In this edition of the Global Sanctions Dashboard, we walk you through existing sanctions against the Wagner Group, limitations around enforcing them, and what more Western allies can do to counter Wagner’s influence in Africa. Moreover, we identify gaps in beneficial ownership information as the key vulnerability in enforcing sanctions against Russia, including in the case of the oil price cap.

The Wagner Group is heavily sanctioned but keeps making money

The Wagner Group, its affiliates, and leadership are the targets of Australian, British, Canadian, European Union (EU), Japanese, and US sanctions for human rights abuses and serious crimes, among other illicit activity, and for participating in Russia’s war of aggression against Ukraine. There are proposals and discussions in play within the EU and UK governments to designate the group as a terrorist organization. The United States redesignated the Wagner Group as a transnational criminal organization in January 2023. While these types of organizational designations may appear symbolic, they pave the way for more significant sanctions and actions such as prosecution of group members and affiliates pursuant to terrorism or criminal charges, which carry significant penalties. Terrorist organization and transnational criminal organization designations also send a strong signal to foreign governments that they may want to reconsider their relationships with these groups.

Shortly after the Wagner Group’s attempted mutiny against Moscow’s military leadership, the United States issued designations targeting the Wagner Group’s illicit gold activity and affiliated entities in the Central African Republic (CAR), United Arab Emirates, and Russia, exposing Prigozhin’s network and mining operations. Concurrently, the United States issued a twenty-nine-page joint advisory on Wagner’s illicit gold trade in sub-Saharan Africa, encouraging industry participants to apply enhanced due diligence to avoid the risks potentially facilitating the violation of economic sanctions or money laundering. 

Despite sanctions and efforts to curtail the Wagner Group’s illicit activity, the group has successfully evaded financial sanctions through a series of facilitators and front companies around the world and by taking advantage of lack of beneficial ownership to obscure operations and avoid identification. The Wagner Group has made more than five billion dollars since 2017, according to a Forbes assessment, mainly from mining, illicit gold trade, and forestry business in Africa, as well as funding from the Russian state. 

The restructuring of Wagner Group’s command and control creates new opportunities in Africa

Despite the mutiny, Russia is likely to continue using the Wagner Group as an irregular or “gray zone” instrument of foreign policy and regional influence across Africa, although some rebranding and restructuring of the organization is expected. The Kremlin could change the Wagner Group’s name but will likely keep the existing security contracts with African authorities and continue using the group for disinformation operations. Reportedly, the Kremlin has already begun the “corporate takeover” of the Wagner Group, with Russian law enforcement authorities seizing computers from companies connected to Prigozhin. 

Nevertheless, the Wagner Group’s organizational restructuring in Russia will likely impact the group’s operations in Africa as the Kremlin moves to assert greater control over Wagner Group operations and personnel and demonstrate that Putin is still in power. For example, around six hundred Wagner Group mercenaries left the CAR following Prigozhin’s failed rebellion, however the reason for their departure remains unknown. Russian government officials have been traveling to Africa and the Middle East in recent weeks to reassure regimes that Wagner Group will be able to meet their existing contract requirements under new command and control. In a visit to Damascus on June 26, Russian Deputy Foreign Minister Sergei Vershinin assured Syrian President Bashar al-Assad that Wagner forces would continue operations under the control of the Kremlin. In the CAR and Mali, Russian Minister of Foreign Affairs Sergey Lavrov offered similar assurances. 

The Kremlin’s attempts to save face and assert control provide Western allies with an opportunity to counter the Wagner Group’s influence and position, particularly in African countries such as CAR and Mali. The United States and its allies can take a “demand-side economics” approach and introduce positive inducements for regimes currently contracting with the Wagner Group, such as diplomatic, economic, and security cooperation that meet the needs of African countries while swaying them away from their reliance on the Wagner Group and ultimately Russia. 

The United States could leverage its designation of the Wagner Group as a transnational criminal organization to share information with foreign partners about the Wagner Group’s criminal activity, human rights abuses, and illicit financial activity to encourage partners to open investigations within their jurisdictions and prosecute Wagner Group personnel as criminals. These prosecutions could be brought to international organizations such as Interpol, to issue Red Notices and engage law enforcement around the world to bring criminals to justice. Further, if the United Kingdom and EU designate the Wagner Group as a terrorist organization, it may deliver a reminder to African governments that terrorism remains a priority and that the West is willing to cooperate with African governments on internal national security threats. A terrorist designation would also allow the EU and United Kingdom to bring terrorism charges against Wagner Group personnel within their jurisdictions and create the ability to further sanction the group and its network, disrupting their financial activity and ability to travel.

Additionally, Western allies can seize the opportunity to raise awareness about Wagner’s lack of success in places like Mozambique and Libya, human rights abuses in African countries, and exploitation of natural resources, to emphasize that their services come at a high cost. Western countries can partner with civil society organizations and African governments to track and identify the complex ownership structures of the Wagner Group-connected companies that enable sanctions evasion, share intelligence on these companies among partners, and take steps to freeze and seize assets of the Wagner Group that run counter to the interests of African countries. 

Identifying a key vulnerability in Russia sanctions enforcement: Beneficial ownership 

The key to understanding who is behind the shell companies and complex ownership structures of companies facilitating the Wagner Group’s activity is identifying the real human beings or organizations that control shell companies. They are called “beneficial owners.” 

The Financial Action Task Force (FATF), the international body responsible for setting global anti-money laundering standards, has called on its members to implement tougher global beneficial ownership standards and give competent authorities adequate information on the true owners of companies. Several countries, including the United States and United Kingdom, have passed legislation and developed or are in the process of developing regulations to bring their countries’ anti-money laundering and countering-the-financing-of-terrorism regimes up to FATF standards on beneficial ownership. 

The FATF and the international Egmont Group of Financial Intelligence Units (FIUs) can collaborate to ensure FATF regional bodies representing African countries and FIUs across the continent have the information they need and the capacity to understand and identify the risks the Wagner Group’s activities present to their respective domestic financial systems as well as the global financial system. 

Lack of knowledge on beneficial ownership also played a key role in obstructing the enforcement of the oil price cap against Russia. The United States and Group of Seven (G7) allies imposed a sixty-dollar cap on Russian crude oil in December 2022, with the goal of keeping oil flowing out of Russia while reducing the revenue stream into Moscow. The effectiveness of the price cap strategy depends on Russian oil exporters and importers accessing maritime services, such as insurance of oil tankers, provided by G7 countries that have sanctioned Russia. If Russian oil importers and exporters want to use these maritime services, which make up 90 percent of the market, they have to comply with the price cap. In response, Moscow built up a shadow fleet of oil tankers whose real owners are unknown. 

Why Russia’s shadow fleet is so dangerous

In February 2023, Russia’s shadow fleet was worth more than two billion dollars and consisted of around six hundred vessels. The fleet includes tankers previously used for Iranian and Venezuelan oil shipments and European tankers sold to Middle Eastern and Asian owners since Russia’s invasion of Ukraine began. The tankers operate without Western insurance and are not up to Western safety standards for oil tankers. Most of them are owned by offshore companies based in countries such as Panama, the Marshall Islands, and Liberia.

A third of Russia’s shadow fleet tankers are more than fifteen years old, which poses heightened risks of oil spills and environmental disasters. Normally, tankers should be demolished when they are around fifteen years old. The average age of the shadow fleet is twelve years and many of them will surpass fifteen years in the coming years. 

Fortunately, Asian nations have strengthened monitoring and inspection of old tankers. For example, Singapore held a record thirty-three tankers for failing safety inspections. Even Chinese port authorities in Shandong province have held at least two tankers older than twenty years for safety checks. Ships under detention for safety violations will have to re-apply for certificates and it’s unclear how long it will take them to get back to the ocean, if at all. 

How to prevent the growth of the shadow fleet

Last year, the number of undisclosed buyers of tankers more than doubled compared to 2021. Buyers of most of these tankers were located outside of G7 countries or the European Union. Specifically, London-based company Gibson Shipbrokers estimates that around one hundred fuel tankers were sold to companies outside of the G7. The undisclosed buyers of European ships most likely were shell companies or individuals acting on behalf of Russian beneficial owners of the shadow fleet tankers. This development is alarming and demonstrates a common theme in the challenges associated with enforcing sanctions against Russia including the oil price cap—beneficial ownership. 

Following FATF’s recommendation to its member states on making the identities of true owners of companies available to competent authorities could make it more difficult for sanctions evaders and money launderers to facilitate transactions for sanctioned Russian companies. It could also help sellers of tankers to identify whether the ultimate benefactor is a Russian entity or an individual. In the meantime, greater information sharing between partner nations on illicit Russian financial activity and the shell companies that are involved will help close this gap in sanctions enforcement and increase global understanding of Russia’s reach.   

Kimberly Donovan is the director of the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @KDonovan_AC.

Maia Nikoladze is the assistant director at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @Mai_Nikoladze.

Ryan Murphy is a young global professional at the Atlantic Council’s GeoEconomics Center.

Castellum.AI partners with the Economic Statecraft Initiative and provides sanctions data for the Global Sanctions Dashboard and Russia Sanctions Database.

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In the June 2023 Issue of Longitude, Forward Defense Nonresident Senior Fellow Marco Tantardini published an article on the complexity of recovering manned spacecraft from orbit and landing them on other bodies in the solar system.

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Marco Tantardini

Nonresident Senior Fellow

Forward Defense Scowcroft Center for Strategy and Security

Italy Space

Forward Defense, housed within the Scowcroft Center for Strategy and Security, generates ideas and connects stakeholders in the defense ecosystem to promote an enduring military advantage for the United States, its allies, and partners. Our work identifies the defense strategies, capabilities, and resources the United States needs to deter and, if necessary, prevail in future conflict.

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The post Tantardini in Longitude on the future of human spaceflight appeared first on Atlantic Council.

Below, our experts decode all the goings-on in Vilnius—and what they mean for Kyiv’s path to NATO membership, the war in Ukraine, Sweden’s forthcoming accession, the Alliance’s growing focus on China, and more.

Click to jump to an expert analysis:

Reactions from Wednesday, July 12

John Herbst: A step forward for Ukraine’s security, but not a large one

Anca Agachi: A mixed bag, but with signs of quiet progress

Daniel Fried: The G7 Joint Statement is no Article 5, but it’s a start

Hans Binnendijk: Vilnius was a bridge to next year’s NATO summit in Washington

Phillip Cornell: Energy issues took a backseat in the Vilnius communiqué, but loom large in NATO’s future

Reactions from Tuesday, July 11

John Herbst: An uninspiring result for Ukraine

Christopher Skaluba: ‘Ambiguous’ ‘head-scratching and disappointing’ language about Ukraine’s NATO membership 

Daniel Fried: Allies make clear Ukraine is firmly in the transatlantic family 

Shelby Magid: Calling out the ‘most significant and direct threat’—and its accomplice

Rich Outzen: A clear-eyed snapshot that meets the geopolitical moment

Andrew D’Anieri: The NATO-Ukraine Council is a net positive step, but also the ‘bare minimum’

Rachel Rizzo: Summit statement shows continued disagreement about Ukraine ‘at the highest levels’ of NATO

David O. Shullman: The communiqué confirms NATO’s growing attention to Indo-Pacific security

Ian Brzezinski: The Biden administration was ‘largely alone’ in blocking Ukraine’s roadmap to membership

A step forward for Ukraine’s security, but not a large one

There is significant overlap among the members of the G7, NATO, and the European Union (EU). Four of the G7 nations are in the EU and six are in NATO. It is therefore no surprise that the general approach of the three organizations to Moscow’s war on Ukraine share similar characteristics. All three organizations have actively supported Ukraine since Moscow’s aggression began in February of 2014, and much more so when it intensified in February of 2022. All assert Ukraine’s right to enjoy the peace and stability that should be provided by the liberal international order. With the United States in the lead in NATO and the G7, both organizations have provided significant support to Ukraine, ensuring that Russian President Vladimir Putin could not achieve his goal of establishing effective political control in the country.  

At the same time, again with the United States’ decisive influence, the G7, like NATO, has avoided steps that might seem overly provocative to Moscow—a clear call for Ukraine’s victory against Moscow’s aggression or decisive steps that would lead to a faster Ukrainian victory. So the best way to look at the Joint Declaration of Support for Ukraine issued by the G7 on July 12 in conjunction with the NATO Summit in Vilnius is as a mostly US-influenced two-step. 

The NATO Summit produced an uninspiring communiqué on the Ukraine-NATO relationship that moved only slightly beyond the language of the 2008 Bucharest NATO Summit. The G7 Declaration was timed to the NATO Summit because the question of Ukraine joining NATO is linked with the issue of security guarantees. Both are meant to address the difficult question of how an independent Ukraine can live in peace and security alongside a hostile Russia. So it is no surprise that the G7 statement is a step forward toward enhancing Ukraine’s security but not a very large one. 

The declaration affirmatively states Ukraine’s right to choose its own course, join the West, and be free from intimidation and aggression. But it does not offer collective G7 action that might provide greater protection against future Kremlin provocations; instead, it encourages bilateral arrangements between Ukraine and individual G7 states. It places emphasis on the provision of weapons to Ukraine to make it a less appetizing target for a predatory Kremlin. This is a reasonable concept, but less effective than an actual guarantee by the G7 countries to respond forcefully to future Kremlin aggression. Yet even this step is undermined by the fact that all the G7 countries—with the possible exceptions of the United Kingdom and, perhaps now, France—have been reluctant to send Ukraine the more advanced weapons it needs to deliver that decisive blow to Russian forces on its territory.

Russian commentators have dismissed the NATO communiqué as a disappointment for Kyiv, but expressed some dissatisfaction with the G7 Declaration. Their real ire, though, is aimed at Paris, after the French decision to send SCALP long-range missiles to Ukraine. This underscores France’s differences with Washington, which is still unwilling to send Army Tactical Missile Systems (ATACMS). French President Emmanuel Macron’s boldness is welcome, but no substitute for strong US leadership.

—John Herbst is senior director of the Atlantic Council’s Eurasia Center. He served as US ambassador to Ukraine from 2003 to 2006.

A mixed bag, but with signs of quiet progress

Overall, the Vilnius summit stuck the landing, and to continue the metaphor, the gymnastic feat was about as tough as it gets. This was indeed a summit of unity, as US President Joe Biden had hoped, and the breakthrough regarding Sweden’s NATO accession especially contributed to that sense. The Alliance also successfully positioned itself as a global actor that understands that the security environment has fundamentally changed, and the European and Indo-Pacific theaters are inextricably linked. The attendance of the Asia-Pacific 4 (Australia, Japan, South Korea, and New Zealand) and language in the communiqué elevating the role of partners is crucial in this regard.

However, the summit’s results were mixed on a range of other issues. Despite high hopes and a strong moral argument, Ukraine was not offered the clear path and timeline it was hoping for to join the Alliance, even as its future in the Euro-Atlantic family was reconfirmed. This outcome, while not surprising, was also likely the best achievable outcome at the moment given Allied differences. This hints at a tough road for NATO in making the ambitious progress necessary by 2024, especially if Ukrainian battlefield advances slow down. Eastern flank reinforcements to brigade-level will only happen “where and when required,” and the language on China was modest in advancing proposals for action, as it was more intent on defining the challenge Beijing poses. The Alliance generally make the most important progress quietly, and here is where I saw encouraging signs: the focus on resilience and securing critical infrastructure; important mentions of Allied enablement and sustainment; and cooperation with the private sector and defense industry to deblock defense supplies.

While kicking the can down the road offers some time, Allies need to start to work with aplomb now to deliver. If anything, the NATO Summit in Washington in 2024 will be an even higher order to rise to—morally and strategically.

—Anca Agachi is an associate director and resident fellow for Transatlantic Security Initiative in the Scowcroft Center for Strategy and Security.

The G7 Joint Statement is no Article 5, but it’s a start

The G7 Joint Statement on Ukraine is out. It’s no Article 5 security guarantee. It’s a framework for negotiations of bilateral and G7 arrangements with Ukraine to provide military and economic assistance, as well as unspecified security commitments for that country. It includes a promise of consultations with Ukraine in case of a future Russian armed attack that could generate military and other forms of support. For its part, Ukraine commits in the statement to continue its democratic and rule of law transformation, as well as its military reforms. Notably, the statement makes clear that it is no substitute for NATO membership but is intended to help Ukraine while it pursues that goal.

Cynics can make a meal of the statement. It provides little beyond what G7 countries are already doing. But there is another way to look at it. The big strategic question that NATO, the G7, and the United States have faced is whether Ukraine is part of the transatlantic and European family and its institutions or whether it is part of a Kremlin sphere of domination. The Kremlin claims Ukraine as its own.There are many in Europe and the United States who tacitly (or overtly) agree and would cut a dirty deal with Moscow to that end.

Happily, that’s not where NATO and the G7 have come out. The NATO communiqué’s language on Ukraine could have been stronger and the G7 statement is no security guarantee. But they both rest on the premise that Ukraine is part of the European and transatlantic family. The details of how and when have yet to be worked out. The goal is clear: NATO membership for Ukraine. The G7 statement can serve as scaffolding for Ukraine while it works to get there. 

—Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council and a former US ambassador to Poland.

Vilnius was a bridge to next year’s NATO summit in Washington

The NATO Summit in Vilnius was a success. But its success was limited, and it will be seen more as a bridging mechanism between last year’s Madrid summit and next year’s Washington summit. At Madrid, the allies agreed on the nature of the new threats and challenges emanating from both Russia and China. Madrid’s new Strategic Concept refocused the Alliance. 

Vilnius was to be an implementation summit. And it was. It recorded progress in multiple areas, from enhanced deterrence to hybrid war to climate change. But it stopped short on several key issues like Ukraine’s membership, NATO’s role in the Indo-Pacific, and managing the nuclear weapons threat posed by Russia and, increasingly, China.

The Vilnius summit took place in the midst of Europe’s most destructive war in nearly eight decades and a US effort to rebalance its relationship with China. This resulted in a degree of caution. Unity formed around lowest common denominator solutions. During the coming year between Vilnius and Washington, the bridge created this week will hopefully be strengthened enough to bear the weight that the Alliance will need to carry next year.

The most successful element of the Vilnius summit was enhancing NATO deterrence along its front line with Russia, from the High North to the Mediterranean Sea. With Finland in and Sweden soon to be in, there is a solid line of defense against Russian aggression. There is no clearer evidence of Russia’s strategic failure. NATO’s New Force Model, agreed upon last year, will provide clarity for nations with regard to their specific wartime responsibilities and incentives to meet NATO’s 2 percent of gross domestic product defense spending floor. NATO’s forward presence in eight front line states needs further strengthening to include a continuous brigade-level presence in each. And the readiness and mobility initiatives need further attention.

The greatest disappointment at Vilnius was the inability to provide a more concrete path for Ukrainian membership after the war ends. But cautious steps were taken. The NATO-Ukraine Commission became a Council, giving Ukraine a stronger voice in NATO political affairs. The Council will be used to plan for future Ukrainian membership, which was again solemnly committed to “when allies agree and conditions are met.” This shortfall for Kyiv was somewhat offset by the G7 joint declaration of support for Ukraine, which pledges additional long-term security commitments and arrangements. Hopefully by the Washington summit, that path can be paved with more concrete.

 —Hans Binnendijk is a distinguished fellow at the Atlantic Council’s Scowcroft Center for Strategy and Security.

Energy issues took a backseat in Vilnius communiqué, but loom large in NATO’s future

While the debate over membership (delayed for Ukraine, confirmed for Sweden) dominated the last-minute negotiations over the NATO Summit communiqué, the opening bulk of the document itself is rightly dedicated to reaffirming the traditional and newly relevant core tenets of NATO’s existence—collective defense, nuclear deterrence, and the production and logistics to achieve them. But about two-thirds of the way down, the communiqué turns to how the Euro-Atlantic security environment has shifted. 

The war in Ukraine has reaffirmed that “emerging security challenges” (in NATO parlance) have arrived, from the weaponization of energy to the widespread “digitalization” of warfare and the importance of resilience. 

Indeed, energy security and climate change are gaining renewed importance for the Alliance. Climate security issues are a personal priority of the secretary general, and a changing energy economy means that the pipeline politics of yesterday will look simple compared to the complex security implications of integrated power systems, critical digital infrastructure, supply chains for key inputs to transition, and the like. And while NATO wades into the tech innovation space with its own acceleration fund (DIANA), it has yet to grasp the power of military procurement for demonstrating, scaling, and standardizing technologies that will be key to mitigating emissions in the civilian space while also boosting military effectiveness. Meanwhile the energy transition itself will be a messy process, with pockets of volatility and economic mismatches that could directly impact political stability, popular support for a sustainable transition, and strategic relations.

The Vilnius summit is a turning point for many reasons, but perhaps the most fundamental for NATO as an institution is its shift from an internally focused bureaucracy with declining budgets fighting to justify its existence in the post-Cold War world, to one compelled to adopt a growth and ambition mentality. Where before it was simpler to ring-fence NATO’s military mission, concerns about climate change and strategic competition are imposing policy-driven global economic realignments. To fulfill its ambitions for leadership in that new environment, NATO needs the competence and reach to provide important security-related input to key decisions about infrastructure investment and managing new technology—and it needs to be convinced of its own relevance in those spaces.

—Phillip Cornell is a principal at Economist Impact and a nonresident senior fellow at the Atlantic Council Global Energy Center.

An uninspiring result for Ukraine

Talk about the eleventh hour! The NATO Summit communiqué was finally released at approximately 6:40 p.m. in Vilnius, rather late for a summit document. There was a good reason for this: clear disagreement between a large number of East European, Nordic, and some Western European allies on the one side and the United States and Germany on the other about how forthcoming the Alliance should be about Ukraine’s eventual membership in NATO. While the ad hoc coalition wanted clarity in hastening Ukraine’s membership, Washington and, to a lesser extent, Berlin were cautious. Given the weight Washington enjoys in NATO deliberations, this meant that the much larger number of allies could not get their preference. But given the importance of NATO unity, this meant that the United States and Germany had to move beyond their original position. 

The end result was not quite inspiring. The communiqué notes that Ukraine no longer needs to meet a Membership Action Plan, and the NATO-Ukraine Commission will become a NATO Ukraine Council: small steps in the right direction. On the crucial membership issue, the communiqué states, “the Alliance will support Ukraine in making these reforms on its path towards future membership. We will be in a position to extend an invitation to Ukraine to join the Alliance when Allies agree and conditions are met.” This is not much movement beyond the 2008 Bucharest NATO Summit language noting that Ukraine would eventually be a member.  

It was no surprise that a few hours before the communiqué appeared, Ukrainian President Volodymyr Zelenskyy tweeted his dissatisfaction: “It’s unprecedented and absurd when [a] time frame is not set neither for the invitation nor for Ukraine’s membership. While at the same time vague wording about ‘conditions’ is added even for inviting Ukraine.” This is somewhat sharp, but perhaps understandable from a man whose country is facing an aggression designed to destroy “Ukrainianness.”

While this denouement does not add luster to the Vilnius summit, there are other developments that make this a historic occasion. The main thing, of course, is the admission of Finland and Sweden to the Alliance. This greatly strengthens NATO security in the north. But also important is NATO finally recognizing  that  “the Russian Federation is the most significant and direct threat to Allies’ security and to peace and stability in the Euro-Atlantic area.” This is an important reminder that US and NATO support for Ukraine is not philanthropy, but the smart way to defend our vital interests. The communiqué also directly addresses the Belarus problem: “Belarus’ support has been instrumental as it continues to provide its territory and infrastructure to allow Russian forces to attack Ukraine and sustain Russia’s aggression. In particular Belarus, but also Iran, must end their complicity with Russia and return to compliance with international law.”  

These two items portend a further strengthening of NATO policy against the Kremlin threat and in support of Ukraine. Vilnius also foreshadows what is to come in NATO dynamics and policy. The seventy-fifth anniversary of the Alliance will be celebrated at the NATO Summit next year in Washington DC. That event will give US President Joe Biden a chance to establish a legacy as an outstanding national security president. For that to occur, he will need to listen closely to the United States’ newly active East European allies and 1) provide Ukraine all the weapons it needs to defeat the Kremlin on the battlefield and 2) move beyond caution to hasten the anchoring of Ukraine in NATO.

—John Herbst is senior director of the Atlantic Council’s Eurasia Center. He served as US ambassador to Ukraine from 2003 to 2006.

‘Ambiguous’ ‘head-scratching and disappointing’ language about Ukraine’s NATO membership 

The Vilnius summit is likely to be viewed as a landmark summit for two things that happened and two things that didn’t.

What did happen: The pending agreement by Turkey to ratify Sweden’s membership application will soon add a thirty-second ally to NATO’s ranks, making Vilnius, like Madrid before it, an enlargement summit. That every littoral Baltic Sea state, besides Russia, will be a member of the Alliance is a significant development for NATO’s defense of its northeastern flank. To that end, the adoption of some four thousand pages of classified regional plans for defense of NATO territory completes a shift, started in 2014 after Russia’s invasion of Crimea, to a deterrence-by-denial strategy absent since the waning days of the Cold War.

Missing from the Vilnius communiqué, however, is any clear pathway for Ukraine’s membership. Inside the geeky NATO universe, the upgrading of the NATO-Ukraine Commission to “Council” status and the removal of formal membership action plan requirements for Ukraine are significant developments. But neither packs a political punch, nor will either move be viewed as real progress on the membership question. In fact, communiqué language stating “we will be in a position to extend an invitation to Ukraine to join the Alliance when allies agree and conditions are met” is as ambiguous as the infamous Bucharest statement from 2008 promising that Ukraine “will become” a member of NATO. It is a head-scratching and disappointing formulation. Moreover, the bilateral security guarantees that were broadly promised in the runup to the summit were missing from the final statement. The combination of these things makes for an underwhelming package for Ukraine, though some small hope remains for better outcomes at tomorrow’s inaugural NATO-Ukraine Council meeting.

—Christopher Skaluba is the director of the Scowcroft Center’s Transatlantic Security Initiative and former principal director for European and NATO policy at the US Defense Department.

Allies make clear Ukraine is firmly in the transatlantic family 

It might have and should have been stronger. Nevertheless, the NATO communiqué language on Ukraine’s accession to NATO puts Ukraine within, and not outside, the transatlantic family. The “when” and “how” of Ukraine’s accession to NATO have yet to be worked out but, critically, the Vilnius summit has decided the “whether” of Ukraine’s NATO membership in the affirmative–something that the 2008 Bucharest summit did only at a high level of generality. “We will be in a position to extend an invitation to Ukraine to join the Alliance when allies agree and conditions are met” is the key sentence from today’s communiqué. It’s weakened by the gratuitous qualifier “we will be in a position to” rather than a straightforward “we will extend an invitation.” Still, this offer—any offer—of an invitation to Ukraine is a step forward, and a big one compared to where the United States and most NATO member governments were even a few months ago.

Less noticed (and less debated) was the communiqué text that makes clear, without weakening qualifiers, that “we do not and will never recognize Russia’s illegal and illegitimate annexations, including Crimea.” That language, though it reaffirms long-held positions, helps kill the temptation by some to push Ukraine into surrendering its territory in exchange for a dubious “peace” on Putin’s terms.

While NATO has now set out the goal—Ukraine in the Alliance—much depends on continuing to provide robust military support to Ukraine to help it fight back, and win, on the battlefield. Paragraph twelve of the communiqué notes that allies at the summit agreed on a “substantial package of expanded political and practical support” for Ukraine. It doesn’t provide details, but hopefully they will be announced soon, either by NATO or separately by allies.

Zelenskyy and a number of NATO allies have pushed hard (and pushed the Biden administration) to get the most from this summit. They were right to do so. Now they need to consolidate their gains and prepare next steps, including for next year’s NATO Summit in Washington DC.

—Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council and a former US ambassador to Poland.

Calling out the ‘most significant and direct threat’—and its accomplice

The Vilnius summit communiqué rightly places the Russian Federation as the most significant and direct threat to allies’ security, peace, and stability in the Euro-Atlantic area due to Moscow’s illegal war of aggression in Ukraine, terrorism, war crimes, and horrific violations of international law and norms.

Just as Russia deserves to be so centrally acknowledged for its role as the critical threat to Euro-Atlantic security, Belarus deserves to be right beside it. Any disregard of the role Belarus plays as a threat to regional security and an accomplice to the unprovoked war in Ukraine would be a mistake. NATO smartly recognized the threat from Belarus, condemning Belarus’s instrumental support to the Russian war effort by allowing its territory and infrastructure to be used by Russian forces for attacks into Ukraine.

While the communiqué notes Belarus’s complicity in this aggression, it’s critical to remember these crimes are committed and abetted by the illegitimate regime of Alyaksandr Lukashenka. The dictator, desperately clinging to power, has driven Belarus deeper into the Kremlin’s clutches. NATO’s firm declaration of concern for the situation in Belarus is in part due to Lukashenka deepening the military integration between Russia and Belarus, potentially allowing the deployment of “so-called private military companies” to Belarus (the Wagner Group), as well as (perhaps too mildly put) “malign activities” without respect to human rights, fundamental freedoms, and international law; the Alliance’s declarations are an important signal and sign of hope that Belarus will not be forgotten in the international agenda.

While it is good to see the declaration about threats within Belarus itself, what will surely frustrate many in the democratic forces (along with their supporters), is that there is no acknowledgement that these actions are taken by an illegitimate regime, nor mention of the democratic forces rallying against these actions, against the war, and against any deployment of Russian nuclear weapons and nuclear-capable systems on Belarusian territory.

While the communiqué’s comments on Belarus could have been stronger, there is hope NATO leaders and experts in Vilnius have listened in on conversations featuring the democratically elected leader of Belarus and Lukashenka’s rival in the widely disputed 2020 election, Sviatlana Tsikhanouskaya, who has been boldly speaking in Vilnius in side-events calling for commitments to Belarus and reminding the world that the Lukashenka regime does not represent the Belarusian people.

—Shelby Magid is the deputy director of the Atlantic Council’s Eurasia Center.

A clear-eyed snapshot that meets the geopolitical moment

The communiqué presents a clear-eyed snapshot of the Alliance in an era of great power rivalry and strategic competition. Russia receives thorough and excoriating attention as the shatterer of peace and a continuing threat. China is called out for challenging the norms, interests, and security of the Alliance and its members. New and prospective members in the room or at the doorstep (Finland, Sweden, and on a farther horizon, Ukraine) were appropriately hailed, as were Asian partners Japan, Australia, New Zealand, and South Korea. NATO member Turkey will be pleased by paragraphs four and five, which appreciate Turkish support to Sweden’s accession process and mention Ankara’s preferred language on terrorism as a threat “in all its forms and manifestations” to the Alliance. Hard power, conventional deterrence, and readiness are key focal points, though emerging and nontraditional threats are treated as well. Surprisingly, energy security makes an appearance only in paragraph sixty-eight. All in all, though, the document shows energy, focus, and seriousness appropriate to the geopolitical moment.

—Rich Outzen is a nonresident senior fellow at the Atlantic Council IN TURKEY.

The NATO-Ukraine Council is a net positive step, but also the ‘bare minimum’

Much of the conversation immediately ahead of the NATO summit in Vilnius focused on whether the allies would take concrete steps toward Ukraine’s membership in the Alliance. On Sunday, Biden dumped cold water on Ukraine imminently joining NATO, but whispers in expert circles in Washington suggested that an intermediate initiative toward membership might make a splash at Vilnius. In fact, the communiqué itself caused barely a ripple: a new NATO-Ukraine Council that will formalize consultations between Brussels and Kyiv on Ukraine’s “aspirations for membership in NATO.”

A NATO-Ukraine Council is certainly a net positive step toward Ukrainian accession, but the fact that this was the centerpiece of the communiqué suggests it was the bare minimum step upon which allies could agree. The Alliance should have gone further and instead established a defense and deterrence partnership to provide Ukraine lethal aid and training (the renewed Comprehensive Assistance Package will help Ukraine become more interoperable with NATO, but provisions only five hundred million euros for nonlethal aid).

The signers also left open the question of when Ukraine will join the Alliance, writing only that Ukraine will be invited “when allies agree and conditions are met.” This ambiguity may help prevent Russia from blocking specific preconditions to Ukraine’s accession, but it could also create further indignation in Ukraine and in the Baltics if allies continue to disagree on whether Ukraine is “ready” for NATO. 

Pressure will grow on the White House and Western European capitals to elucidate their conditions for Ukraine’s membership, at least in private channels, as Kyiv no doubt campaigns for an invitation at the 2024 NATO summit in Washington DC. 

—Andrew D’Anieri is assistant director at the Atlantic Council’s Eurasia Center.

Summit statement shows continued disagreement about Ukraine ‘at the highest levels’ of NATO

For many, the July 11 communiqué was along the lines of what was expected coming out of the NATO Summit in Vilnius. For others, hope was high that NATO allies would rally around Ukraine and show some clear steps not just in terms of whether the country will eventually join NATO, but exactly how and exactly when. NATO allies didn’t (and couldn’t) go that far, which shows continued disagreement at the highest levels as to Ukraine’s future relationship with the military alliance.

But it’s not all bad news—NATO allies were able to reaffirm their statements in the 2008 communiqué that Ukraine’s future is, indeed, in NATO. The problem with vague language like this is that it kicks the can down the road. The communiqué language basically says that Ukraine can join when all allies agree and when conditions are met. That leaves a lot of room for interpretation. My sense is that in the future—whether it’s in a year at NATO’s seventy-fifth anniversary summit in Washington, or five years from now, or ten—NATO allies will come face to face with the undeniable truth that all allies might not ever be on the same page regarding Ukraine’s NATO membership. That’s a tough pill for many to swallow, but it might just be reality. 

—Rachel Rizzo is a nonresident senior fellow at the Atlantic Council’s Europe Center.

The communiqué confirms NATO’s growing attention to Indo-Pacific security

While the communiqué naturally reflects NATO’s laser focus on the war in Ukraine and the proximate threat from Russia, it also confirms the Alliance’s renewed strength and growing attention to China and the broader Indo-Pacific region.  

Much attention will understandably be paid to the communiqué’s hedging on Ukraine’s eventual NATO membership. But for China, this week’s summit underscores that the war unleashed by its friends in Moscow has single handedly revitalized NATO, which Beijing only recently had viewed (happily) as sinking into irrelevance. This development throws a large wrench into China’s plans to dismantle the US-led alliance network, carve out a sphere of influence in the Indo-Pacific, and transform the rules-based global order.

The document reiterates language in last year’s Strategic Concept on China’s threat to NATO’s “interests, security and values;” “malicious” hybrid and cyber operations; disinformation; and efforts to control key tech sectors, critical minerals, and supply chains. The communiqué also builds on last year’s warnings about China’s “deepening strategic partnership” with Russia to call on Beijing to abstain from all forms of support for Russia’s war against Ukraine—particularly the provision of any lethal aid. 

The call for China to condemn Russia and adhere to the principles of the United Nations Charter—paired with a clear refusal to recognize Russia’s illegal annexations—throws cold water on any hopes that Beijing would be welcomed to facilitate peace negotiations based on Putin’s terms.  

Beijing will be pleased that the document does not include a reference to the opening of a proposed NATO office in Japan, reflecting a lack of consensus on NATO’s role in Asia. But language on the importance of the Indo-Pacific to security in the Euro-Atlantic and specific praise for the contributions of the four Indo-Pacific countries whose leaders are present in Vilnius—Japan, South Korea, Australia, and New Zealand—reflect NATO’s growing recognition that the regions’ fortunes are linked. NATO cannot ignore the threat of war over Taiwan and, as NATO Secretary General Jens Stoltenberg recently put it, “China is watching to see the price Russia pays, or the reward it receives, for its aggression.” 

—David O. Shullman is senior director of the Global China Hub at the Atlantic Council and former US deputy national intelligence officer for East Asia on the National Intelligence Council.

The Biden administration was ‘largely alone’ in blocking Ukraine’s roadmap to membership

NATO fell short of placing Ukraine onto a clear track to Alliance membership, but that cause for membership gained unambiguous momentum at the Vilnius summit. The assertion in the summit communiqué that “Ukraine’s future is in NATO” frustratingly provides no more clarity than the 2008 Bucharest declaration in which NATO first declared Ukraine “will become” a member of NATO. While the Alliance dropped the requirement for Ukraine to jump through the hoops of a membership action plan (MAP)—as was done for the fast-tracked accession of Finland and Sweden—the communiqué states that Ukraine must implement “additional democratic and security sector reforms that are required” which infers an unnecessary de jure MAP.

What we must not overlook or underestimate is the fact that allies brought to the Vilnius summit unprecedented support for Ukraine’s membership aspirations. The warmth with which Zelenskyy was greeted demonstrated how Ukraine is regarded as part of the transtatlantic community. While full allied consensus—a requirement in NATO decision-making—was not achieved, the Biden administration found itself largely alone blocking efforts to provide Ukraine that roadmap to NATO. Even Turkey’s President Recep Tayyip Erdogan asserted that “without a doubt, Ukraine deserves to be in NATO.”  

The key now is to ensure that Ukraine defeats Russia’s invasion quickly and decisively, and to build on the expanded and significant allied support behind Kyiv’s membership aspirations, leveraging the fact that Ukraine today meets the requirements. These are mutually reinforcing goals. Their achievement will make Europe more secure and NATO more powerful. The progress made in Vilnius should make us all the more determined to secure Ukraine’s accession to NATO at the Alliance’s 2024 Washington summit.

—Ian Brzezinski is a senior fellow at the Atlantic Council and a former US deputy assistant secretary of defense for Europe and NATO policy.

The post Experts react: What NATO’s Vilnius summit means for Ukraine and the Alliance’s future appeared first on Atlantic Council.

Below, Atlantic Council experts weigh in on what’s behind this dramatic and consequential turnabout from Erdoğan and what to expect next.

Click to jump to an expert analysis:

Defne Arslan: Turkey comes away with major gains as it prepares to ratify in the fall

Rich Outzen: Inside Erdoğan’s calculus

Anna Wieslander: Sweden gets out of limbo as the Alliance shows a united front

Christopher Skaluba: Don’t spike the football just yet

Rachel Rizzo: Both sides gain in this geopolitical tit-for-tat

Daniel Fried: Did Erdoğan sense Putin’s weakness?

Ian Brzezinski: Sweden makes the Baltic Sea into a NATO lake—and seals the Vilnius summit’s place in history

Turkey comes away with major gains as it prepares to ratify in the fall

On July 10, Erdoğan committed to send Sweden’s NATO membership ratification to the Turkish parliament. The news was welcomed by all NATO members heading into the NATO summit in Vilnius—and will prove beneficial to Turkey, a major ally with a key role in the Alliance’s southern flank, from the Black Sea to the Eastern Mediterranean. The announcement also came right after Erdoğan demanded long-sought EU membership for Turkey in return for Sweden’s accession, in addition to Sweden taking Turkey’s security concerns seriously. Sweden eventually took steps on adopting an anti-terrorism law in June. Additionally, language regarding terrorist organizations, which pose an existential threat to Turkey, appeared in the NATO communiqué. These were important gains for Turkey. It is also encouraging to see that NATO will be establishing a terrorism coordination mechanism for the first time.

What will be the timeline for Sweden’s ratification in the Turkish parliament? It is important to note that apart from Erdoğan’s remarks, there has not been any official announcement from the Turkish side regarding Sweden’s accession yet. This tells me that Erdoğan will wait for the next steps both from Sweden and NATO, as well as from the EU before he sends the protocol to the Turkish parliament.

Erdoğan also announced on July 12 in Vilnius that Sweden’s accession will move forward once the Turkish Parliament opens in October, but not before. As the parliament opens, the ratification needs to be discussed and adopted at the parliament’s foreign affairs committee first, before it goes to the floor.   

Erdogan’s move on July 10 not only took the pressure off of Turkey during the summit, but also gave the president more time to monitor the developments in Turkey’s favor. From the EU side, a customs union revitalization and update, as well as visa liberalization will be beneficial for Turkey, and if things move fast enough, there is always a chance that Sweden’s ratification can happen in September. That said, I also would like to underline that this announcement in Vilnius will also bring obligations to Turkey to meet its side of the agreement.

—Defne Arslan is senior director of the Atlantic Council IN TURKEY program. 

Inside Erdoğan’s calculus

I am mildly surprised that this comes before and not during the Summit, which convenes Tuesday, but overall it makes sense. It is a typical Erdogan move to take a maximalist position in a high-stakes negotiation, show readiness to walk, then compromise for progress on key demands.  

It’s the wrong question to ask, “What pushed Erdogan to do this?” Because it underestimates the degree of strategy he and his advisors have applied—and misreads their original intent. Erdogan and the Turks have long said publicly and privately that they favor NATO enlargement. They have supported Ukraine and Georgia in the past, approved Finland this past year, and would like to see Sweden in—if the notoriously lax Swedish counterterror laws, now amended, are fully implemented. Turkey wants a big NATO because by NATO structure and bylaws Erdogan gets a veto on the world’s most powerful security organization—as do all members. The bigger the better. Yet the nature of the enlargement matters greatly for a country with a serious terrorism threat. So the better question is: Did Erdogan get what he thinks he needs on his own security needs, regarding the Kurdistan Workers Party (PKK) and a potential F-16 fighter jet deal with the United States, to advance Sweden’s candidacy? What was the quid pro quo? 

It’s important to remember that Erdogan’s announcement was not approval of the bid; it was a statement of intent to pass the question of approval to the Turkish parliament, which Erdogan’s party controls. Thus he retains the ability to kill or delay accession if Sweden backs off on counterterror implementation, or if the United States reneges on the F-16 deal. So all in all, he has lost no real leverage, but gained a tremendous optic of Turkey supporting the Atlantic Alliance.

This removes the question of Swedish accession from the summit’s main agenda, and places it in the category of “business successfully managed.” Thus the summit can focus on two more pressing issues: how to support Ukraine and how to implement NATO’s revised security concept. I would expect that on the first topic (Ukraine) we will see a roadmap or statement of principles that lays out robust military support for Ukraine’s defense, amounting to a security guarantee, but carefully calibrated not to constitute a near-term prospect of accession, an escalation, or an engagement of NATO as an organization in the current defensive war against Russia. On the second topic (security concept), there will be technical progress on how to divide responsibilities and resources more equitably, but this will likely be of less interest to general audiences. 

I think this has less to do with the mutiny of Yevgeniy Prigozhin and perceptions of Vladimir Putin’s standing than with the leverage game vis-a-vis NATO allies and how to ensure that if European NATO problems become Turkish problems, Turkish problems become European NATO problems. Ankara will continue to conduct a balancing act by which it maintains trade, diplomatic relations, and occasional strategic cooperation with Russia—while ensuring that together with other NATO powers Turkey disabuses Russia of its dreams of imperial revanche. Putin, Prigozhin, Wagner—in Turkish eyes these are all just layers of the Russian Matryoshka or Maskirovka, deceptive games that obscure a fairly direct power play. The Turks need a functional relationship with Russia but see more common cause with the West; the approach to Sweden should be seen in those terms, as how to prove bona fides to the Western Alliance while extracting necessary concessions to their own security. 

As to quid pro quo, for Turkey, it can be only two things—counter-PKK commitments by Sweden, and agreement on F-16s (and perhaps broader strategic engagement) by Washington. Anything else is peripheral, and if these are not obtained, the deal is a bad one for Ankara. Of course there is an escape hatch—Erdogan passed the ball to the Turkish parliament and approved nothing directly—but the pieces are in place now for a good transactional deal that helps NATO, Sweden, and Turkey in a stroke.

—Rich Outzen is a nonresident senior fellow at the Atlantic Council IN TURKEY. 

Sweden gets out of limbo as the Alliance shows a united front

Finally Sweden got its green light from Turkey to join NATO. Late in the evening in Vilnius, Stoltenberg called July 10, 2023, “a historic day.” The agreement between Sweden, Turkey, and NATO that was signed on Monday evening means that Sweden will join the Alliance as its thirty-second member “as soon as possible,” given that the Turkish and Hungarian parliaments need to ratify the accession protocol.  

