The Institute of Geoeconomics (Kazuto Suzuki, Director, Institute of Geoeconomics) is pleased to announce that recorded audio of the Geoeconomic Agenda, “The EU’s Geoeconomic Strategy and its Future in the Indo-Pacific,” and its transcript are now available. Geoeconomic Agenda is a new Pacific-centric, globally-minded podcast that investigates the connections between economics, geopolitics, business, and society. Hosted by Paul Nadeau, Geoeconomic Agenda will feature interviews with guests from across the Asia-Pacific region and beyond, from the policy world, academia, business, and more.

Transcript

November 16, 2023 (auto-generated by otter.ai)

Paul Nadeau 00:06
Hello and welcome to this episode of the geoeconomic agenda, a podcast from the Institute of geoeconomics at the Asia Pacific initiative in Tokyo, that investigates the connections between economics, politics, business and society. I’m your host, Paul Nadeau, and I’m a visiting researcher here at the IOG. In a moment, we’ll sit down with Dr. Elli Pohlkamp, Senior Manager at Agora Strategy Group in Germany. And Dr. Timo Blenk, CEO of Agora strategy to discuss Europe’s thinking on geoeconomics. But first, here’s the latest developments from the world of geoeconomics.

Paul Nadeau 00:40
High level talks between the European Union and the United States to resolve their trade dispute on steel and aluminum and critical minerals took place on Friday, October 28. Without a breakthrough, US President Joe Biden hosted European Commission president Ursula von der Leyen and European Council President Charles Michel in Washington for a summit that it initially aimed to achieve a meaningful deal, but this was reportedly walked back to an agreement to simply make progress on the disputes. In the absence of a deal on a global arrangement on sustainable steel and aluminum. US tariffs and the EU counter tariffs are set to be put back into place on January 1. According to the EU, a key reason an agreement was not reached was because the United States refused to clarify when it would remove punitive section 232 tariffs against the European Union. 28 governments including China, the EU and the United States, issued the Bletchley Declaration on November 1, expressing concern that artificial intelligence poses a potentially catastrophic risk to humanity. The first global declaration addressing the emerging technology. The signatory countries agreed to work together on developing regulations research into safety, and more. South Korea has agreed to host a further summit on the issue in six months while France will host the same in a year. The declaration builds on efforts made at the UN Internet Governance Forum held in Kyoto in October. Additionally, on October 31, the Biden administration signed an executive order to govern AI technologies. The order relies on the defense production act of 1950 to require AI developers to share safety test results and similar information with the government. In addition to requirements to watermark AI images, as well as addressing questions of privacy, civil rights, consumer protections and more. The order will need to be augmented by congressional action to become binding, and Congress is currently in the process of considering AI regulations. G7 states called for the immediate repeal of import curbs on Japanese seafood following Japan’s release of treated wastewater from the Fukushima nuclear plant. While China was not named specifically in the statement released following the working group meeting of G7 trade ministers in Osaka, Japan, China imposed a blanket import on all seafood imports from Japan in August in reaction to the wastewater release. On October 20, China announced that it would require export permits on certain graphite products starting on December 1. China’s Ministry of Commerce said that the restrictions are conducive to ensuring the security and stability of the global supply chain and industrial chain and conducive to better safeguarding national security interests. The curbs are similar to those imposed on exports of gallium and gravettian that were imposed on August 1. China is the world’s largest graphite producer, and refines 90% of global graphite into material used in almost all electric vehicle batteries. This is the geoeconomics agenda with Paul Nadeau.

Paul Nadeau 03:53
Okay, today I’m sitting down with Dr. Timo Blenk CEO of Agora Strategy Group, and with Dr. Elli Pohlkamp, who’s Senior Manager at Agora Strategy Group. And today we’re going to talk about the European Union’s economic security strategy and its general thinking in this area toward the Indo Pacific. Elli, Timo, thank you very much for joining me today.

Elli Pohlkamp 04:13
Thank you for this great pleasure.

Timo Blenk 04:15
Thank you, Paul.

Paul Nadeau 04:16
Let’s begin at the beginning. The EU released in economic security strategy earlier this year, I believe in June, if I have that right. Can you describe the strategy and a few brief words? Where did this come from? What are the goals? What’s it trying to accomplish?

