Issue 32

THE BRETON/GEROL NEWSLETTER

OSAKA OVERVIEW

The annual summit of the Group of 20 nations has ended in Osaka. Collectively, the grouping represents more than 80 percent of the world's economic output and two-thirds of its people. Its primary aim is to promote international financial stability. The ongoing trade war between China and the United States, the world's two biggest economies, topped the agenda. There was in fact more attention paid to bilateral meetings on the margins of the meeting than to the multilateral discussions on issues such as climate change, where, as expected, the US was the single country not joining the consensus.

Presidents Putin and Trump, Osaka, June 28th
©President of Russia Website

There was a long-awaited meeting between Putin and Trump with vague promises to improve relations and start negotiating various nuclear agreements (current and those about to expire in near future.) It looks like the never-ending saga of Russian attempts to influence US elections in 2016 may be coming to an end.

PM May and President Putin, Osaka, June 28th
©President of Russia Website

The meeting between British PM Theresa May  and Vladimir Putin was remarkable not only for its initial coolness. Reports suggest that after the unpleasant discussion over the Salisbury poisoning incidents, the leaders turned to a discussion over ways of promoting trade between their two countries, thus signaling that even the UK is willing to engage in a political dialogue with Russia in order to advance its own interests.

There was a very brief meeting between Canadian PM and President Xi. They were seen chatting for about 10 minutes with only translators present. Both sides, later, were tight lipped about the content but it is not hard to imagine what was discussed. The outgoing Chinese ambassador in Ottawa said that the crisis in the relations is temporary.

On the last day of the summit Trump and Xi made a statement that that US would not impose additional tariffs on China and that trade negotiations would begin soon. According to most experts this not the end of the war but a cease-fire only.

The US also had announced it would not punish (economically) its NATO ally Turkey for purchasing Russian S400 missile system. The delivery of that system to Turkey is described as imminent. 

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WHO IS AFRAID OF DONALD TRUMP?

The words may be different, but the pattern is the same. Donald Trump’s modus operandi is consistent. North Korea was warned of “fire and fury”. Venezuela was put on notice more than once that “all options are on the table”, the implication here being that a US military intervention was possible. In the case of Iran, Trump threatened the country with “obliteration” and stated that an eventual US military intervention would be “very short”. In comparing the situation with the US intervention in Iraq, he even added that there was no need for an exit solution.

Presidents Kim and Trum, Panmunjom, June 30th
©KCNA

Conflict with North Korea is now out of the question. Kim is still a good buddy and just sent Donald Trump a “beautiful” letter. Trump even invited him to come down to the border area between the two Koreas, to shake hands. After several months of stalemate, nothing has happened in Venezuela. US allies have pronounced themselves against military intervention, understandably so since there national security interest at stake. In the case of Iran, it is not clear yet whether National Security Adviser John Bolton will manage to convince his boss that bombing the Islamic Republic is the right thing. The most anti-Iran US allies, Israel and Saudi Arabia, probably have their own misgivings about a military intervention that could lead to a Hezbollah-led retaliation against Israel and, for Saudi Arabia, a blockage of vital oil shipping lanes in the Strait of Hormuz. After his discussions with other G20 leaders in Osaka, Trump suggested there was still plenty of time to address the Iran issue.

Whenever he speaks this US President gets a lot of attention and his threats are still unnerving not because of his credibility but because of his position. The fact that his bark is stronger than his bite may eventually catch up with him.

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SPIEF 2019

With Chinese President Xi Jinping (whose best friend is now President Putin) as a guest of honour one could expect that the June 2019 St. Petersburg International Economic Forum (SPIEF) would be a trade and investment promotion exercise not despite sanctions but because of them and of other trade barriers. With Russia still under politically driven sanctions and China facing increased tariffs on exports to the US, the political message coming out of St. Petersburg could be expected to contradict US pronouncements. It is therefore not surprising that President Putin commented about the end of US economic hegemony and went as far as to call the measures taken against Chinese company Huawei as a move against China’s emergence as a high-technology supplier.

SPIEF Plenary Session Speakers, St.Petersburg, June 7th

Russia and China appearing to side against the US in their political statements does not however automatically change international trade flows. The fact that there are difficulties between the US one side and Russia and China and the other does not mean that Russia’s “pivot to the East” can lead to China replacing the US as a trade partner for Russia. Those who were seeing such a change as the major objective in Russia-China relations will qualify the situation as a failure. For the leaders of Russia and China It would seem that expectations were more modest. They  congratulated one another on the increase of bilateral trade. Putin highlighted the fact that the trade is not purely commodity-based and has a growing high-technology element. A major deal was in fact signed between Huawei and Russia's largest telecoms operator to develop a fifth-generation network in Russia within the next year. Even more important, especially to Putin was the strong political partnership and the fact that Russia can rely on China as a reliable and predictable partner.