It is unclear how long it will take, but the agreement undoubtedly removes the risk of Sweden falling into a limbo situation—that is, being close to, but not fully in, the Alliance. Sweden´s military and political adjustments toward NATO membership can proceed with full speed, which is beneficial not only for Sweden, but for the defense of Northern Europe, in which Sweden could play a crucial role.   

The green light also facilitates Finland’s integration as a new member, since the security and defense of the two Nordics is heavily interlinked. As Finnish President Sauli Niinistö stated: “Finland’s NATO membership is not complete without Sweden.”

For NATO, the deal means that the Vilnius Summit is off to a good start. As twenty-nine allies already have ratified Sweden’s accession, NATO otherwise faced the risk of appearing fragmented and weak. Lack of progress could put the credibility of NATO’s “open door” policy at risk, since the Alliance also has to make some tough decisions on Ukrainian membership. 

Turkey managed to push Sweden and NATO to take a step forward on counterterrorism measures, and in the end, Erdoğan also put the EU into the mix. Sweden’s decision to support Turkish ambitions to get the European Commission to restart the accession process appeared to seal their NATO agreement. Whether Turkey will also get to purchase the long-sought F-16 fighter jets from the United States remains to be seen. But then, the summit has not even started and US President Joe Biden has yet to arrive. 

—Anna Wieslander is the director for Northern Europe and head of the Atlantic Council’s Northern Europe office in Stockholm. 

Don’t spike the football just yet

While my instinct tells me that it would be difficult for Erdoğan to backtrack on an agreement he has seemingly made in good faith, recent history provides a cautionary tale. Just over a year ago on the margins of the Madrid Summit, glasses were clinking on what most observers assumed would be a straightforward process for admission once Turkey joined consensus in inviting Finland and Sweden to become members. Yet Erdoğan knew he had a second bite at the apple. He took the accolades in Madrid, only to run Sweden through the paces for another year before another dramatic set of negotiations in Vilnius, where he once again demanded the spotlight before conceding. If he moves with alacrity to push the ratification through the Turkish parliament, skeptics can be reassured. But there is non-zero chance that some intervening circumstance (like another public Quran burning) could serve as pretext for derailing the process again. I want to be optimistic, but worry that I have seen this movie before. NATO should not spike the football until it is over the goal line.  

—Christopher Skaluba is the director of the Transatlantic Security Initiative in the Atlantic Council’s Scowcroft Center for Strategy and Security.

Both sides gain in this geopolitical tit-for-tat

For months, NATO leaders have been working behind the scenes to broker this agreement between Turkey and Sweden. It’s important to tip our hats to Stoltenberg, Biden, and other leaders who exerted diplomatic pressure to see this through. This is a classic example of a geopolitical tit-for-tat: Erdoğan using his strategic position—as a member of NATO but also straddling the East and West—to extract concessions from Sweden that both bolster his power at home and demonstrate to the broader NATO Alliance that they need him. It also gives both sides something they want: Erdoğan gets to look like a statesman, and Sweden appears on track to finally get its NATO membership. It will be interesting in the coming days to follow reports of what took place behind closed doors over the last few weeks, days, and even hours, and what was actually on offer for Erdoğan to create this shift. He wouldn’t have changed his tune if he didn’t see this move as in his interests. Next up: Be sure to watch the US-Turkey F-16 space closely.

—Rachel Rizzo is a nonresident senior fellow at the Atlantic Council’s Europe Center.

Did Erdoğan sense Putin’s weakness?

While it’s only speculation, the Prigozhin mutiny and the Kremlin’s uncertain response (Prigozhin at liberty in Russia, not in exile in Belarus; Prigozhin’s meeting with Putin) suggest regime weakness. Erdoğan’s reaction to the failed 2016 coup in Turkey showed no such mixed messages. Erdoğan might have concluded that betting on Putin after the mutiny seemed less wise.

We won’t know what the United States might do with respect to F-16 or other military sales to Turkey. If there were an understanding, the details will become clear in coming weeks. Whether a possible deal is a good deal depends on the details. But the practice of international relations is not an art for the purist. Erdoğan’s decision to support Sweden’s (and Ukraine’s) NATO accession is a big deal and worth advancing. If the Biden team made some understanding, I would look favorably on it.

Sweden will bring to the Alliance military capacity (though it will need to build more), political savvy, and good geography. Sweden will help with the defense of NATO’s eastern flank countries and the Baltic Sea. Having worked with Swedish diplomats for many years, I believe they will also be excellent partners in forging NATO consensus and a sustainable, strong policy toward Russia.

—Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council and a former US ambassador to Poland.

Sweden makes the Baltic Sea into a NATO lake—and seals the Vilnius summit’s place in history

Assuming Erdoğan’s announcement is followed by expeditious approvals from the Turkish and Hungarian parliaments, it will be one of the key substantive and geopolitically significant deliverables of NATO’s Vilnius summit. Sweden’s accession will bring to the Alliance real military capability, reinforce its transatlantic outlook, and above all, bring into the Alliance’s ranks a new member determined to fulfill its military responsibilities. Sweden’s membership will complete the transformation of the Baltic Sea into a NATO lake, thereby strengthening the security and military stability of North Central Europe.

—​​Ian Brzezinski is a senior fellow at the Atlantic Council and a former US deputy assistant secretary of defense for Europe and NATO policy.

The post Experts react: Erdogan just agreed to support Sweden’s NATO bid. What does that mean for Turkey, Sweden, and the Alliance? appeared first on Atlantic Council.

Moldova simply cannot afford to delay reforming its gas sector any longer. It is completely dependent on imports to keep itself heated and lit. Landlocked between Ukraine and Romania, 99% of oil is imported, along with 100% of natural gas. That gas fuels heating and the country’s lone power plant, located in Kremlin-controlled separatist region Transnistria.

This alone would be a recipe for energy disaster (and has been). Additionally, the country’s gas sector is almost entirely controlled by a monopoly called Moldovagaz, which is 51% owned by Russia’s gas monopoly Gazprom, with a 36% share owned by the Moldovan government and 13% by Transnistria. Moldovagaz’s wholly owned subsidiaries dominate all of the various subsectors of the energy industry. For example, Moldovatransgaz runs 98% of the distribution network.

This arrangement has afforded Moscow decades of informal control over Moldova. Indeed, allegations of Russia’s manipulation, coercion, and malign influence over the tiny country as exercised through Moldovagaz are too extensive to illuminate in full. A few highlights are the 2006 and 2009 gas shutoffs by Gazprom, which left tens of thousands of Moldovans without heating in the dead of winter. There have also been several rounds of brutal gas supply negotiations that have left Moldova with deeply disadvantageous gas contracts.

The most recent contract was signed in October 2021 and committed Moldova to another five years of Gazprom supplies. At the same time, President Maia Sandu’s new government, its lawyers, and its Western supporters are struggling with the fact that either pro-Russian actors in the former government or Moldovagaz officials appear to have wiped the files necessary to untangle several of the legal instruments that keep the country in its unhappy marriage with Gazprom.

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Modovagaz also faces various accusations of accounting shenanigans. These include claims that it supplies Transnistria with gas that the breakaway region doesn’t pay for, and then charges the debt to the Moldovan government. Coupled with sometimes dubious debts Moldova has incurred buying gas, Gazprom claims the government now owes it $9 billion. This represents $760 million in purported Moldovan government debt, and $8.24 billion in debt tied to Transnistria. For comparison, Moldova’s GDP is under $14 billion.

Meanwhile, during October 2021 negotiations with Gazprom, Moldovagaz committed “not to carry out a forced reorganization” until this debt is settled. Critics believe this is a further indication that unbundling would be good for Moldova and bad for Russia. Signed in the midst of the mounting energy crisis of late 2021 and with Moldova running entirely out of gas, this agreement has been widely branded as an example of inappropriate Russian influence over the Moldovan energy sector.

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The obvious solution to break Russia’s energy dominance over Moldova is for the authorities to finally implement the unbundling of the gas sector and vertically de-integrate Moldovagaz. The EU Third Energy Package requires the three tiers of a natural gas market (upstream/production, midstream/transmission, and downstream/distribution) not be controlled by the same entity. In practice, this means separating the gas transmission system operator, Moldovatransgaz. The original deadline for unbundling was in 2016, with extensions then granted until January 2020, and then February 2021. In 2021, EU officials opened infringement proceedings against Moldova for its continued failure to unbundle Moldovagaz. In June 2023, the Ministry of Energy announced it was “determined” to complete Moldovagaz unbundling by September 2023. We shall see.

What form any unbundling will take also remains unclear. The Moldovan government may believe it lacks the capacity to manage Moldovatransgaz and the transmission system and may look for an external company to operate it. This would be a major mistake because giving critical infrastructure assets over to foreign entities would be repeating the same error as with Gazprom and Moldovagaz. It would also preclude Moldova’s learning to be self sufficient, a key aspect of energy independence and security. Another theoretical option is privatization, but that requires finding a buyer. Given Moldova’s history of defaults and disputes with private investors, there’s close to zero chance of that happening.

The best option is almost certainly finding a different government entity other than Moldovagaz to take control of Moldovatransgaz. This would replicate how Ukraine unbundled its gas monopoly, Naftogaz, by spinning off the transmission system operator into a separate entity controlled by a different ministry. There is some tangential precedent: Using a revolving EBRD credit of €300 million, the gas trading team at state agency Energocom, led by Maciej Wozniak, has pushed Gazprom out of the Moldovan market. Along the same lines, another state agency could step into the distribution business. This would have the added benefit of being more efficient because nothing new would need to be created; the unbundling would be a matter of paperwork.

There has probably never been a better time for Moldova to get serious about this; the cessation of gas transit from Gazprom into Europe means Russia has already played its energy trump card and has relatively little leverage left.

At the same time, Western interest and willingness to support Moldova during the transition should help cover any gaps. Politically, Moldova taking control of assets ultimately owned by Russia is good optics for Sandu’s government. And the political turmoil in Moscow coupled with the Kremlin’s distraction from its stalled war in Ukraine could make Moldovan maneuvers less likely to elicit an aggressive response. If everything goes right, becoming the supplier to Transnistria could even forge something of a path to national reconciliation. There’s never been a better moment to try, and there’s no time to waste.

Suriya Evans-Pritchard Jayanti is a nonresident senior fellow at the Atlantic Council’s Eurasia Center.

Further reading

UkraineAlert Jun 12, 2023

Beyond the counteroffensive: 84% of Ukrainians are ready for a long war

By Peter Dickinson

84% of Ukrainians reject any compromise with Russia and are ready for a long war if necessary in order to fully de-occupy their country. Most simply see no middle ground between genocide and national survival, writes Peter Dickinson.

Civil Society Conflict

UkraineAlert Jun 25, 2023

Short-lived Wagner mutiny will undermine Russia’s Ukraine invasion

By Peter Dickinson

The short-lived Wagner mutiny was over in less than two days but it will have a long-lasting consequences for Russia, for a weakened Vladimir Putin, and for the already faltering invasion of Ukraine, writes Peter Dickinson.

Conflict Defense Policy

UkraineAlert Jun 29, 2023

Putin’s Wagner weakness is a signal to support Ukraine’s counteroffensive

By Taras Kuzio

With the short-lived Wagner mutiny exposing Vladimir Putin’s weakness for all to see, the time has come for Ukraine’s Western partners to provide the country with everything it needs to secure victory, writes Taras Kuzio.

Conflict Freedom and Prosperity

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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What’s behind the EU’s push to regulate AI? What will the legislation require of companies who develop AI systems? With the trialogues underway, what are some of the key issues that will dominate interinstitutional negotiations? How did the introduction of ChatGPT change the way the European Parliament was looking at regulating AI? And what’s the relationship between regulation and innovation when it comes to AI technologies?  

On this episode of #AtlanticDebrief, Fran Burwell sits down with Brando Benifei MEP, co-rapporteur of the EU’s AI Act, to discuss what the EU hopes to achieve with its legislative proposal.  

You can watch #AtlanticDebrief on YouTube and as a podcast.

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Frances Burwell

Distinguished Fellow

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What were the main outcomes from the recent European Council summit? Why are European Council summits important? How did EU leaders come together to address the latest European issues from Russia’s war in Ukraine, de-risking from China, and migration?

On this episode of #AtlanticDebrief, Ben Judah sits down with Dave Keating, Nonresident Senior Fellow at the Atlantic Council’s Europe Center and France 24 Brussels correspondent, to discuss the developments from the summit and the main political debates. 

You can watch #AtlanticDebrief on YouTube and as a podcast.

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Ben Judah

Director

Europe Center Transform Europe Initiative

Economy & Business European Union

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The Europe Center promotes the transatlantic leadership and strategies required to ensure a strong Europe.

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The post #AtlanticDebrief – What were the main takeaways from the EUCO summit? | A Debrief from Dave Keating appeared first on Atlantic Council.

July 1 marks ten years since Croatia joined the European Union (EU)—and no country has done so since. It’s the longest duration without a new member for the EU and its predecessor institutions going back to 1973. Below, the Europe Center’s Frances Burwell explains the current complex political debate within the EU over enlargement, then eleven experts share their insights on potential new members—official candidates as well as a couple wild cards.

Hard lessons about EU enlargement

During the ten years since the last enlargement of the EU, some hard lessons have emerged for the existing twenty-seven member states. Contrary to expectations, these lessons have little to do with the reform of EU institutions and processes. Instead, they are rooted in political vulnerabilities in both “old” Europe and “new” Europe. Above all, the existing member states fear the emergence of new members—and especially a large new member, such as Ukraine—with serious rule-of-law failings, à la Poland or Hungary.

When the EU decided to grant Ukraine and Moldova candidacy status in June 2022, it was a political decision motivated by the desire to show unity in the face of Russian aggression. Neither country would have qualified for candidacy status under normal circumstances, nor would the existing member states have been willing to make such an exception. But both countries have worked hard, and the question now is when to open negotiations on specific regulations. Prospective members from the Balkans present a more mixed picture, with some governments making progress and others even seeming unconvinced of the value of membership. As the EU enlargement debate begins to heat up, keep in mind four key lessons:

1. The institutions can adapt. Every enlargement round has been accompanied by calls for institutional reform and treaty change. No way, it was said, can the EU operate at fifteen, at twenty-five, or twenty-seven. Yet, the EU institutions continue to function. Indeed, during the COVID-19 pandemic and in response to the invasion of Ukraine, the EU has made more difficult decisions more quickly than at any time in its history.
2. The accession process offers too many opportunities for existing members to settle historical scores with potential members, slowing the process. Too often, this is due to niche historical grievances exploited by member state politicians; see Bulgaria’s efforts to slow down the accession of North Macedonia or Spain’s failure to countenance Kosovo’s bid.
3. Rigorous benchmarking of regulations does not prevent democratic backsliding. The twelve mostly postcommunist states admitted in 2004 and 2007 had to meet much higher standards of regulatory cohesion than earlier entrants. Yet today, members of the class of 2004 Poland and Hungary face charges that they have strayed from basic EU values on the rule of law, especially regarding the judiciary and media. Other member states have also had questions raised about the state of their democracies.
4. The biggest lesson of them all is that politics is the key element in the accession process. What will be the reaction of the radical left and extreme right that has become such a factor in EU domestic politics? Will ratification of each accession by existing members be too high of a hurdle? Ukraine and Moldova have benefited from politics so far, but as the accession process moves forward and membership seems closer, the politics—especially among the current member states—will only get harder.

—Frances Burwell is a distinguished fellow at the Atlantic Council’s Europe Center. 

Click to learn more about leading candidates and wild cards

Lisa Homel

Albania

Valbona Zeneli

Bosnia and Herzegovina

Laura Linderman

Georgia

Agon Maliqi

Kosovo

Andrew D’Anieri

Moldova

Maja Piscevic

Montenegro

Ilva Tare

North Macedonia

Cameron Munter

Serbia

Alp Ozen

Turkey

Benton Coblentz

Ukraine

Ben Judah

United Kingdom

Albania: Strong momentum to overcome rule-of-law concerns

Albania was granted EU candidate status in June 2014. The EU grouped Albania’s accession bid with North Macedonia’s (which was stalled due to a dispute with Greece over naming issues), and it wasn’t until July 2022 that Albania had its first intergovernmental conference with the EU to actually launch negotiations officially.

Albania’s greatest progress toward accession thus far has been its substantial judicial reform, which is unprecedented in its ambition in the Western Balkans. The reform, which implemented serious vetting of the judiciary, led to the dismissal of more than 60 percent of judges and prosecutors across the country who were found to have criminal ties, concealed wealth, or otherwise unprofessional behavior. 

Despite this initiative, Albania still has a long way to go on rule-of-law reform to meet EU standards. With so many judges and prosecutors dismissed, there is a serious shortage of officials available to deal with continued criminal cases. And while the reform is strong on paper, international assessments find Albania to still suffer from significant corruption (even compared to other Western Balkans countries) and needs to strengthen its record on indictments in high-level corruption cases, prioritize anti-money laundering initiatives, and increase transparency in consolidating property rights.

But Albania has the drive to continue with these reforms: EU membership remains incredibly popular and is supported by nearly 96 percent of Albanians according to a 2022 Euronews Albania poll. The same poll showed that more than 35 percent of Albanians think the country will join the EU by 2027. Albanian Prime Minister Edi Rama has consistently expressed his willingness to keep the country on track to meet EU reforms and he has been transparent in his appeal for pre-accession EU funds to enable the country to meet EU benchmarks. Within the region, he’s an ardent supporter of regional cooperation opportunities such as the Berlin Process and Open Balkan Initiative that would allow for the movement of people and trade throughout the region as a good exercise to prepare for future EU membership.

Although Albania had a late start in the EU accession process, its substantial judicial reforms, clear messaging from its leader on the value of EU membership, and overwhelming popular support for the effort have given it unique momentum within the region to continue on its path toward joining the bloc.

—Lisa Homel is an assistant director of the Atlantic Council’s Europe Center.

Bosnia and Herzegovina: Bumpy accession progress leaves an opening for Russia and China

Twenty years ago, Bosnia and Herzegovina (BiH) was promised EU membership at the Thessaloniki Summit. The Stabilisation and Association Agreement (SAA) with the EU entered into force in June 2015, and BiH applied for membership in February 2016. Candidate status was granted six years later, in December 2022, as result of a new geopolitical situation in Europe, propping up the EU’s renewed engagement with the Western Balkans as vital for European security.

The long and bumpy EU integration process, lack of sustainable reforms in the country, dysfunction in the government, ethnic divisions, weak economic development, and systemic corruption of ethno-political elites controlling institutions have increased apathy and skepticism in BiH. EU membership is supported by half of the population, but when it comes to expectations of citizens, 35 percent believe that the country will never join the EU. The risk of competing visions for the future of the country is increasing, and the EU’s strategic competitors, Russia and China, are gaining more space. Young people have opted for the easier way to join the EU, through massive emigration into Western Europe. Migration and brain drain have become new security challenges, as BiH is among the countries that have lost the largest share of their population since the early 1990s (33 percent). 

The new government in BiH has prioritized EU integration, and the main focus should be on implementing the fourteen priorities of the European Commission, dealing mostly with the functionality of the government focusing on the rule of law and judiciary reform and by creating a clear division of competencies between different levels of government. To be successful, the EU’s higher focus on fundamentals and stricter conditionality and accountability should be paired with earlier access to structural funds to promote socioeconomic convergence and a gradual phasing-in of candidate countries in various sectors of the EU market. 

—Valbona Zeneli is a nonresident senior fellow at the Atlantic Council’s Europe Center.

Georgia: Backsliding and Russian influence put the EU in a bind

In June 2022, the European Commission decided not to grant Georgia candidate status, unlike Moldova and Ukraine. Instead, the Commission granted it a “European perspective” and provided twelve recommendations for issues that the country must tackle first. Despite widespread agreement in the West that the government has been backsliding in key indicators such as independence of the judiciary and state institutions, the Commission’s June 2022 decision was questionable because Georgia has completed far more of the legislative and technical requirements for candidate status than Ukraine or Moldova and has a vibrant, if tenuous, democratic system. In a March 2023 International Republican Institute poll, 89 percent of the Georgian population said it supports the country joining the EU. Widespread public protests erupted that month when the government attempted to introduce a foreign agent law, modeled on a similar Russian law, that was undemocratic and in direct conflict with the Commission’s recommendations. The government withdrew the bill in response. 

The EU now finds itself in a bind, as the Georgian government has not implemented many reforms addressing the most serious problems and its commitment to this Western course is somewhere between fickle and self-sabotaging. The EU is in a position where if it grants candidate status now, it risks rewarding a government that is backsliding in terms of democratic reform. Conversely, if it refuses to give candidate status, it risks consigning Georgia to a bureaucratic gray zone where it could find itself increasingly unable or unwilling to counter Russian influence. However, so far, the country remains an imperfect but spirited and pluralistic democracy with a population deeply committed to a European future. 

—Laura Linderman is a nonresident senior fellow with the Atlantic Council’s Eurasia Center. 

Kosovo: Progress is stalled as the Serbia standoff continues

Kosovo signed a Stabilisation and Association Agreement with the EU in 2015 and submitted its application for candidate status in 2022. Although 85 percent of Kosovars want to join the EU, Kosovo faces the unique obstacle of not being able to advance further in EU accession because five EU member states do not recognize its independence (Cyprus, Greece, Romania, Slovakia, and Spain). A key precondition set by the EU for Kosovo to move forward has been the conclusion of the normalization agreement with Serbia, which has effectively stalled since 2015. A recent European proposal on normalization agreed to in principle by both sides is also on the brink of failure due to tensions in Kosovo’s Serbian-majority north. 

The deterioration in the security situation and Kosovo’s stagnant EU accession process undermines the country’s recent progress in democratic reforms and in tackling corruption. The lack of clear EU prospects for Kosovo and the Western Balkans in general—especially many years of delays in approving visa liberalization for Kosovo (it comes into force in January 2024)—have fueled frustrations with the EU and brought anti-EU narratives to the mainstream of public discourse.

—Agon Maliqi is an independent analyst and researcher from Kosovo working on security and democracy issues in the Western Balkans.

Moldova: Corruption and Transnistria remain challenges

In June 2022, the European Council announced it would grant Moldova and Ukraine candidacy status—almost eight years to the day since Chisinau earned an association agreement with the EU in 2014. Candidacy was a major symbolic boon for Moldova, which had endured a maddeningly stop-start progression toward EU reforms and candidacy. But pro-European president Maia Sandu has her country on the right track: She is tough enough to enact real reforms and as a former International Monetary Fund official, has the right combination of technocratic and diplomatic skills to lead Moldova toward Europe.

Yet Moldova faces major roadblocks to pass through before its eventual accession. The EU’s June 2022 announcement carried with it nine political conditions before accession talks, compared to seven for Ukraine. With a population of less than three million people, Moldova lacks the capacity of Ukraine but faces similar challenges of outside influence. Chisinau continues to battle corrupt politicians and oligarchs who consistently threaten to blow Sandu’s reform drive off course. Moldova will also likely need to solve the fate of Transnistria, the Russia-dominated statelet that broke away in 1992. EU countries will rightly want to strengthen border controls with a Russian client statelet.

Greater EU diplomatic engagement with Chisinau and technical support for market and judicial reforms can help shore up Moldova’s capacity to make meaningful progress on EU conditions. Additional Western sanctions on Shor, Plahotniuc, and their proxies can mitigate their malign influence in Moldovan politics and help consolidate the country’s democracy.

—Andrew D’Anieri is assistant director at the Atlantic Council’s Eurasia Center.

Montenegro: A stable political coalition is necessary for progress

Montenegro started negotiations for EU membership eleven years ago. So far, Podgorica has opened all the chapters but has only closed three. The negotiations came to a halt in 2018 when Brussels made it clear that progress in the EU accession process would be directly conditioned by advancements in the rule of law and democratic institutions. Since the former regime of President Milo Đukanović turned Montenegro into a so-called captured state, with a corrupt judiciary and police and where organized crime thrived, the EU accession process has de facto been slowed down, if not halted.

The process of forming a new government is underway in Podgorica. The winning party in the recent elections is the Europe Now Movement (PES). The main challenge for PES leader Milojko Spajić, the likely prime minister in the future government, will be to form a stable coalition capable of executing necessary reforms which would unlock Montenegro’s path to the EU.

The biggest problems in Montenegrin society are organized crime and corruption. They cannot be resolved without appointing new prosecutors and judges and adopting and implementing reforms in the judiciary and police. While Russia’s influence in Montenegro exists, it is limited. The pro-Russian sentiment among certain segments of Montenegrin society, which dates back to the eighteenth century, is often mistakenly interpreted as a result of Russian influence rather than historical heritage.

Public support for Montenegro’s accession to the EU consistently ranges between 70 and 80 percent, indicating that this is one of the few issues in the country with a fairly broad consensus. Therefore, the implementation of the so-called EU agenda is a crucial tool in forming a new government and creating a stronger parliamentary majority.

—Maja Piscevic is a nonresident senior fellow with the Atlantic Council’s Europe Center and representative of the Center in the Western Balkans.

North Macedonia: Amid delays, public support for EU membership is plunging

North Macedonia’s perspective on EU membership has drastically shifted in the past two decades, replacing initial enthusiasm with caution and diminished optimism. Despite obtaining candidate status in 2005, the country has endured eighteen years of uncertainty, waiting for the European Commission recommendations to translate into official negotiations from the European Council. The Prespa Agreement, considered a significant compromise five years ago, failed to deliver on its promise of faster progress toward EU membership, further dampening hopes.

In November 2020, Bulgaria’s blockade on North Macedonia’s EU accession negotiations, demanding constitutional changes for the Bulgarian minority, worsened the situation. The opposition’s refusal to join votes for the necessary constitutional changes, requiring a two-thirds parliamentary majority, has led to an impending political crisis. Trust has eroded, significantly undermining the EU’s credibility compared to sentiments held two decades ago.

To tackle this challenge, European Commission President Ursula von der Leyen proposed an effective strategy: immediate and generous allocation of pre-accession funds to facilitate North Macedonia’s transformation and benefit other Western Balkan countries. However, the specific amount of funds remains unspecified, leaving room for uncertainty.

The forthcoming Balkan Barometer report from the Regional Cooperation Council reveals a diminishing perception of EU membership in North Macedonia, once a fierce supporter. In 2019, 70 percent of citizens viewed EU membership as a positive development, but the 2023 Balkan Barometer shows that only 50 percent of respondents consider it a positive prospect, with 34 percent neutral and 13 percent negative.

These survey findings serve as a wake-up call for North Macedonian leaders, EU officials, and US policymakers. Urgent measures are necessary to address citizens’ concerns and doubts. Open dialogue, trust-building, and effective communication about the advantages and opportunities of EU membership are crucial. Specific challenges must be tackled, aligning the EU integration process with citizens’ expectations. Mere promises and kind words will not suffice to reverse the current gloomy narrative. Boosting the local economy through investments and improving standards of living would be a highly welcomed step, revitalizing the path to EU membership and restoring faith in the process, ultimately bringing back hope to the citizens for the once-promised European future.

At this critical juncture, Bulgaria must refrain from employing vetoes or placing undue pressure on North Macedonia and should foster a constructive and cooperative relationship free from unnecessary obstacles. Additionally, the EU member states should collectively exert pressure on Sofia, urging responsible actions based on European values towards its neighbor.

—Ilva Tare is a nonresident senior fellow at the Atlantic Council’s Europe Center and was most recently a broadcaster with EuroNews Group.

Serbia: ‘Sitting on two stools’ means no movement toward EU

For most Serbs, EU membership increasingly seems like a mirage, and certainly the prospect does not have the power and gravitational pull that it had in the years immediately following the wars of Yugoslav succession. Serbia officially applied for membership in December 2009, and all governments since that time have professed pro-EU sentiments. But over the last decade, Serbia has not made progress on reforms necessary for accession and has continued its reputation as trying to “sit on two stools” (claiming commitment to a Western course while remaining closely tied to Russia). Moreover, the current leadership has been deft at looking to other sources of support and investment (China’s Belt and Road Initiative, Gulf states) for visible development projects even as the EU provides the overwhelming amount of its foreign assistance. And in certain areas, such as press freedom, Serbia has a way to go to achieve EU standards. 

So even as 65 percent of Serbs support EU reforms, only 43 percent are actually in favor of joining the EU. The fate of Russia’s attack on Ukraine may have an impact on the leadership and public opinion in Serbia, but for now, there is great “EU fatigue” and a lack of confidence that membership in the union is anywhere near. Finally, relations with Kosovo will be key to Serbia’s prospects in the EU, and recent events have not been encouraging there, despite the best efforts of the transatlantic community.  

—Cameron Munter is a nonresident senior fellow at the Atlantic Council’s South Asia Center and Europe Center and a former US ambassador to Serbia.

Turkey: Rule of law and Cyprus hamper a long-stalled process

Turkey’s EU accession history goes back a long way, starting in 1959 when it applied for associate membership to what was then known as the European Economic Community (EEC). Turkey officially applied for full membership in the EEC in 1987, and Turkey became eligible to join the EU in 1999. The same year, during the Helsinki European Council, the EU recognized Turkey as a candidate and official negotiations for accession began in 2005. However, progress has been slow and to date, only sixteen of thirty-five accession chapters have been opened, and only one has been completed. A total of fourteen chapters are blocked due to the decisions of the European Council and Cyprus. Meanwhile, the war in Syria led to a refugee crisis for the EU—with Turkey on the front line. In the 2015 and 2016 EU summits, burden-sharing in migration management was a major topic between Turkey and the EU. As a result, currently Turkey hosts almost four million Syrian refugees under temporary protection status.

The most important step for overcoming this period and helping to normalize relations was the Turkey-EU summit in March 2018, in Varna, Bulgaria, which was beneficial to reestablishing confidence in Turkey-EU relations. But just three months later, the General Affairs Council stated that “Turkey has been moving further away from the European Union. Turkey’s accession negotiations have therefore effectively come to a standstill and no further chapters can be considered for opening or closing and no further work towards the modernization of the EU-Turkey Customs Union is foreseen.”

The 2022 enlargement report released by the European Commission offered an assessment of where things stand now: “The Turkish government has not reversed the negative trend in relation to reform, despite its repeated commitment to EU accession,” the report reads. “The EU’s serious concerns on the continued deterioration of democracy, the rule of law, fundamental rights, and the independence of the judiciary have not been addressed.”

Turkish President Recep Tayyip Erdoğan, who just won another term to rule for the next five years, is pushing for membership less than he did in his prior twenty years leading the country. However, Erdoğan recently called for increased communications for Turkey’s EU membership. According to a 2022 poll by the German Marshall Fund, 59 percent of Turks support EU membership. The big issues Turkey needs to overcome before being admitted are the rule of law and a resolution to the Cyprus dispute with the EU.  Despite these issues, Turkey has stepped up recently to de-escalate tensions with Greece in the Eastern Mediterranean, especially after Turkey’s devastating earthquake early this year, which led to a warm earthquake diplomacy between the two countries. 

—Alp Ozen is a program assistant at the Atlantic Council IN TURKEY program.

Ukraine: As reforms advance, accession talks could begin this fall

The dramatic events of the 2014 Revolution of Dignity made clear to the world the Ukrainian people’s desire to pursue the path of European integration. Now, the Ukrainian people are fighting an existential war to protect that vision against a full-scale Russian invasion.

In the wake of Russia’s full-scale invasion, Ukraine was officially granted EU candidacy status in June 2022. Brussels set out seven conditions before accession talks could begin. In June 2023, the EU reported that Ukraine had satisfied two of these conditions, made good progress in one other area, and made some progress in the remaining four. The two conditions already met relate to the judiciary and media, while Ukraine must still pass laws regarding the Constitutional Court, anti-corruption efforts, anti-money laundering efforts, de-oligarchization, and the protection of minority rights in order to align its legislation with EU standards. 

Ukraine could begin accession talks as soon as this fall, once all seven conditions are fulfilled. That process will be a long and technical one, but Ukrainian officials and the Ukrainian people have demonstrated their strong commitment to the process. The February 2023 visit to Kyiv by von der Leyen and fifteen EU commissioners to meet with their Ukrainian counterparts underscored the leaders’ commitment, while the people’s commitment was resounding in a recent poll finding that 92 percent of Ukrainians want the country to join the EU by 2030, with all regions of the country squarely in support: 88 percent, 94 percent, 93 percent, and 91 percent in the east, north, west, and south, respectively.  

—Benton Coblentz is a program assistant with the Atlantic Council’s Eurasia Center, where he facilitates the center’s work on Ukraine and the wider Eurasia region.

United Kingdom: A post-Brexit reexamination of the relationship is underway

Few slogans have been as effective in British politics as “Get Brexit Done,” which helped carry Boris Johnson to victory in the 2019 general election after three years of uncertainty about whether or not the United Kingdom would actually leave the European Union. However, the mood in Britain suggests that Brexit—if understood to mean a stable, fixed, relationship with the bloc outside the EU—is anything but done. 

Two trends are pushing toward a reexamination of the relationship. Firstly, a growing number of Britons regret the decision to leave by a margin as wide as 60 percent to 40 percent.  In addition, as many as 20 percent of those who voted to “leave” now signal to pollsters that they would have chosen to “remain” instead. Secondly, the opposition Labour Party, a “remain” spirited party, is now seeing poll leads as high as 25 percent. The chances are that Britain will be led by a Labour government by the end of 2024, with strong public support for a closer relationship with the EU. 

That doesn’t mean Britain is on the verge of rejoining the EU. Opposition leader, and probably soon-to-be prime minister, Keir Starmer has committed the party not to rejoin the EU’s single market or customs union, which are the arrangements as far as trade is concerned, but to push for better ties beneath that. The EU and its supporters in the United States need to start paying attention to what Labour is saying. David Lammy, the shadow foreign secretary, has proposed a “security pact” between the EU and the United Kingdom as a first step to rebuilding the relationship. 

This should be encouraged but more needs to be done. With the European economy in general in such a bad way, Washington should encourage Britain and the EU to go for the most ambitious form of new relationship politically possible within Starmer’s constraints—with economics and trade at the heart of it. Throttled trade benefits nobody, and the failure of Brexit in practice means the EU can afford to be generous. No other EU country is keen to copy what made the United Kingdom “the sick man of Europe.”  

—Ben Judah is director of the Europe Center’s Transform Europe Initiative and the author of “This is Europe.”

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It is admittedly difficult to make historic political decisions, but the price of not doing so is often horrendously high. In this case, the price is obvious: By failing to integrate Ukraine and bring the countries of Eastern Europe out of the geopolitical grey zone, Western leaders set the stage for the full-scale Russian invasion of 2022.

Further mistakes will be just as costly. Thankfully, there is now a growing consensus throughout the West that only Ukrainian victory can end the global security crisis sparked by Russia’s invasion. Nevertheless, there is still a need for greater clarity on what would constitute victory and how Europe can achieve a lasting peace. 

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Defeating Russia and securing peace will require a series of interrelated measures that go far beyond the battlefield. I have identified five key elements to a sustainable settlement that will end the current carnage and prevent any repetitions in the years ahead.

The first element is arming Ukraine sufficiently for victory. This process is well underway, but serious issues remain in terms of both quantities and timing. Every single delay in military aid costs Ukrainian lives and emboldens Russia. Ukraine’s Western partners must overcome their misplaced fear of provoking Putin and should instead seek to streamline the delivery of weapons. After all, it is now widely recognized that Russia must be defeated on the battlefield.  

The second element is the strategic deterrence of Russia and creation of a new NATO-centered security architecture in Europe. There should now be no illusions: NATO alone can provide Europe with a credible and efficient security system. This means NATO membership for Ukraine. Nothing less will force Moscow to retreat. The upcoming NATO summit in Vilnius should conclude by inviting Ukraine to join the alliance. No bilateral guarantees or other compromise measures can hope to replace NATO’s Article Five or stop Russia. 

The third element is Ukrainian membership of the European Union and restoration of the Ukrainian economy in close unison with the wider European economy. There has been significant progress toward this objective since the outbreak of Russia’s full-scale invasion, but overall results remain disappointing and fall far short of the many political statements on the importance of Ukraine’s European integration.

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The fourth key task is undermining Russia’s potential to act aggressively. It is hard to assess how long Russia will remain capable of waging the current war, but financial issues will play an important role in any decision-making process. Last year, official Russian military expenditure amounted to approximately $85 billion. This year, the figure is set to reach at least $108 billion. Unofficially, the total sum spent on the war is likely to be far higher. Clearly, sanctions must continue and need to intensify. Additional steps could include the prevention of dual-purpose goods transit through Russia and the maximum implementation of secondary sanctions.

In parallel, it is also vital to protect and strengthen Ukraine’s economy. Further measures are necessary to facilitate Ukrainian exports. NATO-led naval convoys should break Russia’s Black Sea blockade and enable Ukraine to resume international exports throughout the country’s southern ports. Ukraine’s external debt should undergo restructuring.

The fifth element necessary for a sustainable peace in Eastern Europe is perhaps the most important and at the same time the most intangible. Genuine victory will only be possible when Russian imperialism is no longer a threat to the region.

Once Ukraine is liberated and secure under the collective umbrella of NATO membership, the top priority for the international community will be addressing the imperial ideology that encourages Russians to commit acts of international aggression with impunity and contempt for human life. Russia must bear full legal and financial responsibility for its aggression against Ukraine and for the genocide of the Ukrainian nation. The era of Russian impunity for war crimes must end.  

Unless the underlying issue of Russian imperialism is addressed at the international level, the liberation of Ukraine will provide little more than temporary relief. Confronting Russia’s imperial identity is the only way to achieve a lasting peace. This would pave the way for a new global security system and the much-needed reform of international bodies such as the UN Security Council. World peace will remain elusive until Russian imperialism is consigned to the dustbin of history.

Arseniy Yatsenyuk is Chairman of the Kyiv Security Forum and former Prime Minister of Ukraine (2014-16).

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Read insights below from Atlantic Council experts on what’s in the strategy and what it reveals about Europe’s economic and geopolitical future.

Click to jump to an expert analysis:

Jörn Fleck and James Batchik: Europe is taking a hard look at itself

Barbara C. Matthews: The EU is acting to decrease points of vulnerability for renewable energy

Charles Lichfield: While not mentioned, China is the central focus of the strategy

Sarah Bauerle Danzman: The road to an EU outbound investment mechanism will be rocky

Elmar Hellendoorn: The strategy seeks to be adaptable but also comprehensive

Europe is taking a hard look at itself

The European economic security strategy represents a welcome development not just for its contents but in how the European Commission is thinking about economic security—and itself.

Under a framework of “promote, protect, and partner,” the strategy sheds light on the commission’s approach to de-risking, the phrase du jour of today’s geopolitics. It proposes new assessments of vulnerabilities, strengthened rules on key areas like foreign direct investment and export controls, and new rules on outbound investment. It also recycles existing proposals—the Critical Raw Materials Act, Net-Zero Industry Act, and Cyber Resilience Act, for example. By themselves, these are not groundbreaking. But it would be a mistake to stop there. Taken together, the strategy is a welcome document that outlines how the commission sees its policies become larger than the sum of their parts. 

The contents of the strategy notwithstanding, there are three takeaways about how Europe sees its economic future. First, it starts with knowing oneself. The strategy opens with a frank acknowledgement that Europe was “insufficiently prepared” for many of the challenges that the COVID-19 pandemic, Russia’s war in Ukraine, and challenges from unnamed—read: China—players posed to Europe. Second, the strategy acknowledges that the European market, its regulations, and cohesion is by itself a European strength that can “keep global supply chains open and shape standards.” Third, that there is a direct reference that the economic risks identified could threaten Europe’s national security is a small but notable addition. It shows a recognition of the convergence of the geopolitical and the economic. 

However, the strategy also shows both the potential and the limitations of the commission. First, as much as the Berlaymont may be thinking geopolitically, the commission still relies on capitals across the continent to approve and implement new rules. Throughout the strategy, there are polite reminders for member states to implement or enforce existing or future rules. Second, and perhaps more crucially, it’s clear that the commission is increasingly out ahead of member states on issues of security, defense, and now economics. Many member states will have reservations, if not objections to some of the conclusions and proposals in the strategy. There is no shared consensus among member states about how to adequately defend themselves against China.

It’s important to remember that, as the strategy’s sentences, conjunctions, and punctuation will now be parsed and debated across the continent and the European Parliament, the strategy is not a roadmap that will solve all of Europe’s woes but an opening salvo.

—Jörn Fleck is the senior director of the Europe Center at the Atlantic Council.

—James Batchik is an assistant director at the Atlantic Council’s Europe Center. 

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The EU is acting to decrease points of vulnerability for renewable energy

The newly announced European economic security strategy constitutes a shift beyond the EU’s previous “strategic autonomy” security priorities. It will likely generate friction with both China and the United States in the near term regarding key renewable energy resources.

Until this year, the EU’s main focus was to ensure that its capacity to pursue its strategic interests remain unconstrained. It sought to ensure that policy conflicts and tensions between the United States and other countries (such as China and Russia) did not adversely impact its own interests.  

Now, the EU seeks actively to minimize “the risks arising from economic linkages that in past decades we viewed as benign.” Those past linkages include Russia (natural gas), China (automobile component and other industrial manufactured exports) and the United States (a deeply integrated, multidimensional trade relationship that includes a deep reliance on retail technology giants that dominate the twenty-first century). Following Russia’s illegal invasion of Ukraine in 2022, the EU effectively replaced Russia with the United States as the key external supplier of energy resources, even as it made great strides toward delivering an energy mix that, for the first time, is generated more from renewable sources (specifically, wind and solar) than from gas. 

The new EU “de-risking” strategy now views none of these economic linkages as benign. It views concentrated economic relationships as a source of risk that must be managed through a diversification strategy that places alignment on key norms (such as democracy, decarbonization, and commitment to open economies) as the foundation for future engagement.

Europe’s successful shift in the last year toward renewable energy implies a sharp increase in demand by Europe for a range of energy inputs that are, at present, predominantly controlled by China. Not only does China “dominate all steps of solar panel production,” it also has long served as the “dominant or near-monopoly producer” of most critical minerals needed to produce modern technology and renewable energy components such as wind turbine parts. Europe’s demand for hydrogen and lithium are set to skyrocket in the next decade, increasing the importance of the forthcoming Critical Minerals Agreement negotiations with the United States. The EU is acting now to decrease these points of vulnerability by mobilizing significant financial resources to promote renewables developments across Africa, the Middle East, and Latin America, even as it prepares to implement its carbon tax later this year.

The European policy shift to “de-risking” holds the promise of aligned transatlantic policy priorities in which EU and US initiatives complement each other to provide an effective counterbalance to Chinese economic pressure globally across the resource-rich Global South. It also holds the risk that misalignment with the United States regarding resource access and digital policy will generate frictions that can be exploited by other countries. Successful execution of this policy will require more than checkbook diplomacy. It will require Washington and Brussels to focus on the larger strategic picture to avoid individual technical issues from derailing their strategic relationship.   

—Barbara C. Matthews is a nonresident senior fellow at the Atlantic Council. She was the first US Treasury attaché to the EU with the Senate-confirmed diplomatic rank of minister-counselor.

While not mentioned, China is the central focus of the strategy

The seventeen-page long “communication” on a European economic security strategy does not mention China once. It does refer to Russia, but only in its scene-setting introduction. For the rest of the paper, economic risks stem only from phenomena, not countries. Third countries are the focus of the section following these risks, but this puts them in an exclusively positive light: to confront challenges to its economic security, Europe needs the broadest possible partnerships. 

Can there be any purpose to a strategy that dares not mention which countries are causing the risks it is supposed to tackle? The answer is still yes. 

