power and to the isolation… of America.”

Another promising long-term strategic project is the 7,200 km North-South International Transport Corridor (INSTC) to combine road and rail routes.

“It will connect the Indian Ocean and the Persian Gulf with the Caspian Sea through Iran, with subsequent access to Northern Europe via Russia.” At the end of 2018, it became known that Russia had released the first tranches of a credit line to finance INSTC. When speaking at the First Caspian Economic Forum in Turkmenistan, held in August, 2019, Prime Minister Dmitry Medvedev called INSTC “a promising area” that reduces by 2.5-fold the time of cargo delivery “from Europe via the Caspian to the Near and Middle East and further on to South Asia and back.” Russia’s long-term partnership with India, (which is the world’s fifth economy), and also with Iran and Azerbaijan, will play an important role here.

On the latitudinal plane, Russia offers potential partners a project for the development of the Northern Sea Route (NSR). In the medium- and long-term period, commercial shipping along the NSR looks more and more attractive, because in some cases northern routes are between 1.5 and 2 times shorter than the main ones. The Chinese are already well aware of this, as they are promoting the concept of connecting the Polar Silk Road, which is designed to provide the People’s Republic with natural resources and alternative shipping routes for export, which, by 2020 will account for 5 to 15 percent of the country’s foreign trade volume, with the Russian NSR. Chinese investors have bought into a number of large industrial and infrastructure projects implemented by Russia beyond the Arctic Circle, including Yamal-LNG. According to Frankfurter Allgemeine Zeitung, “China’s ambitions in the region do not seem to clash with Moscow’s yet.”

Moscow and Beijing are working out the experience of their strategic cooperation primarily when it comes to the economic convergence of the EAEU and the SREB. In June 2018, the two sides completed the Joint Feasible Studies on Completing the Eurasian Economic Partnership Agreement, which envisages liberalization of trade in services and investments, cooperation in the field of electronic commerce, in matters of competition, protection of intellectual property, etc. It is proposed to open the Agreement to all interested states. On October 25, 2019, the Agreement on trade and economic cooperation between the EAEU and the PRC entered into force. Speaking at the plenary session of the 11th investment forum “Russia is Calling!” on November 20 of this year, President Vladimir Putin noted that Moscow and Beijing were working to establish a free trade zone (FTA).

As noted by the Russian Council on Foreign Affairs, this is not just about the integration of transport routes. “The goal is to link production and markets at every stage,” as well as creating an “institutional base” in combination with modernization of infrastructure and development of production “within its framework”. So, the planned construction of a high-speed fiber-optic communication line between Helsinki and Tokyo, which is being handled by the Russian PJSC Megafon and the Finnish Cinia Oy Company, would serve as an example of the digital integration of Europe and Asia.  Megafon’s Strategy and Business Development Director Alexander Sobolev noted that “the Russian Arctic offers the shortest physically possible route between Northern Europe and Asia.”

Russia is ready to expand ties with the European Union in other areas too. Indeed, President Putin came up with a long-term plan to create a Russia-EU free trade zone as early as in 2010. Russia continues to propose moving from competition between projects of “European and Eurasian integration” to their integration. To fully participate in Eurasian integration, the EU first needs to figure out the role it is going to play amid the current erosion of transatlantic relations. And secondly, how it intends to confront the growing threat of internal division. As for Russia, in spring 2019, it reiterated through its Foreign Minister Sergey Lavrov its sustained interest in seeing the EU member-states join the Comprehensive Eurasian Partnership.

As we all know from history, the logic of developing mutually beneficial economic ties can help overcome the most deep-seated political and diplomatic contradictions. In the case of Eurasia, it looks like the processes of expanding trade and other economic relations are able to smooth over many geopolitical differences, and even completely resolve some of the existing political conflicts. At the same time, attempts to ignore Russia, or to minimize its role in continental integration, are extremely counterproductive.

From our partner International Affairs

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Honorouble Justice Petric: Opening the Vienna Process conference on Int Women’s Day

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It is a great honour for me to have the opportunity to address you today at an International conference on behalf of the organizers – International Institute for Middle East and Balkan Studies (IFIMES), fastest developing European media platform – Modern Diplomacy and other two co-organisers, not present today. I convey to you their all-hearted greetings with the wish that the conference be fruitful and successful.

I also take this opportunity to thank Ambassador Emil Brix, Director of the Vienna School of International Studies for collaboration.

