Issue 27

THE BRETON/GEROL NEWSLETTER

THE WALL THAT DIVIDES AMERICA, OR THE ICONOCLAST’S BROKEN IMAGE

President Trump's failure to obtain from Congress the funding that would allow for the construction of a border wall with Mexico, that, in theory, would stop the influx of illegal immigrants, drugs and criminals, is his first major political defeat. Yet, despite his own superficial understanding of complex issues and regardless of several high profile resignations within the White House and his Cabinet, Trump still managed to carry out some of his election promises, or at least, give the appearance of doing so. Here is a short list: he forced Canada and Mexico to renegotiate and signed a new, more American oriented NAFTA agreement, reduced taxes on business, relaxed financial regulations, appointed conservative judges to the highest courts as well as catered to the evangelical right on pro-life issues. As well, he kept his promise and moved the US embassy from Tel-Aviv to Jerusalem. He also claims to have contributed greatly to lowering unemployment to a record low since 1967. He also, as promised, took a hard line towards China in an attempt to improve the trade imbalance which heavily favored China. The result of that last move is, however, admittedly uncertain.

At the same time the polarization of American political life has reached a rarely seen level, under this most "un-presidential" president. On the international scene, Trump quickly claimed that his objurgating made NATO allies raise their financial contributions, but on the down side there has been a loss of reliability that has started to undermine the US reputation and position in the world.

This has been felt especially in the Middle East where a somewhat premature announcement of the withdrawal of US troops from Syria has left Trump’s own team scrambling for ways of backtracking. Trump’s inability to deal with Turkish President Erdogan on the Kurdish issue even made him issue unheard economic threats against a NATO ally.

On the matter of security in the Korean peninsula, the prospect of another Trump-Kim Jong-un summit probably makes Koreans more nervous than happy. High-ranking members of the US security establishment are probably even more nervous, especially after having been rebuffed by Trump himself over their assessment of international threats. After having made the world fear for another major conflict, Trump’s quick decision to see Kim Jong-un opened the door to a welcome rapprochement between the two Koreas. What he might do next is unclear. How he will handle his next encounter with the North Korean leader is, as almost always with Trump’s meetings, cause for trepidation.

On the most recent matter of Venezuela, despite the “America first” article of faith, Trump chose to say that “all options are on the table”, letting some to believe he also had military options in mind, making a lot more people nervous.

The longest shutdown in US history fiasco and the loss of face before the Democratic-controlled House of Representatives have weakened the President and bruised his large ego, probably setting the stage for more bluster and unpredictability. There are rumours that the Mueller inquiry could wrap up soon. From what we have seen so far, one can expect that the Mueller report will be embarrassing for Trump and his entourage, but may well stop short of providing compelling evidence to start an impeachment process. The debate around Trump himself will nevertheless go on, leaving little time for anything else.

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“PAINSTAKING WORK” REQUIRED BEFORE PEACE DEAL WITH JAPAN

PM Abe, President Putin, January 22nd, Moscow
©President of Russia Website

Japanese Prime Minister Shinzo Abe Russian President Vladimir Putin in Moscow on January 22^nd, for the 25^th time. In this respect, it is worth observing the stark contrast between Abe and most of his fellow G7 leaders. Putin and Abe met at the Kremlin for about two hours of face-to-face talks that were followed by a broader meeting including more officials from the two countries. Russian President Vladimir Putin stated that "painstaking work" remains before Russia can conclude a peace treaty with Japan to formally end World War II. The two countries' foreign ministers are to meet again in February to continue the discussions about a possible deal.

Prime Minister Abe said President Putin confirmed their determination to find a solution to the main obstacle to the peace treaty, the dispute over the four southernmost islands in the Kurill chain, which runs from Hokkaido in Japan to Russia's Kamchatka Peninsula. Putin also confirmed that Moscow was still interested in building the negotiating process on the 1956 Soviet proposal to return the two less populated islands, Shikotan and a group of islets called Habomai.