Elli Pohlkamp 04:32
Actually, for the first time in its history, the European Union with its approach to define and a new economic security strategy for the first time it’s linking security consideration with its economic relations with other powers in the world. And this is quite new, because in its core, the policy is rooted very much in the realization that the open market philosophy of the EU which has been its tradition cannot survive in today’s tense geopolitical environment without including security considerations. And actually, the key goal of this approach is and I quote is minimizing risks arising from certain economic flows in the context of increased geopolitical tensions and accelerated technological shifts while preserving maximum levels of economic openness and dynamism. And, of course, the strategy of the EU doesn’t specifically name China, but still, it represents a very important starting point for a very important and necessary political debate about how Europe can respond to actually China’s quest to become a technological superpower. And the approach is has to it has a is a two fold approach. It’s very concentrated one on risk assessment and on risk mitigation. And the problem with the strategy is that people say it’s very defensive, in comparison to Japan’s approach or the US approach, and it has does not have any competitive measures, and very much focus on risk reduction rather than on competition, so to say, and this is because the EU very much continues to worry about the measures that could be seen as anti market or contravening to the openness of its single market. And this is why there’s still a hesitancy and it’s not so much about the issue that the EU did not understand what kind of risk China poses. There has been a unity, also, within the 27 member states that China is a risk. The only difference is and this is what it makes it complicated is that there are still disagreements about implementation, and specifically about the timeline on how to implement it and when specifically. And this is also another problem, because there’s still no clear and common definition of economic security among the member states. It is still very broad and very open. And the last point is that there are still a problem of competencies. So who is in charge? And who is in control of these new policies? And who is in control of actual implementation? Is it the Commission? Or is it the member states? Who will have the budget and who will really govern? And till these points are not said, it’s a very, very good start. And it’s a good approach, but it’s still a long way to go.

Paul Nadeau 08:03
Timo, if I can turn to you briefly, I know, Elli mentioned concerns about the EU wanting to avoid the appearance of being anti-market. How is the, you know, broadly speaking as broadly or as narrowly as you’d like, how has the private sector in the EU responded to this? Is this something that they welcomed? And she mentioned, the economic flows. Are there particular economic flows that have piqued the attention here?

Timo Blenk 08:30
It’s a tricky question. So by heart, neither on the political nor on the economic side, the EU really wants to be economic secure in that sense, because it’s a against the philosophy. But, the world has changed. It’s a disruptive change at global level. And at the end, the EU now really understands we have to make sure that we actually get the raw materials we need, that we get allies close in the world, which are not only the EU as a given probably a next Trump administration. And we have to stand on our own, but also, for example, allies like countries like Japan, also Taiwan to a certain extent to make sure that we actually get the the view we need for the economy, which be it semiconductors, be it AI, be it also the big tech giants from the US. So, the private sector and the business sector is very much well there inbetween. So depending on the company, they now start for example, the automotive industry is starting to diversify, but it’s tricky and it depends on the member states and their core industries. So I think the EU will plug in certain pillars which are very much in favor for the private sector, which are getting back to Europe core supply industries, like for example pharmaceuticals. Throwing much money on quantum and AI development, but also, for example, building up AI and military defense companies, etc. So this is all very much happening. But in terms of the market size, it’s very, it’s a tricky situation because the industry is heavily reliant, at least in Germany, but also the other countries on the Chinese market. But at the end of the day, if it comes to security, and geopolitics, the EU will always be Team USA, no matter what, because the US is also paying the price for the, for the Russian attack against Ukraine. So this was very present. And Germany is now the second ranked provider of arms and security to Ukraine. But still, it’s it will be impossible without the US. So and there comes a political price for that US has this very strong, rising rivalry with China and China has, from my perspective changed. After for the last two, three years, China’s different from the China it has been five to 10 years ago. I don’t have to go into the details here on the region, but and this perception is seen in the private sector. So whatever it can be done to assure, for example, raw material supply and get lines on that it’s very much welcomed. But the core industries for Germany to answer your question, automotive very much on top. And yeah, pharmaceuticals and chemistry is probably also on the winning side. And then we see what happens. Yeah, but it’s, it really depends on the company. It’s and some, some are very reluctant to see the new world and are shy to actually adjust their strategy.

