Strategies in Changing Global Orders: Competition and Conflict versus Cooperation 9819972450, 9789819972456

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Chin-Peng Chu Sang-Chul Park   Editors

Strategies in Changing Global Orders Competition and Conflict versus Cooperation

Strategies in Changing Global Orders

Chin-Peng Chu · Sang-Chul Park Editors

Strategies in Changing Global Orders Competition and Conflict versus Cooperation

Editors Chin-Peng Chu National Dong Hwa University Hualien, Taiwan

Sang-Chul Park Graduate School of Convergence Technology and Energy Tech University of Korea Siheung, Korea (Republic of)

ISBN 978-981-99-7245-6 ISBN 978-981-99-7246-3 (eBook) https://doi.org/10.1007/978-981-99-7246-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore Paper in this product is recyclable.

Preface

As editors, we discussed the issue of the changing new global order after we published our book on Immigration Policy and Crisis in the Regional Context in 2021. In addition to commencement of the COVID-19 pandemic in December 2019, the world has also seen the Russian invasion of Ukraine in February 2022, which is the most terrifying military attack on European soil since the Second World War. Europe has remained mostly at peace for over 70 years since 1945, largely as a consequence of European Union (EU) economic integration, together with the collective security measures implemented by the North Atlantic Treaty Organization (NATO) and the Euro-Atlantic Partnership Council (EAPC). The absence of a general war in Europe since 1945 represents one of the longest periods of peace in the continent’s long history. Unfortunately, as of 2023, the Ukraine War is still ongoing, and no one can predict when it will end because it is represented as a war between democratic regimes led by the US, the EU, Japan, South Korea, and Taiwan, and authoritarian regimes led by Russia and China. Both Russia and Ukraine have few options other than to victory in order to retain their own economic and political systems. It is the reason why the Ukraine War can last several years as like other representative wars such as the Much as the Korean and Vietnam wars devolved into stalemate, Ukraine, too, has been mired in conflict since the 2014 invasion of Crimea and risk remaining a ‘frozen’ conflict. In this strategic context, we hosted an international conference in October 2022 on the Roles of East Asia and the EU in the Changing Global Order: Competition versus Collaboration at National Dong Hwa University in Taiwan, which was organized originally as a face-to-face conference for the first time since the outbreak of the pandemic. Unfortunately, however, it was held face-to-face for the domestic sessions and online for the international session, due to the long quarantine in Taiwan at that time. Despite this, many outstanding international scholars and diplomats from Australia, Japan, South Korea, Thailand, Taiwan, and Germany participated in the conference and presented their highly valuable and insightful scholarly papers that form the basis of this book. Authors dealt with economic diplomacy, protectionism between the G2, military tensions in East Asia, the Indo-Pacific strategy, the BRI, v

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Mega-FTAs, high-tech competition for reshaping the global supply and value chains, as part of the Changing Global Orders theme. Participants focused upon how East Asia, the EU and the US are compelled to cooperate and compete with each other in the Indo-Pacific region in order to sustain further economic development and, concomitantly, to avoid any possible military conflict which would be catastrophic for the global economy and the current global order. As conference conveners, we appreciate the papers’ scholarly contributions, as well as the discussion and comments from all of our participants. Our special thanks go to Former Ambassador Sung-lac Wi in South Korea, Emeritus Prof. Kumiko Haba in Japan, Prof. Dieter Eissel and Prof. Alexander Grasse in Germany, Prof. Remy O. Davison in Australia, and Taiwanese scholars who generously accepted our invitation to the conference without hesitation, despite their tight schedules. In addition, we would like to extend our sincere gratitude to the National Science and Technology Council (NSTC/Taiwan), the Taiwan Foundation for Democracy, Hualien County Government and National Dong Hwa University, Hualien, Taiwan for funding our scholarly endeavours. It would not have been possible to have a successful conference without their strong support. In addition, Prof. Sang-Chul Park would like to express his heartfelt dedication to his father of 94 years of age, as well as to his wife. Both have always supported his humble academic activities. He would also like to dedicate this book to his granddaughter, born during the 2022 conference, as well as his son and his son’s fiancée, fighting against the pandemic and all diseases, as medical doctors near the Arctic Circle. Hualien, Taiwan Seoul, Korea (Republic of)

Chin-Peng Chu Sang-Chul Park

Contents

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Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chin-Peng Chu and Sang Chul Park

Part I 2

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The Current Situation in Asia

Mega FTAs Versus Indo-Pacific Economic Framework (IPEF) and Taiwan Framework (TF): What Are Their Roles in East Asian Economic Security? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sang-Chul Park From Asia-Pacific to Indo-Pacific: China as Pushing (Thrust) or Pulling Force (Obstacle)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yung-Yung Chang Belt and Road Initiative (BRI) Versus Indo-Pacific Economic Framework (IPEF) for the East Asian Economic Security Focused on South Korea and Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . Sang Chul Park and Pornchai Wisuttisak Can Semiconductors Be a Tool for Taiwan’s Economic Diplomacy? Implications from Questionnaires in 2018–22 . . . . . . . . . Thu-Ha Thi An, Shin-hui Chen, and Kuo-chun Yeh

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Part II The Asia Policy of External Actors 6

The Role of Russia in East Asia Security . . . . . . . . . . . . . . . . . . . . . . . . 105 Amb. Wi Sung-lac

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Containing the Dragon: The European Pivot to the Indo-Pacific . . . 117 Rémy Davison

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The EU’s Problems of Trade Cooperation with Authoritarian States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Alexander Grasse and Dieter Eissel

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Contents

The Shifting Role of the EU’s Economic Diplomacy Towards China: The Case of China’s Belt and Road Initiative and the EU’s Global Gateway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Chin-Peng Chu and Zsuzsa Anna Ferenczy

10 Paradigm Shift of the EU’s Preference of Trade Relations: The Case of the EU-South Korea FTA . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 Yun-Chen Lai 11 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Sang Chul Park

Chapter 1

Introduction Chin-Peng Chu and Sang Chul Park

The world is changing faster in the 21st century than at any previous point in history. It is no longer a question as to whether we have entered a new Cold War or ‘Cold War II’, because we are already witnessing a new Cold War, manifested by the RussiaUkraine war since 24 February, 2022. However, some scholars are still reticent to accept the reality that a new Cold War has dawned in the first decades of the 21st century. The term ‘New Cold War’ is usually used in the context of the tensions between the U.S. and People’s Republic of China (PRC), and the U.S. and Russia, or Iran and Israel. In addition, some scholars have employed the term in comparison with the original Cold War, while some of the literature shies away from using the term in reference to current tensions (Halliday 1989; Friedman 1998; David 2007; Chang 2008). The global political and economic order has been in flux long before the promulgation of a new phase in the Ukraine war in 2022. From an international relations perspective, the relative decline of U.S. power and the rise of China presents a major challenge to the global order dominated by the U.S. and its key allies in East Asia, Western Europe, and Oceania. Furthermore, the global financial crisis (GFC) in 2008 has resulted in increased domestic inequality, economic insecurity, and trade protectionism. As a consequence, publics have grown more concerned about the diminution of sovereignty, as free trade agreements and regional economic integration, as well as tensions with China over trade and investment, have fermented increasing resentment towards the globalization process, which has dominated the post-1990 model of global economic integration. A seismic shift towards deglobalization was implemented by the Trump administration (2017–21), which rejected the World Trade C.-P. Chu (B) National Dong Hwa University, Hualien, Taiwan e-mail: [email protected]; [email protected] S. C. Park Tech University of Korea, Siheung, South Korea e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_1

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Organization (WTO) model of multilateralism, and withdrew from key international bodies, such as the World Health Organization (WHO). Trump also launched an unprecedented trade war with China, not only initiating a tariff war, but also banning the export of sensitive and critical technologies to Beijing. (Rodrik and Walt 2021). These developments have contributed to a rebalancing, with the new global system stratified between the U.S.-led liberal international order and the Beijing-Moscow axis, exemplified by military expansion and territorial aggradisement. The multifarious challenges presented by China and Russia suggests new institutions will be needed to manage international politics and develop new forms of cooperation. The unpredictability of the new global order will shape national and global responses to its turbulence throughout the 21st century. Although current structural and institutional features will constrain cooperation between the great powers in the short to medium term (1–5 years), conflict and tensions between the most important global actors will result in exogenous shocks, unintended consequences and negative externalities that will resonate throughout the global order and damage the most sensitive and vulnerable states (Porter 2020; Xi 2021; Haass and Kupchan 2021). Despite this, it is possible to predict a new global order of rigid bipolarity in the near term. In this order, the U.S. and China compete intensively, decouple their national economies by reshaping global supply and value chains, and lead coalitions of like-minded states in military, political, and economic partnerships. However, it is not easy to predict in the longer term whether authoritative global institutions can address the destruction of modern weaponry and the risks of climate change or not. Furthermore, no one can rule out turbulent outcomes, such as a drastic decline of global trade, an increasing number of failed states around the world, and military conflicts between super powers (Wendt 2003; Mearsheimer 2019; Rodrik and Walt 2021). Typical conceptualisations of a future global order assumed that a dominant superpower’s norms or rules would prevail over rival conceptions in order to impose them on weaker states, either by force or volition. However, it is still uncertain whether a single global order has ever existed in the history. Arguably, a state-centric order is more likely to exacerbate existing ideological divisions, rather than mitigate them. This is because a single conception of the global order ignores the possibility that different norms or principles might prevail in different issue areas or regions. Therefore, prudence dictates that relations between states and other actors are regulated by a complex, partial, inconsistent, and ever-changing set of rules, norms, and procedures. Any form of world order is highly competitive, meaning that cooperation is difficult to achieve or sustain if the interests of states and other key actors arrive at an intensive confrontation. Therefore, the establishment of a stable and beneficial new global order needs to be tolerant of the broad and diverse national interests and values of states (Blinken 2021; Rodrik and Walt 2021). Instead, unfortunately, both Europe and the entire global order, experienced epochal change in the third decade of the 21st century, as a consequence of the full-scale Russian military attack on Ukraine in February 2022. Irrespective of the background to the Russo-Ukrainian war, the conflict represents the promulgation of

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serious and prolonged economic, military, and political competition between liberaldemocratic states, led by the U.S., the EU, Japan and South Korea, and authoritarian regimes, led by China and Russia. Furthermore, it appears increasingly inevitable that the New Cold War will comprise a conflict-ridden global order, rather than a constructive, liberal, rules-based international system. Liberals states have functional democracies that largely respect human rights, governed by the rule of law. Conversely, authoritarian regimes emphasize both political and economic nationalism, and prioritize expanding their market power and military capabilities. In this context, the new global order over the next several decades, plausibly, could be either strategic bipolarity between the U.S. and China; or, alternatively, an unbalanced and potentially unstable form of multipolarity, composed of Russia, India and other second-order players in a system still dominated by the major powers (Mearsheimer 2019; Rodrik and Walt 2021). The liberal international economic order that was created by the multilateral Bretton Woods system in 1944 produced international institutions such as the United Nations (UN), the International Monetary Fund (IMF), the World Bank (WB), the General Agreement on Tariffs and Trade (GATT) (later, the WTO) and the North Atlantic Treaty Organization (NATO), during the Cold War that ensured a general peace, rising prosperity in the West , and a relatively stable power balance, until 1991, despite several major regional military conflicts, including the Korean War (1950–53); the Vietnam War (1955–75); the China-Vietnam War (1979); and the Iran-Iraq War (1980–1988). Following the fall of the Berlin Wall in November 1989, the liberal ‘new world order’ was led by the U.S., which emerged triumphant as the sole superpower in a unipolar system. Washington faced no competition until China emerged as the world’s second largest economic power in 2010. Under Xi Jinping’s leadership, China proposed a ‘Group of 2’ (G2) in 2013, a new bipolar order with a form of ‘peaceful coexistence’ between Washington and Beijing as its centrepiece (Xi 2017; Mearsheimer 2019). As a consequence of rapid Chinese growth over three decades, Beijing’s regional neighbors, such as Japan, South Korea, the ASEAN member countries, Hong Kong, Singapore, and Taiwan also achieved high economic growth rates, transforming East Asia into an economic powerhouse, generating double the world’s average economic growth rates over the last three decades. Throughout the same period, the EU expanded territorially and economically into central and eastern Europe, enlarging its membership to 28 member states, until the UK’s Brexit departure took place in January 2021. Moreover, both East Asia and the EU have created deeply integrated markets, compared to the minimalist North American Free Trade Agreement (NAFTA/USMCA) (Park 2021; World Bank 2023) (see Figs. 1 and 2). In the wake of two Gulf Wars in 1991 and 2003, as well as the Afghanistan war (2001–2021), the U.S. has faced strong economic competition from China and the EU, as it absorbed the significant economic costs of multiple military conflicts. In addition, the global financial crisis commenced in the U.S as a sub-prime mortgage crisis in 2008, exacerbated by the excessive leverage of systemically important banks. As a consequence, the US financial and economic system, overwhelmingly dominant since 1944, started to lose its control of the global economy, as the balance of financial

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10 8 6 4 2

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World

Fig. 1 Comparison of East Asia-Pacific and world GDP growth rates (1990–2020, %). Source World Bank (2023)

Fig. 2 Intra-regional trade shares in Asia, the EU, and North America (1990–2018, %). Source ADB (2019)

power began to shift to Asia. In an attempt to reassert its influence in East Asia in the wake of multiple military failures in the Middle East, the Obama administration reset its Pacific strategy by launching the US ‘pivot to Asia’ in 2011. However, by that point, Chinese economic influence in the region had already become firmly established (Bush 2012; Goldberg 2016). Xi Jinping’s accession to power in 2012, saw a major foreign policy shift from Deng Xiaoping’s aphorism of China maintaining a low profile and biding its time. China has had superpower aspirations for a considerable time and has sought great

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power recognition from other major powers, despite the fact that it still lags militarily behind the US and cannot compete with the EU’s soft power. China has been officially acknowledged as a systemic competitor by the EU and the U.S. since 2019, but Beijing also found itself mired in tariff wars initiated by the Trump administration in 2018, which the Biden administration is reluctant to end (Xi 2017). Chinese economic and military expansion in East Asia is viewed as a serious threat to the West in general, and to the neighboring countries in the region in particular, that could cause regional and global instability. In order to tackle Chinese expansionism in the region, the Trump administration resuscitated a plurilateral military and political initiative known as the Quadrilateral Security Dialogue (QSD) in 2017, in which Australia, India, Japan, and the U.S. cooperate across a range of security issue areas in the Indo-Pacific region. The Quad was initiated by the then-Japanese Prime Minster, Shinzo Abe, in 2007. It has been described as an Asian version of a collective defense system, as well as the ‘Asian NATO’. Moreover, the Biden administration strongly supported the Australia–UK–U.S. AUKUS trilateral security partnership in 2021 in order to check and control Chinese military expansion and restore American influence power in the region (Madan 2017; The White House 2021, 2023). The closing of ranks between the Western allies has compelled Beijing and Moscow to deepen their interdependence. Particularly since Russia’s invasion of Ukraine in 2022, Sino-Russian cooperation has intensified across the spectrum, including financial, military and political collaboration. In September 2022, Xi described the Beijing-Moscow axis as a ‘no limits partnership’. Xi and Putin’s partnership was partly in response to the Trump and Biden administrations’ withdrawal of troops from Iraq and Afghanistan in 2020 and 2021, respectively, as Washington pivoted its force capabilities to the Indo-Pacific. Concomitantly, China has expanded its economic and political influence in the Middle East and Africa by deploying the BRI as a soft power initiative. As a consequence, the Middle East and Africa have developed into arenas of strategic competition between the Russia and China in one corner, and the U.S. and EU in the other (Arase and de Medeiros Carvalho 2023; Park 2023). Given this strategic conspectus, East Asia needs to maintain a high level of development to ensure its economic and political stability, as well as its future prosperity. Most East Asian countries have much in common with the EU and the U.S. in terms of mutual interests such as soft power, capital investment, and climate change mitigation. Although East Asia competes with the EU across many market sectors, regional cooperation between the two is also important in the longer term. Moreover, East Asia should work to avoid any possible military conflicts, either in Taiwan Strait or on the Korean Peninsula, as the Ukraine War provides ample evidence of how destructive even a limited conflict could be. Given East Asia’s critical role in the global supply and value chains, any military conflagration in the region could cause a global economic and political catastrophe, transforming Cold War II into a series of hot wars. The main themes of the book focus upon three core areas: economic diplomacy; Asia-Pacific strategies, and mega-FTAs; and regional security in East Asia and the EU. The book discusses contemporary issues and challenges in the Asia-Pacific

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region and the EU. Given how the Russia-Ukraine War has awakened the global public to the horrors of the war in the 21st century, we need to ask the question whether or not we will repeat the same military disasters of the 20th century, or learn their lessons. This book attempts to make some contribution to the theoretical and practical approaches that might be adopted to confront these challenges. This book comprises four parts. Part one forms the introduction and sets out the volume’s aims and objectives. Part two deals with economic diplomacy, AsiaPacific strategies, mega-FTAs and regional security in East Asia. Part three explores a number of these issues in the EU context. Finally, part four develops a number of a conclusions, drawing from the work in parts two and three. In Part two, Sung-lac Wi discusses Russia’s role in East Asian security in general, and the Korean Peninsula in particular. His chapter analyzes potential futures for East Asian security in a post-Ukraine context. It also argues that regional efforts should be made to stabilize relations between Russia and the West to de-escalate the possibility of confrontation in East Asia. Finally, the chapter also considers how the Ukraine war could impact the Korean Peninsula. Yung Yung Chang deals with Beijing’s new approach to regional diplomacy, transitioning from an Asia-Pacific focus to the Indo-Pacific. The term ‘Indo-Pacific’ has been adopted by a large number of states and regional organizations since 2017 to supplant the long-standing and wide-accepted ‘Asia-Pacific’ to describe the political and economic geographic of the region. It is widely believed that the emergence of ‘Indo-Pacific’ originated from the structural transformation driven by China’s rise, although there are no significant institutions or functional international organizations directly associated with the Indo-Pacific region. Chang presents an overview and analysis of the rise of China and its influence on the formation and development of the Indo-Pacific concept, He attempts to explain the puzzle of the lack of institutionalization in the region. Finally, Chang explores whether China is a driver or hindrance to the process of Indo-Pacific institutionalization. Sang Chul Park focuses on the mega-FTAs in the Asia and Pacific regions. States’ economic interests are frequently deeply divided and largely related to political and economic security issues. The trade conflicts between the G2, in particular, have developed persistently as a product Sino-American hegemonic contestation. In order to combat Chinese expansion, the Biden administration initiated the Indo-Pacific Economic Framework (IPEF) in 2021 as a component of its Indo Pacific Strategy (IPS); Washington also signed its first Taiwan Framework (TF) agreement in April 2023 under its Trade and Investment Framework Agreement (TIFA). Park explores two mega-FTAs and the IPEF, as well as the TIFA for the East Asian economic security comprehensively. The author also argues how East Asian countries have overcome protectionism caused by the trade and technology conflicts between the G2. Finally, he analyzes the newly reconfigured global supply chains led by the USA in the region. Sang Chul Park and Pornchai Wisuttisak discuss the balancing role of the Belt and Road Initiative (BRI) and the Indo-Pacific Economic Framework (IPEF) within East Asia by focusing on a comparative study between South Korea and Thailand. In the past decade, China has built its position as a global economic power through the

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BRI, disbursing Chinese aid, grants, and loans throughout East Asia. In response, the U.S. has created the Indo-Pacific Economic Framework (IPEF) and the Blue Dot Network. However, some East Asian developing countries, such as the Philippines, view the BRI cautiously, perceiving it as a tool of Chinese economic dominance in the region. The authors argue that the two frameworks impact South Korea’s economic security, while provide Thailand the balancing power for the economic cooperation between the two sides. They explore further how South Korea and Thailand have aligned themselves with regional economic initiatives driven by the U.S. and China, respectively. Park and Wisuttisak assess potential approaches that may help bridge the G2’a rival strategies for East Asian infrastructure development. Thu-Ha Thi An, Shin-Hui Chen, and Kuo-Chun Yeh deal with Taiwan’s economic diplomacy. The authors claim that the U.S.-China trade conflicts and the COVID19 pandemic have been straining the global semiconductor value chains, causing technological fragmentation and severe chain disruptions. As an essential part of the world semiconductor complex ecosystem, Taiwan’s semiconductor supply chain has become a geopolitical focal point and has been caught between the global superpowers’ tensions. The authors argue that foreign governments’ seed funding and subsidies may be inadequate to court investment by Taiwan’s semiconductor manufacturers in order to mitigate supply chain disruptions and guarantee economic and national security. Forming joint ventures with the local supply chain and entering new product markets may be more critical to Taiwan semiconductor overseas investment. In the part three. Remy O. Davison examines China’s militarization of the South China Sea throughout the past decade. This has led the core NATO members and the European Union (EU) to develop Indo-Pacific security strategies, expanding Europe’s presence in the region, utilizing a combination of military deployments and balancing via strategic partnerships. In 2019, the EU’s Indo-Pacific Concept described China as a ‘systemic rival’ of the EU. NATO’s 2022 Strategic Concept (SC) noted that China presented ‘systemic challenges to the rules-based international order’. NATO’s 2022 SC argues that the PRC’s ‘malicious hybrid and cyber operations and its confrontational rhetoric and disinformation target Allies and harm Alliance security.’ Dieter Eissel and Alexander Grasse provide an assessment of the new world order, arguing that the EU has encountered significant problems by relying for decades upon trade cooperation with authoritarian governments. They argue that the world is experiencing a turning point as a result of Russia’s attack on Ukraine, and it is poses a significant challenge to the EU’s relations with Russia and the EU’s links with other authoritarian states. For a considerable period, the EU’s, and especially Germany’s, foreign policy sought to establish rapprochement and build trade and aid links to encourage reform in autocratic, dictatorial, and tyrannical regimes. EU economic diplomacy and soft power was widely viewed as a means of fostering democratic change. Eissel and Grasse posit that the EU has sought alternatives to Russian energy imports predominantly by focusing upon expanding its renewable energy resources, while it also needs de-risking its trade relationship with China by re-shoring manufacturing, despite the higher costs of domestic production for firms. The authors further assert that global carbon reduction targets will require

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the cooperation of both Russia and China. Consequently, the UN, the WTO and other intergovernmental organizations should lead to the implementation of the Paris climate regime. Yun Chen Lai deals with the EU’s trade preferences. As the world’s largest trading bloc, the EU plays a key role in the world economy. Lai explains that the EU’s choices and actions will have a great influence on the relative success of multilateral and bilateral trade agreements, given the EU’s external two-way trade volumes, which totalled e4.3 trillion in 2021. She explores the paradigm shift of the EU’s global trade preferences in the mid-2000s. The EU- South Korea FTA represents one case study that demonstrates the EU’s changing perspective on bilateral accords will not endanger the multilateral trade system that it has long supported. The EU’s paradigm shift in trade preferences will have an enormous influence on the global trade regime. Lai’s key questions are whether this shift will support and rekindle policy support for multilateralism or whether EU trade preferences will ultimately undermine multilateralism. Chin Peng Chu and Zsuzsa Anna Ferenczy discuss the EU’s economic diplomacy towards China. The authors argue that the economic weight of the European Union (EU) has become the main driving force in its effort to project influence in the context of a highly interconnected world. Moreover, they assert that the re-emergence of major power competition has forced Brussels to confront the fact that the EU is ill-equipped to address new types of challenges and restrictions in global trade. Therefore, there is consensus in Brussels that the EU has developed an excessive degree of dependence upon other countries for the supply of critical goods and technologies. For example, China has become a significant trade partner, generating a large trade surplus with the EU, particularly since its accession to the WTO in 2001. However, Beijing has not reciprocated by opening its market sectors, thereby disadvantaging EU firms in terms of Chinese market access. Chu and Ferenczy argue that the EU has sought to rebalance its ties with China by developing a stronger trade defense toolbox, in order to address geoeconomic frictions and better defend its strategic interests. This chapter assesses EU-China relations from the perspective of trade cooperation, and the efficacy of their bilateral economic diplomacy. In part four, Sang Chul Park deals with current issues on protectionism between the G2, by assessing the competition for global hegemony in the new world order, reshaping global supply and value chains, and the impact of climate change, the COVID-19 pandemic, and the Ukraine war. This concluding chapter also summarizes the authors’ main findings in parts two, and three. In addition, Park assesses each of the authors’ core arguments in the concluding remarks.

1 Introduction

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References Arase DM, de Medeiros Carvalho PMAR (2023) The belt and road initiative in Asia, Africa, and Europe. Routledge, Abingdon Asian Development Bank (ADB) (2019) Asian Economic Integration Report 2019/2020. ADB, Manila Blinken AJ (2021) Blinken’s Opening Remarks at His Initial Meeting with Top Chinese Officials, March 18. U.S. Department of State, Secretary Antony J. Blinken, National Security Advisor Jake Sullivan, Director Yang and State Councilor Wang at the Top of Their Meeting—United States Department of State. Accessed 07 Apr 2023 Bush RC (2012) The response of China’s Neighbors to the U.S. “Pivot” to Asia. Brookings Institution, https://www.brookings.edu/on-the-record/the-response-of-chinas-neighbors-to-the-u-spivot-to-asia/. Accessed 09 Apr 2023 Chang GH (2008) Review: Nixon in China and Cold War I and Cold War II. Dipl Hist 32(3):493–496 David S (2007) China stands up: the PRC and the international system. Routledge, London, New York Friedman T (1998) Foreign affairs: now a World from X, New York Times Goldberg J (2016) The Obama Doctrine, The Atlantic Haass RN, Kupchan CA (2021) The new concert of powers: how to prevent catastrophe and promote stability in a multipolar World, Foreign Affairs. https://www.foreignaffairs.com/articles/world/ 2021-03-23/new-concert-powers. Accessed 06 Apr 2023 Halliday F (1989) The making of the second cold War, 2nd edn. Verso Books, Colombia, MD Madan T (2017) The rise, fall, and rebirth of the QUAD, National Security for Insiders. https://war ontherocks.com/2017/11/rise-fall-rebirth-quad/. Accessed 09 Apr 2023 Mearsheimer J (2019) Bound to fail: the rise and fall of the liberal international order. Int Secur 43(4):7–50 Park SC (2021) The regional comprehensive economic partnership (RCEP) without Indian participation: can it work as a mega FTA? Int Organiz Res J 16(2):157–182 Park SC (2023) The belt and road initiative and the association of Southeast Asian Nations: interactions and impact before and after COVID-19. In: Arase DM, de Medeiros Carvalho PMAR (eds) The belt and road initiative in Asia, Africa, and Europe. Routledge, Abingdon, pp 50–65 Porter P (2020) The false promise of liberal order: Nostalgia, Delusion and the Rise of Trump. Polity, New York Rodrik D, Walt S (2021) How to construct a new global order, Research Working Paper, RWP 21-013, Harvard Kennedy School, RWP21-013_Rodrik_Walt.pdf. Accessed 05 Apr 2023 The White House (2021) Quad leaders’ joint statement: the spirit of quad. https://www.whiteh ouse.gov/briefing-room/statements-releases/2021/03/12/quad-leaders-joint-statement-the-spi rit-of-the-quad/. Accessed 09 Apr 2023 The White House (2023) Joint leaders statement on AUKUS. https://www.whitehouse.gov/bri efing-room/statements-releases/2023/03/13/joint-leaders-statement-on-aukus-2/. Accessed 09 Apr 2023 Wendt A (2003) Why a world state is inevitable. Eur J Int Rel 9(4):491–542 World Bank (2023) World Bank data. https://data.worldbank.org/indicator/NY.GDP.MKTP.KD. ZG?end=2021&start=1990. Accessed 08 Apr 2023 Xi JP (2017) Keynote Speech at Opening of Belt and Road Forum, Ministry of Foreign Affairs, PRC. https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/zyjh_665391/201705/t20170 527_678618.html. Accessed 11 Apr 2023 Xi JP (2021) Let the torch of multilateralism light up humanity’s way forward. World Economic Forum Virtual Event of the Davos Agenda. https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/ t1848323.shtml. Accessed 06 Apr 2023

Part I

The Current Situation in Asia

Chapter 2

Mega FTAs Versus Indo-Pacific Economic Framework (IPEF) and Taiwan Framework (TF): What Are Their Roles in East Asian Economic Security? Sang-Chul Park

Abstract The RCEP and the CPTPP are two mega FTAs in the Asia and Pacific region. Their economic direction is very distinct and related to political and economic security issues. The trade conflicts between the USA and China (G2) that have been ongoing since 2018 are continuously into a hegemony conflict between the two economic superpowers. In order to tackle Chinese expansion, the Biden Administration initiated the Indo-Pacific Economic Framework (IPEF) in 2021 in line with the Indo-Pacific Strategy (IPS) with further plans to set up the Taiwan Framework (TF) in 2022. This paper addresses the two mega FTAs and the IPEF as well as TF in the search for East Asian economic security. It also argues how East Asian countries can overcome the protectionism caused by the trade and technology conflicts between the two superpowers. Finally, it also analyzes the newly reshaping global supply chains led by the USA in the region. Keywords Mega FTAs · Protectionism · New global supply chains · IPEF and Taiwan framework · Economic security

1 Introduction Global trade has contributed to rapid economic growth in the world especially since the Second World War. However, ever since the global financial crisis (GFC) in 2008, growth of trade volume has started to slow down in the global economy. It has started again to grow shortly after 2015 but went into decline again due to global trade conflicts between the G2 under the Trump Administration in 2018 and the COVID19 Pandemic in 2020. In particular, the pandemic represented an unprecedented S.-C. Park (B) School of Convergence Technology and Energy, Tech University of Korea, Siheung, South Korea e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_2

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disruption to the global economy and world trade, as production and consumption were scaled back across the globe. Additionally, the prospects for the global economy darkened even more with the outbreak of war between Russia and Ukraine on 24 February 2022 placing the fragile global trade recovery at risk. As a result, the world trade volume in goods bottomed in the second quarter of 2020 and is re-estimated to grow to 3% in 2022, which is the down from its previous forecast of 4.7 and 3.4% in 2023. The world GDP is expected to increase by 2.8 and 3.2% in 2022 and 2023, respectively, after rising 5.7% in 2021. This estimation is calculated by the persistent geopolitical and economic conditions. The large annual growth rate for merchandise trade volume in 2021 was regarded mostly as a reflection of the previous year’s slump known as the base effect. Additionally, global trade in services is still expected to lag behind global trade in goods particularly in sectors related to travel and leisure due to the continuing impact of the pandemic including the dangerous variants of COVID19. Fortunately, most of the advanced nations have removed pandemic restrictions. Therefore, world trade in goods could grow between 0.5 and 5.5% in 2022 based on the WTO’s forecast (WTO 2021a, 2022). World trade volume in merchandise grew around an average of 1.5 times higher than the world GDP growth from 1981 to 2020. During the 1990s particularly, it grew more than twice the rate of GDP growth. However, the ratio of trade growth to GDP growth has become more or less equal since the GFC except the years 2010, 2011, and 2017. Therefore, many countries have tried to create bilateral, regional, and mega FTAs since the 2000s because they have sought to boost their trade volumes and economic growth. This new approach worked well until the GFC but started to show its limitation after the crisis. Since then, it has faced difficulties especially evidenced in the global supply chains due to protectionism and the sudden global trade downturn caused by the global trade conflict between the G2 nations, the COVID-19 Pandemic and the outbreak of war in Ukraine. The global supply chain pressures started to diminish at the end of 2021 but remains high in 2022 and the war in Ukraine may lead to more elevated supply chain pressures (WTO 2017, 2021b, Benigno et al. 2022) (see Fig. 1). In January 2022, there were 350 free trade agreements (FTAs) in force, and among them 174 FTAs were signed and in effect in the Asia and Pacific region. 77 FTAs are still in negotiation, 15 FTAs are signed but not yet in effect. All FTAs are either bilateral or plurilateral. Singapore is the leading country with 37 FTAs, and China and Korea follow with 32 FTAs, respectively. Other Asian countries, India with 30 FTAs and Japan with 27 FTAs play also significant roles in terms of FTA due to their national economic sizes in the region (https://aric.adb.org/database/fta, accessed on 29 Jan. 2022). In addition to bilateral and plurilateral FTAs, the Asia Pacific region has become the common ground for mega FTAs after completing Regional Comprehensive Economic Partnership (RCEP) led officially by ASEAN, but practically by China in November 2020 and the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) led by Japan in December 2018. China has negotiated the RCEP with 10 ASEAN member nations and six nations with which ASEAN have existing trade agreements. The ambition of the RCEP is to promote regional economic integration

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Fig. 1 Trend of global supply chain index (as of 1997–2021). Source Benigno et al. (2022)

in East Asia and to expand it to the Asia Pacific region although India withdrew from it in the final stage of negotiations. Among the 15 nations in the RCEP, seven nations participate in the CPTPP as well. The CPTPP aims to rebalance the Japanese political and economic interests against the emerging Chinese powerhouse in the region as a part of global strategies since the USA withdrew from the TPP in 2017. Among the three major economies, Japan has participated in the two mega FTAs at the same time, while China and Korea have participated only in the RCEP. Due to the rapidly changing global trade environment related to security and the newly building global supply chains (GSCs) led by the USA, China, Korea, with Taiwan strongly expressing its intention to join the CPTPP at the end of 2021. Without any participation in the mega FTAs in the Asia Pacific region, the USA initiated Indo-Pacific Strategy (IPS) in 2022 in order to engage in the region practically and systematically. It aims primarily to prevent the China’s further expansion and to reshape the U.S. led new GSCs in the global economy (Graceffo 2017; Asian Trade Center 2018; Park et al. 2021; The White House 2022). This paper focuses on the approaches of the major economies for mega FTAs such as the RCEP and the CPTPP how these will develop and affect China, Japan, and Korea in the near future. Additionally, it deals with possible impacts of the trade conflicts between the G2 nations on the three major economies and Taiwan. Furthermore, it also analyzes what implications there are for East Asian economic collaboration and competition. Last, but not least, it touches upon reasons why the reshaping the new GSCs in the region with the creation of the Indo-Pacific Economic Framework (IPEF) and the Taiwan Framework (TF) are needed. In order to meet the research targets, various methods are used such as a method of critical analysis of literature, an inference method, and a method of quantitative and qualitative statistical analysis.

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2 Mega FTAs for East Asian Economic Integration and IPEF as Well as TF for Indo-Pacific Strategy 2.1 ASEAN Centric Regional Comprehensive Economic Partnership (RCEP) Led by China The path towards the completion of the RCEP was long and difficult. After two decades of preliminary discussions on the desirability and feasibility of Asian economic cooperation, East Asian countries led by the 10 ASEAN member nations decided to establish a regional economic framework comprehensively. The nations participating in the RCEP negotiations are the ten ASEAN member nations and six other nations in the region such as Korea, China, Japan, India, Australia and New Zealand with negotiations beginning in November 2012. The RCEP negotiations spanned world’s most developed and world’s least developed countries, which constrained the ambition of the agreement. However, diversity among the 16 participating countries enabled a more efficient division of labor and enhanced the potential for deepening existing supply chains (Park 2016; Park et al. 2021). Reaching agreement in the RCEP was a long arduous process. Regional economic cooperation in East Asia began to intensify in order to deal with Asian Financial Crisis (AFC) in 1997 as the first ASEAN + 3 (Korea, China, and Japan) Summit Meeting held in 1998. In the summit, Korea suggested to set up the East Asia Vision Group (EAVG) for overcoming economic and financial difficulties collectively in the region. The expert group focused on examining the goals for long-term economic cooperation and further developed the idea of East Asia Free Trade Area (EAFTA) in 2002 and proposed ASEAN + 3 economic ministers that the EAFTA needed to negotiate among ASEAN countries first and opening up membership to other East Asian economies (Urata 2013, 2021; EAFTA 2009; ASEAN Secretariat 2009; Kawai and Wignaraja 2011). Parallel to the Korean approach, Japan proposed the Comprehensive Economic Partnership in East Asia (CEPEA) at the ASEAN + 6 economic ministers’ meeting in 2006, a region-wide FTA agreement covering the ASEAN + 6 member nations. Japan’s economic rationale to set up the CEPEA was the belief that the economic advantage of the CEPEA would be greater than that of the EAFTA because the incorporation of resource-rich Australia and the rapidly growing India could generate economic growth of East Asia as a whole. Japan also intended to play a role in the leadership in setting up a regional institution as China took the initiative in the EAFTA discussions. By competing with each other, China and Japan took leadership in the establishment of the region wide FTA under the EAFTA and the CEPEA, with China speeding up the process of regional economic integration in East Asia when Japan decided on participating in the Trans Pacific Partnership (TPP) in 2011 (Kawai and Wignaraja 2008; Xiao 2015). China also intended to establish a region-wide FTA because it observed increasing U.S. influence to form a regional economic framework in the Asia Pacific region

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under the TPP. Accordingly, ASEAN proposed the RCEP involving ASEAN and its FTA partners in 2011 because it did not want to lose ASEAN centrality in East Asian regional integration. Under such a circumstance, ASEAN tried to maintain its centrality in regional economic cooperation. After signing multiple bilateral FTAs between ASEAN and other East Asian economies, ASEAN and its regional partners concerned about the Asian noodle bowl effects that became new obstacles to establish new regional production networks based on free markets in East Asia. Therefore, the RCEP has emerged as a tool to integrate ASEAN and East Asian economies in order to support their common aspirations of the region (Yi 2014). Furthermore, ASEAN announced its guiding principles for the negotiations of the RCEP that included the WTO principles such as consistency, transparency, and open accession to ASEAN’s FTA partners and others. Based on such principles, Brunei, Malaysia, Singapore, and Vietnam participated in the RCEP and the CPTPP at the same time. As a result, ASEAN + 6 leaders agreed to launch the negotiation of the RCEP in November 2012 and concluded its agreement in November 2019 but without Indian participation (Hearn and Myers 2015; Johnston 2017; Park 2021). The RCEP includes more than 2.3 billion people, and an output over $US26 trillion in 2020. Its GDP accounted for 30.7%, and the total trade volume was $US10.4 trillion in the same year which is 29.5% of the world trade volume in merchandize. It is no doubt that the RCEP could end up create the world largest trading bloc, even with India’s late withdrawal. It could provide major implication for the global economy such as spread of global production networks, reducing inefficiencies of multiple Asian FTAs etc. (Suh 2014; World Bank 2021a, b; Park 2021) (see Fig. 2). The RCEP needs strong leadership but needs to be based on ASEAN centrality because its role is regarded as impartial. In addition, China and Japan might not trust each other due to their rivalry in the region. In reality, however, the RCEP is a tool for a rising China in the region. Therefore, ASEAN, Korea, and Japan are concerned that China would eventually dominate East Asia through a China-led

Fig. 2 RCEP’s Share of World in Population, GDP, and Trade in Merchandize (%). Source WTO, World Trade Statistics (2021a, b), World Bank (2016, 2021a, b). Note Statistics in 2020 is without India

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Fig. 3 Share of GDP in the RCEP member nations (as of 2018, %). Source The World Bank (2021a, b)

East Asia Economic Community. Due to the possible Chinese economic dominance, some countries such as Japan, Korea, the Philippines, Vietnam have actively tried to balance between China and the USA in order to face off China’s possible threat. It will be far more difficult for China to dominate economically East Asia as Japan did during the 1980s with over 75% of regional GDP in the region because Korea and ASEAN economies are as strong as China is in generating economic growth. Therefore, the highest share of the China’s regional GDP could be around 55% of the regional GDP in the future and slowing down as a result of a more mature Chinese economy and also due to the domestic and international challenges such as a rapidly aging society, a declining fertility, difficulties of high-tech imports due to security concerns and so on (Suh 2014; Park and Pasierbiak 2018; Pederson 2021; The White House 2022a) (see Fig. 3). The collapse of the TPP leaves China as the leader of large-scale regional economic integration with the RCEP playing the role of the main pillar. However, the RCEP will probably be more open to new members in the Asia Pacific region. China foresees Chile and Peru’s participation in the RCEP and emphasizes its intention to keep its scheme open to any possible member nations. As a result, the RCEP may enhance the regional and global role played by China that potentially contributes to creating bilateral rivalry with the USA. Among the major member nations in the RCEP, their priorities are very diverse. China enhances its intention to make the RCEP as a basis of trade rules in the Asia Pacific region, while Japan focuses on providing high level of liberalization comparable to that of the TPP. Korea stands for high level of liberalization in trade and investment. In November 2019, 15 member nations in the RCEP (without India’s participation) finally agreed on all 20 chapters including market access issues and decided to proceed with legal processes for approval. The RCEP was signed in November 2020 and was expected to be in force in January

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2022. As such China can use it as a tool to set up trade rules in the region (Kumar and Charlton 2017; Basu Das 2017; Chaisse 2020).

2.2 Japan Led Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP) Without the U.S. Participation The USA took over leadership after participating in the TPP negotiations in 2010 with the aim of creating the U.S.-led trade rules in the Asia Pacific region called the Asia Pivot Policy under the Obama administration. The U.S. government realized that global trade and investment are critical to the U.S. economic performance and national security. In fact, more than 95% of the world’s population and 80% of its purchasing power exists outside the USA. Moreover, the Asia Pacific region is regarded as the most rapid economic growth hub in the world that will create the greatest consumption growth in the next decades. Therefore, it is critical for the U.S. government to complete region wide-trade agreements such as the TPP with allies and other nations in the region in order to strengthen its influential powers in the regional economies and politics (Schell and Shirk 2017). The U.S. intention was to use the TPP as a mechanism for isolating China in East Asia. The TPP as a high standard agreement would still act as a barrier for China to overcome in the near future even though China made clear it was ready to participate in the CPTPP. The CPTPP without the U.S. participation does not intend to exclude China in East Asia. However, it is difficult for China to accept the whole agreement of the CPTPP because it is inevitable for China to change its policies to sustain economic growth due to the state subsidies of the state-owned corporations (SOCs) and ensure social stability with strong state control instead of the free market mechanism. Therefore, the Chinese leadership understands that a rapid market reform is not a feasible pathway so that China cannot participate in the CPTPP negotiations at least in the near future. The recent announcement of Chinese participation in the CPTPP might be for pure politics to gain symbolic advantage in order to replace the USA as the economic hub of the agreement in the region. Along with the Chinese attempts, Korea and Taiwan also expressed their intentions to join the CPTPP in September 2021 (Suh 2014; Hopewell 2021). The TPP’s GDP share in the world economy increased from 38% in 2014 to 38.2% in 2015. Total world trade volume in 2014 accounted for $US23.4 trillion and declined to $US 20.9 trillion in 2015 making up an 11.2% decline. However, total trade share of the TPP in the world trade increased from 32% in 2014 to 41.5% in 2015. It demonstrates clearly the weight of the TPP in the world economy and trade. As such the TPP became the second-largest mega FTA in terms of its GDP and trade volume. However, after the U.S. withdrawal in 2017 from the TPP, its economic size declined rapidly. The CPTPP’s position in world population, GDP, and trade volume

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Fig. 4 TPP and CPTPP’s share of world in population, GDP, and Trade in Merchandize (%). Source WTO, World Trade Statistics, World Bank (2016, 2022), European Parliament (2021). Note Statistics in 2020 are without the USA

accounted for 6.7%, 12.8%, and 14.9%, respectively in 2020 (World Bank 2016, 2022; World Integrated Trade Solution 2017; Francois and Elsig 2021) (see Fig. 4). Due to the U.S. standpoint focusing on bilateral FTAs instead of multilateral FTA and the U.S. withdrawal from the TPP, Japan under the Abe leadership, tried to move the TPP forward even without U.S. participation. Despite the strong resistance of Malaysia and Vietnam, Japan along with other member nations such as Australia, Canada, New Zealand were able to create the CPTPP also known as TPP11 in May 2017. The CPTPP incorporates most of the TPP provisions by reference but suspended 22 provisions that the USA preferred, which other member nations opposed (https://www.mfat.govt.nz/, 2021). Eleven member nations reached agreement in January 2018 to conclude the CPTPP, and it was formally signed on 8 March 2018 in Santiago, Chile. The agreement specifies that its provisions enter into force 60 days after ratification by at least 50% of the signatories—that is 6 of 11 member nations. The sixth nation to ratify the CPTPP was Australia on 31 October 2018. As a result, the CPTPP came into force for the initial six ratifying countries on 30 December 2018. The CPTPP represented around 13% of global GDP in 2020 and accounted for approximately USD 11 trillion that made the CPTPP the third largest FTA in the world by GDP after the RCEP and the USMC. Its share of global GDP declined heavily to 12.8% due to the COVID-19 pandemic in 2020. The Japanese share of GDP was overwhelming amounting to 46.7% similar to China’s share in the RCEP.1 However, the share of the CPTPP in the global GDP shrank due to the U.S. withdrawal (Torrey 2018; Francois and Elsig 2021; World Bank 2021a, b, 2022) (see Figs. 4 and 5).

1

The U.K. became the member of the CPTPP in March 2023 that changes the Japanese share of GDP in the CPTPP substantially.

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Fig. 5 Share of GDP in CPTPP member nations (as of 2020, %). Source World Bank (2021a, b)

2.3 The USA Led IPEF and TF for Indo-Pacific Strategy (IPS) The USA has long recognized the Indo-Pacific region as vital to her security and prosperity since her arrival in the region in 1850. In particular, the U.S. governments have solidified their ties with the region after the post-war era through treaty alliances with Australia, Japan, Korea, the Philippines, and Thailand. At the same time, such a foundation of regional security allowed the alliances flouring democracies contribute to generate high economic growth and social stability. It expanded further to the region’s premier organization, the Association of Southeast Asian Nations (ASEAN), which developed close trade and investment relationships as well as international law and norms such as human rights, rule of law, democracy and freedom of navigation. Owing to the growing strategic value of the Asia Pacific region, the U.S. administrations from George W. Bush to Donald Trump accelerated their prioritization of Asia and invested new diplomatic, economic, and military resources. Particularly, the Trump government recognized the Indo-Pacific as the world’s center of gravity although his policy priority is represented as America First Policy. Under the Biden Administration, the USA will strength her long-term position and commitment to the Indo-Pacific region in order to check and control the Chinese economic, diplomatic, military, and technological influences in the region (The White House 2022a). In 2022, the Indo-Pacific region has over half of the world population including 58% of youth, and accounts for around 60% of the global GDP and generates two third of the global economic growth. Additionally, it covers 65% of world’s oceans and 25% of the land. It is no wonder the USA has recognized her strategic interests for the long term, even by the Trump Administration after the Obama’s Asia Pivot Policy. Such intensifying U.S. focus has increased due to the mounting challenges of China

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in the region pursuing its influences and seeking the world’s most influential power. During the Chinese expansion in the region, Korea and Australia have experienced China’s economic coercion, and Taiwan is threatened by Chinese military aggression. Additionally, ASEAN member nations in the East and South China Seas are still at odds over their sovereignty guaranteed by international laws. This has caused regional instability and hindered further prosperity in the Indo-Pacific region. The U.S. government has also recognized that the Indo-Pacific region faces other major challenges such as climate change, the COVID-19 pandemic, North Korea’s illicit nuclear weapons and missile program. In order to tackle these comprehensive challenges, the Biden government decided on strengthening the collective capacity with allies and partners that will empower the Indo-Pacific to adapt to the twenty-first century’s challenges and seize its opportunities. The USA is committed to building a free and open Indo-Pacific that is more connected, prosperous, secure, and resilient. It is the U.S. vision for launching the Indo-Pacific Strategy (IPS) recognizing the strategic value of an increasing regional role for the European Union (EU) as well. The EU also announced its cooperation in the IPS in line with the U.S strategy in democratic resilience. The IPS has five objectives such as free and open Indo Pacific, connections within and beyond the region, regional prosperity, Indo-Pacific security, and regional resilience to transnational threats (The White House 2022a). In order to implement this strategy, the Biden government will pursue the 10 core lines as action plans in the next 24 months until late 2023. The IPEF is included as one of these action plans, which was proposed in October 2021 in the annual East Asia Summit and is regarded as the centerpiece of his administration’s economic strategy in the region. After working on the contents of the initiative, the IPEF will consist of four pillars of work such as fair and resilient trade; supply chain resilience; infrastructure, clean energy, and decarbonization; and tax and anti-corruption. The U.S. Trade Representative (USTR) deals with the first pillar, while the Department of Commerce (DOC) is responsible for the three other pillars (Goodman and Arasaingham 2022; Natalegawa and Poling 2022) (see Table 1). Such an economic strategy is absolutely needed and urgent for the USA because the USA has deep and abiding interests in the Indo-Pacific region, where fierce competition exists over whose economic rules and norms will prevail. Since the USA withdrew from the TPP in 2017, it has largely sat on the sidelines, while other countries are actively negotiating trade agreements in order to establish regional rules and preferential access. This has concerned U.S. allies and partners despite the U.S. military and diplomatic presence in the region. Therefore, countries in the region, except China, welcome the IPEF, which could make the USA an active, reliable, and durable partner in the regional economic engagement. U.S. allies and partners characterized the IPEF as the second-best option to the USA joining the CPTPP (Goodman and Reinsch 2022; Goodman and Arasaingham 2022). Despite the welcome from allies and partners in the region, the Biden administration will face challenges and trade-offs across each pillar due to the diversity of economies and political constraints across the region. The USTR announced that the trade pillar focuses on fair and resilient trade with high ambitions including binding

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Table 1 Content and administration structure of the IPEF Pillars

Major work

Content

Administration in charge

1st pillar

Fair & resilient trade

Labor, environment, digital standard, etc.

U.S. trade representative (USTR)

2nd pillar

Supply chain resilience

Five strategic industrial sectors such as semiconductors, large-sized batteries, critical minerals and materials, and pharmaceutical products

Department of Commerce (DOC)

3rd pillar

Infrastructure, clean energy & decarbonization

Cheaper renewable energy than fossil energy, Financial Support, Build Back Better World (B3W)

DOC

4th pillar

Tax & anti-corruption

Least clear & least attractive to regional partners: global minimum corporate tax agreement (GMCT)

DOC

Source Author’s own adaptation based on Goodman and Arasaingham (2022) and The White House (2022b)

commitments. However, it may become complex because the IPEF will be an executive action rather than a traditional trade deal requiring congressional approval. It means that the U.S. administration cannot offer increased market access or any other concessions that would require any amendments to U.S. laws. It has led to concerns amongst allies and partners that the IPEF could be vulnerable to U.S. domestic politics or future administrations which could abandon the IPEF if they are considered as not contributing to U.S. national interests. Therefore, several partners may hesitate to sign on digital trade, labor, and environmental standards that do not provide shortterm economic and political interests to allies and partners with low and medium level of GDP per capita (Goodman and Reinsch 2022). Accordingly, the U.S. administration expects that most developed economies in the region such as Australia, Japan, Korea, New Zealand, Singapore could join the IPEF, while other allies and partners will talk with DOC on the other three pillars. Surprisingly, however, President Biden announced a day before the QUAD Summit in Tokyo on 23 May 2022 that six developed economies, India, and seven ASEAN member nations excluding Cambodia, Myanmar, and Laos will join the IPEF as an open platform. A couple of days later, the Pacific Island country Fiji announced it would join the IPEF also. The total number of joining members is 14 countries, and its population, GDP, and trade volume in merchandize trade in 2020 accounted for over 32%, 40%, and 28%, respectively. Later in June 2022, the U.S. government announced it would build the Taiwan Framework (TF) separately because it did not wish to officially violate the One China policy and to consider ASEAN countries’ perspectives participating in IPEF, on having close economic relations with China (Goodman and Arasaingham 2022; The White House 2022b; World Bank 2022; Reuters 2022) (see Fig. 6).

