European Union

On 29-30 June, the second board meeting of the European Crime Prevention Network (EUCPN) took place at the National Library of Latvia. During the meeting participants discussed issues related to organised crime and how to provide support to the European authorities in combating it.

On 29-30 June, the second board meeting of the European Crime Prevention Network (EUCPN) took place at the National Library of Latvia. During the meeting participants discussed issues related to organised crime and how to provide support to the European authorities in combating it.

China’s manufacturing boom is well known; over the past 25 years the Chinese share of the value-added by the manufacturing sector worldwide has increased almost tenfold. Nor has the pace of that change eased, for in the six years since the onset of the financial crisis China’s share has still risen by more than one percentage point every year – faster therefore than in the previous 12 years. Chinese value-added manufacturing overtook the combined output of Japan and Korea in 2009, that of the United States in 2014 and by 2016 or 2017 may well surpass than of the European Union.

But China’s population is more than double that of the EU and four time that of the U.S. The value-added of its manufacturing industry would need to quadruple to achieve the same per capita output as in Europe or America. Despite the rapid advances of recent years, the Chinese economy’s resurgence may have only just begun.

Historically, China’s manufacturing has been driven by its state-owned enterprises, but their dominance began to change a quarter of a century ago with the arrival of the Chinese or foreign-owned contract processing companies that assembled products without even owning the raw materials. Along with the reform of its state-owned enterprises, China also saw foreign direct investment in manufacturing gain ground steadily, and all of these developments were aided by special tax regimes for domestic profits as well as imports.

The change in ownership of manufacturing industry became even more pronounced in the middle of the last decade when China’s constitution was changed to recognise private property, and when company law was simplified by reducing the capital needed to form an enterprise. In the six years before that change, private sector value-added had been growing three percentage points faster every year than the state-owned sector, and in the following decade the gap widened to almost five percentage points. The domestic private sector was, meanwhile, expanding in relation to companies owned by shareholders from outside the Chinese mainland.

Private sector enterprises in China’s industrial sector have achieved extremely high rates of return. Despite the international financial crisis, the average return last year on equity before tax was 25%. With high returns and low taxation, private sector manufacturing in China has generated a large number of billionaires, even when measured in U.S. dollars. Of the 58 people with identified wealth last year of over $3bn, nearly 40% had amassed their fortune in manufacturing.

Rising wages have been seen as a threat to the development of the Chinese economy, and certainly average pay has risen significantly in real terms. The pay of a migrant worker in China relative to that of an unskilled worker in the United States, let’s say as a janitor, has almost doubled since 2008. Yet an unskilled American worker still earns almost five times more than a Chinese counterpart. This rapid increase has pushed the earnings of migrant workers in China well above their average earnings in countries like Indonesia, Thailand and the Philippines.

The rise in migrants’ earnings has also boosted domestic demand in China. Labour intensive industries have been able to switch output to the domestic market just as their shares of export markets for products like clothing, textiles, footwear and toys had begun to stabilise or even to fall. And Chinese entrepreneurs in these industries have reacted to higher wage costs by boosting manufacturing investment. The domestic value-added of the labour intensive industries’ output has risen faster since 2008 than that of the most capital intensive industries.

China’s industrial polices have long aimed to upgrade existing industries to higher value added by moving up the global value chain. China’s industrial policies have been typified by changes in its semiconductor industry. The first policy phase attempted to create national champions, but that was a failure. In the past decade, a new set of policies encouraged foreign investment with the aim of transferring technology to China. High-tech zones were created and foreign companies offered a special tax regime. The end result has been a strong rise in the semiconductor industry’s output, but chiefly for domestic consumption. China uses over half the semiconductors produced worldwide, but its semiconductor companies account for only 2% of global sales.

The overall result is that while China is now the leading exporter of high-tech products, the impact on its local economies has not been in line with that. Around four-fifths of China’s high-tech exports are by processing companies that import and then assemble parts in China, and re-export finalised goods. The sector’s share of gross domestic value-added is less than 45%. After allowing for royalties and the profits of the foreign-owned companies, the share of high-tech exports that are genuinely Chinese is below a third.

