European Affairs
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The Doha round is in the doldrums.
There are many reasons for the stalemate,
including the absence of a decisive
breakthrough on dismantling agricultural
subsidies either in the European
Union or in the United States. Economic
nationalism is resurgent in many EU
member states. The U.S. Congress coming
into office in January will be controlled
by the Democrats and contain
more – and more vocal – protectionists.
Advocates of further trade liberalization
know their goal, but they are in a
quandary about how to get there. The
obvious option is to press on for a deal in
the Doha round of talks under the auspices
of the World Trade Organization
(WTO) to achieve a global deal on opening
markets and cutting subsidies. The
political challenge remains unchanged –
how to stretch domestic support for reciprocal
concessions, without overreaching
and outrunning domestic political
support for a deal. There is little reason
for optimism that the barriers are being
lowered, meanwhile the political clock is
running out on the leaders in France and
in the United States. With French elections
coming in May and the U.S. President’s
special negotiating authority due
to lapse unless it is renewed by summer,
Doha could be dead in 2007.
An obvious alternative for everyone
would be renewed emphasis on bilateral
and regional trade deals. In many ways,
these are the enemy of the greater good
of global trade agreements. But in practice,
might a regional pact – especially a
Transatlantic deal – remind the WTO’s
members that a global stalemate will not
only stifle growth but also goad the
richer nations to turn to their own narrower
interests? All these questions have
surfaced in the suggestions that it might
be time for a TAFTA. The idea has
caught the imagination of German
Chancellor Angela Merkel: prudently,
she explains that it could only be considered
in a situation where Doha seemed
doomed. But she also seems interested in
the idea as a dramatic initiative that
could help revivify Transatlantic unity.
Few people are as well-qualified to
analyze and “contextualize” this idea as
Robert Zoellick, now a senior executive at
Goldman Sachs, after years in policymaking
jobs in several U.S. administrations.
He was part of the small team that
masterminded U.S. policy on German reunification under President George Bush.
In the current Bush administration, he
was the top aide in the State Department
as Deputy Secretary under Condelezza
Rice. He has also been the U.S. Trade
Representative dealing with these issues
of global commerce, including negotiations
between Washington and the EU. In
November Mr. Zoellick spoke with European
Affairs. The following are edited excerpts
from the conversation.
Zoellick is wary of TAFTA for two
reasons. One is the risk of jeopardizing
Doha, which he believes is still achievable
if negotiators will move from posturing to
mutual concessions in a mood driven by
the looming risk of the talks’ collapse. Secondly,
Zoellick contends that the Transatlantic
economic tissue is already so dense
– so rich and so sophisticated – that any
improvements in it (except for agriculture)
are already beyond the reach of classical
free-trade deals. In his view, it is time
to look for subtler measures – such as
Fine-tuning the two sides’ approach to regulatory
and other non-tariff questions –
that could boost Transatlantic business.
This modified approach would amount to
a new degree of public-private cooperation
in ironing out the problems restricting
major liberalization in the Transatlantic
market place. He calls for an
approach of “building blocks” of changes
in sectors identified by the business world
as problematic.
_______
European Affairs: A lot is being heard these days about a “new big idea” in U.S.-European relations: launching negotiations on creating a “Transatlantic free
trade area” between the United States and the European Union. Chancellor
Merkel has spoken publicly about a Transatlantic economic partnership. What do
you make of the proposition?
Robert Zoellick: The idea of a TAFTA has come up for discussion over the years.
It represents a positive inclination to deepen integration across the Atlantic for business
and economic purposes. In some people’s minds, it also represents a desire to further
connect the Transatlantic democracies. Usually, people visualize it applying to the
service sector: manufacturing tariffs are relatively low already, and there are undoubtedly
ways the European and U.S. service sectors could be brought closer together. The
greatest challenges probably lie in dealing with regulatory questions. But goals of convergence
and harmonization turn out not to be so easy to achieve: both sides have independent
regulatory bodies that have their own practices based on their own expertise and experience. We’ve seen the difficulties of trying to coordinate regulatory approaches
in our Transatlantic experience on issues such as competition policy or
health and safety rules. Given the understandable differences between systems, the
way ahead seems to lie in pursuing an approach based on mutual recognition: the two
sides agree to live with different systems while recognizing that they both seek to
achieve the same basic objectives.
EA: Does this mean you are skeptical about calls for TAFTA?
Given the degree of integration already achieved for the Transatlantic economies,
there are undoubtedly ways in which we could reduce barriers even further. But when
you delve into the details, they are not as simple as it might seem at first. For that reason, some very strong proponents of the Transatlantic relationship like Pascal Lamy
(the head of the World Trade Organization) and Peter Sutherland have been skeptical
of a special Transatlantic bargain on trade – for example, when it was put forward by
people like Sir Leon Britain (the former EU Commissioner). A major problem with
TAFTA is how one deals with agricultural liberalization. This is not just a question of
subsidies or quota reductions: both sides have their sensitivities about market access.
In general, the European Union has higher agricultural tariffs and more quota limits
than the United States. Does one expect the EU would be willing to eliminate these to
achieve free trade? On the U.S side, there would be real scrutiny based on the perception
that a number of openings were already secured by global agreements in the
GATT/WTO and then undercut by non-tariff barriers such as biotech limitations,
beef hormones prohibitions and the like. American farmers feel that they do not have
much agricultural access to the EU even where openings have been negotiated. That
makes the politics of agricultural free trade in a TAFTA very difficult.
