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DIPLOMACY

Is international free trade coming to an end?

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Where in the world is “free trade” really free? The European Union, and maybe China… The number of countries that feel bound to the World Trade Organization (WTO) rules, especially considering the last “protective” measures of the USA, does not go beyond the fingers of one hand.

The Inflation Reduction Act (IRA), signed by Joe Biden, seems to be a continuation of Donald Trump’s “America First” policy to many. The law provides government support for the transition from seemingly innocent fossil fuels to green energy. It is no secret that the role of states in the transition to renewable energy should increase. It does not seem possible to make progress in such a large infrastructure transformation without public intervention.

In the IRA, the issue that bothers EU in particular is government incentives for electric cars. In addition to financial support to automotive companies producing in the United States, tax breaks are also foreseen for consumers. The summary is that an electric Ford, GM or Tesla may cost $7,500 less under this law than an electric Volkswagen or Hyundai, depending on where and how it is produced. Let’s also say that in the IRA, Canada and Mexico are granted exemptions.

South Korea and Japan are also concerned

Of course, this is not just about the EU. Japan and South Korea also have world-renowned automotive companies that produce electric vehicles. These countries also think that the US’s new industrial policy is a violation of international trade rules.

The Japanese government said in a note to the US Treasury Department in early November that the IRA would challenge the competitiveness of Japanese automotive companies in the North American market. Tokyo warned its interlocutor that the new law could deter Japanese manufacturers from making new investments in the United States, which could lead to unemployment in the United States.

The CEO of the Japanese huge company Nissan said the IRA must be given some time before its entry into force. Nissan has a factory in Canton, Mississippi, but according to the CEO, the number of these factories could increase with the IRA. Nissan expects its electric models to account for 40 percent of US sales by 2030.

The South Korean government also said that the implementation of the IRA should be given a minimum of three years. Seoul has also reported that the IRA may violate the free trade agreement signed between the United States and South Korea. Companies like South Korean Hyundai and Kia are expected to increase their investment in the US.

Speaking to Axios, a South Korean official said that the issue almost led to a diplomatic crisis. The United States and South Korea have discussed the issue twice at the presidential level, but it seems unlikely that the Biden administration will make any changes to the law.

South Korea thinks that they cannot meet every request from the USA, for example, they cannot unite against China. Some officials think that US-Japan-South Korea-Taiwan co-operation on the semiconductors issue would have been easier to move forward without the IRA.

Along with the IRA, it is stated that Hyundai Ioniq 5, Kia EV6, Subaru Solterra and Toyota bZ4X models are not impossible to compete in the USA market. Rivian Automotive, Hyundai Motor and Kia Corp recently suggested to the US that the pressure on them could be reduced by arranging “commercial clean cars” regulation for the IRA.

US barrier to chip trade angers Netherlands

Yet another trade that the Biden administration is trying to block with IRA is the chip trade.

The US has recently imposed tight barriers to the sale of advanced chip and chip-making equipment. Dutch and Japanese companies are among the leading companies in this regard.

The United States has not yet reached an agreement with these countries on banning the sale of chips. But it is reported that Dutch chip makers will resist moving out of the Chinese market.

The Netherlands-based ASML is one of the largest suppliers to the global semiconductor industry. A Dutch official told Bloomberg last month that they would protect their own economic interests when it comes to selling chip equipment to China.

Dutch officials have emphasized that the United States should not expect its own countries to unquestionably comply with Washington’s restrictions on China.

Despite this, the Netherlands refuses to sell extremely ultraviolet lithography machines to China under US’ pressure. But ASML continues to sell less advanced chip-making systems to China.

US pressure on ASML and Japanese firm Tokyo Electron continues. ASML told its staff in the US to stop doing business with Chinese customers as a result of a new regulation that came into force in the US in October.

Dutch Foreign Trade and Development Co-operation Minister Liesje Schreinemacher insisted last week that his government’s “national security interests are really important”.

Dutch Economy Minister Micky Adriaansens told the Financial Times last week that his country was “very positive” about relations with China and emphasized that Europe and the Netherlands “should have their own strategies” for controlling exports to China.

Macron’s visit and concern in Europe

“Joe Biden wants to strengthen the American economy – to the detriment of Europe,” wrote the German newspaper Die Zeit, while the French economic newspaper Les Echos cited “America First, Europe Last.”

