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4 key developments from President Vladimir Putin’s visit to Iran

Iran and Russia continue to expand bilateral relations.

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Russian President Vladimir Putin has been in the Iranian capital, Tehran for meetings with Iran’s Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani.

The meetings which have been largely described as successful, coincided with the beginning of work on Iran’s second nuclear power station, which will be constructed by Russian engineers and master builders.

Russia begins building Iran nuclear power station

Iran’s Supreme Leader spoke positively of the meetings and encouraged Russia to join with Iran in developing alternatives to the US Dollar as a basis for international trade. Ayatollah Khamenei stated,

“By ignoring the negative propaganda of the enemies, that seek to weaken relations between countries, we can nullify US sanctions, using methods such as eliminating the dollar and replacing it with national currencies in transactions between two or more parties; thus, isolate the Americans”.

Khameni also stated that he looks forward to further manifold cooperative efforts with Russia. President Putin responded by calling Iran “a strategic partner and a great neighbour, and we will take advantage of every opportunity to expand and consolidate relationships in all dimensions”.

Similar words were echoed by Iranian President Rouhani who called Russia a “good neighbour and friend” and pledged “to further develop relations with our good and very important neighbour and friend – Russia, as well as to continue working together on security issues”.

Putin’s meeting with the Iranian leadership is highly significant both for bilateral relations and for wider regional and global developments. Here are the key points to emerge from the meetings:

1. Sanctions busters 

Russia’s continued and growing economic relations with Iran, including in the field of nuclear energy, is a sign that Russia has no intention whatsoever to follow the US lead in attempting to isolate Iran. Furthermore, as a party to the JCPOA (aka Iran nuclear deal), Russia like China, France, Britain, Germany and the EU as a whole, is perfectly satisfied that Iran is in full compliance with the letter and spirit of the JCPOA.

Russia, which will also assist Iran in building a gas pipeline to India, is positioning itself to fill any economic voids in Iran’s commercial and energy needs, created by a potential (some would say likely) withdrawal from the JCPOA.

With China working to promote the Petroyuan as a means of exchange in the global energy markets, Iran as an OPEC member, is well placed to step away from the US Dollar in cooperation with countries like China, Russia and Venezuela who are already making strides in ditching the Petrodollar.

As Russia and Iran both find themselves on the receiving end of US sanctions, it makes increasing pragmatic sense for both countries to find ways to avoid the restrictions on transactions that are based on the US financial system.

Russia and China actively collude to bring down the only thing America cares about

2. A message to Syria 

Russia and Iran have been and continue to be Syria’s most important state allies in the war to liberate the Syrian Arab Republic from terrorist occupation. This unified front, including on security matters, will help assure Syria that its partners in the fight against Takfiri terrorism will continue to stay the course until Syria is fully liberated.

Iran and Russia also continue cooperate, along with Turkey which itself has recently developed healthy relations with both Moscow and Tehran, in the Astana Peace Talks for Syria.

3. A message to Israel 

Many pundits and even politicians remain perplexed at the fact that Russia has uniquely good relations with both Iran and Israel. China it must be said, has good relations with the regional rivals as well.

While China’s interests in the Middle East are mainly commercial interests, as well as the overriding desire for a more stable Middle East so that One Belt–One Road can pass smoothly through key destinations, Russia’s interests are inclusive of China’s but go several steps further.

Russia seeks a stable Middle East where current borders are solidified, with the exception of working slowly with any amiable partners to realise a two-state solution in respect of the Israel-Palestine issue.

While Russia supports Iran’s aims at pacifying terrorist activity in Iraq and Syria, something opposed by Israel, Russia also is not willing to risk direct conflict with Israel over its long-standing hatred of the Ba’athist government in Syria. Russia, however, also refuses to give way to Israel’s demands for countries like Russia to define the Lebanese political party Hezbollah as a terrorist group.

