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China’s silence towards the European Union’s electric vehicle probe could mean that a more harmful retaliation is on its way During her State of the Union address on 13 September, European Commission President Ursula von der Leyen announced that the European Union would undertake an anti-subsidy probe against the Chinese electric vehicle (EV) sector. This signalled a major step in the EU’s shift to a more aggressive trade defence against China and raises the question of how China will react, given the importance of the Chinese market to key sectors of the European economy (including the auto and luxury sectors), and also given China’s crucial role in providing goods to the EU for the green transition? An EU-China High Economic and Trade dialogue on 25 September in Beijing, between EU Trade Commissioner Valdis Dombrovskis and his Chinese counterparts, may have given a glimpse into China’s mindset. There were fears Chinese officials would respond aggressively to von der Leyen’s announcement during Dombrovskis’s visit but this was not the case. Nevertheless, the silence may be deceptive. Three main factors should be taken into account when considering potential Chinese retaliation. Subtle but harmful retaliation First, China might file its own anti-subsidy investigation at the World Trade Organisation against key European sectors. This would not be difficult since Europe has ramped up its subsidies massively since the pandemic, and more recently has attempted to gain more ‘strategic autonomy’ in sectors including semiconductors. There is very little the EU can do about this potential retaliation, which would be costly for the sectors targeted and for the EU’s image as a free-trade and WTO champion. Second, China could try to persuade EU governments that the Commission-led investigation should be withdrawn. A similar probe happened in early 2014, when the EU launched an anti-subsidy investigation into solar panels produced in China. President Xi Jinping visited then Chancellor Angela Merkel right after the anti-subsidy investigation was announced. Subsequently, the issue was settled quickly, with the Commission withdrawing the case from the WTO. Based on this previous experience, China might prefer to take up the issue bilaterally, possibly with Germany again, rather than enter discussions with the Commission. But a major difference this time is the relative importance of the auto sector in the EU compared to solar power. The auto sector accounts for 14 million jobs in Europe and a good part of the EU’s exports. Exports of cars and components are heavily concentrated in a few EU countries, especially Germany. These exports to China have plummeted in 2023, with a close to 30% drop, and Chinese competition in third markets and even the EU market, has become much more intense. Third, also unlike the solar-panel probe, it is the Commission and not the sector being harmed that has filed the case. It will be harder for the Commission to withdraw the investigation because it would lose credibility. Merkel decided to accommodate Xi Jinping’s request in 2014 because she wanted to save the auto sector, even at the cost of hurting a smaller part of the German economy – the solar panel companies. The new investigation aims to protect the automotive sector. There could be consequences for major European auto companies producing electric vehicles in China, but jobs in Europe are now more important than the future of those companies in China. In any case, the future of European manufacturers is bleak; they seem to have already lost the EV race to their Chinese competitors. China will find it much harder to move the EU away from its decision to pursue an anti-subsidy investigation, differently to what happened in 2014. Lessons to learn There might be a lesson for Europe in what happened to Apple in China in September. Days before Apple’s launch of its new iPhone 15, Huawei launched its Mate 60 with upgraded functionalities which require high-end semiconductors. Beyond raising doubts about the effectiveness of US-led export controls on advanced semiconductors, this announcement constituted a direct challenge to Apple’s phone sales in China. Chinese officials were also prohibited from using iPhones and rumours spread in Chinese media in advance of the Apple launch about the underwhelming quality of the iPhone 15. Investors dumped Apple stock globally and the company lost about 6% of its value in a few days. China’s retaliation against the Commission’s anti-subsidy investigation might not be as direct and transparent, but it will still be harmful and might offer less room for the EU to respond. Europe’s strategic dependence on China is greater than in 2014 and this probe has the potential to cause a bigger fall-out for the EU. China has strengthened its position as a global power and uncompetitive behaviour could hit European core sectors harder because China has more power to retaliate. On the flip side, the stakes are higher for the EU given the importance of the auto sector in terms of jobs and exports. For that reason, China may not manage to deter the EU’s investigation as easily as it did in the past. But this may prompt China to threaten even larger retaliation.