The fact that French President Emmanuel Macron was greeted like a king in Washington last week does not seem to have solved the problem. US President Joe Biden admitted there may be flaws in the IRA, but then mentioned the negotiations of the US-EU trade delegations.

Describing the IRA as “super aggressive” during a closed-door meeting with US senators, Macron invited the EU to adopt its own “Europe First” law before heading to the US. French Economy and Finance Minister Bruno Le Maire also suggested that the United States was pursuing a Chinese-style industrial policy.

In a statement with Mr Biden, Macron said it was now time for Europe to “synchronise” itself with US’ steps. This word is thought to refer to the EU’s own state incentives.

French authorities are concerned that European companies, whose operational costs have already risen due to inflation, will start to migrate investment to North America. But Stefano Sannino, secretary-general of the EU’s Foreign Relations Service, who was in Washington for the visit, argued that a scenario in which the United States on one side, and the EU on the other, started to provide incentives would not be “rational”.

At the same time, Denis Redonnet, the EU’s trade chief, said they could report the IRA to the WTO. European Commissioner for the Internal Market Thierry Breton also announced that he will not attend the EU-US Trade and Technology Council meetings later this week. Breton argued that the meetings were insufficient to address the concerns of Europe’s industry and labour ministers, noting instead that Europe would focus on the urgent need to protect the competitiveness of its industrial infrastructure.

EU officials are considering negotiating a free trade agreement between the EU and the United States as another option. However, the fact that this process takes too long and the bureaucratic procedures reduce the possibility of this option.

Meanwhile, Italian automotive companies are more concerned about the entry of Chinese electric cars into the European market than the IRA, according to the Italian newspaper La Stampa. The Germans fear the IRA more than the Chinese.

Czech Trade Minister Jozef Síkela reminded in November that the People’s Republic of China would be the winner of the EU-US trade wars.

Giga factory investments multiply in the US

We can say that the fears of Germans and the French are coming true. While Europeans are worried about the US “sucking up” investment in Europe, alarm bells are ringing in battery production.

Until recently, Europe’s production of lithium-ion batteries was a league ahead of the United States. But with the rise in energy prices and the IRA, the picture seems to have changed.

Since the day the IRA was announced, there has been a 35 percent increase in capacity in the United States. That’s 17 percent in Europe. Despite all this, Europe is still far ahead of the United States in terms of capacity. In 2031, Europe’s annual production capacity is estimated to be 1,186.2GWh, and the US 957.6GWh.

The Turkish company Kontrolmatik announced that it is considering increasing the size of the giga factory in the United States, while Norway-based FREYR announced that it will accelerate its plans in the United States. In Europe, there are reports that such plans have been delayed.

Towards a European protectionism

“The new ambitious industrial policy from our competitors requires a structural response,” said European Commission President Ursula von der Leyen, delivering the message that the EU will start playing by the rules: “Europe will always do what is right for Europe.”

According to Estonian Entrepreneurship Minister Kristjan Järvan, the EU has always supported free trade, and this was a good thing, but “non-democratic forces” were now using free trade against the EU.

Trying to balance the trade wars between the US and China for a long time, Brussels may now start to change its attitude towards friendly fire as Joe Biden jumps on the “protectionist” train. Von der Leyen’s speech Sunday also suggested that the EU should reconsider its own state subsidies.

“There is a risk that the IRA will lead to unfair competition, close markets, and dismantle the same critical supply chains that have already been challenged by COVID-19,” Leyen said, bringing up the possibility that manufacturers will move from Europe to the US.

The fear of subsidies in the EU’s ultra-liberal and pro-free trade departments is at a heightened level. European Commissioner for Trade Valdis Dombrovskis, among them, argued that the subsidy race would be “expensive and inefficient”. EU competition chief Margrethe Vestager said no one wants a subsidy war.

However, the genie has definitely came out of the bottle. If EU takes a step towards government incentive, it will be the last nail to be put in the coffin of international free trade, which hasn’t been really practiced for a long time.

DIPLOMACY

Ukraine, US, Israel in talks to send up to eight Patriot systems to Ukraine

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The US, Israel and Ukraine are in talks to supply Kiev with up to eight Patriot air defence systems to significantly improve its ability to counter Russian air strikes.

