Italy’s role in China’s Belt and Road Initiative

During the visit of Chinese President Xi Jinping to Italy at the end of March, a Memorandum of Understanding was signed regarding Rome’s participation to Beijing’s “One Belt, One Road” initiative, a massive infrastructure project to connect Eurasia.

The event sparked much debate in Italy, with some hailing it as a great achievement for boosting GDP growth and others depicting it as the beginning of Chinese economic colonization of the country.

Similarly, American and EU officials warned Italy of the dangers of being involved in China’s project. But what is the Memorandum really about, and how will it affect the Sino-Italian partnership?

Interests in Italy

The “One Belt, One Road” initiative, often called simply OBOR, is an ambitious Chinese-sponsored project to build key transport, energy and communication infrastructures across Eurasia. Of course, the project responds to China’s strategic interests: it wants to access new markets and resources, connect its landlocked provinces to the sea, sustain domestic economic growth, reduce its dependency on vulnerable maritime trade routes and extend its political influence.

Many Asian and African states have already joined the initiative, raising concerns among both domestic and international actors. They worry about the risks of excessive financial dependency on China, which could translate into political leverage; and countries like the US consider the OBOR project as part of China’s effort to achieve global primacy.

Until now, the EU and its Member States have been cautious about participating to the OBOR initiative, but Italy’s adhesion is a first remarkable success for China, at least in political terms. As a matter of fact, the country has a notable geopolitical importance for Beijing.

First, it is the EU’s fourth largest economy, poised to become the third after Brexit.

Second, trade is already relatively intense between the two countries, even though China is much more important for Italy than the other way around: in 2017 the PRC accounted for 3.4% of Italian exports and 7.2% of imports; while Italy represented roughly just a bit more than 1% of Chinese trade in both directions. All in all, the in 2017 the two countries exchanged goods for a total value of 48.2 billion dollars.

Third, Italy is located at the centre of the Mediterranean and hosts large ports like Trieste from which Chinese goods can rapidly be shipped around Europe; and especially to its economic core in Germany.

Finally, Italy needs foreign investments to boost its economy and upgrade its infrastructure so to definitively overcome the persisting effects of the Eurozone crisis.

The Memorandum of Understanding

In this context, President Xi’s visit to Italy at the head of a large delegation of government officials and business leaders was first of all a public relations operation meant to improve bilateral ties at the political level by recalling the ancient history of contacts between Italy and China and by prospecting the future possibilities for mutually-beneficial cooperation. The visit culminated with the signature of a main document known as Memorandum of Understanding plus other 28 deals on cooperation in various domains such as trade, finance, science, technology and culture. A few important points should be noted in this regard.

First, as its very name suggests, the Memorandum is not a treaty. It is simply a declaration of intents that just contains non-binding guidelines that the two Parties agreed to follow in building their partnership. The fact that the document does not create any juridical obligations upon the Parties is also explicitly stated in the text itself: Paragraph VI affirms that “This Memorandum of Understanding does not constitute an international agreement which may lead to rights and obligations under international law. No provision of this Memorandum is to be understood and performed as a legal or financial obligation or commitment of the Parties”. As such, the agreement by itself is merely a political declaration that does not and cannot produce any legal effect.

Second, its provisions are quite vague: the text is essentially about fostering bilateral ties for the mutual benefit, and employs generic expressions like “supporting synergies”, “strengthen cooperation”, “work for common development and prosperity”, and so on. As such, there are no specific terms that determine what is going to be done and what are the commitments of each Party. Again, this means that on its own the Memorandum has a very limited practical impact.

Third, the text says in Paragraph I.2 that the Parties will work together “in accordance with their respective domestic laws”, and reaffirms in Paragraph VI that the Memorandum “will be interpreted in accordance with the legislations of the Parties and as well as applicable international law and, as for the Italian Party, with the obligations arising from its membership of the European Union”. While it also applies to China, this provision is mainly meant as a political reassurance that Italy’s participation to the OBOR initiative will take place in the respect of its domestic norms, with international law and with EU legislation.

In case of divergences, Paragraph V states that “The Parties will settle amicably differences in the interpretation of this Memorandum of Understanding through direct consultations”. As such, at least in principle, the Memorandum protects Italy’s interests. But when considering the non-binding nature of the document, this could potentially have some risky implications: since the deal does not generate any right or obligation upon the Parties, the stated intent to respect the existing national and supranational norms could simply be ignored. As long as political relations remain good the declaration contained in the Memorandum is sufficient to ensure the respect of the relevant legislation as both Parties will voluntarily abide with the document’s dispositions; but if a serious dispute were to emerge, then there is no legal basis that the two Parties can use to safeguard the respect of their domestic norms and of international law. In such a scenario, the Parties will have to settle the issue on their own and will have to rely on generic dispositions of international law to protect their respective interests.

The same problem exists about another provision of the Memorandum, namely the one contained in Paragraph II.3 stating that Parties will “promote … free and open trade …. and respect for intellectual property rights”. Once again, this statement is mainly meant to dispel concerns that China might exploit bilateral economic deals to access precious technology as it has often been accused to do; and at least in theory the document protects Italy’s interests in this sense. Yet, since the Memorandum is not binding, there is no actual “hardcore” guarantee that this will effectively be the case.

However, it should be noted that dangers deriving from the non-binding nature of the deal exist on both sides. Italy certainly faces the potential risk of not having a solid legal base to protect its interests in case the Chinese were not actually willing to respect their commitment as stated in the Memorandum, leaving it vulnerable in front of Beijing’s greater economic power. But the PRC could also incur in similar risks in case a future Italian government decided to abandon the OBOR initiative. This scenario is not to be excluded considering the relatively frequent changes in Italy’s executive, and would be an important setback for China.

There also other trade and institutional deals signed along with the Memorandum by both public and private entities. These include agreements on banking, fiscal regulation, energy firms, ports, innovative start-ups, outer space missions, e-commerce, media, requirements on agricultural products, sanitation, illicit traffic of artistic items, and the promotion of the cultural heritage. It must be said that, while their title is known, finding their text is difficult and probably not all are available. Yet, the available information indicates that they are also non-binding declarations of intents, with the same positive and negative consequences outlined above.

In economic terms, the Memorandum and other 28 agreements signed with it have almost no real impact; at least in the short term. Their present value amounts to 2.5 billion euros, and it could rise up to 7 or even more; but considering the size of Italy’s and China’s GDP and the current trade volume these numbers are not so impressive in economic terms.

 Prospects for future Sino-Italian cooperation

As we have seen, in its current form the Memorandum has very little juridical and economic impact, since it is basically a declaration of intents with no specific arrangements and a limited economic scope. At the moment, its significance is mainly political: while potential risks exist on both sides, currently it just signals the willingness of Italy and China to work together in the context of the OBOR initiative, but the actual terms of this cooperation are yet to be clearly defined.

As a result, the extent to which the Memorandum will be beneficial or detrimental for Italy – but also for China – all depends on how it will be implemented in follow-up deals. In order to make an informed assessment, it will therefore be necessary to closely monitor the future negotiations between the two countries and evaluate the agreements they will reach, especially any hypothetic binding treaty; as only these documents will determine the actual terms of the Sino-Italian partnership.