G-20: Still Divided on Trade:
Trade was by far the biggest topic of discussion at the G-20 meeting this week. A defiant U.S. President Donald Trump continued to tout his protectionist trade views, touting policies largely at odds with the rest of the G-20’s members, which sought to reassert the need for free trade and push for more inclusive trade policies. Trump’s visit did not coincide with any specific measures being put into place, but with the national security review on steel imports looming and the 100-day action plan ending with China on trade next week, all signs point toward concrete action in the not too distant future. The question is what and how.
Europe, China and others made anticipatory promises to respond strongly and swiftly to any protectionist measures that the White House might propose. The European Union and Japan also agreed to the framework and principles in their bilateral trade deal, but this move came partially as a political stand against Trump. That deal thus far does not include agreement on more contentious data flow and investor settlement dispute issues, which are to be negotiated at a later date. With the lack of those provisions, the announced Japanese-European deal is more akin to an “old-style” trade deal in the model of 20th century as opposed to a modern one that addresses issues such as the digital economy. Nonetheless the agreement shows that while multilateral free trade deals may be down, free trade is not out. While little action was taken by the G-20 itself, the sideline bilateral meetings saw several interesting developments
Trump and Putin Lay Some Tentative Foundations:
The long-anticipated first face-to-face between Trump and Russian President Vladimir Putin took place on the sidelines of the G-20 summit. The overall tone and tenor was warm, as the two leaders shaped the overall meeting as a way to set foundation for moving forward. One area of cooperation is to create a framework to counter cyberthreats, a position Moscow has pressed for years. Establishing such a framework will be tricky with so many state and non-state entities capable of cyberattacks. The other area of potential compromise is Syria. But the two held firmly to their positions over both Ukraine and North Korea, maintaining the standoff between their states, even if the door is open to future negotiations.
On July 7, the United Stattes and Russia reached an agreement on a yet another cease-fire effort in the southwestern region of Syria, namely in the provinces of Daraa and Quneitra. This region was previously one of the four “de-escalation” zones designated under the Astana peace talks, but Israeli pressure as well as the failure of the ceasefire to hold in the zone led to its being separated from the Astana talks and moved into the U.S.-Russian negotiation process. The cease-fire agreement comes at a time when the United States is reconsidering its approach to the Syrian civil war. Recognizing that its gains against the Islamic State may be at risk without a comprehensive resolution to the conflict or at least extensive stabilization efforts, the United States is now more willing to work with the Russians to pursue ways to limit the damaging effects of the war.
North Korea: World Scrambles To Stave Off Conflict:
North Korea kicked off the week with a high-profile July 4 missile test. Pyongyang claimed the device was an intercontinental ballistic missile, a statement later corroborated by several missile experts. U.S. officials said it was likely true. This marks a step toward what the United States considers a red line: A nuclear device capable of reaching the U.S. mainland.
But China and Russia have hesitated to give their blessing to such an interpretation, with Moscow saying it believed the test vehicle was an intermediate-range missile. Even if the test was of an ICBM, this is hardly a red line for either of those countries — they are already within range of North Korean missiles. Moreover, neither wants to see the regime in Pyongyang collapse. As such, Russian and Chinese representatives at an emergency July U.N. Security Council meeting maintained a united front against enhanced sanctions, calling instead for an end to U.S.-South Korean military exercises and the pullout of the Terminal High-Altitude Area Defense missile system from South Korea.
The G-20 meeting brought the first summit among Japan, South Korea and the United States in the trilateral format they have adopted to deal with North Korea. But cracks between Japan and South Korea emerged in a bilateral summit between Japanese Prime Minister Shinzo Abe and South Korean President Moon Jae In: They continue to be divided on the issue of World War II-era “comfort women.” Additionally, Abe’s urging of “maximum pressure” on North Korea is at odds with Moon’s openness to talks.
In Poland, Trump Reaffirms NATO:
During his stop in Warsaw on the way to the G-20, Trump gave a speech explicitly endorsing NATO’s mutual defense clause. The president had refused to do so during a previous visit to Europe, which made some countries (especially those in Central and Eastern Europe) nervous. During the visit, Trump met with the leaders of Poland and a dozen other EU members situated on the Baltic, Black and Adriatic seas, a symbolic event for a region that wants to increase energy, political and defense cooperation and is interested in keeping close ties with the United States.
Quote of the Week:
“We urge Russia to cease its destabilizing activities in Ukraine and elsewhere, and its support for hostile regimes — including Syria and Iran — and to instead join the community of responsible nations in our fight against common enemies and in defense of civilization itself.”
— Donald Trump
A Standoff Between Two World Powers Endures:
India and China’s standoff over the disputed Doklam Plateau bordering Sikkim state and Bhutan continued this week, with Indian and Chinese troops reportedly camped less than 120 meters (about 400 feet) away from each other in the high-altitude region. The standoff began on June 16, after Bhutan requested India’s help in halting a Chinese road construction project it claims was in violation of an agreement governing its longstanding boundary dispute with Beijing. New Delhi fears that China’s road extension could ease the movement of Chinese troops closer to its Siliguri Corridor, a narrow stretch of Indian territory that winds among Bhutan, Bangladesh and Nepal connecting India’s mainland with its restive northeastern wing and vulnerable to a cutoff. China, for its part, claims India is infringing upon Bhutan’s sovereignty by involving itself in what is a bilateral issue between Thimphu and Beijing. The standoff fits into India and China’s broader border disputes and illustrates the strategic competition playing out between New Delhi and Beijing over peripheral nations in South Asia.
The GCC Dispute Continues as Deadline Passes:
This week, following a 48-hour extension, the deadline passed for Qatar to fulfill demands made in an ultimatum by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt. The specifics of Qatar’s response remain unpublicized, but it’s clear that it largely rejected the demands. On July 5, the four blockading Arab states met in Cairo to discuss their response to Qatar’s rejections, but decided against adopting more explicit measures. Later, six vague principles emerged from the blockading countries for Qatar to change its behavior. The timid response by the United Arab Emirates and Saudi Arabia likely reflects a miscalculation as well as internal disagreement over how much harder to push Qatar at this stage. The United Arab Emirates has continued to float the possibility of employing harsher measures, like pushing its trading partners to stop trading with Qatar, while the other three have not been as visibly aggressive.
Is Venezuela Mulling Nationalization of Joint Ventures?
On July 4, Venezuelan lawyer Hermann Escarra said that the government’s Constitutional Assembly may modify Article 303 of the constitution, which allows for joint ventures between private companies and state oil and gas company Petroleos de Venezuela. Escarra suggested a greater state participation in joint ventures, possibly to the point of full nationalization. The statement is one of three from ruling party members close to President Nicolas Maduro’s constitutional rewrite initiative. The government has pressing reasons to consider such a disruptive move. Faced with a looming debt default and a crucial presidential election in 2018, it’s possible that a nationalization of joint ventures has been floated as a means of granting the government additional revenue to disburse through its political patronage networks or to supplement its public finances. It’s unclear how much support this suggestion has among the country’s ruling elites. But that such an idea is even being considered suggests the Maduro government is largely focused on its immediate survival and not on the state oil company’s long-term viability. Nationalizing joint ventures would send a negative message to current and potential investors, which would likely cause some of them to pull out and others to avoid Venezuela entirely in the future. This would hamper Venezuela’s attempts to increase oil production in the long run and limit the country’s ability to recover from its economic crisis.
Re-printed from Stratfor WorldView, www.stratfor.com