Paul Nadeau 11:48
So if I can push you on your comments about the European Union and the United States, and you can probably guess where I’m going with this, given that we’re recording that a couple of weeks after this all happened. How much do the EU and the United States actually agree on these things? Because the event that I’m talking about is the the summit on I believe was October 20. That was intended that was supposed to resolve the issue of steel and aluminum tariffs that ended with no agreement. And in the absence of an agreement, or in the in the absence of something there’s going to be new, steep tariffs, well, not new, I guess, but the steep tariffs are going to step snapped back into place on January 1. So on the one hand, yes, I completely understand when you say that the European Union is always going to choose the United States. Where I would push you is that is to say that there are certain costs to that choice. And as an American, I can kind of get away with saying this, the US isn’t a very easy partner to work with these days, either. So can you talk about some of these frictions a little bit? And what, how much of a friction is there really? Is this media? Is this something that we all know will get resolved by January 1 thing? What’s going on here?

Elli Pohlkamp 13:14
Well, if I may start, I think this is very, very complicated, because for the EU and for Europeans, the transatlantic relationship is very, very important in any political field. So the key goal will always be dialogue and cooperation. This is the goal, but the way towards dialogue, and actually cooperation is very bumpy, as you just said. And in general, the EU stands in support of the Biden administration’s initiative on economic security, and also the reasons behind these initiatives. The problem is that still they want to address climate crisis, diversifying energy sources, protecting their interests from external threats, such as China. But on the other hand, the EU is still very much keen to maintain its own framework, its own economic security framework, with its own standards and own values and objectives and interests. And now, the conversation and the dialogue process is very much dependent on how much we can protect our own interests and not directly be swooped in and what the US actually wants. And how much can we still protect and how much do we have a say in this. And this is very, very important, because the EU very much seeks to balance its openness to global trade and investment with protection of its values and sovereignty. And this is what guides the whole dialogue with the United States. And of course, also the recent dialogue on aluminium and steel, which was a total failure. If I may say this. I thought it was just an impasse. Well, yeah, it is an impasse, officially, it’s what they said, This is what they say. And I mean, I think the reason why there was no result is also from the European side, there was no unity between Vond der Leyen and Michel. And this is also very symptomatic of the EU, to have to talk in one voice, and the other is that the issue of binding to World Trade Organization rules, which is very, very important for the Europeans to keep that, and they very much felt pressured. This is at least my interpretation and what I have read, to be pushed to do to agree on something which goes against World Trade Organization rules. And this is something where Europe and the European Union is not ready to do yet. This has to do something with European values, to have a result is very important. And I guess Timo can say something about the industrial side here, why it is important for the industry, but also to negotiate and keep some of its own standards, is very necessary and very important for the European Union.

Timo Blenk 16:35
Yeah, I think probably at the end, there will be some kind of compromise. But getting trade agreements done with the US side for the Europeans has always been tricky. And it’s very tricky at the moment. And while I think key folk… Well, there may be two reasons or two sides of the explanation. One thing is the US have their top priorities. It’s Asia, Asia, Asia, it’s not Europe, it’s really shifted. It’s not Europe. So it’s not a top priority. And the US stands on its own with a huge market and self-reliant to a certain certain level. And as a military superpower, Europe is not the only thing we have to play a role that global scale is that the European Union as a market is the economic superpower all over. So this always comes back to the rules of trade and WTO. And this is, and I think for the company side, what they really need is planning security one way or another. So the state at the moment is the worst state you can have. So if you don’t get it, okay, we can work with that. But it is what it is. So there will be some short minute compromises. Paul, you know, the US side, I think in the end, they probably say, “Okay, you get that we get that”, but it’s not oing to be perfect. And it’s makes it tricky and to chose actually, to the other geopolitical bloc payers, when I think in terms of the global power play at the moment, China and Russia that actually there is, there are strong points, the Europe and the US don’t find easily a common stand, or that Europe follows as easily as expected. But and that’s the last point we’ve seen, for example, with the chips lines the chip tools or others that the US can absolutely get Member States, for example, Netherlands, of the big companies, which deliver machinery for semiconductor production, etc, to China, which has stopped that if it doesn’t take the US road, no matter what member states will comply and follow. And so in this will also develop the EU position.

Paul Nadeau 18:49
As a former boss of mine used to say, the sign of a successful negotiation is when everyone walks away from the table equally unhappy. So that, you know, might be what we can look forward to with these discussions. If I can unpack the the EU itself a little bit, you’ve talked a lot about unity and speaking with one voice, and that’s a pretty hard thing to do when you’ve got 27 members, who are all, you know, fairly diverse. And we’ve seen some of these issues play out on some high profile things like Russia’s invasion of Ukraine. Do you see this playing out in terms of economic security or the member states, you know, singing from the same choir book or where are the differences?