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Fig. 6 Comparison of RCEP, CPTPP, and IPEF in population, GDP, and Trade Volume (as of 2020, %). Source World Bank (2022)

3 Possible Political and Economic Effects of the Mega FTAs and IPEF as Well as TF on Major Economies by Reshaping Global Supply Chains 3.1 Political Effects Two mega FTAs such as the RCEP and the CPTPP have been competing with each other in order to set the trade rules in the Asia Pacific region. Additionally, the newly launched IPEF could play a significant role in challenging the RCEP and cooperating with the CPTPP. These two mega FTAs were completed in 2018 and 2020 without the involvement of both the USA and India. At the same time, the USA and India have participated in the IPEF when it was launched in May 2022. This is dominated by East Asian countries and the only major multilateral FTA signed in the Trump era. As a result of the U.S. withdrawal from the TPP, the two mega FTAs forcefully stimulate intra-East Asian integration around China and Japan. Under such a circumstance, the U.S. government needs to rebalance its economic and security strategies to advance not only its economic interests but also its political interests in security goals by initiating the IPS in 2021 (Petri and Plummer 2020a; The White House 2022a, b). The RCEP and the CPTPP are expected to make the economies of East Asia more efficient and strengthen their linkages in technology, manufacturing, agriculture, and natural resources. They also create not only incentives in supply chains across the region but also political sensitivities. In particular, China will gain its economic and political influence in the RCEP because the agreement is not restricted to intellectual property rules (IPRs), labor, environment, and SOEs, which are included in all key chapters of the CPTPP. Additionally, the RCEP could improve access to Chinese Belt and Road Initiative (BRI) funds that enhance market access by strengthening transport, energy, and communication links. The two mega FTAs are powerful countermeasures to the global decline in rules-based trade due to the protectionism

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triggered by the trade conflicts between the G-2 nations. If the RCEP motivates mutually beneficial growth, China and other major members will gain influence across the world. The trade conflicts between China and the USA have created a new agenda around national security based on the high-tech development and hegemony. The U.S. government has used its protectionism to ban the high-tech exports to China in order to maintain the U.S. high-tech hegemony and to suppress Chinese challenges to become an economic and political superpower competing with the USA. In order to control and check the emerging China, the U.S. government has tried to rebuild a new strategic supply chain with its allies in the Asia Pacific region and encouraged USA and allied companies operating in China to move to other Southeast Asian countries, their homelands, and the USA in order to participate in new supply chains led by the USA in line with the IPEF and the TF. Additionally, the U.S. government aims to rebuild strategic high-tech sector such as semiconductors, large capacity batteries, critical minerals and materials, pharmaceutical products for the primary ingredients of generic drugs in its homeland to secure the domestic supply and value chains with the core allies and partners such as Japan and Korea as well as Taiwan, regarded as strategic industrial sectors for the U.S. national and economic security. The U.S. government has strongly recommended its allies and partners producing semiconductors and large capacity batteries to build manufacturing facilities and expand their production capacities on U.S. soil in line with reshaping the U.S. supply and value chains. It regards these high-tech sectors as strategic infrastructures for its economy security (Wolf 2020; The White House 2021, 2022a, b; Pederson 2021). Under such new environment to rebuild new global supply and value chains based on the IPEF and the TF, the China-led RCEP could be a double-edged sword to other member nations. Korea, Singapore, and Japan are strongly linked to China in terms of regional value chains compared to other member nations within the RCEP. Additionally, Korea and Japan are actively participating in reshaping the domestic supply chains in the USA particularly in semiconductors and large capacity batteries that could cause a new form of trade conflict between China, Japan, and Korea based on trade nationalism although the trade and economies of three Northeastern countries are deeply inter-linked and integrated. It means that a China risk based on the interruption of the GSCs due to the sudden lockdown in several production facilities during the pandemic and the artificial production control on key resources such as rare earth products, lithium, magnesium, tungsten could take place for Korea and Japan in the RCEP and the CPTPP due to the China and the U.S. rivalry of high-tech hegemony and the GSCs in the Asia Pacific region. In that case, Korea may be more exposed in the China risk than Japan because Korean economic and trade dependency on China is higher than Japanese dependency (Lee 2020; Francois and Elsig 2021). Despite this, the Biden government launched the IPEF with 14 member nations in May 2022 in the Tokyo Summit instead of participating in the CPTPP. The USA is keen to create an open forum such as IPEF in the Indo-Pacific region in order to tackle the emerging China which is expanding its economic and political influence not only in the region but also in the world. However, participating in the mega FTAs based on

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the free trade principle could cause and deepen the deindustrialization and the rising unemployment rate in the traditional industrial sectors that are responsible for the Rust Belt areas at home. Therefore, former Democrat presidential candidate, Hilary Clinton also refused to officially support the TPP during the U.S. election campaign. At the same time, the Republican presidential candidate Donald Trump also criticized any multilateral FTAs and preferred the bilateral FTAs for his America First Policy. Due to the internal political environment, the Biden administration pursues fair and resilience trade as the first pillar instead of free trade in the IPEF. Additionally, it sets the reshaping GSCs in strategic industrial areas as the second pillar among the four pillars in order to revitalize and restructure domestic manufacturing sectors that could create new employment and mitigate the critics concerned with deindustrialization. The TF may address the same or similar in content with the IPEF (Goodman and Reinsch 2022; Goodman and Arasaingham 2022; Natalegawa and Poling 2022).

3.2 Economic Effects In the global economy, the year 2015 is a turning point to mark the negative growth in terms of the world GDP and trade compared to the previous year ever since the global financial crisis in 2008. Therefore, its economic impact on the Asia and Pacific region is also significant. Under such a negative economic environment, the RCEP was able to increase its global GDP share from 29% in 2014 to 31.9% in 2018 and declined slightly to 30.7% in 2020, while the global GDP share of the CPTPP shrank from 38% in 2014 to 15% in 2020 (Francois and Elsig 2021; World Bank 2022). Additionally, the global share of the RCEP in trade declined from 35% in 2014 to 29.5% in 2020, while the CPTPP lost share from 32% in 2014 to 14.9% in 2020. It may indicate that the RCEP may have higher potential than the CPTPP to grow further in the future because most of the member nations particularly China and ASEAN countries can create high economic growth based on their trade volume increase and high potential of inward FDI. Although four ASEAN member nations such as Brunei, Malaysia, Singapore, Vietnam are members of the RCEP and the CPTPP, their roles to contribute to a massive expansion for trade growth in the CPTPP might be limited. On the other hand, they can intensify their roles in the RCEP along with China, Indonesia, the Philippines, Thailand higher than in the CPTPP with Chile, Mexico, and Peru. It is the reason why Malaysia and Vietnam were opposed to participate in the CPTPP despite Abe’s persuasion in 2017. Despite the fact, that both member nations agreed to participate in the CPTPP in March 2018, after Abe eased the restrictions on imports for agricultural products in advanced member nations and of forced labor as well as free data flow, which were set by the U.S. government to exclude Chinese participation in the TPP (Hoang and Hoan 2019; Tiezzi 2021). Due to the visible imbalance between the RCEP and the CPTPP in the region, the Biden government has been keen to engage in the Indo-Pacific region in order to balance between the two mega FTAs and check the Chinese economic expansion and influence in the region by launching the IPEF that included India, seven major

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ASEAN member nations, and Fiji. As a result, the IPEF’s output and trade volume in 2020 in the world accounted for 40.9% and 28.5%, respectively that could develop larger than the RCEP in the near future (The White House 2022a, b). The economic impact of the two mega FTAs on the East Asian countries in general and the three major economies in Northeast Asia in particular vary from income increases and trade for exports. In order to estimate the economic effects of the RCEP and the CPTPP, the Computable General Equilibrium (CGE) model is a useful tool for analysis and it remains the workhorse of ex-ante trade policy modeling providing quantitative insight into economy-wide results for multiple regions and projects for production and trade in various economic sectors (Petri and Plummer 2020b; Park et al. 2021). The RCEP reflects data and judgments based on the published agreement, and average tariff reductions comply with 90% average tariff elimination that was announced at the conclusion of the RCEP. It is regarded as a medium level of the FTA in terms of market openness. By contrary, the CPTPP aimed to meet tariff schedules and nontariff barriers that were achieved under the high-quality trade agreements in the ROK-US FTA and the USMCA agreements. With respect to income effects of the RCEP in the East Asian countries, Korea and Japan gain benefits mostly, while China and ASEAN member nations add their gains moderately. In the CPTPP, Brunei, Singapore, and Vietnam as well as Japan generate high-income increase, while China and Korea are at a disadvantage. Given the estimation of the trade effects in the RCEP, Japan, Korea, and China create their expansion, while Japan, Malaysia, Singapore, and Vietnam gain their export growth in the CPTPP mostly. By contrary, Thailand, Korea, and China will lose their trade expansion in the CPTPP (Park et al. 2021). The same economic modeling of CGE carried out for the economic impacts of the TPP in 2015 showed also that the TPP will increase annual real incomes in the USA by $US 131 billion or 0.5% of the GDP, and annual exports by $US 357 billion or 9.1% of exports, over baseline projections by 2030 when the agreement is fully implemented. However, most workers losing jobs could find alternative employment, but workers in specific locations, industries, and less skill jobs may experience serious transition costs such as long wage cuts and unemployment in the USA. It was estimated that the total costs of displaced workers could be a fraction of overall U.S. gains from the TPP (Lawrence 2014; Petri and Plummer 2016). This was the core reason why the Trump Administration withdrew from the TPP in 2017, and many observers asserted that the U.S. government lacked an economic and trade strategy sufficient to counter China’s increasing economic influence in the region and to keep pace with technological developments in the region. Therefore, the Biden government initiated the IPEF and the TF requiring broader base of domestic economic and political support than the TPP had. It focuses largely on the global supply chain security including cooperative five strategic industrial areas and is still too early to analyze or estimate the economic effects of the IPEF and the TF in the region yet. However, one thing is sure that the reshaping GSCs based on the economic efficiency will be replaced by the economic security in the region (CRS 2021).

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4 Concluding Remarks During the last six decades, the growth rate of trade has been doubled that of economic growth. The GFC in 2008 caused a severe decline of trade and triggered negative economic growth since then. Moreover, the global economy slowed down and trade volume declined radically due to the COVID-19 pandemic in 2020. It started to recover moderately from 2021 amid the pandemic. Additionally, the military conflict between Russia and Ukraine took place in February 2022, and since then the global political economy has experienced turmoil due to increasing energy and food prices. Under such a background, the two mega FTAs, notably the CPTPP and the RCEP, completed in 2018 and 2020 and ratified in 2019 and 2021, both without the participation of the USA and India, respectively. Mega FTAs are not only for economic cooperation but also political and security cooperation in the Asia Pacific or the newly named Indo-Pacific region. Therefore, these two mega FTAs compete with each other by setting trade rules and reshaping the new global supply chains even though both declare to be open to any member nation in the region. Accordingly, participating nations in the mega FTAs are keen to calculate their national interests in politics, economy, social welfare, technology development, infrastructure etc. that must be maximized by choosing the proper mega FTAs. In this sense, the RCEP focuses mainly on East Asian economic interests in particular, while the CPTPP seeks economic interests in the Asia Pacific region as a whole although all nations in the region are not members to these agreements. At the same time, the two mega FTAs have been formed and led by China and Japan with other member nations. As a result, and led by the two Asian economies, they will accelerate East Asian and Asian Pacific economic integration. Although the U.S. withdrew from the TPP, it continues to be involved in reshaping the GSCs through the newly launched IPEF and discussing the TF not only in the Indo-Pacific region but also at home in order to tackle the emerging Chinese economic and political power in competition with the USA in the Indo-Pacific region. The U.S. government already began to rebuild the core supply chains in its homeland focusing on key industrial sectors in order to secure the domestic supply and value chains and to maintain its high-tech hegemony that gains domestic economic and political support because the TPP could generate the economic losses instead of benefit due to the increasing cost of the unemployment. It regards these as strategic key industrial sectors for the U.S. national and economic security and the revitalization of domestic manufacturing industry securing jobs and global competitiveness. By rebuilding the new supply and value chains through the IPEF and the TF, trade conflicts between the G-2 nations and with other member nations in the RCEP, the CPTPP, the IPEF, and the TF must be inevitable due to clash of competing national interests despite the fact that they generate economic and political interests in economic growth and influential powers in the global economy to the most of member nations. However, some member nations such as Japan, Korea, Singapore, and Taiwan will be well prepared to minimize the China risk as a double-edged

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sword after participating in the IPEF and the TF because their economic and trade dependencies on China are higher than other member nations. Overall, the two mega FTAs, and the IPEF as well as the TF can contribute to intensifying the regional economic integration in East Asia and the Indo-Pacific region. At the same time, however, the China risk remains as the trade conflicts between the G-2 nations based on trade nationalism and reshaping the global supply and value chains excluding China exist. As pointed out, Japan, Korea, and possibly Taiwan will be the most exposed to the China risk on basic materials and resources because they are key nations and allies as well as being partners of the USA as well as having high capabilities in strategic high technologies such as semiconductors and large capability batteries participating in the new global supply and value chains on U.S. soil. At the same time, Japan, Korea, and Taiwan are also exposed to the China risk because their industries in intermediate products are more dependent on China than the USA in the region. Accordingly, it is a dilemma for these economies to secure their economic and defense security by participating in the IPEF and the TF, and at the same time, risk losing the Chinese market and raw materials. It underscores the fact that the Asia and Pacific or Indo-Pacific region has become the core area in the global economic and political arena for setting the new global trade order in the twenty-first century.

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Schell O, Shirk SL (2017) US policy toward China: recommendations for a new administration. Asia Society Center on US China Relations, New York The White House (2021) fact sheet: Biden-Harris administration announces supply chain disruptions task force to address short-term supply chain discontinuities. https://www.whitehouse. gov/briefing-room/statements-releases/2021/06/08/fact-sheet-biden-harris-administration-ann ounces-supply-chain-disruptions-task-force-to-address-short-term-supply-chain-discontinuit ies/. Accessed 16 Sep 2022 The White House (2022a) Indo-pacific strategy on the United States. https://www.white-house.gov/ wp-content/uploads/2022/02/U.S.-Indo-Pacific-Strategy.pdf. Accessed 11 May 2022 The While House (2022b) On the record press call on the launch of the indo-pacific economic framework, Press Briefings. https://www.whitehouse.gov/briefing-room/press-briefings/2022/05/23/ on-the-record-press-call-on-the-launch-of-the-indo-pacific-economic-framework/. Accessed 23 May 2022 Tiezzi S (2021) Will China actually join CPTPP?. The Diplomat, https://-thediplomat.com/2021/ 09/will-china-actually-join-the-cptpp/. Accessed 4 June 2022 Torrey Z (2018) TPP 2.0: the deal without the US. https://thediplomat.com/2018/02/tpp-2-0-thedeal-without-the-us/. Accessed 18 Feb 2022 Urata S (2013) Constructing and Multilateralizing the Regional comprehensive economic partnership: an asian perspective, ADBI Working Paper Series, No. 449. ADBI, Tokyo Urata S (2021) Trends od the FTAs in East Asia from the 1990s to the 2010s: defensive and competitive regionalism. In: Ing LY, Richardson M, Utara S (eds) East Asian integration: goods, services and investment, pp. 6–24. Routledge, London, New York Suh JK (2014) Korean Bridge: balancing Asian economic regionalism between the United States and China. In: Rozman G (ed) Joint US-Korea academic studies, vol 25, pp 188–199. Korea Economic Institute of America, Washington D.C Wolf M (2020) Chain reaction: the China link in global supply chains. Deloitte Insight. https:// www2.deloitte.com/us/en/insights/economy/asia-pacific/china-supply-chain.html. Accessed 16 Sep 2022 World Bank (2016) Data Bank. http://databank.worldbank.org/data/databases/%26nbsp;trade-data? pagenumber=4. Accessed 19 Apr 2022 World Bank (2021a) Data Bank. https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locati ons=AU-JP-NZ-BN-MY-SG-VN-CA-CL-PE-MX. Accessed 13 May 2022 World Bank (2021b) World Bank Data. https://data.worldbank.-org/indicator/NY.GDP.MKTP.KD. ZG?locations=1W. Accessed 11 Aug 2022 World Bank (2022) World Bank Data. https://data.worldbank.org/indicator/TM.VAL.MRCH. CD.WT. Accessed 25 May 2022 World Integrated Trade Solution (2017). http://wits.worldbank.org/#. Accessed 19 Oct 2022 World Trade Organization (WTO) (2017) Trade statistics and outlook: trade recovery expected in 2017 and 2018, p. 791. Amid Policy Uncertainty Press World Trade Organization (WTO) (2021a) Trade statistics and outlook, Press/889, https://www. wto.org/english/news_e/pres21_e/pr889_e.pdf. Accessed 27 May 2022 World Trade Organization (WTO) (2021b) World trade statistical review 2021. https://www.wto. org/english/res_e/statis_e/wts2021_e/wts2021_e.pdf. Accessed 27 Feb 2022 World Trade Organization (WTO) (2022) Trade statistics and outlook, Press/902, https://www.wto. org/english/news_e/pres22_e/pr902_e.pdf. Accessed 10 May 2022 Xiao Y (2015) Competitive mega-regional trade agreement: regional comprehensive economic partnership (RCEP) versus trans pacific partnership (TPP). CUREJ Electron J. http://repository. upenn.edu/curej. Accessed 16 June 2022 Yi Q (2014) The RCEP: a Chinese perspective. In: Tang G, Petri PA (eds) New directions in Asia-pacific economic integration, pp. 131–137. East-West Center, Honolulu

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Chapter 3

From Asia-Pacific to Indo-Pacific: China as Pushing (Thrust) or Pulling Force (Obstacle)? Yung-Yung Chang

Abstract From Obama’s ‘pivot to Asia’ to Trump’s vision of ‘Free and Open IndoPacific’ as the U.S.’s overall strategy, the term Indo-Pacific has been adopted by more and more states and regional organizations to supplant the long-existing and widely accepted ‘Asia-Pacific’. ‘Indo-Pacific’ as a focus has caught a lot of scholarly and policy-making attention. Many of them delve into the relations between Indo-Pacific and Asia-Pacific (comparable, identical, complementary or competitive); and the prospects of this new emerging region ‘Indo-Pacific’ (reconstruct the regional order, reconfigure the power distribution in the region). It is widely believed that the emergence of this term has originated from the structural transformation of the rising China. While Indo-Pacific has gained its discursive popularity and is being promoted by many major actors, in contrast to theoretical expectations, there has been no significant institutions with niche functions associated directly with the region of Indo-Pacific. To explore the gap between the discursive popularity and institutionalization weakness of the Indo-pacific, the chapter adopts the demand-supply framework proposed by Mattli (1999) to distinguish between market demand and political supply condition for explaining the institution-building of Indo-Pacific. In short, the chapter presents an overview and an analysis of the essential characteristics of the rise of China and its influence on the formation of the Indo-Pacific idea as well as the institutionalization of the region. It will first examine the emergence of Indo-Pacific under the circumstance of ‘rising China’; review the theoretical literature of liberal institutionalism and institution-balance theory to reveal the contrast between theories and reality; explain the puzzle concerning the weakness of institutionalization in the Indo-Pacific. Finally, the article will conclude with the reflection on China’s role to push or hinder the process of institutionalization and summarize with the implication on the corresponding regional order.

The chapter is originally prepared for the ‘International Conference on the Roles of East Asia and the European Union in the changing global orders: Competition versus Collaboration’ in October 2022, Hualien, Taiwan. Y.-Y. Chang (B) National Dong Hwa University, Hualien, Taiwan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_3

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Keywords Indo-Pacific · China · Regional order · Institution-building · Leadership · Supply-demand framework

1 Introduction From Obama’s ‘pivot to Asia’ to Trump’s vision of ‘Free and Open Indo-Pacific’ as the U.S.’s overall strategy toward the region, the term Indo-Pacific has been adopted by more and more states and regional organizations to supplant the long-existing and widely accepted ‘Asia-Pacific’. ‘Indo-Pacific’ as a focus has caught many scholarly and policy-making attention. Many of them started to wonder about the relations between Indo-Pacific and Asia-Pacific (comparable, identical, complementary or competitive); and the prospects of this new emerging region ‘Indo-Pacific’ (reconstruct the regional order, reconfigure the power distribution in the region). Without refuting the increasing importance of Indo-Pacific as a region, this article would like to examine how Indo-Pacific could be constructed, accepted and recognized by exploring the process of institution-building in the Indo-Pacific region. The region ‘Indo-Pacific’ is not new but has been largely associated with marine biologists for discovering colorful new species of fish. Yet, since 2010, the term ‘IndoPacific’ has gained growing prevalence in the geopolitical and strategic discourse and is now being used increasingly by policy-makers, analysts and academics in Asia and beyond. For instance, Indo-Pacific appeared to be a new defined region for Australia, with its release of the Defense White Paper in 2013; in 2018, the United States adopted a national security strategy for the Indo-Pacific and renamed its former Pacific military command from the United States Pacific Command to U.S. Indo-Pacific Command in order to recognize the increasing connectivity between Indian and Pacific oceans; and in 2019, ASEAN also announced its ‘Outlook on the Indo-Pacific’. Google Trend, which analyzes the popularity of top search queries in Google Search across various regions and languages, signifies that the keyword search ‘IndoPacific’ has gained its popularity since 2010, reaching its peak in 2017 and then further going up (see Image 1). Besides, it also reveals the top five relevant searches in connection with the term Indo-Pacific. They are Indo-Pacific Strategy, Free and Open Indo-Pacific, ASEAN, Indo-Pacific command and Indo-Pacific economic framework. These searches suggested the strong strategic implication of the term Indo-Pacific and its close connection with the regional order building (see Image 2). Additionally, beyond the general term search on the searching engine, in the academic field, one also finds active discussion concerning the topic ‘Indo-Pacific’. It is particularly intriguing to observe that even in the Chinese academic field, in which the term and the concept of Indo-Pacific are rather negatively perceived, there are increasing contributions on the topic of Indo-Pacific. By visiting the CNKI (China

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2010, January

2013, December 1.

2017, November 1.

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2021, October 1.

Image 1 Term search on Indo-Pacific. Source Google Trend (2022)

Related Searches

Popularity surges Skyrocketing Skyrocketing

Skyrocketing

Skyrocketing Skyrocketing

Image 2 Relevant topic concerning the term Indo-Pacific search. Source Google Trend (2022)

National Knowledge Infrastructure)1 and searching the keyword Indo-Pacific (either in Chinese ‘印太’ or in English ‘Indo-Pacific’), the results are shown below (see Image 3): from 2013 to 2022, there are more than 1000 contributions addressing the topic Indo-Pacific. The most relevant topics addressing the term are concerning geo-politics, strategy, U.S. strategic plan, policy on China, Belt and Road, etc. Whether it is from the academic field in China or from a more general search on the search engine, the data displayed above provide a general picture of how the term Indo-Pacific as a region has become prevalent and important. 1

CNKI owns a system called ‘China Integrated Knowledge Resources System’ that collecting academic works (journals, dissertations, theses, conference proceedings), as well as newspapers, (statistical) yearbooks, e-books and so on. It is originally led by the Tsinghua University and is now considered as the largest website/platform providing full-text academic information.

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Image 3 Keyword search in the CNKI academic search platform. Source CNKI (2022)

Without denying the fact that the region Indo-Pacific has gained its significance in the nominal term, it is however crucial to ask whether this nominal prevalence has transformed into any substantial impacts. Namely, whether there is any concrete mechanism or institutions being established for the sake of facilitating cooperation and reducing conflict to stabilize the ‘regional order’. Can Indo-Pacific as a region go beyond its ‘nominal value’ and has its ‘real value’ of providing a regional platform to tackle the transnational problems, manage the changing power dynamics, and bridge the national and global level of governance? To understand this, the chapter will firstly examine the rationale for ‘constructing’ Indo-Pacific and then further explore whether there is any corresponding mechanism being established to support the rationale and realize the ‘real value’ of the region.

2 Theoretical Background 2.1 Constructing One Region A region is often defined as a group of countries located in the same geographically specified area. Putting in the context of International Relations, region generally refers to the multilateral groupings of neighboring nations (e.g. Europe, East Asia,

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etc.). Spatial factors like geographical proximity is a critical criterion of a region; yet it is not sufficient. Solely basing on the ‘geographic proximity’ factor to define one region can easily ignore the dynamics of social and political forces. In addition to physical closeness, nonphysical terms such as societal homogeneity are further stressed to define one region. That is, a region implies more than just close physical continuity among the constituent states; shared cultural, economic, linguistic, or political ties are essential for constructing regions with shared common identity. According to Acharya (2010), “(1) regions are not just material constructs but also ideational ones; (2) regions are not a given or fixed, but are socially constructed—the made and remade through political, economic, social, and cultural interactions and (3) just like nation states, regions may rise and wither” (p. 1001). By the same token, Katzenstein (1996) points out that “regional designations are no more ‘real’ in terms of geography, they are ‘natural’ in terms of culture […] As products of culture and economics, history and politics, geographically defined regions over time” (p. 125). In brief, a region is never naturally formed. It is both the physical contiguity and societal homogeneity that matter to define and construct one region.

2.2 Rationale: China’s Rise as a Trigger The key events that brought Indo-Pacific as a region into central focus of international politics began with the then Japanese Prime Minister Abe calling the Indian Ocean and the Pacific ‘one common space’ in his speech to the Parliament of the Republic of India—Confluence of the Two Seas (Ministry of Foreign Affairs Japan 2007). In his remarks, Abe stated, “the Pacific and Indian oceans are now bringing about a dynamic coupling as seas of freedom and prosperity” (Ministry of Foreign Affairs Japan 2007). The idea to integrate Indian and Pacific Ocean has won the resonance from India. The Indian academic and strategist, Capt. Gurpreet Khurana, articulated and explained the Indo-Pacific concept in a paper titled ‘Security of Sea Lines: Prospects of India-Japan Cooperation’ in 2007 to describe the convergent interests between Japan and India on ‘sea route security’ and ‘strengthening strategic congruence’ (Khurana 2007). Then, the popularity of the term has further reached its peak in 2017 when the then U.S. President Trump paid his visit to Asia at the APEC summit and raised the concept of Indo-Pacific to prominence. He called ‘Free and Open Indo-Pacific’ as the focal point of U.S.’s Asia policy (Harding 2019). By 2019, Japan, Australia, United States, ASEAN, India and some European countries (e.g. France) had already frequently used the term Indo-Pacific in their official governmental papers and statements; and expressed their interests in involving regional affairs in this area. The term Indo-Pacific indeed marks a specific region on the map. Broadly speaking, in its geographical term, Indo-Pacific seems to be relatively coherent: it is a region to put two oceans, the Indian and Pacific Ocean, together as one contiguous area. In spite of this seemingly definite geographical term, Indo-Pacific is interpreted differently according to various actors. According to the map produced by Heiduk and Wacker (2020), it is not surprising that each relevant country (Japan, United

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States, Australia and India) has its own ‘imagination’ of Indo-Pacific, which is not identical with one another (see Image 4). For instance, the United States and Japan have a broader definition of the region than India and Australia. Given the fact that there is no unified Indo-Pacific concept, the Indo-Pacific has gradually emerged as a very contesting region that set up a stage for (re)constructing power configuration between great powers (United States, China) and middle powers (Japan, Australia, India, ASEAN) as well as for operating various strategic, economic and political activities. It is not only the geographical definition of the Indo-Pacific that is not yet settled, but its strategic importance for policy implications also varies from one interested party to the other. Thus, there is a need to firstly explore the rationales behind (re)defining and (re)constructing the region of Indo-Pacific, so that the emergence of the region with growing visuality since 2010 can be explained. According to He (2018), there are three faces of the Indo-Pacific based on the three IR theoretical perspectives: a balancing strategy against China from the realism, an institutional setting to facilitate cooperation from liberalism and an ideational construct to stress value-oriented and norm-based order from the constructivism. From the realist perspective, the new concept of Indo-Pacific is mainly prompted by countries like Australia, India, Japan and the United States, in order to balance against the rise of China in the region, particularly considering China’s proposal of the Belt and Road Initiative (BRI). Namely, the Indo-Pacific as a constructed region is seen as a strategic response and alternative to the Chinese BRI. The realist rationale emphasizes the rise of China that causes strategic anxieties for countries to promote the Indo-Pacific idea to stabilize the regional order (Pan 2014). Among others, with this expanded region of Indo-Pacific, the realist rationale stresses the return of India back to Asia as a substantial balancer against China’s growing influences. Besides, the Indo-Pacific provides a basis of potential alliance building beyond the U.S. huband-spoke system (He 2018). The realist face of the Indo-Pacific focuses mostly on the rise of China as a new superpower and the common threat shared by Asian countries toward the new power dynamics. For the liberalism, the Indo-Pacific is considered as a de facto region. Firstly, it is based on the economic logic of liberalism stressing the economic interdependence between the two oceans and the fact that the region has become the world’s economic center of gravity. As the Australian Defence White Paper (2016) points out, “by 2050, almost half the world’s economic output is expected to come from the Indo-Pacific” (p. 14). In addition to economic liberalism, the institutional logic of liberalism highlights the importance of institutions in facilitating nation states’ cooperation across two Oceans and claims that institutional support behind the Indo-Pacific connotation has already existed. As Medcalf (2014) suggests, when India, Australia and New Zealand joined the ASEAN + framework and became the members of the East Asia Summit (EAS) in 2005, “the contemporary Indo-Pacific era began” (p. 472). In brief, the liberalist face of Indo-Pacific focuses on potential cooperation among states across the two Oceans. Within this context, China’s rise acts also as a trigger, facilitating the interdependence and cooperation in the region with its economic strength.

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The constructivism stresses the role of ideas, values and norms in constituting the Indo-Pacific region. Accordingly, the concept of the Indo-Pacific “reflects a new social construct based on shared values and identities” (He 2018, p. 155). Among others, it is the ideas of freedom, democracy, the respect for basic human rights, and the rule-based order that are shared by the like-minded countries in the region (Abe 2012; Commonwealth of Australia 2016; Ministry of Foreign Affairs Japan 2007). In brief, “democratic values and identities, therefore, have become a new social glue to connect states in the Indo-Pacific” (He 2018, p. 155), and that “the ‘Indo-Pacific’ region has been accepted as a mental map by countries like India, Australia, United States and Japan” (Prasad 2019, p. 143). The constructivist face of the Indo-Pacific could not be fully understood without considering the role played by a rising China. That is to say, the common identity and shared values of the ‘Weness’ among likeminded states (which value freedom, democracy, rule-based order and respect for basic human rights, etc.) in the Indo-Pacific is prompted or further consolidated by a rising China, which is deemed to be the ‘Other’ that holds a rather distinct value and identity. Based on the IR perspectives, it is the common threat, economic interdependence/ cooperation and the shared common values/identity that explains the necessity to ‘construct’ this Indo-Pacific region with its emerging importance. No matter which perspective, the rising China is taken as the main consideration. Without denying that the China factor has pushed the consolidation of the region Indo-Pacific ahead, the author does agree with He and Feng (2020, p. 149) that the “litmus test for the Indo-Pacific concept in the future is… whether states are willing to develop meaningful institution-building mechanisms”. Namely, the chapter takes the institutionbuilding as a tangible indicator to assess the essence of the Indo-Pacific concept and the possibility to transform Indo-Pacific’s ‘nominal value’ into a real one. Accordingly, the next section will focus on examining whether there are any corresponding mechanisms established to represent the Indo-Pacific region. Nonetheless, before entering into the next section, it is crucial to point out that being largely inspired by He (2008, 2018) and He and Feng (2020)’s works, the chapter delves more into the institutionalization of the Indo-Pacific to study this emerging region under the changing power dynamics. If the China factor plays a central role for the construction/reconstruction or even the consolidation of the region ‘Indo-Pacific’, in order to better deal with the influence coming from the rising China, the establishment of an Indo-Pacific regional institution should be expected. However, as in the coming section will show, there is an institutional gap in the region of Indo-Pacific. In order to explain such a gap, different from the previous works done by He and Feng (2020), the chapter adopts another framework to explain the low level of institutionalization of Indo-Pacific, which emphasizes the logic of supply and demand condition instead of solely looking at the issue of leadership.

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Image 4 Map “Indo-Pacific: Geographical interpretation of the various actors” from: Felix Heiduk, Gudrun Wacker, “From Asia-Pacific to Indo-Pacific. Significance, Implementation and Challenges”, SWP Research Paper 2020/RP 09, 01.07.2020, https://doi.org/10.18449/2020RP09, (© Stiftung Wissenschaft und Politik, Berlin, 2020). Note: This is required by the SWP. Source Heiduk and Wacker (2020)

3 Reality Contrasting with Theories: Existing Corresponding Mechanism of Institution Building? The Indo-Pacific is widely treated as a concept, idea or term that prevails. Nonetheless, the main concern of the chapter is how can Indo-Pacific be materialized to exert actual influence and become a key political geographical region that defines states’ economic and foreign policy interests? In order to assess whether the Indo-Pacific is a sustainable, substantive region rather than an imagined or putative one, it is crucial to measure and operationalize the concept of Indo-Pacific. As mentioned, the chapter takes institution-building as a tangible indicator to concretize the Indo-Pacific concept and further assess its significance. Therefore, in this part, the chapter would like to ask: have regional/international actors institutionalized the Indo-Pacific since the term gains its prominence? If yes, how and if not, why? First of all, the chapter argues that for the Indo-Pacific to become something more substantial than an idea or a way to describe a geographical region, it will need the institutional footprints and impacts to get recognized. This argument is supported

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by neo-liberal institutionalism and the institutional balancing theory proposed by He (2008). Without denying that states are largely rational, utility-maximizing and unitary actors in an anarchical system, neo-liberal institutionalism thinks highly of the role of institutions in shaping states’ behaviors and deciding political and social outcomes (Koelble 1995). Institution is the basic source of political analysis. Institutions play a crucial role to minimize conflicts and facilitate cooperation through reducing transaction costs, providing information and enforcement mechanisms and so on. Institution is therefore defined as ‘rules of the game’ that provide formal and informal rules (such as “codes of conduct, norms of behavior and conventions”) and regulation to significantly affect human/state behaviors on political choices (North 1990, p. 36). From neo-liberal institutionalist perspective, once the region is institutionalized, institutions could provide the channel for facilitating cooperation among states so that the way toward securing regional order and promoting regional development will be smoother (Hurrell 1995; Keohane 1984). The institutional balancing model proposed by He (2008) is based on a so-called ‘dual track’ approach to marry neorealist and neoliberalist theories to stress the importance of institution-building as a balancing strategy for states to search for security under anarchy. It builds on “neorealism’s balance of power theory in conjunction with insights from neoliberalism’s interdependence theory” to identify the mechanism of institutional balancing, which is: “to counter pressures or threats through initiating, utilizing and dominating multilateral institutions” (He 2008, p. 492). This model emphasizes the importance of institutions for states to seek security and survival under anarchical situation. It specifies the liberalist condition of high economic interdependence among states that drives them to adopt the realist strategy of institution-building and balancing rather than the strategy of alliance formation. In short, the model argues that “the interplay between the distribution of power in the system and the economic interdependence among states determines state behavior” (He 2008, p. 495). Besides, within this balancing strategy, there are two forms: inclusive institutional balancing and exclusive institutional balancing. In the inclusive institution, the target state that causes the threat or pressure will be included and be constrained by norms, rules and principles. In exclusive one, the target state will be excluded and thus be constrained by the cohesion and unity of the new institution established by resisting states. All in all, the logics follows: when there is pressure or threat coming from the re-distribution of power/capability in the international system, such as the rising China, in order to ensure survival or pursue power, security and influence under anarchy, state actors would choose to build institutions as a softbalancing method rather than forming alliance to balance power against the threat, given the fact that they have a high degree of economic interdependence with the state causing pressure. Based on neo-liberal institutionalism and the institutional-balancing model, in responding to the changing distribution of power, namely, the rise of China, the institutionalization of the Indo-Pacific is expected to come along with emerging and growing importance. That is to say, there are powerful incentives for states involved in the Indo-Pacific to develop effective institutions in order to address different kinds

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of collective action problems. However, as the next part of the chapter will show, there have not yet been any significant or representative regional institutions with niche functions being developed and presented in the Indo-Pacific, in spite of its discursive popularity and recognized importance.

3.1 Lack of the Niche Functions of Institutions Representing Indo-Pacific The existing regional frameworks that are deemed to be closely connected with and covering the Indo-Pacific region include the East Asia Summit (EAS), Quadrilateral Security Dialogue (QUAD, QUAD 2.0, QUAD Plus), Indo-Pacific Economic Framework (IPEE) and the Indian Ocean Rim Association (IORA).

3.2 East Asia Summit (EAS) The EAS, which grew out of the ASEAN Plus Three (China, Japan, Republic of Korea) in 2005 and expanded to 18 members (plus India, Australia, New Zealand, the United States and Russia) in 2011, is a forum for dialogue on “broad strategic, political, and economic issues of common interest and concern” (ASEAN 2005). Among others, Australian government considers EAS as “the Indo-Pacific’s premier forum for strategic dialogue” and is “the only leader-led forum at which all key IndoPacific partners meet to discuss political, security and economic challenges facing the region” (Australian Government 2022). As China is also participating the EAS, the EAS might be considered as an inclusive balancing institution. Nevertheless, EAS is considered as a spin-off of the APT framework, yet without a coherent or holistic framework or a multi-structured and programmatic dialogue process (Dent 2010). Moreover, EAS is well-known for its ASEAN-centered and ASEAN-led process of regional integration. That is, it is ASEAN who leads the forum and only ASEAN member states are allowed to rotate and chair the forum annually. It is criticized that the ASEAN centrality has urged the EAS to become an appendix of ASEAN to monopolize the institutional design and development, which in turn leads to the unwanted situation that prevents other ‘plus countries’ or major powers from having a greater sense of ownership or responsibility over the institution, or a stronger identity toward the EAS. In addition to its limited organizational substance, most crucially, EAS cannot reflect the new dynamics of the ‘Indo-Pacific’. One of the most crucial aspect is that the critical role of India is not represented in the framework of EAS. As He (2018) put it, in the EAS, India is simply offered a seat in ASEAN-led multilateralism. Besides, the ASEAN Way, which prevails and is rooted as a common shared norm in

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EAS, is considered as inefficient in general, mainly due to its emphasis on informal institutional structure of the framework.

3.3 Quadrilateral Security Dialogue (QUAD, QUAD 2.0, QUAD Plus) QUAD is now the new main institutional expression and could be the one close to what He (2008) calls exclusive institutional balancing. The QUAD began in 2004 after the Indian Ocean tsunami, as a rather loose partnership among Japan, Australia, United States and India, the four major stakeholders in the Indian and Pacific Ocean region, to provide humanitarian and disaster assistance (The Guardian 2022). Based on this previous partnership, the QUAD formally emerged in 2007 when Japan, India, together with the United States and Australia, met after the ASEAN Regional Forum (ARF) and decided to form a mini-lateral arrangement called QUAD (Niranjan 2022). Before its reborn as QUAD 2.0 in 2017, the QUAD fell dormant, mainly due to China’s diplomatic pressure. Resurrecting in 2017, the QUAD leaders held their first formal summit in 2021 and displayed their determination to take the QUAD as a key platform to place more focus on the Indo-Pacific region, given the increasing assertive actions from the rising China. Amid the pandemic crisis in 2020, the idea of QUAD Plus framework found its first footing. In 2020, Quad Plus aims to expand the Quad’s horizons, in terms of pluralism and inclusivity by inviting new and emerging powers to the group. South Korea, Vietnam, New Zealand, Brazil and Israel were invited in 2020 to discuss a global response to COVID-19 within the QUAD Plus framework. In comparison to QUAD that mainly addressed issues of maritime, technological infrastructure and challenges through the lens of security, QUAD Plus tries to focus more on creating a cooperative framework to tackle shared international challenges, such as the pandemic-induced economic and public health concerns. That is, QUAD Plus is designed more as an intermediary with its aims to go beyond containing china and provide more flexibility for the participating nations (Panda 2022). Even though member states are determined to enhance the framework and assure their commitment as well as endeavor toward an ‘open, prosperous, and rules-based’ regional order (Niranjan 2022), there is no denying that both QUAD and QUAD Plus are still in their nascent stages without institutionalization. Not to mention that QUAD is still considered as a model of ‘mini-lateral’ security cooperation without manifesting the geographic meaning of the ‘Indo-Pacific’. Most crucially, ASEAN, with its rather lukewarm attitude toward the QUAD, is missing in the whole picture. In short, as Hall (2018) put it, QUAD is nothing more than “a forum for discussion and information exchange intended to lead to better policy coordination” between the four countries (p. 13).

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3.4 Indo-Pacific Economic Framework (IPEF) The idea to form IPEF came from the United States during the East Asia Summit in 2021. Agreeing with the initiative, many exploratory talks were held between the United States and Japan, Malaysia, Singapore and South Korea later on (Williams et al. 2022). In February 2022, the Biden Administration released its broader IndoPacific strategy, which paved the road for launching the IPEF in May in the same year. In the official statement, it is mentioned that, “IPEF will strengthen our ties in this critical region to define the coming decades for technological innovation and the global economy. Framework will create a stronger, fairer, more resilient economy for families, workers, and businesses in the United States and in the Indo-Pacific region” (The White House 2022). Australia, Brunei, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, Vietnam, but China are listed as initial partners. This framework proposed by the Biden administration can be seen as an IndoPacific-oriented policy that moves beyond security issues. The IPEF identifies various areas such as the digital economy, supply chain resilience, clean energy and anticorruption measures (Dapice 2022). In addition to serving as a “much-needed economic dimension to the Biden administration’s broader Indo-Pacific Strategy”, the IPEF also provides critical tools to further develop the preferred standards of the United States and other like-minded partners to maintain openness in the digital space (Andreyka Natalegawa and Poling 2022). In spite of being perceived as having real relevance (Dapice 2022), the IPEC still faces some doubts, especially concerning its scope and potential participants. Besides, although it is specified to be an economic framework, without a regional trade agreement (which implies there is no clarified market access or tariff reductions) with new binding rules, the IPEF may still remain on the sidelines being another channel to realize the focus of Indo-Pacific on security issues, rather than bearing niche functions to be compatible with other proposed frameworks like Regional Comprehensive Economic Partnership (RCEP), or Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (Barfield 2022; Williams et al. 2022). In short, IPEF would only be “another exclusive geopolitical pact under economic cooperation guise” (Li 2021). As its name shows, although IPEF is Indo-Pacific centered and it excludes (at least for now) China from joining the group as some exclusive institutional balancing, IPEF is still proposed only as a framework without significant institutionalization. In brief, while allowing Asian countries to sign on individual initiatives and preventing situations where Asian partners have to choose between the United States and China, the IPEF proposed by the United States as a U.S.-led framework does not necessarily guarantee its efficacy in challenging or matching China’s initiatives as well as its stronger economic position in the region compared to the United States (Barfield 2022; Dapice 2022).

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3.5 The Indian Ocean Rim Association (IORA) The IORA was established in 1997 to foster economic cooperation in the Indian Ocean region. Currently, it has 23 member-states and 10 dialogue partners, including China, Japan and the United States. In addition to key states such as Australia, France, Indonesia, Malaysia, Singapore, Thailand and so on, IORA also contains a number of African and Middle Eastern states. Niranjan (2022) points out that “IORA is cognizant of the economic and political transformations occurring in the Indian Ocean region and the broader Indo-Pacific” (p.13). The importance of IORA had already stood out when the idea of Indo-Pacific prevailed in 2010. As Medcalf (2019) points out, the rise of the Indo-Pacific signifies and underscores “the fact that the Indian Ocean has replaced the Atlantic as the globe’s busiest and most strategically significant trade corridor” (p. 54). In geopolitical terms, the Indian Ocean Rim (IOR), is no longer just the ‘Ocean of the South’ but is gradually being identified as the ‘Ocean of the Center’, and the ‘Ocean of the Future’ (Doyle and Seal 2015). In 2014, the ‘Blue Economy’ Declaration was released by the IORA to conceptualize oceans as ‘shared development spaces’ and to encourage greater collaboration in a range of priority areas (Doyle 2018). In short, the Blue Economy combining all geo-economic, geo-environmental and geo-strategic ordering principles is expected to “have profound implications on regional foreign policy interests in the next decade and beyond” (Doyle 2016, p. 1). Although since its inception, the IORA has gradually expanded its cooperative scopes and is gradually being recognized of high economic, strategic and environmental significance, as Naidu (2019) states, IORA faces problems with “weak institutional structures, a lack of tangible agenda and poor political backing by member states, especially the big four” (p. 109). Similarly, while the IORA has a significant number of member states participating, essential stakeholders such as Japan, the United States, and China are not members but only granted the status of dialogue partners. All in all, there is no representative and significant regional institution with niche functions reflecting the dynamics (in all economic, political and strategic terms) of the Indo-Pacific. The limitations of the above-mentioned institutions are either that the membership is not representative and limited to a specific region within the broader ‘Indo-Pacific’, or their scope and objectives are too narrow and confined to a particular issue, agenda, or subject (e.g. security, economy, etc.) (Niranjan 2022). To sum up, an overarching and representative institution to deal with the broader Indo-Pacific issues and to cover the appropriate, representative members is absent.

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4 Explaining the Institutional Gap of the Indo-Pacific: Demand and Supply in Disharmony There is more and more literature addressing the newly constructed Indo-Pacific region. Many of them still concern fundamentally about the substance and meaning of Indo-Pacific: whether it is only a geopolitical nomenclature framed by the likeminded countries around their various interests that only exists temporarily and will dissipate like ocean foam (Allan Gyngell 2018; Koyuncu 2022; MOFA_China 2018)2 ; or it is a substantial region whose time has come and will last for a long time to develop the regional order (Medcalf 2013; Naidu 2019; Tyler 2019). Within such discussion, although the opinions concerning the importance and prospects of the Indo-Pacific vary, literature mostly agrees that there are no significant and representative institutions corresponding to the idea of Indo-Pacific. A new discourse of institutionalization concerning the newly constructed Indo-Pacific emerges. However, while addressing the issue of institutionalization (Beeson 2018; He 2008, 2018; He and Feng 2020; Javaid 2021; Niranjan 2022; Phillips 2013), most of the literature centers around assessing institutional efficacy and addressing the issue of leadership by comparing the Indo-Pacific with other regions such as Asia Pacific. Without denying the important inputs of the previous works, the chapter would like to pay attention to the supply-demand condition to explain why there is an institutional gap in the region of Indo-Pacific.

4.1 Adopting Framework of Mattli (1999): Compromised Demand Meets Multiple Supply Using the ‘supply and demand’ framework to understand and assess the institutionbuilding in Indo-Pacific is mainly inspired by Mattli’s (1999) work. The chapter agrees with Mattli (1999) that successful institution-building for regional cooperation and integration needs to be considered from both demand and supply sides. Namely, it is necessary to distinguish between demand and supply conditions for the process. From an international political economic perspective, Mattli (1999) takes ‘demand from the market actors’ and ‘supply from the political actors’ as two decisive factors for successful institution-building. Thus, both economic and political concerns are significant in driving the formation of regional cooperation/integration. 2

In 2018, during the press conference, concerning China’s view on the ‘Indo-Pacific strategy’ pursued by the United States, Japan, India and Australia, Chinese Foreign Minister Wang Yi responded, “they are like the sea foam in the Pacific or Indian Ocean: they may get some attention, but soon will dissipate…Nowadays, stoking a new Cold War is out of sync with the times and inciting block confrontation will find no market” (Ministry of Foreign Affairs China 2018). Not only China has doubts on ‘Indo-Pacific’, Gyngell (2018), the National President of the Australian Institute of International Affairs (AIIA), also made a similar comment that “the Indo-Pacific is a framing device, not a geographical reality—its proponents shape it around their different interests. Each country has its own ‘Indo-Pacific’”.

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Successful institution-building in Indo-Pacific is expected when there is growing demand from regional actors (in both strategic/political and economic terms) for cooperation within the institutional framework; and there is appropriate supply with undisputed leadership to meet the demand to initiate regional institution-building. Based on Mattli’s framework, the chapter argues that the institutionalization gap of Indo-Pacific is mainly due to the condition that the ‘supply’ could not properly meet the ‘demand’. To be more precise, the chapter frames it as a condition where a ‘compromised demand’ (the strong strategic/political demands are offset by the weak economic incentives), is paired with the ‘multiple and inconsistent supply’. Namely, there is a weak demand and weak supply causing the ‘disharmony’ or ‘mismatch’. The reason lies much in the ‘China factor’. First of all, on the demand side, there seems to exist a strong political and strategic demand. There are various political and strategic interests for states to institutionalize Indo-Pacific. For instance, institutionalizing the Indo-Pacific is important for countries like the United States, Australia, Japan and India for various strategic and political interests. The United States treats the Indo-Pacific as an extension of its hub-and-spokes system in the Asia Pacific to contain China’s rise and safeguard U.S. leadership in the region. For Australia, with the expanded Indo-Pacific, it sees itself playing a greater, more central and critical role to influence the future multipolar world. Indo-Pacific also provides Japan with the opportunity to expand its strategic horizon and to ensure maritime security. In responding to China’s expanding influence and assertive activities in the region, the Indo-Pacific assures Japan a hope to realize its trilateral cooperation with the United States and India, as well as within the so-called QUAD framework. Lastly, Indo-Pacific gives India a golden chance to behave as a great power on the international stage. All in all, there is no doubt that the rising China is the common denominator. Yet, political and strategic demands are not sufficient for institutionalization. According to Mattli’s model, it is the market actors that drive the institutionalization for the region. The demand needs to be generated by the business sector, which possesses strong desire to profit from new technologies to “increase the scope of markets beyond the boundaries of a single state” (Mattli 1999, p.46). That is, economic gains as the incentive for institution-building are decisive to move the regional institutionalized process further. When it comes to the purely economic gains and market forces, China cannot be fully considered as a common threat by others (He and Feng 2020). Rather, it should also be deemed as a major stimulus for regional economic development and prosperity. As Li (2021) put it, “China’s role in promoting economic and trade of regional countries …has been easily felt by partners that are willing to abandon political gamesmanship when it comes to economic cooperation”. Many countries are not willing to comprehensively or economically decouple from China. Thus, institutionalizing Indo-Pacific, where China’s economic influence is steadfast and growing, is unrealistic without engaging China. In brief, institution-building hinging solely on political and strategic concerns from the governments does not provide sustainable and strong incentives. Namely, strong political and strategic demands are not sufficient enough and could be easily offset by the weak economic incentives from the business perspective.

