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Flattening the Eastern Hemisphere through BRI: The Geopolitics of Capitalism

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The Pivot of Asia: Conceptualizing the Peaceful Rise

The Belt and Road Initiative is a trans-continental multibillion-dollar infrastructural network linking China to what Bernard Cohen called the ‘Eurasian Continent Realm’ and the ‘Atlantic-Pacific Maritime Realm’. This economic expansion is diametrically opposed to the US hegemonic expansion. China with its economic and military development claims a peaceful rise which is non-aggressive and multilateral in its nature. Its policy of peaceful rise and development conveys to the international and the regional community, the willingness to endorse other state’s sovereignty, peace, and stability.

The BRI is considered as the ‘Project of the Century’ encompassing around 70 states, stretching around 3 continents, and affecting 60% of the world population. It is a global development agenda on the part of China to address the infrastructural gap, capacity gap, and technological gap. It is aimed at re-routing the inter-continental trade through China as a pivot. This economic saturation of China is being materialized by two of its mega-projects as indicated in figure. 1.

Overland SilkRoute Economic Belt (SREB): Consisting of six corridors for the trade of goods and services in and out of China.

Maritime Silk Route (MSR): Consisting of a chain of seaports also known as the string of pearls to the guard shipping routes.

These two projects of the BRI indicate the scope and size of its socio-economic implications for the region and the security-based ramifications for the international community.

The BRI Development Agenda: From Globalism to Regionalism

The process of globalism has been effective for the developed world however, the benefits of development and modernization have not trickled down equally in the peripheral regions of the world. That is why the world is witnessing the rise of new regionalism based on a multidimensional approach to deal with the global transformations which negatively affect the political economy of the developing and underdeveloped states. And this system is very aptly backed by China. With a history of the tributary system, China can integrate the regional states is a system of loose diplomatic relations based on shared benefits, mutual trade agreements, and interconnectivity.

The old tributary system of China is in a state of revival through the BRI. The cardinal principles of these two asynchronous simultaneous developments are indicated in figure.2

This system of new regionalism holds China as its central state through a spherical worldview rather than a vertical view purported by the US. The prospects of this system for the socio-economic prosperity of the eastern hemisphere are imminent. It is the reincarnation of the Flying Geese Model of development utilized in the development and modernization of the East Asian economies. According to this mode, wages increase vis-à-vis economic development causing industries to lose their comparative advantage. And China appears to be mitigating this through ‘going out’ for cheap labor. This new system shall reshape the following spheres which were previously dominated by the entrenched center-periphery discrepancies of West imposed structural imperialism.

Domain of InfluenceProspects of BRI-led Regionalism
SocialThe BRI led regionalism can increase the societal viability through redistribution of wealth and sharing of technology The investment pattern can show a shift from security funding to a development-based expenditure It will revamp the employment opportunities in the region and the net incomes will rise to threefold to fourfold Would lead to cross-cultural understanding in solving collective action problems within the regionThe infrastructural development will reinvigorate the interest of the regional community on the issues of environment and sustainability
EconomicConflict prevention through comparative advantage-based development A move away from dependency culture systematically induced and maintained by the international financial regions of the World Bank and International Monetary FirmWould enhance the collective bargaining leverage of the developing and the underdeveloped statesWould ease and emancipate the terms of trade which have mostly been disadvantageous to the marginalized statesEconomic development strategies and projects will become stable, consistent, and acceptable due to regional continuities
SecurityThe regional security regimes can be consolidated Collective anti-terrorism and counterterrorism strategies can be devised and implemented Regional monitoring bodies can provide effective security input to the already exiting international organizations like the FATF, UN, etc.

The shift from the globalism to regionalism offered by China is both comprehensive in its nature and appealing to the states of the Eurasian region and even extending to other regions including Africa. However, a study by Brantley Womack uses a rational choice rather than a cognitive psychological approach to understand the Chinese nuanced tributary system in form of the BRI. To him, not the Confucian morality that dictates the Chinese foreign policy of win-win approach and peaceful rise but the security dilemma which leads to a relative accommodation of the underdeveloped states to avoid the coming of the new anarchy.

