Tag: EU

RIP, TTIP?

U.S. Trade Representative Michael Froman is having a bad week.  First, Senate Majority Leader Mitch McConnell put the kibosh on lingering prospects that his chamber would consider ratification of the Trans-Pacific Partnership deal this year.  Then Germany’s economy minister proclaimed the 3-year-old Transatlantic Trade and Investment Partnership negotiations had “de facto” failed, with the French trade minister promising to pursue formal termination of the talks – adding that “the Americans give nothing or just crumbs” (which puts the USTR beneath Marie Antoinette, who at least offered cake). 
 
Whether McConnell is being coy in hopes of extracting concessions from the administration on TPP is unclear, but either way the likelihood is approaching certainty that ratification of the Pacific trade deal will become the responsibility of the next president and Congress.  For reasons given here and here, I’m bullish on that outcome within two years.
 
But the TTIP is a different story.  Although the negotiations are not officially dead, they might as well be. Talks were doomed from the outset, laden with too many intractable issues, too many red lines, a thorough lack of realism concerning the time and effort required for success, and a profound asymmetry in the desire to get a deal done. With U.S. negotiators focused on completing the TPP, the EU’s embrace and commitment to the TTIP became a case of unrequited love.  With each EU overture, the U.S. negotiators could play hard to get.  And they did.
 
Now, the United Kingdom’s likely departure from the EU complicates matters further, with uncertainty about the future composition of the EU impeding proper evaluation of the expected tradeoffs from a prospective TTIP. So, while the prevailing uncertainty likely means TTIP stasis for the next couple of years, Brexit would give U.S. negotiators even more leverage in TTIP than they already have. The possibility of a US-UK free trade agreement or a UK accession to the TPP would undoubtedly shift TTIP dynamics further in favor of U.S. negotiators – and give the UK added leverage in negotiating its own post-Brexit relationship with the EU.
 
TTIP isn’t dead. It’s in a coma. For it to have any hope of recovery and real success – an outcome with real liberalization that is – a restoration of some semblance of symmetry in demand for that outcome is necessary. With the existing imbalance, it’s better to have no deal at all because the misguided objectives of negotiators are to open foreign markets as much as possible, while keeping their own as closed as possible. Negotiators with leverage are more likely to succeed at keeping their own markets closed, depriving their fellow citizens of the real benefits of trade. For Americans to realize the most important benefits of trade liberalization, its negotiators must be matched up against foreign negotiators with approximately the same strength (or leverage). When the foreign trade negotiators don’t have enough leverage, U.S. consumers and import-consuming industries lose.
 
For any TTIP outcome to be considered successful, the deal must tackle U.S. restrictions on competition in shipping (repealing the Jones Act), commercial air services, and government procurement projects. Trillions of dollars of annual economic activity in the United States is provided by domestic suppliers facing no foreign competition, which represents an enormous drag on U.S. growth.  In the TTIP negotiations to date, the United States hasn’t budged an inch to accommodate any liberalization in those areas.  Until that is no longer the case, the TTIP should be considered a failure.
 
When the TTIP negotiations were launched in 2013, I warned in this paper that the talks included the seeds of its own destruction and that a successful outcome would require a new approach:

As great as the benefits may be, the TTIP was not borne of any genuine enthusiasm for the enterprise. In Europe, it was seen as a last resort. Frustrated by the failures of monetary policy and restricted by the imperative of fiscal austerity, policymakers were looking for something—anything—to embrace as a potential economic tonic. Whether they actually thought TTIP likely to bear fruit is an entirely different matter. They wanted something to behold as evidence that Greece did not represent Europe’s fate. Potential voter wrath, political backlash, and stalemate–historically effective deterrents to initiating transatlantic trade talks–took a back seat to the affirmative optics of embracing some plausible initiative that might steer Europe from the abyss.

For U.S. policymakers, the main motivation for launching TTIP was to assuage EU concerns that the United States had written her off in its “pivot” to Asia.
 
Other rationales for pursuing TTIP include the argument that the world needs the United States and European Union to reassert global economic leadership at a time when no other country or group of countries is willing or able to do so. Another is that there is a race to establish global production standards and TTIP, representing half the world’s output, presents an opportunity to establish them here and now. A third ex-post rationale is that by establishing disciplines on issues where other trade agreements are silent—issues like currency manipulation, the operations of state-owned enterprises, local content rules, and others—the United States and EU could establish rules that China and others would eventually have to heed.
 