The ultimate conclusion of this policy is one of strategic balance, one made more apparent when one realises that while Russia is effectively a neighbour of the Middle East, it is not part of the Middle East and therefore does not look at events in the region through the prism of emotion. Russia’s lack of emotion on the Middle East is sometimes thought of as ‘disloyal’. However, one cannot be disloyal to a region that is ultimately foreign, albeit neighbourly and fraternal.

By visiting Iran, Putin is making it clear that no matter what Israel says, the status quo will not change. Ultimately, Iran is a larger state and therefore a more important long term strategic partner to Russia than Israel or Palestine could either be. This is the cold hard reality of the situation which while balanced, still comes out slightly in favour of Iran, something from which, many who support both Syria and Palestine should ultimately derive a sense of relief.

4. A message to the US and EU 

In showing that Moscow’s doors to business and cooperation are open to Iran, Russia is demonstrating that US bullying, whether against Russia or Iran, will not negatively impact on existing and future relations. If anything, Russia and Iran both have an interest in playing up the idea that the US attitude to Moscow and Tehran are galvanising both sides in the Eurasian partnership.

When it comes to Europe, Iran, Russia and major EU players are on the same page–they all want to leave opportunities with Iran firmly open, in spite of Washington’s attitude to the JCPOA.

In doing business with Iran, Russia is effectively sending the following message to Europe: ‘We can help you to continue and do business with Iran, in keeping with the JCPOA, but in order to win Russian trust, the EU must drop its own sanctions against Russia.

Russia isn’t overwhelmingly concerned with the European response to this implied message. However, Russia is laying a very realistic set of cards on the table. If the EU wants to remain on good terms with Iran, Russia, as a superpower with exceedingly good relations with Iran can help, but this help requires the EU to do something for Russia.

With many in Europe realising that major EU countries backed the losing side in both Syria and Ukraine, many in Europe are moving towards a more pragmatic position. It still however remains to be seen whether this movement away from fanaticism will lead to meaningful results. Russia for one, isn’t going to wait around to find out, it will continue making progress with its eager partners, including Iran.

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While US seeks to up the ante on pressure on the DPRK, Russia proposes easing sanctions

These proposals show the dichotomy between the philosophy of US and Russian foreign policy

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The United States last week accused the DPRK of violating refined petroleum caps imposed as a part of UN nuclear sanctions dating back to 2006, and is therefore submitting a proposal to cut all petroleum product sales to North Korea.

The Trump administration is keen on not only preserving pressure on North Korea over its nuclear arms development, but in increasing that pressure even as DPRK Chairman, Kim Jong-Un, is serially meeting with world leaders in a bid to secure North Korea’s security and potential nuclear disarmament, a major move that could deescalate tensions in the region, end the war with the South, and ease global apprehensions about the North’s nuclear arsenal.

Meanwhile, Russia is proposing to the UNSC sanctions relief in some form due to the North’s expressed commitment to nuclear disarmament in the light of recent developments.

Reuters reports:

MOSCOW/UNITED NATIONS (Reuters) – Russia’s envoy to North Korea said on Wednesday it would be logical to raise the question of easing sanctions on North Korea with the United Nations Security Council, as the United States pushes for a halt to refined petroleum exports to Pyongyang.

“The positive change on the Korean peninsula is now obvious,” said the ambassador, Alexander Matsegora, according to the RIA news agency, adding that Russia was ready to help modernize North Korea’s energy system if sanctions were lifted and if Pyongyang can find funding for the modernization.

The U.N. Security Council has unanimously boosted sanctions on North Korea since 2006 in a bid to choke off funding for Pyongyang’s nuclear and ballistic missile programs, banning exports including coal, iron, lead, textiles and seafood, and capping imports of crude oil and refined petroleum products.

China tried late last month to get the Security Council to issue a statement praising the June 12 Singapore meeting between U.S. President Donald Trump and North Korean leader Kim Jong Un and expressing its “willingness to adjust the measures on the DPRK in light of the DPRK’s compliance with the resolutions.”

