New High Speed Silk Road from China to European Union

Francisco A. Laguna & Wojciech Kornacki

This week, we continue our discussion of China’s One Belt – One Road project to establish a 21st Century Silk Road over land and by sea, focusing on the development of high speed rail connections between China and the European Union.

China is creating a network of new high speed train rail links connecting it to the European Union via Central Asia.  As more and more factories move deeper into the Western parts of China, Chinese officials and businessmen alike realize that it is very expensive and time consuming to move their products to the international markets by air or water.  To remedy this, China is spending billions of dollars to build new rail links across Central Asia.

US$ 242 Billion in Investments over the Next 8 Years

Currently, China plans to build two rail links to Europe.  One going directly through the Russian Federation (marked in light blue).  The second one going through Kazakhstan and Ukraine to Poland and beyond. (marked in green).  Both rail links will dramatically reduce the time and costs for all businesses using the rail system to connect the European Union with China, and offer countless business and investment opportunities.  Courtesy of http:// http://en.wikipedia.org

Currently, China plans to build two rail links to Europe. One going directly through the Russian Federation (marked in light blue). The second one going through Kazakhstan and Ukraine to Poland and beyond. (marked in green). Both rail links will dramatically reduce the time and costs for all businesses using the rail system to connect the European Union with China, and offer countless business and investment opportunities. Courtesy of http:// http://en.wikipedia.org

China envisions two major train rail links.  The first one will go through the Russian Federation and Belarus to Poland and the rest of Europe.  The second one will travel through Kazakhstan and Ukraine to Southern Europe.  It is expected that China will spend approximately US$ 242 billion over the next 8 years on a 7,000 km high speed rail link from China to Moscow alone.  This will mean massive Chinese investment and spending across Central Asia.  It will also mean thousands of new jobs, major growth potential for many cities, and the need for supporting infrastructure.  When finished, this will be the longest rail network in the world moving trillions of dollars in goods.

The Benefits of Shipping Goods by Train

Shipping goods by train is cheaper, faster and more environmentally friendly.  According to the Eurasia Express Bridge, transporting goods from China to and from Europe takes approximately 14 days.  This also includes customs clearance for many different countries.  The delivery of the same products by sea takes almost twice or three times as long, and is more expensive.

Typically, China transports its manufactured goods to its coast, and then uses maritime shipping companies to ship it to Europe or elsewhere via the Suez Canal. To mitigate time and expense, China is currently looking to utilize train links to transport it directly to Europe, in essence creating the 21st century version of the Silk Road.

Chongqing, People’s Republic of China.  It is located in central China.  This city is expected to be the starting point for the high speed iron silk road.  Courtesy of http:// http://en.wikipedia.org

Chongqing, People’s Republic of China. It is located in central China. This city is expected to be the starting point for the high speed iron silk road. Courtesy of http:// http://en.wikipedia.org

Several European businesses have been sending products to China by train for years.  This includes BMW and other major manufacturers.  It is similarly cheaper for European businesses to transport goods to China by rail than by sea or air.

In 2013, one of the first trains from China loaded with electrical supplies arrived in Łódź, Poland.  Since then, the number of connections and the volume of products have grown rapidly, and they expected to grow even more.  These trains also travel to other parts of Europe, including France and Spain.  Beijing estimates that the annual trade between Europe and China is expected to exceed $ 2.5 trillion in a decade once the rail links are completed.

If you are interested in learning more about future business opportunities involving the new high speed silk road, TransLegal or call 1.703-566-9427.

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Trans-Pacific Partnership & Transatlantic Trade & Investment Partnership

To Deal or Not to Deal?

Francisco A. Laguna & Amy Turner

Among the many points of disagreement between the political parties are the benefits of trade agreements.  Currently, the two possible deals discussed most often are the Trans-Pacific Partnership (TTP) and the Transatlantic Trade and Investment Partnership (TTIP). In very basic terms, the TPP is a trade agreement with Asia, while the TTIP is a trade agreement with European Union.  These agreements will have enormous impact on the United States. Furthermore, timing will make it more interesting: finalization of each is expected in 2016, during an election cycle.