It is within this context that TTIP emerged. But none of those rationales–pursuing TTIP as a last resort, assuaging hurt feelings, establishing standards, disciplining China and others–seem likely to provide the motivation for negotiators and governments to dig deep and remain committed enough to make difficult choices that may carry political consequences. As the talks drag, will governments remain committed to the goals? Will governments motivated by the “last resort” rationale continue to invest seriously in the negotiations if their economies experience growth and the political costs of TTIP no longer look so necessary to incur? Already there have been signs of retreat from the ambitious goals articulated at the outset.
 
From the outset, negotiators erred by setting a 2014 completion date for the negotiations. There is absolutely no plausibility to that deadline and, frankly, failure to amend the timetable with realistic deadlines will only undermine the credibility of the undertaking with a public already skeptical of trade negotiations.

There are dozens of issues on the table of varying complexity that will likely take several years to resolve. Rather than have a single deadline for a single undertaking, the negotiators should announce that their intention is to achieve a multi-tiered agreement that yields multiple harvests at established time intervals. Some analysts have referred to the TTIP as a “living agreement,” although a common understanding of that concept is not evident nor, to my knowledge, have the governments or their negotiators used this characterization in any official context. They should. And it should work something like this.

Negotiators would take stock of the issues on the table and rank them in order of importance to a successful TTIP conclusion. They would then rank those same issues in terms of order of difficulty to resolve. Based on averaging and some agreed upon weighting of those two sets of rankings, negotiators would identify what they and their counterparts see as the most important and least important issues, as well as the most difficult and least difficult issues to resolve. That exercise would produce a road map for how to proceed.

When the dust settles and greater certainty emerges, the United States and EU (and UK) might consider relaunching the TTIP negotiations along these lines. But the parties should come to the table with a genuine willingness to liberalize everything (including sacred cows) because that is what will generate the interest, excitement, and leverage to achieve a really successful outcome.

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Stop Treating NATO as a Social Club

Members of NATO are meeting in Warsaw. They are dragging the U.S. back into its traditional role of guaranteeing the security of Europe, even though the continent is well able to defend itself.

The North Atlantic Treaty Organization was a necessary part of Containment, preventing the Soviet Union from dominating or conquering Western Europe. But after recovering from World War II the Europeans remained dependent on America.

NATO lost its raison d’etre once the Warsaw Pact disbanded and Soviet Union collapsed. Alliance officials eventually added “out of area” activities, that is, wars of choice irrelevant to Europe’s defense (Balkans, Libya, Mideast, Afghanistan). Such conflicts have wasted lives and resources with no benefit to Europe and America.

No Need for Britain to Rush Out EU Door

The European Union’s leaders said they wanted the United Kingdom to remain in the EU. But Brussels offered only minimal concessions to British Prime Minister David Cameron, undercutting his effort to sell the benefits of continued EU membership.

Now the Eurocrats who dominate EU policy are attempting to push the UK out the door. London should slow down the process and maximize its leverage.

The vote to Leave shocked Eurocrats across Europe. Even many Brexit advocates believed that Remain would carry the day. The British government is not prepared to announce a Brexit program.

However, EU leaders almost immediately began pressing London to act. They want the UK to trigger Article 50, which begins a two-year process to renegotiate a departing member’s relationship with the EU.

Once taken the decision cannot be reversed. And if no agreement is reached within two years the country is unceremoniously defenestrated without any special access to the European market.

But the UK need not hurry. The British government should hold off until it is ready.

Political Earthquake Hits as British to Exit European Union

The United Kingdom will exit the European Union. The shock waves first hit Scotland. The secession-minded government plans to hold another independence vote. Next time a majority of Scots may see no reason to stay.

Both the Conservative and Labour Parties face bitter, internecine strife. Calls already have been made for the resignation of opposition leader Jeremy Corbyn. Prime Minister David Cameron announced his intention to resign and the rest of his government is likely to be swept away as well.

The UK and EU must plan a process never before undertaken. Most important will be early negotiations over London’s future economic and political association with the rest of Europe.