Landlocked in the heart of Central Asia, Kazakhstan is involved in regional partnerships and, pragmatic, claims to be a facilitator with balanced relations, even if the pressure to take a stand between Russia, China and the European Union is strong. This cocktail is the challenge of so-called middle power (or bridge) countries, developing multi-factor diplomacy, here constrained by geography and made possible by the country’s resources. Moreover, the development and identity of the five Central Asian countries are built around the imperative of cooperation, given the geographical position and the small number of citizens (75 million for the five countries).  The 2023 edition of the Astana Forum, formerly economic and renamed Astana International Forum, was structured around four themes: foreign policy and international security, international development and sustainability, energy and climate change and economy and finance. This forum supports the development of international action: dialogue of international themes, with the desire to propose answers, desires to become a reference on the world scene without forgetting a public relations dimension. This has resulted in Kazakhstan’s diplomacy being described as ‘niche diplomacy’ (for uranium exchanges) or multi-vector diplomacy[1]. Since February 2022, the Belt and Road Initiative, China’s connectivity project, no longer pass through Russia. Kazakhstan is at the centre of the EU-funded Asia-Europe Transport Road (or Trans International Transport Road). This is one example where the economy, originally considered by Joseph Nye as a resource of hard power, becomes a factor of attractiveness and image for a country. In terms of analysis, considering a continuum – not a strict dichotomy – between hard power and soft power allows for more flexibility between projects and resources. This multilateral institutional program connects the rail freight container transport networks of China and the EU. The multimodal transport structure connects the Caspian and Black Sea ferry terminals with the rail systems of Asian and European countries. The route starts from Southeast Asia and China, crosses Kazakhstan, the Caspian Sea, Azerbaijan, Georgia, and Turkey. The so-called middle corridor is present in the speeches and in the initiatives and funding of the European Union and China. This land logistics link between the China and EU trading zones goes beyond transport to digitation of data and complying with European Union and UN standards. Therefore, several models are facing together depending on the view of China or the Union. Beyond this situation, what are the challenges for this middle power and in the broader context of countries that voluntarily and reasoned choose an identical approach and positioning? A successful solution for a middle power means choosing specific negotiating topics in the international space, being agile and flexible, and knowing how to build coalitions to defend them. In the context of multilateralism, it is necessary to structure actions for a convergence between its interests and those of the partners rather than on an ideology. This is one of the conditions for becoming credible, for developing its discourse and, ultimately, to be perceived by the international community as a country with positive contributions. And beyond this community, by the public, which comes down to finding its place on the world map in the long term, when the country becomes known and better identified. Diplomacy becomes public, because it consists of informing, or even dialogue with public opinion. Thus, the Astana Forum presents a middle power capable of building a regional dialogue with experts, politicians, and international actors, which contributes to the construction of legitimacy and the ability to influence through contacts, cooperation and media coverage. Being a middle power also means being courted in alliance competitions whose number and formats become exponential, which generates as many acronyms as possible, here China + C5 and EU + C5. Two recent summits, beyond content and photos, tell the stakes. The China-five Central Asian summit took place in May 2023 in Xi’an, China with the signing of 54 multilateral agreements. The meeting of the European Union and the five Central Asian countries took place at the beginning of June in Cholpon Ata, Kyrgyzstan. These are the five countries being courted no doubt with strong pressure to choose one or the other alliance, hence the tensions and questions of cooperation already mentioned. Moreover, contradictions exist between the possibilities and wills of the middle powers and the driving force of international institutions, structures with more rigid rules, including, for example, the Security Council. A new paradigm is emerging: the role of coalitions. Finally, middle-power countries must balance their national interests, common international challenges such as climate change, and building alliances and coalitions. Claims of middle powers, alliances and coalitions and connectivity programs may be shaping the geopolitics of tomorrow.

Ladies and Gentlemen, It is very special for me to be in Manila and once again to experience first-hand the famous Filipino hospitality. Each time I visit, I am struck by the warmth, intelligence, and honesty of the people I meet. You make everyone feel at home, even 10,000 kilometres from home. While visiting your beautiful country, I have also learnt a proverb of yours. It says: ‘Be like a rice stalk: the more grain it bears, the lower it bows'. I believe a country's proverbs can tell a lot about its people.  And this proverb certainly describes the people of the Philippines: always humble, especially in success. Right now, the Philippines is booming. Thanks to your resilience, dynamism, and work ethic, your economy grew by close to 8% last year. You are among the fastest growing emerging markets. Your Development Plan, as outlined by President Marcos, is prioritising good governance, cutting red tape, and speeding up permitting for strategic investments, for example in renewables and semiconductors. Not only does this make the Philippines an even more attractive trade and investment destination for European firms, but Filipino companies are also beginning to thrive in the European market. IMI, for example, has expanded its micro-electronics business to become the 14th largest manufacturing solutions provider in Europe. Or consider the Philippine port-handling giant, ICTSI. It operates a container terminal in the Adriatic Sea, and recently signed another 30-year lease to operate a port in the Baltic. It is worth mentioning, as well, that there are around 50,000 Filipino sailors manning ships with European flags. You make trade happen. And you never boast about any of this. So allow me to begin by thanking all the Filipinos who are contributing every day to the friendship and economic partnership between Europe and the Philippines. These examples show that the ties between our countries are already strong. But the time has come to lift our partnership to the next level. Because we have much more in common than our geographic distance would suggest. I see three main fields where we share interests and values, and we are just made to work together. First of all, international security. Both the Philippines and Europe believe in a global order that is based on the principles of the UN Charter, such as the respect for every nation's sovereignty and territorial integrity. And this order is now threatened, in both our regions. Second, economic transformation. We are both modernising our economies, with a focus on the green and digital transitions. And in parallel, we are de-risking our trade and investment. Europe and the Philippines are natural economic partners more than ever before. And third, on democratic values. Because economic progress can only be coupled with social progress, for all people in our societies. Let me begin with security. The Philippines have helped build the rules-based global order, as a founding member of the United Nations, ASEAN, and the World Trade Organisation. And last year, you stood up to uphold the global order, when Russia sent its tanks into Ukraine. Both the European Union and the Philippines – along with over 140 countries – have clearly