Elli Pohlkamp 19:35
Um, well, I think no, there is there are differences. Absolutely. We have 27 independent countries which are on a very different economic state. We have the rich northern countries, we have the poorer southern countries we have East Europe and of course there are differences. And I don’t know if you can categorize it that very much, but of course, the Netherlands are a very, very, very much pushing for their own policies and also in aligning with the United States and Japan, on trying, or this is at least what they thought they would be able to do is by applying these national rules that they can push the European Union to follow. And this has been difficult because they did not achieve that. And this is because although everyone has understood what kind of risk China plays, there are so many strings attached and not the same strings attached to every member state. And of course, Lithuania is also very much in a position due to its own failed economic coercion and by China of pushing the EU. But we have also more neutral players, like for example, Germany, who has still a great dependence on China, but is very much aware of the problem and is trying to implement bits and pieces towards diversification and de-risking, and also, we have France who very much aims for an EU way independently from the United States. And then we have countries in the south like Greece and Cyprus, who very much depended in times of crisis on China and on Chinese investments. And it’s very hard for them to choose to stop all that and completely change and make a 180 degree turn in their investment policies and in their economic policies. So despite the fact that they have understood, this is what I tried to say in the beginning, it’s the timeline issue, because they are all starting on a different state of play. And this is why it’s so hard to implement, to have this framework, this very huge framework, which basically, they support, but how it actually has to be implemented, it cannot be done, or it’s very difficult to be done at the same time and all these 27 countries.

Timo Blenk 22:33
I wouldn’t even say, I’m not sure that each of these 27 countries even sees economic security. Somehow France like Hungary and Russia and China and they are willing to block any sanction regime, they can block as long as they managed to do that. And maybe one other point, which goes a bit beyond your question, but it’s still important, I will say is that in Europe, there is right wing movement in many countries. So for example, in France, you have the Rasssemblement National, has the strongest political number in polls, at least for the moment. And also you have a right wing populist government in Italy, and guy in Slovakia. Luckily, in Poland, this will be changing, but so on. But there is a right wing tendency in Europe. And many of these governments are very unclear in their foreign politics. So they may jeopardize it. But also many of the right wing governments tend to explode their budgets in terms of fully giving throwing money out to the people, which is increasing debt levels in the Eurozone. And for example, first Germany has roughly about 60 something percent of debt leveled to the GDP. In Italy, it’s over 140. And Italy is no country like the smaller ones with could be saved. Even Greece was a huge challenge during the European debt crisis. So the questions the EU is going to deal with probably in the next period, also, when the new European Parliament is elected, next summer, or next year, will probably also be the very large problems related to the euro to the economy, recovery, etc. And I’m not sure how far up on the agenda, economic security will make it. And this comes down back to the bigger Member States and how they want to deal with it.

Paul Nadeau 24:35
Finally, you know, given I’m sitting in Tokyo right now, let’s turn a little bit to the Indo Pacific and, you know, obviously, security is a big part of this. We’ve talked a lot about China, but so is connectivity. You know, economic conductivity has always been, even though a lot of people don’t want to remember it has always been a part of any program of economic security. So, on the one hand, we’re you know, talking about how to prevent coercion from China protecting our economies from China and justifiably so. But beyond China beyond concerns about coercion, how is the EU whether we’re talking about member states or the private sector as an institution, how is it thinking about it, is it thinking about deepening connectivity with the Indo Pacific region?

Elli Pohlkamp 25:22
Oh, yes, very much. Europe sees the region as a very important driver for its own good. And I mean, the evidence is the several Indo Pacific strategies that have been released in the last years, not only on member state level, like Germany or the Netherlands, but also on the EU level, also, the EU has released its Indo Pacific strategy. And there there was clearly defined that the Indo Pacific region is a very important not only in terms of security, but also in economic terms, very important and region for Europe, and that Europe, is connected with these regions. And it is very much in the US interest in cooperating with partners whose interests align with those of the European Union to create secure supply chains. And I mean, Japan is a very excellent example for this. Japan is one of the key allies of the European Union, they have the economic partnership agreement, they have the connectivity agreement, they have the digital agreement, they are the first green alliance partner, so they are a very strong partner for the European Union, and specifically to uphold connectivity to promote connectivity. And this is also very important for the European Union’s own economic leverage to to make itself also indispensable for the Indo Pacific region and maybe also look a little on Japan’s approach of strategic indispensability. This is what Japan very much promotes at the moment. And, this is also what the EU should try to do, and should try to do this with its very important allies, including the US but Japan, South Korea, and Taiwan, these are all very strategic and very important allies for the European Union, and also Southeast Asia as well in terms of diversification and to build a deeper economic leverage and also a deterrence there. So without these allies, and this is also an integral part of the US economic security strategy to do that, with like minded allies, so to say also, on the economic security front, is very, very important. And this is why for the also for this approach, it very much needs the Indo Pacific region.

