Beauty Pageant on Ice: How China and the Eu Compete for the Arctic’S Resources

China Goes Global 2013- September 25-27, Bremen, Germany

BEAUTY PAGEANT ON ICE: HOW CHINA AND THE EU COMPETE FOR THE ARCTIC’S RESOURCES

Reinhard Biedermann Department of Global Politics and Economics Tamkang University, Taiwan (R.O.C.) [email protected]

ABSTRACT

• Purpose: This paper compares China’s and the European Union’s economic diplomacy towards the Arctic region with focus on Greenland. The Arctic, due to climate change, has become the new frontier on intense global competition for resources and raw materials like rare earth elements. The paper gives an innovative insight in the interaction of competition for resources between the EU and China on democratic third markets. • Design/methodology/approach: The exploration is based on rational choice analysis and comparison of economic diplomacy along a framework that highlights the external situation of the Arctic for the EU and China, actor recognition, governance and diplomatic instruments, the role of norms in a democratic environment, sector interests, and negotiation results. • Findings: While China’s government supports its state-owned corporations, looking for ‘deals’, the EU is a multilevel governed, liberal market economy, that wants to establish a common floor of rules, including rights of indigenous people, environment protection, and democratic values. Cooperation between China and the EU on Arctic matters would be promising for both, but is currently not in sight due to China’s internal and external economic policy on resources. • Keywords : China, EU, economic diplomacy, Arctic region, strategic resources, rare earth elements

1. INTRODUCTION

Over centuries the North Pole has been mystified, once upon a time known by children being the workshop and home of Santa Claus, that even has a Canadian postal address (“HoHoHo”). Recently, however, the North Pole has been symbolically demystified when in August 2007 the crew of two mini submarines fixed a Russian metal National flag on the seabed deep under the sea just less than two miles away from Santa Claus’ home. I The Arctic region around Arctic Circle has become an arena for geopolitics as climate change makes the region navigable and the abundant resources like hydrocarbons and minerals accessible. The Arctic icecap today is less than half the size what was measured between 1979 and 2000 during Arctic summer. The accelerating Arctic melt is seen as an opportunity for access to resources by many nations. II Experts of the U.S. Geological Survey (2008) estimated Arctic’s share on gas and oil on world reserves to reach 30 and 13 percent, respectively, while the huge 1

island of Greenland might possess ten percent to one third of global rare earths elements (REE) 1 and many other resources, like uranium, gold or iron ore. The most important political player in the Arctic are Russia, the USA, Canada, Denmark (via Greenland), as well as Norway and Iceland as Arctic littoral states with large sovereign rights of the Arctic’s resources in deep sea. Finland and Sweden as European Union (EU) members also have Arctic territory, but are land-locked countries regarding the Arctic sea.

China and the EU show keen interest in the Arctic region, especially its resources. China has been the most active political player in recent years, although it has no geographical or historical ties as “Arctic outsider”. The EU, an Arctic player through its Arctic member states, has formulated an Arctic strategy in 2008 for the first time, as well as a “Raw Materials Initiative” to protect the EU’s interests for resources globally, also trying to find answers on China’s economic diplomacy on resources (Biedermann 2011). Of special interest for the EU are the REE which are crucial for all high tech industries of 21 st century. Although REE are not that rare on earth, mining is only economically in a few places outside of China. While China claims that its own resources on REE are depleting fast to justify export restrictions, it discovered Greenland as a new potential supplier. The EU is entirely dependent on imports for 14 of the 17 REE and feels concerned about what happens in its vicinity the Arctic, where China has become a “far more aggressive player” III . China is forcefully claiming its natural right being present there as a global player. Since 2012, the EU and China are in a World Trade Organization (WTO) dispute settlement conflict on access to REE from China, which still holds a monopoly of the elements. The conflict on China’s REE works as a catalyst that speeds up resource competition for the Arctic’s resources.

The paper analyses and compares China’s and the EU’s economic diplomacies towards the Arctic region, with a main focus on Greenland. It recurs on the concept of institutional competitiveness and rational choice analysis on economic diplomacy. The EU and China compete on Greenland’s resources not only using their foreign economic diplomacy, but also in representing their domestic institutional setting and policies they follow towards the Arctic region politically and institutionally. Different to many autocratic countries where China heavily invests, the Arctic consists mostly of progressive democracies. Therefore, the government would have also to consider the interests of civil societies. However, such concerns do not fit to Chinese diplomatic traditions that are exclusively focused on state-to-state relations.

This paper proceeds as follows. Next section will introduce the analytic framework to analyze and compare the economic diplomacy of China and the EU towards the Arctic region. The main part of the paper will analyze the different aspects of overall and embedded economic diplomacy and its instruments, actor recognition, policy

1 Rare earth elements (REE) are a group of 17 metals (as classified by the British Geological Survey) like neodymium, lanthanum, and another group of raw materials like indium, germanium, magnesium, beryllium, antimony, or niobium. Most of the REE are attached to a certain place, regional and not reproducible. They have similar chemical properties divided into the light, middle, and heavy REE. Especially the heavy ones, which are needed in the defense industry, are mainly found and mined in China, but Greenland also has huge untapped resources. REE are used in computer, DVD-player, semiconductors, batteries, renewable energy technology, and so on. 2

papers, norms, concrete steps and preliminary negotiation results. The conclusion argues that cooperation between the EU and China on getting access to Greenland’s resources would be promising for both because of the capital- , technology-, and labor intensity of the future projects. However, due to China’s internal and external raw materials diplomacy, cooperation is not in sight.