condemned Russia's war of aggression against a sovereign, independent member of the United Nations. And we Europeans will continue to support Ukraine and to uphold the UN Charter for as long as it takes. But another permanent member of the UN Security Council – China – has yet to assume fully its responsibility under the UN Charter to uphold the sovereignty and territorial integrity of Ukraine. This is happening against the backdrop of China's more assertive stance in your region. Europe has constantly called on China to respect the sovereign rights of states within their exclusive economic zones. China's show of military force in the South and East China Seas and in the Taiwan Strait directly affects the Philippines and our other partners in the region. But it could also have global repercussions. And any weakening of regional stability in Asia, the fastest-growing region in the world, affects global security, the free flow of trade, and our own interests in the region. So whether we talk about Ukraine or about the South China Sea, our security is connected. That is why the EU has been enhancing its engagement in the Indo-Pacific. We aim to promote a free and open Indo-Pacific, to reinforce respect of international law and address global challenges. With the Philippines, we are deepening our security partnership, particularly on maritime security and on cyber cooperation. And we want to do more.  Ladies and Gentlemen, We cannot choose our neighbours, but we can choose who we do business with, and on what terms. This leads me to my second point. We, Europeans, are clear-eyed when it comes to diversifying and de-risking our trade and investment. We made the mistake with Russia, thinking that we could manage our geopolitical differences through business. Before the full-scale invasion of Ukraine, Europe relied heavily on energy imports from Russia. When the Kremlin started the war, Russia tried to blackmail us with cutting its gas supplies. 80% in eight months. This triggered a severe energy crisis, but we withstood. We saved energy, we diversified to like-minded partners, and we invested massively in home-grown renewable energy. Today, we are stronger than before and more independent. And we have learnt our lesson. We will not make the same mistake again. When it comes to the key inputs needed for our competitiveness, such as critical raw materials, we should never rely on one single supplier. This is the core of our de-risking strategy. And I know that this is not only Europe's strategy. The Philippines, for instance, exports 90% of its nickel ore to China, instead of processing it inside the country to create more jobs and added value. But this can change. That is also why I am here in Manila today. The Philippines and the EU have a major opportunity to step up our partnership on both trade and investments. Let me focus on investments, first. Europe has just launched a plan for boosting infrastructure investments in strategic sectors in partner countries. It is called Global Gateway, and for ASEAN, we have put forward an investment package worth EUR 10 billion in public funds until 2027. But it is not only about the money. It is also about the method. European investments come with the highest environmental and labour standards, as well as with a strong focus on creating local value chains. Take the raw materials examples. Unlike other foreign investors, we do not want to invest only in the extraction of raw materials. We can also support you in building local capacity for processing, powered by new clean energy infrastructure. Global Gateway seeks to create good jobs right here because this also strengthens our supply lines. Global Gateway seeks to promote investments that move Filipino sectors up the value-chain. And we look forward to working with the Asia Development Bank, based right here in Manila.  You are experts in the region, and we share similar priorities.  So it is only natural that we work hand-in-hand. Moreover, the Philippines are a natural leader in digital innovation. The Philippine Venture Capital Report of 2023 observed an explosion of new activity in the country's start-up ecosystem. Your e-commerce market value increased by 33% in the last three years alone. The people of the Philippines are five years younger than the global average. So it is no surprise that your economy is so dynamic. The Philippines can become a new digital hub in the region. But as entrepreneurs everywhere, Filipino entrepreneurs need infrastructure investment. This is where Global Gateway can truly make a difference. And we are already working on the ground, or rather, in space. Together with the Philippines Space Agency, we are building the first earth observation system in Southeast Asia. In parallel, Nokia is investing in 5G infrastructure. Why does this matter to Filipino innovators? Because the European Copernicus satellites will be made available for space-based services here in the Philippines, like disaster risk management against typhoons, or satellite navigation, which is fundamental for aviation, drones, and autonomous driving. This is part of a larger digital economy package that we are finalising with the government. We are even exploring a possible extension of the new fibre submarine cable that will connect Europe to Japan via the Arctic. We would create a direct data connection between our regions to de-risk and open up new opportunities for both our economies. New investments could also lead the way for more trade between Europe and the Philippines. The EU is your fourth largest trading partner, accounting for nearly 8% of your trade. This is thanks to our current trade preferences scheme. But there is much untapped potential in our trade relationship. Let me give you an example: A few months ago, I was in South Korea. There I saw the impressive positive impact of the trade deal we have concluded. In a little over a decade, EU trade with Korea has more than doubled. This is what happens when you give people and business the opportunity to work across borders. New doors open for innovation. And the most important: People benefit. So let us make progress. Our trade agreements with Singapore and Vietnam are already delivering. And Europe wants to conclude free trade agreements with other ASEAN countries. I believe, like President Marcos, that the timing and conditions are right for us to solidify our bilateral trade relations. That is why we have taken the decision to relaunch our negotiations for a free trade agreement between the Philippines and the EU. Our teams will begin right away a scoping process to identify what we need to do to overcome any remaining gaps before we can get back to negotiating. This should take no more than a few months. Let us seize this window of opportunity, and make it work. Trade agreements today are about much more than eliminating tariffs and quotas. They are about shared commitments, values, and principles, including on human and labour rights. And this leads me to my last point. Our democracies – all of them – are work in progress. None of them is perfect. But they are all perfectible. Your new government has taken some important steps for human rights here in the Philippines. Each one of our democracies is different. But we all share the same universal values, and the same direction of travel. The path towards better democracies is one that we can and should walk together. Ladies and Gentlemen, The Philippines and the European Union may stand at the opposite sides of the world, but our destinies are linked more than ever before. We see it with geopolitics and climate change. We see it in the connection of our value chains. We have a similar outlook on the Indo-Pacific. And we have strong economic ties. Europe wants to be a trusted partner to the Philippines as it grows into its economic potential. We want to be partners who stand eye to eye. Partners who put people and their values first. Having met so many wonderful people here in the Philippines, who are proud of their country, hardworking, and humble, I am excited for what we can achieve together. I know you are proud of your Bayanihan spirit. And I really hope that we can build the same spirit of community between us, in Europe and the Philippines. Salamat, thank you very much and have a wonderful evening.