Reshaping the Regional Value Chains: The SRM Mechanism and Spatial Fixes

The entire functioning of the BRI which targets the socio-economic advancement of the Eastern hemisphere is based on Surplus Recycling Mechanism (SRM) and Spatial Fix Mechanism. The underlying logic of the BRI and its investment initiatives is indicated in these two processes. These are targeted for three major purposes of growing industrial output, increasing labor employment, and accumulating financial capital. Though highly effective, both the BRI mechanisms for infrastructural development indicate intricate fault lines which can roll-back the major socio-economic gains of the mega-project by raising international skepticism. They indicate a move towards the geopolitics of the infrastructural development with little regard to the regional states. This criticism has been echoing in the US and the regional skepticism is also on the rise. So, the adverse socio-economic ramifications of the BRI based on the fault-lines of these two mechanisms are given below and there is a need that China becomes more transparent about the strategic connotations underlying its benign investment initiatives.

Some of the adverse impacts these mechanisms of the BRI could have on the socio-economic aspects of the region of the Eastern hemisphere are stated below:

Economic Ramifications

  • It will wage a new war of capital accumulation between the Eastern hemisphere led by China and the Western hemisphere led by the US. This dichotomous rise will affect the marginalized states of the region drastically as also indicated by the US-China trade war where the financial market came on the verge of collapse.
    • The peripheral states of the region might not wholly benefit from the development as it might appear as a way of China’s debt-trap diplomacy and the states might turn assertive in refuting China’s role in the region.
    • The flattening of the region based on capital accumulation needs bringing down barriers which can lead to a contagion effect even the Chinese economy falters.
    • The policy gaps in the inter-regional network can only work through a highly transparent, robust, and monitored system, which lacks inmost states of the region.

Social Ramifications:

  • The regional contagion can also spread pandemic conditions as observed during the coronavirus crisis.
    • Unlike the South East Asian region, there is no cultural emulation in other parts of the Eastern hemisphere and China’s cultural assertiveness might raise national and cultural opposition to China’s enhancing role in the region.
    • The eastern hemisphere might just end up being a captive market if the productive capacities are not utilized in the peripheral region. This will end up in neo-colonialism the global inequality will take nuanced shape but shall persist.
    • The intermingling of the workings with weak governance structures can lead to gender-disparity, sexual-based violence which can only end with the grassroot level reforms are set as a precondition for development.

These impacts of BRI can drastically revamp the social mobility of the citizens, increase interconnectivity and raise inter-cultural tolerance however, the downside of it can have major blowbacks to the projects as a whole and to the region it covers. Thus, it is high time that China addresses such issues on mutual understanding and cooperation to mitigate the negative socio-economic ramifications.

Regional and Extra-regional Dynamics:

All the infrastructural development projects for decades are accompanied by geostrategic and geopolitical motives. Such developments in a highly politicized world are determined by geopolitical constraints. The BRI is no different, it offers avenues for advancement, but it goes in hand with China’s geopolitical and geostrategic goals of ensuring capital development and security in a volatile political environment. Hence, the mega project of BRI is under intense scrutiny from both the states within the BRI and those outside of it.

Intra-regional discrepancies

The BRI project takes around 82% of the total gain and a big chunk of which goes to the high-income states of the region including China and East Asian states. This trend might increase inter-regional discrepancies with uneven globalization with some benefiting more and others remaining mostly stagnant. These unequal benefits will lead to negative spillovers feeding inter-regional skepticism.

Extra-regional refutations

The impact of the BRI led flattening of the region holds negative consequences if the links with the non-BRI states are not properly maintained. The internal trade of the region shall show consumer cost reduction, lowered trade barriers, and trade facilitation. However, the non-BRI region will face increased trade diversion which might become the reason they rebut the BRI led development.

Conclusion

The BRI project is a new mode of regionalism with a different means to the geopolitical ends. It identifies the flattening process to be a derivative of the geopolitics of globalization and capitalism. Though the socio-economic impacts of the project of the century are vast and all-encompassing yet the risks like debt sustainability and governance can adversely lead the project in another dimension if not addressed through a system of communication, coordination, and transparency. Though the menaces of capitalism cannot be completely mitigated due to its structurally enmeshed nature. But the BRI shows the alternative mode of its practice based on authoritarian capitalism of China. The world awaits what benefits it will reap. How equitable will the ‘equitable globalization’ be and how peaceful will the ‘peaceful rise’ be?

Student of Politics and International Relations and a Researcher associated with the Center for Global and Strategic Studies. Areas of Interest: International Political Economy, South Asian Politics, Nationalism and Populism.