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That is to say, from the demand side, there is no strong demand for building institutions to balance, exclude or decouple with China. Hence, the China factor is like a double-edge sword: while it acts as a trigger to intensify the demand for a more institutionalized Indo-Pacific, it also places restraints on realizing the institution-building process. In Mattli’s model, departing from the economic concern, national political leaders are considered as major suppliers of institution-building (Drulak 2000). It is expected that those political leaders representing nations would be willing to coordinate for the economic gains to bolster and consolidate their domestic political positions. Nonetheless, willingness to integrate from the leaders is not strong enough. To avoid the situation where political leaders fail to agree among themselves on how to integrate, Mattli stresses the role of ‘undisputed leadership’ to guide and smooth the process (Drulak 2000). By the undisputed leadership, Mattli mainly refers to powerful states, who act as “regional paymaster[s], easing distributional tensions and thus smoothing the path” of regional institution-building (Mattli 1999, p. 56). Three crucial elements need to be taken into account for defining leadership: power, willingness and legitimacy. Power refers to the ability to influence and motivate others. The ability possessed by nations or political leaders is defined in both material (military, economic) and ideational (normative) terms. However, possessing power and having capability do not guarantee leadership. Having capability is not enough to exercise leadership. It is also necessary to consider whether the potential leader also has the willingness to conduct leadership. Similarly, having ability with the willingness is also not sufficient. Without granted legitimacy, one will not have followers; and leadership without followers does not work. Leadership exists only when there are followers willing to be guided. Given these elements, leadership should be approached in plural and behavioral terms. It means that there is a need to differentiate several forms of leadership and analyze the interactions among them. In the context of building institutions in Indo-Pacific, given the complexity of the region, it implies engaging more than one leadership. Young (1991) has differentiated three types of leadership: structural, entrepreneurial and intellectual. Unlike structural leadership, which is based on the possession of material resources, entrepreneurial leadership stresses the use of negotiation and skillful diplomacy to bring all major parties together to fulfill common interests. Intellectual leadership, on the other hand, refers to the power of ideas to educate actors and “orient their thinking about options available to come to terms with issues” (Young 1991, p. 288). Unlike He and Feng (2020), who assumed that it is the structural leadership and intellectual leadership that matter for the institutionalization of the Indo-Pacific,3 the chapter argues that all the three types of leadership are crucial for realizing the process. Given the complexity and wide coverage of the geographical territories, it is inevitable to engage multiple leaderships with specific area focuses. Hence, it is not a matter of considering which types of leadership are more substantial, but of how to 3

He and Feng (2020) argue that the lack of both structural and intellectual leaderships causes the weak institutionalization in Indo-Pacific.

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coordinate multiple leaderships. Additionally, the chapter also tries to slightly revise Mattli’s argument and argues that the lack of institutionalization in Indo-Pacific lies not only in the lack of undisputed leadership(s) but also in ‘undefined leaderships’. Namely, it is the multiple sets of leaderships without unified, coherent, identified, consensual and defined features that have blurred the division of labor and have reduced (or delayed) the willingness of nations to partake in and push forward the process of institutionalization in Indo-Pacific. Therefore, in Indo-Pacific, institutionbuilding is not supposed to solely rely on the great powers acting as paymasters. Various great powers showing growing interests could only lead to power rivalry and cause the leadership vacuum to delay the institutionalization process. What needs to emphasize is the role of ‘smaller’ or ‘weaker’ middle powers4 such as ASEAN to play the role of a mediator to engage and coordinate major parties facilitating the process. On the supply side, without a clear division of labor and a proper mediator to intervene and smooth the process, the leadership issue can only hinder the process of institutionalization. In brief, when the possibly multiple, but undefined leaderships meet the compromised demand (which consists of no strong and consistent incentives among various stakeholders), it results in the imbalance between the loose demand and multiple supplies, reaching no optimal point to realize the institutionalization or solve the institutional dilemma in Indo-Pacific. Accordingly, similar to the demand aspect, the role of China needs to be taken into account. That is, the inclusion of China into the institution-building would be essential, which might create a positive stimulus for the competition and encourage middle powers like ASEAN to take both the entrepreneurial and intellectual leaderships. This could then be complemented by other major powers’ strengths to exercise structural leadership so that the institution-building in Indo-Pacific could be realized, as how ASEAN experienced its leadership by default in the East Asian regional integration process.

5 Conclusion—A Collectively Constructed Region for an Inclusive, Multipolar, and Peaceful Regional Order In political discourse, geographic concepts are never naturally defined; rather, to a larger extent, they are socially constructed (Murphy 1991; Katzenstein 1996). Yet, how one geographic concept is constructed will have a lasting impact on developing regional orders and cultivating the relations among regional actors. For instance, it

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Indo-Pacific is an increasingly multipolar region, in which middle powers would have more space for strategic maneuvering in comparison to the unipolar world featuring with inflexibility. According to Yilmaz (2017), middle powers refer to “states that occupy a middle-level position in the international power spectrum, just below superpowers or great powers. The middle powers project significant influence and reveal some capacity to shape international developments” (p. 1).

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can alter strategic considerations and foreign policy-making in one nation. ‘IndoPacific’ is a political term and therefore neither purely descriptive nor value-neutral (Heiduk and Wacker 2020). The construction and promotion of the Indo-Pacific by international actors like Japan, United States, Australia and India, in contrast to China’s reluctance to adopt the term and identify itself as part of the Indo-Pacific, suggest the changing power dynamic that has set up the battlefield between the two geographical concepts ‘Indo-Pacific’ and ‘Asia-Pacific’ (He and Li 2020). In 2019, the U.S. Department of Defense released the ‘Indo-Pacific strategy report’, in which China was labeled as a revisionist power, pursuing to “reorder the region to its advantage by leveraging military modernization, influence operations, and predatory economics to coerce other nations” (Department of Defense 2019, p. 4). Without assuming that the emerging Indo-Pacific will replace the long-existing Asia-Pacific, the author believes that the rise of the Indo-Pacific does not necessarily imply the fall or disappearance of the Asia-Pacific. Namely, there is no need to make a comparison between the two regions and figure out which region is more important or representative than the other. Instead, the growing Indo-Pacific should complement the existing Asia-Pacific to become more comprehensive, unified and less confrontational. In brief, currently, the significance of Indo-Pacific still speaks louder in words than in action as there is not yet a relevant, representative and influential institution that can reflect the dynamics, concerns, interests and states’ relations as well as interaction within the region. However, that does not mean that the Indo-Pacific will be disappearing like a sea foam as China officials claimed. To become a substantive region, institutionalization of the Indo-Pacific is urged and of importance. Although the current situation seems to be rather lagging behind, it is not without any progress. Especially with the pandemic crisis as an impetus/stimulus, the Indo-Pacific Charter is proposed and under examination. However, the key not only lies in institutionalization of the region but also in the influence of the China factor, or the role played by China: (1) how China would legitimize and adjust itself in the region; (2) how others would interact and engage with China in the framework of the Indo-Pacific. It is well-known that China is in no favor of the term Indo-Pacific, yet, it is definitely interested in the region, as its ambitious BRI showcases. From being a continental power to a maritime power, China’s growing influence is indeed taking place in the Indo-Pacific (Krishnan 2020). Whether China will be more assertive or more cooperative will have an impact on how other countries perceive/interpret the ‘China’s rise’ and how the corresponding measures will be taken to deal with China. Thus, it is open to observe whether China is a pushing (thrust) or pulling force (obstacle) for the emergence, (re)construction or institutionalization of the region Indo-Pacific. Ideally, the inclusive institutional building would be beneficial for regional peace and cooperation in the long run (He and Feng 2020). In this case, the role of ASEAN will be substantial, as it can once again play as a successful mediator among great powers and also middle powers to dilute the anti-China mandate of the Indo-Pacific concept and facilitate cooperation. That is, to lessen the United States-China fiercely strategic competition and the risk of falling into the ‘Thucydides trap’ of which Graham Allison warns.

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All in all, despite that there is no common understanding of what is meant by Indo-Pacific (a political and strategic concept based on divergent norms, interests, ideas of order, etc.), there are still convergences: a rule-based international order, improvements of connectivity, positive references to ASEAN and its multilateral forums. Given the current situation of lacking institutionalization in Indo-Pacific to define the common understanding, shared interests and identity of the region, it is not surprising that the aligned countries would work at cross-purposes, or even to undermine each other. Therefore, how to achieve a ‘Free and Open Indo-Pacific’ will be a challenging task for the region. Regardless, a polarized Sino-centered AsiaPacific vis-à-vis U.S.-centered Indo-Pacific is not an attractive spectacle for regional stability and a peaceful order. Being constructed as a new substantive region, IndoPacific should seize the momentum to shape an inclusive and multipolar regional order, in which interdependence (economically, politically and strategically) plays a positive role to facilitate cooperation and reduce conflicts.

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Chapter 4

Belt and Road Initiative (BRI) Versus Indo-Pacific Economic Framework (IPEF) for the East Asian Economic Security Focused on South Korea and Thailand Sang Chul Park and Pornchai Wisuttisak Abstract  The article discusses the balancing role of the Belt and Road Initiatives (BRI) and the Indo-Pacific Economic Framework (IPEF) within East Asia by focusing on a comparative study between South Korea and Thailand. In the past decades, China has increased its positions as a global economic power through the policy of the BRI, thus supplying China’s aid, grants, and loans to all East Asian countries. In recent years on building an alternative internal policy and agreement, the U.S.-led policy created the Indo-Pacific Economic Framework (IPEF), which has implications for Asian countries to counter the BRI, which is the platform for China’s economic dominance. The two sides of the world economic power— China’s BRI and the U.S.-led IPEF—have made an impact on South Korea’s economic security, and making Thailand having to balance the economic cooperation between the two sides. This paper explores how South Korea and Thailand positioned their economic cooperation under the two sides and suggests on possible policies that can help bridge a potential partnership for East Asian development. Keywords  Belt and road initiatives (BRI)  ·  Indo-Pacific economic framework (IPEF)  ·  Economic integration  ·  Economic security

S. C. Park (*)  Graduate School of Knowledge-Based Technology and Energy, Tech University of Korea, Siheung, Korea e-mail: [email protected] P. Wisuttisak  Assistant to President Chiang Mai University, Chiang Mai, Thailand e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_4

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1 Introduction With the rapid changes on the political economic landscape from the post-cold war era, China swiftly gained access to the global economy through its open-door policy since 1978. China increasingly dominated worldwide trade and investments concurrently with its national economic policy with the aim of restructuring and liberalizing its economy. China entered the World Trade Organization (WTO) in 2000 and paved the way for itself to become one of the crucial economic powerhouse in the world (Tacconelli and Wrigley 2009). From 2000 to 2018, China was the fastest-growing country with a real annual gross domestic product (GDP) growth averaging 7–9% through 2018 (World Bank 2022a). Although China faced a COVID lockdown and economic obstacles during 2019–2021, the GDP growth is still growing positively with a recent update of 8.1% GDP growth (World Bank 2022a). China’s economic development is an undeniable result of the transformation in its economy and an open industrialization with a rapid infrastructure development. China’s policy on economic transformation contributed to a significant development and economic growth (Liu 2020). China’s vital engine of global trade and growth has led itself to have an increasing role as a global facilitator for international trade and investments (Garnaut 2012; Zeng 2010). China’s policy toward the global economy lines with the vital initiative of the Belt and Road Initiatives (BRI) to ensure that international trade and investment are linked with the Chinese economy. The BRI is being highly implemented in Asia via Chinese grants and investments. With the concern over the greater role of China’s BRI in the global economy, the United States, as the current locomotive of the global economy (Bronfenbrenner 1979), pushed toward an international policy on Indo-Pacific Economic Framework (IPEF) to ensure the United States of having a firm position as one of the global political and economic power to be recognized with (Abdollahpour 2021). The United States established political-economic cooperations under the IPEF, aligning with aid grants, trade, and investment to Asia. This comes from a distinct approach between China’s BRI and the U.S.’s IPEF in international trade and investment in East Asia. This article aims to study how China and the United States work their way on trade, investments, and political economy in East Asia particularly in the comparative study from South Korea and Thailand. Thailand is a developing country with the need for economic development while South Korea is a developed country with the challenge of maintaining its political economic position. The two countries are chosen as examples of how to deal with the hegemony policies of G-2 nations, mainly focusing on the BRI and the IPEF. The next part of the paper discusses China’s BRI and its influences in East Asia. The third part presents how the United States employs the IPEF for its involvement in East Asia. The fourth part focuses on cases of Thailand and South Korea under the international limbo between the BRI and the IPEF. Last but not least, the fifth part provides the conclusion and policy implications for countries under the impacts and influences of the BRI and the IPEF.

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2 The Chinese BRI and East Asia The Belt and Road Initiative (BRI) is China’s strategy to build new global trade and investment under an expanding role in its political and economic power. The BRI focuses on stimulating freer global trade and investment cooperation with Beijing’s central international policy. The BRI has been applied by China to support all outward aid grants and investments at the regional and country levels that require infrastructure and development. In other words, the BRI policy is an ambitious international policy to link Asia and Europe through land and maritime networks, as well as linking various economic corridors to improve regional integration and stimulate economic growth (EBRD 2020; Frankopan 2020). The important assertion for BRI in global development is based on President Xi Jinping’s following statement on the BRI definition: China will actively promote international cooperation through the Belt and Road Initiative. In doing so, we hope to achieve policy, infrastructure, trade, financial, and people-to-people connectivity and thus build a new platform for international cooperation to create new drivers of shared development (Jinping 2018).

The China BRI created an international trend of economic cooperation via China as the central influencer for global collaboration on trade and investment. The BRI attracted the countries along the two major routes of the new Silk Road (the overland route from West China to Eastern Europe via Central Asia, Russia or West Asia) and new maritime trade (East China to the Mediterranean Sea and the Indian Ocean via the South China Sea) (Huang 2016; Saeed et al. 2021). It is estimated that the China BRI will add over USD 1 trillion of outward funding for foreign infrastructure during 2017–2027 (OECD 2018). Most outward investments from China are from state-directed development and commercial banks to countries wishing to develop their infrastructures and economy (OECD 2018). The BRI is the comprehensive policies, including trade, investment, and people. In 2015, the China National Development and Reform Commission presented the following policies under the BRI (CSIS 2020); – Improving intergovernmental communication to better align high-level government policies like economic development strategies and plans for regional cooperation. – Strengthening the coordination of infrastructure plans to better connect hard infrastructure networks like transportation systems and power grids. – Encouraging the development of soft infrastructure such as the signing of trade deals, aligning of regulatory standards, and improving financial integration. – Bolstering people-to-people connections by cultivating student, expert, and cultural exchanges and tourism (CSIS 2020). The BRI implementation led to international cooperation between China and other countries. Beijing states that the BRI has become the most extensive and widest-ranging platform for international cooperation, with more than 200 cooperation documents signed under BRI (Jun 2022). The adoption of the BRI from the

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central policy of China has led to a new approach for global trade and initiatives previously dominated by the U.S. policy and influence. In East Asia, it is called the “Eastern-Oriental Wind of Changes”. With the BRI, it can be considered that the wind of Eastern Asia is now overtaking the wind of U.S. policy, especially on global trade and investment cooperation. China has adopted mechanisms for further cooperation on investment by the Asian Infrastructure Investment Bank (AIIB). The AIIB would be an international financial pillar of BRI for facilitating funds for development projects in Asia (Zhao 2019). With the AIIB and China state financial support, China can play an essential role in infrastructure development for various countries, leading to criticism that Chinese assistance is undermining efforts by the United States and other countries to promote good governance and democracy in developing countries (Weiss 2017). It is China’s strategy to set its way for being one of the global economic powerhouse nations. The AIIB became a multilateral development bank involving various political and economic infrastructure development in East Asia (Lichtenstein 2019), especially in ASEAN developing stages. In international trade and supply of products, ASEAN countries are ranked among the top 10 most connected to China by the ChinaASEAN Free Trade Agreement and various regional cooperation (Yan 2018). The international trade between China and ASEAN expanded from $8.36 billion in 1991 to $685.28 billion in 2020, with an average annual growth rate of 16.5% (MOFCOM 2021). China is the largest importer of ASEAN products in 2020, with 15.7% shares, followed by the United States (15.2%), EU-27 (9.4%), and Japan (7.2%) (ASEAN Secretariat 2021). Also, China is the largest exporter to ASEAN, accounting for 23.5% of ASEAN’s imports. The comparison of ASEAN trade partners of import and export is in Figs. 1 and 2. The large flow of trade and investment from China BRI to Southeast Asia contributes to a significant momentum of capital connectivity. China, via BRI, progressively position itself as a vital outbound investor to Southeast Asia. It is estimated that 1,100 investment projects were established in Southeast Asia,

Fig. 1  ASEAN—Shares of merchandise exports (%) by trading partners, 2020. Source (ASEAN Secretariat 2021)

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Fig. 2  ASEAN—Shares of merchandise imports (%) by trading partners, 2020. Source (ASEAN Secretariat 2021)

accounting for around US$750 billion in investments (Yan 2018). In 2020, Southeast Asia was the largest destination for China BRI investments, with around US$16.9 billion (Yu 2021). The investments include industry establishment, commercial and trading centers, energy, telecommunication, and transport connectivity. The transport and logistics sectors are the highest concentration of BRI investments to serve the aim of China’s connectivity with Southeast Asia. According to a research from Hong Kong University of Science and Technology (HKUST) Institute for Emerging Market Studies, China, by utilization of stateowned banks and sovereign wealth funds, made a huge flow of investment toward Southeast Asia to assist the creation of transnational economic corridors, multimodal land and maritime routes, oil and gas pipelines, and electrical grids (Tritto, Sejko, & Park 2021). Figure 3 displays various map investments projecting China’s connectivity with Southeast Asia. From the significant trade and investment under BRI, the China economic partnership can grow strongly towards being a tremendous political-economic influence in Southeast Asia. China tends to connect with countries directly and also position itself at the forefront of partnerships in Southeast Asia. While it can be considered that China may have influential power over Southeast Asia, China’s position, as announced, is not to control or interfere with Southeast Asia’s political economy. China’s position, according to Xi’s statement, is that “China is ready to share practices of development with other countries, but we have no intention to interfere in other countries’ internal affairs, export our own social system and model of development, or impose our own will on others” (XinhuaNet, 2017). In working on BRI, China aims to refrain from outdated geopolitical maneuvering and hopes to build a new model of win–win regional cooperation and sustainability (XinhuaNet, 2017).

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Fig. 3  Key BRI projects in ASEAN. Source (Tritto et al. 2021)

However, within the larger picture in East Asia, BRI is not purely considered a harmonious way of cooperation for development and connectivity. The China BRI, as the leading role in global cooperation, has faced various criticisms concerning China’s dominating political economy in East Asia. Countries may feel uncomfortable receiving financial assistance under China BRI. If there is a closer look at Japan, the position toward the BRI seems to be very cautious and negative because the BRI impact Japan’s dominant investment role in Southeast Asia development (Joe 2022). Japan, with cooperation and support from the US, assumes a level of leadership in East Asia, especially in Southeast Asia countries that received extensive financial and technical assistance on infrastructure development from Japan as part of Japan’s Asia-centric strategy (Akrasanee and Prasert 2003; Saputro 2017). Japan plays an active role in assisting in infrastructure development in Southeast Asia countries, and Japan has been the forefront supporter of ASEAN community integration for over a decade (Yoshimatsu and Trinidad 2010). With the rising role of China’s BRI in Southeast Asia regional development, Japan’s position may be affected. It may lead to the aims of balancing the power of China’s BRI in East Asia by the utilization of the Indo-Pacific Economic Framework (IPEF) in alliance with the United States and India. The concept of the IPEF and East Asia will be further discussed in the next part of the paper.

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3 Indo-Pacific Economic Framework (IPEF) and East Asia The word “Indo-Pacific” indicates the linkage between the two regions of the Indian and Pacific oceans. The Indo-Pacific is a way to establish international strategy among countries in the Indian and Pacific Oceans and stimulate international trade and investment connections among the United States, EU, and Asia. Indo-Pacific cooperation is not a new concept but has been discussed as a maritime strategy to interact with China regarding the possible development of a new cold war (D. Chen 2018). In recent years, the Quad countries, including United States, India, Japan, and Australia, have established cooperative dialogues of the Indo-Pacific partnerships. The Quad sets various meetings, military training, and a measure of policy coordination for infrastructure development and regional security (Kien 2020). With the rise of China’s BRI and the initiation of the Indo-Pacific Strategy, countries may have to choose sides or stabilize the global power. From the perspective of the EU, it seems that the EU feels more comfortable being the partner of the Indo-Pacific Strategy and Quad countries. This is because the EU is more concerned with the growing power of China’s BRI on trade and investments in all of the regional economies. The example statements from EU (France and German) are about willing to be in alliance with the Indo-Pacific cooperation by building up on the following ideas: I.

Strong involvement from German and France in settling regional crises, the safety of the main shipping routes and in the fight against terrorism, radicalization and organized crime. II. Strengthening and increasing our strategic and global partnerships in the Indo-Pacific region via the European Union and strategic partners such as Australia, India, Indonesia, Japan, Singapore, and South Korea. III. Increase the role in regional organizations in order to contribute to the development of multilateralism. IV. Promotion of infrastructure development in a region undergoing rapid demographic, social, and urban transition under the EU-Asia Connectivity Strategy (French Ministry of Foreign Affair 2019). The EU being involved with the Indo-Pacific Cooperation is considered the aim of the hedge against China’s rising power from BRI. Germany and France approached the Indo-Pacific Cooperation to adjust themselves on balancing the global power with China’s BRI rising power (Institut Montaigne 2020). It is accepted that there may be divergence among the EU members in aligning with the Indo-Pacific Cooperation. The overview of the EU is to encourage trade and investment in Indo-Pacific countries so that it creates a barrier towards China’s rising global power (Mohan 2020).

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Concerning the United States, it is clear that Indo-Pacific Cooperation is the way to deal with China’s BRI. According to the report from the U.S. parliament, the U.S.’s involvement in the Indo-Pacific strategy is alleged in international cooperation towards the following: (1) respect for sovereignty and independence of all nations; (2) peaceful resolution of disputes; (3) free, fair, and reciprocal trade based on open investment, transparent agreements, and connectivity; and (4) adherence to international rules of laws (US Government 2019). The aims also include additional U.S. alliances from India, East and Southeast Asia, and the Pacific Island countries to address shared challenges and advance a shared vision (US Government 2019). As mentioned in the paper above, Southeast Asia countries, while supporting the Indo-Pacific strategy, cooperate with some aspects of the Indo-Pacific strategies but accept the assistance and investment from China’s BRI (Choong 2019). As one of the leading countries in East Asia, Japan supports a free and open Indo-Pacific strategy, which is an essential international cooperation with India (Thankachan 2017). Under the Japanese International Affair, the IndoPacific Strategy is the counter international affairs to China’s BRI (Thankachan 2017). It is pushing forward to countries experiencing China’s influence and prefers not to be under the BRI. The Indo-Pacific cooperation is not a neutral international policy but is an established mechanism for super-regional cooperation that can go against a potential China BRI influence in regions (Pan 2014). It aims to be complicit in balancing super-power in the global political economy. The Indo-Pacific cooperation is renewing the regional continuing maritime and multipolar character, and although it does not directly exclude China, it does dilute China’s BRI. Influence (Medcalf 2019).The Indo-Pacific Cooperation later focuses on economic cooperation with the word Indo-Pacific Economic Framework (IPEF), where all participating countries can join the economic alliance to refrain from being too much involved with China’s BRI. The IPEF was established by US President Biden’s policy to build an economic alliance that can be an alternative to China’s BRI (Harris and Sutton 2022). The IPEF is considered a possible setting step to bolster the U.S.’s closer cooperation with its Asian countries. There IPEF vital meeting was held in Tokyo on September 2022, where ministers jointly resulted in the following ministerial statement aspects: Global trade cooperation in building high-standard, inclusive, free, and fairtrade commitments and to develop new and creative approaches in trade and technology policy. II. Global Supply Chains to improve transparency, diversity, security, and sustainability in our supply chains to make them more resilient and well-integrated. III. Clean Energy, Decarbonization, and Infrastructure to accelerate the development and deployment of clean energy technologies under resilience to climate impacts. IV. Tax and Anti-Corruption to promote fair competition by enacting and enforcing the effective and robust tax, anti-money laundering, and anti-bribery regimes (Australia DFAT, 2022; Japan MOF, 2022). I.

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The joint ministerial statements are from participating countries such as the United States, Australia, Brunei Darussalam, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam. What can be seen is that the IPEF is the new economic platform for East Asia that can integrate with a U.S.-led international policy. Being in closer economic alliance with the United States, Japan is a forefront supporter of the IPEF, and it is the way Japan deals with surrounding China’s influence in the East Asian political economy. India, South Korea and some Southeast Asian countries also participate in the joint meeting of IPEF. This shows that East Asian countries expect to have some choices within the international economic cooperation rather than relying on only China’s BRI. It is estimated that if trade and investment cooperation are implemented under the IPEF, it will account for nearly 40% of the global GDP. The IPEF is a significant global trade and investment cooperation, only if it’s successful. However, like the previous attempt from the US in coining up the Tran-Pacific Partnership, the IPEF is still a challenging work that needs a practical political and economic framework for obtaining the desired results. Compared to China’s BRI, which has been influential through international economies, especially in Southeast Asia, the IPEF is still in an infant stage of cooperation toward possible global economic outcomes.

4 Thailand and South Korea Under the BRI and the IPEF This part of the paper aims to further explore the experience from Thailand and South Korea on having to deal with or set their position in the BRI and IPEF. This part of the paper aims to show examples of countries in East Asia that associate themselves with the BRI and IPEF. The comparison of experience from Thailand and South Korea can provide an additional understanding of international economic cooperation in East Asia countries.

4.1 Thailand Under the BRI and the IPEF Geographically, Thailand is situated in the middle of the connectivity between the ASEAN-Great Mekong Sub-region, which connects China (Yunnan Province and Guangxi Zhuang Autonomous Region) and Lao Myanmar, Thailand, and Vietnam. The connection of the GMS offers Thailand opportunities and potential development through China’s BRI investments. In addition, Thailand is the middle country that connects land transportation with Malaysia through Singapore. According to a recent government policy announcement, Thailand would be the main connector of ASEAN through the Eastern Economic Corridor. The Eastern Special

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Development Zone Act B.E. 2561 (2018) was enacted to establish the development strategy of building up Eastern Economic Corridors (EEC) that can revitalize industrial production in Thailand for 30 years (Thailand EEC, 2022). By utilizing the EEC, the government aims to stimulate the connectivity of GMS and sea transportation with the possibility of linking the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT). Thailand’s EEC policy intends to draw foreign investment from global markets that can tap into Thailand’s strategic development of new technology and innovation for the New Thai S-Curve industries.1 By adopting the EEC, Thailand sets international affairs with all global investments by having an open door policy to ensure sufficient international investment in serving the needs of Thailand’s EEC development. United States, EU, Japan, South Korea, and China are the most critical investors in Thailand’s EEC. However, China’s investment under BRI has embarked on significant investment in Thailand’s EEC, with the target on electronic vehicles (Apisiniran 2022). The Thai government also put forward the implementation of the 20 years (2017– 2036) development plan, which facilitates Thailand toward becoming a developed country with security, prosperity, and sustainability. Furthermore, under the BRI policy, China and Thailand aim to build China’s technology connection with Thailand’s development. The Thai government encourages various industrial projects that can serve the need of Thailand in achieving sustainable new S-Curve development. As the leading innovation country that has developed a level of technology, China can be part of Thailand’s aim toward the S-Curve. China is considered the leading external facilitator for the plan of new S-curve economic sectors, including food processing, automotive parts, bio-fuel and bio-chemical, and textile and garment industries (Srisamoot 2022). According to the plan, Thailand has to adhere to its position with international investment flow balancing the political and economic powers under China’s BRI and IPEF. Thailand closely cooperates with China in connecting BRI policy with ASEAN. Thailand is part of the China BRI Agreement in 2022, with 147 countries worldwide (Nedopil 2022). Thailand is considered strategically one of the BRI six corridors, namely the China-Indo-China Peninsula Economic Corridor (CICPEC) (China ASEAN Studies 2020). The corridor will be interconnected mainly by establishing high-speed train projects. Thailand and China’s governments have discussed establishing Sino-Thai high-speed railway (HSR) since 2010. Thailand’s government met with China Railway Engineering Cooperation (CRECG), aiming to implement HSR to serve China’s BRI policy (Aiyara 2019). During the Abhisit government, Thailand proposed that China will provide the funding for building up HSR connecting China and Thailand (Aiyara 2019). However, with the political uncertainty and inefficient bureaucratic procedures in Thailand, the Sino-Thai high-speed railway (HSR) rarely developed into a practical operation. Thailand tends to politicize economic policies and regulations, creating obstacles to HSR

1 Eastern

Special Development Zone Act B.E. 2561 (2018) Sect. 39.

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implementation. When one political party assumes government authority, the party tends not to continue with the previous HSR policy between Thailand and China that had been established. The changing Thai government would prefer to renegotiate with its Chinese counterpart to gain benefits from the HSR projects for connecting with the people. In addition to the concern over China’s geopolitical influence, Thailand seems to be cautious that HSR may have China being in total control over Thailand and most of the ASEAN countries (Wu and Chong 2018). Academics, civil servants and politicians consider China’s BRI a negative perspective such as China’s infrastructure technology lacking safety (Punyaratabandhu and Swaspitchayaskun 2021). This has led to a slow pace on how the Thai government executed the HSR project that connects Thailand and China while the HSR between China and Lao has already been completed and currently being operated (Chen 2022). The confirmed implementation of the HSR between Thailand and China in recent year is the start of building a railway within Thailand: from Bangkok to Nakorrachasima, which is only 250 km without cross-border connectivity (Hutasing 2022). Thailand is the leading tourist country heavily reliant on Chinese tourists. According to the data from the Thai Bureau of Statistics, Chinese tourists were at the top of the list when it comes to visiting Thailand during 2015–2019, before the COVID situation (Open Government Data of Thailand 2022). The number of Chinese tourists to Thailand was based on the mutual relationship between the Thai government and China.2 Thailand highly expects that after the termination of the Covid lockdown, Chinese tourists will resume on visiting Thailand and boost the Thai economy. Thus, Thailand has to adhere to China’s markets and, of course, ensure that it clings to China’s BRI policy for mutual favor with the Beijing government. Nevertheless, with another side of international cooperation, Thailand also maintains its international connections with IPEF, whereas Thailand aims to keep decent affairs with main trading partners such as the United States, Japan, and South Korea. In September 2022, Thailand sent its deputy prime minister as a special envoy to attend the Indo-Pacific Economic Framework (IPEF) Ministerial Meeting. The Thai government announced after the meeting that Thailand was committed to working closely with other Partner Countries in IPEF to benefit the people. Thailand also stated that it will play a vital role on the agenda in the APEC meeting, which Thailand hosted in 2022, emphasizing that IPEF and APEC cooperation is in connection with the U.S. role in IPEF (Minister of Foreign Affairs of Thailand 2022). The United States-Thailand Communiqué on Strategic Alliance and Partnership has also been established to encourage trade and investment cooperation, defense and security cooperation, democracy and human rights, humanitarian assistance, and infrastructure development (US Embassy Thailand 2022). The agreed communique affirms that Thailand will be part of the U.S. IPEF and

2 https://data.go.th/blog/tourism-2015-2020.

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ensures that Thailand will be in an alliance with the United States on economic and political security. Thailand seems to be balancing the work with China’s BRI and the IPEF of the United States. By having an alliance agreement, Thailand is placed by the United States to lead in promoting regional peace and security, supporting ASEANcentered development, and ensuring a counterbalance of the South China Sea issue and uncertainty in Myanmar (Ministry of Foreign Affairs Thailand 2022). The types of alliance work under the communique tend to ensure that the IPEF can be a tool to balance China’s BRI influence in Thailand and ASEAN. The communique includes security and defense cooperation that goes beyond economic cooperation to interplaying with China’s BRI in Thailand. What can be considered from Thailand’s position under IPEF is that Thailand cannot be away from its cooperation with major economic and political powers like the United States, Australia, Japan, India, and South Korea. Nevertheless, it is vital to note that Thailand with IPEF is still at the early stages. It is compared to China’s BRI that has been practically implemented into a tangible infrastructure with trade and investment between Thailand and China. It is accepted that there may be an issue in choosing a side between US-IPEF and China’s BRI. However, Thailand pays attention to the role of balancing itself between the two policies. Thailand reflects the Thai style diplomacy of a bamboo policy where it plays a flexible role and being pragmatic to any changes in the wind of political powers. Thailand does not always accommodate U.S. international policies but, in many circumstances, acts in favor of China. This policy posture is not a product of a well-planned strategy but rather a response to China’s influence (Busbarat 2016). It is a diplomacy of “bamboo swirling in the wind” to balance significant economic and political impact (Busbarat 2016). However, the balancing of power cannot reflect an act of uncertainty about Thailand’s position over the IPEF and China’s BRI. It is rather a constant diplomatic act on which Thailand relies on to survive the conflict of great political powers (Charoensri 2020). Thailand has passed the period of colonization as an independent country that utilized a balance of global power and again as a small middle country. Thailand prefers to be in both economic and political cooperation between China’s BRI and the IPEF of the United States.

4.2 South Korea Between the BRI and the IPEF In 2013, the Chinese government launched the so-called One Belt and One Road initiative, which was renamed the Belt and Road Initiative (BRI) in 2018. President Xi Jinping regards the BRI as a project of enormous benefit to China and the world. It promises to close a large infrastructure gap that constrains trade, openness and prosperity. The Chinese government expects the BRI to generate positive impacts on the countries involved and help develop new export markets and alleviate excess industrial capacity in the short term. The BRI aims to build

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hardware-oriented infrastructure in the power, transport, telecommunication, and water and sanitation sectors. In the initial stage, South Korea was interested in it. However, it did not participate in the BRI due to political tension between the two nations caused by the station of the THAAD anti-missile system against North Korea’s aggression on South Korean soil in 2016. China regarded it as a severe violation of its core national interest and set an economic sanction on South Korea. After the progressive government took power in 2017, South Korea tried to be involved in the BRI to connect the infrastructure, particularly in South Korea’s Eurasia Connection such as the Trans-Siberian Railroad (TSR), Trans Korea Railroad (TKR), Trans Mongolia Railroad (TMR), Trans China Railroad (TCR) etc. However, these projects have been stalled since the nuclear deal between the United States and North Korea was broken in Hanoi, Vietnam, in 2018. South Korea, with its reliance on China trade, would not easily depart from maintaining an alliance with the BRI. South Korea has continuously cooperated with China’s BRI to build bilateral cooperation (Bayari 2020). The South Korean economic model and business systems have interacted with the Chinese economy to a high extent, and the two countries completed the KOR–China FTA in 2015 (Bayari 2020). Nevertheless, at some stage, South Korea has been reluctant to be a part of the Chinese BRI scheme because it prefers to participate in the U.S.-led Indo-Pacific cooperation and the IPEF scheme (Heiduk and Sakaki 2019). The U.S. government has also recognized that the Indo-Pacific region faces other significant challenges, such as climate change, the COVID-19 pandemic, North Korea’s illicit nuclear weapons and missile program etc. In order to tackle these comprehensive challenges, the Biden government decided to strengthen the collective capacity with allies and partners that will empower the Indo-Pacific to adapt to the twenty-first century’s challenges and seize its opportunities. The South Korea-US Summit was held in May 2022 to ensure that South Korea is part of the U.S.-led IPEF cooperation (US Government 2022). The United States claims that it is committed to building a free and open Indo-Pacific that is more connected, prosperous, secure, and resilient. The U.S. vision is to launch the Indo-Pacific Strategy (IPS), recognizing the strategic value of an increasing regional role for the European Union (EU). The EU also responded to announce its cooperation in the IPS in line with the U.S. strategy for democratic resilience. The IPS has five objectives free and open Indo-Pacific, connections within and beyond the region, regional prosperity, Indo-Pacific security, and regional resilience to transnational threats. In order to implement this strategy, the Biden government will pursue the ten core lines of efforts as action plans in the next 24 months until late 2023. The IPEF is included as one of these action plans, which was proposed in Oct. 2021 at the annual East Asia Summit and is regarded as the centerpiece of his administration’s economic strategy in the region (White House 2022). Thus, South Korea maintains a close connection with the U.S. IPEF, where South Korea can hedge against the Chinese BRI influence. Furthermore, the U.S. administration expects that the most developed economies in the region, such as Australia, Japan, South Korea, New Zealand, and

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Singapore, could join the IPEF. The total number of joining members is 14 countries, and its population, GDP, and trade volume in merchandise in 2020 accounted for over 32, 40 and 28%, respectively. Due to the internal political environment, the Biden administration pursues fair and resilient trade as the first pillar instead of free trade in the IPEF. Additionally, the IPEF sets the reshaping global supply chain in strategic industrial areas. It focuses largely on global supply chain security, including five cooperative strategic industrial areas, and it is still too early to analyze or estimate the economic effects of the IPEF in the region because it has not fully formed the whole contents. However, one thing for sure is the reshaping of the global supply chain based on economic efficiency that will be replaced by an economic security in the region (CSR; World Bank 2022b).

5 Conclusion The paper reviews the ideas of the Chinese BRI in the second part of the paper and highlights that the BRI seems to have significant implications for Southeast Asian development. The BRI cooperated with various ASEAN countries, which is linked mainly to the infrastructure connectivity. At the same time, it is also concerned that China may have greater influence in Southeast Asia. The third part of the paper presents the IPEF, which is the U.S.-led policy as alternative international cooperation for East and Southeast Asia to balance the Chinese BRI. Nevertheless, the IPEF policy seems to be at an early stage and has not yet made an impact on international development and cooperation in Southeast Asia. In the third part, the paper provides the examples of responding to China’s BRI and the IPEF of the United States by the governments of Thailand and South Korea. Thailand aims to balance its role among international powers and tends to be involved with both the BRI and the IPEF. South Korea, concerning trade and investment cooperations with China, has to keep its close connection with the BRI but prefers to be a significant member of the IPEF to strengthen its economic security based on reshaping the global supply chain. It is a genuine policy of choice for all nations on how to interact with international political economies whereas the global economy and politics are interconnected and influenced by one another. Therefore, it is wise that any country in East and Southeast Asia participates in the BRI, despite its aggressive move based on Chinese dominance, if it provides any opportunity for its economic development. Certainly, it is equally valuable for East and Southeast Asian countries to take part in the IPEF, and focusing on the U.S. control over the international political economy because it may also generate economic and political benefits for the member nations. Accordingly, harmonizing the BRI and the IPEF is a way to build up sustainable global development in general, generate high economic growth, and strengthen the political stabilization of the member nations in particular for the long term.

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Open Government Data of Thailand. (2022) Numbers of tourists and speding from foreign tourists in Thailand (จำ�นวนนักท่องเที่ยว และรายได้จากนักท่องเที่ยวชาวต่างชาติที่เดินทางเข้า ประเทศไทย). Retrieved from https://data.go.th/blog/tourism-2015-2020 Pan C (2014) The ‘Indo-Pacific’ and geopolitical anxieties about China’s rise in the Asian regional order. Aust J Int Aff 68(4):453–469. https://doi.org/10.1080/10357718.2014.884054 Punyaratabandhu P, Swaspitchayaskun J (2021) Thailand’s perception and strategy toward China’s BRI expansion: Hedging with cooperating. Chin Econ 54(1):69–77. https://doi.org/10. 1080/10971475.2020.1809819 Saeed N, Cullinane K, Gekara V, Chhetri P (2021) Reconfiguring maritime networks due to the belt and road initiative: impact on bilateral trade flows. MaritE Econ & Logist 23(3):381–400. https://doi.org/10.1057/s41278-021-00192-9 Saputro E (2017) Power relations, bilateral ties and Indonesia’s responses. In Saputro E (Ed), Indonesia and ASEAN plus three financial cooperation: Domestic politics, power relations, and regulatory regionalism. Springer, Singapore, pp 97–127 ASEAN Secretariat (2021) ASEAN Key Figures 2021. Retrieved from https://www.aseanstats. org/wp-content/uploads/2021/12/ASEAN-KEY-FIGURES-2021-FINAL-1.pdf Giving solidarity a chance. Asia Policy 14(3):79–96. Retrieved from https://www.jstor.org/ stable/26773956 Srisamoot A (2022) China, Thailand and Globalization. In Wang H, Miao L (Eds) China and the world in a changing context: Perspectives from Ambassadors to China. Springer, Singapore, pp 181–191 Tacconelli W, Wrigley N (2009) Organizational challenges and strategic responses of retail TNCs in Post-WTO-Entry China. Econ Geogr 85(1):49–73. https://doi. org/10.1111/j.1944-8287.2008.01003.x Thailand EEC (2022) Why EEC-Government innitiatives. Retrieved from https://www.eeco.or.th/ en/government-initiative/ Thankachan S (2017) Japan’s free and open Indo-Pacific strategy”: Reality before the Rhetoric? MaritE Aff: J Natl MaritE Found India 13(2):84–91. https://doi.org/10.1080/09733159.2017.1 414831 The political economy of china’s high-speed rail projects in Thailand and Indonesia. Contemp Southeast Asia 40(3):503–526. Retrieved from https://www.jstor.org/stable/26545305 Tritto A, Sejko D, Park A (2021) The belt and road initiative in ASEAN. Retrieved from https://iems.ust.hk/publications/reports/uob-bri-overview#:~:text=Announced%20in%20 2013%2C%20the%20BRI,defined%20mainland%20China's%20global%20engagement US Embassy Thailand (2022) United States-Thailand communiqué on strategic alliance and partnership. Retrieved from https://th.usembassy.gov/united-states-thailandcommunique-on-strategic-alliance-and-partnership/ US Government (2019) A free and open indo-pacific: advancing a shared vision. Retrieved from https://www.state.gov/wp-content/uploads/2019/11/Free-and-Open-Indo-Pacific-4Nov2019. pdf US Government (2022) United States-Republic of Korea leaders’ joint statement. Retrieved from https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/21/united-statesrepublic-of-korea-leaders-joint-statement/ Weiss MA (2017) Asian infrastructure investment bank (AIIB). Retrieved from http:// www.truevaluemetrics.org/DBpdfs/DevelopmentAssistance/AIDB-Asian-InfrastructureDevelopment-Bank-by-CRS-2017.pdf World Bank (2022a) GDP growth (annual %)–China. Retrieved from https://data.worldbank.org/ indicator/NY.GDP.MKTP.KD.ZG?end=2021&locations=CN&most_recent_year_desc=true& start=1961&view=chart World Bank (2022b) Merchandise imports (current US$). Retrieved from https://data.worldbank. org/indicator/TM.VAL.MRCH.CD.WT Wu S.-S, Chong A (2018) Developmental railpolitics

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XinhuaNet (Producer) (2017) Full text of President Xi’s speech at opening of belt and road forum. Retrieved from http://www.xinhuanet.com//english/2017-05/14/c_136282982.htm Yan J (2018) The BRI in Southeast Asia. Retrieved from https://www.cariasean.org/publications/chinas-belt-and-road-initiative-bri-and-southeast-asia-publication/the-bri-in-southeast/#. YzJkqHZByUk Yoshimatsu H, Trinidad DD (2010) Development assistance, strategic interests, and the China factor in Japan’s role in ASEAN integration. Jpn J Polit Sci 11(2):199–219. https://doi. org/10.1017/S1468109910000022 Yu K (2021) The belt and road initiative in Southeast Asia after COVID-19: China’s energy and infrastructure investments in Myanmar. ISEAS perspective. Retrieved from https://www.iseas. edu.sg/articles-commentaries/iseas-perspective/2021-39-the-belt-and-road-initiative-in-southeast-asia-after-covid-19-chinas-energy-and-infrastructure-investments-in-myanmar-by-kaho-yu/ Zeng D (2010) Building engines for growth and competitiveness in China: Experience with special economic zones and industrial clusters. Directions in development; countries and regions. Retrieved from https://openknowledge.worldbank.org/handle/10986/2501 Zhao H (2019) China-Japan compete for infrastructure investment in Southeast Asia: Geopolitical Rivalry or healthy competition? J Contemp China 28(118):558–574. https://doi. org/10.1080/10670564.2018.1557946

Chapter 5

Can Semiconductors Be a Tool for Taiwan’s Economic Diplomacy? Implications from Questionnaires in 2018–22 Thu-Ha Thi An, Shin-hui Chen, and Kuo-chun Yeh

Perhaps because our company provides a lot of chips to the world, maybe somebody will refrain from attacking it. If that person’s priority is for economic well-being, I think they will refrain from attacking. Morris Chang to 60 min CBS News (2022, October 13).

Abstract The U.S.-China trade conflicts and the COVID-19 pandemic have been straining the global semiconductor value chains, causing technological fragmentation and severe chain disruptions. As an essential part of the complex global semiconductor ecosystem, Taiwan’s semiconductor supply chain has become a geopolitical focal point and has been caught between the global superpowers’ tensions. This chapter attempts to give fresh quantitative evidence of supply chain disruptions, short-chain issues, restructuring plans, challenges, opportunities, and strategies in Taiwan’s manufacturing and semiconductor supply chain in the face of geopolitical and pandemic uncertainties. By adopting the questionnaire survey method with stratified sampling and in-depth interviews with firms’ executives, we collected semiannual primary data from a representative and persistent sample of Taiwan’s manufacturing and semiconductor firms from 2018 to 2022. The results show that Taiwan’s manufacturers are still driven by low-cost competition, while the supply-chain risk management has become a top priority for Taiwan semiconductors following the U.S.-China trade war. Despite the “de-Sinicization” movement of Taiwan’s manufacturing sector, Taiwan’s semiconductor supply chain still intends to expand production in China and bring the capacity closer to market demand by moving to the T.-H. T. An · S. Chen (B) Chung-Hua Institution for Economic Research, Taipei, Taiwan e-mail: [email protected] K. Yeh Graduate Institute of National Development, National Taiwan University, Taipei, Taiwan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_5

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U.S., Japan, ASEAN, and Europe. Without Taiwan’s closely-knit semiconductor ecosystem, balancing resilience with cost reduction challenges most of Taiwan’s semiconductor firms. This chapter also provides relevant information for the Taiwan authorities and the global superpowers for conducting economic diplomacy. To mitigate supply chain disruptions and guarantee economic and national security, foreign governments’ initial funding and subsidies may be inadequate to court investment by Taiwan’s semiconductor manufacturers. Forming joint ventures with the local supply chain and entering the new product market may be more critical to Taiwan’s overseas semiconductor investment. Keywords Semiconductor supply chain · Geopolitical uncertainties · Pandemic · Trade war · Economic diplomacy

1 Introduction The U.S. semiconductor equipment export curbs following the CHIPS and Science Act of 2022 have strengthened competition among relevant countries. Semiconductors have now become the essential components of every digital infrastructure, vehicle, and device, and their supply chain has long been the backbone of the digital economy, with multiple applications spanning all the major economic sectors. Being one of the fastest-growing industries, the semiconductor sector has contributed tremendously to economic growth. From 1995 to 2015, the estimated additional USD 3 trillion in global GDP was linked to semiconductor innovation, with an incremental 11 trillion of indirect impacts (Varas et al. 2021, p. 7). Beyond the economic improvement, they are now a key component in fueling scientific progress and ensuring national security (Khan et al. 2021). In recent years, the semiconductor industry has been incredibly volatile. Despite the rapid growth (the year-on-year growth rate of revenue was 26.2% in 2021), the global semiconductor supply chain has been fraught with a chip-shortage problem since late 2020. The primary reasons for the vulnerabilities of the semiconductor industry lie in its specialization and geographically unbalanced structure. However, the shifts in geopolitical relations, devastating natural disasters, and changes in consumer preferences have fostered irreversible changes within the global semiconductor supply chain. The U.S.-China trade war and the COVID-19 pandemic have strained the semiconductor supply chain with material shortages, rising costs, delayed deliveries, and chain disruptions. “Decentralization,” “short supply chain,” and other ideas are emerging. Most notably, as semiconductors are increasingly linked to national security and international competition, the geopolitical dynamics are shaping the future of the semiconductor market. Individual manufacturers, governments, and different alliances are planning to diversify the supply chain or consider the “self-sufficiency” approach, such as the Quad alliance in the Indo-China region, the newly-formed EU-US tech alliance, and the European Alliance for Processors and Semiconductors.

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Taiwan’s semiconductor industry has been deeply integrated into the global value chain, and accounted for 26.2% of the total semiconductor revenue worldwide in 2021. This is the global hub of foundries and outsourced assembly and test manufacturing (OSAT), concentrating more than 60% of the world’s foundries production. Other than that, Taiwan is predominant in producing the most advanced chip, a strategic component to every economy and nation. This advancement stresses Taiwan’s significance in strategic and geopolitical relations at the global level. Geopolitical disputes and the COVID-19 pandemic have pushed the supply and demand shocks for semiconductors, causing a global crisis as the result of a chip shortage. To some extent, these events have benefitted Taiwan’s semiconductor sector with more orders and sales due to the increasing demand for electronic devices and semiconductor appliances. Other countries like the U.S. and Germany have reached out to Taiwan to help alleviate bottlenecks in chips production (Lee 2021). However, as the semiconductor industry is a global affair and becoming a critical global ecosystem, the instability of the worldwide value chain is a concern to every player in the long run (Alam et al. 2020). With its deep involvement, Taiwan’s semiconductor supply chain is not the only exception to this risk. It is time for Taiwan to adjust according to the global supply chain diversification, improve globality, strengthen resilience, and attain sustainability. The impacts of the U.S.-China frictions and the COVID-19 pandemic on Taiwan’s semiconductor sector have been increasingly discussed; however, views are diverse, and analysis is inadequate. Overall, most of the studies so far are technical reports and qualitative analyses based on related laws and policies, activity reports, market reports or industry news (TSIA 2021; Wang and Chiu 2014). Several empirical papers have investigated different aspects of the Taiwan semiconductor sector’s performance and investment intention, such as investment locations and clusters in China (Tsai and Lee 2012), R&D efficiency (Wu et al. 2019), commercial interaction and revenue prediction in a competitive market environment and technological dynamics (Wang and Lin 2021). Nonetheless, there are limited empirics on Taiwan’s semiconductor sector under volatile geopolitical conditions. These few papers only briefly examine exports and stock returns. Chu and Hsu (2020) use the Computable General Equilibrium model and Input–Output table to examine the economy-wide impacts of the U.S.-China trade war on the export activities of the semiconductor and ICT (Information and Communication Technology) industry. Hsu et al. (2021) examine the investors and firms’ reactions through stock price movements in the COVID-19 period for Taiwan’s listed semiconductor enterprises. Although existing studies have tried to figure out Taiwan’s semiconductor industry from different angles, the picture of the sector’s performance, risks, plans and strategies still has missing pieces. These studies hardly provide a close-up lens on firmlevel information, as they utilize aggregate data and top-down research methods that might ignore firm- and sector-level details. Besides, historical data used in regression and forecasting models do not fully catch the current context of geopolitical and pandemic uncertainties. Meanwhile, the U.S.-China trade war and the COVID19 pandemic, during just a couple of years of their concurrence, have significantly influenced the semiconductor sector’s activities, including procurement, production,

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inventory policy, and delivery. These events have caused firms to reset long-term strategies of capital investment and relocation, which is now the heart of the concern of every semiconductor manufacturer and government. Unfortunately, firm-level data for these changes are not yet available, and comprehensive quantitative analyses are absent. This chapter aims to fill these gaps in the empirical literature. We attempt to provide a preliminary quantitative analysis of the Taiwan semiconductor supply chain’s challenges and intentions in the context of geopolitical and pandemic uncertainties. To do this, we implement semi-annual surveys of Taiwan’s manufacturing sector and semiconductor supply chain from 2018 to 2022. By adopting the questionnaire survey method with stratified sampling and in-depth interviews with firms’ executives, we collect the primary data from a representative sample of Taiwan’s semiconductor firms from 2018 to 2022. The survey sample was built from the listed companies on the Taiwan Stock Exchange, the Taipei Exchange Stock Market, Emerging Stock Market, and the KY stocks. We also refer to the list of the Top 1000 manufacturing and 500 service enterprises, and the China Credit (CRIF) Top 5000 list to create a representative sample. The weights for each industry are measured according to its contribution to gross domestic production. Besides, the persistent sample of more than 40 firms through nine surveys allows for an analysis of the dynamics of Taiwan’s semiconductor industries. This study is the first to apply the questionnaire survey method to collect primary firm-level data and provide fresh quantitative evidence on the performance and intention of Taiwan’s semiconductor sector. In addition, we ask questions about the firms’ situation and responses to the current geopolitical changes, including delivery time, chain disruption, short-chain issues, risk management, and investment and relocation strategies. The questionnaire is particularly designed to capture Taiwan’s manufacturers and is answered by firms’ designated authorities to ensure the correctness of the information. Therefore, our survey is unique and the data collected are reliable, which ensures the novelty of this study. This chapter provides an assessment of Taiwan’s semiconductor supply chain from 2018 to 2022. In the following parts of the chapter, we document an overview of Taiwan’s semiconductor supply chain and its status under geopolitical risks and uncertainties, then explain the methodology and the survey results. We analyze and evaluate Taiwan’s semiconductor sector’s challenges, opportunities and strategies in the new global context. Industrial implications related to economic diplomacy are then offered.