The robust discussions that took place between European Commission President Ursula von der Leyen’s team and the European Council—representing the views of all twenty-seven member states—are well publicized. A critical mass of national capitals, though concerned about the consequences of Chinese economic practices, are keen to avoid falling into a ratchet of policies and partnerships leading to an anti-China coalition. This includes members who have long been calling for the EU to take a more hands-on approach on economic statecraft, such as France.

And yet, even under such constraints, the strategy gets many things right. Alongside the traditional calls for cooperation, it pushes for more structured dialogue with the private sector—something that has been lacking on economic security strategy so far. We should also remember that von der Leyen did get to set out her views on EU-China relations not too long ago. So even if China isn’t mentioned, we can be pretty sure it remains the central focus of the EU’s fledgling strategy.

—Charles Lichfield is the deputy director and C. Boyden Gray senior fellow, of the Atlantic Council’s GeoEconomics Center.

The road to an EU outbound investment mechanism will be rocky

This strategy makes clear that the commission is going to bat for outbound investment controls, likely tightly connected to the three emerging technologies most poised to transform war making capabilities—advanced semiconductors, quantum computing, and artificial intelligence. This position reflects a rapid evolution in the commission’s thinking; just last year it was less enthusiastic toward outbound controls when the United States first announced its intention to develop a tool to regulate such investments. Then it only agreed to “study the issue.” Despite the commission’s commitment to propose an outbound initiative by the end of 2023, the debate between the EU, member states, and the business community is likely to be fierce.

In the near term, the inclusion of outbound investment in the strategy has two important implications. First, it substantially increases the likelihood that the United States will move forward with its own mechanism—through an executive order—in the next couple of months. The Biden administration can now point to the document as evidence of a growing consensus among partners and allies to place narrow restrictions on outbound investments into key strategic technologies. Second, and in line with the recent Group of Seven (G7) communiqué on economic resiliency, it frames the issue of outbound regulation squarely around technology security and technology leakage rather than around broader policy objectives such as supply-chain diversification.

The road to an EU outbound investment mechanism will be rocky. The economic security strategy identifies technology security as an element of “economic security,” but the proliferation of dual-use technology has traditionally been viewed as a matter of national security—an area over which member states, rather than the commission, have competence. Moreover, the EU has traditionally—through both export control and inward screening policies—sought to develop tools that do not discriminate between foreign countries. If the EU maintains this policy principle, its outbound mechanism will likely look quite different from the United States’ plan to only focus on investments into entities operating in or owned by “countries of concern” such as China.

—Sarah Bauerle Danzman is a nonresident senior fellow with the GeoEconomics Center’s Economic Statecraft Initiative and associate professor of international studies at the Hamilton Lugar School for Global and International Studies, Indiana University Bloomington.

The strategy seeks to be adaptable but also comprehensive

The most important element of the document can be read between the lines: it is not so much about what the commission is going to do about economic security but how. Three key principles seem to be guiding the commission’s economic security strategy.

The first principle is strategic adaptability. The commission announces that it will constantly work toward a vision on economic security that will help to tie the different policy instruments together. As geopolitical circumstances are changing in unforeseeable and complex ways, the commission has wisely refrained from setting its economic security policy approach in stone. Adaptability and flexibility appear to be baked into the commission’s thinking on this issue. 

The second principle is comprehensiveness. In the strategy, the commission clearly expresses the ambition to break through different policy silos. While it does sum up the different policy instruments the EU has to strengthen its economic security—ranging from foreign direct investment screening to cybersecurity—the underlying question is how it is going to coordinate the use of its economic statecraft toolkit to achieve a maximum result. 

The third principle is cooperation. The commission also shows a certain humility in pointing out all the work ahead on economic security. Clearly, it needs the support of its member states, not only in terms of policy execution, but also in helping to fully understand the challenge. Also, the EU is going to align its diplomacy and economic security policy more, thus targeting countries that the EU can work with to achieve greater economic security. Lastly, in terms of further conceptualization of its strategic approach to economic security, the commission also seems to be reaching out to the wider private sector.

—Elmar Hellendoorn is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center.

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In the June 2023 Issue of Longitude, Forward Defense Nonresident Senior Fellow Marco Tantardini published an article on the state of the space industry work force. He noted that the average age of many employees of aerospace companies is rising closer to retirement and that there is competition from other sectors for qualified engineers.

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Marco Tantardini

Nonresident Senior Fellow

Forward Defense Scowcroft Center for Strategy and Security

Italy Space

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Table of contents

Executive summary

I. Introduction

II. The role of economic statecraft in a Taiwan crisis

Goals of economic countermeasures

Current economic statecraft tools

Tools in a future crisis

III. Sanctions scenarios and their costs

Economic countermeasures aimed at China’s financial system

Economic countermeasures aimed at individuals and entities associated with CCP and PLA leadership

Economic countermeasures aimed at China’s industrial sectors

IV. Practical challenges in sanctions development

Conclusions and recommendations

Executive summary

In recent months, growing tensions in the Taiwan Strait as well as the rapid and coordinated Group of Seven (G7) economic response to Russia’s invasion of Ukraine have raised questions—in G7 capitals and in Beijing alike—over whether similar measures could be imposed on China in a Taiwan crisis. This report examines the range of plausible economic countermeasures on the table for G7 leaders in the event of a major escalation in the Taiwan Strait short of war. The study explores potential economic impacts of such measures on China, the G7, and other countries around the world, as well as coordination challenges in a crisis.

The key findings of this paper:

1. In the case of a major crisis, the G7 would likely implement sanctions and other economic countermeasures targeting China across at least three main channels: China’s financial sector; individuals and entities associated with China’s political and military leadership; and Chinese industrial sectors linked to the military. Past sanctions programs aimed at Russia and other economies revealed a broad toolkit that G7 countries could bring to bear on China in the event of a Taiwan crisis. Some of these tools are already being used to target Chinese officials and industries, though at a very limited scale.
2. Large-scale sanctions on China would entail massive global costs. As the world’s second-biggest economy—ten times the size of Russia—and the world’s largest trader, China has deep global economic ties that make full-scale sanctions highly costly for all parties. In a maximalist scenario involving sanctions on the largest institutions in China’s banking system, we estimate that at least $3 trillion in trade and financial flows, not including foreign reserve assets, would be put at immediate risk of disruption. This is nearly equivalent to the gross domestic product of the United Kingdom in 2022. Impacts of this scale make them politically difficult outside of an invasion of Taiwan or wartime scenario.
3. G7 responses would likely seek to reduce the collateral damage of a sanctions package by targeting Chinese industries and entities that rely heavily and asymmetrically on G7 inputs, markets, or technologies. Targeted sanctions would still have substantial impacts on China as well as sanctioning countries, their partners, and financial markets. Our study shows economic countermeasures aimed at China’s aerospace industry, for example, could directly affect at least $2.2 billion in G7 exports to China, and disrupt the supply of inputs to the G7’s own aerospace industries. Should China impose retaliatory measures, another $33 billion in G7 exports of aircrafts and parts could be impacted.
4. Achieving coordination among sanctioning countries in a Taiwan crisis presents a unique challenge. While policymakers have begun discussing the potential for economic countermeasures in a Taiwan crisis, consultations are still in the early stages. Coordination is key to successful sanctions programs, but high costs and uncertainty about Beijing’s ultimate intentions will make stakeholder alignment a challenge. Finding alignment with Taiwan in particular on the use of economic countermeasures will be central to any successful effort. G7 differences on Taiwan’s legal status may also prove a hurdle when seeking rapid alignment on sanctions.
5. Deterrence through economic statecraft cannot do the job alone. Economic countermeasures are complementary to, rather than a replacement for, military and diplomatic tools to maintain peace and stability in the Taiwan Strait. Overreliance on economic countermeasures or overconfidence in their short-term impact could lead to policy missteps. Such tools also run the risk of becoming gradually less effective over time as China scales up alternative currency and financial settlement systems.

I. Introduction

For decades, Taiwan’s deepening economic ties with China and the rest of the world have helped maintain peace and stability in the Taiwan Strait. Mutual trade and investment have spurred rapid economic growth and—at least until recently— appeared to diminish the likelihood of military conflict.

The long-standing guardrails around the China-Taiwan status quo have weakened. Intensifying US-China geopolitical tensions, China’s increased use of military and economic tools to put pressure on Taiwan, Beijing’s draconian handling of Hong Kong, and evolving Taiwanese perspectives on their national identity and relationship with the mainland have all contributed to rising tensions. Taiwan’s presidential elections set for early 2024 increase the risk of escalation, as do both a rancorous US debate on China and political anxiety in Beijing in the face of a deteriorating economic outlook.

As concerns grow, so does awareness of the global economic stakes of a Taiwan crisis. Prior Rhodium Group research estimates that more than $2 trillion of global economic activity would be at risk of direct disruption from a blockade of Taiwan annually.¹ This is a likely underestimate of the short- and long-term economic fallout of a full-blown crisis. In all cases, the scale of these likely global impacts—ranging from widespread goods shortages, mass unemployment, and a possible financial crisis—underscores the need for clear-eyed analysis about the costs of a conflict. 

In this context, policymakers and business leaders around the world have begun discussing the potential role of sanctions and other economic countermeasures in a military crisis. The G7’s coordinated use of sanctions against Russia in the wake of its invasion of Ukraine have highlighted the range of tools on the table. In Washington and other G7 capitals, as well as in Beijing, leaders are now considering the potential for, and implications of, sanctioning China. Yet G7 coordination in a Taiwan crisis would involve a different set of challenges. China’s economy is ten times larger and more globally interconnected than Russia’s, raising questions about the viability of joint economic countermeasures.

Given these open questions, the purpose of this report is to provide a data-driven and objective first look at the potential for a coordinated G7 response to a Taiwan crisis. It evaluates different economic statecraft tools and considers the global economic repercussions from their use. Based on an extensive series of in-person roundtable discussions in the United States, the European Union, and the United Kingdom, interviews held with G7 policymakers and experts, and our own independent economic analysis, the report sets out the order of magnitude of what is at stake and the coordination that would be required for sanctions options to be effective.

While few US, European, and Chinese officials want to see tensions escalate in the Taiwan Strait, the past year has shown that situations previously regarded as highly unlikely can quickly materialize into a devastating reality. Understanding the scenarios and risks of using the tools of economic statecraft is not only a useful exercise, but also a critical step in ensuring all sides understand the full impact of actions that may be undertaken in a crisis.

II. The role of economic statecraft in a Taiwan crisis

A sense of heightened risk in the Taiwan Strait and the use of sanctions against Russia has led decision-makers around the world to reflect on the potential use of economic countermeasures against China in a Taiwan crisis. US lawmakers have already proposed legislation mandating sanctions on China in the event of an invasion of Taiwan.² Surveys of European countries underline an increasing—if still minority—willingness to sanction China if it were to take military action against Taiwan.³ Officials in Beijing are asking these questions as well, with China’s State Council reportedly considering the potential for Western sanctions in a Taiwan crisis.⁴ The economic fallout from sanctions on Russia have also led business leaders and major banks to conduct contingency planning exercises exploring their exposures to a cross-strait crisis, including sanctions on China.

In defining what sanctions to use—if any—policymakers are likely to take a series of factors into consideration: what goals they are looking to achieve, what options are on the table to achieve those goals, and their relative impacts, costs, and limitations. This section reviews these factors and lays out the most likely options on the table.

Goals of economic countermeasures

Economic countermeasures—defined broadly here to include financial sanctions, export controls, and other restrictions on economic activity—can have a variety of objectives. They may aim to deter aggression, either by promising punitive economic actions in response to a transgression (deterrence by punishment) or by denying an adversary the technology or resources to engage in aggressive activity in the future (deterrence by denial). They may also aim to degrade an adversary’s ability or willingness to sustain aggression after it has begun.

The aim of economic countermeasures may evolve over time. The United States had long imposed export controls to limit the flow of military and dual-use technology to Russia. Immediately prior to Russia’s full-scale invasion, the United States and allies threatened sanctions on Russia in a bid to deter military action. After the invasion, the focus of sanctions shifted to degrading Russia’s ability and willingness to continue the war. Sanctions may also have had a signaling effect that G7 countries were aligned and willing to bear prolonged costs in support of Ukraine.

As in the case of Russia, the United States and allies have limited the flow of arms and military technology to China in part to blunt its ability to engage in aggression against Taiwan long before a potential crisis. The proper design of these long-term restrictions is a matter of contentious debate in the field of export controls and technology policy, but is not the focus of this paper.

Some G7 partners are already communicating to China that actions short of an invasion could trigger economic countermeasures

Economic countermeasures might also be considered after a full-scale invasion of Taiwan to degrade China’s ability to sustain the conflict. In fact, interviews and roundtables highlighted near consensus about the fact that sanctions would be imposed on China were it to use military power to seize Taiwan. However, if the case of Russia is any guide, these sanctions take time to have an effect. Recent studies suggest that absent military intervention from the United States and allies, Taiwan is unlikely to withstand a full-scale invasion for the length of time necessary for sanctions alone to meaningfully degrade China’s military capacity.⁵

Some level of sanctioning might therefore also be contemplated in a crisis below the level of invasion, to deter further aggression. Some G7 partners are already communicating to China that actions short of an invasion could trigger economic countermeasures. These actions are the core focus of this report. While we do not identify specific triggers for economic action below invasion—because these are still intensely debated—they might include a military quarantine scenario, where the PRC restricts the free movement of ships or planes to Taiwan; acts of overt economic coercion such as wide-ranging punitive restrictions on cross-strait trade; and major cyberattacks or other disruptions to telecommunications networks on the island. Taiwanese officials have described some of these below-invasion scenarios as the most likely and pressing military risks to Taiwan’s sovereignty.⁶ Some of these “gray zone” actions, besides, come with high global economic costs that could warrant efforts by G7 nations to deter Chinese actions.⁷

Current economic statecraft tools

In looking to achieve these goals, G7 leaders have a range of tools available. Many economic countermeasures have been deployed in the context of previous crises (Table 1), including Russia’s 2014 annexation of Crimea and 2022 full-scale invasion of Ukraine, making them useful starting points to assess potential future action.

In understanding whether these tools could also be deployed in a major cross-strait crisis, it is important to remember that some tools are already being used against China today, both by the United States and other members of the G7. Actions include, among others:

• Export controls including product-based and end-user-based controls on certain strategic technologies, such as semiconductors, integrated circuits, and supercomputing technology.⁸
• Restrictions on the trading of debt and equity instruments in certain military-related companies under the Non-SDN Chinese Military Industrial Complex Companies List.⁹
• Sanctions imposed on persons involved in the repression of minorities in Xinjiang, as well as small Chinese banks aiding Iran and North Korea in sanctions evasion.¹⁰
• US and EU coordination of sanctions against Chinese firms involved in supporting Russia’s war on Ukraine.

While these measures are applied at a much smaller scale than they would be in a Taiwan Strait crisis, they illustrate the fact that G7 nations have already shown willingness to use economic measures against China when Chinese actions or policies were considered problematic. Importantly, these measures have been selective. From manufactured goods to inputs for electric vehicles, to machine tools, and pharmaceuticals, China is deeply embedded in global supply chains in a way wholly more complicated than Russia’s energy exports. At the same time, China’s reserves, capital controls, the state-owned banking sector, and abundant fiscal space provide the Chinese economy with critical buffers and economic defense mechanisms.

Tools in a future crisis

In imposing sanctions in a Taiwan crisis, G7 partners would seek to amplify existing measures taken against China and focus on asymmetric dependencies. Policymakers will likely look to the same types of targets described in Table 1, with varying intensity depending on the level of escalation, namely:

1. Sanctions on China’s financial sector
2. Sanctions on individuals associated with the leadership of the Chinese Communist Party (CCP) and People’s Liberation Army (PLA)
3. Restrictions on industrial companies in sectors relevant to China’s defense industrial base

We take these three types of tools as our baseline for likely G7 countermeasures in a Taiwan crisis and analyze each in depth.

While these are the most likely sets of tools identified by experts based on past actions, future crises may bring new tools to the table too. Conversations with US and European officials made clear that Russia’s invasion of Ukraine reshaped the contours of what was possible in the realm of economic statecraft. Just as blocking Russia’s central bank reserves and implementing an oil price cap were initially considered unrealistic, crises may spur discussions around new tools. Roundtable discussants raised options ranging from targeting casinos in Macau, which are regarded as havens of capital flight for China’s elite as well as illicit finance and money laundering; to imposing controls on China’s digital industries and firms, which power much of the country’s urban and consumer economy; to limiting access to International Monetary Fund (IMF) Special Drawing Rights, and stopping repayments of dollar-denominated Belt and Road Initiative (BRI) debt. We do not explore these potential countermeasures in this study. However, some of the ideas discussed by stakeholders illustrate the range of additional tools that could be brought to bear in a crisis.

III. Sanctions scenarios and their costs

In this section we examine three likely channels of G7 sanctions—on China’s financial system, on certain individuals and entities, and on industrial sectors. We provide an assessment of China-G7 economic value at stake through use of each type of tool, and evaluate implementation challenges, possible effectiveness, and risks.

Economic countermeasures aimed at China’s financial system

In a Taiwan crisis, G7 leaders could consider deploying economic countermeasures targeted at China’s financial system. Financial sector sanctions are a central pillar of the G7’s recent sanctions program aimed at the Kremlin. These measures include actions to block transactions with major Russian banks, freeze their assets, and deny them access to the global dollar payments infrastructure.

This section explores the economic implications of sanctions on China’s financial system, considering two primary options: a targeted sanctions program to limit dollar financing to small banks involved in funding military-related activities, and a comprehensive sanctions program targeting China’s four largest banks and its central bank with the aim of cutting China off from global financial markets.

Global economic links: Finance

For an economy of its size, China has relatively limited external financial sector ties. China is the world’s second-largest economy and has the largest volume of international goods trade, yet it ranks eighth and ninth in the world in terms of total external assets and liabilities.¹¹ Nonetheless, these ties have critical global importance. As of the end of 2022, China held 95 percent of its $3.3 trillion in reserves in foreign currency (with the remaining held in gold).¹² China does not report the exact composition of its foreign exchange reserves, but it is known to hold at least $1.1 trillion in US government bonds through US custodians, and more routed through custodians in Belgium,¹³ as well as about $300 billion in corporate debt and equity.¹⁴ The remainder of China’s foreign currency reserves are held predominantly in euros, Japanese yen, and pounds sterling.¹⁵ In addition to China’s official reserves, China’s banking sector holds $1.5 trillion in cross-border assets according to State Administration of Foreign Exchange statistics, most of which is held in G7 currencies.¹⁶ 

Global bank holdings of assets within China’s banking system are much lower. On average, only 3 percent of global central bank reserve holdings are in RMB-denominated assets.¹⁷ G7 banks hold $112 billion in claims on Chinese banking institutions such as loans, deposits, and debt instruments, which is only 1 percent of total cross-border bank claims.¹⁸ While this means that global banks, on average, are not heavily exposed to China in terms of explicit bank assets, it also means that Chinese banks primarily borrow from Chinese domestic savers and do not depend heavily on foreign borrowing to maintain their balance sheets.

Global exposures to China’s banking system are much greater when considering China’s role facilitating cross-border financial flows, particularly trade. When Chinese importers and exporters do business abroad, they typically do so in foreign currencies: 77 percent of China’s total $6.8 trillion in goods and services trade is settled in currencies other than the RMB, primarily US dollars and euros.¹⁹ To facilitate these cross-border payments, Chinese banks maintain correspondent accounts at global banks, which debit or credit dollar and euro payments to the Chinese correspondent accounts on behalf of the foreign customer or supplier. Maintaining these correspondent accounts is a key part of the financial infrastructure underpinning global trade.

Chinese banks also finance other important cross-border flows, including $384 billion in repatriated income from foreign businesses and investments, $330 billion in inbound and outbound direct investment, and $381 billion in cross-border portfolio investment.²⁰

Scenarios

With these financial sector linkages in mind, we consider two potential sanctions scenarios: one in which G7 countries would impose limited sanctions on a small bank with linkages to China’s military or technology sector, and another where they would deploy full-scale sanctions on China’s central bank and China’s Big Four banking institutions.

Limited sanctions scenario

One potential scenario would involve imposing blocking sanctions on a small Chinese bank with limited financial ties to the global financial system and with links to China’s military or dual-use technology sectors. The nominal purpose of these sanctions would be to constrain the flow of foreign financing to military-relevant economic activities.

Actions of this kind have been imposed by the United States before. In 2012, the US Treasury Department sanctioned China’s Bank of Kunlun for providing financial services to six Iranian banks sanctioned by the United States for involvement with Iran’s weapons program and international terrorism.²¹ In 2017, the United States issued a final rule under Section 311 of the USA PATRIOT Act severing China’s Bank of Dandong from the international dollar financing system for its role in helping the Democratic People’s Republic of Korea (DPRK) evade sanctions.²²

The Bank of Kunlun and Bank of Dandong were relatively small and had limited ties to the global financial system. The financial impact from these actions on the global financial system was minimal. In the case of the Bank of Dandong, for instance, the bank processed $844 million in cross-border transactions in 2016 just prior to being identified as an institution of “primary money laundering concern,” a modest sum in the broader picture of global financial flows.²³ While these banks were cut off from the global dollar financing system, they remain connected to the rest of China’s banking sector. As raised in our roundtables, this enables them to continue providing financial services for US sanctioned entities, including Iran and the DPRK.

In a Taiwan crisis scenario, policymakers would face a similar challenge. G7 countries could impose blocking sanctions on small banks, freezing any foreign assets held in G7 jurisdictions and prohibiting domestic individuals and entities from transacting with those banks. However, even if the sanctioned banks lost direct access to correspondent banks in the United States and Europe, they would still have access to financing channels from other Chinese banks, and China’s military-industrial enterprises could still easily access dollar financing, if needed, from other channels in China’s state-run banking system. Rather than make a substantial impact on China’s financing flows, the primary impact of these types of sanctions would be limited to conveying an intent to escalate financial sanctions further, potentially on larger, more systemically important institutions.

Full-scale financial sector sanctions scenario

At the other extreme, the United States and allies could take much more drastic measures against China’s financial system by, for example, imposing blocking sanctions and denying SWIFT access to China’s central bank, its finance ministry, and China’s Big Four banks, which collectively hold one-third of China’s total banking assets.²⁴

The economic impact of such moves would be dramatic, both for China and for the world. This would effectively freeze China’s foreign exchange reserves held in overseas custodial accounts, making them unusable for the defense of China’s currency or to meet short-term obligations to finance China’s imports or external debt repayments. The bulk of overseas assets of the Big Four banks —amounting to around $586 billion—would be frozen.²⁵ This represents a floor, not the ceiling, of the global economic disruption from these actions, which are many magnitudes higher.

G7 assets in China would also be at risk. It is likely that China would freeze the (relatively small) renminbi-denominated holdings of G7 banks. Chinese banks, facing a sudden shortage of foreign exchange due to asset freezes, would likely fall into technical default on G7 bank-issued debt, totaling around $126 billion.

Sanctioned banks would also be cut off from the international dollar payments system. Chinese banks do not systematically report the scale of their cross-border transaction settlements, so we are left to estimate the scale of disruption if China’s Big Four banks were sanctioned. Starting from China’s balance of payments statistics on cross-border trade and investment, we estimate what share of that activity is attributable to the Big Four. We assume that the Big Four banks’ role in facilitating cross-border trade and investment is proportional to their share of foreign asset ownership in China’s whole banking sector, indicating approximately $3 trillion in trade and investment flows could be put at risk, primarily from disruptions to trade settlement. This is only a rough estimate and is likely an undercount, but it illustrates the scale of economic activity at risk from full-scale sanctions on China’s largest banks.

Over the long term, Chinese importers and exporters could move to other, unsanctioned banks for trade settlement and finance, but the immediate disruption to global trade would be substantial and smaller banks would likely struggle to backfill the enormous demand for trade-facilitating financial services in the short term. Eventually, Chinese importers and exporters would adapt to financial-sector sanctions by turning to a different set of banks and potentially engaging in more renminbi-denominated transactions (see Box 1 on China’s international payments alternatives). But the vast majority of China’s exports would be impacted in the short term, as it would be extremely difficult for Chinese companies to receive US dollar- or euro-denominated payments for goods.

$3 trillion in trade and investment flows could be put at risk, primarily from disruptions to trade settlement.

Freezing China’s official foreign exchange assets would also have substantial global spillovers. An asset freeze of China’s dollar reserves would suddenly make dollars in China scarce, driving down the value of the renminbi relative to the dollar. Beijing could fight this depreciation pressure in the short term through strict capital controls and exchange rate interventions, but ultimately would need to allow the renminbi to depreciate to ease outflow pressures and stabilize China’s balance of payments.

A weaker exchange rate would make goods imports more expensive and reduce China’s global economic throw weight. Disruptions to China’s export trade would also entail substantial economic hardship and financial stress for Chinese companies and suppliers to global markets. However, assuming that Chinese exporters and importers eventually found other non-sanctioned banks to legally conduct trade with foreign counterparties, China would still avoid a balance of payments crisis. China presently runs a large current account surplus, providing a consistent flow of dollars into its financial system. In fact, devaluation of the renminbi would ultimately make Chinese exports more competitive relative to other countries, which would push some of the impact of sanctions on to exporters in those countries. Other emerging market currencies, including those of US allies, would be likely to depreciate sharply against the US dollar as well. Countries that depended upon exports to China, such as Angola and Brazil, would see those export markets contract sharply.

The imposition of broad-based financial sanctions on Chinese banks would create significant dislocations within the global financial system and would likely require a coordinated policy response among developed market central banks in order to manage the fallout. Global supply chains would be upended while exporters and importers routed activities to unsanctioned banks. Countries that rely on dollar financing— to finance trade with the United States and Europe, for instance—would face a surge in financing costs, requiring the Federal Reserve to pump dollars back into the global economy through central bank swap lines. But even if swap lines with China were prohibited, these dollars would find their way back into China’s economy due to its trade surplus with the rest of the world.

Takeaways

While it is likely that a financial sanctions package would be on the table in the case of a major Taiwan crisis, avenues for sanctioning China’s financial system face limitations. A lower-scale response that targeted small banks involved with financing military activities would limit the negative impact on the global economy, but it would have little effect on Chinese behavior or military activities because other financing channels would remain open. On the other extreme, a full-scale sanctions response targeting China’s central bank and most of the country’s major commercial banks would have massive economic spillovers—for China’s economy, but also for the global financial system and the global economy. Second-order consequences could include a tightening of global trade financing conditions; weakness in emerging market currencies and balance of payments problems in emerging markets; major supply chain disruptions and interruptions to global manufacturing of consumer goods; and inflationary short-term impacts from interrupted China-world trade.

Sanctions on China’s financial sector could end up falling somewhere between these two extremes, with sanctions placed on midsize banks, for instance. Impacts from these sanctions on trade and financial markets would be more moderate than in the case of a maximal sanctions scenario, but these face many of the same limitations as more comprehensive sanctions.

Fundamentally, the long-term strategic benefit of financial-sector sanctions is unclear. Imposed on small banks, they would have minimal impact on China’s ability to finance military activities. At a large scale, sanctions would disrupt trade with China in the short run, but they would not fundamentally change China’s position within global manufacturing supply chains. Over time, China’s terms of trade would probably improve along with a weaker exchange rate. The symmetrical impact of such sanctions on China and the rest of the world reduces the credibility of such broad-based financial sanctions as a deterrent.

Box 1: How Well-Developed Are China’s International Payments Alternatives? 

Over the past five years, China’s Ministry of Finance and the People’s Bank of China (PBOC) have established several platforms to facilitate cross-border transactions and reduce reliance on dollar-based payment systems. Given the increased interest from across the Global South in alternative payment systems to the dollar in the wake of G7 sanctions on Russia, it is likely that in the next five years more of the Chinese systems could be used as a means of sanctions evasion.

In 2015, China launched its Cross-border Interbank Payment System (CIPS) to function as a settlement and clearance mechanism for renminbi transactions. An alternative to the dollar-based Clearing House Interbank Payment System (CHIPS), CIPS is supervised by the PBOC, and participants have the opportunity to message each other through the CIPS messaging system.

Data on CIPS usage suggest that transaction volumes have more than doubled in that period, growing by 113 percent.²⁶ However, while China is making significant progress in developing international payment alternatives, it lags behind the established global payment ecosystem.²⁷ Research indicates that CHIPS has ten times more participants and settles forty times more transactions compared to CIPS.²⁸ These incumbents have well-established networks, widespread acceptance, and trust among global users.

Perhaps the most significant payment alternative is China’s development of its Central Bank Digital Currency (CBDC), the e-CNY, which began in 2017. The retail CBDC project focuses on enabling individuals and businesses to use the e-CNY for everyday transactions. Interestingly, the PBOC has over 300 staff working on their CBDC project, and only about one hundred working on CIPS.²⁹ However, this retail CBDC project may have limited ability to help internationalize the yuan and facilitate its use as a means of sanctions evasion given its domestic focus and the lack of infrastructure for cross-border use.

The same cannot be said, however, of China’s wholesale CBDC ambitions. China’s wholesale project aims to streamline interbank transactions and improve its cross-border financial system efficiency. Project mBridge is a joint experiment with the Hong Kong Monetary Authority, Bank of Thailand, Central Bank of the United Arab Emirates, and Bank for International Settlements to create common infrastructure that enables real-time cross-border transactions using CBDCs. In October 2022, the project successfully conducted 164 transactions in collaboration with twenty banks across four countries, settling a total of $22 million, with almost half of all transactions in the e-CNY.

This initiative demonstrates China’s active involvement in exploring innovative solutions for international payments, particularly in the context of cross-border transactions which do not use dollars or euros. This system, though not yet ready for full launch, could help countries bypass dollar-denominated systems like SWIFT or CHIPS and develop an alternative financial architecture.

The biggest challenge for new China-based cross-border payments architecture is liquidity. China maintains capital controls on yuan and offshore clearing, and settlement of yuan is severely limited in comparison to the dollar, euro, pound, and yen. Removing these capital controls to provide liquidity pools for offshore clearing and settlement in yuan will come with some financial instability in Chinese markets, which is undesirable to leadership in the short term.

However, even if certain transactions will be more costly to execute, the recent history of sanctions evasions shows actors are willing to pay a premium to have specific transactions avoid dollars and US enforcement. China is investing significant resources in scaling up these capabilities.

Economic countermeasures aimed at individuals and entities associated with CCP and PLA leadership

Sanctioning the leadership and key associates of adversarial governments, criminal organizations, and terrorist groups is a well-established mechanism deployed by G7 nations and international organizations, including the United Nations. These measures are meant to pressure the targeted individuals, organizations, and governments to change their behavior or policies, while freezing their assets and restricting their ability to raise, use, and move funds.³⁰. In the event of a Taiwan crisis, G7 countries could impose targeted financial sanctions on Chinese government and military officials as well as other politically connected elites to attempt to deter further escalation and increase economic pressure on General Secretary Xi Jinping and his close allies.

Sanctions targeting Russian government and military officials and elites have been a central part of the G7 and allies’ sanctions strategy to counter Russia’s aggression toward Ukraine. Since the 2014 invasion of Crimea, G7 allies have collectively sanctioned more than 9,600 Russian-linked individuals, with a specific focus on government and military officials, oligarchs, and others with links to the regime as well as their family members and close associates who received asset transfers before a sanctions designation.³¹ As of March 2023, members of the Russian Elites, Proxies and Oligarchs (REPO) Task Force—a coalition of G7 nations, Australia, and the European Commission—have blocked Russian assets valued at more than $58 billion, including both financial accounts and assets such as real estate and luxury goods.³²

Separately, some G7 nations have imposed unilateral sanctions on PRC officials in response to human rights abuses and PRC actions in Hong Kong. As of May 2023, the United States had designated forty-two government officials, including former Chief Executive of the Hong Kong Special Administrative Region Carrie Lam and other PRC government officials, in response to actions undermining Hong Kong’s autonomy.³³ In March 2021, the EU also made a rare use of its Global Human Rights Sanctions Regime to sanction four high-ranking Chinese officials for their involvement in human rights abuses against ethnic minorities in the Xinjiang Uyghur Autonomous Region, with sanctions including travel bans and asset freezes³⁴—a move complemented by economic countermeasures taken the same day by the United States, the United Kingdom, and Canada.³⁵

It is highly likely that G7 nations would consider multilateral targeted designations against Chinese government and PLA officials and their associates in a major Taiwan crisis, given their relative success coordinating multilateral sanctions to counter Russia’s invasion of Ukraine.³⁶ The following section explores economic ties at stake and potential sanctions scenarios.

Global economic links: Individuals abroad

Assessing the scale of overseas assets covered by a potential sanctions regime on Chinese government, party, and military officials is extremely complex. There is limited available public information on the wealth of Chinese officials, in large part because that wealth is concealed via layers of personal networks and investment vehicles, and is often managed by third parties. These third parties invest on behalf of officials in domestic and overseas properties, publicly listed companies, and other investments—often in offshore jurisdictions such as the British Virgin Islands (BVI), the Cayman Islands, and Samoa. These offshore company structures often open bank or brokerage accounts in other jurisdictions, thereby further obscuring the relationship to the ultimate beneficiary.

For the purpose of this study, the authors used data derived from investigative reports and leaks of financial information such as the Panama Papers, which combined give a broad sense of the scale of assets connected to some of the highest-ranking figures of China’s leadership. In 2012, Bloomberg reported that Xi’s extended family held more than $400 million in business holdings and real estate.³⁷ The same year, reporting by the New York Times identified $2.7 billion in assets linked to former Premier Wen Jiabao and his close network.³⁸ Leaks of financial information including the offshore accounts analyzed by the International Consortium of Investigative Journalists in 2014 confirmed the existence of shell companies incorporated in the British Virgin Islands that are linked to the relatives of Wen and Xi, although the value of assets linked to these companies is unknown.³⁹ The leaked information also contained evidence of BVI-incorporated companies held by relatives of former Premier Li Peng and former President Hu Jintao, among others. Despite the opacity surrounding the overseas assets of the elite of the CCP, these single cases are potential indications that relevant, sanctionable assets likely represent tens of billions of dollars in aggregate.

This figure could grow quickly if the targets of financial sanctions were extended beyond high-level CCP and PLA leadership to include politically linked private business leaders. The estimated net worth of the top 200 wealthiest people in China is around $1.8 trillion.⁴⁰ Twenty-nine of those business leaders are current members of the National People’s Congress (NPC) or the Chinese People’s Political Consultative Conference (CPPCC), with a combined net worth of $278 billion. Much of this net worth is, however, linked to business activities taking place in China, rather than within G7 jurisdictions.

Twenty-nine of those business leaders are current members of the National People’s Congress (NPC) or the Chinese People’s Political Consultative Conference (CPPCC), with a combined net worth of $278 billion

Scenarios

A scenario involving sanctions on Chinese officials could proceed in several stages, with a first set of actions targeting a narrow and lower-level set of party, government, and military officials with direct links to a Taiwan crisis. Further actions could expand these sanctions to close associates of designated individuals, a longer list of officials, or ultimately to a broader set of politically connected business elites. Under the most extreme of scenarios, these sanctions could be widened to include China’s highest-level leaders in response to major developments in the Taiwan Strait.

Sanctions on a narrow set of CCP, government, and military officials 

One likely scenario would involve sanctions—asset freezes and travel bans—imposed on a narrow group of CCP, government, and military officials with clear responsibilities over actions taking place in the strait. China’s current minister of defense, Li Shangfu, is already under US sanctions⁴¹—but designations could be extended to cover select members of the Central Military Commission or high-ranking PLA commanders. These could also include close advisers to these officials or to China’s high-level leaders on Taiwan-related issues.

The nominal purpose of these sanctions would be largely symbolic, and a means to condemn Beijing’s actions. Their effectiveness in changing behavior is likely to be extremely limited and could contribute to a hardening of positions. Most of this group of designated officials would likely be highly aligned with Xi’s decisions on Taiwan. Narrowly crafted sanctions on officials might also generate limited financial outcomes, given that these individuals are already under tight political scrutiny in China and unlikely to be allowed major overseas holdings. The scope of sanctionable assets might grow marginally larger, however, if close associates and family members are included, especially children of government officials studying in G7 countries, as well as close aides and the third parties handling their investments. Similar to the Russian case, these individuals may become a focus for the G7 if asset transfers occur ahead of designations.

Sanctions on a wider range of CCP, government, and military officials as well as business elites 

In response to an escalation in the Taiwan Strait, G7 countries could decide to progressively expand sanctions to cover a longer list of government, CCP, and PLA officials. The list could also include certain business elites with known links to China’s leadership, who lend their public or financial support to China’s actions, or those who are active in sectors linked to China’s military-industrial base. The United States has already designated several Chinese executives and companies for breaking US law by providing support to North Korea, among other violations.⁴²  

In addition to asset freezes and travel bans, G7 governments might impose restrictions on professional and financial services provided to these elites, including wealth management or business advisory services.⁴³ While Chinese clients overwhelmingly rely on the expertise of wealth managers based in Hong Kong, a small percentage of other managers are located in Switzerland (1.6 percent), the UK (1.6 percent), and the United States (1.1 percent).⁴⁴ 

The purpose of this second round of sanctions would be to attempt to pressure these officials to push internally for a change in policy. Assuming intelligence about their overseas assets were available to G7 implementing authorities, these broader sanctions could end up covering tens of billions of dollars in overseas assets. The costs to designated officials could be high: besides the financial implications of an asset freeze, even the public revelation of foreign assets could be politically damaging.

Our roundtable participants noted that sanctions on individuals amid a Taiwan crisis could potentially produce a stronger response than has occurred with recent designations of Russians. Whereas many Russian officials have been under sanction since 2014 and have had time to adapt, such sanctions on China would be mostly new and immediately impactful to those designated.

Still, it remains unclear whether sanctions on China’s business elites would compel a change in policy. Business leaders arguably have the most to lose from Chinese aggression against Taiwan to begin with, since disruptions in trade and investment with Taiwan and G7 partners will affect businesses first and foremost. The waning influence of the private sector in governance due to crackdowns on the technology and financial sectors under Xi raises further questions about business elites’ ability to influence policy outcomes toward Taiwan.

Sanctions on China’s high-level leaders

In an extreme escalation in the Taiwan Strait, sanctions could end up targeting China’s highest-ranking officials including most members of the Political Bureau of the CCP’s Central Committee and Xi himself. If Russia sanctions are any indication, this third circle of sanctions could also include China’s ministers of foreign affairs, science, and technology or finance, the PBOC governor, or high-level members of China’s legislative bodies (the NPC and CPPCC). These sanctions would similarly be largely symbolic.

Takeaways

The G7’s response to Russia’s invasion of Ukraine demonstrates that coordinated multilateral financial sanctions on political and business elites are now a central tool in G7 economic statecraft. By design, these sanctions have the benefit of having relatively low immediate economic impacts on G7 economies, concentrating costs on a small number of targeted officials. In principle, these sanctions also have the benefit of avoiding indiscriminately targeting China’s broader populace.⁴⁵ Though in practice they often end up inadvertently affecting the broader population or the national economy, as foreign banks and private-sector entities reduce exposure to a broader range of individuals or entities than the ones directly sanctioned.

Their effectiveness as deterrence tools in a Taiwan crisis is in question, too. Narrow sanctions on CCP, government, and PLA officials would probably end up targeting political leaders already aligned with Xi’s decisions on Taiwan. Chinese officials may conceal their offshore assets through complex personal networks and corporate structures that are potentially painful and costly to unravel. They also require tight coordination and information sharing among sanctioning parties, in order to locate and act against sanctioned individuals’ assets across jurisdictions. (The foundation for this cooperation does exist, however, as a result of recent sanctions on Russia).

Broader sanctions on business elites could freeze greater overseas wealth, but this may have limited impact on policy outcomes. Private business leaders are already incentivized to disfavor Chinese aggression toward Taiwan and have diminishing political sway after years of power centralization under Xi. Yet because they are an important signaling tool, sanctions on Chinese officials would very likely be considered in a major Taiwan crisis.

Economic countermeasures aimed at China’s industrial sectors

Finally, G7 leaders may consider deploying export controls and other economic statecraft tools against Chinese companies or industries linked to China’s military or defense industrial base.

These actions featured prominently in the G7 sanctions program on Russia, with a variety of trade and investment-related measures imposed on companies and industries linked to mining, electronics, aviation, and other sectors. The United States implemented stronger sector-wide export controls on certain industrial and electrical equipment, added military-linked companies to the US Commerce Department’s (export-control) Entity List, and designated numerous companies on the SDN list.

Currently, Chinese firms with ties to the PLA and specific companies utilizing dual-use technologies already face sanctions and export controls. This signals additional businesses operating in these sectors as likely targets in a Taiwan crisis. In a crisis scenario, a number of economic countermeasures could be used to limit the flow of potential dual-use goods to China’s military and restrict the operation of sectors critical to China’s defense industrial base.

This section describes the economic linkages between potentially targeted sectors and the global economy, as well as the economic assets and flows that could be implicated under an economic statecraft program. To bring more granularity to our analysis, we use a case study approach that explores the potential for restrictions on China’s aerospace sector.

Our findings point to significant economic risks from a broad sanctions package, as well as deep interdependencies between China and G7 economies in potentially targeted sectors. This suggests that, if deployed, countermeasures would likely target narrower industries—or single firms within industries—where China depends on imported G7 technology and where global dependence on Chinese exports is small. Even then, sanctions could come with substantial costs to G7 technology exporters in the sanctioned industries.

Global economic links: Industries and supply chains

A number of Chinese industries could become the target of G7 countermeasures in the context of a major Taiwan crisis, due to their linkages to China’s defense sectors. Among them, chemicals, metals, electronics, aviation, and shipbuilding already feature prominently in US lists of Chinese military-industrial companies, including the Non-SDN Chinese Military-Industrial Complex Companies list and the Department of Defense’s Chinese Military Companies list—making them likely potential targets for future action.⁴⁶  

Collectively, these five industries already comprise over ten percent of Chinese gross domestic product, produce over $6.7 trillion in annual revenue, and employ over 45 million people.⁴⁷ They also are deeply linked to the global economy: in 2018, Chinese companies in these industries imported goods valued at $686 billion, and exported goods valued at nearly $1.1 trillion.

These sectors are also linked to the global economy through investment. Collectively they have been the destination for $107 billion in direct investment from the United States, United Kingdom, and European Union since 2000, and Chinese companies in these sectors have invested at least $179 billion abroad, either through acquisitions or greenfield investment, according to Rhodium cross-border FDI monitoring. Bloomberg data and Chinese official data suggest that foreign holdings of listed Chinese companies and their subsidiaries in these sectors amount to about $120 billion, and these firms have at least $76.9 billion in dollar-denominated debt instruments currently outstanding.⁴⁸

Scenarios

G7 countries have a range of economic countermeasures that could be brought to bear against select Chinese industries in the event of a Taiwan crisis. Here we consider two potential scenarios, a maximalist export controls scenario targeting major industries with comprehensive export controls, and a targeted sanctions scenario using China’s aerospace industry as a case study.

Maximalist export controls scenario

In an extreme scenario, G7 countries could impose strict export restrictions on trade with China on a range of major industrial sectors, such as chemicals, metals, electronics, and transportation equipment. These sanctions, though highly costly, would not be entirely unprecedented. In the case of Russia, the United States and other G7 countries imposed restrictions on exports in the oil and gas, metals and mining, defense, and technology sectors through a combination of tightened export controls and property blocking rules.

The disruptions to China from such sanctions would be substantial: G7 exporters are the source of 18 percent of the imported content these industries in China consume, totaling $153 billion based on trade in value-added data that estimates the origin and value of production activity along supply chains. G7 countries also account for 43 percent of China’s export market in these industries, putting $225 billion in Chinese manufacturing activity at risk. Altogether, over fifteen million jobs in China are estimated to depend on exports in these sectors. Many more jobs would be put at risk from the loss of imported inputs into Chinese production processes.

