The Arctic holds vast investment and business potential. Simultaneously, indigenous and local interests are a major part of the development. Global interests in the Arctic have entered a new level.
Protectionism by the US, China and Russia have slowed many projects in the Arctic, while geopolitical interests grow stronger.
What is the future for international trade collaboration in the Arctic? How should the EU promote Arctic investments? How do we ensure that the potential is exploited in a sustainable manner?
Industrialisation has been ongoing since the explorer Adolf Nordenskiold navigated the Northern Sea Route in 1878. Digitisation and climate change have accelerated rapidly during the past two decades.
Temperatures in Arctic areas are rising at double to triple the pace of other areas, mostly attributable to human activity outside the Arctic.
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The World Economic Forum has estimated that the Arctic investment potential is around US$1 trillion. Approximately 15-20 percent of this lies in the Barents Euroarctic Area.
The Business Index North (BIN) project notes that “activities directly connected to extraction, refining, energy transforming and harvesting of natural resources create 54 percent of all turnover in the area.”
“Trade, shopping, culture and tourism create 29.5 percent and services for businesses create 16.2 percent. The BIN economy reaches €94 billion.”
In addition, “growth average at 5.4 percent annually [in the] last three years is well above the 2.9 percent of the national economies.”
However, the population of the area has dropped from 3.7 million to 3.6 million since 2008 with the largest proportion in the under- 20s, claims the report.
There is also significant gender inequality: “Women in average occupy just four percent of managerial positions.”
There are substantial differences in productivity and significance of Arctic areas in different countries.
The Russian Arctic provides more than 15 percent of the country’s GDP, while Lapland’s productivity in Finland is also nationally high.
In others, the Arctic is still poorly developed, lacking infrastructure. Unemployment rates are higher and social problems more severe outside the Arctic areas of these countries.
For this trillion-dollar potential to be realised, international financial value chains are essential.
A first-ever MoU by the Arctic Council was signed with the Arctic Economic Council last May, promoting sustainable economic development, blue economy and maritime safety, telecommunications, education, scientific research and traditional knowledge.
Before the meeting, US Secretary of State Mike Pompeo gave a controversial speech attacking China and Russia on their Arctic activities.
“With the EU expected to renew its Arctic Policy, freedom of trade should be the main economic target; trade barriers slow the use of the best technologies”
The same week, the trade war between China and the US developed rapidly, with new customs fees and allegations against Huawei.
Secretary Pompeo stated that there are only Arctic or non-Arctic States, deliberately criticising China’s self-definition as a “near-Arctic State”.
China’s One Belt One Road strategy has stoked fears that it is a tool of power politics also visible in the Arctic.
China has a cooperation agreement with Russia on developing the Northern Sea Route and an interest in investing in transportation infrastructure, for example in Iceland and Greenland.
Free trade is not a threat to sovereignty; however, protectionism is a threat to sustainability.
Fortunately, there are exceptions – the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the EU-Japan Free Trade Agreement are important in this development.
With the EU expected to renew its Arctic Policy, freedom of trade should be the main economic target; trade barriers slow the use of the best technologies.
China published its Arctic Policy in 2018, with the goals of understanding, protecting, developing and participating in Arctic governance, safeguarding the common interests of all countries and the international community and promoting sustainable development of the Arctic.
This, and the current EU Policy from 2016, acknowledge the importance of international cooperation in decision-making.
This has become increasingly important given recent unfortunate developments in international trade created by new tariffs and other barriers.
The EU Arctic Policy notes that “the European part of the Arctic also has significant potential to support growth in the rest of Europe.
“As we develop the Arctic, it is important to make sure that the benefits of the local population, industries and society are considered”
However, as the EU does not currently have a complete north-south traffic connection, it could explore the merits of strengthening links to the Arctic through trans-European networks, for example from Finland to Norway, providing access to the Arctic Ocean”.
The Arctic Rail link would connect the Arctic Ocean to the Baltic Sea and possibly, with the Helsinki-Tallinn tunnel, even deeper to Central Europe to the European TEN-T Network.
This initiative recently took a step forward when Finnish Finest Bay Development and Norwegian Syd-Varanger Development Company signed a MoU to bring the project forward.
European Investment Vehicles should also participate in these projects. There are a variety of indigenous peoples, often disagreeing among themselves on their position of economic development.
Their rights are also sometimes used - unethically - for advancing other interests. As we develop the Arctic, it is important to make sure that the benefits of the local population, industries and society are considered.
As geopolitical tensions rise in the Arctic, trade diplomacy can become an inhibitor. Trade – or more precisely, creating barriers for trade - has become a tool for driving geopolitical interests.
As is the case elsewhere, trade wars have unfortunate implications for the Arctic. Fortunately, there are positive developments.
The EU and Canada CETA and the EU-Japan Free Trade agreement are good examples of excellent measures to be followed for the betterment of the Arctic.