There has been much commentary around the intent and development of China’s push to increase its trade and energy security with Europe. Taking the view that the Xi Jinping announcement that China was giving rebirth to the original Silk Road through the announcement of the Belt Road Initiative (BRI), one can understand why developments in Europe and the Mediterranean have attracted interest of late. This interest underscores how the differences in understanding the intent of China have created alternative engagement strategies.
With the Greek port of Piraeus having achieved growth in its maritime sector following its engagement with China’s BRI, Italy has expressed concern that they are losing out on the benefits that this initiative has to offer. Italy has responded by actively marketing itself and its ports to China. Whilst Italy has pushed for the development of the port of Genoa, China has expressed an interest in the northern port of Trieste.
Why would China be interested in Trieste?
Trieste offers China an entry point to an existing port / rail framework that fits strategically within the BRI. This is because it is at the nexus of one of Europe’s trade corridors, the Baltic – Adriatic Corridor. This corridor is one of the most important trans-European-road and railway axes in Central Europe. It runs from the Baltic seaports of Gdansk, Gdynia, Szczecin and Świnoujście in the north, to the Adriatic ports of Koper, Trieste, Venice and Ravenna in the south, taking in the industrial regions of Central and Southern Poland, before straddling the Czech, Slovakian and Austrian/Slovenian borders on its way south to Italy and Slovenia.
However, the corridor still faces important bottlenecks on six railway and two road cross-border sections in terms of their compliance with the Trans European Transport Network (TEN-T) requirements in terms of connecting Europe. These are therefore rightly at the centre of Baltic-Adriatic Corridor implementation strategies. There are also two missing links located at the alpine crossings in Austria; the Semmering Base Tunnel and the Koralm Railway line and tunnel. Moreover, appropriate last mile connections to the core ports as well as sound interconnections within urban nodes are to be developed and strengthened on the corridor.
Rail Freight Corridor 5 goes through six EU member countries: Poland, Czech Republic, Slovakia, Austria, Slovenia and Italy. It consists of 4,825 km of railway lines connecting the most important Baltic and Adriatic ports with main land terminals and economic centres of the countries along the corridor, going from Baltic Sea ports of Świnoujście, Szczecin, Gdynia and Gdańsk further through Poland, the Czech Republic, Slovakia, Austria and then to Slovenia and Italy to the ports of Koper, Trieste, Venezia and Ravenna on the Adriatic Sea. The whole Baltic-Adriatic Rail Freight Corridor 5 consists of 61 terminals and eight sea ports belong to it.
Why would Italy want to engage with China?
Simply put, the corridor requires funding, estimated to be EUR750bn by 2030 in order to be fully functional. By partnering with China, it can cover its share of the development costs not just through financing but also by providing freight volume through the trade route. Italy has been careful to stress that they are engaging China on a whole ‘Italian Port’ basis, arguing that Italian ports offer more than Piraeus in terms of a logistics platform for central and southern Europe, but also into North Africa. Furthermore, Italy has stressed that they will not “sell-off” assets despite their infrastructure being in a state of crisis. They have encouraged partnership and investment in infrastructure that offers a simpler access to the sea. Italy has also been at pains to point out that China made a “mistake” with Greece as it is not within easy reach of European markets by rail. Over and above these claims, Trieste has strategic location advantages for trade between the Suez, Mediterranean, Central-Eastern Europe and the new Arctic Route. These advantages include its 18-20 mwater depths, legal status as an international free port as well as being the most northern part of the Adriatic Sea.
Changes being felt in Trieste?
It is still very early to say whether Trieste engagement is to be successful, but there have been changes. Notably we see by engaging with China, Trieste has doubled its container traffic since 2016 as it works to take capture some of the 70% of trade that passes between Europe and China via sea routes. There were 486,000 teu moved in 2016 but this saw a dramatic jump to 730,000 teu in 2018. However, a nearby Slovenian port that has an insignificant terminal has moved more than 900,000 teu. This points to the significant potential upside of further development of Trieste under the banner of Trieste. It also highlights a shift from the current trade being based on the tonnage of crude oil that starts from there to Germany, oil that meets 30% of the energy needs of Germany. However, the port of Trieste is noteworthy mainly for coffee.
There has also been an increase in the number of operated trains, having doubled from 5,000 to 10,000 in the 2016 -2018 period. Furthermore, Trieste has seen a 63% increase growth in container volume on the back of Chinese investment in the port and it’s intent to create strong alternative gateways into Europe. The importance of this development is seen by Trieste’s inclusion in the North Adriatic Port Association (NAPA).