Russia-Japan Consultations
22 January, Moscow
©President of Russia Website

There are several issues that stand in the way. Since Soviet troops seized the disputed islands during the final days of World War II, Russian sovereignty over them is regarded by Russia as an outcome of the war, and somehow legally confirmed by Article 107 of the UN Charter (the so-called enemy state clause). Tokyo has nevertheless consistently refused to recognize Russian sovereignty over the islands that are known in Japan as the Northern Territories.

The most difficult issue is probably overcoming public opinion objections on both sides. After the meeting with PM Abe, Putin observed: "Of course, solutions proposed by negotiators should be acceptable for the peoples of Russia and Japan, supported by the societies of both our countries”. There may be some movement among Japanese people side towards accepting a compromise. It is less clear that there would be a similar movement in Russian public opinion. Russian state media are clearly working on trying to change this, but in a low-key indirect way.

The 1960 Japan-US Security Agreement allows for American bases in Japan. It led to the cancellation by the Soviet Union of its 1956 proposal. The Soviet Union then stated that no territory could be given back to Japan until it removed all foreign forces from its national territory. It looks as though this time Russia may settle for the prohibition of foreign forces to be limited to the specific areas given back to Japan.

In the meantime a number of specific measures have been agreed in order to "enhance the atmosphere of mutual trust,". They range from local economic cooperation projects to the traditional visits by Japanese families to the cemeteries where their ancestors are buried.

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NO SHORTAGE OF CANDIDATES FOR THE PRESIDENCY OF UKRAINE

Yulia Tymoshenko

Volodymyr Zelensky

Ihor Smeshko

The Ukrainian Presidential campaign officially opened on December 31st. The first round will be held on March 31st. The second round, most likely needed, will be held on April 21st.

The only sure thing at this time is that here will be ample choice. There are already 27 registered candidates, including President Poroshenko, with a few more expected to register before the February 3rd deadline.

As expected, with a rating that is around 19%, the only candidate that emerges from the pack is former Prime Minister Yulia Tymoshenko. Volodymyr Zelensky, a well-known actor, comes in a surprising second, but his recent admission that he has commercial interests in Russia may cost him support, despite his promise to divest himself of these interests "in the near future."

Other candidates, hovering around the 9 to 11% mark include Yuriy Boyko, a pro-Russia candidate, and President Poroshenko. A note of caution is warranted. For other than the leading candidate, polling results can substantially vary depending on the entity conducting the survey.

The only other candidate who is making an unexpected and possibly successful entry is Ihor Smeshko, the head of the Ukrainian Security Service from 2003 to 2005. What first distinguishes Smeshko from the rest is that he is the candidate backed by Dmitry Gordon, an influential electronic media journalist. What also distinguishes him is that he is a candidate who has openly refused to receive money from oligarchs whose influence continues to be a feature of Ukrainian political life. A few serious candidates are either closely associated with one or another oligarch. Poroshenko is his own oligarch.

The most likely scenario now is for Tymoshenko to make it to the second round. She would then be expected to win relatively easily, especially against either Poroshenko or the pro-Russia candidate. Winning against a candidate like Smeshko could be more difficult. There being so many candidates to divide the non-Tymoshenko votes in the first round, a “dark horse” candidate might have a chance. Smeshko, despite having less public recognition, could well emerge as offering a new option among nationalist candidates. Smeshko who has professed to take a pragmatic approach might well be perceived as one who could engage in a significant discussion with Vladimir Putin on the contentious issues between Ukraine and Russia. Fact that they share a common background in the security apparat might strengthen that perception. In the current context, and as is often the case the world over, voters may not make their choice so much on policy issues, but on the believability and the reputation of the individuals, With an unusually large field of candidates almost everything is possible.

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 UKRAINE, THE GAS PIPELINES, AGAIN

The Russian promoters of the Nord Stream 2 undersea pipeline are confidently announcing that their pipeline will be operational by the beginning of 2020. Nord Stream 2 will double the volume of gas that transits directly through the Baltic Sea from Russia to Germany, thus decreasing the importance of land transit through either Poland or Ukraine and avoiding the payment of transit fees that get passed on to Western European customers.