North Korea’s official name is Democratic People’s Republic of Korea (DPRK).

But the United States blocked the statement on June 28 given “ongoing and very sensitive talks between the United States and the DPRK at this time,” diplomats said. The same day, U.S. Secretary of State Mike Pompeo spoke to his Chinese counterpart Wang Yi about the importance of sanctions enforcement.

U.S. Secretary of State Mike Pompeo is due to informally brief U.N. Security Council envoys along with South Korea and Japan on Friday.

Diplomats say they expect Pompeo to stress the need to maintain pressure on North Korea during his briefing on Friday.

In a tweet on Wednesday Trump said he elicited a promise from Russian President Vladimir Putin to help negotiate with North Korea but did not say how. He also said: “There is no rush, the sanctions remain!”

The United States accused North Korea last week of breaching a U.N. sanctions cap on refined petroleum by making illicit transfers between ships at sea and demanded an immediate end to all sales of the fuel.

The United States submitted the complaint to the U.N. Security Council North Korea sanctions committee, which is due to decide by Thursday whether it will tell all U.N. member states to halt all transfers of refined petroleum to Pyongyang.

Such decisions are made by consensus and some diplomats said they expected China or Russia to delay or block the move.

When asked on June 13 about whether sanctions should be loosened, Russian U.N. Ambassador Vassily Nebenzia said: “We should be thinking about steps in that direction because inevitably there is progress on the track that should be reciprocal, that should be a two-way street. The other side should see encouragement to go forward.”

The proposals of both the United States and Russia are likely to be vetoed by each other, resulting no real changes, but what it displays is the foreign policy positions of both nuclear powers towards the relative position of the DPRK and its rhetorical move towards denuclearization. The US demonstrates that its campaign of increased pressure on the North is necessary to accomplishing the goal of a denuclearized Korean peninsula, while Russia’s philosophy on the matter is to show a mutual willingness to follow through on verbal commitment with a real show of action towards an improved relationship, mirroring on the ground what is happening in politics.

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Europe divided over possible trade compromise with Trump

Even if a European proposal could score a trade cease fire, the war isn’t over

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US President Donald Trump has just lectured NATO on it member’s commitment performance and held a controversial meeting with the Russian President Vladimir Putin and is next week to receive EU Commission President Jean-Claude Juncker, with trade matters being high up on the agenda.

Juncker is expected to present Trump with a package of proposals to help smooth relations and potentially heal areas of division, particularly those surrounding Europe’s trade relationship with America. Those proposals are precisely what is cropping up as another area of divergence between some members of the EU, specifically France and Germany, just after a major contention on migration has been driving discord within the Union.

This gets down to whether Europe should offer concessions to Trump on trade while Trump is admittedly describing the Union as a ‘foe’ and has initiated a trade spat with the Union by assessing trade tariffs on steel and aluminum imports from Europe, spurring retaliatory tariff measures from the EU Commission.

France, specifically, is opposed to any sort of compromise with Trump on the matter, where Trump is perceived as an opponent to the Union and its unity, whereas Germany is economically motivated to seek an end to the trade dispute under the threat of a new round of tariffs emanating from the Trump administration, and is therefore seeking to find some sort of proposal that Trump will accept and therefore back down on his protectionism against the EU, and Germany in particular.

Politico reports:

Only a week before European Commission President Jean-Claude Juncker flies to Washington, France and Germany are divided over how much he should offer to U.S. President Donald Trump to end a deepening trade war, say European diplomats and officials.

But, they add, Germany has the upper hand. Berlin is shaping Juncker’s agenda, suggesting three offers that he could take to Trump on July 25 to resolve the dispute, according to people familiar with the plans.

The French are uneasy about the wisdom of such a conciliatory approach, however, and publicly accuse Trump of seeking to splinter and weaken the 28-member bloc, which he has called his “foe.”

