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Germany tries to save face and economy while Russians get used to smuggling

12-8-2022 |

Fresh - freshly squeezed news from the international press. We prepare it 3 times a week.

Politico: China's threat - whose side is Germany on?

For months, Berlin has frustrated (read enraged) many allies with its one step forward, two steps back approach to confronting Russia over Ukraine. Yet that tortured episode is looking like little more than an overture to what’s brewing in Asia, as tensions over Taiwan force Berlin to weigh how it would respond if Beijing tries to seize the island nation, which China considers a breakaway region.

If that happens, the U.S. and other Western allies would push for tough sanctions against China.

Germany is unlikely to be among them, a course that could protect its export-driven economy, but damage both its own and Europe’s international credibility.

Asked Thursday whether Germany could afford to support sanctions in the event of a Chinese invasion, Chancellor Olaf Scholz dodged the question, while reprimanding German industry for ignoring the maxim “to not put all your eggs in one basket.”

Photo: Patrik Stollarz/AFP via Getty Images

“The question of our country’s dependence in crucial areas concerning supply chains, raw materials and other things is a necessary element of our national security strategy, which we’re working on at the moment,” he added, without mentioning China by name.

Others have been more direct.

German industry’s reliance on exports has “created a dependency that leaves us helpless,” Norbert Röttgen, a prominent center-right MP, told German television earlier this week.

Could Germany back sanctions against China?

“At the moment, not really,” said Röttgen, a former minister and longtime chairman of the German parliament’s foreign policy committee. 

While the debate is in many respects a redux of Germany’s manic handwringing over whether and how to confront Russia over Ukraine, this time even more is at stake.

Germany’s big concern over antagonizing Moscow was losing access to cheap energy. With Beijing, it’s about losing the foundation of its economic prosperity.

In recent years, China has overtaken the U.S. to become Germany’s biggest trading partner, accounting for nearly 10 percent of the country’s €2.6 trillion in foreign trade last year. What’s more, China, which has propelled the German economy for decades, remains a key growth driver.

That’s why reducing German industry’s reliance on the country is easier said than done.

“The degree to which our prosperity is funded by China is extremely underestimated in this country,” Volkswagen Chief Executive Herbert Diess said in a recent interview. “Germany would look a lot different if we were to decouple.”

Indeed, no German industry is more dependent on China than Diess’ own. Every third car produced by German carmakers is sold in China. German carmakers also operate a substantial network of factories in China itself, producing 4.3 million cars there in 2021 alone.

“The German car industry, like the rest of the world, is watching the tensions between China and Taiwan with concern,” said a spokeswoman for the industry’s lobbying arm, known as the VDA.

“Panic” might be a better word.

VW’s Diess, who is due to step down as head of Europe’s largest automaker later this month, says that China is “indispensable” for the company’s future.

The picture is similar across other key German export sectors, from chemicals to machinery. About 1.1 million German jobs, or 2.4 percent of the total, directly rely on Chinese consumption, according to a June study by the Cologne-based German Economic Institute.

Though Germany and the rest of the EU are crucial markets for China as well, the study notes that the Chinese are reducing their dependence on the region, while European exposure to China is increasing.

In these circumstances German support for substantial Western sanctions is doubtful. Though Berlin backed tough measures on Moscow after the full-scale invasion of Ukraine in February, the potential economic fallout for Germany was limited and largely for show.

Even as Scholz suspended the controversial Nord Stream 2 gas pipeline project with Russia, for example, he also tried to ringfence Germany’s core energy interests by rejecting calls for an all-out gas embargo. 

That strategy didn’t pan out as he’d hoped, but only because the Russians themselves reduced the flow of natural gas to Europe. The ongoing gas shortage in Germany, which threatens to hobble key industrial sectors, will inevitably influence how the government responds to a potential Chinese invasion of Taiwan.

With inflation high and energy prices showing no signs of falling, Germany can ill afford another hit to its flagging economy.

Officials in Berlin acknowledge in private that Germany would not be able to endorse anything beyond token sanctions against China. That doesn’t mean there won’t be dramatic debates in Berlin over Germany’s latest moral quandary. Political talkshows will devote hours to the question and newspaper columnists will spill barrels of ink dissecting every angle. But in terms of substance, the Germans will offer the usual: nichts (nothing).

The Guardian: "What really happened?" - How grey imports support Russians' escapism

Aleksandr Gorbunov, a property investor from the Siberian city Krasnoyarsk, had a simple solution when Zara, the Spanish clothing giant, closed its stores in Russia over the invasion of Ukraine: import it himself.