These dependencies run both ways, however, and impacts on the sanctioning countries would also be extremely high. The $153 billion in goods that G7 countries export to these industries in China support approximately 1.3 million jobs across the G7; and China itself is the source of 25 percent of G7 imports in these industries.

Even these substantial figures far underestimate the total economic impact from a total ban on trade between G7 economies and these industries in China. The value-added approach provides a useful estimate of the value that different countries contribute to well-functioning global value chains. But disruptions from a sudden stop of trade in these industries—in particular in hard-to-replace critical components—would result in massively greater economic disruption until alternative sources were fully brought up to speed.

Exports from China to the G7 would be disrupted as well. Trade restrictions on foreign inputs to these industries would affect Chinese production and exports. China could also take retaliatory action banning exports from these and other sectors to the G7.

In some cases, alternatives to disrupted trade flows might be found quickly, putting the efficacy of trade restrictions in doubt. A ban on G7 exports of iron ore to China, for instance, would disrupt only a small volume of trade unless other partners such as Australia, which exported $72 billion of iron ore exports in 2022, were also to join. Even so, these supplies could in large part be replaced by exports from other countries such as South Africa and Brazil.⁴⁹ Additionally, the G7’s challenges in halting the export of high-end Western technology to Russia following its invasion of Ukraine demonstrate that such regimes can be porous.⁵⁰

The deep interlinkages between Chinese and global industries mean potential economic disruptions from targeting certain sectors could be significant. Altogether, a conservative accounting of the trade flows disrupted by export controls in these sectors amounts to at least $378 billion in disrupted trade.⁵¹  

Except under extreme circumstances, it is unlikely that G7 leaders would be able to agree to trade restrictions on this scale. Germany, for instance, is deeply invested in and dependent on China in the chemicals industry. The French, UK, and US aviation industries have huge sales to China (see case study below), and Japan and non-G7 members South Korea and Taiwan are deeply connected with mainland China in electronics. These linkages would make agreeing on a broad package extremely difficult. Broad trade restrictions would also be indiscriminate in their impact on China’s citizenry, a fact with serious ethical implications and potentially political ones, as a broadbased export-control regime could in fact strengthen popular support for the government rather than undermine it.⁵²

Finally, a broad export-control package would have major spillovers to the global economy due to global value chains that depend on imports of Chinese intermediate goods (electronics, for instance) that would be disrupted by strict controls. These considerations make measures of this scale highly unlikely, except under the most extreme circumstances.

Targeted sanctions scenario

Due to the costs of a maximalist approach, economic countermeasures against China’s industrial sectors are more likely to be narrower in scope, targeting specific companies or subsectors with high technological dependencies on G7 countries and relatively low global dependency on Chinese exports. The key feature of these countermeasures would be asymmetry: imposing restrictions that disproportionately affect China’s economy. Importantly, asymmetry does not imply costlessness. Any effective trade restriction inevitably results in costs to the sanctioning economy and the global economy as a whole.

China’s aerospace industry, which depends on foreign-sourced engines and parts, provides a case in point. In a potential sanctions scenario, the United States and G7 partners could impose blocking sanctions and export restrictions on China’s two largest aerospace companies, the Commercial Aircraft Corporation of China (COMAC) and the Aviation Industry Corporation of China (AVIC). These companies depend heavily on inputs from overseas suppliers. Of the eighty-two primary suppliers to China’s first narrow-body jet, the COMAC C919, only fourteen are from China (and seven of those are Chinese-foreign joint ventures).⁵³ China’s most critical vulnerability is engines: all three of its domestically manufactured commercial aircraft rely on foreign-produced engines, and China’s domestic jet engine manufacturers are widely believed to be far behind Western competitors in terms of technological sophistication.⁵⁴

In a scenario in which blocking sanctions and export restrictions were placed on AVIC and COMAC, all exports of aerospace goods to these firms could be prohibited, amounting to approximately $2.2 billion in aerospace parts trade at risk.⁵⁵ However, the ultimate impact of such measures on China’s aerospace ambitions would be much greater. China has begun mass production of its ARJ21 regional airliner–which depends on GE engines–and exported its first model to Indonesia last year. COMAC’s flagship C919 narrow-body jet marked its first commercial flight in May 2023, and the country has aspirations to sell over 1,200 over coming years. Restricting the sale of aviation parts to COMAC and AVIC would substantially disrupt China’s civil aviation ambitions.  

$33 billion of G7 aerospace exports to China could be disrupted through retaliatory measures.

While the impact of these measures would be particularly acute for China, the costs on foreign aerospace companies would also be substantial. China could respond to restrictions by halting aerospace exports to G7 countries. China exported $1.2 billion in aircraft parts to G7 countries in 2018, including inputs to for eign airliners. While most are low-tech inputs, they can be difficult to replace in the short run: a shortage of wire connectors that coincided with widespread lockdowns in China in 2022 led to US production delays for the Boeing 737.⁵⁶ China could also respond by delaying purchases of Airbus and Boeing planes. In total, approximately $33 billion of G7 aerospace exports to China could be disrupted through retaliatory measures.

Foreign aerospace companies also have substantial tie-ups with AVIC and COMAC. Since 2000, US and British companies and those based in EU member states have invested an estimated $3.7 billion in China’s aerospace sector, according to Rhodium’s cross-border FDI tracking. A substantial number of these projects are connected to AVIC and COMAC, including Airbus’s A320 final assembly line in Tianjin, which produces six aircraft per month, about 10 percent of Airbus’s average monthly production.⁵⁷

AVIC and COMAC also have invested in global aerospace companies. AVIC, for instance, acquired Austrian FACC AG, which produces aerostructures and other components for Airbus, Boeing, and other global firms. In a scenario where COMAC and AVIC were put under blocking sanctions, these operations would likely be forced to wind down or divest

Finally, foreign investors would be exposed to losses in equity and debt in AVIC. Foreign equity holdings in twenty-four listed subsidiaries of AVIC companies totaled $1.4 billion, or 1.4 percent of their combined market capitalization as of April 2023.⁵⁸ Dollar-denominated debt issued by AVIC and subsidiaries amounted to $3.8 billion, approximately 21 percent of its total debt issuance.⁵⁹  

Sanctions on China’s leading aerospace companies and export controls on the components they import would be a heavy blow to its civil aerospace ambitions, making them a plausible economic countermeasure in a Taiwan crisis. However, the impacts on foreign aerospace companies would be significant given the high degree of trade and investment ties to China, making these countermeasures costly and potentially difficult to coordinate in a crisis. Targeted sanctions on other sectors where G7 countries hold asymmetrical technological advantages could also be considered, but these all come with non-negligible costs to the sanctioning economies as well.

Takeaways

China is deeply connected to the global economy in sectors that would potentially be targeted for economic countermeasures in a Taiwan crisis. The expansive nature of these ties would make broad export controls and trade restrictions extremely costly and likely hard to justify except in the most extreme circumstances.

Targeted sanctions on specific firms and technology choke points are more plausible, but they come with substantial costs to foreign companies. Our case study, with export controls placed on China and full blocking sanctions imposed on China’s leading aerospace manufacturers, shows that tens of billions of dollars in aerospace goods trade, inbound and outbound direct investment, and portfolio holdings in China’s aerospace sector would be put at risk. While China would face substantial challenges in achieving its goal of developing a strong domestic commercial aviation industry, foreign aerospace companies would lose out on billions of dollars in exports and sales to China and risk seeing billions of dollars in direct investment lost.

IV. Practical challenges in sanctions development

Beyond identifying specific tools and appropriate targets for economic countermeasures, policymakers will confront a range of complex coordination issues around implementing sanctions in a Taiwan crisis. Discussions with participants in our roundtables highlighted areas of consideration in developing economic countermeasures to deter aggression against Taiwan.

Understanding Taiwan’s perspective. A crucial factor in designing G7 economic responses to possible aggression against Taiwan should be the policy preferences of Taiwan itself. Depending on the nature of the crisis and political conditions in Taiwan, Taiwanese officials might not support economic countermeasures against China and opt for a de-escalatory response. Given the depth of economic ties between China and Taiwan, certain economic countermeasures against China could be highly costly for the Taiwanese economy. Public opinion would likely be divided on the question of how to respond. With only mixed Taiwanese support, G7 coordination on economic countermeasures could be difficult to achieve. Strong Taiwanese support on the other hand would make coordination easier, so long as Taiwanese actions were not seen to have precipitated the crisis.

Defining clear redlines and triggers across the G7. A key barrier to coordinating sanctions among G7 partners and with Taiwan arises from the difficulties in agreeing on what Chinese acts of aggression should trigger economic countermeasures. While some actions might be seen by all parties to have crossed redlines–such as a military quarantine of Taiwan—Chinese coercion against Taiwan often takes the form of “gray zone” measures that are more ambiguous and brush up against but do not clearly cross redlines.⁶⁰ Getting G7 nations to agree to impose economic countermeasures against China in response to such actions will be more challenging. The roundtables highlighted different levels of tolerance for escalatory action measures among G7 partners.

The specific drivers of a crisis would matter as well: European experts note that a crisis that was seen to be provoked by the United States or Taiwan would make G7 alignment more difficult, especially given divergent views among EU member states about how to respond to a cross-strait crisis.

Coordinated signaling in order to deter. The challenges involved with identifying redlines and agreeing on responses in advance also complicate efforts to signal resolve to China. Successful deterrence depends on the would-be aggressor knowing what actions would provoke a response and believing that the defender’s threats of retaliation are credible.⁶¹ The ambiguous nature of Chinese escalatory actions and the potential for disagreements among partners over how to respond in the moment of crisis make establishing deterrence through the threat of economic countermeasures a significant challenge.

Participants in roundtables disagreed about the best signaling approach, with some arguing that clarity about redlines and consequences is essential, and others arguing that providing too much specificity could instead encourage aggressive behavior and focus China’s countersanctions and sanction-proofing work. Providing clarity on what Chinese actions would elicit a punitive response could encourage Beijing to take actions just below such thresholds.

Building out necessary tools. Our roundtables highlighted the fact that G7 countries joining a sanctioning coalition may need additional legal tools to carry out effective countermeasures on China. In the wake of enhanced export controls on Russia, for instance, the EU faced challenges restricting reexports of export-controlled products through third countries to Russia, as doing so would require additional legal authorities.⁶² And differences in UK, EU, and US regulations have complicated the efforts of multinational companies to wind down their operations in Russia.⁶³ For effective action and deterrence, such authorities would need to be shored up.

Scoping a cost mitigation strategy. Even limited economic countermeasures against China would have global economic spillovers. This means any sanctions program would likely need to be paired with measures to support industries at home as well as third countries affected by lost trade and investment with China. Sanctions triggering a devaluation of the renminbi would negatively affect countries dependent on commodity exports to China. A stronger dollar resulting from global investors seeking liquidity and safe assets in a crisis would put additional stress on countries with substantial dollar-denominated debt. G7 countries would need to manage the global spillovers of sanctions with additional dollar liquidity, loan extensions and forgiveness, and other tools to support the global economy in a period of economic stress.

Factoring in the market reaction. Any G7 economic statecraft response would have to contend with additional disruptions to global supply chains from Chinese aggression against Taiwan and the resulting market impacts. Russia’s 2022 invasion of Ukraine caused market gauges like the S&P 500 to fall by around 4 percent, and the initial market impact of a Taiwan crisis could be significantly larger due to the size and importance of the economies involved. US officials have estimated a disruption to the exports of Taiwan Semiconductor Manufacturing Company alone could cost the global economy between $600 billion to $1 trillion a year.⁶⁴ Roundtable participants stressed that G7 actions would have to avoid aggressively compounding the inevitable supply chain and market effects of a crisis. The initial shock could undermine domestic political support for sanctions that would incur additional economic costs.

Conclusions and recommendations 

Policymakers in G7 capitals are increasingly discussing Taiwan crisis scenarios, and starting to explore the range of options available to them in responding to Chinese actions against Taiwan, both beyond and below the level of invasion. While our work shows that maximalist countermeasures would be highly costly and therefore unlikely except in the most extreme circumstances, G7 countries may consider a set of more limited tools that target areas of asymmetric Chinese dependence on foreign technology and critical inputs. 

That options are available, and that G7 leaders are discussing them, does not mean that deploying them in an aligned fashion would be easy. Coordination on economic countermeasures will be critical to effective deterrence, but could be hard to achieve given the difficulty to define red lines in a conflict that is likely to be marked by ambiguity and uncertainty. Given these limitations, economic countermeasures can only be one part of a broader deterrence effort and toolbox that also includes diplomatic and military channels.

From our research, roundtables, and interviews, a set of recommendations emerged for policymakers considering the use of economic countermeasures in a Taiwan crisis:

• G7 partners and Taiwan should scale up private coordination and signaling. G7 discussions about the role of economic countermeasures in a Taiwan crisis are still in the early stages. Given the challenges involved in agreeing upon red lines and appropriate countermeasures, pragmatic discussions around contingencies must be a priority. This includes creating effective private channels of communication among G7 partners and key stakeholders on emerging trends, financial ties, and shared vulnerabilities. Meanwhile, G7 partners should privately message to China the extent they are willing to go in using economic tools to counter Chinese aggression toward Taiwan. Coordination with Taiwanese officials is also crucial.
• The G7 should coordinate beyond its membership. This report assumes that most or all of the current coalition that has imposed sanctions against Russia would align on measures in a Taiwan Strait crisis. Roundtables and consultations with like-minded capitals in the Asia-Pacific region have suggested this is a reasonable assumption. However, even more so than in the case of Russia, exchanges outside the G7, including the rest of the G20, will be necessary given the scale of economic disruption at stake.
• Economic asymmetries need to be better understood. Policymakers argued that the most likely economic countermeasures would focus on areas where China is asymmetrically dependent on foreign goods, technology, and finance. Further research is needed to identify these areas and the potential costs, vulnerabilities, and limitations of targeting them in a crisis.
• Take practical legal steps now to boost the credibility of G7 deterrence. Discussants noted that successful deterrence requires making clear that G7 nations are ready to act decisively in a crisis. This may require legal steps, including: shoring up of the EU’s framework for export controls; advance preparation of US executive orders specifying and granting sanctions authorities to the Office of Foreign Assets Control; preliminary analysis on the potential impact and spillovers of proposed packages; and the construction of communication channels among US government stakeholders such as the Federal Reserve, Commodity Futures Trading Commission, Securities and Exchange Commission, Office of the Comptroller of the Currency, Financial Crimes Enforcement Network, and appropriate bilateral, plurilateral, and multilateral counterparts. This may include preparing the legal and regulatory landscape across G7 jurisdictions to ensure appropriate authorities are in place to deter or respond to a crisis.
• Invest in other forms of deterrence. Economic countermeasures should be considered as part of a whole-of-government and multilateral strategy as they have costs and limitations that can make them less effective on their own. These tools will be more effective when paired with traditional tools of deterrence in both the military and diplomatic realms.
• Keep lines of communication open. Bilateral and plurilateral communication is the best tool to de-escalate in a crisis. Recent breakdowns in military-to-military communication channels between the United States and China are of serious concern given elevated tensions in the region. Maintaining open communication lines and regular exchanges with Chinese counterparts is a key element in any risk-mitigation strategy.
• Balance credible threats with credible assurances. Effective deterrence requires credible threats to be matched with credible assurances. The G7 should make clear to Beijing it has no desire to change the status quo in the Taiwan Strait. Efforts to maintain the status quo and shore up traditional diplomatic, military, and economic tools to ensure peace and stability in the Taiwan Strait should be the priority. 

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About the authors

Charlie Vest is an associate director on Rhodium Group’s corporate advisory team. He manages research and advisory work for Rhodium clients and contributes to the firm’s research on US economic policy toward China. Vest holds a master’s degree in Chinese economic and political affairs from UC San Diego and a bachelor’s degree in international affairs from Colorado State University. Prior to joining Rhodium, he worked in Beijing as research manager for the China Energy Storage Alliance, a clean energy trade association.

Agatha Kratz is a director at Rhodium Group. She heads Rhodium’s China corporate advisory team, as well as Rhodium’s research on European Union-China relations and China’s economic statecraft. She also contributes to Rhodium work on China’s global investment, industrial policy and technology aspirations. Kratz holds a Ph.D. from King’s College London, having studied China’s railway diplomacy. Her previous positions include associate policy fellow at the European Council on Foreign Relations and editor-in-chief of its quarterly journal China Analysis, assistant editor for Gavekal-Dragonomics’ China Economic Quarterly, and junior fellow at the Asia Centre in Paris.

Acknowledgements

This report was written by Charlie Vest and Agatha Kratz with support from Juliana Bouchaud in collaboration with the Atlantic Council GeoEconomics Center. The principal contributors from the Atlantic Council GeoEconomics Center were Josh Lipsky, Kimberly Donovan, Charles Lichfield, and Niels Graham.

The GeoEconomics Center and Rhodium Group wish to acknowledge a superb set of colleagues, fellow analysts, and current and former officials who shared their ideas and perspectives with us during the roundtables and helped us strengthen the study in review sessions and individual consultations. These individuals took the time, in their private capacity, to critique the analysis in draft form; offer suggestions, warnings, and advice; and help us to ensure that this report makes a meaningful contribution to public debate. Our gratitude goes to Dave Shullman, Jörn Fleck, Logan Wright, Daleep Singh, Jeremy Mark, Richard Aboulafia, Annie Froehlich, Julia Friedlander, David Barboza, Chris Skaluba, the Centre for Financial Crime and Security Studies at the Royal United Services Institute (RUSI), and Atlantik-Brücke.

This report is written and published in accordance with the Atlantic Council Policy on Intellectual Independence. The authors are solely responsible for its analysis and recommendations.

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Recent progress between US and European Union (EU) negotiators to secure a more sustainable transatlantic data transfers regime has put a critical area of the transatlantic economy on a more secure footing. Yet the work for digital policymakers on both sides of the Atlantic is far from done.

Imminent completion of the US-EU Data Privacy Framework (DPF), to replace the invalidated Privacy Shield agreement, will open a new chapter in transatlantic data transfers. However, the DPF is expected to face an immediate challenge in the Court of Justice of the European Union from European privacy advocates whose past efforts doomed previous data transfer agreements.

Washington and Brussels should explore other forms of bilateral engagement on this long-troublesome set of issues. They could ask the Trade and Technology Council (TTC) to study commonalities in transatlantic approaches to accountability for personal data in the commercial context. A second avenue could be a stand-alone digital trade agreement, utilizing at least some elements of provisions on that subject developed during the failed Transatlantic Trade and Investment Partnership negotiations.

But fashioning sustainable data transfer architecture is a global – and not simply transatlantic – problem. The EU’s model of conditioning data flows on strict privacy protections has won widespread adherence around the world, but it has yielded a complex and tangled international reality. The US approach of open data flows has supporters internationally, but it has faltered in recent years as US administrations have abjured broad-scale trade agreements. The US failure to adopt comprehensive privacy legislation also makes it a global outlier.

This issue brief outlines and assesses multilateral efforts to achieve greater policy coherence across the global data transfer ecosystem. These include the World Trade Organization’s e-commerce negotiations, the Organization for Economic Co-operation and Development’s declaration on government access to personal data, Council of Europe Convention 108+, the G7 Data Free Flow with Trust initiative, and the Asia-Pacific Economic Cooperation Cross-Border Privacy Rules system.

The interplay and synergies among these mechanisms could in time encourage a durable, interoperable global data transfer architecture.

About the author

Fellow

Kenneth Propp

Nonresident Senior Fellow

Europe Center

European Union Digital Policy

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Then, she managed to pull off a coup of sorts. By suggesting that the EU “de-risk” its relationship with China she simultaneously appeared tough on Beijing in the context of Europe and nudged the US discourse away from more hawkish talk of “decoupling.”

However, next week’s speech will prove even trickier. (As there is much at stake, squabbles over what does and doesn’t go into the EU Economic Security Strategy speech have already reached the media.) The Commission, which will author the forthcoming EU Economic Security Strategy, must tread carefully so as not to alienate member states who care deeply about their economic relations with China. Yet, it must simultaneously move toward a clearer objective for the EU-China relationship and coax its members toward a more “realpolitik” view of the world. None of that will be easy.

Europe’s economic security

It is the first time the Commission will issue a document on economic security. Its prerogatives on trade and market regulation used to not be so directly affected by geopolitics. Now, the global struggle for access to and control over strategic economic resources is defining the world’s geopolitical fault lines. So, it is right for the EU Commission to try to approach economic security as comprehensively as possible, combining strategic vision and attention to technical detail. Such an integral approach should at least allow the EU to assess emerging risks and threats to the EU’s economic security in a more systematic way.

The harsh reality in EU policy making is that process often dominates content. This is both a blessing and a curse. Economic security is about securing access to and control over strategic economic resources. What is “strategic” is of key importance to the security of the EU and its member states. While talk about economic security nowadays often focuses on high tech, such as semiconductors, it also includes being able to feed the European population, having access to natural resources, and having an industrial base and a well-educated workforce. Furthermore, it requires secure infrastructure—ports, roads, waterways, railways, telecommunications—to get the resources to their destination in the EU.

Clearly, as economic security shapes geopolitical dynamics, the EU’s understanding of it should not be limited to a set of working-level policies. An adequate approach to economic security must link the more tangible, technical aspects with higher order, strategic and geopolitical issues, which are often more abstract. One’s understanding of how economic security relates to geopolitical dynamics at the strategic level should guide and inform the more technocratic issues like investment screening, export controls, financial-economic sanctions, anti-coercion, and their associated risk assessments.

Economic security is also closely related to other dimensions of policy making, including defense policy and international finance. The EU, or its member states, depend on military power for secure access to and control over strategic economic resources. That is why European discussions about the military aspects of strategic autonomy matter to economic security. And financial geopolitics play a major part in determining the EU’s economic security, as the “real economy” is highly dependent on global finance and capital flows. It demands a constant intellectual effort to appreciate how economic security interacts with these and other policy dimensions.

Lacking a more comprehensive view, European policy makers are at risk of reacting in a fragmentary and ad hoc manner to complex economic security challenges. Sound ideas and strong knowledge form the basis for good political discussions and effective decision making on economic security. The EU Economic Security Strategy therefore needs to define the development of European knowledge and ideas about economic security as a necessary element. Member states themselves should also deepen their knowledge about economic security to help shape the Commission’s understanding.

Three hurdles to clear

To arrive at a more comprehensive approach to economic security, the European Commission will have to address at least three hurdles.

First, it will have to foster consensus about how to approach economic security among the different Directorate Generals (DGs) involved. These DGs tend to have different perspectives on the economy, some being more interventionist-minded, others being more free-market minded. Also, the Commission and the Council, constituted of the EU member states, will have to reconcile their views. Whereas the Commission tends to have the lead on economic issues, the Council’s member states have the lead on foreign and security policy. Moving ahead on economic security, at the intersection of both fields, may demand significant intra-EU diplomacy. The EU Economic Security Strategy should lead to the establishment of a European forum where the nexus of economics and security can be discussed on an ongoing basis between all relevant stakeholders.

Second, the strength of any strategy tends to depend on its clarity, or the definition of objectives and means. The Commission will thus have to combine strategic clarity with diplomatic consensus, which is a balancing act. Moreover, the Commission wants to publish the strategy document quickly, while strategic clarity tends to emerge only after time. The risk is that clarity is achieved on rather small and pre-existing technocratic issues, while the higher, more strategic issues are left ill-defined. The EU Economic Security Strategic should therefore call for long-term strategic clarity on economic security, as a compromise between diplomatic consensus in the short run and strategic clarity in the longer run.

Third, and perhaps most importantly, a comprehensive European approach to economic security requires a stronger European geopolitical or “realpolitik” reflex. The importance of economic security has been long underestimated and misunderstood in Europe as the EU policy makers did not tend to view the world in terms of power politics and national security dilemmas. An effective EU approach to economic security requires a context or culture of more strategic and geopolitical reasoning. The EU will be less at risk of an inadequate, fragmented approach if it has more access to outside, independent, and informal views, and knowledge about economic security to inform its decision making. The Commission should therefore use its Economic Security Strategy to stimulate a more thorough academic and intellectual debate about the intersection of economics, security, and geopolitics.

Good policies are based on sound ideas and strong knowledge. The EU’s Economic Security Strategy will be most relevant if it stimulates intellectual debate and strategic clarity. The Commission may operate pragmatically in the short run by seeking consensus on the more technocratic issues, while at the same time laying the groundwork for the next phase. The greatest challenge is to attune the EU’s traditional technocratic reflexes with the strategic exigencies of a geopolitical context dominated by great power competition.

Dr. Elmar Hellendoorn is a nonresident senior fellow with the GeoEconomics Center and the Europe Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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Below, Atlantic Council experts share their genuine intelligence by answering the pressing questions about what’s in the legislation and what’s next. 

1. What are the most significant aspects of this draft law? 

The European Parliament’s version of the AI Act would prohibit use of the technology within the EU for controversial purposes like real-time remote biometric identification in public places and predictive policing. Member state law enforcement agencies are sure to push back against aspects of these bans, since some of them are already using these technologies for public security reasons. The final version could well be more accommodating of member states’ security interests.

—Kenneth Propp is a nonresident senior fellow with the Atlantic Council’s Europe Center and former legal counselor at the US Mission to the European Union in Brussels.

The most significant aspect of the draft AI Act is that it exists and has been voted on positively by the European Parliament. This is the only serious legislative attempt to date to deal with the rapidly evolving technology of AI and specifically to address some of the anticipated risks, both due to the technology itself and to the ways people use it. For example, a government agency might use AI to identify wrongdoing among welfare recipients, but due to learned bias it misidentifies thousands of people as participating in welfare fraud (this happened in the Netherlands in 2020). Or a fake video showing a political candidate in a compromising position is released just prior to the election. Or a government uses AI to track citizens and determine whether they exhibit “disloyal” behavior.

To address these concerns, EU policymakers have designed a risk-management framework, in which higher-risk applications would receive more scrutiny. A few uses of AI—social scoring, real-time facial recognition surveillance—would be banned, but most companies deploying AI, even the higher-risk cases, would have to file extensive records on training and uses. Above all, this is a law about transparency and redress: humans should know when they are interacting with AI, and if AI makes decisions about them, they should have a right of redress to a fellow human. In the case of generative AI, such as ChatGPT, the act requires that images be marked as coming from AI and the AI developer should list the copyrighted works on which the AI trained.

Of course, the act is not yet finished. Next, there will be negotiations between parliament and the EU member states, and we can expect significant opposition to certain bans from European law enforcement institutions. Implementation will bring other challenges, especially in protecting trade secrets while examining how algorithms might steer users toward extreme views or criminal fraudsters. But if expectations hold, by the end of 2023 Europe will have the first substantive law on AI in the world.

—Frances Burwell is a distinguished fellow at the Atlantic Council’s Europe Center and a senior director at McLarty Associates.

There are numerous significant aspects of this law, but there are two and a half that really stand out. The first is establishing a risk-based policy where lawmakers identify certain uses as presenting unacceptable risk (for example, social scoring, behavioral manipulation of certain groups, and biometric identification by groups including police). Second, generative AI systems would be regulated and required to disclose any copyrighted data that was used to train the generative model, and any content AI outputs would need to carry a notice or label that it was created with AI. It’s also interesting what’s included as guidance for parliament to “ensure that AI systems are overseen by people, are safe, transparent, traceable, non-discriminatory, and environmentally friendly.” This gives parliament a wide mandate that could see everything from data provenance to data center energy use be regulated under this draft law.

—Steven Tiell is a nonresident senior fellow with the Atlantic Council’s GeoTech Center. He is a strategy executive with wide technology expertise and particular depth in data ethics and responsible innovation for artificial intelligence.

2. What impact would it have on the industry?

Much as the EU’s General Data Protection Regulation (GDPR) became a globally motivating force in the business community, this law will do the same. The burden on companies to maintain and keep separate infrastructure exclusively for the EU is much higher than the cost of compliance. And the cost (and range) of noncompliance for companies (and individuals) has risen—prohibited uses, those deemed to have unacceptable risk, will incur a fine up to forty million euros or 7 percent of worldwide annual turnover (total global revenue) for the preceding financial year, whichever is greater. Violations of human-rights laws or any type of discrimination perpetrated by an AI will incur fines up to twenty million euros or 4 percent of worldwide turnover. Other noncompliance offenses, including from foundational models (again, the draft regulation affects generative AI), are subjected to fines of up to ten million euros or 2 percent of worldwide annual turnover. And those supplying false, incomplete, or misleading information to regulators can be fined up to five million euros or 1 percent of worldwide annual turnover. These fines are a big stick to encourage compliance. 

—Steven Tiell 

As I wrote for Lawfare when the European Commission proposed the AI Act two years ago, the proposed AI regulation is “a direct challenge to Silicon Valley’s common view that law should leave emerging technology alone.” At the same time, though the legislation is lengthy and complex, it is far from the traditional caricature of EU measures as heavy-handed, top-down enactments. Rather, as I wrote then, the proposal “sets out a nuanced regulatory structure that bans some uses of AI, heavily regulates high-risk uses, and lightly regulates less risky AI systems.” The European Parliament has added some onerous requirements, such as a murky human-rights impact assessment of AI systems, but my earlier assessment remains generally true.

It’s also worth noting that other EU laws, such as the GDPR adopted in 2016, will have an important and still-evolving impact on the deployment of AI within EU territory. For example, earlier this week Ireland’s data protection commission delayed Google’s request to deploy Bard, its AI chatbot, because the company had failed to file a data protection impact assessment, as required by the GDPR. Scrutiny of AI products by multiple European regulatory authorities employing precautionary approaches likely will mean that Europe will lag in seeing some new AI products.

—Kenneth Propp

3. How might this process shape how the rest of the world regulates AI?

It will have an impact on the rest of the world, but not simply by becoming the foundation for other AI acts. Most significantly, the EU act puts certain restrictions on governmental use of AI in order to protect democracy and a citizen’s fundamental rights. Authoritarian regimes will not follow this path. The AI Act is thus likely to become a marker, differentiating between those governments that value democracy more than technology, versus those that seek to use technology to control their publics.

—Frances Burwell

Major countries across the globe from Brazil to South Korea are in the process of developing their own AI legislation. The US Congress is slowly moving in the same direction with a forthcoming bill being developed by Senate Majority Leader Chuck Schumer likely to have important influence. If the EU sticks to its timetable of adopting the AI Act by the end of the year, its legislation could shape other countries’ efforts significantly by virtue of being early out of the gate and comprehensive in nature. Countries more concerned with promoting AI innovation, such as the United Kingdom, may stake out a lighter-touch approach than the EU, however.

—Kenneth Propp

The world’s businesses will comply with the EU’s AI Act if they have any meaningful amount of business in the EU and governments in the rest of the world are aware of this. Compliance with the EU’s AI Act will be table stakes. It can be assumed that many future regulations will mimic many components, big and small, of the EU’s AI Act, but where they deviate will be interesting. Expect to see other regulators emboldened by the fines and seek commensurate remuneration for violations in their countries. Other countries might extend more of the auditing requirements to things such as maintaining outputs from generative models. Consumer protections in different countries will be more variable as well. And it will be interesting to see if countries such as the United States and United Kingdom pivot their legislation toward being more risk-based as opposed to principles-based.

—Steven Tiell 

4. What are the chances of this becoming law, and how long will it take? 

Unlike in the United States, where congressional passage of legislation is typically the decisive step, the European Parliament’s adoption on Wednesday of the AI Act only prepares the way for a negotiation with the EU’s member states to arrive at the final text. Legislative proposals can shift substantially during such closed-door “trilogues” (so named because the European Commission as well as the Council of the European Union also participate). The institutions aim for a final result by the end of 2023, during Spain’s presidency of the Council, but legislation of this complexity and impact easily could take longer to finalize.

—Kenneth Propp

Based on this week’s vote, there are strong signals of overwhelming support for this draft law. The next step is trilogue negotiations among the parliament, the Council of the European Union, and the European Commission, and these negotiations will determine the law’s final form. There are strong odds these negotiations will finish by the end of the year. At that point, the act will take about two years to transpose to EU member states for implementation, similar to what happened with GDPR. Also similar to GDPR, it could take at least that long for member states to develop the expertise to assume their role as market regulators. 

—Steven Tiell 

5. What are some alternative visions for regulating AI that we may see?

In general, we see principles-based, risk-based, and rights-based legislation. Depending on the government and significance of the law, different approaches might be applied. The EU’s AI Act is somewhat unique and interesting as it started life as a principles-based approach, but through its evolution became primarily risk-based. Draft legislation in the United States and the United Kingdom is principles-based today. Time will tell if these governments are influenced by the EU’s approach.

—Steven Tiell

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360/OS

Jun 7, 2023

Activists and experts assemble in Costa Rica to protect human rights in the digital age

By Digital Forensic Research Lab

Our Digital Forensic Research Lab is convening top tech thinkers and human-rights defenders at RightsCon to collaborate on an agenda for advancing rights globally.

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Event transcript

Uncorrected transcript: Check against delivery

Speaker

Rita Wezenbeek
Director, Platforms, DG CNECT, European Commission

RITA WEZENBEEK: My name is Rita Wezenbeek, and I am the director in charge of the implementation of the new legislation in the European Union concerning tech platforms, so this is the Digital Services Act—the DSA—and the Digital Markets Act—the DMA.

So the Digital Services Act addresses a wide range of potential societal harms on online platforms, ranging from the sale of illegal goods to disinformation, from child pornography to terrorists’ online content.

Providers of online platforms will be subject to democratically adopted rules, which set a comprehensive accountability and transparency framework. The first obligations on this Digital Services Act already started to apply in February this year and on [April 25], the commission designated seventeen very large online platforms and two very large online search engines that reach at least forty-five million active users on a monthly basis in the European Union, which is an equivalent to more than 10 percent of the EU’s population. These [very large online platforms and search engines] fall under the direct supervision of the European Commission.

The effects of these rules will be felt soon. Designated [very large online platforms and search engines] will have to provide the EU with risk assessments at the end of August and the beginning of September. In addition to that, under the Digital Markets Act, which is much more an act on market contestability, the designations under this act will follow the latest by the beginning of September.

For both sets of regulation, the commission will become the regulator for the large platforms and search engines. The commission will supervise under the DSA that the online platforms put into place systems to tackle illegal content and disinformation that uphold users’ rights and also protect users’ health and well-being and in order to do so the commission is equipped with wide-ranging investigatory and supervising powers, including the power to impose sanctions and remedies.

That being said, making the implementation of the DSA work in practice is something that the commission is not going to do alone. Many actors will contribute to the success of this regulation and we would, of course, stand ready to share our first regulatory experiences. We have to act decisively to safeguard the universal principles and we do it in a way that does not exclude adopting a global approach to platform regulation. So our platform rules optimize fundamental rights protections by giving agency back to society, which leads to an informed and effective choice for safety and contestability.

Now, also other rules are relevant in this context. For instance, the UNESCO draft guidelines for platform regulation reflect a similar architecture. And it involves proportionate, risk-based, all-of-society approaches. Under such a global approach, it is important to exchange on standards for key building blocks of human rights-based platform regulation through risk assessments for systemic platforms, also through auditing cycles, and through data access for researchers.

This means that in the EU, we need input from stakeholders around the world to make the most of this opportunity. We need to set out, for instance, how platforms should conduct such a risk assessment. Also, how they can give access to data to researchers in a secure and privacy-preserving manner. And also how third-party auditors should be involved. If we achieve a degree of consistency in implementing these systems globally, we will mutually be more resilient.

We need auditors that are truly independent of online platforms and that have sufficient expertise to have full awareness of civil society’s understanding of the systemic risks and their drivers. In addition to these procedural questions, we need a global debate about what are our priority research questions regarding systemic risks that are caused by online platforms. We can already link our global academic teams to investigate different priority risks. And we can set coherent standards for vetting these researchers, so that they are both independent and able to secure funding. We also need to identify proportionate and effective risk mitigation measures.

Now, you can make your voice heard. State of the art research, as well as technology, will shape our collective responses. Both directly, for instance, in implementing moves, and indirectly, for instance, because auditors look at your evidence. We’re currently seeking feedback on a number of rules. First on how to organize data access for researchers in a user-friendly, yet safe, manner. A short consultation has already ended on the [May 31], but there will be a new consultation on a draft-delegated act that will probably be at the beginning of 2024. We’re also consulting on a draft delegated act of independent audits. And that delegated act, the consultation, will expire on [June 2].

And finally, there will be a big, multistakeholder event in Brussels on [June 22], when many issues addressed by the Digital Services Act will be discussed. You’re welcome to join online, and you can follow the information on this event on our website. Then lastly, our European Center for Algorithmic Transparency is setting up a global network of researchers. And also there, you are welcome to express your interest. Now, other need for guidance may follow as the necessity arises.

On the Digital Markets Act, the legislation concerning contestability of markets, we already had four workshops involving competitors, consumers, and regulators. And more will follow in the future. And these are crucial meeting points where all specialist actors can publicly discuss and challenge the gatekeepers’ proposed remedies with respect to how to address compliance, including regarding technical methods such as end-to-end encryption and interoperability obligations.

These workshops reflect that both the Digital Services Act and the Digital Markets Act make platforms actually regulated entities, similar to systemic banks under the supervision of the European Central Bank. Compliance with these rules has to occur on an ongoing basis. And it will be adapted. In a way, relative to today, the tables will be turned. Platforms have to proactively propose mitigation measures and remedies that need to be proven to work in practice. This proof of concept should come from a broader stakeholder community. So you need to be involved on an ongoing basis too.

Let my key message to you today, therefore, be that your involvement is not a one-off request, such as today. We will need to collectively drive solutions that represent the state of the art in optimizing the protection of all fundamental rights online.

And this also goes to the question of how do we define success under the new legislation. Success will be a consistent implementation of the rules on the one hand and their use by society on the other hand.

So let me end by saying that I hope I can rely on your support and participation. Thank you very much.

The post The European Commission’s Rita Wezenbeek on what comes next in implementing the Digital Services Act and Digital Markets Act appeared first on Atlantic Council.

The tiny country of 3.6 million, wedged between Romania and Ukraine, imports 100% of its natural gas, 99% of its oil, and relies on a single power plant in Russian-controlled separatist region Transnistria for 80% of its electricity. Russia’s Gazprom owns 51% of Moldovagaz, the country’s natural gas monopoly. There is almost no foreign investment in the energy sector, and what little there is has found the country unworkable. This was a difficult situation before Russia’s full-scale invasion of Ukraine. It is now untenable.

Ukraine has traditionally supported Moldova, at least commercially if not altruistically, as have other countries, but with the war ongoing to the east and a still unfolding global energy crisis, the need to become self sufficient is paramount. To fortify Chisinau, the international community must get serious about helping Western-educated Moldovan President Maia Sandu and her government achieve energy independence. For its part, Chisinau must reform its commercial and rule of law institutions to become attractive to foreign energy investment, and it must allow investors to function there.

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The international community has been involved in ongoing efforts to support Moldova’s energy sector. For example, the US government has given a total of $40.5 million in energy-related funding plus $30 million in budget support “to help ameliorate the energy crisis” since the Russian invasion of Ukraine. On February 24, 2023, the US announced an additional $300 million in energy support for Moldova. The EU has been similarly supportive, as have international finance institutions including the EBRD and the World Bank.

So far, this money has gone mostly to “capacity building” and technical assistance instead of structural reform, an approach that has proved ineffective. Critics have likened it to the proverbial pouring water into a leaky bucket. To some extent, it’s a problem of where to start when so much needs reform and restructuring. But the failure is also due to a focus on lower level changes, giving Moldova’s energy sector the equivalent of an oil change when a new engine and transmission system are required.

What is needed is a wholesale restructuring of Moldova’s energy sector to free it from legacy Soviet inefficiencies, and from modern Russian meddling. A few clear priorities should be construction of a power plant that is not within the breakaway region of Transnistria; ending Gazprom’s stranglehold on Moldovagaz, or if that is not reasonably achievable, breaking existing Moldovagaz contracts and establishing an alternative natural gas supplier; building Moldova a power market; and broadly, diversification of the energy mix.

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Despite political will since Sandu came to power and especially since the new government was seated in February 2023, critically with a new energy minister, Moldova has demonstrated little wherewithal to tackle these tasks. One big obstacle is money. Chisinau is living “paycheck to paycheck,” hence the annual emergency bailouts and budget support from Western governments, and emergency gas supplies from Ukraine. In this constant state of energy emergency, there has proved little capacity to learn to fish versus begging for fish. Structural reforms that, for example, empower an alternative agency to be the vehicle for natural gas contracts at the expense of Moldovagaz, could help break the cycle.

But to do this, Moldova needs money. Rather than being treated like a charity case with annual emergency bailouts from foreign governments which are counted on desperately every year but which are never guaranteed, the country needs to attract foreign investment to fuel its energy overhaul and solidify it. Only once private capital buoys Moldova’s energy sector will the country be able to earn the regular taxes and royalties necessary to build its own energy independence.

This is where Moldova has stood in the way of its own reform. Although under Sandu the perception of Moldova regarding corruption has improved, many barriers to foreign investment remain. The country ranks 48th on ease of doing business, with notably lower scores for contract enforcement and dispute resolution, two issues critically important to potential investors. It ranks 58th for rule of law adherence. A warmer welcome to private energy investors could be conceived.

Meanwhile, most of the few companies who have braved investment in the Moldovan energy sector have paid dearly for it. In 2016 Gas Natural Fenosa, a Spanish company and Moldova’s largest supplier and distributor of electricity, sued the government over “discrepancies” in electricity tariffs that cost it over €20 million. The EU Energy Community eventually brought a dispute against Moldova over the issue. In 2021, the Court of Justice of the European Union issued a final decision in Moldova v. Komstroy, a case arising from a Moldovan state-owned entity default on electricity contracts with a Ukrainian company. The private investor was left empty handed.

Currently, the Moldovan government is being sued by the largest private gas company in the country, Rotalin Gas Trading, the only private competitor to Russian controlled Moldovagaz, for gas tariff irregularities that are forcing it out of business. Rotalin claims to have lost many millions over two decades. These are just a few examples, and a fair warning to potential investors.

The merits of any of these disputes aside, any reasonable investor would understandably hesitate before risking money in the Moldovan energy sector. What amounts to an appearance of hostility to foreign investment and a lack of adherence to contracts must be overcome before private capital will seriously consider Moldova. Furthermore, if Chisinau is going to make a credible argument that it is being manipulated and abused by Gazprom, it must not appear to be doing the same to private energy investors in Moldova.

Until private investors enter the market in force, Moldova will be left at the mercy of generous foreign governments, which in turn will continue providing emergency assistance instead of actual, sustainable reform. Only private capital can break this cycle, and it needs to be able to turn a profit, however meager, before it will.

Suriya Evans-Pritchard Jayanti is a nonresident senior fellow at the Atlantic Council’s Eurasia Center.

Further reading

UkraineAlert Jun 6, 2023

Ukraine’s summer counteroffensive is a key moment but long-term resolve remains crucial

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UkraineAlert May 23, 2023

Ukraine’s coming counteroffensive has a good chance of succeeding

By Richard D. Hooker, Jr.

Ukraine’s coming counteroffensive has a great chance of succeeding due to a number of factors including superior leadership, equipment upgrades, and strong morale, writes Richard D. Hooker, Jr.

Conflict Defense Technologies

UkraineAlert Oct 27, 2022

A ceasefire would condemn millions of Ukrainians to Russian occupation

By Mark Temnycky

Recent calls for a ceasefire in the Russo-Ukrainian War ignore the fact that millions of Ukrainians remain under Russian occupation and would face an uncertain fate if abandoned to the Kremlin, writes Mark Temnycky.

Conflict Freedom and Prosperity

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

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The post Moldova needs an energy overhaul appeared first on Atlantic Council.