The government introduced new guidelines for the semiconductor industry a year ago that featured a National Investment Fund with a capital of just under $20bn. It is to be used for capital injections and to aid consolidation amongst Chinese companies, and some provincial governments are expected to create their own funds along the same lines. The objective is to raise overall Integrated Circuits (IC) production by 20% a year by 2020.

Chinese firms have struggled to enter the main semiconductor industry, but a number are making headway in communication devices. The boom in low-cost smart-phones from Chinese manufactures such as Huawei, Xiaomi, ZTE and Coolpad has been built on local semiconductor design companies specialising in communication chips.

Another key development has been the new foreign investment law and related regulations making it easier foreign companies to invest. The new law means investors will no longer have to obtain pre-approval before setting up a company, unless the investment is in a restricted area and on a negative list. China’s revised list of restricted or prohibited industries is now limited to only some mining areas, utilities, energy, finance and automobiles. From a European or American point of view, the main disappointment has been the placing on the restricted list of joint ventures in automobile production, and significant restrictions also remain in the finance sector.

The joint venture requirement for automobiles is designed to ensure technology transfers needed for a Chinese car industry. Allowing foreign companies to produce cars in China has been a major success, with vehicle production three times greater than before the 2008 onset of the western financial crisis, making it significantly larger than in North America or the EU. Although the Chinese sometimes claim that their six major companies account for 85% of domestic sales, the fact is that 70% of these domestically produced cars are from foreign joint ventures. Only one in six of the cars attributed to China’s six major automobile companies is produced by the Chinese partner. China’s car exports are insignificant because of poor productivity, design and quality.

The joint venture structure has also failed to yield technology transfers as foreign partners keep the JV separate from their Chinese partner, which will generally provide senior staff for marketing, human relations and government relations while the foreign partner contributes the engineering and technical staff. To overcome this problem, the Beijing government has insisted that JVs produce a Chinese model, with the JV partners responding by re-badging models from their global model portfolio not yet produced in China. To differentiate such products from their foreign brands, prices were set at a level competitive with domestic Chinese models. Consumers then turned to the new cheap JV brands and so accentuated the decline in the market share of the domestic Chinese producers.

The major industrial policy successes in the upgrading of its manufacturing industries have so far been confined to areas where both producer and the purchaser companies are state-owned, rather than by selling to consumers. Key examples are high-speed trains and wind turbines, and even in these areas, as with semiconductor foundries, there have been allegations of intellectual property theft, with severe penalties sometimes imposed.

China’s aircraft industry falls between the automobile and railways sectors as an industrial policy success. The Chinese government has long wanted an aircraft industry capable of competing on world markets, but so far no Chinese commercial aircraft has obtained foreign type approval. China’s development of new aircraft is running well behind schedule, highlighting the lack of advanced engineers.

Human capital is key factor to all forms of innovation. China’s physical capital is quickly renewed and replaced and half of the capital stock in its manufacturing industry is less than three years old. But human capital takes much longer, and although the human capital stock has grown rapidly, achieving the average education levels of advanced countries will take decades. This lack of experienced and qualified managers is reflected in a growing number of research projects where quality is lagging.

Chinese manufacturing has expanded rapidly over the past two decades, but is still far from being a mature, advanced sector. Rapid wage increases have put pressure on traditional labour intense industries, even though they are adapting. Return on equity remains high, dropping only slightly in the recent downturn, and that provides an incentive for the private sector to increase investment. In labour intensive sectors, investment is still increasing at a rapid pace, suggesting that private entrepreneurs who are responsible for nearly 90% of that investment are moving away from labour intensive production so as to remain competitive.

The fundamental factor affecting China’s drive to upgrade manufacturing will be the rate at which well-educated engineers graduate from universities at home and abroad. That can already be seen in areas where knowledge evolves most rapidly, such as communications and internet applications. But it will take time for a new generation of engineers to make a difference. The best industrial policy for China is that it announced in 2013 of letting the market decide on the allocating of resources.

 

IMAGE CREDIT: CC / FLICKR – The.Rohit

The post An X-ray of China’s industrial muscle appeared first on Europe’s World.