2. ECONOMIC DIPLOMACY: THE ANALYTICAL FRAMEWORK

This chapter outlines the analytical framework to structure the elaboration on competition between the EU and China for the Arctic resources. The concept ‘nations compete’ is contested and some perceive it as a ‘dangerous obsession’, discussing whether nations or only firms can compete (Krugman 2006). However, Porter (1998) identified the national (and the institutional) dimension as relevant to explain national competitiveness. Regional or national institutions may shape competitiveness of firms abroad, and help or hinder them in competition with firms of other countries. Competitiveness of nations includes new levels of technology, the advantages of large-scale operation, further measurements (dynamic instead of static) and new political considerations like normative values (environmental protection, accountability, etc.; see Pedersen 2010). Since many players operate on micro- and macro level, strategic interaction of economic and political players and the level of complementary of business and politics as well as the interaction between institutions have become central to the explanation of comparative advantages (Crouch 1005, p. 46-73; Hall and Soskice 2001, p.17; Amable 2003, p.56-66; Kohler-Koch 2006). In a multipolar political economy, countries are seldom able to enforce results, so they have to negotiate and adapt to the specific situations. Rational approaches to economic diplomacy perceive sector interests as a key independent variable (Woolcock 2012, p. 26). Other interests like environmental or human rights might be articulated as highly relevant in policy papers, but are de facto less important than economic ones. However, such norms or values might help to promote economic goals, when they fit to the specific situation, like in a democratic environment.

The EU economic diplomacy is operating in a multilevel system, although it plays a significant role in international trade and policy (Woolcock 2013). In recent years, the EU’s interests, actor characteristics or actorness, and capabilities in the Arctic region attracted greater scholarly attention (Pieper et al., 2011; Hossain 2010; Myrjord 2003, Ojanen 2000). Pieper et al. (2011) argue that European transports companies are affected by maritime policy in the Arctic region, environmental issues are related to the EU’s policy in climate change, and the EU also has the interest to have access to new energy sources. However, the degree of EU actorness varies. Pieper et al. conclude that the EU only plays a limited role as an international actor in Arctic governance, despite the region’s increased importance. However, the conclusion the EU being a limited actor in the Arctic region resembles earlier works from Myrjord (2003) and Ojanen (2000). Recently, the potential conflict between environmental responsibility and resource dependence gained greater attention (Hossain 2010).

Table 1: Economic Diplomacy of the EU and China towards the Arctic: Basic conditions and assumptions

Economic Diplomacy EU China External Situation/ Competition on resources in the Competition on resources in the Systemic Drivers in Arctic, EU members may help EU Arctic Arctic Region Recognition as an actor Some EU members are Arctic states “Arctic outsider”, “Arctic or/and within the EFTA, but EU neighbor”, that is welcomed as itself is not a power factor investor Governance and overall Formulated policy papers with No policy papers, but goals for policies multifaceted goals and programs agreements, research, etc. General and framework Environmental protection, human Sovereignty; Arctic as “universal norms rights, (general norms) & heritage”; research on Framework norms (Acquis environment & climate change Communautaire) Sector Interests and No EU Industrial Policy, but Resources; Shipping and politico-economic “industry pressure” for economic transport; clear strategy on REE diplomacy security (China targeted) Negotiation/ Results Overall framework agreements, Concrete Projects, investments, investment rules after Lisbon Treaty “win-win” situations (?) (“Ordnungspolitik”)

China is quite a new actor in the Arctic. General assumptions on China’s international resource competitiveness, and hitherto experiences on economic diplomacy elsewhere may influence the EU’s awareness and reactions of China in the Arctic. China and Russia are large emerging actors to use their resources strategically, which led the EU start to implement its own “raw materials diplomacy (RMI) in 2008 and to assess the strategically of elements. The EU, like the USA in recent years, has elaborated on a list of critical raw materials. Western capitalist systems may also transform their former liberal stance of resource autonomy (self-help by the corporations) towards an active state. The emergence of China as a state capitalist player on resource markets may also change the EU’s behavior on third markets. China’s economic diplomacy has earned criticism by the EU. The EU Commissioner for Trade, Karel de Gucht, blamed China for starting a “war on resources” by implementing export restrictions on raw materials (Biedermann, 2014). The “management of resources” (Nair, 2011, pp. 114-5) approaches the centre of China’s effort to ensure viable, sustainable development. Cerny (1997, p. 272) wrote: “the main focus of the competition state in the world ... is the promotion of economic activities, whether at home or abroad, which will make firms and sectors located within the territory of the state competitive in international markets.” Different to the EU’s economic diplomacy, which should lay regulatory foundations on which private firms can compete, China’s economic diplomacy is focused on ‘deals’ to support Chinese corporations abroad. Between 2010 and 2012 the EU funded a large project to identify the main global challenges relating to competition for access to resources, and to propose new approaches to collaborative solutions (Polinares 2013). The final report says the transition to a state 4

capitalist regime on raw materials markets will have a profound impact on the balance of conflict, competition and collaboration in access to oil, gas and minerals (Polinares 2012, p.2).

