Papers in the "JIIA Strategic Commentary Series" are prepared mainly by JIIA research fellows to provide comments and policy-oriented analyses of significant international affairs issues in a readily comprehensible and timely manner.

Introduction

On September 6-7, 2023, the Three Seas Initiative (3SI), a cooperative framework in Central and Eastern Europe (CEE) aimed at enhancing infrastructure connectivity among 12 countries in the region, convened for a summit and business forum in Bucharest, Romania. In the wake of the Ukraine war, which has persisted since 2022, the spotlight has turned to the 3SI as the conflict has underscored the frail infrastructure and issues pertaining to economic dependence on Russia prevalent in CEE. This commentary assesses the main outcomes and results of the Bucharest Summit and Business Forum, pointing out the importance of infrastructure modernization and connectivity in light of the impact of the war in Ukraine, and explains US involvement in the 3SI as a prospect for the future.

Significance and Challenges of the Three Seas Initiative

The 3SI is a framework proposed by Croatia and Poland in 2015, aimed at promoting infrastructure development in the fields of energy, transportation/logistics, and communication/digital technology spanning the Adriatic, Baltic, and Black Sea regions. This initiative came to the fore against the backdrop of economic expansion by China and Russia into CEE, including the Baltic states. Following the Euro crisis, addressing the investment deficits and determining how to respond to and capitalize on the opportunities and threats both within and outside the region became vital issues for the beleaguered nations of CEE.

Annual summits have been organized since 2016, and the twelve countries - Austria, Bulgaria, Czechia, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia (all EU members) - are currently member states. Accompanying the summits, business forums have also been held since 2018, offering platforms for public relations and networking to enterprises both within and outside the region.

There are two notable aspects of the 3SI. Firstly, it underscores the improvement of north-south connectivity, rather than an east-west axis. Excluding Austria, the member countries of 3SI were formerly part of the communist bloc, and the infrastructure in these regions, including railways and energy pipelines, has predominantly been linked to Russia since the Soviet era. Although the EU's cohesion policy implemented following the accession of CCE countries to the EU has enhanced east-west connectivity within EU territory and somewhat improved access between Central and Western Europe, the promotion of north-south connectivity has remained stalled until now. In this context, CEE countries are striving to rectify economic disparities within the EU by modernizing their aging infrastructure inherited from the Soviet era and ensuring north-south connectivity, complementing the EU's efforts.

Secondly, the 3SI has inaugurated its own fund. Established in 2019, the Three Seas Initiative Investment Fund (3SIIF) is a manifestation of financial commitments from many member countries. However, the current funding is inadequate to meet the financial demands of the Three Seas region, making external funding pivotal. Given the challenges in securing key financing, which has led to concerns that the momentum of the 3SI might be waning, it is imperative for the 3SI to produce a series of success stories and advocate for the investment value of both the 3SI infrastructure projectsⁱ and the Three Seas region itself.

Impact of the Ukraine War on Central and Eastern Europe

Since the start of the Ukraine war, the three key sectors of infrastructure highlighted by the 3SI have become problematic in CEE. Regarding the first sector, energy, Hungary, which is highly dependent on Russian oil imports, vehemently opposed the EU's proposal of a ban on Russian oil imports (as part of the sixth package of sanctions against Russia). Consequently, the landlocked countries that had been importing Russian crude oil via pipelines (Hungary, Czech Republic, and Slovakia) feared significant adverse effects, leading to pipeline imports of Russian crude oil being exempted from the embargo. A grace period was granted to Croatia and Bulgaria due to the difficulty of taking immediate action on maritime transport, which is also subject to the embargo, resulting in a lack of alignment within the EU. Moreover, when Russia suspended natural gas supplies to Poland and Bulgaria for refusing to make payment in rubles as demanded by the Russian government, the highly Russia-dependent Bulgaria faced issues securing alternative sources and means of supply. While energy pipelines are a critical part of infrastructure facilitating easier energy supply to landlocked countries and nations not blessed with open sea access, the lack of connectivity, modernization, and diversification has exposed an inability to respond flexibly in emergencies.

