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Trieste’s shattered Chinese dream

When Italy signed up to the China Belt Road Initiative in 2019, it had dreams of becoming the key gateway for China into the Baltic, Adriatic, and Euro trading zone. The Port of Trieste, being a key component of the deal, envisaged a future state in which it would become the future maritime hub for the Adriatic, in a sense the new ‘Singapore’ of the region. However, recent developments point to the potential for a complete breakdown in the relationship.

Those dreams and subsequent Trieste celebrations were perhaps premature. Cracks in the relationship emerged shortly after the deal was done, revealing a gap in the understanding of what was agreed, particularly the differing priorities and intent.

In the first instance there was the geopolitical issue around the Free Port status of Trieste. Trieste does not see itself as being part of Italy and has mounted an ongoing campaign to have its independent status re-established by the United Nations. In summary, the issue centres on claims that Italy does not have sovereignty over the Free Territory of Trieste and that zone A of the Free Territory and the Free Port of Trieste was occupied manu militari and illegally annexed by Italy on 26 October 1954. It is claimed that there has been a failure by Italy to apply the International obligations it formally adheres to (in case of the Free Port, this is Annex 8 to the Treaty of Peace of 1947). It is a vexed question and greater clarity can be found in this article

It is therefore understandable that Italy would prefer Genoa as the focal port development. Italy would also argue that the Genoa port development made greater commercial and economic sense. After all, Genoa has an existing rail network connecting it to the region’s hinterland. Italy has spent the last 100 years developing this rail system as it supplies the Italian industrial heartlands of the Torino and Milano regions as well as the established trading nations of Switzerland, Southern/Central Germany, and Eastern France. This was the gateway status that Italy aspired to, being the connector between the Chinese markets and its traditional trading partners of Germany and France.

China on the other hand saw Trieste as a better fit with the ambitions of the BRI. Despite the Trieste port having been neglected for the last 100 years, it was closer to the strategically important Baltic / Adriatic rail network. This network connects to the hinterland markets of Austria, Czech Rep, Hungary, Slovakia, and Slovenia and are of greater strategic interest to China.

Furthermore, Trieste took on greater strategic importance as the nearby ports in Slovenia (Koper port) and Croatia (Rijeka) had secured EU funding to develop these ports that offered an alternative to Chinese initiatives in the area. For example, Koper secured approval for a $500m integrated port / rail development plan.

These differing positions frustrated both parties leading to little progress in BRI development. Exacerbating the situation was the widening of Italy’s trade deficit with China. Chinese direct foreign investment into Italy is significantly lower than the likes of France and Germany, despite Italy being a signatory to the BRI.

The deterioration in the China / Italy relationship gained momentum when a new Government was elected in Italy towards the end of 2019. This new government raised questions as to the lack of progress with regards the promised Chinese investments and began a pivot back to seeking USA investment. It also started a more vocal attack on China’s human rights record.

The response by China was to describe the Italians as corrupt and bureaucratic and difficult to work with. This criticism has since been translated into action by China that has increased investment into Greece’s Piraeus Port as well as the recent 60% acquisition by Cosco of Greece’s railway company Pearl SA. It essentially deflects promises made to Italy by building an alternative to what was envisaged by Trieste. Pearl is a multimodal logistics provider, that connects to the strategic Ten-T rail network via the China-Europe Land-Sea express Line. By connecting to the hinterlands of eastern Europe, North Macedonia, Serbia, Hungary, Austria, Czech Republic, and Slovenia, it bypasses Italy as a gateway into Europe and establishes its Adriatic sea footprint – one of the key reasons for China’s interest in Italy in general and Trieste in particular.

However, developments on June 4 may make the China/ Italy relationship terminal. A ruling by the Italian national anti-corruption authority, ANAC, retrospectively revoked the role of the Italian appointed president of the Trieste Port Authority. He was found to be in breach of conflict of interest provisions, particularly as he held the position of president of the Trieste Terminal Company. All deals, contracts and plans for the development over the last five years are now deemed as null and void. Importantly, the China / Italy / Trieste port development is now null and void.

Potential significant ramifications come out of this new ruling, not least of which is the tearing up of the BRI MOU and subsequent construction agreements that came out of the MOU. This is a realistic possibility as Trieste was the intent behind China’s expansion into Italy. Perhaps there is another lesson to be learnt by China i.e. there is risk associated signing MOU’s with nations that have regular elections as government changes.

China does have options to secure the Adriatic economic corridor and has taken steps to achieve this through Greece’s Piraeus and Pearl port / rail pairing and increasing levels of investment. An option that is open to them is to back the Trieste NGO claims and support them in their UN challenge to get Trieste declared an International free port and free territory. This is unlikely as it would expose China to claims around the status of Taiwan. This does not prevent other UN members taking up the cause of Trieste – who knows, this could present an interesting dilemma for those who trade through and along the Adriatic Sea corridor.

It looks like Trieste has become the skeleton in the closet after all.

Andre Wheeler

CEO of Asia Pacific Connex with more than 20 years’ experience in international business, with a diverse network throughout the USA, Asia, SE Asia , Africa and the United Kingdom. Holding a B. Science (Hons) degree and an MBA, he is currently working towards his Doctorate on the Impact of the China One Belt One Road initiative. Andre has expertise in oil/gas, construction, marine services and mining.

Comments

  1. Gentlemen,
    in this article are reported many mistaken informations, especially those concerning the ANAC ruling and the validity of the deals/palns/contracts signed by the President, that remain in any case regularly in charge; be so kind to send me a PDF copy of this issue so I can give you all the correct informations to mark your responsibility…

    Many thanks
    Danilo Stevanato

  2. Thank you Andre…. Very Enlightening. Does this give Greece a leg up, at the cost of Italy? And will Greece accept Huawei instead of Ericsson? I say that the West has underestimated the “Self Reliance” resolve.
    I wonder what Singapore will have to do to become a “neutral” participant at the crossroads of the oceans?
    Thank you. BanuDadlani@Gmail.com

  3. Thanks Danilo, I am aware that the since publication that there has been an appointment of a temporary President of the Trieste Port Authority and that he has countersigned all agreements to give them temporary validity. This is so that the Port can continue as normal whilst a new President is sought and that all agreements can be reviewed to ensure that the previous President’s conflict of interest did not in any way result in corrupt behaviour. This includes the agreement signed with the Chinese Company to build Trieste port facilities

  4. Many thanks for your prompt feedbak; actually it apply a general law disposal, but not correctly regarding the speific case; the gouvernement and transport ministry are working to adjust the situation; we will keep you informed about the development, better if you send me your e-mai adress as soon at mine: adriasea.srl@gmail.com

    Regards

    Danilo Stevanato – CEO

  5. Dear Mr. Stevanato,

    For legal certainty, the Judicial Authority will take care of it. Yours are biased opinions. The fact that the ministry and government “are attempting to adjust the situation” only highlights that a problem exists. In a normal country the government and a ministry don’t need to “adjust legal” situations once they emerge.

    Kind regards,

    Alessandro Gombac

  6. Dear Mr. Gombac,
    your comment shows that probably you are not well informed about the question, please read the ANAC (Anti-corruption authorty) communication to the gouvernement dated 27 May 2020 and you will undestand any aspect of the matter.
    Regards
    Danilo Stevanato

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