I wish wisdom and foresightedness to today’s conference entitled “Europe – Future Neighbourhood: Disruptions, Recalibration, Continuity”. The topic of today’s event – second in the newly established Vienna Process – is important, not only for Europe but for the whole world. Given that our institute has a Special consultative status with ECOSOC in the UN, and that my country is soon to take up the EU Presidency, our obligation is even greater to deal with such topics.

Excellences and friends,

Today we mark an important historic date; International Women’s Day. I am truly delighted and honoured that we have so many ladies among the moderators, panellists, partners and viewers. Our daughters, sister and mothers are not only nicer, but are the brighter half of the mankind, too. Happy and organically healthy International Women’s Day to each and everyone of you!

And now, before closing, let me express our appreciation that our four partners are again with us: Diplomatic Academy Vienna, Modern Diplomacy, Culture of Peace and European Perspectives. Among the academia, media and other associated partners from 4 continents, we are indeed honoured to partner with the important Specialised Agency of the United Nations – UNIDO, as well as with the world’s second largest multilateral system after the UN, that of the OIC on this event.

This, second consecutive, gathering of the Vienna Process in its birth place – capital of Austria, is the best basis for our next step: conferences in Geneva in May and in Barcelona in September this year.  

Special thanks to our key-notes; Commissioner Várhelyi, State Presidents Vella of Malta and Meta of Albania, as well as Excellency Zannier – our newly apointed Director for Euro-Med for chairing the important, first Panel, on cross-Med cooperation, Miss Mazlic of Al Jazeera and Ms. Harvey of Ban Ki-moon Center for charing other two highly topical panels.

Due appreciation goes to our fellows in Brussels, London, New York, Ottawa, Athens, Geneva, Paris and in Vienna for making this event and our Process possible.   

Finally, a sincere thanks to all our panellists today. There valuable exchanges will be mutually beneficial to all of us gathering today for the battement of our common future and security in Europe and beyond.

Thank you.

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New constructivism needed towards Europe’s East

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Authors: Eugene Matos de Lara and Audrey Beaulieu

On the historic date of 0March 08th – International Women’s Day, a large number of international affairs specialists gathered for the second consecutive summit in Vienna, Austria. This leg of the Vienna Process event titled: “Europe – Future – Neighbourhood at 75: Disruptions Recalibration Continuity”. The conference, jointly organized by four different entities (the International Institute for Middle East and Balkan Studies IFIMES, Media Platform Modern Diplomacy, Scientific Journal European Perspectives, and Action Platform Culture for Peace) with the support of the Diplomatic Academy of Vienna, was aimed at discussing the future of Europe and its neighbourhood in the wake of its old and new challenges.

This highly anticipated conference gathered over twenty high ranking speakers from three continents, and the viewers from Australia to Canada and from Chile to Far East. The day was filled by three panels focusing on the rethinking and revisiting Europe and its three equally important neighbourhoods: Euro-Med, Eastern and trans-Atlantic (or as the Romano Prodi’s EU Commission coined it back in 2000s – “from Morocco to Russia – everything but the institutions”); the socio-political and economic greening; as well as the legacy of WWII, Nuremberg Trials, the European Human Rights Charter and their relevance in the 21st century,

The event was probably the largest gathering since the beginning of 2021 for this part of Europe.

Along with the two acting State Presidents, the event was endorsed by the keynote of the EU Commissioner for European Neighbourhood and Enlargement, Excellency Olivér Várhelyi. The following lines are short transcript of what he has said opening the Vienna Process event:

The COVID-19 (C-19) has brought numerous challenges to the table in terms of cooperation, adaptation but, mostly, resilience. As the crisis may be considered as a breaking point by some, European Commissioner for Neighborhood and Enlargement, Excellency Várhelyi, insisted on the opportunity emerging from it for the European Union (EU) and Eastern Europe to reinforce their collaboration to build a more stable area of “shared democracy, prosperity, stability and peace”. 

Throughout the crisis, the European Union has been a key actor for Eastern Europe and its response to the virus, providing the region efficient economic and physical support, which have allowed thousands of lives to be saved. However, despite the necessity of this help, the European Union has more significant projects and ambitions regarding its relation with Eastern Europe states. 

