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Huge cross-border projects that will be financed by new development institutes threaten to create dangerous differences in environmental standards ‘race to the bottom’. However, the problem can still be solved.

Three separatet disasters in the Russian Far East in 2005, 2007, and 2010 that caused the release of extremely hazardous chemical substances from the Chinese side of the border into the Sungari river (one of the Amur’s tributaries) were one of the first wake-up calls showing that extensive economic growth and large-scale industrial cross-border infrastructure projects in Asia require interstate regulation. This premise was confirmed during the years that followed. For example, the re-distribution of runoff water from the Argun river between China and Russia, as well as that of Cherniy Irtysh between China and Kazakhstan, coupled with the construction of a hydro power plant on the Mekong affected the interests of five nations and caused a public uproar. Additionally, plans to build a chain of power plants in the Selenga basin in Mongolia were found to be a potential threat to the unique ecosystems of Lake Baikal.

To prevent and resolve such problems, the UNECE adopted the Convention on Environmental Impact Assessment in a Transboundary Context (Espoo, 1991, entered into force in 1997). This document mandates that the states that are parties to the Convention should notify and consult one another when planning any projects that could have a significant environmental impact beyond their national borders. As a follow-up to the Convention, the parties adopted the Protocol on Strategic Environmental Assessment (SEA, 2003, put into effect on 11 July 2010), which mandates that the parties should integrate environmental assessments into their programs in the early planning stages, and, in so doing, help to lay the foundation for sustainable development. The Protocol also provides for broad public participation in the government’s decision-making process. In 2011, Russian President Dmitri Medvedev instructed the government to ratify the Espoo Convention. The process is still pending because they first must finalise the adaptation of national legislation to meet the requirements of the Convention, according to the Foreign Ministry.

China claims quite convincingly that the Silk Road will only benefit from all other integration projects: the Shanghai Cooperation Organisation as the ‘cementing foundation’, Mongolia’s ‘Steppe road’ as its northern alignment, and the Eurasian Economic Union as a space reserved for Russia, Kazakhstan, and Belarus that is free from customs barriers. The ‘Silk Road’ region encompasses a territory populated by 4.5 billion people (60% of the planet’s population) with the aggregate gross domestic product of $21 trillion (30% of global GDP)

The 13th five-year plan

In 2013, China started to promote its most ambitious project – the Silk Road Economic Belt. This regional integration project is not so much about building another new Eurasian transport and energy corridor – rather, it focuses on strengthening economic and cultural cooperation across Eurasia. The belt will become a focal point of the People’s Republic’s foreign policy from 2015-2025 and an important part of its 13th five-year plan.

During the two previous years, the Silk Road Economic Belt looked more like a slogan than a plan until finally, on 28 March 2015, three key ministries issued a detailed document in seven languages entitled ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road’. The document lays down the ‘rules of the game’ governing cooperation with China in building infrastructure, developing trade, and production across the entire space between the Pacific Ocean and North Africa. This connectivity and integration project will help countries in Asia, Europe, and Africa to compare and merge their development strategies and tap into the potential of the regional market, increase investments and consumption, create demand and jobs, expand humanitarian exchanges between their respective peoples, and foster cultural cross-fertilization. In other words, China knows full well that it is taking on the mission of a demiurge that will be called upon to act as a catalyst of a ‘new global management model’ in a world where the old systems have become crisis-ridden. Judging from the reaction of most of the countries in the region, they are ready to take part in this new mega project.

China claims quite convincingly that the Silk Road will only benefit from all other integration projects: the Shanghai Cooperation Organisation as the ‘cementing foundation’, Mongolia’s ‘Steppe road’ as its northern alignment, and the Eurasian Economic Union as a space reserved for Russia, Kazakhstan, and Belarus that is free from customs barriers. The ‘Silk Road’ region encompasses a territory populated by 4.5 billion people (60% of the planet’s population) with the aggregate gross domestic product of $21 trillion (30% of global GDP).

It is only natural that such grand plans beg a few obvious questions:

1. What are the plans to finance projects under the Silk Road umbrella?

2. How can ‘race to the bottom’ be avoided or prevented in the newly created financial development institutes compared to existing policies and procedures in the old development institutes of the Bretton Woods system, including the World Bank / IFC group, the Asian Development Bank (ADB), and the European Bank for Reconstruction and Development?

3. How can all stakeholders’ environmental and social interests be equitably factored in when implementing cross-border projects and projects with a transboundary impact in the framework of the Silk Road program?

The Asian Infrastructure Investment Bank (AIIB), created in 2015 following China’s initiative, has become a leading tool in implementing the Silk Road program and questions about controlling the Bank’s investments have already arisen. Fifty-seven countries joined in as founding members, but half of the initial capital of $100 billion will also come from China. This bank is specifically called upon to serve as the motor driving the construction of infrastructure in Eurasia. The AIIB founders also include more than a dozen European countries (such as France, Germany, the UK, and Italy), as well as Australia, in other words, those countries that politically can afford to lower the bar of the requirements compared to the existing international financial institutions.