The paper proceeds as follows (see table 1). First, the external situation from EU’s and China’s perspective will be explored, that is, the development and political situation in the Arctic region from China’s and EU’s perspective. Second, the recognition of the EU and China as actors in the Arctic region will be discussed. The better China and the EU are represented by Nations in the Arctic region, the more influential their policies may be. When norms and actors are respected in the country, then policy strategies and economic instruments might be more successful. Overall goals and governance conditions will be discussed afterwards. Norms (general and specific) will explain overall goals of diplomacy. Sector interests and respective perspectives from EU and China will be explored as a next step. In conclusion, preliminary negotiation results will be summed up.

The material used in this paper includes official documents of the EU Commission, scholarly papers and books, Chinese official and academic positions, and diplomatic activities reported in newspaper/online articles on current Arctic affairs of 2012 and 2013.

3. The Arctic Economic Diplomacy of EU and China

3.1. The general situation of the Arctic region Legally, the ownership of the Arctic is governed by the United Nations Convention of the Law of the Sea (UNCLOS), which gives the Arctic Nations an exclusive economic zone that extends 200 nautical miles (370 km) from land and to undersea resources so long as they are on a continental shelf that can be longer than the miles zone. 80 or even 90 percent of Arctic region are conflict free. With the Ilulissat Declaration of 2008 IV , member states of the Arctic Council, namely the United States, Canada, Denmark-Greenland, Norway and Russia and later Iceland, Sweden and Finland, declared their jurisdictional rights in the Arctic Region under the terms of the UNCLOS. The US government considers the Arctic region as “peaceful, stable, and free of conflict”. V Iceland also has recognized exploration rights on the potentially mineral-rich coastal shelf of the Jan Mayen Island under a bilateral agreement with Norway. Already in 1920, Britain allowed Spitsbergen pass to Norwegian sovereignty, albeit with an international treaty mandating equal access to its resources (Emerson 2011, p.28). The Arctic states have submitted outer-continental shelf claims submitted to the UN. If they will be approved, the high seas area may shrink by two thirds, limiting the free maneuverability of China’s right to benefit from Arctic’s resources. Beside UNCLOS, the Svalbard Treaty from 1925 can be seen as another legal foundation to protect China’s presence. The Treaty granted Norway sovereign rights to the Svalbard archipelago, but allowed the then 42 parties (including China) equal rights to undertake fishing, hunting, mining, trade, and industrial activities in the area (Jakobson, Peng 2012, p. 18).

Map 1: The Arctic Region political map (Source: Assorted illustrations of the Arctic Council)

Politically, with the exception of Russia, all Arctic Nations are democracies governed by the rule of law. Geographically, it is the parallel of latitude of the Arctic Circle that defines about whether a country belongs to the Arctic (see map 1). Only four million people live within the Arctic Circle. Countries that have territory within the Arctic Circle automatically belong to the Arctic Council, the most prominent regional organization (see http://www.arctic-council.org/index.php/en/ ). Regular members of the organization are Canada, the U.S.A. (via Alaska), Denmark, Norway, Iceland, Russia, Sweden, and Finland. For centuries, fishing has been the most important economic activity in the Arctic. Sweden and Finland are no littoral states, but have territory within the Arctic Circle and therefore belong to the Arctic Council. Denmark belongs to the Arctic, since Greenland and the Faroe Islands lie within the Arctic Circle. Both territories belong to the Kingdom of Denmark. Therefore, with Denmark, Sweden and Finland, the EU has three member states that belong to the Arctic Council, while Norway and Iceland are two more states within the Arctic Council that have close EU relations (for instance, they belong to the European Economic Area that allows membership of the internal market). The Arctic Council is a regional organization of the eight member states with limited common goals, but which gained much attention by China, as by the European Union (EU). Besides environmental and border issues, the tasks today encompass decision-making like defining future port fees and negotiating agreements on oil spill remediation. Both China and the EU applied permanent observer status, together with Japan, South Korea, India, Singapore. While China has been accepted in May 2013, together with the other 6

applicants, the EU’s application has been declined, which shows that the support by the EU members of the Arctic Council is not very strong, while Canada applied a blackmailing vote against EU (due to export restrictions of Canadian seal products to the EU). Applicants must demonstrate ‘the political willingness and financial ability to contribute to the work of the Permanent Participants’ and ‘recognize Arctic states’ sovereignty, sovereign rights and jurisdiction in the Arctic’ VI

On the surface, that situation looks favorable for the EU being a strong actor in the Arctic region, but the support to raise the EU profile by the Arctic EU members is not very strong, maybe with the exception of Finland that articulated a strong commitment for the EU’s Arctic strategy, different to Denmark, Sweden, Iceland, or Norway (the latter are no EU members).

3.2. Greenland Greenland is the world’s largest island and about half the size of Europe with a population of around 57,000 people, making it the least densely populated country in the world. 44 politicians are said to be in charge of the country. VII Fishing still accounts for 90 percent of its exports. Together with Denmark, Greenland joined the European Community in 1972, but left it again in 1985 over the bloc’s commercial fishing regulations and ban on seal skin products, that also led to Canada’s rejection of EU’s observer status in the Arctic Council in May 2013. In 1979, Greenland was granted home rule, while Denmark continued to have authority over foreign affairs, financial policy and security (including defense, police and justice). After a referendum in 2008, Greenland’s government gained control over the island’s natural resources. 40 per cent of island’s revenues come from Denmark’s development aid. Greenland uses the Danish Krone and is subject to Danish constitution and Denmark’s foreign and security politics. Denmark provides a subsidy of over Euro 450 million per year, while the EU supports Greenland by around 25 million Euro per year. Since 2009, Greenland won self-government, and most politicians have aimed for growing autonomy and eventual independence. Judicial affairs, police, and natural resources are under local authority. But Greenland’s geopolitical role as thawing of ice opens up sea lanes, minerals and oil fields, draws attention from the USA, the Europeans, and the Chinese.