China’s silence towards the European Union’s electric vehicle probe could mean that a more harmful retaliation is on its way During her State of the Union address on 13 September, European Commission President Ursula von der Leyen announced that the European Union would undertake an anti-subsidy probe against the Chinese electric vehicle (EV) sector. This signalled a major step in the EU’s shift to a more aggressive trade defence against China and raises the question of how China will react, given the importance of the Chinese market to key sectors of the European economy (including the auto and luxury sectors), and also given China’s crucial role in providing goods to the EU for the green transition? An EU-China High Economic and Trade dialogue on 25 September in Beijing, between EU Trade Commissioner Valdis Dombrovskis and his Chinese counterparts, may have given a glimpse into China’s mindset. There were fears Chinese officials would respond aggressively to von der Leyen’s announcement during Dombrovskis’s visit but this was not the case. Nevertheless, the silence may be deceptive. Three main factors should be taken into account when considering potential Chinese retaliation. Subtle but harmful retaliation First, China might file its own anti-subsidy investigation at the World Trade Organisation against key European sectors. This would not be difficult since Europe has ramped up its subsidies massively since the pandemic, and more recently has attempted to gain more ‘strategic autonomy’ in sectors including semiconductors. There is very little the EU can do about this potential retaliation, which would be costly for the sectors targeted and for the EU’s image as a free-trade and WTO champion. Second, China could try to persuade EU governments that the Commission-led investigation should be withdrawn. A similar probe happened in early 2014, when the EU launched an anti-subsidy investigation into solar panels produced in China. President Xi Jinping visited then Chancellor Angela Merkel right after the anti-subsidy investigation was announced. Subsequently, the issue was settled quickly, with the Commission withdrawing the case from the WTO. Based on this previous experience, China might prefer to take up the issue bilaterally, possibly with Germany again, rather than enter discussions with the Commission. But a major difference this time is the relative importance of the auto sector in the EU compared to solar power. The auto sector accounts for 14 million jobs in Europe and a good part of the EU’s exports. Exports of cars and components are heavily concentrated in a few EU countries, especially Germany. These exports to China have plummeted in 2023, with a close to 30% drop, and Chinese competition in third markets and even the EU market, has become much more intense. Third, also unlike the solar-panel probe, it is the Commission and not the sector being harmed that has filed the case. It will be harder for the Commission to withdraw the investigation because it would lose credibility. Merkel decided to accommodate Xi Jinping’s request in 2014 because she wanted to save the auto sector, even at the cost of hurting a smaller part of the German economy – the solar panel companies. The new investigation aims to protect the automotive sector. There could be consequences for major European auto companies producing electric vehicles in China, but jobs in Europe are now more important than the future of those companies in China. In any case, the future of European manufacturers is bleak; they seem to have already lost the EV race to their Chinese competitors. China will find it much harder to move the EU away from its decision to pursue an anti-subsidy investigation, differently to what happened in 2014. Lessons to learn There might be a lesson for Europe in what happened to Apple in China in September. Days before Apple’s launch of its new iPhone 15, Huawei launched its Mate 60 with upgraded functionalities which require high-end semiconductors. Beyond raising doubts about the effectiveness of US-led export controls on advanced semiconductors, this announcement constituted a direct challenge to Apple’s phone sales in China. Chinese officials were also prohibited from using iPhones and rumours spread in Chinese media in advance of the Apple launch about the underwhelming quality of the iPhone 15. Investors dumped Apple stock globally and the company lost about 6% of its value in a few days. China’s retaliation against the Commission’s anti-subsidy investigation might not be as direct and transparent, but it will still be harmful and might offer less room for the EU to respond. Europe’s strategic dependence on China is greater than in 2014 and this probe has the potential to cause a bigger fall-out for the EU. China has strengthened its position as a global power and uncompetitive behaviour could hit European core sectors harder because China has more power to retaliate. On the flip side, the stakes are higher for the EU given the importance of the auto sector in terms of jobs and exports. For that reason, China may not manage to deter the EU’s investigation as easily as it did in the past. But this may prompt China to threaten even larger retaliation.