In the second sector, transportation and logistics, the blockade of Ukraine's ports along the Black Sea coast has made maritime transport of goods such as grains, fertilizers, and steel products from Ukraine challenging and has highlighted the importance of land transport via trucks and railways. In addition to issues of capacity and cost, however, there are also problems connecting to ports beyond the Black Sea coast, making maritime exports a limited alternative. Additionally, weak transport networks and interoperability issues, such as differing railway gauges between Ukraine and Poland, have arisen. From July 2023, Russia has ceased to honor the Ukraine grain export agreement, effectively implementing a blockade on the Black Sea, not only raising concerns over a food crisis in Africa but also potentially destabilizing CEE countries through depressed agricultural prices caused by an influx of cheap Ukrainian grains (the current import bans to protect farmers in EU countries neighboring Ukraine are set to expire on September 15).

In the third sector, communications and digital technology, the CEE nations are experiencing a variety of impacts from the Ukraine war even without engaging in direct conflict, due in part to repeated cyber-attacks from Russia. As evident in the Ukraine war, the three infrastructure sectors advocated by 3SI serve as important foundations for nations and societies, not only in peacetime but also in times of crisis.

Bucharest Summit and Business Forum Outcomes and Results

The summit in Bucharest was attended by leaders and representatives from member countries as well as from the US, Ukraine, Moldova, the European Commission, Germany, France, the United Kingdom, Turkey, and Japan (with Prime Minister Kishida participating through a video messageⁱⁱ). The primary outcomes and results of the meeting were the accession of a new member country and the adoption of agenda items promoted by Romania.

The most significant accomplishment in the summit was the recognition of Greece, situated along the Mediterranean Sea, as the thirteenth member country. Greece plays a pivotal role in enhancing connectivity both within and outside the Three Seas region. The energy pipeline networks that run through Alexandroupolis, Thessaloniki, and Kavala, as well as the liquid natural gas (LNG) terminals at Alexandroupolis and Revithousa, provide energy transport access from the Mediterranean to the 3SI member states. Additionally, if the "Sea2Sea" railway network concept linking Thessaloniki, Burgas, Varna, and Constanta (Greece-Bulgaria-Romania) is realized, it would enable the transport of various goods between Greece and the Black Sea region without traversing the Bosporus Strait, a critical factor for landlocked countries and coastal states during a Black Sea blockade. Greece's participation in the 3SI effectively transforms it into a "Four Seas Initiative", helping enhance the potential and resilience of the Three Seas region. Moreover, Moldova was granted the status of associate member, a status previously accorded to Ukraine, with membership possibly being extended to Western Balkan countries in the future.

As part of the Romanian-promoted agenda, focus was given to advancing nuclear power generation as well as transportation networks that aid military mobility, both priorities for Romania. The summit and business forum were attended by John F. Kerry, Special Presidential Envoy for Climate, and Geoffrey R. Pyatt, Assistant Secretary of State for Energy Resources, emphasizing the heightened interest from the US in the energy sector. Prioritizing the energy sector, Romania is promoting the introduction of small modular reactors (SMRs) from the US company NuScale Power, and the US Department of State announced at the Hiroshima G7 Summit its support for Romania's SMR plan being implemented in collaboration with the US, Japan (through the Japan Bank for International Cooperation (JBIC)), South Korea, and the UAEⁱⁱⁱ. As the US leverages Romania as a catalyst amongst other 3SI member states, proactive promotional activities were undertaken at the summit. Given the challenge of transitioning from coal-fired power generation for some Central European countries, the influence of the US in the nuclear sector may increase in the future.

Furthermore, the joint statement of the summit for the first time mentioned military mobility, highlighting the Romanian-prioritized "Via Carpatia" and "Rail2Sea" projects. The former is a highway network spanning seven countries from Lithuania to Greece and Romania but also benefiting Ukraine and Moldova, and the latter is a planned railway network connecting the port of Gdansk in Poland with the port of Constanta in Romania. Both projects represent dual-use infrastructure contributing to enhanced strategic mobility for the armed forces, and the construction of transport networks with port connectivity capable of military use is a critical issue for Romania, which anticipates rapid deployment of US forces in emergencies. The 3SI possesses the foundations for cooperation with the EU (regarding plans to facilitate military mobility) and NATO, and the above-mentioned "Sea2Sea" concept may also be developed in the context of military mobility in the future.

Possible developments on the institutional front include securing contributions, establishing a business development association and making other advances, stepping up contributions by creating an innovation fund for sectors offering good prospects for green growth and innovation, and forming a joint chamber of commerce, though the details remain unclear. The launch of a new fund is expected to aid in securing contributions but, given the past trajectory, this will not likely be easy, making cooperation from strategic partners essential.