2 Overview of Taiwan’s Semiconductor Supply Chain Over the past several decades, the global semiconductor industry has experienced a remarkable revolution. Since the initial establishment of integrated device manufacturers in the 1950s, the industry has grown into a global ecosystem (Alam et al. 2020; Duhalde and Liu 2018). The global semiconductor value chain has achieved rapid

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growth, averaging a 7.5% compound annual growth rate in the past three decades, and outpacing the 5% growth rate of world GDP during the same period (Varas et al. 2021). However, the estimated growth rate of the industry in 2022 slowed down to 10.4%. The sector is highly exposed to supply chain risks due to the mutual interdependence, deep specialization, and geographical concentration of semiconductor production capacities. Indeed, the regional disasters, the pandemic, and geopolitical uncertainties have led to a loss of scale, severe supply chain disruptions since late 2019, and other negative consequences for the global semiconductor industry. Furthermore, as semiconductors are now strategic components of national security, the U.S.-China trade war might accelerate changes in the world economicpolitical orders, and thereby seriously affect the semiconductor value chain. The trade disputes, to some extent, are motivating “self-sufficiency” in the semiconductor industry, such as the “Made in China 2025” plan. However, this move, the other way round, might push up the uncertainties and risks. Thus, the volatile context highlights the vulnerabilities and weakest links of the entire semiconductor supply chain. It is therefore crucial for governments to address this puzzle and take action to strengthen their domestic semiconductor sector’s resilience in the long term. Taiwan has been developing semiconductor manufacturing as a key industry since 1974. The government has provided much direct support in setting up R&D labs and industrial parks as well as indirect incentives, including financial reforms to facilitate funding to the industry. Therefore, in the late 1980 and 1990s, Taiwan’s enterprises pioneered the foundry model, specializing in IC design. Taiwan’s semiconductor industry consisted of 238 IC fabless design houses, 13 fabrication enterprises, and 37 packaging and testing houses at the end of 2020 (TSIA 2021). While about 75% of the world’s semiconductors capacity is concentrated in East Asia and China, Taiwan has set its vital position as the manufacturing hub of foundries and OSATs. According to the Semiconductor Industry Association’s report, Taiwan accounts for the largest share of wafer fabrication, materials, and OSAT among East Asian countries (Fig. 1). The World Semiconductor Trade Statistics (WSTS) estimates that Taiwan generated approximately one-quarter or more of the worldwide semiconductor revenue in 2019–2021. In particular, Taiwan’s IC revenue in 2021 reached 145.8 USD billion, which was an increase of 26.7% from 2020. Taiwan covered 26.6% of the global semiconductor value in the first half of 2022, ranking second behind China (32.9%) and outperforming the U.S. (23.3%) (Table 1). Taiwan has become an indispensable link to global semiconductor production and even holds the world’s most essential and strategic products (Chang 2021; Lee 2021). It has a near-monopoly in the most advanced logic chip (below 10 nm) with 92% of the world’s manufacturing capacity (Varas et al. 2021). TSMC, one of three firms that can produce the advanced 5-nm nodes, is the world’s leading contract chipmaker accounting for more than 50% of global foundries revenue in 2019Q3 (Alsop 2022). As the primary semiconductor supplier to the U.S. and China, Taiwan is especially highlighted in terms of its global geopolitical significance. U.S. technology firms like Apple, Amazon, Google, Qualcomm, and Nvidia rely on Taiwan’s manufacturers

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Manufacturing

Design

Logic (15%) 3

Memory (70%)

4

Equipment (36%)

4

5

3

7

DAO (33%)

24

6

Materials (57%)

11

27

Overall Value Chain (39%)

5

14

16

9 2

17

19

20

OSAT (43%)

19

16

22

Wafer Fabrication (56%)

Semiconductor Consumption (9%)

8

59 32

6

0

Taiwan

10

20

30

South Korea

40

50

60

70

80

Japan

Fig. 1 Semiconductor revenue shares in East Asia by specialization layer, 2019. Note EDA electronic design automation, DAO: discrete, analog, and other (including optoelectronics and sensors), OSAT: outsourced assembly and test. The breakdown is based on company revenue and the location of company headquarters. The data present the shares (percentage) in the worldwide revenue for each semiconductor layer. Source Authors’ compilation from BCG Analysis (Varas et al. 2021, p. 31)

Table 1 Taiwan’s share of the worldwide semiconductor revenue, 2019–2022 Year

Revenue (USD billion)

Year-on-year growth rate (%) Proportion (%)

2019

2020

2021

2020

2021

2022

78.5

95.4

121.5 70.8

–23.8 21.3

27.4

35.4

19.0

21.7

21.9

23.3

Europe 39.8

37.5

47.8

27.1

–7.3

5.8

27.3

19.9

9.7

8.5

8.6

8.9

Japan

36

36.5

43.7

24.0

–10.0 1.3

19.8

18.2

8.7

8.3

7.9

7.9

China

144.6 151.5 192.5 100.1

–8.7

4.8

27.1

10.7

35.1

34.4

34.6

32.9

–8.9

5.4

25.9

15.4

27.5

27.1

27.1

27.0

–1.7

20.9

26.7

26.8

20.9

24.7

26.2

26.6

26.2

18.5

100.0 100.0 100.0 100.0

The U.S

2022Q2 2019

Asia 113.2 119.5 150.5 82.2 Pacific Taiwan 86.3 Total World

108.9 145.8 81.0

412.1 440.4 555.9 304.2

2020 2021 2022Q2 2019

–12.1 6.8

Note The revenue is calculated for the whole of the semiconductor industry, including IC design, manufacturing, packaging and testing. Data for 2022Q2 are cumulative for the first two quarters of 2022. Data for the Asia Pacific exclude China Source Authors’ compilation from the World Semiconductor Trade Statistics (WSTS) database, 20192022Q2

to produce up to 90% of their chips (Choudhury 2021). Meanwhile, Taiwan has been over-reliant on trade with China (42.3% of Taiwan’s total exports went to

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China including Hongkong in 2021).1 Taiwan’s semiconductor exports are heavily dependent on this market, which infers a threat to Taiwan’s economy as well as its semiconductor supply chain. The chip-shortage problem has reminded us that the unbalanced structure has placed the global semiconductor value chain at risk and made it increasingly vulnerable. As mentioned above, the global semiconductor value chain has been facing severe chain disruptions due to the U.S.-China conflicts and the COVID-19 pandemic. On the one hand, this incident has temporarily benefitted Taiwan’s semiconductor manufacturing. TSMC has planned USD 45 billion worth of capital investment in Taiwan and elsewhere to maintain its leadership and diversify its production locations (Joseph 2022). On the other hand, Taiwan’s key position in the industry and its geopolitical significance have made its semiconductor supply chain more fragile (Kirk 2020; Shattuck 2021). TSMC intends to set up overseas foundries but faces the challenge of preserving its technological advances. In terms of economics, establishing overseas plants is costly without industry clusters and a qualified workforce that involves a cost similar to that in Taiwan (Siripitakchai et al. 2015). Meanwhile, the local industry is confronting serious issues due to a looming shortage of talents. Diversifying and upgrading the local sector towards transformation and sustainability are now posing a challenge to Taiwan’s semiconductor industry. In the midst of the U.S.-China tech war, the diversification approach for Taiwan’s semiconductor industry should be cautiously considered as Taiwan needs to maintain the “silicon shield” for its national security. Taiwan should wisely address the puzzle of economic concerns and political issues (An and Yeh 2020). This means that Taiwan’s semiconductor sector must adjust to global diversification to strengthen its position while at the same time improving its resilience. Furthermore, Taiwan’s development of semiconductors is now of much concern to worldwide players, governments, policymakers, manufacturers, and practitioners. This study provides a quantitative analysis of all these issues, including the risks and strategies in Taiwan’s semiconductor industry within the globality and complexity of the semiconductor ecosystem.

3 Questionnaire Survey There is relatively little data and systematic mainstream information on Taiwan’s semiconductor supply chain. Although media reports are available in this regard, they are mostly based on individual notes with singular data and qualitative analysis. Interviews with industries were made individually and randomly and thus cannot help with systemizing the data. Moreover, it is difficult to collect information on investment and operational strategies due to confidentiality and sensitivity in the 1

Taiwan Bureau of Foreign Trade, MOEA, Statistics of Taiwan’s bilateral trade with Mainland China (including Hong Kong), accessible at https://www.trade.gov.tw/Pages/Detail.aspx?nodeid= 1375&pid=516662.

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semiconductor sector. The lack of a clear definition and a classification system in the semiconductor supply chain makes it more challenging to obtain a complete list of manufacturers. To the best of our knowledge, a comprehensive dataset of Taiwan’s semiconductor supply chain is currently unavailable. In this research, we have expanded the scope of our investigation with monthly surveys of Taiwan’s manufacturing and non-manufacturing industries. In addition, since 2018, semi-annual surveys have been conducted to understand the manufacturing sector’s impacts and responses to the U.S.-China trade disputes and the COVID-19 pandemic situation. We have carried out nine semi-annual surveys and collected about 500 valid answers for each. The cumulative collection of around 4,000 answers from 2018 to 2022 provides a persistent sample for our study, showing the dynamics of Taiwan’s manufacturing industries. The stratified sampling in this study is based on the output value contribution of each manufacturing industry to GDP according to the industry classification of Taiwan’s Directorate-General of Budget, Accounting and Statistics (DGBAS). We build a representative sample of semiconductor enterprises from the manufacturers’ information on Taiwan’s Industrial Value Chain Information Platform,2 the Taipei Exchange Stock Market (TPEx) list, the Emerging Stock Market (ESM) list, and the KY listed enterprises. To validate the sample, we only include enterprises producing semiconductors and having related activities in Taiwan. We also count enterprises that are not categorized as manufacturing industries, but their supply chain consists mainly of semiconductor suppliers. For example, several non-manufacturers belong to the wholesale business, but their main vendors are wafer manufacturers, upstream material and equipment suppliers, IC packaging and testing, and so on. So, their business activities, such as order and procurement strategies, will reflect the status of domestic fabs and packaging and testing plants. These enterprises are then added to our representative sample. In the next step, we re-classify the industry categories. We combine small groups, such as substrates, lead frames, chemicals, and masks industries, into the group “Testing equipment and production support.” In this way, Taiwan’s semiconductor supply chain is divided into five categories, namely, “IC/IP design,” “Wafer manufacturing” (the front-end process), “IC packaging and testing” (the back-end process), “Testing equipment and production support” and “IC distributor.” According to our classification system, approximately 200 semiconductor manufacturers listed on Taiwan’s Industrial Value Chain Information Platform fit into one of the five categories. Our semi-annual questionnaire surveys cover 15−20% of these enterprises. In our sample, each category is given a weight ratio corresponding to its share of the whole sample.3 Therefore, our results can reflect the relative importance of each class and indicate the representative features of the population.

2

Taiwan’s Industrial value chains, accessible at https://ic.tpex.org.tw/. The latest weight ratios for Taiwan semiconductors industries were updated as [1.9: 1: 1.3: 2.2: 0.3] for “IC/IP design,” “Wafer manufacturing,” “IC packaging and testing,” “Testing equipment and production support,” and “IC distributor,” respectively.

3

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The survey sampling of the semiconductor sector in this study follows the sampling strategy for the whole of Taiwan’s manufacturing sector. From 2018 to 2022, nine surveys were conducted, with about 40–50 semiconductor manufacturers in each survey. The questionnaire passed pretests before the launch of the formal investigation on an online platform. This platform is professionally constructed to control the survey process, which ensures the consistency of the questionnaire survey sample. Furthermore, the relevant data interpretation and policy recommendations are supplemented by telephone interviews, face-to-face meetings, and in-depth discussions with semiconductor manufacturers and the Supply Management Institute Taiwan (SMIT). Both the qualitative and quantitative data collected are informative and valuable to manufacturers, policymakers, and researchers.

4 Survey Results and Evaluation 4.1 Taiwan’s Semiconductor Supply Chain Under Geopolitical and Pandemic Uncertainties Our survey first captures the status of Taiwan’s semiconductor supply chain under the impacts of geopolitical uncertainties and the coronavirus pandemic. For a general assessment, we asked Taiwan’s manufacturers about the events and general economic factors that had the most impacts on their business activities. The results show that the U.S.-China trade war and the COVID pandemic had the greatest effect during 2018–2022 (Fig. 2). Meanwhile, economic-geopolitical changes, including rising raw material prices, exchange rate fluctuations, economic volatility in China and the U.S., and Cross-strait relations were considered to be major factors. Note that the COVID-19 pandemic had the most influence on Taiwan’s manufacturing until 2022. Port congestion, elevated freight rates, increasing delivery times, and rising raw material prices have become tough challenges to Taiwan’s manufacturing since 2021. In this section, we especially explore the impacts of the U.S.-China trade war and the COVID pandemic on Taiwan’s semiconductor sector in past years.

4.1.1

Impacts of the U.S.-China Trade War 2018–2019

In view of the substantial trade and investment relations with both the U.S. and China, Taiwan faces spillover effects from the trade war between the world’s two largest economies. The trade tensions have caused U.S. businesses to transfer orders out of China to avoid tariffs, which might benefit Taiwan’s semiconductor sector in the short term (Chow 2020). Being of critical geopolitical importance, Taiwan has been cited as

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100.0 80.0 60.0 40.0 20.0 0.0 Jun 18

Dec 18

Jun 19

Dec 19

Exchange rate fluctuation Labor costs and shortage of human resources China's economic volatility Port congestion and rising delivery times The COVID-19 pandemic

Jun 20

Dec 20

Jun 21

Dec 21

Jun 22

International energy and raw material prices Cross-strait relationship The U.S. economic volatility The U.S.-China trade war

Fig. 2 The most influential factors in Taiwan’s manufacturing, 2018–2022. Note The question is closed-ended with multiple options with all that apply to be checked. The data are expressed as the percentage of manufacturers selecting a given option. Source Semiconductor data is authors’ compilation. Manufacturing data stems from the Semi-annual Manufacturing Operation Outlook Survey, jointly issued by the National Development Council and Chung-Hua Institution for Economic Research, 2018–2022

an important partner of the U.S. and named a key ally in the U.S.’s strategy of strengthening semiconductor production and innovation (the Senate-passed U.S. Innovation and Competition Act of 2021-USICA and the House-passed Pre-Eminence in Technology and Economic Strength 2022 (COMPETES) Act). These economic-political events might have led to different responses from Taiwan’s semiconductor industries. We asked the managers whether the U.S.-China trade war in 2018–2019 had affected their company’s business activities and what the impacts were. The answers showed that the semiconductor industries were more vulnerable to this shock than the entire manufacturing sector. Approximately 97% of the semiconductor enterprises reported that they were affected by the U.S.-China trade war as of June 2019 (Fig. 3a). As to the aspects of the impacts, only around 20–30% of Taiwan’s semiconductor enterprises, far lower than the 40–60% of the manufacturers, reported the impacts of rising raw material prices and operating costs. Export-oriented Taiwanese manufacturers based in China have been struggling with the high tariffs and the escalating costs due to the intensifying trade tensions. Consequently, the number of China-based Taiwanese enterprises reshoring has surged (Chang 2019), leading to the long-term order and client adjustments. Interestingly, our survey results show that at the end of 2019, around 20% of the semiconductor enterprises suffered short-term price and chain disruption shocks, while 44% of the enterprises reported long-term changes in orders and clients (Fig. 3c, e, f). These changes might signal the restructuring intentions in Taiwan’s semiconductor sector. The survey results in Table 2 show that 85.7% of Taiwan’s IC design enterprises were affected by the U.S.-China trade war as of 2019. 83.3% of these enterprises felt the impacts on their operations and procurement policies. Meanwhile, for the wafer manufacturing and IC packaging and testing industries, the dominant influence was on orders and clients as reported by about 70% of the enterprises. At the same time, the rising raw material prices and operating costs were no longer the foremost

5 Can Semiconductors Be a Tool for Taiwan’s Economic Diplomacy … 100.0 88.2

78.1

80.0 77.2 60.0

40.0

96.9

78.9

30.0 20.0

51.8

60.0 27.3

44.0 40.0

12.8

10.0

10.9

Dec 18

Jun 19

Dec 19

44.8

45.5 38.9

30.0 28.5 20.0

0.0 Jun 18

45.5

12.0 13.1

37.9

(a) Percentage of semicond uctor enterprises affected ( %)

58.1

50.0

26.2

10.0

20.0

56.7

22.6

76.0

40.0

83

Jun 18

Dec 18

Jun 19

Jun 18

Dec 19

(b) Supply chain delays or disruptions (%)

60.0

Dec 18

Jun 19

50.0 70.0

55.0 44.0 48.4

45.0

43.5

40.0 48.3

50.0

30.0

42.4

32.1

Dec 18

Jun 19

Dec 19

22.6

(d) Loss due to exchange r ate fluctuations (%)

Dec 18

Jun 19

20.0 Dec 19

(e) Rising raw material pric es and operating costs

19.4 14.8

10.0

27.3 Jun 18

16.7 12.3

10.0

30.0 Jun 18

20.7 20.0

30.0 40.0

35.0

23.3

38.5 30.0

40.0

44.0

66.2

48.4

50.0

Dec 19

(c) Decrease in new orders or clients (%)

0.0 0.0 Jun 18

Dec 18

Jun 19

Dec 19

(f) Increase in new orders or clients (%)

Fig. 3 Impacts of the U.S.-China trade war on Taiwan’s semiconductor supply chain. Note The solid line is for Taiwan’s semiconductor supply chain, while the dashed line is for Taiwan’s manufacturing sector. We asked the managers if the U.S.-China trade war had the following impacts on their firms. The question was closed-ended with all multiple options applying to be checked. The numbers express the percentage of selection for a given option. Source Semiconductor data is authors’ compilation. Manufacturing data stems from the Semi-annual Manufacturing Operation Outlook Survey, jointly issued by the National Development Council and Chung-Hua Institution for Economic Research, 2018–2019

concern to the wafer manufacturing and IC packaging and testing enterprises in 2019 compared with the 2018 report. The long-term restructuring tendency is likely to be found in the wafer manufacturing and IC packaging in testing industries rather than in the IC design. When we asked Taiwan’s semiconductor company managers if they had plans to withstand the challenges amidst the ongoing U.S.-China trade war, 59.4% of them answered affirmatively. All the managers selected short-term adjustments in operation and procurement policies as their first option. The long-term strategies of investment and relocation attained the second and third ranks of importance for about 40–50% of the semiconductor enterprises. Taiwan’s semiconductor supply chain is pushing restructuring and relocation strategies. Confronted with the trends of “decentralization” and “regionalization,” some manufacturers have moved back to Taiwan while others have tended to relocate to Southeast Asia.

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Table 2 Impacts of the U.S.-China trade war—Industry-wise statistics (%) 2018/6 2018/12 2019/6 2019/12 Panel A. Percentage of semiconductor enterprises affected 37.9

88.2

96.9

78.1

IC/IP design

40.0

88.9

100.0

85.7

Wafer manufacturing

0.0

75.0

100.0

75.0

IC packaging and testing

11.1

85.7

83.3

57.1

Testing equipment and production support

63.6

91.7

100.0

83.3

0.0

0.0

12.5

16.7

Panel B. Rising raw material prices and operating costs IC/IP design Wafer manufacturing

0.0

66.7

25.0

33.3

IC packaging and testing

0.0

33.3

20.0

0.0

Testing equipment and production support

42.9

27.3

16.7

30.0

Panel C. Operation and procurement policy adjustments IC/IP design

50.0

25.0

50.0

83.3

Wafer manufacturing

0.0

0.0

25.0

0.0

IC packaging and testing

100.0

33.3

40.0

0.0

Testing equipment and production support

42.9

36.4

58.3

40.0

Panel D. Changes in new orders and clients Increase IC/IP design

0.0

25.0

25.0

16.7

Wafer manufacturing

0.0

33.3

25.0

33.3

IC packaging and testing

0.0

16.7

20.0

75.0

Testing equipment and production support

0.0

9.1

16.7

60.0

Decrease IC/IP design

50.0

75.0

75.0

33.3

Wafer manufacturing

0.0

66.7

75.0

66.7

IC packaging and testing

100.0

50.0

40.0

25.0

Testing equipment and production support

28.6

45.5

41.7

40.0

Note We asked the managers if the U.S.-China trade war had the following impacts on their firms. The question was closed-ended with all multiple options that apply to be checked. The numbers are industry-wise statistics, showing the percentage of selection for given options Source Authors’ compilation

4.1.2

Impacts of the COVID-19 Pandemic 2020–2021

The outbreak of the coronavirus pandemic in 2020 has compounded the difficulties faced by global industries. Port congestion and rising freight costs have resulted in a severe breakdown of the global chain. The chip shortages, delivery delays, and supply chain disruptions are both serious and widespread. To manage supply chain risks in Taiwan’s semiconductors sector, it is necessary to first measure these shocks.

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However, there is a lack of a set of common indicators and evaluation methods from a practical point of view. To this end, in our survey, we exploit suppliers’ delivery times or lead times as the assessment criteria. More specifically, we asked if first-tier suppliers’ delivery times changed (increased, decreased, or remained unchanged) in 2020–2021 and also the percentage change under the impact of the COVID-19 pandemic. Column 1 of Table 3 shows that 41.5% of Taiwan’s manufacturers suffered from increasing delivery times of first-tier suppliers in 2020 due to the pandemic, while 45.7% of respondents reported no change. However, the COVID-19 pandemic exerted more unfavorable impacts on Taiwan’s semiconductor supply chain, with 52.8% of respondents confirming increased lead times in all semiconductor industries in 2020. Specifically, 70% of IC/IP design and 66.7% of wafer manufacturing enterprises encountered longer shipping times. The shipment delays became even worse in 2021, with 71.8% of semiconductor enterprises reporting increased delivery times. The average increase in the delivery times is presented in Column 5. The situation was more serious for the semiconductor enterprises, with an average increase of 39.4% in 2020 that almost doubled in 2021. The survey results show that the delays in Taiwan’s semiconductor enterprises’ shipping times increased by 69.3% in 2021. Column 6 presents the maximum increase, showing the seriousness of the shipping delays, for each industry. Here, delivery times in the semiconductor sector increased five times (reported as 400%) in 2021. For example, the delivery time increased from 10 to 50 days. Note that this is only the delivery time for the first-tier suppliers and excludes other periods such as waiting time for products to be shipped due to container shortages and port congestion. The procurement time in all semiconductor industries markedly increased in 2021, for instance, by two times and four times in the wafer manufacturing and IC/IP design industries, respectively. The lengthened lead times illustrate supply chain disruption risks and pose challenges to the procurement and inventory policies in Taiwan’s semiconductor sector. To learn the impacts of the COVID-19 pandemic on Taiwan’s semiconductor supply chain, we asked the managers if their enterprises had experienced such positive and negative consequences. Table 4 shows that the pandemic had positive and negative effects on 52.8% and 41.7% of the semiconductor enterprises, respectively. The pandemic has considerably changed business models and work patterns globally, and has pushed digital and remote work, resulting in a surge in the demand for semiconductor products. Fortunately, Taiwan’s manufacturing sector did not experience a lockdown due to the pandemic. This situation to some extent had a positive impact on Taiwan’s enterprises, including an increase in new orders for the electronic and optical equipment manufacturers. According to the Taiwan Manufacturing Purchasing Managers’ Index (PMI), the Electronic and Optical industry’s PMI rose for 18 consecutive months from June 2020 to December 2021 and the New Orders and Production Indexes fluctuated around 70%. Our survey consistently shows that 47.2% of the semiconductor enterprises gained from improvements in business activity and 36.1% had increases in sales. At the same time, our collected data show the rapidly increasing capacity utilization rate in Taiwan’s semiconductor supply chain in 2020–2021 (Fig. 4). The average

2021

76.9

75

2020

40

71.4

33.3

20

36.1

39.1

45.7

23.1

12.5

25

25

20.5

22.7

25.6

2021

(2) 2020

10

0

0

0

2.8

0

2.2

0

12.5

0

0

2.6

1.8

3.3

2021

(3)

Decreased

10

14.3

0

10

8.3

10.1

10.5

2020

Unsure

0

0

0

16.7

5.1

8.2

13.3

2021

(4)

+35.0 +30.6 +66.5

+10.0 +6.7 +81.1

+81.5

+38.9

+63.3

+32.8

+69.3

+ 59.1

+ 28.5 +39.4

2021

2020

(5)

Average percentage change(b)

2020

500

40

20

200

500

500

500

220

100

100

300

400

500

643

2021

(6)

Maximum increase(c)

Note (a): The question is open-ended with all multiple options that apply to be checked. The numbers denote the percentage of selection for given options (b): The average percentage change in the delivery time of respondents who answered the question; (+) denotes an increase while (–) denotes a decrease. (c): These columns report the maximum increase (percentage) in delivery time among respondents who answered the question. If the delivery time was extended from 10 days to 35 days, this means the delivery time increased by 250%, which is expressed as “250” in this column. Source Semiconductor data is authors’ compilation. Manufacturing data stems from the Semi-annual Manufacturing Operation Outlook Survey, jointly issued by the National Development Council and Chung-Hua Institution for Economic Research, 2020-2021. Data for 2020 is from Chen et al. (2021).

40

Testing equipment and production support

75

66.7 14.3

Wafer manufacturing

IC packaging and testing

58.3

70

IC/IP design

67.3 71.8

50.5 52.8

Electronic and Optical industry

57.8

Semiconductor supply chain

2020 41.5

Year

(1)

Unchanged

Compared to the previous year, delivery times of first-tier suppliers(a) Increased

Manufacturing sectors

Industries

Table 3 Delivery times of first-tier suppliers to Taiwan’s semiconductor supply chain

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Table 4 Impacts of the COVID-19 pandemic on Taiwan’s semiconductor supply chain Panel B. Negative impacts

Panel A. Positive impacts Percentage of firms affected

52.8

Percentage of firms affected

41.7

Business activity improvement

47.2

Raw material price fluctuations

33.3

Increase in sales

36.1

Logistics disruptions

27.8

New clients

16.7

Decline in customer demand

25.0

New products or services

11.1

Decrease in operating income

25.0

Supply chain disruptions

22.2

Suspending the development of new products and technologies

11.1

Tight working capital

8.3

Reduced payment or unpaid leave

5.6

Temporary production suspensions

5.6

Note The numbers are the percentages of the semiconductor enterprises selecting a given option (selecting all that apply) Source Authors’ compilation

capacity utilization rate of the semiconductor industries was over 85% in the past years and much higher than the rate of the manufacturing sector. As of 2021, 46.9% of the semiconductor manufacturers experienced full capacity. Most notably, the proportion of full-capacity enterprises in Taiwan’s semiconductor industries has rapidly risen since 2020 and has almost doubled the ratio of the entire manufacturing sector. That being said, the semiconductor supply chain has outperformed the manufacturing sector. Geopolitical instability, the U.S.-China trade conflicts, and the pandemic have caused Taiwan’s semiconductor supply chain to face a dilemma of reaching full capacity while suffering from longer delivery times and supply chain disruption risks.

10.0

74.3 70.0

14.3

2018M12

2022M6

2021M12

2021M6

2020M12

2020M6

2019M12

2019M6

2018M12

2018M6

26.7

15.6 12.5 10.6

0.0

(a) Average capacity utilization rate (%)

18.5

9.6

9.4

13.2

8.7 2021M6

20.0

26.1

22.2

2020M6

80.7

78.1 77.7

21.4

2020M12

79.2

75.0

41.2 26.7

30.0 81.7

2019M12

85.8

85.0 82.5

46.9 38.7

40.0

2018M6

80.0

90.3 85.7

84.8

2019M6

86.0

53.3

50.0

86.5

85.0

60.0

92.0

2022M6

93.7 90.3

88.8

90.0

2021M12

95.0

(b) Proportion of enterprises of full cap acity (%)

Fig. 4 Capacity utilization rate in Taiwan’s semiconductor supply chain, 2018–2022. Note The solid line is for Taiwan’s semiconductor supply chain; the dashed line is for Taiwan’s manufacturing sector. Source Semiconductor data is authors’ compilation. Manufacturing data stems from the Semi-annual Manufacturing Operation Outlook Survey, jointly issued by the National Development Council and Chung-Hua Institution for Economic Research, 2018–2022

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4.2 Restructuring, Reshoring, and Diversifying Strategies of Taiwan’s Semiconductor Supply Chain 4.2.1

Taiwan’s Semiconductor Supply Chain Restructuring Trends

The outbreak of the coronavirus pandemic in early 2020 has increased the risk of supply chain disruption. The supply chain restructuring has accelerated in response to the uncertainties. To capture the restructuring trends of Taiwan’s semiconductor sector, we asked enterprises if they had plans to restructure, and whether the driving forces were internal or external. The survey results show that more than half of Taiwan’s semiconductor companies had restructuring tendencies in 2021 (Fig. 5). However, the restructuring drivers were mostly from the suppliers and clients. The main purposes of restructuring include improving supply flexibility, developing secondary suppliers, and reducing the risks of sole dependence on a single country (Table 5). This means that restructuring has now become the requirement of the external forces that Taiwan’s semiconductor supply chain needs to follow. It should be noted that this move will provide Taiwan’s enterprises with both opportunities and challenges. The survey results show that 74.4% of the semiconductor companies expect restructuring to bring positive effects, while 76.9% believe that this will increase the risks the companies face in their future development. Rising operating costs are a concern of more than 70% of the semiconductor companies, while difficulties complying with local regulations and decentralized management are significant. Suppliers

100.0% 80.0% 60.0% 40.0%

Manufacturers

Clients 100.0%

100.0% 71.4% 61.9%

66.7%

60.0% 50.0%

50.0%

50.0%

23.8%

44.4% 33.3% 25.0%

20.0% 0.0%

0.0%

0.0% Semiconductor

IC/IP design

Wafer

IC packaging and

Testing equipment

supply chain

(41.7%)

manufacturing

testing

(69.2%)

(50.0%)

(50.0%)

(55.3%)

Fig. 5 Driving forces of restructuring in Taiwan’s semiconductor supply chain. Note The numbers are the percentages of enterprises in the semiconductor supply chain and in each semiconductor industry planning to restructure due to the driving forces (select all that apply). The values in parentheses are the proportions of manufacturers in the industry with restructuring tendencies. Source Authors’ compilation

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Table 5 Purposes, opportunities, and risks of restructuring in Taiwan’s semiconductor supply chain Panel A. Purposes of restructuring(a)

Percentage

Improving supply flexibility

56.3

Developing secondary suppliers

56.3

Reducing risks of sole dependence on a single country

43.8

Clients’ requests of transferring

31.3

Reducing shipping times and lead times

31.3

Geopolitical considerations

31.3

Taxation and trading cost considerations

31.1

Industrial settlement and concentrated production

25.0

Moving closer to consumers, improving service quality and efficiency

6.3

Environmental protection and safety regulations

6.3

Panel B. Possible effects of

restructuring(b)

Restructuring causes positive effects (percentage of companies)

74.4

Increasing revenue

58.6

Diversifying country/regional risks

44.8

Increasing market shares

34.5

New markets, products, and customers

31.0

Improving supply flexibility

27.6

Meeting the clients’ requirements

24.1

Developing secondary suppliers

20.7

Product diversification

17.2

Moving closer to consumers, improving service quality and efficiency

17.2

Reducing shipping times and lead times

10.3

Reducing trading costs

10.3

Panel C. Challenges and risks of restructuring(b) Restructuring causes risks (percentage of companies)

76.9

Rising operating costs

73.3

Difficulty in compliance with local regulations

30.0

Difficulty in decentralized management

26.7

Core technologies leakage

20.0

Brain drain

16.7

Lack of industrial settlement

13.3

Trade secrets leakage

10.0

Cultural differences

6.7

Note The numbers are the percentages of semiconductor enterprises selecting a given option (selecting all that apply); (a) Survey in December 2020, (b) Survey in December 2021 Source Authors’ compilation

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Relocation Plans of Taiwan’s Semiconductor Supply Chain

Faced with the U.S.-China trade tensions and the COVID-19 pandemic, Taiwanese enterprises have made structural shifts in landscape and investment, while seeking to boost market share by expanding manufacturing and cutting costs (Hille 2021). In our survey, we asked Taiwan’s manufacturers if they had new investment or relocation strategies and their tentative destinations. Table 6 presents the proportion of manufacturers intending to invest and relocate in a given destination among all the companies that had new investment and relocation plans. Panel A of Table 6 shows that only 4.3% and 9.2% of the manufacturers who had new investment plans wanted to invest in China in the first and second half of 2019, respectively. These rates were lower than the rates for the U.S. and far lower than those for Taiwan and ASEAN. China seemed to have less attraction to Taiwan’s manufacturers in 2019. This can be deduced from the escalating U.S.-China disputes beginning in 2018 and partly due to the rise of the “de-Sinicization” movement. On the contrary, Taiwan’s semiconductor enterprises still stuck to the mainland as 37.5% of the companies intended to invest in China by the end of 2019. The outbreak of the COVID-19 pandemic in 2020 has worsened the supply chain disruptions, thus accelerating relocation trends. The survey results in Panel B show that most of the managers chose Taiwan as the location for new investments in 2020– 2022. Unlike in previous years, Taiwan’s semiconductor managers seemed to shift their new investment locations from ASEAN to China in 2020–2021. China became the second choice, being selected by 33.3% and 35.3% of the semiconductor companies in 2020 and 2021, respectively. At the same time, 11.1% of the semiconductor enterprises reported their intentions to withdraw some parts of their investment from Taiwan and (or) China, three-fourths of which planned to withdraw from China (Panel C, Table 6). Despite the wave of Taiwanese enterprises bidding farewell to China due to the trade war and the rising costs, Taiwan’s semiconductor industry did not “de-Sinicize,” but even expanded in China. Enterprises planning their new investments in China are mostly engaged in the testing equipment and production support industries in accordance with our 2018–2022 surveys. It should be noted that some of Taiwan’s semiconductor firms intended to relocate to the U.S. and Europe beginning in 2020. At least 11% of the companies had plans for new investments in the U.S. in 2020–2021. TSMC approved the building and operation of a fully-owned advanced semiconductor fab in the U.S. state of Arizona, with a paid-in capital of 3.5 billion U.S. dollars in late 2020 (Shattuck 2021; TSMC 2020). The changes in the new investment locational decision reflect the adjustment in Taiwan’s semiconductor supply chain to global supply chain diversification.

4.2.3

“Decentralization” and Diversification Strategies

To explore the responses of Taiwan’s semiconductor companies to the current challenges, we collected the managers’ opinions on risk management strategies. The

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Table 6 New investment and relocation trends of Taiwan’s semiconductor supply chain, 2018–2022 Industries

New investment and relocation destinations Taiwan

China

ASEAN

The U.S

Europe

Panel A. New investment plans due to the U.S.-China trade war 2018–2019 Semiconductor supply chain 2018M12

40.0

0.0

60.0

0.0

0.0

2019M6

66.7

0.0

50.0

0.0

0.0

2019M12

50.0

37.5

50.0

0.0

0.0

Manufacturing sector 2018M12

39.3

8.2

59.0

16.4

8.2

2019M6

45.7

4.3

62.9

17.1

8.6

2019M12

52.6

9.2

55.3

11.8

5.3

33.3

33.3

11.1

11.1

Panel B. New investment plans in 2020–2022 Semiconductor supply chain 2020M12

77.8

2021M6

89.5

15.8

5.3

5.3

–

2021M12

88.2

35.3

5.9

11.8

–

2022M6

85.7

28.6

10.7

7.1

3.6

Manufacturing sector 2020M12

49.3

13.4

56.7

9.0

6.0

2021M6

79.4

20.6

9.5

4.8

–

2021M12

81.1

25.7

16.2

6.8

–

2022M6

80.6

17.4

16.7

2.8

0.0

Panel C. Investment withdrawal in 2020M12 Semiconductor supply chain

25.0

75.0

Manufacturing sector

37.5

72.5

Note The question is multi-select multiple choice (check all that apply). The numbers (in percentages) are the selection rates for the given options. Panels A and B report the selection ratios over all the respondents who had new investment plans. Panel C reports the selection rates for the given options over all the enterprises that had withdrawal plans in 2020M12. In 2020M12, 11.1% of the entire semiconductor sample planned to withdraw from China and/or Taiwan.–: no data was collected as we did not add Europe as a choice Source Semiconductor data is authors’ compilation and from Chen et al. (2021). Manufacturing data stems from the Semi-annual Manufacturing Operation Outlook Survey, jointly issued by the National Development Council and Chung-Hua Institution for Economic Research, 2018–2022

survey results are presented in Table 7. Overall, more than 80% of the respondents confirmed that they had adopted measures to improve supply chain management. Strengthening supply risk management and cost management are the two most important strategies. Approximately 70% of Taiwan’s semiconductor manufacturers selected improving risk management and cost management in 2019–2020. As the global uncertainties and geopolitical risks became an integral part of the world

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Table 7 Taiwan’s manufacturing and semiconductor supply chain management improvement strategies, 2018–2020 Strategies

Manufacturing sector

Semiconductor supply chain

2018

2019

2020

2018

2019

2020

Proportion of companies adopting adjustment measures

82.1

81.1

80.3

81.8

83.9

87.9

Strengthening supply risk management and sustainability issues

33.8

48.5

69.3

48.1

69.2

65.5

Cost management and value-added strategies

55.1

71.8

47.6

77.8

65.4

44.8

Co-innovation and collaboration with suppliers

41.1

43.2

35.8

48.1

53.8

37.9

Reorganizing and optimizing supply base

30.4

48.5

41.5

29.6

50.0

51.7

Developing new global supply sources

32.3

29.6

51.4

40.7

38.5

69.0

Automating and digitizing supply chain management processes

22.4

31.6

22.2

22.2

26.9

20.7

Note The questions are multi-select multiple choice (checking all that apply). The numbers (in percentages) are the selection rates for the given options Source Semiconductor data is authors’ compilation and from Chen et al. (2021). Manufacturing data stems from the Semi-annual Manufacturing Operation Outlook Survey, jointly issued by the National Development Council and Chung-Hua Institution for Economic Research, 2018–2020

economy and especially the semiconductor industry, supply risk management drew the most attention from Taiwan’s semiconductor enterprises in 2019–2020, while cost reduction was no longer the only priority. Since the COVID-19 pandemic became more severe after 2020, the need to enhance each company’s ability to withstand risks became as great as ever. Manufacturers had to adjust operating strategies, investment plans, and factory layouts to adapt to the new situation. While global factors including lockdowns and chain disruptions, such as transportation and logistics issues, disease epidemics, and geopolitical instability, cannot be controlled by manufacturers individually, Taiwan’s industries could rely on a more diversified business configuration. Our survey results point out that diversification is a critical solution for the resilience of Taiwan’s semiconductor supply chain. Remarkably, the survey results indicate that the essential diversification strategies now include the development of secondary suppliers, a decentralized global manufacturing layout, the development of new or diversified products, and diversified customer composition. Table 8 presents the risk diversification strategies of Taiwan’s manufacturing and semiconductor supply chain. 64.9% of Taiwan’s semiconductor companies have

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adjusted or planned to adjust their investment and business strategies. To deal with supply chain disruptions, developing secondary suppliers was the first preferred strategy of 70.8% of the semiconductor enterprises. Nearly half of the interviewed manufacturers chose to decentralize and adopt a short-chain strategy to build manufacturing close to clients. In addition, 37.5% of the semiconductor enterprises opted to develop new products, diversify products, and strengthen their R&D. Taiwan’s semiconductor enterprises are reducing their dependence on a single market while also spreading geopolitical risks. The ideas of localization and decentralization have changed the traditional theories of the relative comparative advantages of abundant and cheap production factors in order to reduce costs. Faced with high freight rates, uncontrollable shipping periods, and rising risks in a single market, the decentralization and short-chain strategies are helping manufacturers to not only Table 8 Risk diversification strategies of Taiwan’s semiconductor supply chain under geopolitical uncertainties Strategies

Manufacturing sector

Semiconductor supply chain

Proportion of companies adopting adjustment measures

54.0

64.9

Develop secondary suppliers

63.6

70.8

Localization

39.9

45.8

Short-chain strategy, local manufacturing close to customers

30.8

45.8

Develop new or diversified products

37.8

37.5

Strengthen R&D of existing products or services

36.4

37.5

Promote sustainable ESG initiatives

24.5

33.3

Cultivate talents and R&D teams

36.4

29.2

Decentralized customer composition

29.4

29.2

Build flexibility

27.3

29.2

Reconfigure outsourcing

19.6

29.2

Develop new business models

21.7

20.8

Digitization of production, procurement processes and business models

26.6

16.7

Develop or diversify export markets

16.8

16.7

New product technologies or patents

16.8

12.5

Strategic alliances or shareholdings

8.4

12.5

M&A

5.6

12.5

Eliminate departments or product lines

4.9

0.0

Note The question is multi-select multiple choice (checking all that apply). The numbers (in percentages) are the selection rates for the given options Source Authors’ compilation from Chen et al. (2021)

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get close to local customers and cut logistics costs, but also to reduce the probability of serious damage to production lines caused by the over-concentration of resources in a single country. Furthermore, getting close to clients and dispersing manufacturing in different economies and regions can facilitate the development of new products to serve varied markets. Table 8 also shows that the sustainable environmental, social, and governance (ESG) framework has been a significant approach adopted by Taiwan’s semiconductor supply chain in recent years, with 33.3% of the respondents having selected it. ESG criteria have increasingly been a concern of socially conscious investors. On the one hand, the ESG standards will entail more costs, such as human resource expenses, production costs, and other operating costs, while on the other hand the ESG framework supports transformation and sustainability. More advanced technology manufacturers have announced that they aim to achieve net-zero carbon emissions by 2050. Our survey results confirm that Taiwan’s semiconductor industries are adopting this approach as an essential solution for upgrading and transformation. In addition, the survey results indicate that cultivating talents and R&D teams is essential for the sustainability of Taiwan’s semiconductor industries, with 29.2% of the respondents having selected it. Interestingly, this rate is remarkably lower than that for the manufacturing sector as a whole. Following further interviews with managers, the probable reason might be the difficulty in recruiting talents in the semiconductor field. Taiwan might consider improving in this area because high-quality talents are critical to any development strategy.

4.2.4

Taiwan’s Semiconductor Supply Chain in Mainland China

To further understand why Taiwan’s semiconductor companies have been relocating to China, in-depth interviews with managers were conducted. One manager said that the U.S.-China trade war and the “de-Sinicization” movement in the U.S. had prevented China’s Huawei from obtaining TSMC’s OEM Kirin chips, thus decreasing Huawei’s year-on-year mobile phone shipments by 21.5% in 2020. This damaged China’s mobile phone market share, but motivated the mainland to build a complete and parallel supply chain. China is attempting to become a self-sufficient nation in semiconductor supply while avoiding the U.S.’s control of equipment, materials, and advanced manufacturing processes. Semiconductor trade is vital to the Chinese government, with increased investments, government subsidies, procurement preferences, and other policies encouraging Chinese innovation. The total value of the investments and M&A transactions in 12-inch and 8-inch wafer fabs amounted to nearly 200 billion U.S. dollars. The demand for mature process-related products and services, such as testing equipment and production support, has as a result increased. This suggests that Taiwan’s manufacturers can take advantage of China’s preferential policies and subsidies to expand factories in China. Taiwan’s manufacturers of mature processes have gradually developed in recent years, driven by the substantial front-end foundry and back-end packaging and testing industries. Back-end process

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industries, such as automated packaging, testing, semiconductor ancillary equipment, and transmission equipment, which generate relatively low gross profit and added value in Taiwan, can become as profitable in China as front-end industries. This means that non-advanced Taiwanese manufacturers that are unable to engage in advanced production are able to generate profits in the China market. Although there are risks of technology leakages, Taiwan’s enterprises still consider entering China’s vast and fast-growing market to benefit from higher prices and profits. In particular, China’s policies of investing in and acquiring 12-inch and 8inch wafer fabs provide opportunities to Taiwan’s manufacturers. Meanwhile, the European and American markets suffering from the COVID-19 pandemic in the past two years have reduced their capital expenditures. In addition, language and cultural proximity between China and Taiwan is advantageous for Taiwan’s manufacturers to build business relationships with Chinese officials and corporate executives. Besides the testing equipment and production support industries, some of Taiwan’s enterprises engaged in advanced tech industries have also pushed their investments in China. A notable example is that where, in July 2021, the Investment Commission of Taiwan’s Ministry of Economic Affairs approved the TSMC Nanjing plant’s investment in the mature 28 nm process. Accordingly, TSMC will invest 2.8 billion U.S. dollars with a target production capacity of 40,000 pieces per month by mid-2023. As part of a strategy to invest in automotive chip production and other telecommunications equipment, the TSMC Nanjing plant intends to position its market and product differentiation in China. Overall, Taiwan’s semiconductor supply chain has not “de-Sinicized.” On the contrary, Taiwan’s manufacturers are tending to relocate to China as this market has potential for non-advanced process industries and facilitates product differentiation.

4.2.5

Is Semiconductor Industrial Settlement Leaving Taiwan?

Faced with geopolitical risks and global economic-political challenges, Taiwan’s semiconductor industries must figure out how to restructure the supply chain to adapt to the new situation. Decentralization and regionalization have pushed the restructuring and relocation trends. Taiwan’s semiconductor manufacturers need to build an ecosystem together with cost reduction and sustainability strategies. This section will analyze the prospects for investment in Taiwan and the possible layout of Taiwan’s semiconductor supply chain. We gathered the managers’ opinions on increasing production capacity in Taiwan and the drivers of new investments. The results are presented in Table 9. We first notice that 75% of the semiconductor enterprises have tended to increase their production capacity, with 65.6% of the respondents choosing to invest in Taiwan, and only 9.4% of them not choosing to do so. As for the enterprises that have not selected Taiwan to increase their production capacity, market size is chosen as the first reason. Other factors include land and plant acquisition, policy uncertainties, and export tariff concessions. These results are consistent with the manufacturers’ responses regarding new investment relocation

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Table 9 Whether or not to increase production capacity in Taiwan and the drivers Panel A. Not investing in Taiwan(a)

9.4

Factors(b)

Panel B. Investing in Taiwan(a)

65.6

Factors(b)

Market size

66.7

Increasing market demand

61.9

Land and plant acquisition

33.3

Marketing strategies

33.3

Policy uncertainties

33.3

Industrial settlement

33.3

Export tariff concessions

33.3

Global layout strategy

19

Lack of labor force

0

U.S.-China trade disputes

14.3

EIA related issues

0

Senior or R&D talents

14.3

Human resources

0

Low lending interest

14.3

Supply chain

0

Spreading risks

9.5

Power stability

0

Legal system (international standards)

0

Domestic tax system

0

Water resources

0

Note (a) The question is a yes/no question. The numbers (in percentages) are measured by the selection rate (b) The question is closed-ended with all multiple options that apply to be checked. The numbers (in percentages) are measured by the selection rate for a given option. Source Authors’ compilation from Chen et al. (2021)

strategies. The relocation to ASEAN in 2019–2020 was mainly motivated by the market size. Meanwhile, Taiwan’s semiconductor companies entering the U.S. and European markets might do so for the host country’s political incentives to develop new high-technology industries such as smart homes, aerospace products, and so on. The results show that 37.5% of Taiwan’s semiconductor enterprises are considering developing new products and strengthening the R&D and high-technology industries, while 29.2% of them have selected decentralized customer composition (Table 8). These figures indicate that the segmentation of products and markets in Taiwan’s semiconductor supply chain is progressing and accelerating. On the one hand, decentralization is a significant tendency. An increasing number of Taiwanese back-end semiconductor companies are expanding in China. On the other hand, Taiwan is still a favorable location for improving production capacity as selected by 65.6% of the respondents, with 61.9% of them considering increasing market demand as the key driver. Most notably, industrial settlement is a significant factor with regard to investment location, with 33.3% of the respondents having selected it. Taiwan’s semiconductor sector is now concerned about supply chain integrity and heading towards a supplier ecosystem that is both resilient and sustainable. This calls for government encouragement, including supportive policies, capital investment and incentives. We further asked the managers about the investment categories if they increased their capacity in Taiwan. The results in Table 10 show that 66.7 and 42.9% of the semiconductor enterprises selected Taiwan to increase their capacity for high-value

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or customized products and R&D technology hubs, respectively. This means that the core technologies are remaining in Taiwan while OEM assembly plants are able to move to take advantage of local conditions. A complete industrial settlement and high-skilled R&D talents are now critical for Taiwan to attain a pivotal position in the global semiconductor supply chain. Taiwan’s semiconductor supply chain is facing the challenges and risks of restructuring. Pursuing a decentralized strategy will increase operating costs. Taiwan’s semiconductor supply chain manufacturers should focus on a more diversified business configuration. Our 2021 survey results reveal a tendency towards vertical mergers and acquisitions, horizontal integration, and alliances in Taiwan’s semiconductor sector. Of the semiconductor enterprises planning to restructure, 61.5% plan to engage in mergers and acquisitions, while 53.8% are considering strategic alliances. Table 10 Investment in new production capacity in Taiwan New investment Semiconductor supply chain

Semiconductor industries IC/IP design

Wafer manufacturing

IC packaging and testing

Testing equipment and production support

High-value or customized products

33.3

75.0

100.0

72.7

R&D 42.9 technology hubs

100.0

0.0

50.0

45.5

Automatic systems

19.0

0.0

0.0

50.0

27.3

Energy saving and environmental protection products

14.3

0.0

0.0

50.0

18.2

OEM assembly plants

9.5

33.3

0.0

50.0

0.0

Others

14.3

0.0

25.0

0.0

9.1

66.7

Note The question is closed-ended with all multiple options that apply to be checked. The number (in percentage terms) is measured by the selection rate for a given option Source Data stems from Chen et al. (2021)

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5 Conclusions: Implications for Taiwan’s Industrial Planning and Economic Diplomacy Morris Chang argues that “that person” would refrain from attacking if his priority was for economic well-being. However, it might not be the case according to the recent economic and political arrangements on the Chinese mainland. Precautious planning is therefore necessary for Taiwan. By collecting primary data using questionnaires forwarded to Taiwan’s manufacturers on procurement and operation, investment layouts, challenges, and strategies under geopolitical instability resulting from the U.S.-China trade war and the COVID-19 pandemic, this study is the first to present real-time statistics in this regard. Based on the representative and reliable information from manufacturers, we analyze the industrial risks, challenges, and strategies of Taiwan’s semiconductor supply chain. We have also conducted in-depth interviews with managers to obtain further data. The study provides important policy suggestions to manufacturers, investors, and the government. Moreover, we cannot measure the possibility of industrial cooperation through a diplomatic approach. The U.S. and the EU have proposed various policies such as “Chip 4,” semiconductor equipment export curbs, the CHIPS and Science Act of 2022, and the European Chip Act, respectively. The reform of WTO rules has not been clear. Taiwan must, on the one hand, think of the concerns of its allies and local enterprises,4 and then maintain a balance between national security and the economic drivers of outward foreign direct investment (OFDI) (Chen and Yeh 2022). After all, the performance of Taiwan’s economic diversification not only depends on its willingness, but also on host country institutional factors, according to the empirics (An and Yeh 2020; Chu and Yeh 2022; Ho and Yeh 2014; Yeh and Lin 2021). We hereby provide policy suggestions related to industrial development and economic diplomacy according to our questionnaire survey above. (1) Differentiate between advanced and mature processes, and master future core technologies As mentioned above, Taiwan’s semiconductor supply chain cannot be completely “de-Sinicized.” On the contrary, Taiwan’s manufacturers, particularly those of testing equipment and production support, and other non-advanced processes, tend to relocate to China as this market has potential and is profitable. According to managers, China’s market should not be stigmatized regardless of the advances in the semiconductor industry. In other words, the Taiwan government should encourage and assist the semiconductor sector to go out of Taiwan to expand its market and promote differentiation. At the same time, the industry should facilitate industrial settlement and retain high-quality R&D talent. Taiwan’s semiconductor industries need to master the core technologies and head toward future technology. To this end, it is recommended that 4

For instance, the brain drain due to insufficient skilled engineers in the host countries (Lin et al. 2022).