In early November 2023, Estonia announced a decision to allow Taiwan to open an unofficial, non-diplomatic economic and cultural representative office in Tallinn. The opening of an office does not mean that Tallinn and Taipei are establishing official diplomatic relations, nor does it mean that Estonia is opening its own office in Taiwan. It is following in the footsteps of countries around the world that have unofficial ties with Taipei and want an unofficial government presence in the country to facilitate economic relations. For its part, Beijing has expressly condemned the decision by Tallinn to allow Taipei to decide if it wants an office in Estonia, with China’s Foreign Ministry making a clear statement calling for Estonia to reverse course. Estonia’s announcement occurred just before Taiwan’s Foreign Minister Joseph Wu embarked on a three-country tour of the Baltic states — a rare trip for the foreign minister to visit three countries with which Taiwan does not have formal diplomatic relations. Baltic leaders and ministers stated that they had no plans to meet directly with Wu, though Lithuanian Foreign Minister Gabrielius Landsbergis spoke at the same event as Wu, and his grandfather, the first president of post-Soviet, Lithuania Vytautas Landsbergis, did meet with Wu. Estonia’s move to open a representative office comes after Lithuania made a similar decision, sparking controversy and drawing political and economic ire from Beijing. The Vilnius office, which opened in November 2021, is called the “Taiwanese Representative Office in Lithuania,” which balks the traditional use of “Taipei” over “Taiwan” to avoid Beijing’s complaints and any alleged notions of formal relations. The opening of the Vilnius office resulted in the downgrading of the bilateral relationship with China and the expulsion of the Lithuanian ambassador from Beijing; the removal of Lithuania as a “country of origin” for Chinese trade; and a formal World Trade Organization complaint against China, supported by the United States and European Union. Beijing’s main complaint at the time was that the office provided legitimacy to Taiwan by using the word “Taiwanese,” thus the reason for the strong reaction. Lithuanian President Gitanas Nausėda conceded the point, “I think it was not the opening of the Taiwanese office that was a mistake, it was its name, which was not coordinated with me.” Now, with Estonia’s announcement, that complaint has proven hollow. It is not the “Taiwanese” reference with which Beijing has a problem — the real issue is the expansion of Taiwan’s international space. As I argued in January 2022, “The name of the office [in Lithuania] is the supposed sticking point, but the reality of the matter is that Beijing wants to prevent the expansion of Taiwan’s international space. The mere opening of an office, regardless of name, represents the expansion of Taiwan-Lithuania ties. Likewise, any new de facto embassy would be perceived as offensive to Beijing. … As more countries build ties with Taiwan, leaders will be able to better assess the risks and benefits of diplomacy with Taiwan. Beijing’s wolf warriors now cry foul at any perceived attempt to foster closer relations with Taipei.” Beijing perceives any “win” by Taiwan as a direct threat to its long-term plan to completely isolate Taipei. A possible office in Estonia provides Taipei with the ability to more easily interact with the Estonian people, expand bilateral trade, and demonstrate itself to be a good international partner — all of which threaten Beijing’s ability to shape the narrative regarding cross-Strait relations. As expected, PRC Foreign Ministry Spokesperson Wang Wenbin made clear the Lithuania office name issue was fake. During his regular press conference on November 8, Wang called for Estonia to change course, making no mention of the prospective name of a future office: “We firmly oppose any form of official interaction between the Taiwan region and countries having diplomatic ties with China and oppose any action supporting ‘Taiwan independence’ separatist forces. We call on Estonia to stay committed to its solemn commitment of adhering to the one-China principle, not to allow Taiwan to set up any organization of official nature, and earnestly safeguard the political foundation of its relations with China.” Wang’s language and warnings are less strident than what could be expected, but given that the announcement of the office in Estonia was just made, details are not yet firm. Estonian Foreign Minister Margus Tsahkna hinted to Politico that the office would be “representation—economical representation—of Taipei, not Taiwan,” which, if the name is the true issue, should appease Beijing’s concerns. As more is known, Beijing will assuredly increase its pressure on Estonia, which already includes the Chinese ambassador in Estonia threatening to leave the country if the office opens. The true test will come once details about the office are released. How will Beijing seek to punish Estonia for the move? Will the reaction be less severe than what China did to Lithuania? How will the European Union and the United States support Tallinn should Beijing utilize its coercive toolkit again? Beijing’s response to the office will demonstrate a few key things in the aftermath of the Lithuania example. How Beijing responded to Lithuania created immense international support and attention for Vilnius. Taiwan President Tsai Ing-wen opened up a $1 billion fund for joint Taiwanese-Lithuanian projects and another $200 million fund for Taiwanese investment in Lithuania’s industrial sector to show support for the decision, and the Biden administration announced a $600 million credit line. Because Beijing initiated pressure on other countries, such as Germany, to push Lithuania to change course, the overreaction became a critical case study in China’s coercive toolkit. The collective West closed ranks, supported Lithuania for the decision, and warned Beijing against further reprisals. If Beijing treats Tallinn in a similar way as Vilnius, then it will be clear that Beijing will ignore international warnings to serve its own goals — bluster over substance and compromise. The