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Economy

Role of WTO in Regularization of International Trade

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International trade is one of the main features of the globalized world and global economy. There it needs also a well-organized institutional mechanism to regulate it. World Trade Organization is an international organization established in 1995, whose main objective is to facilitate trade relations among its member countries for their mutual benefits. Currently 164 states are its members. The activities and works of WTO are performing by a Secretariate of about 700 staff located in Geneva, Switzerland, led by the Director General. English, Spanish and French are the official languages of World Trade Organization. The annual budget of WTO is about 180 million dollars.

Since its creation it is playing an important role in the regularization of international trade. It offers a forum and facilitation for negotiating trade agreements in order to reduce the barriers in the way of smooth international trade among member countries. Thus, the role of this organization is playing very important role in the regularization of international trade which is contributing to economic development and growth of member countries in this globalized world. The World Trade Organization also offers an institutional structure and legal framework for the execution and supervising of the international trade related agreements which are very helpful in regularization of international trade. It also settles disputes, disagreements and conflicts occurring during the interpretation and execution of the components of the international agreements related to international trade. During the past 60 years, the World Trade Organization and its predecessor organization the GATT (General Agreement on Tariffs and Trade) have assisted to establish a solid and flourishing global trade system, by this means helping to extraordinary international economic development.

The WTO is regularizing international trade more specifically through negotiating the decrease and finally elimination of barriers to trade among countries and try to make smoothly the working of the rules and principles governing the international trade e.g. tariffs, subsidies, product standards, and antidumping etc. It also administers and monitor the execution of the World Trade Organization’s determined guidelines for trade in services, goods as well as intellectual property rights related to international trade. It also monitors and review the member states international trade policies as well as make sure the transparency in bilateral and multilateral trade agreements. Likewise, it also solves disputes arising among members related to trade relations or related to the explanation of the provisions of the trade agreements. It also offers services to the governments of the developing states in the fields of capacity building of officers in matters related to international trade. WTO is also doing research on matters related to international trade and its related issues and collect data in order to find better solutions of the problems and obstacles in regularization of international trade. It is also trying to bring into the organization the 29 states who are yet not members of the organization aimed to assist and regulate their international trade according to the international standard.

One of the main barriers in way to international trade is disputes between the engaged parties. Since long this was a very critical issue limiting the trade among states. The WTO is playing very good and instrumental role in the solution of trade related disputes. Since the establishment of WTO in 1995 over 400 disputes related to trade have been brought by its member countries to WTO. The increasing number of bringing trade related disputes to WTO is showing the faith of member countries in the organization. Close trade relations have massive advantages but also create disputes and disagreements. With the increase of international trade, the possibility of its related disputes also increases. Previously, such problems and disagreements have caused in severe disputes. But at present, in the era of WTO the international trade related disputes are decreased because the member states have now dispute’s solution platform, and they are turning to the World Trade Organization to solve their trade related disagreements and disputes. Before the World War Second, there was not any such international organization or forum which could facilitate international trade and its related affairs, and there was also noany legal framework for solving trade related disputes among states of the word.

One of The World Trade Organization’s guiding principal is to continue the open boundaries for trade, ensure the Most Favoured Nation (MFN) status among member countries and stop discriminatory behaviour of members towards other member(s) and bring transparency in doing international trade. It is also assisting counties to open their indigenous markets to global trade, with justified exemptions or with suitable flexibilities, promote and support to durable growth, reduce trade deficit, decrease poverty, and promote economic stability. It is also working to integrate different international trade policies and principles. The member countries of WTO are also under the compulsion to bring their trade related disputes to this organization and avoid unilateral actions. WTO is the central pillar of the current international trade system.

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Russia and France to strengthen economic cooperation

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On April 29, Russian President Vladimir Putin held videoconference with leaders of several French companies-members of the Franco-Russian Chamber of Commerce and Industry (CCI France-Russia) to discuss some aspects of Russian-French trade, economic and investment cooperation, including the implementation of large joint projects as well as the prospects for collaborative work.

Putin noted that the Economic Council of the Franco-Russian Chamber of Commerce and Industry is still operational in spite of difficulties, and the late April meeting was the fourth time since 2016. From the historical records, France has been and remains a key economic partner for Russia, holding a high but not sufficiently high, 6th place among EU countries in the amount of accumulated investment in the Russian economy and 5th place in the volume of trade.

