Issue 15

THE BRETON/GEROL NEWSLETTER

MONTREAL-DAVOS

Global cooperation and integration through international alliances and tariff-reducing agreements only recently looked like the only promising way for international trade development. President Trump came to the White House with the main motto of his presidency being replacing globalism by old-fashioned competition and the system of bilateral agreements. From his point of view, based solely on his subjective business experience rather than on detailed economic expertise, bilateral agreements provide the US economy (still the most powerful in the world) with additional advantages: striking deals that favor the US. In the same vein, Trump and his apparatchiks concluded that the framework of bilateral agreements where the US can more easily dominate is preferable to a complicated structure of multinational agreements like NAFTA, and similar regional trade facilitation treaties. In Davos, Trump expanded his “America First” formula with a more conciliatory “First but not alone”. Observers concluded that Trump's speech had substantially moved him away from all his pre-election radical statements.  The question is for how long.

NAFTA gets to Trump the most, as an example of depriving the US economy of its rightful advantages. In his view, NAFTA unduly favors Mexico and Canada. January talks in Montreal had been described by Trump economic advisers as the last attempt to modify NAFTA and make it more fair for the US. Most likely NAFTA will survive in a modified form, but it is also a possibility that if the modifications are not made as the American side envisions them, the US will nullify the whole agreement.

In Davos President Trump delivered a speech which he himself characterized as "historic". In this speech he attacked not only NAFTA but the entire framework of multilateral approaches to world trade. He gave the example of Great Britain's improved trade relations with the US in the immediate aftermath of Brexit. The team opposing Trump's view of world economy and defenders of globalization included such world leaders as Merkel , Macron and Trudeau.

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UKRAINE AND DONBASS: BETWEEN THE ELUSIVE AND THE INCONCEIVABLE

President Poroshenko and Secretary of State Tillerson, Davos, January 26th
©President of Ukraine Website

The conflict in Ukraine receives relatively little media coverage. Yet it is probably the most significant source of political confrontation between Russia and the US for the foreseeable future.

The Ukrainian Parliament has just adopted a Donbass Reintegration Law that declares Russia the aggressor state and the Donbass region as occupied territories. The Law also gives to the president of Ukraine president  the authority to manage the military activity in the area of the conflict as well as it empowers a special operational unit of the Ministry of Defence to exercise control over the activity of the power ministries in the area. In this last respect, it is not clear whether there will be any change one way or the other to de facto blockade on the Ukrainian side of trade with the occupied regions.

With this new Law, the conflict in the Donbass will no longer be considered an anti-terrorist operation, but a military action in self-defence. President Poroshenko has called the new Law the “technology” that would allow bringing Donbass back into Ukraine. Whereas the Law clarifies a number of points concerning the liability of the occupying forces and the validity of administrative acts performed in the occupied territories one would be hard-pressed to find any provision that would contribute to reintegrate the Donbass into Ukraine.

Despite the assurances of President Poroshenko that the Law gives priority to a political solution it is difficult to see how this is the case. There is, for instance, no mention of the Minsk agreements, the basis on which diplomatic efforts have tried to build for the last few years. Russia has more or less called it the end of Minsk agreements. The EU has been more circumspect, but re-affirmed its attachment to the Minsk agreements.

Poroshenko’s insistence on having this new legislation could be explained by the fact that it caters to the partisans of a hard line against Russia, confirms his reading of the nature of the conflict in Eastern Ukraine and strengthens his authority to manage the conflict.

If the Law does indeed provide a “technology” it is the one that would be needed in case of a military solution to the conflict. Such a solution is, regardless of Western promises of new weapons for Kyiv, elusive. Russia is unlikely to abandon the Donbass. It would most likely match weapons improvement on the other side.

The Law complicates any further eventual negotiation with Russia. It seems that, for a majority of Ukrainians, any negotiated settlement with Russia is virtually inconceivable in that it would entail unacceptable concessions. Having Russia legally labeled as the aggressor only makes any real negotiation even more difficult even to initiate.

By calling the area of conflict “occupied territories” the Law also casts the current authorities in the area as irrelevant. For Kyiv, as for Washington for that matter, these authorities essentially do not matter, as it is their view that Moscow is calling the shots.

By making more difficult a negotiated reintegration, the legislation firms up the rebel regions’ sense that their future lays either in full independence from Ukraine or in integration with Russia. It is not clear though that Russia is ready for the latter.

After the last round of consultations with his US counterpart on January 26th, Vladislav Surkov, Putin’s adviser for relations with Ukraine, made the comment that the latest US proposal on peacekeeping seemed, at first sight, “doable”. While desirable from a humanitarian point of view, a functioning peacekeeping arrangement might freeze the conflict in a way that so delays reintegration of the rebel regions as to make it almost impossible. Such an arrangement might also serve as a pretext for the EU to lift some of its sanctions, decreasing the pressure for a full negotiated settlement.

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RELUCTANT LEFT TURN

Chancellor Merkel, PM May, President Macron
©Facebook

German Chancellor Angela Merkel once again gave proof to the old dictum that the real goal of staying in power is to stay in power. There are very few things that a political leader will not want do for that. After all viable options of building a governing coalition with the Free Democrats or the Greens had failed, Merkel decided to restore the good old coalition with the Social Democrats. This time her concessions to the left will be more profound on social issues and immigration, but allying with the Alternative For Germany (the right wing party that successfully jumped into the Bundestag) would be political suicide for the Chancellor.

Germany, unlike Austria, is a leading European nation and it cannot allow itself to experiment bringing extreme right wingers into the government. Both Social Democrats and Merkel's Christian Democrats were opposed to the coalition, but harsh political realities forced their hand. This move to a certain degree relegated Merkel, for the time being at least, to the second fiddle seat in European politics and catapulted French President Emmanuel Macron into the position of top European leader, with a new party, a new approach and fresh ideas.