The ‘Landscaping’ Project

It is much more difficult to ensure participation of the stakeholders and ‘honest competition’ based on the standards and mechanisms governing other sources of financing, such as the ‘Silk Road’ Fund, the SCO Bank, the BRICS Bank, the Maritime Silk Road Bank, and China’s national development institutes: the China Development Bank and the Export-Import Bank of China. In recent years, Beijing has generated sufficient progressive experience in regulating and stimulating environmental responsibility among national financial institutions. For instance, in 2012, the Banking Regulator Commission (similar to the Central Bank) issued the ‘Rules of Green Lending’ designed to make the country’s economic development more environmentally friendly. The rules unequivocally state that China’s financial institutions should publically commit to meeting international practices and norms and ensuring compliance with international best practices.

It leads to an obvious question: which best practices and norms must be enshrined in international law to minimize environmental and social risks, as well as negative impact from projects implemented under the Silk Road umbrella? Enshrining procedures to minimize environmental risks and negative impact of cross-border projects and projects with transboundary impact in international law will potentially ensure their universal application across the board, as well as honest competition, and rule out a ‘race to the bottom’ between the old (Bretton Woods) and the new development institutes. It is difficult to overestimate the importance of these processes; in fact the ‘landscaping’ efforts designed to make international project financing greener began with the introduction of the World Commission on Dams (Dams and Development, 2000) by the World Bank and the International Union for the Conservation of Nature.

The framework conditions that make it possible to avoid repeating many mistakes made by international financial institutions in the past and sidestep ‘race to the bottom’ in the new (‘unscathed’) development institutes (AIIB, NDB, and others) compared to the old (‘damaged’) development institutes (the World Bank, EBRD, Asian Development Bank, and so forth), could potentially facilitate the adoption of the Asian Convention on Environmental Impact Assessment in a Transboundary Context by the countries of United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP), which is similar to the European Convention on Environmental Impact Assessment in a Transboundary Context adopted by the UNECE countries (the Espoo Convention) and its Kiev Protocol on Strategic Environmental Assessment.

The Asian Infrastructure Investment Bank (AIIB), created in 2015 following China’s initiative, has become a leading tool in implementing the Silk Road program and questions about controlling the Bank’s investments have already arisen. Fifty-seven countries joined in as founding members, but half of the initial capital of $100 billion will also come from China. This bank is specifically called upon to serve as the motor driving the construction of infrastructure in Eurasia. The AIIB founders also include more than a dozen European countries (such as France, Germany, the UK, and Italy), as well as Australia, in other words, those countries that politically can afford to lower the bar of the requirements compared to the existing international financial institutions

It is worth pointing out that members of the Eurasian Economic Union – Kazakhstan, Kyrgyzstan, Belarus, and Armenia – have already become parties to the Espoo Convention, while the Russian Federation, as the successor of the Soviet Union, signed it back in 1991. The Espoo Convention and the SEA protocol are open for accession to countries outside of the UN Economic Commission for Europe’s area of responsibility, and in our view, signing this instrument that has already proven its worth is the best and the fastest way to ensure environmental safety of the Silk Road. If, however, Asian countries believe that joining a ‘European convention’ and adopting the role of Europe’s ‘followers’ is not what one would call a sufficiently expedient or proper political tool, they can always build a new convention. Thus, for instance, after the Framework Convention for the Protection of the Marine Environment of the Caspian Sea was adopted, the parties also adopted the Protocol on Environmental Impact Assessment in a Transboundary Context, which essentially duplicates the Espoo Convention’s requirements.

Russia’s protracted efforts to ratify the Espoo Convention and the SEA Protocol can at least partially be explained by the fact that the EU member states, with their sufficiently stringent environmental regulation, are not viewed by the Russian government as a source of environmental threats, even given the fact that the ‘air mass’ moves predominantly from the West. Until recently, the Espoo Convention has been perceived as a potential environmental barrier for Gazprom’s key cross-border mega projects – the North Stream and the South Stream. In order to build the North Stream, the government of Russia assumed specific commitments to comply with the requirements of the Espoo Convention.

At the same time, when it comes to the Silk Road Economic Belt, the environmental and social risks and threats are already well known. China’s objective to jointly build a green Silk Road will not be achieved without the strategic environmental assessment and environmental impact assessment tools in a transboundary context. It is equally important that the People’s Republic pays more and more attention to environmental risks associated with its investments, as well as environmental aspects characterizing the behaviour of its companies abroad. This premise is confirmed by the government’s recommendations to ensure the legality and environmental compliance of timber procurement, as well as environmentally responsible investments in mining projects outside of China. Since 2006, Beijing has issued a number of pleas and recommendations, calling upon various companies to respect the environment while investing abroad. Russia, Kazakhstan, and other members of the Eurasian Economic Union stand to profit from supporting the Chinese project by gaining more comfortable and equitable participation conditions, including the minimization of environmental risks and negative transboundary environmental impact. The joint initiative of China and most likely Kazakhstan and Mongolia to finalize the Convention on Environmental Impact Assessment in a Transboundary Context under the auspices of the UN ESCAP and/or the official expansion of the UNECE Espoo Convention with the accession of China and Mongolia may become a key instrument in reducing environmental risks. Russia’s presidency at SCO and BRICS in 2015 is a good starting point for these initiatives.

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