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the government formulate R&D strategies to assist with the key technologies of thirdgeneration semiconductors such as GaN and SiC so that Taiwan’s manufacturers can obtain new opportunities. (2) Adopt sustainable transformation and cultivate talents The sustainable transformation of supply chains towards carbon neutrality has nowadays become a trend of governments and big brands. In the same boat, Taiwan’s semiconductor manufacturers, with a key role in the global technology supply chains, must make appropriate adjustments. The government should provide information and solutions for manufacturers to build factories and establish supply settlements following green standards. Such an approach allows the semiconductor supply chain to transform and upgrade simultaneously. Talent cultivation must be a vital plan for manufacturers (Khan 2021). The lack of skilled labor is a critical bottleneck in semiconductor industries (Schmidt and Cohen 2020). At the upper levels of mass production and advanced manufacturing processes in particular, the demand for high-skilled talents in the medium and long term is increasing. In March 2021, TSMC announced that it had removed the conventional policy of only recruiting engineers who had graduated from four of Taiwan’s prominent universities. Taiwan is facing a big problem of a low birth rate. It has been suggested that it increases the number of foreign nationals enrolling in local universities and attract these graduates and talents to work in Taiwan’s enterprises. Besides, foreign staff from ASEAN, India and other countries working in Taiwan’s supply chain will support manufacturing decentralization and globalization. In addition, the participation of foreign talents in management can lead to changes in management quality. For instance, the multinational factor helps establish a bilingual and more international environment in local enterprises. From the managers’ point of view, China’s market should not be stigmatized. The government should encourage Taiwan’s supply chain to go out of Taiwan, including China, to open up opportunities. However, the industries and the government need to improve the salary, compensation, and welfare structures to counter the brain drain. The semiconductor industries have reported that engineers’ salaries are not as good as before. Rather than worrying about technology leakage, Taiwan’s manufacturers should think of developing and retaining talents and professionals. Furthermore, the Taiwan government should invest in research and education, bringing academic research nearer to industries and encouraging industry-academic exchanges. Highskilled immigration aspects should be improved, and personnel policies should be revised to retain foreign nationals working in the semiconductor industries rather than being driven away to other industries and competitors. (3) Settle industrial parks and boost cross-industry collaboration in an ecosystem The survey results show that Taiwan’s semiconductor supply chain is pursuing the strategies of developing new or diversified products and decentralized customer composition. Thus, manufacturers must focus on high-value or customized products and R&D technology. In terms of physical land, it may no longer be a traditional large-scale industrial zone but a technological park with convenient infrastructure,

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advanced technologies, commercial office buildings, and R&D hubs, complying with green standards. The upstream and downstream manufacturers, including IC/IP design, wafer manufacturing, IC packaging and testing, supporting industries, and IC distributors, can all gather at science parks that are high-tech industry clusters. This settlement will accelerate the speed of connection and interdisciplinary exchanges. In terms of business decision-making, pursuing decentralization strategies will cause operating costs to rise. Under limited production capacity, resources must be effectively allocated to maintain profit margins. Besides, the connection with raw material suppliers should be stable. Taiwan’s semiconductor supply chain should be organized in groups, such as vertical mergers and acquisitions, horizontal integration, alliances, etc., to enter new product fields like smart vehicles, medical electronics, aerospace electronics, and the metaverse. Only then can Taiwan’s semiconductor supply chain maximize industrial settlement and supply chain benefits. Moreover, it is recommended that the government establish cross-industry connections and supply chain integration (from production, logistics, warehouses to customs, etc.) to speed up inter-industrial exchanges and cooperation. (4) Start the Drivers of Taiwan’s OFDI Through International Cooperation In addition to the above three suggestions, a few key drivers of Taiwan’s industrial OFDI could be established through existing channels (e.g., EU-Taiwan minister-level dialogue). For instance, Table 6 indicates that the ratios of the U.S. and Europe as the new investment and relocation of Taiwanese semiconductors have significantly increased since 2020. However, they will decrease without instant support from their respective governments. Tables 8 and 9 show that developing secondary suppliers, market size, land and plant acquisitions, as well as export tariff concessions could be considered by Taiwan’s allies who would like to welcome the companies not investing in Taiwan. If investing in Taiwan is preferred, policy uncertainties should be avoided and the drivers to increase local capacity should be sustained. Last, but not least, it is suggested that the government conduct more field surveys with professional consultants from neutral think tanks to pragmatically understand the reality of the semiconductor industries. Professional knowledge and government follow-up policies can be compiled to provide an important reference for manufacturers’ decision-making. Acknowledgment This work was financially supported by Taiwan Social Resilience Research Center (Grant no. 112L900302) from the HESP by the MOE in Taiwan.

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Part II

The Asia Policy of External Actors

Chapter 6

The Role of Russia in East Asia Security Amb. Wi Sung-lac

Abstract In the early part of the post-Cold war period, Russia took pragmatic approaches to East Asia. The Russian perspective on regional security looked more like the post-Cold War type than the Chinese one. However, as the U.S.-Russia competition deepened in the late post-Cold War era, Russia began to see a security issue with a rivalry mentality against the U.S. Russia strengthened its solidarity with China and had less space to play a constructive role in East Asian security. The war in Ukraine further aggravated the situation and an isolated Russia placed more importance on solidarity with China. The fault line between the U.S. camp and the Sino-Russian camp became clearer. As a result, the probability that Russia would play a constructive role in East Asian security has been further reduced, and Russia is more likely to play a spoiler role. Even after the war in Ukraine ends, the confrontation between the two camps will continue. Russia will remain weakened and dissatisfied. Such a plight of Russia could be a source of insecurity because Russia will not endure a situation of that kind. Russia will de facto try to change the status quo by force. This paper aims to analyze how the future of East Asian security in the post-Ukraine situation will play out. Moreover, it focuses on the Russian role in East Asian security that would be desirable to de-escalate the confrontation between the two camps. Last, but not least, it also predicts how the Ukraine war could impact the Korean Peninsula. Keywords Russian pragmatism · Rivalry mentality · Ukraine war · De-escalation · Re-engagement

1 Background In the second half of the twentieth century, the Soviet system in Russia revealed political, economic, and social dysfunction. The Soviet leader Mikhail Gorbachev tried to mend the system by reforming it. He launched a reform policy, called Perestroika Amb. W. Sung-lac (B) Former Ambassador of the Republic of Korea to Russia, Korea Peace Foundation, Seoul, Korea e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_6

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and Glasnost. The efforts to improve the system inevitably caused confusion and eventually led to the collapse of the Soviet system itself. The remaining countries of the Soviet Union, except the Russian Republic, became separate independent states as the Soviet Union itself dissolved. As a result, the countries in Eastern Europe that formed the Warsaw Pact were out of Soviet influence. East Germany disappeared, and Germany was reunified. Moreover, the Warsaw pact was dissolved, and finally the Cold War was over. Russia contributed to history by providing an opportunity for the end of the Cold War. But, Russia itself was swept into waves of chaotic changes thereafter. Russia suffered a decline in international influence and faced domestic economic, political, and social turmoil. It tried to cope with the newly unfurled situation by adopting swift political and economic reform. However, the drastic changes accelerated the confusion in the country before the reforms could come to fruition. Russia’s weakening was becoming evident in every field. With the dissolution of the Soviet Union, Russia was greatly weakened politically and militarily, losing clout, and its economy was severely contracted. Russian popular dissatisfaction with the government also mounted (Brown 1996). Upon internal as well as external difficulties, Russia needed peaceful and stabilized external relations. There were fears that the unstable external relations coupled with the chaotic domestic situation would put Russia in extreme jeopardy. Therefore, it took a cooperative and reconciliatory stance toward the West to stabilize the external environment. The pragmatic approaches were developed in the early stages of the post-Cold War period when Russia was in chaotic domestic transition from communism and a planned economy toward democracy and a market economy. Stabilization of external relations was the most important policy goal during this period.

2 Russian Perspective on East Asian Security in the Post-cold War Era Russia’s East Asia policy was pursued in a pragmatic way. Since the end of the Cold War Russia’s East Asia policy has focused on three goals. The first is maintaining peace and stability in the East Asian region which is geographically connected to Russian territory, the Russian Far East and Siberia. The second is to promote Russia’s national interest by expanding political and economic cooperation with countries in the East Asian region. The last is to enhance Russia’s regional status through this process. Russia’s regional status was downgraded as Russia was mired in domestic turmoil in the wake of the collapse of the Soviet Union. Among the countries in the East Asian region, Russia counts China as the key cooperation partner. At the same time, Russia also wants to strengthen cooperation with other Asian countries with the intention of diversifying its relationship with the region. Among them are South Korea, Japan, India and Vietnam. For a considerable

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period since the end of the Cold War, Russia took pragmatic and flexible approaches to achieve these policy goals (Yarmolinsky 2022; Stronski and Sokolsky, 2017). Russian approaches to regional security issues like tension reduction, dispute settlement, and nuclear non-proliferation looked more like the post-Cold War type than the Chinese approach in that period. Russia also tried to sell the idea of building a common regional security structure in Asia. It was called the Common Asian House proposal. The idea was modeled after a similar proposal Russia had made in Europe which was called the Common European House. In the early days of the post-Cold War, Russia’s policies on the Korean Peninsula were also affected by this atmosphere as Russia showed interest in improving relations with South Korea. Throughout the Cold War period, Russia and South Korea did not have diplomatic relations. The Korean Peninsula was one of the tensest front lines where the American and Soviet spheres of influence met. The two sides collided militarily in 1950 in the Korean War. However, there were changes in the atmosphere of the Cold War in the late 1980s when the Soviet Union’s leader, Chairman Gorbachev’s New Thinking diplomacy was initiated. The momentum to improve relations between Korea and Russia was taken advantage of by both sides. The 1988 Seoul Olympic Games were a good opportunity to further the bilateral relations between them. Eventually, the two nations established diplomatic ties in 1990. The long disconnect between Korea and Russia was finally over, and Russia showed greater interest in cooperation with South Korea than with North Korea, its old ally during the Cold War. As the post-Cold War atmosphere spreaded around Northeast Asia in general and the Korean Peninsula in particular, China also joined this trend of reconciliation. China also showed interest in establishing diplomatic ties with South Korea, ending its long-standing disconnection. In 1992, diplomatic relations between South Korea and China were established. Reconciliation between South Korea and Russia, and South Korea and China were expected to contribute to the enhancement of regional security cooperation. But North Korea saw this situation from an entirely different perspective. North Korea had no intention of joining this post-Cold War trend. Reconciliation or economic development was not on the North Korean agenda. North Korea took this post-Cold War trend in the region as a threat to its security interests. From the North Korean perspective, Russia was pursuing an incorrect historical path and deeply upset by the transition of Russia from the leader of the communist bloc to the promoter of ‘revisionist’ reform and openness. Moreover, North Korea was shocked when Russia, North Korea’s main sponsor during the Cold War, established diplomatic relations with South Korea. North Korea, which was struggling to find a way out of its sense of isolation, loss, and betrayal, finally picked up the nuclear armament trump card to survive. When Russian Foreign Minister Shevardnadze visited North Korea in 1990 and explained that diplomatic ties with South Korea were inevitable, North Korea hinted at the possibility of nuclear armament. This was the beginning of the North Korean nuclear issue, although the North Korean regime had asked both the Soviet Union and China to help in developing nuclear weapons as far back as the late 1950s following the 1958 U.S. deployment of

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tactical nuclear weapons in South Korea. Then, when China established diplomatic relations with South Korea in 1992, North Korea’s obsession with nuclear weapons intensified (Lee 2009; Wertz 2018). It is ironic that diplomatic ties between South Korea and Russia, and between South Korea and China, which could be said to have contributed to the post-Cold War trend of reconciliation and security cooperation in East Asia, caused the North Korean nuclear issue. South Korea’s improved ties with Russia and China paradoxically led to North Korea’s nuclear armament which jeopardized regional security clearly. In this environment, Russia’s policy on the Korean Peninsula was formulated. Russia’s perspective on the Korean peninsula was also in line with reconciliation and cooperation. Russia’s policy on South Korea, North Korea, and North Korean nuclear issues was more pragmatic than China’s. Russia’s main policy goal on the Korean Peninsula is first to denuclearize the Korean Peninsula. It is a denuclearization not only of North Korea but also of the entire Korean Peninsula. So, while trying to get rid of North Korea’s nuclear weapons, Russia opposes South Korea’s nuclear armament and the deployment of U.S. nuclear weapons in South Korea. Russia is also wary of the movements of the U.S. strategic assets on and around the Korean Peninsula. Secondly, Russia values peace and stability on the Korean Peninsula. Russia, which borders the Korean Peninsula, has a geopolitical consideration that tensions on the Korean Peninsula do not conform to its security interests. Therefore, it criticizes North Korea’s provocative actions and at the same time criticizes the military deterrence efforts taken by the United States and South Korea in response to North Korea’s provocations. In a similar context, Russia hopes to keep the status quo on the Korean Peninsula, believing North Korea’s existence and its stability are consistent with its geopolitical interests. Accordingly, Russia intends to maintain a normal relationship with North Korea (Joo 1996). Third, Russia seeks to strengthen economic cooperation with South Korea, which has become one of Asia’s major industrial powers. Through collaboration and exchange with South Korea in fields such as trade, investment, and technology, Russia wants to encourage support for its own economic development and aims to induce Korea’s participation in and contribution to the development of Russia’s underdeveloped Far East and Siberia. In this context, the project Russia is trying to pursue with great interest is trilateral cooperation between Russia, South Korea, and North Korea in the Russian Far East. Through trilateral cooperation, Russia wants to contribute to reconciliation and cooperation between the two Koreas on the one hand and at the same time benefit Russia’s development in its Far East. Of course, the initiative has lost momentum since North Korea has maintained its provocations, and the international community accordingly has responded with sanctions which have blocked the project. But it remains Russia’s cherished project. Given Russia’s policy to denuclearize the Korean peninsula, Russia was more committed to the cause of international nuclear non-proliferation than China and took a rather forthcoming stance in the early days of the Six-Party Talks, a venue to negotiate the denuclearization of the Korean peninsula. By comparison, China put more emphasis on the strategic and geopolitical interest of keeping the North Korean

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regime as a strategic buffer from the United States military presence in the Southern part of the Korean peninsula than Russia. In addition, Russia advocated a multilateral initiative for common security and prosperity in East Asia. Russia was so interested in multilateral security in the region that Russia was assigned the chairmanship of the Northeast Asia Peace and Security Mechanism Working Group in the framework of the Six-Party Talks which was designed for the resolution of the North Korean nuclear issue. Russia’s policy stance led regional countries to expect a constructive role in East Asian security. If Russia’s stance had continued, Russia could have played a positive role in East Asia security like denuclearizing the Korean peninsula, maintaining peace and stability in the Korean peninsula, keeping stability in the Taiwan Straits, stabilizing maritime order in the East China Sea and the South China Sea, and, further, promoting East Asian regional cooperation.

3 Russian Rivalry Mentality In the late twentieth century, soon after the end of the Cold War, it was more and more evident that many of the former Eastern European communist bloc countries were approaching the West, and further distancing themselves from the former bloc leader, Russia. Many Eastern European nations were eager to achieve greater political and economic development and the western European countries were good models for these nations. Almost all of them aspired to join the EU and NATO and the following years most of them have become members of the European Union (EU) joining in since 2004 and joining NATO since 1999. (Perlez, 1999) (see Figs. 1 and 2). Russia interpreted the East joining the EU and NATO as the West’s deliberate attempt to undermine the Russian sphere of influence. Therefore, it strongly protested and pleaded with the West to stop this process, reminding the West of its promise not to expand NATO into the former Soviet sphere of influence. The West did not listen to the Russian plea and in their view, there was no such official promise. The West thought that it was not possible to reject the membership application as the applicants were eager and well-qualified. The West took the phenomenon of mass applications as a natural turn of events in history (Sarotte 2014). However, the Russian view was completely different. Russia took this development as a serious encroachment on Russian security interests and believed that the West had a systematic and strategic design to weaken Russia. Not only the Russian leadership but also most of the Russian public shared such a view. Out of anger and frustration, Russia gradually developed an anti-American and anti-western perspective on foreign and security issues. Since the mid-1990s, Russia has slowly begun to control the domestic turmoil and regain political stability. The country’s financial condition improved on the back of soaring oil and gas prices and as a result, economic conditions also improved. As internal politics and the economy stabilized and its national strength was restored, Russia gradually began to take a more aggressive stance against the West’s ‘constant incursion’ of Russia’s sphere of influence.

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Fig. 1 NATO and Warsaw pact in 1990. Source CNBC (2022)

Until then, there was still a policy view in Russia, if not a majority view, that promoted improved relations with the West, including the United States. Behind this view lay skepticism about whether the two continental powers, Russia and China, could maintain close relations in the long run. In addition, there was caution within Russia that cooperation with China would eventually turn Russia into a junior partner of China. On the other hand, there was also a theory based on realism that if backward Russia wanted to develop its country, it should cooperate with the United States and the West, which are advanced countries, rather than with China. As a result, expectations remained for improved relations with the United States. Some proponents of this view argued that if it was not easy to improve relations with the United States in an immediate future, let’s go and try improvement of relations with other Western countries. However, these arguments were gradually silenced by mounting anti-American sentiment in the second half of the post-Cold War. The idea of building a partnership with the West began to disappear. Russia’s relationship with the West became more and more confrontational over time. As such, in the deepening competition with the U.S., the new element influenced Russia’s foreign policy consideration, which was a rivalry mentality against the United States. Additionally, the rise of China was observed on a regional and global level since China entered the WTO in 2001 and become the second largest economy in the world by 2010. The West was beginning to

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Fig. 2 NATO Expansion in 2022. Source CNBC (2022)

worry about the coming of powerful and assertive China. The competition between the U.S. and China was becoming more and more evident from that moment. Russia and China, facing a common competitor, the U.S., put their hands together. Russia strengthened its solidarity with China and confronted the United States, and China did the same. As a result, Russian and Chinese approaches to regional and global issues are becoming similar in their response to U.S. policies. Naturally, Russia’s regional perspective, which was rather forthcoming and pragmatic, began retrogressing and became increasingly like that of China, focusing on keeping the U.S. in check. From that moment, Russia rarely tried to find its own space for a constructive role in East Asian security. Russia took the path of deepening overall cooperation with China, being warier and warier of the military presence of the United States in the region. Bilateral relations between Russia and China have evolved dramatically. At the beginning of the post-Cold War, relations between Russia and China were dubbed as a “constructive partnership”. Later, they evolved into a “strategic partnership” in various forms with flamboyant adjectives. Russia also stepped-up joint military exercises with China in East Asia and Europe. Accordingly, in East Asia, the confrontation between one camp centered on the United States and the other centered on China and Russia was deepening. Korea, Japan, and Taiwan were on the U.S. side. North Korea was close to the Sino-Russian side.

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There were consequences of such deepening confrontation in the region. When North Korea broke its promise on the ICBM launch moratorium, Russia and China blocked any moves to sanction North Korea at the U.N. Security Council. At the same time, Russia was increasingly sympathetic to China’s position on the issue of the Taiwan Straits.

4 Negative Impact of the War in Ukraine Russia, which had seen Eastern European countries becoming pro-Western and joining NATO as an infringement of its security interest, saw Ukraine’s going the same way as a lot more of a security threat because Ukraine was an integral part of the former Soviet Union. Moreover, it noted with alarm that the infringement of the Russian sphere of interest came together with domestic political changes such as democratization and liberalization of Eastern European countries. Therefore, the Russian leadership was deeply concerned about the possibility of such a wind of political change spreading into Russia. This was another recognition of the threat that the Russian leadership felt which ultimately was a threat to the Russian political regime. The Russian leadership suspected that the West’s strategic intentions and designs, including the United States, were behind these movements of infringement, democratization, and liberalization of Eastern European countries of the former Soviet bloc. That was, according to Russian interpretation, the West’s hidden goal of weakening Russia and toppling the Russian political regime (Masters 2022). From this point of view, Russia, which had warned NATO against expanding eastward, acted in 2014 when an anti-Russian government came to power after ousting the pro-Russian government in Ukraine. Russia argued that Ukraine was critically important to Russia’s geostrategic interests. Russia made a military move and annexed Crimea in 2014 in order to support the Donbas region’s separation and independence movement. However, the pro-Western trend in Ukraine continued to deepen thereafter. By 2022, Russia thought it could take greater strategic risks in the future and needed to act now. So, Russia wanted to defeat Ukraine in a military blitzkrieg in order to keep Ukraine neutral. Russia might have decided that it would be better to try to solve the problem militarily before it was too late. Russia invaded Ukraine in February 2022 and the war in Ukraine began. The war brought about dramatic changes in the international landscape. The confrontation between Russia and the West reached a new peak. The West, including the United States, regarded Russia’s invasion of Ukraine as an attack on the democratic regime by the autocratic regime and imposed the harshest-ever sanctions on Russia as a result. This situation took place amid a deepening U.S.-China confrontation. China was considered to be an autocratic regime like Russia. Naturally, the U.S.-Russia confrontation and the U.S.-China confrontation caused mutually aggravating effects. Russia and China, which had been united by strategic solidarity against the United States, came together again, although China’s official stance on Ukraine is to be against the war.

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As the West recognized the Ukraine crisis as a struggle between democracy and autocracy and defined China on the side of autocracy along with Russia, the Ukraine crisis worsened a confrontation between the West and Russia and between the West and China. This clarified the fault line between the Western coalition and the SinoRussia coalition. Russia’s invasion of Ukraine and the subsequent confrontation between Russia and the West had a negative spillover effect in East Asia. It resulted in the further deepening of the structural confrontation between the two camps. The United States encouraged regional allies and friends to participate in harsh sanctions against the Russian aggression. South Korea and Japan did participate in this. Russia reacted by including them in the category of countries that engaged in unfriendly behavior toward Russia and took corresponding measures. Russian President Vladimir Putin publicly warned that South Korea’s deciding to provide lethal weapons to Ukraine would lead to a breakdown in relations between South Korea and Russia. Recently, a Russian scholar warned that South Korea should not expect Russian cooperation in the denuclearization and reunification of the Korean Peninsula while ratcheting up sanctions against Russia and strengthening its support for Ukraine. Meanwhile, isolated Russia places more importance on solidarity with China. China has not openly supported Russia’s actions in Ukraine because of its longstanding position that has opposed the act of invading a sovereign state to settle a dispute. However, China abstains from sanctioning Russia at the UN, considering that weakening Russia, a key partner in the confrontation with the United States, is harmful to Chinese strategic interests. However, at the same time, China indirectly helps Russia by purchasing Russian oil and gas. Western intelligence sources also blame Chinese firms for helping the Russian military get access to materials necessary to continue the war in Ukraine. Meanwhile, China is also dissuading Russia from expanding its military operations in Ukraine or considering the use of tactical nuclear weapons. At the same time, Russia has not stopped courting China, as it believes that losing China means precarious isolation for Russia. President Putin made clear support for the Chinese position on the Taiwan Straits, despite President Xi Jinping’s lukewarm attitude toward the war in Ukraine at the recent Sino-Russian summit held on the margin of the Shanghai Cooperation Organization (SCC) meeting in Uzbekistan in 2022. Under such circumstances, North Korea has become one of the few countries in the world that actively support Russia’s invasion of Ukraine and strongly condemns America’s hegemonic policies. Therefore, North Korea was one of the five nations such as Belarus, Eritrea, Russia, and Syria that voted against the resolution of the United Nations General Assembly on 2 March 2022 condemning the Russian invasion of Ukraine. Among 190 member nations, 141 nations voted in favor, 5 against, and 35 abstentions. Under these circumstances, the probability that Russia plays a constructive role in East Asian security has been further reduced. Russia is more likely to play a role as a spoiler in the region in partnership with China (United Nations 2023).

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5 Prospects and Proper Responses What are the prospects for the future? This will vary greatly depending on how the war in Ukraine ends. If a cease-fire is reached under the condition of the current front line on the battlefield, the confrontation between the West and Russia will continue. Russia will continue to align with China that also links to China’s strategic interests. If the war ends with Russia achieving military success, the confrontation with the West and the Sino-Russian coalition will continue. In both cases, there will be little change in Russia’s role in East Asian security. However, if Russia experiences a significant military failure in Ukraine and its aftermath goes into Russia’s internal political and social dynamics, causing significant change within Russia, then a different type of scenario could be established. We can find a similar precedent in Russian history. In the middle of the nineteenth century, when imperial Russia was defeated in the Crimean War by the coalition forces of Britain, France, and Turkey, the blowback put Russian society in turmoil and triggered serious domestic debate over the changes and reform of the whole society. Czar Alexander II accepted reforms including the abolition of serfdom which had been maintained for centuries and had worked as an important pillar of the Czarist Russian regime. That inevitably led to the slackening of the czarist political, economic, and social structure, which triggered further changes to come (see Figes 2010). This time, if the war in Ukraine ends with the defeat of the Russian military, a reflection on the cost of the infinite confrontation with the West caused by military action in Ukraine could arise in Russia. There may also be reflections on China’s lukewarm attitude during the war in Ukraine. That could lead to changes in Russia’s strategic thinking. Of course, this situation could be made possible together with the huge political changes in Russia. However, the likelihood of such a scenario is not high. Anyhow, there is a high probability that the confrontation between the Western camp and the Sino-Russian camp will continue even after the war in Ukraine ends. In the aftermath of the War in Ukraine, Russia’s national strength, influence, and standing in the international arena will be weakened. Russia will have to play a junior partner’s role in the Sino-Russian camp. This view is clear if you compare the output of national GDP between China and Russia, although Russia is superior to China in energy resources such as oil and gas as well as military technology. Such a plight of Russia will surely be a constant source of instability in international affairs because Russia will not endure a situation like that. Russia started the war in Ukraine because Russia thought that the situation there was so unbearable that it needed to be changed even by military means. Russia most likely will seek an opportunity to attempt sometime in the future to get out of such a plight by changing its status quo by force. Under these environments, it would be reasonable that we should be prepared to conduct a long game in the prolonged confrontation between the Western camp and the Sino-Russian camp. That would be a realistic approach. First, efforts should be

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made to stabilize the relations between the two camps by trying to reduce tension and prevent further conflicts. Hopefully, that would help establish a new equilibrium and stability between the two camps. Additional efforts should also be made to engage and placate the weakened and dissatisfied Russia so that Russia would not try to break the stability and peace again in the foreseeable future. A similar formula could be applied to the East Asian region. For the future of East Asian security in the post-Ukraine situation, efforts should be made to de-escalate the confrontation between the camp led by the U.S. and the camp led by the Sino-Russian solidarity. Furthermore, it would be desirable to engage Russia and discourage it to play a spoiler role. It would not be a wise move to push Russia to the side of China. We should encourage Russia to play a constructive role rather than serve as a junior partner in the Sino-Russian coalition.

6 Conclusion In short, looking back on history, when the relationship between the U.S. and Russia did not deteriorate, Russia finds space to play a constructive role in global security as well as in East Asian security. In an environment where the U.S.-Russia confrontation is deepening, Russia acts in solidarity with China. There is little room for Russia to play a constructive role in East Asian security. Rather, Russia, together with China plays roles as spoiler. This has been a general tendency. The war in Ukraine has added fuel to this tendency and has already changed the world order precariously. The confrontation between the two camps, the West and the Sino-Russian coalition, is sharpened. The situation is unfavorable to the SinoRussian camp due to Western unity and Russia’s weakening. There is a weakened and disgruntled Russia within the Sino-Russian camp. Therefore, Russia will become more dependent on China than ever. Certainly, the military attack in Ukraine is a wrong move. To try to solve a problem by means of a military attack in 21st-century Europe is hardly justifiable, and Russia is paying a high price. But that doesn’t necessarily mean we can think of global peace and security without Russia, because it is simply unrealistic. Still, Russia is a major political and military entity with a huge nuclear arsenal in the Eurasian continent. Additionally, as we all know, Russia is one of the five permanent members of the United Nations Security Council and has a veto right in the council. In East Asia, the regional order that excludes Russia is also unrealistic. Therefore, we must rethink regional security with Russia. For that matter, we must begin to think about our relationship with Russia in the post-Ukraine war. Now is the high time to start preparing for that. Changes in the international order caused by the Ukraine crisis profoundly impacted the Korean Peninsula. South Korea has moved away from China and Russia as it stood by the United States in the Ukraine war as well as in the U.S.-China competition at regional and global levels. It gives Korea’s new Yoon Suk-Yeol government a major challenge on how to protect its national interests economically and politically.

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South Korea must cope well with the new order, which implies more risks than ever. It is necessary for South Korea to find an optimal way forward amid the U.S.Russia confrontation and the U.S.-China competition and to manage its estranged relationship with China and with Russia. In addition, it should help the international community’s efforts to end the war as early as possible, while securing space for cooperation with Russia and China in peace, stability, and denuclearization of the Korean Peninsula, which is Korea’s main national interest.

References Brown A (1996) The Russian transition in comparative and Russian perspective. Soc Res 63(2):403– 415 CNBC (2022) https://www.cnbc.com/2022/05/19/two-maps-show-natos-growth-and-russias-gro wing-isolation-since-1990.html Figes O (2010) Crimea: The last crusade. Allen Lane, London Joo SH (1996) Russian policy on Korean unification in the Post-Cold war Era. Pac Aff 69(1):32–48 Lee JB (2009) US Deployment of nuclear-weapons in 1950s South Korea & North Korea’s nuclear development: toward denuclearization of the Korean peninsula. Asia Pac J 7(3):1–17 Masters J (2022) Why NATO has become a flash point with Russia in Ukraine, Jan. 20, Council on Foreign Relations. https://www.cfr.org/backgrounder/why-nato-has-become-flash-point-rus sia-ukraine. Accessed 12 Mar 2023 Perlez J (1999) Poland, Hungary, and the Czechs join NATO. The New York Times Sarotte ME (2014) A broken promise? What the west really told Moscow about NATO Expansion. Foreign Aff 93(5):90–97 Stronski P, Sokolsky R (2017) The return of global Russia: an analytical framework. Carnegie Endowment for International Peace, Washington D. C. United Nations (2023) The UN and the war in Ukraine: Key information. https://unric.org/en/theun-and-the-war-in-ukraine-key-information/. Accessed 12 Mar 2023 Wertz D, McGrath M, LaFoy S (2018) Issue brief: North Korea’s nuclear weapons program. NCNK, Washington D. C. Yarmolinsky YM (2022) Russia’s pivot to Asia policy in the wake of western sanctions, March 22, Observer Research Foundation. https://www.orfonline.org/expert-speak/russias-pivot-to-asiapolicy-in-the-wake-of-western-sanctions/. Accessed 12 Mar 2023

Chapter 7

Containing the Dragon: The European Pivot to the Indo-Pacific Rémy Davison

Abstract China’s militarization of the South China Sea throughout the past decade has led the core NATO members (France, Germany and the UK) and the European Union (EU) to develop Indo-Pacific security strategies, expanding Europe’s presence in the region, utiizing a combination of military deployments and strategic balancing through strategic partnerships. In 2019, the EU’s Indo-Pacific Concept described China as a ‘systemic rival’ of the EU. In 2022, NATO’s Strategic Concept (SC) noted that China presented ‘systemic challenges to the rules-based international order’. The SC further asserted that ‘China’s stated ambitions and coercive policies challenge our interests, security and values…The PRC’s malicious hybrid and cyber operations and its confrontational rhetoric and disinformation target Allies and harm Alliance security.’ Keywords France · United Kingdom · European Union · NATO · China · Indo-Pacific · South China Sea

1 Introduction The Ukraine war has not halted Europe’s geostrategic pivot to Asia as Washington’s core NATO partners consolidate the Biden administration’s ‘Pivot 2.0’ to Asia, that aims to contain and constrain Chinese naval and air power. In the context of France and the UK’s reinforced power projection into the Indo-Pacific, this chapter argues that France and the UK’s increased deployment of military resources to the region augments US strategic balancing against China. However, the chapter also concludes that the absence of an integrated EU and NATO Indo-Pacific strategy hampers the efficacy of balancing PRC power in the region. The Indo-Pacific as a geostrategic space originated with Japanese Prime Minister Shinzo Abe’s 2007 doctrine of a “confluence of the two seas”, reconfigured in 2012 R. Davison (B) Jean Monnet Chair in Politics and Economics, Department of Politics and International Relations, Monash University, Clayton, Australia e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_7

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by Abe as part of a ‘Democratic Security Diamond’ (Japan, Ministry of Foreign Affairs 2007). Conceptualizing the region as the Indo-Pacific means it cannot be segregated as two discrete strategic arenas. Abe also constructed the concept of a ‘free and open Indo-Pacific’ (FOIP) in August 2016, mere weeks after Beijing’s rejection of the Permanent Court of Arbitration’s (PCA) South China Sea (SCS) ruling in Philippines v. Republic of China. FOIP was rapidly assimilated into US, Japanese and Australian national security documents in 2017. The Indo-Pacific hosts the world’s seven largest military forces and includes six of the world’s nuclear weapons states. As the Indo-Pacific has become developed an increasing number of potential flashpoints, it is scarcely surprising that Europe’s two permanent UN Security Council members, France and the UK, have sought to establish larger footprints throughout the region. Nevertheless, analysts have queried the sustainability of the UK’s tilt to the Indo-Pacific, particularly as British capabilities are stretched thin and NATO demands require resource commitments to the European theatre. Similar criticisms have emerged of Britain’s post-Brexit ‘Global Britain’ as a branding exercise in search of a grand strategy, or a post-imperial delusion with little semblance of strategic logic (Lin and Choong 2022; Patalano 2021). This chapter analyses the French and British pivots to the Indo-Pacific, and assesses the respective implementation of their geostrategies in the context of China’s emergence as a systemic challenger, leading to strategic competition between Beijing and Washington. Four core drivers underpin France and Britain’s respective tilts to the Indo-Pacific: (i) maintaining western dominance of shipping lanes; (ii) Paris and London’s extensive Exclusive Economic Zones (EEZs) in the Indo-Pacific, jointly comprising more than 10 million square kilometres; (iii) US-China strategic rivalry; and, (iv) Beijng’s expanding global footprint, as it deploys economic tools such as the Belt and Road Initiative (BRI), the Asian Infrastructure and Investment Bank (AIIB) and the 17 + 1 CEEC group. In 2015, a European Parliament report warned that the China policies of the major member states of the EU were influenced excessively by commercial considerations, leading to the EU’s diminished ability to place pressure upon China in sector-specific areas, such as the Millennium Development Goals (European Parliament 2015, p. 40). As NATO Secretary-General, Jens Stoltenberg, has noted, China is coming closer to Europe: in the CEECs; in Africa; in the Arctic; and in cyberspace. In 2012, China formed the 14 + 1 with the CEECs at the Budapest summit, headquartering its secretariat in Beijing. In 2015, China and Russia conducted joint naval exercises in the Mediterranean. In 2018, China declared itself a ‘near-Arctic’ power and released a ‘Polar Silk Road’ strategy. To appease Moscow, Beijing has suggested a joint ‘Ice Silk Road’, linked to the BRI. Between 2012 and 2019, China and Russia conducted 10 joint military exercises in both European and Indo-Pacific waters, including the SCS, the East China Sea (ECS), the Yellow Sea, the Sea of Japan, the Baltic and the Mediterranean. As China moves closer to Europe’s traditional sphere of influence, France and Britain have pushed back to contain Beijing in the IndoPacific, in coalition with their strategic partners. Given Europe’s significant economic footprint in the Indo-Pacific, the importance of its economic partners, such as Japan, India, South Korea and ASEAN, together with its dependency upon regional supply

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chains, neither Paris nor London, nor its Indo-Pacific partners can allow a situation to develop where the South China Sea becomes Lake Beijing, or the Indian Ocean becomes the West China Sea.

2 The China Challenge in the Indo-Pacific Region The 2019 US Department of Defense’s (2019: 1) Indo-Pacific Strategy Report defines the extent of the region as “the west coast of the United States to the western shores of India.” The economic geography of the Indo-Pacific is dominated by the ‘ocean economy’, comprising the sea lines of communication (SLOCs), commercial shipping, and container and entrepôt ports. Sixty percent of global maritime trade passes through the South China Sea (SCS). Over half of Saudi Arabia’s oil exports transit the Indian Ocean and the SCS (USEIA 2018). Consequently, the geography of the Indo-Pacific acts as a structural modifier: the US does not merely trade and invest in the Indo-Pacific; it is hegemonic; it projects power into the region, protects the SLOCs and ensures no other state agglomerates sufficient power to the extent that it can mount a serious challenge to US dominance and freedom of maritime passage. Thus, US power introduces systemic constraints upon other actors in the region (Davison 2023). However, China’s rise has reinforced threat perceptions in the West and in the region throughout the last three decades. The PRC became a core element of the foreign policy debate between Vice-President Gore and Governor George W. Bush during the 2000 US presidential election; whereas Gore and President Clinton labelled Beijing a US “strategic partner,” Bush and his future National Security Advisor and Secretary of State, Condoleezza Rice, warned that China could only be considered a “strategic competitor.” (Baum 2001, p. 191). Regional defence policymakers wrestled with opposing strategies: should China be contained, balanced and encircled? Or should it be integrated into the global economy and economic institutions? In the early twenty-first century, under Hu Jintao and Wen Jiabao (2003–13), Beijing attempted to craft a reputation for the PRC as a responsible global stakeholder. However, Xi Jinping’s premiership (2013–) represented a major volte-face in China’s foreign policy. Hu and Wen had occupied, but not militarized, parts of the South China Sea; conversely, Xi undertook a raft of land reclamations, labelled the “Great Wall of Sand”, between 2013 and 2015, building artificial islands in the Spratly Islands, also claimed by the Philippines and Vietnam. In 2015, Xi gave an undertaking in a White House statement not to militarize the SCS (Wall Street Journal 2015), but he did so following Beijing’s denunciation of the PCA’s decision in the Philippines case in July 2016. In 2018, Xi told US Defense Secretary Mattis that Beijing would not give up “even one inch” of the SCS (BBC 2018). By 2022, China had “fully militarized” three islands in the SCS (Associated Press 2022). As evidenced in the raft of national security documents issued in 2017, any semblance of trust in Beijing as a responsible stakeholder in the SCS had evaporated.

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The CCP leadership’s lack of transparency renders assessments of its foreign policy intentions exceptionally difficult. Official documents, such as the PRC’s 10th Defence White Paper (DWP), requires the PLAN to undergo a transformation from coastal to global force, evidencing an ambitious maritime strategy, exemplified by the PLAN’s new nuclear submarines and aircraft carriers under development (PRC 2015). China is clearly serious about assembling a blue-water naval capability with the capacity to deploy well beyond China’s coastlines and EEZs. In April 2017, the PLAN launched its first indigenously developed aircraft carrier. PRC defence spending in 2022 rose 7.1 percent to $US229.5 billion. Together with India, China is one of the world’s biggest arms importers (Davison 2018, pp. 73–74; Jane’s 2022).

3 Europe’s ‘Return’ to the Indo-Pacific All European strategies on the Indo-Pacific argue that Europe has a stake in IndoPacific stability. The EU is the biggest investor in, and development partner of, the Indo-Pacific. Two-way FDI between Europe and the Indo-Pacific comprises 60 percent of the world’s total (EU Commission, September 16, 2021). European security interests in the region are clear: the majority of Europe’s external trade traverses sea lanes in the Indian Ocean, and Europe’s prosperity is directly impacted by both security dynamics and supply chains centred around the Indo-Pacific as a global production hub. For Karambelkar (2021, p. 93), France’s Indo-Pacific strategy is the recognition of Europe’s relative decline in the face of Asia’s ascendancy, and strategic engagement in the Indo-Pacific represents one means of keeping Europe relevant. Rogers (2013, p. 71) asserts that “France’s axis of geographic priority [is] pivot[ing] east.” France’s position was also reflected in Angela Merkel’s foreign minister, Heiko Maas’, declaration that Germany’s ‘prosperity and geopolitical influence’ would depend upon working successfully with Indo-Pacific countries. In September 2020, France, Germany and the UK submitted a note verbale to the UN, reiterating support for the 2016 PCA Philippines decision on the SCS, rejecting the PRC’s claims. In the same month, Germany announced it was adopting an Indo-Pacific strategy, predicated on the theme of ‘Germany-Europe-Asia: shaping the twenty-first century together’. Insiders emphasized the strategy was not ‘anti-China’. Berlin’s cautious approach was to publish its Indo-Pacific Guidelines in September 2020. However, Germany’s military contribution to regional security has been minimal, with only one frigate on mission (Germany, Federal Foreign Office 2021). Ulatowski (2022, p. 385) nevertheless views the German Guidelines as a seismic shift in the way Berlin perceives China, due to the potential threat Beijing represents to the liberal global order. The German strategy is designed to avoid unilateral dependencies in the Indo-Pacific by forging security relations and economic partnerships via diversification to secure regional cooperation in defense and cyber-security cooperation with Singapore, Australia, Japan and the ROK. Germany has also sought to build digital transformation projects in tech sectors such as 5G with ‘partner countries’,

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but there is no inclination to ban Huawei, in marked contrast to Britain, the US and Australia (Reuters 2022).

4 The Shift in European Strategic Policy The volte-face in EU strategic policy since the first European Security Strategy was published in 2003 is clear; in 2005, President Chirac and Chancellor Schröder were attempting to overturn the EU’s arms embargo on China which had been in place since Tiananmen Square in 1989 (Cesarini 2007). By 2019, the EU’s tilt towards the IndoPacific was not only conterminous with the Trump administration’s trade war with Beijing, but EU documents also reflected much of the content of the Trump National Security Strategy, which duplicated Shinzo Abe’s reconfiguration of the Indo-Pacific space as an interconnected strategic domain. The transition from the Trump to the Biden administration in 2021 represented a shift in the dynamics of the EU-China relationship. Throughout the Trump administration, Washington acted unilaterally against both Beijing and Brussels, imposing tariff barriers on steel and aluminum. Trump also signaled a reduced commitment to NATO and the WTO. However, the Biden administration quickly resuscitated Washington’s alliance frameworks in both Europe and the Indo-Pacific with the objective of forging a collective rebalancing strategy led by Washington to contain Beijing. In late 2020, during the interregnum between the Trump and Biden presidencies, it was noteworthy that the German EU presidency under Angela Merkel pushed through the EU’s signature of the EU-China Agreement on Investment (CAI) in December 2020. EU business had experienced a precipitous fall in PRC-EU foreign direct investment (FDI) in 2018–19. Merkel had previously argued that the US under Trump was no longer a reliable security partner. Moreover, under the Trump administration, trade friction between Brussels and Washington was growing; Trump had placed tariffs on French luxury goods in response to the French digital tax on US technology firms. Trump also threatened to place punitive tariffs on EU automotive exports (Reuters 2020). In response, Beijing attempted to detach Germany and the EU from Washington’s orbit. German firms’ complex interdependence upon the Chinese market led Wu Ken, China’s ambassador to Berlin, to intimate that German automotive firms could be sanctioned by Beijing, if Huawei was excluded from the German market (Ulatowski 2022, p. 393). In August 2020, Wu stated that the ChinaGermany relationship had gone beyond bilateral ties to ‘strategic influence’. Wu further noted that Beijing was ready to intensify strategic cooperation with Germany and both sides should resume dialogue at all levels to strengthen mutual political trust. (South China Morning Post 2020). However, the promulgation of the Democratic administration in January 2021 saw President Biden appoint Kurt Campbell, the architect of Obama’s Asia–Pacific pivot, as his Indo-Pacific ‘Czar’. By May 2021, the European Parliament had rejected the CAI. At the June 2021 G7 summit, Biden brokered the ‘Build Back Better World’ (B3W) initiative as a counterpoint to the $US1 trillion Beijing had expended on the

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BRI (Wall Street Journal, 2022). Biden also met with the Bucharest 9 (B9) and Baltic leaders separately. Following Biden’s first North Atlantic Council summit, the NATO Brussels communiqué declared, “China’s stated ambitions and assertive behaviour present systemic challenges to the rules-based international order, and to areas relevant to Alliance security.” The communiqué also noted China’s rapidly-expanding nuclear arsenal, delivery systems and its cooperation with Russia, in particular, by holding joint military exercises in the Euro-Atlantic area (NATO 2021). By late 2022, German Chancellor Olaf Scholz formally consigned Merkel’s policy of “one-sided dependence” upon China and Russia to history, although Berlin’s decoupling from China in reality commenced in February 2022, following the Russian invasion of Ukraine (Bloomberg 2022). Xi, far from condemning Moscow, pledged a “no limits partnership” between China and Russia in February 2022 (Lo 2022). Nevertheless, despite Beijing’s axis with Moscow, and the progressive decoupling from China undertaken by the US and Japan, German corporations remain heavily invested in China, their largest market. In 2019, the EU released its own Indo-Pacific strategy. The EU’s Indo-Pacific pivot was rationalized by a tripartite approach, illustrated in three strategy documents. In 2019, the EU’s High Representative for Foreign Affairs released EU-China: A Strategic Outlook, a document that described China as a partner, an economic competitor and a systemic rival. It also stressed the challenges to the EU’s security presented by China’s large-scale military exercises and cyber operations (EU Commission 2019, p. 1–4). The second development, in February 2021, took the form of the ASEAN–EU Strategic Partnership, with the EU adopting ASEAN’s ‘Outlook on the Indo-Pacific’ (ASEAN 2019). The third initiative was the Council’s adoption of the EU Strategy for Cooperation in the Indo-Pacific in September 2021, which delineated seven priority areas for regional collaboration, including “enhanced naval deployments” to ensure freedom of navigation and maritime security (EU Commission 2021a, b, February 21, p. 6). A core issue is the lack of a unified EU-UK Indo-Pacific strategy, which is largely a consequence of Brexit. Although EU-UK defense cooperation has operated effectively during the Ukraine war, and Franco-British military coordination in areas such as the SCS have been unaffected by Brexit, the absence of a common foreign and security policy for the EU-UK in the Indo-Pacific has hampered the efficacy of regional security policy, and led both France and the UK to implement largely discrete strategies, which result in less efficient use of limited security resources. It makes little sense for France to have its own IFA trilateral with India and Australia, while the UK maintains its own DISP and 2030 Road Map with India. Similarly, commercial considerations related to submarine and nuclear propulsion technologies led London and Washington to develop the secret AUKUS partnership in 2021, not only terminating the France-Australia submarine contract, but also excluding France from the trilateral security agreement. This has resulted in a fragmented approach to Indo-Pacific security, rendered even more contradictory by Washington’s polygamous relationship with both EU member states and the UK via NATO, the G7 and AUKUS. Similarly, the Biden administration partnered with the UK, Australia, New

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Zealand and Japan in its Blue Pacific initiative in 2022, with France and the EU merely observers, despite France’s ‘resident status’ in the South Pacific. The lack of a Franco-British Indo-Pacific security partnership with the US is underscored by the absence of any NATO role in the region. Although the UK and France undertake joint patrols with the US in the SCS, a formal security partnership between the US, France and the UK or, optimally, the US, EU and UK would allow much more efficient coordination of resources and multilateralize the North Atlantic partners’ operations in the Indo-Pacific, demonstrating a public and longterm commitment to a FOIP. As permanent UNSC members, France and the UK should both play a key role in securitizing the region, upholding UNCLOS III and ensuring freedom of navigation in the SLOCs, even as Beijing attempts to transform the SCS into a closed maritime region.

5 Rebalancing via Strategic Partnerships: France in the Indo-Pacific Whereas US strategic policy in the Indo-Pacific is based upon a ‘hub and spokes’ approach with its regional allies and strategic partners, such as Japan, ROK, the Philippines, Australia, ASEAN and India, European powers have largely focused upon multilateralizing security commitments in the region by developing strategic partnerships in a region where only France has had a significant presence in the last 50 years. Although Paris has the largest permanent external military deployments in the South Pacific, it has typically lacked partners and basing rights in Asia, as its post-war international strategy was embedded in North and West Africa. The Indo-Pacific houses 1.5 million French citizens and 8,000 French troops are stationed permanently in the region. In 2016, the French Ministry of Defence published France and Security in the Asia–Pacific, updated in 2018 to France and Security in the Indo-Pacific. (France, Ministry of Defence 2016, 2018). France was the first EU government to publish an Indo-Pacific strategy, launched in Sydney in 2018, and updated in 2019 (France, Ministry for the Armed Forces 2019). The French Europe and Foreign Affairs ministry issued two strategic documents in 2019 and 2021. The 2019 paper is multi-pillared, emphasizing, “strong involvement from France in settling regional crises and the safety of the main shipping routes,” identifying ASEAN and “other strategic partners such as Australia, India, Indonesia, Japan, Singapore and South Korea.” France has had a long presence in the Indian Ocean region, with its bases at La Réunion, Mayotte, Djibouti and the United Arab Emirates forming what Paiva (2011) describes as the ‘quadrilatère français’, further consolidated by France’s permanent military presence in New Caledonia and French Polynesia, with approximately 1,660 troops stationed in its ‘Zones of Permanent Responsibility’ located in New Caledonia (CONSUP FANC) and 1,180 in Polynesia (CONSUP FAFP). France’s South Pacific assets are designed to prevent both territorial and maritime threats. French aircraft

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are also deployed in Australia, Fiji, India, Indonesia, Sri Lanka, Malaysia, Papua New Guinea, Singapore, Tonga, Vanuatu and Vietnam (Regaud 2021, p. 14). Air assets are complemented by port calls by the French navy that extend the reach of its maritime patrols, from ASEAN ports in the SCS, to Japan and South Korea in the East China Sea (ECS). Both the SCS and ECS have been heavily militarized by the PRC, incorporating an Air Defence Identification Zone (ADIZ) in the ECS, and short-range anti-access/area denial (A2/D2) capabilities in both the SCS and ECS. Even prior to the 2016 PCA decision on the SCS, the French government declared its Navy would conduct patrols in the “maritime areas of Asia.” Eighty percent of France’s exclusive economic zone (EEZ) is located in the Indo-Pacific. It is the only EU member with a permanent air and naval presence in the region. In 2016, Defence Minister Le Driand announced that France would coordinate EU navies’ freedom of navigation operations (FONOPs) in the SCS. The French Navy also conducted FONOPs throughout 2018–19, including a joint mission with the UK. Patrols of the maritime passages have not only included the Taiwan Strait, but also the Spratly Islands and Mischief Reef, where China maintains military bases, including runways, deep-water harbors, aircraft hangars and tankers. In May 2019, the French government announced that France aimed to be “an inclusive and stabilising mediating power” in the Indo-Pacific. It established the IFA (India-France-Australia) trilateral dialogue in 2020, with the first ministerial dialogue taking place on the sidelines of the G7 Foreign Ministers’ meeting in May 2021. In addition, the first India-France-UAE ministerial-level trilateral dialogue took place in 2022. France also maintains a network of strategic partnerships with Japan, Indonesia, Singapore, and Vietnam. It has undertaken joint drills with both the Vietnamese and Australian navies. In February 2021, France deployed a nuclear attack submarine for a SCS FONOP, following a US dual carrier strike force deployment to the SCS.