Greenland is home to one of the world’s largest deposits of REE. The deposit could contain about 10.3 million metric tons of rare earth metals, equivalent to about ten percent of global reserves (U.S. Geological Survey). But there are also many other raw materials ready for exploration. So far, more than 100 exploration licenses have been awarded. A decade earlier the figure was 20. In 2012 there were 30 exploration projects, while only one mine was really operating. In December 2012, Greenland has passed a bill setting the framework that would allow big mining companies to employ thousands of foreign workers for construction and exploration projects. The legislation defines the size and minimum salary of the workers to avoid social dumping and to protect local employees. For example, a $2.3 billion project for an iron ore mine by the British-based London Mining Plc near a fiord in Nuuk may involve diesel power plants, a road and a port that could supply China with iron ore. Fishermen fear that spills from iron ore ships could destroy fishing. Up to 3000 Chinese workers could fly in for construction in 2013. Alcoa, an American-based 7

aluminum company, planned to bring another 3000 Chinese workers to build an aluminum smelting company and hydroelectric plants to Greenland.

A major goal for Greenland always has been independence, another one environment protection. The way for Greenland to become an independent state may go over mineral sales. Independence, the EU might speculate, could bring Greenland back to EU membership. VIII It took Greenland 30 years to go from home rule to self rule (1979-2009). Independence, albeit a century old vision, will be realized in decades to come, as Greenland’s politicians say. IX Greenland has very close and complex links to Denmark, where ten percent of the population lives. An EU membership of Greenland would be eased when Iceland, would become a member of the EU, since Iceland also has close relations with Greenland. The government wants to convince the EU to lift its ban from 2009 on imports of seal products, which resulted in the backlog of 300,000 skins. X

In September 2012 during the visit of South Korean’s President, Greenland and South Korea signed an agreement that plans the exploitation of rare earths and other metals. This was the first concrete agreement of a Greenland company (NunaMetals) with an Asian company or state ever. XI Within three years 80 licenses were granted to mineral miners and oil corporations including Chevron, ConocoPhillips, and Shell. Within one year, companies spent around $100 million exploring the deposits, several firms apply for new licenses to explore gold, iron, zinc, or rare earths. Still, Greenland has a ban on mining radioactive elements, but companies like the Australian Greenland Minerals & Energy (GGG) want to mine a site of rare earth elements. The ban is expected to be lifted. In January 2013, the Danish parliament marked a historical shift after it signaled to allow exports of uranium from Greenland after 30 years of opposition from nuclear power. Denmark could become one of the biggest exporters of uranium, if Greenland makes a formal request to exploit it. Denmark, one of the most radical opponents of nuclear energy, would become a major player for the global nuclear circuit.

But there are also fears in Greenland’s population about environmental, social, cultural or psychological costs and burden. Last not least, the capacity of Greenland to organize future explorations and oversee them appears as rather questionable. Den- mark is concerned about Greenland’s ability to effectively oversee the influx of new, heavily technical industries and the responsibly implemented production, regulatory and environmental standards these industries require. The national labor union wants to ban the use of low-wage laborers, but there are not enough workers to build mines without help from outside. Probably, Greenland will favor such investments and partners that implement a “holistic” approach in accordance with the indigenous people, their culture, traditions, environment, and so on. Since many people in Greenland are unemployed, Chinese workers might not be welcomed by some local people. Main concern is that many people feel they are not part of the decision- making, or a cue ball for the great power politics.

The younger generation welcomes investments from miners like Alcoa, whereas the older generation wants to hold up the fishing tradition. But in general, the population of Greenland may welcome investors, since it is a poor country, where fishing is not

lucrative anymore. Some fear, the miserable economic situation in Greenland may contribute to a fast sell-out of resources.

3.3. Recognition as Arctic actors: China and the EU compared Both China and the EU want to raise their profile in the Arctic region. Compared to China, the EU might be in a “pole position” (Daemers 2012), since it is closer to the Arctic than China (geographically, culturally, historically, etc.), and some Arctic states are members of the EU. Moreover, the Arctic countries are open democracies, with the exception of Russia. However, China is also seen as a very promising business partner by Arctic states, whereas the EU’s hegemonic regulatory positions may chill prospective partnerships. Chinese policymakers have clearly stated that they regard the Arctic Council as the most influential international institution for developing collaboration and Arctic governance (Jakobson, Peng 2012, p.11). Since 2007 China has been an ad hoc observer. However, in May 2013 at the Arctic Council meeting, China was accepted as permanent observer. China’s application was strongly backed by the small members, like Norway, Iceland, or Denmark. Norway for instance argued, that neglecting China as observer may motivate China to initiate an own regional grouping. The larger states, especially Russia, perceive a Chinese participation more critical, but did not vote against it.XII To raise its profile, China has engaged in diplomatic activities on highest government levels with Denmark, Greenland, Norway, and Iceland. China is new to the Arctic Region due to its geographic and legal status as an “Arctic outsider” (Jakobson, Peng 2012). China’s low profile on political issues in the Arctic region as an “Arctic outsider” could lift China’s profile, together with the fact that smaller states feel flattered by China’s advances. However, the Chinese interpretation “Arctic is a treasure of humankind” has been rejected by the Arctic Council. Chinese nationalist and military rhetoric regarding China’s claims in the Arctic may have contributed to stricter rules for observers in the Arctic Council. XIII However, Chinese analysts refer to China as a “near-Arctic state” and an “Arctic stakeholder”, since the Arctic is “the inherited wealth of all humankind” XIV , as China’s State Oceanic Administration claimed. In July and August 2012 in a way to back the entitlement and for the first time ever, the Chinese icebreaker Xuelong, the world’s largest nonnuclear one, sailed from Qingdao straight through the Arctic to Iceland.