Trans-Pacific Partnership (TTP)

Dark Green:  Currently in negotiations    Light Green: Announced interest in joining Light Blue: Potential future members 2013 "TPP enlargement" by en:User:Japinderum, en:User:Phospheros, en:User:Orser67 - en:File:TPP enlargement.png (based on File:World map model.png). Licensed under CC BY-SA 3.0 via Wikimedia Commons

Dark Green: Currently in negotiations
Light Green: Announced interest in joining
Light Blue: Potential future members
2013 “TPP enlargement” by en:User:Japinderum, en:User:Phospheros, en:User:Orser67 – en:File:TPP enlargement.png (based on File:World map model.png). Licensed under CC BY-SA 3.0 via Wikimedia Commons

The TPP began as the Trans-Pacific Strategic Economic Partnership Agreement. TPP negotiations have been ongoing since 2005, and the US joined the negotiations in March 2008.  Twelve countries are currently participating: Australia; Brunei; Canada; Chile; Japan; Malaysia; Mexico; New Zealand; Peru; Singapore; US; and Vietnam. The combined total GDP of these 12 nations is 40 % of global GDP and represents 1/3 of world trade – ~ US$27.7 trillion. The global benefits of the TTP have been placed at as much as US$295 billion annually.

Transatlantic Trade and Investment Partnership (TTIP)

Since the 1990s, there has been a Transatlantic Free Trade Area.  By that time, the Cold War had ended, and the world was no longer divided into conflicting blocs. The European Community (12 countries) and the US decided to sign a “Transatlantic Declaration”. The Declaration outlined yearly summits, biennial meetings among state ministers and more frequent meetings of political figures and senior officials.

"Transatlantic Trade and Investment Partnership (8570621071)" by Foreign and Commonwealth Office - Flickr. Licensed under OGL via Wikimedia Commons

“Transatlantic Trade and Investment Partnership (8570621071)” by Foreign and Commonwealth Office – Flickr. Licensed under OGL via Wikimedia Commons

One of the early initiatives was the 1995 creation of the Transatlantic Business Dialogue (TABD), a pressure group of business people on both sides of the Atlantic.  Since 1998, a series of advisory committees have been established: the Transatlantic Economic Partnership (1998); the Transatlantic Economic Council (2007); and a group of high level experts created in 2011.

The experts ultimately recommended that talks should begin for a wide-ranging free-trade agreement.  In 2012, President Obama used his annual State of the Union address to call for finalization of that agreement.

Together, the United States and European Union represent 60 % of global GDP (33 % of world trade in goods and 42 % of world trade in services).  TTIP would cover 46 % of world GDP, giving it the potential to be the largest regional free-trade agreement in history. The European Commission claims that passage of TTIP could boost trade between the US and EU by up to 50 %.

Next time, we will discuss what the agreements include, how they will affect US businesses.  Whether we should deal or not deal.

TransLegal has 51 affiliate offices worldwide.  We assist our clients navigate the intricacies of global trade.  Contact us with your questions.

China’s Economic Influence in Southeast Asia

Francisco A. Laguna & Jennie Linder Cunningham

In the last of the series, this week, we explore China’s economic activities in mainland Southeast Asia. Over the past weeks, we have determined that Chinese foreign direct investments and trade patterns in the developing world indicate a significant (if not coordinated) effort to secure natural resources, new markets, and short to long-term energy security. This post examines Burma (Myanmar) and Cambodia, finding similar patterns and goals.

Photo Credit: Bild von Stefan Grünig via Wikimedia Commons

Photo Credit: Bild von Stefan Grünig via Wikimedia Commons

The geopolitical situation of China and Southeast Asia, particularly in the South China Sea, adds a wrinkle to foreign direct investment / trade in the region, a factor not present in Africa or Latin America.

China has significant interaction with the Association of Southeast Asian Nations (ASEAN), which encompasses the historical Indochina region, including Cambodia, Laos, Burma (Myanmar), Vietnam, Thailand, Malaysia and Singapore, along with Indonesia, the Philippines, and Brunei. As a bloc, ASEAN ranks in the top ten world economies. It had a nominal GDP of $2 trillion in 2012, expected to increase by 21% by 2020, to $4.7 trillion. Much of this projected growth stems from a free trade agreement with China, signed in 2010, which created the most populated and the third largest trade zone, trailing only the euro zone/EU and NAFTA. Continue reading