Despite a certain decline in mutual trade in 2020 (it went down by 14 percent compared to 2019) the ultimate figure is quite acceptable at $13 billion. French investment in Russia is hovering around $17 billion, while Russian investment in France is $3 billion.

Over 500 companies with French capital are operating in various sectors of the Russian economy. French business features especially prominently in the Russian fuel and energy complex, automobile manufacturing and, of course, the food industry. “It could have been more if the French regulatory and state authorities treated Russian businesses as Russia is treating French businesses. We appreciate that in a difficult economic environment, French companies operating in Russia have not reduced their activity,” Putin pointed out.

The Russian Government established the Foreign Investment Advisory Council, which includes six French companies. Further, there is an opportunity to discuss specific issues related to the economic and investment climate in Russia, and that opportunity is traditionally provided at the St Petersburg International Economic Forum, which will be held on June 2-5.

French companies are involved in the implementation of globally famous landmark projects, such as the construction of the Yamal LNG and Arctic LNG 2 facilities and the Nord Stream 2 gas pipeline project. This, Putin regrettably said “We are aware of and regret the amount of political speculation concerning the latter. I would like to point out once again that it is a purely economic project, it has nothing to do with present-day political considerations.”

Russia intends to increase assistance to the development of science and technology. Funds will be directed primarily to innovation sectors such as pharmaceuticals and biotechnology, nuclear and renewable energy, and the utilisation of carbon emissions.

“We are interested in involving foreign companies that would like to invest in Russia and in projects we consider high priority. In order to do this, we will continue to use preferential investment regimes and execute special investment contracts, as you know. A lot of French companies successfully use these tools on the Russian market. For example, more than one third of 45 special investment contracts have been signed with European, including French, partners,” he explained during the meeting.

He also mentioned continuous efforts to attract foreign companies to localise their production to state purchases and to implementing the National Development Projects, as well as existing opportunities for French businesses in special economic zones. Today there are 38 such zones created throughout the Russian Federation.

Russia pays particular attention to attracting high-quality foreign specialists. Their employment is being fast-tracked, and their families can now obtain indefinite residence permits. There is a plan to launch a special programme of ‘golden visas’ whereby to issue a residence permit in exchange for investment in the real economy, a practice is used in many other countries.

Taking his turn, Co-Chair of the CCI France-Russian Economic Council, Gennady Timchenko, noted that the pandemic has changed the world, people and business, and that French companies in Russia are responsible employers and socially responsible members of Russian society.

Despite the crisis and the geopolitical situation, a number of French companies have launched production in 2020–2021. Companies such as Saint-Gobain and Danone have renewed their investments. French companies have increased their export of products manufactured in Russia; they are investing in priority sectors of the Russian economy. For example, this year the French company Lidea is launching a plant called Tanais to produce seeds. Russia is dependent on the import of 30 to 60 percent of these seeds, according to various estimates.

Despite the current geopolitical conditions and information field, there are important signals for French business and the Russian side to strengthen economic cooperation, attract investment, and create partnerships on a new mutually beneficial basis.

Co-Chair of the CCI France-Russian Economic Council, Patrick Pouyanne, noted that the meeting has become an excellent tradition, the presence of 17 CEOs and deputy CEOs of French companies shows the importance of these joint meetings, and further reflect the deep interest of French business in Russia.

In addition, Patrick Pouyanne further offered some insights into Russia-French cooperation. By 2020, twenty members of the Economic Council invested a total of 1.65 trillion rubles, supporting 170,000 jobs. These companies have operated in Russia for decades and continue investing in the Russian economy despite the sanctions and the epidemic. These companies help France maintain its status as the second largest investor in Russia. In 2020, France invested over $1 billion in Russia despite the economic difficulties caused by the pandemic.

Concluding his remarks, Patrick Pouyanne stressed that the economic operators believe everyone will benefit if Russia, France and all of Europe are not divided or isolated. This is the challenge today. Indeed, diplomacy has to continue playing an important role in settling differences, and businesses are convinced that meetings like this create bridges between Russia and France to strengthen investment and economic cooperation.

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Iran’s Economic Diplomacy through CPEC

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U.S. sanctions against Iran are characterized by strategic flexibility and adaptability. They are designed to have maximum negative and deterrent effect on Iran’s military, economic and diplomatic growth.  Tehran is exploring ways to counter these sanctions most probably by economic engagements with the regional countries. Iran’s perception of CPEC lends some credit to this argument.