“The idea to start selling Zara came from my wife, who said she really wanted the clothes to return,” said Gorbunov, who said he was opening a store called Panika (panic) on Friday that deals exclusively in Zara and Zara Home products.

Gorbunov said he quickly found a seller in Kazakhstan who dealt in Zara clothes, then imported a batch of clothing for 1.5-2 million roubles (about €27,000). He claims his markup will be just 200-300 roubles (about €3,5).

“It is all official, parallel import,” he said, as Russia now allows nearly anyone to resell products bought abroad. “We don’t just buy everything … We have a designer who chooses what to buy from the latest collections – we don’t want to simply fill our store with Zara clothes.”

Western companies are leaving Russia in protest against the war and to avoid a potential backlash over making profits in Russia.

But the exit of western brands also has an outsized political significance, reminding ordinary Russians of their isolation more viscerally than sanctions on Kremlin officials or central bank reserves.

So Russia has responded by publishing a long list of goods from foreign carmakers, technology companies and consumer brands that fall under the so-called parallel import mechanism, which allows Russian firms to buy goods from any company outside Russia, without approval from the trademark owners, opening the floodgates to grey imports and other schemes to keep store shelves full.

The products that now arrive in Russia are often originally intended for export to countries that are part of the Moscow-led Eurasian Economic Union (EEU) and with whom Moscow shares one customs union: Armenia, Belarus, Kazakhstan and Kyrgyzstan. The products are then shipped to Russia and sold on the market, with western brands losing all control of their distribution and sale.

Discussing the policy in late May, Vladimir Putin said it would let Russians continue to import “lyuksus class” goods, an accidental portmanteau of the Russian for luxe and the automobile brand Lexus.

“It will just be a bit more expensive,” he said.

The re:store, which billed itself as the largest reseller of Apple products in Russia, was in a bind when Apple officially announced its exit in early March, cutting off supplies of high-end iPhones and laptops.

But their store on Moscow’s Tverskaya Street is stocked with iPhone 13 Pro and Pro Max in alpine green, a colour that was only released after Apple pulled out due to the invasion. Staff there said they expected there would be a slight delay in getting stocks of the iPhone 14 if it is released in September. “It will take about a month, so October,” said a sales associate. “But we will get it.”

While the company did not respond to questions about how they’re importing new Apple products, the answer is clear: parallel import.

“Instructions in Russian for the telephone can be downloaded on the site,” the store says, indicating its phones are not destined for the Russian market.

And in an extremely vague statement last month, the company announced it would be “changing”, emphasising that it would continue to sell “original products … made under the control of the manufacturer”.

“We are continuing our work so that you can be sure that there is a place where everyone is welcome and waiting for you,” it said.

Vladislav Surkov, an aide to Vladimir Putin, once crowed that he wasn’t affected by sanctions because he could still access the works of rapper Tupac Shakur and writer Allen Ginsberg. Very wealthy Russians now might say the same of their Mercedes and BMWs, all available for those willing to pay the price.

The new policy is transforming the Russian market, presenting risks for companies that haven’t even left the country.

Nikita, who previously worked for a large e-retailer, has begun importing Korean cosmetics such as facial masks and creams that are still being sold at major outlets.

“If it wasn’t for the situation with parallel import, our sale of these products wouldn’t be entirely legal,” he said of their inventory. “But we see a big opportunity because these companies have an unbelievable markup.”

Nikita said that Russian e-commerce platforms such as Ozon and Wildberries were also creating similar supply lines on a much larger scale and are easing restrictions on sellers in order to try to meet demand in Russia for western goods.

A cottage industry has also emerged on messengers such as Telegram, where sellers offer to import luxury products and electronics or even handle complicated financial transactions, for example moving cash between Russia and the United States for a 5% commission.

Grigory Yudin, a sociologist, said that the Kremlin was keen to keep a “sense of normality in [Russians’] daily lives” to encourage the escapism that many Russians have embraced since the beginning of the war.

“This sense of normality also implies that Russians still have access to all the products that they have come accustomed to,” he said. “Parallel import, therefore, plays its part in making sure life isn’t disrupted by the war. Putin doesn’t want Russians to change their habits because of the war but continue living as they lived. Western consumer products that may look insignificant can have a lot of value to the average Russian.”

BBC: Nothing personal, just business - South Korea releases Samsung 'prince'

Samsung heir Lee Jae-yong - convicted of bribery and embezzlement in 2017 - has been granted a special presidential pardon.