most important thing for Estonia to do in the coming days and weeks is to be resolute in the decision. Divisions within Vilnius prolonged Beijing’s attempt to pressure politicians into changing course. Knowing how angry President Nausėda was about the ordeal provided an opening, but other actors did not back down. At the moment, Estonia’s Foreign Minister Tsahkna is taking the lead in publicly responding, but the coalition government needs to adhere to the same line to diminish Beijing’s ability to pressure specific politicians. If Estonia does not back down, the country could stand to benefit from new Taiwanese-Estonian projects. Since the Taiwanese and Lithuanian offices opened in the respective capitals, Taipei has agreed to assist in building an 8-inch semiconductor wafer production line in Lithuania. The two also agreed to open a joint research center on laser technology in Taiwan. Lithuania is home to two projects funded by Taiwan’s National Development Fund (NDF). Another Lithuanian company, Solitek, received around $8.5 million from the $1 billion fund. During a recent visit to Taipei by Seimas Speaker Viktorija Cmilyte-Nielsen, the two sides signed a memorandum of understanding on health and made a decision to eliminate double taxation — the latter of which is still an issue that Taiwan has with the United States. Progress between Taipei and Vilnius has been slow, but it has gained steam with these investments. Tallinn can expect to reap some new investments with a Taiwan office and take part in the NDF. However, the benefits that Tallinn receives not only from Taiwan but also from the United States will likely depend on how loudly and forcefully Beijing complains — and acts on those complaints. No matter how much investment Estonia receives as a result of this new office opening, Tallinn is now a part of the cross-Strait competition — in an election year. With the upcoming January 2024 presidential election in Taiwan, Tallinn may have inadvertently become a foreign policy issue for the candidates, but that largely depends on Chinese retaliation. Any office will likely open under a new leader in Taipei, so while the announcement and prospective investment promises will occur under President Tsai, the implementation of such things will be up to her successor. After Lithuania defied China and its intense pressure to reverse course, Beijing is now in a situation where another Baltic country has allowed Taiwan to expand its unofficial international space — and thus expanded the threat landscape in its push to eliminate Taiwan’s presence abroad. The more these seemingly small countries defy China and the more they are backed by large countries (and, more importantly, fulfilled promises from Taiwan), the harder it will be for Beijing to keep the next case of Taiwan fever from spreading. The views and opinions expressed in this article solely belong to the author and do not represent the perspectives or stance of World and New World Journal, nor do they reflect the opinions of any of our employees. World and New World Journal does not endorse or take responsibility for the content, opinions, or information presented in this article. Readers are encouraged to consider multiple sources and viewpoints for a comprehensive understanding of the subject matter. Thank you for your understanding.

Beijing seeks normalisation of ties with Europe; however, for Brussels, reconciliation will be conditional on Beijing’s willingness to address fundamental divergences On 7-8 December, European Commission President von der Leyen and European Council President Charles Michel will be in Beijing for the 24th European Union (EU)-China summit, but the first in-person one in four years, taking place at a critical juncture in EU-China ties. At the previous EU-China virtual summit in April 2022, the Ukraine conflict was the primary talking point for the Europeans and other issues such as climate and economics were relegated to the back burner. This time, the focus is likely to be economics. A relatively constructive meeting between United States (US) President Joe Biden and Chinese President Xi Jinping on 15 November, which led to the resumption of US-China high-level military dialogue and Xi’s assurances on Taiwan, has contributed to paving the way for the EU to focus on ironing out economic irritants. Deficits, dependencies and de-risking With daily EU-China trade amounting to 2.2 billion euros, the EU is concerned about its widening goods trade deficit with China—400 billion euros in 2022—referred to by EU Ambassador to China, Jorge Toledo, as the “highest in the history of mankind”. In the context of China’s restrictive environment for foreign companies, the EU is keen for a level playing field and greater reciprocity in trade. Another major area of contention is Chinese overcapacity through subsidies in key industrial export sectors such as electric vehicles (EVs) that are undermining European automotive industries. The European Commission has already launched a probe for the EVs sector and is now considering other major sectors including wind energy and medical devices. In addition, Europe is heavily dependent on critical raw materials such as lithium and gallium from China, which are intrinsic to its green transition. While over 90 percent of the EU’s supply of raw materials comes from China, the EU aims to address this dependency through its Critical Raw Materials Act. Factors such as Chinese aggression in the South China Sea, human rights violations in Xinjiang, and pandemic-era supply chain disruptions have deteriorated European perceptions of China. The downswing in EU-China ties was further accentuated by Beijing’s posture in the Russia-Ukraine conflict and the failure of European leaders to coax China to positively use its influence with the EU’s most immediate security threat, Moscow. Thus, a major trust deficit has accompanied the trade deficit. On 6 November, only a month before the summit, von der Leyen in her speech warned against “China’s changing global posture” with its “strong push to make China less dependent on the world and the world more dependent on China”. While acknowledging China as Europe’s most