Since the initiation of CPEC, the regional perception has already started to change as many countries have begun to see the project within the domain of their national interests. Iran has expressed its long-standing interests to join the CPEC viewing the corridor as a cornerstone for the country economic prosperity and regional connectivity.

Iran solely focuses more on the economic aspect of CPEC. Regional connectivity through CPEC can boost Iran’s stake in the global output. In 2015, on the sidelines of the United Nation General Assembly (UNGA) address, Iran’s President Hassan Rouhani expressed a desire to be the part of CPEC. He emphasized the importance of connectivity projects for the region. Iran’s initial reluctance to CPEC was transformative in nature and heavily came down with the unfolding of new geoeconomic realities.

Iran’s inclination for the CPEC project even becomes the part of official discourse. Iran’s ambassador to Pakistan Mehdi Monardost showed keen interest to participate in the CPEC and named it as one of the greatest projects in the history of the region. He envisioned a great boost to bilateral trade between Pakistan and Iran under the framework of this regional connectivity corridor. In 2017, Iran’s economy minister Ali Tayyebnia participated in the New Silk Road summit. He praised the New Silk Road concept for regional connectivity.

Iran’s economy is already clutched due to the international sanctions invoked by the Trump administration after pulling back from the Iranian Nuclear Agreement formally known as the Joint Comprehensive Plan of Action (JCPOA) in May 2018.Downplaying the perception of geopolitical competition between Gwadar and Chabahar, Iran higher officials negated the impression of competition falsely exaggerated by International and India media and insisted on the complementary nature of two ports.

In 2016,Iran and India signed an agreement for the development of Chabahar port and it was view as the counterweight to Gwadar port. Without explicitly mentioning India by name, Iran’s ambassador to Pakistan Syed Mohammad Ali Hoseeni defended the decision of his country to drop out India from the project in Chabahar by stating “when some foreign governments found reluctant in their relations with Iran and need other’s permission for even their normal interactions, for sure they would not be capable of planning and implementing such long-term cooperation contracts”.

The same rhetoric appears in the views of Chinese leadership. Brushing aside the allegations of Iran’s perceived resistance to CPEC and Gwadar port, Iran’s foreign minister Jawad Zarif dismissed the allegations and supported growth and development anywhere in Pakistan.

Chabahar is often seen as a rival to Gwadar port. However, Indian discourse has got an altogether different lease of life in the media compared to the Iranian one. Iran’s ambassador to Pakistan Mehdi honardoost utterly disregarded the narrative of competition of two ports. He invited both Pakistan and China to closely work in Chabahar port.

China considers Iran as an important country for its energy security, BRI and in the larger context of global competition with USA. China dual role both in Gwadar and Chabahar, according to the analysts, will likely reduce the impression of competition between two ports. Chinese stance on the Chabahar port also complement the Iran’s position on Chabahar. Chinese premier Le Keqiang rejected the notion that Chabahar port is in competition with the Gwadar. He is convinced with the idea that both ports have the potential to complement each other.

Tehran global status goes upward with the emerging financial and diplomatic backing of China. Beijing openly backs Tehran in the face of U.S. might.  On March 26, 2021, China and Iran signed an agreement expressing a desire to increase cooperation and trade relations over the next 25 years. Wang Yi, Chinese foreign minister, said that USA should rescind the sanctions against Iran. The 25 years deal is considered as part of the Belt and Road Initiative (BRI). According to Tehran Times analysts Peyman Hassani and Ammar Hossein Arabpour, this deal is considered a relief to Iran’s gas and oil sector against USA sanctions.

USA sanctions forcefully bar the countries from purchasing oil from Iran. The US Department of Defense’s report notes that China Pakistan Economic Corridor (CPEC) focus on pipelines and port construction. Pakistan’s reluctance to follow the Iran-Pakistan gas pipeline which is stalled due to American pressure can be reviewed, too much sigh of relief for Tehran’s energy export.

Triangular relations of China, Pakistan and Iran will likely put Iran on the strong footing. Richard Caplan, a professor of international relations at the university of Oxford, notes, “The agreement which predates Biden, undercuts U.S. efforts to isolate Iran economically and, to some extent, diplomatically.

Diplomatic and economic isolation remain at the center of Iran’s foreign policy under the severe U.S. sanctions. Iran’s perceptions of CPEC revolves around the same fact that through regional engagements under CPEC and BRI, it can tackle its global problems to some extent.

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