6 French Strategic Policy in the Indo-Pacific France is the largest military actor in the EU; thus, it is unsurprising that Paris has adopted a leadership role in EU member states’ deployments and diplomacy in the Indo-Pacific region, forming wide-ranging strategic partnerships and Trilateral Dialogues with Japan and India, and India and Australia, together with a FranceASEAN strategic partnership, promulgated in 2020. French Indo-Pacific strategy documents also cite South Korea, Indonesia, Malaysia, New Zealand, Singapore and Vietnam as regional partners. France’s Indo-Pacific strategy aligns itself with the EU’s strategy, noting the international trade, economic and development cooperation agendas that were prioritized during the French EU presidency during the first half of 2022. In 2016, almost eight percent of France’s trade ($US83.5 billion) traversed the SCS (Karambelkar 2021, p. 93). Although France has long been a Pacific power, the French tilt towards the Indian Ocean region commenced during its 2008 Strategic Review, which noted that Paris’ traditional West African focus would need to shift to the Middle East and Indian

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Ocean, in order to expand France’s presence in Asia. The Defence ministry warned that the French power risked being fractured across too many regions and needed to be concentrated in core areas of interest (Rogers 2013). The 2013 Defence White Paper went further, allocating 20 paragraphs to Asia–Pacific security, noting that the stability of the region was central to France’s interests and that Paris would make an “appropriate political and military contribution” to maintaining security, should the need arise (France, Ministry of Defence 2013, p. 57; Regaud 2021, p. 10). Its strategic documents argue Paris seeks to “build a stable, multipolar order based on the rule of law” (France, Ministry for Europe and Foreign Affairs 2021b). French governments have always presented France as a ‘resident power’ in the Indo-Pacific (France, Ministry of Armed Forces 2019). The 2021 paper, France’s Partnerships in the Indo-Pacific (France, Ministry for Europe and Foreign Affairs 2021a, p. 6) identified the trilateral dialogue between India, France and Australia (IFA) and France’s strategic partnerships with India, Japan and Australia as its key relationships in the region. France has Europe’s largest military presence in the IndoPacific, comprising 7,000 armed forces in total, with 4,100 deployed to the Indian Ocean and 2,900 in the Pacific (France, Ministry of Defence 2019, p. 6). In May 2019, the French government announced that France aimed to be “an inclusive and stabilising mediating power” in the Indo-Pacific (France, Ministry for Europe and Foreign Affairs 2019, p. 4). Alongside its IFA trilateral dialogue with India and Australia, France also has a complementary trilateral with India and the United Arab Emirates (UAE). Paris maintains a network of strategic partnerships with Japan, Indonesia, Singapore, and Vietnam. The France-Japan relationship was upgraded to a Special Strategic Partnership in 2013. It has undertaken joint drills with both the Vietnamese and Australiannavies. France has Dialogue and strategic partnerships with major defense clients (India and, previously, Australia). Prior to China’s denunciation of the 2016 PCA decision, Defence Minister Le Drian defended the freedom of maritime passages in the SCS, noting at the June 2016 Shangri-La Dialogue that the French military would continue to deploy its air and naval assets to the region, as required (Embassy of France in Singapore 2016). However, France’s SCS FONOPs in the Taiwan Strait in April 2019, resulted in the ‘uninvitation’ of the French Navy to attend the PLAN’s 70th anniversary joint exercises in 2019. France first concluded a formal strategic partnership with India in 1998. However, it was French defense materiel sales, firstly, that brought Paris squarely into the Indo-Pacific strategic domain. Commercial competition between France and Britain saw Prime Minister Singh snub UK Typhoon fighter purchases in favor of the French Rafale fighter aircraft (The Hindu, 2012). The sale was confirmed by the Modi government, which signed an agreement in September 2016 for 35 Rafales costing almost e8 billion ($US8.7 billion). In 2020, France was India’s leading arms supplier by value. In May 2022, Macron and Modi agreed on a landmark deal that would further integrate French defense technologies into India’s defense-industrial base, complementing indigenous manufacturing of French-designed Scorpene submarines in Mumbai (Government of India 2022). Concomitantly, Franco-Indian technological collaboration could have wide-ranging effects upon Moscow’s defense exports to New Delhi. In September 2022, Macron went further, offering Modi

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a “no limits” defense partnership, which could involve French nuclear-propelled Barracuda submarines, which would be Paris’ first military nuclear export (Business Standard 2022). Secondly, in December 2016, France’s Naval Group signed an agreement with the Australian government to supply diesel-electric attack submarines at a cost of $A35 billion ($US25.3 billion). The lucrative submarine deal led to President Macron’s announcement of an Australia-France strategic partnership, launched in Sydney in May 2018. Macron went further by declaring in Sydney that “This new Paris-DelhiCanberra axis is absolutely key for the region and our joint objectives in the IndianPacific region.” (Bateman & Brewster, p. 294). However, by 2021, the submarine development costs had increased to $A90 billion-$A135 billion ($US65 billion$US98.5 billion) over the life of the contract, due largely to Canberra’s insistence upon localized manufacturing.1 Although Canberra reassured Macron at the 2021 G7 that the submarine development targets were on track, the Australian Prime Minister also met with Prime Minister Johnson and President Biden at the G7, where the embryonic AUKUS agreement was discussed covertly. In September 2021, AUKUS’ public announcement led to France’s abrupt withdrawal of its ambassadors from Canberra and Washington, a step Paris had not taken even during the nadir of FrancoAmerican relations in the 2003 Iraq crisis (Davison 2008: 164–66). In 2019, the French government deployed the Charles de Gaulle carrier strike group to the South Pacific, with operations continuing in the Indian Ocean in 2021. French maritime security activities in the region also include Rafale and Airbus A400M aircraft, together with long-term nuclear submarine missions (The Diplomat, 2021). Since 1983, the French and Indian navies have undertaken joint anti-submarine exercises, currently named Varuna, which have become an integral part of FrancoIndian cooperation. In July 2021, French Rafale fighters trained with US F-22 s in Hawaii. The French navy also undertook its first Indo-Pacific FONOPs with the Quad (‘Quad + 1’) in 2021. French defense chiefs and military planners also consult annually with US Pacific command and participate in the Australian-coordinated Western Pacific Naval Symposium. In evidence before the French National Assembly’s Defence Committee in July 2017, French Navy Chief of Staff, Admiral Christophe Prazuck, argued that China aims to extend its maritime capabilities to the Indian Ocean, citing China’s operationalization of its first overseas military base at Djibouti in 2017, a country where France, the US and Japan also have military bases. Admiral Prazuck advised undertaking Franco-Australian joint patrols and increased interoperability between the French and Australian navies, both of which undertake joint FONOPs with their UK and US counterparts (France, Assemblée nationale 2017). Rather than the huband-spokes approach adopted by Washington, Paris has attempted to multilateralize its Indo-Pacific strategy, cooperating with the United States, India, Australia, Japan, Singapore, New Zealand, Malaysia, South Korea, Indonesia, the Philippines and Vietnam in order to boost local capabilities to combat drug and people trafficking,

1

figure uses December 2016 exchange rates. 2021 figures use average annual exchange rates.

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piracy, over-fishing, environmental hazards and maritime terrorism. Heroin smugglers from Afghanistan and Pakistan employ Indian Ocean SLOCs to EU and African markets. Increased transnational crime around the Malacca Strait covers the spectrum of offences, ranging from minor thefts from vessels, to oil tanker piracy, to human and animal trafficking (Australia, Department of Foreign Affairs 2017, p. 5). French immersion in regional organizations also contributes to burden-sharing throughout the Indo-Pacific. In 2020, France became the first EU member state to appoint an ambassador for the Indo-Pacific. France participates in the ASEAN Defence Ministers’ Meeting-Plus (ADDM+) framework; the Indian Ocean Rim Association (IORA); the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP) and coordinates with Asian coast guards. In the South Pacific, France is a foundation member of the Pacific Community (formerly the South Pacific Commission), and a Dialogue Partner of the South Pacific Forum. Notably, the French government links its regional sustainability, education, technology and infrastructure collaboration with the EU’s sustainable development and the EU-Asia Connectivity Strategy (France, Ministry for Europe and Foreign Affairs 2021b). The significant expansion of bilateral France-India and AustraliaIndia ties since 2020 makes the trilateral IDA a logical partnership for all member countries. All three are Indian Ocean powers. Australia possesses the Indian Ocean’s longest coastline and its sovereign territory and EEZs extend to Hearn and McDonald islands, 4,000 km from Perth. France’s cooperation with Washington in the Indo-Pacific operates at a cautious distance from the Quad and the Partners in the Blue Pacific is due largely to Paris’ more conciliatory attitude towards Beijing. Notably, the US does not mention the EU or France as Indo-Pacific partners in either its 2022 NSS or its 2022 National Defense Review (The White House 2022; US Department of Defense 2022). The Macron presidency, despite its closer cooperation with both Washington and London on FONOPs in the SCS, is engaged in a complex dual strategy. On the one hand, Paris encourages peaceful resolution of SCS conflicts and has supported the FOIP concept. On the other hand, French governments regard the need to link China’s financial and economic power to key priorities on the global agenda, such as climate change, development and investment. China-France bilateral trade is worth more than e70 billion and Chinese investment accounts for over 500,000 French jobs. Beijing is a civilian nuclear technology partner, with the two countries commissioning the world’s largest reactor in Tai’shan in 2017 (France, Ministry for Europe and Foreign Affairs 2017). Paris has also had a ‘global strategic partnership’ with Beijing since 2004, and Macron sought to upgrade this to a comprehensive strategic partnership in 2022. Nevertheless, the Janus-faced nature of French diplomacy persists, although the Anglosphere’s secrecy about AUKUS severely damaged Franco-American and Franco-Australian relations badly for almost 12 months. Despite Macron’s resuscitation of the France-US Indo-Pacific Dialogue and the France-Australia strategic partnership, the 2022 French National Strategic Review makes no mention of Washington in the Indo-Pacific, although its strategic partners—India, Australia and Japan—are featured prominently (France, Secretariat-General of Defence and Security 2022,

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p. 44). French arms exports to Indonesia, India and the UAE, together with its civilian nuclear technology sales to India and China, reinforce the importance Paris attaches to acting as the commercial arm of France’s armaments and nuclear industries. The Review also affirms France’s long-term balancing role in the Indo-Pacific. However, the Review is surprisingly mild in its criticism of China, warning only that its assertive behavior may threaten the status quo with Taiwan, and that the growth in PRC military capabilities has created a clientele for Chinese military materiel in Africa. It also acknowledges Beijing’s increasing capacity for hybrid warfare. The 2022 French Review is far more concerned that China will benefit from its partnership with Russia, although it argues that sanctions against Moscow make it clear to Beijing the range of coercive economic options available to the west, if a major crisis occurred (France, Secretariat-General of Defence and Security 2022, pp. 10–11). The form of crisis is not detailed, although it is noteworthy that Taiwan is mentioned only once in the Review, without reference to China’s militarization of the SCS, a strange omission, given the French Navy’s regular FONOPs in the Taiwan Strait.

7 The United Kingdom’s Tilt to the Indo-Pacific The UK’s Indian Ocean Territories mean Britain, like France, has core interests in the security of the region. Under the Five Power Defence Arrangements (FPDA), the UK is also a security guarantor in Asia, with the Royal Navy stationed at the British Defence Singapore Support Unit. The UK administers four of the ten largest Marine Protected Areas in the world, many of which are endangered by Chinese fishing (Young 2022). Britain is also a member of the United Nations Command on the Korean Peninsula. In Southeast Asia, the UK maintains a Gurkha garrison in Brunei. However, the terms ‘Asia’ and ‘Pacific’ were entirely absent from the UK’s 2010 Strategic and Defence Review, which pre-dated the 2011 Obama pivot to Asia. Brexit, the US’s 2017 NSS, ‘global Britain’ and AUKUS profoundly reoriented the British strategic conspectus. The 2021 IR is also noteworthy for linking the 1971 Five Power Defence Arrangements (FPDA) to Britain’s permanent presence in the Indo-Pacific. The UK’s 2021 deployments of warships to the Indo-Pacific in 2021 was the first time a British military vessel had entered the Pacific since 2013. The 2021 Integrated Review of Security, Defence, Development and Foreign Policy (IR) also represented a partial British return to the region for the first time since its withdrawal from Malaysia and Singapore in 1971. In November 2020, the Johnson government announced a £24 billion multi-year increase in the UK defense budget. In September 2022, the Truss government made a commitment to achieve a defense spending target of three percent of GDP. In a September 2022 speech, Foreign Secretary James Cleverly described the UK’s Indo-Pacific policy as a “Tilt”; stating that the UK would have the broadest and most integrated presence in the region; and that the UK Tilt was “permanent.” (UK Foreign, Commonwealth and Development Office 2022).

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The 2010 UK strategic review made scant reference to China, except as a “key partner” (HMG, 2010, p. 67). There was no comment on the Pacific, and Asia appeared once only, in the context of ASEAN (HM Government 2010, p. 61). The 2015 UK Strategic and Defence Review made very few references to China, except in an economic context, where it noted Britain had acceded to the Beijing-headquartered Asian Infrastructure and Investment Bank. Virtually no mention was made of Asia– Pacific security and it offered few new initiatives, beyond the establishment of an Asia Defence staff, which was based ultimately in Singapore (HM Government 2015, p. 49). In contrast, the 2021 IR mentions the ‘Indo-Pacific’ on 32 occasions. The 2021 IR identifies Russia as its most “acute” threat and the US as its most important ally. The Review notes that China is the “biggest state-based threat” to the UK’s economic security and a “systemic challenge” to British security, prosperity and values. The Indo-Pacific region is described as the “centre of intensifying geopolitical competition with multiple potential flashpoints.” Geopolitical and geoeconomic shifts, such as China’s increasing international assertiveness and the growing importance of the Indo-Pacific; systemic competition, including between states, and between democratic and authoritarian values and systems of government; rapid technological change; and transnational challenges, such as climate change, biosecurity risks, terrorism. (HM Government 2021, p. 17). The Ministry of Defence supplemented the IR with its March 2021 report, Defence in a Competitive Age, outlining Defence’s contribution to the IR. The report adds little to the IR, merely reiterating the “challenge” China poses in the region. The report notes the PLA Navy’s size, its objective of five aircraft carriers by 2030, precision strike capabilities, and its development of an integrated air defense system. Nevertheless, the report’s tepid response to China’s “assertiveness” is the UK “need[s] to be prepared to push back to protect our values and interests.” (UK Ministry of Defence 2021, p. 5). Although the 2021 IR labels Russia the most serious threat to UK security, China receives more mentions (27) than Russia (14) and India (17). The IR recognizes China as a “systemic competitor,” duplicating the language of the EU’s China strategy document. The IR also developed a “framework” for an “Indo-Pacific tilt.” This comprises “enhanced China-facing capabilities,” including a Carrier Strike Group deployment in the region from 2021; an increased maritime presence in the IndoPacific region; and larger contributions to the Five Power Defence Arrangements (FPDA). The IR also emphasizes defense cooperation with ASEAN members and ensuring regional access to UK bases, including British Indian Ocean Territory. It is also clear the UK government regards Australia, Japan, the ROK and India as key to underpinning its science and technology objectives of deepening and expanding its defense industrial collaborations. However, the announcement of AUKUS in September 2021 signaled that the UK had made a strategic turn to the Indo-Pacific. In many respects, the IR, published in March 2021, was a premature document, as it gave no indication of the far-reaching implications of AUKUS and the unprecedented levels of nuclear technology sharing and the integration of the three member states’ defense-industrial bases to foster trilateral capabilities development. However, although AUKUS affirms London’s

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pivot to the Indo-Pacific, it is difficult to comprehend what specific benefits the UK will accrue from AUKUS. It is likely that UK strategic planners regard the Biden administration’s attempts to waive a number of existing US technology-sharing restrictions as not only improving trilateral interoperability, but also as a means of gaining access to American defence R&D at low cost (Davison 2010; Davison 2022, pp. 16–18; UK Ministry of Defence 2022a, b). However, serious questions were raised in January 2023 concerning the US defense industry’s capacity to produce and support additional submarines under the AUKUS agreement (The Guardian 2023),

8 The UK’s Geostrategic Turn to India Six years before the 2021 IR, the Cameron government signaled a tilt to the Indian Ocean region with its the 2015 UK-India Defence and International Security Partnership (DISP), published in the same year as the 2015 Strategic Review. It canvassed a raft of bilateral cooperative initiatives, incorporating “Capability Measures” including training in air force training, aircraft carriers and maritime safety. Defence R&D science and technology collaboration, such as defence technology transfers across projects of mutual interest (UK, Ministry of Defence 2015). However, DISP progress was slow. In May 2021, the India-UK Comprehensive Strategic Partnership was announced, with the stated objective of “transform[ing] bilateral cooperation over the next ten years across the full range of bilateral shared interests” through 2030. The DISP’s 2030 Road Map outlines a five-pillared approach: (i) (ii) (iii) (iv) (v)

Connecting countries and people; trade and prosperity; climate and health; climate change; and a mobility and migration partnership.

The 2030 road map devotes one of the five sections to defense and security (UK Foreign and Commonwealth Office 2021). It includes sharing of Grey and Dark shipping information; a new Maritime Dialogue, covering freedom of navigation and operational coordination in the Western Indian Ocean; joint services exercises; defense industry collaboration; cyber-security; and counterterrorism (UK Foreign and Commonwealth Office 2021). The DISP was introduced in order to accelerate the implementation phases of the 2030 road map, including maritime security, cyber security and counter terrorism. However, the road map still fails to include any Anglo-Indian naval cooperation in the Indian Ocean Naval Symposium, of which both countries are members. There are clear commercial, as well as geostrategic, incentives for the UK to target India as a major Indo-Pacific partner. The UK has sought to embed itself in the IndoPacific economy by applying for membership of the Comprehensive and Progressive

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agreement for a Trans-Pacific Partnership (CPTPP). By December 2022, London and New Delhi had also concluded six rounds of a free trade agreement. However, defense exports are the key drivers of Britain’s turn to India; Britain was the second-largest exporter of defense material worldwide between 2011 and 2020, and the Asia–Pacific was third-smallest market for UK military exports, with only eight percent of the total (UK Department for International Trade, 2020, Chart 7). India is the largest arms importer in the Indo-Pacific and the second-largest globally, and French firms have been significantly more successful in securing military contracts than the UK, which only holds 2–3 percent of the Indian defense market (Eurasian Times, 2022). Despite the UK’s partnerships with India, London did not have a government-to-government framework for arms sales to India until late 2020, although this process accounts for the majority of its defense imports. As Indian defense imports decline from Russia in 2022, the UK introduced an open general export license for India in April, in a first for an Asian country, and the first time London has allowed such a license to countries aside from the EU and US. The UK will likely transfer sixth-generation fighter aircraft technologies to India under the new export regime (CNBC 2022).

9 The UK’s Capabilities Gap The UK and French governments operate the Combined Joint Expeditionary Force (CJEF) under the 2010 Lancaster House treaties. This includes interoperability for lift-off/landing on UK and French aircraft carriers, and French and British naval personnel serve on each other’s ships. In contrast, UK military-to-military cooperation with India has been limited, although this is changing. The UK still has no bilateral defense or naval exercises with India outside the Quad. Despite the DISP and 2030 Road Map, bilateral UK-India joint military exercises are few. Moreover, there are no binding commitments in the UK-India Strategic Partnership. Outside the Quad, the UK also conducts joint exercises with South Korea; the first RAF joint exercises with the ROK Air Force and USAF were held in November 2016. It is noteworthy that whereas France has multilateralized maritime cooperation in the Indo-Pacific, UK strategic reviews have been latecomers to the region, suggesting London is merely replicating the policy initiatives of its major NATO allies. Despite AUKUS, the UK Chief of the General Staff, Sir Patrick Sanders, argues that European members of NATO should increase their conventional deterrence commitments in Europe, thus freeing up resources for Washington to deploy to the Indo-Pacific (UK Ministry of Defence 2022a, 2022b). In this respect, the UK military’s senior command merely reflects the 2021 IR, which names Russia as the most serious threat to British security. However, it also implies that the IR’s lack of commitment to a specific strategy means the UK’s Indo-Pacific tilt is merely an addendum to the IR, not the centerpiece of its strategy. However, in September 2021, three UK warships were deployed to the Indo-Pacific on a 5-year mission, comprising a 7-month carrier strike group led by the Queen Elizabeth, which concluded in December 2021. In 2023, the Royal Navy Littoral Response Group will be deployed, with capabilities

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unique among NATO members (HM Government 2022). The First Sea Lord has also previously raised the possibility of permanently basing warships in South-East Asia (House of Commons Library 2018).

10 A Role for NATO in the Indo-Pacific? The fragmented, and occasionally competing, objectives of France and the UK in the Indo-Pacific are sub-optimal and point to the need for a comprehensive and cohesive regional strategy for the European NATO partners. Brexit damaged the prospect of a unified EU Indo-Pacific pivot, leaving individual European states to publish discrete strategies. The obvious transatlantic solution is to develop a formal role for NATO in the Indo-Pacific, which would institutionalize regional security and integrate both North America and the UK with EU capabilities. NATO has already operated out-of-area in missions such as the Democratic Republic of Congo, Somalia and Afghanistan. Washington’s participation would be crucial, as NATO’s global partners do not have the operational capacity to implement FONOPs without Washington’s logistical and military assets. French and British assets could support a FOIP with NATO rebalancing against the PRC’s maritime expansion, which has transformed the PLAN, numerically, into the biggest navy in the world. Undoubtedly, NATO’s regional presence would send provocative diplomatic signals to Beijing. However, it would also institutionalize the military presence of EU NATO members in the Indo-Pacific and make EU member countries more strategically relevant to US-China power competition. Moreover, NATO’s presence would relieve pressure upon ASEAN, the ROK and India, which do not want to be compelled to choose formally between Washington and Beijing. In 2021, Stoltenberg stated that China was not an adversary, but NATO’s strategy was to address the challenges, such as China’s defense spending and naval expansion. Nevertheless, Stoltenberg ruled out any NATO pivot to the Indo-Pacific or a NATO presence in the SCS. However, this diplomatic response belied the more assertive stance taken in the NATO 2030 report, which described China as a state “willing[] to use force against its neighbours […] economic coercion and intimidatory diplomacy well beyond the Indo-Pacific region (NATO 2020, p. 17).” In the absence of a NATO presence, an AUKUS + 1 or Quad + 1 (France) would integrate and consolidate the Quad’s maritime presence, monitoring and resources throughout the Indo-Pacific, particularly given existing French regional assets. By excluding France from joint initiatives, including AUKUS, Paris has been incentivized to consider selling nuclear submarines to India, Japan, ROK and, possibly, Indonesia. This was not contemplated prior to AUKUS.

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11 Conclusions Lack of a unified strategic concept, within both the EU and NATO, hampers common efforts. For both Washington and Paris, the SCS cannot be allowed to become ‘Lake Beijing’. Paris cannot permit Beijing to become economically or politically influential in the French Pacific or Indian Ocean regions. In the South Pacific, PRC aid and construction (six times the size of aid). However, 2018 was the peak year and it has declined. If the PRC secured a South Pacific base within 2000 km of the Australian coast (e.g., Tulagi in Solomon Islands), this would have a dramatic impact upon how both France and Australia would be compelled to organize their armed forces. The EU also lacks strategic military partners in the region, and thus is dependent upon French forces, logistics and Paris’ embedded capabilities in the Indian and Pacific Oceans. However, a major failure of Beijing’s diplomacy was allowing Chinese containment to become not merely regional, but global. EU, US and Japanese economic decoupling from China, manifested in EP’s rejection of the CAI and Washington’s trade war with Beijing, were largely the product of China’s assertive behaviour, including its dubious human rights record in Xinjiang and Hong Kong. Its major initiatives, such as the BRI, have provoked backlash in many of the EU CEECs. However, it was Beijing’s decision to reject the PCA decision on the SCS in 2016 that compelled Paris, London, Brussels and Washington to constrain Chinese expansionism. Before 2016, only Shinzo Abe’s conception of a ‘Democratic Security Diamond’ and Obama’s pivot to Asia signaled any concrete intent to contain Beijing’s rise. However, from 2017, national security strategies and foreign policy white papers from the US, France, the EU, Australia, Japan, the UK and Germany articulated variants of the FOIP doctrine and emphasized the critical aspects of the Indo-Pacific’s SLOCs. By militarizing the SCS, Beijing has unwittingly drawn the nuclear navies of France and Britain into the region and unintentionally consolidated competing strategic partnerships, such as France’s two Indo-Pacific trilateral dialogues, the Anglo-Indian partnership and the Quadrilateral Dialogue. China drove London and Washington to form AUKUS, a new trilateral security partnership in 2021, not only nuclearizing Australia’s submarine fleet, but also prompting London, Canberra and Washington to revolutionize trilateral military procurement by integrating their defense R&D bases and jointly developing hypersonic missiles. Beijing’s assertiveness has transformed China and the Indo-Pacific into a major focus of EU security, whereas previously it was a footnote in French and British white papers. However, If China succeeds in occupying and further militarizing the SCS, then both the European tilt to the Indo-Pacific and the Biden administration’s ‘Pivot 2.0’ will have failed.

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Chapter 8

The EU’s Problems of Trade Cooperation with Authoritarian States On the Way to a New World Order Alexander Grasse and Dieter Eissel

Abstract The world is experiencing a turning point as a result of Russia’s attack on Ukraine. This war is massively challenging the EU’s relation to Russia and, furthermore, to other authoritarian states. For a very long time, the EU’s and especially Germany’s foreign policy was influenced by the idea of rapprochement and trade to enable change in autocratic, dictatorial, and tyrannical regimes. With the export and import of goods, a change towards democracy was supposed to be ensured. As a consequence, the imports especially from Russia (energy) and from China (e.g., medical products, communications, electrical machines) intensified to a very high level making the EU dependent on strategic goods and thereby creating the threat of being blackmailed. Thus, the EU needs alternatives to Russian energy imports mainly by focusing on an intensified expansion of renewables. As far as imports from China are concerned, Europe needs to bring back production even if it will be more expensive. However, it will take time. Nevertheless, the world needs cooperation even with Russia and China when facing climate change. In this case, the UN, the WTO and other intergovernmental organizations should lead the process. Keywords War on Ukraine · New world order · NATO · EU · Import dependence on Russia and China · Renewable energy · Global trade · Climate change

1 The Failure of the Concept “Change Through Trade” During the Cold War, under the impact of the construction of the Iron Curtain and the Berlin Wall, the concept of “change through rapprochement” emerged in the sixties, initiated by the German Social Democrats Egon Bahr and Willy Brandt. It launched A. Grasse (B) · D. Eissel Justus-Liebig-University, Giessen, Germany e-mail: [email protected] D. Eissel e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_8

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not only a new “Ostpolitik” (policy towards Eastern States) in dealing with the GDR, but it was also intended to present a security concept for Europe in general and also to offer suggestions for the resolution of international conflicts. The Moscow Treaty (1970) was an expression of this will to reconcile and the prelude to the contractual settlement of relations with other communist states in Europe. The policy of détente towards the East became an important pillar of politics, mainly in Germany with Chancellor Willy Brandt (Löwenthal 1974). In a way, the idea of “change through rapprochement”, was not only economically but also morally motivated—to enable political change for human rights, especially in the so-called “Eastern Bloc” states and in general in autocratic, dictatorial and tyrannical regimes. With intensified relationships and increased exchange among societies, with the export and in return the import of goods, it was hoped, that one’s own values and democratic standards would also be exported incidentally and ensure a change towards democracy in the medium or at least in the long term. The peaceful revolution in East Germany of 1989 leading to German reunification in 1990 and then to the EU’s so-called Eastern enlargement in 2004 and 2007, was used as evidence for the truth of the concept. However, over time the wider concept of change through rapprochement transformed to “change through trade”, following economic interests to promote free trade at all costs. Against a background of neoliberal ideology, the concept of “change through trade” seemed to be abused as a facade to pursue specific national economic interests. Anyway, the concept materialized first in an enormous increase of export and in return import of goods especially from Russia and since the last decades also from China. Russia’s invasion of Ukraine, however, has revealed the failure of the principle of “change through trade”. Even before the massive attack on Ukraine on 24 February 2022, Putin repeatedly violated international law, the Charter of the United Nations, and human rights, not only in the war against Georgia in 2008, but also in Crimea with its annexation in 2014, and the earlier war in the Donbass region in Ukraine. Despite these violations of international law and disregard for the sovereignty of states, many Western politicians continued to hope that Russia could be included in the existing European security order. The European Union, and in particular the German government, were committed to selective engagement despite the sanctions imposed on Russia in the aftermath of the Russian occupation of Crimea. Only one year after Russia had violated international law by annexing Crimea, the German government decided to build the Nord Stream 2 pipeline in order to get even more gas directly from Russia. This certainly can be explained by economic interests in energy security, but also because in large parts of the European Union, there was a conviction that the struggle for spheres of influence and military conflicts in Europe belonged to the past. Until the war against Ukraine in February 2022, the conviction remained that lasting security in Europe would only be possible with and not against Russia, despite the fact that the Putin regime had shown not to adhere to the signed international treaties. Thus, criticism of Western, especially German politicians remained relatively subdued in the face of the crimes and violations of international law throughout the past decade.

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With the war on Ukraine in February 2022, the Western attitude towards Russia has changed completely. The war marks the end of the “age of democracy, peace and unity” that the European states, their transatlantic partners, and the then still existing Soviet Union, solemnly adopted on 21 November 1990 with the Charter of Paris. The Putin regime clearly showed that it no longer felt bound by the Charter of Paris as well as by the Helsinki Final Act (1975), which had been confirmed in the Budapest Memorandum in 1994 and in the NATO-Russia Founding Act (1997) (Puglierin 2022: 8ff.). Putin obviously is willing to establish a new world order through war on other states (Georgia, Ukraine) and the oppression of opponents in his own country. The terror of Putin’s regime should have been obvious, for it has long silenced members of the opposition, imprisoned opponents or even sent Russian secret service FSB agents to murder regime critics in Great Britain (Sergei Skripal, 2018) and in Germany (Selimkhan Changoshvili, 2019) (Friedrich 2022). Yet the EU’s peaceful relation with Russia only changed after the Russian 2022 invasion of Ukrainian territory, which means the end of a long phase of friendly cooperation. It is quite clear that this change from cooperation to confrontation was overdue and essential for the Western states.

2 The Start of a New World Order After Russia’s war against Ukraine, we predict that there will be no new agreement with Moscow on a European security order as long as Vladimir Putin is in power. There is no common basis for such a new agreement. Security in Europe will therefore have to take place without Russia through the expansion of the EU’s military infrastructure and the establishment of a kind of security buffer zone in the territories of the eastern NATO partners. The far-reaching sanctions imposed by the EU and the US against Russia have also set in motion a permanent economic and energy policy disengagement from Russia. Within three months after Russia started the war on Ukraine, the USA reduced its monthly import volumes from Russia totally (100%), followed by Sweden with a reduction of 90%. In addition, Japan (50%), Estonia (51%), Poland (51%), Finland (56%), Spain (56%), and Lithuania (78%) reduced their monthly import volumes below 50%. The EU overall and the UK were less active but reduced their volumes at least by 16% (Friedrich 2022). Meanwhile, the European Commission in October 2022 proposed the eighth package of sanctions in connection with the fake referendums held in Ukrainian territories occupied by Russia. The eighth package of sanctions will include the following new measures: – extension of restrictive measures to persons who organized and promoted the sham referendums in Ukraine’s Donetsk, Luhansk, Kherson, and Zaporizhia regions (senior officials of the Russian Ministry of Defense, persons providing equipment and weapons to the Russian armed forces or participating in the announced mobilization, and actors spreading disinformation about the war); – listing of persons involved in circumvention transactions;

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– new import bans for Russian products; – extension of export bans (e.g., aviation products, electronic components, basic chemicals); – extension of service bans (e.g., ban on EU citizens taking seats on the boards of Russian state-owned enterprises); – introduction of a price cap for Russian oil for third countries. Furthermore, the EU and NATO countries did not only react with economic sanctions but in addition, reacted to strengthen their own military power in an effort to contain Russian aggression and build a demarcation line. NATO countries have already begun to increase their spending on military defense. In addition, Sweden and Finland want to become members of NATO. Moreover, Denmark has decided to participate in the EU’s common security and defense policy. Overall, the importance of the military for the future organization of security in Europe has increased considerably. In the future, the European states will have to rely much more on their own military deterrence, because the US will certainly become much more involved in Asia (Puglierin 2022). Similar to the situation after the Second World War, everything currently boils down to a division of Europe: on the one hand, the member states of the EU and NATO, on the other hand, Russia and its allies such as Belarus, and in between states such as Ukraine, Georgia, and Moldova, whose requested membership in NATO and the EU is a long way off. A considerable danger also arises from the fact that Putin has threatened to use nuclear weapons. This is all the more relevant as China and the US have also modernized and upgraded their arsenal of nuclear weapons in recent years. Therefore, a new wave of disarmament and arms control is not in sight. In contrast to the time of the Cold War, characterized by the bipolarity of the US and the Soviet Union, today there is also another global conflict, namely, between the US and China. Further conflicts in Africa and the Middle East are imminent due to the climate crisis and its consequences, e.g., famines (witness the 2022 situation in East Africa). Therefore, it is most likely that conflicts in the world will tend to increase, and it is currently unclear where the global boundaries between cooperation on the one hand and conflict on the other will run in the future. In any case, the new world order most probably will be characterized by contrasts between on the one hand democratic states such as the NATO members, especially the US and the EU countries, Japan and other states with corresponding democratic cultures and, on the other hand, authoritarian states such as Russia and China. How the states that have so far behaved “neutrally”—such as the “largest democracy” India, but also Brazil and South Africa—will position themselves in the future is uncertain. The Indian government has thus far until today has not condemned Russia’s attack on Ukraine, nor has it joined the West in any votes against Russia’s behavior within the United Nations, nor in sanctions against Russia. This can be explained easily by the fact that India is very dependent on Russian military equipment. Reliable arms supplies are of fundamental importance to India, also in view of the historically difficult relationship with China and Pakistan. NATO has certainly failed to meet India’s security interests in the past (Narlikar 2022: 5).

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Therefore, in the future, it will be important to reduce the current dependence on imports from authoritarian states significantly through closer military and economic cooperation among democratic states and by restructuring global supply chains. For the European Union, this means, first and foremost, to overcome its dependence on imports from Russia by expanding its own energy supply, especially through renewable energies. At the same time, the West as a whole must end its great dependence on China by relocating and establishing industrial sites, especially for strategically important products such as semiconductors—even if that means higher prices and more expensive products for Western consumers.

3 Overcoming Import Dependence on Russia With the Russian war on Ukraine, it seems to be clear that there will be no way back to former relations. The democratic Western States had to learn that “change through trade” was an illusion. However, the problem remains that many EU member states are dependent to a relatively high degree on crucial energy imports from Russia. More than two-thirds of the EU’s energy imports in 2020 were petroleum products, followed by gas (about a quarter) and coal (less than 5%). Russia was the main extraEU supplier in all three categories (25.5% petroleum, 43.9% gas, and 54% solid fossil fuels), followed by Norway for natural gas and the US for crude oil. According to data by the European Commission (2022a), the share of the EU’s natural gas imports in 2021 was 43.5%. In 2021, the EU imported more than 40% of its total gas consumption, 27% of its oil imports, and 46% of its coal imports from Russia. Energy represented 62% of EU total imports from Russia, and cost e 99 billion. Although it represents a significant drop in comparison with 2011, when energy represented almost 77% of EU imports from Russia (equivalent to e148 billion), the EU is taking further measures to cut its dependence on Russian energy imports. However, the dependency of single EU member states on Russian gas supply differs widely. As shown in Table 1, Finland, for example, received all of its gas in 2012 from Russia and in 2020, the country still relied on Russian gas for 94% of its needs. France, on the contrary, is far less dependent on Russian gas. Some countries at least reduced their gas imports from Russia by 2020. Poland is a good example as it has also been warning Germany and others for many years not to trust Russia. Yet the first and second most industrialized countries in Europe, namely Germany and Italy, even augmented their Russian gas imports significantly: from 35% in 2012 to 49% in 2020 (Germany) and from 36 to 46% (Italy), thereby increasing their dependency and ignoring the associated risks. The EU as a whole is still heavily dependent on imported fossil fuels. Rising European energy prices in 2021/2022 and tensions in countries that are key to the continent’s energy supply have put the question of import dependence and how the switch to renewables could bring some relief front and center in the energy debate. In fact, almost 60% of the EU’s energy needs were met by net imports in 2020. It

144 Table 1 Share of gas supply from Russia as percentage (selected EU countries)

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2012

2020

Finland

100

94

Bulgaria

98

77

Slovakia

79

70

Germany

35

49

Italy

36

46

Poland

60

40

France

20

24

Source ACER 2021

is to be expected that “with an increasingly integrated European energy market, the significance of a country-focused analysis of import dependence will decline, and an EU-wide one will come into focus” (Wettengel 2022). Nevertheless, the EU still finds it difficult to find common answers because of the varying energy mixes among its member states and the different national interests that result from that. Yet, in light of the invasion of Ukraine, the US, EU, and UK have announced that they will curb Russian oil and gas imports. At the same time, Russia’s behavior as a gas exporter amplified worries about the reliability of Europe’s eastern neighbor as a key energy supplier. Overall dependence on energy imports will change dramatically for some countries as the energy transition progresses. The rapid growth of renewable energy is likely to alter the power and influence of some states and regions relative to others, and to redraw the geopolitical map in the twenty-first century, according to a 2018 report published by the International Renewable Energy Agency (IRENA 2019). All of this has brought the questions of dependence on fossil fuel imports and what effects the ongoing energy transition has back to the top of the public debate. That is why on March 8, 2022, the European Commission published its “REPowerEU” plan (European Commission 2022b), outlining measures to drastically reduce Russian gas imports from its 2021 level of 155 billion cubic meters (two-thirds) before the end of 2022. Complete independence from Russian fossil fuels, according to the plan, shall be achieved well before the end of the decade (2030). The key elements in this plan are diversifying supplies, reducing demand, and ramping up the production of green energy in the EU. This needs both finding alternative sources for gas in the short term, as well as boosting efficiency and the transition to greener alternatives (European Commission 2022a). In a press release of 8 March 2022, Commission President Ursula von der Leyen claimed: “We must become independent from Russian oil, coal and gas. We simply cannot rely on a supplier who explicitly threatens us. We need to act now to mitigate the impact of rising energy prices, diversify our gas supply for next winter and accelerate the clean energy transition. The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system” (European Commission 2022c).

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4 Increasing Alternative Energy to Win More Independence and Security in the EU Diversification of gas supply and strengthening its international partnerships with key energy suppliers can especially contribute to increase the resilience of the EU’s energy system. In 2021, most of the EU’s natural gas imports came through pipelines, but a growing share has come in liquid form, notably from the US, whose LNG exports to the EU have substantially increased since its first shipment in April 2016 (European Commission 2022a). Yet, gaining more independence and fighting climate change need more effective ways to increase the percentage of energy supply from renewables. The EU’s consumption of energy in 2020 remained more or less stable since 1990, with an average fall of 0.1% per year. This overall development hid a considerable shift in the structure of the EU’s final energy consumption, moving away from solid fuels and petroleum products towards electricity as well as towards renewables and biofuels. In 2020, some 22.1% of the EU’s gross final energy consumption was from renewable energy sources, compared with 14.4% a decade earlier. Nevertheless, the differences among EU member states are huge: As can be seen in Table 2, based on Eurostat data, in 2020 more than three-fifths (60.1%) of the final energy consumption in Sweden was from renewable sources, while shares of more than one-third were also recorded in Finland, Latvia, Austria and Portugal. By contrast, the lowest shares of renewable energy sources in final energy consumption—less than 15.0%— were recorded in the Netherlands, Hungary, Belgium, and Luxembourg, with a low of 10.7% in Malta. The EU by 2009 had already decided on a package of binding policy measures to coin the formula “3 times 20 by 2020.” For 2020, this “climate and energy package” set the following goals: – reducing EU greenhouse gas emissions by at least 20% below 1990 levels; – in addition, the EU pledged to the international community to reduce emissions by 30% by 2020, provided that other countries also commit to comparable reductions; – increasing the share of renewable energy sources in the EU’s gross final energy consumption to at least 20%; – reducing primary energy consumption by 20% compared to the amount resulting from the continuation of current trends by improving energy efficiency; – increasing the share of renewable energy sources in the final energy consumption of transport to at least 10%. (European Commission 2009). The use of renewable energy sources is considered a central element of energy policy, as it reduces dependence on energy imports from non-EU countries, reduces emissions associated with the use of fossil fuels, and decouples energy costs and oil prices. The current political agenda is based on the comprehensive integrated climate and energy policy adopted by the European Council on 24 October 2014 and revised in December 2018, with the aim of achieving the following objectives by 2030:

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Table 2 Share of renewable energy in gross final energy consumption (2004 vs. 2020) Country

2004

2020

Country

2004

2020

Malta

0.10

10.71

Greece

7.16

21.75

Luxembourg

0.90

11.70

EU 27

9.61

22.09

Belgium

1.92

13.00

Bulgaria

9.23

23.32

Hungary

4.36

13.85

Romania

16.81

24.48

Netherlands

2.03

14.00

Slovenia

18.40

25.00

Poland

6.88

16.10

Lithuania

17.22

26.77

Ireland

2.38

16.16

Estonia

18.42

30.07

Cyprus

3.07

16.88

Croatia

23.40

31.02

Czechia

6.77

17.30

Denmark

14.84

31.68

Slovakia

6.39

17.35

Portugal

19.21

33.98

France

9.32

19.11

Austria

22.55

36.55

Germany

6.21

19.31

Latvia

32.79

42.13

Italy

6.32

20.36

Finland

29.23

43.80

Spain

8.35

21.22

Sweden

38.43

60.12

Source Eurostat (2022a)

– – – –

reducing greenhouse gas emissions by at least 40% compared to 1990; increasing the share of renewable energy sources in energy consumption to 32%; 32.5% increase in energy efficiency; a level of interconnection of at least 15% of EU electricity grids. (European Parliament 2022: 2).

Another crucial agenda is energy efficiency: new buildings today only consume half of the heating energy required in the 1980s. The energy intensity of the industry has also decreased significantly, it has fallen by about 19% since 2001 (European Commission 2022d). What is needed to reach the overall ambitious goals in detail: – more rooftop solar panels, heat pumps and energy savings to reduce our dependence on fossil fuels, making our homes and buildings more energy efficient; – speeding up renewables permitting to minimize the time for roll-out of renewable projects and create infrastructure improvements; – decarbonizing industry by accelerating the switch to electricity vacation and renewables and enhancing low-carbon manufacturing capabilities; – doubling the EU’s ambition for biomethane, in particular from agricultural waste and residues; – a hydrogen accelerator to develop infrastructure, storage facilities, and ports, and replay demand for Russian gas with additional imported renewable hydrogen from diverse sources and additional domestic renewable hydrogen.

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Diversifying the supply of gas can especially contribute to increasing the resilience of the EU’s energy system and strengthening its international partnerships with key energy gas suppliers. This will be an adequate way to move away from Russian gas and to invest in the necessary infrastructure (European Commission 2022a). Augmenting shares of renewables in final energy consumption is helpful in reaching the ambitious goals of climate protection, too. The European Union indeed aims to bring the energy targets into line with the EU’s new climate target of becoming CO2 -neutral by 2050. This goal needs more commitment from the member states. For instance, the German government passed a plan to reach climate neutrality by 2045, which should completely eliminate fossil fuels from Germany’s energy mix. The German government has introduced interim greenhouse gas emission targets for the years until 2040 with the “Climate Action Law”. Nevertheless, to reach the goals of less harmful CO2 emissions and other harmful gases, cooperation is needed worldwide including by China and the USA as main polluters.

5 Confrontation with China The People’s Republic of China regards Taiwan as an “inseparable part of Chinese territory” (often inaccurately described as a “breakaway province”), while Taiwan (Republic of China) perceives itself as a sovereign state from which mainland China has “seceded” by the founding of the People’s Republic in 1949. Thus, immediately after Nancy Pelosi—the speaker in the US House of Representatives—had left Taiwan after her 19-h visit on August 3, 2022, Beijing reacted angrily. In visiting Taiwan, Pelosi in her function as a US government representative had thereby seemingly questioned the PRC’s “one China” principle in Beijing’s eyes. Pelosi’s visit actually was part of a tour of US allies in the Indo-Pacific, and she continued to South Korea and Japan after her stopover in Taiwan. China immediately started military drills in the waters around Taiwan, which has prompted regional powers such as Japan to rethink their defense strategies. China’s large-scale military exercises just off the coast of Taiwan are fraying nerves in Asia, as countries worry about growing tensions and possible instability in the region. During a meeting of the Association of Southeast Asian Nations (ASEAN) in the Cambodian capital, Phnom Penh, ASEAN foreign ministers called for “maximum restraint” and warned that the drills could “lead to miscalculation, serious confrontation, open conflicts and unpredictable consequences among major powers” (Inquirer 2022). Like Russia, China perceives NATO as a rival and a security threat. This explains the fierce accusations coming from Beijing. Chinese state media, in particular the state-run Xinhua news agency, portray NATO as a “serious threat” to world peace because NATO is depicted as setting the course for expansion into the Asia– Pacific region (Chinese Government 2022). However, the truth is that China not only oppresses any inner opposition but aggressively lays claim to the South China Sea. By using the guise of “historical connections” and old maps Beijing declares that the Paracel and Spratly Islands in the South China Sea belong to China. Since

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China has been piling up atolls and building military facilities there, the potential for conflict has increased. China claims roughly 90% of the 3.5 million-square-kilometer South China Sea that five other governments value for fisheries and undersea fossil fuel reserves. But these other states neighboring the sea like Indonesia, Philippines, Vietnam, Singapore, and Malaysia have no real prospect of claiming their rights given that China is Asia’s biggest economy and has the strongest armed forces. Furthermore, as has become clear, China is willing to ignore international law. It has rejected decisions of the Permanent Court of Arbitration on the South China Sea, a court and therefore a decision without political power (Jennings 2021). And against international law, China ignores the twelve-mile zone. Under the International Convention on the Law of the Sea, each country is entitled to an exclusive economic zone 200 nautical miles off the coast. This is another reason why incidents regularly occur when an American destroyer patrols the South China Sea. The US sees the sea as a neuralgic point—and demonstratively lets warships cruise near the artificial islands. China’s aggressive behavior in Asia, like Russia’s war in Europe, clearly indicates a global change in international relations, a change that signals that international relations are on the way to a new world order.