In 2020, the EU issued a proposal on the Eastern partnership mostly focused on resilience which unfolds in five pillars. The first pillar is addressed to the reinforcement of investments in the economy and connectivity. It, notably, aims to “further enhance support to small and medium enterprises”. These are EU’s backbone, accounting for over 90% of the business activities; the EU hosts 24 million small businesses. This economic machine together generates more than half of the EU’s GDP. The EU has great interest to keep them afloat during the C-19 crisis. 

The EU parliament in December 2020 reported on the need for the Commission to reevaluate their support to these medium and small enterprises. They need more resources to overcome bureaucratic requirements that will exponentially burden their ability to thrive during and past C-19. Small businesses are recognized as indispensable to achieve innovative and sustainable goals. An example of this are initiatives to incentivize companies to take up e-commerce, yet only 17% of the small businesses in the EU have digitized commerce.  

The second pillar is related to investments in the green transition. While Western Europe has demonstrated a positive approachregarding Paris Agreement goals, Eastern Europe seemed more reluctant. This attitude couldbeexplained by theirstaple-basedeconomy and by more significant matters on their plate, such as corruption and the reinforcement of the rule of law. Thus, the second pillar bridges with the first pillar since environmental issues should influence the investments and the development of small and medium enterprises and the development of the economic sphere. 

The third pillar is about investing in digital transformation. The digital world iscontinuallyevolving, and states need to adapt to this reality, especially considering it could be a pivotal instrument to get the economy back on track. The pandemic has been a great opportunity for countries to develop their digital sector. Enterprises have had to beingenious and proactive in adapting their activities to this new reality, which could be a game-changer for the future. Countries will have to grasp this opportunity and make the best out of it. Investing in technologies could also be profitable to other goals that have been set, such as investments that need to be done in the reinforcement of the rule of law, credible justice reforms and efficient public administration (fourth pillar). Indeed, digitization of information combined with robust cybersecurity platforms is the key to more opened and more transparent administrations. In parallel, other strategie swill need to beelaborated in order to enhance respect of the rule of law and reachdemocratic standards, in fact, a key point to the enlargement of the EU.

Finally, the fifth pillar is about investing in fair and inclusive societies. Eastern Europe countries are real mosaics in terms of ethnicities, religions and languages. Inequalities and social cleavages between these groups are still omnipresent in most Eastern Europe societies, and they need to be addressed to build a more united Europe. Several Eastern European states have elevated policiesthat bridge social ethical and cultural differences in the first place both in their national and EU integration political agenda. Indeed, bridging social gaps isa fundamental action in managing differences and for the upbringing of a healthy democracy.

The next reunion regarding the partnership will take place next fall and focus on three critical matters: recovery, resilience and reform. Although the COVID-19 crisis cannot forever guide interstates initiatives, its consequences have forced the world to adapt to several new realities. Consequently, European countries will need strong measures to recover, and those should be translated by measures addressing the creation of employment and economic growth to stay competitive in international markets. As the EU Commissioner Várhely imentioned, “socio-economic recovery is the absolute priority”, so we should also be expecting opportunities to reform social and political norms to face not only new issues but also trends that were very present in the past that are now simply accelerating.

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What to Do with Extraterritorial Sanctions? EU Responses

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One of the important decisions of the new US administration was its revision of the sanctions policy inherited from President Donald Trump. The “toxic” assets of the departed team include deterioriated relations with the European Union. The divisions between Washington and Brussels have existed since long before Trump’s arrival in the White House. The EU categorically does not accept US extraterritorial sanctions. Back in 1996, the EU Council approved the so-called “Blocking Statute”, designed to protect European businesses from restrictive US measures targeting Cuba, Iran and Libya. For a long time, Washington avoided aggravating relations with the EU, although European companies were subject to hefty fines for violating US sanctions regimes.

