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The G8’s Exercise in Nostalgia

Tuesday, June 25, 2013

The G8 initiated formal negotiations on a U.S.-EU Free Trade Agreement, but there are reasons to be skeptical about its future. Of greater importance to the United States is the successful conclusion of the Trans-Pacific Partnership.

Nostalgia does not provide a solid foundation for 21st century foreign or economic policy. Yet we heard a great deal of it last week at the G8 summit in Northern Ireland and in President Obama’s speech in Berlin. The president’s attempt to invoke and relive a more perilous and heroic time with a Kennedy-esque speech in Berlin looked backward and fell flat. Surprisingly for a president who prides himself on his eloquence, Obama failed to inspire. As one sympathetic observer from the German Bertelsmann Foundation noted: “Realism has set in and the German public has tamped down their expectations of the U.S. president.... He could have delivered his generic remarks almost anywhere.”   

To many, the very notion of a G8 summit seems anachronistic when set against current realities and the clear necessity for this administration to address pressing issues in Asia. The pictures from the summit are telling: among the so-called “powers” represented were not one, but two heads of the European Union (if the names escape you, they are: José Manuel Barroso, the European Commission president, and Herman Van Rompuy, the European Council president). And then there was the latest prime minister of Italy, Enrico Letta. French President François Hollande showed up as well, but the organizers were careful not to place him next to Barroso, who has labeled France’s trade stance “reactionary.” (Not to be outdone, the French called Barroso’s remarks “intolerable”). The most notable unity among the European nations was demonstrated by British Prime Minister David Cameron and German Chancellor Angela Merkel — who stalwartly and successfully defended their “austerity” policies against fellow European leaders — and the president of the United States.

When the more representative G20 was established, many observers believed the G8 would fade away. But like an ancient hulk from a grade-B movie, it keeps reemerging out of the murky policy waters. This year’s G8 Leaders Communique runs nearly 40 pages, but it largely papers over failures to agree (Syria, austerity vs. stimulus, climate change). The document also contains a familiar series of platitudes regarding challenges in areas such as food security, African development, counterterrorism, open government data, and corrupt land transactions. 

U.S.-EU Free Trade Agreement

For the United States — and for Prime Minister Cameron — the most important announcement at the summit was the formal kickoff of negotiations on a U.S.-EU free trade agreement. On paper — and as effusively described by European leaders (and, alas, now American leaders) — the unfortunately named Transatlantic Trade and Investment Partnership (TTIP) is potentially a big deal. The countries of the EU and the United States still account for about 40 percent of world GDP, and two-way trade amounted to almost $650 billion in 2012. Studies have shown that a comprehensive FTA — fully liberalizing behind the border barriers — over the long term will raise GDP by over $100 billion for both the U.S. and the EU. The leaders have set a goal of completing negotiations by the end of 2014.

Despite this, I am skeptical of its success and have several reservations about the agreement. My skepticism stems from the wide and potentially intractable divisions over the major issues entailed in so-called deep integration. My reservations stem from disagreement with the priorities espoused by the Obama administration for its suddenly overburdened trade agenda: specifically, implicitly giving equal resources and attention to the TTIP and the strategically and, ultimately, economically more important Trans-Pacific Partnership (TPP).

My reservations stem from disagreement with the priorities espoused by the Obama administration. . . implicitly giving equal resources and attention to the TTIP and the strategically and, ultimately, economically more important TPP.

On the skepticism side, the evolution of the discourse concerning TTIP since the announcement of the negotiations has been revealing. On the one hand, leaders on both sides have stressed that to be significant and saleable, the TTIP must tackle the respective regulatory regimes and delve into policies that strike deep into the social and economic fabric of the two economies. But instead of confronting these issues, the Europeans have started to take them off the table. The most notorious recent example was the successful drive by France to remove the audiovisual sector from the negotiations in the name of cultural diversity (with a face-saving sop that it might be reintroduced later). Beyond this, both sides have strongly affirmed their opposing positions on GMOs; on the precautionary principle for food safety and chemicals; on financial regulation; on privacy and digital freedom (this even before the current flap over NSA surveillance); on aviation emissions and extraterritorial taxation;  and on trademarks (viz., Burgundy and Brie cheese). On the U.S. side, the Obama administration has given no indication that it is ready to take on powerful business and union lobbies to open U.S. coastal shipping and airline investment to Europeans and others.

This is not to say that the negotiations will not succeed in some areas. But it stretches credulity to think that deep-seated mores and practices will be harmonized within the time span set for the negotiations.

TPP and East Asia 

Of greater import for future U.S. economic and security leadership in Asia is a successful conclusion to the TPP agreement. The TPP currently consists of 11 members (Japan formally enters in July and becomes the twelfth), but the goal is to provide a template for a future Asia-Pacific FTA. The larger Asia-Pacific region is home to 40 percent of the world’s population and 60 percent of world GDP, and it is by far the fastest-growing region in the world.

President Obama has made the TPP the centerpiece of the U.S. “pivot” toward Asia, and should the negotiations stall or even fail over the next 12 months, the negative repercussions will ripple out far beyond a mere trade policy failure. And it is crunch time for the Pacific pact negotiations. Since 2010, the trade teams have held 17 negotiating rounds, and they set this fall as a deadline for conclusion of the agreement. They won’t meet this deadline, but having blown through a previous 2012 deadline, it will be imperative for them to bring matters to a close sometime in 2014.

If the U.S. fails to bring off the TPP over the next year, it will cede the strategic economic high ground. The bottom line: Europe can wait. Asia cannot.

According to close observers, the trade bureaucrats have completed much of the technical work on the agreement, but there are at least a dozen issues that can only be settled by top political leaders in each nation, and collectively. Thus, for the next six months it will be crucial for President Obama and his able new trade representative, Michael Froman, to devote their full attention to settle the politically sensitive and substantively complicated challenges on such issues as intellectual property, regulatory coherence and convergence, services, investment, health and safety provisions, state-owned enterprises, labor, environment, and government procurement. And somehow they will have to persuade or strong-arm Congress to agree finally to bend on greater market access for textiles, apparel, shoes, and sugar.

This is a formidable set of tasks, and arbitrary deadlines for TTIP should not be allowed to take time and attention away from the TPP. If the U.S. fails to bring off the TPP over the next year, it will cede the strategic economic high ground. The bottom line: Europe can wait. Asia cannot — not least because China is now strongly pushing the competing Regional Comprehensive Economic Partnership agreement that excludes the U.S. and that will rapidly move to the fore if the TPP fails.

This is not the time to look backwards and rest on our laurels. 

Claude Barfield is a resident scholar at the American Enterprise Institute.

FURTHER READING: Barfield also writes “Not So Fast: Conflicting Deadlines for the TPP and U.S.-EU FTA,” “A Big Deal: Canada and Mexico Join the Pacific Trade Pact,” “The First Carbon Trade War?” and “Where is America in Asia’s Future?” Philip I. Levy discusses “Free Trade’s Rude Awakening,” and asks “Who’s Stalling Whom on Trade?” Desmond Lachman worries that “European Policymakers Offer Little Reason for Optimism,” while James Pethokoukis highlights “The Most Important of Shinzo Abe’s Three Arrows.” Daniel Hanson fears “Missing the Slow Pitch on Free Trade,” and joins Lara Crouch to explain “Why Japan Must Join the TPP.”

Image by Dianna Ingram/Bergman Group

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