important trading partner, she emphasised the “explicit element of rivalry” in the relationship. Another dialogue of the deaf? The EU and its member states are recalibrating their China policies, with countries such as Germany even releasing China-specific documents outlining their approach. The EU’s “de-risking” strategy aims to reduce dependencies in critical sectors, and through an expansion of its policy toolbox, the Union is implementing a range of measures including greater scrutiny of inbound-outbound foreign investments, anti-coercion instruments, and export controls for dual-purpose technologies. In this context of an evolving European approach, the upcoming summit is a much-anticipated one for EU-China watchers. Despite the strain in relations, high-level diplomatic exchanges have continued in full swing, many of which, such as von der Leyen’s visit to China in April, EU Trade Commissioner Valdis Dombrovskis’s visit in September, and EU Foreign Policy Chief Josep Borrell’s visit in October were conducted in preparation for this summit. A sluggish Chinese economy gives Europe room to wield its economic leverage. However, grey areas in Europe’s China policy remain, especially with regard to the implementation of measures and the need for more effective coordination, often compromised by a lack of unity amongst member states and tendencies of leaders such as French President Emmanuel Macron and German Chancellor Olaf Scholz to prioritise business interests over all else. Thus, straddling the fine balance between economic opportunities and security risks will continue to be a test for how Europe manages its interdependence with the lucrative Chinese market. Previous EU-China summits have not produced a joint statement, and according to sources, this summit is unlikely to produce one as well. Yet it is an opportunity for the EU to put forward unresolved concerns and forge some common ground. Without concrete deliverables, the upcoming summit risks being another “dialogue of the deaf” as Borrell famously described the previous one. Amidst renewed transatlantic solidarity, Beijing’s rhetoric indicates that it seeks normalisation of ties with Europe and a more independent European policy towards China away from Washington’s influence. Yet for Brussels, reconciliation will be conditional on Beijing’s willingness to address fundamental divergences.

The EU should try to attract more business from Taiwan, though Taiwan’s January 2024 election hasn’t made the job easier Taiwan’s economy has transformed since 2016 under the leadership of the Democratic Progressive Party (DPP). In particular, the Taiwanese economy has diversified away from mainland China, while reliance on semiconductors is now even more acute than eight years ago. In elections in January, the DPP won the presidency for a third term but lost overall control of Taiwan’s parliament, the Legislative Yuan. In contrast to the previous two terms, the DPP therefore needs to agree policy, including economic policy, with other parties. this could signal a softer approach in relation to the continuation of diversification away from the mainland. Ongoing diversification Mainland China remains Taiwan’s biggest export and investment destination, despite the share of Taiwan’s exports that go to China reducing from 40 percent on average between 2016 and 2019 to 35 percent in 2023 (Figure 1). This has happened even though Taiwan signed a free trade agreement with mainland China in 2010 – the Economic Cooperation Framework Agreement (ECFA) – which at the time led to an increase in Taiwanese exports to the mainland. The COVID-19 pandemic in 2020 also triggered a sharp increase as the rest of the world entered a deep recession, but the trend has not lasted. Since 2021, the share of Taiwanese exports going to the mainland has dropped significantly, influenced by US export controls on high-end semiconductors, with a clear knock-on effect on Taiwanese exporters.   Taiwanese FDI into mainland China has also shrunk rapidly, from 65 percent of total Taiwanese FDI on average from 2008-2016 to 34 percent on average from 2017-2023 (Figure 2). The difference between these periods is that in the former, Taiwan was governed by the Kuomintang (KMT, Chinese Nationalist Party), which favours closer relations with the mainland, while in the latter period the DPP was in charge. There are both geopolitical and economic reasons for mainland China’s falling share of Taiwanese FDI. First, the ECFA trade and investment agreement, reached under the first term of KMT President Ma Ying-jeou, was not extended when a new round of negotiations started in 2012, to include technological cooperation, finance and people-to-people exchanges. A broader economic agreement between Taiwan and the mainland, mostly focusing on services – the Cross-Strait Service Trade Agreement (CSSTA) – fell victim to lack of consensus among Taiwan’s main political parties, increased tensions in the Taiwan Straits and student protests in Taiwan (the so-called Sunflower movement) in 2014.1 Second, with the DPP victory in 2016, the new Southbound Policy 2 was launched, offering incentives for Taiwanese companies investing in 18 Asian countries, including ASEAN 3, India and other South Asian and Australasian nations. In addition, rising labour costs in mainland China, the ongoing trade war between the US and China, an increased regulatory burden in the mainland and political tensions between the two sides of the Taiwan Strait also pushed Taiwanese businesses to look elsewhere to invest. -    The new political reality and geographical diversification While the election-winning DPP wants to see further diversification away from the mainland, the more pro-China party, the KMT, wants reinforced economic relations with China.4 Because of the now-hung parliament, the DPP will need to take some of the KMT’s wishes into account it wants pass new rules, including those related to geographical diversification. Beyond the two parties’ preferences, two other important issues also need to be factored in. First, geographical diversification requires open markets but Taiwan is increasingly unable to open any market through trade or