Although there is a strong element of grievance in the politics of populism, one factor which is common to almost all of the continent’s populist parties is an anti-EU sentiment. It is the degree of this – and fundamentally its effect on governments – which is causing most concern among mainstream parties.

A fanciful book, Apocalypse 2000, written in 1987, features the use of the European Parliament as a continental political platform for a populist Left/Right demagogue elected in Britain – Olaf D. Le Rith (Adolf Hitler) – who eventually seizes power across Europe. With centrist parties like the British Conservatives giving ground to populists at home and now across Europe, we should all be watchful. Let’s look at some of the most recent, worrying developments.

The populist challenge to the UK

In the UK’s May general election, the eurosceptic UK Independence Party (UKIP) came second in 120 of the 650 constituencies and third in the popular vote, garnering nearly 4 million votes, although it won only a single seat. David Cameron’s tour of EU capitals seeking a redefinition of the UK’s relationship with the EU does not stem from any conviction on his part – Cameron has always been content-free on Europe – it comes about because of his fear of UKIP, and of the hardline eurosceptics in his own party.

I was involved in a minor skirmish at the beginning of the Conservatives’ European turmoil when, as leader of the 36 Conservative members of the European Parliament in 1999, I was tasked with negotiating a more detached relationship with the Christian Democrat/Conservative European People’s Party (EPP) Group. Ten years later, David Cameron, under yet more pressure from the Right, pulled the Conservatives out of the EPP and created the European Conservatives and Reformists group with nationalists like Poland’s Law and Justice and controversial fringe parties such as Alternative for Germany (AfD), to which Cameron’s grouping now gives credibility. I left the Conservative Party in protest. Cameron’s split with the mainstream only adds to his negotiating task ahead of the UK’s EU membership referendum. Within the EPP, he would have had direct access to most of the EU’s top leadership in Brussels and national capitals.

The populist challenge to Europe

The rise of populism, especially on Europe’s Right, began to cause international concern after the European Parliamentary election of 2009, when Time magazine’s cover story, ‘Far Right Turn’, argued that “extremist parties in Europe are feeding off the economic crisis and the loss of trust in mainstream politics to extend their reach”. In May of last year, following the next and even more shocking European election, Time wrote, ”Anti-E.U. populists may have scored big at the ballot box, but they’re wrong on foreign policy”; not just wrong, but dangerous.
By last summer, one-third of the 750-member European Parliament was of the Right, largely a consequence of the continuing eurozone crisis and economic stagnation across much of Europe.  A new phenomenon had also emerged: populism of the Left, represented notably by Greece’s Syriza and Podemos (‘We can’), a Spanish party founded in early 2014 based on the radical Indignados movement. The success of Podemos in Spain’s recent regional and local elections, coupled with the success of the anti-establishment Ciudadanos movement, has shattered previous expectations for the general election later this year.

The populist opportunity for Putin

While Europe’s mainstream was anxious, these results encouraged Vladimir Putin’s international ambitions. His developing support for populist parties of Left and Right came into its own over his annexation of Crimea, which many supported. Putin’s strategy is based on his continental ‘Eurasian Union’, the brainchild of Moscow guru Aleksandr Dugin. Decrying liberalism, the aim is to break up the EU, sever transatlantic links and promote nationalism. Marine Le Pen is the most prominent of a troupe of populist or extremist leaders to visit Russia or Crimea. Tellingly, a resolution criticising Russia in the European Parliament on the 10th of June drew out these populist parties. UKIP and the Front National teamed up with other anti-EU parties to vote against the non-binding resolution, which ultimately passed by 494 votes against 135 with 69 abstentions.

Like the totalitarian dictators of the 1930s who funded foreign populist movements, whether Mussolini, Hitler, or indeed Stalin’s early funding of Hitler through Kurt von Schleicher, Time magazine’s ‘Man of the Year’ in 1932, Putin has been funding today’s extremists. Last November, French investigative journalists revealed that the Front National have received at least €9 million in loans from a Kremlin-linked bank. German media and the Austrian opposition say the AfD and the far-Right Freedom Party of Austria (FPÖ) are also financed by Russia; allegations they each deny. And in Greece, Putin’s funding of the neo-Fascist Golden Dawn did not stop Syriza’s Alexis Tsipras making Moscow his first port of call as premier, resurrecting old geostrategic fears.