In principle, the EU would like for some Russian gas to continue transiting through Ukraine and., through trilateral discussions, is trying to convince Russia to come to a workable arrangement with Ukraine in this respect. Two elements that were hitherto not widely mentioned have recently emerged from the public discussions surrounding this issue. First, the loss of the fees for the transit of Russian gas would inflict a loss of 2 to 3% to Ukraine’s GDP. The continuation of the gas transit through Ukraine would also require some maintenance and modernization of the infrastructure in Ukraine, an issue that has until recently not been addressed. Who would invest in that infrastructure is a big question.

Russian officials have publicly stated that they would not object to the continuation of gas transit through Ukraine, but with Nord Stream 2 as well as Turkish Stream, its southern equivalent, on the horizon, they are in a strong negotiating position.

The outcome of the law suits by Naftogaz, the national gas company in Ukraine, against Gazprom, its Russian counterpart, would also have to be factored. Whatever awards it may ultimately gain Naftogaz could bring to the negotiating table to obtain a more favourable deal with Gazprom.

©Naftogaz

Ukraine no longer buys gas directly from Russia, but buys it indirectly from neighbouring countries that get it from Russia. As a few other countries, it is also looking to get supplies from other sources. It also hopes to develop its own gas deposits. The above-mentioned loss of transit fees, coupled with the need to procure gas from potentially more expensive sources would put a serious damper on economic growth at least in the short to medium term. Many presidential candidates’ promises of renewed prosperity in the short term would be very difficult to fulfill.

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BELARUS TO JOIN RUSSIA, NOT REALLY

"I call these suggestions very stupid and far-fetched for discussion in our society," Belarusian President Alexander Lukashenko said on January 10th. He was referring to persistent rumors and suggestions of late that Russia was ready to incorporate Belarus into its Federation.

Speculation that the merger of Russia and Belarus is just over the horizon has become so prevalent in recent weeks that top officials in both countries have made repeated efforts to refute it. "As for the Union State between Russia and Belarus I am simply surprised by the inflated uproar about this topic," Russian Foreign Minister Sergei Lavrov said during his annual results-of-the-last-year press conference in Moscow on January 16th.

Several insiders close to both governments also denied any serious movement towards such a resolution citing the ongoing war in Ukraine, Russian political and economic circumstances as well as the overall uneasy equilibrium in international relations, all that simply would not allow Russia to calmly move in and digest Belarus. Most realistically Russia simply wants to have a reliable ally to the west and Lukashenko has basically been that.

Besides, anyone familiar with Russia and its dynamics, the country is often daring, as operations to annex Crimea and wipe out of Syrian opposition clearly show, but Russia is not reckless. To try to absorb Belarus would be definitely reckless.

Already for a long time Putin has tried to keep Lukashenko on a short leash. Lately it did not go unnoticed by the Kremlin that Lukashenko was taking advantage of Putin’s preoccupations on the international stage and that the Belarusian strongman was trying his best to gain more latitude.

The current bone of contention between the two strong leaders is a Russian tax reform that began to take effect at the beginning of the year. In an effort to end de facto internal energy subsidies, Russia is phasing out export duties for oil and instead imposing an extraction tax. Since Belarus has been importing Russian oil duty-free under the common economic space and subsequently exporting it with its own duties tacked on, it now stands to lose a major subsidy.

Under the plan, Belarus could come up $300 million short this year and lose up to $12 billion by 2024. The squeeze comes with Belarus facing about $5 billion in international debt payments due in 2019. The Russian subsidy, even several hundred million dollars, is decisive for the Belarus economy and for Lukashenko.

The Belarusian president has leverage too in a relationship that has come to be known as “oil-for-kisses”. Russia counts on Belarus as a reliable political ally, particularly in its confrontation with NATO. The two countries hold joint military exercises that regularly engage the West's attention.

This situation was correctly summed up by Russian political analyst Kirill Rogov: "Russia is in a position of pretty serious international isolation, and this gives Lukashenko some room for maneuver. Belarus is the last bastion. Considering the sharp conflict with the West, Moscow understands that at any moment the West could start pulling Belarus toward its sphere of influence and this creates some uncertainty. In the isolation that Russia is now experiencing, it is losing some of its influence, including over Belarus."