Paul Nadeau 28:07
Timo any thoughts? Dr. Timo Blenk, Dr. Elli Pohlkamp. Thank you so much for joining us today. This has been fascinating.

Timo Blenk 28:08
You can see, for example, in the travel schedule of the German chancellor, but also other officials, so the previous chancellor Merkel always flew to China back and forth, and maybe on the way back, she made a quick stop in Tokyo. I think Scholz the new chancellor, he has been at least twice, maybe even three times already to Japan, and directly, and not to China afterwards. So yeah, but for the company side on for the business sector. Absolutely. I mean, it’s about diversification also in Southeast Asia. For the high tech industry, also the defense industry. They’re very closely looking to Japan, also the energy industry, I think there’s huge interest on the market. But also countries like the Philippines, Singapore, of course, Malaysia, and Indonesia, will be getting attention. And from diverse branch that could be finance could be BMW production in Vietnam. So yeah. In terms of strategic map, I would say the focus on the Indo Pacific also for European companies is gaining much more traction also, because I mean, China has been getting more difficult for companies no matter what. So and there are interesting markets developing. It’s strategically important for the politics, and it’s a very good opportunity, I would say for the for the business sector, and this is happening.

Paul Nadeau　29:35
Dr. Timo Blenk, Dr. Elli Pohlkamp. Thank you so much for joining us today. This has been fascinating.

Elli Pohlkamp 29:40
Thank you very much.

Timo Blenk 29:41
Great pleasure talking to you. So really, really very nice.

Paul Nadeau 29:45
This is the Geoeconomics Agenda with Paul Nadeau. The funerary mask of Egyptian Pharaoh Tutankhamun is one of the most famous works of art in world history. It looks like it was made only a few years ago with its bright gold and vibrant blue highlights. It also wouldn’t have been possible without international trade. The blue in the mask is lapis lazuli. And it isn’t found anywhere in Egypt but was acquired from Badakhshan province in what’s now northeastern Afghanistan, where it’s been mined for 6500 years. Lapis lazuli from the region was found all over the ancient world, and was used by the Mesopotamians Mycenaeans and of course, the ancient Egyptians who used it for jewelry and amulets. We’re not exactly sure how the precious stone made its way from the mountains of Afghanistan to the Nile River Valley. But given the rudimentary nature of transportation in the ancient world, it wouldn’t have been simple. The most likely route is that it went west across an early form of the famous silk road crossing what’s now northern Iran, and the Caspian Sea and into Mesopotamia, and from there southwest into Egypt. There’s also the possibility that the stone was transported through the Indus River Valley and what’s now Pakistan, put on cargo ships at the coast and sailed across the Arabian Sea to ports where it would have then been transported to Egypt. But the short answer is that we’ll probably never know exactly how lapis lazuli crossed that distance. Yet the fact that it was transported over such great distances, especially given the transportation options available at that time, speaks to how valuable that stone was. But that’s not the end of the role of lapis lazuli in international trade. Its mining has helped fund the return of the Taliban in Afghanistan. While the Afghan government tried to embargo the export of the stone in 2015, it had little effect and the stone was instead exported illegally, both depriving the Afghan state of the revenue from lapis lazuli and providing covert funding to Taliban insurgents. Even 1000s of years after Tutankhamun, the stone that decorated as funerary mask is still highly prized, for better or worse. That’s all for this episode. But stay tuned for more on the way. Until then we want to know what you want to hear about as well as take your questions for our show. So send us an email at geoeconomicagenda@ihj.global. Be sure to like rate, subscribe, wherever you get your podcasts, tell your friends, and most of all, keep listening. Thanks for joining us, thanks to the team at API for making this happen. And we’ll talk to you next time.

(Disclaimer)
The views expressed in the IOG Geoeconomic Insights do not necessarily reflect those of IOG or any other organizations to which the speakers belong.