In recent years, NATO has become much more active in identifying global warming as a threat and focusing on how it can do its part to combat climate change and bolster energy security. Following NATO’s Madrid Summit last year, it released its Strategic Concept, in which it proclaimed “NATO should become the leading international organization when it comes to understanding and adapting to the impact of climate change on security.” Furthermore, NATO policymakers have recognized that there is a potential danger of redundant replication of climate projects between the climate policies of NATO and member states that would not have additional value toward addressing climate change. The Strategic Concept does partially account for this, as it argues that NATO should strengthen its cooperation with the EU to accelerate the development of NATO’s climate strategy.

In contrast to NATO, the European Union has been a significant player in climate action dating back to as least 2001, when it issued Directive 2001/77/EC, which promoted renewable electricity generation. Moreover, some EU member states had already attempted to “mainstream” climate policy into NATO strategy. For example, some German senior officials hoped that the Permanent Structured Cooperation (PESCO) program, established in 2017, would introduce climate change as a challenge for NATO to face. Despite such efforts, these attempts with PESCO have had mixed success at best.

Likewise, NATO-EU cooperation is regularly hampered by the Cyprus dispute. Turkey, which is the only state that recognizes the breakaway republic of Northern Cyprus and has stationed military forces in its territory, is a NATO member but not an EU member, whereas Cyprus is an EU member but not in NATO. Turkey justifies its opposition to NATO-EU cooperation on the basis that doing so would imply its recognition of the Republic of Cyprus. In fact, following the aforementioned NATO-EU joint declaration, Turkish diplomats reportedly expressed discontent with the declaration and distanced themselves from it. As the Cyprus dispute is unlikely to be resolved soon, further NATO-EU cooperation on climate action beyond vague declarations is doubtful under existing channels.

On the surface, it might seem like NATO-EU cooperation should be easy (despite the Turkey/Cyprus issue) given that, for example, the two organizations are just a few miles from each other in Brussels. Unfortunately, when speaking with employees at both organizations, it’s always surprising at just how lacking the overlap and coordination truly is. Hence, any effort to develop, say, a NATO- or EU-led policy steering body to develop strategies to address climate change will likely run into the same issues most other NATO-EU cooperation projects run into. 

To avoid this, the G7 could potentially act as a primary steering platform for NATO and the EU to develop climate strategies before being disseminated to NATO and EU member states to implement or deliberate further.

How would this work?

To start, the G7 could provide a permanent guest invitation to the NATO secretary general to attend G7 meetings, much like how the G20 provides permanent guest invitations to several intergovernmental organizations. This would ensure that the NATO secretary general has a direct means of communication with the European Commission and the United States simultaneously, which would help in preventing transatlantic discord like that seen over the US Inflation Reduction Act. It would also reduce chances of a NATO-EU impasse developing over the Cyprus dispute before consensus is reached at the most senior policymaking levels of NATO and the European Union, as neither Turkey nor Cyprus will be present in this channel.

Beyond its membership structure and distance from the Cyprus dispute, the G7 is a suitable vehicle for NATO-EU cooperation because of its existing security and climate agenda, which is increasingly aligned with that of NATO’s. Except for Japan, every member of the G7 is a NATO ally, and the European Union is represented at the body by the European Commission. And, although it was originally formed as an informal forum to discuss economic policy following the 1970s energy crises, the G7 has put security on its agenda as far back as 1980 when the Soviet Union invaded Afghanistan. It has also addressed global warming since 1985. Discussing climate change from a security perspective will not be a matter of “mission creep” for the G7.

Additionally, the G7 has already incorporated a commitment to achieving net zero carbon emissions since 2015 and recognized climate change as an existential security risk in 2022. The same year, the G7 launched the Partnership for Global Infrastructure and Investment (PGII) to assist with global climate financing and introduced the G7-led Climate Club to tackle climate change, with membership open to all countries. Climate is a high priority for the recently concluded G7 Summit in Hiroshima as well, with the G7 ministers of Climate, Energy and the Environment releasing new ambitious targets for 2030, such as increasing offshore wind capacity. 

The G7 has engaged in greater cooperation with NATO as well. Since February 2022, the G7 has coordinated closely with NATO in response to Russia’s invasion of Ukraine. This included the convening of the 2022 G7 Summit just prior to NATO’s Madrid Summit, with European Commission President Ursula von der Leyen, European Council President Charles Michel, and Japanese Prime Minister Fumio Kishida in attendance at the latter. Later, during the G20 Bali Summit, the G7 and NATO issued a joint statement for the first time in their histories to express their concern about the missile strike in Polish territory.

Altogether, there is a strong opportunity for meaningful NATO-EU cooperation by using the G7 as a convening platform for climate change-related discussions. The demand to accelerate decarbonization campaigns has never been stronger in all three organizations, and they should seize this opportunity together.

Francis Shin is a research assistant in the Atlantic Council’s Europe Center.

Rachel Rizzo is a nonresident senior fellow at the Atlantic Council’s Europe Center.

The post The G7 can take NATO-EU climate cooperation to the next level appeared first on Atlantic Council.

The charges against Kniaziev are not entirely unprecedented. In the three-and-a-half years since the creation of Ukraine’s High Anti-Corruption Court, 23 judges have been convicted. Anti-corruption investigations have also led to changes in Ukraine’s judicial infrastructure, such as the liquidation of the controversial Kyiv District Administrative Court, which had long been a focus of major anti-corruption probes.

In summer 2022, Ukraine’s anti-corruption efforts received a boost with the appointment of Oleksandr Klymenko as new head of the Specialized Anti-Corruption Prosecutor’s Office in line with Ukraine’s obligations regarding EU candidate country status. Klymenko’s appointment was widely seen as a watershed moment that signaled an end to the collective sense of impunity within the Ukrainian establishment. The recent arrest of the Supreme Court head has confirmed that earlier reform failures are not irreversible. It is now important to draw the right conclusions as Ukraine looks to finalize the reform of judicial governance bodies and repair the country’s Constitutional Court.

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The relaunch of Ukraine’s Supreme Court was one of the initial efforts to reform the country’s widely discredited judiciary in the initial aftermath of the 2014 Revolution of Dignity. However, it did not produce the desired results as a number of factors robbed the court of true independence. Unreformed judicial governance bodies were tasked with hiring Supreme Court judges, with civil society offered a superficial role in the selection process and Ukraine’s international partners largely standing aside. As a result, civil society observers assessed that around a quarter of all selected candidates were questionable.

The creation of the High Anti-Corruption Court in 2017-2019 was a more positive experience, with all candidates scrutinized by an independent panel composed of international experts. This paved the way for the cleansing of two judicial governance bodies, the High Council of Justice and the High Qualification Commission of Judges, with foreign experts once more playing a crucial role.

In January 2023, Ukraine appointed eight new members to the country’s key judicial governance body, the High Council of Justice (HCJ), thereby enabling it to resume its work. On June 1, the HCJ appointed new members to the High Qualification Commission of Judges (HQCJ), which is another significant step forward. However, it is important to highlight that no agents of change from civil society were appointed, while two of the new members have questionable reputations. The next challenge is for the HQCJ to finish qualification assessments and hire judges to fill more than 2,500 vacancies. In addition, further measures are also expected in order to restore public trust in the Supreme Court.

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The next big issue on the path toward rule of law and EU accession is the selection procedure of Constitutional Court judges. EU candidate country status has opened up an historic opportunity to repair the Constitutional Court, which has long wielded effective veto power over any reform efforts in Ukraine. Reforming the Constitutional Court is widely seen as the most politically challenging element of judicial reform for the Ukrainian government to implement.

Additionally, some anti-corruption initiatives that were justifiably put on hold following the start of Russia’s full-scale invasion must now be revived. This includes asset declarations for all state officials. The recent bribery charges brought against the head of the Supreme Court underline the urgency of a return to the asset declaration submission and verification process. Concerns regarding this issue have recently been voiced by the International Monetary Fund and EU Ambassador to Ukraine Matti Maasikas.

An independent judiciary and the rule of law have long been recognized as vital pillars for Ukraine’s future success. As the country looks toward the post-war recovery period, these factors are now more important than ever. During the rebuilding process, Ukraine’s partners will demand transparency and security for all state and private sector investments. Additionally, judicial reform has a central role to play in Ukraine’s further EU integration. Crucially, creating a fair legal environment free from corruption is also a key demand of Ukrainian society, including the hundreds of thousands currently defending the country against Russian invasion.

Olena Halushka is a board member at AntAC and co-founder of the International Center for Ukrainian Victory.

Further reading

UkraineAlert Apr 8, 2023

Human wave tactics are demoralizing the Russian army in Ukraine

By Olivia Yanchik

Vladimir Putin’s invasion of Ukraine has not gone according to plan but he still hopes to win a long war of attrition. However, Russia’s reliance on human wave tactics risks undermining morale within his invading army, writes Olivia Yanchik.

Conflict Defense Policy

UkraineAlert May 30, 2023

Russia’s new reality: Less Peter the Great, more Putin the Pariah

By Peter Dickinson

The invasion of Ukraine has left Russia greatly diminished on the world stage and earned Putin a place in infamy alongside history’s greatest criminals. Instead of emulating Peter the Great, he has become Putin the Pariah, writes Peter Dickinson.

Conflict Disinformation

UkraineAlert May 30, 2023

Ukraine’s Diia platform sets the global gold standard for e-government

By Anatoly Motkin

Ukraine’s Diia app is widely seen as the world’s first next-generation e-government platform, and is credited with implementing what many see as a more human-centric government service model, writes Anatoly Motkin.

Civil Society Conflict

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

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The post The fight against courtroom corruption continues in wartime Ukraine appeared first on Atlantic Council.

Moreover, the report makes clear that Ukraine’s fate remains, to a significant extent, in its own hands. Even in the face of ongoing Russian aggression, the country can begin reconstruction and make strides toward the goal of EU membership provided it is willing, finally, to confront problems of internal reform and governance that have held Ukraine back since independence.

The Commission forecast identifies a number of specific reform goals including reducing the much-increased role of the state in the economy, solving the endemic issue of corruption, improving the efficiency of the judiciary, and strengthening the enforceability of property rights. As anyone with experience of Ukraine’s previous reform efforts knows, these problems are deeply interconnected. The organized misappropriation of public resources for private gain is the product of a state that is simultaneously too pervasive in its reach, yet too institutionally weak to exercise its powers of regulatory and judicial oversight effectively and in the national interest. A successful reform program would be one that enabled the state to do less but do it better.

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To attract the huge volumes of investment, especially private capital, needed to kick start reconstruction and get the economy back on its feet, Ukraine will need to pivot away from war economy measures toward a strategy of private sector growth. The numerous emergency nationalizations that took place last year were understandable at a time when arms production and energy supply were the most urgent priorities. But in the battles that lie ahead, Ukraine’s survival will be determined as much by its economic strength as by its military prowess.

The role of the state was already outsized before Russia’s invasion, with more than 3,500 state-owned enterprises accounting for one-tenth of Ukraine’s output and about 18% of employment. The demands of war mobilization have created a public sector that is now far larger than in any existing EU member state. In the banking sector alone, the state’s share has reached nearly 60%, stifling competition to the point where the Ministry of Finance has been forced to acknowledge that there is currently no functioning financial services market.

Although the prewar target of reducing the state’s share to less than a quarter remains, the Ukrainian parliament is now debating a draft law intended to permit the nationalization of even more banks. The law is designed to deal with a single case, the proposed nationalization of the Sens Bank. However, it is drawn so broadly that critics fear it will give the state discretionary powers to take over almost any bank it wishes. This includes not only those banks that have been targeted with official state sanctions, but also those included on the “shame list” of businesses that continue to trade with Russia.

While it is perfectly understandable that Ukraine should wish to penalize businesses that have failed to cut their ties to Russia, the satisfaction of seizing their assets may come at a high cost if market confidence is undermined by the weakening of property rights. Some legal experts have also questioned whether these widely drawn powers are in line with the Ukrainian Constitution, and have argued that only the National Bank of Ukraine is empowered to approve the nationalization of a bank in cases of insolvency. Nationalizations pushed through by the government for political reasons are likely to be challenged successfully in the courts, according to legal observers.

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An additional consideration is that any increase in the state’s control of the economy is likely to fuel concern about corruption, which remains one of the main obstacles on the path to EU accession. The boundaries between political and economic power, which too often remain blurred in the characteristically post-Soviet style, need to be much more sharply delineated. As numerous scandals have shown, state-controlled banks and enterprises create huge opportunities for self-enrichment and abuses of power by those who control them ostensibly on the nation’s behalf, including kickbacks, nepotism, excessive salaries, and favoritism in the awarding of public contracts.

Instead of considering new measures to extend the state’s reach into the economy, the Ukrainian government should be thinking about how the state can divest itself of assets it has already acquired in a way that is fair, transparent, and most likely to foster the economic growth Ukraine badly needs.

If one of the few beneficial effects of the war has been to accelerate Ukraine’s deoligarchization, one of the emerging risks in its aftermath will be the danger of reoligarchization via privatizations that are opaque and marred by favoritism. Ukrainian President Volodymyr Zelenskyy must resist the temptation to use patronage to create a business class loyal to him. That would leave Ukraine looking less like an EU member-in-waiting and more like a miniature version of Putin’s crony capitalism. There would be no victory in such an outcome.

David Clark was Special Adviser on Europe at the UK Foreign Office 1997-2001 and now works as an independent analyst specializing in foreign policy and European affairs.

Further reading

UkraineAlert May 23, 2023

Ukraine’s coming counteroffensive has a good chance of succeeding

By Richard D. Hooker, Jr.

Ukraine’s coming counteroffensive has a great chance of succeeding due to a number of factors including superior leadership, equipment upgrades, and strong morale, writes Richard D. Hooker, Jr.

Conflict Defense Technologies

UkraineAlert May 23, 2023

Belgorod raid sparks border alarm for Russia ahead of Ukrainian offensive

By Peter Dickinson

This week’s unprecedented cross-border raid into Russia’s Belgorod Oblast could be part of Ukrainian shaping operations designed to stretch the Russian military ahead of a coming counteroffensive, writes Peter Dickinson.

Conflict Defense Policy

UkraineAlert Mar 8, 2023

Ukrainians will never surrender. How long can they count on the West?

By Serhiy Prytula

Ukraine’s remarkable resistance during the first days of the Russian invasion convinced the democratic world to back the country but with Putin now preparing for a long war, continued Western resolve is vital writes Serhiy Prytula.

Civil Society Conflict

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

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The post Ukraine must reduce role of state in the economy to boost EU integration appeared first on Atlantic Council.

Those actions are set to be unveiled on May 30-31, when US and EU officials convene in Luleå, a small city in northern Sweden, for the fourth meeting of the US-EU Trade and Technology Council (TTC). What can Europeans and Americans expect to see at this meeting? And can Brussels and Washington surmount lingering obstacles to transatlantic cooperation on trade and technology? We gathered rapporteurs from the TTC Track 2 Dialogues series—a forum for policy debate and stakeholder dialogue organized jointly between the Atlantic Council’s Europe Center and the Brussels-based European Policy Centre—to share their insights.

Click to jump to an expert analysis:

Frances Burwell: The TTC must help the US and EU confront their geopolitical challenges

Georg Riekeles: The first step to addressing China is improving the EU-US relationship

Andrea García Rodríguez: The TTC meeting must meet the moment on AI

Olga Khakova: The TTC is timely and powerful—but it needs to launch into action in Sweden

Philipp Lausberg: The TTC should lay out the path for a transatlantic green industrial policy

Annika Hedberg: The TTC should help unleash transatlantic power for sustainable prosperity

The TTC must help the US and EU confront their geopolitical challenges

When the TTC was announced in June 2021, many analysts and stakeholders believed it could usefully address the severe asymmetries between US and EU approaches to trade and technology, while also repairing the transatlantic rifts that had emerged during the Trump administration. That optimism was almost immediately challenged as the TTC leadership agreed that pending legislation was excluded from the discussion agenda and as negotiations over data privacy and green steel were put on separate tracks. Instead, the TTC focused on laying small stepping stones toward future cooperation on AI, standards setting, supply-chain transparency, small and medium-sized enterprises, and external trade issues such as the use of forced labor.

Since Russia’s full-scale invasion of Ukraine, the TTC turned from a moderately useful mechanism for coordinating US-EU standards-setting efforts to an important forum for dealing with challenges posed by China and Russia. The TTC quickly became the transatlantic forum for coordinating export controls on Russia, dove deeper into tracking supply chains, focused more intensely on tech and democracy issues, and began to experiment with countering Chinese influence in the Global South through small projects in Kenya and Jamaica. 

These new priorities are not, however, the ones most valued by stakeholders from the business community, whose support for the TTC has become rather tepid. Those stakeholders focus on instances of potential protectionism or overly intrusive regulation, such as the possible forced sharing of data under the EU Digital Services Act. The TTC has increased its stakeholder engagement in recent months, with a focus on standards for 6G rollout, digital trade, e-mobility, AI taxonomy, and other issues. These are important and will help the United States and the EU develop a foundation for future technical and economic cooperation.

But these “deliverables” should not be the only measure of the TTC’s success. Perhaps even more important has been the increase in communication between US and EU officials at all levels, but especially among the leadership. European concerns about the US Inflation Reduction Act (IRA) could have escalated sharply without the relationships and communication channels constructed by the TTC. This has also contributed to a visible transatlantic convergence of views around AI, supply chains, subsidies, investment controls, and other issues.

The question now for the TTC is whether it can steer the growing use of economic measures to address geopolitical concerns in a way that is complementary and cooperative. The TTC will need to expand its work on supply chains from simply mapping to jointly addressing issues. It will also need to seek greater transatlantic cooperation aimed at limiting the spread of disinformation via social media and AI. And the United States and EU must figure out, through the TTC, how they can jointly approach countries with significant quantities of rare-earth elements so that they do not compete over resources to their mutual detriment. Finally, the TTC will need to navigate a way through the green transition that enhances US and EU resilience without weakening the transatlantic partnership (a weakening that seemed likely when the IRA first emerged). 

The TTC has evolved since its founding in 2021, and it will continue to do so. The true test of its relevance will not be whether it builds cooperation in a particular standard-setting body—although that is useful—but whether it helps the United States and EU confront their current geopolitical challenges.

—Frances Burwell is a distinguished fellow with the Atlantic Council’s Europe Center and a senior director at McLarty Associates. She is also a rapporteur for the data and technology-regulation track of the TTC Track 2 Dialogues series.

Issue Brief

Apr 20, 2023

The US-EU Trade and Technology Council: Assessing the record on data and technology issues

By Frances Burwell and Andrea G. Rodríguez

The TTC must keep its forward-looking gaze, but also take steps to address challenging regulatory issues, either by oversight or direct discussion, or it will lose the essential support among stakeholders that can keep US engagement in the TTC alive.

Digital Policy Economy & Business

The first step to addressing China is improving the EU-US relationship

Highs and lows have marked the EU-US Trade and Technology Council since its inception in 2021, but the definitive low point came at the most recent ministerial meeting in December. Officials on both sides were putting on brave faces, despite being fundamentally at loggerheads over the IRA’s discriminatory and protectionist measures.

A central question at the Sweden meeting inevitably will be whether the EU and the United States can agree on how to work effectively together—not against each other—to address challenges posed by China. China was in many ways a raison d’être for the TTC from the beginning, with the United States wanting a tech ally against China and Europe wanting a deeper transatlantic economic space.

In early phases this worked well, and a convergence of views on China was further buoyed by Russia’s invasion of Ukraine and unprecedented transatlantic collaboration on sanctions. Here in Brussels, the word was that Europeans and Americans had rarely before thought so similarly about China.

Then came the IRA in August 2022 and much changed. In Europe’s eyes, it became clear not only that the continent could become collateral damage from the US-China rivalry, but that Washington’s actions bluntly aimed to establish US economic domination by capturing European investments, value chains, and industry. Fundamentally, it brought to the fore the central difficulty with attaining economic security: Partners can also be rivals.

Europe can ill afford Washington’s logic of economic confrontation with China and unruly competition across the Atlantic. German Chancellor Olaf Scholz’s visit to Beijing last November demonstrated this divergence. While Washington insists on an economic and technological decoupling from China, Berlin still believes in and plays a game of mutual dependency, as symbolized by the parallel investments of German industrial flagship BASF in Zhanjiang and of the Chinese state-owned Cosco in the port of Hamburg.

Are there any grounds for more optimism on transatlantic agreement now? Not all Europeans are ready for a hardline approach to China (as highlighted also by French President Emmanuel Macron’s recent Beijing visit), but they agree on the need to protect themselves against an increasingly hegemonic and coercive power. As von der Leyen said recently during a speech she gave on EU-China relations at the European Policy Centre, through the decade that Chinese leader Xi Jinping has ruled, there has been a clear push to “make China less dependent on the world and the world more dependent on China.”

The United States and EU will meet in Sweden a week after attending a momentous G7 Summit in Japan. But succeeding at the TTC is much harder than at the G7 because it is not enough to produce carefully worded communiqués, it’s about tangible deliverables and actions. Doubts about the council’s effectiveness have marred the TTC since its inception. In Sweden, US-Europe convergence on China now depends on being able to deliver concretely on trade, industry, and economic-security priorities. This includes forging a viable partnership on critical minerals, agreeing on transparency and rules for green-industrial subsidies and making progress on methodologies for carbon accounting. It also hinges on taking credible steps toward deepening transatlantic trade, because the first step in building common economic security is certainly to remove obstacles and discriminatory practices between one another.

—Georg Riekeles is an associate director and head of the Europe’s political economy program with the European Policy Centre. He is also a rapporteur of the trade and supply-chains track of the TTC Track 2 Dialogues series.

New Atlanticist

Dec 2, 2022

Policy memo: How the EU and US should overcome their trade and supply-chain disputes

By Charles Lichfield and Georg Riekeles

Ahead of the next meeting of the US-EU Trade and Technology Council, here are five tests for the EU and United States to show progress on the trade and supply-chains agenda.

Economy & Business European Union

The TTC meeting must meet the moment on AI

The meeting in Sweden will be fundamental for the continuity of the TTC over the next few months. Since the TTC’s last meeting in December, the European Parliament cleared the way for a plenary vote on the AI Act (slated for mid-June) and the use of OpenAI’s ChatGPT has skyrocketed, sparking a variety of reactions to generative AI. China has unveiled its own model, Baidu’s Ernie Bot, and several European countries have accelerated policies to respond to AI’s challenges. For instance, Italy banned ChatGPT until OpenAI addressed regulators’ concerns. All in all, these developments have raised new questions about how to govern general-purpose AI systems to ensure they remain aligned with democratic values. A transatlantic response is essential in addressing these concerns.

Following the publication of the Joint AI Roadmap after the TTC meeting in December, it is important that the coming meeting unveils developments in this area. This is not only because challenges are multiplying rapidly, but also because the roadmap presents a unique opportunity for the United States and the EU to design common approaches to governing emerging technologies—and if democratic powers want to be the ones to set international technology standards they shouldn’t let that opportunity go to waste. These approaches to addressing AI can be replicated when addressing other technological challenges, such as challenges posed by the Metaverse or quantum computing. That is a reason why this next meeting is crucial: It will either show that the TTC can take real action or it will bring the council’s diplomatic weight—and its ability to advance the global governance of emerging technologies—into question, increasing the risk that the multistakeholder community loses interest in such collaboration. 

—Andrea García Rodríguez​ is the lead policy analyst for digital at the European Policy Centre and a rapporteur of the data and technology regulation track of the TTC Track 2 Dialogues.

Issue Brief

Apr 20, 2023

The US-EU Trade and Technology Council: Assessing the record on data and technology issues

By Frances Burwell and Andrea G. Rodríguez

The TTC must keep its forward-looking gaze, but also take steps to address challenging regulatory issues, either by oversight or direct discussion, or it will lose the essential support among stakeholders that can keep US engagement in the TTC alive.

Digital Policy Economy & Business

The TTC is timely and powerful—but it needs to launch into action in Sweden

An indispensable resource for deploying technology and trade tools to address the most urgent climate and energy security threats, European leaders need to reinvigorate the TTC’s full potential in coming meetings. This is especially critical in the face of other challenges facing Europe, not least Russia’s brutal war and escalating global tensions with China. 

The TTC’s lack of progress on the green transition track since its last meeting in December is not indicative of the TTC’s potential to address the trade, supply-chain, and technology barriers that arise when forging secure and low-carbon economies on both sides of the Atlantic. The May meeting could be the springboard to launch this track into action. 

To achieve more meaningful clean-energy outcomes, policymakers must use the upcoming meeting to outline tangible goals for its existing green transition work streams, including those related to semiconductors, the Transatlantic Initiative on Sustainable Trade, export controls, the Talent for Growth Task Force, additive manufacturing, the recycling of plastics, and alignment on electric-vehicle charging infrastructure. Policymakers should also utilize this meeting to ensure that trade and tech policy is maximizing efforts to curb emissions and strengthening energy security. To do so, the EU and the United States will need to more broadly align on standards related to measuring carbon and environmental impacts, including by clarifying the role of digitalization in decarbonization and the role of digital solutions in streamlining carbon-emissions measurements and verification. 

One particularly meaningful action the TTC can focus on is efforts to build on its export-controls track by improving transparency and information sharing regarding export-control evasion—particularly around the energy sector, since the energy industry is one of Russia’s biggest sources of funds for its war. The TTC’s work on the critical-minerals supply chain could reinforce the work of the US-EU Task Force on the IRA. In areas in which the TTC may not have capacity to do the work, the platform could still outline key opportunities for action and work closely with the existing mechanisms, such as the World Trade Organization, the US International Development Finance Corporation, the European Bank for Reconstruction and Development, the Export-Import Bank of the United States, the US-EU Energy Council, and others.

The TTC won’t be the panacea for all trade and technology challenges. However it is a timely, powerful body for exchanging information and best practices, aligning standards, forging transparency, and testing out audacious ideas—and most importantly, identifying concrete actions for US-EU cooperation.

—Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center. She is a rapporteur for the green transition track of the TTC Track 2 Dialogues.

The TTC should lay out the path for a transatlantic green industrial policy

The IRA cast a shadow on the previous TTC meeting outside Washington in December. Its local content requirements—which extend subsidies to clean tech goods produced only in North America—is perceived in the EU as an attempt to capture the bloc’s manufacturing base. Since then, the EU has launched its own Green Deal Industrial Plan, and both sides have been keen to limit the fallout of the IRA and move ahead together amidst mounting geoeconomic challenges. The two sides set up a special US-EU Task Force on the IRA, and European Commission President Ursula von der Leyen visited US President Joe Biden at the White House where they announced their intent to conclude a targeted agreement on critical minerals and put in place a Clean Energy Incentives Dialogue. This presents the United States and EU with four tests for showing whether they can coordinate on green industrial policy and economic security at their upcoming Sweden meeting—and beyond.

The first test is how far the United States will accommodate EU demands to adjust the elements of the IRA that are “discriminatory” against European companies. The aforementioned critical minerals agreement would allow relevant raw materials extracted or processed in the European Union to count toward requirements for clean vehicles delineated in the clean-vehicle tax-credit section of the IRA, effectively circumventing the “made in America” provisions. Although the form this agreement takes—and whether it could be extended to a wider set of European products—is yet to be determined. 

Second, the United States and EU will be tested on whether they can better coordinate industrial incentive programs in the future. While expectations on fundamental changes to the IRA are low, its negative fallout for the EU has also been blamed on a lack of institutionalized coordination on transatlantic industrial policy. The new Clean Energy Incentives Dialogue presents the TTC with the opportunity to correct this fault by creating a better understanding of mutual interests and vulnerabilities through increased information sharing. However, it is unclear  whether information sharing and closer coordination will be enough to prevent one side from granting advantages to its industry at the expense of the other in the future. 

A third test is how the two sides can facilitate a more coordinated and effective approach to green industrial policy on the international level: for example, with respect to non-market practices by third parties such as China, but also in multilateral fora such as within the Group of Seven (G7) Partnership for Global Infrastructure and Investment. The two sides will be tested on whether they can tackle their economic-security challenges while also fostering sustainability and development in third countries.

A fourth test will be whether the United States and EU are willing to cooperate deeply enough in the global scramble for critical raw materials. This includes bauxite, cobalt, lithium, and nickel, which are necessary for clean-tech products such as batteries, wind turbines, and electric vehicles. So far, there has been little cooperation in this field, but a coordinated strategy on these critical raw materials has huge potential given the EU and United States’ combined economic might and their similar geopolitical interests.

—Philipp Lausberg is a policy analyst in the European Political Economy Programme at the European Policy Centre.

The TTC should help unleash transatlantic power for sustainable prosperity

The benefits of enhanced transatlantic cooperation on the green agenda are immense—and wait to be seized. Collaborating in creating more sustainable energy, mobility, and food systems, and improving production and consumption patterns, would lead to greater resilience, security, and prosperity. It can benefit consumers, companies, and workers. It would lead to better jobs, cleaner air, and healthier societies. It would allow us to address the climate, environmental, and resource crises more effectively. 

Thus, it is no surprise that the EU and the United States have committed to strengthening and accelerating much-needed transatlantic collaboration on the green transition under the TTC. What is disappointing, though, is how slow the progress on the green transition track has been, despite the benefits that such collaboration promises.

The upcoming TTC meeting should bring new momentum into these discussions. There is no time to waste. This world is fraught with geopolitical tensions—fueled by Russia’s war in Ukraine and China’s unreliability as a partner—which also influence global supply chains and access to resources. The climate emergency, environmental degradation, and pollution are threatening life as we know it and demand our urgent attention. It is vital for the EU and the United States to work together and with like-minded countries if they wish to succeed in addressing these multiple challenges. 

Some progress has already been made. A good example is the ongoing attempt to develop similar electric vehicle charging infrastructure across the Atlantic. The potential for collaboration, however, is so much greater than what has been realized thus far. To achieve the green transition, including the clean energy transition, it’ll be essential for the EU and the United States to team up on ensuring they have access to needed resources (i.e. materials, technologies, and skills); creating resilient and sustainable supply chains; and reducing risky dependencies. The EU and the United States should also do more to explore transition pathways to a circular economy, which should include eliminating trade barriers for recycled materials and enhancing the durability, reusability, and recyclability of materials and products needed for the green transition.

The TTC is far from the only channel for the EU-US collaboration. However, it is in the interest of both to use the TTC platform to step up efforts toward creating a transatlantic marketplace for products and services that are urgently needed to address planetary crises. The EU and the United States must turn competition and partnership into a transatlantic green power that will enhance prosperity across the Atlantic.

—Annika Hedberg is the head of the programme for sustainable prosperity for Europe at the European Policy Centre. She is a rapporteur of the green transition track of the TTC Track 2 Dialogues.

About the “TTC Track 2 Dialogues” series

The “TTC Track-2 Dialogues” series was created by the Atlantic Council and the European Policy Centre to foster policy debate and stakeholder dialogue on the issues covered by the US-EU Trade and Technology Council. The series aims to connect US and EU stakeholders for discussions along three thematic tracks relating to the TTC’s priorities: (i) trade and supply chains issues; (ii) data and technology regulation, and (iii) the green transition. Each track consists of two separate workshops with transatlantic stakeholders, which are used to inform short policy briefs containing concrete recommendations for US and EU decision makers.

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In this edition of the Global Sanctions Dashboard, we cover:

• New sanctions packages against Russia released ahead of the G7 Summit.
• How the United States is tackling export controls circumvention and what should improve moving forward.
• The enforcement and effectiveness of the oil price cap.
• The failure of the US sanctions policy towards Sudan, and how to fix it.

New sanctions packages against Russia released ahead of the G7 Summit

The Ukrainian intelligence assessment from 2022 indicated that forty out of fifty-two components recovered from the Iranian Shahed-136 drone that was downed in Ukraine last fall had been manufactured by thirteen different American companies, while the remaining twelve were made in Canada, Switzerland, Japan, Taiwan, and China. The case revealed that it was not enough to impose sanctions and export controls on Russian defense companies. Not only was Iran providing drones to Russia, but also certain entities and individuals in countries such as Switzerland and Liechtenstein have procured materials on Russia’s behalf. This is why the United States released a new sanctions package ahead of the G7 summit, targeting a much wider international network of Russia sanctions and export controls evasion. 

Finland, Switzerland, Cyprus, United Arab Emirates, India, Singapore—these are just a few locations associated with individuals and entities included in the Treasury Department’s newest designations against Russia. Entities and individuals located in these countries have aided Russia’s circumvention efforts or provided materials for Russia’s military procurement. Among the sanctioned individuals are Swiss-Italian businessman Walter Moretti and his colleagues in Germany and India, who have sold advanced technology to Russian state-owned enterprises. Liechtenstein-based Trade Initiative Establishment (TIE) and its network of two companies and four individuals have been procuring semiconductor production equipment for sanctioned Russian entities since 2012. 

Along with the United States, the United Kingdom also imposed sanctions against eighty-six individuals and entities from Russian energy, metals, financial, and military sectors who have been enhancing Russia’s capacity to wage the war. Additionally, the European Union (EU) is developing its eleventh package of sanctions which will reportedly, for the first time, target Chinese entities facilitating Russia’s evasion efforts. Coordinating the designation and enforcing processes among the G7 allies will be key in synchronizing the targeting of Russia’s evasion and procurement networks.

Export controls circumvention: How the US is tackling it and what should improve moving forward

While sanctions aim to cut entities and individuals procuring technology for the Russian military out of the global financial system, export controls are designed to prevent them from physically acquiring components. G7 allies have levied significant export controls on Russia, but enforcing export controls is easier said than done. Third countries from Russia’s close neighborhood have stepped up to fill Russia’s technology shortages caused by other countries complying with export controls. Central Asian and Caucasus countries had a significant uptick in exports of electronic components to Russia, while Turkey, Serbia, and Kazakhstan have been supplying semiconductors to Moscow. Even if exported electronic components are not designed for military application, Russians have been able to extract semiconductors and electronic components for military use even from refrigerators and dishwashers. The sudden boost in electronic equipment exports from Central Asia and the Caucasus to Russia can only be explained by Russia’s efforts of repurposing them for military use. 

In response to Russia’s efforts to obtain technology by all means possible, the US Departments of Commerce and Justice have jointly launched the Disruptive Technology Strike Force. The goal of the Strike Force is to prevent Russia and adversarial states such as China and Iran from illicitly getting their hands on advanced US technology. The Strike Force recently announced criminal charges against individuals supplying software and hardware source codes stolen from US tech companies to China. The Strike Force embodies the whole-of-government approach the United States has been taking in investigating sanctions and export controls evasion cases. The prosecutorial and investigative expertise of the Justice Department, coupled with the Treasury’s ability to identify and block the sanctions evaders from the US financial system, will amplify the impact of the Commerce Department’s export controls and enhance their investigations and enforcement.  

The US Department of Commerce has also teamed up with Treasury’s Financial Crimes Enforcement Network (FinCEN) to publish a joint supplemental alert outliniing red flags for potential Russian export controls evasion that financial institutions should watch out for and report on, consistent with their compliance reporting requirements. The red flags include but are not limited to:

• Payments for dual-use goods to companies located outside of the Global Export Controls Coalition (GECC) countries. 
• A new customer who trades in the nine Harmonized System (HS) codes, is located outside of the GECC countries and was incorporated after February 24, 2022. 
• A consumer who refuses to provide details to banks about end users or company ownership. 

Providing information to the public in the form of alerts and advisories is an effective step to increase awareness, financial institution reporting, and compliance with Western sanctions and exports controls. The Disruptive Technology Strike Force should consider issuing a multilateral advisory on export control evasion with G7 allies to bring in foreign partner perspectives, similar to the multilateral advisory issued in March on sanctions evasion by the Russian Elites, Proxies, and Oligarchs Task Force (REPO)

Regarding third-country intermediaries suspected of supplying Russia with dual-use technology, G7 allies should prioritize capacity building and encouraging political will in these countries to strengthen sanctions and customs enforcement. Building up their capacity to monitor and record what products are being exported to Russia could be the first step towards this goal. For example, Georgian authorities returned goods and vehicles destined for Russia and Belarus in 204 cases. However, registration certificates did not identify the codes of returned goods in fifty cases, and clarified that the goods were sanctioned only in seventy-one cases. Developing a system for identifying controlled goods and making the customs data easily accessible to the public could both salvage Georgia’s reputation and enhance export control enforcement against Russia.

The enforcement and effectiveness of the oil price cap

The US Department of the Treasury recently published a report analyzing the effects of the oil price cap, arguing that the novel tool has achieved its dual objective of reducing revenue for Moscow while keeping global oil prices relatively stable. A recent study by the Kyiv School of Economics Institute backs up this statement with detailed research of the Russian ports and the payments made to Russian sellers. However, Russian crude oil exports to China through the Russian Pacific port of Kozmino might be examples of transactions where the price cap approach does not hold.

In response, the Department of the Treasury warned US ship owners and flagging registries to use maritime intelligence services for detecting when tankers are disguising their port of call in Russia. Meanwhile, commodities brokers and oil traders should invoice shipping, freight, customs, and insurance costs separately, and ensure that the price of Russian oil is below 60 dollars. 

Despite China’s imports of Russian crude oil, the world average price for Russian crude oil in the first quarter of 2023 was 58.62 dollars, which supports the claim about the success of the oil price cap, at least for now. Notably, Russia’s energy revenues dropped by almost 40 percent from December 2022 to January 2023, likely in part due to the price cap combined with lower global energy prices.

Beyond Russia: The failure of US sanctions policy towards Sudan, and how to fix it.

While the world has been focused on the G7 summit, the crisis worsened in Sudan. In April 2023, President Biden issued Executive Order 14098 (EO 14098) authorizing future sanctions on foreign persons to address the situation in Sudan and to support a transition to democracy and a civilian transitional government in Sudan. The use of sanctions to support policy goals in Africa is not new. In the case of EO 14098, policymakers seek to use future sanctions on individuals responsible for threatening the peace, security, and stability of Sudan, undermining Sudan’s democratic transition, as well as committing violence against civilians or perpetuating other human rights abuses. 

Much has been written and studied about the effectiveness of sanctions programs in Africa with many programs suffering from being poorly designed, organized, implemented, or enforced. Sudan faced statutory sanctions from its designation as a State Sponsor of Terrorism from 1993 to 2020 and US Treasury sanctions from 1997 to 2017 both of which produced limited results due to ineffective enforcement and maintenance of the program. A near-total cut-off of Sudan from the US financial system pushed Sudan to develop financial ties beyond the reach of the US dollar.

Sanctions in Sudan can be useful if applied in concert with more concrete action. US policymakers must elevate Sudan on their priority list and engage their counterparts at sufficiently senior levels in the United Arab Emirates (UAE), Egypt, Saudi Arabia, Turkey, and elsewhere to encourage them to apply pressure on the Sudanese generals. This could be done by freezing and seizing their financial, business, real estate, and other assets in these relevant countries. Cutting off those links will impede the two generals’ ability to fight, resupply weapons, and pay their soldiers, which could force them back to the negotiating table.

Kimberly Donovan is the director of the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @KDonovan_AC.

Maia Nikoladze is the assistant director at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @Mai_Nikoladze.

Benjamin Mossberg is the deputy director of the Atlantic Council’s Africa Center.

Castellum.AI partners with the Economic Statecraft Initiative and provides sanctions data for the Global Sanctions Dashboard and Russia Sanctions Database.

Global Sanctions Dashboard

The Global Sanctions Dashboard provides a global overview of various sanctions regimes and lists. Each month you will find an update on the most recent listings and delistings and insights into the motivations behind them.

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The post Global Sanctions Dashboard: US and G7 allies target Russia’s evasion and procurement networks appeared first on Atlantic Council.

Read on to find out how these powerful democracies are tackling some of the world’s thorniest problems.

This post will be updated as news develops and more reactions come in.

Click to jump to an expert reaction:

Daniel Fried: The G7 brought good news for Ukraine and strong new sanctions on Russia

Josh Lipsky: Unthinkable two years ago, G7 countries are addressing China together

John E. Herbst: Hiroshima makes clear the authoritarian high-water mark has passed

Daniel Tannebaum: Continued alignment on Russia sanctions is impressive, but it’s time to finish the job

Kyoko Imai: The Quad crumbles without a corner

Dexter Tiff Roberts: What will the G7 do when China next attempts economic coercion?

Thomas Cynkin: A breakthrough in fighting China’s economic coercion, but the details must be fleshed out

Steven Tiell: The regulators are coming for your AI

Robert Cekuta: G7 leaders should have gone further on energy security

Bee Yun Jo: US-Japan-South Korea trilateral cooperation is back on track

Jessica Taylor: Can US-South Korea-Japan trilateral cooperation endure beyond a photo op?

Parker Novak: Biden skipping Papua New Guinea was a missed opportunity

The G7 brought good news for Ukraine and strong new sanctions on Russia

The G7 summit generated a lot of support for Ukraine, again demonstrating that persistent predictions of eroding support are off. The G7 Leaders’ statement on Ukraine was strong and, critically, did not push Kyiv toward negotiations on Russian President Vladimir Putin’s terms (a common recommendation from a certain school of thought that seems resigned to Russian victory even as the battlefield seems to favor Ukraine). The rapid coming together of a European coalition to provide Ukraine with F-16 fighter jets, an initiative that the United States in a policy reversal has now joined, was a major step in intensifying military assistance for Ukraine—a big G7 deliverable, as the saying goes. 

There were also new sanctions announced, outlined thematically in the G7 statement and in detail by the United States. These were also a big deal, even as the new sanctions did not include some ambitious proposals. For example, there was no lowering of the oil-price cap, no across-the-board ban on trade with Russia with exceptions (a so-called “white list,” as opposed to the current “black list” approach), and no decision to use the immobilized Russian sovereign assets for Ukraine.

But the announced US sanctions package was broad, well-prepared, and impactful. To cite only a few of the new measures, the Biden administration targeted sanctions evaders from around the world, a labor-intensive process that may hinder Russia’s efforts to escape the vise of restrictions on high-tech exports to Russia. It went after future Russian energy production and export capacity, a clever move that seems intended to lock in pressure on Russia’s critical energy sector for the longer term. The new US sanctions also targeted Russian gold sales (and the European Union seems prepared to target Russian diamond exports), good examples of going after Russian foreign-exchange earnings. 

This was solid work. Sanctions theory usually asserts that sanctions are intended to change behavior. The Russian sanctions regime, however, seems intended to weaken the Russian economy generally, and rightly so. The current sanctions recall (and are more sophisticated than) the Cold War–era sanctions that contributed to the decline and fall of the Soviet Union. Putin, who seeks by war to recreate the Soviet and Russian empires, may yet learn that democracies, for all their messiness, are not as weak and feckless as he supposes.

—Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council. He was the coordinator for sanctions policy during the Obama administration, assistant secretary of state for Europe and Eurasia during the Bush administration, and senior director at the National Security Council for the Clinton and Bush administrations. He also served as ambassador to Poland during the Clinton administration.

Unthinkable two years ago, G7 countries are addressing China together

China is not mentioned a single time in the G7’s new special statement on economic security—but make no mistake, it is all about China. Japanese Prime Minister Fumio Kishida made the issue of combating China’s economic coercion a priority for Japan’s G7, and with this unified statement the leaders achieved what will likely be the lasting legacy of the summit. The big question coming into Hiroshima was: Could the leaders maintain unity against Russia and harness that collective power in addressing China? The statement is the first concrete sign that the answer is yes. Two years ago, during the United Kingdom’s G7 summit in Cornwall, it would have been hard to believe that European leaders would sign on to a statement that was so specifically directed at Beijing. But after China targeted Lithuania for its support of Taiwan, the calculus on the continent began to shift. Now, all G7 leaders have committed to a new rapid response coordination platform if another country is targeted. They are also speeding up their push for new supply chains and trying to leverage the Partnership for Global Infrastructure Investment as an alternative to the Belt and Road Initiative. 