Despite Paris’ reservations about giving away too much to the increasingly hostile U.S. president, the diplomats say that the European Commission’s powerful Secretary-General Martin Selmayr supports the German attempt at rapprochement, which makes it more likely that Juncker will offer some kind of trade fix next week.

“It’s clear that Juncker can’t go to Washington empty-handed,” one diplomat said. He stressed that Juncker’s proposals would be a political signal to Washington and would not be the formal beginning of negotiations, which would have to be approved by EU countries.

European ambassadors will meet on Wednesday to discuss the scope of Juncker’s offer — and indeed whether any offers should be made at all. France’s official position is that Europe must not strike any deal with a gun to its head, or with any country that has opted out of the Paris climate accord, as Trump’s America has done.

While Berlin is terrified by the prospect of 20 percent tariffs on cars and is desperate for a ceasefire deal, France has more fundamental suspicions that the time for compromise is over and that Trump simply wants to destroy EU unity. Paris is concerned that Trump’s next target is its sacred farm sector and is putting more emphasis on the importance of preserving a united political front against Washington.

Two diplomats said Berlin has a broad menu of offers that should be made to Trump: a bilateral deal to cut industrial tariffs, a plurilateral agreement to eliminate car duties worldwide, and a bigger transatlantic trade agreement including regulatory cooperation that potentially also comes with talks on increasing U.S. beef exports into Europe.

Making such generous offers is contentious when Trump crystallized his trade position toward Brussels on CBS news on Sunday: “I think the European Union is a foe, what they do to us in trade. Now, you wouldn’t think of the European Union, but they’re a foe.”

This undiplomatic bombshell came not long after he reportedly advised French President Emmanuel Macron to quit the EU to get a better trade deal than he was willing to offer the EU28.

In announcing Juncker’s visit on Tuesday, the White House said that he and Trump “will focus on improving transatlantic trade and forging a stronger economic partnership.”

Talking to the enemy

Diplomats note that a French-led camp in Brussels reckons Trump’s goals are strategic, and that he’s not after the sort of deal Germany is offering.

A French government official said that Washington quite simply wants to shift the EU off the stage: “Trump’s objective is that there are two big blocs: The United States and China. A multipower world with Europe as a strong player does not fit in.”

France’s Economy Minister Bruno Le Maire this month also issued a stark warning that Trump is seeking to drive a wedge between France and Germany — courting Paris, while simultaneously attacking Berlin’s trade surplus with the U.S. “In this globalized world, European countries must form a bloc, because what our partners or adversaries want is to divide us,” Le Maire said at an economic conference in Aix-en-Provence. “What the United States want, that’s to divide France and Germany.”

Despite these remarks from Le Maire, Anthony Gardner, former ambassador to the EU under the Barack Obama administration, said that he suspects the full magnitude of the threat has not sunk in. “Europe wake up; the U.S. wants to break up the EU,” he tweeted on Sunday. “Remember Belgium’s motto: L’union fait la force. [Unity creates strength]. Especially on trade. No side deals.”

One EU diplomat insisted that Brussels is not blind to these dangers in the run-up to Juncker’s visit.

Trump thinks that Europe is “too big to be controllable by DC, so it’s bad for America. Simple logic. And therefore the only deal that will bring the president to stop the trade war is the deal that breaks up the European market. I don’t quite think that’s the legacy Juncker is aiming for,” the diplomat said.

Europe is source of a deep frustration for Trump, as it runs a massive goods surplus with the U.S., at $147 billion in 2016. In particular, the U.S. president blames Germany’s mighty car exporters for this imbalance.

Leveling the field is not easy, however. With its market of 510 million consumers, Europe not only has the clout to stand up to the United States, but is increasingly setting global standards — particularly on food. This not only limits U.S. exports in Europe but also means that the European model is used in a broader trading ecosystem that includes Canada, Mexico and Japan.