Earlier this month, Belarus was said to have unexpectedly lifted a long-standing limit on the number of U.S. diplomats allowed in the country, a symbolic gesture that contrasts sharply with the reduced diplomatic relations between Russia and the United States as a result of tit-for-tat expulsions. Belarusian Foreign Ministry spokesman Anatol Hlaz announced early in the New Year that senior officials from Belarus and the United States have been discussing other ways of improving bilateral relations.

Rather than eyeing the incorporation of Belarus into Russia, Moscow or some Kremlin-connected oligarchs could be seeking a stake in Belarus' oil-refining industry, which remains one of last family jewels left to Lukashenko. Giving that up would represent a major loss of sovereignty for a country of some 10 million people. Moreover, refining accounts for about 20 percent of the Belarus state budget, so surrendering that sector could create as many problems as it solves for Minsk.

Ironically, Belarus' traditional economy could be the main defense of its sovereignty against Russia. When Lukashenko met with Putin on December 29, his Christmas gift consisted of four sacks of potatoes and a tub of lard, possibly a symbolic representation of how little Russia stands to gain in a merger with Belarus.

Many analysts see the current activity as part of a larger pattern spanning the two countries' entire post-Soviet history, in which Lukashenko deftly offers or withholds his support for Moscow in complex bargaining for the Russian economic subsidies on which his country relies.

President Lukashenko, President Putin
December 29th, Moscow
©President of Russia Website

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PERSON OF THE MONTH: HOWARD SCHULTZ

©Wikipedia

Born in Brooklyn New York in 1953 to a Jewish family of modest means, Howard Schultz graduated from Northern Michigan University with a bachelor's degree in communications before becoming director of retail operations and marketing for the Starbucks Coffee Company in 1982. After founding the coffee company Il Giornale in 1987, he purchased Starbucks and became CEO and chairman of the company.

Schultz publicly announced that he was resigning as Starbucks' CEO in 2000, though he returned to head the company from 2008 to 2018. In 2006, Howard Schultz was ranked No. 359 on Forbes magazine's "Forbes 400" list. In 2013, he was ranked No. 311 on the same list, as well as No. 931 on Forbes's list of billionaires around the globe.

He just revealed his intention to run for president in 2020."For some time now, I have been deeply concerned about our country, the growing division at home and our standing in the world," he told The New York Times. He announced he will run as an independent.

In a recent interview with CBS he said that his strength as a candidate would come from his middle of the road position of a social liberal and fiscal conservative. However, some commentators, including former New York mayor Bloomberg believe that his run would only help Trump. Not for his accomplishments, in a month when accomplishments were scarce, but for his potential impact on US politics, Schultz is the person of the month.

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BRIEFLY NOTED

UNITED STATES

The U.S. Navy says guided-missile destroyer USS Donald Cook is heading to the Black Sea to conduct maritime security operations and enhance maritime stability with NATO allies in the region. The missile destroyer was navigating the Dardanelles Strait in Turkey on January 19th as it headed north toward the Black Sea, the U.S. Navy said in a statement. It did not say when it expected the ship to reach the Black Sea, but the TASS news agency quoted the Russian Defense Ministry’s Defense Control Center as saying it is “tracking the movements” of the Donald Cook, which according to international convention may stay in the Black Sea for no longer than 21 days.

Tensions in the region have been heightened since November 25 when Russian security forces fired on, boarded, and then seized three, armed Ukrainian navy vessels near the Kerch Strait, which links the Black Sea and the Sea of Azov.

"The United States and the U.S. Navy continue to stand alongside our allies in defense of shared regional interests and maritime stability," Commander Matthew J. Powell, commanding officer of Donald Cook, said in the Navy statement. "Our arrival into the Black Sea will showcase the Navy's interoperability in pursuit of common security objectives, enabling us to respond effectively to future crises or deterring aggression," he added.