According to the Financial Times (FT), the deal, which has yet to be finalised, would see the Patriot systems shipped from Israel to the US before being delivered to Ukraine.

The outlines of the deal, which would mark a shift in Israel’s relationship with Moscow, have been discussed between ministers and senior officials from the three countries, according to five people familiar with the negotiations.

Israel announced in April that it would retire eight Patriot batteries with more than 30 years of service and replace them with more advanced systems.

However, the batteries used in the Gaza war have not yet been decommissioned amid fears that tensions with Hezbollah in the north could escalate into a full-scale war.

If such a transfer were to take place, it would represent a significant change in Ukraine’s defence capabilities. The country currently has at least four Patriot systems supplied by both the United States and Germany.

Ukraine has frequently asked its Western allies to supply it with air defence systems, particularly US-made Patriots.

Last week, the US announced that it was halting deliveries of Patriot interceptors to other countries in order to prioritise deliveries to Ukraine.

Israel has been wary of taking sides in Ukraine because of Moscow’s influence in Syria.

But according to the FT, US officials have tried to persuade Benjamin Netanyahu’s government that Russia’s increasingly close ties with Iran, particularly in the area of military cooperation, are a more pressing concern.

However, the sources said that while the transfer of all eight systems was being discussed, not all of them might be sent to Ukraine. Three people familiar with the discussions said Ukrainian Foreign Minister Dmytro Kuleba had held talks on the issue with his US counterpart, Antony Blinken, in recent weeks.

White House national security adviser Jake Sullivan has also met at least twice with the Ukrainian president’s chief of staff, Andriy Yermak, the three sources said.

Kuleba did not confirm the talks, but told the FT: “Ukraine continues to work with various countries around the world to acquire additional Patriot systems. We once again call on all countries that have such systems to provide them to Ukraine,” he added.

In addition to the US-Ukraine talks, a person familiar with the diplomatic situation said there were also direct talks between Tel Aviv and Kiev on the transfer of Patriots.

Israel’s M901 PAC-2 batteries are older than most of the Patriot systems currently in Ukraine. But military analysts say the older model is still fully compatible with the newer ones.

According to a person familiar with the size of Israel’s arsenal, Tel Aviv has plenty of interceptors for use with these batteries, which Kiev also needs.

Analysts also said that Israel’s older interceptors have a longer range and a larger warhead than the new PAC-3 model.

Former officials and analysts said the Israeli systems would most likely be sold back to the United States, which could send them to Ukraine.

But they added that the real question was whether Tel Aviv was prepared to alienate its one-time ally Russia, despite Moscow’s increasingly close relationship with Tehran.

Israel has previously rejected Ukrainian requests for air defence systems. It also has an agreement with Russia that gives Israeli jets access to Syrian airspace.

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Polish president meets Xi Jinping in China

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Polish President Andrzej Duda met Chinese President Xi Jinping in Beijing on Saturday as part of a state visit. The two leaders attended a signing ceremony in Beijing on Monday, CGTN reported.

“Bilateral exchanges and cooperation have expanded and deepened in all fields, benefiting the people of both countries. China will work with Poland to uphold the Five Principles of Peaceful Coexistence, fulfil the commitments made at the time of the establishment of diplomatic relations, and take the relationship to greater heights,” Xi said.

The Polish leader said he had raised Russia’s war in Ukraine and the crisis on Poland’s border with Belarus during the talks, which also focused on developing economic ties.

Duda later said: “Thanks to the fact that President [Xi] called me his friend, which is a great honour for me, I am very happy to be able to contribute to the development of [Polish-Chinese] relations together with the president.”

Noting that his second and final term in office will end next year, Duda said he “hopes that these relations will be built in the future…[and] will always be based on common ideals…[and] mutual respect”.

Experts believe that this visit, which will last until Wednesday, will help strengthen China-Poland relations and increase economic cooperation between the two countries.

Duda and his wife Agata Kornhauser-Duda arrived in Beijing on Saturday at the invitation of Chinese President Xi Jinping. Duda and his wife were met at the airport by Chinese Vice Foreign Minister Deng Li and other officials, China Central Television reported.

Duda is expected to ask for visa exemptions for Poles travelling to China and seek ways to increase Polish exports to China to balance trade relations.