The EU, as already said, has permanent members of the Council as well as observers like France, Germany, Italy, Spain or Poland, so that an additional EU observer seat would mean a European overweight, as some members may fear. For instance, Sweden complained that the Kingdom of Denmark had three seats (Denmark, Faroe, and Greenland). The Arctic strategies of EU members Denmark, Sweden, and Finland give insight about EU’s profile in the Arctic, but also about the inconsistent goals they have.XV While Finland in its own Arctic strategy is a strong supporter of a strong EU position that supports also interests of Finland, Denmark is more hesitant and partly even critical: “We must seek to avoid further cases where the laws, traditions, cultures and needs of Arctic societies are neglected, as for example in the EU’s ban on the import of seal products” (Kingdom of Denmark, p.52).

Denmark has become a key gateway for Beijing’s commercial and strategic entry into the Arctic, while, for instance, Denmark’s embassy in Beijing is twice as big as its 9

counterpart in Washington. Denmark supported China’s wish to become a permanent observer in the Arctic Council, while Greenland is treated as a bargaining chip by Denmark. That is why the EU may mistrust Denmark to a certain extent, since “Denmark’s loyalty in the European Union ends at the Arctic Circle”, as a reputable German scholar put it (Haftendorn 2011, p.72). Denmark pledges to support the EU’s Arctic profile and policies, but, for instance, is far away from writing “The EU is an Arctic player”, as did Finland’s Arctic strategy, continuing: “The European Union’s Arctic policy is part of both the Union’s internal policies and its external relations”. Finland especially wants to promote a strong EU-Russia cooperation in the Barents Sea (Finland’s Strategy for the Arctic Region, 2010). Another perspective has Norway, the Saudi Arabia of the North that mainly and almost exclusively emphasizes its petroleum interests in its Arctic strategy.

The EU is member of the “Northern Dimension” (ND), together with Russia, Norway, and Iceland. This is an umbrella for regional cooperation that brings together all Arctic states. The USA and Canada are observers in ND. The ND is the main forum for cooperation and coordination between the EU and Russia on matters in the Barents Sea and questions about shipping routes. Since Norway and Russia share a huge sea-border and the EU as a whole has considerable trade and shipping interests, the ND may become an important coordination mechanism to deal with related issues. It is in the interest of the EU as well as China that Russia allows free or low-cost shipping through the Northern passage when possible.

Although the EU and China are no permanent members of the Arctic Council, both could raise their actor profile in the last years. Due to its geographic and political advantages of being closer to the region, the EU still has a higher profile, although some Arctic states like Norway, Denmark, and Iceland keep some distance to the EU, while engaging strongly in diplomatic activities with China. They may even shift between Chinese and European interests. A recent example gives Iceland. After the financial collapse in 2008, it wanted to become EU member as fast as possible, but since China makes advances to Iceland, the political climate changed yet faster than the Arctic climate, so the pro-European party lost the elections in spring 2013. Nevertheless, the “China threat” thesis might counter Chinese influence and actor capacity in the Arctic. For instance, after envious accusations from a Japanese leading newspaper criticized China’s diplomatic progress, the state-controlled Xinhua reacted sensitive stating “China’s activities are for the purposes of regular environmental investigation and investment and have nothing to do with resource plundering and strategic control.” XVI Obviously, Japan hit a soft spot. Those “China threat” perceptions are also virulent in European Arctic states, as the elections in Greenland in March 2013 have shown, which was won by the Social Democrats and China- skeptic party.

3.4. Governance and overall policies With the trade strategy “Global Europe. Competing in the World. A Contribution to the EU’s Growth and Jobs Strategy” (European Commission 2006), the EU introduced a European trade policy emphasizing bilateral agreements with single nations, instead of multilateral negotiations. Afterwards, the European Commission issued a series of trade policy and paper on raw material issues, together with 10

regionally oriented concepts, as well as domestic environment plans on energy and sustainability, that altogether may frame the EU’s diplomatic activity towards the Arctic. On November 2008, the European Commission issued two groundbreaking communications, namely “The European Union and the Arctic Region” (Commission 2008a) as well as “The raw materials initiative – meeting our critical needs for growth and jobs in Europe” (Commission 2008b). Follow-up communications on the Arctic and on raw materials were introduced (Commission 2011, 2012a, 2012c). The Council of the European Union decided in December 2009 upon the development of a European Union Arctic Policy (EUAP). The EUAP (Council of the European Union, 2009) contained three key objectives

- Protecting and preserving the Arctic in harmony with its peoples; - Promoting sustainable use of natural resources - Contributing to enhanced governance in the Arctic through implementation of agreements, frameworks and arrangements, and their further development. XVII

Hence, to better differentiate between the overall Arctic policies, its normative grounding, and the materialist economic diplomacy of the EU along the analytic framework, a differentiation between the communications on the Arctic and the Arctic’s raw materials policy will be applied here.