6 Alternatives to European Import Dependence on China With regard to China’s role as an export-oriented nation, we have already faced a substantial increase during the last decades (UN Comtrade 2022: 102). China is likely to overtake the US as an economic power in the near future, among other factors through its Silk Road project. Both exports to and imports from China increased. In the decade from 2010 to 2020, Chinese exports increased by more than 60%, while imports decreased since 2018 below 50%. In 2021, China was the third largest partner for EU exports of goods (10.2%). The most traded goods imported from China and the EU’s export to China are shown in Fig. 1. So far, it is clear that the EU is strategically dependent on China in an enormous number of product categories. Against this background, Western states, not least the EU, have begun to discuss the risks of trade and investment dependency on China. One of the consequences of that discussion has been a strategic shift towards other regions, such as the Indo-Pacific for example, a shift that has already been undertaken by France, Germany, and the Netherlands. In November 2022, on the eve of his first visit to China, German chancellor Olaf Scholz, who was the first head of government to meet Xi Jinping since the latter had consolidated his power at the top of the Chinese Communist Party, announced a new strategy towards China: “As China changes, the way that we deal with China must change, too”. Scholz pointed out that Germany will have to reduce “risky dependencies” of German companies on China in “cutting-edge technologies” since “President Xi Jinping was deliberately pursuing a political strategy of making international companies reliant on China” (Politico 2022). Even if it is true that, according to the coalition agreement of the German government signed in late 2021, China is

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Fig. 1 Most traded goods between EU and China (e billion 2021). Source Eurostat (2022b)

to be considered not only a “partner” but also a “systemic rival”, Berlin is still far from breaking with China. On the contrary, Scholz made quite clear that “Germany of all countries, which had such a painful experience of division during the Cold War, has no interest in seeing new blocs emerge in the world.” Yet, Scholz also asked Beijing not to pursue policies striving for “hegemonic Chinese dominance or even a Sinocentric world order” (Politico 2022). In November 2022, the German government blocked the sale of two chip facilities to a Chinese investor due to growing concerns about Chinese access to strategically relevant German industries. If all this really means a change in German and/or European policy towards China or business as usual remains an open question. As shown in Fig. 2, among all European countries, in 2019 Germany was economically most dependent on China in terms of export dependency, followed by the United Kingdom and Ireland, and the Scandinavian countries Finland, Denmark and Sweden, but also France has a noticeable export dependency on China. The import dependency and thus the risks even tend to increase in the installation of renewable energies—which, at any rate, would mainly minimize the energy dependency on Russia—because critical raw materials and minerals are required for the construction and operation of wind turbines, solar cells, and battery storage

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Fig. 2 EU countries’ economic dependency on China. Source Zenglein (2020: 5)

Fig. 3 Countries with the largest holdings of critical raw materials. Source European Commission (2020a)

systems—such as rare earths, lithium and cobalt. The problem: in Germany and the EU, China alone accounts for around 80% of imports of critical raw materials and processed raw material products. “The range of commercial and military applications of these critical raw materials is diverse and extends far beyond the renewable energy

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sector: from mobile phones to computer hard drives, batteries for electric vehicles, precision guided missiles and high-tech ammunition.” (Umbach 2022: 12). Since the supply-chain dependency on China is high implying noticeable risks to industrial production and growth in Europe (witness the lockdowns in China during the Covid-19 pandemic), the EU as a whole is on the way to minimize the dependence on Chinese imports by restructuring production chains. With complicated and ever more deteriorating EU-China relations (Chinese FDI to the EU had already been declining since 2017 due to stricter Chinese regulations on outbound capital flows), the European Commission on May 5th 2021, already presented its updated industrial strategy (European Commission 2021), including plans to reduce dependency on China and other foreign suppliers in strategic fields necessary to successfully accomplish the green transition. This, first and foremost, entails high technology, digitalization, security, and health. Already existing and possible future vulnerabilities are to be decreased drastically. Indeed, new tools were proposed by the European Commission in order “to reduce dependency on 137 imported products (constituting about 6% of total EU import value of goods), on which the EU is highly dependent. These products belong to six strategic categories: raw materials, batteries, active pharmaceutical ingredients, hydrogen, semiconductors, and cloud and edge technologies. Half of these products (except semiconductors, which tend to be produced in South Korea and Taiwan) originate in China” (EIU 2021, European Commission 2021: 11ff.). While dramatically facing the negative effects of import dependence on fossil energy sources from Russia in 2022, the EU should reevaluate its relationship with China again. This would definitely mark another turning point, especially if we consider that only in December 2020, the EU and China at least in principle had concluded their negotiations on the Comprehensive Agreement on Investment (CAI), mainly pushed by Germany and France. The China-EU agreement aims to guarantee EU investors far more access to China’s market. China committed to ensure fairer treatment for EU companies in China, allowing them to compete on a better level playing field, including against state-owned enterprises, transparency of subsidies and rules against the forced transfer of technologies. Besides new market openings, China agreed to provisions on sustainable development, committed on climate protection and on the ratification of the relevant ILO fundamental conventions concerning forced labor. The EU and China finally agreed to complete their negotiations on investment protection and investment dispute settlement until 2022 (European Commission 2020b). Another problem concerns China’s purchasing of European infrastructure. The last act was China’s state-owned shipping company Cosco’s participation in the port of Hamburg, which after a heated dispute within the government coalition has been approved by the German chancellor himself—and would close a gap in China’s “maritime Silk Road”. China in the last years got stakes in 14 European ports, starting with Piraeus, which today is 100% owned by Cosco. So far, China already holds 10% of all European port capacities. After Piraeus, the most important are: Zeebrugge in Belgium (90%), Valencia (51%) and Bilbao (40%) in Spain, Vado Ligure, Italy (40% at Vado Reefer Terminal and 40% at Vado Container Terminal) and Rotterdam in

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the Netherlands (17.85% at the Euromax terminal). Besides purchasing access to harbors, China is buying into key industries like Chinese Midea Group’s majority stake in the robotics company Kuka in Augsburg (Germany) (Betz 2022). However, China’s economic relevance to Europe as an investor must not be overestimated. Chinese aggregate inbound investment stock remains about 5% of the EU’s total (Zenglein 2020). Nevertheless, pushed by the bad experiences made with Russia, China’s support for Russia and the military actions around Taiwan, in the US and in the EU, the Western intent to reduce import dependence on China now is clearly on the agenda. This, however, requires massive efforts in order to relocate and establish industrial sites, especially for strategically important products such as semiconductors given the enormous importance of semiconductors in nearly every field of life. Here the US among Western countries is a forerunner. The US government is promoting domestic chip production with a total of more than $280 billion. US President Joe Biden signed a corresponding legislative package. Meanwhile, the US has begun to build a huge plant in California. Thus, US catch-up in semiconductor production is gaining momentum: Micron will build plants for $40 billion in the United States by the end of the decade. State-of-the-art memory chip factories shall be built in several steps. The US is thus more than one step ahead of Europe. The EU has been discussing its own “Chips Act” for months, but a decision is not to be expected until 2023. Yet, the European Commission wants to enable state support of a minimum of e40 billion.

7 The Need for Cooperation in the Field of Climate Change It is obvious that success in fighting climate change is not possible without engaging the largest polluters with China at the top (see Table 3). Therefore, analysts of the EIU “expect Europe to continue to engage with China in areas of mutual interest, such as climate change, but on a transactional basis. The EU will face political pressure to act on human rights and security issues, but we do not expect it to fall into line with the US with regard to China” (EIU 2021). The European Commission nevertheless pointed out its own relevance and power by stating: “The EU also has important strengths and capacities. While the EU faces certain dependencies, other countries also depend on the EU (“reverse dependencies”). Mutual dependencies may be an element of stability in global value chains” (European Commission 2021: 11). If we look not only at carbon dioxide from the combustion of fossil fuels, but also at all greenhouse gases, the order shifts somewhat: Then Germany is in 7th place after Brazil, ahead of Indonesia, Iran, and Canada in 8th to 10th place. This more complex calculation with data from 2015 also includes other greenhouse gases such as methane and nitrous oxide from agriculture. The different effects of different gases are converted into so-called CO2 equivalents. Global emissions in 2015 amounted to around 49 billion CO2 equivalents compared to 36 billion tons of CO2 (Ritchie et al. 2020). In 2021, the global CO2 emissions increased over 2 billion tons, which was

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Table 3 Ranking of global CO2 emitters 2018 Country

CO2 emissions in million tons

Global share in %

1. China

11.256

29,7 13,9

2. USA

5.275

3. India

2.622

6,9

4. Russia

1.748

4,6

5. Japan

1.199

3,2

6. Germany

753

2,0

7. Iran

728

1,9

8. South Korea

695

1,8

9. Saudi Arabia

625

1,7

10. Canada

594

1,6

Source Crippa et al. 2019

the largest amount in history in absolute terms as the International Energy Agency showed (IEA 2022). “The rebound of global CO2 emissions above pre-pandemic levels has largely been driven by China, where they increased by 750 million tons between 2019 and 2021. (…) In 2021, China’s CO2 emissions rose above 11.9 billion tons, accounting for 33% of the global total” (IEA 2022). All these data clearly indicate that we can only leave the planet in a better condition for the next generation if all nations collaborate in an effective and peaceful way. This cooperation and mutual technical support could be done best under the leadership of UN organizations. This is above all necessary, as climate change ruins in many cases the life conditions of societies and increases the risk of conflicts (Krampe 2022).

8 Final Conclusions Summing up it can be said that the political and economic recasting of the EU’s international relations caused by the Russian attack on Ukraine on 24 February 2022 is affecting also European relationships with China and other non-democratic regimes. There is no doubt that the EU needs to get less dependent on authoritarian states economically, regaining more autonomy in crucial industrial sectors. However, the challenges are manifold since the European Union finds itself in a dilemma: By cutting trade with Putin’s Russia, there is a lack of energy for key industries in the EU. This requires new contracts for energy supply (especially gas/LNG, but also oil) not only from highly reliable and democratic EU neighbors as Norway, but also from authoritarian, dubious states, as e.g., Saudi Arabia, Qatar and others. This leads the EU and its member states to new dependencies at least for a couple of years, until the transition to sufficient energy supply from renewables, that means the green economy, will be completed. Even this will not be an easy endeavor since important

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components and raw materials, as well as final products (see photovoltaic systems), still need to be imported from China. Therefore, taking also into account the fact that climate change can only be tackled successfully at the global level, international cooperation and trade are indispensable from a European perspective. Nonetheless, the EU’s cooperation with authoritarian regimes will have significantly tighter limits than it had in the past and, hopefully, it will be less naïve. This, of course, also goes for EU-China relations that have to be less asymmetric and at eye level. A more resilient European Union above all requires more solidarity among EU member states, not at least in terms of further commonly financed EU funds for public investments, using the example of NextGenerationEU in response to the Covid-19 pandemic. Further investments and a common industrial policy will not only accelerate the transition to a green European economy, but also will help to prevent member states from joining China’s Silk Road project only because of missing investment capacity due to high public debts, which happened in the past with Greece, just to name the most famous case. Indeed, Italy under the Draghi government was set to stop its engagement in the Silk Road project in order to move away from Chinese economic and political influence. Therefore, one main objective is certainly to strengthen both industrial and financial resilience of the EU and its member states.

References ACER/European Union Agency for the Cooperation of Energy Regulators (2021) https://www.acer. europa.eu/ Bet S (2022) Griff nach Europa: Chinas strategische Käufe, Bayerischer Rundfunk, 31.10.2022; https://www.br.de/nachrichten/deutschland-welt/griff-nach-europa-chinas-strategische-kae ufe,TLa2rvQ Chinese Government (2022) Spokesperson of Chinese Mission to the EU Speaks on a Question Concerning NATO’s Comments on China in its Strategic Concept, 29 June 2022; http://eu.chinamission.gov.cn/eng/fyrjh/202206/t20220630_10712350.htm Crippa M et al (2019) Fossil CO2 and GHG emissions of all world countries, JRC Science for Policy Report, 2019 report, Publications Office of the European Union, Luxembourg; https://op.europa. eu/en/publication-detail/-/publication/9d09ccd1-e0dd-11e9-9c4e-01aa75ed71a1/language-en EIU/Economist Intelligence Unit (2021) EU unveils strategy to reduce dependency on China, 18th May 2021; https://www.eiu.com/n/eu-unveils-strategy-to-reduce-dependency-on-china European Commission (2009) 2020 climate & energy package; https://climate.ec.europa.eu/eu-act ion/climate-strategies-targets/2020-climate-energy-package_en European Commission (2020a) Study on the EU’s list of Critical Raw Materials, Final Report, Luxembourg European Commission (2020b) EU and China reach agreement in principle on investment, press release, 30 December 2020b, Brussels; https://ec.europa.eu/commission/presscorner/detail/en/ IP_20_2541 European Commission (2021) Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe‘s Recover, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Brussels, 5 May 2021; https://ec.europa.eu/info/sites/default/files/communicationnew-industrial-strategy.pdf

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Chapter 9

The Shifting Role of the EU’s Economic Diplomacy Towards China: The Case of China’s Belt and Road Initiative and the EU’s Global Gateway Chin-Peng Chu and Zsuzsa Anna Ferenczy

Abstract The economic weight of the European Union (EU) has become the main driving force in its influence projection efforts in the context of a highly interconnected world. Global competition for power has been on the rise, with Brussels growing aware that the EU is ill-equipped to address new types of challenges and restrictions in global trade. There is consensus in Brussels that Europe is too dependent on other countries for the supply of certain goods and technologies. China, a significant trade partner for the EU, has benefitted from its open markets, but has not ensured the same for European businesses. In addition, Beijing has used its Belt and Road Initiative to expand its economic clout globally. In contrast, the EU’s Global Gateway aims to ensure sustainable and trusted connections. The EU is seeking to rebalance its ties with China with a stronger trade defence toolbox, in order to address geoeconomic frictions and better defend its strategic interests. This paper assesses EU-China relations from the perspective of trade cooperation, and the use of economic diplomacy on both sides. It assesses whether the EU can better leverage its collective weight in its ties with China, and address the asymmetry in their cooperation. Keywords Economic diplomacy · Belt and road initiative · Global gateway · EU and China

“It is not possible to shape the world of tomorrow without a strong EU-China partnership”, said European Commission President Ursula von der Leyen following the

This article is the partly research results of the MOST project (MOST 111-2410-H-259-021-MY 3). The authors would like to thank the funding support of National Council of Science and Technology. C.-P. Chu (B) · Z. A. Ferenczy Department of Public Administration, National Dong Hwa University, Hualien, Taiwan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_9

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EU-China Summit that took place via videoconference on 22 June this year (European Commission 2022a). She highlighted that it was time to accelerate on the very crucial areas of the relationship, in particular concerns of reciprocity and the level playing field. Economic ties are indeed at the core of bilateral relations, which over the past decades have benefited both sides, albeit to varying degrees. As such, from 2008 to 2017, the stock of EU FDI in China grew from 54EUR billion to 178EUR billion, an increase of 225%, while the stock of Chinese FDI in the EU rose close to tenfold, reaching 59EUR billion in 2017 (European Parliament 2020). Trade is an area in which the partnership has seen increasing tension. Most recently, the pandemic has shown how central China has become to the global value chains, as the shutdown in parts of the country has resulted in significant disturbances to global supply chains which had also affected EU countries. Bilateral ties have been additionally burdened by Beijing’s diplomatic support to Moscow in its aggression against Ukraine unleashed on February 24. In light of Beijing’s refusal to condemn the aggression taking place at the heart of Europe, the EU is going through a fundamental rethink of its ties with China. Brussels has so far failed to use its collective strength more strategically, which has served the interests of China at the expense of those of Europe. The EU’s economic weight remains its strongest asset, but the EU is still to learn how to best use it in order to increase its global relevance in a rapidly changing world. In fact, the EU has yet to adapt to a new geopolitical and geoeconomic reality, in which trade has become a political tool more than an end in itself. This paper first briefly assesses EU-China trade relations from the angle of economic diplomacy. With trade as the core of their cooperation, the paper identifies the main challenges burdening the overall cooperation. Second, the paper explores the political dimension of the bilateral partnership; while since 2003 the EU has considered China a strategic partner, in 2019 it additionally labeled it a “systemic rival”. This move ushered in a new phase with Brussels looking into redrawing the contours of both its trade and political cooperation with China. In this context, the paper looks at China’s Belt and Road Initiative(BRI), as an example of China’s assertive economic and foreign policy instrument to help to expand China’s global influence. The paper explores the EU’s Global Gateway(GG), widely considered to have come as a response to China’s BRI. Mindful that compared to the BRI, the GG is a more recent policy, the paper explores the rationale behind the GG in the context of the EU’s geopolitical ambitions, rather than its impact. Finally, the paper assesses the extent to which with the help of tools such as the GG and other defensive trade instruments, the EU can better leverage its collective weight in its ties with China, and address the asymmetry in their cooperation.

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1 Economic Diplomacy as a Tool for Power Projection In the process of growing into the world’s largest trade bloc, the EU has sought to use economic diplomacy in its external policy as a means to increase its weight on the global stage. Diplomacy cannot be divided into economic and political activities alone, but rather into the development of an integrated or coordinated form of diplomacy, forming a policy network of multiple actors, thereby increasing the size and power of economic interests and system participants (Bayne and Woolcock 2007). Trade has been the main vehicle enabling the EU to project its influence, through two main pillars: the advancement of trade liberalization, and trade defence measures to help protect the EU’s own interests against unfair competition. While the term economic diplomacy can be defined in several ways, for the EU it has entailed both boosting economic growth and developing geopolitical influence. With the global power shift accompanied by significant geoeconomic risks, it is noteworthy that an increasing number of countries have started to use trade for strategic ends, often at the expense of values such as transparency, and the rules-based international order. As economic tools have become more relevant in the pursuit of political diplomacy and foreign influence, emerging and middle powers have sought to increase their influence by strengthening their trade relations with partners on the global stage. The rise of emerging powers in Asia, Latin America and Africa, and the so-called BRICS countries (Brazil, Russia, India, China and South Africa) has dealt a shock of great proportions to the world economy. This has brought important changes in trade and financial exchanges, fundamentally altering the geopolitical balance of power and fueling international geopolitical tensions and defensive policies in advanced countries. Nevertheless, daunting challenges remain for developing countries, including poverty reduction, and investing in infrastructure, education and public health. At the same time, developing nations are a diverse group of countries, with different priorities, strategies and visions, which makes coordination difficult, and any effort to advance global governance all the more challenging. China, as a leader in information and communications technology and a major global trade partner for countries across the world, has equally used its economic weight with the strategic purpose of external power projection. As such, China’s assertive global technology firms have gradually gained a foothold in Europe, supported by its Digital Silk Road initiative (DSR) established in 2015, as part of China’s Belt and Road Initiative. Beijing has thus indicated that it wants China to become a global standard setter in cutting-edge technologies such as AI and 5G. This has raised concerns in Europe and the US, given Beijing’s push towards an authoritarian approach at home through its surveillance system (Makowska 2022). Beijing has at the same time shown increasing willingness to use economic coercion to pursue its interests. The region where such coercive behavior has been most acute is the Indo-Pacific, with Australia, South Korea and Taiwan all being victims of such coercion.

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Research has at the same time shown that so far China has applied only limited economic pressure, constrained by its concerns not to upset its own trade and investment interests. As such, while Beijing placed a six-year diplomatic freeze on Norway and cut off salmon exports as a result of the Nobel committee in Oslo awarding the Peace Prize to Liu Xiaobo, Beijing did not stand in the way when ChemChina, a Chinese state-owned enterprise (SOE) made a 2USD billion purchase of a highgrade Norwegian silicon producer during its freeze in ties with the country (Patey 2021). Mindful that China is showing increasing interest in employing economic coercion, it is important to comprehensively assess all the ways in which Beijing is using economic diplomacy. Many countries have feared China’s BRI as an unsettling extension of China’s power. BRI, sometimes referred to as the New Silk Road, Xi Jinping’s signature foreign policy tool, is a massive infrastructure project that would connect East Asia and Europe. As an ambitious project launched in 2013, it was designed to serve the expansion of China’s economic and political influence. Yet, no country has succeeded in offering governments a more appealing economic vision. The BRI vision includes creating a vast network of railways, energy pipelines, highways, and streamlined border crossings, in order to expand the international use of Chinese currency, and “break the bottleneck in Asian connectivity”, according to Chinese leader Xi Jinping (Chatzky and McBride 2020). The EU has shared many of the concerns of the international community concerning BRI. In its 2021 Resolution, the European Parliament noted that through its assertive foreign policy agenda and its investment strategy including its BRI, China “is asserting a stronger global role both as an economic power and as foreign policy actor, which poses serious political, economic, security and development challenges to the EU, which in turn has significant and long-lasting consequences for the world order, and poses serious threat to the rules-based multilateralism and core democratic values” (European Parliament 2021). This statement captures the overall mood across Europe as far as the BRI is concerned. These concerns have intensified as competition in EU-China trade cooperation has grown, with China becoming a competitor for EU exports in third markets, including Latin America, as a result of China moving up the technology ladder. China has started to provide goods that are traditionally within the EU’s sphere of comparative advantage. As a result, analysts have urged Europe to consider this as a wake-up call in its quest to remain competitive at the global level (European Parliament 2020). China has also reinforced its leadership in the Global South via foreign aid and development financing, with fewer conditions of political transparency and market liberalization than financing from the World Bank, while also supporting its own economic growth. At the same time, it is noteworthy that Xi Jinping’s political agenda aimed at centralization is a factor that will continue to shape China’s economic policies domestically, as well as its economic diplomacy. These political and economic dynamics have driven Beijing’s capacity to deploy its economic diplomacy and thus secure a friendlier environment for cooperation around the world, designed to serve its strategic purpose of increasing its clout. In this spirit, the EU’s Global Gateway, unveiled in 2021, has been widely viewed as

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an attempt to rival China’s BRI in providing a sustainable alternative that promotes social and environmental standards. While the GG does not mention China, the infrastructure plan of 300 billion EUR appears to be a response to the BRI, in particular as the EU has insisted that it is rooted in values such as transparency, respect for the rule of law and sustainability.

2 The EU-China Trade Relationship Notwithstanding growing friction in bilateral ties, the economic relationship linking the EU and China has been a source of prosperity for both sides. Yet, following years of gradual increase in economic cooperation, the two sides do not share the same objectives. Welfare and the promotion of goods are among the stated goals for the EU, within the framework of the World Trade Organization (WTO). China, on the other hand, has remained unwilling to live up to its commitments and alter its economic model based on state intervention, while doubling down on efforts to both increase domestic control and secure global leadership. As such, the EU’s new trade strategy for the coming years set out on 18 February 2021 includes a renewed focus on strengthening multilateralism and reforming global trade rules to ensure that they are fair and sustainable. It builds on the EU’s openness to contribute to the economic recovery through support for the green and digital transformations and, where necessary, it commits to take a more assertive stance in defending its interests and values, including through new rules (European Commission 2021a). Along with the EU and the United States, China is among the world’s three largest trade partners. The EU is interested in remaining open to trade with China while it expects its partner to conform to fair trade practices, to respect intellectual property rights and to meet its obligations as a member of the WTO. When China joined the WTO, it agreed to liberalize significant parts of its economy. Yet, significant problems remain in terms of lack of transparency, industrial policies and non-tariff measures that discriminate against foreign companies, as well as a high level of government intervention in the economy (European Commission n.d.). China’s trade policies are driven by four overarching priorities: pushing for indigenous innovation, driving self-sufficiency, enhancing national security and market reform and opening. At the same time, Beijing’s policies and its posture have displayed a growing linkage between national security and economic policy, with the former often shaping the latter, which has contributed to a deterioration in China’s relations with its partners (The Economist Intelligence Unit 2021). Since its reform and opening up four decades ago, China’s development has come at an unprecedented pace. China is today a leader in global trade with significant influence in shaping global governance with its fundamentally distinct political and economic systems. In this process, Beijing has pursued a top-down, statedriven approach concerning competitiveness in global trade, which has become more obvious in its pursuit of high-tech ambitions. In this regard, China’s trade partners have considered government subsidies as distorting the market at the expense of

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foreign companies. While the Chinese authorities have introduced certain reforms, such as abolishing foreign ownership limits in financial services or amending laws to strengthen intellectual property rights protection, concerns remain as far as how effectively these measures will be implemented. These developments have led to mixed reactions. In some parts of the world, there was enthusiasm to embrace new economic opportunities with China’s rise, while in other parts skepticism and even confrontation has prevailed. As such, in 2019 the EU labeled China a “systemic rival promoting alternative models of governance”, signaling a significant shift in the EU’s perception of China (European Commission 2019). Over the past decade, EU leaders have raised concerns of China’s lack of reciprocity in market access, which was in stark contrast with Beijing’s WTO commitments. Following the shift in global power and the geostrategic risks this has entailed, in 2016 the EU started to upgrade its trade defence instruments which many observers considered as the EU adapting to the new reality unfolding for the past decade. This also signaled that the EU was ready to equip itself with tools to protect its interests while it continues to stay open for business. The 2008 global financial crisis, Russia’s annexation of the Crimean Peninsula in 2014, the migration crisis in 2015 and Brexit in 2016 have all tested the EU’s values-based approach to global challenges, which the EU’s 2016 Global Strategy captured clearly, by stating that “the purpose, even existence, of our Union is being questioned” (European External Action Service 2016a). The push in 2016 to work on trade defence was due to an awareness of the EU’s vulnerabilities in the face of unfair trade practices, including those of China, but not exclusively. Yet, given the size of China’s economy, its role in global supply chains, and its state capitalism, China was on top of the list of countries that the EU targeted by trade defence measures. At the end of 2021, there were 163 trade defence measures in force in the EU, the majority being anti-dumping. The EU’s overall trade defence toolbox includes tools such as the Foreign Direct Investment (FDI) screening mechanism, the Foreign Subsidy Instrument (FSI), the International Procurement Instrument (IPI), a 5G tool, or an Anti-Coercion Instrument (ACI) still in preparation (European Commission 2021b). Launching the Global Gateway was driven by the intent to offer a European alternative to China’s BRI. These instruments are defensive in nature, and designed to help the EU to achieve a level playing field for European companies. The EU also put forward the European Chips Act in order to bolster its security of supply, which, following the global health crisis, turned out to be one of the EU’s greatest vulnerabilities (European Commission 2022b). The Chips Act raised the EU’s political commitment, which is to be seen as an important step forward given the EU’s otherwise fragmented nature and member states’ sovereignty concerns when it comes to bringing policy areas under European control. The new instrument is to boost Europe’s share of global chip production capacity to 20 percent from its current level of 10 percent, with a clear plan for industrial and technological capability- and capacity building. The Act is also important as it provides a realistic approach to partnering with like-minded countries in order to enhance strategic control of the semiconductor industrial ecosystem. In this regard, the Chips Act can help the EU to strengthen its economic diplomacy, by reinforcing it

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in order to protect its interests while seeking to improve the EU’s position, leverage and supply security in the global semiconductor value chain. The majority of the EU’s defensive tools have been created as retaliatory measures against unfair trade practices, with the US, China, Russia, the UK and Turkey likely to be on the receiving ends of the tools because they either do not follow the same rules as the EU or the EU wants to maintain with them the current level of competitiveness (ECIPE 2022). China set a new precedent in its political and economic retaliation against an EU member state when it retaliated against Lithuanian businesses as punishment for Vilnius’ decision to expand cooperation with Taiwan. The EU however was unequipped to address the economic coercion. For Beijing, the message was addressed both to Lithuania and its own domestic audience, signaling that China doesn’t allow others to disrespect it, which is how it perceived Lithuania’s decision. This also came to reinforce the government’s efforts to shape perceptions of China in the world and try to improve its image damaged by the pandemic.

3 The Political Debate on China in Brussels Beijing’s assertiveness on the global stage and its growing readiness to weaponize trade relations over the past years have pushed the EU to reconsider its China policy and identify ways to strengthen its own resilience. In the face of China’s militarization of the South China Sea, its human rights abuses in Xinjiang and Tibet, the crackdown on democratic freedoms in Hong Kong, the mismanagement and manipulation of the global health crisis, and its drive for technological supremacy at the expense of fundamental freedoms, the EU has started seeing China with different eyes (Human Rights Watch 2020). Fears have grown that for the Chinese Communist Party (CCP) the main ambition is to remain in control of China at the expense of good governance, the rule of law and human rights, and expand its influence abroad by projecting itself in different ways, including through persuasion, coercion, cyber action and by imposing its own alternative narrative and interfering in other countries’ politics. Under the rule of Chinese leader Xi Jinping, the state-controlled economy has entailed demanding the private sector to conform to the aims of the CCP, undermining Beijing’s rhetoric on the importance of opening up its economy. For decades having urged China to live up to its own WTO commitments in terms of economic reform, this inward-looking trend has intensified European concerns. The president of the European Union Chamber of Commerce in China, Jörg Wuttke even said the Chinese economy was deeply ingrained with Xi’s ideological touch (Wakabayashi et al. 2022). This suggests that while China’s development is driven by trade and the economy, in reality, it is guided by political considerations, with significant implications for the rest of the world. Most recently, Beijing’s diplomatic support to Moscow in its war against Ukraine unleashed on February 24, 2022, amplified this ongoing shift in European perceptions of China. In fact, Beijing’s posture concerning the war made China-Russia relations the dominant topic in EU-China relations. Beijing has helped amplify Russian

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rhetoric justifying the war, adopting Moscow’s language and disseminating disinformation according to which NATO is responsible for the war. Russia’s war brought the realpolitik of hard power back to the heart of Europe. In its 28 February statement, the EU stressed that the war was an “unjustified and unjustifiable” attack, and urged Russia to immediately cease its military action and fully respect Ukraine’s territorial integrity, sovereignty and independence within its internationally recognized borders (European External Action Service 2022a, b). At the same time, Beijing’s support to Moscow in its attacks against its sovereign neighbor made Europeans more aware of the danger of a possible conflict concerning Taiwan, considering that pressure from China on the island has been on the rise. As a result, perceptions across the EU on China have further deteriorated, with increased awareness that the PRC poses a significant challenge to the EU’s interests and values, presenting threats to its national security and political integrity. Addressing the challenge is all the more complicated given the high level of interdependence the two sides share, based on integrated industrial supply chains. Views of China have become overall predominantly negative, as a recent poll of European public opinion on China in the age of COVID-19 shows, conducted by the Central European Institute of Asian Studies (CEIAS) (CEIAS 2021). While the long-term consequences of the war are yet to be fully understood, it is likely to fundamentally change the post-Cold War era. Beijing’s balancing act, its refusal to condemn Russia’s aggression and its support “without limits” for Russia have reshaped EU-China ties. The mood of the latest EU-China bilateral summit in April 2022 was indicative of the emerging shift in Brussels. The summit took place just weeks after the invasion and the European side made sure that the war dominated the bilateral exchange. Concerning the Chinese side, there was no sign of solidarity with Europe being under siege, instead a focus on sanctions as an issue to be solved. European Commission President Ursula von der Leyen described it as “certainly not business as usual” (Stec 2022). Along the same lines, European Council President Charles Michel said, “As major global powers, the EU and China must work together on stopping Russia’s war in Ukraine as soon as possible. We have a common responsibility to maintain peace and stability, and a safe and sustainable world” (European Council 2022). In contrast, at the end of September 2022, China’s Foreign Minister Wang Yi said “Dialogue and cooperation remains the mainstream of China-EU relations. Mutual benefit is the underlying tone of China’s cooperation with Europe” (Ministry of Foreign Affairs of the People’s Republic of China 2022). The stark contrast between the language on the two sides is indicative of the divergence in both discourse and perceptions. For years, Beijing has been seeking to weaken European unity and undermine a unified European voice. Considering the EU’s fragmentation as a political entity, speaking with one voice with China has always been a significant challenge that Beijing has sought to exploit to its own benefit. These dynamics have made addressing the question of how the EU should address the challenges of its interconnectedness with China more urgent than ever. In this regard, the EU is in the process of reconsidering the objectives it wants to achieve in its ties with China.

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In reality, the conceptual shift concerning China started to show in the EU’s 2016 Communication on China, which was later reinforced by its 2019 Strategic Outlook. In 2016, the EU committed to a “principled, practical and pragmatic” engagement with China. In 2019, it labeled its partner a “systemic rival promoting alternative models of governance” (European External Action Service 2016b). Since then, the rivalry element has become dominant in bilateral ties. So far, it has remained difficult to rebalance ties with China, given the lack of consensus among member states on the way forward. The EU remains fragmented, as its Common Foreign and Security Policy (CFSP) illustrates, with a multi-layered governance system. Member states’ lack of a common strategic vision and political will to leverage their collective weight have limited an effective policy regarding China, just as Beijing has intensified its assertiveness. Beijing has also pursued a long-established strategy of ‘divide and rule’ in Europe, in an effort to destabilize Brussels. As such, in 2021, in the wake of the 2008 global financial crisis, China established a cooperation framework with 16 Central Eastern European countries, mindful of their geostrategic importance as a bridgehead to the EU market, as well as an essential transit for its Belt and Road Initiative. This format has led to concerns in Brussels that it would weaken EU political unity, as well as shape the participating countries’ policies to favor China and its core interests. Yet, years after its establishment, the format has led to disappointment and skepticism in terms of unfulfilled economic promises, but also risks associated to China’s political influence, to the extent that several countries, including Lithuania, Estonia and Latvia, left the grouping. In doing so, Estonia’s Ministry of Foreign Affairs stated that they would seek to advance EU-China relations in line with the rules-based international order and values, such as human rights (ERR News 2022). Estonia and Latvia had coordinated their decision and announced it on the same day in August 2022, while Lithuania had withdrawn from the format earlier, in the spring of 2021. This outcome, in particular coordination among several EU member states, has put further pressure on Beijing in its efforts to claim that the format is truly win–win as it has insisted since its inception a decade earlier, as well as in its long-established tactic to divide and rule the EU. The strengthening of China’s strategic friendship with Russia has worried the Baltic states, fearing that the invasion of Ukraine could be the precursor to a wider attempt by Russia in the region. With tensions in bilateral ties growing in recent years, Beijing has sought to further leverage its influence with individual member states against the backdrop of a complex relationship with the EU as a bloc. Thinking collectively about China therefore remains a challenge for Brussels.

4 China’s BRI and Europe’s GG When established, Beijing’s BRI was undoubtedly the most significant international project that China has embarked on, as a massive infrastructure project with the claim to improve connectivity, increase regional cooperation and facilitate trade, with the European market as the key strategic destination. A decade following its

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launch, perceptions across Europe have deteriorated, fueled by concerns that the plan would give China more political and economic influence over countries in Europe, and further increase its access to the core of the EU’s market. Yet, despite growing concerns, the EU has failed to converge and come up with a common response and address worries associated with China’s BRI. In 2018, the EU released its strategy for connecting Europe and Asia, which marked an important step towards a common approach to the BRI, outlining a plan to improve connectivity with Asia in transport and energy, and the digital economy (European Commission 2018). Experts welcomed this as progress towards codifying the EU’s position in a way that preserves engagement with China while stressing its priorities. Yet, this strategy did not effectively manage to ensure collective action. Europeans were also concerned about the environment and human rights standards, transparency, procurement and debt sustainability related to the project. In addition, many across Europe also criticized the BRI as a form of ‘debt trap diplomacy’ because of its opaque and unaccountable mode of operation, with most of the African countries participating in the plan while still in distress in the post-Covid-19 period, or at risk of debt distress. At the 2015 Forum on China-Africa Cooperation (FOCAC), China pledged 60 USD billion to Africa, in concessional loans and credit lines. At the 2018 FOCAC meeting, China pledged another 60 USD billion, with half of the money in credit lines and development finance. Even if debt relief is to be provided, China is most likely to look at individual African countries case by case and design individual strategies with different methods of debt relief, analysts suggest (Sun 2020). In the same spirit, other observers consider the implementation of the BRI overall as “a potential poisoned chalice” for countries that have taken on large amounts of debt to upgrade their infrastructure, due to the use of low-interest loans rather than aid grants, a non-transparent tendering process that designated Chinese firms and the use of an opaque bidding process (Chatzky and McBride 2020). In contrast, when it launched the Global Gateway the EU claimed its purpose was to create linkages rather than dependencies. The EU would provide financing on fair and favorable terms, reduce the risk of debt distress, and deliver projects in a wellgoverned and transparent manner, empowering partner countries to work together to help solve pressing global challenges. At its launch in December 2021, President of the Commission Ursula von der Leyen said “As part of our global recovery, we want to redesign how we connect the world to build forward better. The European model is about investing in both hard and soft infrastructure, in sustainable investments in digital, climate and energy, transport, health, education and research, as well as in an enabling environment guaranteeing a level playing field” (European Commission 2021c). The GG is centered on a set of core principles including: democratic values and high standards, equal partnerships, good governance and transparency. Its investments will be focused on five priority areas: digital, transport, climate and energy, health and education, and education and research. The scheme plans to mobilize up to 300 EUR billion in investment between 2021 and 2027. This plan doesn’t however entail all new money, as part of it will be provided by the European Funds of Sustainable Development Plus (EFSD + ). At the same time, the scheme is also

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an attempt to gain more geostrategic influence around the world, and be an answer to China’s BRI while providing a values-based counter-narrative to it. The EU has signaled that it wants to compete with the BRI, while also being driven by the aim to protect its own interests. Establishing the GG along with the EU’s core values follows the main driving force of the European Commission’s geopolitical agenda, which it announced in 2019 and reinforced in 2022 following Russia’s invasion of Ukraine. A “geopolitical EU” entails its recognition of a more hostile world defined by competition, which calls for more strategic autonomy, accelerated by the global health crisis and the disruption in supply chains that the pandemic has caused. As such, in 2020, the EU High Representative Josep Borrell and Internal Market Commissioner Thierry Breton claimed that the EU’s soft power needed to be complemented by a harder power dimension, in response to the Russian aggression and the Anglo-American retreat from multilateralism. The two European leaders together maintained that “the era of a conciliatory, if not naïve, Europe has come of age”. There is a need for “a resilient and autonomous Europe, assertive of its values, strong in its convictions, firm in its ambitions and confident of its merits”. In addition to investing in hard power, the two leaders stressed that the EU should strengthen and modernize its internal market by taking solidarity to a new level (European External Action Service 2020). Efforts to boost its defensive toolbox must be seen in this context. The EU, however, must undertake these efforts together with other democratic allies it has around the world, in particular those that have their own connectivity schemes, including Japan or the United States. Their cooperation and coordination would secure a significant counterweight to the BRI.

5 Conclusion A month after Russia’s invasion of Ukraine, the EU recognized the need to turn its geopolitical awakening into a more permanent strategic posture (European External Action Service 2022b). This was necessary in a context marked by renewed greatpower rivalry and an interdependent relationship between economic and security policies, with trade becoming a power projection instrument. Since announced in 2019, the EU’s geopolitical ambition has seen a crucial evolution, whereby the EU is seeking to reshape its international identity. China’s assertive posturing in the IndoPacific, as well as its increased influence inside Europe through its BRI, have played a vital role in this regard. In practice, for Brussels, a more “geopolitical” agenda means stronger coordination in the external aspects of the work of the Commission, in the direction of strategic autonomy, a concept that has received as much criticism as support from actors inside the EU and among the EU’s allies, in particular the United States. The concept entails the capacity to act autonomously—that is, without being dependent on other countries in strategically important policy areas. These include defence policy, economic policy, as well as the capacity to uphold democratic values. Coordination within a fragmented Union towards more strategic autonomy is essentially at the core of the entire process of the EU’s rethinking of its geopolitical

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identity. It is also where the EU has faced most internal challenges. This has entailed investing in a stronger defensive toolbox in trade to protect the EU’s own interests. In this spirit, GG is a “Team Europe approach” that combines the EU, member states and their financial institutions such as the European Investment Bank and the European Bank for Reconstruction and Development (EBRD) with private sector investment and the EU Delegations abroad to work with local European teams. The GG is budgeted at e300 billion for the period of 2021–2027 and draws on the Neighborhood Policy, Development and International Cooperation Instrument (NDICI), the Instrument for Pre-Accession Assistance (IPA), as well as the European Regional Development Fund (Interreg), InvestEU, the EU Research and Innovation Program and the Commission. The GG is based on the EU-Asia Connectivity Strategy of 2018, on the basis of which the EU had already agreed on Connectivity Partnerships with Japan and India, as well as with the Western Balkans and the Eastern and the Southern Partnerships in the context of the UN’s Sustainable Development Goals (SDGs). The lack of transparency in the BRI has made it difficult for Brussels to access reliable information on its financing and the specific projects it involved. In contrast, the EU’s proposed GG has promised to be more secure and reliable for partner countries. Ensuring transparency, in addition to the higher level of coordination among all relevant actors inside the EU, is another critical element of the GG. The EU’s connectivity scheme does not directly refer to China’s BRI, but its emphasis on rules-based initiatives rooted in democratic values, transparency and ethical approaches brings China indirectly into the picture. Yet, the Global Gateway comes a decade behind the BRI. Questions remain about whether the EU can truly attract countries already involved in the BRI and whether it can propose better, safer and greener connectivity than China. Nevertheless, in a global context dominated by uncertainty, the value of transparent and trustworthy projects and partners is expected to grow, not decrease. The EU and China agree that the rules-based multilateral trading system needs reform. Yet, they have fundamentally different political and economic systems, which entail different visions for reform. The two sides are experiencing the highest tension in bilateral ties, which is rooted in the lack of balance in their trade cooperation and a systemic rivalry in terms of political values. Against this backdrop, bridging differences between the two sides in order to find global solutions to global problems looks highly unlikely. China’s tacit support to Russia in violating its neighbor’s sovereignty has made this possibility even more remote. The EU is in the process of rebalancing its trade with China and learning how to use its collective weight more strategically, while China has increasingly used economic cooperation to achieve political gains, deploying coercive economic practices with growing intensity and scope. The EU’s trade defence instruments seek to ensure the bloc can be more agile when coerced, mindful that economic coercion has become part of economic ties with China. To succeed in effectively withstanding threats, ensuring that the EU is internally united will be vital. At the same time, member states will have to work more effectively on a strategic vision for how they can together manage their complex relationship with China in a complex geopolitical environment. This will require a clearer understanding of the EU’s own economic vulnerabilities in order

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to protect them from coercion, and also leverage its strengths, such as through the Global Gateway, in order to ensure that transparency, good governance and rule of law guide connectivity around the world.

References Bayne N, Woolcock S (2007) The New Economic Diplomacy: Decision Making and Negotiation in International Economic Relations, 2nd edn. Ashgate, Aldershot CEIAS (2021) European public opinion on China in the age of COVID-19. Differences and common ground across the continent. Retrieved from: https://ceias.eu/wp-content/uploads/ 2020/11/COMP-poll-report_3.pdf Chatzky A, McBride J (2020) China’s Massive Belt and Road Initiative, Council on Foreign Relations. Retrieved from https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-ini tiative ECIPE (2022) The New Wave of Defensive Trade Policy Measures in the European Union: Design, Structure, and Trade Effects. Retrieved from: https://ecipe.org/wp-content/uploads/2022/05/ ECI_22_OccPaper_Defence_04_2022_LY10.pdf ERR News (2022) Estonia, Latvia withdrawing from China’s 16+1 cooperation format. Retrieved from: https://news.err.ee/1608682231/estonia-latvia-withdrawing-from-china-s-161-cooperation-format European Commission (2018) EU steps up its strategy for connecting Europe and Asia. Retrieved from: https://ec.europa.eu/commission/presscorner/detail/en/IP_18_5803 European Commission (2019) EU-China – A strategic outlook. Retrieved from: https://ec.europa. eu/info/sites/default/files/communication-eu-china-a-strategic-outlook.pdf European Commission (2021a) Commission sets course for an open, sustainable and assertive EU trade policy. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/ip_21_644 European Commission (2021b) EU strengthens protection against economic coercion. Retrieved from: https://ec.europa.eu/commission/presscorner/detail/en/ip_21_6642 European Commission (2021c) Global Gateway: up to 300EUR billion for the European Union’s strategy to boost sustainable links around the world. Retrieved from: https://ec.europa.eu/com mission/presscorner/detail/en/ip_21_6433 European Commission (2022a) Von der Leyen following the EU-China Summit: We must make progress, one that implies reciprocity and trust. Retrieved from: https://ec.europa.eu/commis sion/presscorner/detail/en/ac_20_1170 European Commission (2022b) EU acts to improve reciprocal access to international procurement. Retrieved from: https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1728 European Commission (n.d.) Trade with China. Retrieved from: https://policy.trade.ec.europa.eu/ eu-trade-relationships-country-and-region/countries-and-regions/china_en European Council (2022) EU-China summit via video conference. Retrieved from: https://www. consilium.europa.eu/en/meetings/international-summit/2022/04/01/ European External Action Service (2016a) A Global Strategy for the European Union’s Foreign and Security Policy. Retrieved from: https://www.eeas.europa.eu/sites/default/files/eugs_review_ web_0.pdf European External Action Service (2016b) Elements for a new EU strategy on China. Retrieved from: https://eeas.europa.eu/archives/docs/china/docs/joint_communication_to_the_ european_parliament_and_the_council_-_elements_for_a_new_eu_strategy_on_china.pdf. European External Action Service (2020) For a united, resilient and sovereign Europe (with Thierry Breton). Retrieved from: https://www.eeas.europa.eu/eeas/united-resilient-and-sovere ign-europe-thierry-breton_en

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European External Action Service (2022a) EU Statement regarding Russia’s unprovoked and unjustified military aggression against Ukraine. Retrieved from: https://www.eeas.europa.eu/ eeas/eu-statement-regarding-russias-unprovoked-and-unjustified-military-aggression-againstukraine_en European External Action Service (2022b) Europe in the Interregnum: our geopolitical awakening after Ukraine. Retrieved from: https://www.eeas.europa.eu/eeas/europe-interregnum-ourgeopolitical-awakening-after-ukraine_en European Parliament (2020) EU-China trade and investment relations in challenging times. Retrieved from: https://www.europarl.europa.eu/RegData/etudes/STUD/2020/603492/EXPO_ STU(2020)603492_EN.pdf European Parliament (2021) A new EU-China strategy. Retrieved from: https://www.europarl.eur opa.eu/doceo/document/TA-9-2021-0382_EN.html Human Rights Watch (2020) China. Events of 2020. Retrieved from: https://www.hrw.org/worldreport/2021/country-chapters/china-and-tibet Makowska M (2022) China’s Digital Authoritarianism vs. EU Technological Sovereignty: The Impact on Central and Eastern Europe, Council on Foreign Relations. Retrieved from https:// www.cfr.org/blog/chinas-digital-authoritarianism-vs-eu-technological-sovereignty-impact-cen tral-and-eastern Ministry of Foreign Affairs of the People’s Republic of China (2022). Foreign Ministry Spokesperson Wang Wenbin’s Regular Press Conference on September 27, 2022. Retrieved from: https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2511_665403/202 209/t20220927_10772627.html Patey L (2021) The myths and realities of China’s economic coercion. Danish Institute for International Studies. Retrieved from https://www.diis.dk/en/research/the-myths-and-realities-of-chi nas-economic-coercion Stec G (2022) EU-China summits: From cooperation to damage control. MERICS. Retrieved from: https://merics.org/en/short-analysis/eu-china-summits-cooperation-damage-control Sun Y (2020) China and Africa’s debt: Yes to relief, no to blanket forgiveness. Brookings Institute. Retrieved from: https://www.brookings.edu/blog/africa-in-focus/2020/04/20/china-andafricas-debt-yes-to-relief-no-to-blanket-forgiveness/ The Economist Intelligence Unit (2021) Economic Power Play: Assessing China’s Trade Policies. Retrieved from: https://impact.economist.com/perspectives/sites/default/files/economic_ power_play_assessing_chinas_trade_policies_0608.pdf Wakabayashi, D., Che, Ch., Fu, C. (2022). In Xi’s China, the Business of Business is StateControlled. Retrieved from: https://www.nytimes.com/2022/10/17/business/china-xi-jinpingbusiness-economy.html

Chapter 10

Paradigm Shift of the EU’s Preference of Trade Relations: The Case of the EU-South Korea FTA Yun-Chen Lai

Abstract The EU’s trade preference plays an important role in shaping the world economy, as the EU is a highly formidable trade power worldwide. In shaping the global trade environment, two competing mainstream strategies exist: multilateralism led by WTO negotiation; and bilateralism, in which actors settle trade-related issues between themselves. Due to the EU’s significance in global trade, the EU’s choices and actions will have a great influence on the success of these two forces. This study explores the paradigm shift of the EU’s preference on a global trade arrangement in the mid-2000s. The EU-South Korea FTA is taken as an example, because the EU-South Korea FTA is considered to be the EU’s first new-generation free trade agreement. The EU asserts that its changing attitude towards bilateralism will not endanger the multilateralism that it has long supported. It also states that bilateralism constitutes a supporter of multilateralism. The EU’s paradigm shift of trade preference would have an enormous influence on global trade. Whether this shift will contribute to multilateralism, as it states, or whether the change will be deleterious to multilateralism, remains to be determined. Keywords EU’s trade preference · Bilateralism · Multilateralism · EU-South Korea FTA · New-generation FTA

1 Introduction The EU is a formidable trade power globally (Meunier and Nicolaïdis 2005). Due to its unique nature, i.e., its lack of military power, the EU has shaped its global role through its economic power, mainly trade power, and established itself as a superpower in trade. Indeed, the EU has been highly active in trade. For example, the EU has more trade agreements than any other country, as it has approximately 50 trade agreements in force or provisionally applied (Malmström 2022). A trade Y.-C. Lai (B) Department of Public Administration, National Dong Hwa University, Hualien, Taiwan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_10

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agreement with the EU means that the actor will enjoy a single pass to a unified market with one set of rules for 27 countries and 450 million consumers. This makes trade agreements with the EU highly attractive for international actors. Simultaneously, the EU can pursue its own interests and shape the international order by trade. As a superpower in trade with its enormous internal market, the EU possesses enormous bargaining power, and thus is pivotal in the world economy (Malmström 2022). Therefore, the EU’s trade preferences play a crucial role in shaping the world economy. There are competing two trends regarding shaping the global trading environment: multilateralism led by WTO negotiations; and bilateralism, in which actors settle trade-related issues between themselves. The EU’s choices and actions concerning these two trends would have a great influence on the success or failure of the trends. The world economy has been led by the GATT/WTO regime since the end of World War II. After the conclusion of the Cold War, the successor of GATT, the World Trade Organization (WTO), has played a critical role in regulating global trade and settling international disputes. The WTO deals with global rules of trade to ensure that trade flows as smoothly, predictably, and freely as possible. The GATT/ WTO regime is a multilateral arrangement that aims to pool all international trade actors together. To achieve this goal, support from the governments of major trade is indispensable. Indeed, the support of a superpower in trade, the EU, is key to the successful operation of the multilateral regime. However, due to the ineffectiveness of the WTO in recent years, it seems that the EU is adjusting its stance on trade arrangements to take bilateralism into consideration. This would change the global trading trend to a large extent. This study explores the paradigm shift of the EU’s preference on global trade arrangements in the mid-2000s. This study takes the EU-South Korea FTA as an example, as the EU-South Korea FTA is considered as the EU’s first new-generation free trade agreement (FTA). In other words, this research investigates the paradigm shift of the EU’s trade preference in the 2000s by taking the EU-South Korea FTA as the case study, and elucidates the significance of the EU’s paradigm shift on global trade arrangements.