The situation deteriorated significantly during the Trump presidency. At least three events served as a cold shower for the EU with respect to the bloc’s relationship with the US. The first was the unilateral withdrawal of the United States from the JCPOA—the “Iranian nuclear deal”. Trump renewed American restrictions on Iran in full, and then significantly expanded them. His demarche forced dozens of large companies from the EU to leave Iran; they were threated by the American authorities with fines and other coercive measures. Brussels was powerless to convince Washington to return to the JCPOA. The EU authorities were also unable to offer their businesses guarantees of reliable protection against punitive measures being taken by the US Treasury and other departments. The second event was Washington’s powerful attack on the Nord Stream 2 pipeline project. Trump has openly opposed the pipeline, although the Obama administration was also against the pipeline. Congress has passed two sanctions laws targeting Russian pipeline projects. The US Congress and the State Department directly warned European business about the threat of sanctions for participating in the project. In addition to Iran and Russia, concern in the EU was also caused by the aggravation of US-Chinese tensions. Brussels distanced itself from Trump’s cavalry attack on China. So far, US restrictions against “Chinese communist military companies”, telecoms and officials have minimally affected the EU. However, Washington aggressively pushed its allies to oust Chinese technology companies. It cannot be ruled out that in the future, US foreign policy towards China will become a problem for Brussels.

For the EU, all these events have become a reason to think about protection from extraterritorial US sanctions. The work on them was carried out by both European expert centres and the European Commission. Currently, we can talk about the formation of a number of strategic goals, the achievement of which should allow the European Union to increase its stability in relation to extraterritorial sanctions of the United States and other countries.

Such goals include the following:

Strengthening the role of the euro in international settlements. Already today, the euro ranks second after the dollar in international payments and reserves. However, unlike the United States, the EU does not use this advantage for political purposes. Many transactions between European businesses and their foreign partners are carried out in US dollars, which makes them more vulnerable to subsequent coercive measures. Calculations in euros could reduce the risk of transactions with those partners against whom the sanctions of the United States or other countries are in effect, but the sanctions of the UN Security Council or the EU itself do not apply. Here the EU authorities have laid serious groundwork and have a good chance of achieving their goal.

1.Creation of payment mechanisms, which cannot be stopped from the outside. INSTEX, a payment channel for humanitarian deals with Iran, is often cited as an example of such mechanisms. In 2020, the first transactions were made. However, success in this area raises questions. INSTEX has been widely advertised by EU politicians, but initial expectations were too high. The mechanism has not yet justified itself, even for humanitarian purposes. The Treasury Department can impose blocking sanctions against INSTEX at any time if it considers that the mechanism is being used to deliberately circumvent US restrictions against Iran. Switzerland’s SHTA mechanism, which is used for humanitarian deals with Iran, looks much better. It was created jointly with the Americans and it should not have any problems with functionality. However, regarding payment mechanisms in the EU, there are not only humanitarian transactions. There’s also the matter of plans to create secure transaction mechanisms in the trade of energy or raw materials; the question of what prospects these have for implementation remains.

2.Ensuring the possibility of unhindered settlements and access to other services for individuals and legal entities in the EU that have come under extraterritorial sanctions. In other words, we are talking about the fact that a citizen or a company from the EU, which fell, for example, under the blocking sanctions of the US Treasury, could make payments within the EU. Now European banks will simply refuse such transactions, and the courts are likely to side with them. In fact, the European Union wants to create infrastructure that has already been created, for example, in Russia. Moscow was considering the establishment of a national payment system even before the large-scale sanctions of 2014. Despite the limited weight of Russia in the global financial system, the country has its own sovereign payment system, which allows its own citizens to carry out transactions on its own territory.

3.Updating the 1996 Blocking Statute. In particular, we are talking about the development of an instrument of compensation for companies that have suffered from extraterritorial sanctions.

4.Creation of information databases in the interests of European companies under the risks of extraterritorial sanctions, as well as the provision of systematic legal assistance to companies that have come under foreign restrictions. In particular, we are talking about assisting European companies and citizens of the EU countries in defending their interests in US courts, as well as using other legal mechanisms, for example, within the WTO.

If necessary—balancing the extraterritorial measures of the United States or other countries with restrictive counter-measures.

However, the EU sanctions agenda is far from limited to the threat of extraterritorial sanctions. Ultimately, the United States is an ally and partner of the EU, which means that the opportunities for smoothing out crisis situations remain broad. Collaboration at the agency level is also highlighted as a recommendation. Moreover, after Trump’s departure, the United States may be more attentive to the concerns of the European Union.

The main priority remains the development of the EU’s own sanctions policy. Here many problems and tasks arise. The main ones include the low speed of decision-making and poor coordination in the implementation of sanctions. The centralisation of sanctions mechanisms in the hands of Brussels is becoming an important task for the European Commission.

The article is published as part of the Valdai Club’s Think Tank project, continuing the collaboration between Valdai and Observer Research Foundation (New Delhi).

From our partner RIAC

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