US Involvement

The US stands as a strategic partner of the 3SI, along with the EU and Germany. Since the Trump administration, the US has displayed bipartisan support for the 3SI, showing keen interest in infrastructure development in CEE. President Trump attended the second 3SI summit in Poland before making official visits to traditional allies such as the United Kingdom, France, and Germany. Initially, the US's 3SI policy was envisioned as engagement in the energy sector within an anti-Russia context, but the US gradually developed interest in the digital sector within an anti-China context as well.

As mentioned earlier, securing contributions remains a pressing issue for the 3SI. Despite continued support from the US since the previous administration, the Biden administration confirmed at the 2022 3SI summit that it would not be making a contribution to the 3SIIF, but instead would be offering loans from the US International Development Finance Corporation (DFC) to energy infrastructure projects^iv. This shift from a proclaimed contribution of up to one billion dollars under the Trump administration to a credit facility capped at three hundred million dollars has unsettled 3SI advocates. Looking more closely at the background, however, DFC's aid was originally limited to developing countries so, like Japan's Official Development Assistance (ODA), DFC found funding the CEE countries challenging. In fact, according to the DFC list as of August 2022, Bulgaria is the only 3SI member country targeted for DFC funding^v. It could therefore be pointed out that the US enabled loans to other 3SI member countries by limiting the loans to the energy sector in accordance with the European Energy Security and Diversification Act of 2019^vi. Although the US's policy shift is a blow to the 3SIIF, US funding in the communications and digital sectors might become possible if the Transatlantic Telecommunications Security Act^vii aimed at enhancing telecommunications security in CEE countries is adopted.

Furthermore, the Black Sea Security Act^viii might become a key factor in the future. The Black Sea region, under a spotlight due to the conflict in Ukraine, is a place where the US faces significant constraints on its military activities. The only NATO members in the region are Turkey, Romania, and Bulgaria, and the relationship between the US and Turkey is not exactly favorable. Moreover, the Montreux Convention restricts non-Black Sea littoral countries in terms of passage through the Bosporus Strait and the number of days they can stay in the Black Sea, granting Turkey the authority to control the passage of warships during emergencies. Consequently, due to these limitations on the potential deployment of the US Navy in the Black Sea during crises, modernizing Romania's and Bulgaria's militaries and the infrastructure that aids their mobility is crucial for the US. As explained by US Congress members, the 2023 Black Sea Security Act seeks a more proactive foreign policy towards the Black Sea region from 2024 to 2026^ix. This includes robust support from the US, the EU and NATO, and stronger economic ties between the US and the Black Sea region. Specifically, it demands governmental strategies to promote military support and coordination with the EU/NATO, deepen economic relations, bolster democracy and economic security, and advance security assistance to Black Sea countries within 180 days after passage of the act, which also describes reinforced support for the 3SI, including the 3SIIF^x. From the above, it is understood that the US maintains its commitment to the reportedly dwindling 3SI, and the 3SI continues to be at the heart of the US's policy towards CEE.

Conclusion

Currently, the most urgent issue for the 3SI is securing contributions to the 3SIIF. While direct financial aid from the US might be challenging, it is anticipated that substantial loans could catalyze further financial contributions from other international financial institutions and private banks. Furthermore, determining the extent of possible involvement in Ukraine's reconstruction plans will be crucial moving forward. Enhancing connectivity with Ukraine could potentially facilitate the advancement of multinational infrastructure projects. Although perhaps premature in view of the current situation in Ukraine, the circumstances present an opportunity for the 3SI to foster transformations. Additionally, given that the 3SIIF operates through contributions, the US's lending approach, although not favorable for the 3SI, can be viewed positively as a flexible approach by countries outside the region and can serve as a reference if Japan decides to engage with the 3SI in the future. Even without providing contributions, Japan has the capability to cooperate on a case-by-case basis through channels such as the JBIC or other governmental financial institutions. Considering that the 3SI aligns with the 'Partnership on Sustainable Connectivity and Quality Infrastructure' between Japan and the EU, it might be worthwhile for Japan to explore participation in desirable infrastructure projects through equity investments in the 3SIIF and even contemplate solo or joint investments with other institutions in the future.

---