2 The EU’s Trade Preference The EU is a formidable power in trade. For the EU, trade is not only a tool through which it obtains economic benefits, but also the lever that increases its influence in world politics. Therefore, for political purposes, the EU has developed various relationships with different international actors according to its definitions of the actors. According to the classification of Wróbel, there are several types of relationships that the EU has constructed with its trading partners since the founding of the European Economic Communities. The different types of relationships have various natures. In other words, the EU has developed various types of agreements to regulate different

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relations with actors who play various roles in the EU. The purpose and the scope of preferences granted in the various types of agreements are distinct. The first type of relationship aims to establish a custom union between the EU and its partners by preferential agreements. These agreements not only abolish trade barriers between the participants, but also set up a common external tariff for products entering the area. The second type of agreement builds a free trade area, which involves the removal of trade barriers between parties to the agreement. The third type provides unilateral trade preferences to its trading partners. Although the condition is decided unilaterally by the EU, it is also considered to be bilateral, as the connection is between the EU and its partner bilaterally. The fourth type is to regulate the relationship under WTO agreements. Specifically, the EU does not provide special preferences to the trading partners; the trading partners only enjoy the normal most favored nation treatment (MFN) that has been achieved in the WTO forum. The final type of relationship is that the partners are treated less favorably in trade relations than the countries with the MFN clause of the WTO, as the trading targets are neither WTO members nor possess any trading agreements with the EU (Wróbel 2013, pp. 15–16). The first three types of relations are constructed bilaterally between the EU and its trading partner, the third one reflects the spirit of multilateralism, and the last one, in a strict sense, refers to no relationship. While the five types of relationships co-exist, it is the case that the EU would have its own preference on the specific type used. In other words, in a certain period of time, the EU may tend to construct a particular relationship with its trading partners, while reserving usage of other types when desired or necessary. The EU has developed its trade policies long based on the political conception that an open system of world trade would be beneficial to construct a competitive European economy. As a result, the EU has preferred to pursue multilateralism in world trade, while the framework of bilateral and regional trade agreements have been considered to be supplementary in support of multilateral rules (McGuire and Lindeque 2010; Wróbel 2013, p. 15). Essentially, the EU has preferred a common commercial policy based on the concept of multilateralism. As a consequence, traditionally, the importance of bilateral free trade agreements (FTAs) was relatively low in the EU’s foreign trade strategy. The EU only used FTAs as a temporary measure for EU membership candidates or as a special condition to provide preferential treatment to countries which had historical linkages with the EU, i.e., African, Caribbean, and Pacific Group States (ACP states) (Hwang and Kim 2014, p. 87). However, in the EU’s trade strategy in the mid-2000s, i.e., the Global Trade Strategy published in 2006, the importance of FTAs is highly emphasized. This marked a clear shift of the EU’s trade preference. In this section, the EU’s trade preference in different time periods is discussed. (1) The EU’s Preference Regarding Multilateralism: From the Mid-1990s to the Mid-2000s Due to its inherent multilateral design, the EU tends to solve disputes and construct connections of national states through multilateral approaches. The EU expects

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that common standards and the rule of law are solutions to solve the dilemma of anarchy in international society. Consequently, the EU has long been a proponent of multilateralism. In the realm of trade, as a successful example of regional integration, the EU was an early promoter of regional trade agreements (RTAs). After the conclusion of the Uruguay Round of multilateral trade negotiations in 1994 and the establishment of the WTO in 1995, the EU has been a strong supporter of the global multilateral trade regime (Acar and Tekçe 2008, p. 274). As an advocate of multilateralism, the EU anticipated that a world trade system based on common rules and multilateral liberalization would serve its interests. For this reason, the EU strongly supports the GATT/WTO regime, which established a world trading system based on common rules and produced multilateral liberalization. Therefore, the EU expressed support for the completion of a comprehensive multilateral round of the WTO (Acar and Tekçe 2008, p. 274). To support the WTO and in the pursuit of multilateralism, the EU suspended its bilateral trade discussions with trading partners for years (Tekçe and Acar 2015, p. 114). From the late 1990s to the mid-2000s, the EU’s trade policy focused primarily on multilateralism, as embraced by the Doha Development Agenda (Acar and Tekçe 2008, p. 272). The EU’s support for multilateralism was also reinforced in the Prodi Commission (Meunier 2007). The President of the EU, Romano Prodi, appointed Pascal Lamy, a strict advocate of multilateralism and who subsequently served in the position of the Secretariat of the WTO, as the European Commissioner for Trade in 1999. According to Lamy, the EU considered traditional Free Trade Areas as unlikely to be of great benefit, particularly for developing countries. For this reason, the EU favored the model of deep integration, whereby market access liberalization is underpinned by new and better rules. Lamy characterized this policy as “the EU would take a multilateralism first policy” and “the EU pursues all existing mandates for regional negotiations with vigor and fairness, but not to begin any new negotiations” (Lamy 2002, p. 1401). In essence, the EU froze the initiation of new bilateral or regional trade agreements, even though the EU continued with those agreements that were already initiated, in order to focus on shaping the new multilateral agenda (Garcia-Duran and Millet 2015, p. 1). The EU’s preference for multilateralism originates from the EU’s pursuit of deep integration. This “deep” integration means that the length and scope of integration are expanded (Robertson 2021). Deep integration “moves beyond the removal of border barriers (Laurence 1996, p. 8)” and focuses on removing restrictions to trade that hinder investments across borders (Claar and Nölke 2013, p. 275). As a result, deep integration holds that trade agreements do not only involve rules on tariffs and conventional non-tariff trade restrictions, but also the handling of other issues related to the trading environment, such as competition policies, investor rights, product standards, public procurement, intellectual property rights (IPRs), etc. The pursuit of deep integration in a wide scope and including a variety of trading products, however, makes negotiations complicated and time-consuming. Indeed, if the EU wants to achieve deep integration in global trade, bilateral discussions on FTAs will be both intricate and time-intensive (Lamy 2002, pp. 1412–1413). In

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contrast, as the WTO is characterized by the participation of all international trading actors multilaterally, integration through the WTO would be relatively more efficient. As a consequence, the EU determined that the completion of trade negotiations by the multilateral WTO would be optimal in order to pursue its interests, achieve deep integration, and establish a global trading system based on common standards and the rule of law. Therefore, after the multilateral platform, the EU expressed strong support of the multilateral organization of the WTO, as multilateral negotiation would constitute a much more efficient approach to handle the deep integration issues with which the EU was concerned, with all international trading actors simultaneously. (2) The EU’s Preference Concerning Bilateralism: Prior to the Mid-1990s and After the Mid-2000s The bilateral relationship of the EU and its trading partners is based on preferential agreements. Although the EU preferred multilateralism due to its multilateral nature and the preference of common international standards which could be more efficiently constructed by an international organization, the EU has also constructed some bilateral agreements when necessary. According to Wróbel’s categorization, the EU has developed a well-developed system of trade preference that enables various types of trade relationships with different international trading actors. When developing bilateral trade relations, the EU categorizes preferential trade agreements into two types. The first pursue the mutual granting of certain concessions with the trading partners in the form of tariff reductions and removing trade barriers, and the second is that the EU unilaterally grants preferences to its partners (Wróbel 2013, p. 15). In the 1970s, the EU established several preferential trade agreements with different countries (Acar and Tekçe 2008, p. 274), mainly with countries in Africa, the Caribbean, and the Pacific region (hereafter ACP countries). These agreements were characterized as the latter of Wróbel’s types, which is that the EU provided unilateral preference. The special relations between European Community (EC) member states and ACP countries date back to European imperial control of the areas and prior to it. In response to member states’ demand to maintain special association with their former colonies, the Treaty of Rome of the European Community allowed its member states to build formalized linkages with former colonies in the post-colonial era. As a result, the EC provided both aid and trade access for ACP countries to the EC market. This non-reciprocal trade condition, which provided for the developing and the least developed countries of the ACP group, demonstrated that the EC would play a key role in international support for the development and stability of the new states (Brown 2000, p. 372), which would maintain the importance and influence of Europe in global politics in the post-colonial era. In other words, FTAs with ACP countries were more akin to a special condition in which the EC granted unilateral preferences for poor trading partners for political purposes (Wróbel 2013), instead of the pursuit of bilateral concessions made to obtain economic benefits for Europe. The unilateral tariff preferences granted to the ACP countries have long been criticized by other developing and least developed countries which were not members of

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the ACP group, and thus could not benefit from the special preferences (Wróbel 2013, p. 16). To support the multilateral spirit of the WTO after the WTO’s establishment, the EU changed its relations with the ACP countries by constructing Economic Partnership Agreements (EPAs) to ensure that the EU’s relations with the ACP countries would comply with the rules of the WTO (Desta 2006). Another type of bilateral relationship that the EU constructed with its trading partners was Partnership and Cooperation Agreements (PCA) with countries, such as Russia, Ukraine, Moldova, Kazakhstan, Armenia, Georgia, Kyrgyzstan, Uzbekistan, Azerbaijan, and Tajikistan; at that time, these countries were not yet WTO members. The EU constructed such agreements to regulate its relationship with non-WTO members in order to introduce WTO rules to non-WTO members. It is worth noting that, after a trading partner entered the WTO, those agreements were replaced by the existing multilateral rules in force within the organization. Such trade agreements were also motivated by the political purpose of supporting the WTO. As shown above, it can be seen that for political purposes, the EU-style FTAs could be beneficial for its trading partners. In addition, the bilateral trade agreements are also highly politically driven, including promotion of the multilateralism of the WTO. As the EU’s trade agreements are politically driven, trade negotiations between the EU and its trading partners could be flexible on a case by case basis when politically necessary (Hwang and Kim 2014, p. 86). The FTAs mentioned above were mainly concluded with neighboring countries or former colonies prior to the mid-1990s. The essential motives behind those FTAs were foreign policy or the enlargement of the EC. As a formidable trade power, the EU uses trade as leverage to increase and implement its power on the global stage. Therefore, the EU’s FTAs are characterized as having political purposes. In addition to the preferential trade agreements with special trading partners mentioned above, the EU seldom discusses FTAs with other international actors, because the EU has long preferred multilateralism over bilateralism. Indeed, the EU is considered more resistant to the trend of FTAs compared to that of other global trade powers, such as the United States (Tekçe and Acar 2015, p. 116). However, beginning in the mid-2000s, the EU changed its trade strategy, and began to adopt an active posture in its trade policy, in order to augment its economic power (Hwang and Kim 2014, p. 87). In 2006, the EU decided to abandon Lamy’s previous suspension on negotiating new FTAs. Since then, the EU initiated numerous bilateral trade negotiations (Antimiani and Salvatici 2015, p. 1). The EU announced the “Global Europe” strategy advocated by Commissioner Peter Mandelson (2004–2008) in 2006, “Trade, Growth and World Affairs” put forward by Commissioner Karel De Gucht (2010–2014) in 2010, and the “Trade for All” trade strategy promoted by Cecilia Malmström in 2015. The new trade direction, as revealed by the above-mentioned strategies, recognized the need for the EU to sign bilateral preferential agreements with key partners (Woolcock 2016a, b). As a consequence, some scholars have concluded that the EU’s preference for multilateralism began to end in 2006 (da Conceição-Heldt 2013). The EU announced that it would devote itself to negotiating deep bilateral or regional agreements that extend beyond the simple elimination of tariffs, to include

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non-tariff barriers, such as those related to standards, certifications and testing, intellectual property rights (IPRs), and regulatory transparency (Cherry 2018, p. 23; European Commission 2006; Guerin et al. 2008). The evolution of the scope of FTAs derived from the increase of trade items and the development of new trade barriers, which were a consequence of the ever-competitive world of globalization. In terms of the increase of trade products, current trade does not only comprise the exchange of goods, but also includes the exchange of services. Consequently, many of the trade agreements set ambitious targets regarding the liberalization of trade in both goods and services. Currently, almost one-third of PTAs include commitments regarding trade liberalization in services (Wróbel 2013, p. 14). Concerning the development of new trade barriers, FTAs initially focused on increasing access to the market through reducing customs tariffs. However, to create favorable conditions and provide opportunities for domestic firms in the ever-competitive international market, trade agreements not only focused on customs and tariffs, but also on nontariff barriers that obstruct market access (Wróbel 2013, p. 13). Therefore, transparency, standards, certifications and tests, and IPRs have become central issues in the negotiation of the new generation of trade agreements, constituting the so-called “WTO+ ” and “WTO-X” agreements. WTO + issues involve progress in market access for both goods and services with provisions not only for discriminatory measures, i.e., tariffs of goods, but also for regulatory convergence in technical, sanitary, and phytosanitary areas. WTO-X issues, on the other hand, involve progress in rule convergence. In the new trade strategy, the EU has included WTO-X items in its preferential agreements negotiations with its trading partners in recent years (Garcia-Duran and Millet, 2015, p. 5). Therefore, recent EU preferential trade agreements with third countries are considered as WTO + and WTO-X agreements, as the scope of the agreement has extended beyond the current purview of the WTO and under the newest discussion of the Doha Round (Garcia-Duran and Millet, 2015, p. 5; Horn et al. 2010; Woolcock 2007, 2014). From this perspective, even though the negotiations on new FTAs, such as EU-US and EU-Japan, are separate processes from the WTO, they could be complementary to completion since they aim to reduce transaction costs inherent to the “spaghetti bowls” (Garcia-Duran and Millet 2015, p. 5). In this way, discussion and consensus on the WTO + and WTO issues enabling trade liberalization progress that could not be reversed contribute to the multilateralism of trade. In other words, they assist the chaotic “spaghetti bowls” resulting from various FTAs to transform into “lasagna dishes” that construct the organized international trade framework (Estevadeordal et al. 2013). The EU’s new trade strategy started with FTA negotiations with countries, including Chile, Singapore, Australia, Morocco, and South Korea. The EU has eliminated its expectations regarding multilateralism and turned its focus of trade strategy towards bilateralism. Indeed, Trade Commissioner Pascal Lamy stated that “our arguments in favor of a better regulated multilateral world has been less effective” in the Trade Policy Assessment document that summarizes his five-year term (European Commission 2004).

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Compared to the preferential trade agreement that existed prior to the 1990s for political purposes, the EU has used bilateral trade agreements as an instrument to achieve its economic goals in recent years. The economic goals of the new FTAs are primarily to use FTAs as a means of opening new markets or improving the conditions of existing markets for its enterprises (Wróbel 2013, p. 7). In addition to economic considerations, another characteristic of the new type of trade agreement is that it also creates conditions for deeper cooperation and alliances for the EU with its trading partners. Indeed, such agreements allow Europe to project its values and standards in international society. For example, issues of standards setting, transparency concerns, as well as testing and certification mentioned in the new type of trade agreement, could be linked to the environment, sustainable development, labor rights, and human rights to a certain extent. As a consequence, the EU trade agreements quite often include a chapter that upholds international conventions about the above-mentioned values and standards (Malmström 2022). In aggregate, the EU has shifted its trade preference to some degree. Firstly, it focuses on usage of the bilateral agreement. Previous bilateral trade agreements, i.e., prior to the 1990s, clearly possess political elements for foreign policy or security needs; whereas, bilateral FTAs after the mid-2000s focus much more on economic benefits. Secondly, to achieve deep integration of the ever-competitive world of globalization with various types of trade barriers, the EU chose the multilateral WTO forum as leverage in terms of efficiency; however, after the deadlock of the Doha Round, the EU desired effectiveness markedly more than efficiency. Therefore, the EU turned to bilateralism, as the EU could use its enormous market as a highly attractive entity to persuade its trading partners and pursue deep integration through it.

3 The EU’s New Trade Strategy: Global Europe in 2006 Since the paradigm shift of the EU’s trade strategy, the EU has published several policy papers that address its new position on trade. Among them, the document “Global Europe: Competing in the World. A Contribution to the EU’s Growth and Jobs Strategy” in 2006 is an especially important one, as it marks the shift of the EU’s trade preference, and is considered to constitute the watershed between multilateralism and bilateralism. In this document, the EU stated its intention to foster open markets through the pursuit of a “new generation” of bilateral and regional trade agreements. The EU expected that the bilateral trade agreements would boost trade and investment, which would contribute to economic growth and job creation within the EU by acting as a “powerful stimulus to competition, innovation and productivity growth” (Cherry 2012, p. 252). The motivation of the Global Europe Strategy was to minimize the negative impact of FTAs signed by trade partners and third countries, such as trade diversion effects in favor of other trading powers after the trade agreement between the trade partner and

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the third country. Moreover, as European exports were not sufficiently successful in some of the most rapidly growing economies in the world, the EU also wanted to forge strategic links with countries that were already experiencing high rates of growth. The EU expected that the linkage with the fast-growing countries could be more efficiently constructed by shifting its trade policy from sole reliance on multilateral trade negotiations to proposing a new generation of bilateral and regional FTAs (Tekçe and Acar 2015, p. 117). Thirdly, it anticipated that the new strategy could ensure the implementation of international commercial regulations, such as those pertaining to the protection of IPRs (Woolcock 2007, p. 4). According to the European Commission, there are several key economic criteria that are used when choosing partners with which to negotiate new FTAs. Firstly, the actor should possess sufficient market potential in terms of current and future market size. Secondly, the level of protection against EU export interests in that market is assessed. Thirdly, the EU considers the likelihood that European firms might be shut out or placed at a disadvantage by bilateral agreements already being negotiated or considered by other EU’s competitors. From this perspective, ASEAN, South Korea, and Mercosur (comprising Argentina, Brazil, Paraguay, Uruguay, and Venezuela) were defined by the EU as FTA partners with priority, while India, Russia, and the Gulf Cooperation Council were defined as countries of direct interest (Tekçe and Acar 2015, p. 117). The Global Europe document stressed that the new trade policy strategy would primarily focus on the need to identify and remove both tariff and non-tariff barriers (NTBs) to market access for goods and services that are important for European exporters. The Commission also wanted to solve behind-the-border issues with FTAs, especially issues of investment protection, competition policy, and transparency in government procurement. Furthermore, the strategy report of the new trade policy revealed an agenda that aimed to influence the forces driving change, seize the opportunities presented by globalization, and manage the risks and challenges posed by the emerging economies (Acar and Tekçe 2008, p. 275). In essence, the EU’s new FTA strategy pursued the highest possible degree of liberalization regarding trade, investment, and services. As a result, all forms that constituted trade barriers, including bans on export taxes and quantitative import restrictions, are all in the scope of the strategy. Specifically, the main targets included regulatory convergence, non-tariff barriers, and stronger provisions on IPRs and competition. The new trade relations comprised incorporating new cooperative provisions in areas related to labor standards and environmental protection (Acar and Tekçe 2008, p. 276). The policy paper of Global Europe in 2006 marks the paradigm shift of the EU’s trade strategy. While offering assurances that the EU would continue to devote itself to the multilateral process led by the WTO and the conclusion of the Doha Round, the EU announced its intention to achieve maximum benefits by negotiating “deep” bilateral or regional agreements that handled issues beyond those of traditional trade, e.g., the elimination of tariffs. The new type of FTAs also included non-tariff barriers, such as those relating to standards, certifications and testing, IPRs, and regulatory transparency (Barfield 2007; Rollo 2008).

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In this document, the EU revealed a new trade policy strategy in which the EU would pursue bilateral FTAs with major economies in order to secure market access and competitiveness of European companies in key markets (Tekçe and Acar 2015, p. 116). The EU summarized the core of the new trade strategy as “rejection of protectionism at home, accompanied by activism in creating open markets and fair conditions for trade abroad” (European Commission 2006). Significant shifts of the Commission’s position are also obvious from the 2006 European Commission’s Communication on common trade policy (Antimiani and Salvatici 2015, p. 4). The new position shifted the focus to bilateral and regional trade agreements; whereas, it had previously been on multilateral rule-making (Evenett 2006). Indeed, the Global Europe document in 2006 identified FTAs as a primary approach. It is worth mentioning that this was considered as a venture, as bilateral or preferential trade agreements are often questioned unless they are part of a broader political strategy, such as an initial step towards access to the EU (Erixon and LeeMakiyama 2010, p. 1). Overall, since the mid-2000s, the EU has changed its trade strategy towards emphasizing bilateral trade agreements as a supplement to multilateral construction. After that, the EU devoted itself to developing bilateral FTAs with trading partners other than the actors mentioned above. Consequently, two differences of the EU’s new trade policy emerged compared to the previous trade policy. The first difference is that the new trade policy of the EU focuses on economic priorities by considering FTAs according to purely economic criteria, such as the market potential of the partner and existing tariffs and non-tariff barriers to EU exports (Acar and Tekçe 2008, p. 280). Since the new policy focused on economic considerations, a second difference appears, i.e., the target of the EU has changed greatly. Previously, the EC/ EU constructed bilateral relations with former colonies and neighbors, which are mostly members of the former Soviet Union. Those partners’ economic condition lagged far behind that of the EC/EU, and the economic connections were considered as the North–South linkage. Currently, as the EU views economic benefits as a primary concern, the EU focuses on developing relations with not only the southern states, but also with emerging economies, such as Chile, South Africa, India, Brazil, China, and other northern states, such as the U.S., Japan, Singapore, South Korea, and others (Garcia-Duran and Millet 2015, p. 5).

4 Case Study: Build-Up of the EU-South Korea FTA The EU-South Korea FTA was the first agreement for which negotiation was completed according to the strategy specified in the 2006 Global Europe Communication of the European Commission. In other words, it is the EU’s first agreement concluded in the new framework of deep and comprehensive bilateralism, in which it announced the lifting of its self-imposed suspension of bilateral agreements, which aimed to promote multilateralism in the late 1990s (Lakatos and Nilsson 2017, pp. 181–182). In addition, it is the first “next-generation” FTA that addresses trade

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concerns beyond tariffs, mainly non-tariff barriers (NTBs), as trade between South Korea and the EU was greatly obstructed by NTBs (Erixon and Lee-Makiyama 2010, p. 3). According to the European Commission, the EU sought to focus its trade policy on improving the EU’s competitiveness in the world economy by establishing FTAs with key emerging markets (C. M. Brown 2011, p. 298). The FTA negotiations thus provided Europe with an opportunity to address barriers to trade and investment in an important market that possessed potential growth, but where EU enterprises faced strong protectionism and disadvantages compared to its competitors, as trade negotiations between actors and EU’s competitors were in process at that time (Cherry 2018, p. 20). As a result, the FTA reflected the EU’s new-defined interests, and the EU’s real strategical intentions of the 2006 strategy could be found through it. Therefore, this section takes the EU-South Korea FTA as an example to examine the paradigm shift of the EU’s trade strategy that occurred in the mid-2000s. (1) Motivation of the EU-South Korea FTA In the 2006 policy paper of Global Europe, the EU defined the criteria of so-called important trading partners with which the EU wanted to negotiate. According to these criteria, South Korea was an obvious priority country for the new strategy. Firstly, the market size of South Korea was important to the EU. South Korea is one of the EU’s ten-largest trading partners (Wróbel 2013, p. 17). According to the Centre for European Policy Studies and the South Korea Institute for International and Economic Policy, South Korea ranked as the EU’s eighth most important trading partner and the EU ranked as South Korea’s fourth most important trading partner (Cherry 2012, p. 23; Edwards et al. 2007; Guerin et al. 2008). This was in accordance with the fast-growing Asian economies, which offered significant growth rates and thus high potential for exports (C. M. Brown 2011, p. 298). As a result, the EU recognized that the market in South Korea would offer significant export opportunities. Secondly, in terms of the level of protection, the EU recognized that the level of protection was normally high in Asia economies (C. M. Brown, 2011, p. 298). According to the European Chamber of Commerce in South Korea’s Trade Issues and Recommendations, protectionism in the Korean market faced by European investors not only comprised tariffs and duties, but was also replete with non-tariff barriers and substantial social, cultural, and institutional challenges. European exporters of goods and services faced major obstacles to access the Korean market, including an average of 6.8% tariffs for industrial goods, and a 48.3% tariff for agriculture goods. Moreover, there are also regulatory obstacles to trade (C. M. Brown 2011, p. 298). Thirdly, regarding the actor’s relationship with EU’s competitors, South Korea has been very active in negotiating FTAs with competitors of the EU. South Korea had negotiated a trade agreement with the U.S. at that time and signed an FTA with the U.S. in 2007. These acts stimulated the EU to commence talks with South Korea in order to prevent lagging behind the U.S. (Cherry 2012, p. 253). As a result of systematic economic growth, the increasing economic importance of South Korea in the world economy, and the growing trade turnover in relations with the EU, the

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EU began negotiations with South Korea in 2007, and reached an agreement in the field of the free movement of goods, services, and entrepreneurship in 2009 (Wróbel 2013, p. 17). The EU intended to further strengthen its close economic relationship as a part of, and in a manner coherent with, overall relations with South Korea by the FTA. The EU was convinced that the agreement would create a new climate for the development of trade and investment with South Korea, and would establish an expanded and secure market for goods and services and an investment environment which is stable and predictable, thus enhancing the competitiveness of its firms in the global market (Wróbel 2013, p. 7). The EU’s negotiation with South Korea also reveals the EU’s focus on Asia, which was concerned with the growth in trade flows between Europe and Asia and the EU’s desire to strengthen European links with the region (Cherry 2018, p. 23; European Commission 2006, p. 11; Gavin and Sindzingre 2009, p. 9). (2) Focus of the EU-South Korea FTA The EU-South Korea FTA aims to pursue a “deep” or “broadband” FTA with South Korea. The EU wanted to address beyond-the-border provisions for the removal of conventional tariff barriers, address a broad range of non-tariff barriers that obstruct business activities, and act as a deterrent to trade and investment (Cherry 2012, p. 248). The removal of NTBs is the focus of the EU-South Korea FTA. As the average tariff is only 12.2% in South Korea and 5.6% in the EU, the reduction in tariffs was considered “an orange almost squeezed dry” according to Catherine Ashton, the EU Trade Commissioner from 2008 to 2009 (Erixon and Lee-Makiyama, 2010, p. 3). For this reason, the trade negotiation between the EU and South Korea focused on NTBs. The EU addressed several key non-tariff barriers, including those in the automobile and financial services sectors, and those related to standards, testing, certifications, and data management. In other words, in addition to the products themselves, problems during transactions were also addressed. Mechanisms for dialogue and problemsolving were established to solve problems during transactions (Cherry 2018, p. 33). For instance, for testing and certifications, EU firms could use testing centers in Europe rather than needing to ship their products to South Korea for testing, as they had done in the past (Cherry 2018, p. 29). This would decrease so-called transaction costs and bring substantial benefits to firms. In general, the FTA eliminated quantitative import restrictions and all forms of duties, taxes, charges, and restrictions on exports, and included provisions on issues ranging from service and investments, competition and government procurement, to intellectual property rights (IPRs) (Lakatos and Nilsson 2017, p. 182). The EU-South Korea trade agreement is divided into 15 chapters with three foci, including trade in goods, services and investments, and rules associated with trade. Chapters 2–6 regulate issues related to trade in goods, including market access for goods, technical barriers to trade, trade remedies, sanitary and phytosanitary measures, and customs and trade facilitation. Rules related to trade are dealt with in Chaps. 8–13, including issues of capital movement, public procurement, intellectual

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property, competition, transparency, trade, and sustainable development. Service and investment are discussed in Chap. 7 (C. M. Brown, 2011, p. 299). Chapter 2 of the EU-South Korea agreement contains rules on NTBs. NTBs have been estimated to have the same protection level as a tariff, i.e., at 76% in South Korea and 46% in the EU (Erixon and Lee-Makiyama 2010, p. 3). The NTB provisions in the EU-South Korea FTA focus on automobiles, electronics, pharmaceutical and medical equipment, which reflect the export interests of the EU. The EU required South Korea to comply with international standards. As the EU regulations already complied with international standards, the trade agreement decreased NTBs in South Korea to a great extent. The focus on the NTBs is a major innovation compared to previous FTAs. It is the first time that an EU trade agreement explicitly addressed NTBs in specific sectors. The reason behind the focus on the NTBs is that, even if tariff barriers are substantially removed, market access would remain obstructed by other barriers. In other words, real market access also depended on relevant regulatory systems and the extent to which import products can meet the requirements of the regulatory system (Brown 2011, p. 301). Indeed, NTBs are the major obstacle that obstructed the entry of the EU’s products to the Korean market. Automobiles are a major target of the EU in the EU-South Korea FTA, as the automobile market in South Korea is highly protected. For example, in the last five years of the FTA, Italy was not able to export a single car to South Korea (Erixon and Lee-Makiyama 2010, p. 3). The automobile market in South Korea was protected by non-tariff barriers, and the major NTBs on automobiles were safety and environmental standards. As a result, the EU focused the negotiations on standardization with the market as the orientation of the procedural regulations (Hwang and Kim 2014, pp. 104–105). The safety standards agreed upon in the EU-South Korea FTA are majorly regulated in Article 3 of the EU-South Korea FTA, in which it is written that the Parties shall harmonize the regulations with the corresponding UN ECE regulations or Global Technical Regulations within a period of five years of entry into force of the agreement. To achieve this, South Korea recognized six new safety standard items in addition to the existing 26 items as having equal importance, and needed to undergo a harmonization process for the remaining 29 items within five years of the FTA coming into effect. Regarding the EU, due to the EU standards were mostly in compliance with the UNECE, the EU only had to harmonize one item after the effectuation of the FTA (Hwang and Kim 2014, p. 106). Another focus of the agreement is the intellectual property rights (IPRs) issue. Generally, the period of protection for copyrights in WTO trade-related property rights is 50 years. The EU-South Korea FTA extends this protection to 70 years after the death of the author/artist, and other neighboring copyright rights inherit the contents of previous international agreements related to IPRs (Hwang and Kim 2014, pp. 111–112). As the period of protection for copyrights in the EU-South Korea FTA is longer than that in the WTO, it is shown that the achievement of the bilateral EU-South Korea FTA exceeded the consensus of the multilateral WTO.

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As a “new generation” agreement, the agreement also became a supporter of the new trading issue, in addition to issues directly related to the trade items. The EU and South Korea reaffirmed their commitment to sustainable development related to trade, such as sustainable development, poverty reduction, full and productive employment and decent work for all, as well as protection and preservation of the environment and natural resources (Wróbel 2013, p. 7). (3) Evaluating the EU-South Korea FTA The EU-South Korea agreement is a reflection of the EU’s new FTA practice. It sets a high standard to demonstrate to the world what the EU will seek in its FTAs in the future under the so-called new trade strategy of Global Europe. The agreement pays special attention to behind-the-border regulatory issues. This is evident from the special sections of the agreement on the rules and NTBs in the sectors of trade in goods and services, as well as its attention to sustainable development issues. Therefore, the EU-South Korea FTA is considered as a forerunner of an increasing trend towards focusing on regulatory issues and market access in current trade negotiations (Brown 2011, p. 308). Through the EU-South Korea FTA, the EU safeguards and improves access to the Korean market by eliminating existing barriers, monitoring the appearance of new ones, and increasing export opportunities for its firms. For exports including services, food and agricultural products, the EU uses its size as a highly attractive factor to receive better market access in the agreements. Concerning the automobile industry, firms will benefit from leveling the playing field, as the industry has long experienced difficulties in gaining access to the market in South Korea (Erixon and Lee-Makiyama 2010, p. 3). The EU-South Korea FTA also prevents the EU from facing a competitive disadvantage with other trading competitors which are already actively discussing cooperation with South Korea. The FTA dismantles non-tariff barriers to trade, including technical standards and certification, and increases transparency and predictability of regulatory issues, such as IPR protection. Liberalization of investment in the manufacturing and service sectors, including telecommunications, satellite broadcasting, express delivery services and legal services, is also achieved in the FTA (Cherry 2012, p. 253). It also provides an opportunity for the EU to strengthen its international influence and enhance its position in South Korea and in Asia overall (Cherry 2018, p. 24). In general, the EU is a winner in the agreement, as EU exporters have more to gain in terms of increasing predictability and lowering the barriers to trading in destination markets (Lakatos and Nilsson 2017, p. 179). Taking the automobile industry as an example, after the implementation of the agreement, a number of high-priced luxury automobiles were able to be shipped from the EU to South Korea. Furthermore, prevalent attitudes and perceptions of imported luxury goods changed to a large extent after the implementation of the agreement. Consumers in South Korea have increased their acceptance of imported luxury goods. In fact, the expectation of the potential market has been realized, as South Korea has become one of JaguarLandover’s fastest-growing markets globally and Mercedes Benz has experienced rapidly increasing sales under the FTA. Other luxury products, such as European

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wine and champagne, are also highly accepted in South Korea. Moreover, a variety of products, such as various brands of beer and cheese, have been introduced in the Korean market and bring benefits to EU firms (Cherry 2018, p. 27). The ambition of the agreement extends substantially beyond the elimination of tariffs on goods and restrictions on the provision of services regulated by Article XXIV GATT and Article V GATS. The agreement intends to reach beyond border measures and change the regulatory environment of contracting parties (Brown, 2011, p. 300). In terms of the automobile industry, for example, the EU is raising the standards of its trading partner, South Korea, to global standards with the consensus with South Korea on automobile safety standards (Hwang and Kim 2014, p. 107).

5 Conclusion The EU had preferred multilateralism due to its inherent nature. As a result, the EU was the strongest supporter of the WTO in the 1990s. This was evident from the EU’s suspension of the initiation of new bilateral dialogues with its trading partners at that time. However, after the deadlock of the Doha Round and the fact that it seemed that no solution would be reached in the near future, the EU changed its trade strategy to re-think bilateralism. The new trade policy conducted by the EU, i.e., taking bilateral agreements with the main trading partners as a supplement to end the deadlock of the multilateral WTO negotiation, has substantially strengthened the EU’s position in the world economy. On the one hand, under the bilateral agreement, the EU has gained more preferential access to markets; on the other hand, the EU’s usage of its market size to conclude agreements with its trading partners pushed major trading actors to accept the new WTO trading issues, which were facing difficulties in the Doha Round. Therefore, in the EU’s opinion, its changing attitude towards bilateralism would not endanger the multilateralism that it had long supported. In fact, it held that bilateralism constitutes a supporter of multilateralism. With the above-mentioned belief, negotiations on free trade agreements have become an important element of the EU Common Commercial Policy in recent years. The EU expected that the conclusion of such agreements could facilitate access to existing and new markets for European producers, service providers and investors, thus increasing the competitiveness of the Single European Market (Wróbel 2013, p. 21). As the EU was the strongest supporter of the multilateral WTO, the shift of the EU’s trade policy focus from multilateralism to bilateralism raised concerns about the future of the WTO (Acar and Tekçe 2008, p. 280). Even though the EU holds the position that its bilateral agreement would be a supplement to the WTO, another view exists in which the paradigm shift of the EU’s trade strategy would be dangerous for multilateralism (Garcia-Duran and Millet 2015). The above argument asserts that the multilateralization potential of a bilateral agreement is not a sufficient condition for compatibility between the bilateral and multilateral approaches. The action of the

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EU in which it focused greatly on reaching agreements with selected trade partners would distract the EU from making efforts to conclude the Doha Round. As the EU is a formidable trade power in global politics, the importance of its paradigm shift of trade preference should be acknowledged, because its preference and focus would have an enormous influence on global trade. Whether its paradigm shift to bilateralism will contribute to multilateralism, as it states, or whether the change will harm multilateralism, remains to be determined. Acknowledgment This article is the partly research results of the MOST project (MOST 110-2410H-259 -010 -MY2 & NCST 112-2410-H-259 -020). The author would like to thank the funding support of National Council of Science and Technology.

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Chapter 11

Conclusion Sang Chul Park

The globalization process has changed the world rapidly throughout the last several decades. There is no doubt that global trade has contributed to rapid economic growth in the world for the last sixty years. However, trade growth has slowed considerably throughout the global economy since the global financial crisis (GFC) in 2008. Recovery commenced several years later, but trade returned to decline because of the tariff war between the U.S. and China, as well as other major trade partners such as the EU, Japan, and South Korea from 2017. The Trump administration regarded the World Trade Organization (WTO) as inimical to U.S. national economic interests and attempted to limit its arbitral functions to corporate disputes and not international trade conflicts between states. Despite the U.S.’s attempt to weaken the WTO’s functions, the EU and China led an initiative to form the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a partial replacement for the WTO’s Appellate Body, to which both the Trump and Biden administrations have refused to make judicial appointments. In order to overcome U.S. unilateralism, many major economies have established mega-FTAs such as the EU-Japan FTA, the CPTPP, and the RCEP. The commencement of the COVID-19 pandemic in 2020 was a virtually unprecedented disruption of the global economy and world trade, as production and consumption were drastically scaled back worldwide. In addition, the prospects for the global economy have darkened since the outbreak of war between Russia and Ukraine in February 2022, which places the fragile recovery of global trade and international security at considerable risk (Benigno et al. 2022; WTO 2022). The emergence of major power strategic competition in the region saw the U.S. reorient its national security strategy towards the Indo-Pacific in 2017 under the Trump Administration. However, this was not new; the U.S. has long recognized the Indo-Pacific region as vital to its security and prosperity since it established a diplomatic presence in the region in the 1840s. In particular, U.S. governments S. C. Park (B) Tech University of Korea, Gyeonggi, Korea e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 C. Chu and S. Park (eds.), Strategies in Changing Global Orders, https://doi.org/10.1007/978-981-99-7246-3_11

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consolidated their ties with the region during the post-war era via mutual security alliances with Australia, Japan, South Korea, Pakistan, the Philippines, Singapore and Thailand. Concomitantly, post-war regional security provided the basis for the establishment of stable democracies in a number of Asia–Pacific countries, which expanded considerably over the succeeding decades. Democratizing East Asian experienced high economic growth and greater social stability. The Association of Southeast Asian Nations (ASEAN), the region’s oldest international organization, has developed a highly integrated trade and investment relationship in the form of the ASEAN Community, which also embraces the norms of international law and human rights, the rule of law, democracy and freedom of navigation. Due to the Asia–Pacific region’s strategic value, U.S. administrations from George W. Bush to Joseph Biden accelerated their prioritization of Asia and invested in new diplomatic, economic, and military resources. In particular, the Trump administration recognized the IndoPacific as the global center of economic gravity, although the Trump presidency articulated its policy priorities as an ‘America First’ Policy. Under the Biden administration, the U.S. has consolidated its long-term strategic positionality by committing to the Indo-Pacific region in order to check Chinese economic, diplomatic, military and technological influences in the region (The White House 2022). By 2023, the Indo-Pacific region hosted over half of the world’s population including 58 percent of youth, accounting for approximately 60 percent of global GDP and generating two-thirds of global economic growth. In addition, it covers 65 percent of the world’s oceans and 25 percent of the global landmass. It is scarcely surprising that Washington has recognized the Indo-Pacific as a core long-term strategic interest, evidenced by the Trump and Biden administrations’ consolidation of the Obama administration’s Pivot to Asia in 2011. Washington’s intensification of focus on the region is directly attributable to the multifarious challenges mounted by China’s military and economic expansion as it seeks regional and perhaps global, hegemony. In its 2017 National Security Strategy (NSS), Washington formally asserted that Beijing sought to displace the U.S. in the Indo-Pacific. In turn, the EU designated China a ‘systemic competitor’ in 2019 (Park 2020; EUEA 2022). As Chinese influence has expanded throughout the region, South Korea, Australia, and Taiwan have each experienced elements of China’s economic coercion in 2017, 2020 and 2021, respectively. Moreover, Taiwan has been threatened by the PRC’s military aggression since the Taiwan Strait conflict in 1954. Under the Tsai Ingwen presidency, the Taiwan Strait has experienced four crises since 2022, while PRC President Xi Jinping proclaimed he would use “all necessary means” to unify Taiwan with China. Xi further warned that Beijing reserved the right to use force in his official address to the 20th National Congress of the Communist Party of China in 2022. In addition, ASEAN member states in the South China Sea (SCS) face confrontation with China, as Beijing challenges ASEAN littoral states’ sovereign rights in the SCS, which are supported by the United Nations Convention on the Law of the Sea (UNCLOS). China’s aggrandizement of the SCS, and its refusal to accept UNCLOS arbitration, has created serious regional instability, which could threaten future prosperity in the Indo-Pacific region (Barros and Ogbuehi 2022; Xi 2022).

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The U.S. government has also recognized that the Indo-Pacific region faces other major challenges, such as climate change, the COVID-19 pandemic and North Korea’s illicit nuclear weapons and missile program. In order to tackle these challenges comprehensively, the Biden administration has sought to strengthen the collective capacity of region; allies and partners. The Biden administration has declared it is committed to building a free and open Indo-Pacific that is more connected, prosperous, secure, and resilient. The U.S. Indo-Pacific Strategy (IPS) also recognizes the strategic value of an increasing regional role for the EU, which has declared its support for democratic resilience in the IPS. The IPS has five objectives, including a free and open Indo-Pacific (FOIP); connectivity within and beyond the region; regional prosperity; Indo-Pacific security; and regional resilience to transnational threats (The White House 2022). Since the accession of the Biden Administration in January 2021, Washington has returned to multilateralism, but has avoided concluding any mega-FTAs for domestic political reasons. Neither the Democratic Party nor the Republican Party supports any new multilateral FTAs, as the U.S. public largely associates bilateral, multilateral, and mega-FTAs with major blue-collar job losses in labor-intensive industry sectors. Consequently, the Biden administration has sought to reset U.S. economic and military security framework, not only in the Indo-Pacific, but globally, eschewing megaor piecemeal FTAs for a comprehensive framework. To accomplish this, the Biden Administration launched the IPS in 2021. It comprises ten action plans to implement its tasks and meet its objectives. Of these, the Indo-Pacific Economic Framework (IPEF) forms the crux of the strategy, focusing on economic security in the region by reshaping global supply and value chains, as well as reshoring manufacturing bases to the U.S. Key IPEF objectives saw the Biden administration initiate the CHIPS and Science Act (CSA) and the Inflation Reduction Act (IRA) in 2021, which were ratified by Congress in April 2023. These legal instruments are expected to strengthen to check China’s emergence as an economic, military and technological superpower. Specifically, the CSA can block the transfer of highly-sophisticated semiconductor technology to China, that will erect significant barriers to Chinese high-tech industrial development, while the IRA seeks to decouple Chinese strategic dominance of rare earths production for current and future technologies, such as electric vehicles, by incentivizing investment and production of rare earths with U.S. allies and partners. The CSA and IRA legislation de-risks U.S. dependence upon China, ensuring that Washington not only decouples from Beijing’s dominance of East Asian supply chains, but also assists in the reshoring of manufacturing capacity to the U.S. However, it is an open question as to whether this strategy will ultimately reap benefits for Washington, as the IPEF does not guarantee any U.S. market access to the 14 participating countries. The IPS is widely regarded as a U.S. countermeasure to check the Chinese Belt and Road Initiative (BRI), launched in 2013, that has been the centerpiece of Beijing’s economic diplomacy, designed to counter Washington’s military containment of China. However, the BRI has proven politically controversial, combining regional investment, energy security, Chinese merchant port infrastructure and trade routes from the South China to Sea to Africa and Europe. Consequently, the BRI has been

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the subject of heavy criticism by the West, as it is viewed as a strategy to ensnare developing countries in Beijing’s ‘debt trap diplomacy’ (Kao 2020). The EU is also keen to implement its economic diplomacy represented by the EU’s Global Gateway, aiming to ensure ‘smart, sustainable and secure links’ with countries around the word. The EU is rebalancing its ties with China in order to avoid geoeconomic conflicts and defend its strategic interests. It has demanded China liberalize its market, engage in fair competition, and commit to the principles of equal and mutual benefit for EU companies operating in China. Concomitantly, the EU has been critical of human rights and the rule of law in China, EU economic diplomacy is aimed at both boosting economic growth and building geopolitical influence. However, the EU’s revised China strategy has yet to achieve its goals. (European Parliament 2021). In his discussion of the role of Russia in East Asian security in part two of this book, Sung-lac Wi concludes that the war in Ukraine endangers the world order and has sharpened the confrontation between the West and the Sino-Russian coalition. He also argues that Western unity throughout the war has weakened Russia and caused Moscow to become increasingly dependent on Beijing. In East Asia, a regional order that ignores Russia is unrealistic; thus, regional security with a post-Ukraine Russia will need to be reconceptualized. The changes wrought to the international order by the Ukraine war have also profoundly impacted the Korean Peninsula. South Korea has distanced itself from China and Russia, aligning itself with Washington’s position on the Ukraine war, as well as increasingly pivoting towards the U.S. position on China. This poses a major challenge for Korea’s new Yoon Suk-yeol government: how to protect its national economic, security, and political interests in a reconfigured East Asian order. In his conclusions, Yung Yung Chang argues that the emerging Indo-Pacific order will replace the traditional geostrategic conception of the Asia–Pacific. Chang posits that the rise of the Indo-Pacific does not necessarily imply the fall or disappearance of the Asia–Pacific. Essentially, there is no need to compare the two regions in terms of importance, or to suggest descriptor is more representative than the other. Instead, the reconceptualization of the region as the Indo-Pacific complements the existing Asia–Pacific order, which could become more unified, and less confrontational. He concludes that this will largely depend upon whether Beijing becomes more assertive or more cooperative which, in turn, will impact on how other states in the region respond to a ‘China threat’ or a ‘peaceful rise’. Thus, it is an open question as to whether China’s ‘push’ or ‘pull’ factors will lead to a reconfiguration of the IndoPacific order, or whether the region will develop a more cooperative, institutionalized architecture. Sang Chul Park concludes that by rebuilding new supply and value chains through IPEF and the TF, trade conflicts between the G2, and other member countries in the RCEP, the CPTPP, IPEF, and the TF are inevitable due to conflicting economic and national security interests. However, some East Asian states, such as Japan, Korea, Singapore, and Taiwan will need to fireproof their economies to de-risk themselves from a potential China shock; by participating in IPEF and the TF, the risk of regional

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confrontation would affect Japan, Korea, Singapore, and Taiwan profoundly, due to high levels of economic and trade dependence on China. Park further argues the two mega-FTAs and IPEF, as well as the TF, can also contribute to intensifying the regional economic integration in East Asia and the Indo-Pacific region. However, there are risks associated with increasingly excluding China from the global supply and value chain, As Park notes, Japan, Korea and, possibly, Taiwan will be the most trade-exposed in a conflict, due to China’s centrality in supplying materials and resources. Tokyo, Seoul and Taipei are central to Washington’s strategic objective of reconfiguring global supply chains, due to their capabilities across a range of strategic leading-edge technologies, including semiconductors and high-capacity batteries. At the same time, Japan, Korea, and Taiwan also face exposure to the risks of a confrontational Beijing, because their industries in intermediate products are more dependent on China than the U.S. Sang Chul Park and Pornchai Wisuttisak argue in their chapter that regional economic interdependence is the first preference of all states. Consequently, they conclude that this incentivizes many countries in East and Southeast Asia to participate in the BRI in order to reap the benefits of investment and economic development, despite China’s assertiveness. It is equally valuable for East and Southeast Asian countries to take part in IPEF, as U.S. hegemony provides considerable economic and political benefits for IPEF members. Optimally, the harmonization of the BRI and the IPEF would be a way forward for East and Southeast Asian countries to develop sustainably and generate high economic growth. Thu-Ha Thi An, Shin-Hui Chen, and Kuo-Chun Yeh discuss Taiwan’s economic diplomacy and propose a four-pronged policy based on their data sets. These are, firstly, differentiating between advanced and mature processes and mastering future core technologies; secondly, adapting sustainable transformation and cultivating talent; thirdly, establishing industrial parks and boosting cross-industry collaborative ecosystems; and, lastly, driving Taiwanese OFDI through international cooperation. In part three, Remy O. Davison concludes that lack of a unified strategic concept, within both the EU and NATO, hampers common efforts, and for both Washington and Paris, the SCS cannot be allowed to become Lake Beijing. Moreover, Paris cannot permit Beijing to become economically or politically influential in the French Pacific or Indian Ocean regions. In the South Pacific, the PRC’s aid and construction are six times more than the size of French aid, although Chinese aid has declined since 2018. Davison also argues that the EU lacks strategic military partners in the region and, thus, is dependent on French forces, logistics and Paris’ embedded capabilities in the Indian and Pacific Oceans. However, a major failure of Beijing’s diplomacy was allowing Chinese containment to become not merely regional, but global. This has assumed the form of EU, US and Japanese economic decoupling from China, manifested in EP’s rejection of the CAI and Washington’s trade war with Beijing, which were collectively the product of China’s assertive behavior, including its dubious human rights record in Xinjiang and Hong Kong. Its major initiatives, such as the BRI, have also provoked a backlash in many of the EU Central and East European countries (CEECs).

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Dieter Eissel and Alexander Grasse argue that the political and economic reconfiguration of the EU’s international relations, caused by the Russian attack on Ukraine in February 2022, has also affected European relationships with China and other nondemocratic regimes. There is little doubt that the EU needs to become less economically dependent on authoritarian states, by regaining more autonomous capacities in key industrial sectors. However, the challenges are manifold, since the EU has been heavily dependent on Russian energy resources since the 1980s, while it also has trade dependence upon Chinese elaborately transformed manufactures, such as photovoltaic systems. Eissel and Grasse conclude that because major challenges, such as climate change, can only be tackled globally, a cooperative and collaborative international trade environment will be essential. However, EU cooperation with authoritarian regimes will be necessarily curtailed, and this applies in particular to the EU-China relationship. In her conclusion, Yun Chen Lai argues that the EU has an inherent preference for multilateralism, which serves its market-access interests. Consequently, the EU was among the WTO’s strongest supporters during the 1990s. This was evident in the EU’s suspension of new bilateral dialogue initiatives with its trading partners at that time. However, after the deadlock reached the Doha Round, following the collapse of the 2003 WTO Cancún ministerial, the EU was compelled to reorient its trade strategy towards bilateralism. Lai claims that the EU’s reconceptualized new trade policy, embracing bilateral agreements with key trading partners, was designed to ultimately break the deadlock of the multilateral WTO negotiations. Concomitantly, bilateral FTAs substantially strengthened the EU’s position in the world economy. On the one hand, the EU gained vastly improved preferential access to East Asian markets through the South Korea-EU FTA (EU-ROK FTA,), the EU-Japan FTA and the EU-Vietnam FTA. On the other hand, the EU’s deployment of its market power to conclude agreements with its trading partners, prompted other major actors to persist in negotiating new WTO disciplines, which had been blocked during the Doha Round. Chin Peng Chu and Zsuzsa Anna Ferenczy conclude that the EU recognized the need to turn its geopolitical awakening into a more permanent strategic posture, immediately after the Russian invasion of Ukraine in February 2022. This was necessary in a context marked by renewed great-power rivalry and an interdependent relationship between economic and security policies, with trade becoming a power projection instrument. Under such circumstances, the EU and China agreed that the rules-based multilateral trading system needs reform. Yet, they have fundamentally different political and economic systems, which entail different visions for reform. The authors claim that the two sides are experiencing the highest tension in bilateral ties, which is rooted in the lack of balance in their trade cooperation and a systemic rivalry in terms of political values. Against this backdrop, bridging differences between the two sides in order to find global solutions to global problems looks highly unlikely. Chu and Ferenczy assert that the EU’s complex relationship with China in a complex geopolitical environment requires a clearer understanding of the EU’s own economic vulnerabilities in order to protect them from coercion,

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while also leveraging its strengths, such as through the Global Gateway, in order to ensure that transparency, good governance and the rule of law guide connectivity throughout the world. In summary, all the authors’ analyses in this book address the manifold challenges emerging from the new global order, conceptualized as the ‘New Cold War’; however, there a still deep divisions between scholars over whether a new Cold War has indeed materialized. Self-evidently, there are clear differences between the First Cold War, centered around military and political competition between the U.S. and the Soviet Union, and the New Cold War based on cultural, economic, political and technological competition between the U.S. and China. The New Cold War is taking place in a much more complex and globalized environment than the first Cold War; moreover, the two superpowers have become more economically and technologically interdependent than the USSR or U.S. ever were at any point during the Cold War era. Therefore, the U;S; and China have been compelled to cooperate with each other in certain global issue areas, such as climate change and the COVID-19 pandemic, while competing diplomatically, militarily and economically (Nye 2022). In this geopolitical milieu, East Asia, the EU, and the U.S. will need to rethink and reconfigure their diplomatic, economic, military, and political relationships as both competition and cooperation drive change in the new global order. Democratic values, support for open markets and free trade between the US, East Asia and EU will drive common objectives, such as economic prosperity and political stability. The Indo-Pacific region is likely to experience more deeply integrated bilateral and multilateral trade, as well as military cooperation, between East Asia, the EU and U.S. In this respect, the Biden administration’s IPS is designed not only to compete with China and Russia, but also to deter any potential confrontation in the Taiwan Strait and the Korean Peninsula. Maintaining peace in East Asia can ensure that the economic gains, development and prosperity that have been hard-won over the last several decades are not placed in jeopardy. East Asia’s global position as an economic powerhouse remains critical to the prosperity of the world economy; even a standoff over Taiwan could cost trillions of dollars. The main imperative is ensuring the New Cold War remains a stable geopolitical order and does not dissolve into chaos and economic disaster that would arise from regional conflict. There would be no winners in such an outcome.

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European Parliament (2021) A New EU-China Strategy, https://www.europarl.europa.eu/doceo/doc ument/TA-9-2021-0382_EN.html, accessed on 13 April 2023 European Union External Action (EUEA) (2022) EU-China Relations Factsheet, April 01, https:// www.eeas.europa.eu/eeas/eu-china-relations-factsheet_en, accessed on 13 April 2023 Kao C (2020) The Impact of the Rise of the Red Supply Chain on the Mainland Economy and Cross-Strait Economic and Trade. Wunan Publishing House, Taipei Nye JS (2022) America’s China Challenge, Aug. 03, Project Syndicate, https://www.project-syndic ate.org/commentary/america-successful-response-to-china-challenge-by-joseph-s-nye-202208?barrier=accesspaylog, accessed on 15 April 2023 Park SC (2020) Trade Conflict Between the U.S. and China: What Are the Impacts on the Chinese Economy? International Organizations Research Journal, Vol. 15, No.2, pp. 153–168 The White House (2022) Indo-Pacific Strategy on the United States, https://www.whitehouse.gov/ wp-content/uploads/2022/02/U.S.-Indo-Pacific-Strategy.pdf, accessed on 13 April 2023 World Trade Organization (WTO) (2022) Trade Statistics and Outlook, Press/902, https://www. wto.org/english/news_e/pres22_e/pr902_e.pdf, accessed on 13 April 2023 Xi J (2022) Hold High the Great Banner of Socialism with Chinese Characteristics and Strive in Unity to Build a Modern Socialist Country in All Respects, Report to the 20th National Congress of the Communist Party of China, https://www.fmprc.gov.cn/eng/zxxx_662805/202210/t20221 025_10791908.html, accessed on 13 April 2023