The statement doesn’t specify what other specific steps the group will take to combat what they describe as the “disturbing rise in the incidents of economic coercion.” And you can be sure that other participants at the G7, including India’s Prime Minister Narendra Modi, will stay away from associating with this statement. Many countries will ask privately, what about the West’s use of sanctions and other tools of economic statecraft? The answer from the G7 is that those tools have a legal basis and are a justified response to violations of international law. The bottom line is that the G7 has shown it will increasingly focus on China and will try to maintain a coordinated policy approach. That’s a major development.

—Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Hiroshima makes clear the authoritarian high-water mark has passed

G7 summits are usually nerd nirvanas, producing long statements on numerous issues that specialists mine to figure out in which direction the world’s leading democracies are moving, usually incrementally. Hiroshima was different. It was rich in substance and symbolism indicating that the world’s great democracies recognize the dangers, geopolitical and economic, posed by the two authoritarian revisionist powers, China and Russia.

In the summit statement and discussion, the G7 leaders seemed to be moving toward the understanding that China is a predatory power that needs to be kept in check. The statement also laid out a host of measures to further support Ukraine and isolate Russia for its war-crime laden aggression; and by hosting Zelenskyy, it gave the world a clear symbol of the world’s great democracies’ determination to enable Ukraine’s successful defense. To underscore this, the Biden administration used Hiroshima to finally allow the transfer of F-16 fighter jets to Ukraine. What’s more, Hiroshima offered a reminder of just how potent the democratic ideal is in also hosting Indian Prime Minister Narendra Modi, a long-time Putin pal and stalwart of the BRICS group (Brazil, Russia, India, China, and South Africa). It would have been nice to be a fly on the wall in the Kremlin as Putin watched the coverage of Modi’s bilateral meeting with Zelenskyy.

Was it really just fifteen months ago that Chinese leader Xi Jinping and Putin issued their lengthy joint statement in Beijing and the world appeared to tremble at the specter of the marching authoritarian great powers? And today, Xi meets with the five Central Asian leaders while the G7 countries sit with India and Ukraine, and International Criminal Court–indicted Putin wonders if he can attend the BRICS Summit in South Africa in August without being arrested. Were these the extraordinary “changes” that Xi told Putin their two nations were driving when they met in Moscow in March?

—John E. Herbst is senior director of the Atlantic Council’s Eurasia Center and served for thirty-one years as a foreign service officer in the US Department of State, retiring at the rank of career minister. He was US ambassador to Ukraine from 2003 to 2006.

Continued alignment on Russia sanctions is impressive, but it’s time to finish the job

The G7 members continued to show their alignment on new waves of Russian sanctions after meetings in Hiroshima over the last few days. The rhetoric continues to be one threatening those who would evade or circumvent sanctions, or those supporting them, with severe penalties. We’ve certainly seen designations of those who have circumvented sanctions to date, but without material enforcement, is the coalition missing the plot? Having served at the Office of Foreign Assets Control (OFAC) in the US Department of Treasury, I know firsthand the time it takes to bring an enforcement case to conclusion. If the goal is further isolation of Russia, then seeing nearly five billion dollars per month of exports from G7 nations (according to the Atlantic Council’s Niels Graham) is evidence of the scale of Russia’s role in the global economy. I do not mean to say that those who have been trading monthly with Russia have been violating sanctions, but perhaps countries and companies do not feel as much that they need to make a choice.

Hopefully, in time, there will be further rounds of sanctions focusing more broadly on export bans, unless otherwise expressly exempted. This would certainly make life more operationally easier for financial institutions which finance the aforementioned trade. For example, as sanctions were built up on Iran, culminating in the Joint Comprehensive Plan of Action (JCPOA), trade with Iran was certainly viewed largely as off-limits, and further enforcement actions against global banks reinforced the consequences for those who would purposefully violate these sanctions. When the JCPOA was enacted and secondary sanctions lifted, as a condition of the deal, there were initial views that Western businesses, where permissible, would flood the market. There were numerous reports of civil aviation, automotive, and consumer products companies who announced plans to reenter the market. Few, if any, global financial institutions would facilitate this trade, even if it was legal. At one point, then US Secretary of State John Kerry and then UK Foreign Secretary Boris Johnson convened the world’s largest banks to remind them that certain trade was now permissible. But the banks did not bite. The fear of potentially being on the wrong side of the remaining Iran sanctions, and the large-scale penalties that went along with those violations, was a painful reminder that it may not be worth it.

Now, Iran is certainly not Russia. The former is, according to the International Monetary Fund, the twenty-second largest economy in the world, while the latter recently ranked as the eleventh largest. However, for these Russia sanctions to be truly effective, more companies need to fear the downside risk to their organizations if things go wrong and they end up violating sanctions. To be clear, I do not wish for enforcement to occur outside of the truly egregious examples of violations. Enforcement has served as an effective deterrent historically to help reinforce a sanctions agenda. In the Iran example, these were some of the largest banks in the world that paid billions of dollars in settlement costs, and billions more in remediating their historical issues. There is another reason why enforcement is critical in a new sanctions regime, especially one as challenging to implement as with Russia. It is at times hard for companies to know whether they’re doing it right. Some of the best guidance out of OFAC used by firms was borne from enforcement actions, where organizations could apply the lessons learned to themselves and ask if they had done something similar. At the most basic level, if continued rounds of new sanctions are launched without material examples of violators, assuming they exist, can we really say they’re effective?

—Daniel Tannebaum is a nonresident senior fellow at the Atlantic Council’s Economic Statecraft Initiative in the GeoEconomics Center and a partner in Oliver Wyman’s Risk and Public Policy Practice, where he leads the firm’s Global Anti-Financial Crime Practice.

The Quad crumbles without a corner

Biden’s decision to abruptly end his Asia trip and pull out of the Quad Leaders’ Summit reflects poorly on US credibility and reinforces doubts about its resolve. The leaders of Australia, India, Japan, and the United States were expected to meet in Sydney on May 24 to enhance cooperation on critical and emerging technologies, climate change, and maritime domain awareness. However, Biden cut his trip short to deal with domestic debt ceiling negotiations, which are undermining US foreign policy at a pivotal moment for the Indo-Pacific region.

The Quad Summit was intended to signal unity in the face of Chinese attempts to challenge the existing regional order. Instead, China will be further emboldened to assert territorial claims, expand naval capabilities, and militarize islands in the South China Sea. This is a diplomatic gift to Xi, and Chinese state media outlets will jump at the opportunity to tear Washington down. In its messaging to the region, Beijing will claim that a country failing to keep its own government afloat is unfit to lead.

China is right about one thing: Building trust requires consistency, reliability, and simply showing up. Withdrawing from diplomatic trips to Asia due to political emergencies has become an unfortunate pattern for the United States, as presidents George H.W. Bush, Bill Clinton, and Barack Obama all did so.

Furthermore, US foreign policies are at risk of a 180-degree shift every four years, as shown by the political re-emergence of Donald Trump—who ditched the 2017 East Asia Summit in the Philippines because it started late.

Nonetheless, the United States has been deemed the unofficial leader of the Quad. Although the four leaders met on the sidelines of the G7 meeting in Hiroshima, the meeting only lasted fifty minutes and was a clear indication that the Quad framework had been pushed to the wayside.

Perhaps another country ought to take control. With India overtaking China as the most populous country in the world, Modi is asserting himself. India’s prime minister is proceeding full steam ahead with his visit to Australia, which includes a public event, a bilateral with Australian Prime Minister Anthony Albanese, and meetings with leaders in the business community. But India’s democratic backsliding under Modi means that other Quad members must exercise caution in their engagement.

While the four countries sought to resuscitate the Quad Leaders’ Summit by bandwagoning onto the G7, it is evident that this was a missed opportunity to not only strengthen Quad partnerships but more importantly signal commitment to Indo-Pacific countries.

—Kyoko Imai is an assistant director with the Indo-Pacific Security Initiative in the Atlantic Council’s Scowcroft Center for Strategy and Security.

What will the G7 do when China next attempts economic coercion?

While some are criticizing the “G7 Leaders’ Statement on Economic Resilience and Economic Security” for lacking detail on how countries intend to respond to economic coercion (coercion from China, of course, even if Beijing is never mentioned by name), just the fact that the disparate G7 members, all of which have significant trade and investment relations with China, were able to put out such a strong statement is a big accomplishment. “We will work together to ensure that attempts to weaponize economic dependencies… will fail and face consequences” is just one of numerous tough lines in the document.

If there was any doubt whether China is taking the statement seriously, just check out its irate response. Late Saturday, Beijing lashed out at the United States, calling it the “real coercer” that “politicizes and weaponizes economic and trade relations” with its use of sanctions. It went on to warn the G7 to stop “bludgeoning other countries” and “stoking bloc confrontation.” We will have to wait to see what concrete steps are taken by the G7 the next time one of its members or partner countries faces business pressure from China (the Coordination Platform on Economic Coercion that the G7 mentions indeed lacks specificity). But the statement released at the close of the Hiroshima summit is nonetheless a big first step toward confronting this growing challenge head on.

—Dexter Tiff Roberts is a nonresident senior fellow with the Atlantic Council’s Indo-Pacific Security Initiative and Global China Hub.

A breakthrough in fighting China’s economic coercion, but the details must be fleshed out

Perhaps the signal achievement of the Hiroshima G7 Summit was agreement on a “Coordination Platform on Economic Coercion” to counter Chinese economic coercion, highlighted through a stand-alone document.

Despite the obvious utility of such a mechanism, this outcome was long in coming. Japan and the United States have urged coordination among the leading industrialized democracies to counter Chinese economic coercion. However, European G7 countries have been reluctant, fearful of antagonizing Beijing. They exceeded expectations by joining consensus not only on a general statement of principles opposing economic coercion, but on a coordinating mechanism to take concrete actions.

Now that the G7 has moved past admiring the problem and reached consensus on the need for a coordination platform, the devil will be in the details of implementation. A good starting point may well be mapping out supply-chain vulnerabilities by industry and sector, alerting countries and corporations that might be affected, and helping them devise and implement “de-risking” strategies that would render them more resilient to supply-chain disruptions by China.

This could be an important means of G7 outreach to Global South countries, sensitizing them to the perils and pitfalls of economic dependence on China and demonstrating the benefits of upholding international order and the rule of law in cooperation with developed industrial countries and multilateral institutions.

Another important element will be devising joint approaches on mitigation via ready-made tools to counter economic coercion by providing support and relief for countries targeted by China. Flexible response options include, inter alia, stockpiling critical materials or commodities that China could restrict, providing export credit insurance to encourage alternative exporters to meet demand when China restricts exports, and enacting temporary tariff reductions to compensate when China restricts imports. Similarly, the G7 could consider retaliatory measures, although that may be a bridge too far at this juncture.

Whichever tools are adopted, the G7 decision to work together through a common coordination platform may be seen in retrospect as a watershed moment for countering Chinese economic coercion.

—Thomas Cynkin is a nonresident senior fellow in the Indo-Pacific Security Initiative and a former career US diplomat, serving in Japan and elsewhere.

The regulators are coming for your AI

The G7 has lobbed the latest of three notable salvos in signaling that governments around the globe are focused on regulating Generative Artificial Intelligence (AI). The G7 ministers have established the Hiroshima AI Process, an inclusive effort for governments to collaborate on AI governance, IP rights (including copyright), transparency, mis/disinformation, and responsible use. Earlier in the week, testimony in the United States highlighted the grave concerns governments have and why these discussions are necessary.

“Loss of jobs, invasion of personal privacy at a scale never seen before, manipulation of personal behavior, manipulation of personal opinions, and potentially the degradation of free elections in America.” These are the downsides, harms, and risks of Generative AI as Senator Josh Hawley (R-MO) recapped after the Senate Judiciary Committee hearing on May 16, saying “this is quite a list.”

Just last week, the European Union (EU) AI Act moved forward, paving the way for a plenary vote in mid-June on its path to becoming law.

Make no mistake, regulation is coming.

Read more here:

GeoTech Cues

May 22, 2023

The regulators are coming for your AI

By Steven Tiell

The Group of Seven (G7) has lobbed the latest of three notable salvos in signaling that governments around the globe are focused on regulating Generative Artificial Intelligence (AI). The G7 ministers have established the Hiroshima AI Process, an inclusive effort for governments to collaborate on AI governance, IP rights (including copyright), transparency, mis/disinformation, and responsible […]

Technology & Innovation

—Steven Tiell is a nonresident senior fellow with the Atlantic Council’s GeoTech Center. He is a strategy executive with wide technology expertise and particular depth in data ethics and responsible innovation for artificial intelligence.

G7 leaders should have gone further on energy security

When it comes to energy security, the G7 Leaders’ Hiroshima Communique falls short. While paying extensive, needed attention to slashing greenhouse gas emissions and rightfully condemning the negative impacts on global energy security stemming from Russia’s expanded invasion of Ukraine, the communique could do better in addressing the changing geopolitics of energy and meeting the world’s need for assured, predictable, and affordable energy.

The communique is strong on the imperative to decarbonize and limit the rise in global temperatures. Fighting climate change requires radical changes in how the world gets and uses energy. However, energy security, affordability, and access are also important.

While last year Europe built oil and gas stocks as the EU, the United States, and others sanctioned Russia, it was the warmer-than-normal winter that was key to the continent avoiding serious energy shortfalls and economic pain. Significant new natural gas supplies to replace Russia’s will not be on stream for another year or more; tight, expensive energy supplies will remain a reality. Next winter may not be as obliging. Continued international action is essential.

Another serious factor tightening the market is rising energy demand. Emerging economies, especially China and India—not the mature, industrialized West—now drive the demand side of the ledger. Their decisions about whether they use coal and other fossil fuels to generate electricity or to decarbonize have global impacts. The G7 needs to keep engaging them.

A third energy security issue demanding attention concerns the billions of people without access to energy today. One of the Sustainable Development Goals is to “ensure access to affordable, reliable, sustainable, and modern energy for all,” but those without it rose by twenty million in 2022 to nearly 775 million. As many as three billion people lack a safe way to cook, leading to millions dying each year from household air pollution. Moreover, another two billion people are expected to join the world’s population between now and 2050. All of them will need access to reliable energy.

While focusing on pushing the energy transition ahead, the 19,000-word G7 communique is too often silent on other pressing realities. Working, as the communique says, “to holistically address energy security, climate crisis, and geopolitical risk including expansion of global use of renewable energy in order to… keep a limit of 1.5°C within reach” is a worthy objective. But it may prove inadequate in meeting other pressing energy security challenges.

It is essential the United States, its G7 partners, and other governments widen the aperture. The realities of a growing world population looking for greater access to energy should be taken into account. Solutions need to be developed, including new technologies. Governments will need to recognize that some countries will remain more dependent on fossil fuels than others. Countries that already face high borrowing costs and other difficulties in obtaining needed financing, for example, will face difficulties financing lower carbon energy solutions. 

G7 leaders need to keep a focus on a changing, dynamic global energy security picture, and push on a wider range of policies and actions.

—Robert Cekuta is a former principal deputy assistant secretary for energy at the State Department and was the US ambassador to the Republic of Azerbaijan.

US-Japan-South Korea trilateral cooperation is back on track

Six months after their previous meeting in November, the leaders of South Korea, the United States, and Japan resumed their talks on the last day of the G7 summit—where highly anticipated topics included enhancing real-time information sharing on North Korea’s ballistic missiles, as well as the possibility of Japan joining the South Korea-US Nuclear Consultative Group announced during South Korean President Yoon Suk Yeol’s visit to Washington last month. Although the meeting was short, given tight schedules at the summit, the brief sideline meeting is the culmination of real progress in getting trilateral relations back on track.

Most importantly, the three leaders did get to discuss “new coordination” over North Korea’s “illicit nuclear and missile threats,” according to the White House statement. This manifests how working-level discussions are ongoing and making real progress. As Biden invited Yoon and Kishida for a formal trilateral meeting in Washington, more fine-tuned outcomes will be available in the near future. Second, their appearance in the setting of Hiroshima was symbolic in and of itself. The leaders of South Korea and Japan put forth “courageous” efforts (as Biden put it) to mend ties during their bilateral meeting just before the trilateral sideline meeting, which showcased their unity and just how much their ties have improved in the past few months.

Moreover, as Yoon clarifies and realigns South Korea’s approach to global issues—agreeing to push back against China’s “coercive behavior” and provide more non-lethal aid to Ukraine—the trilateral meeting signals a resumed heyday of trilateral security cooperation.

— Bee Yun Jo is a nonresident fellow in the Indo-Pacific Security Initiative and an associate research fellow at the Korea Institute for Defense Analyses. She is also an evaluation committee member of the South Korean Ministry of Foreign Affairs and an advisory committee member of the the ministry’s Department of Arms Control and Nonproliferation.

Can US-South Korea-Japan trilateral cooperation endure beyond a photo op?

The decision by Kishida, Yoon, and Biden to meet despite the compressed timeline of Biden’s abbreviated Asia-Pacific trip displayed the leaders’ strong desire to communicate that increasing trilateral cooperation is a priority. However, significant hurdles remain to advancing this cooperation.

Amid North Korea’s efforts to improve its nuclear and missile capabilities, the three countries have notably increased cooperation on combined military readiness and intelligence sharing. However, there is a limit to their working together, as shown by South Korea’s rejection of Japan joining the South Korea-US Nuclear Consultation Group and Seoul’s hesitation to expand the grouping’s military cooperation beyond North Korea.

As anticipated, the G7 Leaders’ Statement on Economic Resilience and Economic Security highlights continued cooperation toward strengthening the semiconductor supply chain. The United States is trying to form a semiconductor alliance (known as the Chip 4) with semiconductor heavyweights South Korea, Japan, and Taiwan. But despite the group’s increased alignment on export controls, this alliance has not yet come together. With US-South Korean-Japanese trilateral military cooperation solely focused on North Korea, it is unclear whether the grouping would be able to coordinate a response in the event of a critical threat to the supply chain outside of the Korean peninsula. For instance, the idea floating around some national-security circles that the United States should blow up TSMC’s foundries on Taiwan in the event of a cross-strait conflict displays a clear lack of discussion of contingency options. Earthquakes and climate change–driven weather events also threaten the supply chain, but it is unclear how the prospective Chip 4 would cooperate to come up with flexible response options as their respective semiconductor industries continue to compete.

The picture also remains unclear for US-South Korea-Japan cooperation on strategic stability. The South Korean public so far appears unmoved in its disapproval for Yoon’s overtures to Japan, and it does not appear that Kishida will expend political capital to match Yoon’s effort. Meanwhile, amid international concerns the United States is becoming even more protectionist, the US public remains predominantly concerned with the economy, making it difficult for either Republicans or Democrats to shift from an increasingly “America First” approach. But perhaps the biggest hurdle for this group is how to balance the need to cooperate among each other on Chinese threats against the need to maintain an off-ramp from tensions to cooperate with China as well.

—Jessica Taylor is a nonresident fellow in the Indo-Pacific Security Initiative, a logistics officer in the US Air Force Reserve, and a Ph.D. candidate in Princeton’s School of Public and International Affairs Security Studies Program. She served in South Korea from 2019 to 2021 as an international relations strategist for the headquarters command staffs of United Nations Command, ROK/US Combined Forces Command, and US Forces Korea.

Biden skipping Papua New Guinea was a missed opportunity

First, let’s acknowledge the things that the United States has gotten right as it’s stepped up its engagement in the Pacific Islands over the past year. It is following through on promises to expand its diplomatic footprint, opening new embassies in the Solomon Islands and Tonga and reestablishing the US Agency for International Development’s regional mission in Fiji. Senior officials have lavished attention on the region with high-level visits, and last September’s United States-Pacific Islands Country Summit was the first ever hosted in Washington. Crucially, compacts of Free Association with the Federated States of Micronesia and Palau are also being finalized.

US President Joe Biden’s now-scrapped visit to Papua New Guinea (PNG) was meant to be a culmination of these efforts and send a powerful signal to Pacific Islanders about the US commitment to the region. Instead, it underlines skepticism about the United States’ ability to follow through on the promises it has made and its staying power. The concurrent cancellation of Biden’s visit to Australia for the Quad summit only reinforces this; as a headline in the Sydney Morning Herald put it, “Biden’s 11th hour Quad snub a disappointment, a mess, and a gift to Beijing.”

Will this do long-term damage to US efforts in the Pacific? Perhaps not. But, in the immediate term, the optics are dreadful. After the visit to PNG was canceled, National Security Adviser Jake Sullivan said Biden plans to host a major summit with leaders of the Pacific Islands “within this calendar year.” It is important to follow through on that promise. In addition, Secretary of State Antony Blinken announced a visit to Port Moresby on May 22.

This episode showcases a key challenge bedeviling the United States on the world stage—that of internal political dysfunction hindering its conduct of a consistent foreign policy and projecting an unappealing image across the world. If the United States is going to succeed in the Pacific—and elsewhere, for that matter—it not only needs to deliver on its assurances, but also get its domestic house in order. 

—Parker Novak is a nonresident fellow with the Atlantic Council’s Global China Hub.

The post Experts react: A ‘game changer’ G7 summit in Japan appeared first on Atlantic Council.

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The people of Ukraine would certainly seem to agree. After over a year of defending their country against Russia’s war of aggression, Ukrainians are more committed than ever to a European future. According to recent polling data published by the International Republican Institute, 85% of Ukrainians want their country to join the EU and 82% wish to join NATO.

These trends represent a unique opportunity to integrate Kyiv within Europe’s institutional frameworks and pave the way for a sustainable peace. Ukraine’s trajectory as a free and modern European state would shore up the transatlantic community’s defense against Russian encroachment, and would also help to limit the scope for interference by Moscow’s autocratic ally in Beijing. An independent, European Ukraine not only denies Russia its delusional revanchist empire; it offers a path for Kyiv to secure freedom and prosperity centered around democratic values.

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In their quest for autocratic consolidation, Russia and China both seek to leverage economic and political vulnerabilities to expand their control over neighboring states. By building upon the support already directed to Ukraine and incorporating Kyiv within formal Western institutions, organizations like the EU and NATO would signal to other countries reliant on dominant regional powers like Russia and China that there is a better path forward.

Ukraine’s official membership status across European intrastate institutions would also provide protections from Chinese economic ambitions and expand opportunities for transatlantic states to strengthen economic and security relationships. In this sense, Ukraine’s further European integration is an imperative to safeguard Kyiv’s democratic progress along with US and European strategic interests.

Ukraine has already made considerable progress initiating the kind of institutional and political reforms necessary to formally join European institutions. After receiving official EU candidate country status in June 2022, Ukraine’s government moved quickly to adopt EU recommendations across various legislative and judicial sectors.

In 2022, the Ukrainian parliament confirmed Andriy Kostin as the new Prosecutor General, appointed Oleksandr Klymenko as the head of the Specialized Anti-Corruption Prosecutor’s Office (SAPO), and passed important reforms bolstering judicial oversight. SAPO and the National Anti-Corruption Bureau (NABU) conducted almost 300 corruption investigations in the latter portion of 2022, underscoring Ukraine’s commitment to establishing transparent and accountable public institutions aligned with European ethical standards.

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Europe’s collective support for Ukraine since the start of Russia’s full-scale invasion in February 2022 has built upon a growing technical relationship with Ukraine that significantly predates the current war. As recently as 2021, Ukrainian forces took part in joint military exercises with NATO colleagues. Since 2014, the Ukrainian military has implemented a wide range of NATO standards that many observers believe have helped pave the way for the remarkable successes achieved against Russia’s invading army over the past fifteen months.

Since February 2022, EU institutions have given Kyiv over $29 billion in financial aid, alongside the more than $26 billion provided by the United States. The US has been at the forefront of efforts to arm Ukraine and help the country to defend itself against Russian aggression. Countries like Germany, the UK, France, and Poland have provided growing quantities of sophisticated military assistance including fighter jets, modern battle tanks, and long-range cruise missiles.

After establishing the parliamentary Temporary Commission of Inquiry (TCI) on issues of monitoring the receipt and use of international material and technical aid during martial law, Ukraine continues to demonstrate it is equipped with both the security competencies and administrative procedures necessary to operate as a modern NATO ally.

Ukrainian President Volodymyr Zelenskyy’s recent visits to Rome, Berlin, Paris, and London brought encouraging signs of a growing consensus regarding the necessity of Ukraine’s further integration. The time is now ripe for European leaders to formally include Ukraine within organizational frameworks.

Earlier strategic projects with Russia such as the Nordstream pipelines should be replaced with new long-term investments across Ukraine’s energy, tech, and agricultural sectors. Meanwhile, Ukraine must build upon the country’s recent successful institutional reforms and establish a robust reconstruction plan. Together, Ukrainians and their European partners have the potential to create not just a free Ukraine, but a better future for all of Europe.

Stephen Nix is Senior Director for Eurasia at the International Republican Institute. Zachary Popovich is a senior program associate at the International Republican Institute.

Further reading

UkraineAlert Apr 8, 2023

Human wave tactics are demoralizing the Russian army in Ukraine

By Olivia Yanchik

Vladimir Putin’s invasion of Ukraine has not gone according to plan but he still hopes to win a long war of attrition. However, Russia’s reliance on human wave tactics risks undermining morale within his invading army, writes Olivia Yanchik.

Conflict Defense Policy

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By Peter Dickinson

Russia’s passive acceptance of neighboring Finland’s NATO membership raises serious questions over the Kremlin’s efforts to portray the invasion of Ukraine as a response to NATO expansion, writes Peter Dickinson.

Conflict Disinformation

UkraineAlert May 12, 2023

Andriy Yermak: Italy is defending common European values in Ukraine

By Andriy Yermak

Italian Prime Minister Giorgia Meloni is right to say that helping Ukraine defend itself against Russian invasion is about freedom, justice, and common values, writes the head of Ukraine’s Office of the President, Andriy Yermak.

Conflict Economy & Business

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

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The post Ukraine’s European integration is the key to a sustainable peace appeared first on Atlantic Council.

It will not be easy. After 15 months of conflict, the G7 have implemented nearly all the economic measures against Russia that garnered consensus within the group. The options they have left will be increasingly contentious and will impose higher costs on the G7 countries’ domestic economies. To understand how the debate over a total export ban will play out, it’s important to start with an analysis of what G7 economies still export to Russia.

The G7’s remaining exports to Russia

Since Russia’s invasion of Ukraine last year, the G7 has implemented the largest sanctions and export controls regime ever imposed on a major economy. Exports from the G7 to Russia have fallen by around $5.7 billion a month from the pre-invasion average, resulting in a 57 percent decline in overall exports. This has led to a substantial slowdown in trade of critical goods such as machinery and mechanical appliances (64.6 percent decline in exports), cars and trucks (77.4 percent decline in exports) and electrical machinery (78.7 percent decline in exports). Aircraft exports have been especially impacted following sweeping sanctions and controls placed on products used by the aviation and space industry with G7 exports declining some 98.6 percent and cutting off an estimated $4.03B in exports. 

However, G7 members, led by the EU, continue to export around $4.7 billion a month to Russia. The biggest export categories since March 2022 are pharmaceuticals, machinery, food, and chemicals. 

The economic impact of an export ban

From March 2022 to Dec 2022, G7 goods exports totaled around $46.8 billion. US officials hope to change this. Frustrated with the existing regime, which Washington views as too porous and which allows Moscow to continue to import western technology, the US has proposed a total export ban with exemptions primarily for food and medical products. If implemented as proposed, such a restriction could further reduce G7 exports to Russia by roughly 67 percent to just $1.5B a month.

For the US, the trade-offs of an export ban are minimal. The $80 million in monthly goods exports it continues to provide Russia are a rounding error for Washington. However, for the EU and Japan, which respectively account for 89 percent and 7 percent of remaining G7 exports to Russia, such an ask may be a step too far. Both government have already signaled such a proposal “may not be realistic.”  

For Japan, pushback stems from fears that Moscow may retaliate by cutting it off from energy imports. Despite an initial drop in Russian liquified natural gas (LNG) imports in the immediate aftermath of the invasion, Japanese imports have recovered with Russian LNG making up an average of 7.8 percent of overall imports—only a slight drop from the pre-invasion average of 9.1 percent. 

This is not the first time Japan’s reliance on Russian LNG exports have thwarted the full implementation of a G7 policy measure. Towards the end of last year, Tokyo was able to secure an exemption from the G7’s oil price cap to ensure Russia could still transport a small quantity of crude oil which is extracted alongside the natural gas it exports to Japan. Japanese resistance to G7 measures is not without reason. The resource-poor nation has the most vulnerable energy security environment of any G7 nation. Japan’s primary energy self-sufficiency rate is just 11 percent, far lower than the US (106 percent), Canada (179 percent), the UK (75 percent), France (55 percent), and even Germany (35 percent). LNG, which provided around 36 percent of the country’s electricity in 2021, is crucial in ensuring its businesses and consumers have the energy they need. However, Japan’s high external energy reliance cannot fully excuse its continued reliance on Russian LNG. Germany, for example, entered the conflict with a significantly higher reliance on Russian LNG but was able to rapidly scale back its imports, dropping them to zero by September 2022.

How the US can respond to hesitance from the G7   

In response to EU and Japanese hesitation, the US may need to scale back its ambitions or offer support that would help minimize the impact of an export ban on the EU and Japanese economies. One option would be to activate the US Export-Import Bank to open access to a line of export credit insurance to impacted European businesses. The insurance line would compensate for the costs European businesses face to find alternative buyers. The US has previously employed similar measures to help Lithuania after it faced sudden export disruptions. 

That still may not be enough—especially for Japan, which is more concerned over retaliation. Instead, Tokyo may agree in name to such a ban conditional on Japan receiving broad exemptions, similar to its approach to the G7 oil price cap.  

The consideration of an export ban speaks to the broader challenge G7 leaders will face in Hiroshima. Leaders have already implemented nearly all the consensus economic measures designed to reduce the Russian military’s fighting capabilities. There is a reason the options left haven’t been undertaken; they are problematic and will strain the G7’s fragile consensus on Russia.

Niels Graham is an Assistant Director with the Atlantic Council GeoEconomics Center focusing on US trade policy and the Chinese economy.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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The post What is the G7 still exporting to Russia?  appeared first on Atlantic Council.

One of the most interesting but under-reported achievements so far in 2023 has been the connection of Ukraine’s first biomethane production plant. This facility is one of a series of similar projects that are expected to position Ukraine firmly at the center of Europe’s energy transition. Situated in northern Ukraine’s Chernihiv region, the plant connected to the gas distribution grid in early April. A further four plants are expected to follow suit before the end of the current year.

With more facilities in the pipeline, Ukraine could be producing up to three billion cubic meters of biomethane annually by 2030, which would represent 10% of the EU’s total targeted production. By 2050, Ukraine could scale up production sevenfold to reach an annual level representing around two-thirds of the country’s total prewar natural gas consumption.

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Since the biomethane molecule is similar to that of natural gas but non-polluting and fully compliant with decarbonization goals, investments to support production and transmission infrastructure are expected to be affordable. This can already be seen in a number of swift upgrades that have allowed existing Ukrainian power generation plants using biomass to undergo partial conversions to biomethane.

Soaring energy prices in the wake of Russia’s full-scale invasion of Ukraine and the blockade of Ukrainian grain exports have helped producers to fast-track their investments in this budding sector. With traditional export routes severely restricted by the Kremlin’s Black Sea grain blockade, some agricultural businesses have used their crops to produce biogas and biomethane. Meanwhile, with European electricity and gas prices reaching record levels last year against a backdrop of Russia’s invasion, biomethane production is now five times more profitable than grain production.

Analysts say Ukrainian-produced biomethane is cheaper for European buyers than volumes produced in EU countries. Thanks to support from DENA, the German biogas register operator, Ukraine will also soon be able to set up its own register, which should allow sellers to provide proof of origin for exported biomethane by the end of this year.

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Of course, much of Ukraine’s ability to scale up this segment of the energy industry will depend on how quickly the war ends and on the ability of producers to attract funding. There are signs, however, that international appetite to work with Ukrainian energy industry partners is already growing, even as Russia’s invasion continues.

At the beginning of May, Ukraine’s gas transmission system operator, GTSOU, said it had received interest from non-resident companies looking to import natural gas to the country and possibly store it in underground facilities over the summer months. Prior to the war, more than 100 non-resident companies had signed up to import and store gas in Ukraine. In 2020, for example, a third of the gas stored in Ukraine’s 30 bcm underground facilities belonged to foreign entities. Following the start of Russia’s full-scale invasion last year, this figure dropped to just 2%. However, the latest capacity bookings reported by GTSOU signal renewed international interest in injecting gas despite the ongoing war risk.

This interest is largely driven by a widening spread between current and winter prices, which means traders have an incentive to buy cheaply now hoping to sell at much higher prices later this winter. Storage facilities across the EU are also filling up fast, effectively prompting companies to turn to Ukraine’s vast facilities to store surplus volumes.

Undoubtedly, this will increase Europe’s overall security of supply, particularly during the winter months when gas can be withdrawn and used across the EU. One could argue that Ukraine’s comparatively cheaper storage and transmission tariffs, together with the work carried out both by GTSOU and the storage operator UTG in previous years to attract customers, have also been instrumental in attracting international interest.

Further progress in the storage sector now seems increasingly realistic. Discussions are currently underway at the government and private sector levels to issue war risk insurance for companies looking to store gas in Ukraine. This could provide an extra measure of safety for existing or new clients. Whatever format these insurance measures take, it seems clear that wartime Ukraine remains a critical energy partner for Europe, and will continue to play an important role in the continent’s complex energy transition.

Dr. Aura Sabadus is an energy journalist who writes about Eastern Europe, Turkey, and Ukraine for Independent Commodity Intelligence Services (ICIS), a London-based global energy and petrochemicals news and market data provider. Her views are her own. You can follow her on Twitter @ASabadus.

Further reading

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Human wave tactics are demoralizing the Russian army in Ukraine

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Vladimir Putin’s invasion of Ukraine has not gone according to plan but he still hopes to win a long war of attrition. However, Russia’s reliance on human wave tactics risks undermining morale within his invading army, writes Olivia Yanchik.

Conflict Defense Policy

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Ukrainians will never surrender. How long can they count on the West?

By Serhiy Prytula

Ukraine’s remarkable resistance during the first days of the Russian invasion convinced the democratic world to back the country but with Putin now preparing for a long war, continued Western resolve is vital writes Serhiy Prytula.

Civil Society Conflict

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

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The post Russia’s invasion fails to prevent progress in Ukraine’s energy sector appeared first on Atlantic Council.

If the coming campaign proves successful, Ukraine could soon be in a position to begin the liberation of Crimea itself. This would mark a new stage in the war that would test both Russia’s commitment to the occupied Ukrainian peninsula and the resolve of Ukraine’s international partners.

While Ukrainian leaders remain adamant that the war will continue until the entire country is de-occupied, Moscow has made clear that it regards any large-scale attack on Crimea as a major red line and an existential threat to Russia itself. Meanwhile, numerous influential voices in the West have questioned the wisdom of a Crimean offensive amid fears that a desperate Putin could resort to nuclear weapons in a bid to prevent the loss of the prized peninsula.

Any attempt to end the occupation of Crimea will likely reveal the true strength of international support for Ukraine. Since the full-scale Russian invasion began, the Crimean question has become a litmus test for Ukraine’s Western partners; do they want Ukraine to win the war, or are they merely seeking to deny Putin victory?

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With the Russian invasion now in its fifteenth month, the military situation is finely poised with neither side appearing to hold a decisive advantage. Although the front lines in southern and eastern Ukraine have hardly moved since the liberation of Kherson in November 2022, it is not accurate to describe the past six months as a stalemate. In reality, much has occurred.

Russia’s professional army, which was decimated during the first eight months of the invasion, has been bolstered by the arrival of newly mobilized troops in large numbers. However, these fresh soldiers have limited training and often substandard equipment. Putin’s revamped force has already experienced heavy losses during Russia’s underwhelming winter offensive. US officials recently estimated that the Russian army has suffered 100,000 casualties, including more than 20,000 dead, since December. These figures tally with widespread reports of “human wave” tactics and a steady stream of video addresses posted online by disgruntled Russian soldiers complaining of suicidal tactics and high death tolls.

Ukraine has also experienced high casualty rates in recent months, but Kyiv can now count on a large number of new troops who have undergone training in NATO countries and will be armed with modern Western weapons. Since the beginning of 2023, Ukraine’s partners have increased arms shipments to include armored vehicles and tanks in significant numbers. The Ukrainian military also has the advantage of superior satellite and electronic intelligence provided in real time by the country’s partners, as well as its own reported force of 10,000 drone pilots. Crucially, the Ukrainian military benefits from far higher motivation. While many Russians are unclear about what they are fighting for, Ukrainians know they are defending their homes and families against a genocidal enemy.

Despite these apparent advantages, Ukraine’s coming offensive is far from a foregone conclusion. Unlike earlier Ukrainian successes, Kyiv cannot rely on the element of surprise. On the contrary, Russia has hundreds of thousands of troops manning well-prepared defensive lines that have been intensively fortified throughout the past six months. Moscow also has a clear numerical and technical advantage in the air, although Russia has so far failed to establish dominance in the skies above Ukraine.

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After Vilnius: What’s next on Ukraine’s path to NATO?

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If the Ukrainian military is able to break through Russian defenses and reach the southern coastline, Putin’s invasion force will be divided and large numbers of Russian troops will find themselves faced with the prospect of limited resupply and gradual encirclement. In such circumstances, they may be forced to retreat toward the Donbas in the east and Crimea to the south. By attacking the Kerch Bridge that links Crimea to mainland Russia, Ukraine could then effectively cut off retreating Russian troops on the peninsula. This would spark a political crisis in Moscow, which would inevitably be accompanied by a sharp rise in the Putin regime’s nuclear rhetoric.

The liberation of southern Ukraine would likely force Russia’s military leaders to address the painful issue of whether to withdraw their blockaded troops entirely from Crimea. If they chose to remain, Putin’s occupation forces could find themselves vulnerable to a campaign of Ukrainian missile and drone strikes designed to erode the Russian military’s logistical capabilities while destroying weapons reserves and command posts.

There is much debate over whether the Ukrainian military needs to mount a potentially bloody land offensive to complete the de-occupation of Crimea, with some arguing that Kyiv could simply isolate the peninsula and gradually wear down Russian forces until their position becomes untenable. Much will depend on the strike capabilities Ukraine can call upon, if and when Ukrainian troops are able to advance to the administrative borders of the occupied peninsula. A land campaign would be highly ambitious, but certainly cannot be ruled out.

International efforts to arm and train Ukraine over the past six months have been geared toward getting the country into a position where it can split Russia’s occupation forces and threaten to cross the Kremlin’s Crimean red line. And yet doubts remain over whether Ukraine’s partners will be fully supportive of efforts to liberate Crimea. If the opportunity to end the nine-year occupation of the Crimean peninsula arises in the coming months, Western leaders will have to decide if they want Ukraine to achieve a decisive victory, or whether their goal is simply to prevent Ukraine from losing.

The decisions they reach will shape the outcome of the war in Ukraine, and will also have far-reaching ramifications for the post-war international order. Will the collective West allow itself to be intimidated by Putin’s nuclear blackmail? Can Russia be permitted to redraw the map of Europe by force and retain territory seized through acts of international aggression? Western leaders need to think quickly, for the Ukrainian military is poised to advance and may soon be demanding answers to these challenging questions.

Dennis Soltys is a Canadian professor of public administration and international development at KIMEP University in Almaty, Kazakhstan.

Further reading

UkraineAlert Apr 8, 2023

Human wave tactics are demoralizing the Russian army in Ukraine

By Olivia Yanchik

Vladimir Putin’s invasion of Ukraine has not gone according to plan but he still hopes to win a long war of attrition. However, Russia’s reliance on human wave tactics risks undermining morale within his invading army, writes Olivia Yanchik.

Conflict Defense Policy

UkraineAlert Apr 6, 2023

NATO poses a threat to Russian imperialism not Russian security

By Peter Dickinson

Russia’s passive acceptance of neighboring Finland’s NATO membership raises serious questions over the Kremlin’s efforts to portray the invasion of Ukraine as a response to NATO expansion, writes Peter Dickinson.

Conflict Disinformation

UkraineAlert Mar 8, 2023

Ukrainians will never surrender. How long can they count on the West?

By Serhiy Prytula

Ukraine’s remarkable resistance during the first days of the Russian invasion convinced the democratic world to back the country but with Putin now preparing for a long war, continued Western resolve is vital writes Serhiy Prytula.

Civil Society Conflict

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

Read more from UkraineAlert

UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

Learn more

The post Russia’s last red line: Will the West help Ukraine liberate Crimea? appeared first on Atlantic Council.

In the May 2023 Issue of Longitude, Forward Defense Nonresident Senior Fellow Marco Tantardini published an article on the budding involvement of Central and Eastern European countries in the European Space Agency and in commercial space activities. He noted that concerns about European security have been reflected in an increased focus on outer space.

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Marco Tantardini

Nonresident Senior Fellow

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Forward Defense, housed within the Scowcroft Center for Strategy and Security, generates ideas and connects stakeholders in the defense ecosystem to promote an enduring military advantage for the United States, its allies, and partners. Our work identifies the defense strategies, capabilities, and resources the United States needs to deter and, if necessary, prevail in future conflict.

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The post Tantardini in Longitude on Central and Eastern European involvement in space appeared first on Atlantic Council.

At the same time, the African continent faces a wide infrastructure investment gap, estimated at more than one hundred billion dollars annually, according to the African Development Bank.

This gap affects both the continent’s global competitiveness and many Africans’ poor living conditions. Yet Africa has great potential, with an economic-growth rate that is expected to be surpass the global average in 2023 and 2024; high renewable-energy potential; and young, dynamic, and innovative populations.

To turn Africa’s potential into reality, investing billions—from African governments, the international community, and the private sector—in infrastructure will be crucial.

Global Gateway, the European Union’s (EU) answer to China’s Belt and Road Initiative, plans to mobilize up to 300 billion euros (about $331 billion) in public and private investments by 2027, with half designated for African countries. Even though Global Gateway is providing the billions that Africa needs to harness its potential and close its infrastructure gap, success is not guaranteed. For it to be a success, several conditions must be met.

A priority partnership

Global Gateway’s prioritization of Africa is quite plain to see, even beyond the fact that half of the planned funds are going toward the continent. Global Gateway is embedded in the renewed EU-Africa relationship. In February 2022, European Commission President Ursula von der Leyen and Senegalese President Macky Sall, who was then the African Union (AU) president, announced that the Africa-Europe program would be the very first regional plan under Global Gateway.

This announcement took place a few days before the EU-AU summit that set out to establish a renewed EU-Africa relationship based on a balanced and well-defined appreciation of interests and responsibilities of both partners. Going into the summit, the parties expected a “renewed, modernized, and more action-oriented partnership.” Global Gateway, as a partnership itself, checks those boxes.

For the EU, it is crucial to be perceived by African partners as delivering on promises made at the EU-AU summit. With Global Gateway, it seems as though the EU is making another effort to be a reliable partner that makes commitments that have concrete effects on the ground. That will be important for the EU as China and Russia continue to present competing narratives and models of international order, political organization, and values.

Aligning with Africa’s 2063 vision

For Global Gateway’s projects to have an impact and to live up to the promises of the renewed EU-AU partnership, they have to align with the goals and priorities of the AU’s Agenda 2063. The agenda, adopted in 2015, aims to develop infrastructure, improve energy access, build an integrated network of transport infrastructure, and connect the African continent to the rest of the world.