investment deals. Taiwan has spent the last eight years negotiating bilateral deals with its closest allies, Japan and the US, but the DPP administration has not even been able to complete these. Incoming President Lai has said that Taiwan should continue to push to be part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), to which it applied in September 2021, but the reality is that Taiwan’s application has little hope of success. China officially applied to be a member of the CPTTP only a couple of days before Taiwan. Since then, the United Kingdom has become a member of CPTTP, but the negotiation processes with Taiwan and mainland China have not started. Australian’s prime minister, Anthony Albanese, has expressed severe doubts about Taiwan’s ability to become member of CPTTP because of lack of international recognition of it as a nation-state.5 Second, while the DPP is likely to continue to offer more fiscal incentives to promote diversification in Southeast Asia and India (under the Southbound Policy), the fastest-growing destination for both exports and foreign direct investment from Taiwan is the United States, followed by Japan. This can be explained by the ongoing artificial intelligence revolution, which needs semiconductors, and the decisions of some key Taiwanese chip companies (especially TSCM) to open factories overseas for chip production, with the US and Japan as the most important destinations. In other words, the DPP’s push for geographical diversification might not be the main reason why diversification has happened; rather, it has been driven by market forces and business opportunities. This also means that the KMT push to maintain – if not deepen – economic ties with mainland China might not succeed unless China’s currently underwhelming economic performance turns around. Implications for the European Union So far, the EU has benefitted little from Taiwan’s trade and investment diversification, at least when compared to the US and the rest of Asia. The EU’s export share into Taiwan has remained practically stagnant (while the US has doubled its share), notwithstanding a large increase in exports from the Netherlands for a single item – ASML’s lithography machines for chip production. The EU lacks a trade or investment deal with Taiwan, but so do some of Taiwan’s other trading partners, including the US. Considering that the EU is the largest foreign direct investor in Taiwan, the question arises of whether the EU should do more to foster more bilateral economic relations. The gains could be substantial, especially from inbound FDI as Taiwanese investment focuses on high-end manufacturing. There has been some movement. A €5 billion investment in France by a Taiwanese company (ProLogium) was announced in May 2023 to build a battery factory 6 . TSMC announced in August 2023 a €4.5 billion investment in a semiconductor factory in Germany 7 . But for the EU to catch up with Japan and the US as a recipient of outbound FDI from Taiwan, the result of Taiwan’s elections could be an obstacle. This is because the DPP will have less control of the economic agenda because it does not control the Legislative Yuan. The close-to-impossible negotiation of a trade and investment deal between the EU and Taiwan – as shown by Taiwan’s difficulties in relation to Japan, the US and the CPTTP – does not point to any improvement in the institutional framework for economic relations to improve. The question, then, is what can the EU offer to attract high-end foreign direct investment from Taiwan? Subsidies to attract semiconductor factories cannot be the only answer, given the very large amounts needed and the pressure such subsidies put on EU member states’ already stretched finances (Legarda and Vasselier, 2023). Working with business associations and chambers should be a key driving force to improve business relations between Taiwan and the EU, especially considering that the EU is the largest foreign foreign direct investor in Taiwan, while Taiwanese companies have been absent from the EU single market until recently. Overall, the US and the rest of Asia have been the main winners from Taiwan’s rapid diversification of its economy away from mainland China. The EU, which is lagging, should work to enhance its economic exchanges with Taiwan. Hopefully the January 2024 election results will facilitate this. Most importantly, the EU should aim to attract more high-tech FDI from Taiwan. Unfortunately, a better institutional framework through a trade/investment deal seems highly unlikely, for geopolitical reasons. This puts all the burden on chambers of commerce and other forums to improve business relations. References 1- The Sunflower Movement was a student-led protest that occuped Taiwan’s Legislative Yuan to put pressure on the KMT government against signing a second cooperation deal with mainland China. See Ho (2018). 2- See the New Southbound Policy portal at https://nspp.mofa.gov.tw/nsppe/. 3- Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. 4- Alicia García-Herrero, ‘Taiwan’s future economic direction hinges on the election outcome’, First glance, 12 January 2024, Bruegel https://www.bruegel.org/first-glance/taiwans-future-economic-direction-… 5- Claudia Long and Stephen Dziedzic, ‘Albanese says Australia is unlikely to support Taiwan 6- France24, ‘Taiwanese battery maker Prologium to invest €5 billion in French factory’, 12 May 2023, https://www.france24.com/en/europe/20230512-taiwanese-battery-maker-pro…. 7- DW, ‘Taiwan’s TSMC to build semiconductor factory in Germany’, 8 August 2023, https://www.dw.com/en/taiwans-tsmc-to-build-semiconductor-factory-in-ge…. Ho, M.-S. (2018) ‘The Activist Legacy of Taiwan’s Sunflower Movement’, Carnegie Endowment for International Peace, 2 August, available at https://carnegieendowment.org/2018/08/02/activist-legacy-of-taiwan-s-sunflower-movement-pub-76966 Legarda, H. and A. Vasselier (2023) ‘Navigating Taiwan relations in 2024: Practical considerations for European policy makers’, China Horizons, 21 December, available at https://chinahorizons.eu/our-research/policy-briefs/278-navigating-taiwan-relations-in-2024-practical-considerations-for-european-policy-makers