Polish state statistics reported that 13.9 per cent of the country’s imports came from China last year, while Polish exports to China were only a fraction of that amount.

A number of trade agreements are expected to be signed during the visit.

On Wednesday, Duda will fly to the financial centre of Shanghai to attend the Polish-Chinese Business Forum.

During his visit, Xi will hold talks with Duda to map out the future development of China-Poland relations, have in-depth exchanges on issues of common concern and jointly attend the signing ceremony of cooperation documents, Lin Jian, a Foreign Ministry spokesman, said at a routine press briefing last Thursday.

China is willing to work with Poland to take this visit as an opportunity to deepen political mutual trust, expand exchanges and cooperation in various fields, jointly pioneer high-quality cooperation on the Belt and Road Initiative and China’s cooperation with Central and Eastern European countries, and continuously enrich the connotation of the China-Poland comprehensive strategic partnership, Lin said.

Cui Hongjian, a professor with the Academy of Regional and Global Governance at Beijing Foreign Studies University, told the Global Times on Sunday that China’s relations with Central and Eastern Europe have remained stable this year, and Poland sees this visit as a way to boost cooperation in both political and economic fields.

Cui said strengthening cooperation with China would not only benefit Poland’s economy, but also help Warsaw increase its influence within the EU. Although Poland and the United States have been in close contact in recent years, Duda’s visit shows that the Eastern European country is seeking balanced diplomacy to build close ties with China as well, Cui said.

Chinese experts also said that while Beijing and Brussels have a complex relationship and the EU has threatened to launch a potential trade war against China, Poland could play a positive role in negotiating bilateral relations between China and the bloc.

Janusz Piechocinski, Poland’s former deputy prime minister, said in an interview with the Global Times: “China will remain a powerful engine of the global economy. Trade wars with China could reduce demand and limit opportunities for trade expansion. We need more cooperation and less confrontation, a more practical dialogue aimed at solving problems rather than exacerbating them through protectionist measures.

Experts expect the Russia-Ukraine crisis to be on the agenda during Duda’s visit, as Poland has thrown its full weight behind Ukraine. Although China’s position on the Ukraine crisis differs from Poland’s, Beijing has been in close contact with Warsaw since the beginning of the crisis. In March this year, Li Hui, the Chinese government’s special representative for Eurasian affairs, embarked on a second round of shuttle diplomacy to find a political solution to the Ukrainian crisis, visiting Poland in the process.

This is Duda’s third visit to China as President of Poland. The first was in November 2015, after which he became the only elected EU leader to attend the opening ceremony of the Beijing Winter Olympics in February 2022. Xi also visited Poland in 2016.

“I try to maintain friendly relations with China, Poland has always had good relations with China and I want this to continue,” Duda said in an interview with private Radio Zet on Friday.

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American troops begin withdrawal from Niger

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Following the decision by Niger’s military government to expel US forces from the country, the withdrawal of US troops serving in the country and the process of moving their equipment has officially begun.

According to the AA report, which cites local sources, US troops are being withdrawn from the country following the termination of the military agreement that allowed military and civilian personnel from the US Department of Defense to serve in Niger. It was learnt that 269 soldiers and tonnes of equipment had been sent to the US in the first phase.

Senior US officials had travelled to Niger in March to ensure that the US would maintain its base in the country despite the suspension of military and development aid to Niger’s coup government. But after three days of waiting, the US delegation left without meeting the country’s military commander, General Abdurrahmane Tchiani, and on 17 March Niger announced the end of the military partnership Washington had come to secure and demanded that US troops leave the country immediately.

It was then announced that the US would leave the country completely by mid-September.

There are around 1000 US troops in Niger. Near the city of Agadez, at the southern end of the Sahara, there is a drone base called ‘Niger Air Base 201’.

Niger 201 is the second largest base in Africa after the permanent base in Djibouti, where the US also conducts drone operations.

Built and funded by the US and owned by the Nigerian army, the base has been operational since 2019 and is equipped with high-tech satellite communications systems.

Niger 201, which is leased from the Niger state for 10 years, is considered the largest and most expensive UAV base in the US.

The US, which spent $110 million on its construction and $30 million on its annual maintenance, uses the base as its main intelligence and surveillance centre in the Sahel.

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