So far, Global Gateway’s initial projects seem in line with the Agenda. The EU intends to invest in particular in energy, digital, and transportation infrastructure—doing so is a real emergency in Africa. The bloc also intends to accelerate the green transition, bolster health systems, and support education and training. Projects that tackle these issues include the construction of a EurAfrica Gateway Cable, a submarine fiber-optic cable connecting Africa with the EU; a Strategic Transport Corridor between Cabo Verde, Senegal, and the Ivory Coast; and solar power plants in Niger. Global Gateway also aims to boost youth entrepreneurship by financing the launch of high-potential startups and to more generally create jobs for Africa’s growing youth population. The VaMoz Digital program, for example, plans to invest in digital literacy and skills for youth in Mozambique.

How China compares

Chinese investment always looms large, especially considering that China has mobilized over two trillion dollars for almost four thousand investment and construction projects abroad since 2005. Overall, China is far ahead of the EU in overseas investments.

But looking only at Africa, and more especially at Sub-Saharan Africa, the picture is not so clear. China signed over $303 billion in investments and construction contracts between 2006 to 2020. From this perspective, the EU’s 150 billion euros ($165 billion) over the course of only five years is certainly significant, especially considering that the investments made by EU member states outside of the Global Gateway initiative should also be added to this amount in totaling the EU’s contributions.

To reach its ambitious spending goals, the EU will need to rely on a range of financial instruments such as grants, capital investments, and guarantees; it will need to mobilize, among other tools, the European Fund for Sustainable Development+ (which is overseen by a financial tool called Global Europe: Neighbourhood, Development and International Cooperation Instrument) as well as the European Investment Bank.

While China gets called out for its predatory loan practices—and especially its controversial resource-backed lending model—and for neglecting environmental health or human rights in its investments, Global Gateway aims to comply with the highest environmental and social standards and to respect the EU’s democratic values. The program is rooted in EU values, and especially transparency, sustainability, and good governance.

While the program is rooted in EU values, it is not just a one-sided European idea or an investment project; it is an investment in a relationship. In this regard, Global Gateway differs from traditional development policies by placing a greater focus on embedding the project in a political and strategic relationship built on partnership principles. The initiative aims to help African partners build quality and sustainable infrastructure to strengthen their resilience and their strategic autonomy in the energy, technological, health and economic fields; in doing so, it could be the foundation of long-term African growth.

Conditions for success

Critics of Global Gateway argue that the initiative has overly long timelines, that the EU communicates poorly about it, and that the goals are difficult to discern; some critics also say that some of the funding was already mobilized for existing projects and that, in the end, the initiative amounts to no more than rebranding.

It is partly true that the EU often has difficulties in explaining its programs and initiatives, often opting for administrative jargon. It is also indeed the case that Global Gateway serves as an umbrella for some existing projects—which is understandable given that it takes more than a year to launch such infrastructure projects. However, Global Gateway scales up existing major infrastructure projects, speeds up their implementation, and provides a much-needed political impetus to unlock greater funding. African partners should take advantage of this to close the infrastructure gap in a sustainable way.

For Global Gateway to succeed, European and African partners must do the following:

• The EU must deliver on making the Global Gateway a renewed, and action-oriented partnership in line with the AU-EU summit’s objectives. The EU should nurture its relationship with African countries by delivering concrete and ambitious projects that contribute to Africa’s long-term economic growth. Both sides should recognize that this is not just a business issue: It is a political one.
• African partners must seize Global Gateway to close the continent’s infrastructure gap. But as it will be important to mobilize all investment needed—and to not come up short on funds—African partners should be more proactive in identifying their needs and on broadcasting successes to maintain the political momentum for the initiative.
• European and African partners should ensure that each project is compliant with the highest environmental and social-norms standards so that they contribute to green and resilient growth in Africa. Robust reporting will be crucial. Global Gateway projects have to be seen as an opportunity to reconcile economic development with climate-change mitigation and adaptation.
• Since Global Gateway is designed to leverage private fundings, African partners should build on this opportunity—in which the private sector is already investing in Africa—to unlock even more private-sector financing, beyond the initiative. African partners should use these investments to supplement the financing of green-growth and resilience projects.

Emilie Bel is a nonresident fellow with the Atlantic Council’s Africa Center and deputy to the director of public affairs and head of international affairs at the French Insurance Federation.

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How does the convergence of geopolitics, hard security, and technology—accelerated by Russia’s illegal war in Ukraine and China’s challenges to the rules-based international order—impact Denmark and Europe’s economic policies and outlook? From Denmark’s point of view, does Europe have the right industrial policy response, including the loosening of state aid rules at the EU level? What are Denmark’s priorities to address potential “fragmentation” in the EU’s single market? How is Demark working to support Ukraine’s fight against Russia and Ukraine’s future reconstruction?

On this episode of #AtlanticDebrief, Jörn Fleck sits down with Morten Bødskov, Minister for Industry, Business, and Financial Affairs of Denmark, to discuss Denmark’s perspective on fragmentation and regionalization in this new era of the global economy.

You can watch #AtlanticDebrief on YouTube and as a podcast.

Staff

Jörn Fleck

Senior Director

Europe Center Transform Europe Initiative

Digital Policy Economy & Business

Europe Center

Providing expertise and building communities to promote transatlantic leadership and a strong Europe in turbulent times.

The Europe Center promotes the transatlantic leadership and strategies required to ensure a strong Europe.

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The post #AtlanticDebrief –  Are we in a new era of globalization? | A Debrief with Morten Bødskov appeared first on Atlantic Council.

As the 2024 presidential election season starts, will Europe and transatlantic relations become campaign issues? How have partisan positions on the United States’ role in Europe and transatlantic relations evolved? And how have US domestic policies had unintended foreign policy consequences, such as with the Inflation Reduction Act?

On this episode of #AtlanticDebrief, Rachel Rizzo sits down with Ian Russell, Partner at Beacon Media, to discuss the upcoming US presidential election and how positions on Europe and NATO have changed in the Republican party since Trump’s presidency.

You can watch #AtlanticDebrief on YouTube and as a podcast.

Fellow

Rachel Rizzo

Nonresident Senior Fellow

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Economy & Business English

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Providing expertise and building communities to promote transatlantic leadership and a strong Europe in turbulent times.

The Europe Center promotes the transatlantic leadership and strategies required to ensure a strong Europe.

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The post #AtlanticDebrief –  Will transatlantic relations be on the ballot? | A Debrief with Ian Russell appeared first on Atlantic Council.

Take two

February’s Windsor Framework breakthrough to reform customs arrangements for Northern Ireland has created an opening to put the EU-UK relationship on a much-improved footing. With fresh seriousness from Prime Minister Rishi Sunak and a willingness from EU negotiators to agree to significant concessions, rhetorical mudpies slung across the Channel were replaced by beaming photo ops and tea with the king when European Commission President Ursula von der Leyen visited London to finalize the framework and mark a new chapter in UK-EU relations.

The agreement has already led to progress in the relationship. In March, London and Brussels restarted talks on the United Kingdom’s reentry into the Horizon Europe program, which dishes out billions for research and innovation projects (although difficulties in negotiations remain).

Even before the Windsor Framework was finalized, there were hints of what a productive relationship could look like. The EU granted the United Kingdom access to the Permanent Structured Cooperation project on military mobility in November, and Britain was represented at the first meeting of the still ambiguously defined European Political Community (EPC) in October. (The United Kingdom’s refreshed Integrated Review of national security and international policy in March also endorsed the EPC and pledged that the country will host an EPC meeting next year.) The United Kingdom also strengthened ties to EU members such as Poland and the Baltic states through security assistance and announced a partnership with Italy (and Japan) on a fighter jet project. Most notably, Sunak and French President Emmanuel Macron found bonhomie and agreed to cooperate on migration in the English Channel. Now with Brexit on the road to resolution, the focus should be turning this collaboration into a real partnership.

Friendship by necessity

The United Kingdom may no longer be a member of the EU, but it is still a part of Europe. And the urgency is great. Policymakers in Brussels should see in London a partner that largely shares its outlook and embrace the United Kingdom’s role in Europe’s security. Strategists in London should see their EU neighbor not just as a powerful trading bloc but an actor growing its geopolitical stature.

Put simply, London and Brussels need each other. By the House of Commons’ estimate, 42 percent of total UK exports went to the EU and 48 percent of imports came from the EU in 2022. For the EU, the United Kingdom is still one of the largest economies in Europe and a financial hub with deep access to capital markets despite its deep crisis in confidence. On defense, the United Kingdom is Ukraine’s single largest military supporter in Europe, second only to the United States worldwide. London has also promised increased defense spending in contrast to improving but struggling defense efforts elsewhere in Europe.

Beyond Ukraine lies China. Both London and Brussels are focused on the Indo-Pacific and working on how to manage the relationship with Beijing as competition moves closer to confrontation—especially between Washington and Beijing. The United Kingdom has the lead with its Indo-Pacific tilt, and Europe is grappling with—but inching forward on—a new strategy and approach toward China and Taiwan.

Russia’s war in Ukraine, growing confrontation with China, and a rewiring of the global economy all serve as important reminders that the United Kingdom’s relation to the EU almost seems like a footnote when you take a step back. The affronts, challenges, and challengers to the world system do not seem to differentiate much between the two. A stasis of skepticism—or, at worst, estrangement—carries costly penalties for both sides of the Channel. As neighbors, global powers, and proponents of liberal governance in an increasingly geopolitical world, a productive relationship between London and Brussels becomes a necessity, not a luxury.

Areas of partnership

This is not to suggest that UK-EU policies will immediately fully align. There remain very real policy differences, and a reentry into the EU Single Market or Customs Union, let alone the bloc itself, is not in the cards. That should not stop policymakers from aspiring to a relationship based on shared interests. In practice, that means identifying areas of cooperation that are ambitious yet realistic across two priority areas: Defense and economics.

The EU has been bootstrapping its defense and security policies since the Russian invasion of Ukraine but is woefully underprepared for the geopolitical climate in which it finds itself. The United Kingdom can help. Options include:

1. Joint patrols in the Indo-Pacific: Building on EU foreign policy chief Josep Borrell’s call for European fleets to patrol the Taiwan Strait, policymakers could coordinate or launch joint patrols in the Indo-Pacific. Borrell’s goal is to show Europe’s seriousness, yet there are only a handful of EU members equipped to do what Borrell proposes. Coordinating with the United Kingdom would show that Britain and the EU remain united in their resolve. Such a move would build on the United Kingdom’s leadership on the Indo-Pacific, provide greater credibility to Europe’s own Indo-Pacific plans, and show that European unity indeed extends beyond the continent.
2. Britain in defense projects: If European sovereignty purists can hold their noses, the United Kingdom would be an asset in European defense projects starting with the EU’s recent ammunition procurement project. It would make practical sense as the EU struggles to build homegrown ammunition supplies and as the United Kingdom is one of the world’s largest arms exporters. The United Kingdom’s participation would be difficult politically as the current negotiations hinge specifically on the role of non-EU countries’ inclusion, but it would be a win for all sides: The United Kingdom would get access to lucrative contracts, the EU would get a secure source of ammunition and build out its credibility on defense initiatives, and Ukraine would receive much-needed ammunition.
3. British observer status at EU foreign ministers’ meetings: Immediately after the Russian invasion, then UK foreign secretary Liz Truss joined a Foreign Affairs Council (FAC) meeting of EU foreign ministers as a statement of unity, alongside the US secretary of state, Canadian foreign minister, and NATO secretary general. The FAC could go farther by welcoming a British representative at meetings where common security, sanctions, support to Ukraine, and other issues of joint concern are discussed. It would be a symbolic move to show that EU and British leaders can work together. This could, if ties improve, be turned into a standing invitation to all FAC meetings.

On economics, the US Inflation Reduction Act and the EU Green Deal Industrial Plan are rewiring how traditional free traders do business. While slow in response, the United Kingdom still has a role to play. Policymakers could consider:

1. Industrial policy coordination: The United Kingdom has so far signaled that it will not challenge Washington’s or Brussels’ spending sprees, but London risks being caught in the middle. To avoid clashes or subsidy races, the EU and United Kingdom could open a dialogue similar to the US-EU Clean Energy Incentives Dialogue announced at the meeting between US President Joe Biden and von der Leyen.
2. British membership in the critical raw materials club: Von der Leyen has called for a critical raw materials club in the scramble for the materials that power the economy. The UK strategy for critical minerals draws much of the same conclusions that led to the EU’s Critical Raw Materials Act, namely the threat that dependencies on countries such as China pose to supply chains. Britain is already exploring collaboration with the United States, Canada, South Africa, and Australia and is looking into its own extraction efforts. Both London and Brussels stand to gain from efforts to deconflict and coordinate on the search for secure supplies of minerals.
3. UK-EU tech dialogue: The EU is a leader on digital policy, but Britain has been active on its own digital and tech policies. The United Kingdom itself is a leader on research and development for semiconductors and on artificial intelligence (AI), for example. The EU and United Kingdom would benefit from greater alignment on tech following the model of the US-EU Trade and Technology Council. Greater dialogue on issues such as semiconductors, AI, cybersecurity standards, and more could help standardize digital policy not just across the Channel but across the Atlantic. Recognizing the strategic imperative of digital and tech policy for both the United Kingdom and EU, negotiators should also accelerate negotiations on Britain’s reentry into Horizon Europe.

A bucolic weekend getaway on the coast won’t bridge the cross-Channel divide. Real change will require buy-in from leadership at the highest levels in Brussels, capitals across Europe, and of course London. But the meeting does show that the European Union is thinking about its post-Brexit relationship with the United Kingdom. That is a start.

Jörn Fleck is the senior director of the Atlantic Council’s Europe Center.

Ben Judah is the director of the Transform Europe Initiative in the Europe Center.

The post How the EU and UK can start to collaborate in a post-Brexit world appeared first on Atlantic Council.

As India’s G20 presidency gets underway, what’s the state of EU-US engagement with the Global South? In this new era of great power competition, what is the degree of convergence between India and countries in the Global South with the United States and Europe on China? What is India’s position on Russia following the war in Ukraine? And how does India’s on-going ties with Russia come up against its cooperation with Europe and the United States?

On this episode of #AtlanticDebrief, Rachel Rizzo sits down with Dhruva Jaishankar, Executive Director, Observer Research Foundation America; Nonresident Fellow, Lowy Institute, to discuss both areas of cooperation and obstacles to deeper transatlantic engagement with the Global South.

You can watch #AtlanticDebrief on YouTube and as a podcast.

Fellow

Rachel Rizzo

Nonresident Senior Fellow

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Economy & Business English

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Providing expertise and building communities to promote transatlantic leadership and a strong Europe in turbulent times.

The Europe Center promotes the transatlantic leadership and strategies required to ensure a strong Europe.

Explore the program

The post #AtlanticDebrief – What’s the state of EU-US engagement with the Global South? | A Debrief with Dhruva Jaishankar appeared first on Atlantic Council.

ISSUE BRIEF

The “United States Space Priorities Framework,” released in December 2021, confirmed the White House’s commitment to American leadership in space.¹ Space activities deliver immense benefits to humankind. For example, satellite imaging alone is crucial for improvements in daily life such as weather monitoring as well as for grand challenges like the fight against climate change. Such breakthrough discoveries in space pave the way for innovation and new economies on Earth. Exploration is at the cutting edge of this process: it expands humankind’s knowledge of the universe, transforming the unknown into the supremely challenging, expensive, risky, and promising. US allies and partners accelerate this transformation via scientific and technical achievements as well as processes, relationships, and a shared vision for space exploration. By integrating these allied capabilities, the United States and its allies and partners set the stage for safe and prosperous space geopolitics and economy in the decades to come.

However, harnessing the capabilities of US allies and partners for space exploration is complex, requiring the balance of relatively short-term progress with far-horizon strategy. Space exploration has changed since the US-Soviet space race of the 1960s. In today’s rapidly evolving technological and geopolitical environment, it is unclear whether the processes, relationships, and vision that previously enabled allied cooperation in space, epitomized by the International Space Station (ISS), will keep pace. Here, China is viewed as the preeminent competitor for exploration goals and capabilities—as well as the major competitor for long-term leadership in space.² This development drives fears of space militarization and weaponization, prompting protectionist legislation, investment screening, and industrial policies that can disrupt collaboration among the United States and its key allies and partners.³ Further complication stems from the rise of commercial space, with opportunities and challenges due to the decentralization, democratization, and demonetization of technologies for robotic and crewed space exploration.

This paper serves as a primer for current US space exploration goals and capabilities that will be critical to achieving them. It highlights arenas where US allies and partners are strongly positioned to jointly accelerate space exploration while also benefitting life on Earth. This paper concludes with recommended actions—gleaned from interviews with international experts in space exploration—for the US government as well as allied and partner governments to increase the number and impact of global stakeholders in space exploration, to remove friction in collaboration, and to guide the future of space toward democratic values.

Current space exploration efforts

Over the next few decades, US and allied space exploration will integrate uncrewed (robotic) and crewed missions to achieve scientific discovery, technological advancement, economic benefits, national prestige, and planetary defense.

Uncrewed space exploration missions generally focus on expanding fundamental scientific knowledge and laying the foundation for future activities such as resource extraction. Collaborators include the National Aeronautics and Space Administration (NASA), the European Space Agency (ESA) and member space agencies, and the space agencies of India, Japan, South Korea, Israel, and the United Arab Emirates (UAE), with public-private partnerships delivering additional capabilities.⁴ Several missions to Mars will study the planet’s geology, atmosphere, and possible past or current life, with sample-return missions currently scheduled by NASA and the ESA for the early 2030s.⁵ The search for conditions suitable to life will be extended to other locations in the solar system, such as the moons of Jupiter and Saturn. Robotic missions will continue to increase understanding of the Sun, Mercury, Venus, the Moon, asteroids, Jupiter and its moons, and deep space. Observational studies of planets outside our solar system, black holes, comets, stars, and galaxies will be enabled by space telescopes and other imaging modalities. Uncrewed exploration goals are also being pursued by the China National Space Administration, with particular attention to its planned International Lunar Research Station.⁶ Note that important technological gaps in robotic space exploration—such as dust mitigation⁷ and space situational awareness⁸ —are being tackled by critical research and development by US partners and allies.

Crewed space exploration objectives for the United States and its allies and partners are encapsulated by the Moon to Mars roadmap,⁹ an integrated strategy that, over the next several decades, will synergize exploration goals in low-Earth orbit (LEO), cislunar space, and Mars. Within this roadmap, for which all timelines may shift, the Artemis program will return humans (including the first woman and person of color) to the Moon no earlier than 2025, with the long-term goal of establishing a sustainable human presence on the lunar surface.¹⁰ The Artemis program will use the heavy-lifter Space Launch System (SLS) and the Orion spacecraft to send astronauts and payloads to a space station in lunar orbit called the Gateway. From there, the Human Landing System will transport them to and from the Artemis Base Camp on the lunar surface (note that mission details are still being refined). The program involves crucial contributions from allied governments and industries. Hardware, software, and lessons learned from the Artemis program and other activities in LEO and on the ISS will lay the foundation for Mars:¹¹ human exploration (generally projected for the 2030s), scientific investigation, and eventual permanent settlement.¹² In particular, the Gateway serves important roles in infrastructure development (e.g., supply chains) and better understanding of the effects of extended deep-space missions on the human body—both crucial aspects of crewed space exploration.

International partners are critical for the success of the Artemis program. They are providing expertise, technology, and funding across the spectrum from basic science and engineering to specific software and hardware mission deliverables. A few examples highlight the benefits of leveraging the capabilities of US allies and partners.¹³ The ESA is contributing to the construction and operation of the Gateway and the Orion service module. Canada is delivering several critical components of the Gateway,¹⁴ while Japan and the ESA are building important components of habitation modules. Navigation, tracking, and communication capabilities are key contributions from Australia; an ESA program will also provide lunar telecommunications and navigation.¹⁵ Other important hardware, subsystems, and expertise will be supplied by space agencies such as those of Italy¹⁶ and the United Kingdom. Moreover, allied companies are partners in the design, development, and deployment of capabilities underlying the Artemis program.

Today, US and allied cooperation in space rests on the Artemis Accords,¹⁷ a set of principles, guidelines, and best practices for peaceful civilian space exploration building on the Outer Space Treaty of 1967¹⁸ and subsequent policies. Key principles include peaceful operations, transparency, interoperability, and commitments to deconfliction and the collaborative management of orbital debris and space resources. The original group of eight signatories in 2020 has since expanded to twenty-three as of March 2023, with representation across the globe from the Americas, Europe, the Middle East, the Indo-Pacific, and Africa.

Signatory nations host mature or developing industries directly or indirectly pertinent to space exploration (see Table 1), signaling strong potential for bilateral and multilateral collaboration. Notably, neither Russia nor China—the two largest competitors to allied space exploration—have signed, nor appear likely to sign, the Artemis Accords. Thus, it is imperative for the United States to follow through on its commitments to its allies and partners, demonstrating that it remains the partner of choice for open and transparent space exploration and scientific inquiry.

To project leadership in space exploration, the United States and its allies and partners ought to be first in returning humans to the Moon and landing astronauts on Mars. Most experts interviewed for this paper agreed that—with China and Russia also racing to these benchmarks—achieving these “firsts” is important for prestige, diplomacy, and establishing a strong foundation for a rules-based order in outer space, similar to that seen across traditional domains, with the goal of promoting long-term freedom and prosperity. Failure to achieve these “firsts” could arise due to Chinese achievements, insufficient allied funding and political will, geopolitical events, a catastrophic mission failure, or from the United States underutilizing the capabilities of its allies and partners, both in the public and private sectors. The latter becomes more likely due to protectionist policies, including caps on foreign contributions, and political interference in competition. Overall, early stakeholders in this new phase of space exploration will set the culture, norms, and standards that will underpin space activities for years to come—a major reason to strengthen the systems and processes that enable US-led collaboration with allies and partners.

Technological opportunities and challenges

There are numerous opportunities to facilitate, enrich, and expand collaboration in space exploration between the United States and its partners and allies. At the same time, important challenges hold back current efforts to harness allied capabilities, pointing to opportunities to improve collaboration in the coming years.

Allied opportunities in space exploration

Continuing to advance space exploration by both machines and humans requires costly, sophisticated, interdisciplinary technology development across sectors; this can only be done through the aggregate efforts of the United States and its allies and partners from start to finish.¹⁹ Such international cooperation, and cooperation between the public and private sectors, will not only overcome the major technical, logistical, and scientific challenges of space exploration, but also complement Earth-focused innovation initiatives in critical technologies (see Table 1).²⁰ For example, formal and informal strategies to leverage biotechnological advances for the expansion of bioeconomies²¹ have been formulated for the United States,²² Germany,²³ United Kingdom,²⁴ European Union,²⁵ India,²⁶ and others—including China.²⁷ Together, allied and partner space agencies play crucial roles as early funders of the science, engineering, and business development of space and space-adjacent products and services that will both benefit from and drive space exploration in the coming decades; they also serve as early (and often sole) clients for these products and services.

Autonomous robotic system²⁸ are an illustrative example of how collaboration around a major technology objective for space exploration can overcome a series of challenges and deliver benefits across both Earth and space. Such systems rely on sophisticated integration of sensors, robotics, microelectronics, imaging, and computation. Depending on the target application, they must withstand extremes in temperature, radiation, gravity, pressure, resource constraints, and other parameters. Autonomous operation is imperative because of the vast distances that signals must travel (the one-way time delay for operating a robot on the asteroid closest to Earth that may be suitable for mining, 16 Psyche, is at least ten minutes).²⁹ Trusted (cybersecure) autonomous robotic systems will be critical for resource extraction, safety, human health, and sustainability in space environments; related technology development is benefiting Earth-based applications such as mining, surgery, supply chains, and transportation. The European Space Resources Innovation Center—a partnership of the Luxembourg Space Agency, the Luxembourg Institute of Science and Technology, and the ESA—is running an incubation program for early projects around utilizing space resources,³⁰ a salient example of how public and private entities can cooperate to drive capabilities for exploration and commercialization. All experts interviewed for this paper agreed that the quicker pace, receptiveness to risk, and sensitivity to costs and markets of commercial endeavors can benefit public-private partnerships for space exploration.

Challenges to allied space exploration

Despite the affordances of international cooperation, systems and processes can make it difficult to harness allied capabilities. Protectionist activity by the United States and its allies and partners can arise when a single government has made large investments in research and development, hindering the transfer of technologies, personnel, information (including unclassified information), and data across borders. Many of the technologies shown in Table 1 appear on lists of critical, emerging, and breakthrough technologies from the United States,³¹ European Union,³² and other public and private organizations. This complicates collaboration, as many of these technologies are dual use and under intense Chinese scrutiny/competition, and are thus subject to export regulations—in some cases, even to US allies.

Notably, space exploration and the technology segments in Table 1 support concentrated, high-paying jobs with strong economic impact,³³ and are therefore subject to political protection from competition, from allies, and/or between the public and private sectors. For example, the US Congress’s NASA Authorization Act of 2010 called for the reuse in the SLS of components of the Space Shuttle, with reliance on legacy suppliers, infrastructure, and personnel.³⁴ The resulting SLS is not reusable, and a single launch may cost upward of $1 billion.³⁵ In contrast, SpaceX (one of several companies developing rockets) claims that its Starship is fully reusable, has a larger payload, has much lower development costs (which have been partially funded by NASA), and—controversially—may have operational costs of less than $10 million per launch within the next few years.³⁶ Several experts interviewed for this paper suggested that a healthy sense of competition between the public and private sectors could encourage government space agencies to support ambitious timelines and budgets while upholding their commitment to safety.

Harnessing allied space capabilities will be key for constraining duplication of efforts and optimizing value creation, resource sharing, technology transfer, and costs. Over time, the hardware, software, and data from exploration missions will support off-Earth communities of increasing size, complexity, and duration in LEO, cislunar space, the Moon, Mars, asteroids, and beyond—underscoring the importance of harnessing allied capabilities in these technology areas for space exploration today.

Table 1: Allied and partner offerings in key space exploration technologies

This table includes select nations with a strong history of space- and/or Earth-related success within a specific technological segment (examples labeled “Now”) and/or have burgeoning commercial sectors worth examining (examples labeled “Next”). Note: This table is not exhaustive.

Recommendations and conclusions

Harnessing allied capabilities is crucial for future space exploration, with major potential benefits to life on Earth as well. The US government, working alongside allied and partner governments, should therefore consider the following next steps:

Recommendation #1: US government actors—including Congress, the Department of Commerce’s Bureau of Industry and Security, the State Department including its Directorate of Defense Trade Controls, and the Defense Technology Security Administration in the Office of the Secretary of Defense—should reexamine and reform Export Administration Regulations. Priority should be given to potential reforms that strengthen the United States’ position as an orchestrator of complex international collaborations and supply chains, in contrast to a paradigm of the United States as a globally dominant, unilateral player. Support from executive- and ministerial-level offices is essential.

Recommendation #2: NASA and the National Space Council should collaborate with allied space agencies, both national and international, to identify opportunities to engage in space exploration at whatever level of contribution is individually appropriate, given the state of maturity of allied sectors (see Table 1) and geopolitics. For example, allies could contribute commodities or launch locations rather than mature costly software or hardware. Attention should be paid to maturing industries to identify opportunities for early relationships and processes that will accelerate space exploration.

Recommendation #3: The Office of Science and Technology Policy, Office of the Secretary of Commerce, Department of Defense, and other US interagency actors should identify and support synergies between technology development for space exploration and for Earth-focused innovation in critical technologies. New multistakeholder (cross-border) grants, fellowships, seed funding, and prizes should be modeled on current international efforts like XPRIZE and the Deep Space Food Challenge. Programs such as the NASA Innovative Advanced Concepts and the ESA Open Space Innovation Platform, which incubate early-stage innovations in space exploration, should be expanded to noncitizens.

Recommendation #4: Through organizations like the United Nations Office for Outer Space Affairs, international stakeholders in space exploration—including space agencies, companies, philanthropic groups, and nongovernmental organizations—should formulate an actionable, unified multilateral space strategy that goes beyond the Artemis Accords. For example, while the Artemis Accords recognize “the global benefits of space exploration and commerce,” they do not explicitly address commercial activity, and commercial enterprises are not signatories. Action is urgently needed, as it is conceivable that extraction and exploitation of lunar resources could begin in the very short term—in the mid 2020s. An expanded space strategy must include the commercial sector.

In conclusion, just as no one could have foreseen the precise progression from the Wright brothers’ first flight to today’s rapidly exploding telecommunications and space industrial ecosystems, one cannot expect to accurately predict the progression—or the ramifications—of today’s space exploration to tomorrow’s future. Nonetheless, international collaboration is certainly key to success. Now is the time to enhance the processes, relationships, and shared vision for space exploration, thereby expanding humankind’s knowledge of the universe, improving life on Earth, and setting the stage for a reliable, routine, and prosperous space economy for all.

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Harnessing allied space capabilities

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ISSUE BRIEF

Introduction

Over the last two decades, the world entered a new paradigm in the use of space, namely the introduction of highly capable small satellites, just tens or hundreds of kilograms in size. This paradigm has forever changed how countries will employ space capabilities to achieve economic, scientific, and national security interests. As is so often the case, the telltale signs of this global paradigm shift were obvious to more than just a few individuals or industries. Air Force Research Laboratory’s Space Vehicles Directorate began exploring the use of small satellites in the 1990s. The Air Force also established the Operationally Responsive Space program in 2007, which explored the potential use of small satellites. However, both research efforts had no impact on the US Department of Defense’s (DOD’s) satellite acquisition programs. The advancement of small satellites was largely driven by universities and small commercial start-up companies.¹

The introduction of commercial and government small satellites has democratized space for states and even individuals. Space remote sensing and communications satellites, once the exclusive domain of the United States and Soviet Union, can now provide space-based services to anyone with a credit card. Eighty-eight countries currently operate satellites, and the next decade will likely see the launch of tens of thousands of new satellites.² Commercial and government small satellites have changed outer space into a more contested, congested, and competitive environment.

The United States has shared space data with its allies since the dawn of the space age.³ Yet it also has a history of operating independently in space. Other domains of warfare and defense policy are more closely integrated between the United States and its allies and partners. The United States has military alliances with dozens of countries and strategic partnerships with many more.⁴ In recent years, there have been calls to coordinate with, or even integrate allied space capabilities into US national security space strategy and plans. In this regard, the US government has made significant advances. However, much work needs to be done. There is pressure on the United States to act quickly to increase national security space cooperation and integration, driven by rapidly increasing global capabilities and expanding threats from hostile nations and orbital debris.

This paper examines the potential strategic benefits to US national security of harnessing allied space capabilities and the current efforts to do so, as well as barriers to achieving success. The paper identifies pathways forward for cooperating with allies and strategic partners on their emerging space capabilities and the potential of integrating US and allied capabilities.

The security environment in space

The changing security environment in space is driving the United States and allies’ collective desire to cooperate in the national security space. Several recent statements and actions demonstrate potential adversaries’ plans and intentions to dominate the space domain. China and Russia have demonstrated offensive and defensive counterspace capabilities. In 2021, the two countries announced plans to build a joint International Lunar Research Station on the moon, although the path forward on this effort may have been impacted by the Russian invasion of the Ukraine.⁵ The US Space Force notes this action would give those nations control of cislunar space, an area of balanced gravity between the Earth and moon. The movement of potential adversaries to cislunar space changes the strategic environment by forcing the United States to maintain surveillance of that region of space. In addition, Russia and China have threatened to destroy entire US orbital regimes.⁶ China has also expressed its intention to be the world’s leading space power by 2045.⁷ In 2022, Chinese researcher Ren Yuanzhen of the Beijing Institute of Tracking and Telecommunications led a People’s Liberation Army study to counter SpaceX’s Starlink small satellite constellation. Ren boasted they had developed a solution to destroy thousands of satellites in the constellation.⁸

Benefits of collaborating in space

Collaborating may be defined as coordinating development programs and operational efforts of current or projected allied and partner space and related capabilities.⁹ US interests would be to ensure these programs and operational efforts support US national security space strategy and planning objectives. Allied nations’ interests are in leveraging extensive US space capabilities and establishing collective security. The United States, allies, and partners have a shared interest in establishing behavioral norms in space. Collaboration between allies in space capabilities would have numerous benefits, including the following.

Altering the calculus for offensive actions. A hostile nation or nonstate actor risks a stronger response from multiple nations when attacking a coalition (versus a single nation). If the United States and allies had interoperable or integrated space capabilities, then an attack on any single country’s space systems would no longer be solely against the United States and would have impact on the collaborating or integrated systems of allies and partners. Changing the calculus for offensive actions could lead to increased deterrence against foreign aggression: “Partner capabilities increase both resilience and the perceived cost to an adversary, when an attack on one partner is seen as an attack on all,” according to the US Air Force.¹⁰

Accessing geostrategic locations. Access to global geographic locations also provides access for ground-based space situational awareness (SSA); telemetry, tracking, and control (TT&C); and increasing launch resilience. Ground-based SSA requires globally distributed telescopes and radar systems. Allied collection systems operating in Japan, Australia, and territories of the United Kingdom, France, Germany, and others ensure all partners have access to global SSA data. Given that the United States has only two major space launch facilities, natural or manmade disasters could significantly erode the US ability to provide responsive space launch. Use of allied launch facilities could lessen US reliance on limited launch sites and thus mitigate that risk.

Burden-sharing in space. Allied investments in less costly smaller satellites, along with other space technologies, would increase their security and potentially reduce the financial burden on the United States to maintain space security. There have been positive developments in this realm, including Japan’s 2022 National Security Strategy, which identified several new space systems the country intends to procure.¹¹ Given Russia’s military aggression and the success of Space-X’s Starlink satellites in supporting Ukraine, the European Union (EU) recently adopted the proposal to develop the Infrastructure for Resilience, Interconnection, and Security by Satellites (IRISS) constellation to provide broadband connectivity via up to 170 satellites.¹² The system, with an expected deployment date in 2025, expects to employ quantum cryptography and be available to governments, institutions, and businesses (in 2027). Canada’s Department of National Defense is developing the Redwing optical microsat to provide space domain awareness (SDA).¹³

Establishing global norms and standards. The space domain lacks adequate rules of the road to regulate the behavior of spacefaring nations. As the United States and its allies and partners coordinate and perhaps integrate national security space systems, they also are in the position to shape norms and increase pressure on potential adversaries to accept global standards for acceptable space behavior.

Crisis management in space. Several allies have expressed the need to ensure their strategic autonomy—that is, not being wholly dependent on the United States and therefore free to act in their own interests. The EU’s IRISS “system aims to enhance European strategic autonomy, digital sovereignty, and competitiveness.”¹⁴ Still, institutions such as NATO and the Quadrilateral Security Dialogue offer an avenue to explore collective options for crisis management in space by establishing agreed-upon terminology, codes of conduct, and response policies and procedures for emergencies or crises in the space domain.

Resiliency in the face of conflict. While seemingly unlikely, a conflict in the space domain would result in attrition of space-based services. Yet, unlike in other domains, a stockpile of space systems does not exist. The emerging commercial small satellite market now provides an opportunity for resiliency in space systems. Interoperable or integrated use of allied and US government and commercial space capabilities would provide improved resiliency in response to accident or attack.¹⁵

Bolstering industrial partnerships and reducing supply chain vulnerabilities. If cybersecurity standards are put in place, integrating allied manufacturing capabilities could diversify the US supply chain and reduce existing vulnerabilities. As a first step, the space-industrial supply chain must transition away from China and toward US allies and partners, who would then be able to enhance their production capabilities by contributing to interoperable or integrated space and associated systems. However, despite a long record of international procurement collaboration between the United States and its allies and partners, the outcomes of past programs have often been mixed.¹⁶

Existing efforts toward allied integration

Collaboration does not merely mean standardization and interoperability. Rather, the effort to create an overall US and allied space vision is a necessary first step in integrating allied space capabilities in order to obtain interoperability. Through various partnerships and efforts, the US Space Force has led efforts with six allies and partners to create a unified vision for national security space cooperation.

Combined space operations vision 2031

In 2022, the United States, Australia, Canada, France, Germany, New Zealand, and the United Kingdom signed the Combined Space Operations (CSpO) Vision 2031, which aims to “generate and improve cooperation, coordination, and interoperability opportunities to sustain freedom of action in space, optimize resources, enhance mission assurance and resilience, and prevent conflict.” This shared vision establishes a framework to guide individual and collective efforts.¹⁷

CSpO participants’ shared-objectives effort is a framework to guide individual national and collective efforts:

• Develop and operate resilient, interoperable architectures to enable space mission assurance and unity of effort.
• Enhance command, control, and communications capabilities and other operational linkages among CSpO participants.
• Foster responsible military behaviors, discourage irresponsible behavior, and avoid escalation.
• Collaborate on strategic communications efforts.
• Share intelligence and information.
• Professionalize space cadres and training.¹⁸

Training to fight together

Since 2018, the United States has been integrating allies and partners into space warfighting plans, most notably through Operation Olympic Defender, a US effort to synchronize with spacefaring nations to deter hostile acts in space. The annual Schriever Wargame—designed to explore critical space issues and advance space support across domains—also allows select allies and partners to coordinate defense-related space activities with the United States. In August 2022, US Space Command conducted its Global Sentinel exercise, which serves as US Space Command’s premier security cooperation effort, with twenty-five participating countries. Over a one-week period, this series simulated scenarios focused on enhancing international partnerships, understanding procedures and capabilities, and integrating global SSA. These scenarios further allow participants to understand allies’ and partners’ capabilities and operating procedures, serving as a foundation for future collaboration.¹⁹

To date, the joint training efforts between the United States and its allies have been limited to tabletop exercises, thereby restricting participants’ experience in real-world applications of offensive and defensive counterspace measures. Tabletop exercises do not test capabilities or demonstrate how well an ally or partner might perform in crises or conflict scenarios. Space capabilities are integrated into major military exercises conducted with allies but do not address offensive or defensive counterspace measures.²⁰

Challenges and barriers to integration

While the United States recognizes the value of working with allies and partners in the space domain, myriad hurdles stand in the way to fully realize the competitive advantage space alliances and partnerships offer.

In total, US allies could bring a significant fraction of US capabilities. A systemic problem is how to leverage those capabilities in a coherent way. Limited coordination limits the values of those allied capabilities. Those capabilities are only additive to United States if there is good integration and understanding on how they will have a contributing effect.²¹

Lack of strategy to execute the vision for space. While a shared vision exists among the defense establishments of select allies and partners, there is little in the way of strategy or planning to fully realize that vision. Perhaps the greatest problem with the US approach to working with its allies and partners in space is that there is no coherent strategy for integrating allied space capabilities. Several subject matter experts interviewed for this study noted US public statements around the value of and desire to integrate allies, yet no interviewee was able to identify an existing strategy or plan to do so at any level of US government.

Bureaucratic impediments. Collaborating with allies is far easier than integrating multinational space capabilities. Allied integration must be done through a national-level strategy, integrating what, to date, are largely disconnected efforts between the National Space Council, National Security Council, the Office of the Assistant Secretary of Defense for Space Policy, US Space Command, the National Reconnaissance Office, and the Department of State. While each organization is credited with making strides in integrating allies (with varying degrees of success), the efforts are disjointed and lack connectivity and unified goals and strategy.²²

Mind the gap. Allies and partners are attempting to understand existing gaps in the US national security space architecture and the capabilities they could provide to fill those gaps. Ironically, the CSpO Vision 2031 states that allies will collaborate “through identification of gaps and collaborative opportunities.” With the onus almost exclusively placed on the ally or partner, interviewees noted nations’ repeated requests to the United States to identify capability gaps in its projected architectures. The lack of information is due to the sensitivity of US defense gaps, with classified information making it more feasible for allies and partners to provide add-on capabilities rather than fully integrating assets.

Some level of gap analysis should be done by the United States to identify the niche areas that allies and partners could fill in the national security space architecture. That analysis should cover a period of at least five to ten years, thereby allowing allies to budget, develop, and deploy capabilities. Identifying capability gaps as requested by allies would ensure a future interoperable or integrated architecture. Primary focus areas should include space situational awareness, on-orbit servicing, communications, positioning, navigation, and timing (PNT), and cybersecurity. Each of these areas are baseline capabilities that should be interoperable or integrated between the United States and its allies and partners.²³

Classification issues. There exists a widespread belief that the United States’ overclassification of intelligence is hindering US and allied space security. This issue has been publicly acknowledged by several senior US military leaders. Misclassification might be a better word to describe the problem. In addition, the US system for sharing intelligence is cumbersome, requiring an exception to the normal production processes to share intelligence with allies. Experts (including myself) note cases where sharing space-related intelligence with allies was difficult due solely to organizational culture, established processes, poorly administered policies, and other bureaucratic impediments.²⁴

Many of these classification-related problems have existed for decades—and the United States should not wait to figure out how to share information until its hand is forced by a crisis or war. There is an inability to share information, particularly information that can be integrated into a kill chain for weapon systems. The United States has integrated information-sharing systems in other warfighting environments, but as of yet, not in space. This lack of imagination even spreads down to the US combatant commands (COCOMs): allied integration would be enhanced if US COCOMs had joined with allied space personnel providing integrated PNT and communications.²⁵ Moreover, the US Space Force could deploy space attachés to select embassies, perhaps under the Office of Defense Cooperation, to further embed space security interests across the globe. ²⁶

Communications and data integration. After spending hundreds of millions of dollars to build the Joint Mission System to track satellites and space debris, the US Department of Defense still has no automated means to seamlessly integrate SSA data provided by allies into the US space surveillance system. One particularly high-level interview with a close ally called out the biggest issue as being communications, noting that it is impossible to discuss interoperable deterrence until this issue is addressed.²⁷

Fifteen NATO members recently signed a memorandum of understanding to launch a Space Center of Excellence in Toulouse, France. This body could provide a mechanism for data integration and operational coordination. The Toulouse center is in addition to the already operating NATO Space Centre at Allied Air Command in Ramstein, Germany, which serves as a single point for the requests and production of NATO space products.²⁸ As of February 2023, the US and Canadian governments are not founding members of the Toulouse Space Center effort.

Case study: US-Japanese space integration

While allied integration has seen success across other warfighting domains, the same cannot be said for the space domain.²⁹ Space collaboration with Japan is illustrative of the challenges in integrating efforts.

Overclassification of information related to US programs and operation capabilities makes allied integration even more difficult. For example, France and Japan have publicly stated their intentions to build geo satellites for space domain awareness. Currently, a strategy to coordinate those systems with the operating US geosynchronous space situational awareness program (GSSAP) does not exist, demonstrating a lack of plans for data sharing, burden sharing, or coordination of mission operations.³⁰ However, Japan and the United States have agreed that space domain awareness data will be shared between the Japan Air-Self Defense Force and US Space Command starting in federal year 2023.

In 2022, the government of Japan approached the United States about its interest in playing a role in the Space Development Agency’s “Proliferated Warfighter Space Architecture,”³¹ as Japan intends to launch a similar constellation of satellites for missile defense purposes. However, the United States has been unresponsive to Japan on how it could achieve integration. This is partly because the United States maintains concerns about Japan’s level of information security, despite Japan’s commitment to “strengthen and reinforce information security practices and infrastructure.”³² Yet, Japan has the world’s third largest defense budget and is a spacefaring nation with launch infrastructure, years of experience, and advanced satellite manufacturing capabilities. In addition, Japan faces increasing threats from China and North Korea, providing incentive to expand its security relationship with the United States.³³ In 2010, the United States came to agreement with Japan to integrate SSA sensors into the Quasi-Zenith Satellite System (QZSS) PNT system.³⁴ However, to date, there is no plan on how to integrate the data.³⁵

Policy recommendations

There are several key actions the United States can take to integrate allies and partners into national security space efforts.

Recommendation #1: The US Space Force should conduct a gap analysis to guide allied investments into space capabilities, prioritizing capabilities such as SSA, on-orbit servicing, communications, PNT, and cybersecurity. This gap analysis should identify in which areas the United States wants to collaborate with allies, identify opportunities for interoperability, and which areas are open to integration of capabilities.