KYRGYZSTAN

Hundreds of activists in the Kyrgyz capital of Bishkek gathered to protest against what they called the increasing number of Chinese migrants in Kyrgyzstan. During the January 17 demonstration at Bishkek’s Ala-Too Square, the participants urged the authorities to deport illegal Chinese migrants back to their country and stop granting citizenship to them.

The demonstrators also expressed support for ethnic Kyrgyz who they said were being persecuted in re-education camps in China's northwestern province of Xinjiang.

Foreign Ministry officials met with the demonstrators and told them that all migrants from China were residing and working in Kyrgyzstan legally.

However, the demonstrators disagreed and said that all Chinese businesses in the Central Asian country should be checked in an effort to locate illegal immigrants. Following similar protests in Bishkek in recent months, President Sooronbay Jeenbekov warned recently that "those trying to disrupt Kyrgyz-Chinese partnership" will face legal prosecution.

BULGARIA

Bulgarian Prime Minister Boyko Borisov says U.S. F-16 fighter jets are the best choice to replace the Balkan NATO member’s aging fleet of Soviet-designed MiG-29s. Bulgaria has budgeted 900 million euros ($1 billion) for the purchase of at least eight fighter jets. The Defense Ministry is reviewing offers from the United States for new Lockheed Martin F-16s and Boeing F-18s, new Gripen jets from Sweden, and used Eurofighters from Italy.

Borisov told reporters he did not want to influence the process, but he said that "from what I have heard from the pilots, a new F-16 is a significantly better aircraft than all the rest that are on offer." As a consolation gesture towards Russia, PM Borisov informed Moscow that his country would like to join the Turkish Stream Gas Pipeline in order to be supplied with Russian natural gas.

SERBIA

Vladimir Putin visited Serbia making his first official trip to the country since 2014 and fourth since coming to power twenty years ago. During a several-hour program, he met with Serbia’s President Aleksandar Vucic and other government officials and discussed mutual cooperation and the process of the normalisation of relations between Kosovo and Serbia. Putin’s popularity in Serbia is among the highest in the Western Balkans, and it is often exploited by the ruling parties, who present themselves as having close ties with the Russian President.

On the other hand, Russia is also using its historic and cultural ties with Serbia, as well as the negative sentiment towards NATO present in the country since the 1990s wars, to maintain some influence in the region, which is increasingly turning to Euro-Atlantic integration.

As was expected the visit was rich with symbolism. Putin awarded Vucic with the Order of Alexander Nevsky, and they jointly visited both the graveyard of the Russian soldiers who participated in the liberation of Belgrade during the Second World War, and the Europe’s largest Orthodox Church built with Russia’s assistance (named after Saint Sava), where they put the final pieces in a new mosaic.

BELARUS

The first online cryptocurrency exchange, based on block chain technology, has been launched in Belarus. Media reports in Belarus said on January 15th that what they called the "world's first regulated tokenized securities exchange" at Currency.com was financially supported by a London-based Belarusian entrepreneur Viktor Prakapenya and Russian businessman Said Gutseriyev. The online service would allow users to exchange different types of cryptocurrencies as well to sell and buy them for national currencies. Tokenization, the process of substituting a sensitive data element with a nonsensitive equivalent, referred to as a token, may be used to safeguard sensitive data such as bank accounts or financial statements.

The project is launched more than a year after Belarusian President Lukashenko legalized transactions in cryptocurrencies such as Bitcoin. Lukashenko signed the decree on December 22, 2017. He said at the time that the move was aimed at attracting foreign investors and turn Belarus into a regional center for blockchain technology.

Minsk wanted to create conditions to encourage global IT firms to set up branches, research centers, and production facilities inside Belarus. The decree makes initial coin offerings and transactions in cryptocurrencies legal and all such trades will not be taxed until January 1st, 2023.

The IT industry is one of the booming sectors of the Belarusian economy. The High-Tech Park was already created in Minsk in 2006 to spur growth in the IT industry.

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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.

Gilles Breton also currently serves as Chairman of the National Board of the Canada-Eurasia-Russia Business Association. The views expressed in this newsletter exclusively reflect the opinion of the authors.