In the discussion about sanctions against Russia, predictability was singled by a Russian industry leader as the most serious issue. The point he made is that it is not the sanctions themselves that cause economic damage, but the fact that a sanction-ridden business environment increases uncertainty which in turn slows down investment.

The impact of sanctions on investment does not however seem to extend to trade. Even with the sanction regime currently in place, EU Russia trade has grown by US100 billion since its 2016 low point. To put things in perspective, that fluctuation almost corresponds to the total Russia-China official trade.

The discussion about sanctions also revealed a rather mixed view among Europeans about whether to extend them almost automatically every six months. Whereas many smaller European countries stated their opposition to sanctions, they had to acknowledge that they did not have the political leverage to turn around the EU decision on the matter. Peter Pellegrini, the Prime Minister of Slovakia even publicly expressed his displeasure that some of the countries proposing or supporting sanctions were among the most active participants at the 2019 SPIEF.

PM Pellegrini’s veiled reference could have applied to some large European countries, but certainly did to the US. In contrast with the political discourse in Washington, one the American participants in the US-Russia Trade panel discussion bragged about the fact that the US private sector delegation was the largest of its kind at this year’s SPIEF. The Chinese delegation was the largest overall, but was heavily loaded with state officials and highly-annoying selfie-addicted journalists.

China’s One Belt One Road initiative was appropriately defended by the Chinese President. His task was made easier by the fact that many of the participants do not share the apprehensions that are regularly voiced in Western media about this allegedly hegemonic Chinese project. To countries geographically closer to China, the building of new infrastructure is not seen as a threat but as an opportunity.

The St. Petersburg discussions also produced unusually positive noises about the Eurasian Economic Union (EAEU), highlighting its positive impact on the rapid growth of internal trade within the Union as well as on the overall foreign trade of Union members. Nikol Pashinyan, the Prime Minister of Armenia, had the opportunity to engage in the defence of the compatibility between Armenia’ membership in the EAEU and its close relationship with the EU. He stressed that Armenia’s economic integration within the EAEU certainly did not prevent it from developing a partnership with the EU in other matters, including economic and political reforms.

PM Pashinyan also insisted, as he has done repeatedly, that Armenia’s greatest problem is its antiquated and corrupt judicial system. This provided an interesting backdrop for President Putin’s handling of the questions on the Michael Calvey case (American businessman Calvey is under house arrest for alleged economic crimes in the context of a dispute with one of his Russian business partners who seems to have used his security service contacts to initiate criminal proceedings). Putin was left to argue that the matter would have to be handled by the Russian judicial system. The only change he offered to contemplate was a more humanitarian treatment of individuals accused of economic crimes.

The Calvey case, although it received a lot of media attention, did not seem to dampen the interest of investors, certainly not that of US corporations. Most often presenting themselves as “global” rather than only US entities, these corporations reiterated their interest in the Russian economy, despite the indirect but real impact of sanctions on the investment climate. Russia-US trade is also on the rise, though not at the same pace as EU-Russia trade.

The word diversification may not have been pronounced often in St. Petersburg, but the reality is that SPIEF has in fact become a vehicle for the promotion of Russian trade diversification, reaching out to virtually every country in the world. That also includes Canada. Political differences notwithstanding, Canada is certainly a welcome guest. The volume of Canada-Russia trade remains relatively small and is subject to commodity-driven fluctuations, but there is an interest in long-term cooperation with Canada in the specialized areas where Canada is among world leaders, including mining, transportation and agricultural technology.

The June 2019 produced a lively and animated political and economic discussion. Difficult issues, such as corruption, were not shunned away. Former Finance Minister Kudrin even singled out corruption as the major obstacle to increased foreign investment and more rapid growth. This may not be enough to lift the Russian economy from its current low growth prospects, but the public acknowledgment of the problem did not deter from an overall impression of moderate optimism.

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UKRAINE ON THE VERGE OF REFORMS

In Ukraine major reforms can be initiated only after the new parliament (Rada) will be elected on July 21st-2019. It has become clear that traditional parties that previously held power most likely would not be represented in the new parliament. That is why the decision by newly elected president Volodimir Zelensky to dissolve the Rada has caused an unprecedented revolt among parliamentarians and their appeal to the constitutional court. The court however ruled in favor of the president. According to recent polls the new party created by Zelensky, "Sluga Naroda" (People's servant) will take over at least 40% of the seats followed by pro-Russian party "Za zhitia"(For life) led by Yuri Boiko and Vadim Rabinovitch.

President Zelensky with European Commission President Juncker, Brussels, June 4th
© President of Ukraine Website

The radical wing of the Ukrainian political specter most likely will not cross the necessary threshold to join parliament. The elections will allow Zelensky to appoint a new Prime Minister-the most important position in the Ukrainian political system. Government management of the economy is run entirely by the PM and his cabinet while the President has the  right to appoint the ministers of foreign affairs and defense as well as the attorney general and the head of the national security service.