Reversing the trend

German political scientist Florian Hartleb, who specialises in the rise of populism, has written that “while there is no incontrovertible proof that demystification through participation in government is an effective strategy for successfully combating Right-wing populists, there is no doubt that the worst response strategy is ‘toleration’ because this allows populists directly to exert influence on a country’s political decision-making without being directly held to account for it.”

Polish columnist Paweł Świeboda has called for more pro-EU activism, saying “Much of the frustration of European citizens has to do with the policy that originates in Brussels. The institutions have tended to assume that they are bound to be on the virtuous side and their case will prevail. They have feared becoming embroiled in national party political squabbles. This strategy has run its course and will need to be replaced by more active messaging.”

What we can be clear about is that far-Right populism will not disappear of its own volition. Ms le Pen has recently announced the formation of a new Europe of Nations and Freedom group in the European Parliament. This gives her a front row seat and her far-Right team a platform, and €17.5m of public money over four years. As le Pen put it, “far more firepower than ever before”.

 

IMAGE CREDIT: CC / FLICKR – European Parliament

The post Europe’s populists: A present and rising danger appeared first on Europe’s World.

Relations between Russia and the European Union are in deep crisis – perhaps the most serious crisis since the end of the Cold War. As the Russian Federation’s former foreign minister, I particularly regret this bleak state of affairs as along with my European counterparts I myself invested much time and effort in building a stronger Russia-EU partnership, with all its political, social, economic and humanitarian dimensions.

Many of our past plans and hopes now look like pipe-dreams that are remote and seemingly irrelevant to today’s grim realities. I am sure that many in Europe share my frustrations and concerns, although there is little sense in just being disappointed and pessimistic. We should instead analyse the mistakes and blunders of the past in order to reveal the opportunities of the future.

“Russia and the West should refrain from hostile and inflammatory rhetoric that fuels public mistrust”

The most graphic manifestation of the deep gap that has emerged between Brussels and Moscow is, of course, the situation in and around Ukraine. We can debate endlessly about who is to blame for this situation and whether it could have been avoided. Both Russia and the European Union have, in my view, contributed to the escalation of Ukrainian problems, and so both should bear their fair share of responsibility for the unfortunate developments in that country since autumn 2013. As I see it, though, Ukraine has not been the main cause of the Russia-EU crisis; rather it has been a catalyst of the more fundamental rifts that had emerged between Moscow and Brussels over the last few years. In short, the Russia-EU partnership has not worked out in the way that had been anticipated some 10-15 years ago.

So the question must be, what went wrong? Unless we look back into our past, we cannot realistically plan our future. Twelve years ago, we agreed at the 2003 Russia-EU summit in Saint Petersburg to proceed with the so called ‘four spaces’ in our co-operation. I was personally involved in drafting these four spaces, and I still believe that it was a very important achievement in the relationship. Later, these four spaces were to be complimented by the EU-Russia Roadmaps supposed to define specific goals, schedules, and benchmarks in each of the spaces.

Since then, we have not made a lot of progress. In many ways we lost ground and not gained it. We failed to sign a new EU-Russia Partnership agreement to replace the old one that had expired long ago. We couldn’t move to a visa-free regime between Russia and the Schengen zone, and were unable to reconcile our differences on the EU’s ‘third energy package’. Even on less controversial matters like research co-operation, environmental protection and transportation, our progress was modest, to put it mildly.

That said, I would not want to downplay the efforts of the committed men and women in both EU and in Russia who did much to bring co-operation to a new level. Yet the overall balance sheet isn’t impressive. It is true that our economic co-operation continued to grow until 2014, as did the scale of EU companies’ investments in Russia and the number of joint ventures. But the relationship’s institutional framework failed to catch up with these new economic realities, so the gap between businessmen and the politicians grew wider and wider and then turned into an abyss during the crisis over Ukraine.