EA: Couldn’t the farm dossier just be taken off the table so negotiators could concentrate on progress in other sectors?
Under WTO rules, developed countries are not supposed to do free trade agreements
unless they cover substantially all trade. (The WTO actually should scrutinize this
matter more closely because certainly some Japanese and EU free trade agreements raise
questions about whether or not they comply with that standard.) In any case, in the light
of both European and U.S. interest in the WTO, one would be very reluctant to pursue a
TAFTA that did not maintain that comprehensive standard. Also, omitting agriculture
would be a difficult political issue. A major agricultural exporter like the U.S. would not
want to forgo the opportunity to open EU markets in a deal that achieved free trade in
other sectors. In reality, it could prove hard to remove agriculture.
Taking all this in account, I and others over the last ten years have pointed to the potential
for a slightly different approach – not a traditional free trade agreement but a
process of finding building-blocks in different sectors to deepen Transatlantic economic
and business integration. Right now, stock exchanges are discussing mergers, for example
among the New York Stock Exchange and those in Europe. And there are questions
of accounting standards and similar matters that are increasingly defining the service
sector businesses. So it would be possible to come up with a working agenda that highlights
those questions, gets energy from the top political levels and puts impetus behind
regulatory bodies and other stakeholders with technical expertise to move forward.
EA: Would a formal bid to start work on TAFTA deal a final blow to hopes for a breakthrough and success in the Doha Round of global trade talks?
The risks are certainly one reason why people have to handle it carefully when
they talk about a TAFTA. For better or for worse, the United States and the European
Union remain the major drivers of the WTO, but they cannot succeed on their own in
trying to foster freer global trade. As the Doha round has revealed, they increasingly
are going to need strong cooperation from some of the developing countries – India,
Brazil and, I would maintain, China. It would also help if other developed countries
like Japan played a more significant role. Conceivably, U.S.-European discussions
about a TAFTA now would help create a competitive sense that could help move forward
the Doha negotiations. But the worst of all worlds would be to talk about a
TAFTA in a very conceptual way without being prepared or able to get into some of
the difficult details I’ve mentioned. That would certainly undermine the Doha agenda
without creating a TAFTA. Frustrating as it has been, I believe the Doha negotiations
can reach a deal. But it will require the U.S. and Europe to step up with a great problem-
solving approach as opposed to posturing, in which each side just defends its tactical
position with public arguments and without really exploring package deals with
all the others. At this juncture, frankly, I would urge more attention to getting the
Doha round done rather than launching a TAFTA-type project.
EA: Is there an institutional or political calendar or deadline for these decisions?
By mid-2007, the United States (obviously, with the new Congress) will have to
decide whether to extend the President’s current “fast-track authority” on trade negotiations
(now known as TPA for “President’s Trade Promotion Authority”). I believe
the administration would increase its ability to organize support for extending TPA if
the U.S. has momentum in trade negotiations. Some people disagree, arguing that getting
any such “momentum” requires stirring up such sensitive issues that it actually
makes it harder to build support. My reply is that it is better to be on the offensive so
as to get support from the business community and other constituencies. To be on offence,
the administration needs to be able to show the possibilities for a successful
global round. Otherwise, they just won’t think Doha is a live option.
EA: German Chancellor Angela Merkel has shown interest in TAFTA as an alternative,
if the multilateral Doha round talks collapse, which would also amount to a concrete
and dramatic step to revitalize ties between the United States and Europe. Do you think
she is on the right track?
Her comments are in line with ideas that have traditionally come from people on
the political and foreign-policy side. I think Henry Kissinger broached this at one
time. It is laudable, of course, but the challenge is that the desired Transatlantic political
and foreign-policy deepening cannot be attained without really digging into some
of the complex problems in the service and farm sectors – to see whether it can actually
happen. The reason that Transatlantic trade initiatives of this sort have foundered
in the past is that they have not drawn that connection – between the larger political
and foreign-policy agenda and the concrete economic issues that would have to be
solved in order to underpin progress on the initiative.
If the political leaders want to move in this direction – and I certainly think it
shows a positive spirit on their part – then I would encourage them to look at other
options like the building-block approach I mentioned. Certainly from my vantage point
looking at financial flows, I see clearly that the Transatlantic economic community
is already extremely well integrated. The substance can be viewed in two ways – in
terms of the capital account (i.e. investment flows, mergers, etc.) or in terms of the
current account (i.e. trade Flows) and they are two sides of the same thing.
So the question is, which side of the equation do we want to focus on now? If we
look for the leading edge, we can see that the capital account is increasingly driving
the agenda more that the current account. This is not just in traditional financial services. Think of new sectors such as air-express businesses, which is related to manufacturing
but is, increasingly, part of the Transatlantic activities. In this context, one approach
would be to take this positive political inclination to deepen Transatlantic economic
integration (as manifested in talk about a TAFTA) and channel it into a fuller
dialogue with people who are already driving the economic and business forces in the
U.S.-European relationship. Let’s get their sense of the true obstacles to expanding
these flows and then let’s try to set an agenda to overcome those impediments. The degree of Transatlantic deepening that already exists suggests that the core points that
need to be addressed for further progress are probably not going to be captured by an
agenda aimed at a traditional free-trade agreement.
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