For the first time since Ukraine became independent (1991) both, PM and President could belong to one party and jointly implement reforms.

For the Canadian politicum it would be of interest to know that some in the president Zelensky's inner circle suggested Chrystia Freeland, current Canadian foreign minister, could become the head of the Ukrainian government. President Zelensky will be in Canada from July 1st to 3rd.  

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JERUSALEM TRIO

For the first time in modern political history three senior national security officials from Russia, Israel and the United States met in Jerusalem to discuss a broad spectrum of political issues in the Middle East, including the Syrian conflict, Iran and several other issues all sides wished to keep secret.

Nikolay Patrushev, Secretary of the Security Council of Russian Federation agreed with both of his counterparts that Russia should continue to secure the buffer zone between the Syrian government forces and Israel. Meanwhile it has become known that all participants will try to keep Iranian forces and their proxies like Hezbollah outside an 80-kilometer zone along the Israel-Syria border. As a gesture to the Russian president Putin, Prime Minister Netanyahu in his statement to Patrushev commemorated the tragic date of June 22nd 1941 that marked the beginning of the Nazi invasion of the Soviet Union as well as the immense contribution of the USSR in defeating the invader and winning the war.

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CHINA USES CANADIAN PORK FOR POLITICAL PRESSURE ON OTTAWA

It is no great novelty: alleged violation of food product safety for political gain. This time Canadian pork fell victim to that Chinese strategy. It was announced in Beijing that Canadian pork will be subjected to additional scrutiny:-all containers from Canada will opened and inspected. Practically this means the end of Canadian pork exports to China. It is certainly a heavy blow to the Canadian pork industry. After losing the Russian market five years ago, Canadian pork exporters concentrated their efforts on China that together with the US became the largest market for Canadian pork.

Experts are unanimous in the opinion that the Chinese cancellation of canola oil purchase (worth 5 billion per year) and now pork is related to the fact that Canada has arrested Ms. Meng, the Huawei chief financial officer and the daughter of the corporation's owner. Ms. Meng was arrested at Vancouver International Airport last December on a stop over from Hong Kong to Buenos Aires.

According to an indictment unsealed in January, Meng and Huawei face 13 criminal counts of conspiracy, fraud and obstruction in the U.S. The charges relate to an alleged scheme to circumvent sanctions against Iran through a shadow company in Tehran that prosecutors say was actually controlled by Huawei. She is now under house arrest in Vancouver, fighting her extradition to the US.

President Trump was reportedly asked by PM Justin Trudeau to raise the issue in Osaka at the G-20 with president Xi Jinping. It has become known that the Chinese leader already refused to meet the Canadian PM face to face in Osaka.

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PERSON OF THE MONTH: NEWLY ELECTED MAYOR OF ISTANBUL - EKREM IMAMOGLU

Ekrem Imamoglu

Ekrem Imamoglu, the previously little-known 49-year-old mayor of the Istanbul district of Beylikduzu, has seized on the hope his supporters so desired. He came with a relentlessly positive message as he, for the second time, fought to become the mayor of Istanbul.

The previous  election in March was tight. Imamoglu faced former Prime Minister and ruling AK Party heavyweight Binali Yildirim who benefited from all the resources of the state, including its near-total power over Turkish media.

Still Mr. Imamoglu prevailed, though the result was very close. Just 13,000 votes separated the two candidates in a city of more than 15 million.

The government cried foul, alleging votes were stolen and that some polling station officials were not authorized to carry out their functions. It did not contest votes for district mayors which were won by the AKP, even though they were held on the same day and overseen by the same officials.

The nationalist government tried to taint Imamoglu by coming up with various conspiratorial allegations: Greek, terrorist, coup-supporter, American plant, backer of Egyptian autocrat President Sisi, but none of this worked. To the contrary, many residents of Istanbul who usually support President Erdogan voted for the new mayor.

"Whoever wins Istanbul, wins Turkey," said Mr. Erdogan at rallies in the city he once ran as mayor and which propelled him to national power.

This time around, as the Istanbul election clearly has shown, we may see a beginning of major political changes in Turkey as the country begins to look for a new generation of political leaders with a more positive, more secular  and inclusive message, different from Mr. Erdogan's brand of confrontational, nationalistic and Islamic ideology.

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KAZAKHSTAN

Dozens of people have been injured and tens of thousands were evacuated following a series of massive blasts at an ammunition warehouse in Kazakhstan's southern town of Arys. Defense Ministry's press service said that a fire that erupted in the warehouse early in the morning on June 24 causing a massive explosion. The cause of the fire was not clear.