Why didn’t we succeed in using the last 15 years to their full extent? Why could the private sector on both sides not lobby for a new level of political partnership between Russia and EU? One of the most common explanations is that on both sides politicians were distracted by such other priorities and events as the global economic crisis of 2008-2009, the conflict in the Caucasus, complications in the eurozone, the relentless rise of China, the Arab Spring, the U.S.-EU transatlantic trade and investment negotiations (TTIP) and so on. There may be some truth in this explanation, but what does that prove? It only tells us that for both the European Union and Russia their mutual relations seemed of secondary importance, and could therefore easily be shelved or even sacrificed for the sake of more central and more urgent needs.

The Ukrainian crisis has thus become a very explicit manifestation of the fragility of our relations. Both sides pursued their own policies toward Ukraine without any co-ordination, or at least consultations, with one another. The question of the “European choice” for Ukraine was raised only in the old “zero sum game” logic of the Cold War. I am myself convinced that with the necessary efforts on both sides we could have avoided the Ukrainian tragedy – at any rate in the dramatic form it has finally taken.

Rather than emphasising the differences in our approaches and blaming each other, we should have looked for what unites us in this extraordinary situation. Above all, neither the European Union, nor Russia has anything to gain from Ukraine becoming a ‘failed state’ in the centre of the European continent. On the contrary, such a development would create a whole range of fundamental threats and challenges to everybody in Europe, not to mention the countless tragedies and suffering it means for the Ukrainian people. It will now be much more difficult to restore the relationship between Russia and Europe than it was only a year ago, but we have no alternative to limiting the damage and moving ahead.

“Rather than emphasising the differences in our approaches and blaming each other, we should have looked for what unites us in this extraordinary situation”

A lot has been said about the European institutional deficit that was clearly demonstrated by the Ukrainian crisis. And it’s certainly true that the many European and Euro-Atlantic organisations and mechanisms that were specifically designed to prevent or to resolve crises failed to do so – with the qualified exception of OSCE, the Organization for Security and Co-operation in Europe. Instead, the crisis gave birth to new forms of international co-operation like the so-called “Normandy process”. This new format may look extremely fragile and shaky, but it at least demonstrates our common ability to make tangible progress under even the most difficult circumstances.

Where, then, should we go from here? In my opinion, five urgent steps are needed if we are to start repairing the badly damaged EU-Russia relationship.

First, we must prevent any further escalation of the military conflict in the centre of Europe. The Minsk agreements have to be implemented in full by all the sides without any exceptions or procrastinations. All violations of the agreements by rebels in the east or by the Kiev authorities should be brought to light and properly investigated without resort to bias or double standards.

Second, we have to enhance and to broaden the Normandy format. Aside from sporadic meetings at the very top or at foreign ministers’ level we need a permanent high-level Contact Group in Kiev that will work on a day-to-day basis with the parties to the conflict. It is critically important that U.S. should be included in the Contact Group to avoid any misunderstandings or failures of communication across the Atlantic.

Third, Russia and the West should refrain from hostile and inflammatory rhetoric that fuels public mistrust and hatred. The vicious spiral of today’s propaganda war has to be stopped and reversed – at least at official level, if we do not want to turn the current crisis into a long-term confrontation that will divide our common continent for years, if not decades, to come.

Fourth, both sides have to invest political energy and capital in rescuing what can still be saved from the best days of EU-Russia co-operation. So far as is possible, we should maintain our joint projects on education and research and in culture and civil society, environmental protection and climate change. We should try to preserve our successful trans-border co-operation, contacts between Russian and European regions and between ‘twinned’ cities. These are the seeds of the future renaissance of the EU-Russia relationship.

Fifth, the time has clearly come to explore opportunities for closer and more intensive contacts between the European Union and the Eurasian Economic Union (EEU). The EU has little to lose by reaching out to this neighbouring integration project, while in terms of influencing the emerging EEU’s standards, mechanisms, procedures and modes of operation, the rewards could be handsome.