New world order

Marietje Schaake, a liberal Dutch member of the European Parliament, observed that the U.S. trade strategy meshed with Trump’s political agenda.

“You could say there’s a new transatlantic relation emerging, of nationalists, populists and protectionists,” she said, pointing out that Trump’s meeting with Russian President Vladimir Putin has cast doubt on America’s commitment to supporting European security.

Trump’s opposition to the EU partly builds on an long-standing American discomfort about the EU’s economic policies.

“We already saw problems during the negotiations for the Transatlantic Trade and Investment Partnership, where the U.S. didn’t like EU demands such as on geographical indications [food name protections], and certainly didn’t like that we had ambitious requests in areas like public procurement,” said Pascal Kerneis, managing director of the European Services Forum and a member of the now defunct TTIP advisory group.

Kerneis said that Trump’s trade attacks are shifting the tensions to a completely new level: “He’s attacking on all fronts, hoping to break our unity, particularly between Germany and France.”

France particularly fears that Trump’s duties on Spanish olives could only be the first salvo on Europe’s whole system of farm subsidies.

EU lawmaker Schaake said that France is right to worry about a conflagration. “Once we give in in one area, he will attack at the next one,” she said. “If we allow Trump to play Europeans against each other, sector by sector, it will be a losing game.”

Even if Europe goes about capitulating to Trump’s gripes about the Union, whether it gets back to NATO defense spending or the trade deficit, the question remains whether this will satiate Trump’s political appetite and result in an improved trade perspective and politically acceptable position with Washington, and France’s concern that the matter runs deeper and has a foreign policy agenda behind it, and that caving to Trump’s pressure will only end in defeat for the EU would therefore appear reasonable.

But Germany is staring down the barrel of a possible new round of tariffs that would hurt some of their largest industries and is therefore under a lot of pressure to find a solution, or at least some sort of agreement that could deescalate the situation.

However, Germany’s recent record of resolving international issues is such that Germany is really only scoring cease fire agreements, rather than ending the real political conflicts, referring mainly to the immigration issue which recently resulted only in diffusing some inter Union tensions, but without resolving the problem itself.

In this context, Germany could promise the moon and stars to Trump, possibly avert further trade tensions, but yet fail to address the core political and trade conflicts that have already broken out. Essentially, then, such a compromise would only serve to function as damage control, while leaving Germany and the Union at a further disadvantaged political position relative to the States at the political table.

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EU and Japan ink free trade deal representing over 30% of global GDP

The free trade agreement represents a victory for free trade in the face of growing protectionism

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In a bid to preserve free trade and strengthen their trade partnership, the European Union and Japan have finished a free trade zone agreement that has been sitting in the pipeline for years.

The present global economic outlook provided the needed spur to action to get the ball rolling again and now it has finally reached the end zone and scored another point for free and open trade against the growing influence of protectionism, which has been creeping up with alarming rapidity and far reaching consequences in recent months.

Under the deal, Japan will scrap tariffs on some 94% of goods imported from Europe and the EU in turn is canning 99% of tariffs on Japanese goods.

Between the European Union and Japan, the trade deal impacts about 37% of the world’s GDP, making it one of the largest and impactful of such agreements.

The Japan Times reports:

Top European Union leaders and Prime Minister Shinzo Abe signed an economic partnership agreement Tuesday in Tokyo, a pact that will create a massive free trade zone accounting for 37 percent of the world’s trade by value.

European Council President Donald Tusk and European Commission President Jean-Claude Juncker hastily arranged their visit to Tokyo after Abe was forced to abruptly cancel plans to attend a July 11 signing ceremony in Brussels in the aftermath of flooding and mudslides in western Japan.

Japanese officials said the signing is particularly important to counter intensifying protectionism worldwide triggered by U.S. President Donald Trump.

Negotiations on the pact between Japan and the EU, which started in 2013, had stagnated for a time but regained momentum after Trump took office in January 2017.