The region's governor, Omirzaq Shokeev, announced a state of emergency in the region and ordered the immediate evacuation of Arys' 45,000 residents. According to the authorities around 25 people were being treated at a hospital in the regional capital, Shymkent.

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GEORGIA

Georgia’s ruling party has announced electoral changes in line with demands of protesters who have taken to the streets of the capital Tbilisi in late June. The parliamentary elections in Georgia in 2020 should be held under a proportional system, the head of the ruling Georgian Dream party, Bidzina Ivanishvili, said on June 24th. Ivanishvili said that no threshold for parties should be applied during the elections.

Changing the electoral system from a mixed to a proportional system from 2020 was one of the demands of thousands of demonstrators who have rallied in the Georgian capital since June 20th.Protest leaders have said that the rallies would continue until their wider demands were met.

Demonstrators initially gathered on June 20 to express their anger at Russian State Duma Deputy Sergei Gavrilov, who had sat in the Georgian parliamentary speaker's seat while addressing a council of lawmakers from predominantly Orthodox Christian countries -- the Inter parliamentary Assembly on Orthodoxy (IAO).

The symbolism of a Russian lawmaker speaking in Russian from the parliamentary speaker's chair touched nerves in Tbilisi, sparking the ire of the public, opposition parties, Georgia's president, and members of the ruling Georgian Dream coalition.

While the protests were sparked by concerns about how Georgia handles relations with Russia, opposition parties have sought to seize the moment to press much wider and unrelated demands over economic and political woes that are plaguing the country.

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COUNCIL OF EUROPE

On June 25^th the Parliamentary Assembly of the Council of Europe (PACE) agreed to re-instate the Russian delegation, one PACE’s leading members declaring that it remained “committed to dialogue as a means of reaching lasting solutions”.

Russia had been sanctioned by PACE five years ago, losing its voice in the Assembly after its illegal invasion and occupation of Ukrainian Crimea.

The Russian delegation was back, and Ukraine was out, their delegates returning to Kyiv in protest at Kremlin representatives being unconditionally reinstated to the Assembly. In solidarity with Ukraine, six more nations walked out in protest: Georgia, Poland, Slovakia, Lithuania, Latvia and Estonia.

The matter is taken very seriously in Kyiv where some see the PACE decision as the beginning of a new deal between Europe and Russia over Ukraine, but without Ukrainian involvement.

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RUSSIA

Four suspects are to face murder charges for the shooting down of Malaysia Airlines flight 17 in July 2014, after online investigators published on June 19^th a new report detailing the attack on the passenger airliner which killed 298 people.

Three of the suspects are members of the Russian armed forces who are alleged to have helped a separatist movement in Ukraine to obtain, use and remove a sophisticated anti-aircraft missile system. All four are likely to be tried in absentia when the case is scheduled to be heard in March 2020 in the Netherlands, where most of the victims came from.

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AZERBAIJAN 

Azerbaijan's flag carrier, AZAL, says it plans to postpone a $1 billion contract with Boeing to purchase 10 737 MAX jets following the fatal crashes involving the aircraft in Ethiopia and Indonesia.

A spokesman for AZAL told the media earlier on June 3 that the company had decided to cancel the contract due to "safety reasons.» Countries around the globe have grounded Boeing's top-selling 737 MAX jets or banned them from flying over their airspace since an Ethiopian Airlines jet of that make crashed after takeoff from Addis Ababa on March 3, killing all 157 people on board.

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TURKMENISTAN

Turkmenistan’s authoritarian President Gurbanguly Berdymukhammedov has appointed his son as governor of the south-central region of Ahal. News of the appointment came on June 17 amid speculation that Serdar Berdymukhammedov, 37, was being groomed to succeed his father at the helm of the tightly controlled Central Asian nation.

President Berdymukhammedov, 61, has ruled Turkmenistan since his autocratic predecessor, Saparmurat Niyazov, died in December 2006. Government critics and human rights groups say he has suppressed dissent and made few changes in the restrictive country since he came to power.

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VIETNAM

Vietnam has formed a special team of experts - including four Russian scientists - to help preserve the embalmed body of the Communist-ruled state's founding leader, Ho Chi Minh. The special council has been created to assess the condition of Ho's corpse, which was first embalmed nearly 50 years ago and work is due to start next month.

Several countries have benefited from the expertise of the Soviet Union's "Lenin Lab", which put the embalmed body of former leader Vladimir Lenin on display in Moscow shortly after his death in 1924.

China, North Korea and Vietnam have all embalmed their founding leaders with assistance from the Soviet Union.The bodies require regular and expensive upkeep and occasional re-embalming to maintain their condition.

The late Vietnamese leader, affectionately known as "Uncle Ho" in Vietnam, is preserved in a large Soviet-built mausoleum in the capital, Hanoi, where he is displayed in a glass coffin in the dark interior. The site attracts thousands of visitors each year.

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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.