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KIM JUNG UN'S OLYMPIC VICTORY

One has to admit that North Korea and its youthful tyrant already earned himself an Olympic Gold medal of sorts even before the games begin. He not only managed to walk away from what seemed to be an imminent military confrontation with the US, but suddenly re-engaged in negotiations with the South and agreed to send his athletes and for some reasons a music band of 140 performers to the Winter Olympic Games in PyeongChang, South Korea. All that was done without any visible compromises on its nuclear or ICBM development programs.

It is rather evident that so far Mr. Kim had outplayed Mr. Trump and outmaneuvered China and Russia. So the gold medal goes to Kim.

It is nevertheless premature to conclude that North Korea will avoid war in the long run, without some form of concessions on its part. It is not impossible to imagine that these Winter Games could be the last for Kim and his regime.

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SANCTIONS AS A MAINSTAY OF US-RUSSIA RELATIONS

Under the Countering America's Adversaries Through Sanctions Act of 2017 (CAATSA) Section 241, Congress required Treasury, in consultation with the Department of State and the Director of National Intelligence, to provide a report regarding senior political figures and oligarchs in the Russian Federation.

The report was issued 10 minutes before midnight on January 29^th. It lists 210 Russian officials and business people that could be subjected to sanctions for their business and political activities (going back decades). The business activities are deemed to have enabled them to amass fortunes through criminal or illegal practises. The vast majority of that capital has been transferred or invested, some in the US (in all available investment options) or stashed away in offshore accounts worldwide.

Not everyone on that long list will be hit with sanctions, but those who will risk seeing their assets frozen and subjected to forensic accounting. Many people formerly known as oligarchs are beginning to feel the heat and are faced with very unpleasant options: to transfer in a hurry what can be salvaged back to Russia, a move tantamount to admitting guilt, or take chances in a legal battle with the American justice system as was already stated by Oleg Deripaska, one such Russian tycoon.

President Putin, maybe expecting something even worse, reacted in a moderate tone, suggesting there would be for the time being no counter-measure.

Even if only by way of a threat, revving up sanctions once again against Putin and his base at this time is an obvious attempt to go after Putin before the upcoming elections in March by weakening an already vulnerable Russian economy. It looks like the relations between US and Russia will yet slide further down before they get any better.

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PERSON OF THE MONTH: SEBASTIAN KURZ, CHANCELLOR OF AUSTRIA

Sebastian Kurz, Facebook profile photo

Elected in late 2017, 31-year old Kurz became the youngest government leader in Europe. This is not the first record he set. In 2013 he became the youngest foreign minister in the world. He looked almost like a teenager when in 2014 he met with aging John Kerry and gray haired Iranian Foreign Minister Javad Zarif.

Kurz fits well in a new trend that gives old parties a new makeover and introduces fresh faces to the top political echelons. Some political analysts in Europe have brushed aside dire predictions from the left that Kurz is an extreme right winger and define him as a more conservative version of Justin Trudeau and Emmanuel Macron.

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BRIEFLY NOTED

SYRIA

The Turkish military continued their operation around the city of Afrin against Syrian Kurds. The Turkish army is assisted by Sunni militias. This operation, code named by the Turks 'Olive Branch' started to cause serious tensions between Turkey and the US (despite their status as NATO allies) as well with Iran and Russia, each pursuing its own interests and goals that do not coincide and in some cases are on a collision course.

KAZAKHSTAN

For the first month of 2018, Kazakhstan will chair the UN Security Council. During his January 2018 visit to Washington (during which he had a working lunch with President Trump) President Nursultan Nazarbayev said that in less than 10 years his country will join the club of 30 most developed countries in the world. Today Kazakhstan is implementing a wide array of reforms within every sphere of its economic, financial and social development.

MOLDOVA

The Government of Moldova announced that it will leave the Commonwealth of Independent States (CIS) only after the country is confirmed as a candidate member of the EU. The statement was made in response to some voices in parliament demanding the immediate withdrawal from the CIS.

MONGOLIA

Mongolia on Wednesday approved a plan to build the first oil refinery in its southeastern Dornogovi Province. The construction of the refinery is scheduled to begin in the second quarter this year, the Mongolian government press office said in a press statement Wednesday. The project was financed by a loan from India. The refinery will have a processing capacity of 1.5 million metric tons of oil per year and will annually produce 560,000 tons of gasoline and 670,000 tons of diesel fuel, as well as 107,000 tons of liquefied gas. The refinery would boost Mongolia's gross domestic product by 10 percent.Mongolia currently exports crude oil to China while importing petroleum products from Russia.

CHINA

Bejing announced that it will participate in Arctic development. China will use the Northern Sea Route Arctic seaways as a shortest transit route for transporting freight to Europe and North America. As part of this announcement Chinese offered the assurance that its participation will be in full respect of the local environment and the integrity of the Arctic's ecology.

THE AUTHORS

Ilya Gerol, former foreign editor of the Citizen in Ottawa, syndicated columnist in Canadian, US and European media specializing in international affairs. His particular area of expertise includes Russia, Eurasian Economic Union, Eastern and Central Europe.  Ilya Gerol has written several books, one of them, The Manipulators, had become a textbook on relations of media and society.

During his career in the Canadian Foreign Service, Gilles Breton had three assignments at the Canadian Embassy  in Moscow. His first posting there began during the Soviet period, in 1983. His last was from 2008 to 2012 as Minister-Counsellor and Deputy Head of Mission. He also served as Deputy Director responsible for Canada’s relations with Russia from 2000 to 2008. As an international civil servant, he was Deputy Director of the OSCE Office for Democratic Institutions and Human Rights in Warsaw from 1994 to 1997.