Recommendation #2: It would benefit the US Space Force to have an outside entity analyze its internal policies, procedures, bureaucratic obstacles, and human capital levels to determine why the effort to integrate allies has been so minimally effective.

Recommendation #3: The US National Space Council should lead an interagency working group to develop a US government integrated strategy that establishes goals for and metrics to assess US and allied space capabilities and integration efforts.

Recommendation #4: The US Department of Defense and Office of the Director of National Intelligence should form a working group to establish best practices for sharing classified information with allies.

Recommendation #5: US Space Command should develop real-world exercises with allies and partners to test SDA, electronic warfare, and space control capabilities—all of which will be critical to deterring and, if necessary, responding to future space conflicts.

Recommendation #6: The US Departments of Defense and State should work toward consistency of approach in terms of governance of space activities, including through establishment of multilateral engagement and national regulations to allow flexibility and transportability of launch access at short notice.

Recommendation #7: The National Security Council should lead an interagency effort to establish consistency of national regulations between allies and partners (comparable laws and/or standards) so that systems and operations are transferable and receive mutual recognition and acceptance.

Conclusion

The United States and its allies and partners are moving toward sharing SSA data, understanding each other’s policies and procedures, and collaborating on space operations. Still, much work needs to be done to expand collaboration and achieve interoperability (if desired) between rising space powers. Without a strong indication from the US government of what exactly it wants from its allies and partners—as well as what it is prepared to give in return—the United States will not be able to effectively harness the competitive advantages offered by allied space capabilities. It is incumbent on the United States and its allies to immediately embark on a way forward to jointly ensure a safe and secure environment in space. Failure to change current practices and act in a timely fashion will lead to increased space threats and diminished national and economic security.

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Nicholas Eftimiades

Nonresident Senior Fellow

Forward Defense Scowcroft Center for Strategy and Security

China Intelligence

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Harnessing allied space capabilities

A panel of experts explores how the United States can work with its allies and partners to achieve common security, commercial, and exploration objectives in outer space.

Europe & Eurasia National Security Security Partnerships Space

Forward Defense, housed within the Scowcroft Center for Strategy and Security, generates ideas and connects stakeholders in the defense ecosystem to promote an enduring military advantage for the United States, its allies, and partners. Our work identifies the defense strategies, capabilities, and resources the United States needs to deter and, if necessary, prevail in future conflict.

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The post Integrating US and allied capabilities to ensure security in space appeared first on Atlantic Council.

ISSUE BRIEF

Commercial opportunities in space-based technologies are expanding rapidly. From satellite communications and Earth observation to space tourism and asteroid mining, the potential for businesses to capitalize on these emerging technologies is vast and known as “NewSpace.”¹

The NewSpace model is important for governments to understand because the dual-use nature of space, specifically its growing commercialization, will influence the types of space-based technologies that nations may leverage, and consequently, impact their national security paradigms. By capitalizing on the private sector’s agility and combining it with the essential research efforts and customer role played by the public sector, the NewSpace industry can play a critical function in addressing current and future national security challenges through public-private codevelopment.

As the NewSpace industry expands, the role of government is evolving from being the primary developer and operator of space assets to facilitating their commercialization, while still prioritizing key advancements. US and allied governments can capitalize on this competitive landscape by strategically investing in areas that align with their national security objectives. However, it is crucial for them to first understand and adapt to their changing roles within this dynamic environment.

Indeed, the benefits of the burgeoning NewSpace industry extend beyond the United States. International collaboration and competition in this area can lead to faster technological advancements and economic gains. The global NewSpace landscape is driving down costs, increasing access to space, and fostering innovation that can improve not only economic well-being, but also impact national security models.

To that end, this memo will examine the broad state of the space market, discuss the industry drivers, and propose recommendations for US and allied policymakers as they consider future government investments in those enabling space-based activities that support wider national security ambitions.

The commercial context

In recent years, the space industry has undergone significant commercialization (NewSpace) in which governments have partnered with private companies and invested more into the commercial space sector. NewSpace companies often carry many of the following characteristics.²

Figure 1: Characteristics of NewSpace Companies

NewSpace contrasts with the historical approach to space-based technologies, which typically involved a focus on standardization to ensure the reliability and quality of space components. This standardization was (and still is) essential for the safety of manned space flight, the longevity of systems, and the overall success of missions. Despite the increased collaboration between the public and private sectors, the failed January 2023 Virgin Galactic launch in the United Kingdom, the failed March 2023 Mitsubishi H3 launch in Japan, and the failed June 2022 Astra launch in the United States serve as clear reminders of the challenges associated with NewSpace technology.³

Today, when considering who is spending what on space-based technology research, US and allied governments can be viewed more as customers than as creators. This is in stark contrast to former US President John F. Kennedy’s famous 1962 speech launching the Apollo program, which put NASA at the forefront of driving the necessary technology and engineering needs.⁴ Indeed, the capital flows of research and development (R&D) from the US government relative to the private sector have shifted significantly since the era of Sputnik (1957), a pattern that also is evident across many allied nations (see Figure 2).⁵

Figure 2: Ratio of US R&D to gross domestic product, by source of funds for R&D (1953-2021)

For US space technology, this financial shift from public sector to private sector is arguably no surprise given the findings of a 2004 presidential commission on US space exploration, which recommended that:

As a result of the commission’s findings, Congress created the Commercial Orbital Transportation Services Program, which sought to create new incentives to support the privatization of both upstream and downstream space activities.⁷ In short, the aim of this legislation was to create market forces that would enhance innovation while driving down costs through competition.

To do this, a new approach was developed to shape the relationship between NASA and its private contractors. Instead of being a supervisor, NASA became a partner and customer of these companies. This shift was reflected in the change of contract type, replacing cost-plus procurement with fixed-price payments for generic capabilities such as cargo delivery, disposal, or return, and crew transportation to low-Earth orbit (LEO).⁸ As a result, the risk was transferred from NASA to private firms, leading to less intensive government monitoring of cost-plus contracts and more encouragement of innovation.

Ripple effects

In recent years, the European Space Agency (ESA) has also prioritized commercialization activities. This, too, was an outcome of political and economic pressure to rethink European space policy to provide products and services for consumers, with a specific focus on downstream space activities. This policy shift toward greater commercialization was driven, in part, by those structural changes (i.e., competition) emerging from the United States (NASA).⁹

Likewise, in India—following a 2020 change in Indian space policy—private firms are no longer only suppliers to the government, but the government is now supporting and investing in them, similar to the NASA model.¹⁰ These and other shifts in public policy have shaped much of the market we have today.¹¹

However, this market arguably represents a challenge to government control over NewSpace firms and their technologies. NewSpace companies operate with more agility and flexibility than traditional government-led programs.¹² This rapid pace of innovation and commercial competition can make it difficult for governments to keep up with regulatory frameworks and oversight. Additionally, the increasing role of the private sector in space activities is arguably leading to a diffusion of state control, making it more challenging for governments to ensure the responsible use of space and manage potential security risks associated with dual-use technologies. Therefore, governments should look to partner, co-develop, and invest in NewSpace firms as alternative ways to influence the sector. Such an approach carries impacts not only on public-sector capital flows but also on national security paradigms.

The global space market

The space industry is a rapidly growing market that can bring about both commercial and national security benefits: the total sector was valued at $464 billion in 2022 and is expected to reach around $1.1 trillion by 2040, with a projected compound annual growth rate (CAGR) of around 7 percent.¹³ Of today’s total market, the commercial sector accounts for around 75 percent.¹⁴ To put this in perspective, the 2021 global aerospace industry saw the top ten earning companies generate a combined revenue of $417.15 billion.¹⁵ Breaking this down further, the United States is currently the largest market for both public and private space activity, holding a 32 percent market share, while Europe and the United Kingdom hold a combined 23 percent.¹⁶

However, Asia has experienced the most significant growth in this market over the last five years and now holds 25 percent of the market share.¹⁷ In terms of satellite launches, China has been the most active country in the region, with a total of sixty-four launches in 2022, placing it behind only the United States, which launched 87 times that year.¹⁸ Trailing China is India, which deployed over fifty satellites across four separate launches in 2022.¹⁹

In China and India alike, commercial firms are supported by both government R&D and public programs designed for national needs (including requisite contracts), as well as mature commercial markets that demand advanced satellite systems. What this translates to is an upstream market that relies on government funding to thrive, while the downstream market is more evenly distributed and does not require significant upfront investment or government contracts to sustain itself. This downstream market is currently driven by NewSpace demand for connectivity and location-based services, and its growth is influenced by demographic and regional economic trends, as well as government efforts to close the digital divide as governments finance satellite connectivity.²⁰

Challenges to and opportunities for NewSpace industry growth

The key challenges to NewSpace industry growth are the regulatory landscape and access to financing. This is evidenced by the European NewSpace ecosystem where, at a structural level, regulatory frameworks do not facilitate the scaling of the financial resources (public and/or private) necessary to match the political and commercial intent (demand) espoused by European political and business leaders. This mismatch between demand and financial firepower results in slower development and uptake of NewSpace opportunities despite significant engineering and entrepreneurial talent residing within Europe.²¹ Figure 3 shows the breakdown of global government investment in space technologies between 2020 and 2022 in real terms, and figure 4 shows how such expenditure relates to GDP, while figure 5 shows the global private sector space investment breakdown, which highlights a significant role for venture capital (VC) firms.²²

Noting that the United States accounts for almost half of the world’s available VC funds, while Europe only accounts for around 13 percent, it is evident that the sheer scale of investment from the United States enables NewSpace to flourish within the US market, while many allies and partners struggle to access private funding.²³ For Europe to embrace the NewSpace model, conditions must foster timely connections between both public and private finance and NewSpace opportunities.²⁴ That said, given the deep technology nature of NewSpace, and the long time horizons for venture capitalists to see a return, financing this sector writ large remains a challenge.

Figure 3: Government expenditure on space programs in 2020 and 2022, by major country (in billions of dollars)

Figure 4: Government space budget allocations for selected countries and economies (measured as a share of GDP in 2020)

Figure 5: Value of investments in space ventures worldwide from 2000 to 2021, by type (in billion U.S. dollars)

In addition to attracting financing, the business models of NewSpace companies rely on foundational technologies—often resourced by governments—to be in place. Such technologies include: access to low-cost launch capabilities; conditions for in-space manufacturing and resource extraction for space-based production; foundational research to support space-based energy collection, combined with reliable radiation shielding; and debris mitigation efforts in an increasingly busy orbital environment. This indicates that there is a persistent role for governments to actively invest in deep technologies to help foster the commercial markets that NewSpace can bring about. Only governments have the financial risk tolerance (a tolerance that takes one beyond risk and into uncertainty) to undertake such endeavors.

While each of these foundational technologies has limited profitability, together they form a self-sustaining system with enormous potential for profit when subsequently exploited through relatively cheap NewSpace technologies. Indeed, the economics of human space activities often mean that the whole is greater than the sum of its parts. To that end, one might envisage how a potential self-reinforcing development cycle would support the space economy, with cheaper and more frequent rocket launches enabling short-term tourism and industrial and scientific experimentation, leading to demand for commercial space habitats, which would then create demand for resources in space. However, it is doubtful that this path will be easily achieved without government support.²⁵

In addition to traditional space-based areas of monitoring, observation, and communications, the sectors listed below offer further commercial opportunities NewSpace is likely to exploit.²⁶

Figure 6: Commercial opportunities for NewSpace companies

Allied advancements in NewSpace

While the above table represents a broad perspective, many US allies and partners are already at the leading edge of aggregating NewSpace technologies to take advantage of growing markets.

In Denmark, the government and private commercial actors are working on project BIFROST, with plans to launch in early 2024. BIFROST is a satellite-based system for advanced on-orbit image and signal analysis that aims to demonstrate artificial intelligence-based surveillance from space. The satellite will have versatile payloads on board to provide information on applied AI in space for Earth-observation missions—detecting ships, oil spills, and more. The main purpose of the mission is to establish: “a platform in space for gaining further experience in AI-based surveillance and sensor fusion using multiple on-board sensors. The satellite will also test means of communication between different satellites to achieve real-time access to intelligence data and demonstrate the feasibility of tactical Earth observation.”²⁷ Additionally, the mission will evaluate the capability of changing AI models during its lifespan to improve the surveillance system.²⁸

In Sweden and Germany, OHB (a German-based European technology company) is working with Swiss start-up ClearSpace SA for its space debris removal mission, ClearSpace-1. OHB will provide the propulsion subsystem and be responsible for the complete satellite assembly, integration, and testing. The mission is aimed at demonstrating the ability to remove space debris and establishing a new market for future in-orbit servicing. The mission will target a small satellite-sized object in space and be launched in 2025. Carrying a capture system payload—“Space Robot,” developed by the ESA and European industry—it will use AI to autonomously assess the target and match its motion, with capture taking place through robotic arms under ESA supervision. After capture, the combined object will be safely deorbited, reentering the atmosphere at the optimum angle to burn up.²⁹

In Belgium, entities such as Interuniversity Microelectronics Centre, aka imec, are at the leading edge of developing nanotechnology that is being commercialized for space. Imec’s Lens Free Imaging system is a new type of microscopic system that is not dependent on traditional optical technologies and fragile mechanical parts. Instead, it operates through the principle of digital holography, which allows images to be reconstructed afterward in software at any focal depth. This eliminates the need for mechanical focusing and the stage drift that occurs during time-lapse image acquisition, making it a more robust and compact system suitable for use in space.³⁰ Imec is also perfecting manufacturing in space leveraging microgravity, which minimizes “gravitational forces and enables the production of goods that either could not be produced on Earth or that can be made with superior quality. This is particularly relevant for applications such as drug compound production; target receptor discovery; the growth of larger, higher-quality crystals in solution; and the fabrication of silicon wafers or retinal implants using a layer-by-layer deposition processes,”³¹ all of which are enhanced in microgravity.

In the United Kingdom, collaboration between the agricultural and space sectors seeks to enhance societal resilience through more efficient and self-sustaining crop production. Research entities such as the Lincoln Institute for Agri-Food Technology is commercializing technologies on LEO satellites to improve the spatial positioning of robots in agriculture to enhance their precision weeding, nutrient deployment, and high-resolution soil sampling capabilities.³² Furthermore, UK start-ups such as Horizon Technologies have developed novel ways of creating signals intelligence focusing on specific parts of the electromagnetic spectrum, allowing the company to leverage meta data for both commercial and government clients. An important component to Horizon’s success is the reduction in productions costs combined with accessibility to space launches.

Across Europe, the ESA is conducting R&D to harness the sun’s solar power in space and distribute that energy to Earth. Under Project Solaris, space-based solar power is harvested sunlight from solar-power satellites in geostationary orbit, which is then converted into microwaves, and beamed down to Earth to generate electricity. For this to be successful, the satellites would need to be large (around several kilometers), and Earth-surface rectennas³³ would also need to be on a similar scale. Achieving such a feat would enhance Earth’s energy resilience, but would first require advancements in in-space manufacturing, photovoltaics, electronics, and beam forming.³⁴

The United States also partners with allied firms on foundational research to support upstream and downstream NewSpace technologies. The Defense Advanced Research Projects Agency (DARPA) Space-Based Adaptive Communications Node (BACN) is a laser-enabled military internet that will orbit Earth. The Space-BACN will create a network that piggybacks on multiple private and public satellites that would have been launched regardless, using laser transceivers that are able to communicate with counterparts within 5,000 km. The satellite network will be able to offer high data rates and automatic rerouting of a message if a node is disabled, and it will be almost impossible to intercept transmissions. DARPA is working with Mynaric, a German firm, which designs heads for Space-BACN, and MBryonics, an Irish contractor, which uses electronic signals to alter light’s phase, with the aim of having a working prototype in space in 2025.³⁵

While US allies and partners offer a plethora of specific space-based commercial opportunities, the criteria for successful development remains constant: the combination of multiple technologies, reduction in production and maintenance costs, and safe access to operate in space. With that in mind, the US government can play two roles to help further expand this market:

• Act as a reliable, adroit customer who can issue contracts quickly (noting that many NewSpace firms do not carry large amounts of working capital and therefore cannot wait months for contractual confirmation).
• Continue to invest in deep technologies and develop those foundational upstream building blocks that NewSpace will seek to leverage.

Notably, however, some US executives are deliberately registering firms in allied jurisdictions and conducting all research and patenting there, too, to avoid the bureaucratic challenges of dealing with US International Traffic in Arms Regulations (ITAR) and, specifically, the tight controls associated with exporting NewSpace dual-use products for commercial use. This suggests two things: The first is that, while allies may lack financial firepower, they have jurisdictional strengths that can attract NewSpace firms to their shores; and the second is that US ITAR controls impacting dual-use technologies need to be updated to enable NewSpace firms to thrive. If such companies are blocked from selling to allied and partner markets, then the very model of dual-use becomes diminished and governments will be unable to benefit from the competition and iterative technology development that spill over from such commercial settings into the public sector. As Figure 2 shows, the US government does not currently invest enough in technologies relative to the private sector to enable such a stringent export controls program in the context of NewSpace. The two policies are incongruous: limited government R&D spending and excessive export controls.

Recommendations for US and allied policymakers

Taking all the above into account, US and allied policymakers should focus on enhancing regulations and financial resources. Governments need to continue to create the conditions for the NewSpace market to prosper by playing the roles of a nimble customer and deep technology investor, enabling NewSpace companies to quickly access government contracts, while also helping mature next-generation space-based technologies. This helps such companies grow, become competitive, and enhance the sector. Specifically, US and allied governments should consider the following.

Recommendation #1: US and allied governments must continue to provide a stable and progressive regulatory environment for the NewSpace industry. This includes providing a clear and predictable legal framework for commercial space activities, as well as ensuring that regulations are flexible and adaptable to the rapidly changing technology and business models of the industry. ITAR is one area that needs urgent reform, given the dual-use nature of many new space technologies. This problem is exemplified by US talent establishing next-generation space companies in Europe to avoid overly controlling and outdated ITAR constraints, according to interviews with industry participants.³⁶ Given the cross-cutting nature of ITAR, the US National Security Council should examine ITAR rules and their utility for dual-use technologies impacting NewSpace, assessing such rules from a holistic perspective covering defense, trade, and economics.

Recommendation #2: US and allied governments should maximize coinvestment with industry in R&D to support the codevelopment of new technologies and capabilities for both the public and private sectors. This includes funding for research into new propulsion systems, as well as materials and nanotechnologies that will enable more cost-effective and reliable access to space. To support such funding—and noting the challenge of private investment finding its way to allied entrepreneurs and engineers—the US government should consider establishing with allies and partners a new multilateral lending institution (MLI) focused on space technology to provide funding and other forms of support to companies in the commercial space industry. The MLI or “space bank” could provide loans, grants, loan guarantees, insurance, and other forms of financial assistance to companies engaged in commercial space activities, helping to mitigate the high costs and risks associated with space ventures. This could be modeled after any of the MLIs of which the United States is already a member.³⁷

Recommendation #3: Furthermore, the US government could provide tax credits and grants to NewSpace firms (US and allied) based on certain provisions that support wider government objectives—such as manufacturing locations, supply network participants, and expected labor market impacts.

Any such credits and grants should be complemented by leveraging a suitable financial vehicle to conduct direct investment to take equity in NewSpace firms both at home and abroad. Crucially, this should be conducted without the government owning any of the intellectual property, as this impacts export opportunities and thus undermines the dual-use model. Such an effort would go some way in minimizing the socialization of risk and the privatization of rewards, and could be a role for either In-Q-Tel and/or the Department of Defense’s new Office of Strategic Capital.³⁸

Recommendation #4: To further support such an approach, the US government might create a national space co-R&D center of excellence for government and industry to work hand in glove to drive the codevelopment of breakthrough technologies, taking inspiration from a conceptually similar UK model of designing government contracts to address specific problems and awarding them to capable small companies.³⁹

Conclusion

NewSpace is making significant strides in developing cost-effective and innovative technologies for both public- and private-sector customers. This is important because it drives economic growth and can enhance national security through the delivery of new, cost-effective, and resilient technologies. Indeed, the NewSpace market is unquestionably growing, and governments, including the United States and its allies, have a critical role to play in shaping this market by acting as both customers and codevelopers with NewSpace firms. Such an approach allows governments to exert a degree of influence in the sector without constraining its creativity. However, this way of working may carry wider implications for national security paradigms in terms of dual-use technologies and public/private partnerships.

While use cases for NewSpace are almost limitless, multiple US allies and partners are already forging niche NewSpace areas of excellence that can bring about a degree of comparative advantage. To make best use of such opportunities, the United States should:

• Keep its market as open as possible to encourage competition and thus drive innovation.
• Provide specific programs and locations for codevelopment between allied academia, government, and industry without taking any intellectual property.
• Act as a nimble customer.
• Ensure there is a pragmatic balance between regulations that protect US space interests (i.e., ITAR) and those that unleash innovative dual-use endeavors.
• Create new financial instruments with allies through an MLI bank to support the financial investment needed to help the private sector commercialize the next generation of breakthrough space-based technologies.

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The invasion of Ukraine has clearly not gone according to plan. Putin anticipated a short and victorious war that would extinguish Ukrainian statehood and force the country decisively back into the Russian orbit. Instead, his army has lost tens of thousands of soldiers and vast amounts of equipment while struggling to achieve its military objectives. With the war now in its fifteenth month, Russia is struggling to advance in Ukraine and finds itself subject to unprecedented international sanctions that pose a grave threat to the country’s long-term development.

Crucially, the faltering invasion of Ukraine has also undermined Russian influence throughout the post-Soviet region. Following the 1991 collapse of the USSR, Russia remained deeply reluctant to concede full sovereignty to the 14 non-Russian countries that emerged from the wreckage of the Soviet Union. While Baltic states Estonia, Latvia, and Lithuania soon began pursuing a path of Western integration leading to EU and NATO membership, Russia was initially able to maintain its dominant position in relation to most of the newly independent post-Soviet nations.

Over the past three decades, relations between Russia and its former Soviet vassals have varied greatly, with some welcoming continued strong ties and others seeking to turn away from Moscow. Putin has made no secret of his desire to revive Russian influence throughout his country’s former imperial domains, and has publicly lamented the fall of the USSR as the “disintegration of historical Russia under the name of the Soviet Union.”

The Kremlin has employed a mixture of carrot and stick tactics in order to retain and strengthen its influence across the former USSR. Measures have ranged from elite enrichment, customs unions, and security cooperation to trade wars, military interventions, and the creation of “frozen conflicts.”

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The 2014 invasion of Ukraine’s Crimean peninsula and Donbas region was a major landmark in Russia’s post-Soviet empire-rebuilding efforts, but the full-scale invasion of Ukraine eight years later was to prove the biggest turning point of all. Since February 24, 2022, countries throughout the former Soviet Empire have rallied in support of Ukraine and have sought to distance themselves from an increasingly isolated and humbled Russia.

Throughout the war, the three Baltic states have supplied large amounts of defense, financial, and humanitarian aid to Ukraine while welcoming thousands of Ukrainian refugees. Estonia, Latvia, and Lithuania have also been very supportive of Ukraine’s EU and NATO membership bids. During a recent Kyiv visit, Estonian PM Kaja Kallas underlined this backing, commenting, “For peace in Europe, we need Ukraine in the EU and NATO. The way to lasting peace is to end grey areas in European security.”

In the South Caucasus region, Russia’s status has clearly been diminished by the invasion of Ukraine and the embarrassing failures of Putin’s once-vaunted military. The Kremlin has long served as peacekeeper and arbiter between Azerbaijan and Armenia in the region, maintaining a significant military presence in Armenia. However, the war in Ukraine has prevented Russia from fulfilling its commitments, with Moscow unable to stop renewed fighting. This has encouraged the Armenians to reconsider their relations with Russia.

With Russian influence in decline, the Armenian government has deepened cooperation with both the United States and the European Union, including the opening of a new EU Mission in Yerevan. Armenia has also begun to distance itself from the Collective Security Treaty Organization (CSTO), the Russia-led military bloc bringing together six former Soviet republics.

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In Central Asia, the invasion of Ukraine has amplified existing distrust of Russia. This is most apparent in the region’s largest nation, Kazakhstan. Like Ukraine, Kazakhstan has a significant ethnic Russian population, leading to concerns that the country could become the next target of Russian imperial aggression. These fears have been further fueled by Kremlin propagandists, who have warned that Kazakhstan will pay a high price for the country’s alleged disloyalty to Moscow. Kazakh officials appear unmoved by these threats, and have recently canceled Victory Day celebrations for the second consecutive year in what many see as a direct snub to Putin.

Since the invasion of Ukraine began, Kazakhstan has attempted to strengthen ties with China, Turkey, the EU, and the US, while questioning its relationship with Russia and the CSTO. This geopolitical shift was perhaps most immediately obvious in summer 2022, when Kazakh President Kassym-Jomart Tokayev made international headlines by rejecting recognition of Russian territorial claims against Ukraine while standing alongside Putin at a flagship economic forum in Saint Petersburg.

Over the past fifteen months of the invasion, Kazakhstan has demonstrated its support for Ukraine via the donation of considerable quantities of humanitarian aid. Other countries throughout the former Soviet world have done likewise. Azerbaijan has sent nearly €20 million in humanitarian and medical assistance. Turkmenistan has dispatched a cargo plane filled with medicines and medical supplies. Uzbekistan sent several tons of humanitarian aid. Given continued Russian leverage in the region and Moscow’s traditional expectations of loyalty, these relatively innocuous moves should be seen as bold gestures that reflect a changing geopolitical climate.

The invasion of Ukraine has exposed the extent of Kremlin control over Belarus, with Russia using its neighbor as a platform for airstrikes against Ukraine and the failed Kyiv offensive of early 2022. However, Belarusian dictator Alyaksandr Lukashenka has so far resisted pressure to directly enter the war, despite being heavily dependent on the Kremlin for his political survival. With the Belarusian public and military both believed to be strongly against any direct participation in the invasion, Lukashenka finds himself in a difficult position. He understands that if he were to involve Belarusian forces in the war, this would likely lead to a strong and unpredictable domestic backlash.

Putin saw the invasion of Ukraine as a key step toward rebuilding the Russian Empire. Instead, it has forced countries across the former Soviet Union to distance themselves from the Kremlin. These countries feel able to do so in part due to the poor performance of the Russian army in Ukraine, which has made a mockery Moscow’s claims to military superpower status while reducing Russia’s ability to intimidate its neighbors. The invasion of Ukraine is still far from over, but the damage done to Russia’s regional influence and to Putin’s own imperial ambitions is already impossible to ignore.

Mark Temnycky is a nonresident fellow at the Atlantic Council’s Eurasia Center. He can be found on Twitter @MTemnycky.

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In the April 2023 Issue of Longitude, Forward Defense Nonresident Senior Fellow Marco Tantardini published an article on the history and future of lunar and Cislunar or xGEO (the area between the Earth geosynchronous orbit and the Moon) space missions. Tantardini discusses how this zone could become the next frontier of economic and security competition.

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In the April 2023 Issue of Longitude, Forward Defense Nonresident Senior Fellow Marco Tantardini published an article on the evolution of energy markets in the past decades and how they have reshaped global politics.

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Table of contents

Executive summary
Bridging perspectives in the TTC
Values alignment: A successful TTC story?
Common ambitions: Defining TTC success stories
Confronting the TTC dilemma: The path toward success
Conclusion
Appendix: About the “TTC Track 2 Dialogues” series

Executive summary

To date, the US-EU Trade and Technology Council (TTC) has provided mixed results in solving digital policy issues. However, after three meetings, it is now clear that the role of the TTC is not to address direct regulatory controversies but to seek “success stories” and set the stage for future collaboration in pressing data and technology policy issues.

In the last year and a half, the TTC has achieved tangible results in several areas, developing into a prime forum for US-EU alignment on the impact of digitalization on democracy. First, it has endorsed the Declaration for the Future of the Internet (DFI) and increased support for human rights defenders online. Second, it has successfully positioned itself as the framework to coordinate governance approaches to emerging technologies, publishing a roadmap for transatlantic cooperation on artificial intelligence (AI) and identifying quantum technologies as another priority.

The DFI and the Joint AI Roadmap are the first two success stories of the TTC. Prior to their endorsement, both the European Union and the United States had a shared vision about the urgency to defend an open and free cyberspace and to establish a trustworthy transatlantic AI area. In addition, both the White House and the European Commission agreed that the measures had to be future facing instead of reactive to legislation, especially in light of shared perceived external challenges like the rise of authoritarian digital regimes, such as China.

While these three aspects have facilitated the birth of the DFI and the Joint AI Roadmap, the TTC also faces a dilemma. Different approaches to technology and digital governance and the lack of regulatory autonomy make the TTC best suited to address emerging issues that do not require changes in legislation. Yet, this is precisely where stakeholders see the value of the TTC, which faces several unresolved questions challenging its continuity, such as how domestic politics will affect US or EU commitment to the TTC or whether it will remain important, especially for the business community, without having regulatory authority.

Bridging perspectives in the TTC

The establishment of the TTC occurred during intense regulatory activity in the European Union (EU). When the Biden administration accepted the European Commission’s proposal to launch the TTC in the spring of 2021, the EU had already launched a comprehensive set of legislative proposals to regulate online platforms (i.e., Digital Services Act, Digital Markets Act) and artificial intelligence (i.e., AI Act).

Following in the footsteps of the General Data Protection Regulation (GDPR), these proposed rules were intended to increase data protection safeguards for EU citizens, improve algorithmic transparency, and secure a “level-playing field” for EU companies. Many in the EU were also convinced that creating a strong regulatory regime along these lines would help boost European innovation and provide a model for desirable international standards.

In the United States, the new administration did not yet have a defined technology agenda. In the absence of clear ambitions for data governance or tech policy, the US saw the TTC primarily as a way to rebuild the US-EU relationship and enlist the Europeans in addressing the challenges presented by China in the trade and technology fields. In the EU, the TTC was seen as an opportunity to reduce trade tensions and advance common approaches around the twin green and digital transitions.

The TTC has become a place to discuss actions around emerging and current issues in which both parties see the benefit of transatlantic coordination. In that sense, the TTC has been all about bridging different perspectives around technology and data policy while respecting the different regulatory cultures. This has created some degree of US-EU convergence, most notably on supply chain issues and export controls. This convergence has been reinforced by the Russian invasion of Ukraine, which strengthened incentives to work together while also heightening concerns in Europe about the authoritarian use of technology. On both sides of the Atlantic, there is now increased understanding in policy and business circles of the importance of working together—and with other “like-minded” governments—on data and tech issues.

This external pressure has not, however, increased agreement on sensitive regulatory areas, such as platform regulation or data governance. Instead, the TTC has based its work on two guiding principles: values alignment and regulatory autonomy. As a result, the TTC has been distinctly limited in addressing some of the sharpest EU-US differences, including the Digital Services Act (DSA) and Digital Markets Act (DMA), which will impact many US tech companies. The TTC also has yet to formally address European concerns about the US Inflation Reduction Act (IRA) and its content rules for electric vehicles and batteries or significant subsidies for renewable energy. These issues have been discussed at TTC meetings, especially those held at the co-chair level, and the TTC has acted as a mechanism for ensuring that the views of each party are heard at a high political level. But these problematic issues have not been part of the formal agenda, and it is unclear whether the TTC discussions have contributed to any resolution. In some cases, the matter has been assigned to a task force outside of the TTC structure, as was done with the IRA.

Values alignment: A successful TTC story?

The effect that the TTC has had in aligning US-EU perspectives in certain digital and tech policy areas is undeniable. This success reflects a conscious attempt to subscribe to the values that undergird policy choices that have resulted in ambitious declarations. To date, these declarations have been both promising and limited. However, questions remain on how to operationalize them, not only because of restraints on the TTC’s ability to address current legislation but also because of the difficulties the transatlantic partnership faces in drawing in other like-minded partners. For that reason, it is helpful to examine two areas in which the TTC has clearly advanced: the fight against the authoritarian internet and artificial intelligence governance.

Democracy and digitalization: The Declaration for the Future of the Internet

While the TTC’s efforts to address platform governance quickly fizzled in the face of EU resistance to anything that might disturb current legislation, there has been some progress in building transatlantic harmonization in one area of platform governance—that related to the internet and its impact on democracy. Working Groups 5 (Data Governance and Technology Platforms) and 6 (Misuse of Technology Threatening Security & Human Rights) have focused, respectively, on transparency of content moderation, algorithmic amplification, and data access for researchers to address the spread of illegal and harmful content online and on the use of online tools by authoritarian regimes.

Both the United States and the EU have drawn on the 2022 Declaration for the Future of the Internet (DFI), which called on signatories to “actively support a future for the Internet (sic) that is open, free, global, interoperable, reliable, and secure.” The DFI further called on partners to work toward: the protection of human rights and fundamental freedoms; maintaining a global internet; ensuring inclusive and affordable access to the internet; fostering a trustworthy digital ecosystem; and strengthening multistakeholder internet governance. Building on that, at the December 2022 TTC meeting in College Park, the United States and the EU produced a joint statement outlining their commitment to protecting human rights defenders online. They also pledged to study the causes and frequency of internet shutdowns.

However, it must be stressed that the DFI is nonbinding for signatories. None of these efforts at supporting democracy online commits the United States or EU to any legislative initiative or any other specific action. In fact, a major question about the DFI is whether it will progress beyond an aspirational declaration by developing benchmarks against which signatories can be judged. Nor does the Joint Statement on Protecting Human Rights Defenders Online include any regulatory requirements. The TTC’s work in this area is a prime example of values alignment without requiring regulatory convergence or harmonization.

Emerging technologies governance: Joint roadmap for trustworthy AI and risk management

If the TTC’s record on data governance is mixed, it has been more successful in addressing emerging technologies, especially AI. Since its beginning, the TTC (through Working Group 1 and its AI subgroup) has focused on identifying common priorities and aligning governing principles for artificial intelligence based on trustworthiness, which both parties define differently at home. Both the United States and the EU have sought to build on their ongoing domestic efforts to frame the development of AI tools and services. In the United States, the National Institute of Standards and Technology (NIST) AI Risk Management Framework focuses on the effective management and mitigation of risks of AI systems, and the White House Office of Science and Technology Policy’s Blueprint for an AI Bill of Rights identifies five principles for trustworthy AI design. At the European Union level, the AI Act aims to implement harmonized rules on different risk-based categories of AI systems, creating special obligations for manufacturers and operators. In addition, the EU’s AI Liability Directive will establish broader protection for victims of AI misuse or damage, while the Product Liability Directive is also likely to have a significant impact.

On a superficial level, these efforts have contributed to a gradual convergence of EU and US views on AI. In particular, the EU and the United States agree on the need to prevent AI from eroding democratic values, to respect fundamental rights, and for regulation to be based on a risk management framework. But while this agreement on common values should be applauded, better alignment on rules is necessary to ensure that ongoing regulatory efforts (especially on the EU side) do not create barriers to transatlantic AI goods and services. The establishment of a transatlantic “trustworthy AI area” will be important for the EU and the United States to demonstrate the benefits of lawful and democratically governed AI versus authoritarian models that, like the Chinese approach, compromise individual rights and freedoms. To that end, at the College Park TTC, the United States and the EU issued a Joint Roadmap on Evaluation and Measurement Tools for Trustworthy AI and Risk Management. The roadmap aims to bring the US and EU approaches closer together and establishes an implementation plan for common transatlantic efforts across three categories: definitions and taxonomies; present and emerging AI risks; and technical standards.

Despite being a remarkable effort from both sides to reconcile different regulatory cultures by building cooperation from the ground up, the roadmap also indicates how far there is to go to make transatlantic cooperation truly concrete and effective. Achieving interoperable definitions of basic terms—including trustworthy, risk, harm, bias, robustness, and safety—can only be an initial step. Cooperation on international technical standards is a desirable goal, but the roadmap only touts the value of such cooperation rather than tying the United States or EU to any commitments. Once again, there is significant alignment on values and goals, but fewer specifics on achieving them. There are some important steps forward—a shared repository of metrics and methodologies to be developed and studies of existing standards—but again, these are initial steps.

The roadmap may even be too late, as Europe is already well advanced in its efforts to regulate AI. In December 2022, the Council adopted its position on the AI Act and the European Parliament is expected to do the same before the next TTC in mid-2023. This will limit the impact of the TTC’s efforts to agree on common definitions and taxonomies, especially that of risk, which will be, in practice, defined by the EU AI Act. However, if the TTC makes progress in defining common standards for AI systems, the roadmap’s recipe could become a replicable success for other emerging technologies, notably quantum computing or the governance of low-earth orbit satellite constellations.

Common ambitions: Defining TTC success stories

At College Park, the TTC identified new workstreams on additive manufacturing, plastics recycling, digital identity, postquantum encryption, and the Internet of Things (IoT) and identified quantum technologies as a new area of interest. Considering that the biggest success to date has been the publication of the AI Roadmap, it makes sense that the TTC would become more ambitious in reconciling approaches to emerging technologies while deciding that data issues should be tackled elsewhere, as has been the case for the new proposed EU-US Data Privacy Framework. Keeping that in mind, while the TTC’s attempts to generate US-EU cooperation are still relatively recent, a few key criteria for success have emerged:

1. Shared vision and ambitions. An essential indicator of successful US-EU cooperation is the shared vision of how that digital future should look (e.g., DFI) or shared ambitions for the use of a particular technology. These can be negative (i.e., AI should not be used for social scoring), or positive (i.e., AI should be human-centric and trustworthy). The TTC provides a forum for the EU and the United States to agree on these common ambitions at the political level and for EU and US experts to work on concrete deliverables to realize them. However, it remains to be seen whether cooperation can exist when there are also significant differences in the approach to reaching those aspirations. The AI example shows that success can be limited if the TTC does not have regulatory autonomy or the ambition to change how topics are dealt with at home. The US AI Blueprint is aspirational and nonbinding, while the EU’s AI Act will be enshrined into law by late 2023 or early 2024. But whether these differences in “tactics” could frustrate the achievement of a shared strategy toward AI is still unclear. In theory, cooperation can be productive even under these circumstances. AI standard setting is particularly promising. The United States and EU could still collaborate on standards development in multilateral standards organizations, despite their differing approaches, precisely because there is a shared understanding of how the technology should be used.

This shared understanding of how technology should be used, and the purposes of that use, has been lacking in the US and EU approaches to data management and platform governance. The EU seeks to regulate the market for industrial data (and restrict that for personal data), while the United States does not have a settled data policy, although the Biden administration has recently endorsed the idea of a privacy law at the federal level. The EU seeks to constrain the behavior of platforms through the DMA and DSA, while the United States has taken a more laissez-faire approach. This lack of consensus has stymied any serious cooperation in this area within the TTC. Whether President Biden’s January 2023 op-ed and his remarks in the State of the Union speech will provide a basis for closer cooperation at future TTC meetings is yet to be seen.

2. Sense of shared external threat or challenge. There is no doubt that the rise of China as a dominant player in the global digital economy and the Russian invasion of Ukraine have spurred transatlantic cooperation, especially since the United States accepted the invitation to establish the TTC precisely to create a united front against China. Therefore, it is worth asking if the TTC would have happened at all without the perception of China (and later of Russia) as an external threat shaping not only global geopolitics but also markets. This, in addition to the dual-use nature of emerging technologies and the need to diversify global supply chains, has made controlling the acquisition of strategic applications or fundamental technologies a necessary element of technology policy—as seen recently with semiconductors.

General-purpose technologies, such as artificial intelligence or quantum technologies, can be used to build disruptive applications which can result in military advantages or market dominance in certain innovative sectors (e.g., sensors). In addition, their impact on fundamental rights and freedoms, for example, in the case of mass surveillance or breaking encryption through quantum capabilities or using AI tools, has pushed the United States and the EU to find common solutions at the TTC—especially in the field of standards—and recapture the leadership role in this process from China.

3. Efforts should be future facing rather than reactive to legislation. Many countries and private companies already have their own data governance models, albeit some are more developed than others. In some jurisdictions, there are already specific regulations to counter the malicious use of data (e.g., GDPR to safeguard the privacy of EU residents), and, increasingly, to regulate the activities of platforms. Once those regulations are in place—or even proposed—it is extremely difficult to overturn or adjust them. Thus, efforts to use the TTC to dissuade the EU from pursuing the DMA and DSA came too late in the EU legislative process and collided with any jurisdiction’s tendency to resist limiting their own domestic rules because of international pressure.

In contrast, approaches to emerging technologies are often aspirational and proactive. As technology reaches the maturity that allows for commercialization, the risk of misuse inevitably arises. Transatlantic coordination to avoid misuse often begins by framing innovation in a values-based manner. The European Commission’s High-Level Expert Group on artificial intelligence (HLEG AI) led to the proposal of an AI Act that puts forward a vision of “trustworthy” AI and proposes a risk-based approach to AI applications. In the United States, the Blueprint for an AI Bill of Rights creates a nonbinding framework that emphasizes what should be protected—especially in terms of civil rights and anti-discrimination measures—against the free ride of technological innovation. For the TTC, emerging technologies—where few regulatory regimes already exist—offer a forward-looking, proactive opportunity to build cooperation from the ground up. Similarly, efforts to identify and limit the negative use of digitalization by authoritarian regimes do not affect domestic rules but require cooperation with like-minded partners.

Confronting the TTC dilemma: The path toward success

These lessons from the past two years make the TTC’s dilemma clear: in the areas of data governance and emerging technologies, the TTC is most suited to addressing issues that do not require changes in domestic regulation. Yet, this is precisely what stakeholders, crucial for the TTC’s continuity, want it to address. For that reason, the TTC has been mostly successful in framing common approaches to emerging technology issues rather than discussing current discontent around data policy.

Should the outcomes of the 2024 US election decrease political support for the TTC, the business community’s support would be crucial for its continuation despite, paradoxically, the lack of involvement of the multistakeholder community in these conversations.¹ The European Parliament’s elections will also occur in 2024, but in this case, it is unlikely that the results would challenge the new Commission’s support for the TTC. Therefore, for the TTC to remain important over the next months and beyond, it must prove itself capable of addressing regulatory questions so that it can grow support from relevant stakeholders on the one hand, and new success stories on the other. During the next six months, the TTC can build its credibility as an effective transatlantic forum on digital and tech issues, not only by scoping out future cooperation on emerging technologies and defending democracy from authoritarian abuse of the internet but also by moving beyond values alignment to addressing regulatory differences.

In particular:

The TTC should make AI a test case. Before the TTC co-chairs convene in mid-2023, it is possible that the European Parliament will have finished its position and the AI Act will enter the negotiation phase with the rest of the institutions (trilogues), leaving little to no room for any change. At the same time, it is hard to imagine that the TTC would have made sufficient advancements in negotiating common taxonomies and definitions around AI by then, thereby reducing the TTC’s chances to impact the co-regulatory process in Europe. Therefore, the challenge for the Europeans will be to make the TTC agree on definitions that echo those in the AI Act, while for the United States, it will be to identify and agree on definitions that are interoperable with those used in Europe. As the AI roadmap working groups advance in their work, will the AI Act put forward a definition of “high risk” that is compatible with TTC deliberations? This will be a crucial test.

If the final content of the AI Act effectively limits the possibilities for US-EU cooperation, the TTC will be weakened. Now is a key time for the TTC to engage on this important test, both at the expert level and among the co-chairs and their deputies.

The TTC should engage on other issues (beyond AI) where strong alignment on values and regulation is now beginning to grow. One of the striking elements of the TTC continues to be the absence of cybersecurity. Although the EU-US Cybersecurity Dialogue addresses issues related to threat assessment and protection of critical infrastructure, some elements of cybersecurity could fit well in the TTC structure, especially in the wake of the EU’s NIS2 directive and the proposed Cyber Resilience Act, which the Commission adopted and will be reviewed by the European Parliament and Council. Both the United States and EU are moving toward improving their cybersecurity regulation landscape. However, as usual, the EU will develop formal rules while the US government will rely more on “soft law” guidelines.