During the recent G7 Summit, the Leaders’ Statement on Economic Resilience and Economic Security left no doubt that these countries were firm in countering Chinese malfeasance, and willing to work with other willing, like-minded countries.
“With all the globalisation that has taken place, countries are a lot more interdependent and therefore ‘coupled.’” – Gita Gopinath
Speaking to CNBC at the World Economic Forum (WEF) at Davos in January 2020, the UN Secretary General, Mr Antonio Guterres had remarked that the heightened state of geopolitical tensions was having an impact on the global economy. This was just before the world was confronted with COVID. Even as millions died worldwide due to the pandemic and great economic loss occurred, the country of origin was neither regretful nor remorseful for its opacity and dubious role. Matters were made worse since a large portion of the world- not just economic minnows but also economic powerhouses, traded with this country.This intricate intertwining of economies, its adverse fallout due to Chinese policies during the pandemic and Chinese geo-political shenanigans led to forceful calls for ‘de-coupling’ from China. It was the final nail in the coffin for any hope that the world harboured towards inducing a change in the recalcitrant Chinese behaviour. Many also wrote about the death of globalization.
Not surprisingly, even before COVID struck, the security risks posed by the economic coupling with China were figuring prominently in the strategic discourse within the USA in the Trump administration. The backlash against Chinese telecom and tech giants was already underway in the US and the UK, albeit nuanced. Once the pandemic was successfully controlled, many other countries adversely affected by the excessive economic interdependence with China also got down to serious action on the issue. The United States was first off the block. India too was not far behind and along with Australia and Japan launched the Supply Chain Resilience Initiative (SCRI) in 2021. It is no coincidence that all these countries were directly affected by Chinese economic or military coercion.
Understandably, the European Union (EU) was more circumspect, especially since it long believed the EU-China economic relationship to be mutually beneficial. However, the winds of change were too conspicuous to ignore, even for a more docile EU. During the recent G7 Summit, the Leaders’ Statement on Economic Resilience and Economic Security left no doubt that these countries were firm in countering Chinese malfeasance, and willing to work with other willing, like-minded countries. Yet, missing in all this was a formal stance by the EU. All that changed on 20 June 2023, when the EU released its Economic Security Strategy through a joint communication.
One may well wonder as to what is so unique about this. For starters, it is the first time the EU has issued a strategy for economic security. Largely unaffected by geopolitical turmoil, the EU passionately pursued its version of ‘strategic autonomy’ through robust economic ties with Russia and China, often unmindful of American views. Till, of course, Russia invaded Ukraine and Chinese chequers became too prominent to avoid a reaction.
The articulation of an economic security strategy implies an acceptance that the struggle for unhindered access to strategic economic resources has come to define geopolitical fault lines. It, therefore, focuses on minimizing risks arising from certain economic flows in the context of increased geopolitical tensions and accelerated technological shifts, while preserving maximum levels of economic openness and dynamism.
Additionally, it sets out a common framework for achieving economic security by promoting the EU’s competitiveness through bolstering innovation, technological and industrial capacities; protecting against risks; and partnering reliable partners to address shared security concerns through diversified and improved trade agreements, strengthening international rules and institutions, and investing in sustainable development. The strategy appears to be guided by principles of rationality, proportionality and equal opportunity while adhering to the rules.
The strategy recognizes security risks posed by the intersection of economics, geopolitics, and technology. As per the communique issued by the EU, the strategy proposes to carry out a thorough risk assessment of economic security in four areas, namely, risks to the resilience of supply chains, including energy security; risks to physical and cyber security of critical infrastructure; risks related to technology security and technology leakage and risks of weaponization of economic dependencies or economic coercion.
The document takes forward existing stand-alone mechanisms such as the Critical Raw Materials Act, Net-Zero Industry Act, and Cyber Resilience Act and blends them into a better outcome-oriented strategy.Interestingly, European Commission Executive Vice-President Margrethe Vestager underscored that the strategy will “de-risk” the EU from threats, not “decouple” its economy.
This is evident in the proposed framework of “promote, protect, and partner.”As part of the roadmap,a de-novo assessment of vulnerabilities, strengthening rules on Foreign Direct Investment (FDI) and export controls, and new rules on outbound investments have been proposed. Simultaneously, there is an emphasis on supporting EU technological sovereignty by developing critical technologies through Strategic Technologies for Europe Platform (STEP). Coming against the backdrop of its candid admission that Europe was “insufficiently prepared” for many of the challenges that the COVID-19 pandemic, Russia’s war in Ukraine, and unnamed players (read China) posed to Europe, the strategy reaffirms its faith in Europe to, “keep global supply chains open and shape standards.”
Laudable as the strategy is, the path to its adoption and execution is not expected to be entirely smooth. Since the EU works on consensus, reservations of some members, to certain proposals in the strategy can be expected. Evolving an effective consensus with respect to China may be a challenge due to the varying degree of individual diplomatic and economic relations that member countries have with China. Sourcing raw materials is the other challenge in ensuring technological sovereignty, especially since China controls the supply of significant amounts of critical minerals. This makes the successful culmination of the impending Critical Minerals Agreement negotiations with the US an imperative. The success of this will ensure coordinated, collaborative and complementary action to effectively source critical minerals especially from resource rich Africa. Failure of EU and US to converge on the same runs the risk of China exploiting fissures. The other challenge in the strategy is regarding outbound investment. Since the document articulates technology security as a subset of ‘economic security’, the jurisdiction of EU vis-à-vis member states to regulate on export of dual use technology that has national security implications, can be contentious. Additionally, will the EU be able to change its traditional policy of not discriminating between foreign countries as far as exports are concerned, especially when it comes to countries like China? The strategy to diversify energy sources by laying enhanced importance to renewables is good on intent and will require substantial investment.
Notwithstanding the possible challenges, the strategy is a refreshing approach by EU to be counted as an important player that has the will and ability to contest coercion, manipulation and countries not adhering to global rules. Strikingly and perhaps wisely, the communication on the strategy does not name China anywhere, although it is evident that China (and maybe Russia also) is the raison-d’etre. There are many common concerns, motives, and incentives in the strategy to deepen India-EU economic and strategic engagement. EU’s new approach on economic security, its shift towards more closely aligning geopolitics & economics and an outreach to the private sector accords an excellent opportunity for the Indian private sector to collaborate with their EU counterparts.
This can be built upon the trust India enjoys, the vibrancy of our private sector and ability of our youth to assimilate technology. Negotiations on the India-EU Free Trade Agreement (FTA) have been going on for long. Both sides need to show urgency and commitment in bringing it to fruition. Even as the European Council gets ready to deliberate on the strategy in its forthcoming meeting scheduled on 29 and 30 June, it is incumbent upon both EU and India to envision the larger strategic picture, display good statecraft and seize the opportunity to build a ‘win-win’ relationship.
https://www.financialexpress.com/business/defence-eu-economic-security-strategy-a-strategic-opportunity-for-india-3144250/