I don’t want to imply that we should be getting back to “business as usual” by ignoring the deep political divisions between Moscow and Brussels. That approach wouldn’t work even if both sides were prepared to stick by it. But one of the positive side-effects of this crisis is that there is today less hypocrisy and political correctness between Moscow and Brussels. Unless we learn the lessons of this crisis, mistrust, instability and losses in both east and west will continue to multiply.

 

IMAGE CREDIT: CC / FLICKR – President of the European Council

The post The tough lessons of the EU-Russia crisis appeared first on Europe’s World.

Demonstrators backing a "yes" vote in Sunday's referendum in front of the Greek parliament

It may have come a few days too late, but Alexis Tsipras, the Greek prime minister, appears to have conceded on a whole raft of outstanding differences between his government and its international bailout creditors.

According to a letter sent late Tuesday night to the heads of the country’s trio of bailout monitors, which we got our hands on and have posted here, Tsipras concedes to most of the economic reform proposals published by the European Commission on Sunday, with a few significant exceptions that could still trip up any deal.

On one of the most contentious issues, overhauling the country’s value-added tax system, Tsipras still wants a special exemption for Greek islands, some of which are in remote areas and have difficulty accessing basic daily needs.

Keeping the islands’ exemption in place has been one of the main demands of Tsipras’ junior coalition partners, the right-wing Independent Greeks party. But creditors, whose main goal is simplifying one of the EU’s most exemption-ridden VAT schemes, have balked, saying it requires an entirely separate administration to keep the islands on a different, reduced rate.

On the toughest of all issues between the two sides, pension reform, Tsipras is demanding even more concessions, which come after the creditors have already moved quite a bit in Athens’ direction.

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New Media Online
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Advocate General Maciej Szpunar considers that the website of a daily newspaper containing audiovisual material is not an audiovisual service within the meaning of EU law

Bund für Umwelt und Naturschutz Deutschland
Environment and consumers
The obligations laid down by the Water Framework Directive concerning enhancement and prevention of deterioration apply to individual projects such as the deepening of a navigable river

On 30 June 2015, the Council presidency reached an agreement with the European Parliament on a draft directive establishing new improved rules on insurance distribution.

On 30 June 2015, the Council presidency reached an agreement with the European Parliament on a draft directive establishing new improved rules on insurance distribution.

Alexis Tsipras, the Greek prime minister, has once again changed the terms of the debate in the ongoing crisis by requesting a new third bailout from the eurozone’s €500bn bailout fund, known as the European Stability Mechanism, just hours before his current bailout expires.

According to a copy of the letter sent to the ESM and Jeroen Dijsselbloem, the Dutch finance minister who chairs the committee of his eurozone counterparts, which we’ve posted here, the loan request is for €29.1bn to cover debts maturing into 2017.

That would seem to be a pretty traditional bailout request. But it also contains some untraditional demands that may be difficult for creditors to accept. Below is an annotated version of Tsipras’ letter:

Dear Chairperson, dear President,

On behalf of the Hellenic Republic (“the Republic” or “Greece”), I hereby present a request for stability support within the meaning of Articles 12 and 16 of the ESM Treaty.

The ESM treaty is the law that now governors all eurozone bailouts. It wasn’t in place for either Greece’s first or second bailouts, but it would set the terms for its third. Articles 12 and 16 simply state the purpose of a bailout programme: to “to safeguard the financial stability of the euro area as a whole and of its Member States.” Unfortunately for Tsipras, Article 16 also happens to mention that a new programme must include a new “MoU” – or memorandum of understanding, a phrase that is politically poisonous in Greece.

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On 29 June, the Latvian Minister for Environmental Protection and Regional Development, Kaspars Gerhards, went to New York (USA) to represent the Latvian Presidency of the Council of the European Union at the high-level event on international climate policy, convened by the President of the United Nations General Assembly.

On 29 June, the Latvian Minister for Environmental Protection and Regional Development, Kaspars Gerhards, went to New York (USA) to represent the Latvian Presidency of the Council of the European Union at the high-level event on international climate policy, convened by the President of the United Nations General Assembly.

On 30 June 2015, the Council confirmed a deal struck with the European Parliament on faster and less burdensome vehicle authorisation and safety certification procedures for European railways. The European Railway Agency (ERA) will play a key role in this.