Italy, China’s Latest Gateway to Europe

Having signed a Memorandum of Understanding (MoU) during Chinese president Xi Jinping’s March 22-24 visit to Italy, Rome has been labeled the first G7 nation to join the Belt and Road Initiative (BRI). The MoU sparked criticism from officials in Washington and some of Italy’s other close partners like France and Germany, which required profuse reassurances from Rome, including a trip to D.C. by Deputy Prime Minister Luigi Di Maio. This piece provides a brief overview of some of the main transportation projects agreed between Italy and China along the Belt and Road, zooming in on the specific role of the Port of Trieste in the two countries’ connectivity plans. While Italy can benefit from closer connections with China, it should follow up with diligence when the real deals are made to maintain a balance between China and traditional allies and avoid the pitfalls experienced by other BRI partners.

The MOU, which covers cooperation on roads, railways, bridges, civil aviation, ports, energy, and telecommunications, is one of 29 agreements worth about 2.5 billion euros inked on sectors including aerospace, e-commerce, agriculture, livestock, culture and media, finance, energy, and steel. In the field of transport, the March 2019 agreements capped discussions that had been several years in the making. As foreshadowed by a visit of the undersecretaries Michele Geraci and Edoardo Rixi (respectively economic development and infrastructures) in late February, much revolves around the port of Trieste, Italy’s busiest port and Europe’s fourteenth, having moved 62.7 million tons of cargo in 2018.

The Port of Trieste was indeed the signatory of one of the agreements, with the China Communications Construction Company (CCCC) as its counterpart. The resulting MoU has three components. The first concerns CCCC’s participation in “Tri-Hub”, a joint project between the Port and Rete Ferroviaria Italiana S.p.A. to expand and boost rail connectivity between the terminals of Trieste, Cervignano, and Villa Opicina, chiefly by revamping existing substations located within the port’s territory. This project falls under the EU-China Connectivity Platform overseen by the European Commission and has a price tag of 200 million euros, already financed to the tune of 160 million euros. Therefore, CCCC is to pick up in whole or in part the remaining 40-million-euro tab. The second is an option for the Trieste Port to acquire a minority stake in the multimodal terminal CCCC is building in Košice, Slovakia, which is already connected to Trieste by way of a daily freight train. The third concerns the creation of partnerships to develop port and logistics hubs in China dedicated to Italian small and medium-sized enterprises.

Separate and ongoing discussions involve China Merchants Group (CMG), which is interested in investing in a new ‘Logistical Platform’ due for completion by the first half of 2019. The asset, valued at 130 million euros and owned by shipping company Francesco Parisi S.p.A and construction company ICOP S.p.A., is also coveted by Dubai Ports World, the Singapore Port Authority, and the Qatar Investment Authority. The new yard, extending over a 120 thousand square-meter area reclaimed from the sea, will be equipped with storage and handling facilities allowing the assemblage of trains of up to 750 meters, feeding directly into Italy’s rail as well as motorway networks.

Trieste’s central location is attractive. It sits at the intersection of the Baltic-Adriatic (north-south) and Lisbon-Budapest (east-west) TEN-T European corridors. Meanwhile, regular cargo services to Budapest, Duisburg, and Vienna, among other destinations—including terminals in Belgium, the Czech Republic, Serbia, Slovakia, and Slovenia—make Trieste the ideal seam between the main trans-Eurasian land bridge linking China and Europe and the trans-oceanic shipping lanes between Europe and the Far East. The port is actually the northernmost landing on the European continent in a virtual straight line from the mouth of the Suez Canal, and the Trieste-Istanbul ro-ro service is one of the Mediterranean’s busiest motorways of the seas.

Following a 2016 reform which reorganized the governance structures of Italian ports, Trieste is the hub for the Port System Authority of the Eastern Adriatic (PSAEA), the legal entity regulating a Free Economic Zone (FEZ) and an intermodal web spanning the entire northeastern Italian Friuli Venezia-Giulia region. This web comprises the nearby port of Monfalcone and two dry ports located at Fernetti and Cervignano. With additional run-off available at two other dry ports in nearby Gorizia and Pordenone, this system has plenty of room to grow and develop into a continental gateway for Europe-Asia trade. For these reasons, Chinese players, like others in the shipping and transport industry, have been turning to Trieste as a supply chain partner.

In 2019, the Port of Trieste celebrated the 300-year anniversary of its status as a free port—originally granted by Emperor Charles VI of Augsburg under Austro-Hungarian sovereignty—with the inauguration of FREEeste, a 240-thousand-square-meter inland FEZ with rail connections to the sea terminals soon due for completion. FREEeste offers wide-ranging exemptions for logistics and industrial purposes, couched in a 2017 government decree that updated and clarified the port’s historical status. This exemption regime includes the non-discriminatory right of entry for vessels and cargo, VAT exemption on EU exports, deferred payment of duties and taxes on EU-bound imports, no customs controls on goods entering and leaving the FEZ, and the tax-free processing and transformation of goods and commodities.

In the mid-nineteenth century, one of Trieste’s prominent figures and philanthropists, Pasquale Revoltella, foreseeing the opportunities of increased traffic between Asia and Europe, played a key role in the construction of the Suez Canal. By a twist of fate, almost two centuries later, the city stands to benefit from that man’s vision. The rise of Asia is restoring the Mediterranean to its erstwhile place in world history as the crossroad of different continents, cultures, and civilizations. Against this backdrop, Trieste is itself recovering its traditional role as the seam between West and East—near, middle, and far, becoming a magnet for China as well as trading countries in Central and Eastern Europe.

Its steady growth suggests Europe may witness a partial reorientation of flows from the North Sea southwards that is bound to ruffle feathers, as the diplomatic drama that preceded the MoUs suggested. However, without exception, critics enjoy much deeper economic ties with China than Italy. Not only do 13 EU member states already enjoy similar MoUs, but those who don’t have reached such a degree of economic interdependence with China to make their warnings moot. On the other hand, on close inspection, the agreement that Italy inked in March isn’t much of a snub to the United States either, as its terms are non-binding and rather generic.

With an ancient legacy of exchanges to go by, Italy may well have found a shared grammar with China, while upholding the responsibilities to its traditional allies. Nonetheless, the Italian authorities will be wise to learn from the challenges experienced by larger players, and devote sustained long-term resources to the negotiation, implementation, and follow-up of whatever comes out of these memoranda, which, indeed, remain largely informal at this stage.

Nicola P. Contessi, PhD, is an international affairs specialist with expertise in global governance, foreign and security policy, and international transportation.