Differently to the EU, China’s overall diplomacy is not grounded by a published or official Arctic strategy. But China clearly has abandoned its “wait-and-see approach to Arctic developments” (Jakobson 2010, p.2) and since two years is actively engaged in diplomacy. Briscoe (2013) puts China’s ambitions in the Arctic sea into three categories: - securing a share of Arctic resources - establishing much shorter shipping routes from Pacific to Atlantic - and obtaining fishing rights and conducting research in the Arctic.

China understands itself as one of the largest countries of the northern hemisphere. Officially, China’s activities in the Arctic region are for the purposes of regular environmental investigation and investment. China’s longer term objective might also be having a “foothold in Europe”, that a close partnership with Greenland could provide. XVIII High-level diplomatic visits by China had been to Greenland, where Chinese companies are investing already ( New York Times , 18.09.2012). However, the recently enhanced Chinese-Greenland diplomatic contacts are not entirely new. Already in 2005, the then Premier of Greenland visited China, which was one of the few countries looking to Greenland that time. Further high-level meetings followed, which is rather exceptional for China, since Greenland is not an internationally recognized country. China explored already for iron, copper and gold in Greenland.

3.5. General and Framework Norms in the EU’s and China’s approaches The EU’s raw materials initiative (RMI 2008) cites the Communication on the Arctic 11

region, which puts both policies in a relation (Commission 2008b, p.6). The document also declared to consider an EU contribution to an enhanced EITI++ ( Extractive Industries Initiative Plus Plus )XIX , that is, in short, an emphasis on sustainable mining. Therewith, the Commission wants to promote new rules and agreements on sustainable access to raw materials at multilateral and bilateral levels. Strengthening the capacities of states through good governance in economics, society, environment and politics is also emphasized. Sound taxing systems shall be promoted, where States have a fair share of the revenues, transparency of mining deals and revenues should be enhanced. The RMI is anchored in wider policies towards third countries such as promoting human rights, good governance, conflict-resolution, non- proliferation and regional stability (Commission 2011, p.11). Actions have been launched within the “good governance approach”, where the EU finances projects through the European Investment Bank (EIB) lending to mining projects, for instance. Sustainable use of resources was increasingly mainstreamed into EU policy initiatives to promote growth and competitiveness, as the RMI says (Commission 2011, p.13).

The EU documents pledge to consider and learn from indigenous people’s interests of that region and to gain “additional understanding of remote Arctic societies”, “indigenous peoples are given appropriate platforms to present their particular concerns to EU institutions and audiences” (Commission 2012a, p.11). In January 2011 the EU issued the “EU Arctic Footprint and Policy Assessment” which provides an overview of the impact the EU can have in nine areas including environment, raw materials, climate change, among others. And since January 2012, the EU engages in an NGO (nongovernmental organizations) dialogue on Arctic environmental issues. The EU provides significant funds and operates projects to support indigenous people in the Arctic, for instance, Euro 1.1 billion for the largest program on entrepreneurship in Northern Finland to the Sami people and many other programs. The partnership with Greenland focuses on education, research, raw materials and energy, among others and takes the largest place in the last section of the communication (Commission 2012a, p.18.)

Both communications opened new perspectives on common external commercial policies, supplemented by the Lisbon Treaty, in force since 2009, that integrated former national investment treaties and policies to a common European investment policy competence. The German think-tank SWP in Berlin said the EU as the largest investor on foreign markets should use that opportunity to create sustainable investment in mining, since many cases showed the risks on extracting. XX The EU has the sole competence in Bilateral Investment Treaties (BIT), and should use it with regard to raw materials.

The EU sums up its Arctic Council engagement as follows:

“The European Union is the world’s strongest proponent of greater international efforts to fight climate change, through the development of alternative energy sources, resource efficiency and climate change research. It has three (and with Iceland potentially four) Arctic Council states amongst its members. The European Union is also a major destination of resources of goods from the Arctic Region. Many of its policies and regulations therefore have implications for Arctic stakeholders. The European Union wants to engage more with Arctic partners to increase its awareness 12

of their concerns and to address common challenges in a collaborative manner.” (Commission 2012a, p.3).

The EU also introduces elements of its “Arctic contribution”, namely fighting climate change, research on Arctic environment, investing in sustainable development in the North, reducing future uncertainties and monitoring changes in the Arctic region, and shipping and maritime safety (Commission 2012a, p.4). The domestic binding EU policies regarding sustainable energy usage or a proposed regulation of offshore oil and gas production shall also applied in Arctic region (Commission 2012a, p.9).