However, some Eurocrats, who dominate Brussels, have threatened to retaliate against the British vote by making the UK’s departure as difficult as possible. For no obvious reason President Barack Obama took a similar position, telling the British people that they would end up at “the back of the queue” for free trade negotiations with Washington. Yet turning post-Brexit negotiations into a punitive expedition would harm everyone involved.

The impact of the vote will radiate across the continent. Some Eurocrats imagine that dissatisfaction with the EU is a uniquely English phenomenon. It actually is much more.

Observed Raoul Ruparel and Stephen Booth of London-based Open Europe: “a number of other states attempted to piggy-back on the UK’s reforms, but this was resisted by others for fear of ‘reform contagion’.” Reform may be harder to resist in the future, however.

Cato’s Marian Tupy pointed out that “the EU is undemocratic not by accident but by design.” Thus, the British are not the only Europeans desiring to escape from the EU’s smothering embrace.

A majority of French and Italians and plurality of Danes and Swedes told pollsters that they want a similar vote. And strong pluralities in most states polled favor returning more powers to national governments.

Moreover, populist and nationalist parties are likely to make EU membership an issue in upcoming elections. France, Germany, and Italy will hold elections within the next two years. Recently the hard nationalist right barely missed winning the presidency in Austria. Economic hardship also has elevated Euroskeptics of varying degrees on the left.

Although there will be no mass exodus from the EU, the departure of even a couple more nations would further diminish the reality of the “European Union.” Moreover, other governments are likely to push to regain authority or at least resist any further accretions of power to Brussels. The continent is fracturing, not uniting.

Some European leaders remain oblivious. There was strong resistance in Brussels to Cameron’s reform proposals as well as other nations’ attempts to win similar concessions. Yet ever fewer Europeans appear to desire the existing union.

In contrast, Donald Tusk, who heads the European Council, admitted that “ordinary people, the citizens of Europe, do not share our Euro-enthusiasm.” France’s ambassador to America, Gerard Araud, argued: “Reform or die!”

What the EU desperately needs is a true “reform contagion.” Painful as it would be to Brussels in light of Brexit, the EU should move “in a ‘British’ direction,” argued Vernon Bogdanor of King’s College London. At least the organization could allow multiple levels of integration, with different requirements for different states.

Most important, I argue on Forbes online: “instead of attempting to circumvent the public, Eurocrats should make their case for change and abide by the voters’ decisions.” For today “the specter of a breakup is haunting Europe,” warned Tusk.

Once again the British have lived up to their reputation. Average folks rejected expert opinion and economic special pleading in order to better govern themselves. Just as America’s forefathers did against the British Empire so many years ago.

What’s at Stake in Britain’s EU Referendum?

On Thursday, Britain will vote on whether or not to leave the European Union (EU). As things stand, the race is too close to call: a week ago, “Leave” were surging in the polls; this week, things have swung back towards “Remain.” But neither side has managed to build a lead beyond the pollsters’ margin for error, and veteran political campaigners suggest it will all come down to turnout. So what is really at stake as Britons submit their “Brexit” ballot papers?

To me, the case for Brexit is rooted in the idea of self-government, and the democratic accountability that goes along with that. The question facing British voters is, fundamentally, whether their parliament should be sovereign and their laws supreme, or whether such powers should continue to be pooled at the European level.

In other words, this is a constitutional referendum. It is not a choice between rival political platforms, or between rival sets of politicians; nor, indeed, does the result of the referendum have any immediate legal consequences. Rather, this is an opportunity for British voters to decide how they should be governed in future. Once the result is in, it will be up to the British government, and to parliament, to determine policy going forward.

This point is important, because it undercuts a lot of the fears people have about Britain leaving the EU. There is no denying, for example, that the Leave campaign has taken some unsavory positions on immigration, and promised unrealistic “bread and circuses” once Britain leaves the EU. But Leave are, emphatically, not a government in waiting.

Then there’s the government-backed Remain campaign, who have scarcely let an opportunity to scaremonger about the economic consequences of Brexit pass them by. From their increasingly shrill and outlandish claims, you would think that a vote for Brexit meant surrounding Britain with naval mines and never letting anything—whether goods, services, capital, or people—cross the border again.