“We are sending a clear message that we stand together against protectionism,” Tusk said at a joint news conference with Abe after they signed the agreement.

“The relationship between the EU and Japan has never been stronger. Geographically we are far apart, but politically and economically we could be hardly any closer,” Tusk said. “I’m proud today we are taking our strategic partnership to a new level.”

Tusk stressed that the EU and Japan are partners sharing the same basic values, such as liberal democracy, human rights and rule-based order.

Abe also emphasized the importance of free and fair trade.

“Right now, concerns are rising over protectionism all around the world. We are sending out a message emphasizing the importance of a trade system based on free and fair rules,” he said.

The pact will create a free trade bloc accounting for roughly 30 percent of the world’s gross domestic product. Japan and the EU hope to have the agreement, which still needs to be ratified by both parties, come into force by March.

Under the EPA, tariffs on about 99 percent of Japan’s exported goods to the EU will eventually be eliminated, while duties on 94 percent of EU’s exported items to Japan will be abolished, according to the Foreign Ministry.

The EPA will eliminate duties of 10 percent on Japan’s auto exports to the EU seven years after the pact takes effect. The current 15 percent duties on wine imports from the EU will be eliminated immediately, while those on cheese, pork and beef will be sharply cut.

In total, the EPA will push up domestic GDP by 1 percent, or ¥5 trillion a year, and create 290,000 new jobs nationwide, according to the government.

“The world is now facing raging waves of protectionism. So the signing ceremony at this time is particularly meaningful,” a senior Foreign Ministry official said earlier this month on condition of anonymity.

“The impact for Japan is big,” the official said.

Fukunari Kimura, an economics professor at Keio University, said the EU is now trying to accelerate the ratification process.

“This is a repercussion of President Trump’s policies. They will try to ratify it before Brexit in March of next year,” he said in an interview with The Japan Times last week.

But the deal has raised concerns among some domestic farmers, in particular those from Hokkaido, the country’s major dairy producer.

According to an estimate by the Hokkaido Prefectural Government, the EPA will cut national production in the agriculture, fishery and forestry industries by up to ¥114.3 billion a year, with Hokkaido accounting for 34 percent of the predicted losses.

“The sustainable development of the prefecture’s agriculture, forestry and fisheries industries is our top priority. We need to make efforts to raise our international competitiveness,” Hokkaido Gov. Harumi Takahashi said during a news conference July 10.

Japan and the EU had reached a basic agreement on the EPA in December.

Tokyo also led negotiations on the Trans-Pacific Partnership free trade pact after Trump withdrew the U.S. from the deal in January 2017.

In March, 11 countries including Japan signed the so-called TPP11, or a revised TPP pact that does not include the U.S.

“The Japan-EU EPA is another important step for Japan to strengthen its trade relationship with key trading partners, and demonstrate that trade liberalization is alive and well, even if the United States is taking a different stance,” wrote Wendy Cutler, a former acting deputy U.S. Trade Representative, in an email sent to The Japan Times last week.

“The EU deal also reduces Japanese dependence on the U.S. market and thus increases its leverage to resist unreasonable trade demands by the United States,” she wrote.

According to the Foreign Ministry, the EU, which accounts for 22 percent of the world’s GDP, was the destination for 11.4 percent of Japanese exports in 2016. In the same year, the figure for the U.S. was 20.2 percent and 17.7 percent for China.

In 2016, Japan’s exports to the EU totaled ¥8 trillion, while reciprocal trade was ¥8.2 trillion.

The deal provides tariff relief for both parties and can improve the quantity of trade between them, expand the economy and create many jobs. It also helps to further diversify their trade portfolios in order to mitigate the prospect of a single global trade partner wielding too much influence, which in turn provides a certain amount of cover from any adverse actions or demands from a single actor. In this way, current trade dependencies can be reduced and free and diversified trade is further bolstered.

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