The EU and Greenland decided to enhance the dialogue on natural resources while the same time protect Greenland’s environment and contribute to diversification of the economy. The EU Commission describes its overall Arctic policy with “knowledge, responsibility, engagement” that should provide a set of tangible actions that contribute to research and development in the region and environmentally technologies that could be used for sustainable shipping and mining. XXI The European Commission signed an agreement in Nuuk on 13 June 2012 to ensure that Greenland’s minerals remained available to free markets in the future. XXII

Climate- and environment protection are core goals of the EU Arctic politics (Haftendorn 2011, p.76). In 2008, the EU introduced an Action plan for environmental protection in accordance with the local Arctic population, support of a sustainable exploitation of resources, as well as a contribution for improved multilateral rules (Commission 2008). But Greenland and other Arctic nations blamed the EU for playing the “green card” to make oil and gas exploration difficult or even ban it while getting a foot in strategic affairs there. XXIII

Differently to the EU, China has no formulated public documents on Arctic policies published yet. As already said, the government emphasizes sovereignty and jurisdictional rights of the Arctic states. Potentially, such statements protect the interests of the smaller Arctic states, since they would be in a weaker position in case of hot conflicts. Chinese scholars advocate that China should try to avoid sensitive issues such as resource exploration and focus instead on climate change considerations, “which will allow China to constructively participate in global cooperation” (Jakobsen, Peng 2012, vi). China’s polar scientific capabilities belong to the strongest in the world, and the government has increased funding over the last years. Officially, environmental and research concerns are paramount: In January th 2013 China announced to launch its 30 expedition to the Antarctic as well as its sixth Arctic expedition. A national maritime work conference issued a document that declares to deepen research efforts regarding the protection of the country’s strategic interests in the Arctic region. Newly icebreakers are built and more planes purchased for scientific expeditions. XXIV

3.6. Sector Interests Since 2004, the Chinese Government has employed a three-pronged strategy: the restriction of rare earth exports, the encouragement of imports and the active encouragement of outbound rare earth acquisitions. As on the domestic level, the state 13

plays a deciding role through raw materials diplomacy applied to all relevant raw materials and towards all continents and regions. China is encouraging domestic companies to invest overseas, for instance the 12th Five-Year Plan (P.R.C. MIIT, 2012) stated that “bringing in” and “going out” are equally important, all the more so since China might soon become a net importer of REEs. China is follows a global strategy for REEs that aims to cement China’s monopolistic position (Biedermann 2014). For instance, China tried (but failed) to achieve the largest rare earth mines in the US and Australia, which possesses the richest known deposit of rare earth elements in the world, in recent years (Hurst 2010). However, Chinese argue, the market share of REEs from China will soon fall to 60% (Röttger, 2011).

Particularly of interest for Chinese rare earth companies like Mongolia Baotou Steel Rare Earth (the by far globally largest player in the rare earth sector) might be the Kvanefjeld deposit in Greenland that could produce 20% of the global rare earth supply and large amounts of uranium when production starts in 2016, according to studies of U.S. Geological Survey. The deposit could contain 10.3 million metric tons of rare earth metals, equivalent to about 10 percent of the known global reserves. Kvenfjeld might also influence global prices. One deposit of rare earths, which may contain more than 10 percent of the world, is currently explored by Australia’s Greenland Minerals and Energy.

The “raw materials initiative” (Commission 2008b, p.4) says that “fundamental changes in global markets are threatening the competitiveness of the European industry”. China was outlined as a key country in applying government measures like export restrictions and trade distorting measures in raw materials. There are some, albeit limited signs of a merging strategy towards Arctic Region connected with the RMI. The 2012 communication on the Arctic declares “the EU will actively pursue a raw materials diplomacy with relevant Arctic states with a view securing access to raw materials notably through strategic partnerships and policy dialogues” (Commission 2012a, p.10). The EU accuses China being a problem for open access to many other raw materials (Commission 2012c, p.19).

At least since March 2011 the EU is propelled finding other rare earth materials sources elsewhere instead of exclusively importing them from China. XXV In June 2012, rare earth elements brought Vice-President Antonio Tajani of the European Commission to Greenland, one day before China’s President Hu Jintao visited Den- mark for three days. XXVI “Raw material diplomacy” reached the centre of EU’s Greenland policy in July 2012, Tajani said “Greenland is hugely important in terms of natural resources, it has vast opportunities. We are currently working very hard with the prime minister of Greenland on this – we are working on our own agreement with Greenland on raw materials. This is raw materials diplomacy. We have allies XXXI working on this worldwide.” He forged an agreement with Greenland to look at joint development of some of the deposits. The agreement includes rare earths, but also gold and iron, and potentially also oil and gas. Companies would push the Commission for innovative partnerships, Tajani said. Indeed, Tajani yet sees advantages for the EU because of environmental concerns. The EU would try hard to improve environmental standards.

3.7. Negotiations and Results In April 2012, Chinese Premier Wen Jiabao went to Iceland, where rumors about a Chinese future naval base came up. He signed a number of economic agreements including areas like geothermal energy and free trade. China’s outgoing President Hu Jinato paid a three-day visit to Denmark in June 2012. It was the first state visit since the countries established diplomatic ties 62 years before. XXVII . “Greenland’s huge mineral wealth may have been the elephant in the room” and the explanation for why Hu went to Denmark ( Reuters , 16 June 2012). Both visits raised questions about the purpose of Chinese high level visits, like that of China’s minister of land and resources, Xu Shaoshi, to Greenland in 2012. China and Denmark signed valuable export and investment deals. Iceland wants to become a “laboratory for the Earth” and signed several agreements with China on scientific cooperation. Norway also gave its enthusiastic consent to support China’s permanent observer status in January 2013, after China called Norway to improve ties over the news agency Xinhua, which were strained since the Noble committee awarded the Peace Price to Lu Xiaobo on 2010. XXVIII But with its support, Norway also wants to make sure China has no incentive to form an own club. XXIX

Backed by Chinese steelmakers, London Mining, has applied for permission to construct an iron ore mine northeast of Nuuk. The Euro 1.85 billion would become the biggest industrial development project in Greenland. The company wants to win state-owned Sichuan Xinye Mining Investment for pro-viding finance, while most output would go to China. China also proposed to construct a runway for jumbo jets in Greenland’s North to fly out minerals and other materials. Of the expected 3000 workers, only ten per cent would be recruited locally. Other in Greenland interested and known player are Jiangxi Zhongrun Mining and Jiangxi Union Mining. A private company from Jiangxi province invested in a joint prospecting project in Greenland with the United Kingdom’s Nordic Mining Corporation. The only measure taken by a large state-owned enterprise is a long-term collaboration agreement on transportation on hydrocarbons between China National Petroleum Corporation and Russia’s Sovcomflot Group.