Lee Jae-yong at a press conference after his arrest, 2017
Photo: Jung Yeon-Je / AFP - Getty Images

One of South Korea's most powerful white collar criminals, Lee was twice imprisoned for bribing a former president.

South Korea's government justified the move, saying the de-facto leader of the country's biggest company was needed back at the helm to spearhead economic recovery post-pandemic.

This marks another swing in a struggle over how the country is run that has raged since mass protests took over Seoul six years ago and ousted a president from office.

Lee's crimes were directly tied up in the corruption scandal that led to the imprisonment of former president Park Geun-Hye, in office from 2013-2017.

The "Crown Prince of Samsung" - as he was dubbed by protesters - paid $8 million (£6.6m) in bribes to President Park and her associate to secure support for a merger opposed by shareholders that would shore up his control of his family's empire.

When it was revealed, millions of South Koreans turned out at candlelit protests every weekend in the 2016/2017 winter, demanding an end to Park's government and the stitch-up between politics and business.

Korea's parliament impeached Park and she was imprisoned in 2017 for 25 years.

Lee, who is also known as Jay Y Lee in the West, was jailed a year later for offences including embezzling company funds to buy a $800,000 horse for the president's friend's daughter.

A new president, Moon Jae-in swept into office with a mandate to clean up the mess. But he failed to make much headway. In his last days as president, he granted a pardon to his predecessor.

Now eight months later, under another new president, Samsung's chief has also received the same clemency.

For those who have been fighting against corruption, it's a dispiriting blow.

Lee's case reaffirms popular conception that business leaders are untouchable and above the law.

In Korea, giant conglomerates dominate the economy, with the top 10 accounting for about 80% of GDP. Known as chaebols, they are family-controlled empires which provide a span of services. LG, Hyundai, Lotte, and SK are among them.

But Samsung is the biggest and most powerful of them all.

As the world's largest smartphone maker, it's a global electronics brand. But at home it does much more - hospitals, hotels, insurance plans, billboards, shipyards and even theme parks.

Samsung and other chaebols are so omnipresent they're known as "octopus" firms, says Prof YoonKyung Lee, a political sociologist at the University of Toronto.

And those tentacles have long wormed their way into the highest levels of Korean politics. Prof Lee was at the 2016 protests and says most of the anger was directed at President Park's personal actions. But she said labour activists and others strove to highlight the chaebols' outsize influence on government.

Chaebols were heavily supported by the government after the Korean War. They were given cheaper electricity and tax incentives, there was a "Buy-Korea" policy and even help in suppressing union movements.

But the resulting monopolies also crushed competition, stifled labour movements and their practices spawned decades of bribery and corruption cases.

In many cases, Prof Lee said, executives were given light or suspended sentences. In some cases judges said the economy might suffer if a chaebol leader was taken out of action.

Mr Lee's own father, Lee Kun-hee was convicted of bribery and fraud in the 1990s when he was Samsung chairman. But he didn't serve a single day of jail time.

So in 2017, when his son was hauled away to a cell on a five-year sentence, activists hoped the case would mark a turning point.

Celebration however was short lived. Lee's court battle dragged on for years with twists and turns worthy of the most dramatic Korean serials.

An appeals court released him, a higher court then ordered a retrial at which he was again found guilty and jailed.

But just a few months into his second jail term, the Moon government released him on parole, saying it was in the national interest.

Since then, he has returned as the public face of Samsung - in May greeting US President Joe Biden on a trade visit to South Korea.

Photo: Getty Images

Lee still faces criminal allegations - of rigging company valuations, accounting fraud and making Samsung business decisions in breach of his sentence conditions. Clemency means he will be able to fully resume his executive responsibilities.

The government's pardon of Lee rests on the argument that chaebol leaders are needed for the economy. But numerous economists have pointed out this isn't backed up by hard proof.

"The pardoning of chaebol controllers has not contributed to economic growth or turnaround historically," said Prof Park.

Analysts say Samsung has fared perfectly well while Lee has been in and out of prison. Reform advocates say South Korea, where growth has been slowing for years, also needs to end its dependence on chaebols.

Still the dismay among critics over Lee's pardoning is not shared among the broader South Korean public. A recent public poll recorded 70% support for the pardon.

The desire to tackle corruption and chaebol influence remains, experts say. But it is mingled with fear and concerns over a looming recession - and residual pride over Samsung representing Korea on the world stage.

"There's a core belief that if Samsung does well, Korea does well. And Koreans have lived with this myth for so many decades, it's really hard for ordinary citizens to break out of it," says Prof Lee.