Whilst crude oil and containers are important, Trieste currently loses out of value adding services inside the Free Port of Trieste, blocked by the Italian governments’ treatment of the facility as an Italian port and not as a free territory under the 1947 UN Peace Treaty. This is where real development and jobs are generated. Smart industry and job creation is how one can achieve Triestines’ support for development and help bypassing most of local resistance.
Italy is now openly marketing Trieste’s location and position to China, particularly their international free port status that allows public concessions over the main free port areas. They are also trying to position themselves to leverage this new transportation mode by adding more features to their service. The free port status makes it possible for value added services such as loading, discharging, storing and manufacturing without having to pay taxes and freedom of transit of goods to other European states. The focus is not so much the number of containers moved but the value added in relation to those containers. In order to facilitate this, Trieste is in the process of seeking $1.3bn so that road / rail access to containers is more efficient. This would be made possible by a large quayside, a railway terminal, container deposit areas and a free zone that can be used for warehousing and goods assembly. China is looking to cover half the cost with the balance coming through countries such as Kazakhstan, Azerbaijan, Turkey, Iran and Malaysia. It is interesting that Italy is the first G7 country to sign an MOU within the BRI framework.
Clouds on the horizon?
With the current level of Chinese investment into Italian companies it is feared that China will obtain almost complete control of the international free port of Trieste. Central to this debate is the application of international law, that if fully applied, China or any other country could not fully control the Free Port of Trieste, as it would require an international commission to function.
However, currently, this would give China a significant bridgehead for both economic and strategic penetration into Europe. The EU has raised these security concerns with Italy and has proposed a screening mechanism for security-sensitive industrial sectors. Included in the EU / Italy dialogue is to restrict Chinese ownership to minority shareholdings as well as retaining security control over key assets. It is enforcing the 1954 agreement that gives NATO responsibility for security of the port.
There is also the issue of who actually owns Trieste port. Current agreements are legitimate under Italian law in any Italian port, however the international free port of Trieste does not belong to Italy or to the EU. It is entrusted to the temporary civil administration of the Italian government by the US and the UK as primary administration governments on behalf of the UN Security Council. Initially established under UN Security Council Resolution S/RES/16 (1947) as part of the Treaty of Peace. However the OSIMO Treaty of 1977 split the territory of Trieste into two parts in the UN renouncing the question of who controls the free territory of Trieste and gave administrative control to Italy (Zone A) and Slovenia / Croatia (Zone B).
Unfortunately, it is more complicated than this. The Osimo (named after an East Italian town) treaty is a bilateral treaty that could not possibly have overwritten a multilateral peace treaty.
Guglielmo Verdirame from London King’s College states: “The Treaty of Osimo, a bilateral treaty, could not have amended the Peace Treaty, a multilateral treaty.”
The Osimo treaty only determined the border line between Italy and Yugoslavia, and did not provide for the annexation of a third country.
For this reason, Italy, Slovenia and Croatia are still, as of today, only civil administrators of the Territory of Trieste (which includes Italy’s rights over the Free Port, of course), without any sovereignty over it.
The legitimacy of this 1977 treaty has been questioned by the Trieste NGO that has written to the UN claiming that the free port of Trieste still exists de jure and that the provisions of the treaty need to be withdrawn. The UN has responded that it can only consider this request if an appeal was lodged by member states of the UN. The NGO has taken this up and written directly to member states to intervene on their behalf, asking for their intervention and requesting that the UN opens the free port of Trieste to the world. These claims and invitations have been sent to a number of countries, including the likes of the US, Germany and Denmark.
There is a significant amount of smoke and mirrors with the port of Trieste, but what is clear is that Italy wants to participate as an important component of the BRI. Whilst still early, participation in the BRI will bring a number of benefits to the development of Trieste and return the city to its historical place as an industrial and commercial hub. It can achieve this by having access to the necessary capital funds to build and complete infrastructure connecting the Baltic-Adriatic Corridor. However, what will be interesting to observe is China’s response to the questions being raised around control over Trieste and more importantly, will China deliver on its ‘people to people’ objectives of transparancy and community engagement – particulary engagement with an active NGO.
The Triest NGO contemplate a win-win situation should the laws established by the Peace Treaty of 1947 be enforced thereby giving status to the territory and the free port. This would not harm the surrounding ports. This area has all the potential to become the Singapore of the Baltic-Adriatic region.