On EU’s site, in 2012, EU Vice President Tajani signed a memorandum of understanding (MOU) with Greenland over its raw materials. Of the 14 raw materials the EU sees as critical, Greenland has six of them. The contract aimed at improving European access to Greenland’s minerals, but it may also be about ensuring Greenland will not put all eggs in one basket, namely China. But the EU so far has not made concrete steps to give life to the MOU. XXX When he visited Greenland in June 2012 on a “raw mineral diplomacy trip” (words of Tajani), Tajani also offered large sums of development aid in exchange for guarantees that Greenland would not give China exclusive access to its rare earths metals. When asked about China, Greenland’s (then) prime minister Kuupik Kleist said in November 2011 “China has legitimate right to be interested in and participate in what happens in the Arctic, but it requires that the rules are observed,” s (The Wall Street Journal, 18 th January 2011). The request by the EU in January 2013 to refuse requests by China to let China mine rare earths (which is above all a remarkable affront against EU’s own standards) was refused by then prime minister Kleist: “Greenland is open for investments from the whole world, taking into account that the investors accept the regulations and

requirements from Greenland in doing so” XXXI

After the elections in March 2013, Greenland’s Prime Minister Kleist lost against the social-democratic Aleqa Hammond. Voters in Greenland “feared that ministers were surrendering their country’s interests to China and foreign multinationals” XXXII and called an end to the government of prime minister Kuupik Kleist. The social- democratic Siumut party led by Aleqa Hammond has won 42% in a campaign that had resource policy in its centre. She said, she would take a more critical look at Chinese mining investments in Greenland. She said, “Greenland should work with countries that have the same values as we have, in how human rights should be respected. We are not giving up our values for investors’ s sake.” (The Guardian, 15 March 2013). She also assured to limit inflows of cheap labor from abroad. London Mining promptly denied that it had hired workers from China or anywhere else. No Chinese enterprises have been granted oil, gas or mining licenses so far, and no Chi- nese workers have entered Greenland so far, says Beijing (The Guardian, 15 March 2013).

Bilaterally, the EU and China don’t cooperate on Arctic issues, although they have agreed on a strategic partnership since many years. At the EU-China Summit in 2012, the two sides exchanged ‘views on Arctic matters’ for the first time, but made no further commitments to cooperation on Arctic issues. XXXIII

The courtship of Greenland by the EU and China will continue, but currently it seems that the EU is a more attractive partner for Greenland than China, due to its norms and policies. On the other site, China has made considerable progress with its pragmatic high and low diplomacy approach.

4. CONCLUSION

Both China and the EU have a keen interest in Arctic’s resources, from oil, gas, to rare earths and other raw materials. China is moreover very interested in shipping routes, which would save time and money in the future, for both the EU and China. China could raise its profile through top level diplomacy towards the small Arctic states and became observer in the Arctic Council, while the EU’s application was rejected. This puts the EU in a dilemma, since high regulations on environment do not automatically promote EU’s influence in the region, as does the articulated support of indigenous rights, since it is especially the indigenous people that are negatively affected by the EU’s import ban on seal products. This example might also be relevant for future cases on environmental standards, since also Greenland is critical on import ban and other environmental regulations of the EU.

While the EU has issued many documents and strategies on Arctic region, on trade policy and raw materials diplomacy, China hasn’t published any official documents on the Arctic region. Nevertheless, China has no ‘wait-and-see-attitude’ towards the Arctic anymore, but engages heavily in diplomatic activity and courting of the smaller Arctic states which feel flattered. A strong sign for the augmented role the Arctic plays in China’s foreign economic policy is the fact that China and Norway normalized their relations. That way, China is also able to interfere in a common EU policy towards the Arctic. Especially Denmark is a weak link, since it changes 16

between Chinese and European economic interests.

However, the EU has several advantages against China in resource diplomacy towards the Arctic, besides geographic and political proximity. In general, The EU is better able to response to societal problems and questions in the Arctic, that way it has more to offer than China, which mainly wants to exploit resources, and which is less capable to consider environmental issues. In a democratic environment, responses to societal demands are obviously important, as the election results in Greenland have shown. For EU, China has become the main opponent to European resource interests.

If China would end its mercantilist policy on rare earth elements, collaboration between China and the EU on resources would be very promising. Workers and capital from China and technology from EU and Norway could join hands to explore the resources in Greenland and the deep sea together. High standards regarding human rights, working standards and environmental protection find more support in Greenland’s politics and population than what people expect from China and what they would expect also for Greenland. After the elections in Greenland (pro-EU, contra China), Iceland (pro-China, contra EU-membership), the Arctic Council (pro- China, contra-EU) in 2013 the beauty pageant on ice will go into the next round.

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