AP: Rain incantation - Europe's drought threatens all life

Once, a river ran through it. Now, white dust and thousands of dead fish cover the wide trench that winds amid rows of trees in France’s Burgundy region in what was the Tille River in the village of Lux.

From dry and cracked reservoirs in Spain to falling water levels on major arteries like the Danube, the Rhine and the Po, an unprecedented drought is afflicting nearly half of the European continent. It is damaging farm economies, forcing water restrictions, causing wildfires and threatening aquatic species.

There has been no significant rainfall for almost two months in Western, Central and Southern Europe. And the dry period is expected to continue in what experts say could be the worst drought in 500 years.

Climate change is exacerbating conditions as hotter temperatures speed up evaporation, thirsty plants take in more moisture and reduced snowfall in the winter limits supplies of fresh water available for irrigation in the summer. Europe isn’t alone in the crisis, with drought conditions also reported in East Africa, the western United States and northern Mexico.

As he walked in the 15-meter-wide (50-foot-wide) riverbed in Lux, Jean-Philippe Couasné, chief technician at the local Federation for Fishing and Protection of the Aquatic Environment, listed the species of fish that had died in the Tille.

“It’s heartbreaking,” he said. “On average, about 8,000 liters (about 2,100 gallons) per second are flowing. ... And now, zero liters.”

In some areas upstream, some of the trout and other freshwater species are able take shelter in pools via fish ladders. But such systems aren’t available everywhere.

Without rain, the river “will continue to empty. And yes, all fish will die. ... They are trapped upstream and downstream, there’s no water coming in, so the oxygen level will keep decreasing as the (water) volume will go down,” Couasné said. “These are species that will gradually disappear.”

Jean-Pierre Sonvico, the regional head of the federation, said diverting the fish to other rivers won’t help because those waterways also are affected, which will lead to overcrowding and more deaths.

“Yes, it’s dramatic because what can we do? Nothing,” he said. “We’re waiting, hoping for storms with rain, but storms are very local so we can’t count on it.”

The European Commission’s Joint Research Center warned this week that drought conditions will get worse and potentially affect 47% of the continent.

The current situation is the result of long periods of dry weather caused by changes in world weather systems, said meteorologist Peter Hoffmann of the Potsdam Institute for Climate Impact Research near Berlin.

“It’s just that in summer we feel it the most,” he said. “But actually the drought builds up across the year.”

Climate change has lessened the temperature differences between regions, sapping the forces that drive the jet stream, which normally brings wet Atlantic weather to Europe, he said.

A weaker or unstable jet stream can result in unusually hot air coming to Europe from North Africa, leading to prolonged periods of heat.

The reverse is also true, when a polar vortex of cold air from the Arctic can cause freezing conditions far south of where it would normally reach.

Hoffmann said observations in recent years have all been at the upper end of what the existing climate models predicted.

The drought has caused some European countries to impose restrictions on water usage, and shipping is endangered on the Rhine and the Danube.

The Rhine could reach critical low levels in the coming days, making the transport of goods — including coal and gasoline — increasingly difficult.

On the Danube, authorities in Serbia have started dredging sand to deepen the waterway and keep vessels moving smoothly.

In neighboring Hungary, wide parts of popular Lake Velence near Budapest, have turned into patches of dried mud, beaching small boats. Aeration and water circulation equipment have been installed to protect wildlife, but water quality has deteriorated to the point that a ban on swimming was imposed at one beach on weekends.

Stretches of the Po, Italy’s longest river, are so low that barges and boats that sank decades ago are resurfacing.

The drought also has affected southern England, which received only 10% of its average rainfall in July. Firefighters are battling an unprecedented number of grass fires and people in several areas have been banned from watering their lawns.

The Rivers Trust charity said England’s chalk streams — which allow underground springs to bubble up through the spongy layer of rock — are drying up, endangering aquatic wildlife like kingfishers and trout.

Even in countries like Spain and Portugal, which are used to long periods without rain, there have been major consequences. In the Spanish region of Andalucia, some avocado farmers have had to sacrifice hundreds of trees to save others from wilting.

Some European farmers are using water from the tap for their livestock in areas where ponds and streams have gone dry, using up to 100 litres (26 gallons) a day per cow.

EU corn production is expected to be 12.5 million tons below last year and sunflower production is projected to be 1.6 million tons lower, according to a report from S&P Global Commodity Insights.

Europe is eagerly awaiting rain, but for now forecasters can't give it any joy - forecasts promise that the heat wave will continue for at least another week.

Picked and squeezed for you: Irina Iakovleva