That scenario is, of course, absurd. In reality, post-Brexit Britain is likely to rejoin the European Free Trade Area (EFTA), which it left in 1973 to become an EEC member, alongside Switzerland, Norway, Iceland, and Liechtenstein. These countries participate fully in the EU’s single market, without being subject to its political union. They are also free from the EU’s Common Agricultural Policy (which horribly distorts produce markets), its Common Fisheries Policy (which has helped to deplete European fish stocks), and its Common External Tariff (which prevents EU member states from trading freely with other countries).

The arguments against this “Norway option,” as it is often called, are well-rehearsed, but mostly without foundation. Yes, EFTA members have to contribute to the EU budget—but they do so at a far lower per capita level than full EU members. And yes, EFTA members have to adhere to a lot of EU regulation—but, again, far less than full EU members. More to the point, EFTA members have independent representation on the global trade and standards bodies that inspire most of this regulation in the first place, while EU member states are represented collectively by the European Commission. As a result, EFTA countries arguably have more say over the actual content of EU regulation than individual EU member states do.

There is, inevitably, a flaw in this plan: EFTA members, whether through parallel membership of the European Economic Area, or through a series of bilateral agreements with the EU (as is the case for Switzerland), must accept the free movement of people within the area covered by the European single market. And given how much Britain’s Leave campaign has focused on reducing immigration, that might prove a political tough sell—despite clear evidence that EU migrants are a boon to the British economy.

What the American Experience Suggests for Brexit

A few years ago President Barack Obama urged members of the European Union to admit Turkey. Now he wants the United Kingdom to stay in the EU. Even when the U.S. isn’t a member of the club the president has an opinion on who should be included

Should the British people vote for or against the EU? But Britons might learn from America’s experience.

What began as the Common Market was a clear positive for European peoples. It created what the name implied, a large free trade zone, promoting commerce among its members. Unfortunately, however, in recent years the EU has become more concerned about regulating than expanding commerce.

We see much the same process in America. The surge in the regulatory Leviathan has been particularly marked under the Obama administration. Moreover, the EU exacerbated the problem by creating the Euro, which unified monetary systems without a common continental budget. The UK stayed out, but most EU members joined the currency union.

Economics of the Syrian Refugee Crisis

The Syrian Civil War has produced about 5.8 million Syrians seeking refuge or asylum elsewhere–a scale of population displacement unseen since World War II. Although the flow into Europe dominates the news, most of the registered Syrian refugees remain in the Middle East. Lebanon, Turkey, and Jordan are the main recipients of the immigration wave, receiving roughly 1.1 million, 2.7 million, and 640,000 Syrians, respectively. The Gulf States are hosting about 1.2 million Syrians on work visas but they are not legally considered refugees or asylum seekers because those nations are not signatories to the UNHCR commission that created the modern refugee system. Regardless, the humanitarian benefit of Syrians working and residing there is tremendous.

The movement of so many Syrians over such a short period of time should result in significant economic and fiscal effects in their destination countries. Below is a summary of recent economic research on how the Syrians have affected the economies and budgets for Lebanon, Turkey, Jordan, and Europe. 

Lebanon

Syrian refugees are 24 percent of Lebanon’s population–the highest Syrian refugee to population ratio in the world. However, neither the Lebanese government nor the United Nations has established official refugee camps in the country and registration of new Syrian refugees stopped in May 2015. International NGOs provide humanitarian aid that benefits over 126,000 destitute Syrians, but significant funding shortages have left some Syrians living on less than half a dollar per day. To more efficiently provide aid, the United Nations High Commissioner for Refugees has divided the country into four areas: Mount Lebanon and Beirut, North Lebanon, Bekaa Valley, and South Lebanon. Most refugees have settled in the underdeveloped areas of the Bekaa Valley and North Lebanon because the Lebanese in these areas share many family ties with Syrians. Locals in these areas are struggling to accommodate Syrian refugees despite the family ties.

Many Syrians, especially those with more wealth and greater skills, are responding to the poor economic conditions in North Lebanon and Bekaa by moving to South Lebanon and Beirut where there are more job opportunities, higher wages, cheaper rents, and safer communities. Syrian entrepreneurs are also welcomed in these regions of the country.

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